Tata’s power struggle exposes a governance fault line

N. Chandrasekaran's departure from Tata Sons highlights a recurring weakness in Tata's governance model, particularly the unclear boundary between the controlling charitable trusts and the professional executives responsible for running the business. Chandrasekaran will remain chairman until his term ends in February 2027, despite his decision not to seek another five-year extension.

The Sir Dorabji Tata Trust and Sir Ratan Tata Trust had recommended extending his tenure, but Tata Trusts chairman Noel Tata opposed the proposal, raising concerns about Air India's losses, heavy capital spending, debt, potential listing of Tata Sons, and an exit for minority shareholder Shapoorji Pallonji Group. This disagreement over Chandrasekaran's tenure lasted six months, creating uncertainty about who would lead the organization beyond his existing term.

Tata's ownership structure, with about 66% of Tata Sons owned by philanthropic trusts, has helped protect the group from short-term market pressures and channel wealth into social causes. However, clear governance boundaries are necessary when the two sides disagree. Professional managers need sufficient authority to execute an agreed strategy, while trusts should have explicit control over capital allocation and operating decisions.

The current arrangement risks a less effective combination, with executives carrying public responsibility for performance while decisive influence rests with a structure sitting above the operating group. The disagreement over Chandrasekaran's tenure is not personal but institutional, and resolving it requires establishing clear guidelines for how disagreements between the trusts, Tata Sons board, and the chairman should be settled.

Succession planning is a first step, but candidates must understand their authority, decision-making powers, and the process for resolving performance disagreements to effectively lead the organization.