Interview: Ratan Tata on Tata Steel (July 2001)

“Given right incentives, India can be a steel supplier to the world”--Ratan Tata

My first conversation with Ratan Tata was while doing a cover story on Tata Steel for Business India, (July 23-Aug 5, 2001). Excerpts of which are reproduced below. The link to the story is also below. Tata Steel had just finished major modernisation of its Blast Furnace and had commissioned a brand new Cold Rolling Mill in collaboration with the Japanese giant Nippon Steel. And the veteran metallurgist and MD, Dr J J Irani was retiring and B Muthuraman was on the verge of taking over the leadership in 2001.

What impressed me about Ratan Tata was his straight talking and down to earth approach. When I dangled a bait in the form of a question regarding a claim by Tata Steel's PR in the media which I knew to be false or a "conditional truth". He immediately concurred with me that the claim was questionable and he has asked them to redo their calculations and show him. Very few business leaders are self critical or circumspect about superlative claims by their PR ! The full story on Tata Steel is here:

https://reflections-shivanand.blogspot.com/2007/08/tata-steel-renaissance.html

In a free-wheeling hour-long interview, Tata group chairman Ratan Tata spoke to Shivanand Kanavi ( July 2001) about the challenges faced at Tisco. Excerpts:

Q How do you look at your nine years as chairman of Tata Steel?

When I became the chairman, Tata Steel had just come out of the administered price regime where price increases were simply passed on to the consumer. The month I took over there was a crisis because freight equalisation had been discontinued and we were adversely affected since the major markets were in the south and the west. Tata Steel had come out of a seller’s market and hadn’t really oriented itself to the customer.

We set up two task forces, one to look at realisation and the other to look at costs, both of which were headed by Jamshed Irani. They went about looking at issues in a real hard way. We made some progress on both those scores. We started benchmarking ourselves with the best of the breed in the world. That really paid off, in terms of keeping great pressure on the level of our costs.

We also made a decision not to expand but modernise our facilities, and to move into flat products, which we saw as the growth area. We went through some difficult years in terms of cash flow and liquidity as we increased our levels of borrowings to see the various phases of modernisation through. Finally, the hot rolled mill and subsequently the cold rolled mill came into being. For a period of time, Tata Steel did not look hot to investors and analysts until we moved to the last phase of what we were doing.

The leadership in Jamshedpur has had a tremendous role to play in what was achieved. Jamshed Irani and his team have resolutely gone about making this transition, with no pulls and pressures that it should have been done in another way.

I think the only distraction would have been the view that Tata Steel should grow to 15 million tonnes, that it should be a volume producer as against a company that would be the best in its class. And perhaps, the period when one thought that Gopalpur would be the focal point of growth. I felt that growth in steel is going to be a difficult one and that we should consolidate ourselves and improve our operations before we looked at expansion.

Q What stops India from becoming the steel supplier to the world?

There are several issues. Koreans operate at 9:1 debt equity ratio, their interest rates are close to 1-2 per cent, whereas it is 18 per cent here. Tisco has had the benefit of the

Steel Development Fund, which is softer but which does not cover everything. The social costs in India and Tisco are a part of our baggage. Posco, for example, will bulldoze a plant that is obsolete and build another one in its place that is newer. We can’t do that in India. We need a MITI like approach to become supplier to the world. Here the steel industry has never been given the required incentives.

Q To build a modern company in Bihar must have been quite a challenge.

The credit has to go to a very strong community spirit in Jamshedpur. The people of Jamshedpur have a very strong sense of pride, and there is a sense of fear that it should not become like the rest. When I lived there, in the ’60s, there was a time when for Rs15,000 somebody could get killed. Finally, we had a good SP who cleaned up the place. So the rot can happen in Jamshedpur also. Tata Steel has been a fair corporate citizen, it has given a lot to the community. It has administered not in its own self -interest, but in the broader interest of the community.

Q Don’t investors question why you give away Rs100 crore every year to Jamshedpur and surroundings?

In particular, foreign shareholders think that this is baggage we are carrying and, in a manner of speaking, it is. But if you look at the industrial harmony and so on, I don’t think you can ascribe a value to it. This is a cost you have and despite that if you are still going to be the lowest cost steel producer, then no one should mind.

Q Instead of investing in ferrochrome and titanium why don’t you acquire steel?

Within India Tata Steel has looked at some options. But we recognized that, regrettably, the steel industry does not cover the cost of capital — and this is the global situation. Therefore, you do see reductions in capacities in various parts of the world. If you have to invest thousands of crores, as we did in the modernisation of the plant, and if it doesn’t give us a return that is equal to the cost of capital, then we have destroyed shareholder value. Moreover, just because you are Tata Steel does not mean that steel can be your only growth area. In the world you have companies that started in fertilizers and now are in pharmaceuticals. Companies like Mannesman that were in steel are now in telecom.

Q There are other group companies operating in the area of telecom, then why Tata Steel?

Tata Steel has not decided to get into telecom. We said let’s parcel out various parts of the telecom activity and look at the Group as a whole being in telecom. Ideally, you would have got one consolidated telecom company in the Group. But again, shareholders say: ‘This is my money and all I have is dividend returns from the company’. So, another way to do it is, you parcel it out even though that is a less efficient way of doing it. The bits are not in competition but complement each other. Maybe one day we will merge those into one.

Q Are you looking at acquiring steel plants abroad?

We are looking at plants abroad. However, we should be sure that we can manage that extra capacity on a global basis also. You could get a huge asset at a very good price, but you might end up having surplus capacity, which will be outside India. You then have to support it in terms of foreign exchange and we do not have a foreign base to do it. So we may be cautious in looking at these plants. Our ethic also prevents us from walking away from an acquisition when it sours.

Q Did McKinsey’s advise you to dump steel?

McKinsey’s did not tell us to dump this or dump that. McKinsey’s just gave us discussion notes in various industries. They raised some serious questions regarding the steel industry and whether it destroyed shareholder value. And I must say they awakened us to the fact that we had to do much more in steel to make it an investor-attractive area of business.

Q Last year Tata Steel made the most profits in the Group after TCS.

We need to be a little circumspect. Tisco has now got two high margin plants on line. It has shed its old processes. Crucial to producing and sustaining these results is growth in demand in its user industries, like auto, white goods and construction. Even if domestic demand picks up but there is over capacity in the world then you will be faced with low cost imports.

However, there are two pluses; one is that steel is a commodity. Hence, Tata Steel has been able to go all-out in production, covering its cost and dropping its price. The other advantage is, if the Indian market got bad you could export it. In product markets like trucks or refrigerators you can’t do both these things.

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Book Review: Inside the Boardroom

 

Book Review:

Inside the Board Room- How Behaviour Trumps Rationality” 

By R Gopalakrishnan and Tulsi Jayakumar, 

Rupa Publications 2023

 

On Board

The authors of this timely book; R Gopalakrishnan with his over 55 years of experience in leading Indian Corporations in various capacities from a trainee engineer in Hindustan Lever to leadership of several boards and Tulsi Jayakumar interested in family businesses, as an academic teaching management studies, have provided us with a delightful and useful work.

As the name suggests the book deals with what happens in a board room of different types of companies; professionally managed, family owned, promoter driven, large and small enterprises.

While the owners’, promoters’ role in the business dynamics of an enterprise is also discussed the focus of the book is the role of the CEO and the independent directors on the board.

The book briefly traces the evolution of corporate India’s board room particularly in the light of Cadbury Committee recommendations in 1992 in UK and the churn that resulted in the J J Irani Committee recommending changes in the Company law in India that led to the new version of the Company Law in 2005.

The Cadbury Committee had recommended that companies voluntarily accept: separation of roles of chairman and CEO; a majority in the board of independent directors; non-executive directors to be in the majority on the remuneration committee and playing active role in the audit committee. Though it was a UK focused report it had great influence on the evolution of corporate governance internationally.

Even in India it led later to the introduction of independent directors in all public companies, though not a majority; awareness about women in board rooms; need for diversity among independent directors in general and so on.

In this reviewer’s opinion the book is compulsory reading material not only for all corporate board members but also for management students and students aspiring to become company secretaries, compliance officers, market analysts and equity researchers etc.

The authors however continually stress that mandated or voluntarily accepted compliance standards and norms go only thus far and no further like the laws and constitutions. A more important and tricky factor in the board room, the authors point out, is behavioural. They posit that these issues play a very important role in board room dynamics.

That is what makes this slim book an interesting read and novel in approach.

They illustrate their thesis with innumerable cases studies of business failures that can be traced back to board room dynamics that stymied any course correction in time for these corporations. They draw their brief lessons; without falling into to the pitfall of merely compiling case studies in corporate governance; from the global as well as Indian corporate history.

The pages are enriched by a wide variety of stories from Enron, Worldcomm, Unilever, Lehman Brothers, Nestle, Rajat Gupta episode and dozens of others from global corporations. From the Indian corporate sector we have examples from YES Bank, Kingfisher Airlines, Ranbaxy, Satyam, Jet Airways, Tata Finance, HLL and several unnamed ones narrated anecdotally by R Gopalakrishnan.

The personal experiences and anecdotes from more than 20 company boards of which “Gopal” ( a third person short form used by R Gopalakrishnan in the book) was a part of; some as an executive director and many as an independent director, make the discussion more interesting and less a B-schoolish.

In the case of a business failure or a hint of a scam or unethical practices of a company the public opinion is almost always unmindful of explanations and excuses provided by the tainted leadership ie promoters. But the media and public make an equally searing criticism of the role of independent directors on the board, who often have impeccable credentials. “What were they doing all this time other than collecting hefty sitting fees and enjoying hospitality and other perks!” is a common refrain post facto.

Thus the question arises about the role of independent directors in the board, their fiduciary responsibility to keep in mind the overall sustained and sustainable growth of the company and the interests of minority and retail investors, whose interests they are supposed to protect at the same time not appearing to be obstructionist and perennially conservative and status-quoist on important matters in the board and so on. Easier said than done.

So the book deals at length with various tricky scenarios in the board and how independent directors should successfully navigate through them, how they should be aware of early warning signals of trouble, how they should at the same time contribute positively to the board proceedings to push for timely course correction, use their specialist knowledge for which they have been chosen to be on the board in the first place and so on.

The book provides many tips called mantras to provide an Indian touch to the discussion for all parts of the board, the leadership, the independent directors and CEO on how to carry out their fiduciary responsibilities and balance conflicting pulls and pushes.

The astute observations made by authors on behavior in board room have their reflection in fact in any group, organization, family scenarios. Thus the reader who may have nothing to do with board rooms also comes up with many a ‘aha’ moment.

Shivanand Kanavi

(Former VP TCS, Physicist, Business Journalist and Author; skanavi@gmail.com )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book Review: Art & Science of Managing Public Risks

 

Talking about disaster management

BOOK REVIEW SHIVANAND KANAVI Art and Science of Managing Public Risks Author:V S Ramamurthy, Dinesh K Srivastava, Shailesh Nayak Publisher: World Scientific Publishing Pages: 412 Price: ₹ 4,015 The three authors are senior scientists. Shailesh Nayak is a geologist who was also the secretary of the Department of Earth Sciences and has been deeply involved in India´s Antarctic projects. He played a key role in rolling out, in record time, a Tsunami Warning System for the Indian Ocean Region after the 2004 tsunami. V S Ramamurthy, a nuclear scientist, has had a long innings as secretary, Department of Science and Technology and has grappled with the issue of improving communication between scientists, policy planners, media and the public to promote rational rather than kneejerk solutions to key issues in scientific policy. Dinesh K Srivastava is a distinguished nuclear physicist, former director of the ambitious Variable Energy Cyclotron in Kolkata, and is deeply interested in climate change. Ashutosh Sharma of IIT Kanpur, an Infosys Prize winner in Chemical Sciences and also a former secretary, Department of Science and Technology, has written a scholarly and lyrical preface to the book. When such senior scientists venture into public policy, policymakers would do well to listen carefully. In fact, Art and Science of Managing Public Risks should be made compulsory reading to policymakers and disaster managers. It is perhaps the most exhaustive and comprehensive compendium of disasters of various types. The authors´ concerns range over both natural and manmade disasters. For example, it talks about climate disasters, cyclones, cloudbursts, landslides, flash floods, earthquakes, volcanoes, tsunamis. It also tackles infectious diseases and epidemics such as plagues, polio, smallpox, malaria, TB, dengue, cholera, and Covid19. In industrial accidents, the book covers coal mine collapses, accidents in oil and gas fields, dam failures, transport and chemical accidents, the Bhopal gas tragedy, harm from pesticides and insecticides. The authors have also dealt with the fact that every technology developed by man so far has pros and cons when the costs and benefits are tallied over the life cycle of the project. So how should policy choices be made and why? How should the risks be communicated to policy makers and communities and through what channels and modus operandi? The authors have taken the same approach in the discussion on nuclear power and safety issues involved and with genetically modified (GM) crops and the fears and upsides, as the transgenic mustard debate has shown in an edible oil hungry India. Then there are developmental issues such as pollution, urban waste management, ewaste, biomedical waste management and so on. The book also discusses the nature of risk communication, dialogue and debate regarding policy choices. The authors conclude that the formulations of government policies are extremely vulnerable to public perceptions. Moreover, risk perceptions are highly individualistic; consequently, risk communication could be complex. The traditional forms of risk communication are often inadequate and ineffective. The authors argue that communication should be in the form of dialogue and not debate and should lead towards a consensus. Importantly, they point out that there is no alternative for governments to taking the public into confidence and empowering them with reliable information. “Humanity has always been vulnerable to a wide spectrum of public risks, such as natural disasters and infectious diseases. The recent developments in science & technology, while providing tools to manage public risks of different kinds, have also broadened the spectrum of public risks that we have to face,” they write. Across the world, they add, “governments as custodians of public good are expected to also hold the responsibility of managing public risks. With more and more countries opting for democratic forms of governance, we also see that formulation of government policies on managing public risks are highly vulnerable to public perceptions.” A classic example of differing risk perceptions from the last three decades is the GM foods. While farmers are eager to benefit from the many advantages of modern biotechnology and move on to Green Revolution 2.0, experts and nongovernmental organisations are divided in their opinions, resulting in the policy becoming a victim of procrastination at great cost to the nation. For example, Bt Cotton and Bt Brinjal have finally entered production legally or illegally; now, there is a prolonged evaluation of Dhara Mustard 11, when we are in dire need of better and more oilseed production. The authors have briefly mentioned the National Disaster Management Act and the agency created to handle disasters in India. One wishes that they had critically examined this law and made recommendations to make it more effective. (The reviewer is adjunct faculty at NIAS, Bengaluru. skanavi@gmail.com )

 

 

Book Review: Just Aspire by Ajai Chowdhry

 

 

A soft tale of hardware (appeared in Business Standard, June 21, 2023 )

In his book Just Aspire, Ajai Chowdhry tells an autobiographical tale that starts in Abbottabad, Pakistan. Nope, nothing like Zero Dark Thirty -- that 2012 Oscar and Golden Globe winner, about the US commando operation against Osama Bin Laden. This story starts with a well settled family in verdant Abbottabad in the hills near Kashmir, the starting point for many a trek into Hindu Kush and Karakoram. Mr Chowdhry´s father was a well known, well t odo lawyer, secretary of the District Congress Committee and an Urdu poet who also organised and patronised many a mushaira. The partition of the subcontinent upended the family, which had been well integrated in Abbottabad and had cultured neighbours of all communities. Arriving in Delhi as refugees from the communal violence, Chowdhry senior´s organisational skill sets and knowledge of law got him involved in the government´s refugee resettlement programme. His efforts were quickly recognised and he was absorbed in the bureaucracy and tasked to persuade some of the Rajputana princes to sign the Instrument of Accession to the Indian Union. After completing that assignment, he joined the newly formed Indian Administrative Service and was sent off to Central India as commissioner of Bundelkhand and Baghelkhand. Mr Chowdhry is naturally nostalgic about his early childhood in a large colonial bungalow fit for a sahib with a tiger cub as a pet. Eventually the Chowdhrys settled in Jabalpur. Mr Chowdhry is eloquent about his childhood, school and college days in Jabalpur. After graduating in the newly introduced electronics and telecommunication engineering, in Jabalpur Engineering College, he found he was more attracted to marketing electronics rather than working the public sector telecom organisations and joined DCM Data Products as a sales executive. That began a lifetime in marketing electronic products, starting with clunky and expensive electronic calculators. Mr Chowdhry´s hard work and ingenuity in selling these bulky machines paid off. For example, while everyone was targeting academic institutions he found that chemists in sugar mills needed a quick calculation of the sucrose content in the cane and the final sugar recovery in the production process. Persuaded by him, they found this new gadget really handy and started convincing their managements to buy them. Mr Chowdhry had spotted this opportunity and visited literally every sugar mill in rural Maharashtra to achieve his sales target. Similarly, he found that irrigation engineers in Maharashtra needed quick calculations to release water to farmers and successfully targeted them too. When PCs were two decades away and only a handful of large companies in the government and private sector could afford mainframes, these calculators, especially the programmable kind, were very useful for fairly complex and quick calculations. This reviewer used one of these DCM Data Products´s programmable calculators for tedious and complex calculations while doing research in theoretical physics at IIT Bombay in the 1970s, yielding results worthy of publishing in peer reviewed international journals of physics. Mr Chowdhry´s tales of marketing advanced tech products hold a major lesson for today´s marketing executives. If you are diligent and observant, then you can find opportunities in surprising corners and even in remote and rural India. Though he was doing well in DCM, he was bitten by the entrepreneurial bug in his 20s, which was unusual in 1976. So he struck out with his seniors and mentors, Shiv Nadar and Arjun Malhotra from DCM Data Products, to found what went on to become one of the leaders of the Indian IT industry, HCL. HCL (then known as Hindustan Computers Ltd) was then into producing and marketing hardware starting with microcomputers and then PCs and so on. Since the components and PCBs and later motherboards were not being made in India most people were importing them from Singapore. Some were accused of screwdriver technology, profiting from high protective tariffs, and some of even using the grey market. After his first assignment in selling microcomputers in Tamil Nadu, Mr Chowdhry was sent to another frontier, Singapore. Shiv Nadar of HCL had taken the bold decision to establish a unit in Singapore, named appropriately as Far East Computers to make and sell hardware there. Mr Chowdhry made that a success, spending his time gaining valuable international experience in the highly competitive markets of South East Asia. His tales of the social life of an expat in Singapore in the 1980s are charmingly narrated. In 1994, he became the chief executive officer of HCL Info Systems in India. Within a few years as telecom policy changed in 2002 making mobile telephony more lucrative, Mr Chowdhry´s long relationship with Nokia came in handy in persuading the Finnish multinational to make and sell affordable mobile phones in India. HCL took the lead in selling those phones via their marketing network. Overall, the book is a good read and the blemishes are few and far between. It lacks an index, for one and a few events are not dated. The reader will be disappointed if he expects an analysis of the history of the hardware industry in India, its challenges and the future from a veteran. The author also has a penchant for long quotations from various favourite management gurus. It may have been more exciting and instructive to young executives reading the book if he had drawn anecdotes and lessons from his own extensive marketing experience in India and abroad. The reviewer is adjunct faculty at NIAS, Bengaluru and former VP of TCS. skanavi@gmail.com BOOK REVIEW SHIVANAND KANAVI Just Aspire: Notes on Technology, Entrepreneurship & the Future Author: Ajai Chowdhry Publisher: HarperCollins Pages: 252 Price: ₹ 599