Management

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Cyrus Mistry's letter to the board that fired him as the chairman of Tata Sons Ltd. without so much as a thank-you note for his service is such a big hit on WhatsApp message groups that some publishers might already be dreaming of a tell-all book by the jilted Indian executive.

They'll have to wait. For now, the five-page missive, obtained by Bloomberg News Wednesday, contains all the clues there are for investors to try and unravel the mystery behind Mistry's sacking, a dismissal so summary that it must be "unique in the annals of corporate history," he says.

A few such hints of disappointment aside, Mistry's is not a whining memo. If anything, the parts where he shines a light on the sorry shape of some of the operating companies in the $100 billion empire -- not to mention the alleged lack of professionalism in the group's Bombay House headquarters (the dean of Harvard Business School acting as postman) -- should be an eyeopener.

Most investors have long believed that the conglomerate adheres to a stronger code of governance than other Indian family-run businesses. Now it's up to Ratan Tata to reassert that exceptionalism. The founding-family scion carried out the coup against Mistry, and has returned as interim chairman. But if he can't convince public shareholders and bondholders that the Tata group is more than the mere sum of his personal ambitions and idiosyncrasies, then a lasting discount could creep into valuations.

Fragile Five
Ousted Tata Group Chairman Cyrus Mistry identified five businesses as "legacy hot spots"
Source: Bloomberg

Shares of Tata Steel Ltd., Tata Motors Ltd. and Indian Hotels Co., the owner of the Taj brand, slipped about 4 percent Wednesday as copies of Mistry's epistle circulated in newsrooms and beyond. Tata Power Co. declined by 2 percent.

Those four, plus Tata Teleservices Maharashtra Ltd., a struggling wireless carrier, stumbled again Thursday morning. The five are the "legacy hot spots" identified in Mistry's note, which said that a realistic assessment of the $29 billion of capital employed in troubled units of the five companies could lead to a fair-value writedown of $18 billion. Should such a reappraisal become necessary, almost 70 percent of the conglomerate's current net worth of $26 billion would be wiped out.

But worries go beyond concerns about future creditworthiness.  

Specifically, Ratan Tata will need to address the following five charges brought against him by Mistry:

  • Is Nano, the flop that was once flaunted as the world's cheapest car, being kept alive simply to ensure supply of parts to an electric-car venture in which Ratan Tata has a personal stake?
  • Are the two aviation ventures of the Tata Group -- with AirAsia Bhd. and Singapore Airlines Ltd. -- also personal hobby horses of Ratan Tata that an overextended group is now obliged to finance?
  • Does Ratan Tata share what Mistry terms as "ethical concerns" with the "overall prevailing culture" at AirAsia India Ltd.?  
  • By agreeing to buy back NTT Docomo Inc.'s stake in the group's telecom business, did he store up commercial and legal trouble for the future?
  • With nearly the entire net worth of Indian Hotels wiped out over the past three years, shouldn't Ratan Tata accept responsibility for a flawed expansion strategy?

The airlines are unlisted. All the other questions, though, involve publicly traded companies. Asking them to explain any governance lapses would simply lead to the kind of platitudes Tata Steel served up on Thursday when, reacting to the risk of impairment raised by Mistry's letter, the company basically said that everything was in order and it had nothing further to add.

Ratan Tata won't get off so easily. If nothing else, the candidates for the next group chairman's job will want to know the truth behind Mistry's allegations about backseat driving and interference by the 78-year-old. Five years ago, a shot at running a hugely diversified conglomerate with global ambitions would have enticed many a high-caliber professional. That's now changed. Unless Ratan Tata can satisfactorily answer Mistry's charges, the group might have to satisfy itself with a minnow as its leader.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net