Understanding the Tata Sons boardroom coup3 min read . Updated: 28 Oct 2016, 05:29 AM IST
There is no doubt that the ouster of Cyrus Mistry will go down as a landmark event in Indian business history
The relevant details of the sensational boardroom coup at Tata Sons are still not clear. The directors of the holding company of the sprawling Tata conglomerate announced on Monday that they were replacing Cyrus Mistry at the helm of affairs. The group executive council he set up has been disbanded. Ratan Tata will return as interim chairman till a new leader is found.
It is no secret that the Tata group has been struggling with several problems over the past few years. Tata Steel is burdened by the failure of its European bet. Tata Teleservices is in the midst of a messy separation with NTT DoCoMo. Tata Global Beverages is tackling stressed assets in Eastern Europe. Tata Consultancy Services continues to spew out free cash for the rest of the group but it too cannot escape the growing problems with the software services model. The Jaguar Land Rover unit of Tata Motors has been a rare success.
Mistry inherited these legacies, as he himself made clear in an interview to his internal communications department a few weeks ago. The market capitalization of the overall Tata group too grew faster than the benchmark indices during the nearly four years he was in charge, as an analysis in the Mark to Market column of this newspaper showed. This should not be seen as a blame game—the ambitious global expansion launched by Ratan Tata during the second half of his tenure was against the backdrop of a booming global economy. Much has changed since then.
The latest on the Tata-Mistry tussle: Tata replies to Cyrus Mistry, revealing reasons for rift
Curiously, the challenges that Mistry faced when he took charge of the Tata group nearly four years ago has striking parallels with the battles that Ratan Tata had to fight when J.R.D. Tata stepped down in his favour. Ratan Tata had to streamline a sprawling industrial empire that had little strategic synergy. His battle to streamline the group led to a clash with powerful corporate satraps who had tremendous influence in the loose federation that J.R.D. oversaw.
Mistry had similar challenges—to take a hard look at the relevance of the business portfolio in the new circumstances, build a team that was close to him rather than the previous chairman and chart out a new strategic road map for the group (one of the finest achievements of Ratan Tata before he became group head was to commission two strategy reports in the 1980s in order to push the Tata group into emerging areas such as telecom).
Ratan Tata had two decades to make his mark. There is no doubt that he left behind a much larger, better managed and more competitive conglomerate. But Mistry got less than four years to set his house in order. Was that enough? A question worth asking in this context is whether his removal was less to do with the ability to deal with legacy issues and more to do with a lack of clarity about the future. Or was it just a clash of personalities?
Either way, there can be no doubt that the entire imbroglio reflects poorly on the Tata group, which is admired as much for its commitment to business ethics as it is criticized for its secretive governance that sometimes borders on arrogance. One immediate analogy that comes to mind is the decision of the Infosys board to bring back N.R. Narayana Murthy for some time before Vishal Sikka was brought in to lead the technology firm into a new era. The other is the 1985 boardroom coup at Apple that led to the ouster of Steve Jobs, though he returned to take charge of the company in 1997.
There is one positive in the ongoing Tata imbroglio. Indian boards are usually very timid when it comes to taking on powerful chairmen. Tata Sons is a private company with a very complex holding structure, and with likely undercurrents of family tension, but the readiness of a powerful board to replace its chairman should not be ignored. We wish there are more such instances of tough board action in listed companies.
The Tata saga may stretch on for some time. Some more credible information could also gradually drip into the public arena. There is no doubt that the ouster of Mistry will go down as a landmark event in Indian business history.
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