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Why was Cyrus Mistry sacked? Top possible reasons for his exit

Among the real issues, Tata might have felt Mistry would not be the best bet for the group in the long term

BS Web Team  |  New Delhi 

Ratan Tata arrives at Tata group's head office Bombay House in Mumba
Ratan Tata arrives at Tata group's head office Bombay House in Mumbai. Photo:Kamlesh Pednekar/BS

Ratan Tata, patriarch of one of India's most influential families, will take over as interim chairman of Tata Sons after the salt-to-software conglomerate's board ousted Cyrus Mistry, who had sought to shake up the firm's management.

Tata, who had stepped down as chairman and was replaced by Mistry in late 2012, will head the group for four months while the company seeks a replacement.

Tata Sons is a large shareholder in a string of listed Tata Group companies - a business empire ranging from Jaguar Land Rover cars and steel mills to aviation and salt pans.

The board said in a statement on Monday it was decided "it may be appropriate to consider a change for the long-term interest of Tata Sons and Tata group."

While the board gave no detailed reason for the change, some media reports said there has been discontent with some of Mistry's actions, including asset sales.

Here are the possible theories behind Mistry's ouster

1. Welspun acquisition
The latest trigger was Tata Power’s acquisition of Welspun Renewables’ solar and power assets — the deal went through without consultation with the Tata Sons board, according to a source. In fact, the process of consultation and getting approvals from a Tata Trusts committee for issues related to the group resulted in tension on several occasions, another source said. Tata Sons is controlled by Tata Trusts, which formed a committee with Tata Sons board member and Bain Capital Managing Director Amit Chandra, Managing Trustee of the Sir Dorabji Tata Trust R Venkataramanan (Venkat), Trustee Noshir Soonawala and Tata as members.

2.Management restructure

The 48-year-old has been trying to shake up the $100 billion company by changing the management structure to bring in new faces at senior levels. He has also battled issues on a number of fronts in recent months, including a costly settlement with Japanese telecom operator NTT Docomo and the sale of Tata Steel's loss-making UK business. Britain's vote in June to exit the European Union was a big setback for the steel sale, which Tata has now put on hold. Brexit has also cast a shadow over Tata Motors' luxury car unit Jaguar Land Rover (JLR), which has a large UK manufacturing base. Tata Motors' quarterly profit halved as the pound slumped following the Brexit vote, and JLR's CEO warned that some customers in Europe, its biggest market, no longer wanted to buy British cars.

3. Vision missing?

Sources said the real issue was that Tata felt Mistry may not be the best bet for the group in the long-term and that there was hardly any forward movement under his leadership. The vision was missing, as a source described it. But questions are being raised on this assessment by a board that has at least three members – Ajay Piramal, Venu Srinivasan and Amit Chandra – who were appointed just a few months ago. Whether or not the board was qualified to take a decision to replace Mistry, the buzz Monday evening was that Tatas have kept the Prime Minister's Office (PMO) in the loop on the change.

4.Tough decision?

According to reports, several of Mistry’s decisions, including the disposal of some of Indian Hotels Co’s overseas properties and the move to shut the UK steel operations, did not go down well with Tata Trusts as many were considered Ratan Tata’s jewels. The recent controversy over NTT Docomo, the Japanese telecom service provider and erstwhile partner of Tata Telecommunications, that moved courts over an exit clause in the deal, could have been a point of tussle too between Tata and Mistry.

Departure deliberated over months?
Sources also said that Mistry's departure was deliberated over months and was a result of a difference of opinion between him and the board, without elaborating on the differences.

Tata Sons may have also dismantled Cyrus Mistry's Group Executive Council (GEC)

The source also said that Tata was disbanding the group executive council (GEC) - a team of core advisers that Mistry had formed.

Of the five GEC members, two, including Dr Mukund Rajan and Harish Bhat, will take on senior level responsibilities within the group, said the source, adding it is unclear what roles, if any, would be offered to the other three, Madhu Kannan, former CEO of the Bombay Stock Exchange; NS Rajan, former partner at Ernst & Young; and Nirmalya Kumar, former professor at London Business School.

Shapoorji to contest Mistry's departure?

CNBC TV18 reported that Mistry's Shapoorji Pallonji family, one of the biggest shareholders in Tata Sons, may legally contest his departure, adding that the Tata family had sought legal advice before making the decision.

"Shapoorji Pallonji could challenge this decision, although I think all the rules were strictly followed and I was convinced," said Mohan Parasaran, a senior Supreme Court advocate who was consulted by the Tata family about a month ago.

With inputs from Reuters

First Published: Tue, October 25 2016. 10:43 IST