To ask Cyrus Mistry to quit as Chairman of Tata Sons is quite an unusual decision, especially as this is unheard of in a group like the Tatas. It is a global business group. The Tata group is known for its stability, culture and long-term perspective and would not take any decision in haste.
Usually when an individual who holds a senior position in any organization leaves suddenly or abruptly, reasons cited for the departure are largely health or family. The norm is to accord an honourable exit. However, that was not the case with Mistry, and it is difficult to make a guess about it. This is particularly intriguing because of the close ties the group has with the Mistrys.
Mistry was made chairman of the group after a detailed process of selection over 14 months. Now he has been fired after four years in office. These developments indicate that there must have been significant undercurrents in board functioning with possible breach of certain governance principles, may be for want of explicit processes. This is quite probable given that the board members are leaders in their own right. There might have been a drift happening without anybody realizing it and checking.
One does not really know what happened within the group that made the board to take this decision. There must have been something major for the board to lose faith in its chairman and to ask Ratan Tata to come back as the chairman in the interim till a new chairman is selected. However, asking a former chairman to return is not an unusual development under unique circumstances. Infosys brought Narayana Murthy back as executive chairman seven years after he stepped down.
I don’t think Ratan Tata’s tenure in the interim would be only for four months as announced by Tata Sons. It is not easy to find a replacement for Mistry for a group as large and diversified as the Tatas. I believe that is one of the reasons why the board has asked Ratan Tata to return as it seems he alone can hold the group together and bring the much-needed stability to the group at this crucial juncture.
The change of leadership will affect the Tata group’s reputation for a short period. It would clear only when the board gives an explanation for the removal of Mistry. In the short period that Mistry has been the chairman, he would not have been able to do much damage to the five generation old business. His removal will be a temporary setback and the Tata group will be able to recoup, especially because of the strength they have shown in taking this bold decision.
Mistry’s reputation will be affected though. He accepted the position as chairman of the Tata group because he was confident about his capabilities. However, being replaced by Ratan Tata raises serious questions about his capabilities to steer a complex group such as the Tatas.
(The author is Professor and Executive Director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business)
Updated Date: Oct 27, 2016 11:22 AM