The Reserve Bank’s insistence that Tata Sons list is not only an Indian question. Charitable foundations own some of the finest companies on earth, and no government has yet told one of them to sell.Illustration: Pariplab Chakraborty.Companies controlled by charitable foundations account for roughly 60% of the market capitalisation of the Copenhagen Stock Exchange. Some estimates put it nearer 68%. Industrial foundations control a quarter of Denmark’s hundred largest corporations. There are around 1,300 of them, accounting for as much as a fifth of the country’s international business.These are not obscure firms. A.P. Møller-Maersk, the world’s largest container shipping company. Carlsberg. Novo Nordisk, whose foundation is now the largest philanthropic body on earth with assets above €100 billion, having overtaken the Gates Foundation. Unlike most foundations it is not spending down a donated pool. It draws dividends from a working pharmaceutical business that produces fresh profit every quarter.Widen the lens and the roll call grows: Robert Bosch, Bertelsmann and Carl Zeiss in Germany; Rolex in Switzerland, wholly owned by the Hans Wilsdorf Foundation; IKEA; CaixaBank in Spain; the Guardian in Britain, held by the Scott Trust; Hershey in the United States, controlled by a trust that funds a school for disadvantaged children.And on that list, in the academic literature on the subject, sits Tata.A studied categoryFor three decades the Center for Corporate Governance at Copenhagen Business School has examined this form of ownership. Steen Thomsen and his colleagues call them enterprise foundations: foundations holding at least 20 per cent of the voting rights in a company, governed by a board according to a charter and purpose fixed by the founder, supervised by a foundation authority, created by donation.Standard economics predicted these companies would fail. A foundation cannot be taken over. It has no members, no owners, and cannot be dissolved. Nobody watches it the way a market watches. Agency theory says such firms should be complacent.The data says otherwise. The CBS research, published in Corporate Governance: An International Review and in Thomsen’s 2017 book on the Danish foundations, found that foundation-owned companies change managers less often, carry conservative capital structures with low leverage, invest over longer horizons, provide more stable employment – and survive longer. Survival probability, on every measure applied, was higher than for investor-owned firms.The explanation lies in the charter. Most foundation charters make preservation of the company an explicit objective. The board is legally obliged to be a long-term owner. It cannot sell to the highest bidder, cannot be pressed into a leveraged recapitalisation, cannot be dismantled by whoever assembles the votes. As Thomsen observes, many companies crumble when the founder dies; the foundation is a structure in which the owner gives the company away to a body charged with running it as well as it can be run.What Denmark did – and did not doDenmark faced precisely the question India is now asking, and answered it.Danish industrial foundations control a fifth of the country’s international business. Their boards are self-appointing. They cannot be taken over, cannot be voted out, and answer to no shareholder. If ever there were a case for a regulator to say that this much economic power cannot sit outside public scrutiny, Denmark had it, on a scale relative to its economy that dwarfs anything in India.Denmark did not leave these entities unsupervised. Nor did it reach them sideways, through some adjacent regulation that happened to catch them by definition. It legislated for the category directly. The Danish Act on Commercial Foundations governs enterprise foundations by name, with the Danish Business Authority as supervisor and detailed provisions on management, audit, grant-making and the duties of the board. Every concern a regulator might reasonably raise about such an entity is addressed there.Note what is not in it. The Act does not require the foundation to reduce its stake. It does not require the company to list. It does not admit a single outside shareholder into the ownership. Denmark supervised the foundation and left the shareholding untouched.The distinctionThat distinction is the whole of it. Supervision addresses how a charity behaves. Dilution changes what a charity is.Germany reached the same place by another road. Bosch turns over some €90 billion, sits unlisted, and no German government has suggested that its size requires it to open its register. Switzerland has left Rolex entirely alone. Not one of these countries has treated a charitable holding company as a financial institution.India already has the Danish answerMaharashtra’s public trusts legislation does what the Danish Act does. A public charitable trust registers with the Charity Commissioner, files accounts, submits to audit. Its investments are regulated, its immovable property cannot be dealt with freely, its trustees owe enforceable duties, and the Commissioner has powers of inquiry, direction and removal. A public trust in this state is among the more closely supervised entities in Indian law – and it is supervised as a charity, by an authority that exists for charities.If that framework is thought inadequate for a trust of this size, the answer is to strengthen it. Raise disclosure standards, require independent trustees, mandate published accounts on a listed-company timetable. All of it is available to a legislature that already governs the subject.Which leaves the question nobody has answered. Where does a banking regulator get the power to require a charitable shareholder to dilute its ownership? Not to supervise it, not to demand disclosure from it – to reduce its holding in a company it was given, by will, to hold.The Companies Act confers that power on no one. Sebi’s writ runs to entities that have listed, not to those that have chosen not to. The Charity Commissioner, who actually supervises these trusts, has never claimed it.Why ownership is the one thing that must not be touchedA foundation’s shareholding is not an ordinary shareholding. It is the instrument by which a man converted everything he owned into permanent public benefit. The shares are not an asset the charity happens to hold. They are the charity. The hospital, the laboratory, the school, the grant – none of it exists independently of that holding. Reduce the holding and you reduce the dividend; reduce the dividend and you reduce the hospital. No amount of governance reform elsewhere in the structure puts back what dilution takes out.Then consider who is being overruled. Every one of these structures was created by someone who is dead. That is the point of them. A man who could have left his fortune to his children left it instead to strangers he would never meet, and wrote down how it was to be used. He is not here to explain his reasoning, to negotiate, or to say that this was not what he intended. The deed is all that remains of him, and the shareholding is the deed made operative.The cruxTo dilute that holding is to rewrite the will of a man who cannot object – a posthumous amendment to an instrument its author placed permanently beyond his own reach, precisely so that nobody could amend it, including himself.The evidence from 40 years and a dozen countries points one way. Where governments have supervised foundation ownership without disturbing it, the companies have endured and the philanthropy has compounded.India possesses one of the finest examples of this model anywhere, built over more than a century, with no private beneficiary in the structure. It is a category the world studies and protects. It deserves the same here.Nitin Potdar is a senior corporate and M&A lawyer in Mumbai. This piece was first published on The India Cable – a premium newsletter from The Wire – and has been updated and republished here. To subscribe to The India Cable, click here.