Tata Trusts could approach the court against the Tata Sons’ board decision on Chandrasekaran’s re-appointment as Chairman.
Government intervention and mediation by an external party could also help resolve the issue amicably.
If the division persists, it could hurt group companies that require assistance and guidance from Tata Sons’ board
Legal Battle a Definite Possibility: InGovern's Subramanian on Tata Sons Boardroom Tussle
Tata Sons vs Tata Trusts: A governance clash over Chandrasekaran's reappointment threatens to spill into court. InGovern's Shriram Subramanian breaks down what happens next.
Tata Sons Tata Group
Summary
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Tata Sons plunged into an unprecedented governance failure on Thursday after its board approved the extension of Chairman Chandrasekaran’s term by 5 years against the wishes of Tata Trusts, the largest shareholder in Tata Sons.
In a statement, Tata Trusts said that the re-appointment of Chandrasekaran as Chairman of Tata Sons is illegal. It said that the company’s Article of Association require a majority of the Trusts’ Nominee Directors to vote in favor of the resolution, which was not achieved as Noel Tata, one of the Nominee Directors, did not vote in favor.
In a conversation with Fazal Rahim, Shriram Subramanian, Founder and MD of InGovern Research Services, a governance advisory firm, explains how the governance failure brought the company to this point and what lies ahead.
With Tata Trusts being the largest shareholder, can it internally block the decision without going to court?
Yes. These decisions will eventually have to go to the shareholders for a vote at an Annual General Meeting (AGM). Because of its massive shareholding, if Tata Trusts is allowed by the Charity Commissioner to vote, its stance will obviously prevail. Shareholder primacy ensures that any contested decisions taken by the board can be shot down internally. Unfortunately, this means the dispute will likely drag on for a few more months.
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What is next in the tussle between the Tata Sons board and Tata Trusts? Will it go to court?
A legal battle is a definite possibility. Given the tone of the letter written by Tata Trusts—which suggests the board meeting and its resulting decisions were illegal—it is highly likely they will challenge the legality of these actions in the High Court.
Is there a way this conflict can be resolved amicably?
There is a likelihood of government intervention. For instance, in February, Mr. N. Chandrasekaran and Mr. Noel Tata met with the Finance Minister and the Home Minister. Additionally, well-wishers within business circles who have the ear of both parties could mediate. There is a strong possibility that these external influences could help both sides reach a middle ground and resolve the dispute out of court.
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How will a division between Tata Sons and Tata Trusts affect the group companies?
Each of the operating companies has its own board of directors, so their day-to-day operations are unlikely to be directly affected. However, if these companies need to raise new equity or make key strategic decisions, this division between the two entities may hamper their progress.
Is this a failure of long-term planning by the Tata Group? Could this conflict have been avoided with better planning?
If anyone is to be faulted for a lack of succession planning, it is Mr. Ratan Tata, as no clear successor was appointed for him until the very end. If a definitive transition of power had occurred while he was still active, it likely would not have led to this fallout. Unfortunately, the delay in passing the baton has directly contributed to the current situation.