CONCEPT – THE TATA - MISTRY SAGA

Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!

 CONCEPT – THE TATA - MISTRY SAGA

---

Read more on - Polity | Economy | Schemes | S&T | Environment

---

• Old, steady, honourable : Founded in 1868, a cool 151 years ago, even before Mahatma Gandhi was born, the Tata Group is the most familiar and respected corporate name in India today. Built with toil, trust and honest dedication over the decades, the name Tata is synonymous with integrity and truthfulness. When most corporate houses in India are drowned in controversies, alleged shady dealings, inter-generational bickering and having their names dragged in allegations ranging from not paying their loans back honourably to bribing the establishment, the Tata Group has stood like a sentinel guarding the reputation of India Inc.
• There is a slightly tricky family lineage due to similarity of names, which we decode here:
• Group Founder -  Jamsetji Tata (1839-1904, aged 65)
• Jamsetji Tata’s sons – 

1. Dorabji Tata (1859-1952, aged 72 – founder of Tata Steel/Power/Chemicals)
2. Ratanji Tata (1871-1918, aged 47) – founded philanthropic trusts (Sir Ratan Tata trust)

• The second son of Jamsetji, Mr. Ratanji Tata, adopted a son – Naval Hormusji Tata (1904-1989), and he became a noted industrialist. This adopted son Naval H Tata had two sons – Ratan Tata (present Chairman, 2016) and Noel Tata (present chairman of Tata International).
• But wait, there’s another Ratanji in the group – Ratanji Dadabhoy Tata (1856-1927, aged 70) who was a friend of Jamsetji Tata, and the father of the legendary Bharat Ratna Jehangir Ratanji Dadabhoy (JRD) Tata (1904-1993, aged 89).
• To understand the mighty group’s structure, start here:

1. Tata Sons Limited (founded by Jamsetji Tata in 1868) = the holding company of the Tata Group. Tata Sons holds the bulk of shareholding in all group companies.  
2. Chairman of Tata Sons = Chairman of the Tata Group  (a tradition) 
3. Tata Sons is the owner of the Tata name and the Tata trademarks. 
4. Tata Sons shareholding pattern :

1. 66% of shareholding in Tata Sons is held by philanthropic trusts created by Tata family (this is important – not held by individual persons or families – a distinction that has made Tata great) 
2. There are many trusts holding this 66% in Tata Sons Ltd. Some names are : Sir Dorabji Tata Trust (27.9%), Sir Ratan Tata Trust (23.5%), JRD Tata Trust (4%) etc.  
3. The other powerful group holding shares in Tata Sons Limited is the Shapoorji Pallonji Group. It has two investment companies – Sterling Investment Corp (9.1%), Cyrus Investments (9.1%) – yes it is the same Cyrus Mistry (second non-Tata family boss in the group).
• Facts and structure

1. It is interesting to note five things about this mighty and honourable corporate house:
2. It has had only seven heads so far in 151 years! These six heads are : Jamsetji Nusserwanji Tata (1868-1904), Sir Dorab Tata (1904–1932), Nowroji Saklatwala (first non-family head, 1932–1938), Jehangir Ratanji Dadabhoy Tata (1938–1991), Ratan Tata (1991–2012), Cyrus Pallonji Mistry (second non-family head 2012-2016) and now again Ratan Tata (Interim Chairman, Oct 2016 onwards).  
3. Its seven core areas of operations include – 1. Chemicals, 2. Consumer products, 3. Energy, 4. Engineering, 5. IT and communications, 6. Services and 7. Steel.  
4. Top companies across these seven sectors, respectively are – 1. Tata Chemicals / Rallis, 2. Tata Salt / Titan / Voltas / Tanishq, 3. Tata Power, 4. Tata Motors, 5. TCS / Tata Teleservices, 6. Indian Hotels (Taj) / Air Asia India / Vistara / Tata International, and 7. Tata Steel. 
5. Top companies (revenue-wise) in the Tata banner - Tata Steel, Tata Motors, Tata Consultancy Services, Tata Power, Tata Chemicals, Tata Global Beverages, Tata Teleservices, Titan, Tata Communications and Taj Group. Of all these, TCS is the perennial cash cow, generating billions (of dollars, not rupees) regularly! 

• What truly sets Tata apart from all other corporate groups in India (and even foreign groups)

1. Tata Group works on the core principle of “Community Philanthropy”. It started this from 1912, by instituting an eight-hour workday, before nearly any other company in the world. In 1917, a medical-services policy for started for all Tata employees. The company was among the first worldwide to have a modern pension system, workers' compensation, maternity benefits, and profit-sharing plans. This deep history is truly unique!  
2. The entire functioning of Tatas is largely under charitable trusts! This is in stark contrast to other huge corporates, where the controlling family (and its members) control all material benefits.   
3. Tata Group funds path-breaking projects and institutions like the Indian Institute of Science (IISc), Tata Institute of Fundamental Research (TIFR), the National Centre for the Performing Arts and the Tata Memorial Hospital.  
4. Every Tata Group company gives 4 percent of its operating income to the trusts and every generation of Tata family members has left a larger portion of its profit to them! This has generally not happened with most other groups in India (or even abroad).
5. A big transformation began with the Chairmanship of Ratan Tata, in 1991. It continued till 2012 when Ratan Tata personally handed over the reins of the group to Cyrus Mistry, from the Shapoorji Pallonji Mistry group (the largest individual family shareholder in Tata Sons).

• Ratan, the diamond : Key moves by Ratan Tata that globalised the otherwise purely Indian group: 

1. He enforced the never used retirement age rule for all business heads and directors, which dealt with many aging satraps in the group. Many had assumed in 1990s that Shapoorji Pallonji Mistry would remove Ratan Tata and take over as the Tata Group head. 
2. The process of liberalization unleashed by the Narsimha Rao government in 1991 meant that the Tata Group had to focus on a technology-driven leadership, global competitiveness and be among the top three domestically, regardless of the line of business. So Ratan Tata began rationalizing the Tata business structure. A group that was unstructured, with overlapping business across multiple companies had to change. 
3. Ratan Tata began a massive reorganization exercise. The Tata Group is still a diversified, salt-to-software group, but with a method. 
4. Ratan Tata also paid attention to brand Tata. By 1998, there was a single group logo and the Tata brand belonged to Tata Sons. Now, companies needed to sign brand equity and business promotion agreements with Tata Sons before they got use of the brand name. He institutionalised processes. He put new competency in very old companies. 
5. Ratan Tata did the big with the small. An example – the luxurious Pierre Hotel in New York was purchased, and the budget Ginger hotels in India was launched simultaneously. Similarly, in the automobile segment, the iconic Jaguar and Land Rover were purchased, while the world's cheapest car Nano was launched (that, by the way, flopped in a big way).
6. He streamlined the organisation by selling some businesses and rationalised the processes and functioning of the Tata Group (this is what Cyrus Mistry also was trying to do). Credit goes to Ratan Tata for ensuring that in a new liberalized India, the Tata Group managed to retain its slot in the top 3 groups, while many simply fell by the wayside.
7. Ratan Tata made big global moves  - the February 2000 purchase of Tetley started it. Then came the blockbuster Corus steel deal, which happened smoothly (unlike the Mittal Steel bid for Arcelor, which created a huge furore, the Tata bid faced little opposition). Tata Steel was bidding for a company four times its size, and the company put up just 25% of the equity; the rest was funded through foreign debt. And even that was to be funded only through cash flows from Corus, not from Tata Steel – it shows the reputation the group has enjoyed globally. The final result has not been entirely rosy, though. With the Jaguar-Land Rover deal, Tata started making big money globally. 
8. When Tata took over, less than 5% of the group's revenues came from overseas. When he retired, it was 65% from over 100 countries!
9. Controversies over environmental issues have persisted. Tata Steel's joint venture with Larsen & Toubro to construct a port at Dhamra, Orissa, has come under the scanner for its proximity to two protected areas, one of which is the world's largest nesting site for the endangered Olive Ridley Turtle and the other India's second-largest mangrove forest. A soda ash extraction plant in Tanzania also came under fire because of the threat it poses to a nearby lake and its flamingo population. Even the Tata Nano Singur (Bengal) controversy raged quite strongly.
10. During his 21 years chairmanship of the Tata Group, revenues grew over 40 times, and profit, over 50 times! The group became a services group from being a commodities group earlier. All this turned Tata from a largely India-centric group into a global business, with over 65% revenues coming from operations and sales in over 100 countries. He left the top job in 2012, handed it over to Cyrus Mistry, and after a 4 year stint, has had to come back after removing Mistry. 

• Goodbye mystery : The new guy had barely settled, when he was asked to go.

1. We now examine the entry, and exit, of Cyrus Mistry who hails from the family that holds the largest family shareholding in Tata Sons which is the holding company for the group. 
2. On Monday, 24-10-2016, it was announced that the Board has decided to remove Mr Mistry from Chairmanship. It came as a shocker to the corporate world, and anyone who understood business and leadership. 
3. Cyrus Mistry’s family (the Shapoorji Pallonji Group) have opposed the move. They have reportedly (as per media reports) called it illegal as not even a minimum 15 days notice was given. This surely is not the Tata style of doing things, and hence it needs some examination. Cyrus has had the shortest stint as Chairman (second shortest was of the only second non-Tata chairman, Nowroji Saklatwala who died in 1938 after 6 years as Chairman).
4. What were Cyrus Mistry's challenges? When he took over reins of the mighty group, it faced some stark challenges.
1. First - the world economy wasn't doing well at all, and for a group that had globalised, this was really bad news.
2. Second - Tata Nano like visionary projects had failed miserably, due to strategically wrong marketing to potential consumers.
3. Third - worldwide the group was being praised for its social orientation, but lambasted for its financial performance.
4. Fourth - The same article pointed out that of the nine biggest listed Tata group firms, seven have had “negative economic value added, meaning that their earnings before interest and tax translate into a return below their overall cost of capital".
5. Fifth - Old structural issues were still pinching. For example - Tata firms (owned by different shareholders) often bid on same contracts or that forays into new sectors are duplicated. That is a tax! An an example, people cite the failure of Tatas to combine Tata DoCoMo and Tata Sky like services to offer one seamless offering to everyone.
6. Sixth - The recent fiasco that turned a relationship with DoCoMo into a grave diplomatic crisis. Ratan Tata must have felt outraged by its snowballing beyond the Board Room's confines.
7. Seventh - Major decisions taken by Cyrus Mistry like selling the UK steel plants of Corus Steel (acquired by Tatas earlier in 2007) did not seem appropriate to others.
8. Eighth - Ratan Tata still remained chairman of Tata Trusts and his personal interests like aviation (investments in both AirAsia and Vistara) may have been a point of clashing. A similar example is that of the IT firm Infosys that had to recall its founder Narayana Murthy, and then finally hand it over to an outside professional (Vishal Sikka). Mistry had his own grand plan – Vision 2025 – which went unexecuted. He had visualized, perhaps, to centre on areas like defence, aerospace, retail and finance.
9. Ninth, and final, is the allegation that Mistry did things not considered in line with Group ethos - the handling of a reported case of sexual harassment keeps popping up in news.
10. Perhaps a series of mini sparks turned into the final, inevitable dagger that went straight through the entire chairmanship of Cyrus Mistry
11. On 26th October, Cyrus Mistry has explained his stand, in an elaborate letter emailed to the Board, which we picked up from the internet and are linking here. It is quite an eye-opener and exposes some possible truths that are not entirely glorious.

• Experiencing 24 Oct, 2016, as the Strange Coincidence Day : On 24 Oct, two events in seemingly unrelated fields unfolded with eerie similarity. In Uttar Pradesh, India's largest state and one due for elections, the Head of the ruling Party - Samajwadi Party (SP) - Mulayam Singh Yadav (76 years), upbraided his son and Chief Minister Akhilesh Yadav (43 years), publicly over differences in running the Party and the Government. In Mumbai, the unhappiness of corporate doyen Ratan Tata (78 years) with present boss of the group Cyrus Mistry (48 years) had just come to public knowledge. Both events have the potential of damaging the organisations substantially. In both, the youth paid a price for treading a path not considered the right one. In both, the seniors struck back. In the S.P. story, the youth stole the show!
• In December 2016, as the war of words turned nasty and ugly, the true inside story started spilling out, and analysts pieced together the entire narrative in a credible sequence of events. In a huge story published by Economic Times, the gist was presented which we have brought for you in the last part ahead.
• What really happened - the true story behind the curtains : A series of mini and mega flashpoints culminated in Mr.Ratan Tata's decision to finally oust Mr.Cyrus Mistry from the top post. Some of these were -  

1. Pizza versus Coffee : Tatas have a successful tieup with American coffee chain Starbucks. The Mistry camp proposed to the board a tieup with US pizza chain Little Caesars. Ratan Tata was unhappy that the board's attention was being diverted on such matters, something other group companies could handle. And coffee already was in Tata fold since long, pizzas were not! 
2. Election Funding : Tatas have been donating to political parties for parliamentary election funding through their Electoral Trusts. A Mistry aide proposed giving electoral funding even during Odisha assembly elections, something Ratan Tata found improper. Mistry camp presents a different perspective, though. 
3. Competing Bids : Two different Tata group companies bid for an army contract - Rs.60,000 contract for 2600 Future Infantry Combat Vehicles. Ratan Tata was upset that the group should put in one bid, not compete internally. 
4. Tata-DoCoMo dispute : Ratan Tata wanted to honour the group's commitment and pay up. Mistry wanted to follow his own interpretation of how RBI rules were to be legally interpreted. That situation spun out of control totally.

• After his appointment, Cyrus Mistry was advised by Ratan Tata “to be his own man”. Today, Cyrus Mistry might be wondering why he ended up paying a price for following the words of wisdom. We may never discover what really made Ratan Tata pull the trigger, but this incident will haunt the group for years to come, if not legally, then emotionally. And if the charges levelled by Mr Mistry in his letter emailed to the Board are true, then the gloves are truly off. Denials soon followed.
• Conclusion :  Running a vast business empire is never easy. Despite a strong history and water-tight ethical standards powering its ambitions, business essentially remains business. There are daily challenges to be tackled, nasty competitors to be handled and value to be created. When the burden of a massive legacy falls on any new shoulders, one can never be certain of the outcome. The only truth is – times change, and people must, too. There are numerous power groups inside a conglomerate as vast as the Tatas, and which group will eventually prevail, can never be predicted. 
• 2019 development : In a most unexpected twist, the NCLAT reversed the order of the NCLT, thereby reinstating Cyrus Mistry as the chairman of the Tata group.

Read more on - Polity | Economy | Schemes | S&T | Environment

Join UPSC Self Prep course | Online Course (PT Gurukul)  | Covid Special Course | Join PT courses

* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your own subscriptions. Copyrights acknowledged.