“TATA GROUP”

Corporate Governance Issue

DOSHI BHAVIK PIYUSH| 17MBAR4381 |MF2

About Tata Group: -

Founded by Jamsetji Tata in 1868, the Tata group is a global enterprise

headquartered in India, comprising over 100 independent operating
companies. The group operates in more than 100 countries across six
continents, with a mission 'To improve the quality of life of the
communities we serve globally, through long-term stakeholder value
creation based on Leadership with Trust'.
Tata companies with significant scale include:
1. Tata Steel,
2. Tata Motors,
3. Tata Consultancy Services,
4. Tata Power, Tata Chemicals,
5. Tata Global Beverages,
6. Tata Teleservices,
7. Titan,
8. Tata Communications and
9. Indian Hotels.
The revenue of Tata companies, taken together, is ~$100 billion. These
companies collectively employ over 695,000 people.

PAGE 1
CORPORATE GOVERNANCE ISSUE
IN TATA GROUP: -

CONFLICTS OF INTEREST:

Tata Group board sack Mistry Cyrus Mistry

Tata Sons Ltd released a statement saying that its board has
replaced Cyrus Mistry as chairman, it also added that Ratan
Tata, the previous chairman, will take over in the interim and
that a search panel has been constituted to find a new boss.

PAGE 2
So, why did the board sack Mistry?

Tata Trusts were concerned about falling revenue (since

Mistry took over)—funds for charitable work were drying up.
The Trusts were also unhappy about the fact that the
performance of Tata Sons was increasingly dependent on just
two companies—Jaguar Land Rover (JLR) and Tata
Consultancy Services (TCS). And there are murmurs of
conflict of interest and poor performance.

What is Tata Sons and importance of it

Tata Sons is the holding company of the Tata group of
companies. The chairman of the board of Tata Sons is also
typically the chairman of the operating companies of the Tata
group. As the promoter of Tata-operating companies such as
Tata Steel and Tata Motors, Tata Sons decides how much
capital to allocate to each of these firms.

Can they just sack the chairman like that?

Just before Mistry’s appointment as chairman, Tata Trusts

gave its special powers in nominating, approving and
removing chairmen of Tata Sons. For instance, a majority of
the directors nominated by the trusts have to approve with
affirmative voting the appointment and removal of chairmen.
Affirmative vote items are those where, in the absence of
participation by the concerned directors, the company cannot
undertake an action.

PAGE 3
What is Tata Trusts and how is it involved?

Sir Dorabji Tata Trust, Sir Ratan Tata Trust and a bunch of
other trusts endowed by the members of the Tata family are
collectively known as the Tata Trusts. This trust owns two-
thirds of Tata Sons.

While little is known (beyond Mehta’s statement why Mistry

was removed), it has been established who was the prime
mover behind Mistry’s sacking.

In a statement on Monday, a Tata Sons and Tata Trusts

spokesperson said that “…on the recommendations of the
principal shareholders decided that it may be appropriate to
consider a change for the long-term interest of Tata Sons and
Tata group.”

What are the facts about this poor performance and

conflict of interest?

Poor performance is a relative term and it is difficult to

capture performance of a behemoth by a single yardstick.

However, note that in seven of the last nine years, TCS and
JLR contributed at least 70% (and in one year it was as high
as 148%) of dividends received by Tata Sons.

The trusts were concerned about falling revenue (since Mistry

took over)—funds for charitable work were drying up, the
trusts are dependent for philanthropic activities on dividends
on shares we hold.

PAGE 4
The performance of Tata Sons was becoming more and more
dependent on just 2 companies—TCS & JLR (Jaguar Land
Rover).”

What does Mistry have to say about his performance?

Mistry has defended his tenure by saying he inherited a lot of

problems. Mistry has questioned the decisions of his
predecessor on the:

1. Entry into aviation,

2. The aggressive bidding for Tata Power’s Mundra power
project,
3. The decision to continue with the Nano car, etc.

Mistry has said that he couldn’t function freely given Ratan

Tata’s interference. (Remember, the special powers of the
Tata Trusts).

PAGE 5
Mistry also said that two members of the nomination and
remuneration committee of the board—which had recently
lauded and commended his performance—voted for his
removal.

So, Mistry isn’t to blame?

Well, analysts are also raising questions on whether Mistry

couldn’t have handled the group’s spat with Tata
DoCoMo better. Some insiders also said that Mistry was aloof
and could have communicated more.

Perhaps the two biggest bombshells are these: -

The Tata group is staring at a Rs1.18 trillion write down. That

is two-thirds of the group’s net worth of Rs1.74 trillion.

He has also pointed out instances of corporate governance

violation in group.

What happens next?

Mistry’s letter has taken some gloss off the Tata reputation for
being a well-governed Indian corporate group. So, Tatas were
liable to answer Mistry’s claims effectively and publicly.

PAGE 6
What were experts saying?

Opinion were divided .

For instance,

Darius Pandole, an independent director with Tata Global

Beverages, told “Cyrus Mistry has been impeccable as the
chairman of Tata Sons. Mistry’s dedication, professionalism
and value systems allowed him to make a significant positive
contribution to India’s most respected and complex corporate
group.”

Ratan Tata’s counsel Abhishek Manu Singhvi told: “Does Mr

Mistry think the entire eminent board (of Tata Sons) is
insane? They all lost confidence in him.”
At a larger level, this raises questions about corporate
governance practices in India .

Deepak Parekh, the chairman of HDFC Ltd, said: “We are

getting calls from overseas investors asking what to make of it
(Mistry dismissal). Issue could have been handled in a more
appropriate and more proper manner.”

PAGE 7