Why ain't anyone talking of Governance and the Small Shareholder in the Tata-Mistry saga

Photo Courtesy +ABPLIVE 

Article first published in +ABPLIVE (Click here)

The Cyrus Mistry saga has been done to death. Normally, fatigue would have set in among both the media and the public. As someone remarked, it does not even have any gossip value like, say, the sacking of the chairman of a liquor company. But the aftershocks of the sacking are still continuing.

Though the epicentre of this quake was Bombay House, the headquarters of Tata Sons, it has shaken entire corporate India and the tremors were also felt in the capital’s corridors of power, especially the Finance and Corporate Affairs Ministry and, some suspect, even the PMO. Per public perception, the Tatas were considered the gold standard among Indian business conglomerates. Now some fundamental questions have been raised about corporate governance in India.

First, on a positive note, it establishes the supremacy of the board. But, at the same time it also makes it loud and clear that in the final analysis the promoters are the ones who call the shots.

Having conducted a silent board room coup the Tata PR machinery went on an overdrive. In a rather intriguing move, they had a slew of top gun lawyers defend their action on television with a series of “exclusive” interviews rather than waiting their turn in court. This was probably triggered by rumours of Cyrus Mistry contemplating legal action (given that Mistry’s father-in-law Iqbal Chagla, son of the famous MC Chagla, is a renowned and respected legal luminary) which also explains the rush to file caveats in courts. But, it was a rather curious way of addressing stakeholder concerns — especially the stock market where the Tata stocks tanked.

In contrast, Mistry’s reactions were both restrained and dignified. Other than what is being popularly called his “letter bomb” (it is not known for certain who leaked the contents) he has not made any public utterances. In fact, his office went out of its way to scotch rumours of potential legal action.

Returning to the root, none can deny the Board’s prerogative to sack or appoint a Chairman. The rest is surround sound. Mistry certainly knows this and it would be surprising if he chooses to pursue a protracted legal tussle that will be a drain on resources and time. He wanted to have his side of the story to be known and has more than achieved that objective through his letter that mysteriously found its way into the public domain. Notwithstanding their self-righteous fulminations, it has clearly put the Tatas on the back foot with a lot of explaining to do and simultaneously put the onus on the Government, tax and regulatory authorities to investigate the charges.

The real battle, however, lies in the Board Room. It should not be forgotten that at the end of the day Mistry represented the interests of Shapoorji-Pallonji who hold 18.6 per cent of Tata Sons’ shareholding. The Trusts, no matter how powerful they are, cannot steam roll over the interests of minority shareholders.

In many off-line conversations it has been remarked that one of the cardinal sins of Mistry was not keeping the Tata Trusts informed of his moves on divestments and acquisitions. A fundamental question that one has not heard being asked is about the legal propriety of sharing “price sensitive” information with majority shareholders. If the Trusts are expected to be kept informed, what about the public shareholders of the concerned companies who are directly affected by these decisions? This is where the ‘Corporate Veil’ has been sharply pierced. It remains to be seen what view Shapoorji-Pallonji takes on similar situations in the Tata Sons board going forward.

At one level it will test the corporate governance framework in the country, in which the role of independent directors will also come under a spotlight. The obligation of the board is not limited to just the promoters and shareholders, but also the larger universe of external stakeholders. It is for this unrepresented constituency the independent directors are expected to act as conscience keepers. But how far the average director is either inclined or equipped to discharge such responsibilities is a matter of debate.

Till the time of writing Mistry has not been dislodged from his position in the Tata flagship companies which were either affected by his decisions or might be impacted by the contingent liabilities that he has highlighted in his letter. Will the ordinary shareholders who had elected Mistry as the Chairman of their companies go along without a whimper if the respective Boards recommend his early separation? If the Tatas try to bulldoze their way through, it will be another travesty of corporate democracy.

It will be interesting to see if after all this corporate paper shredding, what kind of external talent the Tatas are able to attract to replace Mistry. Many are betting that they will have to settle for an “insider-outsider” like TCS’s N Chandrasekaran. If there is even a grain of truth in Mistry’s allegations, the task of his successor is already cut out. It will be a miracle if he/she is able to achieve the turnaround painlessly.

Meanwhile, the coming weeks will be a test of credibility between Cyrus Mistry and Ratan Tata. If one were to treat the initial stock market reaction as an ‘Opinion Poll’, the Tatas have reasons to worry.

The Curious Case of Bombay House

Picture from Internet

Article first published in +DailyO India Today

When Ratan Tata talked of “intolerance” rising in the country — at the Founder’s Day function of a public school — he was certainly not referring to what was brewing in the corporate empire that he presided over till a few years ago.

Even in hindsight — it could not have been a diversionary tactic. As the media went on an overdrive trying to interpret the political import of a generally apolitical Tata’s statement and was busy reporting the feud in the ruling political family of Uttar Pradesh , the young chairman of Tata Sons, appointed less than five years back with much fanfare, was removed unceremoniously in a bloodless boardroom coup.

Cyrus Mistry can enjoy quiet meals in dhabas with his chauffeur without the paparazzi chasing him.
Not much is known — or will probably come to light in a hurry — as to what might have preceded such a momentous decision by one of India’s largest (and arguably, the most well known, internationally) business conglomerate, though theories and conjectures are bound to surface.

However, from a lay external observer’s view, the following come across as interesting:

- The move obviously took Cyrus Mistry by surprise just as it apparently caught corporate India and the financial press unawares.
- If there were performance issues , they would have come to the table at board meetings and in a highly porous corporate culture of this country, there would certainly have been a whiff in the air;
- Over the years, despite having started on a tentative note, Ratan Tata had acquired a larger-than-life image and he not only remained the public face of the group, his personality undoubtedly held sway in the Tata empire not just because of his surname;
- While the internal Directors would have easily fallen in line with the group’s thinking, it would have required some very compelling reasons to convince the eminent external directors on the board;
- All things said, Mistry was the nominee of the largest shareholder of the Group (Shapoorji-Pallonji). For the Independent Directors to endorse such an extreme action, there must have been some overriding “ethical” (not necessarily integrity but “governance” related such as “conflict of interest”) considerations; it would be unfair to assume they would have gone along with the majority view.
- In a somewhat intriguing move, it seems Ratan Tata wrote to the Prime Minister apprising him of the Board’s decision. Whether the change of guard in a major corporate house merits such an intimation can be a matter of debate;
- Any shareholder tussle would normally be thrashed out first at a different fora before coming up to the Board — which is normally the place for stakeholders’ dispute resolution;
- Surely, the Tatas would have been alive to the possibilities of legal fall-out, especially with Mistry’s father-in-law being one of the very eminent jurists of India — Iqbal Chagla, son of the legendary MC Chagla. Not surprisingly, there is already talk of Mistry approaching the Bombay High Court for relief;

That brings us to a new development in Corporate India — when aggrieved senior executives are increasingly taking their former employers to court. This can be attributed to a number of factors.
First, high-stake CXO appointments are now stitched with elaborate legal contracts with severance conditions explicitly spelt out. With multi-million paycheques, head honchos are easily able to pay for expensive legal help that their poor predecessors could not afford. In an increasingly litigious society, law firms too are much more willing to take briefs against potential corporate clients.

Mistry’s appointment was prefaced with a much publicised “global search” by an international head-hunting firm stretching over two years. Finally, when Mistry — the scion of the largest shareholder — was brought in from the cold, many felt it was an elaborate charade. Now, that again a “hunt” has been insituted — one wonders what surprise it will throw up this time.

Finally, leadership transition in professional organisations is as prone to withdrawal afflictions as indeed it is in family-owned enterprises. And, it does not help to have a charismatic predecessor keeping a benevolent eye over one’s shoulders.

No matter how the drama plays out in the coming weeks — Mistry can enjoy quiet meals in dhabas with his chauffeur without the paparazzi chasing him.

But, the question people are asking is whether this was Tata Sons’ Samajwadi Party moment — and who is the Amar Singh in Bombay House?

Amma, Behenji and Didi

(Mamata at the Writers Building after her swearing-in)

Singur Season 2

Mamata Banerjee has kicked off her innings in characteristic style – with a great flurry, seeking publicity and courting controversy from day one.
It seems her “surprise” visits to government departments and hospitals – without informing her officers and ministers – are undertaken only after tipping-off friendly TV channels.

The Singur Soap Opera Season II has also unfolded along predictable lines. First, the hurried ordinance and then passing of the Singur Land Act in the assembly. Her legal advisers would have surely told her that, it was bound to be challenged in court by the Tatas. But, so what ? – she could claim that, she has kept her promise to the electorate and started the process for returning the land in right earnest – blaming any delays on the Tatas and the courts. Those – who view the Supreme Court’s interim ruling as a set-back for the government could be mistaken. Even during the original Singur controversy in 2008 – the intelligentsia went ballistic but she knew her real constituency (read my earlier blogs: Nano Vision I and Nano Vision II).

TV Reality Show Queen

The knowledgeable and politically astute were not expecting a honeymoon. They had anticipated it would be more like a TV Reality Show wedding where the sparks and shoes start flying even before the bride takes off her grease paint. And, this lady never wears any make-up in the first place. So, it was back to the kitchen (cabinet) almost from the nuptial night.

In keeping with her image – she deliberately gives the impression of being in a mad rush, impatient and restless to get things done. And, a little more dangerously, having all the answers with her. This was on display her first interaction with the industry (her brusque disposal of all interjections) – which seemed more an exercise for the camera rather than a genuine interest to solicit ideas and encourage interaction. One suspects - the same would be the objective of forming the "mentor group" for Presidency College - a la the Nalanda University initiative of Nitish. Neither she nor her lieutanants (who faithfully emulate her churlish mannerisms and 'instant solution' proclivity) would have much time for advisors no matter what their stature may be. Her churlish handling of the situation arising out of the death of 18 infants at the Dr B C Roy Memorial Hospital was again true to form.

The worry is how far will mere rhetoric and native PR take her ? She may have the ideas – but does she have the plan and, more importantly, the people and administrative acumen to give it shape. That’s why most of her much touted projects in the railways went beyond the foundation stone ceremonies (and opening of new stations and introduction of new trains in West Bengal) and the ministry has been precariously close to being “derailed” – with an appalling fall in its operational efficiencies.

Poster boys or toy-boys

The older guard in the party are already feeling marginalized. Some senior leaders – like Subrata Mukherjee – have been given insignificant cabinet births – with most major portfolios retained by her. A veteran MLA I met the other day – lamented that they find it difficult to even get an audience with her. The more visible and vocal faces around her lack both administrative and political experience – in any case don’t have much authority to function on their own. Someone like Amit Mitra – is seen more as a “poster boy” - like some big names she had tried to ‘collect’ in the past – such as Nitish Sengupta, General Shankar Roychowdhury (who later went to Rajya Sabha as an independent supported by the Left Front) and the Panja brothers – with the strings of control firmly in her hand.

The bureaucracy is nervous on 2 counts. First, because of her impulsive, whimsical and unpredictable ways - though, this is primarily a concern of the senior officers at Writers’ Building who have greater interaction with her and, in any case, the 'babus' are trained to take the frailties and tantrums of their political masters (can't say mistresses, in this case) in their stride. But, what is making people down the line – especially in the districts - feel shaky is the absence of clear leadership at the ground level. In the Left Front regime there was no ambiguity in the line of command. It was either the local MLA or the party secretary who called the shots. Now everyone is a self-styled leader and none of the pious pronouncements from the top – advising cadres not to interfere with the administration are taken seriously by the local satraps.

the CEO syndrome

Personality cult is here to stay in Indian politics. Suddenly, our political leaders seem gripped by the CEO syndrome. So, it would be unrealistic to expect West Bengal to be any different. But, to be successful what’s the style Mamata Banerjee should adopt ? In neighbouring Bihar, Nitish too has largely by-passed his party men (much to their resentment – but the astounding results of the last election – silenced all criticism) and empowered the bureaucracy. He has gathered some outstanding officers – whose clear mandate is to deliver with speed. Narendra Modi has done pretty much the same in Gujrat, as has Navin Patnaik in Orissa with mixed results.

Even Mamata’s greatest admirers would not put her in the league of these 3 stalwarts of change and development. She would, probably, be more comfortable in positioning herself somewhere in between her two lady contemporaries – the Behenji in Lucknow and the Amma down South in Chennai. Both are imperious and neither have a strong reputation for probity (Mamata wears a brooch of integrity prominently on her pallu - but her partymen make no such pretence). But, in their own way they have ‘delivered’ for their respective constituencies – notwithstanding the corruption in both the states and abysmal Law and Order situation especially in UP. The progress made by Tamil Nadu in Jayalalitha’s previous term – when it had the second highest Industrial growth in the country (next only to Gujrat) is well-known. On a recent trip, I saw the transformation of Lucknow. Though many would call the grand new architectural extravaganza - monuments of megalomania, it says something about the lady’s execution capabilities. Even the CWG scam and a series of other scandals couldn't taint the image of Sheila Dixit, the grand-dame of Delhi - as an able administrator.

Scoring 'Self-goals'

A respected political analyst had said, the problem with the Left front was that, even when in power they viewed themselves as an “opposition party”. Mamata too has to quickly get out of that stormy petrel of protest syndrome. Otherwise – the hounds of the CPM are waiting in the wings to trip at her at the first opportunity, doing unto her what she did to them all these years. If she doesn’t change gears – she could well score a “self-goal” and get beaten in her own game.