Behind Tata-Mistry clash, a distinct set of governance rules

When Ratan Tata retired as chairman of Tata Sons Ltd in 2012, he proposed a change in the laws governing the relationship between India’s largest conglomerate and its key shareholder, according to sources familiar with the situation.

Until then, the Tata Trusts – public charities owning two-thirds of the company – had easily protected its investment. A Tata family member had for decades held the chairmanship at both the Trusts and the company, whose businesses include cars, software and steel.

But an outsider, Cyrus Mistry, had just taken the top job at Tata Sons. Tata wanted to make sure the Trusts, that rely on Tata Sons for dividends to fund their charitable work, could keep having a major say in company decisions, the sources said.

Mistry agreed, and in doing so sowed the seeds of his ouster from the company last October, according to interviews with more than half-a-dozen current and former Tata executives and advisors, and a review of meeting minutes, emails and a court petition that Mistry has filed against Tata Sons.

Mistry’s departure – and the reinstatement of the 78-year-old Tata as interim chairman – has triggered a bitter, public spat that has contributed to nearly a $10 billion decline in the market value of Tata’s many listed companies.

Even if the conflict is resolved, the company could face future governance issues as the structure remains unchanged, which means it could weigh on any new chairman. “It is going to be very difficult for an external person to take the role,” said Shriram Subramanian, founder of proxy advisory firm InGovern Research.

Mistry wrote in a letter to the Tata Sons board on October 26 that Tata improperly used the change in bylaws to interfere in the affairs of the company and created an alternate power center at the group, which made it hard for him to do his job.

Tata Sons spokesman Debasis Ray said Tata asked Mistry to do only what was in the bylaws and got involved in the company’s affairs when he was asked. Tata Sons has cited Mistry’s performance as the main reason for firing him, holding him responsible for rising expenses and impairment provisions.

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