Sometime towards the end of the last decade, a fellow journalist asked a very well known industrialist who has interests in auto about Ratan Tata’s success in acquiring the highly respected but then loss making luxury car maker, Jaguar Land Rover. With a look of disdain, the industrialist replied that he was not in the business of ‘acquiring antique pieces like Ratan does’.
This anecdote broadly explains how some industrialists viewed Ratan Tata’s aggressive acquisitions to make the Tata Group truly global during his term as Chairman – a mix of awe and disdain at the high leverage bets, some of which have come back to haunt the house of Tatas.
Having fought many battles, Ratan Tata is no stranger to corporate and political wars. He fought no less than the fiery Mamata Banerjee and got the then Chief Minister of Gujarat, Narendra Modi to provide him land overnight when he decided it was getting too difficult to manage his pet Nano project in West Bengal.
But by all accounts, it seems that he has chosen the wrong enemy this time.
Be it political or corporate clout, deep pockets to fight a prolonged legal and public battle, Ratan Tata finally seems to have met his match in Cyrus Mistry. If Tata thought that the coup he engineered at the board meeting of Tata Sons on October 24th where he replaced Mistry as interim Chairman will result in Mistry rolling off and playing dead, the subsequent events have shown that he was either badly advised or that he had poorly miscalculated his opponent’s punch. The battle has clearly just begun.
Mistry, the younger son of billionaire and construction magnate Pallonji Mistry and the largest single shareholder of the Tata conglomerate has chosen to fight this battle on Tata’s turf. Through a mix of leaked letters written to the board and his own releases to the media, the picture he paints of Ratan Tata and his firm grip over the group despite his retirement 4 years back is not very pretty.
Lets take a look at how Cyrus Mistry wants the world to view Ratan Tata. We are free to draw our own conclusions
1)Ratan Tata’s ego bad for the Tata Group:
In a press statement released on November 22nd titled, “Ratan Tata takes credit, Cyrus Mistry shares credit”, Mistry points out that Ratan Tata’s ego led to Tata Steel overpaying to acquire European steel company Corus at $12 bn even as it was available at less than half that price a year earlier. This overpayment made it harder to invest in assets thus placing many jobs at risk, said the release. The Tata group may be looking at a potential write down of $10 bn
Much has been written about the acquisition, though in Tata’s defense, none of the senior board members and senior executives mentioned by Mistry ever made their reservations public. In fact, if not for the global downturn and the cyclical nature of the steel industry, the acquisition was considered to be an ace that would have helped Tata Steel become a truly global player even as it battled competition from more nimble footed European steel companies like Arcelor Mittal.
2) Tata lacks vision, adopting CDMA was a blunder:
Mistry also blames Tata for placing a wrong bet on CDMA as the platform for the group’s telecom business in November 2003 instead of GSM, despite advice to the contrary from his own team members. This Mistry says has left the company structurally challenged, adversely affecting the jobs of thousands of employees.
Considering the terrible state of the group’s telecom business and hefty penalty payment due to former partner Docomo, Mistry may not be far from the truth when he says that he truly inherited a bad legacy in certain businesses from Tata.
3) Tata’s love for back seat driving:
Tata’s love for aviation is widely known, especially after his failed attempts to enter the sector in the late 90s. In a letter sent to the Tata Sons board post his eviction, Mistry accuses Ratan Tata of forcing two aviation deals on him even after he had ceased to be the group chairman.
It is quite uncommon for any business house to enter into two separate deals in aviation, particularly when there is a clear agreement that aviation is a long gestation business with even the established players struggling to make money. Mistry points these two instances as an example of back seat driving by Tata.
Mistry further mentions that a Rs 22 cr misappropriation in Air Asia venture was not taken seriously despite having pointed it out to Tata’s right hand man and board member Venkatraman. While he does not directly accuse Tata of any involvement, it is quite clear what Mistry was trying to point out.
4) Tata’s doomed Nano project:
If left to himself, Mistry claims that he would have shut down the loss making Nano project to save Tata Motors. For a product that was sold at Rs 1 lakh with cost of producing each vehicle being higher than the selling price, the project consistently lost money, peaking at Rs 1000 cr. Add to that, the rising NPAs through vehicle financing due to poor background checks.
5) Tata's conflict of interest:
But Mistry goes a step further. He claims that the decision to not shut down the loss making Nano project has been delayed not just due to emotional reasons. Closing down of the car plant would stop the supply of the Nano gliders to an entity that makes electric cars in which Mr Tata has a stake, accuses Mistry. But the Coimbatore- based Ampere Technologies, in which Ratan Tata has invested, has denied that Nano gliders were supplied to them.
Other reports in the media have also pointed out another case of conflict of interest, when boards of Tata Steel and Tata Power reportedly opposed “one-sided transport contracts” for M Pallonji and Company. The promoter of this company Mehli Mistry, first cousin of Cyrus Mistry but close to Ratan Tata is said to have made windfall gains from the contracts with Tata group companies – Mistry tried to reverse this and make the tenders more transparent – something that led to more conflict between him and Tata.
If fighting one strong enemy was not enough, in the course of this battle, Ratan Tata has also managed to alienate a former friend Nusli Wadia. Despite being a well wisher of the Tata group and a board director of several group companies since the last 3 decades, Wadia has chosen to cast his support in favor of Mistry. Bad press like this where The Economist calls the current saga ‘Ratantrum’, maybe a sign that the old war horse is losing his touch.
Cyrus Mistry may have been in the wrong as well, considering that he was seen to be a man in a hurry in a group that has a century old pedigree and its own style of functioning. But by sacking Mistry just after four years of giving him charge, Tata has not given analysts enough time to judge Mistry’s vision against his own two-decade term. While Tata himself got ample time to establish his vision for the group when he took over from JRD Tata in 1991, Mistry has alleged that he was not given the space to break free from the past and move the group into a new direction. If nothing else, the cloak and dagger approach used to unseat the group chairman has only reinforced the view that the group is no better than any other family owned enterprise and not as professional as it claims itself to be.
Legacies take a lifetime to create but can be lost in a moment. Ratan Tata must be aware of the dangers of a long drawn bloody battle. The last thing he will want is to prove Mistry’s allegations correct – that he will sacrifice the interest of the Tata group shareholders to satisfy his ego.