Tata Sons boardroom drama: More disclosure needed from Messrs Tata and Mistry

The bizarre drama that was played out in Tata Sons, the holding company for India’s largest corporate group, has generated more heat than light. Shareholders in the 29 listed companies, several of which figure in the Sensex and Nifty indices, urgently need answers to the specific issues that were raised in ousted chairman Cyrus Mistry’s letter of October 25 referring to alleged mismanagement in several group companies. Mr Mistry’s letter raises the issue of governance where the shareholding trusts of a holding company with minority holdings in operating companies take key decisions, not the chief executives or boards of the operating companies. This is a rebirth of the managing agency system abolished half a century ago.

The need for proper explanation from Tata Sons relates to the specific allegations of wrongdoing in Mr Mistry’s letter -- directors leaving a board meeting midway to discuss issues with Mr Tata, while the board is kept waiting; the Tata Sons chairman being made to report on individual decisions to the shareholding trusts, before and after board meetings, when the shareholders should be acting only through the board; and of the Tata Sons chairman being pressured on investment decisions, specifically in aviation. Most of all, an explanation is required on the specific reasons for the Tata Sons chairman being sacked summarily when he was busy undoing the damage done by earlier business decisions that went wrong. Bland assertions about appropriate forums and vague statements about loss of trust don't suffice in the given situation as it scarcely enhances the transparency on which the group prides itself. After all, it is the group’s corporate reputation that has been challenged.

Barring two terse communications, including a statement which highlighted the point that Mr Mistry’s letter was leaked in “an unseemly and undignified manner”, nothing has emerged from Tata Sons so far. The substantive issues in Mr Mistry’s letter have been left unexplained barring some elliptical references to “departures from the culture and ethos of the group”. To say it is “beneath the dignity” of Tata Sons to engage in a public spat on unfounded allegations is disingenuous. When companies are listed, managerial crises become the subject of public disclosure. 

On his part, Mr Mistry needs to explain his flip-flop on the Searock property: How has an acquisition he once described to Indian Hotels’ shareholders as “marquee” and integral to the company’s growth become a liability in his letter to the Tata Sons board? Mr Mistry also needs to know that some of his allegations don't tell the full story. For example, his allegation that he had to clean up Tata Capital’s books on account of loans given to the Sivasankaran Group that turned bad. The fact is that the loan to the Chennai-based group was fully covered by collateral; it was settled in June 2014 and due disclosures were made in the audited financial statements of the company. And Mr Mistry’s handling of the dispute with DoCoMo raises many questions on how things came to the point of arbitration and accusations of bad faith. 

For the future, the key issue is the relationship between the chairman of Tata Sons and the Tata Trusts. If there is no operational autonomy of the kind denied to Mr Mistry, the group will find it difficult to get the chairman it needs.