Corporate governance and advisory firm Institutional Investor Advisory Services (IiAS) on Wednesday recommended shareholders of Tata Consultancy Services (TCS) to vote in favour of removing Cyrus Mistry as a director of the company at the extraordinary general meeting (EGM) scheduled for December 13.
“IiAS recommends voting for the resolution. Our decision focuses on an outcome that enables Tata companies to operate with minimum disruption — by maintaining the existing chain of command between Tata Sons, the largest shareholder and TCS, the operating company,” the advisory firm said in a note.
It, however, clarified that its recommendation was not an endorsement of Mistry’s removal as Tata Sons chairman, which ultimately led to his replacement as the chairman of TCS. “We are aware that the boards, and the independent directors, of some Tata companies have come out unequivocally in support of Cyrus Mistry. But, Cyrus Mistry currently remaining on the board, is likely to lead to unnecessary friction between the operating companies and Tata Sons, the largest shareholder,” it noted.
It is worth noting that TCS’ article of association (AoA) gives Tata Sons the right to nominate the chairperson of its board.
“So long as Tata Sons Limited and its associates hold at least 26% of the paid up equity share capital of the company, Tata Sons Limited will have the right to nominate the chairman of the board of directors,” TCS’ AoA reads. This article was included in the company’s AoA just a few months before its initial public offer in 2004.
Tata Sons had a 73.26% stake in TCS as of September. The battle between the Tatas and Mistry began on October 24 when Mistry was unceremoniously removed as the chairman of Tata Sons on charges of under-performance and not having kept in mind the ethos of the Tata Group.
Since then, he’s been replaced as the chairman of TCS, Tata Global Beverages and Tata Steel, while based on the requisitions of Tata Sons, Indian Hotels, Tata Steel, Tata Motors, Tata Chemicals and Tata Power have convened EGMs to remove him as a director in the companies. During this one month, both sides have made allegations and counter-allegations with Tata Sons, going as far as stating that Mistry had made no material contribution to TCS — India’s most valuable company and the jewel in the Tata crown.
Mistry, for his part, has defended his strategies and blamed the legacy issues for the large debt overhang on the group. He has also found support from the independent directors of Tata Chemicals and Tata Motors calling his ouster an “illegality”.
While his fate on the board TCS is virtually sealed, given the large stake Tata Sons has in the company, institutional shareholders have the power to swing the pendulum either way in other Tata Group companies, in most of which Tata Sons have minority stake. In Tata Steel, for instance, while Tata Sons have a 29.75% stake, insurance companies and FPIs have a combined voting right of 32.88%.