Well, the fast-unfolding events at the venerable Tata group have left commoners perplexed. Who is right? And who is wrong? Courts will probably be the ultimate decider. But the debate is bound to go beyond any legal resolution and become a subject matter of household discussion. After all, the Tatas touch the everyday life of a common man.
At the core are a couple of issues like the listing of Tata Sons, the holding company of the Tata group and the continuation of N Chandrasekaran as its chairman. To put things into perspective, it is imperative to understand the structure of Tata Sons. The holding company is controlled by a few Tata Trusts. They have a stake close to 66 per cent in Tata Sons. The Shapoorji Pallonji group, a Tata parner for several decades, holds around 18 per cent in Tata Sons. Significantly, the Tata Trusts’ nominees on the board of Tata Sons have been given veto power under the Articles of Association to reject resolutions of the board.
Out of the blue, Chandrasekaran, a long-serving employee at the Tata group, had found himself pitchforked as chairman of Tata Sons after the ouster of Cyrus Mistry. Both Ratan Tata and Cyrus Mistry are no more now. Ratan Tata’s half-brother Noel Tata has since become the chairman of Tata Trusts. One can keep debating for a long time as to whether Noel Tata has Ratan Tata-like stature in the Tata empire. One thing is sure, the world of business has changed drastically.
Listing Dilemma
The challenge arose when the Reserve Bank of India (RBI) introduced the scale-based regulatory framework (SBR) for Non Nanking Financial Companies (NBFC) in October 2021. The SBR is a risk-based approach to regulation that classifies NBFCs into four layers based on their size, activity and perceived riskiness. Each layer is subject to a different set of regulatory requirements. Since Tata Sons falls in this upper layer bracket, the regulator has made it abundantly clear that the Tata holding company must get itself listed. Tata Trusts – the largest owner of Tata Sons – aren’t in favour of listing Tata Sons. Noel Tata feels that listing will destroy Tata Trusts’ character. The Shapoorji Pallonji group however, has batted for the listing. With a strong presence in infrastructure and significant exposure to projects within and outside the country, Shapoorji Pallonji group is sitting on a mountain of debt. It is keen to monetise its equity holding in Tata Sons to pay off its debt.
Boardroom Twist
Prior to the notification of the RBI decision to Tata Sons, Chandrasekaran announced that he wouldn’t wish to continue as chairman as there was also no consensus for his continuation. But the dynamics appears to have changed after the RBI communication. Reversing his earlier decision, Chandrasekaran agreed to continue. Not just that, the board also agreed to initiate steps to comply with regulatory requirements in consultation with stakeholders across the board.
No one could anticipate the events that played out at the board meeting. The re-nomination of Chandrasekaran saw two representatives of Tata Trusts – Noel Tata and Venu Srinivasan-break rank and vote differently. With the veto-holding representatives split, the one who acted as chairman for this specific purpose reportedly resorted to a casting vote on a resolution pertaining to the re-nomination of Chandrasekaran. This was sought to be justified on the ground that an organisation cannot be allowed to be held hostage by a stalemate situation. In the event, Chandrasekaran’s re-nomination was cleared through a majority vote. The outcome of the board meeting clearly indicates two things. For one, it suggests the imbroglio at the Tata group has turned murkier. For another, it reflects a division within the Tata Trusts. What has added further to the Tata intrigue is the position of the Shapoorji Pallonji group in this matter. Significantly enough, a release from the Shapoorji Pallonji group also lauded the Prime Minister for empowering the institutions. Tata Trusts, after all, hold the majority of shares in Tata Sons. With divisions in Tata Trusts coming out in open, many imponderables are freely aired now. Events have suggested a non-conciliatory thought process across the warring factions and indicated a legal recourse.
What is right?
There is also a larger issue. Why should there be a differential treatment for Tata Trusts, vis-a-vis the deployment of funds and taxation? Rules cannot be applied differently for different entities. Trusts of philanthropy are dime a dozen with many big corporate groups such as Ambanis, Jindals, Azim Premjis, Shiv Nadars and the like running their own foundations to help large social causes.
If change is the only constant, it requires a sense of realism to admit it. With the world around us transforming at a hectic pace, it requires enormous courage to let go of control. Should Chandrasekaran have walked away as he had indicated earlier? Should Noel Tata have agreed for the listing of Tata Sons? The question is not about who is right. It is more about what is right.
