What becomes of the Tata way
There was a time when the Tata Group did not need elaborate rules to explain where ownership ended and management began.
For more than half a century, J.R.D. Tata chaired Tata Sons while the Tata Trusts owned the holding company. The Trusts owned the institution; Tata Sons presided over the businesses; and JRD stood between the two. The arrangement worked in large part because JRD was larger than any of the offices he occupied. His personal authority, built over decades and extending well beyond the boardroom, gave the House a centre of gravity that no set of Articles could have provided.
JRD could surround himself with formidable executives and give them considerable autonomy because he did not regard stewardship as the same thing as management. Russi Mody at Tata Steel, Darbari Seth at Tata Chemicals and Ajit Kerkar at Indian Hotels could exercise authority that sometimes rivalled Bombay House. Yet there was little ambiguity about where the final institutional authority lay.
Ratan Tata spent much of his career strengthening the centre, bringing powerful businesses and what had become corporate satrapies under a more coherent Tata Sons. When he retired as chairman of Tata Sons in 2012, the leadership of Tata Sons and the Tata Trusts was separated. The Articles were subsequently amended to prevent the same individual from chairing both.
A new architecture
The intention was sensible: he wanted the group less dependent on any one personality. No institution of Tata’s scale could indefinitely depend on one person carrying ownership, management and moral authority at the same time. But a structure designed to prevent the concentration of authority in one person also removed the personal authority that had once bridged ownership and management.
The arrangement, designed to make the institution stronger than the individual, left less clear what would happen when the institutions themselves disagreed. The ongoing boardroom battle at the Tatas is, in an important sense, an unintended consequence of Ratan Tata’s institutional legacy.
Today, N. Chandrasekaran chairs Tata Sons. Noel Tata chairs the Tata Trusts. Tata Sons board agreed in principle a year ago to reappoint Chandrasekaran but could not reach unanimity thereafter and deferred the matter. On 12 August, Chandrasekaran wrote to say that he would not seek another term when his tenure ends in February 2027. The Trusts accepted his decision and began the process of finding a successor.
Then the process changed direction. On 3 September, the Nomination and Remuneration Committee of Tata Sons asked Chandrasekaran to reconsider and recommended his reappointment. A week later, the Reserve Bank of India (RBI) inserted itself into the picture, rejecting Tata Sons’ application to surrender its Core Investment Company registration, forcing the listing requirement back onto the table. The contest over Tata Sons’ future was no longer confined to its board.
By 17 September, both questions had been reopened. Chandrasekaran abruptly reversed his decision and agreed to reconsider, and the board voted 4–1 to reappoint him for another five-year term. Noel Tata cast the lone dissenting vote. The board also moved towards complying with the RBI’s listing requirements.
The immediate dispute is over a chairman and a listing. but at stake is a bigger question: whether the institutional arrangements that have carried the Tata name for generations can continue to carry the values associated with it.
The fault lines
The Trusts, as principal shareholder, and Tata Sons, through its board, were taking different positions on the questions before it. The arithmetic makes the difficulty plain. Tata Trusts own about 66% of Tata Sons. Yet, Venu Srinivasan, one of their nominees, voted with the majority. The principal shareholder, in other words, was not speaking with one voice.
For much of Tata’s history, the problem was almost the reverse. JRD had to manage powerful businesses beneath the centre. Ratan Tata spent years consolidating that centre. Today the tension runs horizontally rather than vertically. The institution Ratan strengthened has acquired a degree of independence from the institution that owns it.
Noel carries the authority of the controlling shareholder, but does not control the executive machinery of Tata Sons. Chandrasekaran, meanwhile, has the support of a majority of its board. Srinivasan’s vote makes the question more delicate. An independent director must exercise independent judgement. But how far can a nominee exercise that judgement before the distance between his position and that of the shareholder who nominated him begins to matter?
The deeper question is whether the Tata architecture still carries a shared understanding of what the different parts of the House are for. That matters because Tata Sons is not an ordinary holding company. Its principal shareholder is a collection of charitable trusts. The dividends they receive support hospitals, universities, scientific research and philanthropy. Their time horizon is unusual. It has allowed the Group to pursue investments and institutions whose value cannot always be captured in the next quarter’s earnings.
The structure has also given the Tata name a particular association in India: that a business can be commercially successful without regarding financial return as its only obligation; that ownership can carry responsibilities beyond wealth creation; that an institution can have a purpose larger than the interests of the people who happen to run it.
But Ratan’s presence had partly concealed the institutional gap at the heart of this arrangement. Even after leaving the Tata Sons chair, he retained an authority that no legal document could fully describe. The institutions were separate, but there remained a person who could stand between them. The present dispute is testing whether that architecture is enough.
Chandrasekaran had indicated that he would not seek another term; his decision was accepted, and a succession process had begun. The subsequent decision to ask him to reconsider, followed by the board’s decision to reappoint him, was therefore a reversal of an institutional process already under way. The legal validity of that reversal will be contested. The Trusts maintain that Chandrasekaran’s August decision had been accepted and had attained finality; Tata Sons says its board was entitled to ask him to reconsider, which he did.
But there’s another question which the law cannot settle. In JRD’s Tata, a commitment from the chairman to the board would have carried a certain moral weight. It would not have been treated simply as a negotiating position, open to reversal when the balance of opinion changed, still less as the opening move in a contest for votes. The very vocabulary would have been foreign to the Tata code.
JRD’s Tata was hardly free of disagreement. What distinguished it was an expectation that serious disagreements would be settled privately, and that the authority of the House would not be diminished by turning every difference into a public contest.
The listing debate brings that question into sharper focus. An IPO would not immediately deprive the Tata Trusts of control. With roughly two-thirds of Tata Sons, they would remain the dominant shareholder. But a listed Tata Sons would acquire a market price, liquid shares, institutional investors and a public-market constituency with expectations around returns, capital allocation and performance.
The possibility that, over time, other large shareholders could acquire meaningful influence over the holding company cannot be overlooked at Tata House. A shareholder does not need 51% to become influential, particularly when the principal shareholder and the board are themselves divided. Other shareholders can acquire greater influence even while the Trusts retain their controlling shareholding.
This is where the Shapoorji Pallonji Group’s 18.4% stake becomes relevant. SP has a substantial financial interest tied up inside an unlisted company and has been seeking to monetise the stake to meet its liquidity needs and reduce its debt. A listing would give the holding a market valuation and a more direct route of realising part of its investment.
Noel’s proposal for Tata Sons to acquire part of SP’s stake through a selective capital reduction offers a possibility, potentially providing around ₹25,000 crore over two tranches. That may be a way of addressing a shareholder’s need for liquidity without changing the characteristic of the institution. It would not, though, by itself resolve the separate question of Tata Sons’ listing requirement that followed the RBI’s decision.
Three questions have therefore become entangled: who should chair Tata Sons, whether Tata Sons should list, and who is ultimately responsible for safeguarding the character of the group.
The larger question
Tata Sons could eventually list without the Trusts necessarily surrendering their stewardship. The Trusts could remain the controlling shareholder without attempting to run Tata Sons from the boardroom. But there must be a shared understanding of what cannot change.
That is the real inheritance of JRD and Ratan. Neither man left behind a formula for dealing with the precise conflict now unfolding. What they left was something less tangible: an idea of what the Tata institution was for. JRD spent a lifetime making the group larger than the men who ran it. Ratan spent much of his doing the same for the institutions themselves.
Noel’s task is different. He cannot reproduce JRD’s moral authority or Ratan’s institutional authority. He has to make the values they represented durable without them. For a business group whose name has acquired an unusual place in India’s imagination, that is not a small task. The question is whether, after the people who embodied the Tata way are gone, the House itself still knows what that way means.
Srinath Sridharan is a corporate advisor and author of ‘Family and Dhanda’ and Puja Mehra is senior fellow (consultant), Indian Council for Research on International Economic Relations.
