N. Chandrasekaran must improve dividend payout to Tata Trusts: V.R. Mehta

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Mumbai: The new leadership at Tata Sons Ltd should take into account the main worry of Tata Trusts—a decline in the dividend income of the group holding company—and work towards improving the performance of all operating firms, said V.R. Mehta, a trustee of the Sir Dorabji Tata Trust.

The leadership should ensure that the overall profitability and income of the group improves, and the dividend payout by Tata Sons to Tata Trusts not only stabilizes but increases, Mehta said in an interview, a day after N. Chandrasekaran’s appointment as the new Tata Sons executive chairman.

“The main worry of the trust was the decline in the dividend income of Tata Sons from the operating companies,” he said.

Tata Trusts control two-thirds of Tata Sons and were a prime moving force behind the surprise ouster of Cyrus Mistry on 24 October.

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Dwindling dividend growth has been often cited in Tata group communiques and interviews as a key reason for replacing Mistry.

In a 10 November statement, Tata Sons said that with the exception of Tata Consultancy Services Ltd, all 40 other firms (many non-dividend paying) in its portfolio paid dividends that “have continuously declined from Rs1,000 crore in 2012-13 to Rs780 crore in 2015-16 but the latter figure includes additional interim dividend of Rs100 crores which would have been normally received in 2016-17 (due to budgetary changes)”.

When asked whether the Tatas will revisit the three-tier group structure comprising Tata Trusts, Tata Sons and group companies to avoid a repeat of the fracas, Mehta said the problems did not arise from the structure.

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“It’s a well-thought one and has served the group successfully for several decades. It was not the structure that was the problem but the individual.”

Mistry and his family firms, in their petition in the National Company Law Tribunal, cited excessive interference from the trusts and some trustees in the affairs of the group operating companies. Mistry had then said he was pushed to the position of a “lame duck” chairman.

Chandrasekaran has his work cut out. Not only will he be required to meet expectations on performance but also manage the relationship with the principal shareholder, said Amit Tandon, managing director at Institutional Investor Advisory Services (IiAS).

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“It’s not going to be a cake-walk for him and he will have to tread cautiously and, most importantly, restore credibility of brand Tata,” said Kavil Ramachandran, executive director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business.

IiAS’ Tandon said the trusts also need to take a hard look at certain things and need to moderate expectations on dividends. “They can’t be donating huge sums to foreign universities and be asking group companies to pay more dividends.”

To be sure, the challenges ahead are not lost on Chandrasekaran. At a media briefing after his appointment on Thursday, he said: “This position requires several leadership qualities and compassion. And I feel I will grow into this role over a period of time.”