Mistry’s ouster, an unseemly affair

The Tata group has always been held up as a shining example of corporate governance and lauded for its professional management style despite being headed by someone from the family for most of its 148-year existence. In any discussion on governance and management, the group is invariably placed on a high pedestal, and rightfully so. Monday’s shocking development may, however, have knocked the group off its high perch, forever.

The sudden decision of Tata Sons to show incumbent Chairman Cyrus Mistry the door and the fact that even a day later there has been no further clarification from the group on the circumstances that led to the ouster is just not of a piece with the Tata legacy. The group is not known for boardroom coups and hence the shock.

Before going further, a caveat: any analysis or comment on Mistry’s ouster will be based only on conjecture at this point given the reticence of the Tata group to put out any official explanation. This article is no different. That said, going by the circumstances of the ouster and the fact that the Tata group went to the extent of removing even his interview from the group website, it appears that there were more than mere business reasons that led to Mistry’s exit.

The legal troubles with NTT DoCoMo leading to an adverse arbitration award of $1.2 billion and the decision to exit the UK steel business are being speculated upon as precipitating factors for his downfall. These were legacy issues that Mistry inherited from Tata and were not his creation. By any means, the decision to exit from British steel assets was a business decision that went through the company’s board.

If Tata was unhappy with Mistry’s handling of the DoCoMo issue, one presumes that a quiet word with Mistry or even raising the subject in the Tata Sons board would have been the way to go. You don’t dismiss your chief for a bad business decision that could have been set right in the first place within the boardroom.

So, was Mistry spoken to by Tata or any other director? Were the Tata Steel and DoCoMo issues discussed by the Tata Sons board but Mistry went ahead and did his own thing against the board’s wishes? Sadly, we’ll never know the answers to these questions unless the group opens up.

A recent none-too-flattering article in The Economist (‘Mistry’s elephant’, September 24, 2016) which talks of the poor profitability of major group companies and the rising indebtedness of some of them is being used to back the thesis that Mistry underperformed and was hence shown the door.

Leaving aside its curious timing — it was published barely a month before the boardroom coup — the article may be unfair to Mistry’s legacy. It is true that TCS and Jaguar LandRover bring in the bulk of the group’s profits while the other businesses such as hotels, steel and power are wallowing in losses. But this not unique to Mistry’s term.

When you talk of a portfolio of businesses as large and unwieldy as that of the Tatas, it is impossible that all of them will fire on all cylinders at the same time. Besides, Mistry’s term coincided with exceptionally difficult times for both India’s and the global economy. Any assessment of his performance, therefore, has to be related to that of peers in the same businesses. The falling operating metrics were not a sudden phenomenon anyway and the apex board surely had the time and opportunity to correct course, if needed.

The biggest liability that Mistry suffered from was that he had to operate under the tall shadow of his predecessor. Ratan Tata’s was a hulking presence not just in the boardroom of Tata Sons and other group companies but also at the operational level of the group entities.

Tata’s shoes were big ones to fill for Mistry but it was made worse by the fact that the former continued to command loyalty among the rank and file of the group who saw Mistry as an ‘outsider’. That Tata continued to be chairman of the two powerful trusts that own two-thirds of Tata Sons — Sir Ratan Tata Trust and Sir Dorabji Tata Trust — must certainly have cramped Mistry’s style even as it sent a powerful signal to stakeholders that Mistry was still serving his probation as leader.

Interestingly, when Ratan Tata was appointed chairman in 1991, the legendary JRD Tata retained chairmanship of the trusts too. But he passed away a year later and Rata Tata succeeded him at the trusts which ensured that he would not be hamstrung in any way as he went after the group satraps. To be fair to Mistry, he has led the group in the quiet, understated manner that the Tatas are known for. He was no more flamboyant than Ratan Tata and no less understated.

The Tatas’ low profile and off-the-public-eye approach are laudable qualities but they will not work in the present circumstances. Even if Tata Sons is not a listed entity it lords over several companies that are listed and which account for 7.5 per cent of the BSE’s market capitalisation. There is a public interest involved here.

And of course, we’re not even beginning to talk of the iconic nature of the group and its hallowed status in the public consciousness. Clearly, speculation over reasons for Mistry’s ouster can cause more damage to stakeholders than the ouster itself. For these reasons, the group has to reveal more than what it has until now.

It never is a good sight to see retired generals returning to take charge, whether it is a Narayana Murthy at Infosys or a Michael Dell at Dell Inc or a Ratan Tata at Tata Sons. It sends out all the wrong signals — lack of talent, lack of confidence in the successor or, worse, an inability to let go.

Ratan Tata should quickly identify Mistry’s successor, well before the four-month deadline. Of course, it will not be an easy task convincing prospective candidates from outside the group to take the job in the prevailing circumstances. Given the diverse nature of the group’s businesses and the complexity of the issues that it faces the best candidate for the job may well be someone from within the group who has Tata’s confidence.