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Mystery behind Tata sacking Cyrus Mistry

Apoorva Pathak
Apoorva PathakOct 24, 2016 | 20:02

Mystery behind Tata sacking Cyrus Mistry

The news of the ouster of Cyrus Mistry as chairman of Tata group - India's largest conglomerate (with market capitalisation of more than 8 lakh crore) and the comeback of Ratan Tata as its chief has caught nearly all industry observers by surprise. Though not many of the reasons behind what went into this unusual decision of removing the chairman only four years into his term, are public, here are some indicators as to what underscored the decision:

1. Tata Sons recommended Mistry's ouster

The decision to oust Mistry was announced by Tata Sons - the holding company of the Tata group. The decision is said to have come from Tata group, which deepens the mystery as Cyrus's father Palonji Mistry is the largest shareholder of Tata sons with 18.4 per cent of the shares.

2. Performance woes

On performance front, at first glance, Cyrus Mistry' performance does not seem to be particularly bad. The group's shares have kept pace with the market average. But the reason for that is because TCS and Tata Motors, two of the most precious jewels of Tata group, have performed well due to reasons that don't have much to do with Cyrus. Under the old hand of its CEO Chandrashekhar, TCS has held steady and stayed on the autopilot. Due to JLR's outperformance, Tata motors has performed well, but there is not much in it to bring credit to Mistry. On the other hand, under Mistry, the Tata group has not fared too well against traditional rival conglomerates - Reliance and Birlas. Look at how in the telecom business, both Reliance (with Jio) and Birla (under Idea) have outshone Tata.

Tata Docomo has had a poor show and the Tata group has lost out on the telecom business, which has become all the more important with digital economy taking wings.

3. Price for cracking the whip

Tata group has never been known for its ruthlessness and it's not known to drop employees or companies unceremoniously. So when Mistry started dropping too many of Tata's old hands and started shedding non-profit businesses, including the groups Europe's steel business, there was a visible discomfort among those who placed on a premium on the Tata ethos of valuing relations with employees and not giving up on enterprises.

4. Inability to transform Tata group

Another version doing the rounds is that the cause for Mistry's ouster could be his inability to transform the Tata group radically at a time the firm's sluggishness is taking a toll on the confidence in Tata's ability to lead change. It is correct that the decay precedes Mistry, but he was expected to set to rights the mess - which evidently he has not accomplished.

5. Boardroom struggle

Perhaps, the ouster can be an indicator of non-Tata shareholders and the family struggle. It can be a precursor to a professional from outside the family being given the charge to herald the transformation that Tata group observers have been long hoping for.

Again Cyrus ouster could be a fallout of the old guard not being happy with him for a variety of reasons and them taking control as indicated with the comeback of Ratan Tata and more so the tycoon's inclusion in the panel to choose the group chief (unlike last time, when during Mistry's selection, he was not part of the decision-making committee).

With the passage of time, the mystery surrounding this monumental change will unveil, but the swift manner in which it has been implemented will undermine the stability of the Tata brand, though how much is difficult to tell. Also, the unthinkable ouster in India's largest conglomerate is more than indication of the uncertain times that Tata group - as well as the country's corporate sector - is going through.

Last updated: October 24, 2016 | 23:07
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