In an interview to Tata.com, his first since taking over as chairman of Tata Sons in 2012, Cyrus Mistry had said every company in the group had to earn the right to grow. It is ironic that barely a month after that interview, the Tata Sons board decided that Mr Mistry himself had lost the right to stay on as chairman of India’s largest conglomerate. It is difficult to pinpoint the reasons for this action by the Tata Sons board, as there is no clear communication from Tata Sons or Ratan Tata, who has come back as interim chairman, in this regard. It is true Mr Mistry’s performance has been alright but not great: Though the Tata group’s market capitalisation rose faster than that of the Sensex, the performance metrics did not change much. As for the whispers about Mr Mistry lacking vision, it was perhaps too early to make such an assessment because he was still cleaning up some previous decisions and getting rid of high levels of debt. It is, however, doubtful whether anybody will miss Mr Mistry’s Group Executive Council as its composition was underwhelming. Besides, there has been little sign of Mr Mistry’s $35-billion investment plan outlined a couple of years ago.
But the more important reason for his exit seems to have been the direction in which he was taking the Tata group, and more directly about Mr Tata’s legacy. Mr Tata was apparently upset about some of Mr Mistry’s decisions that implicitly questioned some of his earlier decisions, such as buying Corus and marquee hotel properties abroad. Mr Tata was also apparently upset with the way the dispute with NTT DoCoMo was handled, which resulted in the Japanese company being awarded a favourable international arbitration order that entailed a $1.2-billion settlement claim.
It is nobody’s case that a board is not entitled to dismiss a CEO, but the manner in which it was done at Bombay House was wrong. Mr Mistry should have been told much in advance about his inadequacies and he should have been given a chance to defend his record. Instead, the whole thing was organised like a coup — new directors were brought in, lawyers were consulted, and then a surprise sprung at the fag end of a board meeting through the introduction of an item that was not on the listed agenda. The graceful thing would have been to let Mr Mistry’s term expire in March 2017, and not extend it. The manner of the dismissal and how Mr Mistry is being made a non-person in the group – his in-house interview has been wiped out –suggests that there was bad blood, not just business disagreement.
The Tata group must now look ahead and learn from the mistakes it made while selecting a new chairman. The fact is that the last choice was not a great one; Mr Mistry had no prior executive experience that would have prepared him to run a group as complex as the Tatas. So it was a leap of faith, and it did not work out. Equally, the Tata Trusts as shareholders need to take more of a backseat and act through the board, not outside it, when dealing with the chairman of a $103-billion group. Also, the group mandate now seems to be that it should build, not downsize. It remains to be seen whether this will be the best course for troubled companies in the group that may not have a great future.