One year after: Mistry’s strategy not at fault

A year after Cyrus Mistry was unceremoniously ousted as chairman of Tata Sons, the holding company of the Tata empire, there is enough evidence to show that Mistry had set the right course for the conglomerate. No specific reason was given by Ratan Tata, who chaired Tata Trusts, which in turn controlled Tata Sons, on why Mistry was ejected from his post. Tata was quoted as saying that the majority shareholder of Tata Sons was not kept informed of its decisions.

When Tata had stepped down to make way for Mistry, the group was beset with several problems. Mistry inherited several bleeding businesses, which included the British steel business and the domestic telecom and automotive businesses. Its hospitality business was caught in a bind with a bunch of wrong acquisitions and so was the power business. In short, most of the flagship companies, except for the software arm, Tata Consultancy Services (TCS), were mired in trouble.

In less than a year after Mistry’s successor N. Chandrasekaran took over, he has been able to solve most of the niggling problems. Chandrasekaran previously headed TCS and was responsible for its spectacular growth and market valuation.

But thanks to Mistry, most of the solutions had already been worked out and Chandrasekaran had to merely execute them. That the solutions were executed swiftly and without a hitch from the Tata Sons board indicate that after all Mistry was on the right track as far as decision making went.

Take some of the major decisions. The merger of Tata Steel’s European business with rival Thyssenkrupp was first mooted by Cyrus Mistry and such decisions take a long time to fructify. When Thyssenkrupp did decide, Chandrasekaran had to just put his stamp on the deal.

Likewise, in the case of Tata Teleservices, Mistry was in talks with Vodafone and Telenor to sell the venture on an as-is basis. Vodafone was interested in the large data clientele of Tata Telecom. However, when Vodafone decided to merge with Idea Cellular, the decision to merge with Tata Telecom took a back seat. Telenor, too, backed out as it decided to wind up in the country. The only option with the Tatas was to merge the business with Airtel, which was also in the fray earlier. Says a Tata insider: “The sale and debt structuring of the deal with Airtel is similar to what was planned with Vodafone. To that extent, it just boils down to execution of the old plan.”

In the case of Tata Motors too, Mistry had, like Tata, taken a personal interest in the development of the new line of cars. After Tata Motors' previous CEO passed away, Mistry gave his appointee Guenter Butschek a free hand to revamp the managerial layers in the company—and that plan seems to be paying off. Tata Motors' latest introduction in the market, Tigor, and other models like Tiago have had a better run than the models Mistry inherited. Chandrasekaran is, however, yet to resolve the Nano issue, Tata's pet project, which continues to be a drain on Tata Motors' profits.

In the case of Indian Hotels, Mistry replaced Tata appointee Raymond Bickson with his hire, Rakesh Sarna, who managed to turn around its fortunes during his short stint. However, Sarna has since left his position before his contract ended, citing personal reasons. In an exclusive interview to Fortune India, Sarna said that he was leaving several jobs incomplete at the hotel chain and would come back to the group if an opportunity comes up again. Insiders believe that Sarna's exit was a result of the crossfire between the Mistry and Tata camps, of which the latter did not support the removal of Bickson.

One of the other contentious issues during the ouster of Mistry was the inability to pay off Tata Teleservices' Japanese joint venture partner Docomo its share of investment as contracted. The Reserve Bank of India (RBI) had initially not permitted the Tatas to payoff Docomo as the payment would have violated foreign exchange regulations. Docomo took to matter to international courts, which ordered in its favour, with damages. Tata had made known his displeasure to Mistry as he could not honour a commitment made by the group.

Tata and Docomo opted for an out-of-court settlement in February this year and two months later, the Delhi High Court dismissed the RBI’s intervention in the dispute after the apex bank failed to back its opposition. The payment, however, is yet to be made, as the enforcement directorate has raised objections related to violation of foreign exchange regulations. In this matter, Chandrasekaran’s hands are tied as much as Mistry’s was.

While Chandrasekaran seems to be continuing in the direction that Mistry had shown, he has avoided the more prickly subject of institutionalising a corporate governance framework across the group. According to people close to him, this was one of the aspects where Mistry was working on with great intent.

"With regard to the Tata Group, the Tata Trusts cannot decide how the operating companies function. That decision has to be left to the board of the operating company. One of the things Cyrus was trying to explain was that the board supervises the company, the managers run it, and the owners own it. So you either nominate new board members or sell your shares.