Tata Sons on Thursday blamed Cyrus Mistry for the poor performance of the Tata group entities, declining dividends and misusing public relations to manipulate the media. Tatas also blamed Mistry for diluting the organisational structure that was built over 100 years.

"The Directors of Tata Sons are primarily concerned with the results of Tata Sons and their duty to all its shareholders, particularly, the Tata Trusts, who hold 66 per cent of the equity capital. Mr. Cyrus P. Mistry has been the Executive Vice-Chairman (for one year) and Executive Chairman for nearly four years now – a period long enough to show results in Tata Sons itself, which was his primary executive responsibility," said a statement from Tata Sons.

"For assessing the results during his tenure, it would indeed be appropriate to exclude the income (i.e. dividend) from Tata Consultancy Services (TCS) because Mr. Mistry does not really contribute materially to TCS’s management and TCS has needed no funds from Tata Sons for its growth. In this way, it will be seen what Tata Sons has been getting from all the other 40 companies (listed and unlisted) in its portfolio,' it added.

"Dividends received from all the other 40 companies (many non-dividend paying) has continuously declined from ₹1,000 crore in 2012-13 to ₹780 crore in 2015- 16 but the latter figure includes additional interim dividend of ₹100 crore which would have been normally received in 2016-17 (due to budgetary changes). This surely reflects the decline in the total profits of those operating companies from which dividends are paid, during the last four years," Tata Sons said.

"While dividend income was declining, expenses (other than interest on debt) on staff increased from ₹84 crore to ₹180 crore and other expenses increased from ₹220 crore in 2012-13 to ₹290 crore in 2015 (excluding exceptional expenses). There was little or no profit on sale of investments during these years, i.e. no significant divestments from Tata Sons’ portfolio despite a planned list of divestments indicated from time to time," it added.

Impairment provisions increased from ₹200 crore in 2012-13 to ₹2,400 crore in 2015-16 indicating the inability to stem falling values and turn around the ‘hot spots’ referred to by Mistry. "Thus, but for the TCS dividend and even before impairment provisions, Tata Sons would have shown operating losses over the last three years (with a small surplus in between), showing the significant dependence on TCS. This dependence was indeed a source of concern for the directors and its shareholders.

Tata Sons said Mistry was appointed as Chairman because of his recorded views and plans and also his association with the group. "After four years, it is unfortunate that hardly any of his major views on the management structure (which had impressed the committee favourably) have been implemented. 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) by systematically reducing the effective control and influence of the promoter," Tata Sons said.

“We now have an unacceptable new structure where the Chairman alone is the only common Director across several companies and this situation could not be allowed to go on. In addition, there were some significant issues of conflict of interest in relation to the Shapoorji Pallonji Group which he did not fully address," it added.

Tata Sons said Mistry constantly used the strong public relations network of Tata to emphasise the supposedly good work being done by and under the new leadership and particularly and repeatedly highlighting the major problem areas in the group inherited by him (commonly referred to by him as ‘legacy’ issues and ‘hot spots’) from the previous Chairman, to account for any perceived lack of his performance. "The articles and interviews are littered with text-bookish directives and objectives, e.g. ‘growth with profits’, ‘target to be among the top 25 groups in the world’ by market capitalisation, ‘cater to the lives of many millions’ and other such nice-sounding phrases with no indications on how these ambitious targets are to be achieved. Is all this relevant when there are so many major problems which need urgent attention and action? Would it not be more appreciated if the reports talked specifically on these problem issues and their solutions rather than continuously harping on the past versus the present? Nobody will deny that there were some problem companies but surely Mr. Mistry was fully aware of them since he was associated with the parent company, Tata Sons Ltd, as a Director on the Board for many years prior to his appointment as Executive Vice-Chairman in 2011 and then as Executive Chairman in 2012."

Poor Performance

" He voluntarily took this position, knowing the composition of the Tata group and its many strong companies as well as the weaker and problem companies – which he presumably took on as a challenge for ‘turning around’ those difficult situations. Yet, after four years of full-time involvement and executive authority, we continue to be told how these ‘legacy’ problem areas are a major drag on Mr. Mistry’s otherwise good performance. How many more years would we be told this same story?"

" The three major problem companies are Tata Steel Europe, Tata Teleservices/ Docomo and the Indian operations of Tata Motors. The fact is that even after four years, there is no noticeable improvement in the operations of these companies and in fact they have got worse as shown by continuing huge losses, increasing high debt levels and declining share in their respective markets. There are a few other companies which are also having different problems – and are these also to be excused as ‘legacy’ issues? Even with no turnaround in these major problem areas, the only action taken was to write-off huge amounts against these companies – which is no solution because the problem companies continue to exist with their continuing losses and high debt and only the shareholders suffer from these write-offs"

" The media is fed with the total group figures over the past four years as evidence of the progress but it is not highlighted that these aggregate figures which show a good picture are largely (if not only) due to the excellent performance on all parameters of just two companies, namely, TCS and Jaguar Land Rover (JLR), which is a wholly-owned U.K. subsidiary of Tata Motors. There is no complaint about these good legacies! "

"These two jewels in the Tata crown were also inherited by the new Chairman from the previous Chairman, Mr. R. N. Tata, who was also responsible for the acquisition of JLR by Tata Motors in 2008-09 and personally worked with the then management of Tata Motors to turn JLR around. These two companies probably account for around 50 per cent of the total turnover and probably over 90 per cent of the total profits of the whole group and have been performing successfully continuously over the past many years, for which Mr. Mistry cannot take credit," Tata Sons said.

Media manipulation

" It is evident that the group under Mr Mistry’s leadership was intolerant to critical reports about the actions taken under his aegis. Over the past four years, only a very few such partially negative reports have appeared in some parts of the media – the most recent one being by the highly respected Economist magazine of the U.K., which was really a well-balanced and critical review of the Tata group’s performance in recent years and which was reproduced by another respected Indian daily. Even this report was vociferously refuted in the strongest terms by the PR machinery of Tatas as being biased and incorrect."

" In short, those who analyse the overall position of the group in an unbiased and professional way which may differ from the version put out by Bombay House (the Tata headquarters) are uniformly wrong, even if they only seek to present an overall balanced picture which may (and rightly should) include the negative aspects. This attitude does not befit an old and venerable house like Tatas known for their fair play and transparency," it said.

Tata Sons added that insiders in Bombay House who have been with the group for many years silently and helplessly watched the conscious departure from old, proven and successful structures within the group and the induction of very senior executives from outside the group with little or no experience of running large companies and being paid amounts reportedly running to several crores for purely functional positions at the very top.

Group Indebtedness and Return on Investments

Group indebtedness has increased by ₹69,877 crores to ₹225,740 crores over the last four years. Despite huge investments by companies, the returns are not visible in increased profits, though, in all fairness, some major growth projects like the new steel plant at Kalinganagar will show results only in coming years.

There has been a perilous drop in market share in both passenger cars and commercial vehicle areas over the past three years. In passenger cars, in the year ended March 2013, the market share was 13 per cent, which now stands at 5 per cent! It will be difficult if not impossible to retrieve the market share losses. However, even more concerning, is the market share in commercial vehicles which in March 2013 stood at 60 per cent and now stands at 40+ per cent – the lowest in the company’s history as the market leader in commercial vehicles. The two passenger car launches of good products such as Bolt and Zest introduced as turnaround products for the company, have both been lacklustre in market acceptance – achieving current sales levels more or less equal to those of the Indica and Indigo which are around 15-year-old vehicles. The third launch of Tiago has been well received in the market but its sustained steady state volumes are yet to be determined. "These details are masked by the performance and profitability of JLR as most references to Tata Motors are in consolidated form" Tata Sons said

Group write-offs/write-downs/provisions/asset sale – During the past three years, the group has written down, written off or made provisions for impairment worth thousands of crores. Tata Steel alone has written off a large part of its investment in its UK/European assets. It is interesting to note that the new buyers of some of the steel assets for £1 in the U.K. have claimed a dramatic turnaround in the very first year of their take-over. "In our view, these sub-par results cannot be blamed on the commodity cycle or economic conditions – but on his leadership. Mr. Mistry repeatedly talks of ‘bad’ acquisitions, but he forgets that his own firm had acquired South India Viscose Limited and Special Steels Limited many years ago from which they walked away, while Tatas always stand by their companies in difficulties," the statement said.

Interference by Tata Trus t

Tata Sons said the accusation of interference by the Trusts is not only wrong in reality but has been twisted to mislead people. "One of the important duties and obligations of the Trusts and the Trustees is to protect the assets of the Trusts, the most important and valuable being investments in Tata Sons donated by the founders and their successors many decades ago and which is a major source of the income of the Trusts. It is only to fulfil this duty that information relating to the operations of Tata Sons which is an unlisted investment holding company need to be kept track of," he said.

"The recent development in the Indian Hotels Co. Ltd. (IHCL) now seems to reveal the true colours of Mr. Mistry and his ulterior objective. Having been replaced as the Chairman of Tata Sons, where the majority of the Board and the major shareholders had expressed lack of confidence, Mr. Mistry is trying to gain control of IHCL with the support of the Independent Directors of the Board. He has cleverly ensured over these years that he would be the only Tata Sons representative on the Board of IHCL in order to frustrate Tata Sons’ ability to exercise influence and control on IHCL,"

Allegations post ouster

" In hindsight, the trust reposed by Tata Sons in Mr. Mistry by appointing him as the Chairman four years ago has been betrayed by his desire to seek to control main operating companies of the Tata group to the exclusion of Tata Sons and other Tata representatives. Indeed, this strategy of being the only Tata Sons’ representative on the Boards of the operating Tata companies, seems to have been a clever strategy planned and systematically achieved over the last four years."

On the claims made by Mistry that Tata companies having to take ‘potential write-downs of $ 18 billion’ in future Tata Sons said, " Has Mr. Mistry, the Chairman, informed the Boards of these companies at any time in the past specifically of the above mentioned potential write-downs? If so, when was this done and why was it not made public as this is clearly a major item of information – apart from disclosing only the write-offs required to be made to date. Surely he could not have ‘discovered’ such a large potential liability only a day or two after he was replaced as the Chairman of Tata Sons. Therefore, he must have been aware of this potential large provision much earlier but did not disclose it."

Drop in market value

Tata Sons said it was unfortunate that the BSE/NSE have asked the companies to explain this statement and not Mr. Mistry as the author of this statement. "On the same point, it has been widely reported that this statement of potential write-downs of this magnitude has been largely responsible for the loss in the total market value of these five or six companies of an amount of over ₹25,000 crores and all the shareholders would naturally be unhappy at this loss in their own value for no fault of theirs but mainly due to this shocking and sudden statement on the part of the Chairman of these companies which may or may not have been shared with the Board and certainly not publicly disclosed earlier."

" Here again, it is unfortunate that the shareholders and regulatory authorities would put the onus on the companies and not Mr. Mistry as the author of the statement for being responsible for this large loss in market value," . As a group, we are committed to upholding the highest standards of ethics and value systems which the founders and the subsequent leaders have always strived to uphold. It is the spirit of the employees which has made the group what it is today and we are committed to resolving the current situation by doing whatever it takes and in a manner that ensures the protection of interests of all stakeholders of the Tata group. "

Mistry’s response Responding to these allegations, sources close to the Mistry camp termed the note a “desperate” act. “After 17 days of silence on the unjustified and unexplained removal of Cyrus P. Mistry as Chairman of Tata Sons, the Tata Sons’ nine-page ‘press release’ has not much but selective data, unsubstantiated claims and half truths without a word of explanation as to why it became necessary to remove him summarily violating natural justice and without explanation,” sources close to Mistry said.

The source said that for the Tatas to blame Mistry for all the problems he had inherited was fallacious; the Tatas, the source added, had embarked on a “smear campaign” unworthy of the Tata Group.

“All the ‘reasons’ in the letter, would have, and should have, been tabled and recorded in the minutes of the many Tata Sons board meetings held over four years of Mr. Mistry’s Chairmanship. Unfortunately for them, no such record exists because these allegations are simply not true.”

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