Who after Ratan Tata? The real succession question of Tata Group

A lot has been said and written about the Tata Group in the past seven days, more than probably said and written in the past seven years. The reasons for the sudden replacement of Cyrus Mistry, the possible pain points, financials, potential successors, past follies, future strategy and corporate governance issues - all have found their way to the press.

The manner and speed at which Ratan Tata could execute his decision on that Monday evening clearly showed who was always in control. Mistry's leaked letter only confirmed it. Tata Sons has said Mistry was empowered adequately. Evidently, such empowerment was just short of what was required to protect his job.

The structure of the shareholding of Tata Sons is fascinating. I believe it is by no means a coincidence. The break-up is as follows. Sir Dorabji Tata Trust (SDTT) owns 113,067 shares or 27.98 per cent. From a company law perspective and voting rights, this is special. SDTT remains the only Tata Sons shareholder with an individual veto (which requires 26 per cent). Anyone who controls SDTT controls this veto. The second largest shareholder is Sir Ratan Tata Trust with 95,211 or 23.56 per cent. Note that the combined holding of these two biggies comes to 51.54 per cent, an absolute majority.

In case, you need a two-thirds majority, the earlier limit to pass special resolutions, the smaller trusts came into play. The JRD Tata Trust had 16,200 shares (4.01 per cent); Tata Education Trust and Tata Social Welfare Trust had identical holdings of 15,075 shares (3.73 per cent each). RD Tata Trust owned 8,838 shares (2.19 per cent), followed by Sarvajanik Seva Trust with 396 shares (0.1 per cent). Thus, the seven sisters held 65.29 per cent in Tata Sons.

Add to this Ratan Tata's personal holding of 3,368 shares (0.83 per cent) and the voting power crosses 66 per cent or two-thirds. Younger brother Jimmy Naval Tata holds another 3,262 shares (0.81 per cent) and MK Tata Trust owned 2,421 shares (0.60 per cent). These three holdings are not part of the promoter group.

Then come the holdings of five operating companies. Tata Steel and Tata Motors own 12,375 shares each (3.06 per cent each). Tata Chemicals, Tata Power and Indian Hotels hold 10,237 (2.53 per cent, 6,673 (1.65 per cent) and 4,500 (1.11 per cent), respectively. Again, it is no coincidence that the chairman of Tata Sons is usually the chairman of these companies. That link, now broken, creates another set of possibilities.

One thing that emerges clearly from all this is that though there was succession in management four years earlier, there was no succession in ownership. And, the emphatic return of the owners, the trusts led by Tata, to active management means even the half-hearted succession planning that played out four years ago has been effectively nullified.

At 78, Ratan Tata is not as young as he was when he first got the reins of the group 25 years ago. By giving himself only a four-month tenure as interim chairman, he has indicated a new management would soon be in place. That would be the smaller of the Street's worries.

The bigger worry for hundreds of institutional shareholders and numerous smaller ones, and other stakeholders such as employees and business partners, would be what would happen to the ownership after Ratan's time. What is the succession plan for the 263,862 Tata Sons promoter shares owned by seven Tata Trusts and other holdings of Tata brothers? Would a younger family member inherit? Would the professionals managing the trusts take over? Or would there be an international search?