The true toll: Settling the Tata-Mistry dispute has given rise to a reckoning about the real cost of this conflict

On September 22, after nearly four years of all-out acrimony, an opportunity to cease hostilities presented itself to Tata Sons and Shapoorji Pallonji (SP) Group. During court proceedings to prevent the SP Group from pledging or selling Tata Sons shares, the latter offered to buy out the former’s equity holding.
By late evening, SP Group put out a statement, saying a separation of the long-standing relationship was perhaps in the best interest of everyone, including “livelihoods and the economy”. This opened up a path to end the bloodletting, although it is as yet unclear if the two sides can find common ground on the valuation of the shares in question.

There is a gap of about one lakh crore rupees between what the two sides think the holding is worth. At Bombay House, the headquarters of Tata Sons, strategies are being drawn up to find the money to fund the buyback.

Options, restructuring plans and routes to raise funds are all being weighed. A reconciliation is not on the cards. But as the pressure valve of the conflict has been released, and the two sides are now focused on settling the matter (although the Tatas have said no formal communication in this regard has been received from the Mistrys), a reckoning with the real cost of the dispute has begun on both sides.

The fight dragged hard-earned reputations through the mud, mired top executives in legal proceedings and sucked precious time and management bandwidth at a time when both groups — one far larger in comparison and therefore more vulnerable, while the other finds itself in a tight corner — needed every available ounce of these.

While the tangible costs are considerable, there’s a dawning realisation that the true toll this episode has taken on businesses, morale and people is staggering. ET Magazine spoke to a range of key figures — stakeholders from constituencies such as current and former employees, directors, top executives, independent observers, members of the Parsi community and others — and a few themes emerge clearly.

First, the conflict has set the companies involved back by several years and growth has become a casualty, even as rival conglomerates have made strides in this time. Second, now that a window has opened, the two sides should find a way to end the dispute quickly, without permitting further damage.

Third, the Tatas need to work on an ownership and governance structure that insulates its businesses from such shocks in the future. Lastly, urgent work needs to go into repairing diminished morale, formation of silos, an environment of uncertainty and second-guessing the changing power dynamics within Tata companies.

Due to the sensitive nature of the subject, most people spoke under the condition of anonymity. Tata Sons, SP Group and Ratan Tata did not respond to requests for comment.

Shifting Sands of Power “It’ll be a pyrrhic victory,” says a top director at a Tata group company, discussing the legal battle, which is set to wind its way into the final stages in the Supreme Court next month. “The only winners will be the battery of lawyers hired from both sides,” says another group director. For the Tatas, the challenge is that growth is muted across the group, except at Tata Consultancy Services and Titan.

It’s now pursuing a strategy to catch up with competitors and become a digital one-stop shop for all consumer needs through one platform or app, tying in a range of disparate group businesses. But if that requires collaboration across companies and reporting lines, what the boardroom battle has left behind won’t be conducive.

Insiders say the battle has caused a lot of distraction in group companies, as their own boards, managements and performance have also been dragged into it, becoming subjects of public accusations and courtroom arguments. Public scrutiny of past decisions, investments and performance, often stripped of the context in which those decisions were taken, brought undue pressure to bear on executives.

All of this also meant employees prophesying change in organisation charts and power dynamics. “There is a sense of disorientation among a set of managers today who have had to see the bloodbath since 2016. In a divorce, the collateral damage is always on the children… Here is an institution where the greatest asset was always the employees. The group had people power. The current cadre of managers have been hurt by the ensuing confusion and lack of communication” says an insider.

The peak of this phenomenon was in December 2019, when the National Company Law Appellate Tribunal (NCLAT) reversed Cyrus Mistry’s 2016 ouster as Tata Sons chairman, effectively reinstating him to his former role. “It was as if Bombay House was on oxygen support,” sums up a legal official who witnessed the ensuing pandemonium at the time.

It shook the top echelons of the group for several days until Tata Sons secured a stay order from the Supreme Court. “The distraction from that episode hasn’t worn off yet,” says another insider. The appointment of N Chandrasekaran as chairman in January 2017 was meant to bring stability and end the confusion. But he has himself had to function under the shadow of the legal battle and the enhanced scrutiny of his decisions.

“Today, the situation can be compared to a Ferrari forced to be driven on a crowded Mumbai road with several traffic junctions. So either the driver steps off to clear the traffic and move ahead or gets stuck helplessly,” says a group watcher.

Mistry’s allegations of pervasive mismanagement and poor decision-making meant that Tatas had to marshal evidence and data to defend themselves in court and in the public eye. This exercise meant that decisions involving executives, who were no longer around to defend themselves, were also called into question — by a former chairman, no less. The quarrel might have been between Tata shareholders, but the damage has sustained far beyond those rarefied quarters.

It has also landed the group in a quandary — even if it now wants to correct past decisions, having defended them in court affidavits, it’s hard to carry out changes as it will seem like vindicating Mistry’s arguments.

“We have to understand that this not just another corporation. It is the Tata group, globally renowned for its integrity, values and legacy. This has been painful on many fronts. The legal dispute has dragged on for so many years that it has hurt group focus and commitment. Many tough decisions that should have been taken have not been as these have been justified in the court petitions,” says a former director at a group company.


Structural Changes Even in closure, the onus of having to find the funds to buy out the Mistry family is falling on the Tatas. “It is the responsibility of Tata Sons to evaluate options either internally through TCS by dilution of stake or by finding external investors who will buy SP’s stake. That is a clear distraction that does not add value in any way towards business growth,” says a financial expert in Tata group.

Mukund Rajan, former member, Group Executive Council, Tata Sons, and author of The Brand Custodian : My Years With the Tatas, says the need of the hour is to resolve the dispute.

“The battle between the two most significant shareholders in Tata Sons, the apex investment holding company of the Tata group, has generated intense stakeholder scrutiny of governance within the group and eroded the morale within its employee base, with profound, long-term implications for the Tata brand. The shareholder dispute needs to be urgently resolved, and the roles the Tata Trusts and Tata Sons envisage for themselves as owners and managers need to be clarified,” he says.

“One possible way out may ultimately be to publicly list Tata Sons, allowing its ownership to devolve on the Indian public markets and the people of India. In a way, this will honour JRD Tata’s famous articulation of the trusteeship concept at Tatas,” says Rajan.

Consequent to such a change, Tata Sons would be under constant public scrutiny and be required to have a very distinctive board of directors, he says. “The publicly elected board would be tasked with streamlining the conglomerate’s unwieldy portfolio — few Tata companies currently are genuine market leaders and even fewer brands have made an international impact. The board would also have to make bold bets on transformational innovations and ideas that can capture the imagination of stakeholders, in areas such as electric vehicles and artificial intelligence,” says Rajan.

Lost Decade Between 2000 and 2010, the Tatas spread their wings globally, acquiring such behemoths as steelmaker Corus and iconic carmaker Jaguar Landrover. Another top director of a group company likens some of the problems that followed in the subsequent decade, to indigestion.

“It was like having a huge full meal in that period. And the years from 2012 to 2020 were about digesting the meal. The heavy eating led to some indigestion. But now the group’s focus should be on having a healthy diet and fitness.”

A former Tata Sons director terms the last 10 years as the lost decade for Tata group. The group commenced the search for Ratan Tata’s successor in 2011, as he prepared to exit. Mistry was appointed chairman in 2012, and was ousted in 2016. Chandrasekaran, his successor, has held office under the shadow of the legal battle as well as constraints on decision-making stemming from the narrative upheld by the group.

“Cyrus Mistry identified hot spots that led to his ouster, whether right or wrong. The current Tata Sons management has had to deal with the same issues such as telecom, Tata Steel Europe, Tata Motors, airlines, etc. There is always the shadow of the past looming over decision-making since Ratan Tata stepped down in 2011,” says the CEO of a Tata group company.

A former group company CEO says while Mistry identified issues, he could not do much about it whether it was Tata Steel, Docomo or Tata Motors. “It was like giving expert medical comment about a patient on the operating table but not doing anything to cure.” However, a former director of Tata Sons says it is not fair to attribute current strategy delays to distractions.

“When Ratan Tata had taken charge of the Tata group, he had his own share of distractions around old satraps. He handled those issues, while parallelly charting the group’s growth path,” he says. Although management decisions reflect in company performances with a lag, Tata group’s combined market capitalisation grew 88% to Rs 8.54 lakh crore while Mistry was at the helm.

Sales of all the listed companies grew by 35%, profits grew 15% and debt grew by 42%. During Chandrasekaran’s time, market cap grew by 64%, sales grew 15%, profits declined by 17% and debt grew by 31%.

“It’s difficult to say if the boardroom battle with Mistry has affected the Tata group companies or not, as some of the companies like TCS, Titan and Tata Consumer have done extremely well in the last two-three years, whereas companies like Tata Steel, Tata Motors, Tata Chemicals and Tata Power have grossly underperformed,” says Sunil Singhania, founder, Abakkus Asset Manager LLP.

Raghu Viswanath, chairman of business consulting firm Vertebrand, says he doesn’t foresee any lasting impact of the battle on the Tata brand, although doubts have been created in people’s minds and “some may be here to stay”. “Even misperceptions regarding corporate governance or individual leaders, if any, will hardly make a dent on the overall image of the Tata brand,” he says.

As for SP Group, issues that it started facing in the aftermath of the collapse of IL&FS, as funds and institutional investors started pulling out of real estate and construction, have been exacerbated by the Covid-19 crisis. The group is in urgent need of funds and attempts to raise promoter funds to the tune of Rs 11,000 crore have not been met with success.

The company has applied for a one-time restructuring of its debt and has therefore chosen to not pay maturing debt. The default on loans by the SP Group attracted some negative publicity, but company officials say it is a temporary cash flow issue and not a balance sheet crisis.

Way Forward “I see zero hope for a reconciliation between the two unless a very strong intermediary gets them to sit across a table for the larger good. Keeping in mind the larger focus of the Tata group as an institution and its legacy should be the best reason to resolve the issue,” says Nawshir Mirza, a former Tata Power director.


Well-wishers feel there is an urgent need for an interlocutor to get the warring sides to the table and thrash out some solution and end the legal fight. Officials close to the Tata group say the fight would never have reached this point if Pallonji Mistry, Cyrus’ father, was playing an active role.

“The presence of Kokilaben ended the spat between the Ambani brothers years back. Someone of that kind of stature — Pallonji or Keshub Mahindra, or Vijay Kelkar — could have played peacemaker. Maybe even Nusli Wadia had things been different. That is not happening today,” says a top director in a Tata group company.

R Gopalakrishnan, a former Tata Sons director, says, “From the broader stakeholder perspective, both parties might consider editing their self-narratives in the search for a nonscalding solution. That process requires that organisational dreams for the future must exceed individual memories of the past.”