Seeking shareholder support in Mistry spat may open can of worms for Tatas

Updated on Nov 08, 2016 10:48 AM IST

With Tata Sons thinking of seeking shareholder support over the leadership change at the group, it seems the company will end up washing its dirty linen in public.

File photo of Ratan Tata with ousted chairman Cyrus Mistry.(Reuters)
File photo of Ratan Tata with ousted chairman Cyrus Mistry.(Reuters)
Hindustan Times | By, Mumbai

With Tata Sons thinking of seeking shareholder support for removing Cyrus Mistry from the chairman’s position, it seems the company will end up washing its dirty linen in public.

The process will have to be discussed in a general meeting for which a special notice will need to be issued that gives the reasons for the move. It will also give the director concerned a chance to respond.

The meeting will bring the management decisions taken at Tata Motors, Tata Steel, Indian Hotels, Tata Power under more scrutiny. Ousted chairman Cyrus Mistry has already stated his views on transactions at these companies.

The move can also result in further erosion of shareholder wealth. Tatas decided to seek shareholder support after Mistry refused to resign from the boards of various companies and independent directors of Indian Hotels backed him.

“It can be a long process that will reveal the real reasons for the replacement of Mistry ... which is why it should be the last option,” said Ramesh Vaidyanathan, managing partner, Advaya Legal.

A Tata group official said, “From the beginning, it has been said that one of the reasons (for Mistry’s dismissal) has been his variance with Tata culture and values. Key shareholders felt that the group, under the new shareholders, was turning away from the Tata code of business which is non-negotiable. How do you explain all that?”

On his part, Mistry has been very professional and has levelled charges that have been purely business, listing out reasons why the decisions failed and the extent of losses.

Though some of Mistry’s decisions were questionable, the process can open a can of worms.

But there are possibilities that some investors will file lawsuits, alleging that they should have been informed about sensitive issues.

“Apart from the invalidity and illegality of the business that was conducted, I have to say that the board of directors has not covered itself with glory,” Mistry said in the five-page letter after his removal on Oct. 24.

“As is public knowledge, the foreign acquisition strategy, with the exceptions of JLR and Tetley, had left a large debt overhang. The European steel business faced potential impairments in excess of $10 billion, only some of which has been taken as of date.

“Many foreign properties of IHCL and holdings in Orient Hotels have been sold at a loss. The onerous terms of the lease for Pierre in New York are such that it would make it a challenge to exit. Tata Chemicals still needs tough decisions about its UK and Kenya operations,” Mistry said.

Mistry, people close to him say, wants to protect the Tatas (as in the group) from Tata (as in Ratan Tata and Tata Trusts), and also safeguard his family’s 18.38% holding in Tata Sons.

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