Time for a reset

Tata Sons must resolve differences quickly

The Tata Sons board meeting on September 17 brought out into the open a deep-rooted discord involving the company’s principal shareholder, Tata Trusts. It is a clear sign that the organisation requires an urgent reset to keep the power struggle in check and protect its stakeholders’ interests. The Bombay House meeting was described by directors and executives as acrimonious and unseemly. The battle lines were drawn ahead of the meeting. Both Tata Sons and Tata Trusts were armed with legal opinions on the technicalities of director voting, veto powers of nominee directors, and casting vote provisions. Nevertheless, the largest shareholder and the principal agent failed to reach a consensus on interpreting Tata Sons’ articles of association (AoA). The meeting ended up presenting a sorry picture of a leading business house with interests in diverse sectors, from steel to software, long regarded as a symbol of corporate stability. Tata Trusts on Sunday released a statement clarifying its position.

 

Two issues were on the table: A proposal to proceed with listing Tata Sons after the Reserve Bank of India (RBI) rejected its application for deregistration as a core investment company (CIC), and a resolution on N Chandrasekaran’s reappointment for a third term as executive chairman. Tata Trusts Chairman and Nominee Director Noel Tata was the only dissenting voice on both the issues. Listing may result in Tata Trusts losing some of its veto powers. However, it must also be noted that Mr Tata has argued that the RBI’s communication does not mandate listing the holding company. He is also reported to favour looking at other options. The board should take all the views into account. Nevertheless, in principle, it can be argued that listing will increase transparency and may also increase returns for its stakeholders, including Tata Trusts, owing to better allocation of capital. This would help its philanthropic objective rather than constrain it. Be that as it may, the outcome of the meeting also raises another important issue. If a nominee of the largest shareholder lacks confidence in the chairman, how will the board function, and will it be in a position to take crucial decisions?

 

Further, Mr Tata has called Mr Chandrasekaran’s reappointment “illegal”, alleging that the Tata Sons board gave short shrift to the AoA rules. This cannot be taken lightly. But, as legal opinion is divided, the final word perhaps needs to come from a competent authority. While Mr Tata remains opposed to Mr Chandrasekaran, 63, getting a third term, a larger question remains: Why did the chairman of Tata Sons change his stand within a month of announcing he would not seek a third term? The answer should come from Mr Chandrasekaran himself to restore order in the Tata ecosystem, which employs over a million people globally and boasts 26 listed entities with a combined market capitalisation exceeding $300 billion. Similarly, Mr Tata should also explain why and how the board changed its stance five months after it had approved in principle a third term for Mr Chandrasekaran. It is important that the outstanding issues are resolved amicably at the earliest. However, it appears that the issue will go to court. Legal battles in India tend to be prolonged, and such an outcome would not bode well for either the group or the country as a whole. The group is seen as a symbol of governance and stability, and it’s time for it to live up to its legacy and stakeholder expectations.