Mumbai: Cyrus Mistry, the ousted chairman of Tata Sons Ltd, formally talked about defining the relationships between Tata group trusts and operating company boards at a June meeting of the holding company’s nomination and remuneration committee, said two people close to Mistry.
Mistry’s team had prepared a governance report on issues related to the group structure, the two said, declining to be identified because of the sensitive nature of the issue. Mistry was removed before he had an opportunity to present these issues at the 24 October board meeting of Tata Sons.
Tata trusts have all the rights through representation on the holding company’s board to ensure that the flow of dividends for them is steady and that the company is not taking undue risks. However, the governance document sought to clarify the role of each entity and ensure that the promoters exercised their rights through their nominee directors, the two said.
The root cause of the current conflict in the Tata group is the group’s operating structure itself, proxy advisory firm Institutional Investors Advisory Services said in a 12 November note. Tata trusts exert control over Tata Sons, which exerts control over operating companies, several of which are publicly traded and subject to scrutiny by external stakeholders including shareholders, the note said.
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The governance document, the two people cited above said, is important in view of the events that culminated in the boardroom coup. On 24 October, the board of Tata Sons (with the exception of Ishaat Hussain and Darius Khambatta) voted to remove Mistry as chairman.
The new directors who were appointed on 25 August could not have had enough information to judge Mistry’s performance, especially since their orientation programme was scheduled only on 2 November and 15 November, the people cited above said.
On 8 August, the chairman of Tata trusts, Ratan Tata, sent a letter to the board of Tata Sons nominating Venu Srinivasan and Ajay Piramal as additional directors “in his personal capacity”. This bypassed the Tata Sons board’s nomination and remuneration committee, and while it is within the law, it constitutes bad governance, these persons said. In the 25 August shareholder meeting, Tata Sons, with two-thirds ownership, confirmed the appointment of Piramal and Srinivasan. Because Tata trusts have the powers to nominate one-third of the board, Amit Chandra was appointed as a director the next day.
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“We have said whatever we had to say in the 10 November statement,” said a Tata group spokesperson. Srinivasan did not respond to an email sent to him on 12 November; Chandra and Piramal declined to comment.
These directors met only once for a 15 September board meeting before voting to oust Mistry in the next meeting, the people close to Mistry said.
The decision to sack Mistry was not an uninformed one, said two people close to the newly appointed directors. At least one director had multiple meetings with various stakeholders, including Mistry, said one of the two people close to the directors, adding that the director was well-briefed and had enough information.
The second person said that the directors were provided adequate background material on Tata Sons, including minutes of earlier board meetings, detailed presentations and other important documents. This person also added that the new members “participated robustly” in discussing the strategy plan on 15 September. The directors were not satisfied with the new plan, this person said.
Though Mint couldn’t ascertain the agenda of the board meeting, another person with direct knowledge said that besides routine affairs, it included the presentation of a five-year strategy plan by Mistry.
While one cannot question the capability of the independent directors, “the issue is, did they actually understand the issue or were they coaxed”, said J.N. Gupta, managing director and co-founder at Stakeholders Empowerment Services.
“After all, how long does it take someone of the director’s stature to get a grip of what’s happening,” said the first person close to the directors cited above.
First Published: Mon, Nov 14 2016. 04 25 AM IST