The outgoing chairman Cyrus Mistry made the simple error of taking Ratan Tata’s ‘retirement’ at 75 too literally and trying to stamp his authority on the group
Cyrus Mistry spotted outside his Walkeshwar home, a day after his removal as chairman of Tata Sons. Pic/Sameer Markande
Talking of surgical strikes, the sudden and surgical removal of Tata Sons chairman Cyrus Mistry on Monday afternoon hit the news wires like a punch in the solar plexus. After all, the Tatas are known to do things in a gentlemanly way and are loath at having turmoil in the ranks. Ironically, the Tata drama was playing right alongside UP’s first family pressing the destruct button. Chief minister Akhilesh Yadav had sacked his uncle Shivpal from the Cabinet, and Uncle Shivpal, in retaliatory fire, expelled Akhilesh’s cousin and confidant Ram Gopal Yadav from the ruling Samajwadi Party. Amidst mike-snatching and sloganeering in Lucknow, patriarch Mulayam all Monday tried to ride both horses, but with little success.
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The political and corporate scripts sound similar, but they play out differently. The Yadav feud is out there in the open, and is crass and violent. The Mistry ouster plan is shielded by the boardroom veil, but one can see all the contours of a long and messy battle. And now the Mistry camp in the Tata Sons board has spilled the beans — the ouster resolution was not listed, they say, on the agenda; it was smuggled in under ‘residuary matters’. Amidst acrimony and heated scenes, Mistry’s bid to seek time to defend his policies was brushed aside.
Well thought out move
With hindsight, one can see that the coup d’état was not sudden. It was well thought out. On August 26, the Tata Sons board was expanded to include Piramal Enterprises’ chairman Ajay Piramal and TVS Motor chief Venu Srinivasan. Srinivasan is now one among the 4-member ‘search’ committee for a new Tata chairman. Similarly, lawyers have been consulted on the legality of the ‘sack’ notice and kept on standby. The list ironically includes Congressmen Abhishek Manu Singhvi and P Chidambaram.
Also Read: Tata says bye-bye to Cyrus Mistry: All about the mysterious sacking
Ratan Tata, who has been brought back as interim chairman, had his letter ready for employees on Monday, informing them that “in the interest of the stability of and reassurance to the Tata Group”, he is returning as Chairman.
The chargesheet against Mistry is pretty long and serious. Under his watch, the group’s revenue fell to $103 billion in 2015-16 from the previous fiscal’s $108 billion. Net debt rose to $24.5 billion at the end of the last financial year from $23.4 billion a year ago. He did not seem to have a plan or vision for revival. Unhappiness has also been expressed against the shedding of non-profitable businesses such as its steel plants in Europe and his entire focus on cash cows like TCS. Mistry has also believed to have crossed swords with Tata over his decision to fight Japanese telecom giant NTT DoCoMo in court over an exit clause in the agreement. The older Tata leaders felt it was ‘Un-Tata-like’ to not honour their deal with DoCoMo.
But a lot of the discussion on Mistry’s ouster has missed the main point: he is seen as the ‘outsider’. He did not fit in. Historically, a clutch of Tata trusts — some of them philanthropic behemoths and holding 66 percent of Tata Sons’ equity — have controlled the holding company. The larger ones include the Sir Dorabji Tata Trust and Sir Ratan Tata Trust. The consultation process among these trusts had created a distinct boardroom culture and defined the way the Tata empire functioned. On the other hand, the Shapoorji Palonji Group, Mistry’s origin, has been different. The Mistrys and their 18.4 per cent shareholding in Tata Sons, the way it was acquired and the fact that it was the single largest holding, was always a matter of concern to those who ran Bombay House (the Tata HQ in Mumbai). That is why when Tata passed on the baton to Mistry in 2012, there was considerable trepidation among corporate watchers whether this outside-the-Tata-family arrangement would ever work.
Change of command
The fears were not unjustified. With Mistry at the helm, the old lines of command were changed. Soon after he took over in December 2012, Mistry appointed a new power centre, the Group Executive Council (GEC). The members included Nirmalaya Kumar of London Business School, Madhu Kannan, former CEO of the Bombay Stock Exchange, and NS Rajan, former partner in Ernst & Young. Much of the decision-making shifted to this new powerhouse, while the resentment of the powerful trusts, the biggest shareholders, also grew. For instance, Mistry’s decision to sell off some non-core businesses including Indian Hotels’ overseas properties, and shut Tata Steels’ old Corus UK plants did not go down well with the trusts and became issues of dispute. Perhaps, the last straw that broke the camel’s back was the acquisition by Tata Power of Welspun’s solar farms for $1.4 billion without seeking approval from the majority shareholders, the Tata Trusts, and Ratan Tata himself.
Given this background, it is not surprising that the first institution to be dismantled after the coup was the Group Executive Council. For a slow moving organisation, the alacrity with which the members’ names were removed within hours of Mistry’s exit from the official Tata website, showed how much the GEC had become an irritant.
The active role of Ratan Tata himself in the coup too needs to be understood afresh. Perhaps, Mistry took Tata’s ‘retirement’ at 75 too seriously. Mistry did not realise that Tata was no bystander and expected to be consulted. He had grown the empire past $100 billion in revenue with a clutch of 40 acquisitions in the 2005-08 period. This legacy, which included the $12.9 billion Corus acquisition in 2007, was a matter of ‘Tata pride’; but instead of consolidating these ‘navratnas’, Mistry had launched a sell-off and clean up drive. Sacking old regime ‘non-performers’, like the case of Indian Hotels’ MD & CEO Raymond Bickson in August 2014, too, did not go down well. Tata has repeatedly shown he can take control decisively when threatened. Soon after he took over as chairman in 1991, powerful satraps such as Russi Mody of Tata Steel and Darbari Seth of Tata Chemicals had their wings clipped, and were ultimately pushed out.
Non-performer?
Was Cyrus Mistry a non-performer? More aptly: was he so serious a non-performer that he had to be put through this road-roller treatment? Performance audits will soon be out, but from the face of it, can one fault a policy of ridding the group of loss-making assets like Corus UK and Corus Europe? That’s what capitalist efficiency is all about! The Tata Group debt has risen 4-5 per cent over the last 18 months, but wasn’t the debt burden acquired in the decade when Ratan Tata at the helm went on an acquisition spree? If one looks at Tata companies’ market capitalisation, in the last four years — the shortest reign of a Tata Sons chairman — the group’s total capitalisation has grown from Rs 49.7 lakh crore to Rs 87.1 lakh crore – a 75 per cent growth compared to the stock market indices Dalal St and Nifty growing at 45-50 per cent.
Read Story: No decision yet on legal recourse to Cyrus Mistry ouster: Shapoorji Pallonji
The first reaction of the Shaoorji Palonji camp has been to challenge the dismissal as ‘illegal’. There are reports of Mistry marshalling a legal team to contest the Tata Sons decision in court. If there is no settlement, a long-drawn feud will not only be an embarrassment, but could hit the Tatas’ revenue and brand value.
The author is a Mumbai-based, freelance business journalist. He tweets @gurbir110
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