A tale of two companies: Telco and Krauss Maffei

"...letter of assurance, on the Tata letterhead, signed by the chairman of the company, was far better than any bankers' guarantee..."

Let me tell you a story.

...In 1977, an international bank that had given a loan to Tatab Industries in Malaysia, in which Telco was the technical collaborator and minority investor, decided to recall their loan because it was unhappy with the company's performance and governance.

The bank's chief executive came to Mumbai with an ultimatum. The bank would stay their action if Telco would take over the management of the company and guarantee the loan. Sumant Moolgaokar, chairman of Telco was distressed at the state of affairs and agreed to take over the management of the company. However, the banker also insisted on the guarantee.

In the 1970s, Indian companies were forbidden to remit money or give guarantees abroad. Moolgaokar wrote a simple, one-page letter, in which he said that Telco would do whatever was required, and that could be done within the laws of the two countries, to ensure that the company would make a profit in even less time than the bankers expected and that their loan would be repaid.

The banker was not pleased. He wanted a legally binding financial guarantee. Nevertheless, he took the letter to Deutsche Bank in Germany, who had been Telco's bankers through its formative years when Telco was in a joint venture with Daimler-Benz, and asked for an opinion.

The German bankers said that a letter of assurance, on the Tata letterhead, signed by the chairman of the company, was far better than any bankers' guarantee!

The story does not end there.

Some months later, I was invited by the Malaysian prince who was chairman of Tatab, to his home in Kuala Lumpur, where I had been deputed to manage the company. Two old German gentlemen were with the chairman.

He introduced them as directors of Krauss Maffei, the German engineering company, and introduced me to them as the Indian MD of 'his Tata company'. Whereupon both jumped up, shook my hand, and said they wanted to express their deepest gratitude!

Both the chairman and I were completely nonplussed. The Germans took the chairman's permission to raise a toast to Tata's and proceeded to tell us a remarkable story, which they said was part of their company's folklore.

The story goes that in 1946 or thereabouts, directors of Krauss Maffei had waited at the devastated Munich railway station for the arrival of two Indians - JRD Tata and Sumant Moolgaokar. The Allies had destroyed Krauss Maffei's factories.

The Germans requested the Indians to take some engineers of Krauss Maffei and their families to India, and give them work and shelter. 'They are very skilled people. They will do whatever you ask them if you take care of them. They can also teach your people.' At that time, Indians were forbidden by the Allies to have any contracts with Germans. The Indians gave their word that the engineers and their families would be well looked after. And they were.

Those German engineers helped the Tata Locomotive and Engineering Company, as it was known at its beginnings, to produce steam locomotives and road rollers, the company's first products.

Years later, when India was independent, and the company moved on to produce trucks in collaboration with Daimler Benz, (changing its name to Tata Engineering and Locomotive Company - Telco), the board of Krauss Maffei were startled to receive a letter from Tata's with thanks for the services of the engineers and an offer of compensation for the skills transferred.

They had never expected this, because there was no legal contract. However, what seemed to have motivated Tata's was that it was the right thing to do. Instances such as these would have given Deutsche Bank the confidence they had in the word of Tata's, which they conveyed to Tatab's banker.

Arun Maira • May 12, 2005

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