When a nasty boardroom battle at a global industrial giant boils over, it often exposes uncomfortable connections. That is what is happening at Tata Group. The Tata Group is India’s most heralded firm, and a global leader that generates 70 percent of its $100 billion plus revenues outside India. Tata’s portfolio envelopes several global brands including Jaguar Land Rover, Tetley Tea, and Taj Hotels. Tata Consulting Services or TCS, a global leader in IT services, is listed on New York Stock Exchange with a market cap that exceeds $70 billion. And until a few months ago the sprawling Tata Group appeared to be a paragon of corporate excellence with an unassailable reputation.
That perception was bolstered in 2010 by a major $50 million gift by Ratan Tata (then Tata Group’s Chairman) to Harvard Business School, which provided for the construction of a building named after Tata that houses classrooms and dorms for Harvard’s executive training programs. Ratan’s gift also coincided with the earlier appointment in 2010 Nitin Nohria as the Dean of HBS. Nitin, who was born India and educated in America, is the first from outside the U.S. to lead the school.
Mr. Nohria and Mr. Tata have reportedly been close friends and confidants for many years. Their relationship cemented what was considered by many to be significant coup for Harvard and an American business community obsessed with rising Asia.
But the lofty aspirations of an emerging U.S.-India business compact have become severely damaged in light of a bloody boardroom fight at Tata that has exposed critical flaws in the company’s governance and operations. The fight has spilled over into the media in India and Europe, and left the company’s reputation in tatters.
The Mistry Deepens
It all started in 2012 when Mr. Tata resigned as Chairman of the company and recruited Mr. Cyrus Mistry to become his successor. The Mistry group is currently the largest shareholder in Tata, and the Mistry family has deep historical ties to the Tatas. Upon taking the helm, Mistry inherited a sprawling company that had grown somewhat laconic in the aftermath of a nearly decade-long acquisition spree. Losses among some of the newly acquired ventures were dragging down profits of the overall group, and Mistry sought to impose fiscal discipline by streamlining the byzantine structure of the firm (it is governed by a series of interlocking Trusts which control the various operating companies), and imposing a comprehensive framework for corporate governance.
Over time, Mistry’s efforts to tame the beast ran into opposition. Internal groups led by the Tatas, through their control of the various Tata Trusts, continued to make acquisitions and other managerial decisions outside of the newly established governance channels. In late October 2016, insiders appointed to the board of Tata & Sons, the operating company that houses its publicly traded businesses, engaged in a surprise boardroom coup that ousted Mistry from his perch as group Chairman and reinstalled the aging Mr. Tata, who is now approaching 79 years old.
Trustees of the Tata Trusts have authority to appoint directors to the boards of the operating company, Tata & Sons, as well as to subsidiary firms. These ‘Trustee-Nominated Directors,’ as they are called, were originally intended to provide independent advice in furtherance of the organization, and are widely seen as having a fiduciary, non-executive role. However when Dean Nohria, a close friend and confidant of the Tatas was appointed to the board of Tata & Sons in 2013, many saw an attempt by Mr. Tata to wrest control of the organization back from Mistry.
The plan seems to have backfired. Although Tata ultimately succeeded in naming himself Interim Chairman, his role as an unseen hand directing the actions of trust-nominated directors, including Mr. Nohria, have raised serious questions about the effectiveness of the governance controls of the firm. Some of the executives at the subsidiaries have openly sided with Mistry, leaving the company split down the middle. An estimated $17 billion has been erased from the market value of the publicly traded subsidiaries since October, and government investigators are looking closely at the firm’s internal controls.
For investors, this poses a dangerous situation. Mr. Tata has proven that he is not above cutting ethical corners to achieve his broader aims – an alarming state of affairs for a form of Tata’s size and global importance. Moreover, due to the high profile involvement of the first Indian Dean of Harvard Business School, some believe the controversy at the Tata Group reflects poorly on the developing India-U.S. business compact, especially at a time when America’s relationship with Asia is being placed under renewed scrutiny of global trade by the new administration in Washington. With Mr. Tata at the helm, the danger of veering further off course remains a distinct possibility.
BY OMARI A. WEST - 12/12/16 02:00 PM EST
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