Cyrus Mistry ouster: How the Tatas diminished themselves with chairman coup

In the messy exit of Cyrus Mistry as chairman of Tata Sons, it is still not clear why he had to leave through a boardroom coup rather than being given a graceful exit when his initial term ended

R Jagannathan October 26, 2016 07:56:58 IST
Cyrus Mistry ouster: How the Tatas diminished themselves with chairman coup

When it came to the crunch, the name probably mattered as much as anything else.

In the messy exit of Cyrus Mistry as chairman of Tata Sons, it is still not clear why he had to leave through a boardroom coup rather than being given a graceful exit when his initial term ended. His exit may have a lot to do with the fact that he didn’t carry the Tata name — one of the only two chairmen in the group’s long history to not do so. The other non-Tata to head the group was Sir Nowroji Saklatwala from 1932-38, a forgotten era.

Mistry’s premature removal saw the re-entry of the same man who brought him in: Ratan Tata. And that is the ultimate irony. Tata bid goodbye when he turned 75, as that was the age limit set by him in order to see off the troublesome satraps he inherited from his predecessor, JRD Tata’s tenure. He returns at the ripe old age of 79. Perhaps, the group needs a Tata to head it for some more time, till it moves to an even keel. But it did not cover itself with glory in the way it saw off Mistry.

Cyrus Mistry ouster How the Tatas diminished themselves with chairman coup

File image of Ratan Tata and Cyrus Mistry. AFP

When JRD was asked who he would choose as his successor, he was actually spoilt for choice between Russi Mody, Sumant Moolgaokar and Nani Palkhivala — among other super-achievers. But JRD told India Today in an interview that it would help if the group head bore the Tata name. That’s how Ratan Tata got the top job.

But it was a great choice, for only someone with the Tata name could have had the gumption to go after the satrapies in the flagship companies of Tata Steel, Tata Motors, Tata Chemicals and Indian Hotels, headed by the redoubtable Russi Mody, Sumant Moolgaokar, Darbari Seth and Ajit Kerkar respectively. Under Ratan, the group became a true conglomerate. Earlier, the companies were linked less by shareholding, and more by the satraps’ personal regard for JRD. Ratan packed off the satraps by imposing an age limit on their active tenures, and the Tata name ensured that the group’s key holding company, Tata Sons, majority owned by several Tata trusts, stood by him in this difficult fight for supremacy.

But the same age limit that helped him consolidate his control also ensured that he himself was honour-bound to bid goodbye when he turned 75. A high-profile search committee ended up recommending the name of Cyrus Mistry, of the Pallonji Mistry Group, and Ratan went along with that name.

It could not have worked without Ratan’s active blessings and backing, and that is what Mistry seems to have lacked, especially over the last one year.

Why didn’t it work out? One hears all kinds of reasons, including some that indicated that Mistry’s values were not in conformity with those of the Tata group. There were also murmurs that some of his decisions – to sell off parts of the Corus group, or to let the split with DoCoMo end up in court – may not have gone down well with the major shareholders.

But these whispers are unlikely to be the real reasons for Mistry’s exit for the real issue was his ability to assert himself as the group’s boss at a time when it was in choppy waters.

There is nothing on record to show that Mistry has done badly, given that most of the group’s problems predated his arrival. When he took over in December 2012, many of the key Tata companies were overloaded with debt and facing global and domestic headwinds. The Tata Corus acquisition handed down by Ratan was bleeding red; the power sector was in trouble as Tata Power’s import-based coal plant at Mundra was in trouble after Indonesia clamped duties on exports; the Tata DoCoMo deal negotiated during Ratan Tata’s regime was coming unstuck; Tata’s own passionate car dreams were going up in flames, with both the Nano and the Indica hitting the skids. With the economy tapering down under the mismanagement of UPA-2, the Tata Group was staggering under debt and costly investment mistakes. But for the cash spewed by Tata Consultancy Services, and the fortuitous Jaguar Land Rover acquisition just in time for a China-led boom, the group as a whole would have been in deep, deep trouble.

Perhaps the only thing you can hold against Mistry is that he was slow in moving ahead with the drastic changes he needed to make. But this could be because he had to gain the confidence of the CEOs of group companies. While the decision to sell Tata Steel’s UK assets was needed to bring down the group’s debts, a decision was also taken to sell Tata Chemicals’ fertiliser unit at Babrala.

In fact, it was only last month that he gave his first-ever detailed interview, and that too to a group publication, Mistry opened up on his plans for the group. Among other things, he said the group would now take “hard decisions on pruning the portfolio” as it faced “challenging situations” in some of its businesses.

He said in that interview:

“The group has invested Rs 415,000 crore ($79 billion) in capex over the last decade. Our investment over the last three years alone has been in excess of Rs 170,000 crore ($28 billion). We recognise that growth has to be a function of the operating cash flows we generate. At the group level, over the last three years, our operating cash flows have grown by over 30 percent CAGR; but this, as we know, is not the appropriate way to use such data - our individual companies need to earn the right to grow. At the group level, we are focused on helping our companies earn this right by building strong operational cash flows and looking at their capital structures.”

Is it possible that Mistry’s move to tell each Tata company to earn its capital may have infuriated many of the CEOs drowning in debt?

In the interview, Mistry had this to say:

“Over the last three years, the gross debt across the group has increased by about 2 percent per annum in US dollar terms, while cash and equivalents have grown at over 10 percent, leading to a reduction of 3.3 percent in net debt in the same period. As of March 2016, the group had a net debt of about $24.5 billion. Capex has been on average $9 billion in each of the last three years. In the financial year 2016, cash from operations reached $9 billion a year and exceeded the capex. At the group level, therefore, the aggregate debt is not something I feel concerned about. In fact, such aggregations at the group level could mislead, as the companies which have high cash generation, capex and debt are not all necessarily the same, and resources of different companies are not fungible with one another, as they are distinct legal entities with different shareholders.”

Effectively, Mistry was saying that the group’s flagships had to take care of the bulk of their debts themselves, and that the group cannot always operate on an aggregated basis. This meant Tata Steel, Tata Power or Tata Teleservices, all upto their necks in debt, would have had to find ways to fend for themselves.

In effect, they would have had to downsize.

It is not difficult to surmise that the bosses of these companies, always treated as first among equals in the group, would not have taken kindly to this advice. It is also more than likely that Ratan may have lent them an attentive ear, assuming these tales reached him. That the debt was incurred largely during Tata’s tenure cannot be understated. Mistry was essentially trying to undo his excesses.

If we assume that Mistry’s correctives were unpalatable to the new satraps, the short-term return of Tata to the helm was only to be expected. No one barring Ratan Tata has the stature to pull off the deep surgery that the group requires.

Mistry’s fault – perhaps the main one – was that he could not do what was needed quickly. But this begs the question: could he have moved any quicker when he needed time to build trust with his senior executives so that he could assert himself? No outsider has the kind of advantage that the Tata name carries.

The closest Mistry came to admitting that things were not moving fast enough was when he said the following: “Tata as a business group, when compared with private equity firms, has distinct advantages as well as some drawbacks. From a nurturing perspective, the Tata brand, developed over 15 decades, adds huge value to our companies. This also makes exits more difficult as the Tata group has a deeper commitment to stakeholders and the brand cannot be transferred.”

That this interview now seems to have disappeared from the site tells its own story. Mistry seems to have become a non-person overnight.

It is a pity that Mistry is being made a scapegoat for something he was not responsible for.

Perhaps the next chairman of Tata Sons will be someone whom the Tata Trusts and Ratan Tata trust fully.

But the group has lost a lot of its credibility in doing what it did to Cyrus Mistry.

Mistry’s exit has diminished the Tata name.

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