“The Tata group must recognise its engagement rules have now changed,” proxy advisor Institutional Investor Advisory Services (IiAS) said in a note about the events so far in the spat between the conglomerate and its former Chairman Cyrus Mistry.
“The abruptness of developments at the Tata group has left stakeholders bewildered.
In replacing Cyrus Mistry, the Tata Sons board has asserted its rights and exercised its privilege of appointing and sacking its CEO - irrespective of whether you agree with the decision or not,” the note added. “But, the board has failed to recognise their need to communicate. This absence of clear communication has prompted excessive speculation.”
It added that the group must now expect far greater scrutiny with its finance and workings and “should no longer expect to be revered”. IiAS also said one of the reasons cited for Cyrus Mistry’s departure was non-performance; however, shareholders remain unclear on what were the performance metrics and the timeline to achieve those that the group has set-out.
In addition. the Chairperson of Tata Sons is the de facto Chairperson of the major listed Tata group companies. The Tata group needs to articulate if Cyrus Mistry will continue as Chairperson of Tata Motors, Tata Steel, Indian Hotels, TCS, and other Tata companies – and if not, the market needs to understand how these transitions will happen. The group must also communicate to shareholders how the dual power structure – one Chairman for the Tata Trusts board and another for the Tata Sons board – will co-exist.
Finally, IiAS has called on Tata Sons to explain its decision to replace Cyrus Mistry. “In the absence of hard facts to substantiate their action, the group risks losing public trust. The Tata group, given its stature and its century-old presence, is responsible and accountable to a much wider set of shareholders.”
(The Tata group, through Tata Investment Corporation Ltd, holds equity in IiAS. However, the report is based on publicly available information, the proxy advisor said.)