Mr Mistry Case Study

NEW DELHI: Corporate India’s most dramatic and consequential battle in recent history was framed by top level disputes from issues as diverse as the proper way for Tatas to do poll funding to whether Tatas should tie up with an American fast food chain.

In between, Ratan Tata also took dim views on Mistry and his aides’ suggestions on piloting the bid for a prestigious defence contract and approach to the Tata Power-Welspun deal, including the wording of the minutes of a board meeting.

ET spoke to Vijay Singh, who chaired the Tata Sons board meeting that ousted Cyrus Mistry, to other Tata Sons board members who didn’t want to be identified, as well as to senior personnel close to Mistry who also chose to remain anonymous. Detailed questions were sent, and responses received.

The Rs 10-crore battle
Electoral funding, a hot button topic for any large business group, was one of the earliest issues that saw Ratan Tata express his dissatisfaction over Mistry and his team. A close Mistry advisor had proposed Rs 10 crore funding for Odisha assembly elections in middle-2014. The logic given was that Tatas had big iron ore deposits in the state. But Ratan Tata’s nominees in the Tata Sons board argued against the idea, citing the long practice of Tatas only contributing to parliamentary polls, and that too through a trust. The proposal didn’t pass. But Ratan Tata, a board member said, was unhappy that such a proposal was even mooted. And Mistry, he said, was informed that such plans were not in consonance with the group’s reputation.

“Our main concern was that the highest ethical standards of governance should be maintained, for example in the matter of funding of elections through electoral trusts…,” Vijay Singh told ET.

People close to Mistry had a different version. A person close to Mistry told ET: “There was a discussion. After discussion, it was decided that any contribution for state elections was to be left to respective Tata companies. These companies may choose to do so, but again within the principles applied to the Electoral Trust, that was rule based, transparent and had full disclosure.”

The Rs 60,000-crore battle
Aboard member said Ratan Tata was “dismayed” when the Tata group made two bids for a prestigious army contract earlier this year — the Rs 60,000 crore contract for 2,600 Future Infantry Combat Vehicles.

Tata Power Strategic Equipment Division (SED), in a joint venture with Titagarh Wagons, and Tata Motors in a JV with Bharat Forge, made two separate bids. The board member who spoke to ET said Ratan Tata thought a unified bid would have been in keeping with the group’s image and that two bids “made Tatas a laughing stock”. The winner for this contract hasn’t been decided as yet.

Tata had suggested through interlocutors that Tata Motors, which has the expertise, should combine with SED. He also felt Mistry should lean on the two entities to resolve any differences.

Mistry’s aides, however, believe that such suggestions amounted to “interference”. One person speaking for Mistry said: “Cyrus did his role in convening them to get to a situation that could be potentially win-win for both. Cyrus respects the independence of each group company board and shareholders and would not do something to favour one over other”.

The board member told ET that as chairman of Tata Sons, Mistry should have ensured synergy between group companies. “Cyrus agreed, which is why he tried, but he failed,” he said.

Spinning the minutes
The disputes over the Tata-Welspun deal was centered around a little-known fight over fine print. Ratan Tata’s argument was that Cyrus Mistry’s refusal to bring the Tata Power-Welspun deal before the Tata Sons board amounted to a breach of the articles of association, because the deal size was large enough to merit the holding company’s approval. The Tata Power’s board meeting on the deal saw Tata Sons representatives arguing that “the fact of a breach of the articles of association” should be put on record. Mistry reportedly said the word “breach” has legal connotations and could not be used. Ratan Tata was consulted by Tata Sons’ representatives and “breach” was substituted with “not in accordance with”. However, said the board member quoted earlier, in the final minutes there was no reference to this. Ratan Tata was upset, the board member said, and the company secretary again amended the minutes. “The whole thing left a bitter taste,” this member said. Mistry’s aides told ET: “Ratan Tata may have conveniently forgotten that the Welspun deal details were with him for over 10 days as he went about travelling the world. Due process was followed and the Tata Power board was unanimous in its approval...Tata Sons board was informed of the Welspun deal before it was announced in the press.”

Singh said the question was not about the deal, but about “due processes in line with group rules”. “At no stage was the approval of Mr Tata or the board of Tata Sons sought. The communication sent by the Company Secretary of Tata Sons was not a board circular or resolution, which required approval and was merely something sent for information after the deal had been sealed,” Singh told ET.

The food fight
A proposal for a fast food tie-up really spiced up the Tata-Mistry battle. Tata Sons board was presented with a proposal of a tie-up with US pizza chain Little Caesars.

“He (Ratan Tata) was disillusioned that something like this was being brought before the Tata Sons board. There were other Tata entities which could deal with this kind of stuff. He felt this was just pulling down the image of the group,” a board member told ET.

Mistry’s aides say since Tatas tied up with a coffee chain (Starbucks), there was nothing wrong with this idea. “During our strategy discussion with the Tata Sons Board in June 2016, it was proposed we explore QSR (quick service restaurants) as a possible growth opportunity. This was done considering our success with Starbucks… As we were approached by a major player in the US to partner in a venture, we took the Board’s permission only to explore this opportunity,” a person close to Mistry said.

Tata’s aides say coffee chain Starbucks was a different proposition since group entities like Tata Global Beverages and Tata Coffee meant that the group had a large presence already in this area. “Pizza is a completely different business”, the board member said.

Japanese & workers
The board member said all these issues added up to a “worrying picture” and that Ratan Tata also felt discomfited by Mistry’s approach to widely different subjects, managing Tata factory workers and managing relations with Japan Inc.

Ratan Tata, his aides say, had no problems with Mistry’s decisions on Nano or Tata-Corus. Tata’s issue was that Chairman Mistry “must go to factories and face workers, try to address their issues and not deal with it from Mumbai. He felt this was not the Tata way, a conglomerate where employees have a very strong emotional connect with the brand,” the board member said.

On the Tata-Docomo dispute, Ratan Tata felt the group’s credibility was at stake. He was keen to honour the deal with Docomo and got Mistry to deposit Rs 8,000 crore with the Delhi High Court. The board member said Tata had to intervene after some of Japan Inc’s biggest names complained to him that this issue was not going down well in Japan.

Mistry’s aides told ET he wanted be legally correct. “The RBI stance this week has clearly indicated that irresponsible solutions that Ratan Tata seems to be suggesting would have been illegal under Indian law. Cyrus was committed to finding a solution,” an aide said.

Tata confidants said Mistry should have proactively worked with the government to find a solution. “But generally it appeared there was no push on Mistry’s part,” the board member added.

All this, plus what the member said was Tata’s concern about Mistry’s emphasis on real estate deals, an area the Tata group had no expertise in, and a sense that Team Mistry “simply wanted Ratan Tata to fade away” finally tilted the scales for the decision to oust Mistry. Ratan Tata’s first choice as interim chairman was a group veteran, who the board member declined to name, but that veteran cited health reasons, and it was decided that Tata himself should take charge.

Cyrus Mistry was just removed as Tata Sons chairman after four years on the job at India’s most vaunted industrial group. Theories abound of why Mr. Mistry was let go: poor performance; inexperience; clashes with heavy-hitting insiders; etc. This corporate drama provides an opportune window to reiterate the top lessons of top executive derailment.

Four years ago, Mr. Mistry’s appointment was greeted with much cheer. He had a distinguished pedigree, with diploma from Imperial College and London Business School (both institutions that I have had the privilege of teaching at). He had served on the board of Tata Sons since 2006. He was the scion of a family that owned shares directly in the Tata Group, and this boded for good alignment in terms of the principal-agent theory. Yet Mr. Mistry has derailed. Executive derailment theory provides a framework for us to understand the truth in the rumours that are now floating around until we get to know “the whole truth”.

Scapegoat for poor performance? The Tata group’s growth has stalled since Mr. Mistry has taken over. The market capitalization has shrunk slightly and return on invested capital is showing a worryingly downward trend. However, poor performance by itself is unlikely to have been the cause for the ouster. The Tatas are patient capitalists, and for a group that has seen only six chairmen in a century and a half, performance over such a short term is unlikely to have been, by itself, an urgent cause for ouster.

Too far, too fast? Lack of all-round experience is one predictable cause of top executive derailment. Although Mr. Mistry appeared to have good credentials while taking over, in retrospect it is clear that he was not seasoned enough to get on top of the complex portfolio of businesses in the Tata Group. He must have also struggled to enact two key roles required by the complex governance structure. Mr. Mistry was in effect the boss of two teams: the Board of Tata Sons governing the group, as well as the top executive team running the business. The executive team, for example, comprised diverse luminaires such as the brilliant professor Nirmalya Kumar (my erstwhile academic colleague) and the good soldier Harish Bhatt. Was Mr. Mistry able to develop a team culture that forged these diverse talents into a well-humming engine? Mr. Mistry’s inability to show evidence of building a high-performance team could have contributed to the Board’s lack of confidence in him.

Able to learn from antagonists? At IMD we often see top executives that have been derailed because their inability to let go of enduring interpersonal quarrels. For a new boss, especially one moving into a successful and well-established organization, such quarrels are inevitable. My colleague Professor Ben Bryant theorizes that the antagonists in these quarrels represent, not so much individuals expressing difference, but fractal aggregates of resistance mobilized by the organization at large. Burying the hatchet to tame these rivals, as Abraham Lincoln well knew, is a necessary precursor to a glittering leadership resume. Reports are emerging of Mr. Mistry’s clashes with experienced corporate insiders (including the venerable Mr. Ratan Tata), suggesting that this could have been a credible cause for Mr. Mistry’s dismissal.

Grown-up enough to learn? Unwillingness to subsume one’s ego enough to learn from adverse experiences is simply the deepest cause of executive derailment. I have seen many formerly successful executives struggle with the notion of being humble enough to learn from a setback: for them, protecting their ego is more important than acknowledging their mistakes. I suspect that this reason was the one that the board of Tata Sons must have had the most difficulty accepting in their Chairman, and grave enough for Mr. Rata Tata to pull the trigger.

Anand Narasimhan is Shell Professor of Global Leadership at IMD (Lausanne & Singapore). He researches top team dynamics and teaches on IMD’s High Performance Boards program.

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