Possible scenarios for Tata Sons, Mistry as shareholders begin to vote from today
Mumbai: Shareholders of Tata Consultancy Services Ltd, the first among the listed Tata group companies, will meet on Tuesday to decide the fate of the six-week-long Tata Mistry battle that has rocked India’s biggest conglomerate. Shareholders of Tata Industries Ltd on Monday removed Cyrus Mistry as director.
While the EGMs, to some extent, will end the indecisiveness facing the listed entities, it’s unlikely to bring the curtain down any time soon on one of the biggest corporate feuds seen in the recent past. If anything it’s going to be protracted battle with both sides likely to seek legal recourse and seeking intervention from market regulator and the government.
Here is a quick analysis of the possible scenarios that are likely to emerge:
If Tata Sons wins...
Mistry gets removed as the director from the boards of various companies. He will also cease to be the chairman at firms where he continues to hold the position. Tata has ousted Mistry as chairman of Tata Consultancy Services, Tata Global Beverages Ltd and Tata Steel Ltd. He continues to be the chairman of Tata Motors Ltd, Tata Chemicals Ltd, Tata Power Co. Ltd and Indian Hotel and Co Ltd.
However, Mistry’s ejection from the board of Tata companies may not warrant peace to Tatas, said legal experts. Being a shareholder (18.5%) in Tata Sons he can continue to fight. “Even if he is ousted, he has the right to arouse his grievances as he has been in the management and is also a shareholder,” said a corporate lawyer who declined to be identified.
Also, shareholders who believe Mistry has been wronged can approach the market regulator, Securities and Exchange Board of India or Sebi, and the government to intervene and probe for insider trading, disclosure norms and financial discipline.
If Mistry wins...
He continues to be a director on the boards of all the operating companies. Tata Sons will have no option left but to take the legal recourse to remove him from the board of companies. Such a scenario may lead to a divided board which is not in the interest of the larger stakeholders of the company, said Kavil Ramachandran, executive director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business.
“A divided board is not good for any organization,” he said pointing out that it will also have an adverse impact on the plans and decisions taken by the board. Amit Tandon managing director at IiAS, a proxy firm, agreed. “It will bring unwanted disruptions on the board,” said Tandon.
A defeat in the EGM may prompt Tata Sons to seek intervention from the market regulator and the government as they would want to be vindicated and prove their they were right in their allegations, said the lawyer cited above. It may lead to the government appointing an independent arbitrator.
Stakeholder Empowerment Services, a proxy firm, in a note points out that in the eventuality of the resolution being defeated Mistry will have to make an open offer alone or along with the board members who had supported him.
Relationship between different Tata entities
To be sure, with Tata Sons citing trust deficit and betrayal as one of the key reasons for ousting Mistry and the latter alleging the Tata Trusts wielding too much of influence on Tata Sons and operating companies, the role play by each entity has come into a sharp focus. While IiAs’s Tandon believes the current crisis is an opportunity for the group to fix its “structural issues” not every one agrees.
ISB’s Ramachandran said while there is a need to revisit the current structure it should have its own merit and the current scenario should not be a catalyst for it. “The ad-hoc decisions may not be objective,” said Ramachandran pointing out that the current crisis has been borne out of personality conflict between two individuals and their priorities. “I don’t think it has to do with governance or the structure. The very same arrangement have served the group successfully over the years.
On 11 December, Tata Sons Ltd asked shareholders of group companies to vote out Mistry from their boards, even as it accused him of concentrating authority, dismantling the group’s 150-year-old structure and causing a breach of trust by not “distancing himself” from the Shapoorji Pallonji group, controlled by Mistry’s family.