 "Tata vs Mistry")
Proxy advisory firm Institutional Investor Advisory Services (IiAS) has said that the veto powers enjoyed by Tata trusts over the board of Tata Sons, the ultimate holding company of Tata group companies, should be cancelled.
IiAS sees this as one of the key steps that’s needed in the wake of the events following the dismissal of Tata Sons chairman Cyrus Mistry, two months ago.
“As a good governance practice, these veto rights must be cancelled and decisions must be driven by equally empowered directors. This will ensure balanced decision-making, which will be in the larger interest of all stakeholders of the group,” IiAS said in a report titled ‘Tata Group: Time to reboot’.
“Currently, the directors representing the Tata Trusts hold veto power on decisions presented to the Tata Sons board, which shifts the balance of power in their favour. While the Tata Trusts are indeed owners of Tata Sons and the operating companies (through Tata Sons), having veto powers negates the need for an independent board,” the proxy firm, which has received equity funding from Tata Investment Corp, said.
It said that such a step would help in continuing to command the trust of various stakeholders of the group.
The Tata group, which until now was one of the most predictable ones in India, has shaken investor confidence with this tug-of-war, IiAS said, adding: “If the Tata group is to survive for another century, the current episode must be seen as a call to urgently fix the group’s structural vulnerabilities. This is in the long-term interest of the group and all its stakeholders.”
It added that the boards in operating companies would need to have stronger independent directors. While Tata Sons will continue to exert its influence over operating companies’ boards, the boards themselves will have independent chairpersons to balance the different agendas.
The other suggestions included clear performance metrics for the person succeeding Mistry. “Even if the group does find that rare individual to succeed Cyrus Mistry, Tata Sons must clearly define the performance metrics for the role of its Chairperson and the time-frame within which these must be accomplished. This will help develop a framework for the identification and evaluation of the successor, as well as bring clarity to stakeholders across operating companies on the group’s strategies,” IiAS said.
Saying that internal power structures that thwart new agendas are detrimental to long-term interest, the proxy firm said there was no need to overhaul the group strategy at this stage.
IiAS wish list
- A balanced power structure at Tata Sons’ board
- No overhaul of the group’s strategic direction
- Focused effort to manage the corporate culture
- Disclosures on the performance metrics of chairperson of Tata Sons
- Boards in operating firms will have stronger independent directors
- These boards will have independent chairpersons to balance different agendas
