Bombay House blues

Context, facts, surmises, and questions, not rationale—those are the only things available on the sudden and shocking sacking of Tata Sons Ltd chairman Cyrus Mistry by the board on 24 October.

Let’s look at each in turn.

The context.

Cyrus Mistry, 48, was the sixth chairman in the 148-year history of Tata Sons, which has interests in businesses ranging from automobiles to aviation, salt to software, and had the shortest stint of them all at just under four years.

He was also only the second chairman of Tata Sons, after Ratan Tata, to not be chairman of Tata Trusts, as Sir Ratan Tata Trust, Sir Dorabji Tata Trust and a clutch of other Tata family member-endowed trusts together are called and which together own 66% of Tata Sons.

When Ratan Tata, now 78, first became chairman of Tata Sons in 1991, J.R.D. Tata was chairman of Tata Trusts. It was only after the latter’s death in 1993 that Ratan Tata became chairman of the trusts.

Mistry took over a conglomerate that comprises over 100 operating companies that in the fiscal year ended 31 March earned $103 billion in revenue. The operating companies had challenges of their own, and also a significant amount of debt on their books. For instance, Tata Motors Ltd had a debt of Rs47,148.96 crore on its books at the end of March 2012; Tata Steel had Rs59,896.77 crore of debt. In both cases, the debt had been taken on to fund global acquisitions—Jaguar Land Rover in the former’s case and Corus Group Plc. in the latter’s—spearheaded by Ratan Tata.

At the time he took over, the expectation was that Mistry would take the tough decisions required to consolidate the conglomerate’s businesses. And since he was the then chairman Ratan Tata’s choice (and also, by virtue of lineage, a large shareholder in Tata Sons with an over 18% stake), it was assumed that he would do so with the former’s blessings.

That’s all we have in terms of context. Everything else is speculation.

Now for the facts.

The Tata Trusts are engaged in a large number of meaningful philanthropic activities and their main objective, in terms of their association with and shareholding in Tata Sons, is to maximize their income, which comes from dividend paid by Tata Sons. The holding company’s revenue comes, in turn, from dividend paid by the operating companies. Tata Sons, according to the filings made to the Registrar of Companies, paid Rs283 crore every year between 2007-08 and 2009-10. Between 2010-11 and 2013-14, it paid Rs323 crore every year. In 2014-15, it paid Rs647 crore on account of a special dividend it received from software services company Tata Consultancy Services Ltd. And in 2015-16, it paid Rs323 crore again.

Between 1 January 2013 and 24 October 2016, Tata group’s market capitalization rose 41.57%, outperforming the benchmark indices, to Rs6 trillion.

Prior to Mistry’s appointment, Tata Sons amended its articles of association, effectively giving Tata Trusts the right to appoint and remove the chairman of the holding company. These articles of association also require the chairman of Tata Sons to present a five-year plan on the group’s strategy to the trusts. Both are aimed at protecting the interests of Tata Trusts, especially in a situation where the entity’s chairman is not the chairman of Tata Sons.

Even though he was chairman of India’s largest conglomerate, Mistry remained low-profile, largely working through a Group Executive Council, or GEC, that he set up. This had five people, three of whom were his hires, and outsiders to the group. It did not have a chief financial officer.

Early in his stint as chairman, in 2013, Mistry wrote to the chief executive officers (CEOs) of all Tata companies asking them not to do any business with his family’s Shapoorji Pallonji group, to ensure there was no conflict of interest. In his interactions with the group’s employees, and in an interview published (and since removed) from the conglomerate’s website, he also spoke about the need to break from the past and prepare the group for the future. He also spoke, in that interview, about the need for tough decisions.

So, what went wrong?

Here, we have only surmises and questions.

Since performance and conflict of interest can be ruled out, it comes down to individual styles of management.

Did Mistry’s low profile hurt him? Even some insiders in the group say he was aloof, even from operating CEOs, and preferred to work through the GEC.

As for the GEC itself, the insiders add, not everyone in the operating companies, including some long-time employees, accepted it. Many, they add, saw it as a parallel power centre. Some even questioned the choice of individuals on it. Did some of these employees reach out to Ratan Tata?

But there are questions about the role played by Ratan Tata and the Tata Trusts as well.

Was Ratan Tata really willing to let go? Did he, and the other directors of Tata Sons, question even the operational decisions made by Mistry?

And were the trusts as patient with Mistry in his initial years as they had been with Ratan Tata in his? After all, Ratan Tata spent his first few years in the group battling several of the Tata company satraps who had been J.R.D. Tata’s contemporaries.

There are no answers (at least, not right now) to these.

What we do have is a decision that has made the headlines, increased uncertainty in the operating companies, and which, at the end of it all, lends itself to two very diverse narratives.

In one, a former chairman who refuses to let go, engineers a boardroom coup to get rid of his successor with whom he doesn’t see eye-to-eye on several strategic and operational issues.

In another, a responsible shareholder (in this case, Tata Trusts) gets rid of a chairman who is taking the company in the wrong direction.

The problem for the Tata group right now is that no one knows which narrative is true.