After TCS, Tata Power likely to replace Mistry as chairman

Tata Steel, Tata Motors are among the other important group companies that Tata Sons wants to resolve the chairmanship issue swiftly

Even as ways and means of replacing Cyrus Mistry from the chairmanship of other Tata board companies have been a talking point for the past two weeks, parent company Tata Sons is learnt to have relied on the Memorandum of Association of Tata Consultancy Services (TCS) to get Ishaat Hussain as new chairman for the software firm. It is believed that Tata Power, too, will follow the same route to appoint a new chairman, replacing Mistry. 

Article 90 of the TCS memorandum, which was amended by a special resolution passed on May 5, 2004, states, ‘’as long as Tata Sons Limited and its associates hold at least 26% of the paid up equity share capital of the company, Tata Sons Limited will have the right to nominate the chairman of the board of directors.’’ The Article in the memorandum adds that ‘’in the absence of a nomination by Tata Sons Limited, for any period, the directors may elect from amongst themselves a chairman of their meetings and determine the period for which he is to hold such office.’’ 

Since the chairman of TCS is nominated by Tata Sons, there is no need to remove the incumbent from the post before that, according to a source tracking the development. Tata Sons holds 73.3% in TCS. 

However, a source close to Mistry argued that there was lack of due diligence by the Tatas in appointing a new TCS chairman. Mistry was replaced as TCS chairman without even passing a board resolution, the source said. “Article 90 only enables Tata Sons to nominate a chairman. The board then has to appoint the person so nominated. Tata Sons had asked TCS yesterday (November 9) that it would like Mistry replaced by Hussain - it made a nomination. 

TCS had to then convene a board meeting and table the nomination at the board at a meeting or through a circular resolution,’’ he pointed out. “Nothing of this nature was done. In pre-mediated haste, by a letter of the same date, TCS has directly gone on to announce that Mistry stands replaced.’’ According to this source, the hasty actions appear to have been taken on Wednesday night, followed by the stock exchange announcement at 8 am. 

“Cloak and dagger machinations with little regard to due process of law has come to define the angry strategy of the Ratan Tata camp.’’

Mistry, who was ousted as Tata Sons chairman on October 24, will continue as director on the board of TCS till his term ends, unless he is removed before that through an extraordinary general meeting (EGM), a lawyer familiar with the process said. It is the same way that Mistry will continue as director on Tata Sons board till his term ends there or is removed before that. Indeed, the Tata group has decided to call EGMs to remove Mistry as director from some key group firms. 

While Tata Power, where Tata Sons had a 31.05% stake and total promoter holding was 33% as of September end, may be the next to appoint a new chairman, other important group companies such as Tata Steel and Tata Motors may not do it that easily because of the structure of their respective memoranda of association. 

TCS is the crown jewel for the group and Tata Sons was keen to settle the chairmanship issue there before anywhere else, another source told Business Standard. “The group is concerned about the big four or five group companies.’’

While Mistry, by virtue of being the Tata Sons chairman till last month, has been the chairman Tata Power, Tata Global Beverages, Tata Steel, Tata Motors, Indian Hotels Company, Tata Chemicals, TCS and Jaguar Land Rover, an executive in the Tata group said that the same pattern would be followed once a chairman is appointed at Tata Sons. Ratan Tata took charge as the interim chairman of Tata Sons after removing Mistry. ‘’Once a chairman is appointed, he will chair the boards of the group companies as well,’’ the executive said.

Tata, who’s been overseas for the past several days primarily talking to investors and shareholders, is believed to have decided to act swiftly to get the group back on track. He has the backing of the shareholders and investors whenever he calls EGMs of group companies to change board leadership, a source said.