This is Why Ratan Had to Say Tata to Cyrus Mistry

The board of Tata Sons shocked corporate India by sacking Cyrus Mistry as chairman four years into the job as Ratan Tata emerged from retirement to wrest back control of the group that bears his family name.

The unprecedented move could spark a battle between two of Mumbai’s oldest business families, which share close ties - the Mistrys own about a fifth of Tata Sons, the group holding company. Tata Sons said a selection committee will choose a permanent replacement for Cyrus Mistry in the next four months.

This pre-Diwali explosion is so intense that it will take some time to understand the reasons behind it and gauge its implications. Initially, the share market might witness increased pressure on Tata stocks as traders might remain scared because of the confusion caused by the decision. This will increase the possibility of Ratan Tata revealing the company’s strategy – a move which will be important for him.

There are a few things that are important to know about this major chain of events.

1. Difference of Opinion Between Tata and Cyrus Mistry.

Ratan Tata wanted the business to grow, but under Cyrus’ rule the group’s growth had stagnated. Cyrus did not take Ratan Tata’s suggestions seriously, something that did not go down well with the former chairman of the group.

2. Cyrus 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 Japan’s Docomo.

3. 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.

4. Failure to Fill Tata’s Shoes

This reason behind Mistry’s removal is bizarre, to say the least. The reality is that a person like Ratan Tata can never retire. Be it politics or business, it is difficult to let go, and is something rarely seen in India. It is extremely important to maintain a strong image of the Tata Group at this juncture and as such, Ratan Tata will have to answer difficult questions. This worry is also evident in the actions of the board, which has given itself a deadline of four months to find a new chairman.

5. Will the Next Chairman be an Outsider or From The Group?

The door has been left wide open for Tata Sons’ next chairman – he/she could either be from outside or inside the group. One of the first names from inside the group can be of TCS’ Chief, N Chandrashekhar. Some names from the new economy could also be looked at.