The war within a major heritage

WITH EYES WIDE OPEN

D. N. Bezboruah

The Tatas of India are a business family that have done the country proud. The very me Tata stands for clean dealings and quality products. It is a family that justly takes pride in being descended from Jamshedji Tata. We also have Godrej, another company that stands for quality products and honest dealings in business. It is interesting that both these top business conglomerates should be owned and run by Parsis. And that takes me back to how Parsis became such an integral part of India and a community to be proud of.

Parsis migrated from greater Iran to Gujarat and Sindh between the 9th and 10th centuries to avoid the persecution of Zoroastrians (fire worshippers) following the Muslim conquest of Persia. At that time, the domint religion of the region (which was ruled by the Sasanian Empire) was Zoroastrianism. Iranians rebelled against Arab invaders for almost 200 years. In Iran, this period is now known as the “Two Centuries of Silence”. During this time, many Iranians who are now called Parsis chose to preserve their religious identity by fleeing from Iran to India. “Parsi” in the Persian language literally means Persian. Persian is the official language of modern Iran which was formerly known as Persia, and the Persian language’s endonym was Farsi, an Arabization of the word Parsi. The Zoroastrian holy book, the Avesta, was written in the Avestan language which is close to Vedic Sanskrit. Over the centuries, the number of Parsis (recognized as such) has dwindled due to intermarriage with other communities. By 2020, Parsis will number only about 23,000 or less than 0.002 per cent of the population of India. But there is little doubt that they will still remain a community to be reckoned with due to their qualities of leadership in different facets of India’s economic activity. The patriotism of the Parsis and their total commitment to India’s development marks them out as unique Indians.

The corporate giant of the Parsis—the Tata group—is now very much in the news because of the sudden sacking of Cyrus Mistry, the executive chairman of the Tata Group of companies on Monday. What made matters worse was the manner of Cyrus Mistry’s sacking without any prior notice or framing of charges that are customary practices before the chief executive of any major business undertaking is removed from his post. After all, it was not as though Cyrus Mistry had gatecrashed on to the chair of the executive head of the Tata Group. He was carefully trained and groomed to be able to head the Tata group as its executive chairman. And he did his stint also as deputy chairman under Ratan Tata when he was chairman. As such, there are reasons to believe that Cyrus Mistry has become the victim of persol animosity largely because he opposed many of the decisions of Ratan Tata that had resulted in huge losses to the Tata Group and because Ratan Tata could not be persuaded to accept any turround strategies that would cut the heavy losses sustained by the group.

In a five-page letter to the trustees of Tata Trusts (released to the press) soon after his dismissal, Cyrus Mistry claimed that he had been turned into a “lame-duck” chairman after having been assured earlier that he would have a free hand to take tough decisions. According to the letter, Ratan Tata had left him with five “legacy hotspots”. They were the Tata Motors passenger vehicles segment (especially the no project), Indian Hotels, Tata Power’s Mundra project, Tata Steel Europe and Tata Teleservices. The letter sought to shred the Tata Group’s reputation for high ethical standards by suggesting that there was a total lack of corporate governce on the board of Tata Sons where directors “failed to discharge their fiduciary duty owed to stakeholders of Tata Sons and of the group companies.” In his letter, Mistry called the directors representing the Tata Trusts “postmen” and cited an instance where a board meeting had to be stalled for about an hour “in order to obtain instructions from Mr Tata”. There were several allegations in the letter sent to the trustees of the Tata Trust, and some of them are indeed noteworthy. Regarding the no project, the principal allegation is that there was not even a line of sight to profitability in the project. The no project losses peaked at Rs 1,000 crore. Mistry claimed that the turround strategy for Tata Motors required that the no project be shut down. However, emotiol reasons alone had kept the Tatas from taking the crucial decision. Besides, if the no project were to be shut down, it would stop supply of no gliders to an entity that makes electric cars in which Ratan Tata has a stake. Mistry’s letter said that the capital employed in the five legacy hotspots rose from Rs 132,000 crore to Rs 195,000 crore—which is close to the net worth of the entire Tata Group at Rs 174,000 crore. The European steel business faced a potential impairment of $10 billion. Foreign hotel properties and the stake in Orient Express had to be sold at a loss. There were onerous lease terms in respect of the Pierre Hotel in New York that would make an exit from it a major challenge. According to Cyrus Mistry, a fair value of these businesses would involve a write-down of about Rs 118,000 crore. His letter also claims that Ratan Tata forced the Tata group to foray into aviation by agreeing to a joint venture with Air Asia. Not content with this, he presented the Tata trustees with another fait accompli on a new venture (Vistara) with Singapore Airlines. In his letter to the trustees of the Tata Group, Cyrus Mistry also makes it clear that he had been reluctant to take over as chairman but had been persuaded to change his mind. And though he was assured of a free hand in decision-making, the articles of association were later modified to change the rules of engagement between Trusts, the board of Tata Sons, the chairman and the operating companies. With several loss-making or potential loss-making units, the Tata Group had to cut dividends to conserve cash for investments in the teeth of shareholder fury (especially the Tata Trusts).

Tata lawyer Abhishek Singhvi responded to Cyrus Mistry’s letter claiming that he was not a lame-duck chairman and that Tata Sons were not obliged to give reasons for his removal from the post of chairman. The letter does not say why Tata Sons were not obliged to give reasons for Mistry’s removal from the post of executive chairman. Singhvi’s reply also wanted to know whether Mistry believed that all the board members were insane. This, puerile response and a subsequent reply from Tata Sons on 27 October are confined mainly to finding fault with Mistry for making confidential information public “in an unseemly and undignified manner”, for making unsubstantiated claims and malicious charges and for casting aspersions on decisions he was a party to and levelling charges only after his removal. The reply also claims that Mistry’s tenure was marked by repeated departures from “the culture and the ethos of the Tata group”. It also claims that trustees were getting increasingly concerned with the growing trust deficit with Mistry. It regards Mistry’s alleged attempt to besmirch the image of the Group in the eyes of its six-lakh-plus employees as unforgivable and claims that the Tata way is not to run away from problems, or constantly complain about them, but to firmly deal with them. The reply is significantly lacking in any figures or fincial data to counter the allegations levelled by Cyrus Mistry. And perhaps this is why the replies by the Tata Group and its lawyer sound less convincing to people. The one indication that most people find Cyrus Mistry’s allegations more convincing is that prices of all Tata shares (except Titan shares) have fallen on the market after the sacking of Cyrus Mistry and the exchange of allegations between Mistry and the Tata Group. It is perhaps for the first time that the very image of the Tata Group has been dimmed in the eyes of the public largely due to acts of omission and commission by the former chairman of the group, Ratan Tata. Not many people are likely to accept the plea that the chairman of a group of companies as large as the Tata group can be removed summarily without any reasons being given for his removal. We are not aware whether there was such a clause in the letter of appointment of Cyrus Mistry as chairman of the Tata Group that he would be dismissed summarily without any reasons being given, but such an action has left a bad taste in the months of millions of Indians who have always had very high regard for the way the Tata Group has conducted business over the decades.