RATAN TATA OR CYRUS MISTRY?

TATA STEEL
SHAREHOLDERS’ DILEMMA case solution

By: Brahm Prakash

 Case Synopsis

• On October 24, 2016, employees of Tata Steel Limited (Tata Steel) received an email
from Ratan Tata, stating that the board of Tata Sons Limited (Tata Sons), the holding
company of the Tata Group, had removed Cyrus Mistry from his role as company
chairman. The days following this decision were marked by allegations and counter-
allegations by Ratan Tata and Mistry regarding the possible motives behind this decision,
including, among others, corporate governance failures at Tata Sons. Subsequently, Tata
Sons urged the shareholders of listed Tata Group companies to remove Mistry from the
chairmanship and directorship of their companies.

• This case follows the background of the dilemma faced by Tata Steel shareholders—
whether to allow Mistry to continue as a director on the company’s board. Tata Steel
shareholders also needed to decide whether Nusli Wadia, an independent director at Tata
Steel and a supporter of Mistry, should also be removed from his independent
directorship.
 Problem definition
• The dilemma which is found in this case is removing of Cyrus Mistry from
chairman ship from the company due to failure corporate governance policy
of the company.

• Mistry don’t want to leave the position of chairman of the company the
problem statement defines the reason for calling an EGM as per article 90 of
the corporate governance act of the company.
 LEARNING OBJECTIVES
• Analyze, in the context of the above developments, the financial
performance of all the Tata Group companies in general and Tata Steel in
particular.

• Analyze the complex nature of the relationships between promoter

shareholders, minority shareholders, government-controlled financial
institutions, independent directors, and executive directors.

• Using a game-theory framework, determine the best available course of

action for minority shareholders
 ASSIGNMENT QUESTIONS AND ANSWER

How does India’s corporate governance scenario differ from the

situation in developed countries? Discuss by using Tata Group as
an example.

 The corporate governance are the rules specifies the delegation of rights and
responsibilities among different participants in the corporation, such as, the board
of directors, managers, shareholders and other stakeholders.
 The Indian Companies Act of 2013 introduced innovative measures to balance
legislative framework and regulatory reforms for the growth of the enterprise and
to increase foreign investment, keeping in mind international practices The
motivation for this discussion arises from the move by the promoter of various
Tata group companies, i.e. Tata Sons Limited, to requisition an extraordinary
general meeting (EGM) of these companies for the purpose of removing Mr.
Cyrus Mistry as a director of the company. A removal of Mr. Mistry from his
position as a director would consequentially result in his ceasing to be chairman
of these companies a meeting under section 100 of the Act if the board refuses to
call one. Once such a requisition has been received, the board is compelled to
convene a meeting and, if it fails to do so within a prescribed time period, the
requisitions can proceed to convene a meeting itself. hence, under Indian
company law, significant powers are conferred upon a shareholder who has a
controlling stake to fire members of the board of directors. It is precisely this
power that is being exercised by Tata Sons.
How would you rate Cyrus Mistry’s performance as the chairman
of Tata Sons?
 As performance of Cyrus Mistry shown in case study I will rate Cyrus
performance in 5/10 as the roles of responsibilities of an director is to take care of
the organization and since he has no idea what is going in the organization
additionally he has handled multiple enterprises and overlooked the loss made by
those holding so we can say Mistry was working as the director of the company the
positive reason to give him 5 ratings is his contribution towards initial 3 year of the
company growth.

How would you rate Cyrus Mistry’s performance as the chairman

of Tata Sons?
 As performance of Cyrus Mistry shown in case study I will rate Cyrus performance
in 5/10 as the roles of responsibilities of an director is to take care of the
organization and since he has no idea what is going in the organization additionally
he has handled multiple enterprises and overlooked the loss made by those holding
so we can say Mistry was working as the director of the company the positive reason
to give him 5 ratings is his contribution towards initial 3 year of the company
growth.
 What role should the independent directors play in companies
owned largely by promoters? How would you rate Nusli Wadia’s
performance as an independent director of Tata Steel?

 The regulatory provisions in India, including the Companies Act 2013 and SEBI’s
Listing Obligations and Disclosure Requirements, require listed companies to institute
balanced boards with an adequate representation of IDs. The overarching objective
behind this requirement is that it will help strengthen the internal control mechanism and
foster greater trust between the company and its stakeholders.

 To carry out their duties efficiently, independent directors need to be able to exercise
strong oversight on the actions of the company. The regulations have therefore tightened
the definition of independent directors and have provided them additional powers while
scrutinizing related party transactions, executive compensation and financial statements
of subsidiaries.

 As per the actions performed by Nusli Wadia against the Tata group led him go along
with Cyrus Mistry and his performance is not appreciated as per the actions performed by
him and go against the rules of corporate governance.
What should the shareholders of Tata Steel do in terms of the
resolutions regarding Cyrus Mistry and Nusli Wadia?

 The shareholders of Tata Steel needed to vote on two resolutions for removing
Mistry and Wadia from the board. The shareholders could vote for or against both
the resolutions. alternatively, they could vote against only one resolution.
Although Tata Steel’s board had already removed Mistry as its chairman, it had
not taken any such action against wadia

 Before TCS’s EGM, where proxy advisor firms such as ISS and in govern advised
the shareholders to vote against the resolutions, others such as Stakeholders
Empowerment Services and Institutional Investor Advisory Services advised the
shareholders to vote in favor of the resolution. Shriram Subramanian of in govern
argued that Tata lacked a convincing argument against Mistry, and further added
that “personal vendetta or enmity cannot be a reason to remove a chairman

Why did Mistry resign from the boards of the various Tata Group

companies?

 The reason behind the resignation of Mistry could be if gets fired from Tata group
then his image will suffer since firing from a repudiated company shows a
negative about him to public as well the legal administration that’s why he has
resigned.