The Tata Crisis: Removal of the group chairman has exposed cracks that run deep in Indian corporate governance

The Tata Group is an Indian multinational conglomerate that produces everything from salt to software. It earned $103 billion in revenue last year out of which $69 billion came from its international holdings in UK and US. Ratan Tata is the chairman of Tata Trusts, the charitable bodies that owns a majority stake of around 66 percent in Tata Sons, the flagship holding company of the Tata conglomerate which also owns brands like Jaguar, Land Rover, Tetley Tea and steel plants in the UK. In December 2012, Ratan Tata retired from Tata Sons and passed on the baton to Cyrus Mistry.

In today’s post, we take a look at what led to the abrupt termination of Cyrus Mistry, why the Tata group is finding it difficult to remove him from the board of different companies of the group and the state of corporate governance in India.

Tata vs Mistry: The inside story

Forbes India | Aveek Datta | 22 min read

Key insight: The prominent reason for the removal of Cyrus Mistry is that he tried to undermine the group structure that Ratan Tata had painstakingly managed to create over his two decades as chairman of the conglomerate

  • Four years after Cyrus Mistry, with his impressive vision for the Tata Group’s leadership, was appointed Chairman of the Group, the board of Tata sons decided to remove him owing to repeated departures from the culture and ethos of the group. Mistry, for obvious reasons, has not taken the ouster quietly
  • In response, Cyrus Mistry has cited various instances of alleged lack of corporate governance within the group. He has argued that the Articles of Association (AoA) of Tata Sons was modified to change the “rules of engagement between the Tata Trusts, Tata Sons board, the chairman and operating companies,” which “severely constrained the ability of the group to engineer the necessary turnaround”, that the organisation needed
  • Insiders attribute the deteriorating relationship between Mistry and the board to a slew of issues including but not limited to sale of stake in Tata Consultancy Services that contributed 69% to the total earning of the group in 2015–16, keeping the board in dark about Tata Power’s plans to acquire Welspun Energy’s renewable power assets, mishandling of the deal with Japanese telco NTT DoCoMo as well as the loss making steel manufacturing operations in UK

Tata crisis: How do you sack a boss who won’t go?

BBC News | Ashleigh Nghiem | 5 min read

Key insight: Even if Tata eventually manages to oust Cyrus Mistry from all its companies, the group may never be able to silence him

  • The horrendous reality for 660,000 staff employed by India’s Tata Group is that even after being unceremoniously sacked, Cyrus Mistry is still at the helm or on the board of some of the most high-profile Tata businesses. While it is human instinct to pick sides, that is difficult for employees — not least because it’s not entirely clear yet who’ll come out on top
  • However, for now it seems like the employees have no choice but to be patient, as wrestling control away from Cyrus Mistry may not be so straightforward. His family controls companies holding 18% of Tata Sons. And crucially Mr Mistry still has plenty of support. Directors at Tata Steel and Tata Motors still can’t decide whether to carry out the wishes from Tata headquarters and cut ties
  • For his part, Mr. Mistry is not exiting weakly, nor is he putting up a nasty fight. He is simply representing his case. Experts wonder therefore, why the Tata Group didn’t come to an agreement that would have given him a graceful exit to avoid this public humiliation. That would have really been the Tata way of doing things

When an icon falls

The Indian Express | Pratap Bhanu Mehta | 5 min read

Key insight: The Tata controversy is an indication that the social legitimacy of Indian capital will erode even more. The issue is not the competing world views of Mistry or Tata. It is the long shadow of suspicion this controversy will cast over Indian capital

  • On Oct. 28, the crisis in the Tata group was made public by the letter of ousted chairman, Cyrus Mistry. The Tatas have been an iconic group desperately clinging onto the few shards of legitimacy that Indian companies can muster these days — hence this is a depressing moment in Indian capitalism’s struggle for social legitimacy
  • The immediate danger posed by the letter is that it strengthens the hand of all those state institutions that operate on the idea that the presumptive distrust of Indian companies’ practices should be even higher. The second issue that will emerge is how much the authority of individual capitalists is able to override internal and external scrutiny. The third issue is that Indian companies, despite corporate governance reform, are analytically quite opaque
  • Cynics now have more ammunition to believe that a more enlightened and better capitalism might not be possible in India. The social legitimacy of any institution is in the final analysis, not a function of ideology or beliefs. It is a function of credibility, which is often judged through icons. Indian capitalism, with rare exceptions, is lacking those icons

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