Tata Sons – Time for Noel Tata to wield the whip decisively

The Tata Sons AGM on 17-September almost sounded like a farce. The board of Tata Sons, comprising of professional managers, was taking decisions against the larger interests of its biggest shareholder; the Tata Trusts.

What exactly happened at the Tata Sons AGM

At the Tata Sons AGM, the board comprising of Venu Srinivasan, Saurabh Agarwal, Anita George, Harish Manwani, and Chandrasekaran decided to vote in favour of two resolutions. The first resolution was to reappoint Chandra for another period of 5 years. That is surprising considering that, in August, Chandra had himself expressed his intention to step down. The second resolution was to take necessary steps to prepare Tata Sons for listing, as ruled by the RBI. Ironically, Venu Srinivasan who is also on the board of Tata Trusts, was party to a resolution voting against the listing of Tata Sons.

Why is the board turning against Noel Tata?

At the outset, it seems outlandish. Why would a board appointed by the Tata Trusts go against the wishes of the largest stakeholder in Tata Sons? There could be two possible reasons. The first reasoning is that the eminent members of the board genuinely believe that these resolutions are in the larger interests of the Tata group. The second reasoning is that the current board of Tata Sons (largely outside businessmen and executives) see an opportunity to extract a price at a time when the group is on a slightly shaky wicket. The second reasoning is more reminiscent of what the Tata group has faced way back in 1992 and once again in 2016. That is what makes the second scenario more likely!

Too many coincidences are never by chance

What really stands out about the story is a series of striking coincidences; all happening around the same time. Venu Srinivasan votes against listing in Tata Trusts board, but votes for listing in the Tata Sons board. Chandrasekharan insists on consensus in his reappointment, then resigns, but eventually has no objection to a Tata Sons board resolution reappointing him for 5 years. Around the same time, RBI strikes down the request for CIC deregistration of Tata Sons, after sitting on the case for 3 years and giving a reasoning that was well-known 3 years back. Above all, the Charity Commissioner passes an order making any joint trust resolution impossible for Tata Trusts.

It is time for Noel Tata to crack the whip

It may sound anachronistic in a democratic set-up like the board of directors, but Noel Tata has little choice. The first step would be to offer an exit route to the SP group. Yes, Tata Sons is not obliged to given an exit route to SP group, but that would remove the biggest hindrance to staying an unlisted entity. Also, you get a liquidity-strapped 18.3% shareholder on your side. The current board of Tata Sons has to go. You cannot have a board that is seen flagrantly challenging the biggest shareholder. It sends a wrong signal for a $300 billion market cap group. Noel Tata has to crack the whip and make drastic changes to the composition of the Tata Sons board. May we live in interesting times!