Cyrus Mistry on Tuesday was removed as chairman of a second Tata Group company — Tata Global Beverages (the first one was Tata Consultancy Services), which co-owns and runs Starbucks coffee stores across the country — with seven out of 10 directors present at the board meeting voting in favour of the resolution seeking his removal. However, Mistry struck a heavy blow to Ratan Tata by first issuing a statement rebutting the allegations levelled against him for rising expenses and impairments during his tenure as chairman of Tata Sons, and later terming his removal as chairman as illegal as there was nothing in this regard on the agenda of the board.
“After extensive deliberations and keeping in view the long term interest and alignment of all stakeholders and stability of the company, the board of directors resolved to replace Cyrus P Mistry as chairman of the company, by majority vote, with 7 out of the 10 directors present at the board meeting, voting in favour of the resolution,” a Tata Global Beverages statement to the exchanges said. It added that the board of directors appointed Harish Bhatt as the chairman of the company.
“The developments at the board meeting of the Tata Global Beverages is nothing but a repeat of the illegality that the board of directors of Tata Sons did on October 24. There was nothing on the agenda about replacement of the chairman just as there was nothing in the Tata Sons board agenda on October 24,” Mistry’s office said in a statement soon after Tata Global Beverages’ intimation to stock exchanges about his removal.
“The Tatas continue to demonstrate the lack of respect for due process of law that they have displayed. Harish Bhat, an employee of Tata Sons proposed that SK Santhanakrishnan be made chairman at the meeting. This proposal was ruled out since there was already a chairman for the meeting, namely, Cyrus Mistry. When the proposal to remove Mistry was sought to be moved, it was ruled out by the chairman since it was not on the agenda. The meeting was conducted by Mistry as chairman and was concluded. The statement made to stock exchanges today is therefore inaccurate and illegal and it is but a repeat of exactly the same illegal acts done by Tata Sons on October 24. Two independent directors Darius Pandole and Analjit Singh opposed the bid at committing these illegal acts,” the statement added.
While Tata Sons holds a 22.63% stake in Tata Global Beverages, it goes up to 33.74% if the stakes of the promoter group companies are taken into account.
Earlier in the day, Mistry’s office released a two-page statement rebutting a full-page advertisement issued by Tata Sons on November 10, vaguely accusing that expenses and impairments increased at Tata Sons during his chairmanship. “Insinuating the increase in expenses as a failure of Mistry is another brazen attempt to mislead the public and shareholders. Since the issue has been raked up to get a ‘desired perspective’ despite the facts having been privately communicated to Tata Trusts as early as January, the record is being set right through this statement,” Mistry said.
The statement said that Tata Sons was bearing the entire office costs for Ratan Tata, the chairman emeritus — this figure was about R30 crore in 2015 — and a “significant amount” of this was for the use of corporate jets. It said that this dual structure and attendant costs did not exist earlier.
Mistry said the replacement of controversial lobbyist Nira Radia’s Vaishnavi Communications with Arun Nanda’s Rediffussion Edelman just prior to his taking over also resulted in a jump in costs from Rs 40 crore (paid to Radia) to Rs 60 crore. He also said that part of the public relations infrastructure paid for by Tata Sons was also provided to Ratan Tata headed Tata Trusts.
He also said that there had been fundamental changes in compensation to the leadership in the last five years of Ratan Tata’s chairmanship, which led to rise in expenses.
In a nine-page statement on November 10, amongst various other allegations against Mistry, Tata Sons had also said that during Mistry’s tenure, “while dividend income was declining, expenses (other than interest on debt) on staff increased from R84 crore to R180 crore and other expenses increased from R220 crore in 2012-13 to R290 crore in 2015 (excluding exceptional expenses)”. It had also said that “impairment provisions increased from R200 crore in 2012-13 to R2,400 crore in 2015-16 indicating inability to stem falling values and turn around the ‘hot spots’ referred to by Mistry. There was little or no profit on sale of investments during these years, i.e. no significant divestments from Tata Sons’ portfolio, despite a planned list of divestments indicated from time to time”.
Regarding charges of impairment and inability to turn around inherited hot spots, Mistry said that the impairments and write downs were due to legacy issues, largely relating to Tata Teleservices.
“Mistry did not approach any of the businesses with a view to do a quick cleansing so that he could immediately demonstrate decent results going forward,” the statement said. He said that the efforts of Tata Sons under his leadership has always been to look at strategy, structure and leadership changes to drive operational improvements before examining mergers, exits or shutdowns.
He cited one such instance related to investment in Piaggio Aero, promoted by one of Ratan Tata’s friends, as a distressing case in this context as Tata Sons had to exit at a commercial loss of R1,150 crore. “This was after the efforts of Bharat Vasani and Farokh Subedar who managed to recover R1,500 crore, overcoming the objections of Ratan Tata who in contrast favoured increasing investments in that company. Today, the company is, for all practical purposes, nearly bankrupt,” it said. Mistry said that despite the writedowns, Tata Sons’ net worth grew to R42,000 crore from R26,000 crore between 2010-11 and 2014-15, which strengthened its ability to absorb future shocks.