TATA sons is the holding company of the TATA group. About 66% of the equity capital of TATA sons is held by the TATA Trust (Sir Dorabji Tata Trust and Sir Ratan Tata Trust), 18.4 % is held by Shapoorji Pallonji Group (Sterling investments corp. and Cyrus Investments) and the rest is held by other Tata companies.
The decision to sack Cyrus Mistry as chairman of the TATA sons, less than four years after he occupied the $103 Billion conglomerate was not a sudden decision. On August 26, the Board inducted Ajay Piramal (Piramal Enterprises Chairman) and Venu Srinavasan (TVS Motor Chairman), which were seen as a move to tighten the grip of the TATA trusts on the TATA sons board. This was the beginning of the fall of Cyrus Mistry.
Let’s discuss the major reasons/events which led to the ouster of Cyrus Mistry as Chairman of the board:
- Cyrus Mistry was seen as a capitalist leader by the Board. He focused more on the cash cows (TCS, JLR, etc) of the Tata group and started pruning the other Tata companies. This was against the basic ethos of the Board, which is philanthropic in nature. Mistry was seen as insolent, precocious and out to destroy “the core values that the group stood for, for close to 148 years“.
- In June, Mistry had cleared Tata Powers $1.4 Billion acquisition of Welspun’s solar farms without seeking the approval from either Tata or other key shareholders. One of the Tata insiders quoted, ” Tata Power is a cash guzzler but generates very little profit. Yet, when embarking on it’s biggest buyout, a principal shareholder is kept in the dark. That’s unprecedented in Bombay House (Tata Group Headquarters)“.
- Though Ratan Tata had handpicked Cyrus Mistry for the Chairmanship four years ago. There was a fundamental disconnect between Ratan Tata and Mistry. Mistry was asked to spell out his vision, five-year plan, etc. But, his responses were always vague and non-specific.
- Mistry disposed some of Indian Hotel Co’s overseas properties. This did not go well with Tata Trusts as many of the properties were seen as Ratan Tata’s legacy that helped the group revenues top $100 billion. The decision to sack Indian Hotels managing director Raymon Bickson, who was perceived to be close to Ratan Tata had made matters worse. Mistry’s comment on the necessity of “tough love” within the organisation was considered overtly aggressive by all Board members.
- The decision to shut down the TATA Steel UK operations, had come in for heavy criticism in Britain. The Board believed that Mistry had not been able to take into account the sensitivity of the shareholders as well as the global ecosystem in which the companies operate. A person close to Ratan Tata said, “Tata was unhappy with the decision to shut down or sell the group’s steel business in Europe. He wanted the group to turn around the loss-making business rather than sell it“
- In 2009 Ratan Tata had signed a legal contract with DoCoMo, according to which which the Tata’s had to buy back DoCoMo’s shares in Tata at (atleast) half the acquisition prices in five years. In 2014, when DoCoMo decided to exit India, it asked Tata sons to buy back the shares but it refused saying that the pay at the pre detemined prices was not possible as the RBI norms did not follow the same. DoCoMo sued the Tatas in London court and UK under arbitration charges. Finally, Tata sons had deposited $1.2 billion with the Delhi High Court in July last year. The Tata group is well known across the world for keeping it’s word instead of litigating around it. By not honouring the contract, the brand image of Tata was put under risk.
Under Mistry’s leadership, there was a 30 % CAGR over last 3 years in operating cash flows of the company, the net debt was decreased by 3.3 percent, TCS had doubled it’s profits. Most of the Tata group stocks had performed well under him. Hence, he was not ousted based only on performance. But because his focus was biased to the cash cows of the Group and this led to the negative growth of companies like Tata Power, Tata coffee, Tata Teleservices, Tata Global Beverages, etc. Mistry needed to understand that the Tatas did not believe only in profit-making but also in the general improvement of society.
“Mistry’s way of functioning was simply not the Tata-way of doing things”.
(I would love to hear your thoughts on why Mistry was sacked. Please leave your suggestions in the comments section)