Cyrus Mistry-Tata Sons war of words intensifies ahead of shareholders’ meeting

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Tata Sons Ltd asked shareholders of group companies to vote out Cyrus Mistry from their boards, citing his failure to distance himself from Shapoorji Pallonji and Co., among other reasons, and warned that his continuation will lead to the fragmentation of the group.

A statement from Mistry’s office refuted the allegations.

Tata Sons’s claims come two days ahead of a special shareholders’ meeting called by Tata Sons to remove Mistry as director of Tata Consultancy Services Ltd (TCS). Shareholders of TCS, the first among Tata group companies seeking a change in leadership, will meet on 13 December to decide Mistry’s fate.

In a four-page statement issued on Sunday, Tata Sons said the information being shared by the company will assist shareholders to “exercise their rights in an informed manner.” Tata Sons accused Mistry of concentrating authority, dismantling the group’s 150-year-old structure and causing a breach of trust by not “distancing himself” from the Shapoorji Pallonji group, controlled by Mistry’s family.

The message to shareholders also alleged that Mistry was responsible for the falling dividends, weakening financial performance of group companies and maligning the Tata Trusts by extending his criticism of corporate governance to the philanthropic body.

Mistry’s office defended his stint as chairman of Tata Sons.

“Repeat a lie a thousand times and hope it becomes a truth, seems to be Mr Ratan Tata’s last-ditch effort to overcome a monumental disaster his actions have unleashed,” it said.

This is the second statement by Tata Sons in a month’s time that justifies the removal of Mistry. Under fire from several stakeholders for not sharing enough reasons for firing Mistry, Tata Sons issued a public statement in all the leading national dailies on 11 November—a fortnight after suddenly ousting the chairman of the $103 billion group.

To be sure, the reasons offered by the Tata group holding company on Sunday were mostly a repeat of the charges against the 48-year-old scion of the Shapoorji Pallonji group.

It alleges that when Mistry was appointed as executive vice-chairman in 2011, he was informed that he should distance himself from his family enterprise—Shapoorji Pallonji & Co. and other group entities of which he is a major shareholder—by putting his shareholding at an arm’s length. This, it said, was suggested keeping in mind good corporate governance principles, and Mistry’s failure to do so resulted in a breach of trust on his part. It also “created grave concerns on Mr Mistry’s ability to lead the Tata Group devoid of personal conflicts and put to risk the high standards of self-less governance, that lies at the core of the Tata philosophy”, the Tata Sons statement said.

Responding to the allegations, Mistry’s office said he did not sit on a single board of the Shapoorji Pallonji group other than his family investment company. New engineering and construction contracts from the Tata Group to Shapoorji Pallonji came down to nearly zero from the level of Rs1,100 crore when Mistry had assumed office, the statement from Mistry’s office said.

“Little wonder that the Tata statement fights shy of citing data. Starting with a firm written instruction to Tata Group companies to shun contracts with the SP Group issued in October 2013, Mr. Mistry formally appraised the Tata Sons Board on the status every six months,” it said.

The Tata statement adds nothing new to the already stated reasons, said Shriram Subramanian, managing director at InGovern Research, a proxy advisory firm.

The only new point is Mistry’s alleged failure to distance himself from his family company. “It seems like a last-ditch effort to turn the narrative in their favour. If they were so concerned, they should have made the disclosure earlier under related-party transactions,” he said.

Tata Sons also said that by not stepping down from the boards of Tata firms even after losing the chair of Tata Sons, Mistry is flouting the very same corporate governance standards framed by him. “Mr Mistry seems to have taken the stand that even if he ultimately has to relinquish, he would have the satisfaction of damaging a great institution built up over 150 years after just five years of his tenure.”

The act, it alleged, has led to an enormous damage and caused considerable financial loss to all shareholders, running into tens of thousands of crores.

In its statement, Tata Sons called upon shareholders to vote in favour of the resolution to retain the cohesiveness of the structure to ensure operating companies can continue to leverage the Tata brand and attract capital and talent. All such benefits are likely to be at stake if Mistry continues to remain chairman, it said.