Tata Sons: There are still too many X-Factors for a resolution

The Tata Sons issue may have become quiet for the time being, but that could be more like a lull before the storm. As of date, there are too many open issues for an easy resolution to the current deadlock.

What about the 17-September decision deadlock?

The biggest of the deadlocks is the decisions taken by the Tata Sons board on 17-September. Among the various decisions, 2 resolutions stand out. Firstly, the board of Tata Sons resolved to reappoint Chandrasekharan as CEO for another 5-year term. Secondly, the board also resolved to take steps to comply with the RBI stricture to list Tata Sons. If we believe that the board of Tata Sons is correct, it undermines the core role of owner shareholders and could have larger implications. If we believe that the Tata Trusts (led by Noel Tata) are correct, it could undermine role of independent directors.

To list, or not to list: what is the consensus?

In plain terms, there is no consensus. Noel Tata is in favour of keeping Tata Sons private as that is more in sync with their philanthropy and incubating roles. The board of Tata Sons (ex-Noel Tata) is in favour of a listing, as it automatically dilutes the role of trusts in the day-to-day management of Tata Sons. Between the two ends, the SP group which owns 18.4% in Tata Sons is agreeable to any arrangement that can help them to monetize their stake in Tata Sons. So, clearly, there is no consensus on the listing debate at the core of this dispute. Remember, even the RBI has only rejected the Tata Sons request to surrender its NBFC registration. It has not given a deadline for listing.

Can Tata Trusts agree upon a strategic reorganization?

This idea was mooted by Noel Tata on behalf of the Tata Trusts. It entails merging Tata Electronics and Tata Consulting Engineers into Tata Sons. That would make Tata Sons into a predominantly operating company, making the NBFC debate redundant. That is similar to the structure of Tata Sons prior to 2004. While, it may be a retrograde step from a market perspective, it will serve the purpose of the trusts of retaining control over Tata Sons. However, this idea is unlikely to appeal to the directors of Tata Sons (ex-Noel Tata) as it takes away their main item of leverage. The interesting question will be whether RBI will approve such an arrangement and how it is pushed through Tata Sons board.

When things stop being professional and get personal

Previous ownership battles reveal that power battles are not just fought on the professional front, but also on the personal front. That is where the entire story could get really complicated. If we assume that the Tata Sons board has acted in the larger interests of shareholders, there are personal issues of intersecting business interests of Chandra and Venu Srinivasan. Also, the ongoing succession battle at the TVS group among the key stakeholders could come to the fore. After all, can a person with succession problems at home, really take on other business promoters on the grounds of independent powers. The game could get a lot more complex from here, and a lot messier too!