Should Tatas run Tatas anymore?
Published: Nov 03, 2020
By V Ranganathan
THE Mistry group has come up with the most pragmatic option to separate from the Tata group by seeking pro rata distribution of assets and liabilities of Tata Sons.
The denouement may still be some distance away as the experts involved won't easily let a settlement emerge as they may fear that their contribution may go unnoticed otherwise. But the plan is perhaps the only workable solution that mitigates the issues on arriving at a fair value though it doesn't completely obviate the need. Tatas in their present state can hardly claim themselves to be in the pink of financial health; TCS being the sole cash cow supporting a leviathan that has lost its way in the post liberalisation era. Most adventures of the group since 1991 have come unstuck. As a consumer, I don't much associate Titan with Tata group and see it as a pure standalone entity. But it is an exception nevertheless. It may be an interesting study to undertake to find the relative performance of various Tata company vis-à-vis their peers in India and globally as well. Very intuitively as a shareholder in some of the companies I am not afraid to say that it must be inglorious. In fact there are stand out failures like the failure of Tata Finance at the stroke of the new millennium and the later fiasco of its entry into Telecom, car manufacturing etc. The vanity purchases offshore are still a millstone around their neck having consumed enormous capital which could have been more profitably employed by the nation in any alternative venture. The group has been afloat on the back of the stellar performance of the technology business and TCS, lead by some of the finest professionals, has been constantly bailing out the rest of the group, like the NTT Docomo settlement and putting out fires, wherever else it surfaced. So what has been the signal contribution of the so called Tata Group or Tata family or Tata management?
The Tata group is peculiarly owned by public trusts who are the majority owners of the holding company, Tata Sons P Ltd. This is a very rare phenomenon as laws in India post independence discouraged in various ways the ownership of companies by public charitable trust. This restriction have been at various points in time criticised by corporate india as antediluvian and retrograde. But going by this very example of the Tata group, I believe there is great merit in continuing the present dispensation. Any public charitable trust, by its very constitution, is supposed to further common good and maximise public wealth by contributing to causes allowed under its charter. It can never be an instrument to act as a proxy to a private interest that seeks to perpetuate its occupation of a turf. It is fair if the trust charter had mandated that a Tata family person should be heading the board of trust at any point in time. There is nothing unholy about it. But the trust cannot be a vehicle for a Tata family person to run either Tata Sons or any of the investee companies of Tata Sons. That would clearly create a conflict between the objectives of maximising value for the trust' endowment and supporting the family of its founders to indirectly perpetuate themselves in management when they have ostensibly divested their shareholding and thereby their interests to represent the divested shareholding in the business where the shares are invested. However, history shows that such has not been the case and Tata family was directly or by proxy always controlling the group just because of the surname 'Tata'. While at no stage in the past did the extent of conflict become visible, the modus of exiting Mr Cyrus Mistry and the following fracas has clearly demonstrated the vice of this structure and how power centres could perpetuate themselves which they could not have in normal situations as without shareholding it is unimaginable to control companies in any jurisdiction, or any type of economic system. It is unfortunate that the independent boards of the various companies and the non-Tata shareholders played alongwith this and made it look as if this was the right way to govern one of the largest groups in this country. Contrary to the popular belief that Tatas do no wrong the group clearly suffers from serious governance gaps that would have been very adversely viewed in any other large market economy or had it been a less hallowed conglomerate in India itself. The past glory has been masking the festering pustules the conglomerate suffers from.
It is time the true spirit of the trusts having to maximise the public good should replace the trusts acting as proxies for an individual or a nominee of anyone to occupy a position in the company. In the most pristine situation the trusts should seek to maximise value for themselves and if wisdom dictates that they should sell the Tata shares and invest in a better value enhancing investment, they should do so. The raison d'etre of the trust cannot be to help a cabal hold sway over a vast industrial empire. There is need for a public debate on this being continued.
The interest of the shareholders in various Tata companies have clearly been compromised. The division of assets proposed by Mistry camp is perhaps the inflexion point to ask the question "Should Tatas be run by Tatas any longer?"
[The author is Former Director, Tax, E&Y Chennai and the views expressed are strictly personal.]
