What Spurred The Coup At the Top of Tata?

Tata Group Chairman Ratan Tata at the annual general meeting of Tata Steel Ltd. in Mumbai, India, on August 14, 2012. John Elliott writes that no one seems to know exactly why Tata pushed out his successor, Cyrus Mistry, as chairman of Tata Sons, the group’s holding company. Danish Siddiqui/reuters

This article first appeared on the Riding the Elephant site.

Ratan Tata, the veteran patriarch of India’s revered Tata empire, personally instigated and forced the sacking on October 24 of his successor, Cyrus Mistry, as chairman of Tata Sons, the group’s holding company.

This is clear from the way the coup was done, which is in line with Tata’s personal style of dealing with executives who fell out with him when he was the Tata Sons chairman for 21 years.

It was also characteristic that, as soon as Mistry had gone, an internal interview he gave last month for staff was removed from the company’s website. There, he had talked about realizing that Tata was “a unique institution with a rich and glorious history” and said, “We now needed to build the capabilities that would allow us to succeed for the next 150 years.”

From reports, it seems that Tata’s main complaint is that Mistry’s decisions and management style were doing harm to the Tata Group’s traditions and image, despite what Mistry had said in that interview.

But the way in which Mistry has been shunted out has arguably done more damage to the group’s usually stable image than he himself could have done. It will also make it extremely difficult to find a new chairman to succeed Tata, who has taken over temporarily.

There could also be long-term damage to the group’s stability, because Mistry’s family is the largest single shareholder and will be around long after Tata, 78, stops working. Mistry, 48, was the group’s sixth chairman since it was founded in 1968 and was the first to not be from the Tata family, though he shares the Tata’s Parsi religion and there are also links by marriage.

When Tata retired in December 2012 as chairman of Tata Sons, which is India’s biggest and most respected conglomerate, he was succeeded by Mistry but remained chairman of the Tata Trusts, which holds a controlling 66 percent stake in the group.

This means that Tata has continued to wield authority, rather like a supervisory board chairman. He also had enough personal pull to whip other Tata Sons board members into line and secure a six-out-of-nine majority for his coup.

I first heard suggestions in 2012 that Tata was not happy with the choice of his successor but realized that, after failing over several years to choose and groom a successor, he had to accept him because of the Mistry family’s shareholding. But Tata did not show any signs of his unhappiness starting in November 2011, when Mistry was selected, or after the handover.

Publicly, Tata has occupied himself with a series of personal and Tata Trusts investments in mostly new high-tech ventures, leaving Mistry to run Tata Sons. But behind the scenes, tensions were building.

This was inevitable, because Mistry’s job was to sort out the baggage and legacy left to him by Tata. No one bestraddled the Indian business world in the way that Tata did, presiding over $100 billion-plus in revenues, more than half from 80 countries overseas, with over 450,000 employees in 100 operating companies and interests ranging from tea to telecoms, software to hotels, wristwatches to defense rockets, coffee (Starbucks) to power and steel.

But he left big problems for Mistry to sort out. They included debt from a $13.39 billion Tata Steel investment in the U.K.’s loss-making steelmaker Corus, poor performance and a dismal new product line at Tata Motors’s India business, unsatisfactory results at the group’s Taj hotels, and other problem areas, including telecoms.

Ironically, the big company that was performing worst and needed the most basic change was Tata Motors, in which Tata had taken the most personal interest, saddling it with the disastrous Nano mini car that has produced losses since it was launched in 2009.

Offsetting that was Tata’s highly successful $2.3 billion takeover in 2008 of the U.K.’s Jaguar Land Rover, which has supplied Tata Motors with profits.

Contradictory Criticisms

Criticisms being leaked by Tata’s supporters focus contradictorily on how Mistry did not grapple enough with these problems, and how he brought in too many changes.

Similarly, on the Indian TV channels, a representative of the Tata Trusts said they were motivated to sack Mistry because of worries about profits to fund charitable works, while Harish Salve, a senior lawyer and Tata confidante, said that Mistry had been too profit-oriented for Tata as a broader-based institution.

Lord Kumar Bhattacharyya, of the U.K.’s Warwick University, who is a Tata loyalist and was involved in the choice of Mistry, told the Financial Times that he had been replaced because of a “lack of performance.” That echoed a critical article in The Economist on September 24 that contained a very detailed analysis of the group’s finances but arguably did not give Mistry enough credit for trying to balance what it called being “socially responsible but financially disappointing.”

Tackling Problems

Mistry was trying to sort out the problems. Last year, he began to close or sell the U.K. steel interests, a move that now seems to have been put on hold, partly because of Brexit’s impact on investments.

There were changes in the Taj hotel group, which sold at least one big investment, and Tata Power plans to sell stakes in Indonesian coal mines. There has also been an increasingly bitter legal dispute with Japan’s NTT DoCoMo, a mobile phone operator, over a $1.2 billion arbitration award.

Possibly most contentious has been the plan to sell or close Corus and the DoCoMo clash, neither of which really fit with the Tata gradualist ethos. There have been some criticisms of the way that the Corus affair was handled, but there were substantial talks with the U.K. government before the initial decision was announced. The DoCoMo row certainly worried the Indian government, which feared it would put off potential Japanese investors.

Profits actually improved under Mistry. Total net profit in 16 listed companies where Tata Sons is a shareholder amounted to $5 billion in the financial year ending in March, according to S&P Capital IQ data. This was 21 percent higher than in Tata’s last year in charge, the Financial Times reported. But this relied heavily on Tata Consultancy Services (TCS), the group’s information-technology cash cow, which accounted for 69 percent of total earnings.

Excluding TCS, net profit for the 16 companies fell 42 percent, reflecting Tata Steel’s heavy U.K. losses and a sharp decline in earnings for Tata Motors’s core Indian business. The rest of the companies included many bad performers.

Beyond all that, there have been suggestions that Mistry was leading the group into his Pallonji family’s main investment area: infrastructure projects. Tata has little or no experience in this area, where bribes and other corruption could cause problems for the group’s “clean” image.

Ratan Tata is also known to have been unhappy about a group executive council of new recruits that was set up by Mistry in 2013, introducing a new tier of authority below the Tata board. Significantly, that council was closed down Monday.

A Luxury Mistry Did Not Have

None of this is very exceptional, however, and in fact is very similar to what Tata did when he became the group’s chairman in 1991. He centralized power in the group’s Mumbai headquarters and, one by one, removed men who were running key parts of the business, including Tata Steel and the Taj hotels.

No one interfered with him because he was the chairman of the Tata Trusts as well as Tata Sons. That was a luxury that Mistry did not have, and he did not have time to prove that he could perform long term as well, if not better, than Tata had done.

It is not yet clear what finally led Tata to decide his successor had to go. Mohan Parasaran, a senior lawyer and Tata adviser, said on NDTV television Tuesday that he had been consulted a month ago by Ratan Tata about the legality of removing Mistry, who declined an invitation to resign.

Even those who think it was right for Mistry to go criticize Ratan Tata’s way of handling it. “I am not at all happy about the development, which looks very ugly to say the least,” V.R. Mehta, one of the Tata trustees, told NDTV.

That just about sums up the problem that Tata has created for himself and for the group, by deciding it was better to sack Mistry than try to work with him and his new ideas.

John Elliott writes from New Delhi. His latest book is Implosion: India’s Tryst With Reality (HarperCollins, India).