Ratan Tata is not immortal. He knows that as do we. And yet at 79 he is engaged in the biggest battle of his life. Except it's the wrong one. In suddenly throwing out a group chairman he helped select and now dislikes, Tata has made public the fissures in the group and the governance mis-steps. Independent directors are brazenly picking sides, senior executives are looking to make personal gain and institutional shareholders are counting up the losses.
Smelling the rot, the political vultures are circling and they are probably eyeing not Tata Sons, but the Tata Trusts.
After Tata Who?
Tata Trusts, 14 of them, together control 66 percent of Tata Sons and are the biggest beneficiaries of the group holding company's earnings. The Trusts are collectively run by Ratan Tata as chairman, but after him who?
His brother Jimmy Tata is a trustee of three trusts. There is no other Tata involved in the country's largest philanthropic institutions. Jimmy, at least on this count, lives in the shadow of his illustrious brother, his capabilities an unknown quantity.
The other trustees range from little known figures such as VR Mehta and SN Batliwala to aging Tata veterans such as RK Krishna Kumar and Noshir Soonawala to outsiders such as Amit Chandra and now Venu Srinivasan.
The man who seems to wield the maximum power right now is R Venkataramanan or Venkat as most refer to him.
A former assistant of Ratan Tata and now managing trustee, Venkat, say those in the know, played an important role in orchestrating the dismissal of Cyrus Mistry and setting up the legal team to do so. His name comes up in every conversation with those close to the recent events. One person described him as shrewd, another as political. A third said he is ‘most influential’. Is Venkat heir apparent at the Trusts?
A Tata Sons’ spokesperson says the trustees, currently 20 of them occupying 54 trusteeships across 14 trusts as listed on the Tata Trusts website, will elect the next chairman.
The Trustees together appoint the chairman/chairperson. The fundamental criteria would be whether the person shares the vision of Jamsetji Tata and his two sons, Sir Dorabji Tata and Sir Ratan Tata, which are all clearly set out in the Trust Deeds. The Trustees are generally appointed for specific terms, although given the philanthropic activities of the Trusts, many Trustees have been Trustees for life.Tata Trusts Spokesperson in an email response to BloombergQuint
It isn’t clear if each trustee will have one vote or each trustee position will have one vote. Currently, Venkat serves on 12 trusts, Soonawala and Krishna Kumar on 7 each, Amit Chandra on 4 and JN Mistry and JN Tata on 3 each. The rest hold one or two trusteeships each.
The Tata Trusts are registered in Mumbai and governed by the Bombay Public Trusts Act, 1950 and the Regulations, 1951.
The Act and the regulations give the Charity Commissioner wide-ranging powers, from sanctioning the sale of immovable property to instituting inquiries into the functioning of the trust on the basis of complaints received to removing trustees and also taking over a trust’s properties in certain circumstances.
This is not to suggest any wrongdoing on the part of the Tata Trusts. But already the Tata - Mistry battle has resurfaced a Comptroller and Auditor General of India (CAG) report released in 2013 that questions the tax exemptions granted to certain Tata Trusts.
In October, Cyrus Mistry in his letter to Tata Sons board members and Tata Trusts trustees raised the issue of fraudulent transactions at AirAsia India and said Venkat considered these transactions as non-material.
A recent forensic investigation revealed fraudulent transactions of Rs 22 crore involving non-existent parties in India and Singapore. Executive Trustee, Mr. Venkataramanan, who is on the board of AirAsia and also a shareholder in the company, considered these transactions as non-material and did not encourage further study.Cyrus Mistry’s Letter To Tata Sons (October 24)
Also remember, till not so long ago the Tata Trusts voted on their shares in Tata Sons via a ‘public trustee’ appointed by the government. An amendment to company law changed that in 2000.
This Section 187B of the Companies Act, 1956 was amended by the Companies (Amendment) Act, 2000. Currently the Companies Act, 2013 is in force but government control, of sorts, over public charitable trusts is not novel at all.
To compound matters further, Mistry himself has called for government intervention in the management of the Trusts, in his representation to shareholders on December 5.
Since these trusts are solely for the benefit of the general public of India, they enjoy many exemptions under law including exemptions from tax. The role, functions and actions of the trustees of public charitable trusts are governed by special law. In the absence of an appropriate governance structure and ethical behaviour of trustees, it would become an inherent obligation of the government to remedy and repair breakdown in the governance of such trusts. Therefore, in managing trust property, the conduct of trustees who oversee the properties and functions of public charitable trusts has to be of the highest order.Cyrus Mistry representation to shareholders (December 5)
Tata Federal Structure Under Threat?
So far the aura of JRD Tata and more recently Ratan Tata probably kept all government sorts away from the Trusts. But how long can that last once he's gone and no Tata is in charge? Mistry’s family has skin in the game enough to probably defend Tata Sons, but who’s going to stand up for the Trusts?
Every politician and bureaucrat worth his benami property must be salivating at the disunity in the group, waiting for the right moment to strike.
Given recent events, it is also not inconceivable that the tightly controlled federal structure of the Tata Group may crumble, especially if the Trusts fell into wrong or undeserving controlling hands and through them Tata Sons became a tool not a facilitator.
Public and institutional shareholders of the group's listed companies may over time see less and less value in being controlled by Tata Sons, especially if the leadership of the Tata Trusts, and hence Tata Sons, leaves much to be desired.
Even if Tata Sons were to be led by say an insider, current TCS Chief Executive Officer and Managing Director N Chandrasekaran for instance, the leader of the Trusts, the real power centre as is evident now, may not be as capable or well intentioned.
Ratan Tata is fighting the wrong fight. His real battle is a race against time to fortify the Trusts with impeccable and distributed leadership and a cast iron succession plan that will outlive him, and ringfence the Trusts, Tata Sons and the group companies from a fate far worse.