Today in New Delhi, India
Dec 13, 2018-Thursday
New Delhi
  • Humidity
  • Wind

A leader must command trust: Lessons for India Inc from Tata-Mistry fight

A CEO/chairman’s job cannot be limited to pursuing a vision alone but also taking the trust of the stakeholders along.

Cyrus Mistry Exit Updated: Nov 24, 2016 01:49 IST
Ratan Tata,Cyrus Mistry,Tata Sons
Ratan Tata and Cyrus Mistry from the time when they got along well. Tata Sons sacked Mistry in October.(PTI)

Just before Diwali 2016, when companies were busy with their numbers to push sales further at the peak of the festive season, India Inc. was taken by surprise when Tata Sons replaced its chairman Cyrus Mistry, bringing back Ratan Tata as the interim chairman. This shook the earth enough that within a month, a plethora of analysis is in the air explaining who is right and who is wrong. Even business schools are developing case studies to explain Tata’s strategy, its implication on corporate governance and how board room conflicts can be managed.

Tata is not just another name in the corporate world or in households; it means more to an aspiring nation. It represents India’s dream in the arena of global business. The group’s achievements, spanning almost 150 years, have left a deep imprint in India’s corporate history, like none other.

Cyrus Mistry vs Ratan Tata: All questions answered

But why should Cyrus Mistry’s removal be considered as one without precedence? It is not uncommon to come across global headlines every so often about boards firing chairmen, acting at the behest of shareholders, and in many cases for the same reasons: a breakdown of trust between the largest shareholder and the executives. While we don’t expect shareholders to run a company, we do expect them to move in and protect their interests if they see things going wrong. Sometimes, lack of trust and performance of the top executives become the major bone of contention in settling the task.

In the spring of 1985, Apple fired Steve Jobs as a power struggle erupted between him and John Sculley, removing Jobs from his command of the Macintosh group. In 2012, Vikram Pandit was blindsided and forced out as Citi CEO by Chairman Michael O’Neill. The abrupt encounter included a terse comment by the chairman: “The board has lost confidence in you.” So Pandit chose to resign right away. A year ago, Volkswagen’s leading shareholder called for the removal of chief executive Müller, saying only outside leadership could restore trust in the scandal-hit carmaker. And as recent as August 2016, Ron Boire, chief executive of Barnes & Noble, left the post as Chief Executive Officer at the bookstore chain in a surprising move after less than one year on the job. The board did not view him to be a good fit. Anshu Jain had to quit Deutsche Bank in 2015 as the banking major was struggling to maintain profit flow, falling behind rivals and unable to maintain steady return on the equity.

Ratan Tata tried to sell TCS, made Corus deal expensive: Cyrus Mistry

Be it Apple or Citi group or Deutsche Bank--these are corporations that have huge global footprints. And yet their biggest boardroom upsets have not tarnished the image of their companies or lowered their performance and earnings in the long term. As corporations are multifaceted, conflicts arise. However, the capacity to deal with such conflicts often reflects the image of the company. This is what Indian companies need to bear in mind in their quest to go global.

Ratan Tata, interim chairman of the Tata group, leaves his office building in Mumbai, October 27, 2016. (Reuters)

Companies in India have come a long way--while some see international expansion as their route to greater competitiveness, others focus on building global brands. In 2003, Indian firms invested $10 billion overseas. By 2012, this had more than tripled to US$37 billion. In cumulative terms, Indian companies have invested more than US$344 billion in international expansion over the period 2003-2012 .

The Tata group as a conglomerate laying its footprints globally, has more than 6.6 lakh employees across the world with revenues in excess of $103 billion in 2015-16. The sublime vision of JRD Tata, followed by Ratan Tata, in creating a brand deserves regard not only in facing competition but also in keeping pace with the changing scenario of the Indian mindset. Its growth strategy and responsible governance did not thwart its progress and the group survived the forces of globalisation that India encountered in the early 1990s. The pace of global acquisitions grew dramatically, with Tetley, Corus, and Jaguar Land Rover. Today, the company has operations in more than 100 countries. Global operations make up around 70% of the group’s revenue . A proud moment was after the Corus acquisition when Tata Steel became one of the Fortune 500 multinational companies. However, no one predicted the global financial meltdown of the scale of the 2008 one, and the future of Corus that was compounded by huge overcapacity and consequent dumping of iron & steel products by China.

In such circumstances, a chairman’s effort is often concentrated on avoiding the sinking of the ship and maintaining a growth with the least possible pain to its stakeholders. However, the stability depends on how well the chairman is able to manoeuvre the risks while keeping the trust of the shareholders, employees and the board on his side. The Tata-Mistry tussle is only a reflection of such an endeavour.

Ratan Tata responds to accusations, says Mistry’s removal was ‘necessary’

The foremost learning in this conflict reflects the preparedness of the leaders and the manner in which the board room rivalry is dealt with and how well they save their position. The job of a CEO/chairman cannot be limited to pursuing a vision alone but also taking the faith and trust of the stakeholders along. Thus, a democratic way by keeping others included in decision making sometimes serves the purpose. This is all the more important when the business environment is gloomy and there is a possibility of sliding down. Perhaps, Cyrus Mistry overlooked these golden words. The board does evaluate the past performance but it is more important to understand how relevant it is in the future. Things get complicated in the play of words and the situation may go out of hand if the leader does not read the signals in various correspondence, meetings and discussions. Hence, the leader must know the time to bid farewell and look out for a better future.

The Tata brand’s distinction is the trust of the people it has earned by the values guiding the manner in which the group and its companies operate. A good organisation remains close to its track built over the years even in difficult times. Thus, any decision during an economic slowdown--a situation external to the company’s control--has to be in consultation with the company’s stakeholders. A leader should be able to stand up and quit if the situation demands so.

(The writer is associate professor, IIFT, New Delhi. The views expressed are personal.)

First Published: Nov 23, 2016 13:42 IST