Tata Sons reaches out to more shareholders as EGMs approach

Tata Sons wants to convey how Mistry is not following the very corporate governance guidelines that he accepted when he became chairman

Tata Sons will reach out to institutional investors as well as minority shareholder aggregators such as investor relations agencies to convey how Cyrus Mistry is violating the terms of his employment with the holding company as chairman. This also violates the corporate governance guidelines that he himself formulated.

When Mistry was appointed chairman on the Tata Sons board, the terms of appointment specified that his appointment on boards of operating companies was because he was Tata Sons’ chairman, as it was a convention. The terms also specified that the day he ceased to be the chairman of Tata Sons, he would need to step off as a director on the boards of operating companies as well, said a person familiar with the goings on at the group. 

 

Mistry has, however, termed his removal as chairman of Tata Sons as illegal and not attended the board meet chaired by interim chairman Ratan Tata. Mistry still continues as chairman on the boards of companies such as Indian Hotels Company and Tata Chemicals, where the board has reposed faith in him. He also continues to be chairman on the board of Tata Motors where the directors reposed faith in the management instead of Mistry as an individual. 

He has been removed as chairman from companies such as Tata Consultancy Services, Tata Global Beverages and Tata Steel. He, however, continues on the boards of these companies as a director. Tata Sons is seeking extraordinary general meetings of all group companies where Mistry is sitting on the board as Tata Sons’ representative to remove him as director. 

“Whether he finds his removal as chairman of Tata Sons fair or not, he will need to resolve it with the Tata Sons board. But, from operating companies’ point of view, he should resign,” said a person familiar with these guidelines. “Such behaviour can lead to serious dysfunctionality on boards. Tomorrow, various guidelines can be violated by other directors,” cautions the person. 

One of the guidelines is that stakeholders expect Tata companies’ governance principles to be consistent and of high standards. Madhu Kannan, Nirmalya Kumar and N S Rajan, who were removed from Tata Sons’ group executive council after Mistry’s ouster. They had resigned from their directorship on group companies’ boards. Now, it is the ‘consistent’ part of the guideline as well as Mistry’s terms of employment with Tata Sons that is being highlighted. 

“How often do we see an EGM to remove a director?” asks another person familiar with Tata Sons corporate governance guidelines that was prepared by Cyrus Mistry’s group executive council and adopted by the board in 2015. These guidelines were then recommended to group companies, which have also adopted them. 

“It happens only in the rarest of rare occasion and is completely undesirable and unexpected,” he replies. Tata Sons, being the promoter company for Tata group firms, appoints employees at operating companies to represent the promoter group. These appointments are finally approved by shareholders. 

These group companies’ boards can only persuade Mistry to resign, but they do not have the right to sack him as directors are appointed by shareholders. This is the reason Tata Sons has sought EGMs for group companies and is reaching out to both institutional and individual shareholders to oust Mistry from the boards. 

Government-owned Life Insurance Corporation of India is one of the largest institutional shareholders on Tata Group companies including Tata Steel, Tata Motors and Tata Consultancy Services. Other private and public insurance companies along with mutual funds have substantial holding in these companies. 

Minority shareholder aggregators are being roped in to reach out to a large number of non-promoter, non-institutional shareholders across Tata Group companies to garner support. It is for the first time in India that these agencies are deployed to reach out at such a large scale. 

Proxy advisory firms who advise institutional investors are also being contacted. “It is part of both sides’ strategy to reach out to all kinds of investors and influencers,” says Amit Tandon, founder and managing director at Mumbai-based proxy advisory firm Institutional Investor Advisory Services. “Now, it is in the hands of shareholders to decide the outcome in the EGMs.”