Tata-Mistry battle: At TCS EGM today, Cyrus' fate may be already sealed. Here's why
TCS is one of the few Tata companies where the Articles of Association gives Tata Sons a direct right to nominate the chairperson of the board
New Delhi - There is little doubt that the shareholders of TCS are likely to side with Ratan Tata and oust Cyrus Mistry as their chairman at the EGM today. TCS is the crown jewel in the salt-to-software Tata Group, bringing in a lion’s share of the entire group’s profits. And in this company, the Tatas own over 70 percent stake.
Some reports have said electronic voting for the resolution seeking Mistry’s removal has been ongoing and the result may not throw up any surprises. One will have to wait for a few hours more to know the outcome and whether shareholders throw up a surprise verdict.
As per Section 169 of the Companies Act 2013, a director may be removed by passing an ordinary resolution at a general meeting. For this, a shareholder (with >1 percent stake) needs to submit a special notice to the board, which will then call a meeting. Alternatively, shareholders holding more than 10 perecent stake can proceed to call a shareholder meeting on their own. In the case of TCS, Tata Sons has asserted its legal right and called for the meeting to remove Cyrus Mistry as a director.
According to proxy advisory firm IiAS, TCS is one of the few Tata companies where the Articles of Association gives Tata Sons a direct right to nominate the chairperson of the board. Therefore, following Cyrus Mistry’s ouster at Tata Sons, TCS was the first of the operating companies to replace its chairperson. The current chairperson is Ishaat Hussain, an old Tata hand.
According to ‘Article 90: Nomination of Chairperson’: so long as Tata Sons Limited and its associates hold at least 26% of the paid-up equity share capital of the company, Tata Sons Limited will have the right to nominate the chairperson of the board of directors. In the absence of a nomination by Tata Sons Limited, for any period, the Directors may elect from amongst themselves a Chairperson of their meetings and determine the period for which he is to hold such office.
This could mean Mistry’s fate is already sealed. Some media reports have suggested that Mistry may challenge the EGMs that the Tatas have called for group companies to oust Mistry as chairman but it remains to be seen if a legal challenge is actually made and whether it holds.
In this all-out battle to retain control of the Tata Group, Ratan Tata is already ahead – shareholders of Tata Industries have ousted Mistry by removing him from the post of director yesterday. Now, there are indications that the Tatas are game for investing large sums of money to shore up stakes in other group companies so that they get their way each time and Mistry is removed from the directorship of each company in the Group.
As the battle rages on, not all shareholders are perhaps aware about all the nuances, all the intrigues and subsequent name calling by both sides. IiAS has listed out some questions that shareholders would do well to keep in mind before deciding on their vote:
1) What are the performance metrics for the Chairperson of Tata Sons? Remember, this entire episode of claims and counter claims began after the Tata Sons’ board sacked Mistry from chairmanship in a sudden move in October. IiAS has noted that one of the reasons cited for Mistry’s departure was non-performance. However, shareholders remain unclear on what were the performance metrics and the timeline to achieve those. Mistry’s attempts at reducing debt and getting rid of bleeding parts of the business appear to be rather obvious and practical decisions, given the debt overhang. “If this strategic re-orientation is not acceptable to the Tata Trusts and Tata Sons, then the Tatas must clearly articulate the deliverables of the chairperson and the timelines within which the goals are to be achieved.”
2) How will the dual power structure work, going forward? With Ratan Tata remaining Chairperson of the Tata Trusts and Cyrus Mistry chairing Tata Sons, there was a dual power structure. Such duality blurs the lines of accountability and creates confusion in the rank and file. Going forward, the group needs to communicate how it proposes to handle the disconnect between the two roles (of leading the trusts and Tata Sons). The group must put in places well-articulated roles, responsibilities and rights for the structure to work seamlessly. Also, how will the succession planning for the Tata Sons’ board and Tata Trusts plays out now, needs articulation by the Tatas.
It is high time the House of Tatas change their functioning to be in sync with globalisation trends and requirements.
The EGM result would influence the fate of Cyrus Mistry, who was on Monday removed as director and chairman of Tata Industries following shareholders' vote
The recent allotment of extra shares to boost Tata Sons’ stake in the assorted listed companies can be scrutinised and proved to be oppressive to the minority shareholders interest