Ratan Tata Or Cyrus Mistry: Tata Steel Shareholders’ Dilemma
(9 pages of text)
Case (Pub Mat)
In October 2016, the board of Tata Sons, a company in the Tata Group, India’s largest business group, decided to remove Cyrus Mistry from the chairmanship of its board. Subsequently, Tata Sons appealed to the shareholders of the other Tata Group companies, including Tata Steel Limited, to also remove Mistry from their boards. The shareholders of Tata Steel were informed that an extraordinary general meeting had been called to vote on two resolutions that would decide whether Mistry and another independent board member should continue as directors of Tata Steel or be removed from their positions. How could the shareholders make a thoughtful and forward-thinking decision on the two resolutions?
This case can be discussed in an advanced, graduate-level corporate finance course that deals with corporate governance issues in companies controlled by Indian business groups (or by business owners in emerging markets). It can also be discussed in a course on corporate governance, where students have an opportunity to understand how governance issues differ in India. This case can also be used in a course on financial statements analysis, where students analyze the financial performance of a set of companies under two different chairmen.
This case presents an opportunity to look at the complex corporate governance problems encountered in group-affiliated companies in India resulting from a conflict of interest between promoter shareholders and minority shareholders. The case also presents students with an opportunity to do the following:
- Analyze, in the context of the above developments, the financial performance of all the Tata Group companies in general and Tata Steel in particular.
- Analyze the complex nature of the relationships between promoter shareholders, minority shareholders, government-controlled financial institutions, independent directors, and executive directors.
- Using a game-theory framework, determine the best available course of action for minority shareholders.
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