The latest missive from Cyrus Mistry defending his actions in the Tata DoCoMo deal and other charges levelled against him by Tatas is bringing the Tata Sons boardroom coup to a new low. Is there an end in sight to this you-did-it-no-i-did-not war of words?
After Cyrus Mistry, former chairman of Tata, was sacked and Ratan Tata, the old guard, stepped in and issued a statement that he would occupy the chair only for four months as the board was looking for a replacement, India Inc and the public reacted with shock. And that continues even after a week into the sudden dismissal, as both the Tatas and Mistrys engage in accusations and counter accusations, with nobody stating what really went wrong between them.
Mistry is son of Shapooji Pallonji, the construction group, which has 18.4 percent stake in Tata Sons and is the largest single shareholder in the firm.
The Tatas' association with the Mistrys goes back to three generations. Shapoorji Pallonji Mistry’s father bought shares in Tata Sons in the 1930s.
The Tatas are known as an old-world, sedate and traditional firm. Shareholders of the Tatas hold their shares not expecting any large movements in share price. However, it is the trust factor and a sense of ownership with a 148-year-old firm that is known for its oft-stated values of transparency and honesty that keeps them loyal to it.
The latest spill-out of the boardroom intrigues is unusual by the Tata standards and also public perception of the group.
Though ousted as group chairman, Mistry continues on the board of 13 listed companies. He is also the Chairman of Tata Steel, Tata Motors, Tata Consultancy Services (TCS), The Indian Hotels, Tata Global Beverages, Tata Chemicals, and Tata Teleservices.
However, most legal experts think this is not going to be a major issue as the Tatas can resort to legal ways to ease out Mistry from these companies without much trouble.
Despite all the back and forth that is happening between both the camps, no concrete reason has been revealed yet on what led to Mistry's summary dismissal from Tata Sons. The latest in the chain is a message by Ratan Tata to the group employees explaining the rationale behind the sacking of Mistry. In his letter, Tata has reportedly said the the move was absolutely necessary for the future success of the group.
However, the war of words at the one of the most respected private companies in the country is leaving many bewildered.
This is a case of fighting for fighting sake, believes Manoj Kumar, a Visiting Fellow at Observer Research Foundation (ORF) and an alumnus of the Harvard Business School and the National Law School, India.
The big challenge for the Tatas would be to ensure that all the companies in the group function as smoothly as possible, especially in this moment of unwanted cynosure and focus of the world's eyes.
So far, contentious issues have been raised and different opinions on the matter have been aired against each other in this case. Manoj Kumar of ORF says that the Tatas can work towards getting Mistry out of the blue chip companies where he holds the chairman's post, but should be careful about not repeating the manner in which it evicted him from the chairmanship of Tata Sons.
The Tatas would not, believes Kumar, buy out the Mistry's share (there have been reports the Tatas have reached out to the investors for this). He reasons the board would prefer to maintain the status quo as they would not like to be seen as usurping minority shareholders, after having ousted Mistry and received widespread flak for it.
"The action of ousting Mistry from the chair was an impulsive decision and that has reflected poorly on Tata Sons' corporate governance principles. Mistry had no time to react or resort to a legal framework, which was the intention of the Tata board. However, the board is legally right in doing what they did for it said that it has lost faith in the chairman. However, there is a human angle to it. The Mistrys and the Tatas relationship spans generations. A softness of approach would have ensured comfort for both parties instead of the public spectacle this issue has turned out to be," says Kumar.
The unanimous view about the Tatas in the Mistry issue is that their handling of his dismissal shows them in poor light. This action is seen as a troublesome signal emanating from the tradition-bound group. J N Gupta, former ED, Sebi, reiterates the oft-held view that the way the Tatas sacked Mistry was just not right. "I find the manner of dismissing Mistry faulty. "
The war of words between Mistry and Tata should not be seen to be the final act of the Tata-Mistry saga, he points out. "This will go on for some time. We are only privy to a few scenes from the ongoing play. These are mere glimpses and we cannot base any of our opinions on what we see in the public arena," cautions Gupta, adding that the battle in full public view is akin to grown-ups behaving like children.
However, there are contentious issues raised by Mistry in his first letter.
With regard to the DoCoMo issue, Gupta says, "Mistry cannot be blamed for it. If the board says that they did not approve of or were not in agreement to pay DoCoMo, then, and only then can Mistry be held solely responsible for it."
Tata Sons was ordered to pay $1.17 billion (around Rs 7,956 crore) to the Japanese firm, NTT DoCoMo for breach of contract on their joint venture in Tata Teleservices. The agreement of the joint venture stated that the Tata Group had to find a buyer or buy back the 26 percent stake that DoCoMo held in Tata Teleservices at Rs 7,250 crore or Rs 58.045 a share which was half of its original investment.
The second issue concerns the hemorrhaging Nano project of Tata Motors. "The Nano product development called for a car below Rs 1 lakh, but the costs were always above this. This product has consistently lost money, peaking at Rs 1,000 crores. As there is no line of sight to profitability for the Nano, any turnaround strategy for the company requires to shut it down. Emotional reasons alone have kept us away from this crucial decision. Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Tata has a stake," Mistry had said in his letter.
With regard to the Indian Hotels, Mistry had stated in his letter: "IHCL, beyond flawed international strategy, has acquired the Searock property at a highly inflated price and housed in an off balance sheet structure. In the process of unravelling this legacy, IHCL has had to write down nearly its entire networth over the past three years. This impairs its ability to pay dividends."
Gupta, however, says that Mistry's contention on IHCL is strange considering that it was Mistry himself who signed the resolution and in the annual report had termed it as marquee property. "Does that mean when he was in the chairman's post the deal was good and when he is out of office, he sees the same deal differently," asks Gupta.
The Mistry-Tata fallout will be a long-drawn out affair, opine both Gupta and Kumar.
Will there be a truce? Gupta does not want one. "The shareholders need to know what led to this state of affairs for the 148 year-old firm to dismiss a chairman without issuing a notice. There has to be some trigger which caused this. Non-performance is no excuse."
True. There are many rumours doing the rounds. For the good of the Tata group and in the larger interest of the public and its shareholders, the Tatas and Mistrys should stop beating around the bush and let the public know what really went wrong at the group.
Published Date: Nov 02, 2016 09:34 am | Updated Date: Nov 02, 2016 09:43 am