Tata Sons on Sunday appealed to stakeholders in group companies and said it was compelled to move a resolution to remove Cyrus P. Mistry from the boards of various Tata group companies as he had lost the confidence of the board and the main shareholder.
In a letter, Tata Sons said Mr. Mistry had misled the Selection Committee in 2011 by making lofty statements about his plans for the group but that he did not deliver on his promise despite being at the helm for 4 years.
The appeal comes days before Tata Group companies’ Extraordinary General Meetings (EGM) begin to evict Mr. Mistry as director in those firms.
Drawing shareholders’ attention to some key points which resulted in its loss of confidence in Mr. Mistry, Tata Sons said despite his promise Mr. Mistry did not maintain a distance from his family enterprise - Shapoorji Pallonji & Company and the other Shapoorji Pallonji Group entities.
“Such conduct was inappropriate and created a sense of breach of trust on his part. It also posed a significant challenge to the high corporate governance principles Tata Sons strived for. This retraction created grave concerns on Mr. Mistry’s ability to lead the Tata Group devoid of personal conflicts and put to risk the high standards of self-less governance, that lie at the core of the Tata philosophy,” the letter said.
It said during Mr. Mistry’s period at the helm, dividend payment to Tata Sons declined and staff cost doubled and that Mr. Mistry did not show any concern about the issue which had raised questions on the financial viability of Tata Sons .
It said over the past three to four years, Mr. Mistry had concentrated all power and authority only in his own hands as chairman and had diluted the representation of Tata Sons on the Boards of operating companies.
Stating that Mr. Mistry should have resigned from chairmanship of group companies soon after his removal as Tata Sons chairman, Tata Sons said, “Instead, Mr. Mistry has chosen to resort to selective media leaks, media statements and to make a public spectacle, knowing fully well that his actions would hurt and damage the companies even while remaining as their Chairman.”
It said while Mr. Mistry constantly complained about “bad” legacy issues, ‘he conveniently ignores the good legacies which he inherited.’
“In our opinion, mature responses to challenges of business are at the core of the Tata philosophy, and in our opinion, Mr. Mistry has failed to live up to it,” it said.
Holding Mr. Mistry responsible for the erosion of shareholder value due to his “irresponsible and incorrect allegations to which Tata Sons was compelled to respond”, Tata Sons said, “Mr. Mistry alone is responsible for such losses directly. His actions and statements have also caused instability and confusion in these companies and their managements which would have been avoided.”
Tata Sons said Mr. Mistry seems to have taken the stand that even if he ultimately had to relinquish the positions he has been holding, he would have ‘the satisfaction of damaging a great institution built up over 150 years after just five years of his tenure.’
“In our opinion, his actions are driven by a perverse motivation to cause harm to the ‘Tata’ brand and to intentionally erode shareholder value,” Tata Sons said.
In the appeal, Tata Sons said “Tata companies do not exist in a vacuum but benefit from being part of the Tata Group which is most evident in times of difficulty. All such benefits are likely to be at stake if Mr. Mistry continues to remain Chairman, as his continuance is likely to lead to fragmentation of the Tata Group.”
“For this purpose alone, Tata Sons would need the support of all, big and small, shareholders who have stood with the Tata Group at all times,” it said.
Taking strong exception to Mr. Mistry’s accusation of lack of corporate governance in the group and the trusts, Tata Sons said the Tata group exemplified the best corporate governance practices.
It said that as per the Governance Guidelines Framework of the Group, Mr. Mistry should have immediately resigned from the boards of operating companies on ceasing to be the executive chairman of Tata Sons.
“He has chosen not to do so in wilful breach of the Governance Guidelines Framework.”
Reacting to Tata Sons’ appeal, the office of Mr. Mistry issued a statement saying, “Repeat a lie a thousand times and hope it becomes a truth, seems to be Mr. Ratan Tata’s last-ditch effort to overcome a monumental disaster his actions have unleashed.”
It clarified that there was “ no question of any misrepresentation to the Selection Committee that appointed Mr. Mistry to Tata Sons Chairmanship. On the contrary if Tata Sons had any point at all to make it would have complied with law to form a Committee now to logically present charges against Mr. Mistry.”
“Unsurprisingly, Mr. Ratan Tata's close personal friend Lord Kumar Bhattacharya, the constant feature of the Selection Committee, then and now, just six months ago spoke positively of Mr. Mistry’s performance.”
“Second, the structure of the Tata Sons Chairman being the Chairman of key Tata Group operating companies is something that preceded Mr. Ratan Tata’s time, and an approach he encouraged and perpetuated. To say that Mr. Mistry concentrated power in his hands across companies is meaningless since Mr. Mistry expanded the oversight over his work by focusing on better board effectiveness and getting his work overseen by over 50 independent directors.”
“The allegation of concentration of power is new-found wisdom being written after seven weeks of failure to come up with any reason for upstaging Mr. Mistry. On almost all Tata Boards there was Tata Group representation. Mr. Ishaat Hussain on Tata Steel and TCS, Mr. Nirmalya Kumar and Mr Bhaskar Bhatt on Tata Chemicals, Mr. NS Rajan on IHCL, Mr. Harish Bhatt on TGBL, as well Mr. S Padhmanabhan, Mr. Bharat Vasani and Mr. F N Subedar to name a few other Tata Sons representatives on Board of other Tata Companies. Under Mr. Mistry's approach, Tata CEOs serve as Tata representatives on group company Boards -- examples: Mr. Noel Tata on Titan Industries and Voltas, and Mr. Praveen Kadle on Tata Auto Comp.
“Third, the hollow claim of conflicts in handling the interests of the SP Group has been addressed earlier. But it is important to add that Mr. Mistry did not sit on a single Board of the SP group other than his family investment company. New engineering and construction contracts from the Tata Group to the SP group came down to nearly zero from the level of Rs. 1100 Crores when Mr. Mistry had assumed office. Little wonder that the Tata statement fights shy of citing data. Starting with a firm written instruction to Tata Group companies to shun contracts with the SP Group issued in October 2013, Mr. Mistry formally appraised the Tata Sons Board on the status every six months.
“Mr. Ratan Tata's conduct has eroded the Tata Brand and values materially. Mr. Mistry's family as the owner of over 18% interest in Tata Sons is as injured by any injury caused to Tata Sons. Far from hurting the Tata Sons businesses intentionally, Mr. Mistry is saving the Tata Group from the whimsical ineptitude of Mr. Ratan Tata.
The Tata Trusts have done great work in the past. However some of the recent actions by Mr. Ratan Tata and his coterie that now runs the Trusts have raised great concern on the ethics that surround decision-making.
