Tata Group made a shocking announcement on October 24, ousting Cyrus Mistry as Chairman after the markets closed for the day. While reasons for the move remained under the wraps, it gained a lot of mileage in the media, and the issue propelled into an ugly spat between Mistry and the conglomerate.
Beginning of the end
On October 24, the group, led by holding company Tata Sons, released a statement saying Mistry was removed and that former chairman Ratan Tata will assume interim charge of the group. "The board has constituted a selection committee to choose a new chairman. The committee comprises Ratan N Tata, Venu Srinivasan, Amit Chandra, Ronen Sen, and Lord Kumar Bhattacharya, as per the criteria in the Articles of Association of Tata Sons," the statement said. The group also said that the search committee had four months to find the next chief.
Mistry, visibly hurt and shaken by the abrupt farewell, wrote a letter to the board of Tata Sons. In it, he alleged that he was promised a free hand which never happened. He said that following his appointment as chairman of the Tata Group, the Articles of Association were modified, "changing the rules of engagement between the Trusts, the board of Tata Sons, the chairman, and the operating companies." He went on say that "inappropriate interpretation" of the rules followed, which "severely constrained the ability of the group to engineer the necessary turnaround."
In the same letter, Mistry said the directors nominated by the Tata Trusts, were "reduced to mere postmen". He talked about an incident when two trust directors- Nitin Nohria and Vijay Singh, "had to leave a Tata Sons board meeting in progress for almost an hour, keeping the rest of the board waiting, in order to obtain instructions from Mr (Ratan) Tata." He also questioned the foreign acquisition strategy of the group that "left a large debt overhang", with the company’s European steel businesses facing a potential $10 billion impairment.
Tata Sons respond to Mistry's allegations
Following Mistry's assertion, the company put out yet another statement, this time saying the Tata Sons board gives its chairman "complete autonomy to manage opportunities and challenges. However, the tenure of the former chairman was marked by repeated departures from the culture and ethos of the group."
The statement further said, "It is unfortunate that Mistry had overwhelmingly lost the confidence of the members of the board of directors for a combination of several factors. The directors of the Tata Sons board had repeatedly raised queries and concerns on certain business issues, and Trustees of the Tata Trusts were increasingly concerned with the growing trust deficit with Mistry, but these were not being addressed. The Tata Sons board, in its collective wisdom, took the decision to replace its chairman in the manner undertaken."
Cyrus Mistry joined the board of Shapoorji Pallonji & Co Ltd as director in 1991 and was appointed the managing director of Shapoorji Pallonji Group, in 1994. Shapoorji Pallonji has the single largest shareholder with 18.4 per cent stake in Tata Sons – the holding company of Tata Group. Mistry's abrupt removal cannot be called illegal as stated by proxy advisory firms. JN Gupta, managing director of Stakeholders Empowerment Services said, "The removal of Mistry with a majority of board members voting against him is not illegal as the chairman is elected by the board and can be elected for every meeting. Under Section 173 of the Companies Act a seven-day notice should be given, however, this notice is waived if at least one independent director is present in the board meeting or if the decision is ratified by majority of directors,” said JN Gupta, managing director of Stakeholders Empowerment Services (SES)."
Soon, taking over as the interim Chairman of the Tata Sons, Ratan Tata wrote to PM Narendra Modi to inform change in the top management of Tata Group. Tata group filed caveats in Supreme Court, Bombay High Court and National Company Law Tribunal to prevent Mistry from getting an ex-parte order against his sacking. According to sources, the Tatas don’t want any court to pass any ex-parte orders without hearing their side of the story. "They have pleaded to be heard before the court passes any interim order like stay on Mistry’s sacking," a source said.
Soon markets regulator Sebi began looking into the Tata-Mistry case, for any possible breach of corporate governance norms and listing regulations at various listed companies of the over USD 100 billion conglomerate. "We (Sebi) are taking note of each and every development and will act immediately on any hint of possible violation of corporate governance and listing norms or any other regulation under our jurisdiction," a senior official said. The controversy even affected the company stocks with shares of various Tata group stocks, including Tata Power and Tata Motors, plunging sharply. Tata Motors and Tata Power were down nearly three per cent each while Tata Steel was trading nearly 2 per cent down in early morning trade at BSE.
Meanwhile, Tata Group began search for at least two internal candidates as successor to ousted Mistry, according to people familiar with the matter. Tata Consultancy Services Ltd. Chief Executive Officer N. Chandrasekaran and Jaguar Land Rover head Ralf Speth were among those considered. Also in the race was Trent Ltd. Chairman Noel Tata, a member of the founding family and Mistry’s brother in law.
Also, top officials of Tata Steel met analysts, fund managers and financial institutions assuring them that business continued as usual in the $103-billion group. Tata Steel said it continued to pursue European consolidation strategy and is in talks with Thyssenkrupp AG for potential JV for European steel business, following purported disclosure from ousted chairman Cyrus Mistry that some group firms could face a potential write down of USD 18 billion. "In response to the recent media reports, Tata Steel would like to clarify that it continues to pursue its European consolidation strategy and the talks with Thyssenkrupp AG (as announced on July 8, 2016) for a potential joint venture of its European steel business are currently ongoing and progressing," Tata Steel said in a BSE filing.
These are just the initial of a fight that began over two months ago. Mistry and the Tatas continue to clash, with several company leaders dragged through the muck in the progress.
