Mumbai: Life Insurance Corporation of India (LIC), which holds significant stakes in 10 listed Tata group companies, has begun preparing background notes on firms where shareholder meetings have been called to oust Cyrus Mistry as director, said two people with direct knowledge of the matter.
The insurer’s board members will hold separate discussions to verify the claims made by Tata Sons to remove Mistry in each group company and assess the performance of these firms during the ousted chairman’s tenure, they added.
While LIC has only a 3.2% stake in Tata Consultancy Services Ltd (TCS), the first of the companies to hold an extraordinary general meeting (EGM) on 13 December, it owns a bigger chunk of other firms. It has a 13.6% stake in Tata Steel Ltd and holds 9.8% of Tata Global Beverages Ltd.
“If Tata Sons appointed Mistry as a chairman, the same group can terminate his appointment too. That is not the issue,” said the first person. “The issue is that on what grounds and justifications Mistry is being removed? LIC is examining the arguments made by the Tata group firms in their respective EGM notices.”
After Tata Sons removed Mistry as its chairman on 24 October, it expected him to step down from the boards of listed firms. Mistry refused to do so and the holding firm has been forced to call shareholder meetings to eject him.
To be sure, LIC doesn’t have to reveal publicly the way it votes and why it votes in a certain way. Typically, for any listed firm in which the state-run life insurer holds a stake, LIC’s own internal departments independently design strategies without involving the board members of the insurer.
But this is a rare case.
“Typically, a company does not remove its chairman or a director in this fashion,” said the first person. Since it also involves large and powerful business groups, “it is a sensitive call and long-term objectives of LIC have to be kept in mind before casting the vote”.
Nor are such board meetings without precedent.
In 1989, LIC faced a similar situation when Dhirubhai Ambani wanted to gain control of Larsen & Toubro Ltd.
“At that time too, LIC’s board members had to hold informal discussions to be able to take its final stance,” the first person added. Eventually, LIC voted to remove Ambani and three other Reliance nominees from the board of L&T, which many believe was at the behest of the V.P. Singh government, which had just taken charge.
Indeed, even in this case, some analysts say LIC will vote the way the government wants it to. The insurer, apart from toeing the government’s line when asked to, is usually non-controversial.
Typically, LIC never takes a firm stance on such issues, said Shriram Subramanian, founder at InGovern Research, a proxy advisory firm. “It’s time it does take a stand one way or the other,” he said, adding that if it does abstain from voting and abdicates its responsibility, the move will be detrimental to Indian capital markets.
Under company law rules, the removal of a director requires a majority of those shareholders present at the meeting and voting. So even if LIC abstains from voting, that is as good as a vote against Mistry.
In a statement issued to its shareholders on 22 November, TCS said Mistry made unsubstantiated allegations that cast aspersions on Tata Sons and its board and “the Tata group as a whole”.
Since Tata Sons holds a 73.26% stake in TCS, the proposal to remove Mistry may not face any hurdles. However, LIC’s voting will be crucial in Tata Steel, Tata Chemicals and other group firms. The Tata Steel EGM is on 21 December, Tata Motors the following day and Tata Power on 26 December.