The Last of the Tatas

A year ago, I wrote a short note about Ratan Tata's leadership of the Tata group. I had pointed out that given my association with the group and Mr. Tata over the years, I carried the risk of being partial but would attempt to be as objective as possible. A few days after I published that note, Mr. Tata told me that he had read it and would have preferred if I had been less syrupy with my language; I guess he was reacting to my comment that he represents the Pinnacle of Leadership. So as I write this note, I know that if there is one person who will expect me to be fair and objective in my opinions, it will be Mr. Tata.

The past two months have seen an upheaval in the Tata group that hasn't been experienced in over a decade. Cyrus Mistry's replacement as Chairman of Tata Sons was surely unexpected and apparently sudden. However, (and we can say this only with the benefit of hindsight), it is not difficult to connect the dots. But first, let me get something else out of the way. I have heard, in the media and in my social (media) circles, a comment about Mr. Tata's "return" as the Chairman of the Tata group, that warrants a response:

The old man really needs to let go.

Even as we ignore the patronising age reference, there seems to be a widely held view that Mr. Tata could not walk away gracefully into the sunset and wanted to hold on to his earlier power as the Chairman of Tata Sons. The truth is altogether different. 

Firstly, Mr. Tata was absolutely enjoying his new innings as one of the most visible angel investors in Indian (and overseas) startups. He was also actively engaged with building a new purpose to the Tata Trusts philanthropic activities. Did he have any time to miss being at the helm of Tata Sons? Having closely tracked his calendar for the past two years, I can emphatically say that he was busier (and in many ways, happier) at work with the new things that he was doing, for him to want to change it. 

Secondly, was Mr. Tata ever going to be disconnected from the Tata group? Of course, not. Remember, he spent two-thirds of his life in various Tata group roles, probably at great sacrifice to his personal life. So, he was bound to have a view on various decisions that he c/would express (or share) through appropriate means. And, in fact, as Chairman of the Tata Trusts, it was also incumbent on him to have an opinion and oversight on the group’s vision and strategy (more on this later). Some also pointed out that Mr. Mistry was being "punished" because he was taking tough decisions and selling group assets. Maybe we don't recall that Mr. Tata took many divestment decisions during his tenure as Chairman, so he is familiar and comfortable with exiting some businesses as much as he has grown the others.

Finally, if indeed Mr. Tata wanted to "return" and control the group, he could have actually achieved it in many other ways, particularly when the majority of the Tata Sons board and shareholders were in his support. 

So, let me go out on a limb here and say that Mr. Tata is currently in a situation that he did not want to be in, but has been forced into. This is not Mr. Tata fighting Mr. Mistry, as the media & Mr. Mistry have positioned it. This is not about Mr. Tata at all. It is about the future of the Tata group: Tata Sons and Tata Trusts. 

Why, then, was Mr. Mistry replaced?

I must clarify that I don't know the reasons, but what follows is cautious speculation based on public information and my knowledge of how the Tata group operates. 

Let me try to connect a couple of dots: a specific incident and a strategic intent.

Leadership with Trust

It has been absolutely surprising that in the hundreds of articles and opinion pieces on the 'Tata-Mistry battle', there has been just a passing mention of an incident that (if true) would otherwise have single-handedly justified the decision of the Tata Sons board. On November 8, 2016, the Economic Times wrote a detailed report about sexual harassment allegations against the CEO of Indian Hotels and that the senior-most leaders of Tata Sons did not take credible action to inquire into the complaint and support the employee who was harassed. Of course, given the statements that were flowing from both sides at that time, it is possible that the media believed this to be "dirty linen being aired." But we know for sure that this was not a false allegation made up because of the "battle". On June 6, 2016, the Huffington Post had a blog post that gave a detailed account of the allegations, and it was reasonably obvious that the references were to the Tata group/Taj hotel (one of the comments dated June 29 identified the company). A senior leader in the group is supposed to have said that "many CEOs flirt a bit". The Chairman is supposed to have tried to offer her "an alternative but equivalent position."

Somewhere, somebody forgot that when there is an allegation of sexual harassment against a CEO, the due course of action is to investigate thoroughly, and not ‘settle’ the matter. Even if the complainant requested to "put the issue behind her", it is the corporate's responsibility to pursue the matter to its logical conclusion. She might have chosen to put the issue behind her, but what about others who might be facing (or would, in future, face) a similar situation? We now know that an independent inquiry was initiated in July 2016, eight long months after the lady had written a letter to Mr. Mistry with her complaint. If the complaint was credible enough for the Chairman to have tried to find an alternative career option for her, the inquiry should have happened immediately. In my view, this was a violation of not only the group Code of Conduct, but also the law. 

The failure, in this case, goes right to the top. 

Tata Sons and Tata Trusts

I had written in my note last year that the Tata group is structurally quite different from most corporate houses, and therefore, tougher to understand and analyse. Tata Sons, I had pointed out, is like a private equity firm, managing its portfolio of investments in group companies and incubating new businesses. The various Tata Trusts, as the majority shareholders of Tata Sons, represent the vision of the founder and his family members. Jamsetji did not believe in charity; he said, "What advances a nation or a community is not so much to prop up its weakest and most helpless members, but to lift up the best and the most gifted, so as to make them of the greatest service to the country." In that sense, the role of the Tata Trusts is not just to carry out philanthropic activities but to ensure that its investing arm (Tata Sons) continued to build enterprises and institutions that would serve the nation and create long term wealth.

During the tenures of Sir Dorabji, Sir Ratan, JRD and Mr. Tata as Chairman, there was congruence between the vision of the family / trusts and the business strategy. For the first time in the history of the 150-year old group, the Chairman of Tata Sons was not a member of the Tata family; in fact, he was a member of another business family that has minority shareholding in Tata Sons. And while Mr. Mistry has declared himself the heir to Jamsetji Tata's legacy, there is no evidence (during his recent stint at Tata Sons or his earlier roles within his family's business) of a vision of institution building or conscious capitalism. In his bid to play the victim card, Mr. Mistry has sought to throw all kinds of stones in every possible direction, even if it meant casting aspersions on the Tata group, in spite of him being associated directly and indirectly with all those decisions. Worse still, he has levelled personal allegations against Mr. Tata which would have been laughable, if not for the seriousness with which they were said and heard. I felt sorry for him initially, but now I feel that his words and actions have proven why he was replaced.

In my opinion (and as stated earlier - with the benefit of hindsight), Mr. Mistry was the wrong choice for the role of Chairman, Tata Sons. The selection committee at that time appeared to looking for a professional CEO for Tata Sons; why they unexpectedly chose an unproven, minority shareholder for the role is a mystery. The inherent conflict of the contrasting Tata family nation building vision and the Mistry family financial investor goals was handled during JRD and Mr. Tata's time through a tacit truce; the Mistry family agreed to a cordial relationship of non-interference (for more details, read this fascinating story). With Mr. Mistry at the helm, the equation changed and probably created irreconcilable trust gaps about the future of Tata Sons/group. This could explain why the Tata Sons board (or an operating company's board) might laud Mr. Mistry's recent performance, but the Trusts might lose confidence in his leadership and strategic vision: they are measuring different things.

The clear separation of the roles of Chairman of Tata Sons and the Trusts has happened for the first time. I doubt we will see the same person heading both entities again. Mr. Tata is the last of the generation that grew up in the ethos and ethics of the original founding fathers. It would be easier to find a professional Chairman for Tata Sons, preferably from within the group; finding a successor for Mr. Tata as the Chairman of Tata Trusts will be difficult. 

I found it heartening that, for the most part, Tata group companies and their employees have been going about their business without much disruption. This reinforces Mr. Tata's comment that the group as an institution is much larger (and resilient) than the individuals who lead it. Of course, there will be many lessons learnt and changes made, I believe. The complex role of the group Chairman requires any individual to have a much longer learning curve / runway before taking the controls; such transition needs to be factored into future succession plans. Greater formal clarity on the respective roles & expectations of Tata Sons and Tata Trusts would surely be built along with the selection of the new Chairman. Equally, the role and rights of Tata Sons in the board composition and strategic decisions at the publicly listed operating companies will need reinforcement / reiteration. 

In conclusion, I would like to urge my friends and colleagues to consider this question: what did a 79-year old man have to gain being at the forefront of this decision? It can't be because he would gain more money than what he already has. It can't be because he would gain more fame than what he already has. It can't be because he would gain a title that he already hadn’t. But has he lost anything through this process? Yes, he has been called many names and has been falsely accused of various wrongdoings. Yes, he has lost the support of many whom he considered his friends. Yes, he has lost the peace and relaxation that his retired life should have provided him. 

So why would Ratan Tata stake so much for so little personal gain? Therein lies the answer. It has nothing to do with Ratan Tata, and therefore, only Ratan Tata had the courage and conviction to do what had to be done. 

Disclosures: This note represents my personal opinions and views based on my 18 years of association with the group; I have not discussed this issue with Mr. Tata or any other senior Tata group executive. I continue to have professional / business relationships with various Tata group companies. My company, Globalgyan Academy of Management Education Pvt. Ltd is one of several startups in which Mr. Tata has made an equity investment.