Should India Inc Follow The Tata Trusts-Tata Sons Shareholding, Governance Model?

The full import of this move is realised only when the composition of the committee is seen: with the ageing Ratan Tata (87 years) as the chair, it has Venu Srinivasan of the TVS group, Vijay Singh (a retired civil servant), and Mehli Mistry (the first cousin of the late Cyrus Mistry), who are all known to be personally close to Tata. Additionally, Venu Srinivasan is also an important member of the board of directors and sub-committees of Tata Sons. To that extent, beyond equity ownership, there are other close links between Tata Trusts and Tata Sons.  

Therefore, the big picture today is a unique model where a rejuvenated non-profit has a greater overview than a for-profit entity. The total disbursements of the trusts towards community development were $15.26 million in 2022–23. The history of Tata Trusts goes back to 1932, when the Sir Dorabji Tata Trust was founded with a 40% shareholding in Tata Sons which was set up as far back as 1917. The model of non-profits controlling for-profit companies is far and few worldwide and in India.  

A similar model was in existence at the UK's Wellcome Trust, founded in 1936, which was the sole owner of the pharmaceutical company Wellcome Plc. For fifty years, dividends from the company funded the Trust's charitable grants. However, this arrangement came to an end in 1986.  

With the latest move to operationally strengthen Tata Trusts, will it have greater governance oversight over Tata Sons? Additionally, does it have any connection with the reported public listing of Tata Sons? While there are no ready answers to these questions yet, the larger thought is whether the Tata model can and should be emulated in other Indian companies, especially the family-managed ones. 

There are arguments for and against the model. One view suggests that control by the non-profit Trusts over Tata Sons blunts the competitive edge of the latter. However, the idea of compassionate capitalism long promoted by Infosys’ N.R. Narayana Murthy might find resonance in the Tata model. It is about time that more and more of India Inc. adopt this model and implement it, if not fully but partially. 

Today, philanthropy by Indian companies is largely done through corporate social responsibility (CSR) initiatives. Many of them follow the mandate to just the T and no more than that, where 2% of the net profit is ploughed into CSR activities. Some others run large plush schools and hospitals under the banner of a trust claiming to be non-profits and take the benefit of the 2% rule. Others like the well-funded foundations of HCL, Mahindra and Infosys keep an arms-length distance between them and their companies.  

“One of the most important outcomes of Tata Trusts apart from the community development work it does, is the values they espouse, which are then transferred to Tata Sons and the group companies. These values are priceless intangible assets that keep the group together," said Rahul Mishra, Professor of Strategy, IILM Institute of Higher Education.

It is in this context that the Tata Trusts model would be useful to implement in companies. This debate is not new, but there are three compelling reasons why it may be useful to follow in today’s context.  

First, this may be a good way in which India Inc. can play an important role in the achievement of Viksit Bharat. In fact, at the recent Confederation of Indian Industry (CII) post-budget conference, Prime Minister Narendra Modi echoed the same sentiments. He said, “Industry is a strong medium for creating a Viksit Bharat.”  

Second, the concept of stakeholder capitalism, which was first conceptualised way back in 1932 by Adolf A. Berle and Gardiner C. Means, where a company has responsibility not only to its shareholders but also to the community and nation-at-large, has been in vogue for more than a decade in India. However, while some companies have genuinely tried to follow this path, much of corporate India has only paid lip-service. A Tata Trusts kind of model will go a long way in achieving stakeholder capitalism.  

Finally, India has built a phenomenal ecosystem of start-ups in the last decade, making it the third largest in the world. But as we have seen in the cases of Byju’s, Bharat Pe, and Paytm, much of the growth in these companies has been accomplished at the cost of good governance, as some of them have imploded. Again, the Tata Trusts model could be a good structure to follow.