More than four decades later, the challenge for controlling-shareholders comes not from outside, but from within. On September 17, the Tata Sons board reappointed N Chandrasekaran and cleared the path to listing the company, over the opposition of Noel Tata, chairman of Tata Trusts, which owns 66 per cent of Tata Sons and seen as the keeper of its values, fears that a listing will dilute its charter.
Business families will read the dispute as a warning that ownership alone does not guarantee control of the boardroom, overturning an article of faith since 1983 — that a bigger stake is the surest defence. The fallout is likely to play out across at least four fronts.
First, more families may choose to keep control as chairperson or in an executive capacity, rather than hand it to professional managers. A 2024 Deloitte study of 41 Nifty 50 companies (excluding public-sector enterprises) found that 31 were run by non-promoter chief executive officers and only 10 by promoters. Across India Inc as a whole, the share is likely to be lower still, given that about two-thirds of the S&P BSE 500 companies are family-owned. This episode could slow, or even reverse, the move towards professionalising businesses.
Will this impact India Inc’s performance? Families can point to evidence that ownership commitment pays. Credit Suisse’s Family 1000 research found that since 2006, family- or founder-owned listed companies have outperformed non-family companies by an annual average of 370 basis points. And in India, a study of 4,056 promoter-owned listed firms found that in group-affiliated companies, the level of promoter ownership had no effect on performance.
But the evidence cuts both ways. A landmark study of Danish firms found that when the CEO role passed to a family member, operating profitability fell by at least four percentage points. Even Credit Suisse found that family-owned companies score slightly lower on corporate governance than their non-family peers. A study covering 131 large listed Indian companies shows family firms with non-family CEOs performed better than those with family CEOs. Owning a company is different from running it.
Second, promoters may lean towards independent directors who are unlikely to challenge them. India’s problem is not too few independent directors but the wrong ones, appointed through processes that favour reputation over capability. Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India, has urged boards to recruit independent directors from beyond cosy networks and equip them to dissent, observing that “a board that never disagrees is not aligned — it’s asleep”. If promoters respond by packing boards with pliant directors, they will weaken the very oversight that minority shareholders rely on. And as one promoter told Business Standard, long-serving professionals can build fiefdoms and fill boards with people unlikely to challenge them.
Third, families will revisit their governance charters, since professionalising a board need not mean sidelining promoters. Companies will spell out who sets strategy, who executes it, and how disagreements are resolved, often through Articles of Association listing reserved matters that need promoter approval. Expect tighter affirmative voting rights, explicit rules on how nominee directors must vote, and clauses on replacing nominee directors and breaking board deadlocks, though nominees still owe their fiduciary duty to the company, not to whoever appointed them.
Yet drafting has limits. No document can fully anticipate a split within the owning family. And if affirmative rights written into charter documents do not hold, foreign direct investors, who rely on such rights, may grow more cautious.
Fourth, families will streamline their shareholding. Many groups still carry layers of crossholdings, investment companies and informal arrangements dating back decades. Families will collapse these into single holding vehicles, trusts or even individual names, to put control on a clearer legal footing. This is critical because today’s fault lines often run within families, not with outsiders — the Chhabrias at Finolex, the Kirloskars, the Kalyanis and Hiremaths — to name just a few. These cases show how fragile even documented settlements, holding companies, trusts and wills can be.
In 1983, families protected control by raising their stakes. A bigger stake may not be enough if pressure comes from within. The current episode exposes friction that legal drafting cannot resolve. The businesses that come through will be those that plan succession early, apply their own rules consistently and leave management to professionals — they can work with. Such relationships rest on mutual trust and a shared long-term vision. The question now will no longer be whether someone is the best CEO in the market, but whether the controlling and minority shareholders, the boards and managements will align, to pull in the same direction.
The writer is with Institutional Investor Advisory Services India. The views are personal. @AmitTandon_In
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