The Tata Group after the Jrd Period: Management and Ownership Structure

Abstract

Complex ownership structures are a common phenomenon across Asian business groups. There has been a large amount of international work focusing on the various aspects of ownership structures and strategies adopted by international business groups. In the Indian literature, we found little work, especially with respect to case studies. In this paper, we use public information of a well known business group (the Tatas) passing through a major restructuring and document the development of ownership structure. The country's second-largest conglomerate, the Tata group, with year 2005 revenue of over Rs. 80,000 crores (US$ 20 billion) and core interests ranging from steel, cars and telecommunications to software consulting, hotels and consumer goods, has come a long way since JRD Tata passed the leadership mantle to Ratan Tata, in 1991. We examine the interrelation of ownership structure, corporate strategy, and external forces for one of the largest conglomerate from India. In all Tata group affiliates, control is enhanced through pyramidal structures, and cross-holdings among affiliates. This case study on the oldest business empire also explores the rationale behind these moves and examines the tensions and complementarities between stronger ownership ties among group affiliates. While bridging ties among group affiliates does benefit the new leadership in creating a more cohesive business group yet the findings hold enough water to conclude that these moves are contradictory to the interests of the minority shareholders in the individual operating companies (i.e., its own affiliates).

Keywords: Business Groups, management control, conglomerates, ownership structure, cross ownership, cash flow rights, corporate governance, agency costs, India, and pyramids.

JEL Classification: G32, G34, G39, G30, l20, l10