Tata’s test of stewardship

Those complications are substantial. Two media reports on Monday morning brought into focus both a review of Tata Sons’ Articles of Association and questions about the procedure used to reappoint N Chandrasekaran. One concerns the rules of the institution; the other, their application. Together they raise a question larger than the fate of one executive: how should authority be exercised in a group whose ownership is unusual and whose public standing is exceptional?

The starting point must be the rights of shareholders. Tata Trusts, with nearly two-thirds of Tata Sons, cannot be expected to behave like passive investors. They are entitled to question strategy, demand accountability, and seek a change of leadership. Professional management is not a self-perpetuating club. Its authority is delegated, not inherited. But an entitlement to act does not establish that every exercise of it is wise.

A shareholder can win an argument and still leave the company worse off. Corporate law settles questions of power more readily than questions of judgement. And the price of a mistaken judgement may be paid by people who had no part in making it. Its controlling interests are charitable trusts. The wealth generated by the businesses supports philanthropic purposes, while the Tata name carries expectations that go beyond the financial interests of any individual owner.

This does not reduce the Trusts’ legal rights. It does suggest that those rights should be exercised with an unusually careful regard for institutional consequences. There is a further difficulty with the drawing-room verdict. Who, precisely, has lost confidence? Reports of differences among Trust-nominated directors complicate the notion that the controlling shareholder necessarily speaks with one voice.

A personal preference, however influential its author, is not identical to a decision taken through an authorised institutional process. The distinction matters most when opinions diverge. A durable institution cannot depend on everyone around the table always agreeing with its most powerful member. None of this is a brief for Chandrasekaran. He has no perpetual claim on the chairmanship. His record and strategy deserve rigorous examination, particularly when the group is committing capital to aviation, semiconductors, and other businesses where the eventual returns remain uncertain.

Long gestation periods can justify patience; they cannot excuse the absence of commercial discipline. If the owners believe the risks are excessive, they have a duty to say so. Equally, disagreement about a strategic bet is not by itself proof of executive failure. The point of hiring professional managers is to obtain judgements that may not always coincide with the instincts of the owners. If the desired arrangement is one in which management merely endorses decisions made elsewhere, the case for professional autonomy becomes difficult to sustain.

The proper test is more demanding. Have the investments been assessed against plausible alternatives? Are their risks understood? Has the board challenged the assumptions? Is there a credible plan for funding them without jeopardising established businesses? These are questions on which reasonable people can disagree. They demand evidence rather than assertions of authority. They are also more useful than a referendum on personal confidence.

There is then the matter of execution. Even a necessary leadership change can be mishandled. Public disagreements over appointments and constitutional provisions may weaken the authority of whoever eventually emerges in charge. They can distract management, unsettle partners, and complicate decisions that cannot be postponed until the principals have reached an accommodation. The answer is not to insist that the incumbent stay.

If the Trusts reach a clear, valid decision to replace him, the executive leadership should facilitate an orderly transition. But the Trusts, too, should resist treating a change of personnel as a cure for defective arrangements. Unless responsibilities are defined more clearly, the next chairman may encounter much the same difficulty. One group with little representation in this debate deserves rather more attention: employees.

Across generations, the phrase “I work for Tata” has conveyed a pride not easily explained by salary or designation. It reflects an association with reliability, decency, and a company name that has entered the everyday lives of millions of Indians. That association is an economic asset, not merely a pleasing sentiment. Employees do not acquire a vote on the holding company’s board by virtue of their loyalty.

Nor should sentiment override shareholder rights. But a protracted contest at the top can corrode the confidence on which an institution depends. The people who have spent careers building the Tata reputation are entitled to expect that its custodians will not squander it in a dispute over precedence. The prospective listing question adds another reason to revisit the architecture of control. Special rights may have served a purpose in a closely held company.

Their place in a structure facing wider scrutiny deserves a fresh examination. The object should be neither to strip the Trusts of legitimate influence nor to insulate management from oversight. It should be to make authority intelligible, accountable, and workable when disagreements arise. That requires maturity on both sides, a quality less spectacular than a boardroom victory but rather more valuable.

Tata’s businesses have repeatedly adapted to changing markets. Its institutions must show they can adapt too. The test is not who can compel whom to yield. It is whether the custodians of an institution can distinguish control from stewardship.