It's important FIs, MFs express their views
Given how Tata Sons is the majority shareholder in most Tata group companies with stakes ranging anywhere between 33% and 74%, institutional and retail shareholders will virtually have no role to play in the series of extraordinary general meetings (EGMs) starting tomorrow. Tata Sons, which has levelled a series of charges against Cyrus Mistry after dismissing him as chairman of Tata Sons on October 24 and also forced him out as chairman of some listed companies, is determined to see him go. That’s unfortunate, since Mistry has performed exceptionally well during his four-year tenure under difficult conditions, which is why he has found the support of several independent directors. It’s also unfortunate that the laws are stacked against him—all it takes to remove a director is an ordinary resolution. And, while Mistry can appeal to shareholders orally or in writing, such representations can be blocked in the National Company Law Tribunal on the grounds that it’s being done for “needless publicity for defamatory matter”.
However, what’s even more unfortunate is that financial institutions—mutual funds and insurance companies—are unlikely to back him. Instead, they will either abstain or side with Tata Sons which controls the group’s purse strings. While Tata Sons hasn’t openly threatened to withdraw financial support to the companies should Mistry not be voted out, it has said it might disallow the use of the Tata brand name were Mistry to stay on. It’s surprising this needed to be put down in writing in the EGM notices given Tata Sons will be calling the shots. But the Ratan Tata camp is probably aware of how much sympathy Mistry has won from various constituencies over the past 50 days and wants to drive home the point to institutional shareholders. To be fair, it’s not an easy call for the institutions who hold sizeable stakes in the companies and are, at the end of the day, looking to make returns on their investments. As such, they would be praying for a quick closure to the feud which could jeopardise the day-to-day running of the companies if it goes on for much longer. Under the circumstances, one can’t blame them for siding with Tata Sons even if Mistry has done a good job. While abstaining could be one way of signalling their appreciation of Mistry, this would also be an easy way out. Instead, institutions might want to vote against the resolution sending a signal to the Ratan Tata camp they will not be bullied. After all, it was the mindless acquisitions—like Corus by Tata Steel and a bunch of hotels by IHCL—all under Ratan Tata’s watch, that have left many of the companies debilitated and over-leveraged. By supporting Cyrus Mistry, institutions would be telling companies everywhere that they’re looking for good governance and competence. And it will prove they do have a spine, even if they can’t swing the vote.