Cyrus Mistry has been unceremoniously forced out of the job by the board of Tata Sons four years after he took charge as the Chairman of one of India’s oldest and biggest corporate houses. “Tata Sons today announced that its Board has replaced Cyrus P Mistry as Chairman of Tata Sons. The decision was taken at a Board meeting held here today,” said a short statement from the company.
The board has named Ratan N Tata as Interim Chairman of Tata Sons. The board has constituted a Selection Committee to choose a new Chairman. The Committee comprises Ratan Tata, Venu Srinivasan, Amit Chandra, Ronen Sen and Lord Kumar Bhattacharyya. The committee has been mandated to complete the selection process in four months.
Further, Rata Tata wrote 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 Commitee has been constituted to identify the next Chairman of Tata Sons,” Tata said in the letter to the Prime Minister. Noel Tata and Indra Nooyi are some of the names that industry insiders are betting on as Mistry’s replacement.
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 favour 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 rationalised. However, in a recent interview to 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.