The agenda included a section called “Other Items“. This was not unusual. It is not illegal to replace the chairman of the Board under the pretext of “other issues”, as Mistry originally stated. It is certainly improper.
Six members of the board voted against Mistry, and two abstained. The ninth member was Mistry.
There has been no explanation given for the removal, but media speculation indicates that a disagreement with Ratan Tata (78), former executive chairman, had been simmering for some time. Ratan Tata was returned to his previous position as executive chairman. The current arrangement is a 4-month interim solution. After that, a permanent replacement would be appointed.
In fact, Ratan Tata was the one who selected Mistry in 2011. He described the choice as “a far-sighted decision“, after his 21-year tenure at the Tata Group.
Ratan Tata will be interim chairman until the company finds a successor to Mistry. Danish Siddiqui/Reuters
What is Tata Sons?
Tata Sons, the private limited company that controls the Tata Group, India’s largest private conglomerate.
The global media has often referred to the diversity of the group as “from salt to software“.
A large part of the Tata Group’s profit has come in recent years from a few leading companies. This includes Tata Consultancy Services, India’s largest exporter of software services, and Jaguar Land Rover, Ratan Tata’s biggest success after a global acquisition spree in 2008.
Tata’s top management is a tough bunch. Shailesh Andrade/Reuters
Family affair
Cyrus Mistry is a member of Tata Sons’s board of directors since 2006, thanks to his father Pallonji Mistry. His father owns an18% stake.
It is estimated that the market value of Mistry’s family’s stake in Tata Sons will be approximately US$13.5 Billion. Mistry continues to serve on the board, despite being removed as executive chair.
Mistry continues to be the chairman of a number of Tata Group’s 29 publicly listed companies. Tata has not yet incorporated the outcome of its October board meeting into the individual company boards.
Mistry also has a family connection to the group. His sister is married to Ratan Tata’s half-brother Noel Tata. Noel Tata was a candidate for the position of chairperson in 2012 and is currently being reconsidered.
Since the 1930s , Mistry’s Family has been an important shareholder in Tata Sons.
Letting go
Why was Mistry’s ouster necessary? And what happens next? Counter-allegations and allegations have been exchanged regarding why this happened, but the future is still uncertain.
Mark Tully, the former BBC journalist with a profound understanding of India’s socio-cultural landscape, writes in his book No Full Stops in India that “a nation like India cannot have a complete stop. It can only have commas going in and out”. He continues to say India’s Westernized Elite, cut off from the local traditions, want to “write a full-stop in a country where there are none”.
Ratan Tata may never have been able to let go of the role he held before. In the world of business, the position of a former chairman of a hundred-billion-dollar-plus group cannot be both out and in, with “some commas coming and going”.
Ratan Tata, who retired from Tata Sons at 75, did so in accordance with the rules of the Tata Group. However, as Chairman of Emeritus for the Tata Trusts – the philanthropic arm that holds 66% stakes of Tata Sons – he continues to be influential within the business world of Tata Sons.
In 2012, Tata Sons’ articles were amended. The board of Tata Sons is now a subordinate body to Tata Trusts.
Business and philanthropy are not always compatible. The best way to support charitable activities is by following the example of Bill Gates or Warren Buffet while avoiding any negative impact on shareholders.
Professional managers know and accept that not all of their decisions will be successful. Ratan Tata was no exception. The Indian media and board members of Tata Sons may have praised him, but his company has had its fair share of successes and failures.
Tata’s acquisition of Corus was a catastrophic failure. This acquisition was hailed in 2006 as “reverse-colonisation” in India because Corus included British Steel plc.
Mistry was selected by the committee in which Ratan Tata had the largest influence. When one looks at the current affairs of Tata Sons, it is natural to wonder which of the following decisions Ratan Tata will be remembered for:
- Buying Corus in 2006.
- Selecting Cyrus Mistry to succeed him in 2011.
- Getting rid of Mistry the way he did.
Mistry and Ratan Tata should have different styles. Each professional manager must be allowed to develop their style in a position of such importance without interference beyond the formal accountability to a board.
No business or financial measure allows it to be said that Mistry has been a failure for the group. Tata Steel (or Tata Tele, for that matter) had problems inherited.
Cleaning
This incident is reminiscent of the famous differences in opinions between Bill Gross, Mohamed El-Erian, and the investment management firm PIMCO. Both left the company as a result. Their differences were evident in a conversation that the Wall Street Journal reported.
