TATA SONS – THE M(I)STRY SAGA – Part 3

What really went wrong?

Continuing from our previous post (Part 2) we try to piece together the specific issues that could have contributed to the trust deficit at Tata Sons Boardroom, leading to Mistry’s ouster.

 

Group Mindset –

To unravel and unfold the present mess, it is essential to first understand the circumstances where it all began. It is about reflecting on the leadership mindset and motivations of Tata Group as well as its philosophy and purpose.

Ratan Tata who had spent 21 years helming the affairs of the Group, was scheduled to demit the post of Chairman of Tata Sons upon achieving superannuation in 2012. Here was a man who through sheer willpower and single minded pursuit succeeded in bringing disparate set of businesses, which were initially functioning as personal fiefdoms of the original satraps handpicked by JRD Tata, under a common banner to leverage cross industry operations and also build deeper synergies in Group operations. This was principally driven with an objective to not only build synergies but also propagate Group philosophy and purpose across all businesses. This not only required the Group companies to be brought under common command structure, but also create tight alignment between the objectives of the Trusts (Tata Trusts), Holding Company (Tata Sons) and the Group Companies (Tata Businesses). It is this pursuit that became the defining legacy of Ratan Tata in institutionalizing the governance, leadership and business practices across the Group. A pursuit that went on to define the mindset of the Group in remaining steadfastly committed to the founder’s philosophy and purpose.

It is in the background of the Group mindset that the current issues at Tata Sons need to be seen.

False Start –

The Group had undertaken major expansion steps in not only spreading its business operations but also deepened their market offerings through acquisitions and new launches. This was undertaken on the back of anticipated global economic boom right up to the run up to the global financial crises that took place early 2008. Most of the inorganic expansion plans were driven through ambitious borrowings/ debt (Total debt stood at USD 26 Billion) that seemed to make business sense on the back of expanded global economic activity. The global financial crises took the wind out of the sails of most of these plans and the Group was saddled with expensive assets that needed to be serviced. The need of the hour for the Tata Sons Board was to seek a successor candidate as Chairman who had considerable experience in managing complex businesses in disparate geographies. Someone with deep understanding of driving business synergies, raise performance and productivity, introduce cost rationalization, support business growth and financial restructuring capabilities. Additionally the individual had to remain true to the philosophy and purpose of the Group and ensuring tight alignment amongst the various stakeholders. This was a delicate balance

Mistry was on the Board of TATA Sons since 2006 since his father demitted office. He had spent close to 6 years on the Board and was well saturated and steeped in the TATA culture and way of doing things. In fact there is a distinctive possibility that this consideration could have been a clincher in terms of his appointment as Ratan Tata’s successor. Which brings us to the moot point – did the selection committee tasked with identifying a successor err in appointing Mistry without sufficiently assessing his fitment from a mindset perspective to lead the Group, especially in the aftermath of the global financial crisis?

This is a critical issue to consider and decipher before arriving at any conclusion on what could have contributed to the current precipice at Tata Sons Board.

Marking Legacy Issues –

It was evidently clear that there were serious legacy issues that were inherited by Mistry in the run up to his appointment as Chairman. It included Tata Steel Europe (Corus), Tata Nano, NTT DoCoMo share buyback, TATA Power Mundra project amongst others. These challenges were in active mode for sometime and were featuring in the leadership radar of the Tata Sons Board. Challenges that were extraordinary both in terms of complexity and scale. Given that these were complex business issues that needed deeper engagement of the Board, the need of the hour for Mistry would have been to ring fence these issues for active consideration from immediacy perspective. It would have been of great significance if Mistry had constituted a separate committee (as an extract of the Board) to handle and manage these complex challenges. This would have ensured the Board as a whole would have assumed collective accountability for finding lasting solutions for these issues thereby insulating Mistry from possible backlash.

Mistry could have prepared a strategic plan that used differentiated approaches to handle legacy issues from the regular business issues of the Group. This would have won him considerable support from Board members while giving him bandwidth to drive the normal business objectives with greater latitude. By not marking out the legacy issues, Mistry created an entrapment for himself by taking on issues that clearly needed more heads to closely engage.

The criticality of the legacy issues that turned into management hotspots might have played an active role in pushing Mistry into taking business decisions that were perhaps contrarian to Group ideology and philosophy, thereby building trust deficit between Chairman and the Board.

In our next post (Part 4) we will continue with the factors that contributed to the issues reaching precipitous state at Tata Sons.

 

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