1. Why Ratan Tata will win and how he will win over Cyrus Mistry

Why Ratan Tata will win and how he will win over Cyrus Mistry

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.

By: | Published: November 15, 2016 10:10 AM
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. (File Photo) 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. (File Photo)

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 requiring large infusions of capital. That capital would have to come from the holding company Tata Sons, controlled by the Tata Trusts, which own a stake of 66%. Under the circumstances the financial institutions whose primary objective it 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 beleagured 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 crore 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.

  1. P
    Paul
    Nov 15, 2016 at 9:18 am
    Independent director need to be verified on an on going basis for their vonflicts of interest too.
    Reply
    1. R
      R Srinivasan
      Nov 15, 2016 at 2:16 pm
      In what manner did the Board of Tata Sons exercise supervisory oversight over the Boards of Directors of Group Companies especially ociate Companies where they did not have majority shareholding?Did the NED nominees of Tata Trusts holding 66%in Tata Sons express their dissatisfaction over the poor dividends from Group Companies managed by presumably inefficient Boards of Directors?This becomes doubly relevant as the nominee NEDs of Tata Trusts felt their concerns were inadequately considered by the Chairman&other Directors on the Board of Tata Sons to the point of having to press a no-confidence motion in Oct 2016 and are now seeking to remove other Directors of Group Companies as well!This will be a serious issue of Corporate Governance for any new inbent whether he is a majority or minority shareholder(or NIL shareholder) of Tata Sons.
      Reply
      1. S
        sundaram
        Nov 15, 2016 at 9:06 am
        Is Mistry competent to manage large companies?. The answer seem to be no and is reflected in his behaviour. From the day one, he was fired as Chairman of Tata Sons, he only talks about legacy inheritance, selling of existing business, etc,. Had he been competent, instead of crying like a baby while blaming others, he would have worked with others and put effort to turn around the loss making enies into profitable one. Instead he only increased their liabilities. He may be a good talker, propping his speech with all latest management jargons impressing the audience, but turned out to be a poor doer, cribber and betrayer of trust. Besides in Business Trustworthiness is a major character needed in a person at the higher level. If he is a betrayer or cheater or try to usurp control through devious methods lacking ethics, then he deserve to be rejected.In the past four years he had only favoured his own company with all construction contracts from Tata companies which is questionable. Such a person at helm is not suitable of running an ethical business and can cheat all stakeholders.
        Reply
        1. S
          sundaram
          Nov 15, 2016 at 11:59 am
          Mistry is lamenting about legacy inheritance. If only he was competent, he would have turned them around which he did not. Like a squatter he is clinging to the post despite lack of trust shown by Tata Sons who elevated him to that post despite his inexperience. He is only betraying the trust.The loyalty and independence of Directors sways with time to individuals and need not be based on Mistry's performance.Mistry and his supporters only make the stakeholders of the company suffer and is not ethical corporate governance.
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