A tata to Cyrus Mistry - Tata's radical move

Old, steady, honourable Founded in 1868, a cool 148 years ago, even before Mahatma Gandhi was born, the Tata Group i s the most famili...

Old, steady, honourable

Founded in 1868, a cool 148 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.

The above picture, and all statistics therein, was valid till the evening of October 24, 2016.

There is a slightly tricky family lineage due to similarity of names, which we decode here:

1. Group Founder - Jamsetji Tata (1839-1904, aged 65)
   Jamsetji Tata’s sons –
   a. Dorabji Tata (1859-1952, aged 72 – founder of Tata Steel/Power/Chemicals)
   b. 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).
2. 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).

[Read this Bodhi in Hindi, here]

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 :
• 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)
• 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. 
• 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

It is interesting to note five things about this mighty and honourable corporate house:

1. It has had only six heads so far in 148 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).
2. 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. 
3. 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.
4. 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!
5. What truly sets Tata apart from all other corporate groups in India (and even foreign groups)
• 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!
• 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. 
• 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.
• 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).

[ Running updates - Tata Mistry battle, here]

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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. [This Bodhi can be read in Hindi also. Click here ##link##]
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. 

TATA NANO - Brilliant engineering & design, Unfortunate sales failure

[इस बोधि को हिंदी में पढ़ें, यहाँ]

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The scathing article in The Economist, September, 2016, might just have proved to be the last push the Board needed. Perhaps. One can only speculate.

Linked here - The Economist

Goodbye mystery

The new guy had barely settled, when he was asked to go.

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.

1. 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.
2. 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).
3. What were Cyrus Mistry's challenges? When he took over reins of the mighty group, it faced some stark challenges.
• First - the world economy wasn't doing well at all, and for a group that had globalised, this was really bad news.
• Second - Tata Nano like visionary projects had failed miserably, due to strategically wrong marketing to potential consumers.
• Third - worldwide the group was being praised for its social orientation, but lambasted for its financial performance (the related article from The Economist, here).
• 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".
• 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.
• 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.
• 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.
• 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.
• 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.
4. Perhaps a series of mini sparks turned into the final, inevitable dagger that went straight through the entire chairmanship of Cyrus Mistry

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.

• [message]
• 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.

[Read this Bodhi in Hindi, here]

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• [message]
• ##crosshairs## 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 -  ##chevron-right## 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!  ##chevron-right## 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.  ##chevron-right## 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. ##chevron-right## 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.

[ Running updates - Tata Mistry battle, here]

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. 

Be your own man!  - Ratan Tata to Cyrus Mistry in 2012

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, and we are updating all important developments regularly in Bodhi Links below.

• [message]
• 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.

• [message]
• For mature readers with leadership experience
• If you are looking for a management and leadership analysis of this issue, here's something from our team - Leadership lessons from Tata Group's latest ordeal. Click here to read! Do let us know your views.

[Solve Bodhi Prashn ##question-circle##]

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This Bodhi will be regularly updated. Keep visiting. And do share your thoughts in the Comments thread.

• [message]
• NEWS UPDATES WILL BE HERE REGULARLY. STAY TUNED
• ##asterisk## Tatas deny everything Mistry alleges - Read more here and Here  ##asterisk## Sivasankaran (Aircel founder) denies everything - Read more  ##asterisk## I.E. editorial analyses multiple aspects - Read more ##asterisk## Ratan Tata and Cyrus Mistry both meet the P.M., separately! - Read more ##asterisk## Darius Khambata and mediation moves Read more ##asterisk## Cyrus Mistry gets IHCL indepedent directors' vote Read More ##asterisk## Fired Nirmalya Kumar gets pensive Read More ##asterisk## Cyrus hid info and was fired Read More ##asterisk## Mistry refused TCS stake sale to pare debt Read More  ##asterisk## Mistry replaced by Hussein as TCS Chairman Read More ##asterisk## Tatas to sue Sivasankaran Read More  ##asterisk## Tatas issue a 9 page letter against Mistry Read Here ##asterisk## The Economist's analyses : before Mistry is sacked Read More, after Mistry is sacked Read More ##asterisk## The ugly Tata fight drags on : WSJ Read More ##asterisk## Proper process missing, says Nirmalya Read More  ##asterisk## Mistry caused enormous harm to TCS Read More ##asterisk## Nusli Wadia turns from friend of Tatas to foe! Read More ##asterisk## Grand-daddy of Indian I.T. F C Kohli jumps into the battle - 'Cyrus incorrect' Read More ##asterisk## Mistry knows all skeletons, Tatas scared - says Nirmalya Kumar Read More ##asterisk## Ratan Tata cautions Modi Govt. on demonetisation fallout! Read More ##asterisk## Ratan Tata praises Modi Govt's bold move Read More  ##asterisk## Ratan Tata's half-brother Noel may get lucky Read More  ##refresh## Running updates on this story, here 

• [message]
• ##link## Bodhi Links (for deeper study; Caution: some may be external links, some large PDFs)
•  ##chevron-right## Tata family tree here ##chevron-right## The Economist analyses Tata - Sept 2016 here ##chevron-right## Tata luminaries here ##chevron-right## The appointment of Cyrus Mistry here ##chevron-right## Tata Sons here ##chevron-right## Tata Group here ##chevron-right## Tata companies here ##chevron-right## Ratan Tata here ##chevron-right## Mistry moves - ET 10 Oct 2016 here ##chevron-right## Singur Tata Nano controversy here ##chevron-right## Shapoorji Pallonji Group here ##chevron-right## Tata - DoCoMo crisis here ##chevron-right## Cyrus Mistry here ##chevron-right## Cyrus Mistry explains the happenings in this letter here ##chevron-right## Detailed look inside Tata Trusts here

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