The Directors of Tata Sons are primarily concerned with the results of Tata Sons and their duty to all its shareholders, particularly, the Tata Trusts, who hold 66 per cent of the equity capital. The following points are being made in this context:
1. Mr. Cyrus P. Mistry has been the executive vice-chairman (for one year) and executive chairman for nearly four years now – a period long enough to show results in Tata Sons itself, which was his primary executive responsibility.
2. For assessing the results during his tenure, it would indeed be appropriate to exclude the income (i.e. dividend) from Tata Consultancy Services (TCS) because Mr. Mistry does not really contribute materially to TCS’s management and TCS has needed no funds from Tata Sons for its growth.
3. Dividends received from all the other 40 companies (many non-dividend paying) have continuously declined from Rs.1,000 crore in 2012-13 to Rs.780 crore in 2015-16 but the latter figure includes additional interim dividend of Rs.100 crore which would have been normally received in 2016-17 (due to budgetary changes). This surely reflects the decline in the total profits of those operating companies from which dividends are paid, during the last four years.
4. While dividend income was declining, expenses (other than interest on debt) on staff increased from Rs.84 crore to Rs.180 crore and other expenses increased from Rs.220 crore in 2012-13 to Rs.290 crore in 2015 (excluding exceptional expenses).
5. Impairment provisions increased from Rs.200 crore in 2012-13 to Rs.2,400 crore in 2015-16 indicating inability to stem falling values and turn around the ‘hot spots’ referred to by Mr. Mistry.
6. Thus, but for the TCS dividend and even before impairment provisions, Tata Sons would have shown operating losses over the last 3 years (with a small surplus in between), showing the significant dependence on TCS. This dependence was indeed a source of concern for the Directors and its shareholders.
Selection of ChairmanIt is also relevant to refer to the basis of selection of Mr. Mistry as Chairman in 2011 by the Selection Committee as provided under the Company’s Articles. Without going into the details, the Committee’s original objective was to look for a person with the experience of running large (and preferably diverse) businesses with considerable international exposure and other criteria. During the meetings, Mr. Mistry submitted a detailed note in October 2010 setting out his views on how a large and complex group like Tatas should be managed and gave a comprehensive management structure with details of the composition and objectives of each component of the structure.
After 4 years, it is unfortunate that hardly any of his major views on the management structure (which had impressed the Committee favourably) have been implemented. In fact, even the then existing structure of the group which had stood the test of a long period of nearly 100 years by the visionary founders and generations of Tatas seems to have been consciously dismantled so that now the operating companies are drifting farther away from the promoter company and their major shareholder (except for periodic presentations) through systematically reducing the effective control and influence of the promoter.
We now have an unacceptable new structure where the Chairman alone is the only common Director across several companies and this situation could not be allowed to go on.
Mistry’s role in four yearsUnlike in the past, Mr. Mistry constantly used the strong public relations network of Tata to emphasise the supposedly good work being done by and under the new leadership and particularly and repeatedly highlighting the major problem areas in the group inherited by him (commonly referred to by him as ‘legacy’ issues and ‘hot spots’) from the previous Chairman, to account for any perceived lack of his performance.
The articles and interviews are littered with text-bookish directives and objectives, e.g. ‘growth with profits’, ‘target to be among the top 25 groups in the world’ by market capitalisation, ‘cater to the lives of many millions’ and other such nice-sounding phrases with no indications on how these ambitious targets are to be achieved. Is all this relevant when there are so many major problems which need urgent attention and action? Would it not be more appreciated if the reports talked specifically on these problem issues and their solutions rather than continuously harping on the past versus the present?
The three major problem companies are Tata Steel Europe, Tata Teleservices/Docomo and the Indian operations of Tata Motors. The fact is that even after four years, there is no noticeable improvement in the operations of these companies and in fact they have got worse as shown by continuing huge losses, increasing high debt levels and declining share in their respective markets.
Even with no turn-around in these major problem areas, the only action taken was to write- off huge amounts against these companies – which is no solution because the problem companies continue to exist with their continuing losses and high debt and only the shareholders suffer from these write-offs.
