 Hello and welcome to NewsClick. I am Paranjali Guha Thakurtha and in this episode we are going to look at governance issues that have been thrown up by the recent legal tussle involving the Tata group and Cyrus mystery. And whereas we are not going to discuss details or the legalities of this tussle, we are going to talk about the issues that have been thrown up by this high profile legal dispute. With me here in the studio I am happy to welcome Sarvesh Mathur, he is a senior finance professional. Earlier was the chief finance officer of Tata Telecom, also the chief finance officer of PricewaterhouseCoopers and formerly a company secretary of Alcatel Modi Network Systems. And for the benefit of our viewers, Sarvesh Mathur blew the whistle on irregularities that were going on in PWH PricewaterhouseCoopers is internationally renowned is one of the biggest audit firms of its kind in the world. Thank you Mathurji for being with us. Would you like to summarize what according to you were the main governance issues thrown up by the Tata mystery tussle without getting into the legalities of it. In the context of the article that you recently written for MoneyLife called the crucial but unspoken governance issues exposed by the Tata mystery saga. Thank you Paranjoy. As you have rightly put it, the main theme of my article is on the corporate governance and the challenges which it has thrown up. In terms of the Tata mystery saga, I think there are two or three main issues which are coming out. One and I think the foremost of them is that is it a good corporate practice for a private limited company to be the holding company of a very large group controlling more than hundred entities which includes 29 listed companies having turnover of more than hundred billion dollars which has millions of shareholders and operates in more than 160 countries. And then employs over 660,000 people. People and it has millions of shareholders. So that I think that is the focus of my, was the focus of my article. So you are saying that from a pure corporate governance angle Tata sons which enjoys the privileges of a private limited company should not be controlling such a huge corporate conglomerate or empire. And why do you say so? Is it because a private limited company does not have to adhere to certain norms of good corporate governance which a public limited company, a widely held public limited company has and what really are these differences between a public limited company, a private limited company, a closely held public limited company and a widely held public limited company who shares are available or are sold in the stock exchanges to large numbers of people. As I said at the beginning since this matter is subjudice it will not be fair to go into the legalities. I am looking at it more like a student of management, a student of corporate governance and for me the main issues, two or three main issues which are coming out of this. I am not for a moment saying that Tata son should not be doing this. But as I said I am only looking it as a case study because the focus is on corporate governance it is largely today's SEBI guidelines are also focused on listed entities only. You see as you rightly said you have private limited companies, you have public limited companies, you have listed company of these public listed companies could be listed they could be unlisted that means they are closely held or widely held not even that. It depends on the public shareholding mass shareholding and then you have organization like NGOs trust. For me the main point is governance should be all encompassing. This fine distinction between private limited, public limited, charitable, non charitable trust should not be there. You know it is like saying this for enjoy let me give you a very simple example. What I say good values have to be imbibed. They have to be imbibed from your childhood from infancy. So just because you do not say I mean no good parent would tell a child that it is good for it is acceptable if you tell a lie till you attain the age of majority. Good values have to be done have to be imbibed from the inception. So this distinction of SEBI guidelines or corporate governance norms applying to a certain type of companies in my view needs a relook. I am not for a moment saying that apply the same yardstick to everyone. Why I am not saying that is because for reasons of operational flexibility for protection of intellectual property rights know how technology etc. We you cannot have one size with fits all some kind of moderation has to be done. But then to leave some outside the ambit all together and only focus on some is an area which I think needs a lot of debate. And then that is why I am saying that for Tata for any company why only Tata says any company because there would be so many holding companies like this who could be organized as a private limited companies. So while the company is that they control are subject to corporate governance norms the very company which the parent is not subject to corporate governance norms that is an area I think we need to look at. In your article you have sort of gone back to the origin of the company's act before independence then soon after less than a decade after independence when you had the company's act of 1956. And you pointed out that there was a specific provision in the company's act of 1956 that is 43 a which stated clearly that private companies would be considered public companies under three different scenarios. When more than 25% of the share capital is held by one or more corporate entities to when the average turnover during a particular period exceeded a particular specified amount which I suppose would change from time to time and three when not less than 25% of the share capital of a public company was held by a private limited company. Now when the new company's act came into being in 2013 it removed this section all together. This demon provision has been removed. This you consider to be a major step backwards. Why? Again per enjoy from a corporate governance perspective. The section that you quoted 43 a which was in the earlier companies after of 1956 if we look at the main reason or justification for it being there it was somehow saying that what is the impact that a company can have on the society. So the larger the impact the more the need to kind of monitor its operations or to make sure that it is governed properly. Because typically it was as I have explained in my article small businesses initially started a sole proprietorship then they graduated to partnerships. Then because of limited liability and the ability to raise more resources and more like-minded people private limited companies were formed but public companies were those which could raise funds from the public from banks or go to the shareholders the investors at large. So it was felt at least as per my understanding that where the impact on the society is much more they need to be looked at more closely. Greater transparency greater accountability and impact on society that I think is the most. So you've raised eight different issues which have been shown up. Let's deal with them one by one. Firstly the issue of when a top management person what do you say KMP one of the key managerial personnel somebody of the rank of say chief executive managing director. CFO. Okay. When this person is removed dismissed sacked the same person who you might have earlier praised what are the what is the role of the regulatory bodies and in this case who are you talking about the regulator are you talking about the securities and exchange board of India or are you talking about any other regulatory body what should be the role. There are two facts two angles to this one is the regulatory body and more important in that is the role of the other board members. In this instant case or let's say when any senior person is removed I think it is too much to expect that somebody walks up to him and says look we are not happy with your performance or you resign. What does good governance mean? It means that you know there should be transparency other board members first of all this person should have been put on guard saying that you know these are the reasons we are not happy with your performance especially at the board level is not entirely in your hands because sometimes what happens you might take a good decision and you are working with towards it diligently but let's say the domestic industry scenario changes the international scenario changes so despite doing everything with good intentions you may not get the desired results. What you are suggesting to cut a long story short before that person is asked to leave or sacked he or she should be given a fair opportunity an opportunity to explain her or his lack of performance and there should be a sort of transparent process. Absolutely and here the role of the other board members or senior management. So this is the second point you raised these superintendents and the control of the board of directors what are their responsibility what is the responsibility in this context so you haven't mentioned it in the article of the independent directors and you raised that a similar issue was raised in the case when the managing director of the rating agency ICRA formerly in Indian credit rating agency was asked to leave. See basically what I am saying is that as stipulated in the companies act itself the CEO or managing director works according to the superintendents and control of the board. He does not or he cannot or he should not be allowed to work in isolation. So any decision which he has taken has the backing of the board. The board has endorsed it. So if something has gone wrong drastically wrong I am not for a moment suggesting that don't hold him responsible. All I am saying is that the other board members who would have also endorsed his decisions they are equally accountable. That is why in the case of ICRA I said that you know just sacking one MD because it was perceived that you know he kind of played around with the ratings given to one of the companies which boom ranked you know infrastructure leasing and financial services. IRNFS that is a fallout of IRNFS. He could not have done it all alone. There is a team which works on these ratings there are which is supervised by another team it goes to the board etc. So I am saying if someone has fiddled around then there are other people also there. They should also be held responsible. Similarly in this case if the performance of let's say CEO of that too of Tata San. C-3 Cyrus Mystery. I am just taking this name for you know just to be specific without kind of batting for him or against him or any other board member. Somebody of the stature of executive chairman of Tata San has to be dismissed was the proper procedure followed. Is it enough that you walk up to him before the board meeting and somebody says that look we are not happy with your performance so you resign. He doesn't resign you take it to the board and the board votes on it. I am very surprised then what is the sanctity of board agendas. What is the sanctity of circulating the board agendas well before the board meeting. That is basically to allow the directors to make up their mind. If something is not on the table and something as substantial as this I really don't know how anyone can vote for it this way or that way. We are as I am saying we are not commenting on the merits. The third point you raised was that you argue that it's not good corporate practice to elect a non-executive chairman without prior notice and that too of a large conglomerate. Basically the same thing I am carrying forward. How would people evaluate at a very short notice and the other point in this in this whole saga now that we are talking about it specifically using it as a case study of course. You know one is always wiser in hindsight. So one thought which crossed my mind was that was it a good decision for Mr. Tata to have come back even in the interim period. Had he not done it and appointed somebody else appointed somebody else it would have avoided a personality clash. The only what has become is it's a clash between Mr. Tata and Cyrus Mistry. It is not a clash between Tata's and Mr. Mistry. It became too personal which could have been avoided. The fourth point you have already handled that should directors be expected to vote without demonstrating an application of mind and on important matters significant matters their accountability there or their alleged complicity. Exactly because it would work both ways. So in one case we could say that because they have didn't have the opportunity to do it yet they voted and as you said in case of complicity let's say when a company is accused of diversion of funds which we have seen lately so many companies come under the scanner. Then how would a director protect himself in such a scenario. Okay if we conflate the fourth the fifth, sixth and the seventh points that you made this whole issue about shareholders rights and voting power at a board meeting. Representation on the board you know I mean does it should it does it only represent the amount of shareholders in the whole. And then the question is issue of division of profits shareholders rights first among equals who are all equals all board members who has the casting vote. So this is another issue and link to this is should the majority shareholder always have the right to over overrule the views of the minority shareholders. And what happens if the directors in terms of representation of board where they represented at board meetings and what are the safeguards that are needed to protect the rights and the interests of minority shareholders. Is it merely by appointing their representative of the board what is the role of independent directors. These are a slew of issues which are thrown up and in the context of the Tata mystery struggle and you have explained why it is so. The total investment in the Tata in Tata sons is a huge amount of 600,000 crores, 6 lakh crores. Now interestingly the Shapurji Palanji group which was earlier represented by Mr. Cyrus Mystery had one sixth. So that was also substantial. It's a 100,000 crore, one lakh crore. Let me try to answer the part that you raised one by one. First and foremost I think what I have tried to convey in my article is at the board level generally speaking and this is my view when directors are taking any decision they should be taking it only in the interest of the organization irrespective of the shareholding. You see as I have said there there is a very clear distinction that When you say organization and then there are shareholders then there are consumers then there are public there are various stakeholders I am saying the first and foremost responsibility and obligation of the directors is to do what is best for the organization everything else flows from it. If the company is profitable if you are decision which you are taking is good for the company the company is growing the company is growing profitably first and foremost your shareholders will benefit the company is growing that means the scale of business is increasing that means the participation of the other stakeholders like suppliers etc will increase their business will increase they will also grow because you are growing you are growing profitably now we have the CSR initiative so a larger part will go for the CSR deployment so everybody tends to benefit if you are working in the interest of the organization and I mean legally it need not be said but legally if you are doing things right then every all stakeholders are bound to get a larger share of the pie the more important thing is that when you are voting at a board meeting as the directors you should not be influenced that I belong to this group or that group you have to see the whole I mean you are looking isn't this utopian it is it is an idealistic situation no it is not because otherwise no company no company will be able to work you cannot do this that you look I am doing this because my shareholders shareholders will benefit and it takes a decision it has to be a collective decision it has to be a decision has to be by consensus and that is only possible when everybody is wearing the same hat alright now elaborate on the points you made on shareholder rights voting power majority minority and the big issue you know if shapurji palanji group has one lakh crore investment in out of the total investment of six lakh crores in Tata sands can they claim that they are being oppressed can they claim that you know they are minority shareholders and being oppressed and therefore their rights have to be protected well they can definitely claim but as we said at the beginning of this I think it is better not to get into the legalities the point which I was making in my earlier point also was this that whatever happens happens for the general good of everyone concerned the only difference is who gets how much of the pie depends on his share holding but that does not influence the decision in the board I am not too sure whether I am making myself clear make yourself clear the shareholders rights the voting power the interests of the organization the public interest and stakeholders interest let me put it slightly differently you just mentioned about independent directors now independent directors do not hold any shares in the company right now does it mean their voice does not count for whom are they voting for whom are they exercising their discretion they are doing it for the good of the company similarly what about the public that is what I just explained you believe that the company works well if the decisions are in the interest of the organization they will be benefitted one can disagree but let's move on one can do that but all I am saying is if the pie becomes bigger legally then every stakeholder gets a larger share in that pie so when any at a board meeting a director should not be only influenced by only the interest of the group that he is representing he should be working towards making the pie bigger and then of course he will also have a bigger share out of that but it cannot be me versus you or somebody versus against someone else it has to be a collective process that is the whole purpose of having a board that is why you call it board of directors you don't call it board representing so many shareholders ultimately it is like that but it has to work as a very cohesive unit that is the point I am trying to make let's move on you in this article you shared your own personal experience because you know when you yourself you were working you were the CFO of Tata telecom and on one particular occasion the shareholders had passed an enabling resolution authorizing the board to raise its share capital and its debt up to a particular limit and then later much later years later when the companies that same company wanted to enhance its paid up share capital by way of investment including a foreign investor I think you were talking about Tata, DoCo more no this was Lucent Technologies I stand corrected now the proposed enhanced capital was well within the limits approved by the enabling resolution nevertheless the company was advised by a senior legal advisor back to its shareholders as a good corporate practice and in fact the company did that and today you are saying that the venerable house of the Tata's which had at one point of time too many epitomized good corporate governance ethics, morality values their image has been badly tarnished with this all the muck that has come out in this Tata mystery tussle and that is in fact it takes back to the earlier point I made that good values have to be imbibed from the very start now this learning for me it was a sterling example of good governance I learned this example 20 years back but it has stood me in good stead all through my life I am saying this is what transparency is this is what accountability is this is what good governance is that even though learning is not mandated by law it is not required by law still you do it because that generates a lot of trust and trust is the backbone on which all relationships work whether they are domestic, official, commercial anything that was a great learning experience for me Paranjewa because it tells you that look you earn the trust of the others you tell them to look I don't need to do it but I am doing it so they really appreciate that and it helps you in your work later on also because you know these people are going to support you they understand you because of what you have done earlier Thank you so much Mr. Sarvesh Mathur for giving us your time and for explaining what you believe are the most important governance issues that have been thrown up in the legal tussle between Ratan Tata and Cyrus Mystery which is currently in the Supreme Court and that was a whistleblower and former Chief Financial Officer of PricewaterhouseCoopers talking about the letter of the law, the spirit of the law and what constitutes good governance. Thank you very much for being with us and keep watching NewsClick