Ethics Trouble at the Top of India’s Blue-Chip Companies

Natarajan Chandrasekaran, newly appointed chairman of Tata Sons, speaks with the media at the company's head office in Mumbai, India February 21. Shailesh Andrade/Reuters

This article first appeared on the Riding the Elephant site.

Two of India’s most iconic and respected companies have been hit by damaging publicity caused when their previous chairmen objected to the way the businesses were being run by their successors. In both cases, the main accusations have been that the new managements were breaking established traditions and ethics.

This has led to questions not only about the wisdom of the former chairmen’s outbursts, but also what it has revealed concerning the general state of India’s corporate integrity.

Tata, India’s biggest and most respected conglomerate, has begun to emerge from its four months of damaging publicity with a new executive chairman, Natarajan Chandrasekaran, who took over on February 21 from Ratan Tata at Tata Sons, the main holding company.

Previously chairman for 21 years, Tata had reappointed himself as interim chairman on October 24 of last year, when he organized a boardroom coup that ousted his successor, Cyrus Mistry, triggering legal challenges to his action and media exposure to negative aspects of his legacy.

The other blue-chip company under scrutiny is Infosys, which is widely regarded as one of the most ethical and entrepreneurially successful of India’s big information technology companies, rivaled only by Tata’s TCS and Wipro.

Earlier this month, criticisms were launched with maximum publicity by Narayana Murthy, who founded Infosys 36 years ago and served as the company’s first CEO. Questions were raised about boardroom ethics and were aimed primarily at the current chief executive officer, Vishal Sikka, and at R. Seshasayee, the chairman of the board and former head of Hinduja Group’s Ashok Leyland and IndusInd Bank.

Ratan Tata never made it really clear why he organized Mistry’s dismissal, using his power as chairman of Tata Trusts, the 66 percent majority shareholder in Tata Sons, beyond making often contradictory claims about Mistry’s alleged performance failings, whereas Murthy could not have been more explicit when, having no boardroom or dominant shareholder power, he went for media headlines.

Related: Who is the New Man at the Top of Tata?

In an interview with The Economic Times earlier this month, Murthy complained about a “concerning drop in governance standards” as well as “arrogance” and a “complete lack of fiduciary responsibility.” He focused on a $2.6 million severance payment secured, initially without being recorded in board minutes, by the chief financial officer, Rajiv Bansal, who had left Infosys in 2015.

Reflecting rumors that are still circulating in Mumbai despite denials by Infosys, Murthy said “such payments raise doubts whether the company is using such payments as hush money to hide something.” He also implicitly criticized Sikka’s $7.3 million pay package (which is roughly double the earnings of Tata’s Chandrasekaran, who was then head of TCS, and four times that of Wipro’s top executive).

Sikka has produced good financial results since he took over in June 2014, raising profits by about one-third and starting a fresh approach to innovation, automation and other key issues.


Murthy’s outburst prompted two anonymous whistle-blower emails to be sent to SEBI, the stock market regulator, linking the size Bansal’s severance pay to a 2015 purchase of Panaya, an Israeli software company strong on automation, for $200 million—25 percent above a recent valuation.

The inference was that Bansal had not been happy with the deal so he resigned and had to be compensated for his loss of job and silence. This has been denied in detail by Infosys, which also faced down other complaints, including Sikka’s use of executive jets.

A cacophony of complaints followed from other disgruntled former Infosys employees, including Mohandas Pai, a regular performer on noisy television debates, who was praised by Murthy and served as a top executive and board member until 2011.

Inevitably, Murthy’s action led to questions about his motives coming so soon after Tata had ousted Mistry and temporarily took over Tata Group himself. But Murthy had already reinstalled himself as executive chairman in 2013, when the company’s “Buggins’ turn” system of its founders each taking the top job in turn led to poor financial results and a loss of market share. He stayed a year until Sikka was hired as chief executive from SAP SE, a German software company, and Seshasayee joined as nonexecutive chairman.

Seshasayee has refused to resign, but has admitted there have been “cultural differences” with Murthy and the other founders. With Sikka, he has taken steps in the past few weeks to answer to criticisms and placate Murthy. However, sources in India’s corporate world believe that all of the questions have not been adequately answered and that the company’s leadership has not yet been stabilized.

Together Murthy and his fellow founders have about a 13 percent stake in the company, but their real power lies in their status as respected elders, despite criticisms of Murthy’s apparent search for the media spotlight.

At Tata Sons, the damaging allegations did not come from Ratan Tata ironically, but from Mistry after he had been sacked. They have raised serious questions about both the Group and Ratan Tata’s claim to a clean record.

These issues will now have to be handled by Chandrasekaran. They include revelations of alleged questionable payments in a Tata aviation joint venture with AirAsia Malaysia, and Ratan Tata’s former financial deals with Chinnakannan Sivasankaran—a controversial South Indian businessman who has been surprisingly close to him—plus other telecom investments and contractual relationships.

That’s in addition to allegations of mismanagement by Ratan Tata and the Tata Trusts, and various legal and regulatory actions, started by Mistry at the end of last year.  

The most significant are awaited rulings from the National Company Law Tribunal (NCLT) on pleas by Mistry’s family firms—which have an 18.4 percent equity stake in Tata Sons—challenging Mistry’s dismissal and alleging mismanagement and oppression of minority shareholders.

Chandra, as Chandrasekaran is known, will also have to deal with legacy issues left behind by Ratan Tata when he originally resigned in 2012, such as Tata Motors’ unsuccessful Nano car and Tata’s loss-making U.K. steel business. Tata resented Mistry trying to solve these problems, and there are others in need of tackling in Tata Power and other companies.

That’s in addition to sharply declining earnings at Tata Motors, and the risk of Tata Consultancy Services’ role as the group’s main cash cow being hit by President Trump’s likely restrictions on software engineers’ U.S. visas.

As he took on his new role this week, Chandra said that he would “focus on three strategic priorities,” which include bringing Tata Sons closer together to leverage collective strengths, driving operating performances and bringing greater rigor to capital allocation policies.

Now the question is whether or not Ratan Tata is willing let Chandra get on with those aims and stand aside without trying to wield veto powers as the chairman of the Tata Trusts.

“Convinced that he was irreplaceable”

Last weekend, a lengthy Financial Times article on the Tata Group by Mumbai correspondent Simon Mundy contained a particularly telling paragraph about a long-standing acquaintance of Ratan Tata, who said “adulation” of him gave cause for concern as Tata approached the Group’s mandatory retirement age of 75.

“In this last phase, an ordinary man became an icon. His health was beginning to get stressed, and I don’t doubt that he genuinely wanted to find a successor. It was not a charade. But the trouble was, he was convinced that he was irreplaceable,” said the (unsurprisingly) anonymous source.

Similarly, the question can be asked whether Murthy still considers himself indispensable as Infosys’s chief mentor, which is the title he was given when he first retired.

So what has Ratan Tata achieved with his vengeful ejection of Mistry? He removed a chairman who wanted to reduce the Tata Trusts’ constant grip on the Tata Sons’ decisions, and who might eventually have tried to disrupt Tata traditions, though that has not been established.

With Chandrasekaran, an insider, in charge, the main Tata traditions of social as well as corporate aims remain intact, although tougher management decisions will need to be taken. But Ratan Tata has dimmed the previously venerated Group’s protective halo by provoking Mistry to air allegations about ethics, and he has shattered his own halo.

He has also endangered the Group’s Parsee traditions by packing the Tata Sons board with a motley collection of outsiders who he knew would support him in ousting Mistry, but who observers fear may have other aims in the years ahead. Chandrasekaran can offset these concerns by bringing onto the board more top Tata executives; The Economic Times recently reported that this is being considered.

Neither Tata nor Murthy have earned much, if any, praise for the heavy-handed way in which they have tried to correct what they perceive as their successors’ failings. Both had understandable interest since they built up their businesses, and they both had status as promoters under Indian company law. But that does not excuse the way they have taken action.

Tata Sons will begin bouncing back from the last four- month hiatus as it approaches its 150th anniversary next year, though it has serious business challenges to face.

However, Ratan Tata’s personal image is unlikely to ever regain its previous sheen. The same goes for Infosys and Murthy.

And India’s corporate scene has few other prominent ethical icons to look up to.

John Elliott writes from New Delhi. His latest book is Implosion: India’s Tryst With Reality (HarperCollins).