On rising expenses and impairments
The Tata Sons full-page newspaper advertisement on 11 November vaguely accused that expenses and impairments increased at Tata Sons during Cyrus Mistry's Chairmanship. Insinuating the increase in expenses as a failure of Mr. Mistry is another brazen attempt to mislead the public and shareholders.
Since the issue has been raked up to get a "desired perspective" despite the facts having been privately communicated to Tata Trusts as early as January, the record is being set right through this statement.
On "rising expenses" at Tata Sons
First, it is important to appreciate some fundamental changes between the last five years of Mr. Ratan Tata's tenure and the period under Mr. Mistry's leadership. In the five years preceding 2012, several group centre (GCC) members held what were deemed "non-executive" roles in Tata Sons. As such, they, including Mr. Tata, drew their compensation as commissions from Tata Sons instead of salaries which skews base year comparisons. It is also public knowledge that several erstwhile directors of Tata Sons drew additional parallel commissions from operating group companies.
The group centre (GEC), reporting to Mr. Mistry, drew remuneration only from Tata Sons. No member including Mr. Mistry took any commissions from any of the operating group companies. This arrangement was a cleaner and more transparent system to ensure that those involved in running the group were remunerated only by the group's core investment company and not by the operating companies.
Second, Mr. Mistry added a few senior positions such as Group CTO and Group Strategy Head. These positions were aimed at enhancing the group central capabilities to future-proof the group. The Group CTO Office works on technology projects relating to multiple group companies. Promising results are emerging in the areas such as Graphene, Renewables, Fleet Analytics and Industrial Wearables. This focus on technology will be a differentiator for the Tata Group, and pay dividends in the years ahead.
Third, another significant difference was due to the cessation of services by Ms. Nira Radia (Vaishnavi Communication) who was being paid approx. Rs 40 Cr per year. She had been replaced by Mr. Arun Nanda (Rediffusion Edelman) who had been brought in by Mr. Ratan Tata at a cost of Rs 60 Cr per year for PR support just prior to Mr. Mistry taking charge. It is worth noting that a part of this PR infrastructure was also provided to the Tata Trusts, while paid for by Tata Sons.
Finally, the Tata Sons full-page ad of 11th November fails to acknowledge that Tata Sons was also bearing the entire office costs of the Chairman Emeritus, Mr. Ratan Tata. This figure was about Rs 30 Cr in 2015. A significant amount of which was for the use of corporate jets. This dual structure and attendant costs did not exist earlier.
On allegation that impairments indicate an inability to turn around inherited hotspots
Mr. Mistry did not approach any of the businesses with a view to do a quick cleansing so that he could immediately demonstrate decent results going forward.
The efforts of Tata Sons, under his leadership has always been to look at Strategy, Structure and Leadership changes to drive operational improvements before examining Mergers, Exits or Shutdowns. All the decisions taken in this regard were in keeping with the Tata values and with the full consent of the Board. The way forward on this front was documented in the board meeting minutes as well as the 2025 Group Strategy Document, which was presented to the Tata Sons at board meetings held as early as June 2015 then in, December 2015, and further iterated in June 2016.
The impairments and write downs at Tata Sons were due to legacy issues, largely relating to TTSL. There were also other investments of questionable nature such as Nagarjuna refineries (Rs. 400 Cr.) and SASOL JV. One investment in Piaggio Aero, a company in the aerospace sector with a friend of Mr. Tata, was especially distressing. Tata Sons decided to exit the company at a commercial loss of Rs 1,150 Cr. This was after the efforts of Mr. Bharat Vasani and Mr. Farokh Subedar who managed to recover Rs. 1,500 Cr., overcoming the objections of Mr. Ratan Tata who in contrast favoured increasing investments in that company. Today, the company is, for all practical purposes, nearly bankrupt.
The challenges the Group faced could not be wished away. Each problem had to be dealt with a view to creating the most palatable solution for all stakeholders, while simultaneously trying to ensure that the situation did not deteriorate. Mr. Mistry focussed on ensuring that Tata Sons built its reserves and resources to handle the necessary writedowns as the portfolio restructured. Between FY11 to FY15, Tata Sons networth, after considering impairments increased from Rs 26,000 Cr to Rs 42,000 Cr, significantly strengthening the ability to absorb future shocks.
Office of Cyrus P. Mistry
15 November 2016