Tata Sons Board Revisits Chandrasekaran's Extension Amid Performance Scrutiny
In a significant development at Bombay House, the Tata Sons board has taken a fresh look at the proposed extension of Chairman N. Chandrasekaran's term, introducing it as a supplementary item not originally listed on the agenda. This move comes six months after Tata Trusts passed a resolution for a five-year extension, highlighting evolving internal dynamics within the conglomerate.
Noel Tata Outlines Performance Criteria for Leadership Continuity
During the meeting, Noel Tata, who represents Tata Trusts on the board alongside Vice Chairman Venu Srinivasan, presented a detailed set of criteria that Chandrasekaran must deliver on. These benchmarks are critical for securing his extended tenure and include:
- Turning around or significantly reducing losses in aviation and digital services units.
- Ensuring that heavy capital expenditure in high-risk sectors like semiconductors and batteries does not drain Tata Sons' cash reserves, especially after surrendering its status as a core investment company under RBI norms, which restricts debt-raising capabilities.
- Maintaining the company's unlisted status to preserve Tata Trusts' control, as an IPO could loosen their hold.
- Accelerating negotiations with the Shapoorji Pallonji Group to facilitate their exit from Tata Sons.
When questioned about potential changes for the group following this development, Chandrasekaran succinctly responded, "Nothing," while leaving the headquarters.
Financial and Operational Challenges Under the Microscope
The scrutiny comes against a backdrop of financial strains and operational setbacks. Tata Digital, established five years ago and acquiring Bigbasket and 1mg, reported the second-highest loss in the group at Rs 4,610 crore in the FY25 report. Between FY20 and FY25, Tata Sons invested Rs 1 lakh crore in its operating companies, as per the same report.
Independent director Anita George noted that new businesses, particularly capital-intensive ones, require time to mature. However, the group faced a series of challenges last year, including a fatal plane crash at Air India and a severe cyberattack at JLR that impacted the UK's GDP. Additionally, TCS, the group's crown jewel, is navigating headwinds amid rapid AI adoption reshaping the tech consulting industry.
Over the past year, the combined market capitalisation of 24 Tata group companies has declined by over Rs 3 lakh crore, or 12.5%, to Rs 24.6 lakh crore, underscoring the urgency of addressing these issues.
Governance Complexities and Veto Powers
The board's composition includes Tata Trusts nominees Noel Tata and Venu Srinivasan, independent directors Harish Manwani and Anita George, and CFO Saurabh Agarwal. Lawyers have pointed out that even with majority support, the extension item cannot proceed without unanimous approval due to Tata Trusts' veto right.
People close to Noel Tata had previously sounded out trustees about deferring and rediscussing Chandrasekaran's extension, but were advised that changes require unanimous consent. An industry observer remarked, "This is the second time that the Tata Sons chairman's performance has come under scrutiny after Cyrus Mistry," referencing past leadership controversies.
As circumstances have shifted since the initial resolution, the principal shareholders are clearly reassessing leadership continuity, with the outcome hinging on Chandrasekaran's ability to meet the outlined performance criteria and navigate the group's complex governance structure.
