Over 48 hours after the unceremonious ouster of Cyrus P Mistry as Chairman of Tata Sons, the exact reason for the board ganging up against him remains a mystery. Meanwhile, Mistry has started singing which shows deep fissures in the group. In the first few hours of Ratan Tata ousting Mr Mistry, a drastic and unprecedented action for a group of this size and global presence, many heads of key market organisations had come to believe that we would soon hear of some serious transgression or financial irregularity by Mr Mistry. Only something as serious as this would warrant such an extreme action, to protect the group's interests. It now appears nothing of the sort has happened. What is worse, investors of all Tata group companies remain in the dark and are utterly confused about what is going on. Meanwhile, serious questions are being raised about the way the group is being run.
While good governance rules and disclosure norms require stock exchanges to be provided detailed explanation, even for less significant corporation actions, Tata Sons, as the group holding company has escaped this because it is unlisted. However, since Mr Tata has chosen to write a cryptic letter to the Prime Minister of India informing him of his 'temporary' return to the helm of the Tata Group, maybe the Prime Minister's Office (PMO) should tell Mr Tata that he owes an expiation to the millions of investors of Tata group companies.
The Tata group is treated with such reverence that neither the market regulator, nor the stock exchanges on which the group companies are listed, nor the Finance Ministry have bothered to ask why the board has chosen to take such a drastic step and followed it up by removing Mr Mistry's speeches and interviews and disbanding the management committee he had set up.
Why does Tata Sons owe an explanation to investors of all Tata group companies that are listed on stock exchanges? We can think of three immediate reasons. First, that Tata Sons collects a brand equity fee or royalty from each company for using the coveted "Tata" name. An action by the Tata Sons Board, which affects that brand equity, needs to be explained to shareholders, especially since they have already suffered a notional loss in their shareholding.
Secondly, Mr Tata as the new, interim group chairman made it a point to meet group chief executives (CEOs) and assured them about continuity. We learn from media reports that he did not offer them any explanation but merely told them that he was proud of them. He needs to provide the same assurance to investors, but not with platitudes, but with a detailed explanation.
Thirdly, Tata Sons and its board are not going to be able to silence everybody. As we go to press, Mr Mistry is already hitting back and has begun to release a lot of information that will expose all the warts that have remained hidden for decades.
For instance, Mr Mistry says the decision had left him 'shocked beyond words'. “I have to say that the board of directors has not covered itself with glory. To 'replace' your chairman without so much as a word of explanation and without affording him an opportunity to defend himself...must be unique in the annals of corporate history,” Mr Mistry was quoted as saying from the email. The five-page letter written by Mr Mistry says lack of explanation has led to all manners of speculation and harmed his as well as Tata Group’s reputation. Mr Mistry mentioned that the forensic probe had revealed fraudulent transactions worth Rs22 crore in AirAsia. “I had made my objection known on the airline venture (AirAsia).” he wrote adding, “I was pushed into the position of a ‘Lame Duck’ Chairman.”
He also disclosed that Tata’s nano project was a burden on company and only emotional reasons have kept it from closing the project. He said that Nano has consistently lost money. “Any turnaround plan for Tata Nano required Tata Motors to shut it down,” reads the letter. The letter is embedded here:
A lot of dirty linen will be washed in public over the next few weeks - we may even see the same mud-slinging we saw when the Ambani brothers fought. Shouldn't investors have some guidance on what to believe and what to ignore? Silence is not the answer.
Finally, in the absence of any revelation of malfeasance or dubious conduct on the part of Cyrus Mistry, one needs to ask the Tata Sons board about its own double standards. Why was the Board silent about the less than pristine behaviour of Mr Ratan Tata personally and key Tata officials in the 2G scam? Why did the taped conversation of the Tata's New Delhi lobbyist Niira Radia, or Mr Tata's letter to Tamil Nadu’s former Chief Minister M Karunanidhi not outrage the Tata Sons Board enough to want a change? It smacks of double standards. The tapes showed that Mr Tata, who earlier in 2010 had warned that India would turn into a banana republic if corruption were not contained, was also a beneficiary of A Raja's corrupt dealings.
In fact, the developments of the past 48 hours at the Tata group once again expose the hollowness of India's corporate governance regulations. The mighty will continue to ignore the rules and get away with it. Meanwhile, we will continue to watch how this mess unravels over the next few months. All we can say is that the war has just begun.