Tata Sons may beef up control of group firms

Tata Sons is considering a new structure to strengthen its control over operating companies after appointing N Chandrasekaran new chairman.

Tata Sons expected Cyrus Mistry to resign as chairman from group companies’ boards after he was removed from chairman’s role at Tata Sons. The principal holding company of Tata Group had a tough time when independent directors at some of the group companies, including Tata Chemicals and Indian Hotels, supported ousted chairman Cyrus Mistry on the board. “Tata Sons will certainly look for better checks and balances to protect its interests,” said a person familiar with the deliberations at Tata Sons.

“While in the long run this would require shoring up the group’s holding above 50 per cent in group companies, in the near-term there could be changes in the way Tata Sons is represented on group companies’ boards,” he said.

While Tata Group’s holding in Tata Chemicals is as low as 30.8 per cent, at Indian Hotels it is 38.6 per cent. Since many of the company boards did not remove Mistry as chairman after his ouster by Tata Sons, Tata Sons had to take the matter to the extraordinary general meetings (EGMs) to remove Mistry. Mistry resigned from group companies’ boards just before the crucial EGMs and took the battle to the National Company Law Tribunal, challenging his removal. The case is still with the tribunal.

According to the current regulatory guidelines of the Securities and Exchange Board of India, when a listed company is headed by a “promoter” (including its representative), then 50 per cent directors on the board of the company need to be independent. Tata Group would still like its large companies, including Tata Consultancy Services, to be headed by Tata Sons new Chairman N Chandrasekaran. But in case of smaller companies, Tata Sons may look at having an independent chairman. This would help it bring down the number of independent directors to 33 per cent, according to regulatory norms. Tata Sons can still appoint its representatives as directors on these companies’ boards and have 67 per cent control on the boards.

“Tata Sons should use this opportunity to appoint independent chairman on some of the operating companies’ boards whose responsibility will be to balance the interests of public shareholders and that of Tata Group,” said Amit Tandon, founder and managing director at Mumbai-based proxy advisory firm Institutional Investment Advisory Services, or IiAS. Chandrasekaran, a Tata Group veteran with a career spread over three decades in the group, will take charge as Tata Sons chairman on February 21.