The silence of the lambs

The Tata-Mistry fight isn’t just about washing dirty linen in public. It is a wake-up call for Indian enterprises to start the cleansing process from within

Indrajit Gupta

[Cyrus Mistry's unceremonious dismissal as Tata group chairman raises several questions. And the Tatas will have to answer them. Clockwise from top: Bombay House, the headquarters of the Tata group; Ratan Tata; Air Asia and Nano—two high-profile projects that Mistry has raised questions about; Cyrus Mistry. Bombay House's photograph by Arunthomasvtt via Wikimedia Commons. Tata Nano by Arulnathan under CC. Air Asia VT-APJ by Arjun Sarup under CC ] 

Cyrus Mistry’s recent letter to the Tata Sons board and the trustees of the Tata Trusts is devastating for any corporate watcher.

If the assumption was that Mistry would quietly resign and move on, that has completely boomeranged. And how. The entire cast of characters: the directors at Tata Sons, the trustees at Tata Trusts, the boards of some of the publicly listed Tata companies, and Ratan Tata himself, will have a lot of questions to answer for from shareholders, employees, analysts and regulators.

Till date, not a single credible reason has been put up by the august Tata Sons board for dismissing Mistry as chairman. Except for some rumblings on television about unnecessary divestments from a battery of celebrity lawyers, a particular lobbyist of dubious reputation and some ham-handed attempts to plant stories in media.

Instead, Mistry’s riposte is direct, clinical and seems factual, for most part. And thanks to social media, it has been more widely read than any legal route would have managed to achieve. Within no time, the Tatas have responded to the letter being leaked to the world. But their response lacks substance and does little to shed light on the reasons behind the coup. It is clear that we haven’t heard the end of this saga. Whichever way this goes, be rest assured that the institutional damage to the Tata group will be incalculable.

There are a number of pertinent questions that this sordid Tata-Mistry saga raises.

1. What was the evidence of wrong-doing and poor performance that was placed before the board to demand Mistry’s ouster? Was it tabled, discussed and minuted, as part of due process? Especially, when the nomination and remuneration committee at the board is said to have lauded his contribution a few weeks ago. (And it is pertinent to note that Ishaat Hussain, a stalwart in the group and group CFO for many years, chose to abstain from voting on the resolution to remove Mistry.)

2. Even if there was clear evidence to suggest that he resign, why was this additional item sneaked into the agenda and not shared in advance with Mistry, given that he was to chair the meeting? Such subterfuge merely raises suspicion and does little to inspire confidence that the spirit of the governance process was followed, especially at the highest echelons of the Tata group.

3. Mistry has raised some serious ethical questions about two high-profile projects, where he was given no option but to fall in line: the aviation JVs with Air Asia and Singapore Airlines and the Nano small car project. And he has suggested that Tata had his own personal business interests tied to the continuance of the Nano project. If this is true, has this potential conflict of interest ever been clearly disclosed to shareholders? And was there enough of a business plan, beyond mere hubris, to open up a new frontier in the aviation business? If the chairman himself wasn’t convinced about the feasibility of the plan—but forced to accept it as a fait accompli—does it not amount to a clear subversion of the governance process?

4. In the same aviation transactions, there have been questions of impropriety raised about certain fraudulent transactions conducted between non-existent persons in India and Singapore worth nearly Rs 22 crore. What is the current status of the investigation following the first information report on those transactions? Why was the managing trustee Mr Venkatraman trying to paper over them?

5. Equally, there are some very serious allegations of dodgy accounting practices at Tata Motors Finance and off-balance sheet transactions at Indian Hotels, which need closer examination. How were such practices allowed to go through by the boards of publicly listed companies? What safeguards are now in place to ensure that these kind of practices don’t impair the financial health of these publicly listed firms?

6. Most of all, Mistry’s core argument that his restructuring plans were thwarted at every opportunity is pretty disturbing. If the majority shareholder, in this case the Tata Trusts, ended up cramping the functioning of the group chairman, how will the interests of minority shareholders be protected in such a case?

7. None of these issues ought to have flared out of control in this manner, if the two key protagonists, namely Tata and Mistry, had maintained a clear line of communication between them. Why were things allowed to deteriorate to such an extent thereby causing great damage to the institution? Why was the chairman not allowed the operating freedom to pursue his agenda?

There will be more prickly questions that will invariably pop up. It will be a messy boardroom battle, the likes of which we have perhaps never seen before. A lot more dirty linen could get aired in the days and weeks to come, before any kind of cleansing process can begin.

In the middle of this brouhaha, a seasoned business leader raised a valid question in a conversation over SMS: couldn’t Mistry have walked out with a handshake, a smile and silence? His point: when have such fights has ever served a purpose anywhere? Never overstay the welcome. After all, it only makes for entertainment for onlookers and damages the enterprise you called your nation, your cause, your purpose, until the last press meet or the town hall.

I respect that sentiment, except that I have a different point of view. Therefore, my response was simple: at least we now know what was really going on inside. Or else, none of this would have ever come out. After all, isn’t sunshine the best disinfectant? At least, this way we wouldn’t continue to live in our mythical world, where we treat our revered business leaders as royalty. Because all that ignoring it does is push the real truth under the carpet for a wee bit longer.

Let’s face it: Mistry fought back because he could. He perhaps had the courage of conviction that most CEOs, who are muscled out on the back of trumped up charges, lack. So let’s treat him as a whistle-blower and an activist. And an insider, to boot. And that is a rare combination.

Now, if there is one larger point that is worth mulling over, it is this: we as Indians, seem to place more trust on individuals, rather than commit ourselves to building stronger institutions. Be it in business, sport or politics, we raise our leaders to the level of a superhero and end up deifying them, instead of strengthening the governance of our institutions and the rules by which they ought to be managed. And time and again, when these very same leaders appear to have feet of clay, we cry foul, almost as if we have been deeply let down. It is about time that we wake up—and smell the Tata coffee.

(A shorter version of this column first appeared in Business Standard)

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Aditya Sridharan on Oct 31, 2016 6:32 a.m. said

Great Article and appreciate you point of view, however we need to hear out what "Tata Sons" has to say on this because this a company which has maintained credibility for years. We need to hear both sides of the argument to come up with a foolproof analysis.

Kamal Hans on Oct 30, 2016 6:20 p.m. said

I'm afraid this piece represents almost entirely the POV of Cyrus Mistry.
For making a fair & balanced judgement, we do need facts & reasons for the ouster from the other side.
Let us suspend judgement till then.

Indrajit Gupta on Oct 30, 2016 7:09 a.m. said

Thanks, Ram. You've outlined the key governance issues so well. Founding Fuel will be delighted to host a Facebook Live session on this theme of governance soon. Let's discuss that.
Cyrus is the underdog here. His tenure has been cut short rather brutally, in a manner more reminiscent of typical American capitalism. This column was written to urge the Tatas to share their point of view, which they had steadfastedly refused to do under the garb of legalese. "We don't need to do so." Or "we will do at an appropriate time and forum." Whatever that means. From whatever we know so far, they simply didn't have any legitimate grounds for dismissal.
Cyrus wrote to the board after the sacking. Whether he leaked it or it was someone else, we don't know that for sure. But the fact is that he was on the right things--doing all the things that were needed to fix the dire situation across the group. His letter explains that pretty well. And Mint which did a detailed fact check, found that most of the data checked out. If you agree that he was fighting the good fight, you would then be inclined to see him now as a whistleblower. Not otherwise. And I say this with a degree of conviction. Because I know some of the things he had done to take on entrenched bureaucracy, set a new direction at the group companies and create space for a new set of leaders to do what it takes to fix the business. Removing him without any valid reasons was patently wrong--and harmful for the long-term interests of the group, its shareholders, employers, etc.

Vedant Desai on Oct 29, 2016 7:24 a.m. said

Though I do agree with you that we as Indians ( though this problem is also largely prevalent in US) need to put more trust in building institutions instead of individuals, I do think that you are mistaken about one crucial point. As far I can tell from the outcry in media is that unlike any other business group of India , Tata was the only one which was seen as an Institution rather than a One man group like Reliance etc.. This is ,as I believe to be, the prime reason that this whole affair has become so sensational as now we are finding out that Tata is a One Person Group like others after all. Lastly your article does seem one sided but than from the data currently available I dont think any other conclusion can be formed.

Amrita Chatterjee on Oct 29, 2016 3:44 a.m. said

The article seems very one sided. Every information here is same as Mistry''s letter to the board. There is no credibility of being a whisle blower when someone is first oust as the chairman. This letter was more like vengeance. Had he done that while being the chairman the alligations would carry more credibility.

Ramkumar Krishnaswamy on Oct 29, 2016 1:54 a.m. said


This is as clinical and unbiased presentation as any that I have read on this issue. We should enlarge this debate though the more recent one is this one. We need to seriously ask how many of the Iconic institutions in the World have even a modicum of Governance than what is minimally required to pass the cursory examnination. The key questions we need to ask are:

1. The process by which the board is constituted especially the selection of independent directors
2. The Tenure of CEOs and at what point extended tenure leads to the CEO becoming a tacit monarch exercising such control over the board that every other director becomes a mere titular. Since non executive directors tenure is finite, consider the dysfunctionality when a MD& CEO has spent say 12 years. This person would have outlived most NEDs and even the Chairperson(where it is seperated). Do we believe that the selection of the NEDs in this case will be done by the Nominations committee?
3. The practise of extraordinarily long serving MD& CEOs then either going on to become Non ex Chair should also be examined. What level of independence will this personbe able to exercise even though the person may want to and is well intentioned?
4. Why should the inxumbant MD & CEO and the EDs not be part of a 360 assessment process where their peers, one downs, the NEDs and other chosen stakeholders including a few analysts who cover the company give their assessments and this report is tabled in the board meeting and taken on minutes? This will bring accountability and at the same time protection to the MD & CEO and the EDs from trigger happy arbitrary removals.
5. The truth is we need to put into place a credible mechanism for the quality of governance in all boards to be audited and certified by a credible independant body which does not do it for a fee.
6. Unfortunately Governance lapses happen because the members on the board think their first duty is to protect the reputation of the company or its chief protaganist and not serve the share holder especially the minority share holder. This often blinds them to display misplaced loyalty to the executive management and its leader and not to the real people they are expected to represent the shareholders, employees and the other stakeholders not represented by vote on the board.
7. Lastly my argument is not for a confrontational and disruptive board process between the Executive nad the Non executive members of the board. I believe that over friendly NEDs and NEDs who do not have stature in relation to the Chairperson or the MD & CEO or where they are brought in as agents of a extra constitutional force or the MD & CEO, destroy Governance. Today the fit and proper criteria is addressing only the bare basic requirement. When the NEDs are not capable or have the intent and stature to offer challenge (not disrupt) to the executive management on a regular basis they have no moral authority to be on the board. We also have to closely examine whether the boards carry out the now mandated board evaluation process in its true spirit or it is a mere tixk in the box to report that all is well.

When people of great stature fail to live up to the great responsibility which trusting shareholders place on them they let down the society at large. Should then the corporate world be scorning and mocking at the political class when they fail to distinguish themselves any better.

Ig we should start a debate on the real state of governance in our publicly listed companies and not limit ourselves to only themost recent one though this could have been the trigger we all were waiting for.

About the author

Indrajit Gupta
Indrajit Gupta

Co-founder and Director

Founding Fuel

Indrajit Gupta is a business journalist and editor with over two decades of experience. He was the Founding Editor of the Indian edition of Forbes magazine. Within four years of its launch, Forbes India became the most influential magazine in its space.

He is the co-founder and director at Founding Fuel.

He has served in leadership positions at many of the leading media brands in the country. Before taking up the assignment to start up the India edition of Forbes magazine, Gupta was the Resident Editor of The Economic Times in Mumbai and before that, the National Business Editor of The Times of India.

Over the years, Gupta has built a reputation for grooming talent and creating highly energised and purposeful newsrooms. He has interviewed several leading global thought-leaders and business leaders including CK Prahalad, Ram Charan, Wayne Brockbank, Sumantra Ghoshal, Carlos Ghosn and Nitin Nohria, and also led cutting-edge joint research-based projects with McKinsey & Co, The Great Place to Work Institute, Boston Consulting Group, KMPG and Coopers & Lybrand.

He won the Polestar journalism award in 2010 and was awarded the Chevening fellowship by the British Foreign office in 1999. Gupta is an alumnus of the SP Jain Institute of Management and Research, Mumbai and a B.Com (Hons) graduate from St Xavier's College, Calcutta.

Gupta teaches a course on Business Problem Solving at his alma mater. He writes a column named Strategic Intent in Business Standard’s edit page. He lives in Mumbai with his wife and two young daughters.

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