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Cyrus Mistry ouster dents Tata group image: Why on earth is the group not giving a reason?

Corporate governance and the Tata Group’s oft-stated principles of transparency, social and ethical principles have been intricately meshed that the principles have become synonyms for the group. However, Monday’s incident of replacing Cyrus P Mistry with Ratan Tata in the interim for four months was an unusual step from the over 150-year-old Group.

The Tata group is not known for boardroom battles that have ricocheted outside iconic the Bombay House, the headquarters of the salt to software conglomerate comprising of 100 companies spawning 6 continents.

The abrupt decision to sack Cyrus Mistry will have long-term repercussions for the group, say analysts, stating that this is an 'unprecedent' decision and action taken against a former chairman.

It also raises serious concerns about the choice and grooming of Mistry who was handpicked by Ratan Tata after a 14-month period in December 2009.

Many flay the manner in which Mistry was asked to leave. “The Board handled the whole situation badly,” said Mohandas Pai, Chairman of Manipal Global Education.

Pai says that by sacking Mistry, the board has 'condemned' Mistry and there is no saying how he will retaliate – a potential situation that could have been avoided by extending the courtesies benefitting to the chairman of the over $103 billion global conglomerate.

“The board has behaved in an arbitrary manner and it also smacks of someone controlling it. Six members decided to vote and 2 abstained. It would be interesting to know who abstained. I feel they must be old hands who did not want to vote against Mistry,” says Pai.

Recent developments at the board points towards a 'coup' against Mistry, said an analyst. He pointed out to the recent appointees to the board – Ajay Piramal, chairman of Piramal Group and Shriram Group; and Venu Srinivasan – chairman of TVS Motor. “I feel the board was ganged up against Mistry and were all supporters of Ratan Tata,” he said, adding Mistry did not stand a chance against it.

Transparency, a principle associated with Tata Group, has taken a hit. “There is an issue of lack of transparency with the way the whole thing has unfolded and going by media reports that Mistry wasn’t informed,” says J N Gupta, former ED, Sebi. “If you were to look at the issue from the point of view of Mistry, he was not given a chance to explain and also no notice period was given too. This is against the law of natural justice,” he said.

However, if the issue was to be seen from the lens of the board, it acted the way it did in the interests of all its stakeholders, says Gupta. “There has to be an earth shattering event for a Chairman to have been removed with immediate effect. No explanation has been given for the action, too."

However, there could be other concerns that would have necessitated this abrupt snapping of the link. Since the company has not given any reasons, it has led to myriad assumptions.

“For all the talk about culture and transparency the over 100-year-old company has been constantly reiterating, it has tossed that culture aside and seems to have adopted the American culture of hiring and firing. But Mistry was not an employee of the Group and was brought in from outside. Where is the genteel, transparent behavior that one associates with the group now? You cannot treat your chairman in this manner, no matter what the circumstance,” says Pai.

The fact that the board felt it was necessary to bring back Ratan Tata from retirement to hold the company together in the interim also speaks poorly about the company. “It shows that they do not have a succession plan in place. They have faced this situation earlier when Tata Motors Managing Director Karl Slym committed suicide and the Group had to look for a replacement,” said Shriram Subramanian, proxy advisor, InGovern.

Pai says that when the rule of retiring at 75 was laid down by Ratan Tata himself, he should not have revoked the rule. “But rules are not iron-clad,” points out Gupta. “Law is subservient to logic. The rule of 75 was laid down with an objective to maximize shareholder’s wealth.  However, there must have been some situation, which unfortunately the board has not been forthcoming about, which has necessitated this change,” says Gupta.

However, leaders at the helm have been recalled after their tenure like it happened with Infosys when it brought in NR Narayana Murthy, the co-founder and former chairman who joined the firm. Pai says that comparison is flawed.

He reasons that Murthy wasn’t called back after someone leading the company was sacked. “Murthy was called as the company was going sidewards and it needed expertise that only he could have provided. Also, Murthy was 60 when he retired and he returned seven years later. There was no precedent of anyone being fired."

Will the reputation of the Tata Group take a hit because of the sacking of Mistry? Though all three – Pai, Gupta and Subramanian - believe it will, not all think it will have long-term effect.

“It all depends on who the incumbent is and his/her performance,” says Gupta. “Public memory is short and no one will remember this incident,” he says.

Since no explanation has been forthcoming yet from Bombay House on the reasons for sacking Mistry, Pai says it has led to speculation.

“Mistry could not have been sacked for incompetence for what he inherited like Corus Steel and other acquisitions of the Group could not have been rectified in a span of four years. The group is saddled with issues, DoCoMo is another case in point. The Group Executive Council (GEC) formed by Mistry has been disbanded. He has been kicked out. The reputation of the Tata Group has been severely jolted,” says Pai.

Subramanian agrees with Pai’s thoughts and says that not giving a reason for expelling Mistry has tarnished the group’s image of transparency. “This will have long-term ramifications. However, a competent successor to Mistry can solve this issue,” says Subramanian.

Pai feels that is a tall order for he says the incumbent would be worried about who he has to face in the boardroom at Tata Sons. “The group needs a fresh, young approach and that is not possible if they wont’ let new ideas and people to take independent decisions, as is evident in Mistry’s case,” says Pai.


Image Source Firstpost.com

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