Cyrus Mistry out, Ratan again Tata boss

Mystery surrounds Monday’s abrupt announcment on dislodging Cyrus Mistry as the Tata Group’s chairman after a decision to this effect by the Tata Sons board. In a terse four-line statement, the company said: “Tata Sons today announced that its board has replaced Mr Cyrus P. Mistry as chairman of Tata Sons. The decision was taken at a board meeting held today.”

His predecessor Ratan Tata replaced him as interim chairman for four months, and the board also named a five-member search committee, that includes Mr Tata, to choose a successor as chairman. Late on Monday, Mr Ratan Tata wrote to Prime Minister Narendra Modi informing him of the change in top management in the Tata Group.

The selection committee includes, besides Mr Tata, TVS Group chief Venu Srinivasan, Amit Chandra of Bain Capital, former ambassador to the US Ronen Sen and Lord Kumar Bhattacharya. All of them, except Mr Bhattacharya, are on the board of Tata Sons.

It was only in September this year that the reticent Mr Mistry had said: “We are building the Tata Group of the next 150 years. The Tata Group’s international revenues are close to 70 per cent of its composite turnover. Also, a majority of the group’s capital expenditure in the last three years has been in international geographies. With the opening up of two new markets of Iran and Myanmar, several Tata Group firms are gaining traction there.”

Mr Mistry was removed summarily without any explanation. He was appointed, literally handpicked, by Mr Ratan Tata to succeed him as chairman at the end of 2012, though there was also a panel appointed to find a successor. The Irish-born Mr Mistry, who comes from the construction magnate family of Shapoorji Pallonji Mistry, was only the second non-Tata family member to head the over 100-year-old steel to salt conglomerate. The first was Nowroji Saklatwala.

In the absence of any reason for Mr Mistry’s sudden ouster, there is speculation and the reasons range from the losses the group companies have been incurring to the smudge on the Tata Group image over the alleged “stealing” of information from the US Epic Systems. TCS had to pay a fine of $940 million in the US plus $700 million in punitive damages. TCS, however, said it did not benefit from the information that was stolen by one of its staffers.

In another instance, the Tata DoCoMo venture with NTT of Japan took an ugly turn. Tata Sons had to pay $1.17 billion to NTT after an order by the London Court of International Arbitration for breaching a shareholder agreement. The case is still under way. All this did not good to the Tata image, which the Tatas pride themselves on.

There are also the losses that most Tata companies have been incurring, with only Tata Power and Tata Chemicals faring better. The group’s turnover was down to $103 billion in 2015-16, from $108 billion the previous year, and the debt increased to $24.5 billion from $23.4 billion. Tata Motors survives profitably only due to Jaguar Land Rover’s profitability, while Tata Steel is yet to recover from the costly takeover of Europe-based Corus for $12.5 billion under Mr Ratan Tata.

Meanwhile, the Shapoorji Pallonji group which is the single largest shareholder (14 per cent) in Tata Sons has reportedly decided to challenge the ouster of Cyrus Mistry as chairman of the Tata group, terming it as "illegal" They are expected to move the Bombay High Court on Tuesday. If this happens it can be a long drawn battle resembling the controversy that surrounded the appointment of Ratan Tata as chairman of Tata Sons.

The Tata doyen JRD Tata had anointed Ratan as his successor but Mr Russy Mody who was then chairman of Tata Steel decided to contest this. Mr Mody’s mother Lady Homi Mody had appealed to JRD on behalf of Russy but to no avail. In the end JRD won and Ratan took over. In the case of Mr Mistry, the fact that his family was the single largest shareholder weighed in favour of his appointment.

Whilst Mr Mistry's ouster has sent shock waves through the corporate world, the question being asked is whether he was given a chance to defend himself from whatever the reason for this shoddy dismissal. The Tata group has said that it had taken legal opinion before terminating Mr Mistry's appointment. This also indicates that the ouster process had started earlier. According to reports, they had consulted Mohan Parasaran, solicitor general and former Justice RV Raveendran. It will have to be seen how this unravels on Tuesday, as even the reason for his removal has not been made public. It will also affect the Tata Group as Mr Mistry’s family is the largest single shareholder and have decided not to take this lying down.