Tata Motors, owner of Jaguar Land Rover and makers of the Nano, India’s cheapest car, on Monday become the latest piece of the Tata empire to be dragged into a battle over its future, in a test case for parent Tata Sons’ efforts to tighten control.
The $100 billion Tata group has been mired in a public spat with former chairman Cyrus Mistry since last month, when he was abruptly ousted from the top job - an acrimonious tussle that has revived debate around India’s corporate governance and Tata’s complex structure.
Removing him from individual group companies, however, has been trickier, and Mr Mistry is still at the helm of several key Tata boards, including Tata Motors, whose board meets today, and Tata Steel, among the best known units of the sprawling salt-to-software group.
Tata on Thursday wrenched Mr Mistry out of Tata Consultancy Services (TCS), 73 percent controlled by the group and the conglomerate’s star performer. But it has struggled with other subsidiaries where ownership is closer to 30 percent.
But boards at Tata Steel and Tata Chemicals voted to keep Mr Mistry as chairman last week.
The board of Tata Motors will meet today to consider second-quarter earnings before those are reported later in the day.
If the Tata Motors board does not oust Mr Mistry, Tata Sons will have to turn to shareholder meetings. Tata Sons has already called for extraordinary general meetings across its companies to remove Mr Mistry as a director, including Indian Hotels Co, Tata Chemicals Ltd and Tata Motors.
“Tata Motors ... generates a substantial profit and revenues, so it is important for Tatas to have control over the board,” said Shriram Subramanian, managing director of InGovern Research Services, a firm advising institutional investors. Tata Sons has blamed Mr Mistry’s abrupt exit on what it called breach of trust and poor performance, accusing him of eroding shareholder value. It has also said Mistry tried to reduce the role of Tata Sons, controlled by a series of charitable trusts.
Mistry has argued he tried to create internal barriers for better governance - a move that would reduce Tata trusts’ involvement in operational issues of group companies, which he said should be controlled by their own boards of directors.
The Tata trusts collectively own about two thirds of Tata Sons.
Earlier, Mistry has hit back at Tata Sons, saying the group holding company has stooped to a new low by questioning many eminent personalities who serve as independent directors on the boards of Tata Chemicals and Indian Hotels Company (IHCL).
In a statement on Sunday evening, Mistry’s office said these eminent people, who serve as independent directors, are now being questioned by Tata Sons for undertaking their fiduciary duty of protecting the shareholders of the companies.
Prior to Mistry’s chairmanship, all the board members of Tata Sons, with exception of him, were internal to the group, being either Vice Chairmen of group companies or members of GCC.
“A philanthropy running a commercial business creates its own paradoxes,” said Institutional Investor Advisory Services, a proxy advisory, in a note about the feud.
Tata Sons on Sunday said it was “crucially important” for the board members, including independent directors, to consider the future of Tata companies and its stakeholders. A spokesman declined to comment further.
Sebi steps up scrutiny as Tata-Mistry feud escalates
Markets regulator Sebi has stepped up scrutiny on developments in the escalating Tata- Mistry feud, keeping a close vigil on all disclosures being made as also the finer details of the board meetings of listed firms of the Tata group.
The watchdog is seeking to prevent violation of corporate governance norms and protect investors’ interest, for which it has also received communications from various stakeholders, including foreign institutional investors.
In the wake of boardroom battles at various Tata group companies, Sebi is keeping a close watch on the role of independent as well as non-executive directors, expecting them to work as guardians of minority shareholders.
Seeking ouster of Cyrus Mistry as director of these firms, Tata Sons has sought extraordinary general meetings (EGMs) of shareholders.
More than two dozen companies of the over USD 100 billion Tata group are listed and Sebi is focusing on protecting the interest of minority shareholders and ensuring that corporate governance norms are followed.
Since the ouster of Mistry as Chairman of Tata Sons -- the holding entity of most Tata group companies -- on October 24, there have been a lot allegations traded between the two sides even as Mistry continues to be chair the board of several firms.
Sources said Securities and Exchange Board of India (Sebi) has “stepped up scrutiny” of the developments related to the Tata-Mistry battle.
Apart from checking out the finer details of various board meetings of listed group firms, especially after Mistry’s ouster, Sebi is also looking into representations and information provided by various stakeholders, sources added.
Among others, details of board meeting at Tata Motors -- where Mistry had alleged that it was following aggressive accounting practices -- are being looked into, they said.
According to sources, the watchdog is going through communications received from foreign institutional investors, retail investor associations and proxy advisory firms. The role of independent directors at various group companies, who seem to be divided over the continuation of Mistry as their chairman and/or director, have made the situation complex.
Last week, Sebi chief U K Sinha said that a company’s independent directors have the responsibility to protect shareholder interest, besides following the mandatory regulations laid out for them.
“I don’t want to comment on any particular company or group. But the independent directors have the fiduciary duty to perform and that they have their loyalty and obligation to all their shareholders,” Sinha had said.
“So, they must take care of interest of all shareholders, besides they have to follow Sebi guidelines (Sebi Act as well as Companies Act),” he had said. . Story PageSebi steps up scrutiny as Tata-Mistry feud escalates
Against the backdrop of the Tata-Mistry fight, mutual funds -- given their over Rs 20,000 crore investment in shares of listed companies of the Tata group and huge exposure to their debt and equity funds -- are also in a huddle. After the removal of Mistry as Tata Sons Chairman, his predecessor Ratan Tata was called back as the interim head, triggering a major boardroom battle in the group with a flurry of allegations and counter-allegations from the two sides.
In its latest report, proxy advisory firm has said the current back and forth between Tata Sons and Mistry is “reactionary” and unlikely to provide any meaningful long term solution.
Noting that the decision of independent directors of Tata Chemicals and Indian Hotels Company to support Mistry adds to the growing complexity of the current narrative, IiAS said Tata group needs to focus on making its complicated holding and governance structure work.
“The independent directors in the operating companies are right in taking a stand and providing guidance. But we are concerned with the way the situation is playing out: their decision threatens to dismember the companies from Tata Sons and effectively, the group,” it said.
The contrarian positions of Tata Sons and the two listed companies on the issue is further confusing investors.
Markets regulator Sebi has also has begun the recruitment process for hiring a security official, who will be responsible for strengthening security arrangements at its offices and residential premises.
Sebi will appoint a Security Coordinator, who will be responsible for planning, analysing and assisting in providing various security arrangements in the office buildings, supervising various electronic systems for security measures such as CCTV, fire detection, fire fighting systems, access control system, metal detector, monitoring of visitors.
The Officer would supervise the function of mailing desk and reception and verify dead stock inventory register at all the offices of Sebi. The person would be responsible for protocol, logistics and other arrangements for visits and meetings of senior officials of Sebi.