With the removal of Cyrus Mistry what shall encompass is yet to be known, however, what is clearly indicative that this will witness a rise in the rivalry between the shareholders of the company.
One of India’s biggest conglomerates, Tata Group, has been fairly managed by its five Chairmen since its inception until the episode bringing out the biggest faceoff between Cyrus Mistry and Ratan N Tata came out in the open. After the fight between the Ambani brothers, the Tata-Mistry face off is the biggest to be evident in the corporate world.
The decision to remove Cyrus Mistry was taken by Tata Sons Board but the man behind this stance was Ratan Tata. Of all the major issues prompting this move was the difference of opinion between Cyrus Mistry and Ratan N Tata, which did not go down well with the former Chairman of the Tata Group.
Ratan Tata undoubtedly was the best serving Chairman of the Tata Group entering Tata into many multi billion-dollar deals which took the holding of the Tata to a new level. When Cyrus Mistry took upon the reign of the Tata Group, he managed to shelve off certain units of the Tata Group but no new undertakings were introduced within the Tata enterprise.
The first trigger of discontent, claim sources within the Bombay House in Mumbai, revolved around Mistry’s Irish citizenship which he had not renounced despite repeated requests from Tata as he felt Tata Sons must be taken care off by a person with complete Indian identity.
Then came the second ring of conflict when an estimate ` 2,926.35 crore was paid to Shapoorji Paloonji & Co for a range of civil work, including construction of TCS buildings, assignments in Tata Motors, Indian Hotels, Indian Rotorcraft Limited, Tata Housing and Tata Advance Systems. Many within the group felt that this could bring in a situation of conflict of interest as Shapoorji Paloonji is owned by Mistry’s family and no benefit should have accrued to Shapoorji Paloonji & Co through Tata projects. The final hit was when supremacy of Tata Sons board was violated by the Group Executive Council (GEC) set up by Mistry who pushed five members of the GEC to supervise the CEOs of the individual group companies.
Many understood this as a parallel trust creation which would weaken the the power of the trusts and its functioning. Individual companies were being asked to form their own foundations for the different philanthropic works that they are engaged in. Mistry ensured that he was the sole Tata Sons’ nominee to each of the group’s operating companies to control both the information and operational flow.
Many other issues pertaining to serious issues of governance, especially one revolving around Welspun. Mistry, engaged into a series of meetings with Welspun officials since talks began in November 2015 to acquire its assets. On 22 April 2016, Mistry signed a term sheet with Welspun but did not disclose it to the Tata Sons board until 22 May 2016, not even during a March 2016 presentation on Tata Power made to the Tata Sons board on energy issues.
“The May 2016 email offered additional information to directors with respect to major aspects with regard to Weslpun but did not seek approval,”.
On 13 May 2016 (two weeks later), Mistry emailed a note at 9:19 PM to the board saying that Tata Power was examining acquisition opportunity in the renewable energy sector. Note didn’t seek approval of the board or call for discussion but simply offered to provide further information if required. Vijay Singh, a director of Tata Sons, commented on the email saying that it was a “step in the right direction” but it wasn’t a formal approval of the acquisition. Noshir Soonawalla, former vice chairman Tata Sons, said that it should be structured properly and not captured downstream in a small company. Surprisingly, Tata Power paid out a premium of 30 percent from which the first creditor paid was Shapoorji Paloonji, a company directly related to Mistry’s family. Director’s commissions were paid later as per Tatas’ practices since the non-executive directors did not receive any salary but were paid a commission as per their specific contributions. Mistry’s ouster continued for a little over a month, almost all directors explained why it was important for him to step down and allow someone else to steer the group’s businesses.
Mistry disagreed but eventually agreed to meet RK Krishna Kumar, former Tata Sons director and confidant of Ratan Tata. The meeting took place at Krishna Kumar’s residence where Mistry was told that he was “fiddling” with the culture of the 130-yr-old company. In August 2016, Mistry brought out a note on his self-appraisal, read the same before the Board but chose not to share the same nor circulate it as well as not appending to the minutes leaving the Directors disgruntled.
The former Chairman felt that Mistry didn’t respect the Board and took least care of his fiduciary responsibility. Tata even said that this became amply clear with the letter Mistry issued immediately after his removal where Mistry shirked his own responsibilities as a member of the board and representative of shareholders.
Historically, the chairman of the Tata Trusts and Tata Sons had always been the same but the Articles of Association of Tata Sons had to be specially amended to make way for a chairman who was not the chairman of the Tata Trusts.
Interestingly, Mistry had been on Tata Sons’ board since 2006. In 2010, he had circulated among the board members a note outlining how the group should be managed. It was on the basis of this letter he was made deputy chairman in 2011 for a year until he took over as chairman in 2012.
“So then why Mistry claimed that he had no idea of the old decisions that were made while he was privy to all decisions and participated in decision-making process as part of the board, ” said an official to the media.
On the issue of Sivasankaran’s cash, it was the chairman’s office that had recommended the case to Tata Investment Board/ company. The loan case was referred to the board. Mistry had even said that he “would go with Ratan Tata’s wisdom since I do not understand the sector”.
In December 2012, Tata stepped down after the conclusion of the Air Asia deal and with the full assent of the board. All dues were paid and the loan was settled by the board. Hence, it would be logical to conclude that Mistry had been privy to the case. But he still claimed he was not privy to the decision. Even if he was not, how come Mistry didn’t object until then, ask sources within the Bombay House.
Among many other issues of that caused frictions one was an alleged multi-million-dollar endowment made to Yale from the Tata House. Many suggested it to be a case of impropriety because it was around the same time Mistry’s son joined Yale.
Even before the Board Meeting on 24 October 2016, in which Mistry was removed, he was on many occasions asked to step down only to refuse such reminders. It was on 24.10.2016, Tata himself and Nitin Nohria, one of the Tata Sons directors, walked into Mistry’s room, asking him to resign. The board meeting was just 15 minutes away.
Tata and Nohria gave Mistry an opportunity to step down as they were planning to move a resolution to that effect before the board. They pointed out that his contract would anyway end in March 2017 (with the end of 2016-17). Mistry firmly refused, only to be sacked in the meeting that followed.
With the Tata’s getting ready for a series of extraordinary general meetings this month, the stage is getting ready for a second round of conflict between the Chairman Emeritus and the sacked Chairman.
With engaging into war of words by both the sides and bringing in their own set of admirers and critics and preparing for their second round of offence and defense, has already rattled the country.
Earlier, both Tata and Mistry had visited Delhi, and met, among others, Prime Minister Narendra Modi, and a host of other ministers. Interestingly, Delhi’s power circle, has sympathised with Tata.
It is evident that the government would not rock a unit as big as the Tata group, which contributes as much as 4 percent of India’s gross domestic product (GDP).
“Tatas are Indian bridge builders around the world. The British PM drives a car owned by an Indian. It’s a matter of pride for the nation. Conglomerates are not run-on quarterly balance sheets but long-term vision,” said a senior BJP official to the media.
With the removal of Cyrus Mistry what shall encompass is yet to be known what is clearly indicative that this will witness a rise in the rivalry between the shareholders of the Company but it shall definitely take a hit on several future goals of the Group. To add to it the redressal of this issue of problems of the shareholders and the Board towards Mistry could have been done in time a situation of this extent could have been avoided.
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