Ousted Tata Sons chairman Cyrus Mistry, who is fighting to retain his position as chairman and director on the boards of a host of Tata group companies, has found some support from independent directors. A team of six independent directors on the IHCL board, for instance, backed Mistry, applauding his efforts to turn around what was virtually turning into a sick company. Again, independent directors at Tata Chemicals too made it clear they were on his side, though the directors on the Tata Steel and Tata Motors board were a divided lot. However, even if Mistry is backed by independent directors, the fact is that when it comes to the crunch, financial institutions—whether insurers or mutual funds—are more likely to vote with the promoters. That’s because companies such as Tata Steel are heavily leveraged and require large infusions of capital. That capital would have to come from the holding company Tata Sons, controlled by Tata Trusts, which own a stake of 66%. Under the circumstances, the financial institutions, whose primary objective would be to secure their investments, would tend to go with the promoters rather than with a competent CEO—even if he is a small shareholder in the holding company. Had the concerned company been in good financial shape—like TCS, for instance—it’s quite possible the financial investors may have followed the independent directors in backing Mistry. However, given the relatively poor finances of the Tata group as a whole and its dependence on one cash cow—TCS—even the government would be justified in wanting a promoter with the wherewithal to pump in capital into beleaguered businesses. At the end of the day, therefore, while independent directors can make a difference to the running of a company by red-flagging any malpractices or fraud, in very few instances can they really influence shareholders—majority and minority.
Fortunately for Ratan Tata, none of the independent directors ever talked about Tata Steel’s folly in buying a large steel company like Corus at top-dollar valuations and at the peak of the commodity cycle. Neither did they criticise the purchases of the several hotels by IHCL, again at excessive values, most of which have not made money for the company. Most of the acquisitions made by the Tata group, under Ratan Tata’s watch, have turned out to be duds but the independent directors have stayed silent. In fact, the directors of Tata Sons have quietly watched tens of thousands of crores of rupees being spent on Tata Teleservices with nothing to show for it. Therefore, it is truly surprising that Tata Sons should think it necessary to even point out to the independent directors that it is “crucially important” for them to “consider that their views and positions ensure that the future stake of Tata companies is protected”. These are, after all, top professionals, most of whom were appointed during Tata’s watch. It is indeed unfortunate a promoter of the stature of Tata Sons does not value the views of independent directors.