Trouble at the top: The Tata Group faces an important test of leadership

Internal dissension and public sparring among trustees of Tata Trusts, which collectively hold over 65% in the group’s holding company, Tata Sons, has exposed the edifice’s structural faults. These trustees are responsible for, among other things, nominating directors to the holding company and providing broad corporate direction.

These trusts, in turn, depend on dividend payouts from Tata Sons to finance their charitable activities. Tata Sons, for example, paid over ₹1,712 crore to the seven trusts for 2024-25. Trustees on the board of Tata Sons are expected to keep other trustees updated about key governance decisions; this is where, ironically, trust has broken down.

The open schism within Tata’s board of trustees also has the government concerned. The government’s unease about large fault-lines in one of India’s leading corporate groups is probably justified, especially when the group is engaged in some mission-critical economic activity, such as the manufacture of semiconductors and defence equipment.

There are other systemic stability issues as well. The Tata Group’s turnover of over ₹15.3 trillion represents around 4.6% of India’s GDP for 2024-25; and the value of the group’s listed companies accounted for close to 7% of all-India market capitalization. Hopefully, the government will limit its involvement to just expressing concern.

The infighting is symptomatic of two problems in the group. The first is the portentous shadow of the Mistry Group’s 18.4% stake in Tata Sons. The Mistry Group wants to liquidate this stake to pay off debts, but Tata Sons rules discourage sales to third parties; differences over valuation have also impeded past buy-out attempts.

Meanwhile, the spectre of Tata Sons being forced to go public has found support among the Mistrys and their supporters in the Tata system (mainly because it means large tax savings), but is being opposed by everybody else.

The Tatas have negotiated near bankruptcy in the past by borrowing from friends and family, and then converting that debt into equity. The Mistrys own those same shares today. It is also true that the Tatas had once requested the Birlas to help protect Tata Steel from hostile takeovers, an act that led to the Birla group owning more shares in the steelmaker than the Tatas.

In line with an understanding between J.R.D. Tata and G.D. Birla, the Birlas played a passive role for decades till those shares were sold down. Today, the Tata Group needs to resolve the Mistry group impasse by letting the Mistrys monetize their stake. But both sides must reach an optimal solution; this should not be a zero-sum game. Whatever is needed must be done to bring an honourable closure to this unseemly episode in an otherwise long but bumpy relationship.

The group’s past crises were always resolved through decisive leadership. The current public bickering is probably a manifestation of the group’s leadership vacuum. This is not a comment on the capabilities of either Noel Tata (chairman of Tata Trusts chairman) or N. Chandrasekaran, chairman of Tata Sons. Both have proven themselves, apart from having sufficient business and leadership experience. However, with Noel Tata 68 years old and Chandrasekaran aged 62, the group must start planning for the future now.

Moreover, the split leadership between Tata Trusts and Tata Sons is clearly not working. Ratan Tata, by integrating the disparate trusts and chairing them, was able to give the group some cohesion and leadership. But it has only been a year since his demise; also, the composition of both entities has probably impeded common leadership. It may be argued that common leadership was not always the case, but it’s the ideal choice today in the context of the group’s business dynamics.

Therefore, what the group needs right now—to sort out both the split-leadership conundrum and set the group on a sustainable future path—is to initiate a search for a new leader.

While there is some merit in appointing a non-family professional to head Tata Sons, as Chandrasekaran’s appointment has proven, a family member may be necessary if the incumbent is to head both organizations and act as a bridge between them. It may also be time to look within the extended family for a likely successor, preferably somebody younger.

Given that J.R.D. Tata was appointed chairman of Tata Sons when he was only 38, or Ratan Tata when he was only 53 (and Cyrus Mistry at 44), they should identify a likely candidate now and appoint the person vice-chairman for a limited period as an understudy to both Noel Tata and Chandrasekaran.

There have been other deputies in the past: Naval Tata, J.R.D.’s confidant and sounding board, was appointed deputy chairman of Tata Sons in 1962, and N.A. Soonawala as vice-chairman in 2000.

Given the mounting pressures of competition and technological change, apart from the group’s need to stay committed to founder Jamsetji Tata’s core values, Tata’s current leadership may have little time to spend on interpersonal squabbles.

The author is a senior journalist and author of ‘Slip, Stitch and Stumble: The Untold Story of India’s Financial Sector Reforms’ @rajrishisinghal