MUMBAI: The Tata Sons board on Tuesday deferred a decision to give a third term to the incumbent chairman Natarajan Chandrasekaran, making an otherwise mere formality into a headline grabber.
According to a source aware of the development, the decision follows an objection raised by Noel Tata, both the vice-chairman of Tata Sons and the chairman of the Tata Trusts that owns 66.4% of the holding company of the $120-billion group, which straddles from spices to software, semiconductors and airlines.
Typically Tata Sons shareholders and the board approve the reappointment/appointment of the chairman a year in advance to ensure stability and continuity or to give the newcomer enough time to settle down and plan his/her strategy.
Noel Tata's objection looks all the more unusual as it was the same trusts that he heads as the chairman that had green-lighted a third term for Chandrasekaran way back in October last.
Had it been done, the board would also have had to amend a clause that set the retirement age for top executives at 65. Had Chandra got the third term, he would have completed it by 2032 when he would have been 70.
The same exception was made when Ratan Tata was forced to return to the boardroom after Cyrus Mistry was thrown out in October 2016 and the Bombay House was headless from sometime.
Tata's need for more time to arrive at a decision was based on the steep losses many new ventures are making, the source added.
This was reflected in the falling revenue of Tata Sons too.
Noel Tata's four demands
In FY25, Tata Sons booked a net income of Rs 26,231.74 crore, down 24.3% from the previous Rs 43,893 crore, on a revenue of Rs Rs 34,653.98 crore, which was 11.5% lower than the previous fiscal's 38,834.58 crore.
Dividend income, mostly from TCS, rose to Rs 36,149.05 crore as Tata Sons owns 71.9% of the company.
The board had also recommended a higher dividend of Rs 64,900/share, up from Rs 35,000 in FY24.
Following disagreements, the 64-year-old Chandra, who has been at the helm since February 2017 and will be completing his second term next February, requested the board to defer the decision for wider consultation and consensus, the source said.
Incidentally, Tata was the only board member who did not agree with the reappointment of Chandra, the source said.
Apparently, Noel Tata had placed four demands before Chandra to ensure the reappointment.
One is that Tata Sons should not be listed as the RBI has been demanding. Secondly, Chandra should ensure that there's no debt in the company. Thirdly, he has to make sure the company's coffers are not emptied due to excessive capex in high-risk investments and fourthly, he has to contain the deep losses stemming from Air India and Big Basket acquisitions.
The six-member Tata Sons board comprises Chandra as the chairman, Noel Naval Tata as the vice-chairman, Venu Srinivasan as the nominee director of the trusts, Saurabh Agrawal, a director and chief financial officer, and ex-HUL chairman Harish Manwani and Anita Marangoly George as independent directors.
George, who heads the board's reappointment committee, in fact called for the reappointment, saying the losses in green field projects are both expected and provided for.
Subsequent to this, while board members suggested the matter be put to vote, Chandra said it is better that this discussion is deferred, because an institution such as the Tata group can work only if Tata Sons and Tata Trusts are united in decision making.
In the past nine years, the group's revenue has nearly doubled, and net profit and market capitalisation more than tripled, while Rs 5.5 trillion has been spent to become future fit, Chandra had said in the latest annual report.