Feud between Tata Sons and Cyrus Mistry can make group boards dysfunctional

According to a proxy firm IiAS, if the public feud between Tata Group and Cyrus Mistry continues, there is a risk of Tata group becoming dysfunctional. This is possible as the most important employees of Tata Sons are divided into two groups.

"There is now, a real possibility that boards of listed companies may choose to ignore Tata Sons. This is likely to make lenders nervous, and they may show restraint in extending any further credit, until there is clarity regarding the evolving relationship between Tata Sons and the operating businesses," the firm wrote in a report titled 'Game of Thrones'.

The report also added that the relationship between the operating companies and the group is symbiotic. The group no doubt defines these operating entities - but the companies also define the Tata group.

The report said that independent directors of the listed companies must provide comprehensive guidance to shareholders on whether Cyrus Mistry should remain Chairperson.

Seven independent directors of Indian Hotels Company (IHCL) have already backed Mistry and the steps taken by him as the chairman of Tata Sons.

The advisory firm also said that as a dominant shareholder with more than 30% holding in each of the companies, the Tata group can call an extraordinary general meeting and present a resolution to remove Cyrus Mistry as a director. But, for the resolution to pass, it needs the support of at least 51% of shareholder votes i.e. those present and voting, it added.

"If shareholders do not support the resolution, Mistry will continue as Chairperson on the seven listed companies' boards. If so, Tata Sons' control over the listed companies may diminish," the report wrote.

The report finally concluded by adding that at the extreme, this feud might create an alternate power structure raising fear of a throwback to when Ratan Tata took control after battling satraps.
(image: IndiaTimes)