Ratan Tata’s Succession Plan was Incomplete

14 11 2016

After the October 24, 2016 unceremonious exit of Cyrus Mistry as the Tata Sons, Chairman and reappointment of Ratan Tata as the interim Chairman of Tata Sons, many media commentators are saying that Ratan Tata reversed his decision of 2011. In 2011, he chose Cyrus Mistry as his successor by appointing him as Vice Chairman. In 2012, Cyrus was appointed as Chairman of Tata Sons.

By appointing Cyrus Mistry as Chairman of Tata Sons and later as Chairman of the various operating companies it appeared to the world that Ratan Tata had chosen his successor and has quietly gone into retirement. He did not entirely. He had kept an important lever of control with himself. He remained the Chairman of all the Tata trusts.

To the world Tata trusts, may appear as some charity arms of the Tata group, they are more than that. Tata trusts own 66 % of Tata Sons Ltd, an unlisted public limited company. Tata Sons Limited is the holding company that has the promoter status in all the operating Tata companies where stakes vary from 26 % to even 100 %.

By remaining as Chairman of all Tata Trusts,  Ratan Tata did not give the most important lever of controlling the group to Cyrus Mistry. He used that lever to appoint directors in Tata Sons and also to oust Cyrus Mistry as Chairman.

Only for a brief while, the Chairmanships of Tata trusts and Tata Sons were in two different hands. When Ratan Tata took over as Tata Sons Chairman in 1991, JRD Tata remained as Tata trusts chairman until his death in 1993. After which, Ratan Tata took over as the Chairman of Tata Trusts.

It appears, the 66 % stake in Tata Sons by the Tata trusts will also allow Ratan Tata as Chairman of Tata Trusts to even oust Cyrus Mistry as a Director ofTata Sons Ltd, if they  call an EGM. This will violate an old tradition  where a member of the Shapoorji Pallonji Mistry family sits on the board of Tata Sons for their 18 % stake in Tata Sons as this Forbes article brings out

Shapoorji was smart enough to see his 17.5 percent stake was no match for this. His family was limited to having just one seat on the Tata Sons board, which is the case even today. His shares also gave him no authority to nominate board members and the company’s existing directors were all loyal to JRD. 

Shapoorji was also smart enough to see there was more value in him letting JRD’s team grow Tatas than in trying to do so himself. “He was practical, he was not aggressive,” a Tata insider says. “He committed to JRD that he would never vote against Tatas.”

It appears that the gentleman agreement between Tatas and Mistry family that continued for eight decades has got broken now. As Cyrus Mistry has already gone against the Tatas, Ratan Tata will see Cyrus Mistry out of Tata Sons board too.

Ratan Tata has the golden key because he is the Chairman of the Tata trusts. It is revealing that even before the unfortunate incidents of October 24, Cyrus Mistry was never even a trustee in any of the Tata Trusts. For those who speculate that whether Noel Tata, the half brother of Ratan Tata could be a successor to Ratan Tata after the four months period, it is revealing that Noel Tata is also not even a Trustee in any of the trusts. For a complete list of trustees visit www.tatatrusts.org  and Dorabji  Tata Trusts. Names like R.K.Krishnakumar, N A Soonawala and his former Executive Assistant R.Venkataraman appear in several boards.

The next Chairman of Tata Sons  would have to contend with a Board of Trustees who are well into their 70s and 80s. Also, given the unique structure and recent bitter experience, the Chairmanship of Tata trusts would not be given easily to the next Tata Sons Chairman.So I reckon that even after four months the succession plan would remain incomplete, even if a new Tata Sons Chairman takes charge.




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