Cyrus Mistry stays Chairman of Group units, Tata splits

Ratan Tata replaced Cyrus Mistry on the top of the holding company of nation’s largest conglomerate in a single board meeting. Expelling Mistry from the boards of more than 10 companies in the group won’t be easy. A week after the coup at Tata Sons, Mistry stays chairman and non-executive director of Tata Motors, owner of Jaguar Land Rover; Tata Power and Indian Hotels, which runs the Pierre in New York. Tata Sons does not hold a majority of the stock in the above and other group units, thereby making it even more difficult to expel Cyrus Mistry. 

 

The directors of important listed companies plan to meet in the next fortnight to discuss earnings for Q2, thereby giving investors an early inkling of how the dual power structure shall impact businesses. The peculiarity could also put off potential candidates for the top job at Bombay House (the south Mumbai headquarters of the Tata Group) for nearly a century. There are a total of 29 publicly traded companies under Tata Sons having a combined market value of about 120 billion dollars. Since Mistry’s removal as group chairman, Tata companies have lost 3.5 billion dollars in market value. 

With Mistry giving no hint whether he intends to resign from the individual boards, investors are bracing for confusion due to the novel structure, said an analyst. The directors and shareholders would have to vote to remove Mistry, he added. 

 

There is a possibility of a ‘long-drawn boardroom’ as well as a ‘courtroom battle’. While Tata Sons owns around 25 per cent to 30 per cent of the stock in the group’s major units, it has enough persuasive power probably to get other minority shareholders on its side, said a financial adviser. Mistry is also chairman of TCS, the most valuable asset in the group, but Tata Sons holds 73 per cent of that unit. Under Section 169 of India’s Companies Act, Tata Sons, as a shareholder have the right to propose a resolution to evict Mistry as a director, he further said. The board could then put the resolution up for vote to all the shareholders after giving the director a chance to be heard. In the event, his refusal to do so would give the board the authority to vote for his removal. 

 

But Tata does not need to strip Mistry of his directorship to forbid him from running the individual units. Instead, Tata can persuade the board to vote for Mistry’s removal as chairman in the same manner the holding company did. Tata Sons itself has not removed Mistry as a director, only as chairman. If the idea was to only remove Mistry as a chairman, then the board could express no confidence in him and ask him to step down. 

 

Meanwhile, the distraction of a divided management shall weigh on earnings and hurt the shares.

 

New angle to Mistry-Tata spat: Tata Sons board’s remuneration panel had lauded ex-chairman’s performance in June:

Four months before Cyrus Mistry was ousted, the remuneration committee of Tata Sons board had not only lauded Mistry’s performance but also recommended a substantial salary hike, according to sources in closely affiliated to the former chairman.

 

The nomination and remuneration committee which had met on 28th June, after reviewing the performance of Mistry unanimously recorded its recognition of his evident and vital contribution across group companies. It had also expressed appreciation of his multifaceted initiatives aimed at preserving and promoting cohesive functioning of Tata group in accordance with its distinctive values.

According to sources, the committee had agreed to recommend to the board of Tata Sons a rise in Mistry’s basic salary and commission. 

Albeit the board had offered a larger increment, Mistry insisted that his salary hike should not exceed the 6 per cent offered to his top team, the GEC or Group Executive Council. 

The Group Executive Council has now been dismantled and 3 of its members, Madhu Kannan, Nirmalya Kumar and NS Rajan, have resigned.

Source  :  https://www.dynamiclevels.com/en/blog/cyrus-mistry-stays-chairman-of-group-units-tata-splits