Tata Sons' deferral on Chairman Chandra's extension rekindles governance issues

Most companies have an institutional document ostensibly about governance, but one that functions more opportunistically. Filed under headers like Leadership Norms or Succession Policy, it dutifully lists age limits and tenure caps. Except that, at the appointed moment, a special resolution is passed to grant an exemption to the rule.

Last week’s reports that the Tata Sons Pvt. board deferred a decision on extending Chairman Natarajan Chandrasekaran’s tenure for a third term, is one such instance. Chandrasekaran will be 63 when his current term ends in February 2027, and will turn 65 in June 2028. Any extension that takes his tenure beyond that requires a special resolution and a formal exemption from Tata Sons’ own retirement policy for executive directors. In other words, the house rules must be suspended to accommodate him.

The irony is not lost on those who remember that it was Ratan Tata who, in 1992, first set the executive retirement age for the group at 65, precisely to force out the old guard of Russi Mody, Darbari Seth and Ajit Kerkar.

The Companies Act prescribes no retirement age for non-executive directors in unlisted private companies. Were Tata Sons listed, an extension would require public disclosure, a reasoned explanatory statement, and a vote by institutional investors. Instead, the only rules in question are the ones Tata Sons has written for itself, enforced by the same board that must decide whether to waive them. Tata Sons sits above a group of listed companies, from TCS to Tata Motors, in which millions of shareholders own stakes. Effectively, the regulator’s writ does not reach the apex holding company whose decisions cascade into its listed entities.

This is not a peculiar Tata phenomenon, but one that cuts across Indian conglomerates. The Tata Sons case is the most visible precisely because the group markets itself, with some justification, as a cut above. This makes it the right place to ask what exactly is the point of a retirement-age rule that comes with a built-in escape hatch?

The contrast with companies where regulation determines such matters is instructive. When Aditya Puri, who had built HDFC Bank into India’s most valuable private lender over 26 years, turned 70 in October 2020, he stepped down because the Reserve Bank of India mandates a hard retirement age of 70 for private bank chiefs. Puri used the certainty of the deadline to plan his succession more than two years in advance. The lesson for corporate India is simple: A rule becomes governance only when enforcement lies outside the circle of those it governs.

The irony deepens when you look at Tata’s own subsidiaries. In 2009, three of the group’s most powerful managing directors—S. Ramadorai at TCS, Ravi Kant at Tata Motors, and B. Muthuraman at Tata Steel—all vacated their executive roles upon turning 65, in strict adherence to the Tata group’s retirement policy for executive directors. No exceptions were sought, no special resolutions passed. The exits were smoothly handled and produced younger successors who went on to build on what the outgoing leader had created.

Chandrasekaran himself was among those successors, taking charge of TCS at 46. The rule, as applied to the subsidiaries, worked exactly as intended.

Bendable rules create instability. At Infosys, the founders were meant to step back in time and let professional managers lead, a perfect framework that held until N.R. Narayana Murthy returned in 2013 ostensibly to steady the company during a difficult phase. What followed was a prolonged period of boardroom flux and leadership turbulence that ended only after another round of exits.

The episode showed how quickly institutional succession can give way to personality-driven reversals when the guardrails are elastic.

At Zee Entertainment, board resolutions, shareholder approvals and merger terms were repeatedly recalibrated to preserve promoter influence under Subhash Chandra, despite shrinking ownership. The aborted Sony merger and ensuing chaos showed how quickly formal processes lose credibility when continuity for the boss becomes the overriding objective.

A few months from now, the Tata Sons board will reconvene and very probably ratify Chandrasekaran’s extension—the Tata Trusts having already approved it in principle. The retirement rule will be modified to accommodate the decision. That doesn’t make Chandrasekaran the wrong choice; far from it. But it brings into question the sanctity of the rules that were put into place for exactly such circumstances.

In Company Outsider, Sundeep Khanna distills more than three decades of his experience writing on India Inc. into a thousand words of context and insights that few can bring to the table. Want this newsletter delivered in your inbox? Subscribe here.