The board of Tata Global Beverages (TGB), formerly Tata Tea, has voted to remove Cyrus Mistry as the chairman on Tuesday, making it the second major Tata Group company after TCS to do so. As expected, Mistry lashed out at the decision, dubbing it as "inaccurate and illegal". Unlike in TCS, the holding company Tata Sons and other Tata group companies are not the majority stake holder in TGB - the promoter companies hold around 36 per cent stake, including the revolted Tata Chemicals (7 per cent stake). But the TGB board has taken sides with Tata and appointed Harish Bhat, who was part of Mistry's core team as group executive council (GEC) member, as its new chairman.
The dramatic board meeting started with Bhat's proposal to appoint S.K. Santhanakrishnan, a non-independent director, as the chairman of the meeting. But it was rejected by the board, which eventually ousted Mistry at the end. Of the 10 members who voted, just two favoured Mistry - independent directors Analjit Singh (Max India founder) and Darius Pandole (New Silk Route partner). The independent directors who sided with Tata were Tafe Chairman Mallika Srinivasan (who is also on Tata Steel's board), former RBI deputy governor V. Leeladhar and ex-vigilance commissioner Ranjana Kumar.
Tata Sons has already instructed group companies like Tata Steel, Tata Chemicals and Tata Motors to call shareholder meets to strip Mistry from directorships. The general feeling is that these boards support Mistry and that is why Tata instructed for shareholder meets, expecting support from financial institutions, including the foreign firms. Also, there is a belief that the financial institutions will be forced to back Tata's decision, as Tata Sons is the major financial source for the respective companies.
Mistry is also the chairman of Tata Teleservices, Tata Power and Indian Hotels. At the Tata Teleservices board meeting recently, the 'vote of confidence' issue hasn't come up, while the independent directors on the board of Indian Hotels have backed Mistry. The independent directors, who met separately after September quarter results at Bombay House, included HDFC Chairman Deepak Parekh, Nadir Godrej, Keki Dadiseth, Irena Vittal, Gautam Banerjee and Vibha Paul Rishi. The 10-member board of Indian Hotels has six independent directors and two professional directors, in addition to Mistry and his elder brother Shapoor.
How can Mistry be removed? If there is no board majority, Tata can remove him as a director, eventually stopping him from being chairman. For this, Tata Sons requires support of a simple majority of shareholders at the EGM.
Mistry has retained his position at Tata Steel amidst lack of unanimity among the directors, while he got the backing of independent directors at Tata Chemicals. Mallika Srinivasan, O.P. Bhatt (former Chairman of SBI) and Andrew M. Robb (former board member of Corus plc) is believed to back Tata's decision at the Tata Steel board meeting, blocking a move by Nusli Wadia to bring a resolution supporting Mistry. But at the Tata Chemicals meeting, Wadia controlled the show. The chemicals company has four independent directors - Nasser Munjee, Y.S.P. Thorat and Vibha Paul Rishi, in addition to Wadia. All the six independent directors, including Wadia, of the 11-member Tata Motors board met separately to announce their support to Mistry.
The situation shows that it will be tough for Tata to completely remove Mistry from Tata Group, even after the shareholder meetings. If so, there will start a legal battle.