Former Tata Group chairman Cyrus Mistry
Image: Amit Dave / Reuters
A few days after the board of Tata group company Indian Hotel Co. Ltd (IHCL) expressed faith in Cyrus Mistry’s leadership abilities as its chairman, another group company Tata Consultancy Services, replaced him as chairman.
In an announcement made to the stock exchanges on Thursday morning, TCS stated that it had received a letter from Tata Sons, the flagship holding company of the salt-to-software conglomerate, which holds a 73.26 percent stake in the IT major, on November 9, nominating Ishaat Hussain as the interim chairman of the company with immediate effect.
“In view of this, Mr. Mistry has ceased to be the chairman of the board of directors of the company and Mr. Hussain is the new chairman,” TCS’ intimation to the bourses said. “The company has been further informed that Mr. Hussain shall hold office as chairman of the company until a new chairman is appointed in his place.”
Tata Sons has also issued a special notice under Section 129 read with Section 115 of the Companies Act, 2013 and a requisition convening an extraordinary general meeting (EGM) of shareholders of the company under Section 100 (2) of the same Act to consider a resolution for the removal of Mistry as director of the company.
Thursday’s development queers the pitch further in the power struggle that has broken out at the $103 billion-conglomerate since Mistry was replaced as chairman of Tata Sons on October 24.
His removal as TCS chairman, and the earlier re-affirmation of faith in him as IHCL chairman make it entirely possible that different Tata group companies will end up with different leaders, which doesn’t bode well as far as cohesiveness in the future strategy for growth at the conglomerate is concerned.
TCS’ statement issued on Thursday morning didn’t specify if the board of directors met and discussed this development and what the position of the independent directors of the company was in this matter. But since the director of a company can only be replaced as its chairman if the majority of the board, it may be assumed that TCS’ board bestowed its blessings on Tata Sons’ wish. The company’s board comprise Mistry; its CEO, N Chandrasekaran; global head of delivery excellence Aarthi Subramanian; finance director of Tata Sons, Hussain; and independent directors Venkatraman Thyagarajan, Clayton M Christensen, Ron Sommer, Vijay Kelkar and OP Bhatt.
All the independent directors on TCS’ board were appointed before Mistry took office as chairman of Tata Sons in December 2012, except former SBI chairman OP Bhatt, who was inducted into the TCS board at the same time as Mistry (who was vice chairman of Tata Sons at that time) in April 2012.
Tata Sons’ bid to remove Mistry as director of TCS, which has been the group’s principal cash cow for long, will also mean that Mistry will have to be given an opportunity to present his case before the shareholders of Tata Sons at the EGM, the date for which is yet to be announced.
While it may not be difficult for Tata Sons to get the resolution to remove Mistry as director of TCS passed, considering the company’s promoters – led by Tata Sons – own as much as 73.33 percent in the company, it will be interesting to see which way the minority and institutional investors of the company vote. Foreign portfolio investors, banks, insurance companies and mutual funds own as much as 22.15 percent stake in the company. Their voting behavior at a potential vote to oust Mistry will speak a lot about which way do the institutional investors of the group lean towards.
Mistry will face another Board test on Thursday when the directors of Tata Chemicals meet.ALSO READ: