Tata-Mistry spat a litmus test for corporate governance
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The messy battle within the Tata group is proving to be a litmus test for corporate governance—and especially the role of the directors on the boards of various operating companies.
The voting pattern in recent days has been interesting. The directors on the board of Indian Hotels have backed Cyrus Mistry. The directors on the board of Tata Motors have preferred to sit on the fence for now. And the directors on the board of Tata Global Beverages have voted to remove Mistry as chairman. The two sides will have to fight it out company by company.
As we have pointed out earlier, corporate governance in India is complicated because of the complex control structure in most Indian corporate groups—holding firms, investment companies and operating companies have stakes in one another. In the Tata case, a problem in the holding company has spilled over into operating companies with millions of shareholders. The ability of independent directors to vote with the interests of ordinary shareholders in mind will thus be crucial.
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