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4 Reasons Why The Tata Sons 'Crisis' Will Blow Over Soon—And Even Win Praise

29/10/2016 9:45 PM IST | Updated 03/11/2016 12:24 PM IST
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Shailesh Andrade / Reuters

So much is being written about the latest saga at Tata Sons—the unceremonious firing of chairman Cyrus Pallonji Mistry and his subsequent allegations. Given the standing that the organization has in India and the world, the attention this has garnered is unsurprising. However, I strongly disagree with those who say it will impact brand Tata. I also take strong objections to those who are saying that the ouster was Machiavellian.

No one is spared if their performance does not meet expectations. For investors this is an indication that whoever leads the Tata Group will be held accountable.

Let's look at this matter objectively, keeping emotions out. Cyrus Mistry had lost the confidence of the board and he had to go. Any change creates heat, followed by noise. This is what is currently happening. Let me give you four reasons why this issue will blow over soon

The doyen is back in the saddle

Getting back Mr Ratan Tata in the saddle has been a masterstroke by the board of Tata Sons. Mr Tata has the stature and vision to steer this conglomerate. He is respected not just by the employees of Tata Sons and fellow industry leaders but by Indians and the world at large. In his 21 years as the chairman of Tata Sons, the market cap increased from ₹8000 crore in1991 to over ₹4.62 lakh crores in December 2012. He is the person who broke the satraps of the Tata Group—Russi Mody, Darbari Seth, Ajit Kerkar—in the 1990s. He grew the company by acquiring a host of companies such as VSNL, Corus, Jaguar Land Rover, Daewoo Motors, NatSteel and The Pierre. It's very easy to question some of these decisions in hindsight. But when these decisions were taken they were lauded by the media and industry watchers.

He has been the biggest custodian of Tata values, as was so aptly evident during the Singur crisis. The Tata Group cannot be more fortunate than to have him back. In the few months that he is there he will make sure all worries and fears are allayed in the minds of investors, employees and industry watchers. To make this happen he has already started meeting with institutional investors of Tata Group such as LIC, New India Assurance etc. On the employee front, he is the best person to get things back on the rails as he knows the DNA of the firm and has a personal connect with leaders across the organization. Because of his long association with the group and impeccable accomplishments, he still brings in huge confidence among all stakeholders.

Accountability at the highest level

It's not common for a person whose family has more than 18% stake in the company being removed from the position of chairman. We still don't know the exact reason for the exit of Cyrus Mistry. One thing is very clear, though: he had lost the confidence of the board of directors. The board held him accountable and felt he was not the right person to steer the company forward. Remember, Cyrus Mistry is a well known business leader in his own right. But the board had the courage to fire him. This shows the culture of accountability even at the highest level. So what if one is a chairman and has a majority stake? If he is not the right person for the future, he will have to quit the ship.

To many consumers of Tata products the current changes don't really matter. For them the brand signifies "trust" and "quality."

While some people have been questioning the corporate governance at Tatas, my response to them is that the board has eminent members who don't mind demonstrating exemplary leadership. No one is spared if their performance or behaviour does not meet the required expectations. For investors this is one of the best indications that whoever leads the Tata Group will be held accountable.

The strong leadership of Tata companies

The companies within Tata Group are run by extremely accomplished CEOs. Many of the CEOs are industry stalwarts and will quickly come around to this change. Yes, there are companies which may not be doing well but let's not forget these CEOs have the mettle to turn these businesses around. With Ratan Tata back at the helm, they may get an additional impetus to chart a new course.

Brand power

To many consumers of Tata products the current changes don't really matter. For them the brand signifies "trust" and "quality." While some consumers know about this event because of the media coverage, many are probably unaware. They will continue to buy these products. For many of them a product from the Tata stable signifies a rising and self-reliant India. Tata as a brand has got ingrained in consumers' minds over the years and will not erode so easily. Many of steps taken by the Tatas—such as the handling of the Singur crisis and how the employees were take care off after the terrorist attack on Taj Hotel—have further cemented their stature in the eyes of people.

The Tata management is quite conscious about their impeccable reputation and are avoiding washing dirty linen in public despite the outgoing CEO's observations making industry headlines.

I strongly believe that the Tata Group as an institution is too solid to get impacted by the removal of Cyrus Mistry. Within a few months things will settle down and the incident will be forgotten. Let's not forget brand Tata has survived many upheavals. This too will pass. A couple of years down the line, observers will extol the virtues of this move and how the board had the heft to make this correction at the highest level of the organization.

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