Ever since Cyrus Mistry was ousted from the chairmanship of Tata Sons, holding company of the $ 100 billion-plus transnational Tata Group, on October 24, corporate governance or the lack of it has become the epicenter of business discourse in the region.
The curious and intriguing turn of events at the Tatas has set tongues wagging in the corporate world. Too much dirty linen has been washed in the public following the sudden, unceremonious and undignified toppling of Cyrus Mistry at the behest of former Group chairman Ratan Tata who has taken over as the interim chairman till Mistry‘s replacement is found.
In the meanwhile, allegations and counter-allegations are being bandied about with abandon by both the sides. Mistry‘s core team has also been shown the door at minutes‘ notice. Mistry himself was chucked out within 20 minutes.
“Turmoil in the House of Tatas has lessons for all”
This is not Tata-like. The salt-to-steel Group has a global footprint with over 6, 60, 000 employees spread across its 100+ companies, at last count. The Tata Group is known for its business diversity and reach. The Group‘s companies have major presence in airlines, automotive, consumer goods, chemicals, defence and aerospace, electricity distribution, engineering services, financial services, healthcare, information technology, locomotives, steel, telecommunication and real estate. There are a host of subsidiaries as well.
But more than that, the Tatas are viewed as leaders in the realm of corporate governance, business probity and integrity. The Group is a live legend in the domain of philanthropy. It was awarded the Carnegie Medal of Philanthropy in 2007.
However the dirty war being fought in Tata House today has grievously hurt its most prized asset â€“ the image as an upright and principled business house. Too many skeletons are tumbling out of hitherto known and secret cupboards. In the on-going battle, a host of independent directors, stalwarts in their own right, have chosen to stand by Mistry.
Ratan Tata and team were apparently taken by surprise and have marshalled the best resources to shield themselves. Their nine-page rejoinder to issues of corporate mis-governance raised by Mistry has been viewed by the corporate fraternity as a rather desperate face-saving device.
Cyrus Mistry has alleged that his decisions on legacy issues irked the old guard. Mistry wanted that the leadership of different Tata Trusts, which are stakeholders in the Group, Tata Sons, operating companies and the role of the chairman of the two entities should be defined clearly, with clear checks and balances. This, it is claimed, was resented by Ratan Tata loyalists. According to Mistry, Ratan Tata was not willing to “let go ofâ€ control in his capacity as chairman of the Tata Trusts. Lastly, Mistry talked of certain “vested interestsâ€ who wanted status quo to prevail. Mistry found this a major stumbling block in his quest to transform the unwieldy and elephantine Tata Group into a mean and lean operation.
The Ratan Tata camp accused Mistry of focusing only on some cash cows like Tata Consultancy Services, India‘s largest IT company with a turnover of $ 16.54 billion and profit of $ 3.70 billion in 2016, at the expense of other Group companies. Mistry has also been accused of designing a gradual takeover of the Group.
The Ratan Tata camp members have also openly stated that Mistry‘s business style was weakening the philanthropic activities of the Tata Trusts, a cause at the heart of Tata culture and ethos. The charge sheets from both the sides seem to be endless. The House of Tatas is headed for a long battle in full public view.
The issues at hand are so complex that none can sit on judgment, at least at this point of time, on the merit of either camp, but the fact remains that Ratan Tata and his loyalists had brought in Mistry as the Tata Group chairman though he was not even in running for the position. Actually, as a director in Tata Sons, Mistry was a member of the committee to select Ratan Tata‘s successor four years ago. Unable to find a suitable candidate after a long search, Mistry was made the chairman which he did after exiting the selection panel and its functions.
Much water seems to have flown down the river since then. But what one finds abounding the drains around Tata House today is intrigue, allegations and corporate effluents.
Indeed a sad state of affairs for the Tatas! But also for the corporate world in the region which has always viewed the House of Tatas as a torch-bearer of corporate governance and integrity. But how the mighty fall! Unbridled ambition and hubris can undo the good done over decades.
But like all clouds, this one too has a silver lining. The Tata turmoil has once again focused the attention of all right-minded business persons on the dire need to accept, observe and implement the tenets of corporate governance.
Business needs to be clean, transparent and accountable. All the more so in Nepal where plutocracies of different shades have shaped all our systems ever since I can remember!
Commenting on the role of independent directors, Raghu Palat, managing director, Cortlandt Rand Consultancy, observes, “In many companies which are majority-owned by a family or a few individuals, the persons controlling the company tend to treat it as their own fiefdom and utilise company funds and resources for personal enjoyment. Company planes (which the company may not need) are used for trips to resorts abroad to hold a board meeting. Paintings by reputed artists purchased at astronomical prices adorn private homes. Homes are lavishly decorated at company expense. The independent director in many cases may not be aware of thisâ€¦Shouldn‘t the independent director question and seek answers?â€
Palat, who is an independent director in a few companies in India, has pointed out how the independent directors in the highly profitable United Breweries did not act diligently enough to oppose the company‘s decision to launch Kingfisher Airlines which proved to be a disaster. There is no dearth of such examples in Nepal too, all the more so as most companies are not listed in the share market and do not need to have independent directors. Any day, good independent directors can serve a better purpose compared to a board made up of just family members and company employees.
Dev Raj Dahal, in an article entitled ‘Towards alternatives: Vision of good governance in Nepal‘, aptly commented, “Governance works best when those at the helm of public affairs stop assuming that they know the bestâ€¦ Development is about more than free markets for the private sector and reduced role of public institutions, including the state and civil society. It is also about the integrity and accountability of the corporate sector of governance.â€ Further on in his research paper, Dahl lamented, “Ironically, however, Nepal does not have a better-than-average economic transparency.â€
In Nepal, businesses, big or small, have been built and grown by entrepreneurs. Outside capital in form of public shares through IPOs is sought only when a business needs to grow fast and big and yet be ready to subject itself to external scrutiny and rigours of the rule book.
But most Nepalese business houses are used to a culture of unquestioned autonomy, secrecy and independence. Add to these opaque book-keeping and disclosure habits, all facilitated by a corrupt regulatory regime. Few of them have ever undergone a truly independent audit.
Seekers of FDI and foreign tie-ups are unaware of international accounting standards. International investors are wary of joining hands with such companies. Ultimately, the overall economy and the country suffer.
The recent demonetization exercise in India has highlighted the perils faced by businessmen riding roughshod over even the most basic requirements of corporate governance. It‘s a move whose time has come. The clock shall not stop for Nepal. It‘s time we governed our businesses by the book and enable Nepal to get out of the clutches of poverty and underdevelopment.
Basant Chaudhary is a Poet, Writer, The Chairman of BLC and Basant Chaudhary Foundation. ([email protected])