The news of Cyrus Mistry being replaced as a Chairman of Tata Sons is not new now. A dramatic event which happened on Monday took us by surprise. After this event, the interim chairman of Tata Sons, Ratan Tata wrote a letter to PM Narendra Modi in which he assured the PM about succession planning and smooth operations of the group companies. Now, many must have wondered whether a private company should report its internal issues and corporate events to the government? Although the entire event is still a mystery, we can just guess or speculate the probable intention behind that letter.
The first and the most important reason is the Tata conglomerate is worth more than 100 billion dollars, employs millions of people in India and abroad. It contributes significantly to India’s economy and is the owner of iconic global companies like JLR, Tetley, Corus (under Tata Steel) and Taj Hotels (under Indian Hotels). Such a big corporate event can be a probable threat to millions of employees, the Indian economy or can deteriorate the image of Indian corporate governance and diplomatic relations with the countries across the globe.
The second reason could be the Tata group of companies have contracts with the Indian government including important sectors like defence and passport issuance. As a sign of prudent corporate governance, every company should inform all the stakeholders about such a big corporate event.
Thirdly, only few days ago Ratan Tata spoke about increasing intolerance in the country. Although it would be inappropriate to connect the link between Tata events to his comment on intolerance, but for a perspective we should not neglect this event.
Last and the most interesting one - Tata Sons is a private company which is held by Shapoorji Pallonji (a company owned by Cyrus Mistry) along with many public and private trusts. Some of these trusts are controlled by Tata’s and some of them are controlled by the Government of India. These trusts have directors on the board of Tata Sons. Now as Ratan Tata is only interim chairman, all these directors will vote for a new chairman. By writing this letter , Ratan Tata may have indirectly asked Mr Modi to abstain from this voting as the tussle is between Tatas and Mistrys. Ratan Tata would want the voting to happen between Mistrys and Tatas and the other shareholders should not come in this picture.
Let’s hope that Tata Sons will find the new chairman within the stipulated time and the event won’t affect the employment and our economy.
About the Author:
Chinmay Madgulkar is an Electronics & Telecommunication engineer from University of Pune. He has completed his MBA in Finance from Xavier Institute of Management & Research and is a Management Trainee - Equity at Taurus Mutual Fund. He is also a Mutual Fund advisor. You can read all other posts by Chinmay on InsideIIM.com here.
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