The unseemly ouster of Cyrus Mistry, chairman of Tata Sons, has raised questions about whether he will take legal recourse and if his removal could have been handled better
By India Legal team
The sordid drama concerning the unceremonious ouster of Cyrus Mistry, chairman of Tata Sons, the holding company of the Tata group of companies, ahead of Diwali, is becoming murkier by the day. At a board meeting on October 24, the Board of Tata Sons moved a no-confidence move against the sitting chairman, taking up the matter under “other matters”. Six of the nine directors present at the meeting voted for the ouster, two abstained even as Mistry, who was chairing the minutes protested. Mistry’s protest that the matter was not scheduled in the notice for deliberations, nor his objection to receive a 15-days prior notice as laid out under the Articles of Association, was considered by the Board which had armed itself with three opinions from legal experts.
Tata Trusts, Sir Dorabji Tata Trust and Sir Ratan Tata Trust, which controls 68 percent of the equity in Tata Sons, obviously were unhappy with the way in which Mistry had been conducting himself as chairman of Tata Sons during his almost four-year tenure. The Trust chairman, Ratan Tata, was appointed to take over as interim chairman of Tata Sons to replace Mistry. The Board formed a five-member committee under Ratan Tata to find a replacement for Mistry within four months. The group executive council, formed under the aegis of Mistry, was disbanded with immediate effect and even references and interviews of Mistry were removed from the official sites.
MUCH PLANNING
On the face of it, this surgical corporate strike, done with precision, looks rather strange. It is obvious that a lot of planning was done ahead of the execution and it was not a knee-jerk reaction. Obtaining the opinions of legal luminaries could not have been done overnight. The Board was expanded recently to accommodate three new members. Two, Venu Srinivasan and Ajay Piramal, were inducted on August 25 as non-executive directors on Tata Sons Board. Amit Chandra of Bain Capital, joined a couple of days later to strengthen the Board which comprised Cyrus Mistry, Vijay Singh, Nitin Nohria, Ronen Sen, Farida Khambatta and Ishat Hussain. The latter two abstained from voting at the meeting on October 24. Ishat Hussain, a Tata man handling group financial matters, not taking an open stand was also strange, said corporate watchers.
There have been various reasons attributed to justify the largest shareholder to undertake the surgical strike, with Ratan Tata also writing a letter to Prime Minister Narendra Modi. The factors include some of the decisions taken by Mistry, which included closing of Tata Steel’s UK plants, buyout of Welspun Solar unit by Tata Power, sale of the Tata fertilizer unit, sale of marquee properties of Indian Hotels, putting in place a general council for advising, etc.
Fears about Cyrus Mistry challenging the legality of the action, under the Articles of Association which mandates a 15-days prior notice, promoted Tatas to file caveats (a plea to hear them in case of any legal action being taken before passing a judgment) in various courts as also the Company Law Tribunal. Till the time of going to press, Mistry’s office had denied that a move had been made.
The Company’s Act, 2013, does provide provision for expulsion of a chairman who has been appointed by the Board, as also one appointed under the Articles of Association. The honorable men on Tata’s Board would have followed the procedure for the removal so as not to get embroiled in legal hassles over the removal. However, equity demands that even an employee when he is removed is given a chance to provide his defense. Was the chairman of the $100 bn group shown such courtesy?
MISTRY ERRS
Being an unlisted company, Tata Sons Board is not obliged to justify its actions nor intimate the reasons for the removal of the chairman to various stock exchanges. One view that a chairman is only a person appointed to chair the meetings does not really hold true in the case of Tata Sons, as he is given vast powers and seen as a leader of the Tata empire. He is the one who gives direction and shape to the Group as also the Group companies. One of the trustees of Tata Trust publicly claimed that Cyrus Mistry faulted on communicating key decisions to the largest shareholder on several occasions. He also claimed that the Trust did not interfere with the day-to-day functioning of Tata Sons as its interest was in ensuring that sufficient surplus is generated to allow Tata Sons to pay higher and higher dividends to meet the Trust’s objectives.
There have been various reasons attributed to justify the largest shareholder to undertake the surgical strike, with Ratan Tata also writing a letter to Prime Minister Narendra Modi. The factors include some of the decisions taken by Mistry, which included closing of Tata Steel’s UK plants, buyout of Welspun Solar unit by Tata Power, sale of the Tata fertilizer unit, sale of marquee properties of Indian Hotels, putting in place a general council for advising, etc. Even allowing the escalation of Tata Docomo’s affair was put forth as a cause for getting the Tata name in disrepute. Mistry not renouncing his Irish citizenship to take an Indian citizenship was also a contributory cause, according to a few newspapers!
However, it is a moot point if these decisions were solo decisions taken by Mistry without consulting the boards of various companies. If they were truly board decisions, why was Mistry singled out? Are not the boards equally liable for their alleged actions/inactions? Were the decisions taken unpalatable to the largest shareholders, Tata Trust or was it the style of functioning and non-communication which led to Mistry’s ouster?
GENESIS OF DOWNFALL
Mistry’s removal of Indian Hotels MD, Raymond Bickenson, at the start of his tenure had apparently not gone down well with the old guard in Tatas. Though unconnected, this was somewhat reminiscent of the way Ratan Tata himself functioned in the initial phase of his two-decades stint as chairman of Tatas. He too had taken on the so-called satraps of various companies in the mid-80s and 90s.
Was Mistry belligerent? There were unconfirmed rumors that he did not present a five-year plan of his vision to the shareholders of Tata Trust when asked to do so. Nitin Nohria, who met him a day prior to the October 24 Board meeting, had reportedly warned him of the impending action and suggested that he resign aforehand. A suggestion which he politely turned down.
However, there was a fundamental difference in the style of working of Ratan Tata and Cyrus Mistry. While Ratan Tata was in an empire-building mode, having expanded the footprints of the Group globally through marquee acquisitions, Mistry was more driven by profits and not emotional attachment to the assets, marquee or otherwise. Ratan Tata, who was instrumental in bringing Mistry to Tata Sons, and grooming him for a year before he relinquished his post as chairman, obviously was not satisfied with Mistry’s style of working.
Was Mistry belligerent? There were unconfirmed rumors that he did not present a five-year plan of his vision to the shareholders of Tata Trust when asked to do so. Nitin Nohria, who met him a day prior to the October 24 Board meeting, had reportedly warned him of the impending action and suggested that he resign aforehand. A suggestion which he politely turned down.
Mistry had apparently not lived up to the expectations of the Board. A chairman donning the hat of a CEO of a large group obviously has a lot of expectations riding on him. Even assuming that living up to the expectations is a part of the key responsibility area (KRA) of a leader, does the shortcoming/inability to do so justify the Board taking such an extreme step? Either Mistry should have been given time to mend his ways or given a chance of an honorable exit.
Mistry, meanwhile, has sent an email to Board members saying he was “shocked” by the way he was ousted, that the “Board has not covered itself with glory” and he was not given a chance to defend himself. He said his removal was “unprecedented” in India.
A respectable group like Tatas which epitomizes corporate governance, could have chosen a better way to remove Mistry rather than adopting the public guillotine. One may never be able to unravel the mystery or even identify the real factors which led to the honorable men at Tata to act the way they did. If, as Ratan Tata claimed, it was “in the interest of stability and reassurance to the Tata group” that he took over as interim chairman, there must have been really good reasons for the Board to act as it did.
While the curtains have been drawn on first part of the boardroom drama, things could accelerate if Mistry chooses to seek legal redress after carefully weighing the opinions of his advisors.
Lead picture: (L-R) Ratan Tata. Photo: UNI, Cyrus Mistry. Photo: UNI