The allegations levelled by former Tata Sons Chairman, Cyrus Mistry in an e-mail to the board of Tata Sons has once again brought into focus standards of corporate governance in India and the role of independent directors in companies, according to proxy advisory firms and experts.
Mistry who was dismissed as Tata Sons chairman on October 24 by its board alleged “lack of corporate governance” and “failure on the part of directors to discharge the fiduciary duty” owed to shareholders of Tata Sons and other Group companies. Following Mistry’s e-mail, proxy advisory firms feel that the reporting and governance structures between Tata Trusts, Tata Sons and other operating companies needs to be clearly defined.
“The e-mail seems to be suggest that Ratan Tata regards Tata group as a fiefdom, and Independent Directors aren’t truly independent and assertive. Minority investors of listed operating companies need the reassurance that Tata Sons is just the dominant shareholder and one individual isn’t running the whole group,” said Shriram Subramanian, founder and managing director of InGovern Research Services.
Mistry’s e-mail has alleged that despite making losses of Rs 1000 crore, Tata’s low-cost Nano has not been shut down due to emotional reasons and also due to the fact that it will “stop the supply of the Nano gliders to an entity that makes electric cars and in which Ratan Tata has a stake”.
Mistry also said that the amendments to articles of association of Tata Sons has created a flux in the decision-making process. “I have often presented to the trustees, before and after Tata Sons board meetings. This has created alternative power centres without any accountability or formal responsibility….” Mistry added. Apart from this, Mistry has alleged that the conduct of two directors of Tata Sons-Nitin Nohria and Vijay Singh has “created the added risk of contravening insider trading regulations”. Both Nohria and Singh could not be contacted.
J N Gupta, managing director of Stakeholders Empowerment Services (SES) said that governance issues raised by Mistry if true, will not only impact the shareholders but will also hit the Tata brand. He said Mistry’s e-mail has raised important questions on the independence of the independent directors and their conduct on all the boards of Tata firms.
“Sebi (Securities and Exchange Board of India) may have to examine the allegations of insider trading in his (Cyrus Mistry’s) e-mail. Governance at present is lip service be it in India or the US. Independent directors typically take up such roles for monetary compensation. And independence is a character that the law cannot infuse. Law can only infuse fear,” said Gupta.
Experts feel that the boardroom battle between Ratan Tata and Cyrus Mistry and the corporate governance issues emanating from this dispute will hurt corporate India.
“The way the events have unfolded, it seems that it is a case of oppression of minority shareholders and the board has failed to performed its duties. It is a palace coup because some independent directors were appointed in the last six months. The right thing would have been to follow correct corporate norms and value systems by appointing a committee to look at all the allegations and counter allegations and then take a decision,” said Mohandas Pai, chairman of Manipal Global Education.