Tata Group is an Indian multinational unit holding company headquartered in Mumbai, Maharashtra. India. Founded in 1868 by Jamshedji Tata the company gained international recognition after purchasing several global companies, beginning with Tetley in 2000, recorded as “the biggest acquisition in Indian corporate history.” One of India’s largest unions, Tata Group is owned by Tata sons a registered charity.
Each Tata company operates independently under the guidance and supervision of its own board of directors and shareholders. There are 29 publicly listed Tata enterprises with a total capitalization of the market of about $151.62 billion as of March 1, 2018.Significant Tata companies and subsidiaries include Tata Steel, Tata Motors, Jaguar Land Rover, Tata Power, Tata Chemicals, Tata Global Beverages, Tata Coffee, Tata Teleservices, Titan, Tata Communications ; The Indian Hotels Company Limited (Taj Hotels).
The Chairman of Tata Sons is usually the Chairman of the Tata Group.
• Jamsetji Tata (1868–1904)
• Sir Dorab Tata (1904–1932)
• Nowaroji Saklatwala (1932–1938)
• JRD Tata (1938–1991)
• Ratan Tata (1991–2012)
• Cyrus Pallonji Mistry (2012–2016)
• Ratan Tata (2016–2017)
• Natarajan Chandrasekaran (2017–present)
The shareholder patter for the Tata group is Total equity shares 404,142 (?1,000 each).
Shapoorji Pallonji Mistry came to acquire shares of Tata Sons in 1930s when JRD Tata’s younger brother, Dorab, in a fit of anger, sold his shares of Tata Sons to construction magnate Pallonji Mistry just after JRD Tata became Chairman in early 1930s. His shareholding is divided equally between his two sons, Shapoor Mistry and Cyrus Mistry.
The removal of Cyrus Mistry as the chairman of Tata Sons has put the spotlight on the Shapoorji Pallonji Group (SPG), the single largest stake holder in the company outside the Tatas.
During a board meeting Cyrus Mistry’s removal had been announced thus taking the Tata observers by surprise. Cyrus P Mistry was replaced by the former chief Ratan Tata as the interim chairman.
Founded in 1865 as Littlewood Pallonji, the Group’s first projects was construction of pavements in Mumbai.
The association began in 1930s when the grandfather of Cyrus Mistry — who will take over as the chairman of Tata Sons in December, bought stakes in the Tata Group that now makes it the single largest shareholder with a 18.5% stake in the salt-to-software conglomerate.
Shapoorji Pallonji Group shares more than 80-year association with the Tata Group. The association began in 1930s when the grandfather of Cyrus Mistry — who will take over as the chairman of Tata Sons in December, bought stakes in the Tata Group that now makes it the single largest shareholder with a 18.5% stake in the salt-to-software. Pallonji Mistry’s father and Cyrus’ grandfather Shapoorji bought out solicitor FE Dinshaw’s estate which was equal to 12.5% of Tata Sons.
Shapoorji later increased its stake to 18.5% in the Tata Group.
The Group has grown since then to emerge as a pioneer in the field of engineering and construction making it a $4.2 billion company. The Group is currently steered by Pallonji Mistry as chairman. His sons are Cyrus and Shapoor.
The association with Tata’s began in 1935, when Shapoorji Pallonji bought a company called FE Dinshaw and Co., which had 12.5% stake in Tata Sons.
Over the years this stake has increased. At present, SPG through Sterling Investment Corporation and Cyrus Investments hold 9.2% stake each in Tata Sons. In his personal capacity Shapoorji Pallonji Mistry holds 0.03%.
The recent move by Tata Sons, the holding company of the over $100 billion (Rs 6,41,500 crore) Tata Group, to take the company private has brought to the forefront issues related to its ownership and the simmering conflict between the two main promoters – Tata Trusts and the Shapoorji Pallonji family (or the Mistry family).
What Tata Sons has done, much to the distress of the Mistry family is this, that ahead of its annual meeting of shareholders on September 21, Tata Sons have sought shareholders’ approval to amend its memorandum of association and articles of association to convert itself from a public limited company to a private limited one. The special resolution will require 75 per cent of the votes to bring about a change in Tata Sons’ corporate structure.
Two investment firms of the Shapoorji Pallonji family — Cyrus Investments and Sterling Investment — own 18.4 per cent in Tata Sons. Tata Trusts own 66 per cent of the share capital of the company, while the remaining shares are held mostly by the Tata family, some group companies, and a few individuals. That makes the entire holding of the Tata Group in Tata Sons around 81 per cent, which means that the Group can effectively pass any resolutions it plans to move without much consternation.
The timing of the move to change the articles of association of Tata Sons and take it public comes just months after the ouster of Mistry, son of the Pallonji family, patriarch Pallonji Mistry, from the post of Chairman of Tata Sons in October 2016. This was followed by an ugly exchange of statements from both sides. Mistry later moved the National Company Law Tribunal against Tata Sons.
The Mistry family has objected to Tata Sons’ attempt to convert it into a private limited company, say reports. A letter from Cyrus Investments to the Tata Sons board said, “The proposal to convert Tata Sons from a public company to a private company constitutes yet another act of oppression of the minority shareholders of Tata Sons at the hands of the majority shareholders.”
Now the question arises that why is the Mistry family opposing the move so intensly?
The reasons are these-
That once a company becomes private, the transferability of its shares become restricted, and the company will have no right to invite the public for subscribing to its shares. It would also limit the Mistry family’s flexibility when it comes to selling of shares.
This would mean that even if the Mistry family wants to sell its holding in Tata Sons to a third party, it will have the get approval of the Tata Sons board.
While it is not clear that the Mistry family wants to exit Tata Sons, the relationship between the two have become bad to such an extent that even if the shares are sold, Tata would not want Mistry to bring in an investor who might not conform to the Tata, as Mistry himself has done, or maybe a potential rival in business.
The other reason why Mistry would be objecting is that the compliance requirement of a private company is far less compared to a public limited company. Such a company would not need to have the mandatory independent directors that a public company requires on its board. This will allow the promoters to push through decisions without it being intensely scrutinised at the board level by an external party.
It is a foregone conclusion the Tata Sons board will ultimately pass the resolution to take it private, since it has the majority. Mistry knows this too, but he wouldn’t want to let this pass without raising a few questions.
Now the Tata founders bequeathed most of their personal wealth to the various trusts they created for carrying philanthropic activities. These trusts, which include Sir Dorabji Tata Trust, Sir Ratan Tata Trust and Navajbai Ratan Tata Trust, collectively control about 66% of Tata Sons, and are thus hugely powerful. Just before Mistry was appointed chairman, Tata Trusts was given special powers to nominate, approve and remove chairman of Tata Sons.
The Tata Group surprised everyone when on October 24, the Tata Sons board, ousted Cyrus Mistry as chairman. But removing Mistry from independent companies of the Tata Group will not be easy; he is unlikely to go quietly
Without giving any specific reasons, Tata Sons simply said growing trust deficit and repeated departures from the culture and ethos of the Tata group was the reason behind the removal of Mistry. The board also said Ratan Tata would take over as the interim chairman of Tata Sons and a committee was formed to hunt for a new chairman in four months.
The Trusts, which are chaired by Ratan Tata and control about 66% of the shareholding of Tata Sons, were also reportedly unhappy that the performance of Tata Sons was increasingly dependent on only two companies – Tata Consultancy Services and Jaguar Land Rover.
Removing Mistry from independent companies will not be easy; Mistry is also unlikely to go quietly. Last week, the independent directors of Indian Hotels publicly supported Mistry’s leadership ahead of the company’s board meeting. The independent directors, including Deepak Parekh(chairman of HDFC), Keki Dadiseth(Former Chairman of the Board, Hindustan Unilever Limited), Ireena Vittal {Advisor (business building), Expert (Indian agriculture ; urban change) }, Gautam Banerjee(Senior Managing Director and Chairman of Blackstone Singapore) and Vibha Paul Rishi(Independent and Non-executive Director at Philips Lighting India Limited) said, taking into account board assessments and performance evaluation carried out over the years, the independent directors were unanimously expressing their full confidence in the chairman, Cyrus Mistry.
This could bolster Mistry’s confidence and he may find support from independent directors of other group companies too. Crucial board meetings of Tata Steel and Tata Motors are scheduled over the next few days and their proceedings will be watched closely.
If Tata’s aim to seek shareholder support for the management change, the matter will have to be taken up in a separate general meeting, for which a special notice will need to be issued giving reasons for the move. It will also give the director concerned a chance to respond. Such a meeting may also bring management decisions taken in the past under more scrutiny and so legal experts say this could be last option for Tata’s.
With a long drawn legal battle, the Tata’s have already consulted senior advocates like Harish Salve and Abhishek Manu Singhvi. Mistry too has reportedly appointed top lawyers like Janak Dwarkadas to fight his case.
a majority of the directors nominated by the Trusts have to approve with affirmative voting the appointment and removal of chairmen. Affirmative vote items are those where, in the absence of participation by the concerned directors, the company cannot undertake an action. Some of these special powers seem to have been added to the articles of association at the time of Mistry’s appointment as chairman and after that. To be sure, these may have also been added to protect the interests of Tata Trusts. Mistry’s appointment as chairman of Tata Sons was only the second time the trusts and the holding company had different chairmen—Ratan Tata and Mistry, respectively. The first instance was when J.R.D. Tata was the chairman of the Tata Trusts and Ratan Tata was chairman of Tata Sons for a few years in the 1990s.
But however, the National Company Law Tribunal (NCLT) on Monday dismissed Cyrus Mistry’s plea challenging his ouster as chairman of the Tata Group bringing to an end the first round of the18-month legal battle between the two parties.
The crux of the complaint filed by Mistry, who was fired as executive chairman of the Tata Group in October 2016, was that he had been wrongly dismissed and that the articles of associations of Tata Sons were “biased against the rights of minority shareholders”.
Other allegations made by Mistry included a breakdown of corporate governance standards and allegations of misconduct in certain group companies including Air Asia, Tata Docomo and the Tata Nano project.
The NCLT dismissed a majority of these allegations, stating that there was nothing wrong with Mistry’s removal.
The issues that we presented were
Mistry allegations against Tata Sons at NCLT:
1) Illegal removal of Cyrus Mistry
2) Abuse of articles of association
3) Mismanagement at Tata Sons and oppression of minority shareholders
4) Excessive interference by Tata Trusts
5) Ratan Tata acted as a “super director”.
Tata Sons’ response:
1) Mistry’s removal was not illegal, board is within its rights to dismiss him
2) Any allegation against Ratan Tata is misconceived
3) Flawed business decisions do not translate into “oppression” of minority shareholders
4) Mistry was well acquainted with affairs of Tata Sons, was quiet about alleged mismanagement during his tenure as chairman.
Tata Sons is essentially the holding company of the Tata Group, which is a unit of over 100 companies ranging from salt to software, automobiles and aviation with combined revenues in excess of $100 billion. Typically, the chairman of Tata Sons is also the chairman of key group companies. However, in this case, while Ratan Tata was named the interim chairman of Tata Sons, Mistry still remains the chairman of various group companies.
The move is a significant step towards terminating all ties with the Shapoorji Pallonji Group and indicates that the battle between the two groups, which was ignited when Cyrus Mistry was sacked as Tata Sons chairman in October last year, is showing no signs of coming to an end. SP Group holds about 18.4% in TataSons.
Almost 50 companies of the SP Group will be affected by the Tata Sons board decision taken on August 9. Cyrus Mistry and elder brother Shapoor Mistry each own half of the privately-owned SP Group.
Soon after Mistry was sacked and the former chairman wrote the scathing letter to the board, stock exchanges sent notices to various Tata Group companies seeking clarification. Sebi officials too have indicated that the market regulator is watching every development closely and action will be taken if any corporate governance issues emerge. The finance ministry too has asked financial institutions including the Life Insurance Corp of India and banks to keep a watch on developments to protect investors’ interest. LIC alone has an exposure of about Rs 37,500 crore to various Tata group companies.
Sources said Mistry was not even consulted on these appointments, reflecting the simmering discontent between Tata Trusts and the chairman.
Concerns were also voiced about conflict of interest regarding award of contracts to construction companies of the Shapoorji Pallonji Group even after Mistry took over.
Several of Mistry’s decisions, including the disposal of some of Indian Hotels Co’s overseas properties and especially the move to shut the UK steel operations, did not go down well with Tata Trusts.
However now as the verdict has come out it was not surprising when it got difficult to prove the oppression and mismanagement even for the powerful minority shareholder, Cyrus Mistry.
The National Company Law Tribunal dismissed on Monday a petition by ousted Tata Sons chairman Cyrus Mistry, who had alleged oppression of minority shareholders and mismanagement by Tata Sons. NCLT said it did not find any merit in allegations of mismanagement in Tata group companies. Mistry had taken over as the chairman of the Tata Sons group in 2012 after Ratan Tata announced his retirement.
Mistry, who was the sixth chairman of the group, was ousted from the position in October 2016.
In the petition filed under the companies Act, Mistry had claimed that his removal was due to a result of mismanagement by the board’s trustees and oppression of minority shareholders of the group. The legal feud has seen a war of words unprecedented in the Tata Group’s 150-year-old history and in the history of corporate India. Both sides have exchanged barbs through defamation suits, hundreds of affidavits and references to past emails and letters.
With the use of analytical tools such as PESTLE analysis, SWOT analysis this project aims to gain a deeper insight into the TATA company to evaluate its performance as well as the company’s possible future strategic moves after the removal of Cyrus Mistry.
The tools I am going to use are:
1. PESTLE:
Political Factors
Political factors are very crucial as well as critical in a company as the company has to revise its rules and regulations according to the political environment of the country they are going to function in. The main activities that are directly affected by political environment are operational cost, supply chain management and competition policy. The political instability of a company could result in slow economic growth. Thus, it is of uttermost importance for the group to carefully determine the political stability of the country before stepping into it. It is obvious that when there is a political agreement to function in a certain country, then there will be certain benefits for both parties like (homeland of the company and the country where the company wants to extend its business) reduced tax and non-tax barriers. This would majorly benefit the Group in its cross-border operations mainly.
Economic Factors
Economic factors are the set of fundamental information that affects a business or an investment’s value. They play an important role in determining the economic growth of the country. It also tells us about the consumers purchase pattern and behaviour. A country experiences a sudden decline in economy (economic meltdown) would not be an ideal to penetrate for starting business operations for the Tata Group as compared to a country which has a stable and has sound market. After its recession in 2008, the UK economy is restoring speedily. One of the most favourable conditions from the investor’s point of view is the strong position of British currency against other currencies. It minimizes the risk factors and hence attracts investors to invest their money safely.
Social Factors
Social factors refer to lifestyle, social activities, customer trends, buying and spending habits of customer etc. Social factors are critical for an organization as they need to know that what kind of product will be appreciated by the customers, if appreciated, do they have enough purchasing power to purchase your product etc. Tata Group emphasized on these factors before penetrating in the car industry of the UK. In the UK, family cars are not in demand and hence this is the result of the lifestyle of the people living in the UK. They prefer to buy SUVs and luxury cars, so the growth trend can be observed towards the luxury car portion (Veloso ; Kumar, 2002).
Getting this to Cyrus Mistry he said that he was pushed too far for higher sales of the Nano Car which according to him was doing no good for the company rather it was becoming a burden on the company but as the car was the dream project of Ratan Tata he was not willing to stop its production which was costing the company and the entire group at large. He also said that he wanted to use Nano for Ola instead of Uber as Ratan Tata himself had a personal investment in Ola.
Technological Factors
Technological factor is also very critical from the organizational perspective as well as from the consumer’s perspective. Internet is one of the most important technological factors as it opens new transactional potentials, managing and operating prospects such as marketing mix, ecommerce, global market targeting, market research and targeting exact segments in low cost. Tata Group is also considering the importance of technological aspects (Currimbhoy, 2004).
Legal Factors
These are the government imposed rules and regulations to protect the general public and the intrests of a business.
Now the chairman, Cyrus Mistry who’s duty is to presides over meetings of the assembled group and conducts its business in an orderly fashion has not only described the board proceedings as invalid and illegal but also alleged that he had not been given any free hand despite being assured of the same by Ratan Tata before he accepted the top job.
Also Mistry alleged that after he was appointed as chairman, Tata Trusts amended the articles of association which constrained him to do his job. Where as a Chairman has the right to receive immediate information of the arrest, detention, conviction, imprisonment and release of a member on a criminal charge or for a criminal offence.
Cyrus Mistry filed his reply along with the Affidavit to the National Company Law Tribunal (NCLT), in which he said that he was not allowed to run the group as per his own. Cyrus Mistry had also provided the documents as evidence to prove that there was a lot of interference by Ratan Tata in working of his office. As evidence, he had provided the messages which were exchanged between him and Ratan Tata which is more than 555 in number, which very clearly proves that there was a lot of interference on the part of Ratan Tata.
Environmental Factors
Environmental factors involve everything that changes the environment. Some factors are visible, while others cannot be seen. In some situations, only the effects of environmental changes are evident.
For the Tata group, these issues are being addressed in two ways. At one level, an overall change in organisational behaviour is being sought through the Tata Code of Conduct 2008 which is the values and principles which have governed the manner in which the Tata Group of companies and their employees have conducted themselves were first formally articulated. This is being backed up by the climate change initiative that will be run through Tata Quality Management Services (TQMS), which will support the companies in their attack on global warming.
2. SWOT Analysis
Strength
Since Mistry lost his board seat after being removed as chairman of Tata Sons last year, his power to control decisions at group companies is curtailed further. Also, a private limited company restricts rights of share transferability.
Tata Sons will also not need shareholders’ approval for selling any company undertaking, borrowing money to invest in trust securities or appointing managing director, whole-time director, manager or their respective remuneration.
Weakness
When an iconic leader leaves after 21 successful years at the helm, you need some degree of continuity and not uncertainty. Logically, the Tatas should have appointed an insider whom they trusted.
There was possibly a mismatch in values between the Tatas and the Mistrys, despite the two families’ close business and personal ties. The Pallonji Mistry group operates in the not-so-straight construction and real estate business, while most of the Tata businesses are blue-blooded global ones.
Shares of Tata Group companies fell on Tuesday, a day after the group ousted Cyrus P. Mistry as the chairman of the conglomerate’s holding company Tata Sons Ltd.
Tata Steel Ltd fell 2.51%, Tata Global Beverages Ltd 2.5%, Tata Power Co. Ltd 1.5%, Tata Consultancy Services Ltd 1.2% and Tata Motors Ltd was down 1.1%. The benchmark Sensex index was down 0.31% to closed at 28,091.42 points.
Opportunity
Threat
The house of Tata in India which is perceived as the ethically number one position enjoyed by house has now gotten the TATA shareholders under subtle threat due to the decision to remove Mr. Cyrus Mistry, a powerful minority shareholder from position of chairman of Tata Sons. Thus, this poses a threat to the other minority shareholders who are not as powerful as Cyrus Mistry.
