Independent directors of Tata Group companies where Cyrus Mistry is still the chairman should provide a comprehensive guidance to shareholders on whether he should continue in that position at respective firms, says proxy advisory firm IiAS.
Mistry was sacked as chairman by the board of Tata Sons – the holding company of group firms – but he continues to chair the boards of various entities.
Against this backdrop, IiAS today said that Mistry’s position as chairperson of listed companies of the Tata group is now being questioned.
“Whatever be Tata Sons’ opinion in this matter… independent directors of the listed companies must provide comprehensive guidance to shareholders on whether Cyrus Mistry should remain chairperson,” it said in a report.
Further, IiAS said if boards of listed firms are divided in their of support Mistry, then there is a risk of boards becoming dysfunctional which has operational implications.
Noting that the relationship between the operating companies and the group is symbiotic, the report said, “the group no doubt defines these operating entities – but the companies also defines the Tata group”.
“If shareholders do not support resolution, Mistry will continue as chairperson on seven listed companies’ boards.
“If so, Tata Sons’ control over the listed companies may diminish and the question will be: are these then Tata companies?,” the report said.
At the extreme, this may create an alternate power structure raising fear of a throwback to when Ratan Tata took control after battling satraps including Russi Modi, Ajit Kerkar, and Darbari Seth, it added.
Currently, Mistry is chairman of seven listed group firms — TCS, Tata Steel, Tata Motors, Indian Hotels Company, Tata Power, Tata Chemicals and Tata Global Beverages.
IiAS also emphasised that it is important for Tata Sons to communicate to its companies’ boards the rationale to dethrone Mistry since the silence has not only led to excessive speculation, but is possibly haemorrhaging the current chain of command within the group.
Besides, the report said the possibility of the listed companies’ boards choosing to ignore Tata Sons is likely to make lenders nervous and may also show restraint in extending any further credit till there is clarity about the evolving relationship between Tata Sons and the operating businesses.
“This will have operational implications for listed companies –- on March 31, 2016, the Tata group of companies (listed firms only) had outstanding debt aggregating around Rs.2.5 trillion, of which about 24 per cent is due within twelve months. Consequently, it has implications for India’s banking system,” the report noted.
The 12 months referred to is for short term debt and current portion of long term debt, most of which would likely need to be rolled over, IiAS said.