When it comes to companies, control is almost always a question of percentages. For instance, a 51% shareholding means majority control; and a more-than-25% shareholding translates (at least on paper) into the ability to block a special board resolution. In a privately and closely held company, a 66% holding should mean absolute control — unless, as recent events have shown, one is talking about Tata Sons.
There are two threads to l’affaire Tata Sons. The first is the Reserve Bank of India requirement regarding the listing of Tata Sons. The company says it has no public debt or deposits, but RBI’s argument is that the company’s holdings in group companies with public equity and debt give it access to public funds. There is logic to both arguments, although RBI’s would appear to stretch the definition of public funds.
The second, unrelated to the first, is the board’s decision to ignore the company’s own rules when appointing its chairman. The rules clearly state that a majority of Tata Trust’s nominees (various Tata trusts together hold around 66% of Tata Sons) need to vote in favour; in this case, one of the two, Noel Tata, chairman of Tata Trusts, opposed N Chandrasekaran’s appointment as chairman, effectively scuttling it. It is unusual for a board to go against the wishes of the largest shareholder, prompting theories about a deus ex machina tilting the scale in favour of Chandrasekaran, something reinforced by the Maharashtra charity commissioner preventing, on very flimsy grounds, the Sir Ratan Tata Trust (SRTT) — one of the two large trusts together holding over 50% of Tata Sons — from even convening a meeting. The cloud over SRTT also means there is no clarity on when a Tata Sons AGM will happen (if it were to happen, and SRTT were allowed to vote, Chandrasekaran’s appointment would not go through). If SRTT were allowed to meet, the Tata Trusts could also change their other nominee on the board of Tata Sons, and ensure that both vote the same way. This, though, is a sub-plot of the larger issue. For if the courts were to endorse the decision of the board of Tata Sons, it would shake the very fundamentals of ownership and management, and make the former irrelevant. The argument that the Tata group is too important for India to be left to the Tatas — one that has been made in some quarters — is a dangerous one.