The surprise sacking of Tata Sons Chairman Cyrus Mistry has apparently been under consideration for a while, according to media reports.
While the company hasn't disclosed the reason behind the ouster, NDTV reported a board member as saying the decision was "entirely linked" to Mistry's performance as chairman. Mint also reported the move had been some time in the making and tied to growing differences among board members over the financial challenges the company's has been under, Mint reported citing a person close to Mistry.
According to the Mint report, "several of Mistry's operational decisions" were being opposed by Ratan Tata and the company's largest shareholder.
In a letter to employees, Ratan Tata has said the decision was made "in the interest of the stability of and reassurance to the Tata Group."
Mistry, 48, became chairman of Tata Sons, a $100 billion massively-diversified 'salt-to-software' conglomerate in 2012, succeeding Ratan Tata, 78. He had been a Tata Sons board member since 2006 and was the sixth chairman of the group since its founding and the only one to hail from outside the Tata family. Tata Sons is the flagship entity of Tata Group, one of India's oldest firms that traces its roots back to 1868.
After growing rapidly for decades expanding into a sprawling business empire with reach across diverse industries ranging from salt to tea to telecom and cars, Tata Sons has been facing numerous challenges in some of its key divisions, The Economist pointed out recently. Not least of these challenges is its struggling Tata Steel business in the UK, as well as its long-drawn arbitration dispute over a telecom joint venture deal gone sour with NTT DoCoMo that involves an outstanding fine of $1.17 billion that Tata Sons owes to the Japanese telecom major.
Many are pointing to differences that may have cropped up over Mistry's approach towards shedding under-performing businesses, including its struggling steel business in Europe, and "concentrating only on cash cows."
Among the so-called cash cows is the IT giant, Tata Consultancy Services (TCS), which is also facing structural challenges as part of the larger Indian IT industry malaise which is seeing increasing competition from automation. TCS recently reported tepid results in what its chief N Chandrasekaran called it an "unusual" quarter amid a period of increasing uncertainty.
Tata Sons has also recently seen several board changes including the appointment of some key industrialists.
In August, Tata Sons named Amit Chandra, managing director of Bain Capital, as a non-executive board member, a move that signals growing ties to the US private equity firm. It's unclear if Bain has made an investment in the company or into its many businesses. But it's not unusual for private equity executives to take board positions following investments, in listed and private entities. Bain executives could not be reached for comment.
The board also named Ajay Piramal, chairman of Piramal Group, and Venu Srinivasan, chairman of TVS Group as members. Following Monday's move, Ratan Tata has been named interim chairman of the board until the company finds a replacement. It has appointed a special committee tasked with selecting Mistry's successor.
While speculation is rife as to what led to Mistry's departure, many are pointing to the obvious pressures resulting from the company's lacklustre performance -- Tata Sons' sales declined to $103 billion in 2015-2016 from $108 billion the previous year.
The company's current debt levels are also high: nearly 90 per cent of the net debt held by its listed companies is at more than three times its earnings before interests, taxes, depreciation and amortisation or Ebitda, a measure of a company's cash flow, the Economist reported. Its net debt stood at about $24.5 billion as of March 2016, up from $23.4 billion in the year-ago period.
According to the Economist, while the company's scale helped it raise huge amounts of capital in the past, its sprawling size also led to slow-decision making and the presence of multiple silos may have hindered crucial growth and innovation. In the end, leaving Tata Sons to look like "an impressive but lumbering pachyderm."
What happens next?
According to media reports, board members had thought this move through and had even reached out to senior legal counsels such as Harish Salve and Abhishek Manu Singhvi and the advice of a former Supreme Court judge to sound out the legal repercussions of the move.
Mistry is also said to be considering legal action against Tata Group in the Bombay High Court. The Economic Times reported that Shapoorji and Pallonji Group, Tata Group's company's majority shareholder has called the move 'illegal' and plans to contest it, as the decision was not entirely unanimous. Two board members did not vote for the ouster out of the eight member-board.
Industry observers have already started speculating on the possible successors for Mistry. The names range from PepsiCo's Indra Nooyi, Arun Sarin, former Vodafone CEO, N Chandrasekaran, and Tata Group executives Ishaat Hussain and B. Muthuraman.