In a decision that sent the
entire corporate world in a tizzy, Cyrus P. Mistry, Chairman of Tata Sons, was
unceremoniously ousted from his post in an almost coup-like fashion. The board
members placed Ratan Tata as the interim Chairman of Tata Sons. The Tata Sons
Board took a decision to replace Mistry as Chairman in a meeting held in Mumbai
on October 24, 2016.
In his letter, Mistry said
that he cannot believe that he was removed on grounds of non-performance. “As
you are aware, the Nomination and Remuneration Committee comprising Vijay
Singh, Farida Khambata and Ronnen Sen, independent directors (two of whom have
voted for my removal now), had only recently lauded and commended my performance,”
he said.
Sounding several financial
alarms, Mistry stated that if one were to look at the aggregate data between
2011 and 2015 and limit the analysis largely to the legacy hotspots (IHCL, Tata
Motors PV, Tata Steel Europe, Tata Power Mundra and Teleservices), it will show
that the capital employed in those companies has risen from Rs 132,000 crore to
Rs 196,000 crore (due to operational losses, interest and capex). “This figure
is close to the networth of the group which is at Rs 174,000 crore. A realistic
assessment of the fair value these businesses could potentially result in a
write down over time of about Rs 118,000 crore,” Mistry stated.
NANO PROJECT: Writing about the Nano
small car project, the dream project of Ratan Tata, Mistry noted that this
product “has consistently lost money, peaking at Rs 1000 crores. As there is no
line of sight to profitability for the Nano, any turnaround strategy for the
company requires to shut it down. Emotional reasons alone have kept us away
from this crucial decision. Another challenge in shutting down Nano is that it
would stop the supply of the Nano gliders to an entity that makes electric cars
in which Mr Tata has a stake.”
Mistry revealed that he was a
reluctant candidate for the chairman’s post of Tata Sons. In 2011, he said,
after some exploration by a search committee, he was approached by both Ratan Tata
and Lord Bhattacharya individually to be a candidate for the position. “I
politely declined. I had myself built a business which I could continue to run.
However, as the search process progressed and the committee was unable to find
a suitable candidate, I was asked to reconsider. After consulting my family and
in the broader interests of the Tata Group, I took courage to overcome my
initial reluctance and agreed to consider the position,” he wrote.
He minced no words in his
opening remarks to the Tata Sons Directors when he said that he was shocked
beyond words at the happenings of 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”.
Cyrus Mistry was at the helm
of affairs at Tata Sons for the last four years. A day later after the new
development, Ratan N. Tata asked Tata
companies to act as leaders in their respective markets and enhance returns to
shareholders. “The companies must focus on their market position vis-à-vis
competition, and not compare themselves to their own past. The drive must be on
leadership rather than to follow,” he said, addressing Managing Directors and
senior leaders of Tata companies.
Tata said, “I look forward to
working with you as we have worked together in the past. An institution must
exceed the people who lead it. I am proud of all of you, and let us continue to
build the group together.”
He asked the leadership of the
companies to focus on their respective businesses, without being concerned
about change in leadership. Referring to ongoing initiatives in the companies,
he said, “We will evaluate and continue to undertake those that are required
to. If there is any change, they will be discussed with you.”
Tata reiterated that he had
assumed the role of the Interim Chairman for stability and continuity so that
there is no vacuum. “This will be for a short time. A new permanent leadership
will be in place,” he emphasised.
Meanwhile, Dr. Ralf Speth, CEO
of Jaguar Land Rover, and N. Chandrasekaran, CEO & Managing Director of
Tata Consultancy Services (TCS), were appointed as Additional Directors on the
Tata Sons Board. Commenting on their appointment, Ratan Tata, Interim Chairman
of Tata Sons, said, “This is in recognition of their exemplary leadership in
their companies.”
Meanwhile, the Tata group played
safe and filed caveat in several courts to avoid any ex-parte order against the
group that may arise from this ouster of Mistry.