Cyrus Mistry's biggest mistake that led to his ouster as Tata Group chief

Cyrus Mistry spotted outside his Walkeshwar home a day after his removal as chairman of Tata Sons PicSameer MarkandeTalking of surgical strikes the sudden and surgical removal of Tata Sons chairman Cyrus Mistry on Monday afternoon hit the news wires like a punch in the solar plexus After all the Tatas are known to do things in a gentlemanly way and are loath at having turmoil in the ranks Ironically the Tata drama was playing right alongside UPrsquos first family pressing the destruct button Chief minister Akhilesh Yadav had sacked his uncle Shivpal from the Cabinet and Uncle Shivpal in retaliatory fire expelled Akhileshrsquos cousin and confidant Ram Gopal Yadav from the ruling Samajwadi Party Amidst mikesnatching and sloganeering in Lucknow patriarch Mulayam all Monday tried to ride both horses but with little successThe political and corporate scripts sound similar but they play out differently The Yadav feud is out there in the open and is crass and violent The Mistry ouster plan is shielded by the boardroom veil but one can see all the contours of a long and messy battle And now the Mistry camp in the Tata Sons board has spilled the beans mdash the ouster resolution was not listed they say on the agenda it was smuggled in under lsquoresiduary mattersrsquo Amidst acrimony and heated scenes Mistryrsquos bid to seek time to defend his policies was brushed asideWell thought out moveWith hindsight one can see that the coup drsquoeacutetat was not sudden It was well thought out On August 26 the Tata Sons board was expanded to include Piramal Enterprisesrsquo chairman Ajay Piramal and TVS Motor chief Venu Srinivasan Srinivasan is now one among the 4member lsquosearchrsquo committee for a new Tata chairman Similarly lawyers have been consulted on the legality of the lsquosackrsquo notice and kept on standby The list ironically includes Congressmen Abhishek Manu Singhvi and P ChidambaramAlso Read Tata says byebye to Cyrus Mistry All about the mysterious sackingRatan Tata who has been brought back as interim chairman had his letter ready for employees on Monday informing them that ldquoin the interest of the stability of and reassurance to the Tata Grouprdquo he is returning as ChairmanThe chargesheet against Mistry is pretty long and serious Under his watch the grouprsquos revenue fell to 103 billion in 201516 from the previous fiscalrsquos 108 billion Net debt rose to 245 billion at the end of the last financial year from 234 billion a year ago He did not seem to have a plan or vision for revival Unhappiness has also been expressed against the shedding of nonprofitable businesses such as its steel plants in Europe and his entire focus on cash cows like TCS Mistry has also believed to have crossed swords with Tata over his decision to fight Japanese telecom giant NTT DoCoMo in court over an exit clause in the agreement The older Tata leaders felt it was lsquoUnTatalikersquo to not honour their deal with DoCoMoBut a lot of the discussion on Mistryrsquos ouster has missed the main point he is seen as the lsquooutsiderrsquo He did not fit in Historically a clutch of Tata trusts mdash some of them philanthropic behemoths and holding 66 percent of Tata Sonsrsquo equity mdash have controlled the holding company The larger ones include the Sir Dorabji Tata Trust and Sir Ratan Tata Trust The consultation process among these trusts had created a distinct boardroom culture and defined the way the Tata empire functioned On the other hand the Shapoorji Palonji Group Mistryrsquos origin has been different The Mistrys and their 184 per cent shareholding in Tata Sons the way it was acquired and the fact that it was the single largest holding was always a matter of concern to those who ran Bombay House the Tata HQ in Mumbai That is why when Tata passed on the baton to Mistry in 2012 there was considerable trepidation among corporate watchers whether this outsidetheTatafamily arrangement would ever workChange of commandThe fears were not unjustified With Mistry at the helm the old lines of command were changed Soon after he took over in December 2012 Mistry appointed a new power centre the Group Executive Council GEC The members included Nirmalaya Kumar of London Business School Madhu Kannan former CEO of the Bombay Stock Exchange and NS Rajan former partner in Ernst amp Young Much of the decisionmaking shifted to this new powerhouse while the resentment of the powerful trusts the biggest shareholders also grew For instance Mistryrsquos decision to sell off some noncore businesses including Indian Hotelsrsquo overseas properties and shut Tata Steelsrsquo old Corus UK plants did not go down well with the trusts and became issues of dispute Perhaps the last straw that broke the camelrsquos back was the acquisition by Tata Power of Welspunrsquos solar farms for 14 billion without seeking approval from the majority shareholders the Tata Trusts and Ratan Tata himselfGiven this background it is not surprising that the first institution to be dismantled after the coup was the Group Executive Council For a slow moving organisation the alacrity with which the membersrsquo names were removed within hours of Mistryrsquos exit from the official Tata website showed how much the GEC had become an irritantThe active role of Ratan Tata himself in the coup too needs to be understood afresh Perhaps Mistry took Tatarsquos lsquoretirementrsquo at 75 too seriously Mistry did not realise that Tata was no bystander and expected to be consulted He had grown the empire past 100 billion in revenue with a clutch of 40 acquisitions in the 200508 period This legacy which included the 129 billion Corus acquisition in 2007 was a matter of lsquoTata pridersquo but instead of consolidating these lsquonavratnasrsquo Mistry had launched a selloff and clean up drive Sacking old regime lsquononperformersrsquo like the case of Indian Hotelsrsquo MD amp CEO Raymond Bickson in August 2014 too did not go down well Tata has repeatedly shown he can take control decisively when threatened Soon after he took over as chairman in 1991 powerful satraps such as Russi Mody of Tata Steel and Darbari Seth of Tata Chemicals had their wings clipped and were ultimately pushed outNonperformerWas Cyrus Mistry a nonperformer More aptly was he so serious a nonperformer that he had to be put through this roadroller treatment Performance audits will soon be out but from the face of it can one fault a policy of ridding the group of lossmaking assets like Corus UK and Corus Europe Thatrsquos what capitalist efficiency is all about The Tata Group debt has risen 45 per cent over the last 18 months but wasnrsquot the debt burden acquired in the decade when Ratan Tata at the helm went on an acquisition spree If one looks at Tata companiesrsquo market capitalisation in the last four years mdash the shortest reign of a Tata Sons chairman mdash the grouprsquos total capitalisation has grown from Rs 497 lakh crore to Rs 871 lakh crore ndash a 75 per cent growth compared to the stock market indices Dalal St and Nifty growing at 4550 per centRead Story No decision yet on legal recourse to Cyrus Mistry ouster Shapoorji PallonjiThe first reaction of the Shaoorji Palonji camp has been to challenge the dismissal as lsquoillegalrsquo There are reports of Mistry marshalling a legal team to contest the Tata Sons decision in court If there is no settlement a longdrawn feud will not only be an embarrassment but could hit the Tatasrsquo revenue and brand valueThe author is a Mumbaibased freelance business journalist He tweets gurbir110