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Mistry's presence may lead to fragmentation of Tata Group, Tata Sons says

The $103 billion-conglomerate appealed to shareholders to support the move to remove Mistry from operating companies. Failure to do so will jeopardize the cohesive synergy with which the Tata Group operates, it says

Published: Dec 12, 2016 06:13:52 AM IST
Updated: Dec 12, 2016 12:27:42 PM IST

Mistry's presence may lead to fragmentation of Tata Group, Tata Sons saysBombay House serves as the headquarters of the Tata Group

Image: Joshua Navalkar

Ahead of the crucial shareholder meetings that Tata Group companies are going to hold over the rest of this month, beginning this week, which will decide the fate of Cyrus Mistry’s directorship and chairmanship of these firms, Tata Sons made a strong appeal to all stakeholders to support its resolution of removing Mistry from the boards of these entities.

In a detailed note addressed to shareholders of group operating companies on December 11, Tata Sons, the flagship holding company of the salt-to-software conglomerate, urged them to “give serious thought” to the explanations it has put forth in defense of the resolution to remove Mistry, who was ousted as Tata Sons chairman on October 24, as a director on the board of operating companies as well.

The first extraordinary general meeting of the shareholders of a Tata Group operating company will be held on December 13, when shareowners of Tata Consultancy Services will meet to vote on the proposal to remove Mistry as a director.

In its statement issued on Sunday, Tata Sons said that Mistry has “misled” the selection committee set up in 2011 to find a successor to Ratan Tata as the group’s chairman by “making lofty statements about his plans for the Tata Group.” Mistry, according to Tata Sons, had indicated an elaborate management structure for managing the group, which has diverse business interests across global regions, through “dispersal of authority and responsibility.”

“After waiting for a period of four years, almost none of these management structures and plans have been given effect to,” Tata Sons said.

With respect to the points of conflict between Mistry and Tata Sons, the latter also made some new revelations in its statement. The conglomerate’s holding firm claimed that when Mistry took over as vice chairman in 2011, he was informed that he should distance himself from his family enterprise, ShapoorjiPallonji and Co. and other group entities, in which he is a major shareholder by putting his stake in these ventures in an arms-length Trust. Mistry’s family is the single largest shareholder in Tata Sons with an 18.4 percent stake.

“This was suggested keeping in mind good governance principles. Mr. Mistry agreed, but after some time Mr. Mistry retracted his position and indicated that he couldn’t find a way of doing so,” Tata Sons claimed in its statement. “Such conduct by Mr. Mistry was inappropriate and created a sense of breach of trust on his part…This retraction, created grave concerns on Mr. Mistry’s ability to lead the Tata Group devoid of personal conflicts and put to risk the high standards of self-less governance, that lies at the core of the Tata philosophy.”

The principal promoter shareholder of Tata group companies also reiterated earlier allegations that it has made against Mistry, including dissatisfactoryoperational performance of group companies under his leadership; an attempt to concentrate power in his own hands by positioning himself as the sole Tata Sons representative on the boards of operating companies; and embarking on a public campaign by making “incorrect” allegations that have caused “enormous damage and considerable financial loss to all shareholders, running into tens of thousands of crore.”

Tata Sons squarely laid the blame for the loss in market value of the group’s listed companies, since the power struggle came to light on October 24, on Mistry attributing them to his actions and statements that have “caused instability and confusion.” The statement also pointed out that since Mistry was chairman of the operating companies by virtue of his chairmanship of Tata Sons, he should have stepped down as chairman of these firms after being replaced at the helm of Tata Sons; more so since corporate governance guidelines put in place during Mistry’s tenure as Tata Sons chairman in 2015 required any executive who ceases to be a Tata employee to step down from the boards of all Tata Group firms where he or she may hold a non-executive position.

Tata Sons, which is the principal promoter shareholder of all Tata Group companies, also cautioned that failure to remove Mistry as chairman from the boards of these companies may jeopardize the cohesion and seamlessness with which Tata companies and Tata Sons have worked together for decades. The statement pointed out that operating companies benefit from being a part of the Tata Group, as they enjoy access to best-in-class talent, the use of the reputed Tata brand, help in marketing products, and access to capital.

“All such benefits are likely to be at stake if Mr. Mistry continues to remain chairman, as his continuance is likely to lead to fragmentation of the Tata Group,” the statement said. “For this purpose alone, Tata Sons would need the support of all, big and small, shareholders who have stood with the Tata Group at all times.”

Mistry’s office was quick to respond to Tata Sons’s appeal with a statement of its own.

“Repeat a lie a thousand times and hope it becomes a truth, seems to be Mr. Ratan Tata's last-ditch effort to overcome a monumental disaster his actions have unleashed,” a strongly-worded statement from Mistry’s office said. “The press statement from Tata Sons under Mr. Tata contains a regurgitation of fake innuendo that Mr. Tata has resorted to through unnamed and named spokesmen in recent weeks.”

Mistry stated that if Tata Sons had any point to make against his chairmanship of the conglomerate then the latter should have constituted a committee to “logically present charges against Mr. Mistry.”

Responding to the allegation of Mistry concentrating power in his own hands, the statement from his office said that the former Tata Sons chairman expanded oversight over his work by focusing on better board effectiveness and getting his work overseen by over 50 independent directors. “The allegation of concentration of power is new-found wisdom being written after seven weeks of failure to come up with any reason for upstaging Mr. Mistry,” the statement said. “On almost all Tata boards there was Tata Group representation. Mr. Ishaat Hussain on Tata Steel and TCS, Mr. Nirmalya Kumar and Mr Bhaskar Bhatt on Tata Chemicals, Mr. NS Rajan on IHCL, Mr. Harish Bhat on TGBL, as well Mr. S Padmanabhan, Mr. Bharat Vasani and Mr. F N Subedar to name a few other Tata Sons representatives on Board of other Tata Companies. Under Mr. Mistry's approach, Tata CEOs serve as Tata representatives on group company Boards -- examples: Mr. Noel Tata on Titan Industries and Voltas, and Mr. Praveen Kadle on Tata Auto Comp.”

Mistry almost rubbished the charges of conflict of interest, with respect to his family’s own business interests, levelled against him by Tata Sons. The statement said that Mistry didn’t sit on the board of any Shapoorji Pallonji (SP) Group company, except his family investment company.

“New engineering and construction contracts from the Tata Group to the SP Group came down to nearly zero, from the level of Rs1,100 crore when Mr. Mistry had assumed office,” Mistry’s office said. “Starting with a firm written instruction to Tata Group companies to shun contracts with the SP Group issued in October 2013, Mr. Mistry formally appraised the Tata Sons Board on the status every six months.”  

In order to build an online, centralized repository of Mistry’s point of view in this power struggle that has erupted at Bombay House, the Tata Group’s headquarters in Mumbai, his camp has also hosted a website:

Meanwhile, a statement issued by Mistry’s office on Sunday attacked on the Tata Trusts-nominated director on the board of Tata Sons, Vijay Singh. In an interview published in an English business newspaperon December 7, Singh had outlined a number of reasons for which the board of Tata Sons and the Tata Trusts lost confidence in Mistry. These included purported plans to fund state elections in Odisha and not keeping the Tata Sons board in the loop with respect to Tata Power’s plan
to acquire renewable energy assets from Welspun Energy.

Mistry pointed out that Singh was a member of the Nomination and Remuneration Committee (NRC) of Tata Sons, which had, on June 28, approved of Mistry’s performance as chairman. Mistry’s statement also quoted from the observations of the NRC: After reviewing the performance of the executive chairman, the members unanimously recorded their recognition of his significant contributions across Group companies and expressed their appreciation of his multi-faceted initiatives aimed at preserving and promoting cohesive functioning of the Group in accordance of its distinctive values.”