Tata’s governance is still faulty


来源: Business section of ecnomist 更新时间:2017/04/07 阅读次数:52

PROFIT is to good corporate governance what tides are to swimming trunks: when the former is high, absence of the latter tends to go unnoticed. The ebbing of profits at Tata, India’s largest conglomerate, in recent years has prompted a power struggle that in turn has exposed the often dysfunctional relationship between several dozen businesses, holding companies, people and charities that use the Tata name. The struggle is now over: on February 6th, Cyrus Mistry, Tata’s boss until last October (pictured on next page, on the right) was finally booted out of the company. Natarajan Chandrasekaran (on the left), the boss of one of the group’s key operating firms, Tata Consultancy Services, takes over as chairman on February 21st.

Executives at the 149-year-old group hope that will close a grim chapter in its history. Mr Mistry, whose family owns an 18% stake in Tata Sons, the main holding company, which is unlisted, reacted badly to being evicted as its chairman last year. The move to oust him was set in motion by Ratan Tata, the group’s 79-year old patriarch (and Mr Mistry’s interim successor). During Mr Mistry’s reign, Mr Tata had remained at the helm of the Tata Trusts, charities that control 66% of Tata Sons.

 

For months, Mr Mistry refused to step down from chairing the boards of listed Tata firms, such as Tata Steel or Tata Motors (owner of Jaguar Land Rover), which the group effectively controls but in which Tata Sons typically owns a 30% stake (see chart). The very last board he clung on to, that of Tata Sons itself, is rid of him as of this week.

Before leaving he made all manner of claims of financial and corporate-governance impropriety at Tata. Regulators are said to be looking into some of them; Tata denies them all. But in the hundreds of pages of affidavits filed in various tribunals by both sides, and seen by The Economist, a recurring theme emerges, that the relationships between the Trusts, Tata Sons and Tata companies are governed primarily by personal relationships and deference to tradition. There is little sense that things are going to change. The hope seems to be that Mr Chandrasekaran can grow profits again and put such problems out of mind.

Mr Mistry’s most striking claim is about the current board of directors of Tata Sons. It is arguably India’s most august corporate body—directors include the dean of Harvard Business School (HBS), a former Indian defence secretary and several respected industrialists. Mr Mistry contends that it is little more than a rubber stamp for decisions made by the Trusts, ie, by Mr Tata. A change to the articles of association of Tata Sons in 2014 gave the Trusts more access to information across the entire group. The Trusts already had the ability to influence decisions by nominating a third of the Tata Sons board. Acting together, those directors can veto the entire board’s decisions.

The ousted man says Mr Tata ramped up meddling into the activities of both Tata Sons and some operating firms, aided by a roster of long-retired executives who serve as Tata trustees. This view is backed by the Tata Group’s top lawyer, who in January 2016 wrote that if internal documents were somehow leaked to the media, they would “project to the external world that the Trusts are controlling our empire, and Tata Sons board is more a dummy.”

A lack of clarity over what authority the Trusts have in relation to Tata Sons, and vice versa, was also acknowledged in internal e-mails by Nitin Nohria, the dean of HBS, who has served on the Tata Sons board as a Tata Trusts appointee since September 2013. Some governance experts have criticised his position there, because the Trusts and some group firms made a $50m gift to HBS to fund a building that was named in Mr Tata’s honour. Mr Nohria wrote in court documents that neither the donation, arranged shortly before he became dean in 2010, nor the fact that he was appointed by the Trusts, should mean that he is not acting in the interest of Tata Sons.

The main corporate-governance problem is that the interests of minority shareholders, whether they are invested in Tata Sons or in the various operating companies, risk being trampled over if unaccountable trustees are ruling the roost. But at the level of the businesses, improvised governance processes also slowed down decision-making to a crawl. Turf battles created confusion among executives as to who was in charge.

Mr Tata, in the legal filings, says it is untrue that the Trusts call the shots: he merely gave his advice when asked to, and infrequently at that. Other trustees say they chipped in recommendations to Tata companies on important matters in a personal capacity. On behalf of the Trusts, they merely sought better visibility into what money the charities might receive as dividends from Tata Sons.

Yet at least one internal letter from Mr Tata suggests that he clearly expected the directors nominated by the Trusts to convey the Trusts’ views to the Tata Sons board rather than exercise their own judgment. In one instance, in June 2016, two directors nominated by the Trusts left a Tata Sons board meeting for nearly an hour to confer with Mr Tata. Mr Mistry says this proves Mr Tata controlled the board; both directors have said that the matter discussed was trivial.

In India, “good corporate governance” is often used as a euphemism for “not being crooked”. By that standard, Tata still does well. Yet the manner in which Mr Mistry was defenestrated has raised eyebrows in Mumbai’s business community. On Mr Tata’s recommendation, the Tata Sons board was suddenly increased in size from six to nine directors just weeks before it voted to oust the chairman, which helped secure Mr Mistry’s dismissal.

Tata insiders who reckon the crisis that befell them was purely driven by lacklustre profitability are misguided. The poor governance that goes with the group’s Byzantine, multi-layered structure contributed to those low profits as well as to the bruising power struggle of recent months. Will Mr Chandrasekaran have the skill or the mandate to simplify the group’s structure and rein in the influence of Tata Trusts? Although Mr Tata will leave the board of Tata Sons later this month, he shows little sign of retiring from his job as the chairman of the Trusts. But Mr Chandrasekaran’s allies say in private that he has one huge advantage: having fired one successor, Mr Tata knows he cannot sack another without further damaging his legacy.