For many years, Tata has been seen as a beacon of ethical conduct and good governance in India, a company free from the skulduggery for which many of its peers became notorious. However, the recent conflicts of interests between former chairmans Ratan Tata and Cyrus Mistry are tarnishing the company's untouchable reputation.
Tata Motors Stock drops over 10% steep decline in 5 years
Shares of Tata Motors tumbled 10.3% on Wednesday after India's largest carmaker by revenue reported a 96.2% year-on-year plunge in its third quarter net profit to $16.7 million. The stock closed at 436.55 rupees in the formerly known Bombay Stock Exchange, following disappointing October-December earnings announced on Tuesday. It is important to state that the upheaval began in October last year when Cyrus Mistry, the first chairman drawn from outside the founding family, was suddenly dismissed without explanation, exposing seething tensions between him and his predecessor Ratan Tata.
Mr Tata, now 79, who had run the group for 21 years before handing over to Mr Mistry, returned to the helm until a permanent successor could be found, promising to restore stability. But Mr Mistry, from a family of Mumbai tycoons that still owns 18% of the holding company Tata Sons, has refused to go quietly. The fall of over 10% was its biggest decline since May 30, 2012, with several brokerage firms lowering their target price for the stock. The company reported the surprise steep decline in consolidated net profit for the third quarter to 1.12 billion rupees, compared with 29.53 billion rupees in the same period the previous year, due to losses in its domestic business and lower profit at its U.K.-based overseas unit Jaguar Land Rover.
Tata in turmoil: Intense battle inside India's biggest business
Conflict spilled into the Tata Sons boardroom in July last year, after Tata Power, chaired by Mr Mistry, agreed the $1.4bn acquisition of a renewable energy company without seeking prior approval from the holding company. According to people close to Tata Sons and Mr Tata, this deal was seen as part of a pattern of behaviour in which Mr Mistry appeared to be trying to amass power, while restricting the involvement of the Tata Sons board and the Tata Trusts in key decisions. People close to Mr Mistry accuse Mr Tata of having brought in the new directors to ensure a clear vote for Mr Mistry’s imminent sacking — a claim denied by the company, which points to the three men’s extensive and diverse business experience.
Since his dismissal, Mr Mistry has unleashed a stream of allegations, aimed at destroying Mr Tata’s cherished reputation for integrity and straightforward dealing, in what he says is a campaign to protect the group’s long-term future by ending supposedly deep-rooted governance flaws. Tata Sons has dismissed Mr Mistry’s claims — which range from violation of inside information rules to favourable deals given to Mr Tata’s friends — as driven by a personal vendetta, and accused him of poor performance and an attempt to amass excessive power.
The efforts to repair this damage will be monitored nervously far beyond Bombay House
Senior figures in Mumbai’s corporate world have warned privately of the risk that the fallout poses to the reputation of Indian business as a whole. Tata is by far the country’s biggest business group, with products varry from jewellery to heavy weapons, steel to table salt. It is one of the few Indian conglomerates to have built a truly global brand, with prestigious foreign assets including the UK luxury carmaker Jaguar Land Rover, and it deploys thousands of IT engineers to leading western companies. Tata is struggling with the first intergenerational shift of power in the post-liberalisation era. It’s coming down to tussles of ego — the fading away of one generation and the emergence of the next.
This is definitely a conspicuous blow to the reputation of India’s largest and most esteemed group has been a painful blow for the country as a whole, at a time when its government and businesses are striving to attract foreign investment by building a reputation for “ease of doing business” and casting off the murky image that has shrouded parts of its corporate sector.