The massive Tata fiasco

Jokes and headline floating around at Diwali eve: “Shortest Termination letter ever...TATA”; “Mistry ends, Mystery begins”. The net result is the erosion of Rs. 26,000 crores in market capitalization of the company. A fourteen month long intricate selection process, followed by a sudden termination does not bode well for a company that is “India Incorporated” for the rest of the world. And, as an executive rightly stated, “They are TATAs, not Ambanis who wash their dirty linen in public!”

Yet the linen did reach public dhobi-ghats and the mudslinging did start.

Once upon a time…

A company founded before independence soared high in the sky with Air India built on strong pillars of a steel giant, which soon went on to acquire an ailing British car manufacturing company and a Brazilian steel giant. The steel king or rather the Jewel in the company crown, decided to handover the company’s reins to a young and hardworking prince of real estate world, to fly it further. The dream seems to have crash landed and the Prince has lost his kingdom, to the erstwhile King of good times.

This story has the following characters: The Indian company – Tata Sons, the British company – Jaguar and Land Rover, The Brazilian giant – Corus, The new aviation companies – Air Asia and Vistara, The Prince – Cyrus Mistry and the Jewel – Ratan Tata.

Cyrus Mistry - head of Shapoorji Pallonji group which owns real estate construction company bearing the same name, Eureka Forbes, engineering goods, power and textile manufacturing companies - is a very reserved personality. His father Shapoorji Pallonji Mistry vacated the TATA Sons board for him and, his Pallonji Trust by virtue of its equity ownership is the third largest shareholders in the Tata Group. This made the selection of Cyrus Mistry, albeit after a rigorous process, a valid one to head Tata Sons.

What went wrong...

Cyrus Mistry was never a dynamic leader and found himself sidelined by the Tata Sons’ board many a time for his strategic decisions, which he now claims were to reduce the heavy debt of the group. The Tata Group allegedly has debts close to $18 billion, a number that is equivalent to many countries’ GDP. The write-off of such a huge amount has sent alarm bells ringing in PMO (Prime Minister’s Office) and in Stock Exchanges and in SEBI (Securities Exchange Board of India). The way Cyrus Mistry handled the Tata DoCoMo issue was also not to the liking of Ratan Tata. (more details on TataDoCoMo issue can be found amongst our previous blogs)

As another executive stated that “Cyrus Mistry is a construction leader, not a constructive one!” So in fact, there was much angst about the way he worked and about the way he conducted business. Question arises about whether Cyrus loses his leadership of other Tata Group companies as well or just Tata Steel. The Tata Group has kept its quiet for most of the issues, claiming that dragging issues into public is definitely not their style and against the very ethos of TATA values.

Things will be laid to rest and with the resignation of former TCS chief Ramadorai as chairman of govt’s skill development agencies, rumours are abound that he may head Tata Sons as its new chairman replacing Rata Tata, who himself is an interim chairman after the ouster of Cyrus Mistry. (HT Business, Nov 2, 2016)

The corporate saga continues and we see another one bite the dust! But it’s the Tatas we are talking about. They will rise from the ashes like phoenix.

- Monica Mor, Sr. Faculty, INLEAD

Battle between two MNCs – a result of massive cultural fallout or improper business practices?

Sometimes your legacy just catches up with you and bites you in the back. That’s when you realise how important it is to steep yourself in modern business practices and imbibe progressive thinking and articulation. In India we need to work on both, be it getting rid of unscrupulous work ethics or of a lackadaisical attitude that leads to unusual delays in decision making. Often it gets reflected as our work culture and hence the widespread stereotypes about our work demeanour.

We have been witness to the fallout between Walmart and Bharti Retail, the former from USA, as a result of corrupt practices of senior Indian officials working for the Joint venture. Both the companies are a part of two extremely huge organisations excelling in their respective sectors, Bharti in Telecom and Walmart in Retail.

The ongoing feud between Tata Sons and NTT DoCoMo, is proving to be a matter of serious concern and very soon will be served hot as a case study in business schools across India and Japan.

What went wrong?

Japan is a strategic investor in many Tata firms and in India. In fact it is the fourth largest investor in India and Japanese companies have invested $18.81 billion in India between April 2000 and June 2015. In October 2007 the marriage was sanctified between Tata Teleservices Limited (TTSL) and NTT DoCoMo, with DoCoMo picking up 26.5% for around $ 2.7 billion. By 2013 problems started to surface with TTSL failing to meet performance milestones and thereafter DoCoMo initiated its exit strategy. The safety clause which was a part of the initial contract for DoCoMo was dishonoured by TTSL, with the company’s stating that FEMA (Foreign exchange Management Act) rules had changed. This prompted DoCoMo to file for international arbitration in London Court. The case is now subjudice in Delhi High Court.

Ramifications of the fallout

The battle has gone ugly and very public. Journalists are having a field day reporting about it. Japan has already become wary of investing in India especially via Tata. The recent case of Japanese tech investment behemoth, SoftBank choosing Bharti Airtel over Tata Sons as it’s ally in India proves the point. But worse will be the ramifications on India as a place for MNCs parking themselves and for countries investing their dollars in. Maybe this case too will blow over and remain in business history books as just another JV breakdown, but we know the rot runs deep. And its high time Indian companies stopped procrastinating and worked in the now towards adoption of better management practices so as not to lose billions in settlements and litigations. Remember India still does not allow class action suits against companies. The day that law makes it’s entry, consumers can drag every erring company to court. Ask Volkswagen how much they suffered in USA, all for a small software glitch!

Ms. Monica Mor

Sr. Faculty, INLEAD