THERE have only been six chairmen of the Tata Group since it was founded in 1868. There will soon be a seventh after Cyrus Mistry, the first boss of the conglomerate not connected to the founding family, was ousted after less than four years in charge. Even though he undertook few of the reforms needed to bring vast swathes of the Tata empire to profitability, he will prove a difficult act to follow. That the ousted man has now embarked on an extraordinary rampage against his old employer will scarcely help.
Mr Mistry might reasonably have expected to serve for a couple of decades at the helm of India’s biggest group, with interests from IT to cars, hotels, salt, steel and much else besides. His departure on October 24th was a surprise. For a company with a culture of consensus, the abruptness of his sacking—the board did not even give him the option of stepping down, and the purging of many of the top executives he had hired—is about as brutal as it comes. Ratan Tata, his predecessor, will take over while a new boss is found.
The catalyst for the defenestration was the lack of performance at some of the group’s big companies. Some felt Mr Mistry was doing too little to boost profits: beyond Tata Consultancy Services, an IT firm, and Jaguar Land Rover, a maker of posh British cars Tata acquired in 2008, the conglomerate’s 100 or so operating companies make lousy returns. Others felt, on the contrary, that the “tough love” Mr Mistry said was needed to whip the group into shape (though seldom applied) was unbefitting of a company with Tata’s commitment to putting ethics before profits.
Overall Tata’s financials—profits of around $5bn on sales of $103bn in 2016, and debt roughly the size of its equity—look just about right. But that is to misunderstand what is a complex investment company that often owns minority stakes in its operating companies rather than controlling them outright. Bits of the group, notably its steel and telecoms arms, are labouring under hefty debts even as other Tata companies are flush with cash.
Problems bloomed under Mr Mistry’s watch, though they were often not of his doing. The European steel assets of Corus, which Mr Tata acquired when he was in charge, turned into a costly albatross, plunging the steel group into losses of £1m ($1.2m) a day at one point. The Indian cars division—another favourite of Mr Tata—has continuously misfired. A telecoms joint-venture with NTT DoCoMo degenerated into an unseemly legal battle that looks likely to cost Tata $1.17bn.
Awkwardly, though Mr Mistry has been sacked from Tata’s parent company he remains the non-executive chairman of the largest operating entities. And he is not going down without a fight. Lawyers have been mobilised on all sides to contest or confirm his dismissal. At the very least, the board’s manoeuvrings have dented Tata’s reputation as a beacon of sound corporate governance in a country where other conglomerates pay the notion little more than lip service.
In a letter to the board of directors of Tata’s main holding company, Mr Mistry is scathing about the company’s culture and ethics. Its hotels arm bought property at inflated prices and parked it in off-balance-sheet vehicles, he alleges, and faced hefty losses as Mr Mistry unwound the “flawed” strategy. The finance arm made loans, some of which seem to have soured, under the “strong advice” of higher-ups. Tata Motors deferred losses using “aggressive accounting”. An airline joint-venture created “ethical concerns” over transactions worth millions of dollars. Spokespeople for Tata did not respond to calls for comment.
Shares in various listed Tata companies tumbled 5% or more as Mr Mistry’s allegations came out. The letter includes a claim that write-downs of 1.18trn rupees ($18bn) may be warranted, likely wiping out the equity of some of the companies. Among the biggest losers of the ruckus will be Mr Mistry’s own family, who own nearly a fifth of the parent company, a stake worth around $12bn.
His rearguard actions will prove a distraction for Mr Tata, whom the ousted man described as having turned him into a “lame duck”. Mr Tata, the revered elder statesman of Indian business but at the root of many of the company’s performance problems, is a steady interim hand at the till. But his return will confirm suspicions Mr Mistry was never fully in charge. The family scion has stayed on throughout as chairman of the Tata Trusts, a network of charities that own two-thirds of the Tata parent company’s shares (Mr Mistry’s family is the second-biggest holder).
Finding a replacement for Mr Mistry will be tricky. There are no obvious Tatas angling to take over. Few outsiders will agree to serve if they feel their decisions will be second-guessed by the man whose name is on the door, and who is now stepping back into his old job. The group’s decentralised structure in any case means the bosses of its operating companies have no experience outside their particular silos.
That there are no heavyweight executives who can handle the heft of the group says more about Tata than about its managers. Its relentless expansion into everything from watches to undersea cables, real estate, tea and finance, among others, makes the group unwieldy, if not entirely unmanageable—even more so now Mr Mistry is gunning for it. It is still hard to see how that will change. The need to reform the Tata Group has not gone away with the man who failed to make it happen.