Lessons from the Tata family trusts

The holding company, Tata Sons, is 66 percent owned by the Sir Dorab Trust, the Sir Ratan Trust and a combination of other family trusts. Since the primary objective of these trusts is charitable, it is safe to say that 66 percent of this massive conglomerate’s profits flow back into communities in the form of philanthropic causes.

Established in 1892, the JN Tata Endowment was envisaged as a loan-scholarship to enable bright Indians to study abroad, sowing the seeds of Tata philanthropy. It supported future luminaries such as nuclear scientist Dr Raja Ramanna and former President of India K. R. Narayanan.

In 1898 Jamsetji pledged half his wealth to establish the Indian Institute of Science, a university of science in Bengaluru, which opened in 1911. It is India’s premier institute for advanced scientific and technological education and research, instrumental in nurturing India’s atomic energy and space programmes and remains among the world’s most premier institutions.

The trusts established the Tata Memorial Hospital for cancer research and treatment in 1941. Current health initiatives benefited 15.9 million people in 2020-21.

They are implementing a distributed cancer care model aimed at ensuring patients have access to a facility within a three-hour journey from home, such as through the Assam Cancer Care Foundation.

They also founded the India Health Fund to scale technology-led solutions for diseases like tuberculosis and malaria, including using artificial intelligence for X-ray diagnosis.

Outside of India, the trusts continue their legacy by setting up international centres to develop advanced technological solutions for India’s socio-economic challenges, such as the Tata Centre at the prestigious Massachusetts Instititue of Technology in the US as well as other research initiatives at London School of Economics and Cambridge University in the United Kingdom.

There is not enough space to cover other trust initiatives in poverty reduction, water and sanitation and agriculture. The upshot is quite simply that the trusts have one motivation: to better the lives of the communities in which they operate.

What can East African family trusts learn from this? They can emulate the impact of the Tata trusts by focusing on their unique organisational structure, commitment to ethical governance and strategic evolution of philanthropic practice.

One key organisational structure is where the holding company is majority-owned by a philanthropic trust (as the Tata Trusts own 66 percent of Tata Sons). This allows the wealth accrued from the business to be systematically channeled into social causes.

In keeping with optimal corporate governance tenets, such trusts should maintain a healthy "managerial distance" between them and the business operations to prevent capture and ensure efficient monitoring.

This involves a limited overlap between membership of the trust boards and the company boards. It also requires a clearly defined methodology for how the trusts nominate candidates to sit on the company boards, who may or may not be family members.

Another key success factor is trustee motivation. Tata trustees earn anywhere from $10 to $20 (Sh1,300 to Sh2,600) per annum in sitting allowances. Consequently, this ensures that only individuals who are motivated by impact and not money accept to sit on the board.

The Tata trusts took a strategic pivot in recent years, moving from being predominantly grant-giving entities to directly designing, piloting, and running programmes, thereby taking more ownership of programme outcomes. Today the trusts directly implement nearly 80 percent of their programmes .

The structure of the Tata trusts prevents private enrichment of family members, distinguishing them from family-run foundations that sometimes mix philanthropy with personal benefits.

Their charitable-only mandate has allowed them to become one of India’s largest philanthropic entities, with billions of rupees directed toward national development. If the goal of a family trust is to distribute wealth across generations, then a charitable trust is not the route. But if the goal is to create a multigenerational legacy of impact, then Tata offers a model worth emulating.

East Africa’s business families have an opportunity: to move beyond inheritance and build institutions that transform lives. The Tata trusts show that philanthropy, when embedded in corporate DNA, can shape not just companies, but nations.

Carol Musyoka is a former banker and is currently a corporate governance specialist.