Markets would react adversely on Tuesday in a knee-jerk reaction to the event and this would be the least of Tata Sons concerns.
In a completely unexpected move, the board of Tata Sons on Monday replaced chairman Cyrus Mistry and set tongues wagging. While people would have a field day with rumours and insider information, the fact remains not much is known.
Speculation exists on issues which led to this unexpected move. One such issue being talked about is the dispute with Docomo where an arbitration award remains to be settled. The stance of Cyrus Mistry in not settling the same may have unnerved the present board.
One needs to understand that Cyrus Mistry was not just a chairman. He was handpicked and trained under Ratan Tata for a year.
He happens to be family for the Tatas and is their largest outside shareholder with some 20 per cent odd stake. Removing such a person would certainly have its repercussions and one could be sure that they would have been considered before taking this step.
Besides the Docomo issue one heard that the team at Tatas was unhappy with some of the decisions taken by Cyrus Mistry such as selling the fertiliser business. The way the Chorus deal proposal to sell was handled got Tatas into the wrong kind of limelight with the British government and may have got Cyrus on the wrong side of the board. The need to cut group debt has probably not happened at a pace which would have been liked by powers to be and also key decisions not taken in the time they were expected. In any case whatever may have happened to cause such an event, it puts the group in bad light and unnecessary focus.
The task ahead to the committee is to select a new chairman in a time of four months. In the interim Ratan Tata would act as the chairman. Markets would react adversely on Tuesday in a knee-jerk reaction to the event and this would be the least of Tata Sons concerns. Going forward they need to settle and resolve this issue as there would be bad blood on an unsavoury incident. Who is right and who is wrong is not the issue but had things got so out of control that such a drastic measure had to be taken If so how come the media or whispers not start doing the rounds It sure becomes intriguing and baffling.
What next for Tatas Selection and appointment of a new chairman firstly. His induction after some hand-holding secondly.
Firefighting and assuring all stakeholders that all is well thirdly. Most important, assure the incumbent that what happened was a one-off and there is nothing to worry. Finally, on the Pallonji front ensure that there are no legal issues and even if they do they are resolved quickly.
In the short to medium term, the Tata name would take some beating but it has to be rebuilt and the group ensure that proper communication is made to stakeholders. The most sensitive place is the stock market and also the beehive of not only activity but also rumours. How quickly the issue is resolved would ensure recovery in stakeholder confidence. This confidence being restored is the responsibility of Tata Sons.
Finally, expect some fireworks on Tuesday and in the coming days in keeping with the festive season.
The first salvo is certainly not the last one. Brace for some negative movements in frontline Tata stocks which could give a short-term buying opportunity as well. For things to be fully normal it.
(This Story originally appeared on Financial Chronicle)
