NITIN NOHRIA: IN THE EYE OF THE TATA-MISTRY STORM
Alleged to have ignored AirAsia scam, Nohria declines to comment; Tata group sources say allegations incorrect
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The 10th dean of Harvard Business School, Nitin Nohria, 54, has served as co-chair of the leadership initiative and head of the organisational behaviour unit at the prestigious institution in Boston, US. But if the former chairman of Tata Sons, Cyrus Mistry, is to be believed, Nohria failed to practise some principles of corporate governance.
“Nohria, like other Tata Sons board members, was aware of AirAsia ‘financial fraud’, as well as about the interference of Tata Trusts in the investment decisions of Tata Sons. But he turned a blind eye to these contraventions,” said a person close to the Mistry camp.
Sources close to the Tata group, however, said the allegations were incorrect. The agenda item related to AirAsia was only listed for the most recent board meeting, so it is completely false that the Tata Sons board “turned a blind eye to these contraventions”, according to sources. The sources said Mistry was aware of this much before the Tata Sons Board meeting and the question was why he waited so long to make the board aware of it. In any case, AirAsia has begun an inquiry, and has now appointed D Shivanandan to advise and strengthen the company’s compliance programme.
Nohria, son of the former chairman of Crompton Greaves, Kewal Krishan Nohria, was appointed to the Tata Sons board in September 2013. Tata had made a generous donation of $50 million from Tata Trusts and Tata companies to Harvard Business School in 2010 to construct a new hall named after him. Harvard Business School had said at the time that this was the largest gift from an international donor in the school’s 102-year history.
When contacted, Nohria, who has done his doctorate in management from MIT Sloan School of Management, declined to comment.
But, Tata group sources said it was absolutely ridiculous to say individuals like Nohria acted because the Tatas made donations to Harvard many years ago.
“Once, the trust directors (Nitin Nohria and Vijay Singh) had to leave a Tata Sons board meeting in progress for almost an hour, keeping the rest of the board waiting, in order to obtain instructions from Tata. Such a work pattern has also created the added risk of contravening insider-trading regulations and exposed the Trust, apart from exposing the trustees to potential tax liabilities,” Mistry said in a communication marked to Tata Sons directors and Tata trustees soon after he was dramatically removed from Tata Sons board on October 24.
“These circumstances forced me to circulate a note on corporate governance in order to clarify the distinct roles of Tata Trusts, Tata Sons Board, and the Boards of the operating companies,” Mistry said while calling nominated directors such as Nohria and Singh postmen. Singh is a former defence secretary.
The Tata sources said the so-called "governance lapse" in Nohria and Vijay Singh stepping out from a Tata Sons Board meeting for an hour to take instructions was false. "There was no lapse whatsoever on their part. They stepped out at the former chairman’s request to address a specific issue caused on account of a lapse on his part. There has been an attempt to sensationalise this to say that there could have been serious price risks on account of this. That is ridiculous, given that all happened while markets were closed.”
The market regulator, the Securities and Exchange Board of India (Sebi), is investigating the matter.
The Mistry camp also said the lack of corporate governance was one of the main breaking points between Mistry and Tata. The Trusts were interfering in Tata Sons’ investment decisions by making it invest in loss-making airlines and was trying to bury the financial scandal involving AirAsia India. “A forensic audit by Deloitte confirmed ~22-crore fraud at AirAsia but the Tatas did not want a thorough probe into the matter,” said a source close to Mistry.
In fact, in his letter, Mistry said the executive trustee of Tata Trusts, R Venkataramanan, who is on the board of AirAsia and also a shareholder of the airline, considered these transactions as nonmaterial and did not encourage further study. “It was only at the insistence of the independent directors, one of whom immediately submitted his resignation, that the board decided to belatedly file a first information report,” Mistry said. The detail of the FIR has not been made public by the Tata group as yet. The Mistry camp also said Nohria did not object when Tata Sons board was expanded by three members — addition of Ajay Piramal, Venu Srinivasan and Amit Chandra — in August this year without giving proper notice to the shareholders of the company. The Mistry family owns an 18.5 per cent stake in Tata Sons and was entitled to a proper notice to the appointment of independent directors, in line with the Companies Act.
While not clarifying on the appointment of Piramal and Srinivsan just a few minutes before the meeting, the Tata sources clarified: “It’s preposterous to suggest that a third director, Amit Chandra, was ‘hired minutes before the AGM’. He was nominated by the Tata Trusts, after the AGM. The former chairman approved his nomination to the board and then circulated it to the rest of the board for approval, which was unanimously approved. It was also very unfortunate that the term “hired” was used to malign his appointment. Directors are not hired but nominated.”
On the question of appointment of new directors, the sources said proper notice was given, and all laws were complied with.
It is also the responsibility of the company and its executives to ensure that and the former chairman was responsible for ensuring so. In fact, after the induction of the two new directors at the AGM, he sent out a warm welcome note to them. So, it is very unfortunate to make baseless accusations. When Mistry was asked to go on October 24, Nohria and Tata met him a few minutes before theTata Sons board meeting asking him to resign. After Mistry refused, the Tata Sons board voted to remove him; two directors — Ishaat Hussain and Farida Khambata — abstained.
“It is important to note that not one director voted against the resolutions and some of them were appointed by Mistry,” said the Tata group source.