Not All OK at Tata: What We Know and What We Don’t Know About Cyrus Mistry’s Sacking

Multiple analyses of Mistry’s tenure don’t paint a glowing picture. The Shapoorji Pallonji group is reportedly against the move and claims that his sacking is illegal.

Ratan Tata (left) and Cyrus Mistry (right) in the file photo from 2012. Credit: PTI

Ratan Tata (left) and Cyrus Mistry (right) in the file photo from 2012. Credit: PTI

New Delhi:  Tata group chairman Cyrus Mistry is out. On Monday, in a surprise development, the group led by holding company Tata Sons announced that Ratan Tata would take over as interim chairman for the next four months.

“The board has constituted a selection committee to choose a new chairman. The committee comprises Ratan N. Tata, Venu Srinivasan, Amit Chandra, Ronen Sen and Lord Kumar Bhattacharyya, as per the criteria in the Articles of Association of Tata Sons,” the group’s statement says.

Cyrus Mistry’s family and his family’s business empire, the Shapoorji Pallonji Group (which is the single largest stakeholder in Tata Sons), have reportedly opposed the move. According to media reports, the Shapoorji Pallonji group is “claiming Cyrus Mistry’s removal is illegal” and that minimum 15 days notice is needed.

Mistry’s removal quickly became the talking point among business circles in Mumbai and Delhi, not least because such sudden sackings are simply not the Tata style. Cyrus had the shortest stint as the chairman-Nowroji Saklatwala had a six year tenure in the 1930s, when he died of a heart attack in 1938.

So what do we know and what don’t we know about Mistry’s stepping down and the future ahead for Tata Sons? The Wire breaks it down.

Whose decision was it for Mistry to go?

While it’s still unclear at this point, a statement put out by a Tata Trusts spokesperson says that “on the recommendation of the principal shareholder”, it was decided that a change would be necessary for the long-term interest of Tata Sons and Tata Group.

“The board in its collective wisdom and on the recommendation of the principal shareholder (Tata Trusts) decided it may be appropriate to consider a change for the long term interest of Tata Sons and Tata Group. There is no change at the levels of CEOs in the operating companies,” the statement says.

What exactly are the Tata Trusts? It comprises of the Sir Ratan Tata Trust and Allied Trusts and the Sir Dorabji Tata Trust and Allied Trusts.  According to its website, the Tata Trusts own “two-third of the stock holding of Tata sons, the apex company of the Tata group of companies”.

The website also describes Ratan Tata as the “Chairman of the Tata Trusts”. It could be fair, even if not confirmed, to describe Mistry stepping down as a decision taken by Ratan Tata.

Was Mistry’s appointment not considered carefully?

On the contrary, the panel constituted to find a successor for Ratan Tata in 2010, the same panel which chose MIstry, took over a year to come to its decision.  In contrast, the panel appointed to find a successor for Mistry today has been given only four months to come to a decision.

Mistry’s appointment was also widely seen as part of a larger generational shift needed at Tata Sons. His ascension to the top posting also represented the first time that a member of the Shapoorji Pallonji family (a construction company business family that is the biggest shareholder of Tata Sons) had exercised management control since they first started acquiring Tata Sons shares in the 1930s.

How was Mistry’s performance as the head of the Tata Group, a position he held for nearly 4 years?

Multiple analyses of Mistry’s tenure don’t paint a glowing picture. If one steps back and takes a quick snapshot of how the largest publicly-listed Tata entities have done over the last four years, the result is below average. Out of the nine biggest listed Tata group firms, seven have had “negative economic value added, meaning that their earnings before interest and tax translate into a return below their overall cost of capital,” according to an analysis by the Economist.

While there are bright spots, Jaguar Land Rover and Tata Consultancy Services being two of the brightest, other group verticals such as hotels and chemicals have suffered; some due to structural issues left behind by Ratan Tata and others due to not being able to cope with global headwinds.

The re-structuring of Tata Sons has also been seen by the business community true test of Mistry’s abilities. While the salt-to-software conglomerate’s outside shareholder structure has long been cited as an advantage when it looks to get into new markets or raise capital, it has also resulted in a crucial strategic and economic tax for the overall group. Long-standing concerns by analysts that multiple analysts have had — that Tata firms often bid on same contracts or that forays into new sectors are duplicated — still remained valid under the Mistry era.

Nowhere is this clearer than Tata Docomo and Tata Sky, which are unable to combine their services to offer a competitive combination, simply because they are owned by different shareholders. Both these firms have suffered, with the Tata Docomo venture being all but a major embarrassment for the Tata Group at this point.

Other questions that Mistry has faced are over his decisiveness in shutting down new verticals or reversing business decisions taken by Ratan Tata. For instance, in 2007, Tata Sons acquired Anglo-Dutch firm Corus for $13-billion, one year before European steel demand suffered a nasty slump. The acquisition, in hindsight, has been seen as part of the great Indian rollback of overseas acquisitions.

Just earlier this year, Mistry finally took a decision to put its UK steel plants up for sale. Kotak Institutional Equities analyst said at the time, “For the first three years it looked like Mr Mistry was continuing on the path of his predecessor. But this is a defining moment for him. If, finally, they are taking a call that they need to shut down some parts of the business, then I assume it’s a good thing.”

Will this impact the relationship between the Pallonji Group and Tata Sons?

Almost certainly so, if media reports on the Pallonji Group’s opposal to Mistry’s removal are true. This is also a a question that will likely play out in the weeks and months ahead. Although Mistry was the first chairman to not be related to the group’s founder Jamsetji Tata, he is related to the Tata family through his sister’s marriage. Cyrus’s sister is married to Noel Tata, half brother of Ratan Tata. 

More crucially, Mistry’s father, Shapoorji Pallonji, is the second-largest stakeholder in the Tata Group with a stake of a little over 18.5% in Tata Sons. Mistry’s nomination and ascension to the top position in that way was seen very much as a “vote for continuity and a vote to keep the peace”, according to one former Tata executive.

The Pallonji’s family holding is the biggest stakeholder in the Tata Sons, second only to the charitable trusts chaired by Ratan Tata.

At least one observer has pointed out that Tata Trusts (headed by Ratan Tata) were at odds with Tata Sons in a “fundamental clash of cultures”. Additionally, it appears as if Mistry was not even given the option of resigning or stepping down of his own accord. Media reports claiming that the Pallonji group is against Mistry’s removal, claiming it is illegal, are a sign of an ugly legal spat in the days ahead. .

Do we know if Mistry’s successor will be more effective or work better with Ratan Tata?

This again is unclear. According to industry observers, the fact that Ratan Tata still remained chairman of Tata Trusts laid the ground for natural clashes between Tata and Mistry. While this may not have manifested in any form of direct or overt interference, there are some former Tata executives who believe that the two men clashed over the execution of Ratan Tata’s personal passions (such as aviation where the Tata Group has diverted its investments to both AirAsia and Vistara) or the replacement of key managers and executives that had Tata’s favour.

Interesting parallels can be drawn to other similar, if not exact, situations in other companies. IT firm Infosys for instance has for the longest time lived under the shadow of founder Narayana Murthy. While we may never know the nature of the dispute between Cyrus Mistry and Ratan Tata, it is clear that Mistry never got around to executing his own strategy (a plan he refers to as ‘Vision 2025’ ) for the Tata Group conglomerate.

This is not to say that Mistry had not started making the right moves. Some of his turnaround acumen is best seen in more low-profile firms such as Tata Power. The move to junk the Corus acquisition was also wise, even if it came a little late. And the Vision 2025 plan gave us a peek at Mistry’s potential passions and, more importantly, his perspective on where the future of the Tata Group may have been heading: namely, business clusters concentrated around the areas of defence and aerospace, retail and finance.

The names doing the rounds of his possible successors include respected outsiders such as Pepsi chief Indra Nooyi. Inside candidates are reportedly Noel Tata and TCS CEO N Chandrasekaran. There’s no guaranteed success for any of Mistry’s successors, although choosing an internal candidate over an external one (and vice versa) will say a lot about how the Tata Group views itself. There are ample examples of both options working out.

The more pertinent question, therefore, is whether the Tata Group can move from a sprawling conglomerate with endless silos to a tightly integrated and focused machine oriented towards the future.

  • http://about.me/manishpuranik manish puranik

    TATAs are fearless in taking bold decisions as usual and underlined their approach of valuing the tradition but never allow it to supersede the performance when it comes to the bottom line!