Cyrus Mistry’s conduct harmed TCS and group: Tata Sons
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Mumbai: Cyrus Mistry made certain unsubstantiated allegations, which cast aspersions on Tata Sons Ltd and its board and “the Tata group as a whole”, Tata Sons said in an explanatory statement to its notice calling a meeting of shareholders in Tata Consultancy Services Ltd (TCS). It called the extraordinary general meeting to oust Mistry as a director on the board of the software services company.
Proxy advisory firms, which recommend voting on such issues to minority shareholders, are divided on whether they should support the resolution moved by Tata Sons to remove Mistry.
“Mr. Mistry’s conduct has caused enormous harm to the Tata group, TCSL and its stakeholders, including employees and shareholders,” said the Tata Sons statement. “Consequently, the Board of Directors of Tata Sons Limited by its resolution dated November 9, 2016 has resolved to propose the removal of Mr. Mistry as Director” of TCS.
Tata Sons, the holding company of the Tata group companies, owns 73.3% of TCS. The Tata Sons board ousted Mistry as chairman on 24 October and expected him to step down as the director of operating companies too.
TCS “enjoys the right to use the ‘Tata’ brand name by virtue of the Tata Brand Equity and Business Promotion Agreement entered (with) Tata Sons,” said the statement, making a case for TCS shareholders to support the holding company. “Substantial goodwill and benefits accrue to TCS by such usage of the ‘Tata’ brand and association with the Tata group.”
While the outcome of the TCS shareholder meeting on 13 December is a foregone conclusion because of Tata Sons’s majority shareholding, the explanatory statement is crucial for other group companies where its ownership hovers around 35%.
There, Tata Sons will require the support of institutional shareholders who will at least have to abstain from voting (since the resolution requires 51% votes of those present and voting) to oust Mistry.
On Monday, Indian Hotel Co. Ltd, which runs the Taj group of hotels, also called for a shareholder meeting on 20 December to eject Mistry from its board, it said in a stock exchange filing. Tata Sons has also requested similar shareholder meetings in Tata Steel Ltd, Tata Motors Ltd and Tata Chemicals to remove Mistry. In the last three firms, it has also sought to replace independent director Nusli Wadia.
This move was likely prompted by a show of support by independent directors for Mistry in firms such as Indian Hotels and Tata Chemicals. While the Tata Global Beverages board ousted Mistry as chairman, Tata Sons used its powers under TCS’s articles of association to replace Mistry with Ishaat Hussain.
The board of TCS agrees that the removal of Mistry as director “would be in the best interests of the company”, the explanatory statement said.
In an interview to ET Now, N. Chandrasekaran, managing director and chief executive officer of TCS, said, “TCS has a strong board and they have always made a call.” But “TCS cannot have an adversarial relationship with Tata Sons”.
Chandrasekaran is also on the board of Tata Sons. He and Ralph Speth, chief executive of Jaguar Land Rover Automotive Plc, were inducted on the board on 25 October, a day after Mistry was removed as the chairman.
“Parentage is equally important,” he said.
Among the three proxy firms in India, Stakeholders Empowerment Services (SES) is likely to ask shareholders to vote in favour of Mistry’s removal. InGovern Research believes reasons cited by Tata Sons to seek Mistry’s removal are not enough while Institution Investor Advisory Services (IiAS) has still to firm up its stand.
“A divided board is not good for a company and can harm the interest of shareholders,” said J.N. Gupta, co-founder and managing director of SES, explaining why the organization will likely recommend shareholders vote in favour of the resolution.
In a 14 November note, SES wrote “A divided board is like a vehicle with driver at both ends, each trying to move in his own direction”. Division at board level, unlike dissent, which reflects a healthy board, is counterproductive and destroys shareholder value, it said.
Shriram Subramanian, founder of InGovern Research, said, “Its unfortunate TCS is going to its shareholders with such reasons. The reasons are quite lame,” he said adding while ejecting Mistry from TCS could be smooth sailing for the Tatas, getting similar mandate in companies where it does not have a majority, could be a challenge. Amit Tandon, managing director at IiAS, refused to comment on its likely recommendation.