Cyrus Mistry emerging as the country's first activist investor in tussle with the Tatas

To understand the strange nature of the tussle between Cyrus Mistry and Ratan Tata to run the Tata group of companies, one must first understand the somewhat paradoxical nature of the way the group run from Bombay House is structured.

The holding company, Tata Sons Ltd, which ousted Mistry as chairman under Ratan Tata's controlling gaze, is a closely-held company that in turn is controlled by a clutch of trusts that in effect stand for the interests of a community and its values. At the other end, this closed group manages and often controls several publicly-held companies with millions of small investors who are either direct shareholders or hold stakes through mutual funds.

"The interface between the Trusts, Tata Sons and operating companies -- these are elements that need to be discussed," Mistry has said, defining a conundrum that needs to be resolved.

 Cyrus Mistry emerging as the countrys first activist investor in tussle with the Tatas

Cyrus Mistry. Reuters

Mistry's decision this week to quit the boards of Tata companies and fight a legal battle instead of shareholder meetings is on the one hand acknowledging that the number game, whether in Tata Sons Ltd or in several public companies it controls, is not on his side. On the other hand, it announces his likely arrival as India's first big-scale activist investor -- which in a way marks the maturing of shareholder democracy in India.

The irony could lie in the fact that Mistry prefers courtroom battles to addressing shareholders, but this is because both independent directors as well as government-controlled financial institutions such as the Life Insurance Corporation would by and large prefer to avoid taking sides with Mistry, whose actions on investment decisions made by predecessor Ratan Tata fall in the grey area where open-and-shut answers are not easy.

Mistry now has to defend himself at two levels -- which explains why he prefers legal battles. He has to talk over the heads of silent or reticent institutional voters to gain public credibility, and also has to redeem himself from implicit charges that he acted against Tata "values" which have a measure of concern for him as a member of the Parsi community.

In the 1990s, Ratan Tata ousted old-world satraps such as Russi Mody, Ajit Kerkar and Darbari Seth in largely silent coups. It was Rajan Nair, a trade union leader representing workers of the Tata Engineering and Locomotive Company (Telco -- which became Tata Motors in 2003), who once spoke aloud in a shareholders meeting. Mistry is now donning battle fatigues -- right at the top.

When Dhirubhai Ambani addressed literally crowds of Reliance investors with his hands on his hips at the then Bombay's Brabourne Stadium, he ushered in the razzmatazz of shareholder democracy but with no significant dissent.

We saw skirmishes in the 1980s and 1990s when takeover tycoons such as Manu Chhabria, Rama Prasad Goenka and Swaraj Paul fought shareholder battles with mixed results. UK-based Paul's bid to take over Escorts and DCM failed despite financial institutions (FIs) backing him as courts supported H.P. Nanda. Maybe Mistry has similar hopes from the courts, this time as an aggressor than as a defender.

The role of FIs has been controversial because there is an inevitable political angle to it. With Ratan Tata's pet Nano project located in Prime Minister Narendra Modi's Gujarat state, and Tata having met finance minister Arun Jaitley last month, Mistry is decidedly on a weak wicket if private lobbying is of essence. Activism in public fora such as media and the courts are a natural, logical next step.

The US has activist hedge funds and investors such as Kirk Kerkorian, Carl Icahn and Bill Ackman, who regularly stand up to ask tough questions to big business boards, and often swing boardroom decisions. India's FIs and mutual funds have been largely passive at best and politicised at worst, despite having the mandate to represent small shareholders.

India has seen minority shareholders fighting small battles in companies such as Maruti Suzuki Ltd and Tata Motors, aided by incipient institutional advisory firms, but never a high-profile face with financial and legal msucle.

In this backdrop, Mistry's role may be of historic significance, if he takes up corporate governance as an issue that concerns public discourse in a democracy than as one involving privately defined values in trusts.

(The author is a senior journalist. He tweets as @madversity)

Updated Date: Dec 20, 2016 10:33:00 IST