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Big Shakeup! Cyrus Mistry Removed As Tata Sons Chairman, Ratan Tata Steps In

Discussion in 'World Economy' started by Manmohan Yadav, Oct 25, 2016.

  1. Manmohan Yadav

    Manmohan Yadav Brigadier STAR MEMBER

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    MUMBAI: The board of Tata Sons shocked corporate India by sacking Cyrus Mistry as chairman four years into the job as Ratan Tata emerged from retirement to wrest back control of the group that bears his family name. The unprecedented move could spark a battle between two of Mumbai’s oldest business families, which share close ties — the Mistrys own about a fifth of Tata Sons, the group holding company.

    Tata Sons said a selection committee will choose a permanent replacement for Cyrus Mistry in the next four months. Tata, 78, who quit in 2012 after more than 20 years in charge, will serve as interim chairman of India’s biggest conglomerate during that period. Mistry, 48, remains a Tata Sons director. Tata, who has written to Prime Minister Narendra Modi informing him of the move, is likely to meet group CEOs on Tuesday.

    Neither Tata nor Mistry could be reached for comment amid speculation about non-performance and undermining of the group's value system. Tata said in a note to employees that he'd agreed to serve as interim chairman "in the interest of stability of and reassurance to the Tata Group."

    The selection committee comprises Ratan Tata and Tata Sons board members Venu Srinivasan, Amit Chandra, Ronen Sen and Kumar Bhattacharyya. Lord Bhattacharyya was also part of the search committee that picked Mistry in 2012 and had described him at the time as "bright and selfless".

    Given Mistry’s age, it had been expected that he would have a long innings at the helm.The committee to find a new chairman doesn't include six of the nine Tata Sons directors, including Ajay Piramal, Nitin Nohria and Farida Khambata.

    Six board members voted in favour of the resolution to remove Mistry, with Ishaat Hussain and Khambata abstaining. The Mistry family's Shapoorji Pallonji group is believed to have taken strong exception to the way in which the chairman was removed.

    A senior group executive told ET that the decision had been unexpected. A person familiar with the matter at the Tata Group refuted this, saying that there had been discussions about the issue and that it had been Mistry who insisted on a board vote.

    A top Shapoorji Pallonji executive said Mistry would issue a "statement soon", adding, "it could be later tonight or early tomorrow".

    He rejected speculation that the group would consider a legal challenge, saying that nobody from Shapoorji Pallonji has spoken about this.

    The Tata camp had consulted legal luminaries like
    Mohan Parasaran and former finance minister P Chidambaram before arriving at its decision.

    Noted lawyer Harish Salve and Abhishek Singhvi have also been roped in for any courtroom battles, people aware of the matter said.

    Shares of Tata Group companies could face rough weather at least for a time as investors digest the meaning behind Monday’s development.

    Mistry was selected to succeed Tata in November 2011 after a global search of over a year, becoming only the second non-family member chosen for the top job in its then 143-year history. The handover took place in December 2012 with Tata taking an emeritus role.

    Discontent over Mistry's style of functioning has been brewing for the last 12-18 months, particularly with regard to his vision and the direction of the group, said people aware of the matter.

    COS TACKLING CHALLENGES
    Several group companies, especially Tata Steel and Tata Tele, have been confronting challenges. Steel and telecom notched up years of losses and the former was forced to offload assets in UK, following weak metal prices across Europe. Tata Motors, which owns Jaguar Land Rover, was hit by slowing demand in China, once its fastest-growing market.

    A power-generation unit guzzles capital but produces little profit. The sub-scale mobile-telecoms operator is in a costly arbitration row with NTT DoCoMo, its joint-venture partner. Its hotels unit, which operates the Taj brand at home and abroad, is a perennial loss-maker.

    Mistry has been accused by critics of dodging difficult decisions and not doing enough to restructure sprawling operations. The conglomerate's total revenue fell 5% last year to $103.5 billion.

    On the other hand, Mistry has only had four years to try and turn around complex and heavily debt-laden businesses while being buffeted by anaemic global growth, financial market instability and acommodity price collapse.

    While Tata Group company shares have soared in the four years, sales have fallen, debt has risen and return on equity has shrunk. He has acted tough in certain cases such as the sale of Tata Chemicals’ fertiliser business, the offloading of Indian Hotel Co's shares in Orient Express, the decision to sell the Corus plant in the UK and to merge the European steel business with German giant ThyssenKrupp. His decision to replace Raymond Bickson at IHC with Rakesh Sarna and his reluctance to pump more money into the aviation business may not have gone down too well with Ratan Tata, known to be passionate about hospitality and flying.

    IRISH CITIZENSHIP
    Another point of friction is said to have been Mistry's reluctance to give up his Irish citizenship and take on Indian citizenship after becoming chairman in 2012. The fact that he has not done so and the belief that he has not kept the Tata Sons board fully informed of all decisions is being cited by some Tata Group insiders as the reason behind the disenchantment.

    Tata insiders said Mistry had been informed about the concerns of the shareholders and was asked to go when there was no improvement.

    A person familiar with the matter said Mistry had not been sufficiently sensitive to larger stakeholder concerns about key decisions, a case in point being the decision to sell Corus.

    The move had damaged the Tata image in the UK, the person said. Tata was also unhappy about the handling of the dispute with DoCoMo, though what Mistry could have done differently given Indian law is not clear.

    Mistry is also said to have centralised power. "There is a possibility of decentralising power and the corporate centre will just play an overarching role going forward and individual businesses will be handled by company management," said a former senior Tata Sons executive on condition of anonymity.

    Tata's expansionist strategy increased the group's revenues from around $6 billion to $100 billion over two decades but saw group debt ballooning.

    Analysts pegged the Tata Group's gross debt in March at over Rs 3 lakh crore and a net debt of over Rs 2 lakh crore.

    "Ratan Tata's return to the helm is perhaps the most fitting move to protect and embellish the value architecture of the House of Tata," said Suhel Seth, managing partner of consultancy firm Counselage India and an old Tata Group associate.

    With Monday's decision, Ratan Tata may get another chance at reshaping the group.
     
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  2. Manmohan Yadav

    Manmohan Yadav Brigadier STAR MEMBER

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    Was Tata Sons unhappy with Cyrus Mistry's approach of concentrating only on cash cows?

    There were no reasons given for the change of leadership of Cyrus Mistry who had been brought in with much fanfare. But it is believed that Tata Sons was unhappy with Mistry's approach of shedding non-profit businesses, including the conglomerate's steel business in Europe, and concentrating only on cash cows.

    Mistry, no doubt, had his task cut out. The Tatas are present in about 100 businesses ranging from automobiles to retail to power plants to software. But just two of them have been consistent performers — IT services exporter Tata Consultancy Services (TCS) and Jaguar Land Rover, the marque car company it bought from Ford Motor in 2008.

    Several other of its companies are struggling. The domestic automobile business, despite accounting for roughly half of India’s trucks business, has long been under strain. Tata Steel, once the brightest star in the Tata constellation thanks to the $12.5 billion acquisition of Anglo-Dutch competitor Corus in 2007, bore the brunt of a sharp plunge in prices since 2012 abetted by Chinese glut.

    The loss-making telecom business has been locked in a bitter and potentially costly battle with erstwhile partner NTT DoCoMo of Japan, which secured a $1.2 billion arbitration award in June 2016. Dozens of consumption-linked businesses such as Titan, Tata Global Beverages, Indian Hotels, Trent, and Rallis India are slightly better off, but their collective operating profit has grown only 4% CAGR in the past five years.

    In FY16, nine of the 27 listed companies in the group reported losses and the earnings of seven others dropped. The only bright spot was that Tata Power and Tata Chemicals reported strong earnings growth in FY16 after turning profitable the previous year.

    The turnover of India’s largest conglomerate dropped to $103 billion in 2015-2016 from $108 billion the previous year. Net debt rose to $24.5 billion in March 2016 from $23.4 billion a year ago.

    Much of Tata’s problems is owing to its elephantine structure. Cross-ownership of companies — Tata Sons owns stakes in businesses like Tata Motors or Tata Steel and these businesses own stakes in each other — has made it difficult for the group to make the most of its potential as a diversified conglomerate.

    The operational ethos of the behemoth is actually engrained in silos. "There is an inherent bureaucracy in the system that has gone unchallenged for years," says an insider.

    [​IMG]
     
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  3. Manmohan Yadav

    Manmohan Yadav Brigadier STAR MEMBER

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    Behind the scenes: What led to Cyrus Mistry ouster

    MUMBAI: It was a sombre Sunday.

    A day before the Tata Sons board met on Monday, Harvard Business School dean Nitin Nohria met Cyrus Mistry for more than two hours where he conveyed a message from Tata Trusts Chairman Ratan Tata about what might come up for discussion at the meeting.

    On Monday evening, the Tata Sons board’s announcement took everyone by surprise, but the die had been cast some months ago. On August 26, the board was expanded by inducting Piramal Enterprises Chairman Ajay Piramal and TVS Motor Chairman Venu Srinivasan. The appointments were seen as a move to tighten the grip of Tata Trusts over the Tata Sons board chaired by Mistry.

    Sources said Mistry was not even consulted on these appointments, reflecting the simmering discontent between Tata Trusts and the chairman.

    The philanthropic trusts — including the larger ones like Sir Dorabji Tata Trust and Sir Ratan Tata Trust — together control about 66% of Tata Sons, the group holding company that was created by the families of the sons of founder Jamsetji Tata, and are still largely under the family’s grip.

    This in many ways was payback time, felt Tata Group watchers. Just two months ago, in June, Mistry had cleared Tata Power’s $1.4-billion acquisition of Welspun’s solar farms without seeking approval from either Tata or other key shareholders.

    “Tata Power is a cash guzzler but generates very little profit. Yet, when it’s embarking on its biggest buyout, a principal shareholder is kept in the dark. That’s unprecedented in Bombay House (Tata Group headquarters),” said an old-time group insider.

    In 2011, when Ratan Tata cherry-picked Mistry, it was seen as the victory of youth. “Be your own man”, was Tata’s advice to his then 43-year-old successor.

    But soon, youth was perceived as insolent, precocious and out to destroy “the core values that the group stood for, for close to 148 years.”

    Take, for example, the centenary celebrations of Shapoorji Pallonji two years ago. According to a leading industrialist, while everyone from India Inc was invited to the event at the National Centre for the Performing Arts, Ratan Tata was not to be seen. He was, in fact, dining at Thai Pavilion with Cyrus’ first cousin. To many, it looked odd, since Tata should have been a part of the celebrations.

    There was a fundamental disconnect between Mistry and Tata, particularly with regard to ethos, values, vision and the direction that the group was headed in. Detailed letters were sent to Mistry asking him to spell out his vision, five-year plan, etc, but the responses were vague and non-specific. Things got aggravated as the chairman of Tata Sons and Tata Trusts were not the same individual. The former was not a Tata family member but represented the single largest shareholder while the latter was custodian of a century old legacy. "Confrontation was inevitable," felt a Mumbai based CEO of a global investment bank who has been working closely with the Tata Group for over two decades.

    Several of Mistry’s decisions, including the disposal of some of Indian Hotels Co’s overseas properties and especially the move to shut the UK steel operations, did not go down well with Tata Trusts. Many were considered Ratan Tata’s legacy that helped the group revenues top $100 billion even if it left the group hamstrung with ballooning debt burden. Mistry’s war on the legacy of the old guard, and the comment about the necessity of ‘tough love’ within the organisation was considered overtly aggressive and unnecessary.

    Tata Trusts were of the view that the group under Mistry had not been able to take into account the sensitivity of shareholders as well as the global ecosystem in which the group companies operate. “Tata Steel could have been handled better and blunt decisions could have been avoided,” a person close to the development said. The move to shut the UK steel business had come in for heavy criticism in Britain.

    “Tata was unhappy with the decision to shut down or sell the group’s steel business in Europe,” said a person close to Tata. “He wanted the group to turn around the loss-making business rather than sell it.”

    Similarly, the decision to get embroiled in a high-decibel, full-blown legal battle with NTT Docomo and challenge the $1.2-billion international arbitration court’s order that went against it was seen as breach of faith by many Tata old-timers. “Tata had made a promise to Docomo that he’ll protect their investment in India. Come hell or high water, it would have been fulfilled. It’s about the spirit over subject here,” added another old Tata executive on condition of anonymity. Matters had come to such a pass that Tata himself met the Japanese ambassador to India in Mumbai in August, requesting a diplomatic intervention. But his efforts were scuppered by Mistry’s continued belligerent stance.

    Tata’s sub-scale telecom operations are a classic case of Mistry’s centralised micro-management, a direct fallout of which was the collapse of negotiations with Vodafone, even after the senior leadership from both sides got personally involved.

    Mails to Tata Sons, Nitin Nohria and Lord Kumar Bhattacharyya did not generate a response.

    The earliest signs of strain between Tata and Mistry were evident when he sacked Indian Hotels managing director Raymond Bickson in 2014. Bickson, perceived to be close to Tata , was replaced with Hyatt veteran Rakesh Sarna. Matters worsened when Mistry continued with Sarna despite alleged complaints against him.

    “Mistry’s eye for talent is also being questioned. The people he has hired are not inspirational leaders, just individuals,” said a former Tata Motors executive. But the crucial post of the Group CFO remained vacant for almost 3 years after the retirement of Ishaat Hussain.

    The creation of the Group Executive Council (GEC) as Mistry's main brain trust had upset many in Tata Sons who perceived it as a parallel power centre. Only a handful of its members had actual operational experience of running a business. Most of Mistry’s key advisers, including Madhu Kannan, NS Rajan, Nirmalya Kumar, were also shown the door along with him.

    Mistry’s critics point out that he did not relinquish his Irish citizenship though as Tata Sons chairman he should have. Concerns were also voiced about conflict of interest regarding award of contracts to construction companies of the Shapoorji Pallonji Group even after Mistry took over. This, many feel, gave more ammunition to Tata Trusts to strike back.

    At a stormy Tata Sons board meeting on Monday, other than Ishaat Hussain and Farida Khambata who abstained, the rest voted for the chairman’s ouster. Mistry himself voted to stay. But since early afternoon, WhatsApp messages to senior Tata employees talked of a big-bang announcement. Meanwhile, most of the Group Executive Council members abruptly left an in-house event, adding to speculation, said company officials.

    "But in the end it was a coup that was planned to perfection and executed to the tee," quipped an old Tata hand.
     
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  4. Manmohan Yadav

    Manmohan Yadav Brigadier STAR MEMBER

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    Indra Nooyi, N Chandrasekaran among top contenders for Tata Sons Chairmanship

    MUMBAI: Industry insiders are betting on half a dozen senior personalities to fill in for Cyrus Mistry, the outgoing chairman of the Tata Group.

    Indra Nooyi of Pepsi, Arun Sarin, former Vodafone CEO, Noel Tata of Tata International, N Chandrasekaran, TCS CEO, Ishaat Hussain and B. Muthuraman both from Tata Group could be the contenders to replace Cyrus Mistry as the group’s new chairman, say experts.

    Ratan Tata is the interim chairman for the group who would step aside once the new chairman is selected.

    Amit Chandra, who heads Bain Capital in India, and also a member of the search committee formed by Tata Sons to select the next chairman, could also be a long shot candidate for the post.

    "You need someone with integrity to head Tata Group, while it is still too early, to speculate, I think the process would begin within next two weeks,” a consultant working with the group said. According to the people ET spoke to, including executives in the group, head hunters, consultants, and people close to Tata Group, there are already some names floating to replace Mistry.

    "I think the group will first form a committee and it could take anywhere around three to four months to come up with a name. While some names are already floating, I don’t think Noel Tata and Arun Sarin could become chairman even this time around,” a person who was close to the selection committee that selected Mistry four years ago said.

    However, a senior executive believed to be close to Tata Group and specifically Ratan Tata told ET that there are two people who could potentially be considered to head the group. "I think Noel Tata and Indra Nooyi are two people I would put my money on. Noel because he is part of the family, and Nooyi because Mr Tata himself is very impressed by her,” he said. The executive hinted that this time around Tata Group may try and put someone from the Tata family at the helm of the matters.

    "Noel is considered too soft and that’s the problem some senior executives in Tata Group have with him. As for Sarin, I think Tata Group has lost the plot for telecom, I don’t see a person with that (telecom) expertise heading the group,” added the person close to the selection committee.

    Another person, a well-known head hunter, said the group could be looking at international faces, but not for at least a year or two. "As I see it, Ratan Tata will take matters in his hands for at least one year. Also, I personally think the group could be looking at leaders who have Indian roots but are working at global companies currently,” he said.

    There are some sceptics to the nomination process as well. "Last time, despite the exhaustive exercise, the largest shareholder just nominated the chairman. This time around, the committee is likely to dip into the same pool of people it had considered last time with a couple of new names such as Amit Chandra who was brought on board as a non-executive director in August this year,” said another head hunter.

    Industry experts say that the group will now be looking at is someone who understands the old economy sectors well and will add value to the group’s existing businesses that are suffering. "A banker is unlikely to be appointed as the focus is now on expanding the Tata brand and business and not consolidation as under Cyrus Mistry,” the head hunter said.

    Meanwhile there are also speculations in the industry circles as to why Mistry was replaced as Tata Group Chairman.

    "Cyrus has not done much in three years and he has no eye for talent. The people he has hired are not inspirational leaders but just individuals,” said a senior official in one of the Tata Group companies.

    However, he said that the way the drama has panned out may just create some ripples in the company. "Buying four months’ time and getting Ratan Tata from hibernation is a counter-intuitive game,” he added.
     
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  5. Kalmuahlaunda

    Kalmuahlaunda Lieutenant FULL MEMBER

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    TATA Sons is the new Samajwadi Party
     
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  6. vstol jockey

    vstol jockey Colonel MILITARY STRATEGIST

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    This shud tell all members that there is no job which offers stability except for government job. If Cyrus Mistry is unsafe and can be removed like this, what job security is there in private sector? LOL
     
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  7. Kalmuahlaunda

    Kalmuahlaunda Lieutenant FULL MEMBER

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    Shit.. i never gave a thought on this..
     
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  8. Levina

    Levina Guest

    Job security is a myth.
     
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