Ratan Tata and Cyrus Mistry Succession Planning Conflict

Project Report
Submitted in partial fulfilment of the requirements for the course

Human Forecasting and Planning

By

Aryabarta Sikdar H008-16

Divya Baweja H016-16
Iqra Bismi H020-16
Isha Agarwal H021-16
Jatinder Modi H022-16
Komal Kapoor H029-16
Manjeet Kumar H031-16

POST GRADUATE DIPLOMA IN HUMAN RESOURCE

MANAGEMENT
INDIAN INSTITUTE OF MANAGEMENT, RANCHI
August 2017

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 Table of Contents

About Tata Group ................................................................................................................................... 3

Early years of Ratan Tata ........................................................................................................................ 3
The Race for Succession .......................................................................................................................... 4
Cyrus Mistrys Tata Journey .................................................................................................................... 4
Clashes of vision and ethics between Cyrus Mistry and Ratan Tata....................................................... 5
Aftermath of the decision ....................................................................................................................... 8

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About Tata Group:
Tata Group is an Indian multinational conglomerate holding company headquartered in Mumbai,
Maharashtra, India. It was founded in 1868 by Jamsetji Tata and gained international recognition
after purchasing several global companies. It is one of India's largest conglomerates and is owned by
"Tata Sons", a charity registered with the Charity commissioner in India.

Each Tata company or enterprise operates independently under the guidance and supervision of its
own board of directors and shareholders. There are 30 publicly listed Tata enterprises with a
combined market capitalisation of about $130 billion as of March 2017. Tata companies with
significant scale include Tata Steel, Tata Motors, Tata Consultancy Services, Tata Power, Tata
Chemicals, Tata Global Beverages, Tata Teleservices, Titan, Tata Communications and Taj Group.

Succession planning was not so strong in Tata until the late 1980s.In the late 1970s, the unsuccessful
succession planning attempt by Voltas is etched in the public mind. In 1981, group company Voltas
hired a search firm to find a CEO. There were ads in global media and people were asked to apply for
the job of CEO.

Ratan Tata set up HR group function as a part of reorganisation plan in 1990 to introduce good
practice within the companies with respect to talent management and succession planning. While
there is not much outside information about how much progress the companies have made,
something right must be going on. The succession transitions are impressive from an outsider's
perspective. Further, the board directors seem to be involved and to drive the leadership changes in
the companies.

In Tata Steel Jamshed became CEO in 1991 while in Tata Consultancy Services S. Ramadorai took
over from F.C Kohli in 1996. S. Ramadorai grew the business including the IPO of the company. In
Tata Chemicals Prasad Menon succeeded. Prasad Menon started to think about succession early.
Apart from pacing potential, solid internal leaders, the leadership brought in a young TAS officer into
the company and tested him through hugely challenging assignments. All the identified candidates
were watched, coached, talked about and nominated to Advanced Management Programmes.

The successful transitions completed in the listed Tata companies during the last two decades were
impressive: Titan, Voltas, Rallis, and Indian Hotels. Tata group succession planning was effective and
delivers positive results.

Early years of Ratan Tata:

Ratan Tata was a surprise choice to head the group after JRD (as J.R.D. Tata was popularly known). In
1971, he was appointed director-in-charge of the ailing National Radio and Electronics Co.

Mr. Ratan Tata primary focus was the improvement of the operational efficiencies of several of the
groups manufacturing companies and reiterating the very conglomerate nature of the entity. The
main beneficiaries of the focus on operations were Tisco and Telco (Tata Engineering and
Locomotive Co.). The former soon emerged as one of the lowest-cost steel makers in the world. The
two companies were also renamedTisco as Tata Steel and Telco as Tata Motors. Simultaneously,
Tata convinced group companies to pay royalty to Tata Sons for the direct or indirect use of the Tata
brand name. He also moved towards increasing the promoters shareholding in key group firms.

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Ratan Tata took over the reins of the group at a time when it was an empire made up of several
independent fiefdoms, run by stalwarts like Mr. Darbari Seth, Mr. Russi Mody, Mr. Ajit Kerkar and
Mr. Nani Palkhivala. Ratan Tata was barely 54 when he assumed control of the Tata Group in 1991.
His successor was searched for, keeping in line with a whole lot of other Tata company managing
directors who were then in their 40s. The group had brought people in their 40s and 50s to run some
key companies. They included Tata Power MD Anil Sardana, TCS MD Natarajan Chandrasekaran, Tata
Chemicals MD R Mukundan, and Tata Teleservices MD N Srinath, Tata Global Beverages head Peter
Unsworth, Tata Motors MD Carl-Peters Forster, India Hotels chief Raymond Bickson and Tata
International MD Noel Tata.

The Race for Succession:

In 2011 Tata was in the midst of mother of all successions, finding a successor to Ratan Tata. Instead
of focussing on all the possible candidates they focussed on streamlined and effective process of
succession. Search committee was appointed and the choice of the candidate was kept wide open
(internal or external, man or woman, Indian or foreigner). The search committee had shortlisted
around 11 candidates out of that 4 or 5 were group employees. The front runner Tata race was Noel
Tata, Tatas half-brother who was then promoted to group international operations. The other
internal candidate included executive directors Ishaat Hussain, R. Gopalkrishnan and B.
Muthuraman, Ravi Kant and S. Ramadorai, vice chairmen of Tata Steel, Tata Motors and Tata
Consultancy Services (TCS), respectively. The younger group included the CEOs of TCS (N.
Chandrasekaran) and Titan (Bhaskar Bhat. Other candidates also included Indra Nooyi of PepsiCo,
former Vodafone head Arun Sarin and Renault Nissan chief Carlos Ghosn.

Cyrus Mistry was amongst the potential candidate and director of Tata Elixi and Tata Power. Mistry
was also a part of a search panel appointed last year to find Mr. Tata's successor. He withdrew
himself when his name was suggested. He then entered the process as a candidate. The 5-member
panel also comprised of N A Soonawala, vice-chairman, Tata Sons; R K Krishna Kumar, non-executive
director, Tata Sons; Lord Bhattacharya, a businessman based in the UK who runs Warwick
Manufacturing; and Shirin Bharucha, a lawyer for the group. The committee is said to have met 18
times before announcing the succession plan.

Cyrus Mistrys Tata Journey:

Cyrus Mistry, son of Pallonji Mistry succeeded Ratan Tata. Mr. Mistry is Fellow of the Institute of Civil
Engineers. He holds a BE in Civil Engineering from Imperial College, London and a Master of Science
in Management from London Business School. He holds a Bachelor of Commerce from Mumbai
University. Mr. Mistry served as Chairman of the Board of Shapoorji Pallonji Group and Afcons
Infrastructure Limited before he became the Chairman of the Tata Group. Mr. Mistry also served as
Director of various companies including - Forvol International Services Ltd, Shapoorji Pallonji & Co.
Ltd, Cyrus Investments Ltd, Shapoorji Pallonji Power Co. Ltd, Buildbazaar Technologies (India) Pvt
Ltd, Sterling Investment Corporation Pvt. Ltd, Samalpatti Power Co. Pvt. Ltd, Shapoorji Pallonji & Co.
(Rajkot) Pvt. Ltd, Shapoorji Pallonji Finance Ltd, Shapoorji Pallonji Infrastructure Capital Co. Ltd,
Oman Shapoorji Construction Co. Ltd and Muscat Pallonji Shapoorji & Co. Pvt. Ltd. Mr. Mistry had
been a Non-executive Director of Forbes Gokak Limited since June 23, 2003. Cyrus Pallonji Mistry
succeeded Ratan Tata at the helm of Tata Sons. He was appointed as Deputy Chairman and worked

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with Mr. Tata for one year as per the plan chalked out for him as a successor, before taking over in
December 2012.43-year-old Mistry was a director of Tata Sons and Tata Elxsi (India). Ratan Tata
retired in 2012 He joined the Tata group in 1962 and was the Chairman since 1991. Endorsing the
appointment then, Mr. Tata had said, "The appointment of Mr. Cyrus P. Mistry as Deputy Chairman
of Tata Sons is a good and far-sighted choice." I will be committed to working with him over the next
year to give him the exposure, the involvement and the operating experience to equip him to
undertake the full responsibility of the Group on my retirement," Mr. Tata had added.

Mr. Mistry announced that he will legally dissociate himself from the management of his family
businesses to avoid any issue of conflict of interest. Shapoorji Pallonji Mistry, the father of the new
deputy chairman, owner of 18 per cent stake in Tata Sons. The Shapoorji Pallonji Group is into
construction, textile, water treatment and other businesses. Cyrus Mistry was the managing director
of the two billion dollar SP Group.

Tata Sons formally announced that Mistry would take over on 28 December 2012 and Ratan Tata
would become Chairman Emeritus. Some of the challenges that lay ahead of Mistry were akin to
those Tata faced when he ascended to the top job. The succession this time round was not as
acrimonious as it was during Tatas time, but with many of Tatas chieftains nearing retirement,
Mistry has had to scout for young talent from within the group and outside to fill the void. He had
already started doing that. Madhu Kannan, a former chief executive officer of BSE, was his first hire.

While a year of working and learning closely with Mr. Tata before taking the full responsibility of the
group in December 2012 did help, the responsibility was enormous. But to begin with, he had
showed good intentions by announcing a legal dissociation from the management of his family
businesses (Mistry was MD of SP Group which was into construction, textile and water treatment
etc.) to avoid any conflict of interest. His selection was important in the sense it sent some
important signals -Tata Group will choose the one it considered responsible and worthy enough to
run the group, even if it were a non -Tata (Mistry had been chosen over Noel Tata, Ratan Tata's half-
brother who had served as the managing director of the retailing company- Trent and is now serving
as non-executive chairman -to merge some Tata Group retailing operations). Especially then when
Tata Group holdings were high enough to be insulated from takeover threats. While Cyrus doesn't
bear the name Tata, he was no outsider to the group. He had served as a Director of Tata sons and
was expected to have a strong hold over the group values. Besides, roping in someone who belongs
to a family that has significant holdings in Tata sons made good strategic sense as shareholding is the
key to control for the group like Tata which is more global than ever. Thus, Mistry didnt just have
big shoes to fill, he also needed to hit the ground running.

Clashes of vision and ethics between Cyrus Mistry and Ratan Tata:
Mr Tata told Cyrus Mistry to be your own personand decide what he wants to instead of asking
him. However, after few months tension emerged. Mr Tata and Mr Mistry had discussed the need to
deal with potential conflicts of interest involving Shapoorji Pallonji which had performed
engineering and construction work for Tata companies for several decades prompting Mr Mistry
to resign from all his family group directorships.

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Nine months after the handover, Mr Tata accused Mr Mistry of failing to address the problem, and
urged him to place a ban on all business between the two groups. This matter is so fundamental
that if it cannot be resolved between us it will necessarily have to become an issue of a more public
nature, Mr Tata cautioned, adding that Mr Mistrys stance demolishes in spirit and reality the
values and ethical standards set by Jamsetji Tata. Mr Mistry eventually accepted his demand
while stressing that he was doing so to avoid a public argument that would be detrimental to the
interests of the entire group, and accusing his predecessor of betraying their earlier understanding.
This early dispute set the tone for what was to be a recurring theme in the two mens evolving
relationship, with Mr Mistry resisting what he viewed as unjustified interference from the older
man, who, in turn, saw his successors defiance as a mark of disrespect.

Chief among these was the struggling UK operation of Tata Steel, acquired through Mr Tatas
blockbuster Corus acquisition. After losses at the unit soared to 1m per day, Mr Mistry oversaw the
decision last March to seek an exit from the business. Mr Tata viewed this as reflecting a short-term
approach and accused Mr Mistry of using him as a scapegoat, telling him in an email days after the
decision: The past cannot be blamed for ever. Even after stepping down as Tata Sons chairman, Mr
Tata retained significant power through his chairmanship of the Tata Trusts, charitable bodies that
hold 65 per cent of Tata Sons. He remained in regular contact with his successor, who sought his
input on significant decisions through emails, letters and regular meetings at Bombay House.

To Mr Tata, Tata Sons position as the controlling shareholder in all listed Tata groups meant that the
holding companys board should be consulted on all key decisions and that the Tata Trusts, in
turn, should be kept in the know, given their status as the majority shareholder. But Mr Mistry
worried that this might fall foul of the law, as it would mean giving Tata Sons access to price-
sensitive information before other shareholders in the groups listed companies.

Conflict spilled into the Tata Sons boardroom in July last year, after Tata Power, chaired by Mr
Mistry, agreed the $1.4bn acquisition of a renewable energy company without seeking prior
approval from the holding company. According to people close to Tata Sons and Mr Tata, this deal
was seen as part of a pattern of behaviour in which Mr Mistry appeared to be trying to amass
power, while restricting the involvement of the Tata Sons board and the Tata Trusts in key
decisions.

Mr Tata did not let the matter rest. Later that month he sent Mr Mistry an email proposing that the
Tata Sons board should gather to hear competing legal opinions on the matter in order to put an
end to this issue once and for all. Mr Mistry forwarded the email to Tata Sons director Ronen Sen,
seeking his support in standing up to his predecessor. It is important that the Tata Sons board does
not become defunct, he wrote. You all have a role to play in its future.

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Mr Mistry, meanwhile, was working on a new corporate governance framework aimed at putting an
end to Mr Tatas supposed interference. The former chairman and his fellow trustees would be
granted an annual meeting with Tata Sons to discuss its five-year strategy and annual business plan
but would be expected to exert influence over specific decisions only through their representatives
on the board.

Mr Mistry sought to discuss the proposed document with Mr Tata but was unable to secure a
meeting, according to a letter he wrote to his predecessor on September 23, to which he attached a
draft version of the framework. [I] would be happy to come and get your feedback, Mr Mistry
concluded, after stating his intention to present the document at Tata Sons October board meeting.
It would prove to be his last however on October 24th 2016; Cyrus was removed as chairman of Tata
Sons with immediate effect.

The companys official statement was very diplomatic and it did not mention the reasons. Some
preliminary reports talk about the following possible reasons:

1. Contentious decisions to sell businesses

Ratan Tata wanted the business to grow, but under Cyrus rule the groups growth had
stagnated. Cyrus did not take Ratan Tatas suggestions seriously, something that did not go
down well with the former chairman of the group. Chief among these was the struggling UK
operation of Tata Steel, acquired through Ratan Tatas blockbuster Corus acquisition. After
losses at the unit soared to 1m per day, Mr Mistry oversaw the decision to seek an exit from
the business. Mr Tata viewed this as reflecting a short-term approach.

2. Style of working
As per business reports the shareholders were unhappy with Cyrus Mistrys managerial
decisions. Apparently, it was discussed that Mistrys approach to focus only on the profit
making businesses and not supporting the loss making businesses was not a welcome move.
Group Executive Council (GEC) was formed by Mistry after taking over the reins from Ratan
Tata with the objective of providing strategic and operational support to him. Only a handful of
its members had actual operational experience of running a business. GEC had been under fire
from Ratan Tata himself and some veterans feel that some of the recent decisions taken were
questionable. Some of them perceived it as a parallel power centre.
There is a view that Mistry's move to take hard decisions may have increased the tension
between the board and the chairman, which ultimately resulted in the unceremonious sacking
of Mistry.

3. Cyrus Mistry 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 Japans Docomo.

4. 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.

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5. Difference in beliefs, values, and vision
There was a fundamental disconnect between Mistry and Tata, particularly with regard to
ethos, values, vision and the direction that the group was headed in. Detailed letters were sent
to Mistry asking him to spell out his vision, five-year plan, etc., but the responses were vague
and non-specific. Things got aggravated as the chairman of Tata Sons and Tata Trusts were not
the same individual. (This happened only once before when Ratan Tata was heading Tata Trusts
and JRD Tata Group) The former was not a Tata family member but represented the single
largest shareholder while the latter was a custodian of century old legacy.

6. Mistrys decision to acquire assets of Welpsun Group.

Some of the Tata group insiders believed the acquisition of the assets of Welspun Group by
Tata Power was foolhardy in valuation terms. Mistry cleared this acquisition without seeking
approval from either Tata or key shareholders

Some of the interesting things which show that it wasnt a sudden decision

1. Sacking of then Indian Hotels MD Raymond Bickson

Mistry sacked Indian Hotels MD Raymond Bickson in 2014 who's perceived to be close to Ratan
who was replaced with Hyatt veteran Rakesh Sarna. Mistry continued with Sarna despite
getting complaints against him.

2. Some key board decisions

According to business report, in the recent past some important decisions were taken without
consulting the chairman Mistry. One such instance was the appointment of Ajay Piramal and
Venu Srinivasan on board, which is seen as a step towards tightening Tata's grip on the group's
functioning. Both of them voted for the ouster of Mistry.

3. Sorry!! No customary wishes!!

There was no mention of Mistry's contribution to Tata Sons' growth during his stint, not even
the customary wishes which you expect even a small company to do.

4. Disbanding of GEC
Soon after the decision to remove Mistry was made public, Tata group's website removed all
the details related to GEC, including profile of the members.

Is it Ratan Tatas fault?

1. People close to Mr Mistry accuse Mr Tata of having brought in new directors to ensure a
clear vote for Mr Mistrys imminent sacking, a claim denied by company, which points to three
mens extensive and diverse business experience

2. Of Mr Mistrys eight fellow directors, only the former World Bank executive Farida Khambata
broke ranks and abstained when it came to the vote on his sacking

3. Over Mr Mistrys continued objections, the board decided that Mr Tata should return to the
company as chairman on an interim basis, pending the search for a new permanent
replacement, to be appointed within six months

Aftermath of the decision

Some senior members of Mumbais business community expressed shock and sympathy for Mr
Mistry, who they considered to have been treated in an unacceptably brutal fashion.

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Meanwhile, Cyrus Mistry has appealed to the Bombay High Court against his sacking which he
calls illegal. Mr Mistry has unleashed a stream of allegations, aimed at destroying Mr Tatas
cherished reputation for integrity and straightforward dealing. Tata Sons has dismissed Mr
Mistrys claims accused him of poor performance and an attempt to amass excessive power.

Mr Mistry alleged that the group had been involved in questionable transactions, including
dubious payments made by Tata Sons aviation joint venture with Air Asia. He also questioned
historical transactions with Chinnakannan Sivasankaran, a south Indian businessman who has
boasted of his close relationship with Mr Tata.
In his petition, Mr Mistry further asked the court to appoint an inspector to investigate
whether Mr Tata had breached insider trading regulations by allegedly seeking price-sensitive
information from Tata operating companies that are publicly listed. Tata Sons and the Tata
Trusts have previously denied that any part of the group had breached insider trading
regulations and followed the highest standards of corporate governance.

In the interim, Ratan Tata takes over as the chairman, again. They have appointed a committee
to search for a replacement of Mistry who can run the group. Now that is a tough task to run a
$ 100 billion plus group with business ranging across all industries. The committee formed to
find the next chairman has been given four months to come up with the future chairman. Just a
day after Mistrys sacking, TCS CEO N Chandrasekaran and JLR chief Ralph Speth were inducted
on the Tata Sons board. Apart from the two, Trent MD Noel Tata, Pepsico head Indra Nooyi and
former Vodafone chief Arun Sarin were some of the names that had cropped as potential
candidates. Former TCS vice-chairman S Ramadorais resignation as the chairman of the
governments National Skills Development Agency had fuelled speculation of his probable
appointment as Tata Sons chairman. Tata Sons hasnt officially commented on the matter.

However, Chandrasekaran was declared as the chairman of Tata Sons, known for his assiduous
cultivation of business relationships around the world during three decades at TCS, was seen as
the obvious choice to restore confidence. Chandrasekarans efforts to focus attention on the
future could be overshadowed, by Mr Mistrys continuing legal fight against a group in which
most of his family wealth is still invested and is even prepared to take the battle to the
Supreme Court.