 "Boards of Tata cos may get dysfunctional, says governance firm")
The ongoing feud between Ratan Tata and Cyrus Mistry will have operational implications for the listed companies of the Tata group with a risk of their boards becoming dysfunctional, says corporate governance firm Institutional Investor Advisory Services (IiAS).
Although Cyrus Mistry has been ousted as the chairman of Tata Sons, he continues to remain chairperson of seven major listed companies of the Tata group. There is a question mark over Mistry’s occupying the position in these firms as Tata Sons “has left itself with no option but to push for his removal from the boards of group companies” says IiAS.
“Independent directors of the listed companies must provide comprehensive guidance to shareholders on whether Cyrus Mistry should remain the chairperson. If boards of the companies are divided in their of support Cyrus Mistry, there is a risk of their becoming dysfunctional, which in turn has operational implications for all the companies,” IiAS said in a note titled 'Tata Group: Game of Thrones'.
Mistry’s removal, however, won’t be straight forward for the Tata group, which owns 30-35 per cent stake in the listed companies of the group.
To remove Mistry as chairperson from these companies will need 51 per cent votes. As a result, the Tata group will need support of minority shareholders. State-owned LIC, GIC and New India Assurance are among minority shareholders with decent holdings in various Tata companies, including TCS, Tata Steel, Tata Motors, Indian Hotels, Tata Power, Tata Chemicals and Tata Global Beverages. Mistry is the acting chairperson of all these companies.
Among domestic mutual funds that could influence the decision are HDFC Mutual Fund, Reliance Mutual Fund, SBI MF and ICICI Prudential MF. Views of foreign institutional investors such as Abu Dhabi Investment, Government of Singapore and Government Pension Fund Global would also play a significant role in determining whether Mistry would remain chairperson. These institutional investors have ownership, ranging between one per cent and 13 per cent, in seven key listed firms of the Tata group.
Sources say the group has already begun talks with several key investors to garner support for Mistry’s ouster.
According to IiAS, independent directors in these companies will play a critical role in influencing minority shareholders’ decision in case of an extraordinary general meeting called to remove Mistry.
“When and if, a proposal is put to shareholders to vote, independent directors of the listed companies need to provide shareholders with guidance on how they should vote on a resolution to remove Cyrus Mistry as chairperson, independent of whether the company or Tata Sons presents the resolution,” says IiAS.
The governance firm says “independent directors, in forming an opinion, will likely consider Mistry’s performance during his tenure, and whether his strategy for the company is the best possible strategy given where the company is. They will also likely consider the issues raised by Tata Sons directors, and then make a balanced decision.”
Recently, the independent directors of Indian Hotels, including Deepak Parekh and Nadir Godrej, took a public stand reposing full confidence in Mistry.
“Stakeholders are baffled by this discord, not knowing which side to believe- the independent directors of listed Tata company boards, or Tata Sons,” said IiAS, adding that divergent views between the group and its array of independent directors with regard to Mistry's removal will lead to further consequences.
