Tuesday, October 25th, 2016

Inside story: Revealed why Ratan Tata is in, Cyrus Mistry out of Tata Sons

Arijeet Dutta | October 25, 2016 9:00 pm Print
Although there have been many theories going around about the reason behind the sacking of Cyrus Mistry as the chairman of Tata Sons and the resultant return of Ratan Tata at the helm of affairs at Tata Sons, here is the insider story stating facts ......
A file photo of Cyrus Mistry and Ratan Tata.

Shocking news came in late the evening before that the Tata Sons board sacked Cyrus Mistry as chairman, less than four years after he occupied the position at the $103 billion conglomerate. Ever since numerous theories have doing the rounds about the reason why Mistry was shown the door and Ratan Tata hurriedly called back to take the reins of the salt to software desi MNC. Our source in the company, who happens to be in the know of things revealed the real reasons why Cyrus Mistry was fired and Ratan Tata was brought back to replace Mistry who he happened to have hand-pick as his replacement when Ratan decided to lead a life of semi-retirement as chairman emeritus.

Our source tells us there had been a rift within the group right after Cyrus Mistry took over the charge from Ratan Tata. The primary cause of the divide was a sea change in the work culture and ethos at the Bombay House. People who had worked with Ratan were used to working and being treated in a certain way but all that changed once Cyrus Mistry became the chairman of Tata Sons, the company which is the largest private sector employee in UK. “His working style is very different from Ratan sir’s,” the source added. Some board members felt that Cyrus Mistry was a mistake and wanted someone else to helm affairs keeping in line with the culture at Tata Sons. Mistry’s reign was the briefest in the history of one of the oldest indian companies.

Fearing a big plunge in stock prices, the board decided to replace Cyrus Mistry with chairman emeritus Ratan Tata as the interim chairman of Tata Sons, till they can find a suitable candidate. However Tata sons still suffered fall in share prices at the stock market with Tata Steel falling 4%, Tata Power 2%, TCS 1.2% and Tata Motors 2.2% in early morning trading after this news broke out. The falling share prices are a reflection of apprehension among stakeholders for whom this news is very sudden and unexpected.

The employees of the group were closely knit and the company was known to be the next best thing to a government job in independent India. Under Ratan Tata, Tata Group had been a nationalist company. The story behind acquiring Jaguar and Land Rover from Ford is well known. In 1999, Tata went to Detroit, US to convince Ford to buy their car business right after the poor response to the launch of their Indica car as they wished to move out of the passenger car segment. What followed was humiliating treatment at the hands of the Americans who said they will do Tata a favour by buying their car division.

The incident is said to have left a scar in the memory of Ratan Tata who decided to leave the city the same evening after three-hour long negotiations and a bruised ego. In 2008, the same Ford’s JLR was bought by Tata. Ford chairman Bill Ford thanked Tata, saying ‘you are doing us a big favour by buying JLR’. The group made JLR one of the biggest corporate turnaround stories globally. This episode and the vision behind Ratan Tata’s dream project Tata Nano, the world’s cheapest car, went on to become folklore and cement the company’s image as a nationalist company.

But under Cyrus, since 2012, with commercial vehicles being the cash cow for segment leader Tata Motors, the commercial automobile segment witnessed its biggest downturn, declining by over 25 per cent year-over-year from 2012 to 2014. Also, Cyrus Mistry deciding to move mass manufacturing of the JLR group out of the United Kingdom to countries like Brazil, China and Slovakia, which was against the directive set by Ratan Tata at the time of the JLR acquisition did not help either. Neither did the messy divorce with DoCoMo under Mistry do his image any favor in front of the board.

Perhaps Mistry’s decision in June regarding Tata Power’s $1.4-billion acquisition of Welspun’s solar farms without seeking approval from either Tata or other key shareholders led to vitiating the atmosphere inside the boardroom. Moreover, disposing some of Indian Hotels Co’s overseas properties and especially the move to shut the UK steel operations, did not go down well with Tata Trusts. But the decision that made Cyrus a thorn in the flesh was his attitude towards the Tata Nano, knowing that it was Ratan’s dream project.

Tata’s image had received a huge boost after news of its humane side became public in the aftermath of 26/11 Mumbai Attacks. The Taj Mahal Hotel Mumbai was a target of the terrorists during the attack and the company is known to have provided relief and assistance to all those who were injured and the kin of those killed during the terror attack. During the time the hotel was closed, the salaries were sent by money order. Ratan Tata is said to have personally visited the families of all the 80 employees who in some manner – either through injury or getting killed – were affected. Tata took the responsibility of life education of 46 children of the victims of the terror.

The source tells us that Ratan Tata could possibly have had a direct role to play, than is being widely reported, in the sacking of Cyrus Mistry. Newspaper reports state that the decision was made by the board of directors, but the fact of the matter is that most still hold their loyalty towards the former chairman RNT, as he is popularly known in the company. RNT felt Mistry being at the helm was not in the best interest of the group in the long-term. The source adds that Ratan was courteous towards his employees and treated them well and with respect. Half Irish Cyrus Mistry was far from the sentiment, who happened to be a hardcore capitalist. His dour demeanor and methodical mannerism are a far cry from Ratan Tata who was more of a people’s person. The perception grew that he was out to destroy the core values that the group stood for, for close to 148 years.

Another source in the company presents a different picture. He states that Cyrus Mistry was passed on the baton during tough times but knew how to get things done being more of a result-oriented leader. He says Mistry was handicapped by the resistance faced from the “old guard.” Ratan Tata’s own handpicked executives who indulged in sycophancy were an eyesore for Mistry because of which he hired a new set of people to achieve his objectives when he realized the capabilities of these executives did not match the core competencies he required. Inevitably, there grew resentment and insecurity between the two factions leading to a divide that could not be fixed. Another factor behind growing disenchantment between the Tata and Mistry was difference of opinion over acquiring tribal land. The source confirmed how Mistry’s reluctance to expand mining operations of Tata group in tribal areas could have played an important role in the current crisis.

The source said that there has been minimum communication between Mistry and Tata for the past six months and there has been palpable tension in the air since the expansion of the Board of Tata Sons inducting Piramal Enterprises Chairman Ajay Piramal and TVS Motor Chairman Venu Srinivasan. The move was seen as Tata Trusts consolidating its power in the Tata Sons board chaired by Mistry. The move by Mistry to create the Group Executive Council as a parallel power centre was not taken well by the old guard which saw it as dissolution of their powers. Most of those close to Mistry have also been sacked along with him as a result.

It is revealed that the discussion was not taken all of a sudden as is widely reported in media but spanned over a couple of months with Mistry even being offered an opportunity to resign and walk out gracefully, which he refused and is now preparing to sue the board. CNBC TV18 reported citing its sources that Shapoorji and Pallonji Group will contest Cyrus Mistry’s ouster from Tata Sons.

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