Bengaluru – A boardroom shake-up in Indian conglomerate Tata Group in early October threatened to destabilise the tea-to-semiconductors business house, prompting the government to intervene.
The government was so worried about the situation at the organisation – which accounts for an estimated 4 per cent of India’s gross domestic product – that Home Minister Amit Shah and Finance Minister Nirmala Sitharaman met some of Tata’s top leaders in a closed-door meeting in Delhi on Oct 7.
The unprecedented government intervention seems to have calmed the internal rift. But analysts suspect that the truce is temporary.
Smooth decision-making at the Tata Group is crucial, given its involvement in ventures that dovetail with the government’s top economic priorities.
One example is its US$11 billion (S$14.25 billion) investment in the country’s first semiconductor fabrication plant. It is also the only Indian manufacturer of Apple iPhones in the country, apart from Taiwan’s Foxconn.
The company’s internal feud became public earlier this month when the philanthropic trust that controls a majority shareholding in the Tata Group holding company rejected the reappointment of a board member who also happens to be a former defence secretary.
It exposed the underlying tension between two factions in the boardroom that itself stems from decades-old infighting between the Tata and Mistry families that control the shareholding.
The resolution of chronic differences will have a bearing on critical projects helmed by the US$368 billion group.
With the differences over governance and transparency among the members now in the public domain, Tata faces additional pressure to fix them soon.
“If left unresolved, the conflict risks far greater consequences: reputational damage, regulatory scrutiny, and potential government intervention. The Tata Group is too integral to India’s GDP for such instability to linger,” said Ms Hetal Dalal, president of Institutional Investor Advisory Services, an advisory firm that works on shareholder resolution and corporate governance.
The group runs over two dozen companies that make salt, watches and trucks, generate power, run airlines and hotels, and offers IT and financial services. According to the company, more than two-thirds of India’s bridges, metro trains, and flyovers use Tata’s steel.
Tata companies have made significant overseas acquisitions as well, like Britain’s Tetley Tea, the Anglo-Dutch steel company Corus, luxury car brands Jaguar and Land Rover and South Korea’s Daewoo Commercial Vehicles, besides Singapore’s NatSteel and Thailand’s Millennium Steel.
Tata has since divested its stake in NatSteel.
Beyond this, Tata Group is also a major donor to political parties in the country, including Prime Minister Narendra Modi’s Bharatiya Janata Party.
Tata also funds India’s biggest philanthropic initiatives. It is when these tightly intertwined corporate and charitable sides butted heads that Tata’s current crisis emerged.
Tata Sons and Tata Trusts did not respond to The Straits Times’ queries.
At the heart of the company’s internal rift is a power tussle emerging from its unique power-sharing structure.
Tata Sons, the holding company for the group of companies, must get clearance for any major financial investment exceeding US$11 million from Tata Trusts. The philanthropy arm is a 66 per cent majority shareholder in Tata Sons.
The second-biggest shareholder is Shapoorji Pallonji Group, which controls 18.4 per cent of the shares, followed by around 12 per cent held by seven Tata companies.
This “uncommon corporate structure” where a philanthropic organisation controls a business corporation, was “a far-sighted gesture of making a permanent arrangement that the profits of the business ventures would be used only for charity rather than benefiting a particular family”, explained Mr Ranganathan V, a columnist with business news portal Moneylife.
It has only a handful of global parallels including Maersk and Carlsberg, whose foundations own majority shares in the company.
“Some of the public institutions that make India proud even to this day owe their creation to these trusts,” he added, mentioning the Tata Institute of Social Sciences, Tata Institute of Fundamental Research, Tata Memorial Centre, National Centre for Performing Arts, and the Indian Institute of Science.
Initially, the Trusts did not have voting rights. However, the Tata Sons Articles of Association were changed in 2000 to create a veto power in key decisions for Tata Trusts.
The architecture that depended on consensus to function gradually began to be beset by legal battles, financial pressures, and fragile relations.
Starting in the 2010, boardroom feuds between the two groups that have the biggest stake in Tata – the Trusts under Mr Ratan Tata and Shapoorji Pallonji group under the Mistry family – began to create tensions.
In 2011, Mr Ratan Tata had given the nod to Mr Cyrus Mistry, who belongs to the family that holds the second-biggest stake in Tata, to take over as the first non-family chairman of Tata Sons. But in 2016, he reportedly backed Mr Mistry’s removal in the middle of his tenure. Mr Mistry was killed in a road crash in 2022.
Even as the Trusts have been angling for more control over corporate affairs, Tata Sons has also not sought clearances from the Trust for years, say analysts.
Things finally came to a head after its
chairman Ratan Tata’s demise a year ago.
The Tata Semiconductor Assembly and Test factory in Jagiroad, Assam.
ST PHOTO: ROHINI MOHAN
With Mr Ratan’s half-brother Noel Tata as the chair today, “the power equation of the trustees has changed and there are two camps within the Trusts,” said Mr Shriram Subramanian, founder of InGovern, a corporate governance consultancy.
Some trustees under Mr Mehli Mistry’s leadership voted against the reappointment of Mr Vijay Singh, a former defence secretary, vice-chairman of Tata Trusts and a confidant of Mr Ratan Tata, to the Tata Sons board in September. Other trustees also blocked Mr Mehli Mistry’s appointment to the Tata Sons board.
After the meeting with ministers, details of which ST could not confirm, the trustees seem to have swept their differences under the carpet in a meeting on Oct 10. Indian newspaper The Hindu quoted a person privy to the discussions saying that no contentious issues were raised.
Amid the split, Tata Trusts has recommended a third five-year term for Mr N. Chandrasekaran as the chairman of Tata Sons. His current term ends in February 2027. The Shapoorji Pallonji group had abstained from voting on his reappointment in 2022.
“The matter is settled for now. But given the structure that gives the Trusts veto power in crucial decisions on the board of Tata Sons, differences may come up in key projects in the future, like a big investment in semiconductors, or setting up a new business,” Mr Subramanian told ST.
Seizing the opportunity, the Shapoorji Pallonji Group – which has the largest individual shareholding in Tata Sons after the Trusts – has reiterated its long-held demand that the Tata group’s holding company publicly list itself.
Analysts say that the Shapoorji Pallonji Group’s calls for an initial public offering (IPO) appear to be due to its US$1 billion debt pile. A public listing of Tata Sons would be an opportunity to monetise its stake and unlock its value.
Mr Shapoorji Pallonji Mistry, the group’s chairman, framed the IPO as a “moral and social imperative” that would create transparency and benefit the more than 13 million shareholders of publicly listed Tata Group companies, who are indirect stakeholders in Tata Sons.
Tata Trusts told The Hindu Business Line that it has resolved not to support the listing, as it could undermine the charitable body’s special majority voting rights on significant inter-group matters.
Tata Sons is one of India’s – and perhaps the world’s – few large holding companies not listed in the stock exchange.
Holding companies of other enormous business groups, such as Bajaj Holdings, JSW Holdings and TVS Holdings, are publicly listed.
“It is in the DNA of family enterprises the world over to fight over control, and Tata is not unique in that. But not listing does disservice to the cause of Tata’s original promoters because it keeps Tata Sons at a lower valuation,” said Mr Ranganathan.
“The Trusts should be able to bequeath its shares, enjoy a significant corpus and invest it in even more charitable activities as envisioned. Without that, it is only using the Trusts as a cloak to control business decisions,” he added.
Significantly, India’s central bank has also directed Tata Sons to list itself.
The company was named by the Reserve Bank of India (RBI) in 2021 along with 14 other large companies as critical to the financial system, and was ordered to publicly list itself for enhanced regulatory checks and risk management by Sept 30, 2025.
The deadline has passed, and Tata Sons has not yet complied.
To avoid this mandatory listing, Tata Sons has applied to the RBI to deregister as a Core Investment Company.
The RBI has not yet indicated its decision or enforced compliance, which Mr Ranganathan surmised was a “soft treatment extended because of Tata’s outsized role” in the economy.
