Tatas Wrangle

Tatas Wrangle: Fickle Corporate Governance 

Allegations are levelled two stalwarts openly in the media destroying the fabric of faith that people hold in Tatas for many years for which both seem to be responsible. This has resulted in war of haughtiness and egos where each is charging the other of misrule and misgovernance in various Tata group companies. Although amongst them they would like the trust of Tatas hurt but clash of ego persists. The charges levelled tear into many deals and related party transactions for past many years which should have caught the attention of the regulators and the independent directors. When elephants fight, it is the grass that gets trampled which in the instant case is the interest of the stake holders.

Visiting the Company Act 2013

First and foremost, whether Rattan Tata could occupy the part time chairmanship on the board of directors of Tata companies. A cursory look at the provisions of Companies Act, 2013 as enshrined in Section 196(3) no company can appoint a person as director if he happens to be below twenty years or has attained the age of seventy years though this is coupled with riders in certain situations if a special resolution is passed and extra ordinary general meeting is called justifying the appointment. Needless to say, these must have been taken care of by the Tata sons, the holding company in case of Rattan Tata who is already 78 years. The fact remains that there are many issues that have been raised and looking to the allegations made, the taint of related parties as enshrined under S.188 comes cropping if at all it be true as aired by Mistry. There are many sections that govern the whole issue of appointment, removal, qualification of director, whole time director, managing director in some way repetitive as sections outreaching each other read with S.152, 164, 167, 169, 196 on reading some conditionality and Schedule V read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. There are compliance issues involved in the wrangle and the role of board and the independent directors.   

In the wake of the spat between the two groups Cyrus P. Mistry and Rattan Tata it becomes necessary to visit the vex question of governance which appears to be clouded with whimsicality and given a go bye while removing Mistry from the chairmanship of Tata Sons and Tata Global Beverages in the first instance and the role of independent directors gets questionable. The whole hog of removal is called in question having been given a pass in the agenda and meeting of the board.

Regulators:

Looking to the allegations the SEBI, ROC along with stock exchanges should have stepped in to protect the larger interest of shareholder who seem to have lost crore and the stocks in the markets were registering new lows along with the interest of other stakeholders jeopardized. Compliance of Clause 49 of the listing requirement somewhere have been given the miss on governance and removal in the manner in which the same was required to be carried out under the provisions of the Companies Act, 2013.

Independent Directors

It becomes obligatory of the part of the independent directors to watch out for the misgovernance issues being raised between the two factions. A strong message is here in the wrangle for the regulators that a strong law is indeed not enough if not followed by simultaneous supervision and checks and balances. The revelations of irregularities openly made out go to show the complete ignorance of the issues that were hampering the interest of the shareholders. Their role is skeptical in implementing the prevailing law. Was something more required to suggest independent peer review by the fraternity of practicing professional? The independent directors are conveniently picked by the companies even though their role, appointment and independent conduct in meetings is quite onerous in improving corporate credibility and governance standards looking to rigors of section 149 read with Clause 49 of listing agreement with stock exchanges. They have not fulfilled their key role of overseeing corporate governance in the instant case of removal of Mistry based on parameters of his performance nor did they ever raise any such issue earlier in their independent meetings that they are supposed to hold with non-independent directors not called thereat besides board’s meeting as per law. They acted under the influence of the powerful parent shareholder thus fell short of their legal obligation under the Act which they are supposed to carry out in an independent manner. The matters that relate to the tussle between the two groups now must be in the know of the independent directors who could have voiced their opinion in board meetings as the Act has empowered them sufficiently by being on various committees like nomination and remuneration committee, audit committee, CSR committees. Looking to their Code of conduct as laid down in Schedule IV of the Act and their functions they are supposed to bring out the matters where conflict of interest, unethical or fraudulent practices or any violation of law exists so as to protect the interest of the shareholders. A higher level of standard is thus cast on them which appears to have been sidelined. Is it not the time to evaluate their complicit role to set standards for future board room conflicts of the kind and a precedent is set for the big corporates to follow in cases of such disputes.      

In the case of Cyrus Mistry one is reminded of the pot calling the kettle black since he being at the helm was aware of all these irregularities. If he knew all these irregularities then why did he not ever bring it before the board of directors, committee meetings and the meetings of the shareholders rather than keeping these burning issues under the carpet? It is only when his own position became precarious that he came out with all sorts of irregularities, blemishing the edifice called the Tatas, the name that inspires trust in corporate governance.

Organization is perhaps bigger than the individuals and it is very likely that this too shall pass. We are reminded of the spat that took place in 1992 between Russi Mody and Rattan Tata group helped by J J Irani where after initial hiccups Mody was sacked even though he was called India’s best man manager.

The issue of misgovernance in large corporate like that of Tatas leaves a lot to be desired with regulatory authorities not taking any key role to investigate the matter to protect the interest of the shareholders due to eminence of the Tatas and have the matter settled within the group by their stony silence. The process now initiated by calling extra ordinary general meetings of group companies with shareholder like LIC participating to follow due process of law must have been set out in the first instance in all Tata companies.