Tatas Tell Shareholders That The Company May Break Up If Cyrus Mistry Is Not Removed

With extraordinary general meetings of various Tata group companies scheduled over the next fortnight, promoter Tata Sons has appealed to shareholders for support to remove Cyrus Mistry from the chairmanship and boards of six such listed operating entities.

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In a four-page statement, Tata Sons said if Mistry stays as chairman of Tata companies, it may lead to "fragmentation" of the Tata Group.

It said, "Tata companies and Tata Sons have, for many decades, worked cohesively and seamlessly for the benefit of all stakeholders...the operating Tata companies have individually grown and prospered but they have also benefited in no small measure from being part of the group. This encompasses the ability to attract and retain management and employees, use the Tata brand nationally and internationally , help in the marketing of the companies' products and the ability to attract capital..."

"All such benefits are likely to be at stake if Mistry continues to remain chairman, as his continuance is likely to lead to fragmentation of the group," said Tata Sons. Mistry was replaced as Tata Sons chairman on October 24. TCS, in which Tata Sons holds 73%, will be the first listed Tata company to hold an EGM on Tuesday. Indian Hotels, Tata Steel, Tata Motors, Tata Chemicals, Tata Power will hold theirs between December 20 and December 26.

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Tata Sons said Mistry was appointed chairman of operating Tata companies only through his chairmanship of parent company Tata Sons. When Mistry was removed as chairman of Tata Sons, propriety and reason demanded that he step down from his post in the Tata companies, it said.

Following his ouster as group chairman, his public statements have caused instability and confusion in Tata companies and the managements, it said. They have also caused enormous damage and financial loss to shareholders, it added.

Tata Sons said over the past four years Mistry had gradually concentrated all powers in his hands as chairman of major Tata companies. It said Mistry systematically diluted representation of Tata Sons on the boards of Tata companies, whilst being fully aware that Tata Sons was the key promoter and largest shareholder of these entities. "This was very much against the past practices and traditions of the group," said the Tata Sons statement.

"Mistry has claimed that he was not given a free hand. Ironical it may be, but in our view it was this free hand and trust in him that Mistry took advantage of, to weaken management structures in Tata companies acting contrary to his fiduciary duties," it said.

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The company said Mistry also did not park his shareholding in his family-owned enterprise Shapoorji Pallonji Group in an "arm's-length Trust", something he had agreed upon when he was appo inted as executive vice-chairman in 2011. According to Tata Sons, Mistry retracted his position saying that he could not find a way of doing it.

"Such conduct by Mistry was inappropriate and created a sense of breach of trust on his part...retraction created grave concerns on Mistry's ability to lead the group devoid of personal conflicts and put to risk the high standards of selfless governance," said Tata Sons.

Tata Sons said Mistry complained about legacy issues and stayed away from tackling difficult situations. Instead, he took the easy option of large amounts of write-offs, much to the detriment of shareholders, while blaming it all on the past management, it said. The holding company of the group said Mistry had misled the selection committee which was set up in 2011to find a chairman to succeed Ratan Tata. It said at that time Mistry had made "lofty statements" about his plans for the group including an elaborate management structure for the diversified enterprise, factors that made the committee select Mistry as chairman of Tata Sons.

"After waiting for four years, almost none of these management structures and plans have been given effect to," Tata Sons said. "Clearly, in our opinion, the selection committee was misled in its choice of Mistry".