Cyrus Mistry takes a step back in battle but the Tatas should focus on the issues he raised

New Delhi: Cyrus Mistry is stepping down from Tata group companies and contrary to what he has claimed, this may signal a step-back in his battle with the Tatas. A prolonged legal fight looks like a distant promise. But more on that later.

First, did Mistry see wisdom in stepping down now after shareholders of key group companies ousted him as chairman earlier this month, and were there indications that he may meet the same fate in more EGMs scheduled later? Perhaps, he wanted to save himself from more agony. When we had put this question to a close confidant of Mistry last week – why he continued to seek shareholder nod for continuing on Tata group companies despite facing defeat in some EGMs earlier – this person had merely asked us to “wait and watch”. So, Mistry’s decision to quit may not have been sudden but a well thought out manoeuvre.

Cyrus Mistry. Reuters

J N Gupta of proxy advisory firm Shareholder Empowerment Services (SES) pointed out that there is little which the courts may give their verdict on, in this battle between Mistry and the Tatas. “As of now, I see only the issue of Mistry’s removal as chairman of Tata Sons coming up in the courts. The courts are unlikely to examine commercial decisions by group companies, which were in any case approved by their respective boards. Even market regulator Sebi may not have much to say since decisions were approved by the board of directors of each company”.

Gupta also referred to Mistry’s assertions after the TCS shareholders voted him out, where Mistry had claimed that retail investors had backed him. “Mistry lost face when it later emerged that most of these retail investors siding with him were in fact his own family. This could be one reason he has now chosen to sep down:”

But Amit Tandon, MD and CEO of proxy advisory firm IiAS , said Mistry’s stepping down from group companies should now shift focus to the issues he has been highlighting after being ousted from Tata Sons on 24 October. As he put it “The wrong message from this is that Mr Mistry is stepping down because he is going to lose the votes (of shareholders). What Tata Sons needs to do is focus on issues raised and start addressing them”.

Remember, IiAS had advised shareholders of Tata group companies to vote for Mistry’s removal and later also changed its stance on Nusli Wadia to recommend that shareholders vote for his removal as an independent director from some group companies too.

As for the issues raised by Mistry at various times – these include governance structure at Tata Sons and its relationship with group companies, capital allocation decisions, succession planning in the group, the relationship between Tata Trusts and Tata Sons (former is single largest shareholder in Tata Sons), and the relationship between Tata Sons and operating companies (former is the holding company for the group). Tata Sons has, in the past, rubbished any allegations regarding each of these issues, clarifying that all decisions have been taken keeping principles of corporate governance in mind. It has also clarified in the past the relationship between Trusts and itself is well defined and that no price sensitive information has ever been shared with the Trusts’ representatives.

So what happens next? This piece in Business Standard says now, the EGMs of the five of Tata Group’s listed companies will not carry the resolution to remove Mistry. The EGM of Indian Hotels (IHCL) is slated for today, followed by shareholder meetings of Tata Motors, Tata Steel, Tata Chemicals and Tata Power. The paper goes on to say that the resolution to remove Nusli Wadia as an independent director of Tata Steel, Tata Motors and Tata Chemicals would, however, be put to vote at these EGMs. Wadia has already sued the Tatas for defamation and has moved a petition in Sebi, charging the Tatas of corporate governance lapses.

This piece in Forbes says despite Mistry's mass resignations, the Tatas will have to proceed with the shareholder meetings of Tata Motors, Tata Chemicals and Tata Power since they have sought removal of Wadia as an independent director on the grounds that he has teamed up with Mistry and is ‘galvanising’ other independent directors to act against the interests of the group. It quotes ‘sources close to Wadia’ to say he will not resign but wait for the shareholder votes. Gupta of SES says, however, that since Mistry resigned from group companies but Wadia chose to stay on and seek shareholder nod, this may well signal that the two are not working in collusion.

Mistry was removed from the board of Tata Sons on 24 October and Ratan Tata was appointed as an interim chairman on the same day. Following this, a bitter public spat broke out between Mistry and Tata, with the former chairman accusing Tata of saddling the group with $18 billion of potential write-downs and serious lapses of corporate governance. The BS piece says this bitter boardroom battle has resulted in a loss of about Rs 77,000 crore in market capitalisation of the Tata group companies.