Thursday, October 27, 2016

Cracks in the Bombay House

Cyrus Mistry's letter / email to Tata Sons board subsequent to his ouster from chairmanship contains serious allegations on the lack of propriety on the part of Ratan Tata. He has alleged that Ratan Tata continued to boss over him and never allowed him to be independent. C.Sivasankaran, a friend of Ratan Tata, was granted unmerited loan by Tata Capital which turned sour. R.Venkataramanan, a protege of Ratan Tata, brought pressure on Cyrus Mistry not to reveal a corporate fraud in Air Asia. Mistry was not provided any clue at any time that his performance was poor.

It is incumbent on SEBI and stock exchanges to probe the matter fully in order to protect interests of shareholders of the group companies. Even if Mistry and Tata patch up, SEBI and others cannot abdicate their fiduciary responsibility to investing public. Obviously, all is not well in the state of Denmark.

It is becoming clear that Ratan Tata is touchy about his legacy and cannot tolerate anyone undoing it even by way of clearing the mess. His teflon image is losing its magic and his feet of clay are becoming visible.

Tuesday, October 25, 2016

Rumblings in Bombay House

Cyrus Mistry, Chairman of Tata Sons, has been unceremoniously shown the door. He occupied the prestigious and demanding position for less than four years whereas the Tatas are known to have faith in long-term performance.

Prima-facie, Ratan Tata has acted like Narayana Murthy of Infosys. There is of course a difference. Murthy is actually a founder of Infosys whereas Ratan Tata is only a legatee-promoter. He was not born in the family of promoters, he was adopted in. Therefore, Ratan Tata is not entitled to the extenuating psychological excuse of inability to let go of one's creation. Ratan Tata has acted like a typical psychopathic boss who can tolerate only those who do his / her bidding.

During Mistry's chairmanship, the Tata companies did perform well despite tough circumstances. Ratan Tata knows only too well how stormy his own initial term was. Mistry has been sacked when he has just settled down and started taking tough decisions like how to manage Corus. Mistry initiated the process of disinvesting white elephants to facilitate deleveraging. A man struggling midstream needs help to swim ashore.

Ratan Tata had earlier eulogised Mistry's willingness to learn and his humility. If the latter had taken some missteps, he could have been corrected. Ratan Tata through apparent penchant for backseat driving has let down Tata shareholders. It is worth revisiting what we thought when Cyrus Mistry was anointed as Chairman:

The Succession Charade

Ratan Tata has announced that Cyrus Mistry, the son of  Pallonji Shapoorji Mistry and the brother of Noel Tata's wife, will succeed him as the chief of the Tata group. As reports go, Cyrus Mistry is a cultured gentleman who espouses humility and respect for governance. Prima facie, the choice is apt. Though only 43, Cyrus Mistry is well experienced in construction business and apparently receptive to advice from well-wishers.

Ratan Tata had earlier observed that his half-brother, Noel Tata, is not experienced enough to succeed him. The question that arises now is: Is Cyrus Mistry more experienced than Noel Tata? The answer may not be reassuring. Ratan Tata also made a mysterious remark, perhaps more philosophical than pragmatic, that Noel Tata's lack of readiness to head the Tata empire was partly his own making. This enigmatic statement gave the game-plan away.

Earlier, a 5-member committee was formed with a great deal of fanfare to do a "global search" for the successor. A world-wide search was made for more than a year only to discover that the target was in Tata's backyard. This brouhaha was, in retrospect, a deceptive ploy. Shapoorji Pallonji's family owns about 18% of Tata Sons. This family seems to have asserted its rights to manage the business empire. This is what happens in many business groups and there is nothing ethically wrong about this development.

However, what is disconcerting is the elaborate drama that was enacted to make us believe that the group was professional and mature enough to delink ownership and management completely. The search committee owes it to the Tata shareholders to inform them the rationale for the ultimate selection. There is no doubt (based on what information is available in the public domain) that Cyrus Mistry is a good choice. It is doubtful however if the committee could not have found a better choice.

Thursday, October 20, 2016

Such a nasty election debate !

Trump - Clinton debates preceding the presidential election have descended to the level of street brawls where reason and logic are at a deep discount.

Three debates are over and thankfully we won't have any more of them. Normally in debates we try to find out who spoke better and who conveyed more sense. But in these T - C debates we need to find who was less nasty. It is difficult to conclude who was.

American media has been mainly anti-Trump with or without adequate reason. Hence we are unable to discern who will a better - or less bad - president. Whoever is elected will find it extremely demanding to get out of the gutter politics spawned by the indecent and sub-human debates. May the less-fit lose !

Monday, October 10, 2016

Nobel prize: Western bias?

Year after year, most Nobel awards are won by academics from the U S and Europe. This year, announcement has already been made in the fields of medicine, chemistry, physics, peace and economics. The ten awardees are British (5), French (1), Finn (1), Japanese (1), Colombian (1) and Dutch (1).

Interestingly, six of these are based in American universities teaching , doing research and of course publishing. There is no doubt that American universities are among the best. These universities can afford costly equipment which is perhaps a necessary wherewithal for high-quality work in science. In the normal course these universities should not have any edge over others in Economics. There is empirical evidence, however, that association with an American university is a necessary condition for bagging the Nobel prize in Economics. This skew is disturbing.

This is not to suggest that there is a deliberate discrimination in these awards. It could be that economists in other countries are not doing enough to catch the attention of the Nobel committee that decides.

Sunday, October 09, 2016

Is the Third World all that bad?

Politicians of the First World are wont to claim that vulgarisation of politics is a defining feature of the Third World and that politeness is the hallmark of politics of the developed world. Is this claim borne out by facts?

Recently some leaders of the UKIP , the party that was at least partly responsible for the Brexit decision, exchanged blows while discussing the Brexit process. Steven Woolfe, a serious contender for the presidentship of the UKIP party, was physically floored in an altercation with another party luminary, Mike Hookem. UKIP is now conducting an election for its leadership following the resignation of Diane James who resigned in disgust after knowing that Nigel Farage, an active and articulate leader of the UKIP, had once called her a b---h.

Reacting to the attack on Woolfe, several hours later the former Ukip leader (Farage) told reporters the incident didn't make Ukip “look good”, describing it as something seen in “Third World parliaments”.
Mr Farage said: “We’re talking about a dispute that finished up physically. It never looks good. It makes us look like – you see Third World parliaments where this sort of thing happens."

In the US, the debate between contenders for presidency, Hillary Clinton and Donald Trump, eclipses the Third World politicians for its debased language and impolite conduct.

The First World is called so only because of its material progress. It is as bad as the Third World in terms of uncultured behaviour.

Wednesday, October 05, 2016

RBI's inflection point?

Any change in leadership of an organisation is bound to create some reorientation however mild it is. If the differences in the personalities are huge, the reorientation is likely to be stark. Are we witnessing such a development in RBI?

Raghuram Rajan and Urjit Patel may not be as different as chalk and cheese. Yet, they are not birds of the same feather. Those who were witness to the overt camaraderie between RR and UP during the monetary policy announcements are apt to suppose that Patel would follow the policy laid down by Rajan to prioritise certain measures to control inflation over uncertain steps to promote growth. Rajan was an inflation hawk and could Patel be drastically different?

On October 4th, Urjit Patel announced a 25 basis point reduction in the policy repo rate as if to prove that he has a mind of his own. He paid glowing tributes to external members of the Monetary Policy Committee (MPC) as being of 'outstanding pedigree'. Patel is as taciturn as Rajan was articulate. It is good that he is, for see what he said about the merits of MPC. "MPC members bring value and a diversion of opinion, which is what the MPC is about." Did he mean diversity of opinion? Further, if there was unanimity regarding repo rate cut, there could not have been any expression of healthy divergent thoughts.

Ashok Lavasa, the Finance Secretary, pronounced unadulterated nonsense when he welcomed the cut in repo rate as "a decision which will go down well with all sections of the economy." Does he really expect the savers to welcome reduction in deposit rates?

Rajan believed that the real policy rate (that is the difference between repo rate and CPI inflation rate ought to be between 1.5% and 2% Now the RBI has scaled it down to 1.25% to 1.5% This is sought to be justified in the background of negative interest rates being witnessed in some economies.

Central banks which have ushered in low / negative interest rate regime have no clue about what needs to be done hereafter to stimulate growth. They have been on a thoughtless slippery path. Raghuram Rajan repeatedly cautioned against such unconventional policies which would be very difficult to wind down. Urjit Patel perhaps is not convinced.

Reduced cost of borrowing will be inflationary through the aggregate demand side though its stimulatory impact on growth is uncertain. Demand for lower interest rates is addictive and we can expect more clamour for further reductions. In the meanwhile, senior citizens who depend on interest income will continue to be left in the lurch.