Revising its recommendation, proxy advisory firm Institutional Investor Advisory Services (IiAS) has supported removal of independent director Nusli Wadia from board of Tata Motors and Tata Steel, saying it was in the long-term interest of Tata Group.

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IiAS, which supports removal of estranged Chairman Cyrus Mistry from Tata Group firms, "changed its voting recommendation on the resolution to remove Nusli Wadia from Tata Steel and Tata Motors. We support the resolution," it said in a report.

The change in recommendation follows the recent Rs 3,000 crore defamation case filed by Nusli Wadia against the Tatas.

"Given this, we believe the relationship between Nusli Wadia and the Tatas has become antagonistic and will therefore likely be a distraction for the boards," it said.

The lawsuit, and the amounts demanded as reparations, is significant evidence to suggest that Nusli Wadia's presence in the boardroom is likely to be a distraction, it said.

IiAS had previously recommended that shareholders vote against the removal of Nusli Wadia as a director.

Nusli Wadia's support for Cyrus Mistry is purportedly causing harm to the interests of the Tata Group. But no evidence is provided to support this claim.

"Given recent developments, IiAS now changes its voting recommendation to support the resolution. It is in the long-term interest of the Tata companies to remove Nusli Wadia as a director," it said.

IiAS said its previous recommendation in support of Nusli Wadia emanated from a larger governance question. Can Tata Sons, as the controlling shareholder, ask for the removal of an 'independent' director on account of his support to Cyrus Mistry?

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Tata Sons accused Nusli Wadia of being disruptive and galvanizing other independent directors to act against the interests of the Tata group.

While Nusli Wadia has been vocal in his views, there was no tangible evidence of his 'contrarian' views being detrimental to the interest of Tata companies or the group in general.

On why it supported non-removal of Wadia previously, IiAS said the boards of the Tata companies are also silent on his conduct, but only reiterated his independence.

"By choosing to remain silent on Nusli Wadia and by continuing to list him as an independent director, we believed the board had tacitly signaled that it has not come to such a conclusion regarding his conduct," it said.

"Given this, we believed that Nusli Wadia provided the required diversity of opinion to the boards, and there was no tangible evidence of this being detrimental to the overall board functioning," it said.

But as the situation continues to develop, it now believes that the relationship between Nusli Wadia and the Tata group has "deteriorated to the level of being antagonistic".

"Until now, Nusli Wadia's actions were in line with the campaign of a director who believes he has been wronged. But to file a lawsuit, and ask for damages will likely have permanent implications for both sides," it said.

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Moreover, IiAS believes that the lawsuit is significant evidence to suggest that Nusli Wadia's boardroom is likely to be a distraction presence in the given the hostile nature of his relationship with the controlling shareholder.

"Therefore, we have changed our recommendation: we now recommend voting for the removal of Nusli Wadia from the boards of the operating companies," it said.

This is the first time IiAS has changed its voting recommendation based on developing events.

"IiAS continues to believe that allowing controlling shareholders to remove independent directors may set a wrong precedent," it said.

On its recommendation for removal of Cyrus Mistry as Director, IiAS said his position as a director of Tata Steel was a direct consequence of his position as Chairperson of Tata Sons.

"With his removal as Chairperson of Tata Sons, his continuing on Tata Steel's board as a non-independent director becomes untenable. While this must not be construed as an endorsement of his removal, we believe his not being on the board will provide the Tata group a clean slate to fix the larger structural issues of the group," it said.

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