For all the hype over India’s attacks on terrorist bases across the border in Pakistan, none would have imagined a “surgical strike” – as the commando action has come to be known – with such clinical precision right at the heart of India’s business community.
After four years at the helm of India’s fabled conglomerate Tata Group, chairman Cyrus Mistry – the first chairman from outside the Tata family – was abruptly fired by his own board last week. His temporary replacement is his predecessor Ratan Tata, who is now chairman of the Tata and Allied Trusts, which owns 66 per cent of Tata Sons. Ratan Tata, one of the most famous Indian business leaders ever, is widely believed to be behind the decision to remove Mistry and some of his key advisers from their posts.
Tata Group is a US$100 billion company, with significant global investments. In fact the majority of its income now comes from outside India. Founded in 1868, Tata has diversified with more than 100 constituent companies engaged in everything from steel, chemicals and automotives to IT consulting, beverages and telecoms.
As well as Europe and Africa, the conglomerate has major investments in China and employs more than 3,500 people there. Tata Consultancy Services (TCS), Tata Steel and Jaguar Land Rover are all major employers in China, which is also a major export market for many of the firm’s products. Ten companies in the Tata group have offices or investments in China.
So why so much excitement about the sacking of Mistry? The headline ‘Board Fires Executives’ is, after all, hardly unique. Few days pass without a board somewhere in the world asserting its authority and demanding the removal of executives in whom it has lost confidence. Indeed, long-serving board member Gerry Brown, in his book The Independent Director, said replacing outdated executives with people capable of taking on future challenges is one of the functions of a board.
On one level, this is what has happened at the Tata Group. There was – as is clear from the leaked text of Mistry’s letter responding to his dismissal – a breakdown in communication and trust between the executive and Tata and Allied Trusts, a collection of charitable trusts set up by members of the Tata family in the past. Once that relationship was broken, it was almost inevitable that there would be casualties in the firm’s senior ranks.
At this point, we can only speculate on why it happened. Mistry’s letter tells only one side of the story. But what was startling was the speed of the response.
Most Tata-watchers, myself included, were caught completely off guard. It was known that there were financial problems and disagreements over strategic direction, but few realised the breakdown in communication and trust had been this complete. And yet, perhaps we should not be so surprised.
Ratan Tata believes passionately in the values of the Tata Group and has never been shy of acting decisively when those values are challenged. Following the collapse of Tata Finance in 2002, when many small investors and savers faced the loss of their investments, he immediately stepped in and guaranteed all stakeholders would get their money back, even though was unaware of the full scale of the losses.
“I knew that if we did not do this, no one would trust us again,” Tata told me several years later. “Without trust, everything else is thrown away.”
Does this latest abrupt move suggest he feared a similar loss of reputation now? Possibly, but a more likely scenario is that he believed the group was embarking on a strategic direction that would, in the long term, conflict with its historic values. And as chairman of the Tata Trusts, Tata has a fiduciary responsibility. Under his guidance, the trusts disburse hundreds of millions of dollars every year to charities, hospitals, schools, health programmes, programmes to emancipate women and environmental projects among others. If Tata Group falters, the income available to the trusts declines and so does their ability to finance projects.
The key question, of course, for people in China and around the world involved with Tata Group is: what next?
There is no question of Ratan Tata coming back permanently. He is in his late seventies , he ran the group for 20 years, he has been there and bought the T-shirt. He has committed to remain in the role for four months, during which time a new leader will be selected.
If Tata Group is indeed in deep trouble, bringing back Tata was a sound move. He is the best known public face of the company and one of the few members of its senior executive team well-known outside of India. He has the ability to reassure the markets and other stakeholders – like the employees of Tata Steel Europe, already facing an uncertain future – that there is a firm hand on the tiller. And with both sides readying for a long and drawn-out legal battle, Tata will need all his persuasive skills.
A management consultant, Morgen Witzel is the author of Tata: Evolution of a Corporate Brand