6 key charges by Cyrus Mistry that Ratan Tata must answer
The board of Tata Sons, the holding company of the Tata Group, unexpectedly replaced Cyrus Mistry as chairman.
Mistry is the youngest son of Pallonji Mistry, an Indian construction tycoon. The Shapoorji Pallonji Group owns 18 per cent of Tata Sons, making it the largest shareholder.
Ratan Tata has been named as interim chairman, even as a selection committee has been charged with the task of finding a permanent replacement for Mistry.
The members of the committee are Ratan Tata, Venu Srinivasan, Amit Chandra, Ronen Sen and Lord Kumar Bhattacharyya. The committee will complete the selection process in four months.
Mistry led the company, which owns Tata Steel, since late December 2012. He was the first chairman in nearly 80 years to come from outside the Tata family.
Mistry’s appointment was only the second time the trusts and the holding company had different chairmen - Ratan Tata and Mistry, respectively.The first instance was when JRD Tata was the chairman.
No details were given by the company as to why the board decided to make the change.
Ratan Tata was the previous chairman and was in charge of the company for more than two decades, until he stepped down in 2012 at the age of 75.
Tata Sons owns Jaguar Land Rover, as well as Tetley Tea. It is one of India's oldest conglomerates and is made up of more than 100 companies, including Tata Motors, Tata Power and the IT giant Tata Consultancy Services.
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| It was during Ratan Tata's tenure that the group made many bold acquisitions. |
This is perhaps the biggest upheaval that corporate India has seen in recent years. It's a sudden move from a company that is usually very private and conscious of its public image.
Opinion is divided about Mistry's performance as chairman, but many of the challenges he faced were no doubt inherited at the time Ratan Tata stepped down in 2012.
It was during Ratan Tata's tenure that the group made many bold acquisitions, among them the takeover of Corus Steel and Jaguar Land Rover. Some of those decisions paid off, while others have cost the company a lot of money.
JLR has turned into a profitable company, but Tata Steel has been suffering heavy losses in the UK. You win some and you lose some. There will be ups and downs in any business, and so with Tata and Sons.
Although speculation has already begun about why the decision to replace Mistry was taken by the board, the person who replaces him has his job cut out.
Mistry has claimed that interference from Ratan Tata pushed him into the position of a lame duck chairman and severely constrained the ability of the group to engineer the necessary turnaround.
Ratan Tata will need to address the following six charges brought against him by Mistry:
- Is Nano, the flop that was once flaunted as the world's cheapest car, being kept alive simply to ensure supply of parts to an electric-car venture in which Ratan Tata has a personal stake?
- Are the two aviation ventures of the Tata Group - with AirAsia and Singapore Airlines - also personal hobby horses of Ratan Tata that an overextended group is now obliged to finance?
- Does Ratan Tata share what Mistry terms as ethical concerns with the overall prevailing culture at AirAsia India?
- By agreeing to buy back NTT Docomo's stake in the group's telecom business, did he store up commercial and legal trouble for the future?
- With nearly the entire net worth of Indian Hotels wiped out over the past three years, shouldn't Ratan Tata accept responsibility for a flawed expansion strategy?
- The airlines are unlisted. All the other issues involve publicly traded companies.
The issues highlighted by Mistry could take the shine off the reputation of the Tata Group, if whatever the letter says turns out to be true.
Therefore if the group fails to effectively counter these allegations, it will dent its image as a well-governed Indian corporate.
Most investors have long believed that the conglomerate adheres to a stronger code of governance than other Indian family-run businesses.
The founding-family scion carried out the ouster of Mistry, and has returned as interim chairman. Now it's up to Ratan Tata to reassert that he is an exception to the rule, which most people believe he still is.
But if he can't convince public shareholders and bondholders that the Tata Group is more than the mere sum of his personal ambitions and idiosyncrasies, then a lasting distrust could creep into the public and erode permanently the values it holds as a corporate major from the pre-Independence times of India.