Tata Sons, which owns the $106 billion salt-to-software conglomerate is planning an overhaul of its leadership structure by creating a chief executive officer’s (CEO) role to help improve corporate governance.
It’s unusual for a large corporation to lack a dedicated CEO and instead entrust that job to the chairman of the board of directors. Tata Sons Ltd, on the other hand, was so far an exception.
As per the proposed proposal, the CEO will lead the 153-year-old Tata empire’s broad businesses, while the chairman will oversee the CEO on behalf of shareholders, Bloomberg reported citing unnamed sources.
From a functional or compliance standpoint, Tata Sons does not require a CEO, at least not in the traditional sense, as the holding company of India’s largest corporate conglomerate with no operations directly under it and being an unlisted company.
Ratan Tata, the chairman of Tata Trusts, that owns Tata Sons considered as critical to the change’s implementation is yet to formally approve the plan, according to Bombay House sources.
Tata Sons held its 103rd annual general meeting (AGM) virtually on Tuesday and the proposal comes as its current chairman, Natarajan Chandrasekaran, is being considered for an extension after his tenure ends in February.
The leaders of different Tata group companies, notably Tata Steel Ltd., are being considered for the CEO role.
Bombay House, the Tata headquarters, has yet to issue an official statement. However, supporters of the idea refer to a division of labor between a CEO and a chairman as a generally recognized formula for better corporate governance, a reason why India’s securities markets regulator has made role separation a priority on its agenda.
The idea comes months after Tata Sons’ former chairman Ratan Tata, 83, won a years-long legal struggle with his successor Cyrus P. Mistry, who accused the patriarch of mismanagement at the company and sued him for his ouster in 2016.
Experts believe, given the group’s leadership volatility in recent years, Tata Sons must be wary of the emergence of several power centers, which could confuse the group’s investors regarding the relative authority at its top rungs.
The projected overhaul might help the conglomerate define a course for the future following more than two decades of expansion under Ratan Tata’s leadership. It’s unclear who will succeed him as chairman of the Tata Trust.
A new group CEO will face numerous challenges. Tata Steel is battling a $10 billion net debt load, while Tata Motors, which owns the British marque Jaguar Land Rover, has been making losses for the last three years in a row until March 2021.
The company’s goal to expand its digital footprint and capitalize on India’s expanding number of online buyers has yet to bear fruit. Despite having Tata Consultancy Services Ltd., Asia’s largest software services provider, at its disposal, the company’s ambition to develop an all-in-one e-commerce super app to sell its diverse range of consumer goods and services has been postponed.
In 2020, the Tata group had total yearly revenue of $106 billion, thanks to its 100-plus enterprises and more than two dozen publicly traded companies. Its 750,000 employees, among other things, manufacture automobiles and trucks, mix tea, forge steel, sell insurance, design software, operate phone networks, and package salt.
Tata Sons reported a net profit of Rs 19,397 crore in 2019-20, up from Rs 10,916 crore in the year-ago period.
Meanwhile, its standalone profit for the financial year 2021 was reported to have increased to Rs 6511.63 crores, despite a 60% drop in revenue from operations to Rs to Rs 9460.24 crore from Rs 24,770.46 crore in the year-ago period.
Though Ratan Tata claims he is no longer directly involved in business decisions, his leadership of Tata Trusts gives him significant influence over the group’s management. Ratan Tata released a statement in July after an Indian daily reported that Chandrasekaran’s extension as chairman had been “informally ratified,” saying the board had not made a decision and that no one had asked him about it, bolstering his clout
Despite the familial ties, Ratan Tata’s power over the company originates from his tenure as chairman of Tata Sons from 1991 to 2012. He put the Tata group on the global map with a series of eye-catching purchases over the last two decades, ranging from the $2.3 billion purchase of automobile JLR to the $13 billion purchase of British steel giant Corus Group Plc.