By Ishaat Hussain & R Gopalakrishnan, The authors are former directors of Tata Sons and together served Tata for 55 years
With apologies to the Bard, as retired directors, we “suffer the slings of outrageous fortune” and so, “take arms against a sea of confusions and misapprehensions”. We emerge from our retirement shelter to participate in the debate on whether Tata Sons should be listed or not. We are not concerned in this article with other Tata issues.
The case for listing Tata Sons is made around three issues. First, that an IPO will deliver more transparency; second, it will provide an exit for certain shareholders; and third, Tata Sons is too important to remain private.
More transparency
Tata Sons has behaved like a listed company even though it was not bound to do so. Its accounts are published on its website, it is regulated by the ministry of corporate affairs and the RBI, and its board composition is in line with the Sebi’s listed company regulations. Its historical record demonstrates that it discharges obligations — moral and financial — in a manner that exceeds the behaviour of many listed companies. What further transparency is sought to be achieved?
Examples are quoted of investment companies like Berkshire Hathaway. Over a century and a half, Tata Sons has played a unique role in Indian industrialisation somewhat like an early venture capital/private equity (VC/PE) firm. In recent decades, some global VC/PE firms have indeed listed, but nobody compelled them to do so.
Sequoia and Sutter Hill promoted the now $5-trillion Nvidia, but neither is listed, nor has been under pressure to list. Blackstone, Carlyle, and TPG, on the other hand, are indeed listed, but not because the Federal Reserve compelled them. It is better to let the board of Tata Sons decide — after all there is a holding company discount to be considered — rather than follow a journalistic or bureaucratic dream of an imagined transparency.
Transparency is a relative virtue, not an absolute one. It is sobering to reflect that many corporate scams globally and in India occur within “transparent” public companies.
Exit for shareholders
An IPO has multiple dimensions. Equity buyers invest for a return that meets their expectations. Tata Sons shareholders have earned handsome returns over decades — the numbers are in the public domain. If the return from the Tata Sons investment exceeds other business interests of the shareholder, then it is even more impressive. Tata Sons and Shapoorji Pallonji (SP) both started business around the same time in the 1860s, but their growth and returns till now have been vastly different.
Exit may also be sought by a shareholder for its own liquidity. In the specific case of SP, a suitable exit modality surely merits a reasoned dialogue; after all, a few shareholders, albeit miniscule compared to SP, have over the years obtained reallocation or exit. Precedents exist.
SP itself is an unlisted holding company with perhaps three listed subsidiaries. The votaries of Tata Sons doing an IPO should realise that the consequence of their proposed action will be that a successful private company (Tata Sons) launch an IPO to provide an exit to another private company (SP). That seems bizarre. SP itself can carry out an IPO to raise funds if its board deems it necessary, leaving its investment in Tata Sons to continue to earn great returns.
Too important
Of course, a nation can determine which institutions are nationally important. For example, the media is crucial in a thriving democracy and carries great public interest. However, media-owning firms are not mandated to be public. Media owners may argue that editorial freedom is more important than corporate regulation. Are editors credibly free from owner influence?
Internationally, there are not many cases of companies being mandated to become public. Boards take such decisions. The exceptions are some banks which use a lot of public money. This criterion is not applicable to Tata Sons since it does not access public funds and can therefore remain an unlisted entity under the extant RBI regulations.
Why remain private
In closing, we make a brief case for Tata Sons to stay private and continue to voluntarily behave largely like a listed company. Enterprise and philanthropy are uniquely intertwined in the case of Tata. The 2% CSR funds spent by operational Tata companies — 28 listed and several unlisted — match or exceed the expenditure by the Tata Trusts. This makes Tata distinctive among global corporations.
During 2001-2003, the authors participated in discussions with Ratan Tata, Noshir Soonawala, and other company leaders about an IPO. Of what — Tata Sons, TCS, or both? After interminable debates, the collective wisdom was that only TCS should launch an IPO, and that happened in 2004. The directors of Tata Sons, which then included Pallonji Mistry, had a genuine concern that changing the status of Tata Sons could materially change its unique approach to enterprise and philanthropy, apart from suffering a holding company discount.
Tata is not just a company. It is a community. It has 1 million employees and a living employee alumnus of 4 million. These 5 million people and their families are a community that is bigger than Belgium and Austria together.
Compelling such an institution to start an IPO requires careful reconsideration. An IPO should be the decision of the company board.