Tata vs Mistry: Here's why Cyrus Mistry need not fret

Cyrus Mistry, according to his well-wishers, is terribly hurt about the way he was sacked as Tata Sons chairman. The board could have handled the matter with some grace instead of informing him “just a minute” before he was summarily removed without giving any reason, Mistry’s friends say.

Now, listen to the Tata sympathisers. Mistry, they say, was given enough indications of the promoters’ loss of faith in him. A couple of key Tata Trusts and Tata Sons directors had even advised him on a course correction as they felt Mistry was allowing some of the major group companies to drift away from the group ethos. He was also told about the growing perception in Tata Trusts that he was being led by some of his key appointees, instead of leading them. It’s preposterous to suggest that he didn’t know which way the wind was blowing, a Tata sympathiser says, adding Mistry was not given any formal notice about his ouster. But that’s because no board in its sense would give the executive chairman advance notice about the decision to sack him. Once the board decides he should go, the band-aid has to be removed almost immediately lest the word leak.

He has a point. Very few boards of global majors have done anything like that. In earlier days, exiting chief executive officers (CEOs) were despatched gently, with an announcement that the leader would step down to spend time with family or pursue other interests. But as boards strive to appear in control, companies are dropping the niceties. The emerging consensus seems to be: If that sounds like a callous and classless thing to do, so be it.

There are examples galore. Take Yahoo CEO Carol Bartz. The most striking feature of her abrupt firing from Yahoo was the fact that Yahoo Chairman Roy Bostock did that over the phone. Bartz, in fact, had just two hours to let Yahoo know whether she would resign or allow the board to fire her.

There are others, too. In August 2007, Tesla Motors CEO Martin Eberhard was in Los Angeles to give a talk on the company’s launch of the all-electric sports car, the Tesla Roadster. Just as his talk ended, Eberhard got a call from Elon Musk that he was being replaced with an interim CEO. No reason was given.

J C Penney dumped Ron Johnson, the CEO it poached from Apple with great fanfare 17 months earlier, replacing him midway without assigning any reason. It later transpired that the decision was taken for excessive burning of cash.

Bryan Stockton’s 2015 exit from Mattel is memorable partly because it was so confusing: Mattel issued a press release in January 2015 saying Stockton would be resigning. But a few months later, the company changed its tune, noting in a regulatory filing that Stockton’s “employment was terminated.” Again, no reason was given.

Some moved on from their sacking pretty fast. When Groupon fired chief and co-founder Andrew Mason, he made light of his ouster in a farewell memo to the staff. “After four years of intense and wonderful years as CEO, I have decided that I would like to spend more time with my family,” he wrote. “Just kidding—I was fired today.”

In fact, estimates suggest as many as 70 per cent of CEO departures in the US can be considered involuntary.

It’s not firings alone; companies tend to keep the hiring of new CEOs or their succession plan under a huge cloak of secrecy, lest the news leak out prematurely. For example, nobody but the GE board knew who would succeed Jack Welch till the very end, and the company managed to keep the formal selection process a secret for over six years.

According to a Fortune report, the minutes of these board meetings were handwritten so that nobody could save them on their hard drive. Even after the decision was made known to Jeff Immelt, Welch advised him to fly down from South Carolina, but not on a GE jet as the whole company would know within hours. The Welch and Immelt family had a celebratory dinner but didn’t risk going to a restaurant as they could be spotted. Sodinner was catered at Welch’s home but not by a regular GE caterer. Too risky. The secrecy worked. When the announcement went out to the world next morning, not a word had been leaked.

Overall, the firing of a CEO is a traumatic event in the life of any company. For it to be successful, the board of directors has to guide the process with skill and assurance. Unfortunately, that rarely happens. Most boards fail to provide the leadership required. It may be small consolation for Mistry, but he isn’t alone. It’s a fact that many of his illustrious counterparts all over the world had a similar experience when they were asked to ship out.