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Tough love

24 October 2016 By Una Galani

Cyrus Mistry changed too little, too late at Tata, India’s mega-conglomerate. And so goes its youthful chairman, notwithstanding deep ties to the founding family. Mistry, 48, was slow to act on a number of big problems at the $110 billion cars-to-chemicals empire. Fresh blood is needed to put the sprawling group back on track.

Mistry led Tata Sons, the holding company of the 100-plus unit corporate web, which is controlled by philanthropic trusts. He was also chairman of its main listed firms which have performed poorly in recent years. Out of 10 of the biggest, Tata Steel, Tata Power, Tata Chemicals and Tata Beverages have all delivered total returns below the benchmark index, according to an earlier analysis by Breakingviews of Mistry’s tenure until the end of June. Other companies like Tata Motors, owner of Jaguar Land Rover, haven’t fared much better during that time.

Things might have been better if Mistry moved quicker in appointing a new chief executive to the automaker – the position was left vacant for two years following the sudden death of the previous boss. Mistry could also have acted faster to cut ties to its indebted UK steel business. Adding to the feeling of a crisis, growth has now ground to a halt at Tata Consultancy Services, the group’s cash cow and India’s largest company by market value.

In fairness, Mistry inherited some problems and didn’t have fully free rein. It was politically fraught, for example, to try and undo some of the big aggressive debt-fuelled acquisitions made by his predecessor Ratan Tata, who remained in place as chairman emeritus of Tata Sons. Ominously, he will now return to officially lead the empire as it searches for a permanent successor.

Indeed, the decision to put Ratan back in charge signals a messy confrontation in the boardroom and raises the risk of a step backwards. It also suggests a lack of support for efforts to impose discipline by Mistry, who has said Tata companies need to “earn the right to grow.” Tata has an opportunity for a fresh start. But it will need to allay concerns about governance before it attempts a transfusion.

 

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