The Ratan Tata-Cyrus Mistry feud following the ouster of the latter from the chairmanship of Tata Sons, to be followed soon by more such ejections from other Tata companies, is going to be a lose-lose affair for both the parties.
In recent weeks, the Tatas have effectively accused Mistry of mismanaging the group, while Mistry did the same earlier. And Mistry’s board backer Nusli Wadia, an independent director, has sent a defamation notice to Tata Sons for the innuendos being made against him. The Tatas want to get rid of Wadia from all their boards, but Wadia is not going to walk quietly into the night. Mistry’s latest is that Ratan Tata had urged JRD, his predecessor as Tata Sons chief, of wanting to sell Tata Consultancy Services (TCS), the crown jewel of the group. This allegation makes no sense, for what Ratan Tata may or may not have wanted to do decades ago when he wasn’t the boss is hardly what matters now.
That there will be only losers in this ego battle is obvious.
- The Parsi community is distressed that three of its stalwarts – Ratan, Mistry and Wadia – are busy wrestling in the mud.
- The Tata companies are distressed that they have to witness this unseemly fight for control just when the market is getting tougher and they should be focusing on customers and not the owners. They could do without this distraction.
- The Mistry companies in the Pallonji Mistry group, the biggest investors in Tata Sons and former close associates of the Tatas, will have to wonder how their investment is going to fare if the feuding continues.
- Shareholders of all Tata companies will lose as the share values of their companies are gripped by uncertainty due to this ego tussle.
With 20/20 hindsight, it is now clear that both the Tatas and Mistrys made a huge mistake when, in mid-2012, Cyrus was coaxed to succeed Ratan Tata as Chairman of Tata Sons.
The Tatas’ mistakes are the following:
One, if Ratan Tata was always inclined to be an important behind-the-scenes presence in the Tata Group, the last thing he should have done was install the biggest minority shareholder in Tata Sons to run it. Instead of a principal-agent or shareholder-professional CEO relationship, the group ended up with an intra-shareholder conflict, with the largest shareholder hiring the biggest single shareholder to run the company. This was folly. Owners can sack CEOS they don’t like, but shareholders cannot sack one another.
Two, having decided that they don’t want the Mistrys to run Tata Sons, the only sensible way to get Cyrus out of the way was to get him to do so gracefully, at his own pace and time, so that there would be no reputational damage when he exited. By removing him in a boardroom coup after he demurred, the Tatas effectively courted his eternal enmity by wounding his ego, especially since he has since been accused of mismanaging the group and developing a trust deficit with the shareholders.
Conversely, on the Mistry side, the first mistake was to accept the job in 2012 without an explicit understanding on what the relationship would be between the previous Chairman (Ratan Tata) and Mistry. He should never have accepted the job without clarity on this point.
The second mistake was to refuse to leave when Ratan Tata made it clear that he wanted him out. The only thing left was to negotiate the time for exit, and agree on the reasons to be put out in the public domain. It could have been a mutually agreed send-off, but Mistry probably had too much pride in his abilities to accept this. He could have sought a slow exit after giving himself time to prepare the ground for it, but one does not know if his hand was forced all of a sudden.
Now, the mess is getting worse for both parties. If both land up in court, it will be years before anything gets resolved.
The Tatas may want the Mistrys out of Tata Sons, but trying to get a 19 per cent shareholder out means having to fork out over $10 billion for his exit with his share of the valuations.
The Mistrys will also lose if the fight ends up ruining valuations of the shareholding he owns.
The most sensible thing even now is to come to a behind-the-scenes agreement where Mistry exits at a price to be paid over some years, and both parties stop sniping at each other and damaging each other’s reputations. No one will emerge from this unscathed, though the Tata loss will obviously be the greatest.
A long-term feud is in no one’s interests. Only egos stand in the way of sanity.
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