‘Tata Trusts Set up for Philanthropy, Not to Control Tata Group’

If the beneficiaries of Tata Trusts are people of India, then they deserve to know why Cyrus Mistry was sacked.

Tata Power independent director Nawshir Mirza has questioned the governance of Tata Trusts. (Photo Courtesy: Youtube screengrab)

Nawshir Mirza, an independent director at Tata Power Company Ltd, has questioned the governance of Tata Trusts and their control over Tata Group companies.

Speaking at a panel discussion on corporate governance, Mirza criticised the developments of the last six to seven weeks.

He asked if the Tata Trusts were set up to undertake philanthropy or to control Tata Group companies and whether Tata Sons Ltd was merely a ‘special purpose vehicle’ for the Trusts.

Mirza raised a number of issues, posing them as questions and detailing each from an independent director’s point of view.

Who Are The Real Owners Of The Tata Group?

The people of India own the Tata Group via the Tata Trusts. The Trusts are not family trusts or private trusts; they are public charitable trusts. No ‘Tata’ has any right to them.

Also Read: Beginning of the End of Cyrus Mistry as Tata Director?

What Report Of Stewardship Do The Trusts Provide Their Beneficiaries?

If the beneficiaries are the people of India, then they deserve to know why the Trusts’ Chairman Ratan Tata insisted on sacking Tata Sons’ Chairman Cyrus Mistry. But Tata says the reason will go with him ‘to his grave’, that is not stewardship.

Also Read: This is Why Ratan Had to Say Tata to Cyrus Mistry

The Tata Saga: Don’t Forget, Mistry Inherited a Troubled Empire

Governance Of The Trusts?

How are the trustees of the 14 Tata Trusts, the managing trustee and the chairman of Tata Trusts (as the combined entity is known) chosen? R Venkataramanan was appointed managing trustee but did the trustees approve the grant of such power to one individual?

Tata Trusts are not a device to control the Tata Group, they were set up as Trusts to do philanthropic activity which was to be funded via shares of Tata companies.

Do the various Trusts hold meetings? Do they share with the public an account of the money they have or spent?

Two trustees, Keki Dadiseth and Nasser Munjee, also independent directors on group companies’ boards, differed with the Trusts’ view on Mistry – what explains that?

Who Regulates The Tata Trusts?

One columnist suggested they are regulated by the Charities Commissioner and Income Tax Department. But one is an outdated bureaucracy, and the other is interested only so far as to collect tax.

If these are the only vehicles left to govern the Trusts, then is there any governance?

What Are The Objectives Of The Trusts?

Is it to ensure maximisation of dividend payouts by the group’s operating companies? But what about the other shareholders of the operating companies, they may differ on how the ‘returns’ should accrue.

How Are The Operating Companies Accountable To Tata Sons?

What should be the nature of the relationship between Tata Sons and the group’s operating companies?

For instance, SEBI’s anti-insider trading regulations permit the sharing of price sensitive information strictly on a need-to-know basis. It is understandable that price sensitive information is shared with Tata Sons and Tata Trusts when the majority shareholder is offering a guarantee for an acquisition or project. But when there is no such guarantee or financial assistance involved should price sensitive information be shared with Tata Trusts?

Mirza said he was surprised when Cyrus Mistry told him that he had sent an email to Ratan Tata informing him of Tata Power’s acquisition of Welspun Energy Pvt Ltd’s power assets a few weeks before the stock exchanges were informed.

Also Read: The Tata-Mistry Battle Is a Sideshow, the Real War Is yet to Come

Why Have Tata Sons At All?

If Tata Trusts are the owner of the Tata Group, is Tata Sons only a special purpose vehicle for the Trusts’ shareholding of the group? Then why have it at all? Wouldn’t it be more feasible for the Trusts to sell all their shares in Tata Sons and live off the interest earned on the approximately Rs 1.5 lakh crore the sale will fetch? They will struggle to be able to spend the interest income on philanthropic activities.

Why Was Cyrus Mistry Sacked?

Mistry says close to 50 independent directors at the various group companies evaluated his performance and found it to be satisfactory. So was he determined to be a bad chairman of the group companies or a bad CEO of Tata Sons? Does anyone understand why he was asked to go?

Also Read: ‘Over In A Minute’: Mistry Aide Writes About Ouster From Tata Sons

After Heaping Praise, Why Did The Tata Sons Board Sack Mistry?

Cyrus Mistry’s Letter Makes 3 Important Charges

• That huge strategic mistakes were made, ie aggressive, expensive acquisitions.
• That Ratan Tata used Tata Sons to indulge his personal interests by insisting on entering the aviation business.
• That ‘cronies’ of Ratan Tata, namely Siva Group Chairman, C Sivasankaran, M Pallonji Group’s Mehli Mistry and Tata Trusts’ Managing Trustee R Venkataramanan, coloured his judgment of Mistry.

Nawshir Mirza joined the board of Tata Power in 2006. A veteran chartered accountant, Mirza spent over three decades at audit firm SR Batliboi & Co, now a member firm of EY Global. Mirza also serves on the board Exide Industries Ltd, Thermax Ltd, and the Centre for Advancement of Philanthropy.

Tata Power’s shareholders will meet on 26 December to vote on the resolution proposed by Tata Sons seeking the removal of Cyrus Mistry as the company’s director and chairman.

Also Read: Ratan Tata Likely to Step Down as Chairman of Tata Trusts

Darius Khambata Quit Tata Trust a Day After Cyrus Mistry Was Fired

Holy Shit Tata, What Have You Done with HEXA?

Originally published in Bloomberg Quint)