The Tatas — legacy & future

THE Mahabharata has a story about the eldest Pandava, Yudhishthira losing his exalted status when he tells a lie during the war. He used to walk two inches above the earth owing to his honesty. But then he became an ordinary man. The story has resonance with the ongoing Tatas imbroglio. The house of Tatas is known not merely for its financial worth of its industrial empire, but also has a higher status mainly because of its focus on ethics and values that go beyond mere profitability. It cannot be denied that the Tatas, unlike most other corporates, has followed a firm policy avoiding bribery and corruption. 

Notwithstanding Ratan Tata’s brush with notoriety in the Radia tapes, there has never been a hint that policies have been twisted to suit the group by making underhand payments to politicians or bureaucrats.  The storied legacy that most analysts are now talking about, refers to this focus on ethical standards. Few corporate houses would have an ethics adviser. Besides, the link between the Tata industries which are mandated to make profits and the Tata Trusts which are equally mandated to carry out acts of philanthropy is indeed unique, not just in India but the world. 

The abrupt removal of the chairman of Tata Sons has thus come as a jolt for those who viewed the Tatas as a haven of excellent corporate governance in the midst of a cutthroat competitive environment. The fact is, the way in which Mr Cyrus Mistry was removed is not unusual as many other companies in the past have peremptorily removed their chief executives. It is, however, unusual for the Tatas, given their commitment to a certain system of values. It would have been expected of them to ensure that their chairman was allowed to resign gracefully. In the event, it was probably not possible simply because Cyrus Mistry was not prepared to fade out without a whimper. In any case, the Tatas claim to be at a higher ethical level than the rest of industry has thus been disproved as the industrial house now becomes like all the others. Just as Yudhishthira became an ordinary man.

Coming to the actual battle between Cyrus Mistry and the old guard represented by Ratan Tata, it is clear that the Tata group is struggling to make itself relevant in a brave new competitive world of industry. A conglomerate that contains within its umbrella virtually every segment of the economy, is an anachronism to say the least, in the contemporary scenario. In an era of specialisation and hyper-specialisation, Tata companies range from automobiles and salt to information technology and tea. Many foreign acquisitions bravely undertaken by Ratan Tata like Corus in the UK now seem to have been ill-advised ventures. The foray into aviation was again clearly a dream harking back to the days of JRD Tata. Clearly,  Mistry represents the unsentimental approach of the young to the legacy driven policies of the veterans in the Tata group. His decisions were aimed at ensuring a healthy bottomline for the company, and not just making sure that past visions were fulfilled. As a result, the old guard represented by Ratan Tata and the Tata Trust felt their views were not carrying enough weightage in policy making at the holding company, Tata Sons.

The open spat between the two sides has also revealed the chinks in the armour of the Tata group. First, it is being emphasised repeatedly that only two companies are making profits in the entire pantheon of Tatas —TCS and JLR. The only question is, who is responsible, as both sides accuse the other for the current state of affairs. Second, the impression that corporate governance standards in the Tatas group are of the highest seems to have been misplaced. Even if Mistry’s allegations on many issues like the Nano, Air Asia and the purchase of an expensive hotel property are not completely accurate, there are evidently grave management lacunae in the group.

Yet another facet of the dispute is the need for greater professionalism at the top echelons of  this industrial empire. Ever since its inception, a Tata has been at the helm of affairs. The appointment of Mistry was viewed as a break from the past and a move towards a brave new world of professionalism. The fact is that even this appointment was more in a dynastic rather than professional mode. Mistry is not only a Parsi but a scion of the Shapoorji Pallonji group which has 18.5 per cent shareholding in Tata Sons and has had close personal and family ties with the Tatas for decades. He was not one of the high-performing chief executives who had been under consideration by the selection panel to find the successor to Ratan Tata. Though he surely had wide competence in this area earlier as the managing director of Shapoorji Pallonji, he was not among those considered to a high octane corporate tycoon. It is time therefore for a professional beyond the wider Tata family to be appointeded to guide the affairs of this enormous industrial group.

Ultimately, the dispute between Mistry and the old guard may be resolved though it may take some time. But the damage to the image of the Tatas will take much longer to be repaired. What is of most importance, however, is the future health of the numerous Tata companies. It is time for the management of the group to recognise that in the altered corporate environment, a major overhaul may be needed to meet the new challenges. A conglomerate needs to be slimmer and trimmer than the group is currently to operate effectively in the world today. There may be need to hive off some units and to specialise in certain areas in order to keep up with the a rapidly changing industrial scenario.

One must not forget, however, in this time of turmoil that the Tatas truly have a distinguished legacy. Jamsetji Tata was a pioneer and a patriot in colonial India who set up industries at a time when there were virtually none here. But then it  became a huge industrial house during an era of little competition and is now meandering without any focus. It still has a chance to overcome this imbroglio. If the group is able to appoint a dynamic chief executive without any delay, it may emerge like a phoenix out of this raging fire.