Full text: Cyrus Mistry defends independent directors of Tata Sons

Ousted Tata Sons Chairman, Cyrus Mistry, arrives for Tata Steel's board meeting at Bombay House
Cyrus Mistry hit back at Tata Sons, saying the group holding company has stooped to a new low by questioning many eminent personalities who serve as independent directors on the boards of Tata Chemicals and Indian Hotels Company. Here is the full text of his letter

Good corporate governance balances promoters interests with minority shareholders rights   

On becoming Chairman, having been a minority shareholder of Tata Sons, Cyrus Mistry uniquely understood that Tata Group needs a strong corporate governance framework that balanced the interest of the promoter with minority shareholders’ rights. In addition, between Tata Trusts, Tata Sons, and the Tata operating companies, there was a need to be compliant with the law relating to insider trading by ensuring communication of unpublished price sensitive information strictly on a need to know basis. 

The corporate governance framework that was developed under Mistry’s leadership attempted to ensure that group companies would adhere to the group values, share best practices, enable movement of talent, exploit win-win synergies, and do all of this without impinging on the independence of the operating companies and the boards that they are ultimately responsible to.  

In the spirit of protecting the interests of all stakeholders, employees, and minority shareholders, the strategy of individual operating companies Mistry believed should be created by their management and approved by their own board of directors. By placing the responsibility where it should lie, with the board of directors of the operating companies, allowed the independent directors to ensure that the interests of minority shareholders were aligned with the operating company’s strategy as well as the overall direction of the Tata Group.  

Listed below are the names of the men and women, eminent in their own right, who serve as the Independent Directors on Tata Chemical and Indian Hotels Company Ltd who are being questioned by Tata Sons for undertaking their fiduciary duty of protecting the shareholders of the companies of which they serve. 

Name                                Board    
1 Deepak Parekh*          IHCL 
2 Gautam Banerjee        IHCL 
3 Ireena Vital                   IHCL 
4 Keki Dadiseth*             IHCL — Also a Trustee on Tata Trusts 
5 Nadir Godrej*               IHCL 
6 Nasser Munjee*          Tata Chemicals — Also a Trustee on Tata Trusts 
7 Nusli Wadia*                Tata Chemicals  
8 Vibha Paul Rishi         Tata Chemicals + IHCL 
9 Yashwant Thorat*       Tata Chemicals  

It is imperative to highlight that out of the above list of nine independent directors, six were appointed during Ratan Tata’s tenure. Two of these directors also serve as Trustees on Tata Trusts. It is important to note in this context the role and functions of independent directors under the 2013 Act. 

They are required, among other things, to bring to bear an independent judgment on issues of strategy, performance, risk management, resources, key appointments and standards of conduct. They are further required to safeguard the interests of all stakeholders, particularly the minority shareholders. (This is from Sch IV to the Act) 

In both IHCL and Tata Chemicals — the independent directors were unanimous in their support of the of Cyrus Mistry as the Chairman. The Independent Directors on the Tata Chemicals board, in their statement, “also reaffirmed that all the decisions taken with regard to the operations and business of the Company had been taken by the board unanimously and executed by the Chairman and management as per directions of the board.” The endorsement is a reflection of Mistry’s conduct as Chairman in upholding the highest standards of corporate governance and in taking the board along in all decisions that impact the company.  

To question the independence of the directors by Tata Sons, is truly unfortunate given that the country acknowledges them as stalwarts of India Inc. To suggest that “ulterior objectives” and “clever strategy” can sway these eminent names in undertaking their fiduciary duties and in discharging the duties mandated by statute as independent directors is absolutely astonishing and really speaks to how low Tata Sons has unfortunately stooped in their public statements.  

On the allegation that Operating companies were drifting away 

Tata Sons statement alludes to Mistry having creating a new structure where operating companies were “drifting away”.  This is furthest from the truth.  

To understand the rationale behind the new Tata Group Governance Model, one needs to understand the contextual difference within which the group currently functions.  

Prior to Mistry’s Chairmanship, all the of Board members of Tata Sons, with exception of him, were internal to the group, being either Vice Chairmen of group companies or members of GCC.  

Today, the structure is exactly the opposite.  The requirement to have 30% Trust nominees and 30% independent directors meant that in addition to Mr. Ishaat Hussain and Mr. Mistry, there was possibly only one more senior group centre member who could be on the Board of Tata Sons.  This limited the involvement of other group centre members on the Tata Sons board. Moreover, in the past three years, all these internal members, with the exception of Ishaat Husain have retired. This was a generational change.  

As agreed with the Tata Sons board, the governance mechanism to protect Tata Sons interests and ensure adequate group representation on operating company boards, was to have GEC members, other senior group centre members (e.g, Farokh Subedar, S. Padmanabhan), and select CEOs (e.g., Bhaskar Bhat, Noel Tata) on the boards of operating companies.  

The corporate governance framework in India has considerably tightened in recent times with more stringent rules with respect to independence of directors, female directors, board evaluation, and so on. To meet this increased scrutiny, several new policies and frameworks were developed at the group centre and deployed across operating companies including refreshing the code of conduct, developing a board effectiveness framework, LEAD program to enhance gender diversity, and provide TBEM feedback on company to the board