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Ratan Tata is back as interim chairman of Tata Sons; Mistry removed

Mistry's surprise departure was said to have been triggered by a decision of Sir Dorabji Tata Trust and Sir Ratan Tata Trust, both of which are chaired by Ratan Tata. The two trusts hold 66 percent stake in Tata Sons, the holding firm of the $100-billion Tata group of companies, and thus have powers to appoint or remove a chairman with their own three-member quorum of the selection panel
A file photo of Cyrus Mistry and Ratan Tata.

Tata Sons announced in a statement in Mumbai on Monday that its board replaced Cyrus P. Mistry as Chairman of Tata Sons and appointed Ratan N Tata as an interim chairman of the company. The decision was taken at a board meeting that also announced the constitution of 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.

Shapoorji and Pallonji Group, the single largest shareholder in the Tata Group, has termed Cyrus Mistry’s ouster from Tata Sons as illegal. Mistry is the son of Pallonji Mistry, who heads the group. The group says it will contest the move, adding that the decision to remove Mistry was not unanimous. It is believed that out of the nine board members, 8 members voted. Six voted for Mistry’s ouster and two abstained.

Mistry’s surprise departure was said to have been triggered by a decision of Sir Dorabji Tata Trust and Sir Ratan Tata Trust, both of which are chaired by Ratan Tata. The two trusts hold 66 percent stake in Tata Sons, the holding firm of the $100-billion Tata group of companies, and thus have powers to appoint or remove a chairman with their own three-member quorum of the selection panel. Mistry’s family, the Shapoorji and Pallonji Group, owns 18.5 percent stake in Tata Sons and is the largest shareholder in the company.

Mistry was chosen as Tata’s successor in November 2011 and was appointed Deputy Chairman of Tata Sons, whose board he had entered in 2006. He was made chairman in December 2012 on the basis of his representation from Shapoorji Palonji, the largest shareholder in Tata Sons. He was the sixth chairman of the group and the second chairman who did not carry the Tata name, after Nowroji Saklatwala.

There were no reasons given for the change of leadership of the man who was inducted with much fanfare. 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. Mistry is the youngest son of construction tycoon Pallonji Mistry, who also owns a significant stake in the group. He is a graduate of civil engineering from Imperial College of London and has a Master of Science in Management from the London Business School.
Ratan Tata’s return as an interim chairman takes place at a critical point when of about 100 businesses ranging from automobiles to retail to power plants to software, Tata Sons has only two businesses that have been consistent performers— IT services exporter Tata Consultancy Services (TCS) and Jaguar Land Rover, the marque car company it bought from Ford Motor in 2008.

The move could drive Tata group stocks in short-term volatility when trading resumes on Tuesday. “It is a shocker because Cyrus had a different way of handling things. He was consolidating the Tata businesses by selling non-crore businesses of the Tata group. He was concentrating on selling low-margin businesses and concentrating on high-margin businesses. Tatas are good as humans, but in a business cycle, they are bit lavish,” said AK Prabhakar, who heads IDBI Capital. “They closed their low-margin broking arm. How the market may react, one cannot say. But we may see some knee-jerk reaction. There will be few stocks which will react negatively,” Prabhakar added.

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