Tata's Palace Coup

The Tata Board rewrites corporate history as it ousts its chairman Cyrus Mistry without explanation

In the midst of the din at Mumbai airport, Firoz Mistry took a while to realise his cellphone was ringing. The 20-year-old was minutes away from boarding an afternoon flight to Bhuj. When he was done answering the cellphone, his calm face had drained. It was news that altered not just his travel plans. In fact, it would have an impact on his family in a way that no one could have quite imagined.

The ouster of his father Cyrus Mistry has thrown the family into the unfamiliar glare of public view, something that they would have happily traded for a less attractive proposition. For several decades, despite being among the wealthiest families in the country, Shapoorji Pallonji Mistry has maintained an extra-ordinarily low profile. The family has determinedly kept away from the workings of the Tata Group despite being the largest shareholder in Tata Sons, the group holding company, with its 18.7% stake.

What was meant to be a normal Monday brought late afternoon blues for the 48-year-old Cyrus Mistry, who had taken over as the group’s Chairman in late 2012 after being chosen for the job a year before.

Even by Tata Group standards, the meeting at Bombay House, the group’s easily recognisable headquarters in south Mumbai, was shrouded in remarkably high level of secrecy. Neither the world at large, including the curious media, nor even most of the top brass spread across continents, had a whiff of this board meeting of Tata Sons, the group’s holding company. In the past, both controversy and tumult have made their presence felt only to soon make way for business as usual. This meeting too was to follow the same pattern with the news about Mistry being temporarily replaced by Ratan Tata, his predecessor, given out as a matter of fact, no different from a warning of a downpour in Mumbai in August.

The appointment of Mistry, a reclusive master of detail, to the position of Chairman, was the culmination of a protracted exercise that started as far back as 2010. Ironically, the man himself was, initially, a part of the search committee, which is said to have considered names like Indra Nooyi, PepsiCo’s CEO and Noel Tata, Trent’s chairman and married to Mistry’s sister, Aloo. It was the most high-profile search in its almost 150 year history having had just five Chairmen. With Mistry, it was only second instance of a person without the Tata surname taking charge of the group. In the absence of a heir (barring half-brother Noel), the discourse on the Tata group succession centered on getting a competent professional; considering its mammoth size and stature.

After several global names were thrown around, when Mistry was chosen as the final choice, the appointment was received with surprise and relief. There was no inkling that he would get the top job with Krishna Kumar, a Tata Sons director and a part of the search committee saying in an interview that, “Our panel has concluded that it cannot find a replacement for the group chief.”

Yet, once Mistry, who had joined the Tata Sons board in 2006, was announced as the choice, encomiums poured in. Lord Kumar Bhattacharya, then a member of the selection committee (who is now part of a new committee to find a successor to Mistry) was effusive in an interview to the media saying “he has passion, he’s intellectually very bright and he doesn’t need the money.” Ratan Tata himself said that Mistry was a good and far-sighted choice. In a statement at the time, he maintained he was impressed with the quality and calibre of Mistry’s participation on Tata Sons board apart from his astute observations and humility. “He is intelligent and qualified to take on the responsibility being offered,” the statement added.

The crown seemed to sit comfortably on the young man’s head or at least thought the world. But for those tracking the group closely, it was only too evident that times had never been so challenging.

Amid the exuberance in the world economy, the Tata group, too, had pursued overseas acquisitions with serious aggression. Ratan Tata had taken a giant stride through the buyout of UK’s Tetley brand by Tata Tea in 2000 for a tidy $450 million. That seemed like loose change when Tata Steel gobbled up Corus, an Anglo-Dutch company in mid-2007, and a year before the global financial crisis, for a jaw-dropping $13 billion. In early 2008, Tata Motors bought Jaguar-Land Rover (JLR), a luxury car brand then owned by Ford, for $2.3 billion.

The global buoyancy magnificently masked what was to follow. By 2010 and for many years after, all this has come to naught. While the global recession and excess capacity played havoc with the steel industry, Corus also had its own structural problems. Other group companies had their own issues — hotels fell prey to a cyclical slowdown, Tata Power suffered because of coal shortage and policy issues, telecom had its own share of woes apart from spectrum problem. Luckily, the JLR deal acted as a saviour, even as the local business continues to struggle. A big failure here was the Nano, Ratan Tata’s Rs. 1 lakh dream project which flopped because it got perceived as a cheap car.

The question then was how long would Mistry take to get each of these businesses back on track? But the body blows continued unabated. Even as there were no signs of recovery and several cyclical businesses suffered, Tata Teleservices, the group’s foray in an intensively competitive telecom market, faced the biggest challenge of its already troubled existence. Japan’s NTT DoCoMo, its partner in the venture, won an arbitration ruling ordering Tata Sons to pay $1.3 billion. This was to acquire the Japanese company’s 26.5% holding in Tata Teleservices. This nasty battle still lies unresolved.

Apart from steering the group, Mistry also had to ensure his relationship with Ratan Tata was amicable. Having been the Chairman since 1992 after the charismatic JRD Tata, he had called it a day in end-2012 after turning 75. His continued influence and control over the group was a reality that had to be accepted. In late August this year, the appointment of Ajay Piramal, Venu Srinivasan and Amit Chandra as non-executive directors on the board of Tata Sons raised many an eyebrow. The whisper that these were Tata’s choices was getting audible. The possibility of a cordial relationship between Mistry and Tata was clearly confined to the realm of imagination.

Mistry was busy getting troubled businesses back on track and simultaneously planning to sell assets that, to his mind, were non-core to the group. This included Tata Chemicals’ fertilizer business, Indian Hotel’s Taj Boston property, Tata Communications exiting its internet service in South Africa and data centre businesses in quick succession. This exercise of restructuring was eerily similar to what Ratan Tata had done for the first few years after taking over. He exited TOMCO apart from Lakme, Merind and later cement among others. If the approach of the two men brought back a sense of déjà vu, it did not help in smoothening out the alleged differences. During Mistry’s four year tenure, JLR has grown impressively and less surprisingly, Tata Consultancy Services (TCS) as well. The performance of the group’s stocks, since he assumed charge, like Tata Elxsi is up 515%, while Tata Chemicals has gained 84% and Tata Communications surged almost 200%.   

Mistry’s five page letter to the Board after he was ousted gives a fairly detailed account of the affairs at Bombay House. Having agreed to take up the role after declining it the first time, Mistry has brought out not just the extent of financial woes the group faces because of decisions taken by his predecessor, but also the control and influence Ratan Tata wielded even after his so-called exit that resulted in puppet-like behaviour of some of its board members. Added to this, the guarded references to ethical and moral issues only put a question mark on the credibility of the Tata Group.  

If it took two exhausting years to draw up the succession plan that elevated Mistry to the top job, the overnight decision to replace him looks rather hasty. Even though the palace coup was shrouded in secrecy, it’s unfortunate that the venerated Tata group is now in public glare for all the wrong reasons.