Ratan Tata is back as interim chairman of Tata Sons; writes to PM

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.

Ratan Tata is back as interim chairman of Tata Sons; writes to PM

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
. Noel Tata and Indra Nooyi are some of the names that industry insiders are betting on as Mistry's replacement.

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.

Anticipating a legal battle ahead, Rata Tata wrote a letter to Prime Minister Narendra Modi informing him of the change at the top. Though it wasn't required, the size of the company -of $100 billion turnover - might have prompted Ratan to keep the PM in the loop with the development. “A new management structure is being put in place and a Selection Committee has been constituted to identify the next Chairman of Tata Sons,” Tata said in the letter to the Prime Minister.

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.

While the company did not disclose the reasons for the sudden move, those in the know of the development said that a combination of factors, including poor performance, lack of vision to take tough decisions and the mishandling of dispute with NTT DoCoMo may have prompted the board to look for a new leader.

Of the eight members on the board, six are understood to have voted in favor of the move, while two abstained.

The change of guard has taken place at a difficult time for the Tata Group as it is struggling to regain the lost ground in various businesses, including telecom, steel, and auto. When Mistry took over as Chairman in 2012, there were many headwinds facing the group.

Four years later, the group companies that were struggling then, continue to be in a poor situation. Other than JLR and TCS, there are not many performers in the Tata portfolio. Mistry was increasingly being seen as a pale shadow of his predecessor, Ratan Tata, under whom the group’s revenues increased from $6 billion to $100 billion.

According to sources, there could be a major rejig at the group level including reconstitution of the Group Executive Council.

Procter & Gamble India’s former CEO Gurcharan Das told Hindu BusinessLine, “To find a successor to Ratan Tata, a global search was made by the Tata Group. He was replaced by Cyrus Mistry, by the largest shareholders in the Tata Group. But he is not a professional manager. The next person who is appointed as the head of Tata Group should be a genuine professional, who is ready to take some hard decisions.”

Within the group, there are a number of loss-making companies that need to be shut down, and businesses that need to be rationalized. However, in a recent interview with an internal publication, Mistry said he would not take decisions based on “external influencers and so-called experts, who may be motivated by immediate transactional gains, goading us on to churn our portfolio.”

Harsh Mariwala, Former CMD , Marico Ltd, told BusinessLine, “My sense is that Mistry was asked to go and the reasons were either he was too aggressive or not too aggressive. It is shocking news. As for the Tata Group, it faces an uncertain future about its next leader.”

Cyrus Mistry’s forced exit could snowball into a major corporate battle over the next few months. According to sources close to the development, the move to ease out Mistry was not approved by the Shapoorji Pallonji Group, which owns 18.5 per cent stake in Tata Sons.

Shapoorji Pallonji could contest the decision by the Tata Sons’ board in a court. Mistry is the younger son of Pallonji Mistry and had been nominated by the largest shareholder in Tata Sons as its Chairman in 2012.

However, sources close to the Tata Trust said the decision to oust Mistry was taken after taking legal opinion from top experts.

“All the stakeholders were informed in advance. This has been on the agenda for a few months, so it is not as if it is a sudden move,” said the source. A spokesperson for Shapoorji Pallonji did not clarify the company’s stand.