Is Tata Sons being undermined by those with no stake in its future?

Analysis of Tata Sons' governance crisis reveals threats to its longstanding legacy, the unique trust structure, and philanthropic foundations amid boardroom conflicts and ethical concerns.

Jehangir Ruttonji Dadabhoy Tata must be twisting in his family crypt at the Pere Lachaise Cemetery in Paris. The sorrow is that the legacy he stewarded for almost six decades of his life, the values and tradition he inherited and further strengthened are all under siege and threat. The very balance maintained over a century between the owners, the trusts, and its operating arm, Tata Sons, is being destroyed. Ashamed because the very reputation of the trusts and the company is being sullied by what is increasingly appearing as a boardroom coup by individuals who have never been steeped in the Tata ethos and its way of conducting its affairs with dignity and discretion.

The crux is a basic issue of corporate governance. Can a group of individuals, be they independent directors or trustees, with no fiduciary stake in the organisation, usurp the powers and obligations of the owner? Can the Board of Tata Sons and trustees of Tata trusts disregard the legitimate and rational concerns of the owner in subjecting a 110-year-old privately held company to the vagaries of a public listing which could destroy the very foundation of philanthropy?

The conduct of the independent directors (IDs) on the board of Tata Sons raises some basic and substantive questions on the role of IDs on Corporate Boards. Independent Directors, as their designation denotes, are meant to function as watchdogs protecting the interest of an amorphous mass of small shareholders and ensure compliance with the now onerous regulations which govern the conduct of corporates. They have certain fiduciary duties to safeguard against corporate excesses, to the detriment of the individual small investor. But in all cases, they are subject to the vision and direction of the promoter and the major shareholder and cannot impose their will or thinking contrary to the direction the promoter deems fit for the organisation.

One point which has not been stressed enough is that Tata Sons is not a listed company on the stock exchange; its roster of shareholders would fit a page of a ledger. Tata Sons is not a corporate like L&T or ITC which have no identifiable promoter and shareholding is diffused and where governance lies with the Board. In the instance of Tata Sons, the Board cannot take a divergent stand on any issue at variance with the wishes of the owner. Such an action is morally and ethically reprehensible. The members of the Board have no stake whatsoever in the company and are duty bound to carry out the wishes of the owner, who in this case is opposed to a public listing, which in his opinion would seriously impair the philanthropic motive, which Tata Sons fulfills, by the induction of individual shareholders whose desire for returns could be at variance with the stated objectives of philanthropy.

Another issue which has not yet been sufficiently considered, is the original intent of the settlors and benefactors, the members of the Tata family, who have willed their fortunes for the greater good. This group was the first in India and one of the first in the world, to enunciate the concept that wealth created was in trust for its various stakeholders, including its workers. The focus from the time of the founder Jamshetji Tata, was nation building and industrial self-reliance. Jamshetji gave away in his lifetime what is estimated in today's value, a sum of over a 100 billion dollars.

His sons, Sir Dorab and Sir Ratan also willed their shareholding to their individual trusts. Sir Dorab famously pawned his wife, Lady Meherbai's, jewellery to pay workers at Tata Steel, which underwent a few difficult years at inception. He also contributed to the establishment of the Tata Memorial Cancer Hospital after his wife succumbed to the disease. The mantle then passed onto JRD Tata, son of Jamshetji's cousin and partner, who famously did not even have a crore of rupees in personal wealth till he disposed of an apartment, the proceeds of which he used to establish a trust for women and children. Such were the icons who built this century and a half old institution.

Tata Sons was formed as a Managing Agency to manage the various interests of the group, which included banking, insurance and aviation before they were nationalised. The managing agency system was abolished in 1970, ostensibly on grounds that it led to mismanagement of assets and companies by groups which had minimal shareholdings in them. It was then converted in a holding company also promoting companies under its umbrella, Tata Consultancy Service being a prime example.

The earlier boards of Tata Sons comprised senior managers of Tata companies of and professionals of great achievements. They were Tata loyalists, deeply entrenched in the philosophy and values of the group, owing complete allegiance to their Chairman, JRD, whose one everlasting regret was the lack of a university education. Differences, if any, were settled with grace and dignity and not in the public domain to the detriment of the group.

If the Board's action is egregious, more so is the behaviour of the trustees who have lodged complaints with the Charity Commissioner against the trusts on which they serve. These complaints bear not a whiff of financial impropriety. One challenged the transfer of shares within the family some decades ago. Not only did the charity commissioner hold the transaction valid but made adverse observations noting that this was "unbecoming of a trustee".

Another trustee has now sought an inquiry in the Sir Dorab Tata Trust (SDTT) raising concerns over involvement of the charitable trusts and its trustees in Tata Sons commercial affairs. Did the same trustee, newly inducted at the time, raise the same concerns when Cyrus Mistry, Chairman of Tata Sons was unceremoniously dumped by Ratan Tata then Chairman of the Tata Trusts?

The contribution of the Tata family has not only been tangible in the institutions it has created but immense in the corporate probity and integrity it has engendered. It should be the concern of every citizen that this patrimony of Jamshetji and his heirs be preserved by the family which now bears its surname.

The author is a veteran journalist and promoter of Spenta Multimedia.