<b>Shyamal Majumdar:</b> The drama at Bombay House

Independent directors of group firms have added to the confusion

Some of the biggest names in corporate India serve as independent directors at Tata group companies. Any suggestion that the Cyrus Mistry camp’s “ulterior objectives” and “clever strategy” can stop them from undertaking their fiduciary duties and in discharging the duties mandated by statute as independent directors is grossly unfair. 

But some independent directors of the companies have left minority shareholders confused. As it is, charges between the Tata and Mistry camps are flying thick and fast. The independent directors, who are supposed to bring in some sanity and offer clarity to what’s going on behind the scenes, have ended up adding to the confusion. 

 

There have been several conflicting stands of some independent directors which need some explanation. Take the Tata Sons board meeting that ousted Mistry. The nomination and remuneration committee of Tata Sons had only recently lauded his performance and yet two of the three independent directors on the committee voted for his removal.

Proxy advisory firm SES raised a valid point last week when it gave the example of Keki Dadiseth in a report this week. As an independent director at Indian Hotels, Dadiseth backed the performance of Mistry along with other independent directors. The confusion on his stand stems from the fact that Dadiseth is also a trustee of Sir Ratan Tata Trust, which is one of the two principal Tata Trusts that control two thirds in Tata Sons. Sir Ratan Tata Trust is also a shareholder in Indian Hotels. “It seems like Dadiseth has taken two different stands, one where he supports Mistry, the other where he was also involved in the decision making process for replacing Mistry as a Trustee of Sir Ratan Tata Trust,” SES said. 

Narsee Munjee, chairman of DCB Bank, is another example. As independent director in Tata Chemicals, Munjee and other independent directors extended unanimous support to Mistry as chairman. At the Tata Motors board meeting a few days later, he was reportedly most vocal about Nusli Wadia coming in with a prepared statement on the stance of independent directors. At the insistence of Munjee and some other independent directors, it was then decided that there will be no discussion on Mistry. Finally, the independent directors expressed full faith in the management of the board. But the confusion is over Munjee’s divergent stand in Tata Chemicals and Tata Motors board meetings. If this isn’t enough, consider this: Munjee is also a trustee of Sir Ratan Tata Trust. What will a minority shareholder make of all this?

The signal from the Tata Steel board meeting was no less fudgy. Three of the six independent directors opposed the move to back Mistry but no separate statement was issued to stock exchanges as some of them backed out after initially supporting a move to back Mistry. Someone should give the exact picture to shareholders.

There were other disturbing signals, too. A few days after the Tata Chemicals board meeting, Bhaskar Bhat an independent director, resigned as he felt the statement of the independent directors after the board meeting diluted his views about the threat the company faces on account of loss of confidence of the promoter, Tata Sons, in the chairman of Tata Chemicals. Bhat had requested Mistry to allow one of the independent directors to chair the board meeting — a suggestion that was promptly dismissed.

Then there was this drama before the board meeting of Tata Chemicals. According to reports, independent directors took R Mukundan, managing director, to task for what they thought his defiance of the board and working under the instructions from the top leadership of Tata Sons. If this is true, it is an extraordinarily sad example of corporate governance.    

Equally unfortunate was the unsubstantiated Tata Sons statement that having been replaced as the chairman of Tata Sons, Mistry is trying to gain control of group companies with the support of the independent directors. Tata Sons even accused Nusli Wadia of “galvanising” other independent directors against the interest of the promoters. One hopes the Tatas would offer more tangible proof of its allegations.   

The short point is that the role of independent directors is to protect the interest of the shareholders, and a divided board can hardly do that job well. Both the “camps” at Bombay House must end this in the interest of corporate governance.

READ FULL COVERAGE OF THE TATA VS MISTRY BOARDROOM BATTLE