The October ouster of Cyrus Pallonji Mistry from his post as executive chairman of Tata Sons Ltd. was the denouement of a series of issues that included “conflicts of interest,” “poor governance” and a “tendency to concentrate control” of the Tata group companies, according to Ratan N. Tata.
“Mr. Mistry accused me of wanting to come back,” Mr. Tata, the 79-year-old chairman of the Tata Trusts and Mr. Mistry’s predecessor at the group’s helm, said in an exclusive interaction with The Hindu , his first with a journalist on the issue.
“Nothing could be further from the truth.”
Unease built up
Piecing together information gleaned from documents that include e-mails between Mr. Tata and Mr. Mistry and conversations with senior group executives, who did not wish to be identified as the matter is in court, it emerges that the Trusts’ unease with Mr. Mistry’s management of the group had been building up over time.
While friction within the Tata Sons board, and between the Trusts and Mr. Mistry, started intensifying in 2014-15, as the Tata Sons board believed it was being ignored in decision-making, things came to a head in 2016.
Tata Power’s June 2016 acquisition of Welspun Energy’s renewable assets is believed to be one of the main bones of contention in the Mistry-Tata standoff, with questions remaining over the extent to which the boards of both Tata Power, and more importantly that of Tata Sons, were in the loop and supportive of the decision.
The flashpoint was Mr. Mistry’s decision to acquire Welspun Renewables Energy at a price of ₹9,500 crore, which a group veteran said was presented as a fait accompli to the board, after the decision had been taken.
“That was the point in time we got to believe that he had a tendency to do things on his own against the earlier practice of collective decision making,” said the group veteran.
While all important decisions, particularly those that involved acquisitions or fund raising, were earlier always discussed and approved by the Trusts’ representatives on the Tata Sons board, the Tata Trusts — the majority shareholders in the steel-to-software conglomerate’s holding company — now found themselves marginalised.
Always polite to a fault in their written communications with each other (the senior Mr. Tata always addressing Mr. Mistry as “Dear Cyrus” and Mr. Mistry unfailingly starting with “Dear Sir” and closing with “warm regards”), the growing tensions and widening gap in perspectives on a range of issues between the two was clearly apparent.
The issue of governance was another key flashpoint. Having agreed to dissociate himself from his family’s construction businesses — Mr. Mistry is the younger son of Pallonji Mistry of the Shapoorji Pallonji group — when he assumed office, Mr. Mistry is said to have reneged on that commitment by awarding contracts valued at about ₹2,000 crore to the group’s SP Corporation, till date; a clear conflict of interest.
Among the group companies that contracted large projects to SP Corp. were Tata Consultancy Services and Tata Motors.
Conflict of interest
After Mr. Tata repeatedly flagged this concern in several communications, Mr. Mistry wrote in October 2013 to the group’s companies, “to avoid any perception of a potential conflict of interest, I believe that, as long as I am the Executive Chairman of Tata Sons, it would be appropriate that the Tata group of companies no longer engage with the Shapoorji Pallonji group of companies for any engineering and construction contracts.”
However, the issue lingered on as another point of contention between the two men as they continued to exchange communications on it.
Mr. Mistry also appears to have not fulfilled the requirement of a five-year strategic plan and a one-year operating plan for Tata Sons. Mr. Mistry’s own Vision 2025 plan, which ‘proclaimed’ Tata Sons would become the 25th most preferred group company in the world by 2025, “contained nothing specific,” according to Mr. Tata. “It was a travesty,” said Mr. Tata.
The Tata Trusts and Mr. Tata were also disconcerted by Mr. Mistry’s approach to fees and commissions for directors on the boards of the group’s operating companies, as well as a departure from long-running tradition of elevating senior group executives to the Tata Sons’ board.
For instance, some of the group’s companies paid as much as about ₹1.3 crore to their directors by way of annual fees and commissions, and this at a time when they were posting losses and withholding dividends to shareholders.
Also, at the time of Mr. Mistry’s exit, Tata Sons had only one other group executive on its board — Ishaat Hussain who was Director, Finance, Tata Sons.
This was after Mr. Mistry, who assumed office in December 2012, had chosen to let board vacancies created by the retirement of as many as four former Tata group executives remain unfilled.
Still, the Trusts withheld their counsel, in order to allow the incumbent group chairman the freedom to operate.
“It’s absolutely untrue that the Trusts were interfering with the functioning of Tata Sons and operating companies”, said Mr. Tata.
But on October 24, 2016, the Tata Trusts and Mr. Tata appeared to have decided it was time to call time on the long-running feud. The outcome — Mr. Mistry’s much-debated ouster.
