The Shapoorji Pallonji Group (read: Cyrus Mistry) has come up with a pragmatic option to separate from the Tatas by seeking a pro-rata distribution of assets and liabilities of Tata Sons, the holding company of the salt-to-software conglomerate.
A separation of the kind envisaged by Mistry & Co is still quite a distance away. After all, a simple solution may yet be perceived as something too infra dig by the very many experts involved in this high-stake dispute resolution. A simple solution may perhaps render their expert services redundant. This fear is bound to play on their minds, and force them to erect roadblocks towards what appears to be a simple and easy end to the imbroglio.
The problem at hand for the SP Group is arriving at a fair value for their holding in Tata Sons, one that is also acceptable to the Tatas.
In this light, the SP Group’s proposal – which will be a largely non-cash settlement – is perhaps the only workable solution for addressing the issue.
The Tatas, in their present state, can hardly claim to have performed strongly over the last decade, with TCS – their hugely profitable IT services company – being the sole cash cow supporting a leviathan that has stumbled more than a few times in the post-liberalisation era. More than a few adventures of the Tata group since 1991 have come unstuck. There are a few honourable exceptions like Titan, but they are the exception.
At this point in time, a detailed study may be in order to map the relative performance of various Tata companies vis-a-vis their peers in India and globally as well. A cursory dip into their working doesn’t really give an enthusiastic view. There are stand-out failures. The failure of Tata Finance at the stroke of the new millennium and the later fiasco of its entry into telecom throw some light on the Tata empire’s missteps.
The group’s vanity offshore purchases are still mostly a millstone around its neck, having consumed enormous capital which could have been more profitably employed by the nation in any alternative venture.
Indeed, the Tata group has been afloat on the back of the stellar performance of the technology business and TCS, led by some of the finest professionals, has been constantly bailing out the rest of the group. Its generosity in the NTT DoCoMo settlement is still fresh in memory.
Trusts, a way forward?
The Tata group is peculiarly owned by public trusts, which are the majority owners of the holding company, Tata Sons Pvt. Ltd. This is a very rare phenomenon as laws in India post-Independence discouraged the ownership of companies by a public charitable trust. The restrictions have been at various points criticised by corporate India as antediluvian and retrograde.
But going by this very example of the Tata group, there is great merit in continuing the present dispensation. Any public charitable trust, by its very constitution, is supposed to further the 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 the trust at any point in time. There is nothing unholy about it.
At the same time though, the trust should not end up being the primary 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’s endowment and supporting a 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 the Tata family either directly or by proxy was always controlling the group just because of the surname ‘Tata’. At no stage in the past did the extent of conflict become visible. The modus of Mistry’s ouster, however, has changed that perception permanently. The independent boards of various companies and the non-Tata shareholders did not cover themselves with glory as the controversy unfolded in full public glare a few years ago. 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.
In the most pristine situation, the trusts should seek to maximise value for themselves. If wisdom dictates that they should sell the Tata shares and invest in a better value-enhancing proposition, 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 a need for a public debate on this. And, the debate has gained relevance in the context of the Mistry episode.
The division of assets proposed by Mistry camp is, perhaps, the inflection point to ask the question: Should Tata be run by the Tatas any longer?
K.T. Jagannathan is a senior financial journalist. V. Ranganathan is a veteran chartered accountant