TATA SONS – THE M(I)STRY SAGA – Part 5

What really went wrong?

Continuing from our previous post (Part 4) we present our concluding views on issues leading to the trust deficit at Tata Sons Boardroom and Mistry’s ouster.

 

Trust Deficit –

Trust is an extremely vital driver and determinant of a healthy relationship at the Board level. A deep trust reservoir can play an invaluable role in holding the institution together and in making crucial business decisions. While it is critical to have diverse and varied opinion to make informed decisions, true stewardship is established only when there is deep trust amongst members of the Board.

The seeds were sown early on when the Articles of Association of Tata Sons were modified once Mistry came on Board. Clearly this was a clarion call on how the Group was preparing to manage the transition between Ratan Tata and Mistry – moving from promoter led leadership to a professionally managed leadership. While it may have been undertaken for valid business reasons, it clearly sent out a different message to Mistry. It is important to remember that behaviour is a collective reflection of intentions, communication and conduct.

Given the challenging business circumstances and the vital signs of the Group companies, it appears Mistry took certain radical steps that clearly were a departure from the established ideology of the Group. Under his leadership, there was constitution of the Group Executive Council that had a mix of people from within the Group as well as outside professionals. The GEC started taking decisions on critical business matters that were clearly to be placed first with the Board for consideration, discussion and approval. This was in line with the modified AOA that were approved in terms of the curtailed autonomy that was granted to Mistry.

Additionally, Mistry made serious attempts to dispose off assets as part of rationalizing the Group’s business portfolio. Clearly this thinking did not sit well with the established ideology of the Tata Group that has prided itself on working closely with all stakeholders in turning around businesses and nurturing them to enduring profitability.

Under Mistry, the Group perhaps made the maximum provisioning in the balance sheet and also took hits on account of impairment given the rapid change in the business landscape thereby negatively impacting the competitiveness of the Group businesses. This had serious downstream implications for the Tata Trusts (the significant and majority shareholder of Tata Sons) as they principally relied on dividend earnings to finance and support their social sector initiatives. The reduction in dividend income and the absence of other revenue streams meant the Trusts’ ability to fund social sector projects were severely impacted and compromised.

Belied Expectations –

There is considerable speculation in terms of what has really transpired behind the scenes. This is bound to happen given that no official reasons have been forthcoming on why the decision to remove Mistry as Chairman of the Board was necessitated in the first instance. At best what we have is conjecture or imputed motive. Given the prestige of the institution and the reputations of the individuals involved, it is unlikely that there could be issues around integrity, propriety or ethics. It would also be circumstantial to assume that it may be a result of clash of culture and value systems between Mistry and the Tata Sons Board, given his long term association with the Group at the Board level.

Having said that, there is no denying the fact there were serious fault lines that developed between Mistry and the Tata Sons Board. These were definitely not intended but given the chasm that opened up and the failure on part of the leadership team to plug the breach, it has led to an untenable situation wherein the Board decided to take decisive action by voting to remove Mistry from Chairmanship of Tata Sons.

It would also be important to remember that the TATA Sons Board would have been aware of the potential implications of the decision, in terms of its impact on the brand and reputation of the Group. The fact that they made an infirmed decision despite the potential risk to the brand indicates the willingness on part of TATA Sons leadership in biting the bullet to arguably secure the ethos and the future growth potential of the Group. This in itself is a demonstration of character of highest order.

It would seem that while neither side intended for the actions to be so precipitous, things did reach a boil. So while the Board of TATA Sons may have followed all the rules, it does appear they were found lacking in the spirit of its application in terms of making it appear even handed to present Mistry with an official opportunity to make his case to the Board. Of course, based on reports it would appear that several attempts were made to enable Mistry make a dignified exit from the position on his own volition, without much headway. It appears Mistry was willing to go for a scrap and prepared to dig in his heels, despite losing the confidence of the Board. It appears this decision was ill advised and against the ethos as well as the spirits of what the Group stands for.

Unfortunately the damage is as much to the position / institution as it is to the individual.

Clearly, there are no winners in this face off.

 

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