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8 �THE ECONOMIC TIMES | MUMBAI | THURSDAY | 27 OCTOBER 2016The Ta-ta Files
Mumbai: Reduced dividend paymentsby Tata Group companies during CyrusMistry’s tenure as chairman eroded theincome of the main shareholder TataTrusts and may have been one of the keyreasons for his abrupt exit.
The Tata Trusts have a two-thirds stakein group holding company Tata Sonswith the Sir Ratan Tata Trust and the SirDorabji Tata Trust being the largest en-tities. The trusts rely primarily on divi-dend income to fund their wide-rangingphilanthropic activities. While incomewas either gradually falling or flat, ex-penses were climbing.
“It is sad, there is no doubt about (that).But there was no choice on the removal,”VR Mehta, a Sir Dorabji Tata Trust boardmember, told ET. “We were worried aboutthe future of the trusts. Dividend is our
main source of income. If dividend in-come dries up, we would be naturally wor-ried. We won’t be able to carry on our pro-grammes and sustain them. Ratan Tata
(who took over as interim chairman afterMistry was dismissed on Monday) was asworried as all of us.”
Mehta said Tata Sons was increasinglydependent on income from Tata Consul-tancy Services (TCS) and Jaguar LandRover (JLR). The trusts were worriedabout the poor performance of the otherTata Group companies. The concerns ofthe trusts were communicated to TataSons and Mistry, but no action was takento assuage their fears, he said. “We werenaturally looking for stable or improveddividends to run our operations and sus-tain them. Our perception is that notmuch had been done to reduce these con-cerns.”
Till the end of 2012, when Ratan Tatastepped down as chairman, staying in-vested in major Tata companies fetchednear-assured returns in the form of heftydividends. That changed after Mistrytook charge. Mistry himself defended
slashing dividends on the ground thatthe companies needed to conserve cashfor making investments.
“I had to take many tough decisions withsensitive care to the group’s reputation aswell as containing panic amidst internaland external stakeholders. Despite badpress, impairments were taken to cleanthe books but substantial exposure re-mains. Dividends were reduced (exampleTata Motors, IHCL) to conserve cash forneeded investments in the teeth of share-holder fury,” Mistry had said in his letterto Tata Sons on Tuesday.
At the group level, in FY16, the dividendpayout by all Tata companies was 41% low-er than the year before. An ETIG studyshowed that 27 companies paid out .̀11,196crore against .̀19,167 crore from 36 compa-nies in FY15. “Four years of Cyrus Mistryis not a short period. Even for the future,we did not find much change in the pat-tern of performance,” said Mehta. “We
were not seeing any general improve-ment. Ultimately, the investments shouldresult in increase in profits.”
Mehta hopes that the next chairman,who is to be picked in the next fourmonths, will be able to improve thehealth of all the companies.
Tata Trusts declined to comment. Mis-try wasn’t available for comment be-yond the email he sent to Tata Sons andTata Trusts.
Established in 1932 by Sir Dorabji Tata,the elder son of group founder JamsetjiTata, the Sir Dorabji Tata Trust and theAllied Trusts are one of India’s oldestand largest philanthropic foundations.The Sir Ratan Tata Trust (SRTT) is aphilanthropic institution established in1919 in accordance with the will of SirRatanji Tata, the younger son of groupfounder Jamsetji Tata. The Navajbai Ra-tan Tata Trust, formed in 1974, works to-gether with SRTT to bestow grants.
Trust Deficit May Have Led to Mistry’s Exit
Mumbai: A message doing the roundson social media and WhatsApp, joking-ly attributed to Cyrus Mistry, reads,“Kitne bhi bade ho jao, job security tosirf government job me hi hai!!”
This joke adds to the discomfort of Tataemployees who till now believed that aTata job was as “secure” as a govern-ment job. The unceremonious dismiss-al of Mistry as the chairman of TataSons has left executives across centresshell-shocked as ‘hire-and-fire’ was nev-er a part of the group’s culture. “This isnot the Tata way of doing things. If thiscan happen to a chairman, it’s safe to as-sume it can happen again, at any otherlevel,” a senior executive from Jam-shedpur, who has worked with thegroup for over 20 years, told ET.
Jamshedpur, named after the Tata foun-der Jamsedji Tata, was the power centreof the group until the 1990s. But thingschanged as the group diversified and ex-panded under Ratan Tata and ‘BombayHouse’ emerged as the locus of power forthe $100-billion salt-to-software conglom-
erate. Tata old-timers often share anec-dotes about the growing distance be-tween ‘Bombay’ and Jamshedpur, butMonday’s announcement has perhapstaken Jamshedpur further away from‘Bombay’. “We did not receive any formalintimation. A news link from ET brokethe news to most of us here and then for-wards from colleagues started. It didmake us wonder why some colleagues inTata Sons had received the email signedby Ratan Tata and we didn’t,” another ex-ecutive from Jamshedpur said.
The mood of executives at Jamshed-pur resonates in their counterparts inother centres, too. ET spoke to a crosssection of executives from across thecountry from various Tata companies,and disbelief and dismay seemed to be
common among them. While they arecomforted by the fact that Ratan Tata isback to fix things, the lack of communi-cation is making them jittery.
“First, we thought someone hadhacked the website and put the releaseup. This is just unbelievable for the Ta-tas. There has been no official commu-nication other than the press releaseseven to us,” a Tata executive said.
A Tata Motor executive from its Puneplant said that people are still shocked.“None of us know why and how every-thing transpired, all that we know is on-ly through papers and TV channels. Mis-try had a vision and things were playingout nicely for the company. With his exit,there is a sense of uncertainty. One as-suring factor is that the MD Guenter
Butschek has begun on a very strongnote and he will able to steer the group'splans forward,” said the executive.
Tatas have seen power struggle in thepast as well. In the early 90s, a nuancedbattle played out between the new man-agement team led by JJ Irani and RatanTata on one side and Russi Mody on theother. Mody was then chairman of TataSteel but had headed human resourcesearlier and had a better connect with thepeople on the shop floor and enjoyed agod-like stature in the town. This periodalso coincided with liberalisation of In-dia and the focus of the group changedfrom a personnel-centric one to one fo-cused more on technology and markets.
Meanwhile, with social media fuellingthe grapevine in the organisation andlack of communication from the man-agement, rumours are flying thick andfast, sometimes bordering on the bi-zarre. “I heard someone say that institu-tional bondholders had asked Ratan Ta-ta to step in. No one knows, so everyoneis guessing. But we all feel very bad thatthis is happening. If this goes to courtand there is a fight, then this would be ve-ry embarrassing. This is the Tata Group,not Reliance,” a second executive said.
At TCS, mid-level executives had theirown reasons to be worried. “People aresaying that Chandra (TCS CEO N Chan-drasekaran) could become the chair-man. Then who will be the CEO here?You can’t be both,” an executive said.
(Additional reporting by JochelleMendonca and Ketan Thakkar)
Shocked by their Chairman’s Sacking, GroupEmployees Have a New Worry: Job SecurityStaff say this is not the
Tata way of doing things;
lack of communication
making them jittery
FALLING INCOME The many Tata trusts, which rely primarily on dividend from Tata group companies to fund their wide-rangingphilanthropic activities, have been worried by income drying up amid rising expenses under the former Tata Sons chairman
Mumbai: Life Insurance Corportion,among the biggest stakeholders in TataGroup firms after the group itself, is notworried about the ouster of Cyrus Mis-try as chairman of Tata Sons.
“We are not worried about the changeat Tata Group,” a senior LIC executivesaid. “We are watching the situation. Weare long-term investors,” the executivesaid not wanting to be named.
The state-run insurerowns 7% in Tata Motors.It also has substantialstake in various otherTata companies, includ-ing 13.91% in Tata Steel,13.12% in Tata Powerand 8.76% in Indian Ho-tels. LIC’s investmentsin the top 11 Tata compa-
nies are valued at .̀ 35,680 crore as onWednesday.
Analysts said that the stocks of Tatagroup companies would remain volatile.Tata Motors fell 4.27% on Wednesday.
Tata Sons has set up a three-membercommittee of Ronen Sen, Venu Sriniva-san and Amit Chandra to select a newchairman in four months.
Interim chairman Ratan Tata haswritten to Prime Minister NarendraModi briefing him about the develop-ments at the group.
LIC, a MajorStakeholder in Tata Cos, ‘Not Worried’
Tata Sons has set up a3-membercommittee toselect a newchairman infour months
Our Bureau
Mumbai: The ousted chairman of TataSons Cyrus Mistry on Wednesday dis-pelled speculation that he would resignfrom the chairmanship of group compa-nies and chaired a rather uneventful andregular board meeting of Tata Global Bev-erages at Bombay House.
Top officials close to the developmentsaid Mistry was at the meeting for overfour hours taking part in regular discus-sions about the company's operations andprogress. There was no discussion or ques-tion from any board member about his dis-missal as Tata Sons chairman, they said.
Fund managers and market watchers arewondering how long Mistry will continueto helm the boards of major group compa-nies. There will be no problem if he resignson his own. But if he doesn't, the groupmay find it difficult to remove him aschairman of the big listed companies —TCS, Tata Steel, Tata Motors, Tata Chem-icals and Tata Global Beverages.
Dismissing a chairman of a listed compa-ny is an arduous process and requires avote by shareholders. TGBL recently an-nounced that it is exploring multiple op-tions, including restructuring or sale of itsChina operations. At the last AGM, Mistrysaid the company faced challenges in Chi-na. “We continue to have those challengesand the reason was from a production per-spective,” he said, responding to a share-holder query. The obligations, on accountof the China business, were around `̀5crore per annum. “For China, we are ex-ploring different options, which could berestructuring or sale, but these are still inthe exploration stage,” Mistry said.
Tata Global Beverages stock fell 3.1% on
Cyrus ChairsTata Beverages’Board Meet
DEEPAK PAREKHChairman, HDFC
It's saddening to see the waythe issue is panning out.Thisissue could have been han-dled better. It is damagingIndia Inc’s reputation. He(Mistry) was doing a good jobmanaging legacy issues.As told to ET Now
BHARAT CHANDA
BLOOMBERG
CONCERN IN TCS
People are saying that Chandra (TCS chief exec-utive N Chandrasekaran)could become the chairman (of Tata Sons). Then who will be the CEO here? You can’t be bothATCS EMPLOYEE
Mistry said dividends were reduced toconserve cash for investments
FILE PHOTO
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