The TATA Boardroom Battle Rages On

The Boardroom Battle between the former Chairman of the Tata Group Cyrus Mistry and the old guard Ratan Tata has seen various turnarounds since 24^th October when the former was removed as the head of the conglomerate after a stint of four years. The Board of Directors of the various companies of the Tata Group have been divided over the issue of Mistry’s ouster. The past fortnight has seen a spate of meetings of the companies in the Tata Group to resolve the issue. The confrontation is being seen by the industry experts as the clash of two conflicting business ideologies. The experienced leadership view the entire Group as a big conglomerate and tends to keep even the loss making entities afloat by infusing in capital. Cyrus Mistry is considered to be more pragmatic in approach and had been favouring the closure of the loss making companies to improve the overall financial health of the Tata Group.

Question of TCS Leadership

The clash for the leadership in the Tata Group has been closely associated with the supremacy of Tata Consultancy Services Ltd. The first major development occurred when the company issued a statement on 21^st November that accused Cyrus Mistry of causing enormous harm to the reputation of the company and its stakeholders. It is seen as an unusual incident as the statement directed condemned the role of its former Chairman as being adversarial to the company’s interests. The more atypical development was the statement given by Cyrus Mistry the next day. While refuting the claims of the company, he said, “Tata (Ratan Tata) tried to sell TCS to IBM and made the Corus buy costly.” He criticised Ratan Tata for not being able to manage the affairs of TCS properly and even attempting to sell off the company at one stage. But the drama didn’t end there as the former chief of TCS F.C. Kohli terming the claims of Mistry as ‘not correct.’ Kohli who is widely regarded as the Father of the Indian IT Industry for his unparalleled contribution, vehemently backed Ratan Tata and said that there was no definite proposal for the selling of TCS to IBM at any point of time.

These developments have come in the wake of the appeal by NusliWadia made to the Tata Sons to withdraw its letter asking the companies to hold meetings on Mistry’s ouster. Wadia, also a Director in the Tata Sons, has been supportive of Cyrus Mistry from the very beginning. He had even termed the allegations made by the Tata Sons against Mistry as ‘false, defamatory and libellous.’ The unrelenting support extended by Wadia to Cyrus Mistry bring out in the open the sharp difference in the Board of Directors as regards the removal of Cyrus Mistry as the Chairman of the Tata Group. TCS had called for an Emergency General Meeting (thereinafter referred to as “EGM”) on 13^th December to remove Mistry even from the post of Director which requires the decision to be taken by the majority of thecompany’s stakeholders. .

It is pertinent to note that one of the major bone of contention in the present Boardroom controversy has been the question of Corus acquisition. Corus was acquired by the Tata Steel at a whooping cost of $ 12 billion. The Tata Steel has run into the storm for the past couple of years due to poor demand and cheap imports by China. But the experts also hold the costly buying of the firm responsible for not being able to recover the capital being a major reason as well. Mistry has already said the Corus deal was financial imprudent and was done at the behest of one man’s ego (i.e. Ratan Tata’s) only. Tata Steel has also suffered due to not being allowed by the British government to lay off employees to cut down on costs. The company is now looking to sell out a major stake in order to relive the fortunes.

Companies favouring Mistry’s removal

The Tata Group is a big conglomerate and is popular worldwide for producing a wide array of products from salt to motor cars. It also has a rich legacy behind it that goes beyond the sole objective of profit making. The Group had been associated with the works of primary education and philanthropy. A recent example of the societal welfare attribute of the Group has been the work done by the Taj Public Service Welfare Trust. The Trust has been helping the victims of the 26/11 Mumbai attacks by proving healthcare and financial support. It had also provided vocational training and had given employment to the family members of the deceased in order to earn their livelihood. The benevolent nature of the Tata Group differentiates it from the other big business houses in India and has been the hallmark of its work culture and ethos. It is this attribute that has inclined the Board of Directors of Tata Steel to remove Cyrus Mistry from the post of the Chairman.

While the traditional Tata Outlook would side with revival of the sick units through capital inflow and novel ideas, Cyrus Mistry had been favouring the selling of a major stake of Tata Steel. Mistry has been leaning towards the trimming of the conglomerate portfolio in order to make it financial viable and sustainable in the present times. The Tata Steel removed Mistry as its chairman on 25^th November. Another company that had ardently supported Cyrus’s ouster is Tata Global Beverages Ltd. which also manages the Starbucks chain of cafes across the nation.

Few Companies against Cyrus Mistry’s eviction

The Tata conglomerate worth around $103 billion has some companies who have fervidly stood in favour of Cyrus Mistry and has declined to remove him from the post of their Chairman. The Indian Hotels Company (IHC) in which the Tata Sons has a stake holding of about 38.65%, has questioned the expulsion of Mistry. Mistry who continues to be the Chairman of the company even chaired its meeting on 21^st November. The Tata Power has also rendered fortification to the cause of Mistry and is not favouring his eviction. Though the company is schedule to have an EGM to decide the fate of Mistry on 26^th December, it is highly unlikely that an adverse verdict will be given to him. He has continued to chair the general meetings of the company even after the 24^th October ouster by the Tata Sons.

Support of the Central Government

The battle between the two leaderships at one of the largest industrial group of the nation is to be decided by the Board of Directors of the various companies, but there have been attempts made by Ratan Tata to appease the Central Government for a favourable stance. On 24^th November, Ratan Tata had twitted that the demonetisation policy of the government had caused great hardships for the common man. In the remarkable turn of events, he favoured the note ban of the Union government on 26^th November when he wrote on his Twitter account, “PM has displayed enormous courage in waging war against the black economy.” He also wrote that the demonetisation is one of the three major economic reforms that the nation has witnessed along with delicensing and economic liberalisation. It is being speculated that former Tata stalwart is trying to win over the Centre government who had till now being neutral on the issue. It is worthwhile to state that the Centre government has been closely monitoring the Tata Boardroom Battle and had even instructed the watchdog Securities and Exchange Board of India (SEBI) to track the developments closely.

The Road Ahead

While the battle between the two guards seem to have been unresolved for quite a while now, it appears that Cyrus Mistry is not going to give up easily. The Mistry Group (Mistry and Nusli Wadia) hardened their stance and had already stated that they will contest the proposal to remove them from the Board of Tata Motors. The Tata Motors is one of the most important companies of the Tata Group and the only one to feature in the list of Fortune 500 in 2015. The Tata Motors is not performing greatly in the recent times due to huge cost of the Nano project, a brainchild of Ratan Tata. Cyrus Mistry has already criticised his successor for the project that had drains million from the company’s coffers. The EGM of Tata Motors is scheduled on 22^nd December to decision the matter. The Tata Steel has recently signed the ‘Letter of Intent’ with the London House Group to enter into the negotiations for the sale of $ 124.3 million stake of the company. It is being seen as a damage control measure as the company had been unable to produce any profits due to slow global economy and huge labour costs in Britain where it employs around 1700 people.

The climax of this Boardroom Battle will be reached in the impending EGMs of the various companies which will decide the fate of Cyrus Mistry. It will be interesting to see if the majority in the EGMs of TCS, Tata Power, Tata Motors and Tat Steel sides with the verdict of Tata Sons or if the Mistry Group is able to battle the storm. It will be in the best interests of Indian industry that the Boardroom confrontation don’t get ant murkier and the parties respect the verdicts of the various EGMs scheduled in the month of December.