Analysis: TCS EGM shows how Tata Sons is closing in on removing Mistry
A fifth of the non-promoter shareholders of TCS, one of the most profitable companies in the Tata group, voted against removing former group chairman Cyrus Mistry at the extraordinary general meeting on Tuesday, signaling marginal dissatisfaction with the ongoing leadership dispute at the conglomerate.business Updated: Dec 14, 2016 11:47 IST
A fifth of the non-promoter shareholders of TCS, one of the most profitable companies in the Tata group, voted against removing former group chairman Cyrus Mistry at the extraordinary general meeting on Tuesday, signaling marginal dissatisfaction with the ongoing leadership dispute at the conglomerate.
Of the total votes polled at the EGM accounting for about 87% of the company’s shareholding – the remaining, including LIC abstained - 93.11% of those who voted on Tuesday were in favour of removing Mistry as director, while 6.89% voted against.
The result led Mistry to be removed as director of TCS. What is interesting is that of the 87% votes, 73.33% is owned by promoter Tata Sons and related companies. So the result of that vote block was pre-decided.
The focus is on the way 27% non-promoter voting shaped up. Tuesday’s vote accounted for 14% of this non-promoter holding, with the results showing a clear split in the middle.
Expectedly, the Mistry camp is elated. “It is a moral victory,” said a statement from the office of Mistry. “Almost 20% of shareholders of TCS that accounts for more than 70% of non promoter shareholders supported Cyrus by voting against the resolution or abstained (expressing their disapproval of the promoter actions),” the statement added.
What is significant is the way this voting would influence forthcoming EGMs. The unlisted Tata Teleservices will hold it’s EGM on Wednesday, which will be followed by EGMs of key companies such as Indian Hotels, Tata Steel, Tata Motors, Tata Chemicals and Tata Power next week.
In Tata Steel, Tata Motors, Tata Power and Indian Hotels, promoter shareholding is between 25-30%. In the case of Tata Chemicals, principal shareholders Tata Sons and Tata Trusts together hold a little under 20%, while other Tata Group companies hold around 11%.
Tata Sons has already taken steps to bolster its shareholding in some of these companies. On Tuesday, Tata Sons acquired 50 million shares of Tata Motors in a bulk deal for Rs 2,431 crore, increasing its stake in the commercial vehicle maker to 28.71% from 26.98% earlier.
While overall, most analysts say that Tata Sons would retain its control over most companies, the quantum of dissent, mainly among foreign institutional investors and some minority shareholders, could likely prompt the Tatas to relook at issues that Mistry raised, since being ousted as group chairman on Oct 24.
Already, global shareholder advisory, the Boston-based Institutional Shareholder Services (ISS), which holds weight with FIIs, had asked institutional members to vote against the resolution at the TCS EGM. ISS recommendation is typically followed by FIIs; they went by its advice and voted against a proposal to hike salaries of top executives at Tata Motors in 2015 and 2016.
This is what ISS had recommended for TCS institutional shareholders. “…neither Tata Sons as the proponent nor the board of TCS has provided unaffiliated shareholders with compelling evidence that the proposal to remove him will be beneficial for TCS, or that his continued presence is expected to have a material negative effect. Additionally, support for Mistry from several independent directors at different companies seems to indicate Mistry was operating on the basis of a healthy distance from undue pressure. On this basis, support for the proposal is not considered warranted.”
ISS has also made detailed observations at individual companies. Overall, ISS observes there appears to be differences of opinion in terms of governance and strategic decisions between Mistry and Tata Sons, and it is obvious that Mistry doesn’t represent the promoter’s thinking on operating company boards. The group can make its voice heard by nominating trusted representatives. While support for Mistry from independent directors doesn’t follow that he should necessarily be chairman of these companies, Mistry seems to have balanced the power of the holding vs. the power of the operating companies’ boards.