December 14, 2016 / 2:51 AM / 7 months ago

BREAKINGVIEWS-Outside shareholders tell Tata to shape up

4 Min Read

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

HONG KONG, Dec 14 (Reuters Breakingviews) - Ratan Tata has been dealt a stinging rebuke. Barely half of independent investors backed the removal of his protégé-turned nemesis Cyrus Mistry as a director of Tata Consultancy Services. A large insider shareholding at TCS, the Indian outsourcer that is the crown jewel of the $100 billion-plus Tata conglomerate, means Mistry will still get the axe. But the vote underscores the urgency for the group patriarch to either fix governance or take tighter control of group companies.

TCS was always going to secure the majority required to remove Mistry, given the $64 billion company is 73 percent owned by Tata Sons, the holding vehicle for companies in the wider Tata group. But the underlying numbers are damning, with just 55 percent of votes cast by independent shareholders in favour. Worse, around half of outsiders did not vote at all, marking an unusually high level of abstentions. Put another way, only 28 percent of minority investors wanted Mistry out.

It looks like many large outfits abstained, to avoid taking sides in one of India's biggest corporate controversies. Mistry was abruptly removed from the helm of the group as chairman of Tata Sons in October. Ratan Tata, his powerful predecessor, has since returned as interim chair of the conglomerate and the pair have engaged in a bitter war of words, with Mistry alleging "a total lack of corporate governance" within the Tata empire.

The vote makes clear that there is considerable support for Mistry's claims. Similar extraordinary general meetings will be held in the coming days to vote on whether to remove Mistry from posts at companies including Tata Motors, Tata Power and Tata Steel - where Tata Sons does not own a majority of shares. That puts pressure on Ratan Tata to act decisively to address shareholder concerns, primarily by revamping the board at Tata Sons. Alternatively, he needs to increase Tata Sons' shareholdings to shore up its position.

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Context News

- Tata Consultancy Services shareholders voted to remove Cyrus Mistry as a director, according to results published on Dec. 13.

- About 93 percent of shareholders in the Indian outsourcing giant who cast their vote were in favour of removing Mistry. Tata Sons and related entities own 73 percent of TCS.

- Mistry was in October ousted as a chair of Tata Sons, the holding vehicle for companies in the wider Tata group. In November, he was removed as chair of TCS in a special board meeting.

- However, the results showed that 45 percent of minority shareholders voted against the resolution to remove Mistry, including an overwhelming majority of non-institutional independent investors. Turnout was high, with around 87 percent of shareholders casting their vote.

- Three other group companies - Indian Hotels, Tata Steel, and Tata Motors - will hold their shareholder meetings next week.

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Editing by Quentin Webb and Katrina Hamlin

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