The release that came from Tata Sons left no scope for speculation. It was quite clear that Cyrus Mistry was replaced as Chairman of Tata Sons. While this might seem as a very “un-Tata” thing to do, it was clearly a decisive action and left no room for any sort of misunderstanding. Cyrus Mistry clearly did not deliver any value to the sprawling Tata corporate empire. Even though he is the son of the largest single shareholder Pallonji Mistry, there was no guarantee that he will be able to retain the job. In that sense, the board in deciding to remove Cyrus Mistry has protected the interests of shareholders.
Four years ago, in December 2012, it was a different story. As Cyrus Mistry took over the reins of the Tata empire from the long-serving Ratan Naval Tata, he was touted as the future to the media. We were told that the Tata empire was in safe hands. After all, while Mistry did not share the Tata name, he was the son of the largest shareholder of Tata Sons, and apparently had immense knowledge of the empire. He had been groomed for the role, not just by his family connections but by being Ratan Tata’s understudy for a few years.
Although the last few years of Ratan Tata’s reign had their share of controversy, with some questionable acquisitions by Tata Steel (Corus), land scandals enveloping Tata Motors through no fault of theirs as well as the commercial failure of Tata Teleservices in the consumer market and getting caught up in the 2G scandal.
Yet, Ratan Tata’s reign will be remembered as a successful one at Tata Sons if for nothing else the tremendous success of Tata Consultancy Services (TCS), the IT arm of the company and the remarkable turnaround that he engineered at embattled British carmaker Jaguar land Rover (JlR) after buying it from Ford. Yet, as a recent article in The Economist pointed out, the Tata group companies on the whole have a poor return on equity.
Unfortunately for Mr Mistry he was unable to change that perception, indeed according to many he made it worse. According to those who follow events at Bombay House, the Tata Sons headquarters in the Fort area of South Mumbai, Mistry despite taking some headline-grabbing decisions apparently dithered with long-term planning and did not have a clear vision for the group in dramatically changing global times.
The board was worried about several things, the fact that TCS’ success could not continue to underpin the group particularly as the IT services industry changed; how could JlR and Tata Motors continue to be successful as the world moved away from automotive solutions. While there is sure to be a confrontation in the boardroom and possibly in the courts between the Mistry family and the Tata Sons board, this is not a decision that any company makes lightly.
At the same time, Ratan Tata himself made some headlines as he became a venture capitalist of sorts by becoming a marquee investor in start-up firms through his privately-held firm RNT Associates. Some of his bigger investments were in e-commerce firm Snapdeal, cab-hailing service Ola, online lingerie store Zivame, eyewear website lenskart and several others. It appeared that Mr Tata had better future planning than the empire that bore his name.
While it is true that Mr Mistry took over the reins of the empire at a time of considerable business headwinds, it appears that his handling of major issues facing the group, particularly those at the massively loss-making Tata Steel Europe (formerly Corus) and their British plants did not help matters with the problem being allowed to fester for far too long while the company continued to bleed. And then there is the current dispute with Japanese telecom major NTT-DoCoMo, which won an arbitration case against the Tata’s in london but the Tata’s claim that they are unable to pay due to Reserve Bank of India (RBI) strictures. While the RBI has impleaded itself in the case which is currently in the Delhi High Court, this case appears to have damaged the image of Tata as an ‘ethical’ company cultivated for decades by Ratan Tata.
Maybe we will never know what really happened behind the scenes at Tata Sons. With the new selection board having just four months to find a successor and Ratan Tata hardly young anymore, it is questionable they will find an experienced hand to take over such a sprawling empire so quickly. But find one they must. Millions of employees and shareholders will want some sense of stability.