THE TAJ SAGA

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The sheen of the revered halo around Ratan Tata seems to be dimming, as the Tata battle shifts from the board room of its holding company, Tata Sons Ltd., from whose chairmanship, Cyrus Mistry was unceremoniously ousted, to the individual Tata group companies, where he continues to chair the board. Ratan Tata may have thrown him out of Tata Sons Ltd. as its chairman, where he had brute majority, but the tussle in the individual companies, where the Tata Group lacks majority, will be an entirely different affair. Mistry refuses to resign from them on his own and since the time he was deposed by Ratan Tata, he has chaired board meetings of a few Tata companies. With the two sides now at war and his resignation not forthcoming, a full blown battle is imminent between them. As the event of the sudden ouster of Mistry sinks in, public opinion is now gravitating in his favour, with experts accusing Ratan Tata of poor corporate governance and an unfair treatment to Mistry, and the independent directors seemingly in his favour.

The recent saga in the meeting of the board of directors of the Indian Hotels Company, (IHC) which owns the Taj Group of Hotels, indicates the direction of the battle between Tata and Mistry in the individual group companies, which are chaired by the latter. Out of the ten directors of IHC, seven are independent directors, who represent the minority shareholders and financial institutions, publicly supported Mistry and applauded his stewardship and efforts to restructure the debt laden company. IHC has witnessed radical restructuring measures in Mistry’s tenure, which have included the sale of prestigious hotels such as Taj Boston and Taj Blue Sydney and exit out of Oriental Hotels, Ratan Tata’s dream project, to repay debt and restore its profitability.

Though Taj is a most reputed brand, yet IHC suffers from poor return on capital, which Mistry seeks to restore. The directors of IHC issued a statement to the stock exchanges, that ‘taking into account the board assessments and performance evaluation carried out over the years, the independent directors unanimously expressed their confidence in their chairman Cyrus Mistry and praised the steps taken by him in providing strategic direction and leadership to the company’. The statement further added that after deliberations, the independent directors came to a view that being a listed company, it was imperative for the independent directors to state their view to the investors and public at large, such that those who trade in the securities of the company make an informed decision.

This statement by the independent IHC directors is most unusual and displays the deep rift and the tough battle brewing between Tata and Mistry. It has got the dispute out on the street in full public view. It is apparent that Mistry has the confidence of  the full board of IHC. A director of IHC in fact commented that they were not rubber stamps and that Mistry had taken them into confidence for each decision, which had collectively approved his vision. The IHC statement sets a compelling precedent for the directors of other Tata companies, such as Tata Steel, Tata Motors, Tata Chemicals and Tata Power, whose independent directors are expected to act in the best interests of the company, without favour/animosity towards anybody.

It also sets a glowing precedent for the independent directors of other Indian companies, to act in the interests of minority  shareholders, who they represent. As each camp bolsters itself for a bigger war, the young Mistry is scoring points not just because of being a victim of the apparent poor corporate governance, but also because of obvious strategic flaws in the debt laden takeovers by Ratan Tata, which were bequeathed to him.