View: A lasting resolution between Ratan Tata and Cyrus Mistry is the only way forward

By Mukund Govind Rajan


The recent National Company Law Appellate Tribunal (NCLAT) judgment on the Shapoorji Pallonji Group’s appeal against an earlier NCLAT verdict, has created quite a stir. The legal community seems to be divided on the interpretation of the order for the reinstatement of Cyrus Mistry as executive chairman of Tata Sons, and it is unclear how any further appeal to the Supreme Court might be dealt with. Meanwhile, Tata group stakeholders are staring at a period of uncertainty until clarity emerges.

As a former employee, my heart goes out to colleagues who have lived through perhaps the most turbulent period in the group’s history. There have been previous crises, including the Tata Finance scandal in 2001 and the so-called 2G scandal of 2010, and each time, the Tata brand bounced back stronger; even today, the brand is rated the most powerful Indian corporate brand by international brand advisory firm Interbrand. However, this crisis is different, with intense stakeholder scrutiny of governance and profound long-term implications for the brand.

The principal protagonists in the two camps are Ratan Tata and Cyrus Mistry. Both are individuals I have had the privilege of working closely with in the past. Both are thorough gentlemen, humble and grounded leaders, with a good grasp of technology and a curiosity about the changing world. Both have been new-age leaders for a new India, Tata coming into his own in a post-liberalisation India and Mistry in an increasingly digital India. Both still have much to contribute to Tatas and to India.

The four weeks, which the NCLAT has allowed for an appeal before the Supreme Court, perhaps present an opportunity. At a time when corporate India desperately needs role models, many well-wishers of the group will be hoping that Tata and Mistry will direct their teams to arrive at a lasting resolution that sustains the brand for the foreseeable future, before the matter goes back to the courts, rather than letting external entities dictate possibly sub-optimal outcomes.

Brand for All Seasons
The Tata brand clocked its 150th anniversary in 2018. When stakeholders wonder what has sustained the brand for such a long time, I point to two key factors. The longevity of leadership at the top — with only seven leaders at the helm in 150 years — and the group’s commitment to values-driven business conduct. These are reflected in the group’s mission statement: “To improve the quality of life of the communities we serve globally through long-term stakeholder value creation, based on leadership with trust.” However, these attributes have been coming under pressure recently.

The group has had a history of nation-building through creation of employment in industrial sectors of national importance. More recently, though, across sectors like automotive and steel, with the advent of automation and robotics, significant workforce reductions have taken place. There has also been substantial attrition in newer but stressed sectors like telecom. Declining job-creation potential in traditional sectors has in fact been masked by growth in IT and IT-enabled services — TCS now employs over 400,000 people, over half of the Tata group’s employee base. But new job creation channels will need to be found if the group has to live up to its venerable history in a country which, more than ever before, needs job creation at scale.

The group’s reputation for giving back to society has been another critical element that has shaped its brand equity. The community engagement activities of companies like Tata Steel and Tata Motors have earned Tatas enormous goodwill. However, the amendments to the Indian Companies Act and the new CSR rules mean that merely spending on CSR is no longer a key differentiator. In my travels across Odisha, it became clear that where Tata Steel was once the lone vehicle of social change, now companies like JSW Group and Vedanta are doing a huge amount of work with local communities.

Model for the Future
JRD Tata famously articulated the trusteeship concept: “The wealth gathered by Jamsetji Tata and his sons… is held in trust for the people and used exclusively for their benefit. The cycle is thus complete. What came from the people has gone back to the people many times over.” The current situation offers Ratan Tata and Mistry an opportunity to converge, as shareholders, on what they wish the group’s lasting legacy to be. Can it include an amazingly successful charitable organisation (Tata Trusts), a well-resourced business group that sustains the legacy of nation-building (Tata Sons), and a brand that is universally admired for giving back to society (Tata)?

In this construct, the Tata Trusts may wish to consider refocusing their efforts on their philanthropic endeavours, gradually distancing themselves from the business of Tata Sons and the Tata companies. Progressively liquidating their holding in Tata Sons, not dissimilar to the manner in which the Wellcome Trust divested its legacy interests in pharmaceuticals in the mid-1990s to Glaxo, will create the richest charity organisation in the world, worth well over $100 billion. The yield on this could generate at least $6 billion a year, allowing the Trusts to multiply their annual funding of charitable initiatives, 50-fold in one stroke, delivering positive social outcomes on an unprecedented scale.

To create liquidity in the hands of the Tata Trusts (and indeed other shareholders, including the Shapoorji Pallonji Group), an option may be to publicly list Tata Sons. Then there would be the inevitable public scrutiny listed companies find themselves under, and a requirement to have a distinctive board of directors. The combination of public scrutiny and a respected board would yield an institutional framework with sufficient checks and balances to give comfort to the remaining Tata group companies, particularly the listed ones, that their interests at the level of the promoter will be fully protected.

Tata Sons could even choose to present itself as a “B Corp”, a Benefit Corporation that is a for-profit entity trying to do well by doing good and delivering on its job creation promise. Ratan Tata is already one of the leaders of the global nonprofit, The B Team, founded by Sir Richard Branson. Tata Sons could nurture its existing businesses and protect jobs, while pursuing exciting new areas of business exploration, including finding answers to critical sustainability challenges like global warming; some of the resources to fund this would naturally come from monetising its holdings in companies like TCS, as it has already been doing.

JRD Tata once said, “I don’t want India to be an economic superpower. I want India to be a happy country.” Likewise, the yardstick to measure success at Tata Sons need not be the profitability criterion alone, but a range of other attributes that comprehensively measure delivery on its stated mission – to improve the quality of life of the communities it serves. Ratan Tata as leader of the Tata Trusts, and Mistry as a significant shareholder in Tata Sons, have an opportunity to demonstrate the statesmanship both have in spades, to pull the group out of the cloud of uncertainty it currently rests in, and define a sustainable future for the Tata brand that many Indians will applaud.

(Mukund Govind Rajan is a former brand custodian of Tata Sons and the author of The Brand Custodian: My Years with the Tatas)