The reason for Cyrus Mistry’s unceremonious exit as the chief of $100 billion Tata empire isn’t fully known yet. All that we know is the much-talked about differences between Mistry and interim chairman Ratan Tata on the larger policy course governing the group that operates in over 100 companies across 100 countries. But, it is naïve to imagine that Mistry’s abrupt, disgraceful sacking was over mere policy differences.
There must be something else that irked the owners uncontrollably to stage a boardroom coup, the kind not heard in the Tatas' 148 years of history. Perhaps, the actual reason will never be known to the public. Tata Sons, the privately held holding company of the group, isn’t really answerable to general public beyond a small group of its shareholders. The Trusts literally control the empire with 66.4 percent stake holding. The Shapoorji Palonji group, to which Cyrus Mistry belongs, is the second biggest shareholder with 18.4 percent stake.
“Either you have the majority in a company or nothing,” said Pratip Chaudhuri, former chairman of State Bank of India when asked about the influence Mistrys commanded in the Tata empire. “The owner is the boss. So, if someone thinks he has the absolute freedom to do what he think is right, he is wrong. Even if you are made full-time chairman, you should consult the owner. I would like to believe that in this case he (Cyrus Mistry) did not adequately consult the owner on key decisions,” Chaudhuri said, citing examples in other groups, both Indian and overseas, where similar episodes have taken place.
Chaudhuri is right. A disconnect with the Tatas is indeed one of the most talked about reasons that eventually led to Mistry’s overnight sacking.
What could be the real differences? One can only speculate. But, if one goes by certain media reports like this one in the Mumbai Mirror, ‘one reason that irked Tatas was Mistry’s interest in real estate projects thought to benefit Shapoorji Pallonji & company (SP Group) — controlled by his father Pallonji Mistry and elder brother Shapoor Mistry’.
Then there was Mistry’s sale of the loss making ‘family Jewels’ built or acquired by the Tatas over years. This included the sale plan of UK-division of Tata Steel. The DoCoMo dispute was another point of friction. The Tatas were reportedly unhappy about the manner in which Mistry dealt with the $1.2 billion dollar settlement with the Japanese firm following a bitter legal battle. Tatas were also unhappy with Mistry’s decision to sell the Taj Boston Hotel and approach to other Tata iconic brands.
But, remember, none of these issues happened overnight. Mistry’s policies were known to the Tata trusts from Day One. Hence, these can’t be the reasons to sack him that brought worldwide attention to this unusual move by the Tatas. Moreover, from a corporate perspective, there aren’t really any strong points that the Tatas can accuse Mistry of or find fault with his strategy to sell off bleeding units in the group and cut down losses. That is what any prudent company chief would do.
There is nothing really unusual in the Tata-Mistry episode. People routinely change at the top and it is up to the owner/s to decide these moves. In privately held companies, especially, such changes can happen at any point taking into confidence only a small group of stakeholders.
But, seeing Mistry's exit from purely a corporate governance perspective (for which the Tata Group is known for), this is one area where the Tatas have messed up and it could not get any worse than what it is now. It is not Mistry’s exit per se, but the manner in which the board ousted the 48-year-old chairman of the group that sends a wrong signal to the outside world about the Tatas' 'governance standards' and the kind of internal systems that are in place. For sure, Mistry’s removal could have been handled in a more mature manner without taking internal affairs to such ugly heights in full public view.
Also, the group should have taken note that even though Tata Sons isn’t listed, the fortunes of several entities in the group are inseparably linked to the developments in the holding company.
In all certainty, the Tatas vs Cyrus Mistry episode would be a long drawn-out affair. The immediate events that followed Mistry’s exit signal that more skeletons may tumble out of the closet. At least three top executives--HR head N.S. Rajan, business development and public affairs head Madhu Kannan, and strategy executive Nirmalya Kumar — have resigned.
A slugfest is on between Mistry and Tatas over alleged fraudulent transactions, unethical practices, Ratan Tata’s investment decisions and a conflict of interest. Mistry’s allegation that he was reduced to a ‘lame duck chairman’ is even more serious. This is particularly so given the advice Ratan Tata gave to Mistry when he handed over the baton in the winter of 2012 — “You should be your own person, you should take your own call and you should decide what you want to”.
Back in January, speaking to a group of students Tata, then chairman emeritus of Tata Sons, had made an interesting comment on the ‘freedom to decide’. “If India is to shine now and in future, people must have the freedom to decide. While governments can be in the business of monitoring, they should have no role in telling people what to do."
“Be honest in what you think and do and this goes for any profession,” Tata said. Though Ratan Tata said this in a separate context, there is a curious connection that can be seen as a link to the Cyrus Mistry episode as well.
In a recent interview, Mistry had said that the group will have to take tough decisions to face challenging times. If the reason for sacking Mistry from Bombay House is because of the bold, often unpleasant decisions he chose to take to set the house in order, which didn’t go down well with the owner, then Ratan Tata has failed to practice what he preached by preventing Mistry to be his own man.
If there is truth in Mistry’s allegations post his disgraceful exit from Bombay House that Ratan Tata failed to keep his promise of independence in corporate decisions and that he wasn’t allowed to be his own man during his four years in office, the irony of Tata's remark cannot be ignored. Not just that, Tata is now leading the opposite camp against Mistry.
The promise of ‘freedom to decide’ has been irretrievably broken.
True, life will go on at Bombay House with a new head, logically a Tata loyalist, taking over the charge of the group. The Tata group is too big a corporate brand to get impacted by one exit, even if that is of the chairman. But, the manner in which Cyrus Mistry was ousted has certainly left a big blot on Tatas' corporate governance legacy.
(Data contributed by Kishor Kadam)