Mistry and Tata

Background

  1. Tata Sons is the promoter of the major Tata companies and holds significant shareholdings of about 66% in these companies.
  2. Tata companies are commonly referred to as the Tata group and the Chairman of Tata Sons is also known as the Chairman of the Tata group.
  3. In 2012, Cyrus Mistry was appointed as the chairman of Tata Sons. In addition, he was also chairman of all major Tata companies including Tata Steel,Tata Motors, Tata Consultancy Services, etc
  4. Mistry was cherry picked by none other than Ratan tata himself in 2012 to lead the ‘Salt to Software’ $108 bn conglomerate.
  5. His father Pallonji Mistry’s firm Shapoorji Pallonji owns the largest individual stake of 18% in Tata sons.

What happened

  1. Mistry was dismissed as the Tata Sons chairman on October 24, 2016 by its board citing loss of confidence in Mistry, however no specific reasons were given.
  2. Mistry can still continue to be on the boards of these companies as director till a shareholders’ general meeting is called where the directors are appointed or removed.
  3. Mistry on his part alleged lack of corporate governance and failure on the part of directors to discharge the duty owed to shareholders of Tata Sons and other Group companies
  4. As per Mistry, Ratan Tata regards Tata group as a fiefdom, and Independent Directors aren’t truly independent and assertive.
  5. More over some serious allegations were also heaped upon Ratan Tata as in the case of Tata-Air Asia deal, a forensic investigation had found fraudulent transactions of 220 million rupees (USD 3.29 million) involving non-existent parties.
  6. Further as per mistry allegations, Tata group companies could see $18-billion write downs because of bad acquisitions by Ratan Tata during chairmanship
  7. Mistry also alleged that despite making losses of Rs 1000 crore, Tata’s low-cost Nano has not been shut down due to emotional reasons.
  8. If the governance issues raised by Mistry are true,it will not only impact the shareholders but will also hit the Tata brand.
  9. Mistry’s allegations have raised important questions on the independence of the independent directors and their conduct on all the boards of Tata firms.

What went wrong

  1. No reasons were given for abrupt sacking, but TATA and their lawyers allege that mistry could not uphold values of TATA and has violated its ethics.
  2. Mistry on his part says that efficiency was compromised on the basis of emotions and traditions. And Since mistry’s family was the largest shareholder, he could not have allowed it.
  3. The Tatas probably made a mistake in getting Mistry to run the group.
  4. They could have hired a professional CEO who would have been accountable to the Tata trusts and shareholders; but by inducting a co-shareholder and a billionaire businessman in his own right, the Tatas essentially brought in a man who would not have played second fiddle.

What now

  1. Ratan Tata is the interim chairman of the Tata sons till a successor is found.
  2. But it is unlikely that any person asserting independence would stay for long as it is difficult for an outsider to understand which values are to be achieved–Ethics, Emotions or Efficiency.