The revelations made by Cyrus Mistry ex-Chairman, Tata Sons immediately following his dismissal point towards corporate governance in India reaching a new low. This is a matter of serious concern to investors/shareholders – including foreign investors – who has stakes in Indian companies.
If, it can happen in one of India’s leading conglomerates which has a turnover of close to Rs 700,000 crores, market capitalization of Rs 850,000 crores, operations in more than 100 countries and has about 700,000 employees on its rolls, this speaks volumes about the extent of degeneration that has set in corporate board rooms. So, what is so disconcerting about recent events at Bombay House?
The most worrying point is the brazen display of muscle flexing by owners [in this case, Tata family owned trusts which control majority shares 66% in Tata Sons] that has been exercised to a point of reducing even its head to an almost defunct status of what Cyrus described as ‘lame duck’ chairman. This is done to a person in whom the owners had reposed full faith only 4 years ago.
What makes the assault ‘unprecedented’ is that the person also happens to be one of the prime owners of the group [18.5% shares of Tata Sons are held by Shapoorji Pallonji; Cyrus Mistry is his son]. Keeping professional CEO/chairman of companies as ‘caged parrot’ is quite normal but when this happens to a person who is also the owner makes it abhorrent.
The manner of removing Cyrus by itself was in serious contravention of governance norms. This was done under ‘any other item’ in the agenda of Tata Sons board meeting. This head normally includes issues which were not management’s radar at the time of preparing the agenda or a matter that a member may wish to bring to the attention of board after all listed items have been discussed.
The issue under reference has far reaching ramifications. It is more important than even a policy decision or approval of a major project as it concerns the fate of the chairman who has to shepherd all group companies towards their stated goals. Therefore, this should have been the most important item on the agenda. Yet, it was dumped under a residual class [read ‘any other item’].
An attempt to keep things under wraps and make way for its entry [albeit surreptitiously] at the last moment smacks of utter lack of transparency in decision making process. What makes it even more appalling is that outgoing chairman was not even given an opportunity to defend himself; a flagrant violation of principle of natural justice!
A close scrutiny reveals that there was a pre-meditated plan to keep Cyrus ‘lame duck’ from the day one. All along, during almost 150 years of Tata empire, a person appointed as chairman of Tata Sons ‘automatically’ became the chairman of Tata Trusts also. But, in this case, Ratan Tata [RT] continued to be in command of the latter even after Cyrus was made head of former.
The so called ‘lame duck’ chairman was presented with fait accompli on projects like AirAsia and Vistara Airlines, not being allowed to get out of ‘Nano’ despite persisting losses, purchase of real estate property at inflated price [e.g. Sea Rock Hotel, Mumbai], unsuccessful foray in to telecommunication [mis-handling of issues with foreign partner NTT-DoCoMo], mess up in the power sector etc.
At another level, Cyrus’s review of past decisions [taken under RT dispensation] such as buy-out of Corus Group [2007] and attempts to reduce un-sustainable high level of debt were viewed as tantamount to working out of sync with the ‘ethos’ and ‘culture’ of the group or losing the trust of owners.
The Team is now working towards the next logical step of getting Cyrus removed from chairmanship of all key group companies viz., Tata Motors, Tata Steel, Tata Consultancy [TCS], Tata Power, India Hotels etc. If, he does not resign on his own, efforts will be made to get necessary resolutions passed by their respective boards.
Almost all companies of Tata Group are listed even as millions of shareholders/investors have a vital interest in their robust health and growth. The financial institutions [FIs]/banks too have a major stake in view of huge loans given to these companies. Additionally, the fate of hundreds of thousands of employees is inextricably connected with their smooth running.
The management is therefore obliged to act in a manner that ensures full protection of their interests; shareholders continue to get good return on their investment, banks/FIs get their loans serviced and employees are well taken care both financially as also in terms of job satisfaction. These objectives will be far from served if companies are run as per diktats of his masters voice.
[Cyrus Mistry has alleged that some directors of Tata Sons used to leave in the midst of board meeting to consult RT and deliberations were stuck till they come back. This shows the extent of interference in the functioning of board and certainly did not bode well for millions of stakeholders whose fate got de facto inter-twined with whims and fancies – or ‘passion’ of an individual.]In the wake of Cyrus’s letter bomb, the Securities Exchange Board of India [SEBI], concerned ministries viz., steel, civil aviation etc and other regulatory bodies have started looking in to the allegations including charges of financial irregularities. That sounds like doing a post-mortem after the patient is dead. It will do no good to improve the performance of companies.
There is an urgent need for pro-active intervention by government and various regulators. They should not sit as mute spectators when crucial decisions are being taken. True, within Tata Sons – a closely held group – there is little that they can do to prevent un-desirable changes in the management structure. But, they can certainly exercise their influence at the level of companies.
At the level of individual companies, nominees of banks and financial institutions should ensure that corporate governance norms are not sacrificed. Their board members need to assess things on merits and not get swayed by what the single largest shareholder [read Tata Trusts] wants. Just because Cyrus has ceased to be Tata Sons chairman, he cannot be asked to go.
The banks and institutions need to be alert in hundreds of other corporate board rooms to ensure autonomy of their functioning, prevent interference by promoters and full compliance with best corporate governance practices. SEBI and other regulators viz Enforcement Directorate [ED] etc should keep their hawkish eyes on any wrong-doing/financial irregularities and nip them in the bud.
The wrong-doings at Bombay House should be taken as a wake up call to prevent the malaise from spreading further.