Story Of The Week

Tata Sons and Cyrus “Mystery”

In a dramatic development, Cyrus Mistry was removed from his position as chairman of Tata Sons and was replaced by Ratan Tata, from whom he had taken over the reins of the over $100 billion salt-to-software conglomerate four years ago. Mistry joined the board of Shapoorji Pallonji & Co Ltd as a director in 1991. He later was appointed as the managing director in 1994. Shapoorji Pallonji is the single largest shareholder in Tata Sons with a stake of 18.4 percent.

On October 24, 2016 Tata Sons replaced Cyrus P Mistry and named Ratan N Tata as its interim chairman. After taking over as the interim Chairman of Tata Sons, Ratan N Tata wrote to the Prime Minister Narendra Modi informing him the change in the top management of Tata Group. Tata group also filed caveats in Supreme Court, National Company Law Tribunal and Bombay High Court to prevent ousted Tata Sons Chairman Cyrus Mistry from getting an ex-parte order against his sacking. As the result of removal of Cyrus Mistry stocks of Tata group companies fell by up to 3.16 percent on the stock exchanges. The market value of the shares of top listed Tata companies lost close to Rs 10,877 crores. Shares of Tata Power and Tata Motors were down nearly three percent each while Tata Steel was trading nearly 2 percent down. Top officials of Tata Steel met fund managers, analysts and financial institutions to assure them that it is business as usual in the $103-billion group. Ralf Speth, CEO of Jaguar Land Rover, and N Chandrasekaran, CEO & Managing Director of TCS were appointed as Additional Directors on the Tata Sons Board and are considered as successors of Cyrus Mistry’s position.

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                                            Market Capital of Tata Group from 2012-2016

Reasons for Cyrus Mistrys exit

  • The board’s decision was not a surprise as Ajay Piramal, Chairman of Piramal Enterprises and Venu Srinivasan, Chairman of TVS Motor were inducted into the board. The rift between the Tata Trusts and Cyrus Mistry was clear as the appointments were made without consulting him.

  • Cyrus Mistry had left Tata Trusts furious when he went ahead with the $1.4-billion acquisition of Welspun’s solar farms by Tata Power without getting their consent.

  • Many of Mistry’s decisions on disposition of properties like closing down the Tata Steel UK operations too didn’t go down well with the old-timers. Under Cyrus Mistry, the Group disposed of several properties that were considered a legacy of Ratan Tata and helped the group grows into a $100 billion plus conglomerate.

  • There was a difference in the vision and values of Cyrus Mistry and Tata that ultimately drove a wedge between the two. When the chairman of the Tata Trusts and the chairman of the Tata Sons are not on the same page, a split is inevitable.

  • Tata Group got into a mess while ending the alliance with Japanese firm NTT Docomo. It is well known that Tatas values their word more than anything. In this case, Ratan Tata promised that he will protect the Docomo’s interests. Taking them to the court was the not part of the deal.

  • Cyrus Mistry’s micro-management did not win him too many supporters. The abrupt end to the negotiations with Vodafone despite senior leadership from both the companies being involved in the discussion was a huge setback for the company.

  • The Tata Group is known for producing leaders yet under Mistry such leaders were missing. Some people have blamed it on Mistry’s inability to identify talent and recruit them. After Ishaat Hussain retired, the post of group chief financial officer was vacant for almost three years.

  • Building a Group Executive Council was seen by many as Mistry’s attempt to create a dual power centre at Tata Sons.

  • Giving contracts to the construction companies of the Shapoorji Pallonji Group even after Cyrus Mistry took over as the chairman of Tata Sons was seen as a conflict of interest.

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Questions which Cyrus Mistrys exit raised

  • One of the reasons for Cyrus Mistry’s departure was his non-performance. However, shareholders are not clear about the performance metrics and the timeline to achieve those goals set out. Mistry attempted to reduce debt and get rid of bleeding parts of the business which appeared to be practical decisions, given the debt overhang. This is reflected in the increased market capitalization. If this strategic reorientation is not acceptable to the Tata Sons and Tata trust, the Tatas must clearly articulate the deliverables of the chairperson and the timelines within which the goals are to be achieved. This will help Mistry’s successor and prevent incidents of sudden departure in the future. It will also provide guidance for investors in the listed Tata group companies.

 

  • Tata Sons stated that “the tenure of the former chairman was marked by repeated departures from the culture and ethos of the group”. Tata Sons needs to explain these transgressions and the implications it had.

  • The chairperson of Tata Sons is the de facto chairperson of the Tata Group. The Tata group needs to articulate if Cyrus Mistry will continue as Chairperson of all the Tata major listed TATA companies like Tata Steel, Indian Hotels, Tata Motors, TCS and other Tata companies and if he will not continue as the Chairperson, the market needs to understand how the transitions will happen.

  • With Ratan Tata as the chairperson of the Tata trusts and Cyrus Mistry chairman of Tata Sons, there was a dual power structure. Such duality creates confusion among the rank and blurs the lines of accountability. So, there is a lot of ambiguity regarding the dual power structure functioning in the future as well.

Conclusion

A courtroom battle could be protracted and potentially damaging for the reputation of the Tatas. Tata Sons and Tata trust, the Tatas must clearly articulate the deliverables of the chairperson and the timelines within which the goals are to be achieved.

References:

http://www.livemint.com/Companies/KK0uPQmPSJHvbJBpOoBhiM/Was-Cyrus-Mistry-right-A-fact-check-of-claims-in-email-to-T.html

http://www.business-standard.com/article/companies/four-questions-that-tatas-need-to-answer-116102900303_1.html

http://www.indiatvnews.com/business/india/11-interesting-facts-about-tata-group-chairman-cyrus-pallonji-mi-6542.html

http://www.hindustantimes.com/business-news/cyrus-mistry-vs-ratan-tata-all-questions-answered/story-yw25Ihu3nraXVeCvY70JHJ.html

http://indiatoday.intoday.in/story/why-is-mistry-not-a-blue-eyed-boy-of-ratan-tata/1/796028.html

http://economictimes.indiatimes.com/news/company/corporate-trends/cyrus-mistry-ouster-one-more-mess-for-ratan-tata-to-sort-out-before-his-second-exit/articleshow/55133980.cms

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