Chandrasekaran exits Tata Sons: How will the next chairman be chosen? Why the succession battle could be tricky

Natarajan Chandrasekaran will step down as chairman of Tata Sons when his term ends early next year amid a prolonged standoff over his reappointment and raising fresh questions about the conglomerate’s leadership.

Chandrasekaran said on Wednesday that his decision comes after months of deadlock, as one of the directors is withholding support for an extension of his term. His departure will now set off one of India Inc’s most closely watched succession battles, with the industry keenly watching how the Tata Trusts choose his successor.

Chandrasekaran’s term at the company will end in February 2027, giving the group several months to manage an orderly transition. But finding a successor for Tata Sons is not as simple as it sounds.

How will Chandrasekaran’s successor be chosen?

As per the rules, Tata Trusts, which together own about 66% of Tata Sons, hold a key role in choosing its next chairman.

Under Article 118 of Tata Sons’ articles of association, a selection committee has to be constituted to appoint the chairman, as long as Tata charitable trusts continue to hold the required stake in Tata Sons.

For example, when Cyrus Mistry was removed as Tata Sons chairman in October 2016, a five-member panel was formed to find his successor. The panel included Ratan Tata, Venu Srinivasan, Amit Chandra, former diplomat Ronen Sen and Lord Kumar Bhattacharyya. It had unanimously chosen Natarajan Chandrasekaran, then CEO and managing director of Tata Consultancy Services, as the next chairman.

The situation is different this time. Cyrus Mistry's removal created an immediate vacuum in the company. So, Ratan Tata stepped in and took over as Tata Sons' interim chairman until the panel delivered its decision.

Chandrasekaran, however, will remain in office until February 2027. This gives Tata Sons several months to find his successor and allow a smooth handover.

But the situation is critical in different sorts.

Tata Trusts has been facing disagreements over governance, including the appointment and tenure of trustees and their representation on the Tata Sons board. The situation is so critical that some of it has reached the Maharashtra Charity Commissioner, including a case involving Sir Ratan Tata Trust (SRTT), one of the two main Tata Trusts.

The dispute matters in this case as the Tata Trusts play a key role in choosing the next Tata Sons chairman. If the Trusts cannot agree, the succession process could become complicated or take longer.

Who will replace Chandrasekaran?

Another key issue to watch is whether Tatas will go for continuity or bring in an outsider. Chandrasekaran himself represented continuity when he was selected in 2017.

The crisis raises the stakes for Tata at a sensitive moment. The group, administered by Tata Sons, is one of India’s most influential corporate institutions, with brands ranging from Jaguar Land Rover and Taj hotels to Tetley tea. It’s also making strategic bets, including a multibillion-dollar semiconductor push — alongside its sprawling businesses in software, steel, autos, aviation, power, retail and finance.

Shares of Tata Consultancy Services Ltd — the conglomerate’s biggest listed firm — dropped as much as 5.95% in Mumbai, set for their biggest single-day fall in more than two months.

(With inputs from Bloomberg, Reuters and Moneycontrol)