- Tata Sons board approved a fresh five-year term for Chandrasekaran despite opposition from Tata Trusts
- The board decided to initiate steps to comply with RBI guidelines, potentially leading to Tata Sons' listing
- IiAS said the decisions were made without controlling shareholder support and may conflict with Tata Sons' AoA
Tata Sons' board has taken decisions that could significantly alter the structure and governance of the Tata Group, despite opposition from Tata Trusts Chairperson Noel Tata, according to proxy advisory firm Institutional Investor Advisory Services (IiAS).
In a note on the developments, IiAS said the decisions taken at Tata Sons' Thursday board meeting were made within a few hours and without the support of the company's controlling shareholder. The proxy adviser questioned whether the decisions would ultimately survive a shareholder vote.
Tata Sons' board on Sept. 17 approved a fresh five-year term for N Chandrasekaran as executive chairman and decided to initiate steps to comply with applicable Reserve Bank of India (RBI) guidelines, potentially paving the way for the holding company's listing. Both moves were opposed by Noel Tata, who chairs Tata Trusts, which collectively hold 66% of Tata Sons' equity and voting rights.
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IiAS said the developments marked an unusual situation in which directors had taken decisions that were not supported by the controlling shareholder. It said the moves were contrary to the intent of Tata Sons' Articles of Association (AoA) and the Tata Group's stated policies, while noting that the merits and legality of the decisions would have to be determined separately.
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IiAS questioned the rationale behind Chandrasekaran's reappointment for another five-year term, particularly after he had earlier communicated that he did not intend to seek a third term.
Chandrasekaran's current tenure ends in February 2027. The board's decision reverses his earlier decision to step down, with the board asking him to continue and subsequently approving the fresh five-year term.
According to IiAS, a shorter extension could have been considered to allow Tata Trusts to resolve their internal issues and establish the selection process required under Tata Sons' AoA for identifying a successor.
The proxy adviser also questioned why the board moved directly to a full five-year term instead of considering a shorter extension.
Tata Sons Listing Plan Faces Trusts' Opposition
The second major decision concerns Tata Sons' regulatory status and potential listing. Tata Sons has decided to initiate steps to comply with applicable RBI guidelines after the central bank rejected its attempt to surrender its registration as a core investment company. The move could eventually result in Tata Sons being listed on stock exchanges.
However, Noel Tata has opposed the listing route. Tata Trusts has said that the RBI communication does not specifically prescribe listing and has argued that all available options should be examined before taking such a step.
IiAS questioned whether the board had fully explored alternative options during its deliberations before deciding to move towards compliance with the RBI framework.
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