Ratan Tata-Cyrus Mistry spat has hurt group’s reputation: Dwijendra Tripathi7 min read . Updated: 01 Nov 2016, 03:21 AM IST
Tata chairman's secret to success lies in being a consensus leader rather than an aggressive one, says business historian and former IIM-A faculty Dwijendra Tripathi
Ahmedabad: Eminent business historian with a number of publications to his credit including The Oxford History of Indian Business and The Oxford History of Contemporary Business History, Dwijendra Tripathi talks about the recent ouster of Cyrus Mistry as chairman of Tata group, India’s largest conglomerate.
A former professor of Indian Institute of Management, Ahmedabad (IIM-A), Tripathi talks about the controversy, its impact on the group and the lessons for corporate India and what it takes to be a successful chairman at Tata group.
What is your view on the recent development in the Tata group where the board of Tata Sons decided to replace Cyrus Mistry as chairman?
It is very difficult to arrive at a judgment for part of what Ratan Tata and Cyrus Mistry said is true. Part of what they said is what they think happened. So whatever they have said that is in public domain should be taken with a pinch of salt. But one thing is for sure. It is for the first time in the history of Tata that dirty linen has been washed in public. As an admirer of Tata group what has happened should have been avoided. It has hurt Tata group both in terms of interest and reputation.
What according to you could have been the reason behind this spat that is now in the public?
One reason for this could be that for the first time a ‘non-Tata’ has been at the helm in the real sense of the term. In 1930s after Dorabji Tata passed away without naming a successor, Nowroji Saklatwala became the first chairman whose last name was not Tata. He was however related to the Tata family. Cyrus Mistry’s Shapoorji Pallonji group has been the single largest shareholders for a very long time in Tata Sons however they have lied low and seem to have never asserted their rights in Tata group so far. The Tata trusts, chaired by Ratan Tata hold about 66% stake in Tata Sons. So a decline in profits of Tata companies means that the Trust was losing more money that than Mistry’s Shapoorji Pallonji group. So heavily these losses might have weighed on Ratan Tata that it led to Mistry’s removal and his return as interim chairman.
How do you see the Tata-Cyrus public spat from a corporate governance view point?
Tatas are known for their civilized management. If there were any differences earlier, it has been resolved in a manner that the common public did not get to know. Fortunately for the Indian management, the Tatas never had such family members who created business disputes. So far they had an unbroken record of very high public behaviour. From a management point, I think it was inappropriate to keep a retired chairman (Ratan Tata) as part of the management and board after he relinquished power on his own and his successor (Cyrus Mistry) had been appointed. I also fail to understand why Cyrus was not given a chance to explain himself as it appears. Also what was the urgency that led to the no-confidence motion by the board members?
When Ratan Tata announced setting up a committee to find his successor it was for the first time that the group was seen to deviate from the customary practice of an outgoing chairman naming his successor. But when Mistry’s name was announced, a part of this luster was taken away as many expected some professional with no direct link to Tata family to take charge.
Tatas have been emphasizing on values...
If Ratan Tata and Cyrus Mistry had a long conflict or if Tata did not approve the latter’s appointment, I don’t think Mistry would have made it to the post of chairman. Remember, Mistry was originally said to head the search committee to find Tata’s successor. Ratan Tata is sincere and there is no question about his loyalty to the group. Also, he does not have much personal stakes. And like his predecessors, Ratan Tata has had a strong streak of idealism. While enough is out in the public about Mistry and Tata to support their sides, one thing that emerges is that Ratan Tata would not compromise the values of Tata House and he has been known for keeping his words. In case of Docomo deal, Tata might have sensed that the commitment was not honored and this may have led to the removal of Mistry. Value, however, is an elusive term and the same thing can have different interpretations.
It is said that Ratan Tata faced stiff resistance from certain board members when he was named chairman of Tata Sons? Is there a similarity in the recent episode?
Russi Mody who did the turnaround of the group’s steel business was hopeful to be named as successor of J.R.D. Tata and he even began talking about it in advance. This may not have gone down well with J.R.D. who named Ratan Tata as his successor in 1991. While there is an impression that Ratan Tata faced stiff resistance from seniors like Mody, it is not so as he had strong backing of J.R.D. Also, Ratan Tata had widespread acceptance as he had been heading one company after other ever since he joined the group after completing his studies at Cornell University. His failures and successes were well known to the management. Mistry on the other hand was never a functionary head of any Tata group companies before he became chairman. Whether Mistry got a similar kind of support from Ratan Tata or acceptance in the group I do not know for sure. Also, he has been a very low key chairman until the controversy erupted. Ratan Tata, even after stepping down as chairman, has somehow remained more in media limelight than Mistry.
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How do you compare Tatas with other family run business conglomerates? Also what about the succession plan?
Tatas in terms of management cannot be compared with any other Indian business groups. If there is one business house that is closer to professional management, it is the Tatas. While somebody from within the family group has always been at the helm, in every sense of the word it is a professionally managed group as a lot of management control is given to different group entities.
J.R.D. Tata has given shape to a ‘federal’ structure where each company is independent of others. J.R.D. Tata, according to me, is the best business leader this country has seen. He was a first among equals rather than an assertive leader. He was respected both in corporate and outside world. Ratan Tata has also enjoyed a similar kind of image as chairman as his predecessor.
Long ago when the Tata group was deciding to shut down the chemical business as it was not doing very well, J.R.D. said that Tata brand was all about giving ‘hope’ to people so shutting down a business would damage the reputation and hence ruled it out. What I am trying to point out is that for a chairman to be successful in Tata group he cannot be too aggressive; he has to be a consensus leader. That has been their secret to success. Whether it will be somebody from the Tata family or group or a professional from outside, only time can tell.
Another business group that can come close to Tatas both in terms of business and non-business reputation and having an unblemished reputation would be Wipro group. L&T and Mahindra and Mahindra group can also be compared with Tatas for their professional management and strong streak of idealism. Others like Infosys are too young to establish a business tradition.
What is your impression of Tata’s letter to the Prime Minister informing him of the decision by Tata Sons Board to replace Mistry as chairman?
I have not been able to understand what made him write the letter. A change in leadership has to be informed to the Company Law Board that is a link between the government and company. It was not necessary. I couldn’t follow and I cannot approve of it. If every Indian company starts following the same, it could flood the prime minister’s mail box.