A Messy Breakup
If the intention was to send out shockwaves through the corporate world, create intense media buzz and speculation, and give rise to headlines and television debates, the sudden "replacement" of Cyrus Mistry as Chairman of Tata Sons by the board of directors, the effort succeeded spectacularly.
On the other hand, if the intention was to move out an irksome chief discreetly and with minimum fuss, and to let him go with grace and dignity as is often understood as "the Tata way" of doing things, the board meeting and subsequent announcement achieved exactly the opposite.
Three days after the boardroom coup, a lot of information, points of view and data have been disseminated. And there is little doubt that more will come out in the days to come.
Some conclusions can be drawn even so far. The first being that Ratan Tata and the Trusts and the Tata Sons board of directors may have excellent legal advisors, they did not get good advice on how to fix the publicity that would inveitably follow the messy removal.
Sure they may have been unhappy with Mistry and wanted him out, but surely there are other ways of communicating that message or achieving the goal without a brief, messy boardroom battle. From all accounts, Mistry was told either a day earlier by a board member or by Ratan Tata himself just before the meeting that the board wanted him to resign and if he didn't they would push him out.
I have the highest regard and respect for Mr Tata and his achievements of the past two and a half decades, but I have met Mr Mistry as well. In the hour long interaction I had with him a month ago, I was struck by his clarity of thought and his sharp insights. But more than anything, I came away with the impression that he was a down-to-earth person and an honourable and reasonable man. It is hard to imagine that if the board of directors had told him that they wanted him to resign after a discussion, and given him an honourable way out and some notice period, he would have stuck to his position.
More importantly, it is hard to understand why the board and Trusts wanted him out with immediate effect, especially as there was no immediate succession plan, save for Ratan Tata himself to come back as interim chairman. If there were any reasons why Mistry could not have been given a few months to move out gracefully, it has at least not been communicated as yet - though a lot of other things have been communicated.
"Ratan Tata and the Trusts and the Tata Sons board did not get good advice on how to fix the publicity that would inevitably follow the messy removal"
The second conclusion that one can come to after the contents of Mistry's letter to the board has come to light is that several of the Tata group companies were/ are in far greater trouble than one had imagined. Even without his letter, it was well known to anyone with a modicum of interest in corporate balance sheets that only two of the group companies - Tata Consultancy Services (TCS) and Jaguar Land Rover - made good money and most others had anaemic profits, if any at all. It was also known that many of the acquisitions done by Ratan Tata before his retirement in 2012 had turned sour because of changed global conditions. And even that the group was saddled with big debt because of those acquisitions.
But Mistry's letter lays out in greater detail the depth of the problems in the Tata Group - from the bad purchases made by Indian Hotels, to the problems of irregular financial transactions in Air Asia India; from the enormous losses of Tata Steel UK to the troubled UK and Nigerian operations of Tata Chemicals; and from the Nano disaster in Tata Motors to the bad contracts signed by Tata Docomo. The fact that despite all the actions taken so far, Mistry estimates that the group would still need to take a write-down of about Rs 1,18,000 crore is quite shocking.
"The second conclusion that one can come to ... is that several of the Tata Group companies were/ are in far greater trouble than one had imagined"
The fact that Mistry did not have a completely free hand, unlike Ratan Tata, was known to most business watchers though a press release from Tata Sons says he had enough freedom. When J.R.D. Tata had handed over the reins of the group to Ratan Tata and made him the chairman of Tata Sons, he had also handed over control of the Trusts. Thus, Ratan Tata had far more freedom of manoeuvre than Cyrus, who was only the chairman of Tata Sons with Tata as head of the Trusts. But the fact that the Articles of Association of Tata Sons were changed to give even more power to the Trusts after Mistry was appointed was not known to most people earlier.
The only conclusion that one can come to is that either Tata never intended to give up the reins of Tata Sons even after his retirement, or that he had some sort of premonition that things might not work out with Mistry and at some point he would need to flex the muscles of the Trusts. Either way, it does not speak well of a search process that went on for over a year, and which was followed by one year of Mistry working closely with Ratan Tata, before the formal ascension.
The final conclusion that one comes to is that there was far too much left unsaid and too much ambiguity during the appointment of Mistry as chairman. It appears that there was never any effort to formalise the exact expectations of the Trusts from the Tata Sons chairman. On the other hand, Mistry himself perhaps expected that nothing would go wrong in the future. He made no effort to ask for some sort of golden parachute to be put into his contract as so many US CEOs do when they sign up for a new assignment.
I suspect when the new chairman of Tata Sons is finally identified, he will ask for some of these to be put in place, though these would probably be the least of his headaches if the financial problems that Mistry refers to in his letter are not sorted out quickly.
@ProsaicView
