Cyrus Mistry sacked, Ratan Tata returns to Tata Sons: Major boardroom battle looms?

The stage seems to be set for another big corporate tussle

FP Staff October 24, 2016 19:31:32 IST
Cyrus Mistry sacked, Ratan Tata returns to Tata Sons: Major boardroom battle looms?

Cyrus Mistry's sudden removal as chairman of Tata Sons chairman has given rise to various conspiracy theories, with CNBC-TV18 reporting that the Pallonji Mistry group may even take legal recourse to battle the decision of the board.

The news of his removal came in after the market hours on Monday, in a small press release, devoid of even a customary thank you note for his contributions.

"Tata Sons today announced that its Board has replaced Cyrus P. Mistry as Chairman of Tata Sons. The decision was taken at a Board meeting held here today.

Cyrus Mistry sacked Ratan Tata returns to Tata Sons Major boardroom battle looms

Cyrus Mistry and Ratan Tata in a file photo. AFP

The Board has named Ratan N. Tata as interim chairman of Tata Sons. The Board has constituted a selection committee to choose a new Chairman. The committee comprises of Ratan N. Tata, Venu Srinivasan, Amit Chandra, Ronen Sen and Lord Kumar Bhattacharyya, as per the criteria in the Articles of Association of Tata Sons. The committee has been mandated to complete the selection process in four months."

The move has come as surprise primarily because the Shapporji Pallonji group holds more than 18 percent stake in Tata Sons, through two companies.

It is to be remembered that Mistry's appointment four years back had come in as a surprise.

So what could be behind the sudden removal of Mistry? There are various theories doing the rounds. Here are some:

Mistry-Tata Trusts did not go well

There are many who feel that the decision is because of a trust deficit between the Tata Trusts and Cyrus Mistry. Otherwise why is it that the press release doesn't even have a thank you note? Clearly, there is something amiss, they note. However, Tata Sons has said that the decision was taken at the behest of principal shareholders.

Did tough decisions cost Mistry his job?

There are a section analysts who believes that the decision was because of some of the tough decisions Mistry has taken of late.

"Tata group has taken a very tough decision..may be Cyrus Mistry's way of functioning did not gel with the group's overall decision makers. Cyrus had taken some tough decision in the past like hiving of some non-profitable businesses and setting goal towards making the group a more profitable venture," said A K Prabhakar, head of research, IDBI Capital Market.

Also, the group in the past was known for creating huge employment in the country, but Mistry seemed to have focussed more on returning to profitability mode, and in the process slashed jobs in various of their group companies.

"Slashing of jobs at Tata group firms was unheard of in the past. We think names like Noel Tata would once again emerge as top contender for Tata chairman's post," said Prabhakar.

Too much of managing?

Meanwhile a source told Firstpost that when any major development was underway in any of the Tata Companies, Mistry focussed on that too much to the extent that he excluded other companies in the group. He would also not let the leaders of the other Tata companies make decisions on their own. The managers, most of them leaders appointed by Ratan Tata were used to the earlier functioning of the Group and with quick redressal of issues. This delay in communication and sort of micro management by Mistry also reflected in the company’s balance sheets, the source said.

“Ratan Tata is a visionary and he has elevated senior people to the level of Managing Directors of various groups simply because he was able to see they were competent and could do the job. Once he gave them the job, he did not interfere. He empowered his men,” said the source. For instance, Koushik Chatterjee was given free rein to handle the Corus deal.

Ratan Tata’s return to the board may not be temporary, the source said. The board and the managers of the Tata companies would like him to stay. Tata has created this behemoth and is nimble footed. He is approachable and has indepth expertise. So he may stay around for a longer while, the source said, adding that that is the current mood of the managers of the Tata group companies too.

Though these are the conspiracy theories doing the rounds, it has to be remembered that Mistry had recently said in an interview to the in-house magazine that "challenging situations" confronted by some of the group's businesses require hard and bolder decisions on pruning portfolio even as he stressed that the conglomerate is open to acquisitions within and outside India, besides organic growth.

"It was clear to me relatively early that one needed to confront the challenging situations facing some of our businesses, and ultimately this would entail hard decisions on pruning the portfolio," he said in the interview.

He added that he had learned through experience that if one wanted to do the right thing by all the stakeholders, there are no shortcuts.

The interview has now mysteriously disappeared from the site.

Clearly, the stage is set for another big corporate tussle.

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