Another twist to the Ratan Tata-Cyrus Mistry imbroglio has been added. Not only did the Tata Sons board meet for the first time since the unceremonious ouster meeting for Cyrus Mistry on 24 October, but Mistry has been dropped from the Tata Steel board and a ‘circular resolution’ has been passed to prevent any legal recourse to challenge the ouster.
A ‘circular resolution’ is normally passed by the directors without any formal meeting and is a notification to deal with routine issues. This step not only underlines the gross misuse of corporate governance provisions but strongly underlines the crucial changes required in Indian corporate laws. Cyrus has already been removed from TCS, TGBL and Tata Steel but stays as chairman of Tata Motors, Indian Hotels, Tata Chemicals and Tata Power.
The slugfest brought into the open corporate governance issues that rocked and sullied the image of the 148-year-old brand that evoked trust in Indian households and overseas. It also highlighted convoluted and complicated cross-shareholding patterns in Indian corporates as well as legacy interests strongly pitted against the interests of millions of shareholders who have invested in these family-run corporate monoliths.
Ousted Chairman Cyrus Mistry has now called for framing explicit corporate governance structures in Tata companies and also for other such family-run business empires that often work on the whims and fancies of the patriarch at the cost of gullible shareholders. India’s corporate history is replete with examples of how corporate governance is complicated and non-transparent, playing with fortunes of minority shareholders as well as institutional shareholders. In addition, it also calls for a revision of the role played by the so-called índependent directors or non-executive directors in Indian corporate boards — a la the Satyam scam! This apart, it calls into question whether family hierarchy and legacy are more important than transparent and profit-generating resolutions taken in shareholders’ interests. It asks whether ‘philanthropy’ or larger social interest investment means deploying shareholders monies in loss-making ventures for altruistic reasons (like affordable car Nano) or for that matter the ego trip of acquiring loss-making Corus, at great risk to shareholder funds.
Now that the imbroglio has become far from manageable, there is an open battle as the two are readying to go to court. Mistry is hell- bent on exposing the ‘mismanagement’ in various company decisions that undermined shareholder interests.
Ratan Tata was expecting Mistry to quietly resign from all positions. But that was not to be. Despite a smear campaign, Mistry has replied squarely that in his less than four-year term he has been able to turn around many Tata Group companies and that his brainchild — the Strategic Group, now disbanded — has achieved much more than in the three decades of Tata’s leadership. This is more than evident as many board members, including Independent directors, have criticised Mistry’s removal.
In other operating companies including Tata Motors — which was the sparking point — independent directors have come to play a big role. Independent directors are the custodians of the shareholders interests in any company vis-a-vis the company owners’ vested interests and have a crucial role to play.
Ironically, many of the independent directors are on the board of Tata Group companies — from where Cyrus was ousted as also in many of the group companies which want Cyrus to head their own operations. Since independent directors can hold their autonomous view, their say will have an important bearing on the Ratan-Cyrus imbroglio. The only way to evict Mistry from the board of many of these companies would be through shareholder voting. This would mean that EGMs have to called for each company. This will be a long drawn process.