Tata vs Mistry fallout: Opinion divided on whether Tata group needs restructuring

Tata group, which until now was one of the most predictable groups in India, has shaken investor confidence with this tug-of-war between Cyrus Mistry and Ratan Tata


Cyrus Mistry has always insisted that corporate governance reform is a must, but Tatas have maintained that the current structure is adequate. Photo: PTI
Cyrus Mistry has always insisted that corporate governance reform is a must, but Tatas have maintained that the current structure is adequate. Photo: PTI

Mumbai: As the battle between Tata Sons Ltd and its ousted chairman Cyrus Mistry moves from the board room to the courts, one question that has split stakeholders and external observers is whether the 148-year-old group needs to restructure itself to forge ahead.

Mistry, sacked as chairman of Tata Sons in October, has always insisted that governance reform is a must, and repeatedly pointed to his efforts to define roles played by each Tata entity—the trusts, the holding company and the operating firms—in the running of the group.

The Tatas, on the other hand, have maintained that the current structure adequately serves the interests of all stakeholders.

“It’s not a typical family fight where the ownership is at stake. It’s bickering between two individuals and their cronies,” said Kavil Ramachandran, executive director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, referring to interim chairman Ratan Tata and Mistry.

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Even though the ongoing fracas is merely a “passing cloud”, one of the immediate priorities should be to restore the Tata brand’s image and protect its interests, he said.

The group also needs to relook its governing structure and clearly define the role of each entity. If Tata Trusts, which owns a two-third stake in Tata Sons, is not happy with the performance of a chairman, then it should be discussed at appropriate forums instead of him being fired through a non-listed agenda item like ‘any other items’, said Ramachandran. That’s how Mistry was fired at the 24 October Tata Sons board meeting.

“They should avoid such surprises. Tatas are known for transparency and their value system,” he added.

Others agree. The Tata group which, until now, was one of the most predictable groups in India, has shaken investor confidence with this tug-of-war, said Institutional Investor Advisory Services, in a 20 December report.

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The group needs to address possible areas of conflict and clearly set the terms of engagement between the three tiers (Tata Trusts, Tata Sons, and the operating companies), the note said.

“They need to put in place an operating structure that outlives individuals,” it said. If “the Tata group is to survive for another century, the current episode must be seen as a call to urgently fix the group’s structural vulnerabilities”.

But Tata group executives dispute the need for any restructuring.

“It’s very easy for anyone to say that Tata group needs to relook the structure,” said S. Santhanakrishnan, non-executive director at Tata Global Beverages Ltd (TGBL). “It’s a loosely worded statement. I don’t think there are any issues which require to be addressed structurally at the operating company level. Of course, each company might require normal incremental changes.”

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Santhanakrishnan also said the very fact that some independent directors chose to adopt a stance at variance with that of Tata Sons spoke of the level of independence they enjoyed and high corporate governance standards.

In board meetings in November, independent directors of some group companies such as Indian Hotels Co. Ltd and Tata Motors Ltd reposed their faith in Mistry’s leadership. Analjit Singh and Darius Pandole, independent directors on the board of TGBL, resigned last week after Mistry announced his decision to step down from the boards of operating companies ahead of shareholder meetings called to oust him.

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