“My Biggest Worry Was Whether I’d Win Any Company...” Cyrus Mistry To BloombergQuint
Cyrus Mistry describes how institutional shareholders responded to his battle with Tata Sons.
On December 19 Cyrus Mistry did something he had never done before, at least not in the past four and half years he’s run Tata Sons and the Tata Group. In his first video message, albeit recorded, Mistry broadcast his intention to take the battle with Ratan Tata and Tata Sons to a “larger platform”.
Everyone has understood that to mean a legal battle. Or as is common in India, a protracted legal battle. Before doing that Mistry resigned from the boards of six Tata Group companies – Indian Hotels Company Ltd., Tata Steel Ltd., Tata Motors Ltd., Tata Power Ltd., Tata Chemicals ltd. and Tata Global Beverages Ltd. It was a surprise move given that so far Mistry has resisted every effort of Tata Sons to remove him from the boards of these companies, prompting a series of extraordinary general shareholder meetings (EGMs) to put his removal to vote. Last week in an emotional and heated TCS EGM, promoter power prevailed, as was expected, and Tata Sons majority 73.26 percent shareholding in the company ensured Mistry lost the first battle. Even though he did get considerable support from the few voting institutional and retail shareholders.
So why did Mistry suddenly change his mind? What prompted him to drop the EGM strategy? Was it the lack of full support from institutional shareholders? There were so many questions to ask in the brief meeting Cyrus Mistry agreed to. He’d been spending ten minutes each with select journalists. As his compatriot Nirmalya Kumar hit the timer, we compressed all the various questions into one – the most important one…
Mistry began by offering a detailed background to the events of the last two months.
“My Biggest Worry Was Whether I'd Win Any Company...”
“Part of it is covered in my letter and my video statement, I'll be repeating myself a little bit to put it in context.
The 50 years of association with the Tata Group is something we are very, very proud of. It's always been an association from afar. It's been one where we've never foisted ourselves on the Group but we’ve been extremely proud of that association.
There were points in time when the charity trusts (Tata Trusts) did not have a voting right. We could have exercised or played truant at different points in time, we never did that. It was always one of support and guardianship.
When I was appointed (as Chairman of Tata Sons), it was not a post I hankered for or asked for in any way. But it was a post which I was very proud of. It was a post which effectively I took as a challenge. Because I believed that the Tata Group was going through an inflection point, which I think it is going through today even more so. And that is that there was a combination of business challenges but more so there was a generational change. And we wanted to institutionalise this group significantly. For instance, the governance guidelines we wanted to put in place and we did not make it a paper exercise, we lived through that exercise. I was evaluated by fifty independent directors.
Let me fast forward to 2016, from October 24 to now. My message has been consistent. What have I been looking for? Working within the organisation first, to make sure they have the appropriate governance structures in place. Whether those governance structures were the interface between the Tata Trusts and Tata Sons, I could not dictate the governance structures within the Trusts, but Trusts and Tata Sons and Tata Sons and the operating companies.
Clearly I think now today somebody has to look into the governance structures within the Trusts because that has a huge impact in Tata Sons and the operating companies as well from the behaviour that we've seen.
My discussions on the governance structure were going on for a significant amount of time. It was not just the last couple of months.
The second part, which is part of my statement, is in the last few board meetings (of Tata Sons) there were issues which I raised on the ethical side which seemed to be have been what crystallised their actions on the 24th. Because one otherwise can't understand why one would take those actions when in March my term would've anyway come to an end.
So if one was trying to put those into perspective, it looks and seems to be those issues that actually catalysed this quick movement.
If we see the type of behaviour they (Tata Sons and Ratan Tata) have shown in the last eight weeks, I've detailed some of it in my response to shareholders, in terms of the governance failures, but over and above that what we've seen is a lot of cohesive behaviour with shareholders, whether they are institutional shareholders, we've seen independent directors being destablised, we have seen employees very uncomfortable and shaky. We've seen debtholders (shaky) because of the removal of the brand, and financials have become unstable. So, we have seen a situation created by them, with an extreme amount of instability in the organisation.
I had to take a call. Am I going to be consistent in terms of what my messaging was, and that is that this is not about me, but this is about making sure that reform comes in terms of governance and ethics. And, by continuing this fight on this platform, am I hurting the organisation which means a lot to me. And should I look at a different platform for continuing my fight. And that is the decision I had to take. The decision I took is with that background. That for me to continue in this environment over here is causing more damage than it is actually going to be. My biggest worry was whether I'd win any company. In this environment that would be inappropriate.
Many of the shareholders I met actually, the first question they said is that 'Cyrus we understand where you are coming from, we appreciate that the governance reform needs to take place, but, what happens if you got replaced?’
Many of them, and I think that was demonstrated at TCS, abstained. And that's their way of saying we need something to happen. But they would not vote for me. And I think, I understood that. I think it’s important for me to go beyond me, because clearly this has never been about me, and to see the institution is appropriately protected.
For me the battle has changed to a different forum. For me what's important is to make sure that long term the institution is protected and hence how can we create that framework in which it is protected. Short term that does mean that there is going to be pain in the institution, but my stepping back, as I said, makes it very clear that this is not a ‘me versus somebody else’ battle. This isn’t about a confused message to the shareholders. This is a message about the institution and reform. That's the idea, that's the thought process.
Tata Sons mentioned in the notice to evict you from the group companies that the companies were using the Tata brand and could lose that right if the promoter’s will did not prevail. It was obvious the the parent company would use everything in its arsenal to ensure you didn’t win any of the shareholder votes. What was your goal? If a company’s shareholders had voted for you, how would it have worked, given that the promoter wanted you out?
I agree with you. The type of behaviour that they have demonstrated was totally against any form of corporate governance where you’re actually protecting your own companies. The question mark is - do you push them to an extent where they actually do something that’s going to hurt themselves? And here is what they actually demonstrated, that that’s what they were able to do.
Is that what you were testing? To see how far they would go to throw you out?
I think one was looking to see what is it that they would actually do in terms of the way they would handle themselves as far as governance goes. What I did see was a total deterioration of that.
What they did do that surprised you? After all, Tata Sons has used its right as a parent to ensure the group company does not move away from the group. And to pass their resolution against you.
I think the way they’ve coerced the independent directors, you’ve seen some of that in the press, and the pressure they put on them. I think the way they’ve been talking to the shareholders.
You mean institutional shareholders?
Institutional.
So is it Tata Sons’ lobbying with Life Insurance Corporation that was bothering you?
No, I don’t think that LIC was with them because LIC abstained as you know, in the first one (TCS EGM). So, I don’t think it’s that.
See, it’s not about winning or losing, it is actually about the dialogue that was happening. The dialogue was one in which the institutional shareholders were saying ‘Yes, we do need to reform.’
So what did we achieve in the eight weeks? We did achieve a huge communication. Look at the amount of people that are taking that stream of thinking, that yes this now needs to come on the table. But what they also said is ‘Cyrus, by you being there, we are not sure whether we can raise these subjects’.
But then how else do institutional investors hope to be able to raise them. What do you hope they continue doing now that you’ve withdrawn from this part of the battle?
I hope they continue to raise them because they are not just Indian institutional investors, some of the global institutional investors have already started doing that. They have already brought it up with the boards of the group companies. So, I think you will see significantly more activism inside the institutional shareholder base to set this right. Because that dialogue has clearly started. And it has also started in the Indian institutional investor base. So I think if we have achieved one thing in the eight weeks that’s something that we have achieved.
And that was your strategy in those eight weeks? Because we were trying to understand what you were hoping would happen even if you did win some companies.
So I think the idea was to bring the issue to the table, effectively to see how we can play a constructive role in making this happen. My idea even to be on the board was to be constructive, to make sure this happens. But if I can’t be constructive on the board, then it’s better not to be on the board.
This is part one of the interview with Cyrus Mistry, former chairman, Tata Sons. The second and final part can be read here.
The conversation transcript has been lightly edited to make it reader friendly.