 "Tata vs Mistry")
The subject of corporate governance is imbued with extraordinary qualities, one of which is its phenomenal flexibility. It allows anybody to facetiously say a thing or two about the subject and get away. We, the consumers of the media, are thus now witnessing utterly confounded, a display of extravagant jeu d’espirit in so many people, all honourable with honourable intentions, uncovering a complete breakdown of corporate governance in the 149-year-old Tata Group. This is like saying:
“But yesterday the word of Caesar might/Have stood against the world. Now lies he there,/And none so poor to do him reverence.”
These honourable people with honourable intentions are now freely taking potshots at a range of governance protocols in the group, particularly after their connections with it have been severed. This is somewhat like saying that so long one was in office, one enjoyed the afternoon tea with accompaniments such as cakes and scones, served with aplomb, but once the associations were severed, one began to fret and fume about the same tea. As legacy issues do not obfuscate matters of taste, a commonsensical question springs in the rational mind: Why did these men accept the bad quality afternoon tea without demur for so long? Had they protested earlier half as loudly, would not the quality of the délicatessen and tea at least have improved?
The statement about a breakdown in corporate governance at the Tata Group appears somewhat strained. In 1895, Jamsetji Tata, the founder of the Tata Group, in one of the few speeches he delivered, spelt out its purpose as: “We do not claim to be more unselfish, more generous or more philanthropic than other people. But we think we started on sound and straightforward business principles, considering the interests of the shareholders our own, and the health and welfare of the employees, the sure foundation of our success.” Is it not true that successive chairmen of Tata Sons have relived this purpose and dream of Jamsetji? Was it not about the philosophy that underpins the business of the group, that J R D Tata observed in 1979: “What would have happened if our philosophy was like that of other companies, which do not stop at any means to attain ends?… If we were like other groups we would be twice as big as they are today. What we have sacrificed is 100 per cent growth”;
“... but we wouldn’t want it any other way.” So when honourable people now say the corporate governance of the group is in need of urgent reform and repair, one cannot but wonder.
Cyrus Mistry (left), who was sacked as Tata Group chairman in October, with group promoter Ratan Tata in happier times. It has gradually become evident that the bone of contention is not the group per se, rather the control that Tata Trust
The central issues of corporate governance have always been about ownership, control and managerial accountability. As new information kept flowing in, one found the matters becoming curiouser and curiouser. It became evident that it is not the group per se that is the bone of contention, but the control which Tata Trusts legitimately and ethically exercises over Tata Sons — an unlisted company — as its 66 per cent shareholder, is suddenly being questioned. One wonders why. Is it the case of breaking a butterfly on the wheel or, in this instance, may be a bumblebee on the wheel?
Pyramidal structures are normally associated with opacity. Some honourable people with honourable intentions have cleverly sought to confound the public using the words “pyramidal structures” of the holdings of Tata Trusts. Tata Trusts is not newly formed. It have been in existence for decades. The two key trusts — Sir Ratan Tata Trust and Sir Dorabji Tata Trust — were set up in 1918 and 1932. Can any entity be sustainable and do continuous public service for decades and still remain opaque? That question, Sheldon Cooper — a popular character from the TV series The Big Bang Theory — would say, is hokum, intended to mislead. Is the structure of the holdings in the Tata Group complicated, as is being made out to be? The answer is no. There are structures far more complicated such as that of Stichting INGKA Foundation, the IKEA Group, the INGKA Holding BV, Robert Bosch GmbH and the Bosch Group of companies and several other Indian and foreign companies. In contrast, Tata Trusts, Tata Sons and other Tata Group companies have a simple, straightforward structure and all information is publicly available. Tata Trusts holds roughly 66 per cent of the share holdings of Tata Sons, the Pallonji Group owns 18 per cent and the balance 16 per cent is owned by various companies within the group and a minuscule percentage by individuals of the Tata family. In turn, Tata Sons owns significant shares in various companies. These shareholdings are not recent, for Tata Sons has been the promoter of the companies of the Tata Group. Can public charitable trusts hold shares in operating companies? Of course they can — one has to read Section 35 of the Maharashtra Public Trusts Act. Taking all this into account, would one still call the holding structure unduly complicated and opaque? The answer is no. Then what is the fuss about?
If anything has held the group together through 149 years of heritage it is trust and the group’s culture, which is predicated on loyalty, dignity, societal responsibilities and public service. If this culture is undermined, the group will lose its purpose and break down. That must be resisted at all costs.
The second part will appear tomorrow
The author is a former executive director of the Securities and Exchange Board of India; an independent director in Tata AIA Life Insurance Company Ltd; and chairman of Tata Trustee Company Ltd; pratipkar21@gmail.com
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