Ratan Tata versus Cyrus Mistry: What now?
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Surely, Cyrus P. Mistry was not as incompetent and devious as the spin machine at Tata Sons Ltd would have us believe?
And surely, governance at the Tata group and its companies can’t be as bad as the Mistry camp claims it is?
The answers to both questions would be a qualified yes (as in yes, he probably wasn’t; and yes, it probably isn’t).
Since 24 October, when the board of Tata Sons fired Mistry as chairman, after he refused to resign and asked for a vote (he got one, and lost), the two sides have traded allegations—mostly related to performance and governance; the boards of Tata companies have felt the need to choose; and Tata Sons has initiated efforts to call shareholder meetings and unseat Mistry as chairman of some of the Tata companies.
Ratan Tata, who in his position as chairman of the Tata Trusts—which control Tata Sons with a 66.5% shareholding—orchestrated Mistry’s exit, may have miscalculated when he expected the latter to go quietly (and, anyway, an all-too-public firing is rarely the way to get people to go quietly).
His and Tata Sons’s interests are best served by getting Mistry to resign as chairman (or having him fired) of the various Tata operating firms, removing him from the boards of these, and, perhaps, buying out his and his family’s 18.4% stake in Tata Sons (roughly valued at around $16 billion by Bloomberg Gadfly columnist Andy Mukherjee).
Mistry’s interests aren’t as easy to fathom. He is angry—anyone would be, after a public firing—but surely, he can’t expect either an apology or a reinstatement.
The Mistry family stake in Tata Sons was hard-won, and it is unlikely he will want to sell that (although this can’t be entirely ruled out). People close to Mistry say he is fighting to highlight the several and significant governance issues at the Tata group. They add that he wants the relationship and governance structure between the Tata Trusts and Tata Sons and between Tata Sons and the operating companies to be explicitly and transparently defined in adherence to the best corporate governance standards.
This is a lofty and unselfish objective and also one that sounds unreal—but the people close to Mistry insist that this is what he really wants.
So, as the lawyers of the two sides begin work on a possible settlement—or so people on both sides say—what could the endgame be?
It is unlikely the Tata group will explicitly admit to governance issues or create a new governance structure, although any external candidate being wooed as the next chairman of Tata Sons will likely insist on this being done (or that he or she also be the chairman of Tata Trusts).
Tata Sons is unlikely to find it easy to get rid of Mistry from the operating companies without the support of minority and institutional shareholders.
State-owned shareholders such as the Life Insurance Corporation of India, which are significant shareholders in some of the Tata operating companies, will seek guidance from their political masters on which way to vote. If it comes to that, finance minister Arun Jaitley and Prime Minister Narendra Modi may well decide what happens (neither appears to have a favourite). That leaves either a negotiated settlement or legal recourse.
If Tata Sons, which doesn’t have a controlling shareholding in some Tata companies such as Tata Steel Ltd and Tata Motors Ltd, is unable to replace Mistry as chairman of these firms (this is a possibility if the shareholders, including institutions, vote for Mistry), it may have to consider a settlement.
That could take the form of a generous cash offer to buy out the Mistry stake in Tata Sons (although finding the cash could be a problem), or it could, remote as the possibility may sound at this time, mean ceding control of some lesser Tata firms to Mistry in addition to some cash, in return for his stake in Tata Sons. Both sides have hired a formidable array of lawyers, but have not gone public with their legal strategies (and understandably so). From the outside, Tata Trusts and Tata Sons seem to have been well within their rights to do everything they did, but the Mistry camp says it does have enough ammunition to force a legal contest. That will be messy and time-consuming, but it could well come to that.
It won’t be good for the Tata group and it won’t be good for Indian industry as a whole, but Mistry has nothing to lose.