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Tata Trusts had empowered itself to sack Tata Sons Chairman

Gaurav Choudhury

Tata Trusts, the largest shareholder in Tata Sons, appeared to have empowered itself to fire and hire incumbent and future group chiefs, more than three years before Cyrus Mistry was abruptly replaced as the Chairman of the USD 103 billion salt-to-software conglomerate two days ago.

Mistry was aware of the development and was clearly uneasy with his predecessor Ratan Tata’s involvement.

“After my appointment, the Articles of Association (AoA) were modified, changing the rules of engagement between the Trusts, the Board of Tata Sons, the Chairman and the operating companies. Inappropriate interpretation followed. It severely constrained the ability of the group to engineer the necessary turnaround,” he said.

The changes in the Tata Trusts’s AoA was brought about in early 2013, barely two months after Mistry had taken over as the Chairman in December 2012.

It now appears the move to modify the AoA– a document that specifies an organisation’s constitution, lays out director’s responsibilities and other appointments– was a pre-emptive step to protect the interests of Tata Trusts, the largest shareholder of Tata Sons.

Two trusts – Sir Dorabji Tata Trust with 27.98 percent stake and Sir Ratan Tata Trust 23.56 percent account for hold substantial part of the stake.

Along with these two, others like Sarvajanik Seva Trust, RD tata Trust, Tata Social Welfare Trust, Tata Education Trust and JRD Tata Trust along together hold 66 percent of Tata Sons.

These trusts have named Ratan Tata chairman for life.

The amended AoA gave sweeping powers to the two primary Trusts to appoint a search panel the next chairman of Tata Sons.

Under the new amended article, the five-member selection committee will comprise three persons nominated by the two Trusts who may or may not be directors of the holding company.

In the earlier case, when Mistry was appointed, the two Trusts had the power to nominate only two members.

The trustees of the two Trusts were also empowered to act jointly to identify the three members.

“If a unanimous decision is not reached, the majority decision of the trustees of both Trusts will be taken together,” the amendment said.

“The chairman of the committee will be selected by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust from amongst the nominees by the Trusts.”

There was also a crucial difference in the definition of quorum or minimum mandatory presence.

“The quorum for a meeting of the selection committee will be the presence of a majority of the members nominated jointly by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust.”

This was different from the previous instance when quorum was defined as the presence of all members of  the committee.

More importantly, the amended AoA had empowered the two Trusts to remove even the incumbent chairmen.

“The same process shall be followed for the removal of the incumbent Chairman,” the amended AoA said.