Cyrus Mistry exit: Four questions that Tatas need to answer

Stakeholders are anxious about the latest developments at the group

The Tata group’s communication strategy has come under criticism, especially following the allegations made by Cyrus Mistry in confidential letter written to Tata Sons board. Though the Tatas have slammed Mistry for the ‘unforgivable’ leak and the individual companies have asserted that the financial statements present a true and fair picture, specific allegations are yet to be addressed officially. Stakeholders are anxious about the future course of actions. 

This then is the right time to ask what comes next and urge the group to provide clarity to stakeholders on questions that they are raising, proxy firm Institutional Investor Advisory Services said in a report on Friday. It identified four key questions  stakeholders are asking Tatas:

What are the performance metrics for the Chairperson of Tata Sons?

One of the reasons cited for Cyrus Mistry’s departure was non-performance. However, shareholders remain unclear on what were the performance metrics and the timeline to achieve those that the group has set-out. Cyrus Mistry’s attempts at reducing debt and getting rid of bleeding parts of the business appear to be rather obvious and practical decisions, given the debt overhang.

This is reflected in the increased market capitalissation. If this strategic re-orientation is not acceptable to the Tata Trusts and Tata Sons, then the Tata’s must clearly articulate the deliverables of the Chairperson and the timelines within which the goals are to be achieved. This will not only help Cyrus Mistry’s successor, and prevent incidents of sudden departure in the future, but also provide guidance for investors in the listed Tata group companies. 

What are the departures from culture and ethos of the group? 

Tata Sons has stated that “the tenure of the former Chairman was marked by repeated departures from the culture and ethos of the group.” But, it is not enough to say that there were departures. Tata Sons needs to explain what these transgressions were and what are their implications, especially for the listed companies.  

Will Cyrus Mistry continue as Chairpersonin the listed Tata companies? 

The Chairperson of Tata Sons is the defacto Chairperson of the major listed Tata group companies. The Tata group needs to articulate if Cyrus Mistry will continue as Chairperson of Tata Motors, Tata Steel, Indian Hotels, TCS, and other Tata companies - and if not, the market need to understand how these transitions will happen. 

How will the dual power structure work, going forward? 

Independent of whether the Tata Sons’ Articles of Association (AoA) “were modified, changing the rules of engagement between the Trusts, the Board of Tata Sons, the Chairman, and the operating companies,” with Ratan Tata remaining Chairperson of the Tata Trusts and Cyrus Mistry chairing Tata Sons, there was a dual power structure. Such duality blurs the lines of accountability and creates confusion in the rank and file.