CYRUS MISTRY
First
Impressions
Cyrus
Mistry spent much of the first year as chief of the 92-company Tata group
creating a fresh foundation and figuring out what’s working and what isn’t.
Now he’s got to begin fixing what isn’t
Back in
the ’70s, the families of construction magnate Pallonji Mistry and
well-known legal luminary Iqbal Chagla were neighbours in Cuffe Parade. A
happy consequence was that in 1992 Pallonji’s younger son Cyrus married
Chagla’s daughter Rohiqa. On the wedding day, the father of the bride,
Chagla raised a toast, starting with these words: “I was determined to
dislike anyone who decided to marry my daughter.”
Then he added a truism: “However, once you meet
Cyrus, it is impossible to dislike him.” It still holds two decades later;
everybody seems to like the 45-year-old Cyrus Mistry.
Mistry took over as chairman of Tata Sons on
December 28, 2012. Since then, he has made all the right moves. “He has not
taken any giant leaps, neither has he shaken the foundations of the group,”
says Harsh Goenka, industrialist and chairman of RPG Enterprises.
As Mistry begins his 12th month as chairman of
India’s largest conglomerate, in which his family led by father Pallonji
Mistry owns an 18.5% stake, it’s time for him and his core team to prepare
a rough and ready blueprint for the second year. That plan may call for a
few larger leaps, and may indeed shake some parts of the foundation. Making
the multibillion acquisition of Corus (now Tata Steel Europe) viable, for
instance is one of them. Downsizing the business by mothballing some of its
capacities, reckon analysts, may be the way to go. Back home Tata Motors —
excluding the money-spinning Jaguar Land Rover ( JLR) — needs a refreshed
portfolio to find its way back amongst India’s top 5 automakers. And the
power, telecom and hospitality businesses too are in need of an overhaul.
It’s a daunting task; more so for a man who’s still
coming to grips with a 92-company group across 28 diverse sectors, even as
it strategizes to enter newer businesses, like aviation. Ashok Basu, former
bureaucrat and an independent director on the board of Tata Power, says: “I
think he has the most formidable job in the country. But this mantle sits
very lightly on his shoulders.”
“Luckily, his health has held up. He has taken on a punishing schedule,
whirlwind travel across the world, day trips to the Gulf countries and
stuff like that,” says a person who knows Mistry well. And Goenka adds: “He
doesn’t look stressed. But I asked him about his work-life balance and he
admitted that’s gone for a six.”
First, a Team
One of Mistry’s immediate priorities after taking over at the helm was
to build a team of people who will, like him, be around for some time.
Although Mistry was appointed as executive deputy chairman of the group in
2011 for five years, and was elevated in 2012, it is likely that Mistry
will have this job for more than a quarter of a century.
Before retiring, predecessor Ratan Tata — who had the job for 21 years — had
left a clean slate for Mistry, even lowering the retiring age for
non-executive directors, to ensure that the old guard goes away in two to
three years. Tata’s first few years at the helm were spent consolidating
his own position as the undisputed leader of the group and pushing out the
veterans. He did not want such distractions for Mistry (after all, Tata had
plenty of them when he took over and had to spend at least six of his
initial years taking on — successfully — the group’s satraps).
In Madhusudan Kannan, 39, Mistry found his head of business development.
Kannan was the first member of team Mistry and joined the group in May
2012, seven months before Mistry finally took over the reins. Kannan is
considered closest to Mistry today.
Mukund Rajan, 45 — younger brother of Reserve Bank
governor Raghuram Rajan — was moved in from Tata Capital as custodian of
brands and chief spokesperson as well as chief ethics officer. Mistry also
brought in academic Nirmalya Kumar from the London School of Business to
help with strategizing and NS Rajan from Ernst & Young as head of human
resources.
“In many ways it is like Rahul Gandhi’s team” says
one uncharitable onlooker from corporate India. “It has more theoreticians
than business managers,” he says.
That may be unfair to both Mistry and Gandhi, but
one cannot deny that Tata’s own lieutenants were either seasoned veterans
from within the group (Syamal Gupta, NA Soonawala, Ishaat Hussain, to name
three) or from other large companies (like R Gopalakrishnan from Unilever’s
Indian subsidiary). Mistry has chosen his own horses, for surely he has to
run on a different course. The Tata group did not participate in this
feature.
Also setting himself apart from the Ratan Tata-era
is how Mistry has sought to induct more women on the boards of Tata Sons.
Vishakha Mulye, managing director of ICICI Venture, was the first woman
inducted by Mistry in February. She joined the board of Tata Power. He
followed this up by bringing in Falguni Nayar on Tata Motors’ board and
Ireena Vittal, a former McKinsey partner, on the boards of Indian Hotels and
Tata Global Beverages. With Vittal, Tata Global now has three women on its
board (the other two being Mallika Srinivasan and Ranjana Kumar).
Nayar, who now runs her own e-commerce venture Nykaa.com and a former managing director at Kotak Investment
Banking is married to private equity fund KKR’s India chief Sanjay. Mistry
asked Falguni to drop by for an interview and spent considerable time
discussing her current venture before requesting her to join the Tata
Motors board and bring her I-banking experience to the table.
In May 2012, before he became Tata Sons chairman,
Mistry had joined the board of Tata Steel along with another lady,
Mallika Srinivasan, chairman and CEO of tractor maker TAFE. However,
these moves are only a beginning in creating gender-diversity at the house
of Tatas, whose boards have traditionally been male bastions; for
instance, the jewel in the Tata’s crown, TCS, has an
all-male board; and even the Mistry-created four-member general
executive council is all male.
There was one more quick response by Mistry that
pleasantly surprised many people. When a former executive of Tata Steel
committed suicide and there were allegations of harassment by former
colleagues, a committee was immediately set up with executive and
non-executive directors of group companies to probe the allegations.
Plumbing the Numbers
The Tata group today is virtually basking in the glory of a single
outperformer — TCS, which accounts for roughly 60% of market value of all
listed Tata entities and 80% of profits. To that extent, TCS managing
director N Chandrasekaran, 50, stands tall — some observers say nearly as
tall as Mistry —in the top tier of leadership in Bombay House, the
headquarters of the Tata group. Tata Sons owns almost 74% of TCS; and since
Mistry took over in end-2012, TCS’s market capitalisation has gone up by
58% adding 1.4 lakh crore to the group’s market combined capitalization.
The other clear outperformer is JLR, the
$2.3-billion acquisition that more than makes up for Tata Motors’ dismal
show domestically. JLR’s revenues in 2012-13 were 2.5 times that of the
local operations, profits stood at 10,406 crore as against Tata Motors’
domestic profit of 302 crore, and, for good measure, the UK operation
headed by Ralf Speth paid Tata Motors 1,420 crore in dividend in June.
Together Tata Motors and TCS account for roughly 80% of the group’s
combined market value. The rest of the 26 listed group companies taken
together have actually shrunk in combined market capitalization.
The Indian operations of Tata Motors and European
operations of Tata Steel may be the larger problems, but Mistry has more
fires to douse. Basu, for example, feels the biggest problem is at Tata
Power. The company has posted a loss of 39 crore for the first half of
2013-14 after a loss of 85 crore for 2012-13. “Tata Power is probably his
greatest headache — a problem created for no fault of the company. Take
Mundra ultra mega power plant, for instance, which is suffering because the
price of Indonesian coal has suddenly shot up and the state government
cannot buy power at this price.”
Then there is Indian Hotels, which was in the red
to the tune of 452 crore for the first half of 2013-14 on revenues of 1,804
crore. The loss in this half year has exceeded the loss of 430.24 crore of
the entire previous year.
The Tata Group is not a six-course meal but more
like a tasting menu and there’s a lot more on Mistry’s plate. The telecom
business needs some decisions — especially as Tata Sons may need to buy
back the 26% stake of Japanese partner DoCoMo in March 2014.
Vatican Redux
Clearly, taking charge of an illustrious company incorporated back in
1917 is not easy. In many ways Tata Sons reminds one of the Vatican. If you
go through its archives and treasures, you come up with surprises. Like for
instance, at Tata Sons, the equity capital with voting rights adds up to
only 40.41 crore. However, there are preference shares without voting
rights that account for 100 times the amount at 4,148 crore. These attract
dividends at a fixed rate of 7.5% and the subscribers to the preference
shares are mostly directors of the company and former directors and
sometimes even unrelated professionals.
In May 2013, Cyrus Mistry subscribed to preference
shares worth 1 crore (10,000 shares). R Gopalakrishnan, non-executive
director invested 6 crore in preference shares of Tata Sons in June 2013.
In July Ratan Tata acquired 8 crore worth of preference shares while NA
Soonawala (also a former director) picked up 1.5 crore worth of preference
shares in July.
Let us take the analogy of the Vatican of this day
a little forward. The Catholic Christian church has a new Pope today, but
the old Pope is not dead — and in fact is living in the vicinity. Mistry
heads Tata Sons, but Tata is not very far away. He is available — as he was
in the run-up to the aviation joint ventures with AirAsia and Singapore
Airlines. Also, don’t forget that Tata, now chairman emeritus, heads the
Tata trusts that control around 65% of the equity shares of Tata Sons and
by virtue of that holding controls the group while remaining in the
background.
Mistry may well be the proverbial chip off the old
block. Basu says that while he brings in “youthful energy” to meetings he
is very much similar to Tata in his manner, listening carefully and giving
his opinion in the end. He has, for instance, suggested strong
belt-tightening measures for the group and has also suggested that Tata
Power seek a global footprint for itself.
Nayar adds: “It seems right now he is listening and
absorbing. I find Mistry to be very open and inclusive. He is also a very
good listener and carefully evaluates everything before taking decisions.
He also has a vision which he explains.”
That is what Tata was known to do. And Mulye points
to other similarities with Tata: “He has a unique capability in combining
breadth of vision at one end and granularity of detail at the other. The
other big quality he has is his sense of humility.” It would then appear
that Mistry has moulded himself in the cast of Tata, what with both of them
evidently also sharing an aviation dream.
A former senior executive at one of the Tata
companies who did not want to be quoted says that the Tata influence on the
group is still very strong — along with the influence of RK Krishna Kumar
who retired in July 2013. Many of the CEOs of today are former executive
assistants of the two senior pros, both of whom are trustees on the Tata
Trusts (Mukund Rajan in the GEC and N Srinath, MD, Tata Teleservices aided
Ratan Tata, while Avani Saglani Davda, CEO, Tata Starbucks and Govind
Sankarnarayanan, CFO, Tata Capital were EAs to RK Krishna Kumar).
But herein may lie the rub, point out analysts. The
tough decisions that await Mistry may be construed as going against Tata’s
legacy. For instance, what’s the future for the ultra low-cost car, the
Nano, which was Tata’s dream (although a few days ago he did clarify that
his ambition was not to build a ‘cheap’ car but one that would be a logical
step up for the country’s millions of twowheeler riders)? Similarly, the
options for Tata Steel Europe — an acquisition that a section of analysts
believe was overpriced but which Tata believes had to be made — are grim,
with some analysts advocating sales of substantial parts of the business,
if not all of it.
Mistry and Tata have been on the same page — even
before the former took charge as chairman. For instance, Mistry bought a
Nano as soon as it was launched, and apparently said: “It is a damn good
car.” The question, of course, is for how long can Mistry be on that same
page. At some point he will have to differentiate himself in style and
substance from Tata in key strategic decision-making.
Mistry has shown he is capable of those tough
decisions. The $1.6-billion write-down of Corus’ goodwill on Tata Steel
books earlier this year — that contributed in a big way to the losses — the
recent withdrawal from the race for a banking licence and the recent call
to abort Indian Hotels’ bid for Orient Express are three instances. Expect
a few more in the second year which, for Cyrus Mistry, will be more
important than his first.
Signals from Cyrus
Ok guys, it’s time for business:
Mistry needs a few of those glamorous multi-billion acquisitions to
deliver. Takes the call to abort Indian Hotels’ much-attempted bid for
Orient Express
Wings for aviation:
It was Ratan Tata’s dream, but it was Mistry who was at the forefront
of the joint ventures with AirAsia and Singapore Airlines (with Tata’s
support)
Find some friends: Mistry has some 25 years ahead of him as chairman
and needs people to grow old with him in the office. Much of the first year
was spent in building his A team
Manage retirements: Tata Steel managing director HM Nerurkar retired
in October. Choosing a successor in TV Narendran was one of Mistry’s key
decisions this year
Get more women on board:
Tata Sons is still a gentlemen’s club. But Mistry is signalling a
change in attitude by inducting women on the Tata boards
Playing Mr Fix-it: Has identified the problem companies — Tata
Motors, Tata Steel Europe, Tata Power — and their problem areas
Not yet ready for banking: Took the strategic call to withdraw Tata
Sons’ application for a banking licence — for now
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Suman Layak ET131201
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