ROLE OF CORPORATE GOVERNANCE IN TATA COMPANY: SAKSHEE SAHAY
This
year marks the twentieth anniversary of the earliest corporate governance
initiative in India, namely the release in 1998 of a voluntary code for
‘Desirable Corporate Governance’ devised under the aegis of the Confederation
of Indian Industry.[1] The NCLAT verdict on Cyrus P Mistry has again brought into
sharp focus corporate governance issues given the manner in which he was ousted
from his position as Chairman of Tata Sons. Corporate governance experts are of
the view that the issue of the dismissal of Mistry did not comply with rules.
"The entire process of the removal of Cyrus Mistry as chairman of the
group and the Board was shocking. The reasons given for his removal was a
surprise," said Shriram Subramanian, proxy advisor, InGovern.[2]
Corporate governance is the collection of mechanisms, processes and relations used by
various parties to control and to operate corporations.[3] Corporate governance
is necessary because of the possibility of conflicts of
interests between stakeholders, primarily between shareholders and upper
management or among shareholders.[4] These
conflicts of interests appear as a consequence of diverging wants between both
shareholders and upper management (principal–agent problems) and among
shareholders (principal–principal problems),[5] albeit
withal other stakeholder cognations are affected and coordinated through
corporate governance.
The Harvard Law
Forum writes: “The UK Corporate Governance
Code exists because companies do not exist in isolation. Successful and
sustainable businesses underpin our economy and society by providing employment
and creating prosperity. To succeed in the long-term, directors and the companies
they lead need to build and maintain successful relationships with a wide range
of stakeholders. These relationships will be successful and enduring if they
are based on respect, trust and mutual benefit. Accordingly, a company’s
culture should promote integrity and openness, value diversity and be
responsive to the views of shareholders and wider stakeholders.”[6]
Crux of Corporate Governance in Tata Motors
Tata Motors' Corporate Governance
philosophy is further strengthened with the adherence to the Tata Business
Excellence Model as a means to drive excellence.[7] Through
the Governance mechanism in the Company, the Board along with its Committees
undertakes its fiduciary responsibilities to all its stakeholders by
ascertaining transparency, fairplay and independence in its decision making.
The Corporate Governance mechanism is further fortified with the adherence to
the Tata Business Excellence Model as an expedient to drive excellence and the
Balanced Scorecard methodology for tracking progress on long-term strategic
objectives. The Company is in full compliance with the requisites of Corporate
Governance under the Securities and Exchange Board of India (Listing
Obligations and Disclosure Requisites), Regulations, 2015 (“SEBI Listing Regulations”).
The Company’s Depositary Programme is listed on the Incipient York Stock
Exchange and the Company withal complies with US regulations as applicable to
Peregrine Private Issuers (non-US companies listed on a US Exchange) which cast
upon the Board of Directors and the Audit Committee, onerous responsibilities
to ascertain higher standards of the Company’s operating efficiencies. Risk
management and the internal control process are focus areas that perpetuate to
meet the progressive governance standards.
BOARD OF DIRECTORS
The Board currently comprises of
9 Directors, out of which 7 Directors (78%) are Non-Executive Directors,
including 2 women directors. The Company has a Non-Executive Chairman and 5
Independent Directors, comprising more than a moiety of the total vigor of the
Board.
To ascertain that a transparent
Board nomination process is in place that inspirits diversity of mentally
conceived, experience, erudition, perspective, age and gender, the Board has
adopted a Diversity Policy, formulated by the Nomination & Remuneration
Committee (“NRC”), wherein it is expected that the Board has an opportune
coalescence of functional and industry expertise. Whilst recommending the
appointment of a Director, the NRC considers the manner in which the function
and domain expertise of the individual contributes to the overall
adeptness-commix of the Board and is fortified by the Group Human Resources in
this regard.
THE EXECUTIVE COMMITTEE OF THE BOARD
The Committee reviews capital and
revenue budgets, long-term business strategies and plans, the organizational
structure of the Company, real estate and investment transactions, allotment of
shares and/or debentures, borrowing and other routine is paramount.
CORPORATE SOCIAL RESPONSIBILITY (CSR) COMMITTEE
The Committee is constituted by
the Board in accordance with the Act to: a. Formulate and recommend to the
Board, a Corporate Gregarious Responsibility Policy which shall designate the
activities to be undertaken by the Company as designated in Schedule VII of the
Act; b. Recommend the amplitude of expenditure to be incurred on the activities
referred to in clause (a); and c. Monitor the Corporate Gregarious
Responsibility Policy of the Company from time to time. The CSR Policy is
uploaded on the Company’s website as required under the provisions of Section
135 of the Act and Rule 9 of the Companies (Corporate Convivial Responsibility
Policy) Rules, 2014.
MEANS OF COMMUNICATION
The Quarterly, Half Yearly and
Annual Results are conventionally submitted to the Stock Exchanges in
accordance with the SEBI Listing Regulations and are generally published in the
Indian Express, Financial Express and the Loksatta (Marathi).
Violation of Corporate Governance by TATA: Cyrus Mistry Case
Over the last two years, several
high-profile crises erupted in well-kenned companies such as Tata Sons,
Infosys, ICICI Bank and IL&FS, just to denominate a few, wherein the role
of the board of directors has been called into question. One may be forgiven
for harbouring the notion that the governance norms in India are an abject
failure. But matters are more nuanced than that.
The scope and utility of the
oppression and mismanagement remedy came to the forefront in the high profile
Tata-Mistry corporate battle. As is prominent, the minority shareholders
belonging to the Mistry camp challenged sundry decisions taken by the ascendant
shareholders belonging to the Tata group. These included several business
decisions taken in sundry Tata group companies, the amendments of the articles
of sodality of the holding company Tata Sons Ltd. to enhance the potencies of
the Tata shareholders and ultimately the abstraction of Cyrus Mistry as the
executive chairperson and thereafter as a director of Tata Sons. After marathon
hearings, the Mumbai Bench of the National Company Law Tribunal issued a
368-page ruling declining to grant any mitigation to the minority shareholders.
The office of Cyrus P Mistry, the ousted Chairman of Tata Sons, has sent a
letter to stakeholders of Tata Group companies, highlighting governance failure
in the group.
Much as one may be sympathetic to
the minority’s cause in the Tata Sons case, the present predicament arises
because the Companies Act, 2013 substantially narrows the scope of the
oppression and mismanagement remedy.
Conclusion
The larger impact of the NCLAT decision will be the
safeguarding of minority stakeholders, perhaps. Not all of them have deep
pockets to fight a case like Mistry. However, viewed in the context of several
other governance-related issues and responses of the regulatory agencies,
Indian corporates will have to apply higher standards of governance processes,
said Ramachandran of ISB.[8]
[1]
https://www.bloombergquint.com/opinion/board-failures-the-travails-of-corporate-governance-without-enforcement
[2]
https://www.firstpost.com/business/mistry-vs-tatas-nclat-verdict-indicates-corporate-governance-is-not-only-about-rules-but-also-processes-say-experts-7803061.html
[3]
Compare: Mallin,
Christine A. (2006). "Corporate governance developments in the UK".
[4]
Goergen, Marc, International Corporate Governance, (Prentice
Hall 2012) ISBN 978-0-273-75125-0
[5]
Voorn, Bart; Genugten, Marieke; Thiel, Sandra (September
2019). "Multiple principals, multiple problems: Implications for effective
governance and a research agenda for joint service delivery". Public
Administration. 97 (3): 671–685. doi:10.1111/padm.12587
[6] Lakshna
Rathod Why Is Corporate Governance
Important? Diligent
[8]
https://www.firstpost.com/business/mistry-vs-tatas-nclat-verdict-indicates-corporate-governance-is-not-only-about-rules-but-also-processes-say-experts-7803061.html
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