With Cyrus Mistry's resignation, Ratan Tata has scored a victory – but at what cost?

It was a foregone conclusion. Five Tata Group companies had called extraordinary general meetings this week, starting with Indian Hotels on Tuesday, to remove former Tata Sons chairman Cyrus Mistry as chairman and board member of these firms. With the whip from Tata Sons to oust Mistry, and the near-majority shareholding of Tata Sons and its allies in these companies, there was no way Mistry would have survived.

He, therefore, chose the easier route. On Monday, a day before the Indian Hotels meeting, he resigned from all Tata group companies. But not before he had dragged the issue of the $103-billion conglomerate’s corporate governance into public scrutiny and triggered a battering of Tata stocks – which shaved off over Rs 80,000 crores from the market capitalisation of its group companies over the last two months.

“The pursuit of good governance and ethical business seem to have caused a serious discomfort in some quarters,” Mistry said in his two-page resignation letter. He also promised to take his battle to other platforms. “I have decided to shift from the forum of the EGMs to a larger platform and also one where the rule of law and equity is upheld,” he said.

As corporate watchers guessed whether he would do this by moving the courts or washing more dirty Tata linen in public, Mistry, on Tuesday, filed a suit against Tata Sons in the National Company Law Tribunal in Mumbai. The petition, against oppression and mismanagement of Tata Sons under Section 241 of the Companies Act, will be heard on December 22, news reports said.

Speaking to a business daily on Monday, Mistry had made his game plan clear: “I managed to start a debate over the governance standards in the trusts and in Tata Sons, and get shareholders to ask the right questions. I stand by my statements that both the entities need clear governance and succession structures.”

No other way out

In earlier weeks, independent directors on many of the Tata group companies had stalled Tata Sons’ move to remove Mistry by way of board resolutions. In response, Tata Sons – the Tata group’s holding company, which removed Mistry as its chairman on October 24 – had lined up a series of extraordinary general meetings between December 20 and December 26 to oust Mistry from the boards of Indian Hotels, Tata Motors, Tata Power, Tata Chemical and Tata Steel. With the “removal resolution” now infructuous after Mistry’s resignation, the meetings will be a formality to record the change of guard.

The sixth Tata group company, Tata Consultancy Services, had held its extraordinary general meeting on December 13. The meeting had voted on Mistry’s removal, with 43% of non-promoter institutional investors and 78% of retail investor-shareholders in favour of Mistry. However, with Tata Sons’ holding over 70%, Mistry did not stand a chance.

For and against

With Mistry stepping down, Ratan Tata and Tata Sons have scored on the strength of their promoter shareholder clout. But in the realm of informed corporate perception, the day belonged to Mistry. Chartered accountant Shailesh Haribhakti, who is an expert on corporate governance, told news networks on Monday that the ousted Tata Sons chairman had done well to resign and take his battle to the larger platform of the people. “Mistry wants to get on to a much higher moral ground,” he said. “Battle will be fought on grounds of accountability, transparency.”

According to senior advocate and tax expert HP Ranina, “Mistry had taken a step backwards to take two steps forward.” He added that the Tata debate had highlighted the need to amend Section 139 of the Companies Act to prevent independent directors from being removed by companies on grounds of being independent.

Biswajit Bhattacharya, a former additional solicitor general, said the issue should have been settled in the boardroom, but now that Mistry had resigned, he had done right by highlighting corporate governance.

On the other hand, welcoming Mistry’s resignation, VR Mehta, spokesman for the Sir Dorabji Tata Trust – which along with other trusts holds a 66% majority holding in Tata Sons – said, “It should have been done much earlier; when he was out of Tata Sons, he should have exited all the Tata operating companies.”

There were others who echoed Mehta’s view. “His resignation should have happened long back, it has happened very late,” said Mohan Parasaran, former solicitor general and Tata group advisor. “It seems to be part of a long-term strategy he wants to fight.”

Questions await Ratan Tata camp

But here is where the Ratan Tata camp tripped. It expected Mistry, after his ouster from Tata Sons, to tamely resign from the boards of all group companies. But that was not the course a bruised and battered Mistry chose. He fought a two-month campaign through board meetings and open letters, leaving the Tata brand and image in tatters. And there is more to come.

Scaling up the ugly public spat, Tata Sons attacked Mistry in a statement on Monday: “Unfortunately, Mr Mistry continues to make baseless, unsubstantiated and malicious allegations using selective disclosures of information against the very institutions he claims to have the highest regard for.”

With Mistry stepping down, the focus now shifts from his ouster to the Ratan Tata camp’s reasons for the same. So far, all that it has offered is weak reasoning: that Cyrus Mistry, as chairman of Tata Sons, had no vision statement for the group; that the turnover of the Tata empire had dropped in the last financial year; that he was out to shut down businesses that did not conform to normal capitalist norms of turning in a regular profit.

“Tata Sons hasn’t provided any compelling reasons for the removal of Mistry as a director from the boards of the operating companies,” proxy advisory and corporate governance firm InGovern Research Services had pointed out as it advised shareholders to vote against the Tata Sons resolution to oust Mistry. It had added, “Tata Sons hasn’t articulated any new plans or visions for the operating companies than what the boards under Mistry had adopted.”

Mistry, meanwhile, has thrown a googly by suggesting that the Tata trusts, by virtue of being public trusts, cannot rubber-stamp corporate decisions of individual Tata family members. In an interview, he said that voting powers had come to these trusts barely 15 years ago, and that company law required this power to be exercised through a public trustee appointed by the government, who would decide which way these charitable trusts should vote.

However, it is Mistry’s evocation of Jamshedji Tata’s legacy that has infuriated the Ratan Tata camp the most. “It is now clear that my attempt to protect and preserve the ethical legacy of our founding father, Jamsetji Tata, was the real cause for my ouster,” Mistry said in his resignation letter.

Will Tata Sons come out with the real causes for wanting Mistry out? Or will Mistry’s high moral ground be the last word in what seems to be a pyrrhic victory for Ratan Tata?