Ratan N Tata—the septuagenarian business leader who returned to Bombay House, the headquarters of the Tata Group, as interim chairman of the conglomerate—couldn’t have made his displeasure with recent developments at the group more clearer.
After taking over as interim chairman, one of the first items on the 78-year-old Tata’s agenda was to meet the CEOs of the various companies that are a part of the group, which has interests ranging from salt to software and tea to telecom.
Not one to mince words, Tata used some strong ones to indicate a virtual halt on some of the key business decisions that were being contemplated as the best way forward under Cyrus P Mistry, who was replaced as chairman of the group’s flagship holding company Tata Sons, on Monday.
“The companies [of the Tata Group] must focus on their market position vis-à-vis competition, and not compare themselves to their own past. The drive must be on leadership rather than to follow,” Tata told colleagues during a meeting on Tuesday.
A statement issued by Tata Sons said that, referring to ongoing initiatives in the individual group companies, Tata told the senior management of the $103 billion conglomerate: “We will continue to undertake those [decisions] that are required to. If there is any change, they will be discussed with you.”
When Tata says group companies should measure their performance against that of peers and not their own past, the reference to Tata Steel is too obvious to miss. The European operations of the steelmaker are part of the legacy that Tata himself created with the acquisition of Anglo-Dutch steelmaker Corus Group Plc, which Tata Steel acquired for $12 billion in 2007 (and renamed later as Tata Steel Europe).
It was a part of Tata’s grand scheme of things, where he sought to position Tata Steel as one of the largest steelmakers in the world with a global footprint.
But the global financial crisis following the collapse of Lehman Brothers in 2008, a slowdown in the Eurozone economy thereafter, a downturn in the commodity cycle with subdued demand and prices (owing also to excess supply from China) and, more recently, the possibility of Britain’s exit from the European Union have all, at different stages of time, crippled Tata Steel Europe’s ability to stabilise its business.
The result has been a mountain of debt on the consolidated books of Tata Steel, largely on account of the overseas operations. It is reported that Tata Steel Europe was losing £1 million a day, just to keep operations running at its UK facilities. As a result, Tata Steel bit the bullet and, after subsequent rounds of write-downs in the carrying value of its UK assets on the books of the company, decided to sell the UK business lock, stock and barrel.
Though in June 2016 the company completed the sale of its long products division in the UK to Greybull Capital, a final decision on the outright sale of the entire UK business was still under consideration.
Mistry, the 50-year-old son of Pallonji Mistry—whose family with its 18.4 percent stake, is the single largest shareholder of Tata Sons—had indicated that he wouldn’t shy away from taking some hard decisions, if those were the only options left, in the best interest of the company.
“It was clear to me relatively early that one needed to confront the challenging situations facing some of our businesses, and ultimately this would entail hard decisions on pruning the portfolio,” Mistry had said in an interview to an in-house magazine, which has since been pulled from the group’s website. “But I have learned through experience that if you want to do the right thing by all your stakeholders, there are no shortcuts. There will always be external influencers and so-called experts, who may be motivated by immediate transactional gains, goading us on to churn our portfolio. It is important that we develop our own prognosis based on knowledge and context, keeping all stakeholders in mind. We should not be afraid of taking tough decisions for the right reasons, with compassion.”
And pruning of the portfolio wasn’t restricted to Tata Steel alone. Also to go were some global hotel properties owned by Indian Hotel Co. Ltd, another Tata group company that has been facing rough weather.
While divesting assets such as Tata Steel’s UK manufacturing facilities may have made sense from a business point of view, they may not have gone down too well with Tata, who is also the chairman of the charitable trusts that are the majority owners of Tata Sons, with a 66 percent stake.
Under Tata’s leadership, which spanned three decades, the 148-year-old conglomerate believed in growing business internationally and being patient with ventures that were slow to take off, believing in their long-term potential.
That is the reason why the group persisted with projects like Tata Steel Europe (despite the challenges it has faced since 2008) and other projects like Tata Nano. The Nano project was first delayed due to issues surrounding land acquisition in West Bengal, owing to which it had to be eventually shifted to Gujarat. But even after the launch of the small car, hailed as an engineering marvel for being the cheapest four-wheeler in the world, sales failed to match the expectation of the group. Though plans were tweaked along the way, not once did the group indicate any willingness to disband the project altogether.
Therefore, Mistry’s desire to prune the Tata Group’s portfolio, and focus on businesses like retail, defence, and technology, which he believed to be bets for the future and the key to high-quality earnings may not have gone down well with Tata.
That would explain why he urged colleagues on Tuesday to not compare the performance of the group against its own past (perhaps alluding to a time when Tata Steel was doing well), but against those of its peers in the contemporary market (such as fellow steel firms that have also been hit hard due to market conditions).
Also, when Tata says that ongoing initiatives at various companies will be re-evaluated and decided upon, it casts a shadow on the fate of the process of divesting Tata Steel’s UK operations, which was underway.
It is also worth noting here that Tata Steel’s decision to sell the UK business has also led to a lot of bad press for the company and the group in recent times. Thousands of workers employed at Tata Steel’s facilities in UK have been sceptical about their future pending finalisation of the sale process. Employees’ unions have protested against the group’s decision to divest these assets. Union representatives have also gone on record to state that they haven’t been kept in the loop on important decisions that concern their well-being.
It is entirely possible that these claims, which go against the grain of the conglomerate’s image of an ethical employer that is concerned about the well-being of stakeholders, didn’t sit well with the Tata Trusts and Tata himself.
Responding to reports that Mistry and his family will challenge the ouster legally, a brief statement by Shapoorji Pallonji issued on Tuesday said: “Neither the Shapoorji Pallonji Group nor Mr. Mistry have made any statement yet. While the circumstances are being studied, there is no basis to media speculation about litigation at this stage,” the statement said. “As and when a public statement becomes necessary, it would be made.”
Meanwhile, Tata has told his colleagues that he looks forward to working with them as they have done in the past. “An institution must exceed the people who lead it. I am proud of all of you, and let us continue to build the group together,” Tata said.
Over the last 48 hours, the group executive council handpicked by Mistry has been disbanded, and any mention to it or Mistry himself have been removed from the group’s websites. While a selection committee constituted for the purpose finds Mistry’s successor over the next four months, Tata may well use this time in Bombay House to hit the reset button on some more decisions taken by his successor-turned-predecessor.
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