Cyrus Mistry’s ouster from the helm of Tata Sons’ management follows a lacklustre four years for the company and, as a corollary, the outgoing chairman himself. On Oct. 25, Mistry was removed and Ratan Tata, the patriarch of the 148-year-old salt-to-steel conglomerate, took over as interim chairman.
The reasons for Mistry’s replacement are still unclear. His removal, swift and almost hurried, has given rise to many theories. A common thread that runs through them all is that Mistry wasn’t a successful chairman.
For sure, Ratan Tata’s legacy was hard to replicate. He took the group’s turnover from some $1.5 billion in the 1990s to over $100 billion by the time he hung up his boots. He ambitiously tapped foreign markets with high-profile global takeovers of Corus and Jaguar Land Rover (JLR).
In the process, however, the group’s debt ballooned: during Tata’s last 10 years as chairman, it jumped 11 times, according to Bloomberg.
In his nearly four years at the helm since December 2012, Mistry’s performance is said to have left much to be desired. No doubt, there were some tough challenges at hand, but Mistry didn’t quite prove his mettle either. He also had a series of roadblocks: handling a senior employee’s suicide, trimming loss-making assets, and ugly legal battles, among others.
Here are some of the main challenges Mistry faced:
The Indian steelmaker acquired Corus, an Anglo-Dutch firm, in 2007 by paying over half the $12 billion acquisition amount through debt. The deal gave the Tatas a toehold in Europe and the UK. Britain was then preparing for the 2012 London Olympics, with large-scale infrastructure development, fuelling huge demand for steel. However, the 2008 financial crisis pushed most developed economies into recession. The downfall of Tata Steel began soon after.
Over the last few years, Tata Steel Europe, the steelmaker’s European subsidiary, has made huge losses. Mistry tried firefighting, resorting to job cuts to keep costs in check. However, no amount of layoffs or asset sales could help bring about a change. Cheap Chinese imports into the region only added to his woes. So, instead of turning it around, Mistry decided in March this year to sell the European business. But he hasn’t been able to find a buyer for it yet, and the sale is on hold currently. Most media reports say that Ratan Tata wasn’t happy with the decision to sell, and instead wanted Mistry to revamp the operation.
“With these sorts of things, you can’t just press a button and make it happen. He has tried from day one to find a solution,” Lord Bhattacharyya, a Tata group advisor, told the Financial Times in March 2016. “What else can he do, other than shut everything?”
In January 2014, Karl Slym, the then managing director of Tata Motors, committed suicide. That left the company, which was trying to regain lost ground in the Indian automobile market, scrambling to find a replacement. Mistry stepped in and took control of the automaker, which is Tata Sons’ largest revenue contributor.
Ever since Nano—India’s cheapest car—failed, Tata Motors has been on a slippery slope. The company launched no new models for five years after the Nano’s unveiling in 2009. The new models brought out in the last two years haven’t worked well. The saving grace has been JLR, acquired in 2008, that’s helped Tata Motors keep its head above water.
Mistry’s subsequent re-organisation of operations and leadership at Tata Motors hasn’t been entirely successful. After searching for two years, he appointed Airbus veteran Guenter Butschek as managing director this January. Analysts, though, said his appointment wasn’t going to change much.
“It is definitely good news that the company has a new CEO, but I am not certain how that is likely to help. It has taken the first step towards a mile, but it has so many more steps to take now,” Deepesh Rathore, co-founder of Emerging Markets Automotive Advisors, a global automobile forecasting company, told Quartz after the appointment.
One of Mistry’s strategies to trim debt was to sell assets, often the last resort for any firm.
“I am not embarrassed to admit that exits for us are usually a last resort, and we invest considerable time to evaluate all options before taking such decisions. A healthy level of debate at our boards helps us to improve the decision-making and balance in favour of all stakeholders,” Mistry said earlier this month.
Tata Chemicals sold its urea business to Pune-based Yara Fertilizers this August. It said this will “unlock value for the company, strengthen its balance sheet, and will help to pursue growth potentials and opportunities in line with its strategic directions.”
The group’s hospitality business, Indian Hotels, has also put foreign properties on the block to deal with falling profits and debt. In May 2016, it declared its intent to sell Taj Boston, a property that was acquired in 2006 but has not made any profits since.
The Tata Group launched Vistara, a premium full-service airline, in January 2015 in partnership with Singapore Airlines. This marked its re-entry into aviation after Tata Airlines—now Air India—was nationalised in 1953. In the 1990s, the conglomerate had apparently made several unsuccessful attempts to launch an airline. In 2013, Tata Sons formed a joint venture with Air Asia and entered the Indian market.
Vistara was launched at a time when most major airlines were bleeding due to high costs and competition. While many are playing the discount game, Vistara has branded itself as a premium airline, resulting in poor occupancy. Clearly, the model hasn’t worked, so far.
The final nail in the coffin for Mistry was reportedly the manner in which he handled the group’s fight with NTT Docomo, Japan’s largest phone company. Tata himself didn’t approve of it, according to some media reports. NTT Docomo had partnered with Tata Sons in 2009 for a telecom venture that failed due to strict regulations for foreign firms and extreme competition. Some media reports suggests that Tata had committed to protect Docomo’s investment, and when Mistry decided to end the partnership, the 78-year-old did not take it well.
Docomo is demanding half the amount it paid for the 26.5% stake in the partnership. A legal battle is on, and Tata Sons has already deposited $1.17 billion with the Delhi high court as an award for arbitration.