What led to Cyrus Mistry ouster? Behind the scenes

Just a day ahead of Tata Sons board meeting on Monday, Nitin Nohria – Harvard Business School dean, met Cyrus Mistry for more than a couple of hours where he conveyed a message from Ratan Tata about what may come up for discussion at the board meeting.On Monday evening,everyone was taken by surprise by the announcement of the board, however the die had been cast a few months ago. On 26th August, the board was expanded by inducting Ajay Piramal – Piramal Enterprises Chairman and Venu Srinivasan – TVS Motor Chairman . The appointments was a move to tighten Tata Trusts’ grip over Tata Sons board chaired by Cyrus Mistry. Mistry wasn’t even consulted on these appointments which reflected the stewing discontent between Tata Trusts and Mistry, sources said.

It was High Time for Payback Time….

It was high time for payback time, felt the Tata Group watchers. Just some time back in June, Mistry had cleared Tata Power’s 1.4billion-dollar acquisition of Welspun’s solar farms for which neither did he seek approval fromTata nor from other key shareholders.

“Be your Own Man”, Ratan Tata had advised Mistry….

When Ratan Tata had cherry-picked Mistry in 2011 to be his successor,“Be your own man”, was Tata’s advice to his leader of the youth. Sadly however, youth was perceived as cheeky, clever and out to destroy the core values that the Tata group stood for, for nearly 148 years.

Take, for example, the Shapoorji Pallonji celebrations two years ago. As per a leading industrialist,everyone from India Inc was invited to the event at the ‘National Centre’ for the Performing Arts, however Ratan Tata wasn’t to be seen and was found to be dining at Thai Pavilion with Mistry’s first cousin.

There was a Fundamental Disconnect between Tata and Mistry….

There was a fundamental disconnect between Tata and Mistry, particularly with regard to ethos,vision, values and the direction that the Tata group was headed in. Mistry’s responses to spelling out his vision, 5-year plans, etc. were non-specific and vague. Things got aggravated because the chairman of Tata Trusts and Tata Sons were not the same person. The former was custodian of a century old legacy while the latter wasn’t a Tata family member but represented the single largest shareholder. Confrontation was inevitable.

Many of Mistry’s decisions, like disposal of some of Indian Hotels Co’s overseas properties and specifically the move to shut the UK steel operations, didn’t go down well with the Tata Trusts. Many were considered Ratan Tata’s legacy that aided the group revenues top 100 billion dollars even if it left the group hamstrung with swelling debt burden. Cyrus Mistry’s war on the legacy of the old guard and the comment about the necessity of tough love within the organization was considered aggressive and needless.

Tata Trusts were of the view that the Tata group under Mistry hadn’t been able to take into account shareholders’ sensitivity as well as the global ecosystem. The move to shut the UK steel business had gained heavy criticism in Britain. In the same manner, the decision to get embroiled in a battle with NTT Docomo and challenge the 1.2 billion-dollar international arbitration court’s order which went against it was seen as breach of faith by the many Tata old-timers. Matters exceeded such limits that Tata himself met the Japanese ambassador to India in Mumbai in the month of August, requesting a diplomatic intervention. However, his efforts were wasted by Mistry’s continued aggressive stance.

Tata’s sub-scale telecom operations are a typical case of Mistry’s centralized micro-management, a direct adverse effect which was the fall down of negotiations with Vodafone, even after the senior leadership from both the sides got personally engaged.

The earliest signs of storm between Tata and Mistry acme out evident when he sacked Indian Hotels MD Raymond Bickson in 2014. Bickson, who was replaced with Hyatt veteran Rakesh Sarna, perceived to be close to Tata. Matters took an even more bad shape when Mistry continued with Sarna in spite of alleged complaints against him. Mistry’s eye for talent is being greatly questioned.

The creation of the GEC – Group Executive Council as Cyrus Mistry’s main brain trust had disturbed many in Tata Sons who thought it to be parallel power centre. Only a fingerful of its members had real operational experience of running a business.

Conclusion:

Critics of Mistry point out that he didn’t give up his Irish citizenship though as Chairman of Tata Sons he should have. Concerns had been voiced about conflict of interest in relation to award of contracts to the construction companies of Shapoorji Pallonji Group even after Cyrus Mistry had taken over. May are of the opinion that this gave more ammunition to the Tata Trusts to strike back.

Other than Ishaat Hussain and Farida Khambata who abstained, the rest voted for the Mistry’s ouster at a stormy Tata Sons board meeting on Monday. Mistry himself voted to stay. Meanwhile, most of the GEC members abruptly left an in-house event, adding to the speculation. An old Tata hand quipped that ‘it was a coup planned to perfection and executed to the tee’.

For more news about this please refer “Shakeup at Tata Group May Leave Tata Stocks Volatile.”