New Delhi - Moral victory for Cyrus Mistry or a vote of trust in Ratan Tata? The ouster of Mistry as chairman of the Tata Group’s cash cow, TCS, yesterday was a foregone conclusion as the Tatas hold about 73% stake in the company and had moved a resolution seeking his ouster.
According to a filing with the stock exchanges, an overwhelming 93% votes were on favour of the resolution, which ultimately led to Mistry being removed. But the same filing also noted that almost 11.77 crore valid votes were cast against the resolution. This amounted to less than 7% of the total votes cast but by itself, this is not a small number.
Calling the results a big moral victory, Mistry’s office said today that almost 20 per cent of shareholders of TCS — that accounts for more than 70 per cent of non-promoter shareholders — supported him by voting against the resolution or abstaining, which meant they were expressing disapproval of the promoters’ actions.
Whether Mistry’s interpretation of the EGM outcome is correct or not, one must note that shareholders raised several uncomfortable questions at the same EGM in Mumbai – clearly showing that while a majority voted for the resolution out of loyalty and respect for Tata, the group has a lot to explain on the arbitrary way in which it has ousted Mistry from the board of group holding company Tata Sons.
Another noteworthy development in the TCS EGM was the decision of LIC, an institutional investor, to abstain from voting. Though LIC holds just over 3% stake in TCS, should the decision to abstain be seen as a clear signal from the government that it is not taking sides – yet – in the battle between Tata and Mistry? This article in the VCCircle recounts how the governments in the past have not shied away from preventing hostile boardroom battles by prepping up the state-owned insurer to take sides, such as in the case of L&T and Escorts’ takeovers.
LIC’s vote either way may not have mattered much in TCS but it holds far more importance in some other group companies where insurers (LIC and private insurers) hold a higher stake and whose EGMs are coming with a resolution similar to TCS – seeking removal of Mistry from their respective board of directors.
According to proxy advisory firm Stakeholders Empowerment Services (SES), if LIC votes against the resolution to remove Mistry, the resolution could face defeat all across Tata group companies, with the exception of TCS. LIC and other insurers together hold over 10 percent stake in group companies Tata Motors, Tata Steel, IHCL, Tata Power, Tata Chemicals and Tata Global. They hold over 21% of Tata Power.
According to this report in the Business Standard, many shareholders asked for an explanation at the TCS EGM on reasons for removing Mistry from the TCS board.
Here are some questions the shareholders threw up:
1) What are the actual reasons for removing Mistry from the chairmanship of Tata Sons? Specially since TCS was doing “well” under Mistry
2) Of the 38 shareholders who spoke at the EGM, 34 supported the resolution to remove Mistry but also suggested both Tata and he to resolve the issue amicably, instead of fighting like “cats and cobras”.
3) Many shareholders suggested that Tata take help from other business heads such as Anand Mahindra, Kumar Mangalam Birla or Rahul Bajaj as mediators.
4) The annual report shows all decisions were taken unanimously by the board. Then, why is Mistry is being singled out, one shareholder wanted to know
5) This report quotes shareholder Dinesh Kotecha saying Mistry had raised some valid and pertinent points. “He is specific, he is humble. He has drawn attention to at least 50 issues and I think of those at least 40 points require deliberations.”
It is clear from these questions and reactions of shareholders that though the move by Tata Sons to oust Mistry as chairman of this holding company and the subsequent move to remove him as chairman of group companies may well succeed, it will not be an unqualified success.
As proxy advisory firms and other market watchers have noted in the past, the biggest question which still begs an answer is the reason or reasons for removal of Mistry as chairman of Tata Sons. Shareholders want to know what were the parameters for evaluating the performance the chairman of Tata Sons, whether they had been laid down previously and were these violated by Mistry?
Many shareholders also rightfully want the entire Tata-Mistry battle to be amicable, instead of becoming an ungainly public spectacle. And some others want a clear succession/leadership plan for Tata Trusts – which hold the largest stake in Tata Sons.
In summary, the Tatas may well succeed in removing Mistry from group companies after a prolonged process of shareholder approval and perhaps some legal challenges, but they would do well to put an institutional structure in place for future chairmen of the group.
Updated Date: Dec 14, 2016 11:25:14 IST