Not my cup of Tetley tea!

Issues of governance were at the forefront of news last week. Whether of public governance, as in the case of the impending implosion in the Samajwadi Party due to the State being run as if it were a family, for profit, business rather than a fiduciary responsibility thrust by the electorate. Or of corporate governance as witnessed in the surgical strike by the Board of Tata Sons, the holding company of the Tata Group in ousting a Chairman appointed four years ago on the retirement of Ratan Tata.

Cyrus Mistry, a scion of a construction group that is the largest shareholder, after two charitable Tata Trusts in Tata Sons, had been appointed as Chairman and tasked with leading India’s largest group.

In the absence, yet, of any evidence of fraudulent or inappropriate behaviour, the reasons for the sudden ouster remains a mystery and can only be surmised.

Perhaps a possible reason was the felt need to protect the Tata reputation, internationally. Ratan Tata, during his 21 years, grew revenues 40 times and profits 50 times largely through acquisitions. Some of these, such as Corus, went awry.

In his attempt to clean up the Augean stables, Mistry had decided (rightly so) to shut down/sell the steel operations in the UK. He had also decided (wrongly so) to fight NTT DoCoMo in its dispute with Tata Teleservices. DoCoMo had won in international arbitration but Tata’s, under Mistry, refused to pay the $ 1.2 billion, citing RBI objections.

Perhaps (and this is only conjecture), the Japanese Government, which is funding the $110 billion. DMIC project as well as the Mumbai–Ahmedabad bullet train, may have put diplomatic pressure. A clue to this is in the letter written by Ratan Tata to PM Modi informing him of the corporate action. Never before has a corporate action been reported to the head of government. Why did Tata need to inform Modi? The surmise is, therefore, that it was due to such pressure.

Cyrus Mistry has, in a letter to the board of Tata Sons protesting the ouster, pointed out the several problems being faced by the group. Chief among these, according to Mistry, is a potential impairment (loss of value) to the extent of ₹1.18 lakh crore, because the assets acquired have dropped in value.

The BSE and the NSE have asked Tata Sons to clarify on this figure of impairment.

Mistry was (rightly) stressing on each business achieving a decent return on capital. According to an Economist article ‘Mistry’s elephant’, Tata Steel and Trent (run by Noel Tata, a half brother of Ratan Tata and also the brother in law of Cyrus Mistry), don’t earn the desired return on capital. Mistry also desired to shut down the Nano project.

The group needs to explain the reasons for the sudden ouster, lest it diminish its brand value; Tata Sons collects a royalty from each company for using the brand Tata.

India has not, despite several initiatives, succeeded in increasing its rank in Ease of Doing Business. It ranks 130 out of 190. India’s highest rank is in ‘Protecting Minority Shareholders’ where it ranks 13th. This ranking, too, may come into question.

One of India’s worst ranks is ‘Enforcement of Contracts’, i.e., a weak judicial system. If a case can be adjourned for two months merely to suit the convenience of a high priced lawyer, even as 13,000 victims await justice for over three years, then this ranking can’t improve.

Both public governance and corporate governance have to improve.

(The writer is India Head, EuroMoney Conferences. The views are personal.)