Mumbai: On Tuesday, the shareholders of Tata Consultancy Services Ltd expectedly removed Cyrus Mistry from the board. The result of the extraordinary general meeting (EGM) was a foregone conclusion because Tata Sons, the promoter of TCS, has a 73% stake in the software maker. But the stance of the non-promoter shareholders gives a clue about what Mistry could expect in the five EGMs to follow.
Among minority shareholders, about 56.7% of institutions and 17.7% of retail investors turned up to vote. Among those who turned up, 57.5% of institutions and 22% of retail shareholders supported the resolution to remove Mistry.
What if these same voting pattern among minority shareholders is applied to the other five Tata companies which have scheduled EGMs?
It turns out that Tata Sons won’t break a sweat in getting the resolution passed in the other five companies as well. Assuming the same voting pattern, the percentage of shareholders backing the resolution could range from 77% to 81% of those voting. In TCS, 93% voted in favour.
Company law requires only 51% of those voting in a resolution for it to pass.
Nusli Wadia, an independent director on three Tata operating companies boards, has written to the shareholders of Tata Steel and Tata Motors urging them to seek the intervention of the central government and the Securities and Exchange Board of India to ensure that the resolution to remove independent directors should be voted on by only non-promoter shareholders.
If we assume that promoters do not vote on the resolution to remove Wadia and minority shareholders vote the same way they did at TCS, it would still be enough for the resolution to pass, though it would be a close fight. In most companies, the resolution will scrape through with just above a 51% majority.
To be sure, this analysis has some caveats. The shareholding pattern of the firms are different. For instance, Life Insurance Corporation of India, which will abstain from voting as Mint reported on 2 December, has stakes ranging from 3% in TCS to 13.6% in Tata Steel. Retail investors hold between 16% and 29% in the firms that are holding EGMs.
Secondly, TCS has been the outstanding performer in the group and in a way, the most non-controversial. Mistry has raised allegations of corporate governance violations in other Tata firms, some of them which he termed as “legacy hotspots” and it remains to be seen how many shareholders agree with this point of view.
That said, what will it take for the resolution to be defeated and Mistry to remain on the boards? Mint looked at two scenarios.
One, when the turnout is same as TCS, but all minority shareholders vote against Mistry’s removal. Even in this case, Tata Sons gets the resolution passed in all companies except Tata Chemicals and by close margins.
Two, when the voting pattern is same as TCS, but all minority shareholders cast their votes, the resolutions sails through comfortably.
The conclusion: More minority shareholders need to turn up and more of them should vote in favour of Mistry for him to remain director.