Ratan Tata-Cyrus Mistry spat: Backseat driving is bad for business

Here are five lessons for businesses from Ratan Tata-Cyrus Mistry fracas

Sulekha Nair October 28, 2016 13:08:28 IST
Ratan Tata-Cyrus Mistry spat: Backseat driving is bad for business

The rumblings caused by the Tata Group, India’s largest business conglomerate, just keeps getting louder with attacks and counter attacks from Tata Sons and ousted chairman Cyrus Mistry.

The ugly war which is a first from the sedate, old world and traditional business group continues to shock India Inc.

When an over 140 year-old business group that has emphasised and embodied trust and transparency is split open with ugly warts showing up, what does this incident bode for Corporate India. What lessons can India Inc learn from this incident?

Ratan TataCyrus Mistry spat Backseat driving is bad for business

Incumbent chairman Ratan Tata and ousted chairman, Cyrus Mistry

Firstpost spoke with management school experts. And they spelt out the lessons that can be gleaned for entrepreneurs and entrepreneurship from the Bombay House’s unusual war of words and summary dismissal of its chairman.

Always mind minority shareholders' interest

Mistry’s letter is the key as of now to the goings-on in the corporate boardroom of Tata Sons. “Going by Mistry’s letter, which is in public domain now through the media, it seems that Mistry wasn’t given a chance to defend himself. This incident does not speak well about the corporate governance measures that the Group follows,” is the immediate lesson that one can pick up, says Debashis Sanyal, dean, School of Business Management and Vice Provost - Management Education, Narsee Monjee Institute of Management Studies (NMIMS), Mumbai.

He asks when when Tata Sons used its majority stake of 66 percent to vote against Cyrus Mistry, did it take into account the minority interest of its shareholders. “Should they have not called for an emergency body meeting of shareholders, too?”, asks Sanyal.

Have your values, rules codified

Mistry has stated in his letter to the Tata Sons board, “After my appointment, the Articles of Association were modified, changing the rules of engagement between the Trusts, the board of Tata Sons, the chairman, and the operating companies.”

Sanjay Bakshi, Professor at Management Development Institute, Gurgaon says that the Tatas should have a codified governance system. He says that the Tatas have a tradition, a culture and values that they have often spoken of and held up over the years. So, it is possible that some of these values and ethics are not written down and are communicated through interaction. There are very few companies that are venerated like the Tatas. “Since Cyrus Mistry hasn’t worked his way up through the ranks at Tatas, perhaps this transmission of values hasn’t taken place,” says Bakshi In such cases, says Sanyal, it is best to have everything written down so that there is no room for doubt or assumption. “In my opinion, every chairman or top management should insist on the written word before taking up the job.”

Give freedom to new incumbent

It seems the Tata Sons has a group of traditional advisors whom Mistry could not communicate with. Perhaps that is why he set up the Group Executive Council (GEC) in April 2013, with Mistry being the head. The objective of the GEC was to provide strategic and operational support to Mistry. It was a four-member team that included N S Rajan from Ernst & Young, Tata brand custodian Mukund Rajan, ex-BSE chief Madhu Kannan, strategist Nirmalya Kumar and Tata veteran Harish Bhat.

With Mistry’s ouster, the GEC was immediately disbanded. “What is the reluctance with the Tatas about handing over power? It happened when JRD Tata was handing over the baton to Ratan Tata and there were many eminent people in the fray. There were major tussles with Russi Modi,” points out Sanyal.

Mistry was chosen by Tata and the board of Tata Sons as then chairman had laid down a rule of 75 years as the age of retirement. “Once the process is set in place, the Tata Group should let the new appointee do his job. You cannot appoint someone young believing it will enable the former chairman to do backseat driving. The younger generation will not accept it. If this is the requirement from the new incumbent that Tata Sons wants to appoint, the Tata board should realise this strategy will not be acceptable to any of the younger generation,” says Sanyal.

Size isn’t everything

What Cyrus Mistry is saying in his letter about the state of affairs of the various companies in the Tata Group is not anything new. It was known to all observers of the Tata Group, says Bakshi.

“There has been an enormous misallocation of funds when the Tata Group decided to go in for mergers and acquisitions. As an academic, I would term the Tata-Corus deal, Indian Hotels, Tata Global Beverages and JLR as not very good processes. The group was buying foreign assets with foreign currency and that too at an auction. This is poor capital discipline. The group was going after size and not focusing on underlying profitability. The business of any business group is to earn interest on capital. Mistry was not just the chairman but also part-owner and investor. There is a big difference in him asking questions about investments. TCS is the cash cow of the group but a lot of its cash was drained on unprofitable ventures like Corus and the Nano project. When he poses questions about destroying enormous amount of capital without earning interest on it, I think, he did not succeed,” says Bakshi.

Altruism can be taken care of after the business thrives and cannot be at the cost of the business, emphasizes Bakshi.

Groom the leaders professionally

Tata Sons went through an elaborate search process of around 14 months to select the next candidate who would occupy Ratan Tata’s post. Sanyal wonders why a national and global company like Tatas went through an inordinate period of 14 months to find the next head. "Are we to believe that Tatas, a group and brand with international stature could not find one person to fit the bill? Or is it that the group wants only a Parsi and someone they are familiar with to don the mantle? This should be a lesson for all corporate giants in India Inc that they should exercise professionalism when choosing a key appointee and not give in to any personal reasons or preferences," he said.

The companies should have in place a system to groom the next generation of leaders.

However, Sanyal wonders what happened to the Tata Administrative Service which is akin to Indian Administrative Services.

"They could not get someone from TAS to head the Group?" he asks.

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