Tata Sons ousted chairman Cyrus Mistry has countered allegations that he contributed to rising expenses and impairments at Tata Sons.
“Insinuating the increase in expenses as a failure of Mr. Mistry is another brazen attempt to mislead the public and shareholders,” Mr Mistry’s office said in a statement while responding to a full-page newspaper advertisement released by Tata Sons on November 11, 2016.
The statement said some fundamental changes between the last five years of Ratan Tata’s tenure and the period under Mr. Mistry’s leadership contributed to rising expenses at Tata Sons.
“In the five years, several group centre (GCC) members held what were deemed “non-executive” roles in Tata Sons. They, including Mr. Ratan Tata, drew their compensation as commissions from Tata Sons instead of salaries. Several erstwhile directors of Tata Sons drew additional parallel commissions from operating group companies,” the statement said.
However, the group centre (GEC), reporting to Mr. Mistry, drew remuneration only from Tata Sons. No member including Mr. Mistry took any commissions from any of the operating group companies, it said.
“This arrangement was a cleaner and more transparent system to ensure that those involved in running the group were remunerated only by the group’s core investment company and not by the operating companies,” the statement added.
Mr. Mistry office said he added a few senior positions such as Group CTO and Group Strategy Head to enhance the group central capabilities to future-proof the group and his technology focus will be a differentiator for the Tata Group in the years ahead.
Increase in Public Relations (PR) expenditure also contributed to growing expenses the statement said. It said Nira Radia’s Vaishnavi Communication was Rs 40 crore per year but Mr Ratan Tata brought in Arun Nanda’s Rediffusion Edelman at a cost of Rs 60 crore per year for PR support ‘just prior to Mr. Mistry taking charge.’
“A part of this PR infrastructure was also provided to the Tata Trusts, while paid for by Tata Sons,” Mr Mistry’s office said.
It said Tata Sons was bearing the entire office costs of the Chairman Emeritus, Mr Ratan Tata. “This figure was about Rs 30 crore in 2015. A significant amount was for the use of corporate jets. This dual structure and attendant costs did not exist earlier,” Mr Mistry’s office said to justify the increase in cost.
Dismissing allegations that he never attempted to turnaround loss making ventures and went ahead with impairments his office said, “Mr. Mistry did not approach any of the businesses to do a quick cleansing so that he could immediately demonstrate decent results going forward.”
“The efforts of Tata Sons, under his leadership, have always been to look at Strategy, Structure and Leadership changes to drive operational improvements before examining Mergers, Exits or Shutdowns. All the decisions taken in this regard were in keeping with the Tata values and with the full consent of the Board,” his office said.
“The impairments and write downs at Tata Sons were due to legacy issues, largely relating to Tata Teleservices Ltd,” it said.
Mr Mistry’s office has pointed out some investments of questionable nature. These include Rs 400 crore investment in Nagarjuna Refineries and some investment in ‘SASOL JV’ (with South Africa’s Sasol in the area of coal to liquid).
“One investment in Piaggio Aero, a company in the aerospace sector with a friend of Mr. Tata, was especially distressing. Tata Sons decided to exit the company at a commercial loss of Rs 1,150 crore. This was after the efforts of Mr. Bharat Vasani (Chief legal Counsel Tata Sons) and Mr. Farokh Subedar (COO at Tata Sons) who managed to recover Rs. 1,500 crore, overcoming the objections of Mr. Ratan Tata who in contrast favoured increasing investments in that company. Today, the company is, for all practical purposes, nearly bankrupt,” Mr Mistry’s office said.
Mr. Mistry office said he focussed on building reserves and resources to handle the necessary write downs. “Between FY11 to FY15, Tata Sons networth, after considering impairments increased from Rs 26,000 crore to Rs 42,000 crore, significantly strengthening the ability to absorb future shocks,” it said.
