In his first comments since his abrupt ouster, a “shocked” Cyrus Mistry wrote to the directors of Tata Sons, holding them responsible for their failure to discharge “the fiduciary duty owed to stakeholders” of the group by summarily replacing him as chairman.
“The suddenness of the action and the lack of explanation has led to all manner of speculation and has done my reputation and the reputation of the Tata Group immeasurable harm,” he said in a confidential e-mail to the Tata Sons board members on Tuesday, a copy of which is available with The Hindu.
Mr. Mistry said he had had to endure constant interference from his predecessor Ratan Tata and was “being pushed into the position of a ‘lame duck’ chairman.”
“The previous Chairman was to step back and be available for advice and guidance as and when needed.”
But after his appointment, the Articles of Association of Tata Sons was modified, changing the rules of engagement between the Trusts, the board, the Chairman and the companies.
That led to an “alternative power centre without any accountability or formal responsibility” that constrained the group’s ability to address legacy challenges, including a large debt overhang from the group’s foreign acquisitions.
He said nominated directors were reduced to mere ‘postmen’. Once, two trustee directors had had to leave in the middle of a Tata Sons board meeting for almost an hour “to obtain instructions from Mr. Tata.”
“My desire was to create an institutional framework for effective future governance.”
A Tata Sons spokesman declined to comment.
‘Tatas may face Rs. 1.18 lakh cr. write-down’
Former Tata Sons Chairman Cyrus Mistry has said that losses caused by what he called ‘legacy hotspots’ in the Tata group could result in a write-down of Rs.1.18 lakh crore, over time. In a letter to the board of Tata Sons, Mr. Mistry referred to losses in Indian Hotels Company Ltd, Tata Motors PV, Tata Steel Europe, Tata Power Mundra and Tata Teleservices as having reached alarming proportions.
According to him, “The capital deployed in these companies has risen to Rs.1.96 lakh crore due to operational losses, interest and capex. This figure is close to the networth of the group which is at Rs.1.74 lakh crore.” He said, “A realistic assessment of the fair value of these businesses could potentially result in a write down over time of about Rs.1.18 lakh crore.”
Directors’ failure
Mr. Mistry pointed out the “failure on the part of directors to discharge the fiduciary duty owed to stakeholders of Tata Sons and of the group companies.”
“The previous chairman (Ratan Tata) was to step back and be available for advice and guidance as and when needed. After my appointment, the Articles of Association were modified….and it severely constrained the ability of the group to engineer the necessary turnaround.”
“The European steel business faced potential impairment of $10 billion. Many foreign properties of Indian Hotel Company Ltd and holdings in Orient Express have been sold at a loss.” He said “The onerous terms of the lease of the Pierre (hotel) in New York are such that it would make it a challenge to exit. He said that the Sea Rock hotel acquisition by the Taj Group was at a ‘highly inflated price and housed in an off-balance sheet structure.
Pointing out that the telecom business had been continuously bleeding, he said an exit or shut down would cost $4-5 billion excluding the pay-out to Docomo, with which the Tatas have locked horns in a legal battle.
Blaming Mr. Tata for inking an inappropriate deal he said, “The original structure of the Docomo transaction raises several questions about its appropriateness from a commercial or prudential perspective within the prevailing Indian legal framework.”
Pointing at the failure of the Nano car, Mr. Mistry said this product had caused a loss of Rs.1,000 crore. He said emotional reasons kept him from shutting down the Nano business. “Another challenge in shutting down Nano is that it would stop supply of Nano gliders to an entity that makes electric cars and in which Mr. Tata has a stake,” he said, hinting at a conflict of interest.
“The board of directors has not covered itself with glory. To ‘replace’ your chairman without a word of explanation and without affording him an opportunity of defending himself,” he wrote, “...must be unique in the annals of corporate history.”
The BSE and the NSE have sought clarification from the listed entities of the Tata Group including Indian Hotels, Tata Steel and Tata Motors on corporate governance issues based on the contents of Mr. Mistry’s letter. The SEBI is also monitoring the stock movement of all Group stocks for unusual trading activities.
Sivasankaran’s rebuttal
In a sharp reaction to Mr. Mistry's accusation that the Tatas had lent money to C. Sivasankaran of the Sterling Group, the latter said it wasn’t a free loan. “They have given Rs.200 crore against Rs.600 crore worth of TTSL shares,” he said. Asked if the money was returned, he said it wasn't. “They have written it off in their books and kept the shares with them,'' he added. Asserting that his friendship with Mr. Tata was based on trust, Mr. Sivasankaran refused to dwell any further on the issue. He only added that Mr. Mistry “is not transparent.”
