It has been a quiet first year for Cyrus Mistry at the helm of the $97 billion Tata Group. No big-bang acquisitions or divestments, nor any major restructuring of the group companies or such other high profile moves. Much of Mr. Mistry’s time since he took over the reins from Ratan Tata in December 2012 has been spent to study and assess the group and understand its businesses.
Insiders say that Mr. Mistry has logged thousands of air miles visiting companies and facilities in India and across the world to get a grip on the group and its operations. That, it should be said, is a year well spent because it is not easy to get your arms around a conglomerate as unwieldy and complex as the Tatas. His New Year message to employees acknowledges that it has been a period of learning for him: “I have come to realise the distinctiveness of every Tata enterprise, and that each needs to be viewed in a manner that is appreciative of its uniqueness.”
A careful study of Mr. Mistry’s moves offers insight into the man’s thinking and his leadership style. First, he’s shown a clear preference for a young leadership team, and is taking his time assembling it. Second, he has demonstrated the ability to take tough, unpalatable decisions that are in the long-term interests of the business.
Third, he has clearly indicated that he will not hesitate to enter a business that has long-term prospects, even if in the short-term it is vested with uncertainty. Equally, he has also proved that he is not averse to letting go opportunities if they will impede the functioning of the other group businesses.A young team
Mr. Mistry’s first major move signalled the importance that he attached to the values represented by the Tata brand. He created a position of Brand Custodian and Chief Ethics Officer, and appointed 44-year-old Mukund Govind Rajan, an 18-year veteran of the group to the post, leaving no doubt that he would march on in the path laid out by his eminent predecessors.
Soon after, he set up the Group Executive Council (GEC), which replaced two similar bodies that guided the business during Mr. Tata’s time.
With veterans such as R.K. Krishnakumar, N.A. Soonawala and Kishore Chaukar who were Mr. Tata’s lieutenants retiring and others such as Ishaat Hussain, R. Gopalakrishnan, and Farrokh Kavarana moving into non-executive positions on the Tata Sons board, the way was clear for Mr. Mistry to assemble his own team.
Madhu Kannan, former CEO of the Bombay Stock Exchange, who joined the group in 2012 when Mr. Mistry was serving his apprenticeship period, N.S. Rajan, who moved in from Ernst & Young, and Dr. Mukund Rajan formed the GEC along with Mr. Mistry. Soon, Nirmalya Kumar, who was Professor of Marketing in the London Business School, joined them to make up a five-member GEC. Interestingly, the average age of the group is 45, about the same as Mr. Mistry’s.
Clearly, Mr. Mistry, who will have a clear three decades at the helm if all goes well, is assembling a team for the long haul. There are still a couple of positions that are open, for finance and M&A.Tough moves
Three clear instances prove Mr. Mistry’s capability to take tough, painful decisions when necessary. The biggest of the three, of course, was the decision to drop the $1.8-billion bid by Indian Hotels for Orient-Express Hotels.
The purchase of a 10.1 per cent stake in Orient-Express in 2007 by Indian Hotels and the subsequent bid to acquire the whole equity in 2012 were born out of the personal desire of Mr. Ratan Tata to own an iconic hospitality brand; to withdraw the bid was indeed a significant move. Yet, it was also a pragmatic one. Though this resulted in a charge of Rs.370 crore in Indian Hotels’ balance sheet, it lifted a huge burden on the company, which was not performing very well in its business anyway.
Indian Hotels reported a loss of Rs.433 crore in the second quarter ended September 2013 that includes the write-off.
The second bold decision was to take a Rs.2,460-crore asset impairment charge on Tata Power’s balance-sheet for 2012-13 due to higher-than-planned coal import prices; this plunged the company into a Rs.1,087 crore loss. Yet again, it was a prudent decision that can be held out as an example of best practice for companies.
The third example was the $1.6-billion goodwill write-off in Tata Steel’s balance sheet for 2012-13. The $13-billion Corus acquisition has shrunk in value due to the economic crisis in Europe and falling steel prices, and, therefore, a write-down was warranted. Of course, there are those who believe that the write-off is too little but yet it must be acknowledged that accepting a mistake and taking a penalty for that is not easy.Not intimidated by turbulence
If success in business is all about taking a long-term view and backing yourself through the short-term problems, then Mr. Mistry demonstrated that by setting foot into two highly controversial sectors — airlines and multi-brand retail.
The joint ventures with Air Asia for a budget airline and with Singapore Airlines for a full-service carrier come at a time when the industry is in turbulence and airline companies are bleeding. Mr. Mistry is clearly playing for the long haul, and hoping to ride out the short-term with the power of the respective brands and the expertise that they bring to the table.
The joint venture with Tesco for multi-brand retail is similar with the added dimension of regulatory uncertainty.
The group already has a retail business in Trent but the one planned with Tesco is likely to be qualitatively different. While the promise of business is indeed there given the growing middle-class, urbanisation and the advent of consumer culture, the joint venture has to push past regulatory hurdles. And, it has to do it state-by-state across India.
The group’s decision to pull out its application for a banking licence from the RBI was a pragmatic one. Here was a tremendous business opportunity for the conglomerate but yet it opted out once it became clear that a licence will be a shackle on the financing arms of some of its other companies and certainly on Tata Capital, its NBFC unit.Consolidation phase
If the first year was all about understanding the group, the second one is likely to be one of consolidation for Mr. Mistry. The telecom business is not going anywhere, and it should not be a surprise if a decision is made to exit it. The one bad story of the Ratan Tata-era was the mess-up of the telecom business, and Mr. Mistry will surely be trying to correct it.
If his New Year message is any indication, Mr. Mistry is also likely to push for exploiting synergies across group companies. He has also clearly signified his intent to invest in innovation and R&D, which augurs well for the conglomerate.
The steel and power businesses need to be steadied while the hotels business needs support.
The best thing that can happen for Mr. Mistry will be resurgence in the economy which will lift most of the group’s businesses. But that is unlikely to happen before the end of 2014 which means that much of his time and energy will be consumed in managing the present. Moves aimed at the future will have to wait. But then, what’s the hurry anyway when he has all the time to lead the group into the next level?