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Thursday / March 23.

Cyrus Mistry ouster: The dark side of corporate governance

By Md. Taraq Junaid

The last few months have been quite a nightmare for the Indian corporate sector. The imminent decline of the outsourcing business finally met its fate, the GST policy ensued chaos in the commerce industry and the ubiquitous demonetization policy was a huge blow to the markets. But, the most prominent event in the corporate sector was the ouster of the executive member of the biggest conglomerate in India. On October 24, 2016, Mr. Cyrus Mistry, the Chairman of Tata Group was ‘replaced’ without any prior notice. He was replaced on grounds of ‘non-performance’.

It was announced that Mr. Mistry will be removed from the board of all the major Tata Group companies during the Extraordinary General Meeting (EGM) of each company.

How the events unfolded

The impact finally became significant when Mr. Mistry was voted out of TCS.

The drama began on 12th December 2016 when Mistry was ‘unanimously’ voted out of Tata Industries. But, the impact finally became significant when Mr. Mistry was voted out of TCS, the biggest and the most profitable company under the Tata Group. The third successive blow came yesterday when he was voted out of Tata Teleservices. TCS and Tata Teleservices are largely controlled by Mr. Ratan Tata, the owner of Tata Sons, the majority stakeholder in both the companies. Although the majority ownership of Tata Sons in the aforementioned companies makes the decision a foregone conclusion, it reflects how the corporate governance system is dictated by those in majority.

A calculated move or simply, an epiphany?

Mr. Mistry comes from a very affluent background. His father runs a multibillion-dollar company and before heading the Tata Group, Mistry held an important position in his own company. After being ‘insisted’ to hold the office of Chairman, four years later, the knowledgeable Tata Sons realised Mr. Mistry was incompetent. They accused him of making lofty promises and not fulfilling them. I wonder if the reputed Tata Group and the esteemed search committee members were actually so naive to have entrusted the responsibility of running a billion-dollar empire to a candidate whose competence was still under dispute.

A hasty overthrow

The promoters succeeded in their endeavour to removal of Cyrus Mistry without any prior notice.

The promoters succeeded in their endeavour to removal of Cyrus Mistry without any prior notice on grounds of non-performance | Photo Courtesy: AP

Over the next 10 days, EGMs will be held at all the Tata Holding Companies to determine the fate of Mr. Mistry. Most people might argue that he doesn’t stand a chance against Tata Sons. However, we still can’t ‘accurately’ predict the outcome after considering the voting pattern in TCS.

In TCS, over 70% of non-promoter stakeholders voted against Mr. Mistry’s removal and a few abstained from voting. However, the promoter insisted on his removal and succeeded in the endeavour.

The support Mr. Mistry garnered from the non-promoter stakeholders demands us to question the allegations made against him in the first place. The burden of responsibility he inherited when he decided to lead the Tata Group, most of the companies under which were facing losses (Tata Steel in Europe, Tata Motors on account of the launch of Nano, Real estate purchases at premium prices around the world, underselling assets purchased at premium rates), was considerable. After leading the group for four years, Tata Group owes the man the dignity of resignation and a chance to justify himself. But instead, he was terminated without notice.

The next 10 days will be crucial for the corporate sector in India. Whether Mistry will be reinstated or removed, only time will tell. But, it’s surely going to be interesting to watch how things unfold!


Featured Image Credits:  Human Engineers
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