Tata vs Mistry: Only Tata Sons allowed

Published: Thu, 12/08/2016 - 12:54 Updated: Tue, 08/08/2017 - 10:13

The current war of words between Ratan Tata and Cyrus Mistry is the latest in a long line of pitched battles that the septuagenarian has fought to retain control of the Tata group

Before Cyrus Mistry there was Ajit Baburao Kerkar. Nearly 20 years ago Kerkar was ousted as chairman of the Indian Hotels group by a board meeting convened in similar circumstances to those of Mistry’s exit. In 1997 Kerkar called his last board meeting at Bombay House after an internecine turf war had erupted between him and Ratan Tata. Tata had asked Kerkar to step down from the post of chairman. When Kerkar refused, group director Nani Palkhivala went to the media and informed them that Kerkar was guilty of possible Foreign Exchange Regulation Act (FERA) violations. This was perhaps the first case in Indian corporate history where a board had gone to the Reserve Bank of India (RBI) against its own executive leadership. When Kerkar was ousted on charges of corruption it was Ratan Tata who assumed full control of the group. During that infamous meeting at Bombay House the board had anointed Tata as chairman of the Indian Hotels group, with Kerkar gone there was no one to stand up to Tata anymore.

The feeling of déjà vu that old timers at the Tata group are experiencing now is similar to what those at the helm during the tumultuous exit of Kerkar must have experienced. Kerkar was not the first scalp of Tata’s. That dubious honour goes to Russi Mody. When in the late 1980s JRD Tata decided to anoint Mody as the successor, he earned the patriarch's ire by going to the press and bragging about it. Eventually it was Ratan Tata who was appointed as the group chairman. This did not mean that group satraps like Mody would relinquish control. Mody tried to install his protégé and adopted son Aditya Kashyap as the successor in Tisco, superseding the much more experienced Jamsed Irani. To scuttle the ambitions of the likes of Mody and Darbari Seth, another group satrap, Ratan Tata introduced the rule that managing directors should retire at 65, and chairmen at 75. Mody and Seth were eventually phased out. It is another matter altogether that to accommodate Tata the board of directors again amended the age limit.

Boardroom battles were not the only manoeuvre through which Tata sought to extend control. His most controversial corporate decision was to impose a royalty on group companies for their use of the Tata brand name. A cut of 5 percent before tax were supposed to be paid to Tata Sons as a fee that would help Tata Sons increase their holding in group companies. The decision essentially put the interest of the promoters before that of the shareholders. Some labelled it audacious corporate plunder. The move was widely criticised and cited as an example of plain bad corporate governance.

With the ouster of Mistry the halo that surrounded the Tata group has diminished significantly. The cloak and dagger manner in which it was conducted has created an unsavoury image in the eyes of the general public. The acrimony has intensified to such a level that yesterday Cyrus Mistry put out a statement that in plain words said that Ratan Tata is lying. In what must be a coup de grace on Mistry’s presence in the Tata group, six Tata group firms—Tata Consultancy Services Ltd (TCS), Indian Hotels Co. Ltd, Tata Steel Ltd, Tata Motors Ltd, Tata Chemicals Ltd, and Tata Power Co. Ltd—have called for extraordinary general meetings (EGMs) this month to seek Mistry’s removal as a director. 

If history is any indicator then Mistry’s dismissal was keeping in line with Ratan Tata’s need for control. In appointing another successor soon Ratan Tata should consider anointing a willing conduit rather a man with a mind of his own.