Last week was quite fascinating for business world when Tata Group declared that Cyrus Mistry, who was Chairman of the group will be ousted and his position will be handled by Mr Ratan Tata. Since then, several analysts have been speculating the outcome of this decision and why the decision was taken in the first place. There have been few controversies as well over this decision. Many independent directors were never informed of this decision and even after Ratan Tata took over him, they were not given any solid reason for Cyrus Mistry’s ousting. One of the board under Tata group which has agreed to the conflicts between the board and the group is that of Indian Hotels. Before reaching any conclusion, let us first explore who was Cyrus Mistry and how worth he was an asset to the group.
Who was Cyrus Mistry?
Cyrus Pallonji Mistry was an Irish business of Indian origin and he served Tata Group as a Chairman from 2012-16. He is the younger son of billionaire construction industry tycoon, Pallonji Mistry. The relation of Shapporji family and Tata Group are quite old when Cyrus Mistry’s grandfather first acquired stakes in Tata Group in 1930. The current stake of Mistry’s family in the Group is 18.5% and it is held by Cyrus Mistry’s father. This is the largest block of shares held in Tata Group. Cyrus Mistry has also worked in family business as director of Shapoorji Pallonji & Company. In 2006, his father retired from the business and he joined the Tata board. He was also connected to other Tata companies such as Tata Elxsi Limited (1990-2009) and Tata Power Co. ( until September 2006). His credentials and qualification led him to become Chairman of Tata Sons in 2012. He was also the chairman of other Tata companies including Tata Steel, Tata industries, Tata Motors, TCS, Tata Power, Indian Hotels, Tata Global Beverages, Tata Chemicals and Tata Teleservices.
Consequences of ousting decision???
The Tata Sons shocked corporate India by ousting chairman Cyrus Mistry on 24th October 2016. This decision can potentially bring spark between two of Mumbai’s oldest business families which share the close tie. In the interview, Tata Sons said “selection committee will choose a permanent replacement for Cyrus Mistry in the next four months”. Neither Tata nor Mistry has yet made any comment on the decision and the aftermath share value dynamicity of Tata Group. Selection committee encompasses Ratan Tata and Tata Sons board members Venu Srinivasan, Amit Chandra, Ronen Sen and Kumar Bhattacharya.
Cyrus Mistry and his challenging journey
When Mistry entered into the industry, it was expected he would stay long at the helm. Some of the news also share that Mistry was ousted because of no loyalty with the biggest shareholders Tata Sons. Mistry who had been chairman for the last 4 years said he didn’t get the opportunity to defend himself “. The decision has already shown signs of worry on the market valuation of the Group. Since Mistry removal as group chairman, Tata listed companies lost $3 billion in market value. Cyrus Mistry was the surprise choice to succeed Tata. Nearly four years he took the responsibility of salt-to-software conglomerate. Mistry faced challenges in both domestic and international market as many of the company faced headwinds. Starting off this year, the company completed the selling of European long business product in the UK market. The plan was not successful and faced continuous losses in the UK market, although the company has yet to finalise the sale.
While the reason of Mistry’s ousting is not yet cleared by Tata Sons board, but the decision has been taken under the suggestion of Tata trusts. Tata trust suggested to the board of Tata Sons that it would be fine to take a decision and look forward. Tata Ratan is now part of the selection panel that has been asked to search for the New Chairman of Tata Sons Ltd and he would also contribute as the interim chairman till the selection.
Was it due to Cyrus Mistry’s own failure?
However, if rumours are to be believed, the big decision was made following the unloyalty showed by Cyrus Mistry in past few days. ET has recently reported that Tata Trust which holds 66% of the shares had no information on company’s cash flows and were also deprived of any information on group units. The whole group was becoming increasingly dependent on the dividend payouts by member firm TCS as the contribution from other companies regularly dropped. Also, Mistry opposed all the suggestions made to him to remove some of the members of the Group Executive Council which resulted in doubling of staff payments during his tenure. All the events eventually led to a lack of trust of Tata Trusts in Mistry.
How will the removal of Cyrus Mistry work?
There are meetings of different boards in the full month of November which will provide an indication for the future course of events. It has been assumed that Cyrus Mistry would be given a chance to voluntarily step down from his position. If he does not, there will be voting which is expected to be in favour of Tata Group seeing their brand power. The decision will not only include voting of board members but also the shareholders of all the companies involved.
At this stage whether the removal of Cyrus Mistry goes on smoothly or not, this decision clearly indicates a rivalry between the shareholders of the company and can impact several future goals of the companies. Mistry has clearly indicated that he is not going to give a clear road to the Tata Group who did not even give him a chance to defend himself. He openly warned that the Group may face $18 billion in write downs because of five businesses that are running on losses.
There were several other discussions as well which led to problems among shareholders and board members towards Mistry. Had the issue not been raised in time, could have resulted in severe defragmentation of the whole Group. However, it is yet to see the consequences of the step taken by the board.
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