Most board games involve tokens or counters which are placed on pre-marked spaces according to a set of rules. Some games require skill, while others are based purely on chance. Some recent games also require teaming-up against the common enemy.
What seems to be unfolding at the Boards of the Tata group appears to have all elements described above. Based on the press statement of Tata Sons Ltd, there are long-standing Tata traditions, values and ethics which set the rules for the functioning of Tata companies. There is also past practice and governance guidelines that set down what the Tata Trusts, that own 66% of Tata Sons, expect from the chairman.
In the Tata-Mistry fallout, regardless of how objective or independent any of the directors may have been their decisions are up for questioning. It appears that directors may have missed noting that the Companies Act, 2013 expects them to “act in good faith in order to promote the objects of the company for the benefit of its members as a whole and in the interests of the company, its employees, the shareholders (and) the community.” Today, each director is being assigned to a particular camp and their loyalty is being judged not on the merits of their decision but by who it favours. Questions are being raised on why Nusli Wadia backs Mistry and whether Amit Chandra’s relationship to Nitin Nohria has been disclosed as required under the Act. In this battle, the real losers are the retail shareholders whose wealth has steadily declined. These shareholders are feeling threatened by the possibility of withdrawal of the Tata brand.
Upon Mistry’s removal as chairman of Tata Sons, ‘it was expected’ he would gracefully resign from the board of other Tata companies. Since he didn’t, Mistry was removed as chairman of Tata Consulting Services and of Tata Global Beverages. And now, Tata Sons has requisitioned extraordinary general meetings (EGM) of other group companies seeking Mistry’s removal as director. Tata Sons is well within the law to do so.
Under the Act, any director may be removed by an ordinary resolution. However, it is mandatory to give to such a director a “reasonable opportunity of being heard.” As per the Act, a “Special Notice” is required for any resolution to remove a director. And while no reasons are to be stated, it is mandated that upon receipt of such a resolution, a copy be sent to the director concerned. He is then entitled to be heard and is also permitted to make a written representation to the company and request that his response be shared with all shareholders.
Thus, as things stand today the Boards of Tata operating companies are required to call an EGM within 21 days of receipt of the requisition for removal. Such meeting must be held within 45 days from the date of receipt of the requisition. This window clearly gives Mistry time to prepare a detailed written representation. It also gives time to both Tata and Mistry camps to muster-up support from the institutional and retail investors in support of the resolutions. This will clearly be a test of shareholder activism in India as traditionally institutional investors seldom take an activist position and have typically voted along with the promoter. If Mistry is removed, the Act would restrict his re-appointment as a director.
But today, Mistry is not the only one Tata Sons is gunning for. The removal of Nusli Wadia has also been sought. Wadia, wields considerable clout within the Parsi community. He finds support from Nasser Munjee and Keki Dadiseth, both illustrious Parsi’s and also trustees of Sir Ratan Tata Trust. Will Munjee and Dadiseth’s support for Mistry mean that they will be the next one’s to be axed? If so, is the governance standard of public charitable trusts going to be called into questioning?
The battle ground for this “Board Game” has now moved from the Board room to the EGM’s and will eventually land in a court room. Cyrus Mistry is unlikely to take lightly the allegations of Tata Sons that he has consciously dismantled the vision of the Tata founders and the highest standards of ethics and value systems that the subsequent leaders have strived to uphold. Mistry’s response questioning the “dubious investment decisions” of Ratan Tata is likely to hurt the stellar reputation of the grand old man. But by fighting this battle in full media glare and taking out full page newspaper statements, Tatas are being compared to another Indian business house that often resorted to the practice of pleading its case through the press. As said, “reputation once broken may possibly be repaired, but the world will always keep their eyes on the spot where the crack was.”
The author a graduate of Harvard Law School, is currently practicing as a corporate commercial lawyer in
New Delhi. Views are personal