Tata’s power struggle exposes a governance fault line

Dubai: N. Chandrasekaran’s departure from Tata Sons is more than an unexpected change at the top of India’s largest business group. It exposes a recurring weakness in Tata’s unusual governance model: the boundary between the charitable trusts that control the group and the professional executives expected to run it remains unclear when the two sides disagree.

Chandrasekaran was not formally dismissed. He will remain chairman until his term ends on February 20, 2027, after deciding not to seek another five years following a six-month reappointment deadlock.

Yet the practical outcome is difficult to ignore. The Sir Dorabji Tata Trust and Sir Ratan Tata Trust had unanimously recommended extending his tenure. Four of six Tata Sons directors supported him at the February board meeting, while Tata Trusts chairman Noel Tata opposed the proposal and sought conditions, Reuters reported.

Noel Tata’s reported concerns were not trivial. They involved Air India’s losses, heavy capital spending on new businesses, debt, Tata Sons’ possible listing and an exit for minority shareholder Shapoorji Pallonji Group. A controlling shareholder has every right to question how its capital is being deployed.

The deeper problem is how that disagreement played out. A proposed five-year extension backed by the trusts themselves remained unresolved for six months, leaving one of India’s most important corporate institutions uncertain about who would lead it beyond February.

Oversight or intervention?

Tata’s ownership structure is central to its identity. Philanthropic trusts own about 66 per cent of Tata Sons, which in turn acts as the main holding company and promoter of businesses ranging from TCS and Tata Motors to Air India and Tata Steel.

This structure has helped protect the group from short-term market pressures and channel wealth into health, education and other social causes. It also gives Tata Trusts legitimate authority over major questions involving leadership, capital and long-term direction.

But ownership rights do not remove the need for clear governance boundaries. If professional managers remain accountable for performance, they need enough authority to execute an agreed strategy. If the trusts intend to exercise closer control over capital allocation and operating decisions, that role must be explicit and accompanied by responsibility for the results.

The current arrangement risks producing the least effective combination: executives carry public responsibility for performance, while decisive influence can be exercised from a structure that sits above the operating group.

Reuters reported on Thursday that Chandrasekaran’s exit had heightened investor concerns over the power of Tata Trusts and the independence of Tata Sons. The announcement initially erased about $4.6 billion from the combined market value of listed Tata companies, although some shares later recovered.

That market response did not reflect doubts about whether Tata’s companies could continue operating the next morning. It reflected uncertainty about how strategic decisions will now be made.

Capital debate was legitimate

Chandrasekaran’s strategy involved expensive bets in aviation, digital commerce, semiconductors, electronics, batteries and electric mobility.

Air India and Air India Express lost a combined Rs222.38 billion in the year ended March 2026. Tata Digital lost Rs49.74 billion and Tata Electronics about Rs16.11 billion. Scrutiny of those businesses was necessary.

At the same time, Tata Sons remained strongly profitable. Its profit after tax rose 21.8 per cent to Rs319.61 billion, while revenue increased 9.1 per cent to Rs423.67 billion.

Chandrasekaran also presided over a substantial expansion in the group’s value. Reuters reported that Tata companies’ combined market capitalisation increased from about $76 billion when he became chairman in 2017 to $277 billion by 2023.

This record does not put his decisions beyond challenge. It does show why the disagreement needed a transparent strategic resolution rather than a prolonged stalemate over his tenure.

The board could have approved the strategy, modified it or rejected parts of it. What it could not do without creating instability was leave the chairman’s mandate unsettled while expecting him to oversee investments whose payback periods extend far beyond his existing term.

Familiar leadership problem

The episode inevitably recalls the 2016 removal of Cyrus Mistry as Tata Sons chairman after differences with Tata Trusts and Ratan Tata.

The circumstances are not identical. Mistry was removed during his tenure and fought a prolonged legal battle. Chandrasekaran chose to serve out his term and withdraw from consideration for another.

Still, Tata is preparing to replace its second chairman in a decade following tensions between Tata Sons and its controlling trusts. That recurrence makes the problem institutional rather than personal.

Changing the individual at the top will not resolve the underlying issue unless Tata defines how disagreements between the trusts, the Tata Sons board and its chairman should be settled.

Succession is only first test

The Sir Dorabji Tata Trust has started forming a selection committee to recommend the next Tata Sons chairman, according to Reuters. The group has slightly more than six months to complete the process.

Choosing a respected successor will calm immediate concerns. It will not be enough.

Candidates need to know whether they will have the authority to execute Tata’s strategy, what decisions require trust approval and how performance disagreements will be resolved. The board also needs a succession process that begins early enough to prevent another leadership question from becoming a referendum on wider disputes.

Tata’s trust-controlled model is not inherently defective. Its stability, social purpose and resistance to short-termism remain valuable strengths. But those advantages depend on restraint, clarity and institutional discipline.

Chandrasekaran’s exit offers Tata an opportunity to modernise the working relationship between ownership and management without weakening the trusts’ role. If that boundary remains blurred, the next chairman may inherit the title without receiving a durable mandate.