The Tata affair: Are we judging too soon?

Given the scale and scope of the Tata group’s business activities and the antiquity of the group, the recent developments there are bound to catch popular attention. The media has been feeding this interest with its relentless coverage. The two factions involved, namely that of Ratan Tata and Cyrus Mistry, have also been fanning the imagination of the reader with statements and counter-statements.

What is somewhat troubling, though, is the unseemly hurry in certain sections of the media to establish who is right and who is wrong in this fight for corporate control.

Three broad questions are at the core of the reported struggle. First, did Mistry’s performance as the business leader of the group warrant his dismissal as CEO of the holding company?

A corollary to that question is: Did he perform better than Ratan Tata? Second, did the group violate the canons of corporate governance, either in spirit or in terms of the letter of the related laws? Third, could the two sides have been more discreet in settling their issues?

None of these questions is easy to answer. And here is why. As with such situations where the stakes involved are high, there could well be other issues of a somewhat private or personal nature that the lay public would never get to know about, much less be sure of.

Let us take the easiest one first, namely, the question of allowing so much to come out in the open. However discreetly either faction may have chosen to deal with the matter, they could not have kept it under wraps for too long for two reasons. The level of disclosure from companies whose shares are listed on stock exchanges is so high that some minimum disclosure would have been inevitable. And media interest in such stories is so intense that it is unthinkable that any development of this nature could have escaped the attention of the press.

One of the greatest professional challenges in the world of business is that of performance measurement. Opinions of experts and professionals vary a great deal on what an ideal measure of business performance ought to be.

A very narrow and short-sighted measure of performance that is fashionable these days is shareholder returns. The trouble is it is not always related to the financial and operational performance of an enterprise. Nor does it take into account many other aspects such as whether the business has been conducted with a social conscience or not.

Let us assume that we can agree on shareholder returns as the single measure of performance. The challenge is that many managerial decisions take a long time to be reflected in the share price of an enterprise, even in extremely well developed securities market such as those in the US or the UK. Clearly, the jury will need a long time, lots of data, much sophisticated analyses, and more holistic measures of performance before we can even approach a reasonably satisfactory answer to the question of performance even in the absolute. Comparing the performance in two different regimes is even more tricky.

The second question of corporate governance has several dimensions to it, encompassing the letter of the laws of governance and the spirit of it. Given the complexity of the laws in India, especially with the introduction of the Companies Act 2013, it is nearly impossible for any corporate to be able to claim that it is flawless in the matter of corporate governance.

Some of the steps reportedly resorted to by the Tatas seem to go well beyond the shades of grey in compliance.

But that would raise another related question: Is Mistry justified in blowing the whistle on those issues after he was removed from his position in Tata Sons? Could he not have attempted to improve the governance while he was still in office?

Adding to the complexity of the situation is the fact that Mistry is not just another professional CEO. He represents a prominent shareholder in the flagship, Tata Sons. To that extent his personal wealth is tied into the consequences of his decisions, unlike a professional CEO who can be impervious to the financial consequences of his managerial decisions.

The point is simply this. As a society we seem to want quick answers, in black and white, as to who is wrong and who is right. That seems to be the case no matter whether the issue on hand is surgical strikes across the border, or the struggle for control in a large, far-flung and complex business empire with a long business history like that of the Tatas.

As a society we come across as one massive kangaroo court with the media and various self-styled experts playing cop, juror and judge. Thank God they have not arrogated to themselves the power to make laws. Why can we not simply watch the whole episode as it unfolds, holding back our judgment about who is right or wrong?

The writer teaches at IIM, Bengaluru. The views are personal