By NAGARJUNA MAHANTI
05 Nov,2016
05 Nov,2016
In a dramatic development, Cyrus Mistry was removed from his position as chairman of Tata Sons and was replaced by Ratan Tata, from whom he had taken over the reins of the over $100 billion salt-to-software conglomerate four years ago.
The surprise announcement came after the board of directors met in Mumbai and decided to replace 48-year-old Mistry and appoint Tata, 78, interim head. The board named a five-member search committee, which includes Tata, to choose a successor to Mistry within four months.
Mistry was chosen as Tata’s successor in November 2011 and was appointed Deputy Chairman of Tata Sons, whose board he had joined in 2006. He was made chairman on the basis of his affiliation with Shapoorji Pallonji, the largest shareholder in Tata Sons.
There were no reasons given for the ouster of the man who was brought in with much fanfare, but it is believed that Tata Sons was unhappy with Mistry’s approach of shedding non-profit businesses, including the conglomerate’s steel business in Europe, and concentrating only on cash cows.
Tata Sons today announced its board has replaced Mr Cyrus P Mistry as Chairman of Tata Sons. The decision was taken at a board meeting held here today, a Tata Sons statement said.
Tata Sons is the main holding company of the group. CEOs at the operating company level of the group have not been touched in the rejig, company sources said.
The board set up a selection committee comprising Tata, TVS Group head Venu Srinivasan, Amit Chandra of Bain Capital, former diplomat Ronen Sen, and Lord Kumar Bhattacharya. All of them, except Bhattacharya, are on the board of Tata Sons.
The committee has been mandated to complete the selection process in four months, it added.
Mistry, who was chosen by a five-member panel in 2011 to succeed Tata, took over the reins of the conglomerate when the veteran industrialist retired on December 29, 2012, at the age of 75. After taking charge, Mistry had to face some challenging situations such as the decision to sell Tata Steel UK in the wake of mounting losses. The Tata group is also engaged in a legal battle with Japan's Docomo over the split of their telecom joint venture Tata Docomo.
In an interview with an in-house magazine, Mistry had recently stated that the group "should not be afraid of taking tough decisions for the right reasons, with compassion" amid "challenging situations" confronted by some of the group's businesses that would require hard and bolder decisions on pruning the portfolio.
This was in contrast to steps taken by Tata, who led the group into some notable acquisitions, starting from Tetley by Tata Tea for $450 million in 2000, to steelmaker Corus by Tata Steel in 2007, and the landmark Jaguar Land Rover in 2008 for $2.3 billion by Tata Motors.
During Tata's tenure, the group's revenues grew manifold, totalling $100.09 billion (around Rs 4,75,721 crore) in 2011-12 from a turnover of a mere Rs 10,000 crore in 1991.
Born on July 4, 1968, Mistry completed his graduation in civil engineering from London's Imperial College of Science, Technology, and Medicine and followed it up with a Masters in Management from London Business School.
Why did Tata Group replace Cyrus Mistry as the chairman?
Tata Sons Board’s decision to replace Cyrus Mistry with Ratan Tata as the Tata group chairman (interim) has taken the corporate world by a storm. If CNBC-TV sources are to be believed, the decision to replace Cyrus Mistry was ‘performance-based’. The channel said that Tata Sons decided to remove Cyrus Mistry as the chairman in the “larger interest of the group”. There are also reports that over the past 6 months, serious differences had emerged between Ratan Tata and Cyrus Mistry. According to the report, Ratan Tata, will meet all Tata Group CEOs this week. A Town Hall is likely in the coming weeks to address the group. The Selection Committee will soon meet and fast track the appointment of the new chairman. The search of Tata Group’s new chairman will not be limited to within the group, the channel said.
Various reports suggest that Tata Sons Board took the decision on “collective wisdom” to replace Cyrus Mistry. It appears that the principal shareholders felt it may be appropriate to change leadership. Some reports also suggest that a legal battle with the DoCoMo could be one of main reasons for ousting Cyrus Mistry. There is no change in CEOs at the operating level in the group.
In one of the biggest upheaval in the corporate sector, the Tata Sons Board has appointed Ratan Tata as the interim chairman of the group, replacing Cyrus Mistry. The decision was taken at a Board meeting today. Mistry has resigned from his post as chairman. The Board has constituted a Selection Committee to choose a new Chairman. The Committee comprises 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.
cyrus Mistry had in December 2012 become the sixth chairman of the Tata Group, replacing Ratan Tata. Mistry had been the director of the company since 2006. Mistry was earlier managing director of the Shapoorji Pallonji Group.
What could be the reason for Cyrus Mistry"s abrupt removal?
Although there were no reasons given for the change of leadership of Cyrus Mistry who had been handpicked by Ratan Tata in 2011, it isn't difficult for anyone following the group to know what can be the reasons.
1. Difference in beliefs, values, and vision.
- There was a fundamental disconnect between Mistry and Tata, particularly with regard to ethos, values, vision and the direction that the group was headed in.
- Detailed letters were sent to Mistry asking him to spell out his vision, five-year plan, etc, but the responses were vague and non-specific.
- Things got aggravated as the chairman of Tata Sons and Tata Trusts were not the same individual. (This happened only once before when Ratan Tata was heading Tata Trusts and JRD Tata Tata Group) The former was not a Tata family member but represented the single largest shareholder while the latter was a custodian of century old legacy.
2. Mistry's decision to do away with non-profit businesses and concentrate on cash cows.
- He reformed business practices in the group asking the group companies to earn the right to be part of the portfolio.His decision to sell off Tata's steel business in Europe which was bought by Ratan Tata in 2007.
3. The way NTT DoCoMo dispute was handled.
In June 2016 London court of International arbitration ordered Tata sons to pay a whopping $1.17 Billion in damages to NTT DoCoMo for breaching their agreement related to their telecom JV firm Tata Telelservices. Tata himself met the Japanese ambassador to India in Mumbai in August, requesting a diplomatic intervention.
4. Mistry’s decision to acquire assets of Welpsun Group.
Some of the Tata group insiders believed the acquisition of the assets of Welspun Group by Tata Power earlier this year was foolhardy in valuation terms. Mistry cleared this acquisition without seeking approval from either Tata or key shareholders.
5. Mistry’s decision to change the structure of the company's hospitality armfrom owning properties to one managing properties across the globe and also the unceremonious sacking of the then Indian Hotels MD Raymond Bickson.
6. Style of functioning and leadership skills
- While Ratan Tata believed in empowering his team to make decisions, Mistry believed in Micromanagement. The managers, most of them leaders appointed by Ratan Tata were used to the earlier functioning of the group.
- Collapse of negotiations with Vodafone who earlier were interested in buying out Tata Telelservices can be attributed to Mistry's Centralized Micro Management.
- Mistry's eye for talent according to some company executives is questionable. The crucial post of the group CFO remained vacant for almost 3 years after the retirement of Ishaat Hussain.
7. Clash between the working styles of the old and new generation.
Group Executive Council (GEC) was formed by Mistry after taking over the reins from Ratan Tata with the objective of providing strategic and operational support to him.
- Only a handful of its members had actual operational experience of running a business.
- GEC had been under fire from Ratan Tata himself and some veterans feel that some of the recent decisions taken were questionable. Some of them perceived it as a parallel power centre.
- There is a view that Mistry's move to take hard decisions may have increased the tension between the board and the chairman, which ultimately resulted in the unceremonious sacking of Mistry.
8. Conflict of Interests
- Mistry didn't relinquish his Irish citizenship though as Tata Sons chairman should have.
- Concerns were also voiced about conflict of interest regarding award of contracts to construction companies of the Shapoorji Pallonji group even after Mistry took over.
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