What Ratan Tata and Cyrus Mistry stand to gain by scrambling for Prime Minister Modi's ear

The lines that define what is corporate and what is political have become increasingly blurred, but the hectic scramble seen to involve the prime minister soon after Cyrus Mistry lost his job as chairman of Tata Sons has perplexed observers.

Soon after the October 24 board meeting of Tata Sons – the holding company that presides over the $103-billion Tata corporate empire – decided to show Mistry the door, the interim chairman, Ratan Tata, wrote to Prime Minister Narendra Modi explaining the reasons for the guillotine. Tata followed this up by an explanatory phone call to Union Finance Minister Arun Jaitley.

Mistry countered this by flying to Delhi on October 27 to meet the Prime Minister, perhaps to explain his side of the story. Not to be outdone, Tata boarded a company plane and met Modi the following day. These were short meetings and from the sketchy reports that have emerged, it is not very clear what the prime minister had to say.

Bringing in the PM

What is confusing to corporate watchers is this: why should the faction leaders in this firefight choose to involve the prime minister when the issues are to do with the internal affairs of the Tata group?

More importantly, why did Modi entertain both sides so early in the public battle? Normally, the government takes a neutral and distant position on corporate succession and boardroom battles.

What may have been missed in the last few years is the increasing identification of corporate goals with policy objectives of the Modi government, and the tacit encouragement to ensure corporate announcements and targets have the blessings of Narendra Modi.

Barely two months ago, on September 2, full-page advertisements announced Reliance Jio’s commercial launch. Staring down at the reader was the prime minister with the catchline "Dedicated to the Nation, and to 1.2 billion Indians."

Making the prime minister the brand ambassador of a private telecom service raised eyebrows. More so, since projecting an endorsement of a private initiative by the prime minister is illegal, and could only have been done with the consent of the Prime Minister’s Office.

However, one may argue that the developments in the Tata group are a different matter. Tata Sons and the corporate empire it runs cannot be equated with any other company. The dramatic removal of the chairman of India’s largest corporate group has serious implications for the country’s economy. The government and the prime minister need to be briefed about what led to the fallout and how things will pan out in the future.

At a personal level, Ratan Tata has close ties with the prime minister, who as Gujarat chief minister helped shift Tata Motors’ manufacturing facilities for the Nano car to Sanad in Gujarat from West Bengal’s Singur after widespread protests against the project in the eastern state.

Prolonged battle likely

But the speed at which Mistry and Tata reached the prime minister’s door shows there is more to it than just keeping Modi informed. Mistry's ouster from Tata Sons is not the end of a saga. It is perhaps the start of a lengthy corporate battle.

Mistry may have been removed from the management of Tata Sons but by virtue of his family holding a 18.4% stake in the holding company – worth an estimated Rs 90,000 crores – he will continue to be on its board, and a possible thorn in Ratan Tata’s side. Mistry also continues as chairman of several group companies including Tata Power, Tata Chemicals and Jaguar Land Rover, as well as non-executive chairman of companies such as Tata Steel and Tata Consultancy Services.

Will Ratan Tata and the Tata Sons board attempt to remove Mistry from these positions? Conversely, will Cyrus Mistry expose the bungling and wrong-doing in many of these companies? His long email reply to Tata’s allegations in which he warned of a huge write-down of nearly $18 billion of bad investments, and questioned certain decisions, promises there is more to come.

Government stand

As the battle unfolds, the government may have to take a stand. Various public sector investors such as the Unit Trust of India and the Life Insurance Corporation are significant minority stakeholders in various Tata companies. For instance, Life Insurance Corporation and Unit Trust of India together hold around 21% in Tata Steel. In the interest of stability will they support Tata, or will they abstain if it comes to a vote? Though these public sector companies usually do not interfere in internal company battles, ultimately, the finance ministry will call the shots.

More importantly, the stock market regulator, the Securities and Exchange Board of India, is watching the situation closely. Reports suggest it may launch its own investigation.

Retaliating against being dubbed a “lame duck Chairman” by the Tata Sons Board, Mistry, in his email, said that he was not allowed to function and charged the board with “total lack of corporate governance and a failure of the directors to discharge their fiduciary duty to stakeholders of Tata Sons and the group companies”.

These are serious matters concerning corporate governance and the rights of shareholders in a $100 billion corporate giant. Will the Securities and Exchange Board of India step in, and if it does, how deep will it delve? What will its stand be in a court battle? These are important issues that the government in New Delhi will influence in days to come.

Modi certainly did not think that the goings-on in Tata Sons were an internal matter. He made time from his busy schedule to give a patient hearing to both sides as soon the fight broke out. He possibly might play a role in this weighty dispute.