Mumbai: Proxy advisory firm InGovern Research Services Pvt. Ltd has recommended the minority shareholders of Tata group companies—which are holding their EGMs between 13 December and 26 December for the removal of Cyrus P. Mistry as director from the board of the operating companies—to vote against the resolution as Tata Sons Ltd hasn’t provided “any compelling reasons”.
Six of the seven Tata-listed group companies where Mistry serves as a director have called for EGMs to replace Mistry as a director after having received requisition from the promoter shareholder Tata Sons.
“Tata Sons hasn’t provided any compelling reasons for the removal of Mistry as a Director from the Boards of the operating companies”, said the proxy advisory firm in an email on Thursday morning, while drawing out a case for each of the individual companies and why it recommends minority shareholders to vote against the resolution.
Moreover, “Tata Sons hasn’t articulated any new plans or visions for the operating companies than what the Boards under Mistry had adopted,” said InGovern.
Also, it is important to note that Mistry continues to have a beneficial shareholding of 3-13% in the listed companies, through 18.4% minority shareholding in Tata Sons Ltd. “His presence as a Director on the Boards of the listed companies should be a balance on the Boards and a representation of the minority shareholder. In many operating companies, Cyrus Mistry continues to have the confidence of the Independent Directors,” said the advisory.
InGovern also urged shareholders to question inherent assumptions regarding the value of the group structure and the value of “Tata” brand and demand greater disclosures on information flow between Tata Sons and the operating companies.
“Minority shareholders should decide on their votes independent of the actions of the promoter shareholder,” said the InGovern advisory note, which was the second proxy firm to come out in support of Mistry after Institutional Shareholders Services Inc. (ISS), a foreign proxy advisory firm. So far four advisory firms have issued recommendations which are now equally split for and against.
Making a case for the individual companies, InGovern said that in the case of Tata Consultancy Services Ltd, which is holding its EGM on 13 December, “The promoter itself accepts that the performance of TCS has been good, we do not see any logic as to why a shareholder should vote for removal of a director who was the chairman, for performance issues.”
The advisory firm further questioned the logic as to why the board had recommended the removal of a director who was given a favourable rating as a chairman a few months back and conceded that the plausible reason is that he was a nominee of Tata Sons on the board of TCS and since he was replaced as chairman for Tata Sons, it is natural that he be removed from the board of TCS.
According to InGovern, Shapoorji Pallonji Group, which is represented by Mistry, has the second largest share in the company after the promoters at 13.47% which means he has skin in the game and hence his interests would be in the best interests of the company.
InGovern also discarded the possibility that his presence would cause constant conflict and said that it feels that a board is more effective when everyone is not “Yes-men” of the promoters on the board.
While the Articles of Association of TCS allows the promoter to appoint and replace a chairman without the need to seek prior opinion of the board, “we believe such a provision greatly restricts how he powers of the board”, said InGovern, which recommended shareholders to raise concerns to remove such provisions from the board.
In the case of the Indian Hotels Co. Ltd, which has its EGM on 20 December, all the independent directors have shown support for Mistry and the proxy advisory firm has recommended shareholders to vote against the removal of Mistry from the board as there is “no compelling logic”, it said.
For Tata Steel Ltd, which had its EGM on 21 December, the proxy advisory firm was against the removal of both Mistry and Nusli Wadia as a director. Wadia who had been on the board for 47 years has had a tenure which is far greater than the maximum 10 years for Independent directors, as per Companies Act, 2013.
However, Tata Sons proposes his removal not due to his long tenure but because he acted in concert with Mistry. “Promoters who remove independent directors who do not agree with their views also sets a bad precedent for Indian corporate governance and such efforts should be thwarted by voting against the promoter proposals,” said InGovern.
If it is because of the long tenure, then there are at least 10 independent directors across the several group companies, including Aman Mehta of TCS, Deepak Parekh at Indian Hotels, Nasser Munji at Tata Chemicals and Homiar Vaccha at Tata Power Ltd.
The proxy advisory firm listed similar reasons to support its recommendations for voting against the removal of Mistry and Wadia in the case of Tata Motors Ltd and Tata Chemicals.
It was also against the removal of Mistry from the board of Tata Power, which is holding its EGM on 26 December. The independent directors of Tata Power have not made their positions publicly known even as the other six companies have aired their views.
InGovern and ISS’s recommendations are in contrast to that of Institutional Investor Advisory Services (IiAS), a Mumbai-based proxy advisory firm. On 30 November, IiAS advised shareholders to vote in favour of Mistry’s removal as his continuation on the board may lead to “unnecessary friction between the operating companies and Tata Sons”.
SES, another proxy advisory firm, also recommended voting in favour of Mistry’s removal. “SES in its analysis has found that the performance of the Company has been agnostic to different persons occupying the post of the Chairman. TCS appears to be a company having matured well settled processes and system and a competent work force and management team. Therefore, removal of Mr. Mistry as a director is not likely to impact performance of the Company. However, as observed in other Tata companies, there is a high probability that continuation of Mr. Mistry might lead to ‘Divided Board’ which is a value destroyer for sure,” the firm said in a 5 December note.