Bombay House Blues: Chandrasekaran's exit must spur an introspection

The exit of Tata Sons Chairman N Chandrasekaran, after months of turbulence with principal shareholder Tata Trusts, has sent a signal for corrective steps in the group’s contested organisational structure. The recent aberrations, as a result of the conflict within Tata Trusts, a philanthropic organisation, as well as between Tata Trusts and Tata Sons, are replete with signs of a family-owned business. This is sharply in contrast to the group’s reputation of having a large number of professionally-run companies and nurturing management talent. A decade after Cyrus Mistry was unceremoniously removed as Tata Sons chairman, the latest development reinforces the need for more transparency and order in the salt-to-software conglomerate’s holding firm. One way is to list it on the stock exchanges, which will make it more accountable. Tata Trusts, in its current form, is not adequately equipped to be a decision-maker for such a large conglomerate. 

Noel Tata has been Tata Trusts chairman since the death of his half-brother Ratan Tata in October 2024. It has been in the midst of internal discord since — with two issues dominating the rift, apart from other things. One is related to the listing of Tata Sons, a matter pending with the Reserve Bank of India (RBI). Another was about Mr Chandrasekaran, 63, getting a third term as executive chairman of Tata Sons. 

On the first issue, the RBI recently put Tata Sons on the list of the upper-layer (UL) non-banking financial companies (NBFCs), but added that its application of 2024 regarding de-registration as a core investment company was still being examined. This has kept the listing mandate hanging for Tata Sons. For context, the RBI had in 2022 mandated listing upper-layer NBFCs on the stock markets within three years. It is unclear why the RBI has not been able to decide on these issues to date. Listing Tata Sons is expected to limit the control exercised by Tata Trusts on the holding firm of the estimated $400 billion group. The veto power bestowed on nominee directors from Tata Trusts in appointments, dismissals, investment and other strategic matters is expected to be diluted once the Articles of Association (AoA) is amended to facilitate the listing of Tata Sons. Currently, there are two nominee directors — Noel Tata and Venu Srinivasan — from Tata Trusts on the six-member Tata Sons board. 

These veto rights have been at the centre of the second key bone of contention among trustees as well — the Tata Sons leadership. In October last year, the Tata Trusts board adopted a resolution to grant a third five-year term to Mr Chandrasekaran as executive chairman of Tata Sons. However, the proposal was put on hold at the Tata Sons board meeting in February this year. This followed Noel Tata’s reservations over the performance of some Tata companies, making Mr Chandrasekaran’s third term conditional. The listing of Tata Sons, which the Trusts chair is not in favour of, had also reportedly played a role. In the ensuing six months, the proposal on Mr Chandrasekaran’s third term was not taken up. As Mr Chandrasekaran’s statement suggests, this became the reason for him to not seek another term. Instead of being subjected to continued uncertainty, which has a variety of implications for a large group, Mr Chandrasekaran decided to exit honourably and pave the way for the board to find his successor. The next six months warrant steps to make the group more professional and calm frayed nerves. This would require a thorough reimagination of the relationship between the Tata group’s holding company and its principal shareholder, Tata Trusts.