Tata Group – the divided empire facing boardroom drama

A year after his death Ratan TataThe Tata Group – a huge Indian salt-to-steel conglomerate that it has successfully transformed into a modern, technologically advanced global enterprise – finds itself facing a number of crises.

The business empire, which owns iconic British brands such as Jaguar Land Rover (JLR) and Tetley Tea and manufactures Apple’s iPhone in India, is once again a house divided.

Over months, a power battle between trustees on the board exposed internal divisions that forced the government to step in and prevent a repeat of the very public legal tangle that engulfed the Tata empire in 2016, when its former boss Cyrus Mistry was chairman. Deposed From the group.

While ministers in Delhi appeared to have brokered an uneasy truce weeks ago, the latest reports suggest that Mohli Mistry, a close confidant of Ratan Tata and a trustee of the Tata Trust, has been ousted from his post. The BBC was unable to independently verify this.

Professor Mircea Riano of the University of Maryland, who has written a seminal history of the company, sees the conflict as “the re-emergence of unresolved business” – or the fundamental question of who runs the show at Tata, and how much control the majority shareholders (the philanthropic arm of the Tata Trust owns 66% of the parent company, Tata Sons) can exercise in making business decisions.

The Tata group has a unique structure, with controlling stakes in an unlisted business holding company (Tata Sons) and a charitable trust (Tata Trusts). While this gave the group tax and regulatory advantages, and allows it to carry out charitable activities, experts say it also led to governance issues given its dual commercial and non-profit objectives.

The latest spat comes at a time when the Tata family is facing stiff trade headwinds as it tries to expand into new growth areas such as semiconductors and electric vehicles, as well as trying to revive Air India – the struggling carrier it bought from the government in 2021 – after a disastrous debacle. Shatter Earlier this year.

So, what went wrong?

The Tata family has not commented publicly on the dispute, but it is widely said to stem from disagreements among trustees over board nominations, financing approvals and the public listing of Tata Sons – the holding company of 26 listed Tata companies with a market capitalization of about $328 billion.

A source close to the Tata group told the BBC, on condition of anonymity, that the desire of some trustees to have greater influence in strategic decision-making at Tata Sons and the selection of candidates on its board is at the heart of the conflict. Tata Trusts has three nominees for the Tata Sons Board of Directors.

“Tata Trusts’ nominees have veto power over major company decisions, but it is understood that their role is primarily a supervisory one, rather than an assertive one,” the source said. “But now, some trustees want more power to make business decisions.”

Another, more significant point of contention is the desire of SP Group – Tata Sons’ largest minority shareholder, with an 18% stake – to take the company public. While the former has been pushing hard for this, most Tata secretaries are against the idea.

“There is a fear that going public will weaken the fund’s decision-making ability and long-term focus and expose Tata Sons to quarterly market pressures,” the source said. “This is especially because there are a lot of new companies at a very nascent stage.”

But SP Group described its upcoming public listing as an “ethical and social imperative” that would unlock value for Tata shareholders and improve transparency and governance at the company.

Neither Tata Sons nor Tata Trusts responded to detailed questions posed by the BBC. But according to Professor Rayano, the conflict highlights a very real dilemma for the group.

He says a public listing would run counter to what many giant conglomerates in the US and Europe are increasingly doing – “choosing enterprise ownership to promote stability and sustainability”, ironically, by looking to the Tatas as an example.

“But at the same time, private or closely held companies are already subject to less external scrutiny, which can fuel conflict and damage reputation,” Professor Riano adds.

The tussle has already raised governance concerns and damaged the brand image of what is arguably one of India’s oldest and most respected business houses, says publicist Dilip Cherian, who once worked closely with former Tata Sons boss Cyrus Mistry.

“This adds to the series of blows that Tata has received recently,” Cherian told the BBC, referring to the devastating Air India incident earlier this year and the cyberattack on a key Jaguar Land Rover unit that sent UK car production falling to a record low. 70 years-low September this year.

Moreover, TCS, a leading software outsourcing company that contributes to nearly half of the group’s revenue, suffers from its own set of challenges, including Mass layoffs and the recent termination of a $1 billion contract with retailer Marks & Spencer.

“These boardroom battles are creating more confusion. Not only will there be concern about the stock’s performance, there will be questions among investors about who exactly they are dealing with at the Tatas,” Cherian said.

Amid the turmoil, N.’s term was reportedly extended. Chandrasekaran, Chairman, Tata Sons.

“The chairman can continue to do his job, as this is not a rift within the board, but among the trustees. But it is an unnecessary distraction for him,” the source close to Tata Sons said.

But the Tata family is not new to firefighting crises. The group witnessed fierce battles in the 1990s after Ratan Tata assumed leadership of the group and tried to modernize its operational structure. The conflict that erupted after Mestre’s overthrow a few years ago is still fresh in the memories of many people.

However, there is a big difference this time, says Professor Riano.

“Underperforming companies at that time were maintained through TCS, which facilitated continuity. Before TCS, Tata Steel played this role.”

At present – with TCS’s business model in flux and its contribution to the Tata group’s overall revenue under pressure – a similar ‘anchor’ for the group is yet to emerge, making it difficult for the group to combat such internal divisions.

“It is clearly destabilizing and potentially damaging in the short term, but it is possible that a new, more transparent and accountable structure will emerge when the dust settles,” says Professor Riano.

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