PROMOTERS INFLUENCE ON
CORPORATE GOVERNANCE:
A CASE STUDY OF TATA GROUP
By
Aaron D'Souza 1928801
Jijoy Varghese 1928809
Introduction
Tata Group is a global enterprise which was founded by Jamsetji Tata in
1868. The group consists of over 100 independent operating
companies.
Ratan Tata served as the Chairman of Tata Sons from 1991 till his
retirement on December 28,2012. Since Tata lacked a heir, the second
largest shareholder, Cyrus Pallonji Mistry was appointed the Chairman.
In 2016, in a big shock to the entire corporate world, Tata Group
dismissed Mistry as the chairman of Tata Sons. He was also expelled
from the board of other Tata Companies subsequently.
Since his ouster from Tata Group, Cyrus Mistry has raised several issues
relating to corporate governance. He also took the legal route and filed
a case with the NCLT.
Objectives
To identify reasons for the sudden removal of Cyrus Mistry as the
chairman of Tata Sons.
To understand the problems with corporate governance and its
applicability in Tata Group.
To study the impact of the Tata- Mistry dispute on the financial
performance of the company.
Statement of Problem
Cyrus Mistry was abruptly removed as the chairman of the Tata Sons on
October 24th 2016. After his removal, Mistry raised Several allegations about
corporate governance. This article aims to understand the impact of the
dispute on corporate governance and the financial performance of the
company.
Scope of the study
This study covers the dispute between Ratan Tata, the majority
shareholders of Tata Group and Cyrus Mistry, the former Chairman who
was suddenly removed from his position. This study focuses on the various
corporate governance issues raised and the impact on the financial
performance. Financial data between 2014 – 2018 is used for the study.
Research Methodology
The present study is both analytical and descriptive. It is based on Secondary
data which has been collected from various research studies, journals,
newspapers and various websites.
Review of Literature
B. S. Hothi (2018) mainly concentrates on the issues and the impacts
that occurred because of the battle between the Mistry and Tata Group.
Raghav Pandey and Abhikalp Pratap Singh (2019) in the article discuss
the NCLAT order passed under Section 242 of the Company’s Act 2013
that Tata Sons should reinstate Cyrus Mistry as the executive chairman.
Dr. Sandeep Vij and Surbhi (2018) in the article examine the corporate
governance issues that Indian corporations are facing in the wake of
corporate battles that have hit the boardrooms of Tata and Infosys.
Manas Paul and Parijat Upadhyay in their article talk about the issues of
corporate governance and behavior of independent directors in
different Tata Group Companies post the Tata-Mistry dispute.
Reasons for removal of Mistry
Electrol Funding NANO issue
Bids for Contract Poor governance
Acquisition of Welspun Energy Performance
Fast Food Tie up
Corporate Governance issues
Excessive interference by majority shareholders/promoter group
Majority-minority shareholder imbalance
Existence of a ‘weak’ board
Impact on financial performance
It is seen that the Earnings Per Share (EPS) of the Tata was decreased
after the removal of Cyrus Mistry, but the dividend Payout increased
after 2016.
Return of Assets reduced to 1.23% in the year 2018, i.e. the lowest ROA
in the last 5 years. Their sales growth came to negative in the battle
year and then it increased in the following years.
The company’s debt ratio also increased twice in the year 2018 while
compared to the year 2016, i.e. the year in which the Mistry was
removed from the chairmanship.
The financial statements show that the Profit after Tax has decreased
after the removal of Cyrus Mistry from the Chairman seat.
Conclusion
Tata Group, since its inception, is considered as a very well governed
organisation and its board works on the guidelines and norms provided.
However, the recent dispute between Ratan Tata and Cyrus Mistry has
raised several questions related to governance in the group.
Tata Group could try solving the corporate governance issues through
mediation.
Cyrus Mistry, the former Chairman of Tata Sons could be offered a
position in the Board of Directors in order to protect his interests as a
minority shareholder.
In return, he could be asked not to pursue the legal dispute which is
currently pending before Supreme Court.
Thank You :)
