To understand the why, one has to step back to 1991 – the year when Ratan Tata became head of the Tata Group.
The only problem was that there was no group as such. There was only a set of independent professionally managed companies – each headed by its own leader. Russi Mody ran Tata Steel. Darbari Seth ran Tata Chemicals. Ajit Kerkar ran Taj Hotels. And so on. Each of them was more than a owner. He was a dictator who ran the company like a proprietorship.
Why would anyone listen to Ratan Tata. JRD was still alive. And the central Tata organisation – by whatever name called had nothing to give them. And had a long list of things they wanted. No one wanted to even meet him – let alone let him rule over them.
Tata Sons had no money. It could barely manage to support Tata Industries where all the new businesses were housed and TCS which had them become a cash cow. They couldn’t pledge their own shares to raise money and they didn’t want to pledge downstream company shares. They anyway owned a very small percentage of those companies.
In the early eighties, tax rates were quite high. And dividends had to be paid from post tax surpluses. Shareholding was low. And dividend income was small. And then Tata Sons also had to give dividends to the Trusts so that they could do some namesake charitable activities to be able to justify their tax status as a charitable trust.
Net net there was nothing called the Tata Group. Just some independent companies called Tata Something Ltd. With JRD and then Ratan as titular Chairmen. HDFC Chairman recently resigned and said he knew or was told very little about what was happening. Ratan Tata knew even less.
Ratan wasn’t Indian in the desi sense. He sought inputs from international experts, alienating In-house experts like his auditors who he thought were close to his adversaries.
Ratan turned outward for help. Citibank, KPMG and tragically – the likes of Nira Radia. It was not the end of the road. It was driving at speed to the edge of a cliff. Thinking the road would never end.
These advisors misguided Ratan. They advised that he set up a trust which would invest in colleges like Harvard instead of say the IITs or the IIMs. In return for these investments, they would be able to get a quota for scholarships. These scholarships would be given to children of bureaucrats. And they in turn would give favours.
There were other schemes. Some too tragic to reveal in a public document. Anyway to cut a long story short – JRD died in 1993 and Russi Modi was thrown out. Other leaders met the same fate. And those loyal to the leaders also had to part ways. Cash flows were disrupted. There was no money for investing. At the same time, markets had been opened up – liberalisation was here.
Foreign advisors made Ratan do one stupid act after another. Buy VSNL. Buy Corus. Buy Jaguar.
Buy everything.
Which no one else was there to buy.
Citibank pocketed the commissions.
KPMG did the paperwork.
