Cyrus Mistry appeared not to understand the “culture” of the Tatas
NEW DELHI : In a week that saw Cyrus Mistry’s exit as Chairman of Tata Sons, what has stunned many is not just the 48-year-old’s abrupt removal, but the sustained leak of dirt from both sides of material that many say has no place outside the boardroom.
Corporate analysts have spoken of how the relentless live-streaming of accusations (that include financial and ethical irregularities) are unprecedented for India Inc.
Mr Mistry, whose family is among the largest stakeholders of the $103 billion conglomerate, has been replaced as top boss by his predecessor, Ratan Tata. After a week of the controversy that has been analyzed and reported in detail, here’s a snapshot of the arguments from both sides:
Mistry was useless as a CEO. Simply had to go or the future of Tatas was at stake.Tata Sons decided not to do what they normally do – just let things ride for another 10-15 years (Tatas have often been criticised for inaction and inertia).
Despite being on the Board of Tata Sons for nearly a decade, Mistry appeared not to understand the “culture” of the Tatas and replaced many of the old Tata hands with recruits from the outside, who also did not get the group’s values.
He could have chosen people who were familiar with the Tata ethos – but he went with outsiders.Many options were considered. This sudden surprise was the only way to ensure the sacking would be effective and fortified against challenge.
If Mistry had been given notice by a resolution for the Board meeting, Mistry and his team would have stopped the sacking by going to court, involving the media etc (the agenda for the Board meeting that Mistry received did not mention his removal which was listed, though virtually as a footnote, in a document circulated to other board members)
The main aim was for it to be effective and immediate or else this would have dragged on for ages.Tata Sons realised that there would be negative fallout over the “manner” of the sacking. There was absolutely no alternative -and the fallout was worth the certainty of getting Mistry out.
This was the most unethical strategy: scheming, Machiavellian and very poor corporate governance.Ratan Tata was not a great CEO. He handed over the company in very bad shape with huge debts (and very poor international acquisitions, except two – Tetley Tea and Jaguar Land Rover).
Ratan Tata never really accepted relinquishing power at Tatas. He didn’t allow Mistry to function. Mistry’s five-page email to the board after he was sacked refers in different places to Ratan Tata’s constant interference.
Mistry was working on a strategy that would save Tatas from disaster. Yes, some hard decisions had to be taken and the “soft, ineffective, bureaucratic Tata system couldn’t stomach these tough calls”.
After Mistry took over, the rules were changed to impede his autonomy and to clear some decisions, huge weightage was given to the powerful nominees of the Tata Trusts who are on the board.
The powerful Tata Trusts were upset that some Tata companies had stopped paying dividends and this affected their charitable work.
Mistry’s view was that from the point of the operating companies, they had large debts and it was better to reduce the debt burden than to pay dividends.The unethical tactic employed to dismiss Mistry will damage Tatas permanently.
Mistry, by announcing a possible $18bn write down in value, could face a multi-billion dollar class-action suit from shareholders. They will question why Mistry didn’t make this highly price-sensitive information public while he was CEO. In his email to the board, he talks of five “legacy hotspots” or problematic sectors which, according to him, could erode $18 billion if reassessed.
