Why Did Ratan Tata Feel Compelled To Take Charge Again?
Tehelka|30 November 2016

Did Cyrus Mistry fall victim to an ossified corporate culture or did he violate Tata Sons’ ethos and culture? MG BanGa tells the story so far.

MG Banga

The removal of Cyrus Mistry as chairman of Tata Sons is being hotly argued, debated, deliberated and discussed across the corporate boardrooms, financial newsrooms, in government circles and many other forums nationally and globally. What triggered the decision? Surely, it is not as abrupt as it looks and is an outcome of simmering discontent.

The vital question is — is the removal linked to persona or performance? It could be the former, a personality clash after Mistry bruised egos of Ratan Tata and other loyalists on the board of Tata Sons. Different theories have been in circulation on the reasons for removal, but after the second letter issued by Tata Group spokesperson on 10 November, careful analysis points to the fact that the reasons are more attributed to Mistry’s inability to assimilate the Tatat group’s culture, in the process hurting the high and mighty of the group. The contents of the letter clearly point out that the Tata Sons Board was not happy with the arbitrary style of functioning, ignoring the higher bureaucracy of Tata Sons, trying to force his own culture with his confidantes that led to overall dissatisfaction.

As far as business decisions are concerned, RatanTata himself admits — which is on record — that when he took over as Chairman, he too had many differences with JRD and so Mistry too had a right as a Chairman to apply his mind and follow his style of functioning.

The Tatas have a strong bureaucracy and hierarchical structure which more or less works like governmental hierarchy with rigid practices. Mistry, being an outsider perhaps not exposed to that culture, possibly ignored it and did not give due weightage to it. The letter pinpoints these pain points. One of the paragraphs goes: “In fact, even the then existing structure of the group which had stood the test of a long period of nearly 100 years by the visionary founders and generations of Tatas seem to have been consciously dismantled so that now the operating companies are drifting farther away from the promoter company and their major shareholder (except for periodic presentations) through systematically reducing the effective control and influence of the promoter”.

The group has its own service called Tata Administrative Service (TAS), like the Indian Administrative service (IAS). There are quite a lot of similarities between IAS and TAS: TAS selection is very tough and attracts high quality talent; but once you get into it, the promotions up to very senior level are linked to tenure and not merit. TAS candidates are more respected in the organisation than employees recruited through other channels. One of the young entrants to TAS on the condition of anonymity lamented that his seniors are not keen to work as hard as the corporate today demands. They lack motivation due to the tenure based promotion policy.

No wonder, Mistry’s act of bringing in outsiders, giving them prime roles and responsibilities superseding the group bureaucracy and giving them much higher salaries and perks than regular chief executives must have caused heartburn and ripples. This undercurrent in the organisation certainly may lead to loyalists criticising and bitching against Cyrus’ style of functioning.

Although, Ratan Tata himself admitted his failure to have a flat, non-hierarchical organisation devoid of many tiers where promotions are merit based and not out of seniority, yet possibly he realized that this is a herculean task and could not accomplish it during his entire tenure.

In reply to one of the question during the interview conducted by Christabelle Noronha, chief of group corporate affairs at Tata Sons on his retirement from the post of Chairman where he lamented that “I have not been able to create the truly open, flat, transparent organisation that I had hoped we could do”. What exactly did that mean?

Ratan Tata replied ,“What I am trying to say is that in India, regrettably, hierarchy and designations are more important to people than job content or even pay packets. When you are overseas you don’t have someone talking about a batchmate and seniority based on year of graduation. But that’s what tends to happen in India and it’s sad because there’s an assumption here that age and seniority go hand-in-hand with merit. I had hopes that we could create a flat organisation where hierarchy was downplayed and that we could create a culture where performance was rewarded with recognition, monetarily and through the placing of the meritorious in positions of importance. Designations would have been flat in such a system.

I have found the reactions to such an idea absolutely contrary to what people want: when it suits them they say it is great, but when it comes to how it affects them, they do not want to see it happen. To that extent, I think we have failed — I have failed — in creating a flat organisation.”

LEGACY ISSUES

Ratan Tata also recalled how his taking over as chairman form JRD Tata was met with resistance and bitterness by those who themselves aspired for the job: by Russi Mody at Tata Steel; Darbari Seth at Tata Tea and Tata Chemicals; Ajit Kerkar of Taj group (Indian Hotels) and Nani Palkhivala, a director on the boards of several Tata companies and chairman of the erstwhile Associated Cement Companies (ACC), in which the Tata group was one of the original promoters.

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