The possibility of separating ownership and management is becoming increasingly relevant for businesses worldwide, according to Kenneth Cohen, a leading scholar in the field of global family enterprises.
The struggle for leadership within the Tata group has sparked a new round of discussions contrasting family-owned businesses with professionally managed companies. Although the charitable organization Tata Trusts owns 66 percent of Tata Sons, which distinguishes it from a typical family business, current internal disagreements and board-level disputes over critical issues call the structure of this organization into question. Experts and scholars studying business disputes have analyzed this turbulence within the Tata group.
Lauren H. Cohen, Professor at LE Simmons at Harvard Business School's Finance and Entrepreneurial Management divisions, noted during a virtual discussion that the leadership dispute in Tata bears characteristics of a family business, even if the group is intended to function as a professionally managed entity. When asked about differences in business matters and disputes across various regions and methods of resolution, Cohen pointed out that business owners in the Western world have begun delegating decision-making authority, focusing instead on access to company-generated cash flows.
Historically, large corporations such as Ford Motor Company, Walmart, Alphabet, Apple, Microsoft, BlackRock, and many others are considered professionally managed enterprises. In Cohen's view, the separation of ownership and control could become a growing option for businesses globally.
Kavil Ramachandran, a professor of entrepreneurship at the Indian School of Business (ISB), who recently warned against changing captains mid-storm citing the Tata Sons leadership crisis, shared his views with the newspaper. Regarding the broader issue of family business, he referenced the global classification developed by Gerard Hendrik (Geert) Hofstede, a Dutch social psychologist, suggesting that India and other Asian countries possess a collectivist culture, unlike the individualistic culture found in Europe and America.
Ramachandran stated: 'In our context, members of Indian family businesses consider it a birthright to work there and a duty to care for it. In most Indian or Asian family businesses of any size, family members participate in operations and often become CEOs.'
He added that this is not the case in Europe or the US, where working in a family business is neither a birthright nor an obligation. 'This fundamental difference has enormous implications for the nature of their involvement or oversight.'
For context, the Tata Group or Tata Sons, the holding company of a conglomerate ranging from salt to software, is not included in the Hurun India Family Business Rankings published by Hurun India to track wealth creation and corporate value across various companies.
Expanding on the topic of the board of directors' role in a business dispute, Dalhia Mani, a professor at the Indian Institute of Management (IIM) Bangalore, observed that independent directors can provide a neutral and objective perspective, as well as bring experience and knowledge from other companies and industries. However, she stressed that the effectiveness of independent directors depends on how well the board functions. She argued that simply adding external directors is not a universal solution.
Mani clarified: 'An independent director only has access to information provided to them and possesses limited authority to make changes. Their role is to voice their opinion, but if the board is structured to ignore diverse viewpoints, an independent director can do little.'
According to Cohen, disputes in family companies often arise from a conflict between the business legacy and the actual information about it. He noted the emotional weight of what the firm meant to the owners over generations, referencing the Tata case. While an owner may wish to preserve what existed for decades, growth and business expansion may require change. Cohen explained that a professional manager might have a five-to-ten-year decision horizon, whereas a family might feel the need for a 100-year vision, which can cause conflict. He also mentioned that if capital raising is important for large company projects, Tata Sons would rightfully strive for it, but he added that the company's liquidity could decrease after listing.
According to Ramachandran, the current conflict is a manifestation of Tata Trusts' efforts, the largest shareholder of Tata Sons, to 'strengthen power to determine the strategy and fate of the group's companies.' This is reflected in the fact that Noel Tata, Chairman of Tata Trusts and a nominee director on the Tata Sons board, is the only one opposing the reappointment of N. Chandrasekaran for a third term.