Business Today

The Exit.... And After

The aftermath of the boardroom coup raises more questions than it answers. What next?
Rajeev Dubey with Prosenjit Dattaand twitter-logoNevin John | Print Edition: November 20, 2016
Ratan Tata vs Cyrus Mistry
[Photo: Ajay Thakuri]

Everybody loves an underdog. In the unsavoury turn of events since the mighty $103-billion Tata Group ousted its celebrated CEO Cyrus Mistry in a boardroom coup at group holding company Tata Sons, Mistry has unwittingly emerged as that underdog, garnering public empathy at the expense of Tata Group's carefully crafted reputation over 148 years.

First, through his stony silence for 30-odd hours after his ouster. And then, as the David fighting the Goliath, with a dignified - yet explosive - email sent to Tata Sons' board members and Tata Trusts' Trustees, which has since leaked to the public at large. An email, whose collateral damage is still to be managed in its entirety by India's biggest private sector group. Besides defending himself against allegations of non-performance with facts, figures and data, knowingly or unknowingly, Mistry exposed more than a few skeletons in the cupboard, questioned corporate governance standards and high-cost acquisitions during Ratan Tata's tenure, and stated that he had been reduced to a "lame duck" chairman due to constant interference by his predecessor and Chairman Emeritus Ratan Tata. The allegations have since been refuted by different companies.

But the letter sent the Tata Group scurrying for cover. It imposed an information lockdown. Confirmed media briefings were cancelled at the last moment as group executives went into a huddle to devise a credible strategy against what Twitterati calls Mistry's "letter bomb". The new tactic is simple: avoid provocation. For, the more you provoke, the stronger will be the blowback and more dirty linen will get washed in public.

Still, over the next few weeks, the group that prides itself on ethics, highest standards of corporate governance and social change, has a lot of explaining to do for the issues raised to contain further reputational damage. Domestic stock exchanges BSE and NSE have already sought clarifications from Tata Group companies Tata Teleservices, Tata Steel, Indian Hotels and Tata Power, who Mistry said would have to go through a write-off totalling `1.18 lakh crore. Tata Sons has hit back in a statement calling the leak "unforgiveable". Next what?

At least, Mistry is keeping everyone guessing by keeping his own counsel. In an unexpected move, two days after his ouster as group chairman, Mistry chaired the board meeting of Tata Global Beverages for over four hours at Bombay House. He also continues to remain chairman of other listed companies TCS, Tata Steel and Tata Motors.


"Be Your Own man"- that's the advice Ratan Tata, Chairman of the Tata Group, gave to his successor Cyrus Mistry while handing over the baton in 2012. It was an elderly statesman's generous counsel. After all, Tata had built the group from Rs 11,000 crore in revenue in 1991 to over Rs 5,26,000 crore in his 21-year reign.

It was an advice Cyrus Mistry took literally. Perhaps, too literally.

As he went about directing, chopping and changing the 148-year-old group, he was to discover that the advice came with riders he failed to read. He failed to read the extent of powers vested in him; he failed to read the power play and the equations within, despite being an 'insider' for nearly a decade; he even failed to read that he was not meant to tinker with the legacy Ratan Tata left him with (let's dive into this later), especially any tinkering that would show Tata in bad light. It all came to haunt him on Monday, October 24.

At 2 pm that day, two months and five days short of his fourth anniversary at the helm, Tata Group Chairman Cyrus Mistry left his corner room on the fourth floor of Tata Group headquarters at Bombay House. He walked across the corridor to the iconic board room at the other end of the floor for the board meeting of group holding company Tata Sons.

What followed shook the corporate world like never before. Though Mistry should have had an inkling. Tata Trusts' legal counsel Mohan Parasaran told Business Today Ratan Tata and independent director Nitin Nohria had a private meeting with Mistry hours before the board meeting and asked him to resign in no uncertain terms. Mistry declined, saying he would test the board instead. After all, as Mistry says in his letter: "?Vijay Singh, Farida Khambata and Ronnen Sen, independent directors, had only recently lauded and commended my performance". If he had expected support in the board, he misread that, too. When it came to the crunch, the board sided with Ratan Tata. For, Tatas had already planned the boardroom coup.

Directors representing Tata Trusts - the 66 per cent shareholders in Tata Sons - obviously wanted to catch him by surprise. Right at the start of the meeting that lasted over an hour, a resolution was moved to oust him as group chairman (read what transpired at the meeting on page 46). It was kept a secret from Mistry by proposing the resolution under "any other business", which didn't need to be circulated beforehand. Mistry was offered the option to resign. He declined, saying he hadn't been sent a notice as per contract. But before he knew, the resolution was passed by voice vote by the full-strength board with six in favour of removal and two abstentions (Ishaat Hussain and Farida Dara Khambata, Tata Sons' first woman director appointed in 2015).

"I was shocked beyond words at the happenings at the board meeting of October 24, 2016. Apart from the invalidity and illegality of the business that was conducted, I have to say that the Board of Directors has not covered itself with glory," says Mistry in the email to directors and trustees.

Half an hour later, Ratan Tata signed on a letter as interim chairman saying the board had "replaced Mr Cyrus P Mistry as Chairman, with immediate effect." Mistry made his way out of Bombay House between 4 pm and 4.30 pm.

The man (only the second non-Tata name to be group chairman, besides N. Saklatwala, 1932-38), whose tenure began with the promise of decades-long reign, had been cut to the shortest in the group's 148-year history. Tata Sons is emphatic there was no breach of corporate governance norms in his replacement.


But the groundwork for his removal had been more than a month in the making, in fact, right after the previous board meeting on 15 September where Mistry presented 'Strategy 2025'. The vision statement was rejected by the board for over-dependence on TCS to achieve a $250-billion valuation goal; lack of a roadmap for growth and lack of an investment plan for Tata Sons. However, the distrust of Mistry had been building for at least a year, if not more, over various issues. We will come to those circumstances in a bit.

"After September 15, they decided to take a call. They asked, what are the procedural formalities to be followed in the event if we take a call (to remove the Tata Sons chairman)," India's former Solicitor General Mohan Parasaran told Business Today. Parasaran was among the five lawyers, including P. Chidambaram and A.M. Singhvi, whose legal opinion was sought between September 15 and the next board meeting on October 24. "(They) sought specific queries with regard to the Articles of Association of Tata Sons with regard to the position of the chairman and the process of the removal of chairman by the board or by the general body and the nitty gritties."

Reading between the lines, the extent of bad blood between Ratan Tata and Cyrus Mistry towards the end is apparent in the text and tone of the letter he wrote to the board at 22:05:41 hours on October 25, more than 30 hours after his ouster. Mistry, who was extremely careful about referring to Tata with a prefix 'Mr' in every possible public and private fora, refers to him as "Ratan Tata" without the prefix in the letter. At one point, he calls him "The previous chairman?".

At another point, he refers to him as Mr Tata but alleges a conflict of interest in the context of any decision to shut down the bleeding Tata Nano project whose losses have exceeded Rs 1,000 crore. "Another problem in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Mr Tata has a stake." The company has denied it uses gliders from Tata Motors.

As far as Mistry was concerned, clearly the gloves were off. And he made no bones about the fact that he was taking on the septuagenarian chairman emeritus in a no-holds-barred battle with seven other specific allegations in the letter: Airline tie-ups with Air Asia and Singapore Airlines were thrust down his throat by Ratan Tata himself; costly global acquisitions under Ratan Tata's tenure had left him with a debt overhang; Indian Hotels acquired Searock hotel at a "highly inflated price" leading to a write-down of its entire net worth over three years; exit or closure of Tata-Docomo would cost $4-5 billion, besides $1 billion to be paid to ntt docomo; aggressive bid for Mundra had cost nearly Rs 1,500 crore; Tata Motors Finance extended credit with lax risk assessment resulting in Rs 4,000 crore of NPAs; and finally, "legacy hotspots" such as Indian Hotels, Tata Motors PV, Tata Steel Europe, Tata Power Mundra and Tata Teleservices could potentially result in write-down of Rs 1,18,000 crore.

The only allegation of wrongdoing is also against Ratan Tata's former executive assistant Ramachandran Venkataramanan, who is currently managing trustee of Sir Dorabji Tata Trust with responsibility for management and oversight of all Tata Trusts. Mistry alleges Venkataramanan strongly recommended Tata Capital to loan to Siva group, which turned bad.(Tata Capital and Siva both confirmed the loan to Siva was settled in 2014).And that Venkataramanan - who is a shareholder and a director on the board of Air Asia India - tried to overlook fraudulent transactions worth Rs 22 crore until the board filed an FIR at the instance of an independent director who had resigned.

On his part, in a Samurai-like action, one of Ratan Tata's earliest decisions after sacking Mistry was to disband the group executive council (GEC), which was increasingly being seen as Mistry's coterie within the group. Only two members of the GEC - both old Tata Group hands - Harish Bhat and Mukund Rajan - were retained, their roles to be decided in the future. That left the other GEC members - chief human resources officer N.S. Rajan, strategist Nirmalya Kumar and business development officer Madhu Kannan - out in the cold. The GEC's page was promptly removed from Rajan has since quit.


So, what brought Mistry and Tata to such a pass? Such, that far from its publicly stated policy of treating the lowest of its employees in a humane and dignified manner, it had to humiliate the group's chairman by unceremoniously replacing him in a boardroom coup, dealing a blow to his status, reputation and respect.

While directors at the Tata Sons board meeting noted no specific reason - except loss of confidence - for his removal as chairman, in private Tata executives confided that he was removed for non-performance.

Is performance really the reason for Mistry's ouster? Not exactly. Group market cap was up nearly 80 per cent since he took charge, growing at a CAGR of 15.1 per cent against 14.3 per cent in the Ratan Tata years. Revenue had grown at a CAGR of 8.5 per cent against 19.2 per cent during the Ratan Tata years. But remember, a bulk of the revenue spike during Tata's regime was due to the burst of foreign acquisitions between 2005 and 2012 when market cap more than doubled and revenue went up 5.5 times thanks to the $12.1 billion Corus acquisition and the $2.3 billion Jaguar-Land Rover buy, besides nearly 40 other smaller acquisitions.

Mistry even writes in his letter that during his tenure, group cash flows rose at 31 per cent CAGR, group valuation grew 14.9 per cent per annum (against Sensex growth of 10.4 per cent). And, despite impairments, holding company Tata Sons' net worth rose from Rs 26,000 crore to Rs 42,000 crore. "I cannot believe that I was removed on grounds of non-performance," writes Mistry.

He clearly misread the amount of freedom he was granted as chairman. Specifically, on tinkering with Ratan Tata's legacy. Tata executives say over a period of time, Mistry began acting more like the owner/promoter than as the CEO, the job he had been hired for. Often keeping the man who represents the group's primary shareholder - Tata Trusts, which own 66 per cent of Tata Sons against Mistry family's 18.4 per cent - Ratan Tata, out of the loop. Though in Mistry's mind, perhaps, being 18.4 per cent owner of Tata Sons, his family had the most to lose.

Mohan Parasaran/ Tata Trusts' legal counsel [Photo: Vivan Mehra]

"Before the board meeting both Mr Tata and Nitin had a private talk with him. He was told in no uncertain terms that he should quit. He declined. He said that he will test the board."

Specifically, they cite Mistry's decision to sell Tata Steel's UK business; his decision to take on ntt docomo in a legal battle despite Ratan Tata's personal assurance to protect the company's investments in India; sale of Indian Hotel's foreign properties; and, lately, acquisition of Welspun's renewable energy assets (though Mistry has issued a statement with details of how Tata Sons and Ratan Tata were in the loop) as examples of unilateral decision-making without consulting the principal shareholder. Clearly, the distrust had been growing for over a year.

Tatas also cited the fall in group revenue from $108 billion to $103 billion in the past year. Remember, the Tata Group is extremely sensitive about its undisputed status as India's largest private sector group. It has held that spot for decades on end. About the time Reliance Industries' Jamnagar refinery nearly doubled its revenue, Tata Group went on a global acquisition binge, including the very pricey Jaguar-Land Rover and Corus (won through an expensive bidding war with Brazil's Companhia Siderurgica Nacional or CSN, which raised the valuation by nearly 50 per cent). It helped Ratan Tata leapfrog from Rs 97,000 crore in group revenue to Rs 3.27 lakh crore between 2006 and 2009, bang in the middle of an extended tenure enabled by Tata Sons raising the Chairman's (Ratan Tata) retirement age from 70 years to 75 years.

Tata executives give yet another reason: that he was chosen as Tata's successor on the basis of a new group structure he presented to the Tata selection committee. The plan envisaged the chairman being supported by two vice chairmen at Tata Sons - who would be represented on the various Tata companies for effective succession planning in the future. It also suggested an advisory board to Tata Sons with specialists such as HR, strategy, business development, etc. (Instead, Mistry set that up as Group Executive Council attached to his office. Vice chairmen were never appointed, instead Mistry himself became chairman of all operating companies.) Also, that the vision statement was brought to the board nearly at the end of the fourth year of his five-year contract as chairman while the Articles of Association specifically called for a five-year strategy and an annual roadmap along with it.

But a bigger reason, perhaps, was that the Tata Group feared Mistry's actions of sale of Tata Steel's UK assets, face-off with ntt docomo and alleged unilateral actions were showing the group and Ratan Tata-led decisions in bad light, and were meant to tarnish his haloed reputation. For instance, in putting Tata Steel's UK assets on the block, Mistry was essentially sending out a message that it was a bad business call by his predecessor. Akin to Ratan Tata's famous statement "a promise is a promise" with reference to the promise of the Rs 1 lakh car, the price at which Nano was originally launched. Ratan Tata is believed to have made a personal commitment to ntt docomo to protect its interests and investments in India. Something that was evident in the group's offer (that was struck down by the RBI). Effectively, Mistry was breaking Ratan Tata's promise to ntt docomo.

Mistry even misread the equations within the group. For instance, the removal of Indian Hotels CEO Raymond Bickson, appointed in Tata's tenure, may not have gone down well with Tata. "I had to ease out hangers-on who are prone to flaunt their proximity to power," says Mistry in his letter.

The empire struck back in the surprise eviction termed "shock and awe" in military parlance, which was intended to give him little time to react.


The unceremonious manner of his removal makes his continuation as a director on the board of Tata Sons or even any other group company untenable. Though he is yet to resign from chairmanship of other group companies, Mistry's image, respect and reputation in the group have taken an irreparable hit, which may prevent him from taking any active managerial or directorial role in the group. The humiliation of the ouster now pits the largest shareholder (Tata Trusts with 66 per cent holding in Tata Sons) and the second largest shareholder (Mistry family with 18.4 per cent holding) in an open war against each other.

If he chooses to stay as chairman of the other listed companies - Tata Motors, Tata Steel, IHCL, Tata Power, among others - his removal would be tougher and requires a shareholders' meet rather than a board resolution alone.

The only other such removal in recent memory was the sacking of Tata Finance managing director Dilip Pendse way back in 2001 for 'illegal' trading and running Tata Finance aground. The group charged him with criminal offence. Pendse spent time in jail before getting bail. Sebi barred him from accessing capital market for two years for illegal trade.

The Tata and Mistry families have shared an uneasy relationship since 1936 when Mistry's grandfather Shapoorji Pallonji Mistry acquired FE Dinshaw & Co. which owned 12.5 per cent equity in Tata Sons, the group holding company, right after its founder F.E. Dinshaw passed away. Dinshaw was a lender to the Tata Group through the 1920s and 30s. The loans were converted into Tata Sons equity. Later, it acquired Forbes Gokak from the Tata Group.

If the relationship was on the mend - first by Ratan Tata's half brother Noel Tata's marriage to Pallonji Mistry's daughter and Cyrus' sister Aloo - and later by the appointment of Cyrus as the group chairman, it is now on the brink yet again. While the Mistry family has issued a restrained statement stating it is mulling its options, the Tata Group has already filed caveats in courts against any unilateral hearing on the issue of Mistry's removal.

Several names are doing the rounds as possible successors to Mistry. A familiar one is current PepsiCo Chairman and CEO Indra Nooyi. Even Noel Tata, who has remained in the shadows but has always been considered a contender not just for his Tata surname but also for administrative abilities. Ratan Tata has famously commented that lack of group-wide exposure has been Noel's personal choice. Those within the group believe that TCS CEO & MD Natarajan Chandrasekaran has a reasonable chance.

"In L'Affaire Mistry, so far, it's been a battle of half-truths. If Tata Group's contention that Mistry was removed for non-performance is half-truth, so is Mistry's contention that he was not put on notice."

A long-time Tata hand says that the four-month deadline to find a successor is a huge give-away. "The successor has already been chosen. The announcement is a formality," says the person. Especially since the previous selection committee plodded for over 15 months and returned empty-handed in 2011, authorising Ratan Tata to choose his successor.

That points to an insider. Who else, but Chandrasekaran? He has the backing of the company that accounts for nearly two-thirds of the group's market cap and has been its cash cow for decades. And he has worked with Tata long enough.


'Replaced' versus 'removed'. The reason the terse statement by Ratan Tata says Mistry is being "replaced" rather than "removed" is because he is being replaced as chairman while he retains his spot as a director. "Removed" would have implied removal as chairman as well as director. Removal of chairman being the prerogative of the board leaves him with few options to contest.

All Mistry can fight for is his and his family's honour through a civil suit. That would have to claim damage to "reputation" under civil laws. But reputational damage is among the hardest things to prove in a Court of law.

Especially, since the Tata Group has neither given any reasons for his removal nor listed any charges against him except "loss of faith".

A leading Delhi-based corporate lawyer says the Mistry family missed a chance to intervene when Tata Sons changed the Articles of Association granting greater representation to Tata Trusts, thereby enhancing its powers, around the time Mistry was appointed as chairman. This was the first time the chairman of Tata Sons and Tata Trusts was different. The Tata Trusts wanted to ring-fence their interests. And it may have been prophetic of Ratan Tata and his legal advisors to strengthen Tata Sons' Articles of Association in their favour. As for the Mistry family, perhaps, they didnt consider it necessary since Cyrus was already being offered the chairmanship.

In L'Affaire Mistry, so far, it's been a battle of half-truths. If Tata Group's contention that Mistry was removed for non-performance is half-truth, so is Mistry's contention that he was not put on notice. A lot is left unsaid behind those public postures. That Tatas panicked. Particularly, when despite being nudged, Mistry didn't toe their line. "I believe I had to be true to myself and the best interests of the organisation," he tells the directors in his letter. But his added status as the member of a family that owns 18.4 per cent of the group holding company probably amplified the largest shareholders' suspicion that the Tata Trusts were losing control over the group despite being its majority owner. Tatas had to exercise their control emphatically. And they did. That explains the harsh, drastic and unprecedented action against Mistry.

But this saga isn't ending yet. Especially, with Tata Sons saying the allegations will be responded to in an appropriate manner. Nor is the underdog done yet. Watch out.


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