Mistry family hit by attempt to make Tata Sons a private company
Law tribunal hearing on Mistry complaints later this week
A year ago, the august Tata business group was in a crisis that threatened its reverential image and international credibility after Ratan Tata, the 78-year old veteran patriarch, forced the sacking of Cyrus Mistry who had succeeded him when he retired as chairman of the group in 2012.
In that sudden boardroom coup at India’s largest conglomerate, Mr Tata installed himself, with the help of allies on the board, as temporary chairman of Tata Sons, the holding company of the $103bn group.
The move sparked a dramatic and high profile public exchange of vitriolic and damaging allegations and counter-allegations between the two sides about business practices and the group’s alleged failures. Legal action was initiated and has moved slowly, though there is a hearing at the National Company Law Tribunal (NCLT) later this week – November 3.
But, while the business brand of Tata companies has recovered from the crisis of a year ago, much remains the same and, crunching below the surface, is the fall-out from the way that Mr Tata removed Mr Mistry, aged 50.
Mr Tata now seems to many observers to be trying to punish the Mistry family with a legal manoeuvre that would reduce their voting power – the family has a 18.4% equity stake in Tata Sons and is the second largest shareholder after charitable Tata Trusts that have 66%.
The Mumbai business establishment rallied round Mr Tata a year ago with a mixture of loyalty and fear of the damage that the crisis could do to the image both of Mumbai and their own companies.
Mr Mistry was quickly removed from all Tata boards, including Tata Sons. Mr Chandrasekaran was announced as chairman on January 12 this year, and normal business was resumed after he took over a month later.
The Mistry family however started legal proceedings last December against Tata Sons at the NCLT, lodging a 344-page petition that alleged oppression of minority shareholders and mismanagement. It called for an administrator temporarily to take over the group’s affairs. It also lodged appeals at the NCLT, including one against the effective voting rights of its 18.4% stake being reduced to 2.17%, when (at the request of Tata) other investors’ preference shares were included. That 2.17% was below the 10% minimum required to file petitions, so Mistry’s petitions were blocked.
The tide turned however, at least a little, when the NCLT’s appellate board (NCLAT) in September over-ruled the stake-holding restriction on the Mistry petitions, which has led on to the hearing fixed for November 3.
Criticism of Tata also increased when, a day before that ruling, its annual general meeting on September 21 voted to seek official NCLT approval to convert Tata Sons from being a public limited company into a private limited company, changing its name from Tata Sons Ltd to Tata Sons Private Ltd. It also voted to give preference shareholders permanent voting rights (which they do not currently have) if there was a default in dividend payment for two years.
That would, reports suggest, raise Mr Tata’s voting power from 0.83% to 31.43%, and introduce other minority shareholders, thus restricting the Mistry family’s clout.
There was considerable public criticism of these moves, partly because they seemed contrived to reduce the Mistry power, and partly because the private company change would reduce the governance requirements and potential for public scrutiny at a time when the trend is for increased transparency.
The counter view is that the Tata Trusts, headed by Mr Tata, are anxious to ensure that other interests do not change Tata Sons to such an extent that it affects the flow of profits that are essential for their charitable work.
Either way, it appeared a clumsy move at a sensitive time. “By the look of things, the Mistry camp seems reinvigorated by its recent victory and appears charged-up to impose their renewed legal strategy on their corporate opponents,” Satvik Varma, a corporate lawyer, wrote in a newspaper article critically analysing the case.
Meanwhile Chandrasekaran has a difficult role to play at a time when loyalties of individuals at the group’s Bombay House headquarters in Mumbai are not always clear, especially after the recent legal moves.
He needs to make the same tough decisions that Mr Mistry was tackling, while acknowledging Mr Tata both as his previous boss and as the powerful patriarchal mentor at the head of the Tata Trusts. He seems to be handling this skilfully, leaving Mr Tata space to shine – for example being the senior Tata figure at the Paris Air Show in June when the group signed up with Lockheed of the US to make F-16 fighter jets in India.
That was in stark contrast to the approach of Mr Mistry and his top advisers who aimed to sideline Mr Tata, asserting their own authority. Since Mr Tata was “convinced that he was irreplaceable”, as a colleague put it to the Financial Times, the showdown a year ago was inevitable.
In a series of media interviews over the past month Mr Chandrasekaran has laid out what he is doing, much of which was started during Cyrus Mistry’s chairmanship. The never-successful loss-making Tata Teleservices business is being taken over by Bharti Telecom Tata Steel’s debt-ridden European business, including Corus in the UK, is being hived off into a joint venture with ThyssenKrupp. Some reports suggest that even Mr Tata’s favourite project, the unsuccessful Nano, looks like being reincarnated as a possible face-saving small electric car.
Overall, Mr Chandrasekaran wants to simplify the group’s extraordinarily complex company relationships and over-lapping interests – two airline joint ventures with just 15-20 aircraft each for example, and there might be a third if Tata decides to make a privatisation bid for the deeply loss-making Air India, which the group founded in 1932 and ran till it was nationalised in 1953.
Then there are four companies in defence manufacturing, and at least three in information technology.
“I would like to see ourselves as 5,6,7 groups as opposed to 110 companies. The more we see ourselves as 110 or 120 companies, nothing will be done,” he told The Economic Times in a long interview. No company, he said, could survive with “hundreds of subsidiaries and joint ventures”
He also needs to tackle loss-makers, especially Tata Motors which is currently kept afloat by its hugely successful Jaguar-Land Rover operation – buying what is called JLR from Ford Motor was one of Mr Tata’s most successful initiatives.
But he let Tata Motors’ Indian operations slide, and saddled them with the Nano car. “Our cost structures are out of whack. Every single car and model is losing money. It’s important to pick up volumes and try to become profitable,” said Mr Chandrasekaran.
Meanwhile the Tata and Mistry camps both have pending books that will no doubt cause more controversy when they appear.
A biography of Mr Tata is being written by Peter Casey, an Irish born Atlanta-based businessman who runs an executive search agency. He wrote a corporate hagiography, Tata – The World’s Greatest Company that was published by Penguin in 2014, and also backed Mr Tata in the row with Mr Mistry. Penguin Random House India is handling the biography which has yet to appear, though it was expected in the first half of this year and may, according to reports, be awaiting Mr Tata’s clearance.
The Mistry side of the battle is coming from Nirmalya Kumar, a Singapore business professor who was one of Mr Mistry’s closest advisers. He has described it as a “who-dunit on the whole affair” and says it is completed, though a publication date has not yet been fixed. In the past few days, he has been writing on his blog about what happened a year ago.
Clearly, there is a lot of mileage in this story. The best solution would be for Tata and Mistry to make a clean break, with Mistry selling their stake either to Tata or another investor. But, it seems, scores have to be settled before that could happen.