Stepping up his fight against Tatas and patriarch Ratan Tata, ousted Chairman Cyrus Mistry on Monday sought government’s intervention to “remedy and repair breakdown” in the governance of trusts managing Tata Sons -- the holding firm for over USD 100 billion conglomerate.
In an apparent reference to Ratan Tata, Mistry also made a case for decision-making to be not concentrated in a single individual, saying conferment of all power in one man or a “high command” is unethical and a breach of trust.
Reaching out to shareholders of six Tata group firms, where promoters have called EGMs to remove him from their boards, Mistry said, “The Tata Group is no one’s personal fiefdom: it does not belong to any individual, not to the trustees of Tata Trusts, not to the Tata Sons directors, and not to the directors of the operating companies.“It belongs to all the stakeholders, including every one of you.”
In his letter to shareholders ahead of the EGM to remove him from the group’s crown jewel TCS on December 13, Mistry questioned why no reasons were cited for his dismissal and wondered if this was another case of Ratan Tata’s arbitrary functioning.
“The impression sought to be created was that there was something unspeakable underlying his inexplicable and unreasonable conduct. More importantly, the signal was that Ratan Tata had an absolute right to do as he willed without having to explain himself to anyone,” Mistry said.
“The conferment of all decision-making power in one man or a ‘high command’ among them is unethical, improper and a breach of trust. It is critical that serious decisions of severe magnitude and consequence are not taken whimsically, without much thought, or for unstated collateral objectives,” said Mistry, whose family owns 18.4 per cent in Tata Sons. Various Tata Trusts of which Ratan Tata is lifetime chairman, owns 66 per cent in Tata Sons, and are all public trusts.
It can be noted that over the last 40 days, Mistry has made pointed accusations like entering the aviation business, usage of corporate jets and lack of judgement in investments which had to be written-off.
“It is necessary to have a strong method of checks and balances in the trustees’ decisions, particularly if decisions they take could indirectly give them personal benefits,” he said in the letter. Stating that his attempts to effect reform in the group’s working were cut short with his abrupt dismissal on October 24, Mistry pitched for government intervention in the matter. “In the absence of an appropriate governance structure and ethical behaviour of trustees, it would become an inherent obligation of the government to remedy and repair breakdown in the governance of such trusts,” Mistry said. .
Making a strong plea for reform in the Tata Trusts, Mistry expressed fears of the vision of the Tata founders being “under threat” unless governance reforms are initiated.
Stating that two directors had abstained during the vote on his dismissal, Mistry underlined that those who voted him out included three nominee directors of Tata Trusts and three newly-inducted directors, who had sat only for one such meeting previously.
He further alleged that two of the three new directors were inducted on the recommendation of Ratan Tata.
“This demonstrated lack of independent judgement, and disregard of their fiduciary duty, betraying the confidence reposed in them by the stakeholders,” Mistry said in the letter to the over two million minority shareholders of the conglomerate.
Mistry said there were veto rights with nominee directors of Tata Trusts on group companies, but Ratan Tata and former Tata Sons vice-chairman N A Soonawala “abused” it.
“In their capacity as trustees of Tata Trusts, they took the veto rights of the trustee-nominated directors as their entitlement to dictate to these directors how Tata Sons should conduct itself,” he said.
“In the view of these trustees, the board of Tata Sons was answerable to them and through the trustee-nominated directors, they could not only call for such information but also dictate what decisions must be taken by Tata Sons,” said Mistry.
Global proxy advisory ISS urges TCS shareholders to vote for Mistry
Global proxy advisory firm ISS has asked TCS shareholders to vote against the move to remove Cyrus Mistry as the director of TCS and other large group companies, saying Tata Sons has not given any “compelling evidence” for his ouster.
Tata Sons which is seeking to remove Mistry from the directorship of its crown jewel TCS on December 13 through an EGM has not given “compelling evidence that the proposal to remove him will be beneficial” for TCS or any other company, the firm said in a recommendation to minority shareholders.
“Neither have they said that Mistry’s continued presence on the board is ‘expected to have a material negative effect on board governance or future performance’”, it added.
Mistry was removed as the chairman of Tata Sons in a surprise move on October 24, following which the holding company of the conglomerate started the exercise of removing him from chairmanship or directorship of group companies.
TCS, which contributes a close to bulk of the group revenue and close to 85 per cent of profit, was the first one where Tata Sons replaced the chairman by removing Mistry and also seeking the shareholder meet to remove him from directorship. Last month, Tata Sons, which owns 73 per cent in the company appointed Ishaat Hussain as the interim chairman.
Five other large flagships -- Tata Steel, Tata Motors, Tata Power, Tata Chemicals and Indian Hotels Company -- have also called EGMs this month over Mistry’s removal from their boards.
At least two other proxy advisory firms -- Institutional Investor Advisory Services (IiAS) and SES -- have asked minority shareholders to support the resolution.
Stating that the outcome of the TCS’ EGM is a “foregone conclusion” given that Tata Sons holds 73 per cent in it, ISS said TCS “has exhibited very good relative performance over the past four years”.
The ISS was also critical of the action taken by Tata Sons against long-time director Nusli Wadia. “Why would a long tenured director like Wadia suddenly act ‘prejudicially’ or why has tenure become a problem in the last month? Why is it that operating company boards didn’t seek Mistry’s removal before, or raised issues to Tata Sons, if they thought Mistry was a bad influence on the board?” it said.
The ISS said a functional board and a healthy relationship with the promoter are overarching needs at operating companies but there appears to be differences of opinion in terms of governance and strategic decisions.