Noel Tata Becomes Chairman Of Tata Group; How Does It Affect The Conglomerate

There is much speculation regarding the impact of Noel Tata's appointment as chairman of the Tata Trusts by its Board of Trustees. Many view him as the successor to Ratan Tata, which he certainly is at the Trusts. However, they mistakenly believe that he is succeeding Ratan at Tata Sons and that his appointment at the Trusts will provide the Tata Group with new thrust and direction.

This confusion arises from the role of the Tata Trusts and their relationship with the group's holding company, Tata Sons. To clarify, the Tata Trusts— a group of trusts established by the Tata family at various points in time—are a charitable organisation and technically report to the Charity Commissioner.

At least, that was the case until recently, when they sought to avoid being classified as a trust for multiple reasons. Noel Tata, half-brother of the late Ratan Tata, has been appointed as the new Chairman of Tata Trusts, the philanthropic umbrella that wields influence over the $165 billion Tata Group.

The Tata Trusts hold a commanding 66% of the equity in Tata Sons, which is the group’s holding company, and in that sense, 'controls’ the Tata companies. However, control has never been the modus operandi at Tata Sons, which generally acts as a cohesive and strategic force for the group.

Another reason Tata Sons cannot completely control group companies is that the Tata companies are not total subsidiaries of Tata Sons; they are independent companies with their own boards of directors. Each of these companies also has executive councils that strategise their own growth and operational initiatives.

Yes, there is an overarching strategic plan in place for the group, which Ratan Tata worked hard to establish. However, it is erroneous to believe that the group holding company, Tata Sons— headed by N. Chandrasekaran—is the driver across all Tata companies. In this context, the Tata Trusts are one step further removed from the operations of the various Tata companies.

The Trusts are primarily involved in funding charitable causes through revenue streams accruing from the corpus of funds bequeathed to them by the founders. While they may be the largest shareholder, they have no direct role in running Tata Sons beyond their representation on the board. Chandrasekaran used to consult Ratan Tata on key policy matters, but that was a personal connection.

It is noteworthy that until Ratan Tata stepped down from Tata Sons in 2012, the chairman of both Tata Sons and the Tata Trusts was the same individual. After 2012, Ratan continued as Chairman of the Trusts, while Tata Sons was led by another individual, Cyrus Mistry, which led to a divergence of opinion between the Trusts and Tata Sons—or, more accurately, between Ratan and Cyrus.

Ratan, who had presided over Tata Sons as its powerful chairman for over two decades, could oust Cyrus largely because of the sheer dominance of his personality.

However, at this juncture, Noel has yet to acquire that gravitas and is not known for pushing his way through. Running a vast business conglomerate like the Tata Group requires a deep understanding of the linkages and operations of the group's enterprises.

Given that Noel's business experience is largely confined to the Trent enterprise, it will take him considerable time to comprehend the complexities of the group. Even as a majority 66% shareholder, it would still be difficult for him to exert his influence on Tata Sons—comprising a formidable board—in the same manner as Ratan Tata did.

With Trent's turnover at $1.4 billion compared to the Tata Group's $165 billion, it is evident that the tail cannot be expected to wag the dog. Thus, it is premature to believe that Noel's appointment will have a major impact on the Tata Group at this point.