With a virtual revamp at the top deck at Tata Sons, the holding company of India's largest industrial group, a fundamental change in the management structure of the board is expected soon.
A two-tier board structure is an option being considered. The option, unlike the UK or US model is popular in European countries including Germany and Austria where an executive board will include all the executive directors while an overarching supervisory board comprising non-executive directors will be at the apex. According to sources close to the development, a dual structure has become necessary on account of the fact that the entire set of executive directors on the Tata Sons board are set to retire over the next couple of years moving into a non-executive capacity.
Having a two-tier structure in this transition period could ensure continuity while also bolstering leadership across the group by drawing upon the combined experience of the senior team. Yet it will allow the space for the new crop of executive directors to steer the ship of the 145-year-old Tata Group.
Responding to a query from The Indian Express, Mukund Govind Rajan, Brand Custodian, Tata Sons Ltd said: "We will communicate leadership changes as and when they happen, and will not comment on speculation regarding future leadership structures. Suffice it to say that the Tata group has sophisticated processes to identify and nurture talent, and is blessed with a strong leadership pipeline."
Few corporate analysts, because of the sensitivity of the issues involved were willing to come on record. Lalit Kumar, partner at J Sagar Associates, one of India's largest corporate law firm said the Tata Group has a rich experience of demonstrated leadership, "so it could be possible for them to use this structure, deciding to include the necessary number of independent directors at both levels". Tata Sons is an unlisted entity. The Companies Act does not however specify any minimum number of independent directors for such companies.
Corporate governance norms vary between countries, especially when it comes to board structures. Countries such as the US and India favour a one-tier board system while in Germany, the two-tier board system is the norm for public companies. In a single-tier board, all the directors (both executive directors as well as non-executive directors) form one board, called the board of directors. In a two-tier board there is an executive board comprising all executive directors and a supervisory board having all the non-executive directors. German corporation law, the 'Aktiengesetz', requires all public companies to have two boards: a management board called a 'Vorstand' and a supervisory board called an 'Aufsichtsrat', with the supervisory board, in theory, intended to provide a monitoring role.
Research papers on dual board structures by OECD and others show no sharp differences in company performance compared with one tier boards, the only difference coming from the presence or absence of independent directors.
At present, apart from the 44-year-old Cyrus Mistry, the Tata Sons board consists of RK Krishna Kumar (74), Arunkumar R Gandhi (69), Farrokh K Kavarana (68), R Gopalakrishnan (66) and Ishaat Hussain (65). Two years back, in 2011, the Group had fixed the retirement age for executive directors at 65 and also brought down the retirement age for non-executive directors to 70 years from 75. However, those directors who crossed the age of 70 were mandated to continue till they are 75 years. This would mean that most of the venerable old men, including Kumar, Gandhi, and Kavarana are all set to move out of an executive role.
Over the last three years, the Tata Sons board saw one resignation and three retirements, with Alan Rosling leaving in 2009, Noshir A Soonawala, vice-chairman of Tata Sons and chairman of Tata Investment Corporation, retiring a year later and JJ Irani retiring in 2011. Kishor Chaukar stepped down as managing director of Tata Industries in August 2012.
Dual structure
* As per the dual structure an executive board will include all executive directors while a supervisory board comprising non-executive directors will be at the apex
* The structure has become necessary as the entire set of executive directors on the Tata Sons board are set to retire over the next couple of years moving into a non-executive capacity
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