According to a statement issued by the group, the decision to replace Mistry, who took over the reins of the $108 billion business house in December 2012 from predecessor Ratan Tata, was taken at a board meeting held on Monday itself.
“The board [of Tata Sons] has named Ratan N Tata as interim chairman of Tata Sons,” the statement says, adding, “the board has constituted a selection committee to choose a new chairman. The committee comprises Ratan N Tata, Venu Srinivasan [of TVS Motor Co], Amit Chandra [of Bain Capital in India], Ronen Sen [former diplomat] and Kumar Bhattacharyya [member of the British Parliament’s House of Lords].” The aforementioned selection committee has been mandated to complete the selection process in four months, the group said.
A Tata Group spokesperson said later in the day that the board of Tata Sons, “in its collective wisdom, and on the recommendation of the principle shareholder [Tata Trust],” decided on this change in the long-term interest of Tata Sons and the Tata Group. Tata Sons is the main holding company of the group. There would be no change at the level of the operational CEOs and at the level of the various companies that are part of the group, the spokesperson added.
Mistry is the son of construction tycoon Pallonji Mistry, chairman of the Shapoorji Pallonji Group and the single largest shareholder in Tata Sons with an 18.4 percent stake.
Mistry has had to battle several headwinds during his tenure in the corner office of Bombay House, the Tata group’s headquarters. These include Tata Steel’s struggling operations in Europe, which is reeling under losses and finding it difficult to cope with the slowdown in the European economy and resultant adverse impact on steel demand. A move by the steelmaker to divest assets in Europe, especially the UK, wasn’t received well by the local workers’ unions as they feared for the livelihoods of the employees working at these factories. Sagging sales of passenger cars at Tata Motors was another challenge that Mistry had to tackle with, along with operational challenges at Indian Hotels Co.
The sudden, unexplained decision to relieve Mistry of his duties, which he had discharged for less than four years points towards serious disagreement between the chairman and other stakeholders of the conglomerate, which may include Tata Trust that owns a majority stake in Tata Sons and/or other directors on the board of the company.
In some of his previous written communications with employees of the group, Mistry had pointed towards the need for the conglomerate to reinvent itself, be more customer-focussed and nimble and agile to changing trends in business. He had also indicated that difficult business decisions would need to be taken with respect to some of the legacy assets of the group, including the need to prune them as they weren’t turning around despite the investment of considerable resources.
Despite the challenges, Tata Group companies listed on the bourses have done well in terms of growth in market value under Mistry’s tenure. The 27 listed firms of the conglomerate recorded a gain of 74.5 percent in market value between January 1, 2013 and October 21, 2016. The growth in market capitalisation of the Tata Group companies outstripped the 43.4 percent growth in the benchmark BSE Sensex in the same period.