TATA SONS – THE M(I)STRY SAGA – Part 1

Winston Churchill had famously remarked about women – “A riddle wrapped in mystery inside an enigma”

It perhaps aptly describes the inner workings of the average corporate Board room. It would appear that even the revered TATA Group was not immune to this phenomenon. Or is there more to it than what meets the eye?

The TATA Chronicles –

The dust is yet to settle on the Tata Sons Board Room saga. By the time this piece gets published, enough dissection and analysis of the trail of disbelief and destruction of the happenings at Bombay House (headquarters of TATA empire) would have been carried out. After all, it is not often that one comes across hair raising episodes in a 150 year-old, USD 100 Billion global conglomerate with a storied reputation and sheer gravitas in the annals of corporate India. An institution that is known as much for its contribution to the national GDP as it is known for its national GPA (Gross Philanthropic Activities). An institution that is admired respected and looked up to as a beacon of best practices – a peerless institution exhibiting highest standards of corporate governance. An institution striving to live up to the defining promise and purpose of its founder Mr. Jamshedji Tata, considered as the torchbearer of timeless leadership and governance practices.

Circa October 24th 2016 – In an unprecedented move in the annals of corporate India the Board of Tata Sons through a residual resolution decided to vote in favour of removing its incumbent Chairman, Cyrus Mistry. The move sent shockwaves through the Indian business and financial ecosystem, as well as raising concerns in the minds of global financial investors. Mistry who was just four years into this assignment was an old Tata hand having spent close to 10 years on the Board of Tata Sons. Incidentally, Mistry’s family has close to eight decade old business association with the Tata Group and directly owns close to 18% shareholding in Tata Sons, the Holding/ Flagship Company of Tata Group. This decision on the face of it appears to have been taken at lightening speed including subsequent actions thereafter to remove any reference to Mistry in terms of his association with the Group in his capacity as Chairman of the Board. There was a lot that was happening behind the scenes and unfolding at express pace. Where was this headed?

Clearly the Board lost confidence as well as trust in Mistry’s leadership and was keen to make a swift and decisive separation on his continuation as the Chairman of the Board. This set in place a chain reaction of allegations and counter allegations, with both sides digging their heels in anticipation of a protracted legal battle. While no specific reason was attributed to this sudden decision, it appeared Mistry had lost trust of the Board and was increasingly operating in an isolated environment. Not very conducive to run a storied conglomerate that is a significant contributor to India’s GDP and is considered an epitome of highest standards of corporate governance.

Whatever may be the case, we have not heard the final word on this matter yet. That brings us to the most important matter under consideration – what really happened and are there learning from this episode for corporate India.

Torrential Disbelief –

Each passing day seems to only deepen the mystery around this entire affair leaving in its wake destruction of brand, reputation and shareholder value. There is understandably considerable anxiety, concern, fear and hurt in the collective minds of India Inc as well as broader business community given that Tata Sons Board has arguably stood for highest levels of corporate governance, definitely in relative terms.  As a crusader and custodian of governance principles with some of the finest minds from business community at the helm of its affairs, the sudden and enforced exit of Cyrus Mistry as Chairman of Board has cast serious breaches in the halo surrounding the Group. This is not so much about whether Tata Sons Board was within its legal rights to effect this change but more importantly the manner as well as the spirit with which it conducted its affairs. While there would have been merit to the decision arrived at through the combined wisdom of the Board, the undue rigour and speed demonstrated by the Board in removing Mistry did come as a shocker. Perhaps it could have been handled in a better way. Perhaps there could have been pressing issues that could have reached a tipping point leading to this sudden move which if left unaddressed, could have created a precipitous impact on the group and its operations – predominantly from its global standing and reputation perspective.

It appears we are in for a protracted behind the scenes battle which is likely to cause considerable damage to both individuals and institutions alike. From the looks of it, things will only get worse before they become better.

Our next post (Part 2) will help decode some of the issues that have possibly contributed to the current crisis at Tata Sons.

 

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