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This is Why Ratan Had to Say Tata to Cyrus Mistry

The Quint takes a look at the major reasons behind the removal of Cyrus Mistry as chairman of Tata Sons. 

Updated
Business
3 min read
(Photo Courtesy: BloombergQuint)

After the fight between the Ambani brothers, news of Cyrus Mistry’s removal as the chairman of the Tata group has become the biggest face-off in the corporate world.

Although the official decision was taken by the Tata Sons board, it was Ratan Tata who removed him.

On the nine-member board, Ratan Tata did not cast a vote because in the case of Mistry’s ouster, Tata would have become the interim chairman. Six of the other eight members voted against Mistry, while two others abstained, effectively resulting in none of the members opposing his removal.

This pre-Diwali explosion is so intense that it will take some time to understand the reasons behind it and gauge its implications. Initially, the share market might witness increased pressure on Tata stocks as traders might remain scared because of the confusion caused by the decision. This will increase the possibility of Ratan Tata revealing the company’s strategy – a move which will be important for him.

There are a few things that are important to know about this major chain of events.

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1. Difference of Opinion Between Tata and Cyrus Mistry

Ratan Tata wanted the business to grow, but under Cyrus’ rule the group’s growth had stagnated. Cyrus did not take Ratan Tata’s suggestions seriously, something that did not go down well with the former chairman of the group.

As per reports making their way out of Bombay House, Cyrus blamed legacy issues for the business problems he faced, indirectly criticising Ratan Tata for them. Cyrus also sold off many existing businesses, but did not start any new ones.

2. Cyrus Had a Weak Team

Cyrus Mistry had a weak team that was not prepared for new challenges. According to sources, there was also an issue of weak corporate governance with Cyrus. As per reports, Ratan Tata was also not happy with the handling of the break-up of Tata and Japan’s Docomo.

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3. Step Taken for the Future of the Group

Even after his retirement, Ratan Tata was looking out for the future of the group. He was constantly in touch with the big names of the business, whereas Cyrus was busy with daily affairs, not preparing the group for its future.

Tata Sons’ press note has also made it amply clear that the decision to remove Cyrus and finding a new chairman was important for the future of their businesses.

4. Failure to Fill Tata’s Shoes

This reason behind Mistry’s removal is bizarre, to say the least. The reality is that a person like Ratan Tata can never retire. Be it politics or business, it is difficult to let go, and is something rarely seen in India. It is extremely important to maintain a strong image of the Tata Group at this juncture and as such, Ratan Tata will have to answer difficult questions. This worry is also evident in the actions of the board, which has given itself a deadline of four months to find a new chairman.

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5. Will the Next Chairman be an Outsider or From The Group?

The door has been left wide open for Tata Sons’ next chairman – he/she could either be from outside or inside the group. One of the first names from inside the group can be of TCS’ Chief, N Chandrashekhar. Some names from the new economy could also be looked at.

Also, it was only last month that Tata Sons inducted some new names into its board. Ajay Parimal, Venu Shrinivasan, and Amit Chandra are few of the big names in the list. Cyrus must have read the warning signs. He might think of fighting a legal battle against the decision of the board, but it is difficult to see what he could achieve as Tata Trust has a firm grip on Tata Sons, owning 66 percent shares of the group.

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

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