N. Chandrasekaran’s first term as chairman of Tata Sons ends in February 2022 and speculation about an impending second term is already making headlines. Experts say a second term is on the cards, looking at the performance of the group under Chandrasekaran and his leadership style, especially after the much-publicised Tata-Mistry spat. Then there are those who say succession management is a company’s internal matter and any judgements outsiders make, based on the Tata-Mistry faceoff, would be based on conjecture and half-truths. So, it is wiser to stay out of it. And there are many others who take a step back and say that perhaps the spat reveals something more than just a group’s decision-making, that it speaks about the checks and balances placed to ensure corporate governance in India Inc. And what it tells is not comforting.
J.N. Gupta, co-founder and managing director of Shareholder Empowerment Services and former executive director of markets regulator Sebi, believes it should be a matter of concern only for stakeholders of Tata Sons, which is largely Tata Trusts and Shapoorji Pallonji Group (SP Group). “I do not know what the parameters are (in picking the candidate) and I do not know how his (Chandrasekaran’s) performance has been assessed…but why should they be shared with me? These things need to be made transparent only to the stakeholders,” he says, adding that speculation about succession at Bombay House is a hot topic only because of the Cyrus Mistry episode.
Indeed, as the holding company is not listed, it has every right to take such decisions without explaining them to anyone else. However, in this case, the holding company has a significant influence on corporate India’s landscape. In an email interaction with Outlook Business, Mircea Raianu, author of the recently released book Tata: The Global Corporation that Built Indian Capitalism, writes that the case raises difficult questions about the relationships between the companies, the Trusts and Tata Sons. “The public should care about corporate governance in general.… If such questions could be asked about one of India’s best run corporate groups, what about others? How much oversight and transparency is there in the system as a whole?”
Gupta too agrees that the procedure adopted for Mistry’s ouster did not “tick all the boxes”. But, he adds, “Governance cannot be for the sake of governance, it has to serve the underlying objective. You cannot say that you are following good governance and let a company go up in flames. Ultimately, the objective of governance is shareholders’ benefit.”
Raianu, while making his point about the larger implications of the Mistry-Tata Sons dispute, agrees with Gupta that the conflict attracted far too much attention. “Even during J.R.D. Tata and Ratan Tata’s time, individual charisma and powerful personalities at the top (with a few exceptions like Russi Mody at Tata Steel) did not matter as much as the companies’ performance and the systems put in place,” he writes.
The Tata vs Mistry Saga
In 2012, 44-year-old Cyrus Mistry was made chairman of Tata Sons. The scion of the SP Group, which holds over 18 per cent stake in Tata Sons, was then seen as a convenient choice. It ended a two-year search for an heir. When Mistry was appointed, insiders said it was largely on account of his family’s long association with the House of Tata—the family and the group.
On his elevation, Mistry maintained a low profile, never making a media appearance. But behind the scenes, he was wielding a cold scalpel to trim debt and less-performing ventures. Industry watchers say he trod on toes, important ones. Within four years, in 2016, Mistry was shown the door. The board said they had lost confidence in him.
Mistry didn’t take it lying down. He filed a case at the National Company Law Tribunal challenging his dismissal first as chairman and later as a director from all group companies, and said there were corporate governance lapses at the group and that the interest of minority shareholders was being compromised. The case travelled to the appellate tribunal and then to the Supreme Court, and finally, this March, the apex court ruled in favour of Tata Sons.
Succession management at the group will also affect the group companies that operate in nearly every sector—giving the group the epithet of ‘salt-to-software conglomerate’. Mistry, after all, was ousted from the directorship of the group companies. According to Raianu, the group has a consultative decision-making process so the selection of the chairperson alone won’t determine their future. Ratan Tata had more leeway because he consolidated the group and gave it a new direction in the early 1990s. Mistry failed to get this, not because he did not have a firmer hand, but because there was a lack of an effective consultative process and divisions within the leadership.
The House of Tata
Chandrasekaran has shown a talent for collaboration. Kavil Ramachandran, professor at the Indian School of Business, who has researched extensively on family businesses, believes the board must have played a big role in “installing and guiding” Chandrasekaran so far since he managed a single company exceptionally well, but did not have any experience in managing a diversified group. “He is intelligent and knew how to take care of things (the board’s sentiment), and did not abrasively push his ideas through,” he says. This style of management is unlikely to change in his second term or even if anyone else succeeds him.
While Chandrasekaran will carry everyone along, Ramachandran does not think individual likes and fancies will be accommodated as generously this time around. “Ratan Tata’s influence will remain, but it will be more subdued,” he says. These are disruptive times with big companies shutting shop and new companies emerging leaders overnight, and therefore there can be little tolerance for adventurous bets. “The group’s strategy will be driven more by logic, such as which industry is growing and in which sector the company is competitive.… Therefore digital services will play a big role this time around too,” Ramachandran says. This means concerns regarding Tata Consultancy Services being a disproportionate revenue generator are likely to remain.
“If one child in a family is earning in crores, while the others are earning in thousands, you can’t ask the first to bring it down to a few lakhs,” says Gupta. “Nor can you ask the others to get out.” He thinks ideally the group should focus on companies that are among the top three or top five in their sector, and those that have a roadmap to get to the top ranks. If a company does not meet both criteria, it should be shown the door, according to him.
The group, though, is unlikely to act with such cool dispassion. The social-development goals of the group will remain non-negotiable, says Ramachandran. A particularly juicy bone of contention between Mistry and the Tata Trusts was the dividend distribution. The latter felt they weren’t getting enough to continue their charitable work. As the case played out in courtrooms, Mistry’s side time and again referred to the relationship between Tata Sons and the Trusts, pointing to the fact that no conflict arose till Ratan Tata was chairman of both.
On the whole, whoever takes the top job next—and most likely it will be Chandrasekaran—will continue to play the balancing act.
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The Stakes in Tata Sons
Tata Trusts 66%
Mistry Family 18.4%
Tata Companies 13%
Others 2.6%
(This appeared in the print edition as "Not a Family Affair")
