Let us get to the crux of the Cyrus Mistry fiasco and understand why it will be repeated with Chandrasekhar. When Ratan Tata took over, he finally became both Chairman of the trust and of Tata Sons.
But subsequently this has not been the case.
Cyrus Mistry was Chairman of Tata Sons but RNT continued as Chairman of the Trusts. Now it is more complicated – Noel Tata in the Trusts and rank outsider Chandrasekhar is Chairman of Tata Sons. How ? Why ?
And the Chairman of Tata Sons is essentially running the companies which generate income for Tata Trusts. See my post on “Chandrasekhar in the cockpit” after which the Air India CEO resigned.
This is patently in violation of the regulations under which the Trusts claim charitable institution status.
The foundational premise in the defence of the Tata trusts is that they are a charitable institution. And that they have made investments from their corpus to generate a recurring revenue for their charitable work. If this is the case, they should not be running businesses.
Tata Sons is just a shell type entity which holds the shares of the Trust because the Trusts cannot really own shares directly. And rather than owning shares in the names of the trustees, the Trusts own a private Tata Sons who then owns the shares. The attempts of RBI to make Tata Sons a listed company is a horrible idea.
The focus of Tata Trust & Sons is to deploy their corpus to generate income for philanthropic pursuits. And to take steps to safeguard their corpus.
This is not a private trust like a private equity fund or a mutual fund which has a different construct and different drivers.
The first thing that Tata Sons needs to do is to remove Chandrasekhar both as a Board member and as Chairman. You need three way separation between shareholders, board and management in any public company (like TCS)
The second thing they need to do is to eliminate their portfolio companies owning the holding company. The latter is just not done. Not in spirit. Not in law.
Otherwise it leads to a funny situation. In theory Tata Sons could invest say Rs 100,000 crores in ten companies. Those companies could invest the money back into equity of Tata Sons.
And we would have generated Rs 200,000 crores of equity out of thin air. Haven’t they been doing exactly this ?!?!
This is not the construct of the Companies Act. Of course, Tata Sons was formed way before the Indian Companies Act was written – but now it has to adhere to the Act. In both, law and spirit. Hiring Nira Radia will not make them compliant. Nor will hiring lawyers. Or doing PR.
I don’t think that the Tatas are malafide or anti-national or anything of the sort. I don’t even think they would have knowingly broken the law. Whatever has happened is because of bad advice (their auditors and company secretaries) and bad company (Citibank) ? And weak incompetent in-house Counsel.
And the Trusts better do some philanthropy. Quickly. Not just to lawyers and bankers.
