The impending exit of N Chandrasekaran (Chandra) as chairman of Tata Sons, takes us back, once again, to 1991, the year when Ratan Tata took charge of the Tata group and irrevocably transformed it from the days of his illustrious predecessor JRD Tata. While the media and industrialists are throwing up names about possible successors to Chandra, it may make more sense to look back and draw some conclusions from the past.
There were plenty who thought Ratan Tata was not the best man for the job, that his surname was his main qualification and that he would remain a mere placeholder in a group dominated by powerful satraps who ran several operating companies almost like individual fiefs. They couldn’t have been more wrong.
He began raising Tata Sons' shareholding in the operating companies, giving them a bigger say in decisions. In 1992, he found a way to end the regime of the satraps by introducing a retirement age for directors. After a bitterly acrimonious phase, this ensured the exit of Russi Mody from Tata Steel in 1993, and Ajit Kerkar from Indian Hotels, a few years later. Darbari Seth of Tata Chemicals and AH Tobaccowala of Voltas exited and FC Kohli retired from TCS which was a subsidiary of Tata Sons.
As he approached his 70th birthday, Ratan Tata was the undisputed leader in the group with almost a single chain of command. Unsurprisingly, Tata Sons amended its retirement policy allowing non-executive directors to remain until 75. In 2011, a search committee named Cyrus Mistry as heir apparent and he took over in December 2012; his family, the Shapoorji Pallonji (SP) group, was – and remains – the single largest shareholder of Tata Sons outside the Tata Trusts. But was he really in charge?
That Ratan Tata remained all powerful is clear from two developments – first, the ease with which he manoeuvred the board to oust Cyrus Mistry in 2016 in violation of all norms of good governance and courtesy. It is worth remembering that some of the directors who voted for the removal of Cyrus Mistry included Venu Srinivasan and Vijay Singh, and a few others, who had been freshly inducted on to the Tata Sons board.
Ratan Tata not only returned to head the group, but every director who objected to the manner in which Cyrus Mistry was removed, including Nusli Wadia, once considered the successor to JRD Tata, were unceremoniously ejected from operating company boards at the first available opportunity. So were others, who had been confidants and friends. What is worse, Cyrus Mistry’s most-cited failing – his handling of the Tata Teleservices dispute – as well as innuendo against him personally, were never proved.
Chandra, who was appointed chairman, was careful to stay on the right side of Ratan Tata. His tenure delivered clear aggregate growth and strategic repositioning, but left several large, capital-hungry businesses in the red when his term came up for renewal. Meanwhile, Ratan Tata’s death and the new battle for control had changed internal equations and loyalties. A one-time Tata insider pointed out that a Tata association as a director or trustee is so highly coveted, that very few people are willing to disagree with the chairman, unless they are already on the way out.
So there is not only a sense of déjà vu in Chandra’s exit but a fair question follows from it: Why shouldn't Noel Tata want the same thing Ratan wanted during his stints at the helm of Tata Sons? Noel is, after all, Ratan's half-brother, chairman of the same Tata Trusts that hold 66% of Tata Sons, presiding over a board stocked with names from the same institutional bloodline.
The catch is that that path is not as easy for him because of the change in rules. Ratan Tata headed Tata Sons as well as Tata Trusts simultaneously for two decades; but Tata Sons amended its articles of association in 2022, formally barring whoever chairs the Sir Dorabji Tata Trust or the Sir Ratan Tata Trust from serving as Tata Sons chairman as well.
Noel Tata, as Chairman of Tata Trusts, can, at best, work at ensuring that the next chairman of Tata Sons is someone he wants. This is not a small handicap, given the internal turmoil. He has also inherited a board which may have its own loyalties and may assume, like the satraps did in 1991, that they can dictate the future of the group.
This is evident from the complaints filed before the charity commissioner and various authorities, letters dashed off by directors seeking intervention by the prime minister’s office on what is essentially a corporate decision; and third, the row over the eligibility of non-Parsi trustees initiated by Mehli Mistry, a powerful relative who was also a close confidant of Ratan Tata and a beneficiary under his Will.
Three other issues that confront Noel Tata, as he seeks to control the group are: a) tackling the big loss-making investments for which he held Chandra answerable; b) the listing of Tata Sons; c) giving an exit to the cash-strapped SP group, headed by his brother-in-law, which holds a 18.4% stake in Tata Sons.
Noel Tata’s imprint on the group’s internal working is clear on all three issues – whether or not one agrees with his actions. On the first, he is making a fair ask. A Bloomberg report reveals that Noel Tata had long been pushing back against a planned US$120 billion spending programme over the next five years, in favour of more measured capital expenditure with faster payback. Consequently, the Tata Sons’ board has already asked management to review capital-intensive projects such as the semiconductor plant, the airline business and a still-developing consumer technology venture.
The stubborn insistence on fighting the Reserve Bank of India (RBI) on the listing of Tata Sons is more tricky. RBI has not categorically refused an exemption and Tata Sons application to surrender its core investment company registration remains, officially, ‘under examination’, even though the revised, principle-based norms have made that exemption progressively harder to obtain. So Tata Sons remains on RBI’s upper-layer list requiring listing, even as its plea is unanswered.
If Tata Sons chooses the long, legal route to fight listing, the cash-strapped SP group, which has its back to the wall, may have little choice but to accept what it considers a low-ball offer from Bombay House, as opposed to what they hope to get from the market, even accounting for a holding company discount.
The group’s debt, estimated at ₹55,000 crore–₹60,000 crore, carries a high borrowing rate of 19%-20%, and the entire promoter stake has been pledged, leaving it very little negotiating leverage. The group has been made an offer, which includes a share-swap giving them operating company shares, rather than the benefit of an offer-for-sale during listing.
When Tata Sons managed to convert itself into a private limited company from deemed public limited company in 2017, after Cyrus Mistry’s ouster, its articles of association were changed to make the SP group’s shares non-transferable without Tata consent. That Noel Tata appears to pursue the same ruthlessness in dealing with his wife’s family harks back to Ratan Tata’s way of ensuring total control.
So, deciding Chandra’s successor is the least of Noel Tata’s problems. He is well-placed to influence who gets the job, albeit after ratification by a search committee, as usual. Whether Noel Tata can extend his grip over the group, as Ratan Tata did, will depend on how he handles three problems: the large loss-making investments, the listing of Tata Sons and the exit of the Mistry family.
But there is a larger question beneath all three. Tata Sons cannot fund Air India’s losses and its semiconductor ambitions from internal cash generation indefinitely. Sooner or later, it will need outside capital and a listing is the cleanest route. Noel Tata, therefore, has a choice: Use his leverage to take Tata Sons public on terms that protect the group and give the SP family a fair market exit, or resist the listing and use the group’s financial muscle to settle with his in-laws on Tata terms.
That choice will tell us what kind of chairman Noel Tata really is. Ratan Tata used his power to break the satraps and then consolidated control around himself. Noel has inherited that control without holding the chairman’s seat. Whether he uses it to build a stronger Tata group, or simply to keep the family’s grip tighter, will be the mark his stewardship.
Tata Wars: PR, Plants and Philanthropy (Crosshairs, 22 November 2016) Focuses on the PR machinery, the use of the trusts, and the tactics deployed in the fight against Mistry.
if tata sons treats its own shareholder (SP Group) which has matrimonial relations with it ( SP Group is headed by Noel Tata's brother in law) , imagine how it treats public shareholders. It sets a precedent. Real bad shareholder treatment. All the futuristic ventures (be it the JV for Iphone manufacturing or defense) are held privately by Tata sons, while listed companies like Tata Chemicals have cross shareholding in Tata sons, they dont enjoy any benefits from their participation. We blame Adani group as being greedy, but they are far more shareholder friendly. All their futuristic ventures are held under listed Adani enterprises ( be it defense or airports or metals or data centers). Tata is setting up a bad name for itself by pursing current stance. Tata keeps forgetting that its brand value is worth 33 billion dollars and these actions will dent it. A simple governance overhaul like the Japanese have done recenty by simplifying cross holdings etc has benifited the countr's market immensely. Maybe Tata's can lear something from them rather than learning from HongKong based conglomerates.
I wish the media spares a thought to the millions of small investors who are staring at a colossal loss because a good number of Tata group shares including TCS, Tata Elxsi, TMPV and TMCV have shed huge value since the differences in the group came under public glare about a year back. Why no thought is given to these silent masses? Why the question of listing of Tata Sons has been allowed to drag on for so long? It is not merely semi conductor business or airline survival even the purchase of Iveco should be doubtful if the same reasons are advanced. Mere listing of Tata Sons is not going to pose any threat to its owners' holding or lead to any hostile takeover. Pl look at the shareholding pattern of listed Tata companies to know in how many the promoter holding is in minority. The biggest protection for the Tata Group is the "TATA" name and as long as that name glitters, none will try to touch the group companies. Hope the issue finds an amicable solution soon.
Absolutely crisp and gripping version of what is happening at Bombay House. "Chandra was careful to stay on the right side of Ratan Tata" is right but probably he failed to be on the "right side" of his current boss, i.e. Noel Tata and did not foresee the ruthless and stubborn Noel Tata's ability to persist even among all the legal drama going on.
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