 "Cyrus Mistry wants govt to ensure transparency in Tata trusts")
Ousted Tata Sons chairman Cyrus Mistry fired another salvo against former mentor Ratan Tata on Monday, by requesting that the government ensure transparency in the Tata Trusts, to make these more accountable to the public and to ensure they follow corporate governance norms of the highest order.
He sent a 14-page letter to the six Tata Group companies and their shareholders that are meeting this month, to consider a proposal to remove Mistry as a director. The letter says at the heart of the sustainability of the Tata group is governance reform throughout the institution and this is presently lacking. “This would mean the government ensuring the working of the Tata Trusts, which are public charitable trusts, the property of the people of India, have a defined, transparent governance structure,” he said in the letter and asked the companies to place it before the shareholders.
“People who have been complicit or have enabled ethical and legal transgressions or have demonstrated a blatant disregard for good governance should not be allowed to continue. The governance charter across the Tata Group, including the holding and operating companies, requires repair to conform to company law and global best practices, viz protection of interests of all stakeholders, including minority shareholders. The governance of Tata Trusts has to become more accountable, transparent and the moral high ground that has been lost needs to be reclaimed,” he has said.
On December 13, the shareholders of Tata Consultancy Services meet in Mumbai to remove Mistry as a director, followed by those of Indian Hotels, Tata Steel, Tata Motors, Tata Chemicals and Tata Power in the third week of December. Mistry was ousted as the chairman of Tata Sons after a surprise boardroom coup in which Tata, 78, was re-appointed as interim chairman of Tata Sons.
Apart from Tata, the other trustees of the Tata trusts are: R Venkataramanan, Keki Dadiseth, Amit Chandra, R K Krishna Kumar, S K Bharucha, N Munjee, J Tata and N A Soonawala. The trusts are currently under an income tax investigation, following a scathing report by the Comptroller and Auditor General in 2013.
Soon after his ouster, both Mistry and Tata had separately met Prime Minister Narendra Modi and Finance Minister Arun Jaitley, to present their side of the dispute that has divided a shocked Corporate India. State-owned institutions, led by Life Insurance Corporation, own sizable stake in all group companies and, hence, would play an important role during the voting.
The letter said Tata Trusts are “public charitable trusts” and the beneficiaries of these public charitable trusts are the public of India. “These trusts are not family trusts as one normally thinks of trusts carrying a family name. Since these trusts are solely for the benefit of the general public of India, they enjoy many exemptions under law, including exemptions from tax. The role, functions and actions of the trustees of public charitable trusts are governed by special law. In the absence of an appropriate governance structure and ethical behaviour of trustees, it would become an inherent obligation of the government to remedy and repair the breakdown in the governance of such trusts. Therefore, in managing trust property, the conduct of trustees who oversee the properties and functions of public charitable trusts has to be of the highest order,” says Mistry.
Adding: “The governance of the Tata Trusts is even more sacrosanct. The conferment of all decision-making power in one man or a 'high command' among them is unethical, improper and a breach of trust. It is critical that serious decisions of severe magnitude and consequence are not taken whimsically, without much thought or for unstated collateral objectives. It is necessary to have a strong method of checks and balances in the trustees’ decisions, particularly if decisions they take could indirectly give them personal benefits.”
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Mistry said if the trustees were to start managing the business, overstepping the entire governance structure in Tata Sons, they would be jeopardising their legal status, including tax exemptions, and thereby put to risk the future of Tata Group. "Ethical conduct by trustees has to be beyond doubt. Therefore, the very vision of the founders could be under threat unless governance of the Tata Trusts is reformed and subjected to a compliant and transparent process of checks and balances.”
Mistry said the articles of association of Tata Sons provided a right to the Trusts to nominate a third of the directors of the Tata Sons board, and these directors had a special veto. “After I took charge as executive chairman, the articles of association of Tata Sons were further modified to ensure that certain decisions relating to operating companies of the Tata Group were mandatorily placed seven of 14 before the Tata Sons board. Through this mechanism, individuals of competence could apply their minds in taking decisions on the Tata Sons board in the best interests of Tata Sons."
Over time, said Mistry, this position got abused. Both Tata and Soonawala, 81, former vice-chairman of Tata Sons, in their capacity as trustees of Tata Trusts took the veto rights of the trustee-nominated directors as their entitlement to dictate to these directors how Tata Sons should conduct itself. “They interpreted the articles of association to mean that they could call for information and seek discussions on any subject they considered material. In the view of these trustees, the board of Tata Sons was answerable to them and through the trustee-nominated directors, they could not only call for such information but also dictate what decisions must be taken by Tata Sons.”
The Trustee-nominated directors (Harvard Business School dean, Nitin Nohria and former defence secretary Vijay Singh) were, he has said, not only looking over their shoulder for approval from Tata and Soonawala. They were also used as an agency of indirect control by these trustees. "Among other instances, control by these trustees can be seen from them directly seeking information about not only from Tata Sons but also about individual Tata Group companies...In one case, they decided to take umbrage for an acquisition in line with strategy already approved by the Tata Sons board, with the full consent of the trustee directors. The duo also started dictating decisions on starting a new business – the starting of two aviation ventures at the instance of Tata and purchases of the joint venture partner’s shares within two years at a 100 per cent pre-money equity valuation in a loss-making company."
“Despite the issues in, and concerns surrounding AirAsia, the Board of Directors of Tata Sons, at its meeting held on November 17, 2016 (which I had not attended and sought leave of absence), appears to have unanimously approved the full investment of $25 million, which was on hold due to the findings/recommendations of the auditors,” said Mistry.
Since Mistry was ousted, the Tata group has lost Rs 1 lakh crore or 13 per cent of its market value, as against a seven per cent fall in the benchmark BSE Sensex.