The Tata Group surprised everyone when on October 24, the Tata Sons board,ousted Cyrus Mistry as chairman. But removing Mistry from independent companies of the Tata Group will not be easy; he is unlikely to go quietly. Last week, the independent directors of Indian Hotels publicly supported Mistry’s leadership ahead of the company’s board meeting. HT brings you the frequently asked questions as the Tata versus Cyrus Mistry drama unfolds.
Why was Cyrus Mistry removed?
Without giving any specific reasons, Tata Sons simply said growing trust deficit and repeated departures from the culture and ethos of the Tata group was the reason behind the removal of Mistry. The board also said Ratan Tata would take over as the interim chairman of Tata Sons and a committee was formed to hunt for a new chairman in four months.
The Trusts, which are chaired by Ratan Tata and control about 66% of the shareholding of Tata Sons, were also reportedly unhappy that the performance of Tata Sons was increasingly dependent on only two companies - Tata Consultancy Services and Jaguar Land Rover.
What will happen next? Can Mistry be removed as chairman of individual companies?
Removing Mistry from independent companies will not be easy; Mistry is also unlikely to go quietly. Last week, the independent directors of Indian Hotels publicly supported Mistry’s leadership ahead of the company’s board meeting. The independent directors, including Deepak Parekh, Keki Dadiseth, Ireena Vittal, Gautam Banerjee and Vibha Paul Rishi said, taking into account board assessments and performance evaluation carried out over the years, the independent directors were unanimously expressing their full confidence in the chairman, Cyrus Mistry.
This could bolster Mistry’s confidence and he may find support from independent directors of other group companies too. Crucial board meetings of Tata Steel and Tata Motors are scheduled over the next few days and their proceedings will be watched closely.
If Tatas aim to seek shareholder support for the management change, the matter will have to be taken up in a separate general meeting, for which a special notice will need to be issued giving reasons for the move. It will also give the director concerned a chance to respond. Such a meeting may also bring management decisions taken in the past under more scrutiny and so legal experts say this could be last option for Tatas.
With a long drawn legal battle, the Tatas have already consulted senior advocates like Harish Salve and Abhishek Manu Singhvi. Mistry too has reportedly appointed top lawyers like Janak Dwarkadas to fight his case.
What is the role of Tata Sons?
Tata Sons is essentially the holding company of the Tata Group, which is a conglomerate of over 100 companies ranging from salt to software, automobiles and aviation with combined revenues in excess of $100 billion. Typically, the chairman of Tata Sons is also the chairman of key group companies. However, in this case, while Ratan Tata was named the interim chairman of Tata Sons, Mistry still remains the chairman of various group companies.
How powerful are the Tata Trusts?
The Tata founders bequeathed most of their personal wealth to the various trusts they created for carrying philanthropic activities. These trusts, which include Sir Dorabji Tata Trust, Sir Ratan Tata Trust and Navajbai Ratan Tata Trust, collectively control about 66% of Tata Sons, and are thus hugely powerful. Just before Mistry was appointed chairman, Tata Trusts was given special powers to nominate, approve and remove chairman of Tata Sons.
Will the regulators and government intervene?
Soon after Mistry was sacked and the former chairman wrote the scathing letter to the board, stock exchanges sent notices to various Tata Group companies seeking clarification. Sebi officials too have indicated that the market regulator is watching every development closely and action will be taken if any corporate governance issues emerge. The finance ministry too has asked financial institutions including the Life Insurance Corp of India and banks to keep a watch on developments to protect investors’ interest. LIC alone has an exposure of about Rs 37,500 crore to various Tata group companies.
How has the market and investors responded?
Since Mistry’s ouster, shares of several listed companies of Tata Group have taken a knock. For instance, Tata Global Beverages and Indian Hotels have shed near 13% and 17% respectively. Many others including Tata Motors, Tata Power, Tata Communications, TCS and Tata Steel have declined 4-10%. Foreign institutional investors and mutual fund houses hold sizeable stakes in many of these companies. Worried about their investments getting eroded further, many institutional investors are likely to approach the boards of respective companies seeking more clarity on the road map ahead, amid continued uncertainty at the top, according to market sources. According to a news report, a group of FIIs has already written to the Tata Motors board concerned over the possibility of Tata Sons being given access to strategic information before other investors.