What Led to Cyrus Mistry Ouster

In a move that shocked the corporate world, the USD 102 billion Tata Sons group removed Cyrus Mistry from the position of Executive Chairman (of the group) and declared Ratan Tata as the interim chairman for a period of about 4 months. Tata Sons prides itself in its humane treatment of its employees and so the unexpected move has sparked countless rumours about the Tata empire and its well-being. Mistry had held the position for about 4 years (starting 2012) and Ratan Tata, one of India’s best-known businessmen had gone into retirement before relinquishing control to Mistry. Mistry is also one of the two people who did not belong to the Tata clan yet have held the position of Executive Chairman of Tata Sons; the other being Nowroji Saklatvala (in 1932).

No one outside the board is sure what prompted the Mistry ouster, but the theories are rife. It is not clear, either, if Mistry was given a chance to resign and exit honourably or even if he had refused to resign. What seems clear, though, is that there was a deep chasm between the ideologies of Cyrus Mistry and Ratan Tata, the man who represents the Tata Trusts. Sir Dorabji Tata Trust, Sir Ratan Tata Trust, and other philanthropic trusts set up by members of the Tata family together hold some 66 percent stake in the Tata Sons group.

The Battle May Go To Court

Post his removal, the 48-year-old ex-Executive Chairman still remains a Tata Sons director. This is because he belongs to the Shapoorji Pallonji Group, which is also the single largest shareholder in Tata Sons with a stake of about 18.4 percent. The board statement on Mistry’s removal said it was done in the “long-term interest” of the company. Shapoorji Pallonji is likely to move to the Company Law Board to protect its interests in Tata Sons. A day after Mistry’s ouster, Ratan Tata and the Tata trusts have filed caveats against Mistry and his investment company Cyrus Investment Pvt Ltd at the Bombay High Court, the Delhi High Court, and also at the National Company Law Tribunal.

This is perhaps to ensure that if Mistry decides to move court over the matter, no ex-parte order is issued. The legal battle between the two conglomerates may be a bloodbath paid for by Tata stakeholders.

Divergent Paths

If Industry sources are to be believed, the differences between Ratan Tata and Cyrus Mistry have been building up for some time now. To start with, the two have very different styles of management.

‘Salt to software conglomerate’ is the moniker often used to refer to the Tata Group. Ratan Tata believed in diversity and Tata Sons makes everything from salt to trucks, from software to steel, from chemicals to coffee, and administers schools, hospitals, and educational institutions. Cyrus Mistry, however, did not seem to believe in running over 100 different businesses. His attempts to prune the company’s diversity did not go down well with Ratan Tata. Mistry’s call to sell off Tata Steel’s European business unsettled both the UK government and Ratan Tata in equal measure.

Profitability In Question

It is generally acknowledged that the profitability of the Tata Sons group sagged under Cyrus Mistry, as he struggled to combat various challenges in the different business lines the Tata’s had entered. The turnover of this mammoth conglomerate went down from USD 108 billion in 2014-15 to USD 103 billion in 2015-16.

This means that dividends were often cancelled or at least reduced. Tata Trusts suffered financially due to this. Rising debt is another major concern that the Tata group has been fighting over the past few years. Under Mistry, the net debt of the group went up from about USD 23.4 billion in March 2015 to USD 24.5 billion in March 2016. Under him, the entire group is said to have depended on the earnings of TCS and JLR (Jaguar Land Rover) to keep it buoyant.

The Tata-Docomo Split

The Tata-Docomo split is a classic example of the kind of difference Mistry brought to the working style of Tata Sons. In 2009, Japanese company NTT Docomo bought 26.5 percent stake in Tata Teleservices for a price of about USD 2.7 billion. The Tata group had promised to buy back the stake if NTT sought it at a later date. When NTT Docomo did ask for such a buyout, Mistry opined that the Japanese firm comply with Indian regulations. Docomo decided to take the matter to the the London Court of International Arbitration which ruled in favour of Docomo and ordered Tata Sons to pay USD 1.17 billion. Ratan Tata was known as a keen negotiator and would have honoured his commitment to partners, corporate watchers believe.

Breach of Ethics

Some of those close to the Tata family have said (reported media sources) that Cyrus Mistry’s removal was due to a breach of Tata ethics. The ethos of Tata’s functioning obviously clashed with Mistry’s own style. Some think that the communication channels between Mistry and the Tata Trusts were inadequate. Though Ratan Tata and Cyrus Mistry used to meet, the former’s concerns were not addressed adequately.

In India, the Tatas have stood for philanthropy and development of society as a whole. Cutting down on these philanthropic activities and focusing on business did not go down well with the Tata Trusts, it seems.

Who’s Next?

With the exit of Mistry, the Tata Sons board did not lose much time and has already constituted a committee that shall be responsible for the selection of a new executive chairman. News reports reveal that the new committee includes  Ratan Tata himself, with the likes of Venu Srinivasan, Ronen Sen, Amit Chandra, and Lord Kumar Bhattacharyya. Reports also suggest that Indra Nooyi of Pepsi and Arun Sarin, former Vodafone CEO, may be considered for the position.

Some believe that other insiders from the Tata Group – Noel Tata of Tata International, N Chandrasekaran of TCS, and B. Muthuraman may be top contenders. Noel Tata, Ratan Tata’s half-brother is married to Aloo, Cyrus Mistry’s sister.