As the Ratan Tata-Cyrus Mistry spat shows no sign of abating, the possible role of government-owned insurance companies that hold significant stakes in the several publicly-held Tata companies is coming into sharper focus.
If the Tatas use the EGM route to try to oust Mistry from the chairmanship,these insurance companies, and particularly Life Insurance of India (LIC), will play an important role as they hold significant double digit equity stakes in Tata SteelBSE 7.62 %, Tata Power and Tata Global BeveragesBSE 4.06 %. They are also shareholders in Tata Motors, Indian Hotels and TCS.
A resolutionto remove Mistry would require to be approved by a 51% vote in its favour and the support of the government-owned financial institutions will come in handy for the Tatas.
Government sources said representatives of financial institutions appeared to be sympathetic towards Mistry and they had not liked the manner in which Mistry was ousted as chairman of the Tata Sons boards. “They are watching the situation closely,” he said. Their sympathy for Mistry however does not necessarily mean that the institutions will support Mistry in the various possible battles that lie ahead.
Officials of the insurance companies say they will take a final decision in consultation with the government, and that so far the government has not given them any advise or directions.
The government has so far stayed out of the high-profile battle and quietly watched from the sidelines. While both Tata and Mistry have met Prime Minister Narendra Modi and explained their actions to him, the government has taken the view that it should not interfere in a corporate battle.
“This is a corporate governance issue,” said another official, and not an issue where the government takes a view.
Government-owned institutions have traditionally not adopted an activist position in their portfolio companies and have voted along with the promoter or the largest shareholder.
They have generally taken the view that they will not destabilize well managed companies.
“Each company in the group is governed by specific boards and unless there is a corporate governance issue we will not intervene with the collective wisdom of the board,” said a senior official with one of the insurers.
But if the battle spills over to EGMs and acrimonius voting, the government and it financial institutions might have to take a call. The government functionary quoted earlier said the issue had not been discussed at the highest levels of the government.
In addition to LIC, New India Assurance and General Insurance Company (GIC) are the other government-owned institutions with a significant holding in the Tata Group companies.
Officials ET spoke to say they will act if any serious corporate governanceissues are brought to the notice by any of the watchdogs, including the Securities and Exchange Board of India (EBI) or ministry of corporate affairs.
Source: The Economic Times
Date: 10th November,2016