From 2G Scam to Mistry's Ouster: Don't good governance rules apply to the revered Tata Group?
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. 
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COMMENTS

B. KRISHNAN

2 years ago

I endorse every word written in this article. Unlike other sycophantic media Moneylife has once again boldly stated what is obvious to everyone, but afraid to speak out against the haloed name!

Kumar Swamy

2 years ago

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently..... We can afford to lose money - even a lot of money. But we can't afford to lose reputation - even a shred of reputation.....If you lose money for the firm I will be understanding. If you lose reputation I will be ruthless..." Warren Buffett.

Sucheta,

Ratan Tata needed to be ruthless since Tata reputation had already taken a hit after a major screw-ups with respect to DoCoMo and Tata UK Steel. This dented Tatas image not only in India, internationally. I'm glad Ratan Tata is back. Your accusations regarding Radia tapes are just lame. We would like to hear from you further details about dealings of Cyrus Mistry, his relations with BOD and the coup that was seemingly took Mistry by total surprise?

REPLY

Sucheta Dalal

In Reply to Kumar Swamy 2 years ago

Do read cyrus mistry's letter or simply google... he inherited Corus problems, did not create them. There is no evidence to show that he did anything to damage the Tata reputation. We waited 48 hours thinking that this drastic action may have been the result of some mega transgression on the part of Mr Mistry and that the Tata Sons board would not initiate such a drastic step otherwise. In fact we believed that the Tata Sons board may have been acting to protect the Tata reputation. 48 hours later, there is nothing to show and Cyrus Mistry's letter has some astonishing facts. Instead of personalising it, why dont you follow news reports and wait to see how the Tatas explain the situation. Rather surprised at your one-sided reading of the article above.

Kumar Swamy

In Reply to Sucheta Dalal 2 years ago

Nothing personal! I've read Mistry's letter and familiar with Corus deal. Also, I'm an investor in Tata group cos. Let's wait for Tata's response.

Suketu Shah

2 years ago

The entire Mistry removal plan was preplanned well in advance by Rotten.Thats the most shameful part.What cheat games Rotten used against Mr Mistry.This is the same Tata group which ranks No 1 in terms of ethics and governance!When their own Chairman is untrustworthy how can a shareholder trust Tatas.

Mistry was right on track to solve problems he had "inherited" by Rotten.

Janakiraman Rajalakshmi

2 years ago

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



inally, 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.///

Best summing up.

kapil bajaj

2 years ago

Like most things in the political and economic domains that make up the state capitalist system, the 'revered'-ness of the Tata Group is a media-created myth as is the gentlemanliness of Ratan Tata, the mediocre bania who owes his enormous wealth, privilege and clout to accident of birth rather than strength of character, intelligence or hard work.

An especially obtuse statement that I can recall of this oaf was his equating of farming life with poverty during the Singur controversy which found a sort of echo in Cyrus Mistry's reference to the Nano project while he remonstrated at being stripped of Tata Group's chairmanship.

It's the same Ratan Tata who was caught red handed manipulating the political system through his wheeler-dealer Niira Radia. If not for his clout over the system, that action alone should have landed him in jail.

Instead of admitting wrongdoing in the matter, this senescent rogue had the temerity in November 2010 to describe India as acquiring "banana republic-like tendencies". What a fraud he is!

But then he spoke the truth. India did indeed begin to look like a banana republic when it allowed the malfeasance of Tata Group -- such as the Tata Finance scam to name but one -- to go unpunished while laying down an entirely different set of standards for businesses like Sahara's.

It's Tata Group's undermining of the rule of law, widely indulged by the elite sections of society and camouflaged behind an image of classy gentlemanliness, that makes India feel like a banana republic and allows other business conglomerates to behave similarly.

Ratan Tata epitomises that specious gentility behind which lies the dead weight of
parasitic and kleptocratic capitalism that his group represents.

Tata Group is not adding value to our lives; it's taking away value from our lives.

It has been influencing public policy to suit its selfish interests and is stealing money from the public sector as exemplified in the disastrous role it played in the Centre's e-governance programme.

It's time the public showed some spine to this Rothschild of India and demanded a thorough investigation of Tata Group and its manipulation of the system.

REPLY

Janakiraman Rajalakshmi

In Reply to kapil bajaj 2 years ago

Totally agree with you.

Carlos De Souza

In Reply to Janakiraman Rajalakshmi 2 years ago

Agree mostly, BUT, Rotten Tata is NOT A BANIA :-)

Ralph Rau

2 years ago

The good news is that even a Shapoorji family member can be dismissed. This shows better governance than the Nehru Gandhi clan which would rather sink India's only credible National Opposition than get him out of the picture.

I used to think Tata Sons did not indulge in corruption until the case where the Goa CM was bribed and Tata Housing built Villa Paradiso in Alto Betim on clearly designated green belt forested area over the river Mandovi and Panaji city. Indian Hotels also bribed Minister Churchill Alemao who was indulging in thuggery to prevent the establishment of Taj Exotica hotel in Goa. Mr Tatas only requirement of Minister Alemao was to not take cash but to take a cheque after grossing up to include the Minister's tax liability on the receipt. The Tata concern was to pay the bribe by cheque and not cash! That makes it white!

How can a business keep out of corruption in a nation where politicians constantly demand money, preferably CASH, "for party funds". Even the BJP Goa CM's brothe-in-law was trapped red handed accepting a bribe. The ACB personnel were promptly transferred out of the ACB !

Mongal Dan

2 years ago

Very nice piece of article elaborately dealing with every aspect of the corporate drama

Sudhir Jatar

2 years ago

I never expected Tatas to behave as Ratan Tata & Co have. I have had dealings with Tata Group as CMD of public sector companies and the Tata companies always came out as the most ethical and principled. I have corresponded with the doyen of Indian industry "JRD" when I was Chairman of SCOPE (Standing Conference of Public Enterprises) and can say with confidence that he was most open and transparent. You can't say on one side that there is intolerance in the country and on the other display it yourself in your actions. I hope good sense prevails and this crisis is overcome without loss of face to any one and least of all to the investor!

Gupta

2 years ago

Interestingly, just today, the World Bank's Ease of Doing Business results were published and very surprisingly, while India scored a pathetic 130th rank (which it rightly deserves!), it scored the highest rank of no. 13 (down from no. 10 last year) on the parameter of "protection of minority shareholders".... Laughable... WB should have put the report on hold after seeing this news! This comes right after Birla group's funny corporate restructure of Head in which only benefits one family.

I wonder when corporates and public at large across fields will start taking some meaningful lectures on Ethics...

REPLY

Gupta

In Reply to Gupta 2 years ago

Typo... restructure of Grasim, not Head. Oversmart phones taking over human intelligence.

R Balakrishnan

2 years ago

Poor shareholders. Saddled with the return of the owner who wanted to retire. After retirement, he still allocated capital to airline businesses. And the Board nodded. So much for 'independent' directors and the so called 'retirement'.

Insolvency and Bankruptcy Law to be operational by year end
The government expects the entire Insolvency and Bankruptcy Law to become operational by end-December, Economic Affairs Secretary Shaktikanta Das said here on Tuesday.
 
"We have a definite roadmap to implement the Bankruptcy Law, the Ministry of Corporate Affairs is working on it, the Law Ministry, the Legislative Department have played a very significant role in finalising the legislation and they will continue to have a very significant role in also finalising the regulations," he said, at an event organised by Assocham.
 
Talking about how a clear roadmap has been drawn up, he added that the Ministry of Corporate Affairs has already published certain draft regulations and has invited comments, other regulations and rules are under preparation and they will be put in the public domain for consultation.
 
"Now it is the responsibility of both government and industry bodies and every category of professionals to develop information utilities, to develop insolvency professionals and take the implementation of this law forward and see that it is fully implemented and the economy and country are able to get its full benefits," said Das.
 
Regarding the Centre's plan to implement Goods and Services Tax (GST) from April 1, 2017, he said: "Administratively and whatever preparedness is required, all that is in place and the government is absolutely determined to introduce it (GST) from April 1, 2017, the state governments are also equally committed to introducing it from that date."
 
"The GST will happen, Bankruptcy Law has happened and both these pieces of legislation together with amendments to the Arbitration Law, SARFESAI, DRT related laws and the Company Law, these have the potential of creating a very vibrant and dynamic economy in India," he added.
 
"Our expectation is that the Bankruptcy Law together with the GST will really bring a lot of dynamism and efficiency to the Indian economy," Das added.
 
On the issues pertaining to GST rate structure on which there is a lot of discussion going on at the moment, within the GST Council and also in the public domain, Das said, "We hope and we are quite confident that they will get resolved in the next meeting of GST Council in the 1st week of November. I think in may be one or two more sittings, it should come to a conclusion."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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SEBI’s Investor Advisor Regulations: Right Step but Not Enough
Over the past few weeks, there has been a raging debate among distributors of financial products over the Securities & Exchange Board of India’s (SEBI’s) proposed regulations covering investment advisors. A key element to the regulations, first issued in 2013, which is being further tightened, is that those wanting to offer investment advice will have to register as investment advisors and become accountable for their advice. Separately, distributors will have to disclose their commissions, especially trail commissions. 
 
Who gets hurt in the process and who gains? These days, a substantial chunk of financial advice to middle-class savers comes from bank relationship managers. They have also been responsible for gross mis-selling of insurance and financial products, churning of mutual fund portfolios, portraying risky derivatives-based products as safe, tying up expensive insurance products to loans and other banking facilities and, worse, getting away with zero responsibility for losses or pathetic returns on wealth management services. 
 
Banks are regulated by the Reserve Bank of India (RBI). Unfortunately, RBI is most reluctant to check malpractices by banks. A consumer charter that would have fixed many of these issues has been kept toothless and in limbo for the past 20 months. Instead, in April 2016, RBI issued ‘Guidelines on Investment Advisory Services offered by Banks’ which requires investment advice to be offered by a separate subsidiary registered with SEBI, that has an arms-length relationship with the bank. The catch is that banks have been given another three years to organise their businesses in accordance with these guidelines. 
 
The timeframe can only be contracted if SEBI’s amended guidelines kick-in sooner and make it mandatory for banks to comply. Sadly, even SEBI’s proposal to tighten rules for distributors and advisors gives the former three years to fall in line. Consider how reluctant RBI is to regulate sale of financial products by banks. It took three years to convert its draft guidelines on the subject, issued on 28 June 2013, to official guidelines (not regulation) and has now offered a further three years for compliance! In contrast, SEBI issued its draft guidelines in 2012 and issued its final guidelines in early 2013. 
 
At Moneylife, our view is that SEBI’s guidelines are a step in the right direction. Making investment advisors more accountable will certainly take away the incentive to mis-sell products for commissions, although it does burden advisors with onerous reporting and administrative work and forces investors to do some hard work too, in the process. 
 
What does this mean for originators of financial products? Will it force mutual fund companies to engage directly with their target customers? Today, their marketing efforts comprise mass-media campaigns with a general feel-good message while the real sales come from wooing and incentivising ‘distributors/banks’ to ‘push’ products with higher incentives. Naturally, there is little motivation to cut high costs and improve returns to make the products more attractive to the saver.
 
Will It Cover Everybody? 
By shifting the burden of selling the right financial products on to advisors, SEBI will also reduce its own role in grievance redress effort. However, one big question remains. Has SEBI, which is mandated to protect investors, ensured that its regulations cover every possible source of mis-selling? Or will it end up making business tougher and more onerous only for those who want to comply, while fraudsters and paid influencers thrive unchecked? Let’s take a look at those who will continue to remain outside SEBI’s regulatory gaze. 
 
Paid Bloggers: Moneylife routinely receives requests from clueless ‘digital marketing’ companies, fishing for ‘content providers’ to plant articles in the media and on blogs. Here is just one example: On 10th October, Shalini from Buzzerati writes to say, “We have received a campaign request for a reputed Indian mutual funds company. They are looking for finance bloggers based out of Mumbai who will be able to attend a lunch event and be introduced to new policies and re-alignments done by the company.” She wants us to share the ‘package cost’ for “attending the event+blog post+ social media share of the same.” 
 
We are also inundated with offers to write ‘free’ blogposts for us, obviously, because marketing agencies pay them on the basis of clicks and views. 
Considering that any critical assessment of their schemes is anathema to most mutual fund companies (media houses face the brunt of it in terms of refusal of advertisements), paid blog posts will have to be positive, if not laudatory. Yet, they will appear as ‘independent’, spread across the Internet, and will be actively promoted on social media by the digital marketers who commission them. How does SEBI plan to tackle this? Will it monitor the content of such blogs or even know which ones peddle paid-praise? Will it question mutual funds that commission such content? 
 
Quid Pro Quo Deals: Large PR firms handle another form of paid publicity. They ‘place’ and promote columns on television and arrange ostensibly independent financial experts or lawyers to appear on television programmes and discussion panels to promote their client’s point of view. This is part of a fairly open quid-pro-quo for advertising campaigns and the best of companies is fairly brazen about making these demands. Does SEBI have the ability, or the will, to catch such dubious influence-peddling? 
 
Paid Academics, Lawyers and Consultants: Many academics, retired bureaucrats, consultants and lawyers on policy-making bodies/ boards/committees of the government have remunerative relationships with banks and corporate houses. Corporate houses use them to influence regulation and policy or, at least, ensure that their point of view is represented. Yet, none of them is ever asked to disclose his/her financial associations. Simultaneously, they work at keeping out independent voices from such agencies. Does SEBI have any plan to insist on some ground rules and disclosures for this group of influence-peddlers? 
 
These academics and consultants not only help shape policy to suit their paymasters, but also draft regulation and legislation which is passed off as the work of the regulator/policy-making committee. I know of a couple of specific examples, where such experts ensured glaring loopholes in the rules and exploited them later for their corporate clients. One example that I had written about pertained to SEBI’s insider trading regulation. Such influence-peddling by unscrupulous academics and consultants is not an Indian phenomenon; it is a global problem that is not easily fixed because of the financial clout of giant multinational corporations.
 
Fraudsters and Tipsters: Finally, at the lowest end, you have fraudsters and tipsters who continue to spam our mobile phones with stock tips, completely confident that they will fly below the regulator’s radar. Yet, they manage to cheat a large swathe of gullible investors. 
 
Does SEBI have a mechanism to track these, or at least put information in the public domain, for careful savers who like to do their homework? Yes, it does have such a platform in Sachet; but sachet.rbi.org, inaugurated with much fanfare by former governor Raghuram Rajan and SEBI chairman UK Sinha, is virtually stillborn. There is no attempt whatsoever to promote it, or to make it an active platform for engagement with savers or to collect feedback on frauds and tricks being unleashed on clueless investors. 
 
Although SEBI has come up with a discussion paper for better regulating investment advisors, it also needs to pay attention to all the other players listed above. Otherwise, SEBI will only end up regulating those it can (independent advisors), while letting off those who are either too big and powerful, or too small, to warrant its attention. And we haven’t even discussed the humungous mis-selling in insurance which most people see as ‘investment’ so far. 
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COMMENTS

Subba Rao

2 years ago

Mis-selling by Bank employees - which by the way has been rampant over the years - is far more serious than other types of mis-selling simply because the bank customer places implicit faith in the Bank employee and to betray that trust is unpardonable. While SEBI's regulations with respect to the Advisors are in the right direction , there is an urgent need to bring the Banks under this ambit too.

Nilesh KAMERKAR

2 years ago

Interests of intermediaries ought to be aligned with those of the investors. This can be done by making investment advisers accountable for the results they produce over 5yrs to 10 yrs period. However these regulations are silent on measuring &comparing outcomes.

Also those investment advisers who end up making more from a client than what a client makes from the investment(s) advised must be thrown out ruthlessly. Such toxic advisers must not be allowed to function. But sadly SEBIs regulation is silent on this aspect

Jaswant Aditya Singh

2 years ago

Wonderful article showing mirror to SEBI of their myopic approach to regulate only the independent financial advisors (IFA's) of mutual funds , where they are too weak to do anything .
SEBI has not been able to regulate the high and mighty as well as so called small tip peddlers (around 6000 small 5-10 seater call centers based in Gujrat and Indore _) who have managed to get the data of investors opening demat accounts. They represent themselves as if the contact no. has been given to them from SEBI .
Every day naive investors are getting cheated by fraudsters. For example an SMS to buy BSE listed DHYANI (some small company) was sent by someone by the name of a reputed research company and naive investors who bought it are all trapped , its been more than 6 months , no trading has been happening since then. Complaints are pending with SEBI but of no use.

Suketu Shah

2 years ago

SEBI is only pretending to solve investors issues.They donot have any intent to do so.

V ganesan

2 years ago

I AM AN IFA I WILL TELL THE INVESTORS THE TRUTH ABOUT THE MARKET.I am suggestin them to invest based on fundamentals and ask them to stay over long term.In the recent bull run I have adviced and switched their investments from midcap and small cap funds into liquid funds.Even though it will fetch and reduce my trail fee more than 50 percent.Now whoever wants to invest lumpsum into equity funds i suggested to put in liquid funds and advice them to wait for the inevitable downturn.History suggest some body invest at this level their returns are very poor over longterm.What is going to happen for a person like me selling and advicing geneiunly after three years.I cannot charge the investor because most of the sips are in small value ranged from rs.1000 to rs.3000

V ganesan

2 years ago

I AM AN IFA I WILL TELL THE INVESTORS THE TRUTH ABOUT THE MARKET.I am suggestin them to invest based on fundamentals and ask them to stay over long term.In the recent bull run I have adviced and switched their investments from midcap and small cap funds into liquid funds.Even though it will fetch and reduce my trail fee more than 50 percent.Now whoever wants to invest lumpsum into equity funds i suggested to put in liquid funds and advice them to wait for the inevitable downturn.History suggest some body invest at this level their returns are very poor over longterm.What is going to happen for a person like me selling and advicing geneiunly after three years.I cannot charge the investor because most of the sips are in small value ranged from rs.1000 to rs.3000

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