Tata row: focus is on governance

The removal of Cyrus Mistry as chairman of Tata Sons, which controls all Tata companies, has created flutters not only within the group but across the corporate world. Mistry was appointed chairman in 2012 after the retirement of Ratan Tata and had his term was upto March 2017. The fact that the board did not wait for his tenure to end and took precipitate action to summarily replace him speaks of serious differences between him and the board. Such sudden management changes are not common in India, especially in the Tata group which has seen the top management reigning at the helm for decades. Mistry himself was a part of the Tata group as his family owns about 18% of Tata Sons shares. The board did have the power to remove the chairman and apparently it was exercised legally and after due consideration, though the decision still has a surprise and mystery element in it.

The issues that led to the rupture could only be conjectured. Mistry has made some charges after the severance and Tata Sons has denied them, terming them as malicious and unsubstantiated claims. It has also been pointed out that some of the decisions which he has criticised were those which were taken by the board with his endorsement as a member. Some legacy issues like the acquisitions in Europe which did not do well, the wrong handling of disputes with other companies or other disagreements could have had a role in the parting of ways. There is also a view that Mistry lacked the wide vision to energise such a large and diverse group as the Tatas. The Tatas have also said that he deviated from the culture and ethos of the group. The bottomline is that the board was not happy with the policies and performance of Mistry.

The row has turned focus on issues related to corporate governance in India. It is known that many Indian companies are weak in governance and administration. The best corporate practices are not followed even in companies which are publicly held and managed by boards. Accountability is not always in evidence and the important role of independent directors is ignored. The Tata group is among the better managed corporate entities in the country. The issues that have come up at the management level in India’s most iconic corporate house should prompt not only the group but all other companies to improve their standards of corporate governance. The return of Ratan Tata as interim chairman of the board is expected to give Tata Sons the stability that it needs, continuity and greater credibility after this week’s disruption.