The Tata Group is perhaps the 
most well-known, respected business conglomerate in India. Yet, to the surprise of many on October 24, 2016, it was announced that Cyrus P. Mistry had been unceremoniously ditched as chairman of Tata Sons, which oversees the Tata Group. Mr. Mistry’s interim successor, Ratan N. Tata, will resume the role of board chairman, having held this position prior to Mr. Mistry’s ascension to the Tata Sons chairmanship in 2012.
Interestingly, an explanation of Mr. Mistry removal has not been forthcoming. Further, while Tata Sons is a private holding company, the impact on Tata Group’s publicly-traded companies remains unclear—currently, Mr. Mistry is chairman at some of the Group’s largest listed entities: Tata Motors Limited, Tata Chemicals Limited, Tata Consultancy Services Limited, Tata Global Beverages Limited, Tata Steel Limited, Tata Power Company Limited and Indian Hotels Company Limited. What has been reported, however, is an apparent loss of confidence among Tata Sons’ board, with six of nine board members voting to oust him as chairman; as two other members elected to abstain, and with Mr. Mistry unable to vote, there was no board member willing to back Mr. Mistry continuation in the position of chair.
Certainly, when scrutinizing the possible causes of Mr. Mistry’s removal, financial performance may provide an insight. There have been well documented concerns over the Group’s profitability recently—in evaluating the top nine listed Tata Group companies, The Economist found nine to “have negative economic value added”, meaning approximately “six in ten rupees deployed by Tata are in businesses yielding returns below its cost of funding, up from three in ten rupees eight years ago” (“Tata Group – Mistry’s Elephant.” The Economist. September 24, 2016). Additionally, the tenure of Mr. Mistry as Tata Sons’ chairman may have been marred by the selling of group assets and the failed joint venture effort with Japanese telecom company NTT Docomo, the latter of which may leave Tata Sons liable to foot a bill of US$1.17 billion as part of an order from the London Court of International Arbitration; Docomo has also gone on record to state that it will pursue further enforcement options in multiple jurisdictions. (P R Sanjai, Siddharth Vikram Philip and Rajkumar K. Shaaw. “Tata Sons in Turmoil after Chairman’s ‘Bizarre’ Ousting.” Bloomberg. October 24, 2016).
While the search for a replacement is in its infancy, the ousting of Mr. Mistry may prove to be an unsettling affair for the wider Tata Group. As at writing, Shapoorji Pallonji & Co., an 18%-owner of Tata Sons, and more pertinently, the family company of Mr. Mistry, has pledged to fight the ouster, labeling the vote as “illegal” due to the lack of rationale and unanimity (“Shapoorji and Pallonji Group to Contest Cyrus Mistry’s Ouster from Tata Sons.” The Economic Times. October 24, 2016; and “Pallonji Group to Fight Cyrus Mistry’s Removal as Chairman of Tata Sons.” Business Today. October 24, 2016). As such, it remains clear that the dust has not settled fully on the world’s latest governance controversy. Whatever the outcome, the Indian market will be watching the actions of its most illustrious conglomerate closely, a particularly salient issue at a time when the country is busy trying to attract international investors to ‘Make in India.’