Principles of Corporate Governance put to test!

In the past few days, there have
been two events which have caused sadness to professionals. The first event was
the will of God, whose wishes one has simply to accept. This was the untimely
demise of Rajesh Kapadia, an eminent Chartered accountant and a past president
of the Society. He was a man with sterling qualities, thoroughly professional
and yet humble to the core. I have had the good fortune of having worked with
him and have greatly benefited from the interactions. With his departure, the
profession has suffered a loss which cannot be made good.

The second event was the will of
men, the removal of Cyrus Mistry, as the chairman of Tata Sons, an entity which
virtually controls the Tata group. The name Tata has a special place in the
heart of nearly all Indians. The name, the brand may have been valued, but to
me, it was invaluable, and I hope it remains so. This was a group that carried
on business, with the object of creating wealth for all stakeholders and the
public. The concept that a businessman was a trustee was a principle that the
group followed in letter and spirit. This was because nearly 2/3rd of the
group’s wealth, belonged to various Tata Trusts which are public charitable
trusts. Philosophers, business commentators, and management gurus have lauded
the ethical standards of this group.

In this context, the removal of
Cyrus Mistry as the chairman of Tata Sons, caused shock and surprise, and the
manner in which it took place left a tinge of sadness in the mind. One would
like to believe that the wise gentlemen, who took this step, must have had
compelling reasons for taking the drastic action that they did. They would have
had interests of all stakeholders at heart. A change of guard, even a sudden one
is not unknown in industrial groups, but that it should happen in the Tata
Group is bound to create waves.

Firstly, the incumbent Cyrus
Mistry was not a hurried choice, but had been appointed after a long search and
deliberations. He had plenty of experience, was echnically sound and also had
to some extent a lineage. It is true that, in his four-year tenure the fortunes
of the group were not exactly ascendant. But that was the position with many
industrial groups. It was known that there were differences of opinion in
regard to various business decisions like divesting of assets, ownsizing of
businesses that were taken during his tenure.

There is very little in the
public domain which would lead one to believe that, change of chairman was
being considered much less imminent. Therefore, the manner in which Cyrus
Mistry was removed and the speed of the actions thereafter left one really
surprised. From what has been reported in the media, the action does not appear
to be fair, even if it may have been legally right and necessary. These
observations are from what has appeared in the press, and one is conscious that
these reports are not necessarily accurate.

In the action that was taken, it
appears that at least two principles of governance were not fully adhered to.
Firstly, in an action of this magnitude, it is imperative that all the
stakeholders are informed to the extent possible. These would be shareholders,
lenders, business affiliates, associates and in the case of the Tata Group the
public at large. This is because a majority stake in the Group’s fortunes is
held by public charitable trusts. By their very definition, every member of the
public is interested in those trusts. One is aware that if information as
sensitive as this is placed in the public domain, there would be some fallout
articularly in the form of an effect on share prices. But I am sure that a
group as strong as the Tata Group would not be unduly concerned with these
short-term effects.

Secondly, one has to be fair in
regard to the person against whom action is taken and also appear to be fair.
From what is reported in the media, Cyrus Mistry was not aware of the proposed
action and the notice, if at all it was given, appears to be very short. At the
cost of repetition, there is anguish, not for the removal of an individual,
because that must have been necessary for safeguarding the interest of the
Group, at least in the minds of those men who took the decision, but in taking
that action, some principles of governance appear to have been compromised.

I hope that the action does not
lead to litigation, and the public is quickly and fully informed as to the
rationale behind the decision, and the speculation is put to an end.