MUMBAI: The Tata Sons board has approved decoupling of two key positions to ensure that the Tata Sons chairman will not be able to take up a similar role at Tata Trusts, its controlling shareholder. The decision was taken at a board meeting last week where chairman emeritus Ratan Tata was a “special invitee”.
Traditionally, chairmen of Tata Sons have held the position of chairman at Tata Trusts too. That is until 2012, when Ratan Tata retired from the conglomerate but did not step down as chairman of Tata Trusts. He continues in the post despite two regime changes at Tata Sons after him.
The decoupling will ensure that the two positions remain independent, with the Trusts having near-absolute control over the holding company of the $103-billion conglomerate. This will also mean that current Tata Sons chairman N Chandrasekaran will be barred from the chairman’s seat at the Trusts.
Tata Sons declined to comment on the decision. At the meeting on February 11, the item was passed to be included in the Tata Sons Articles of Association stating that a Tata Sons chairman and a Trusts chairman cannot be the same person, to ensure “better governance”. This will be tabled before Tata Sons shareholders for approval.
The Trusts comprise a dozen-odd charitable organisations, of which Sir Dorabji Tata Trust (SDTT) and Sir Ratan Tata Trust (SRTT) – established by the children of the conglomerate’s founder Jamsetji Tata – own the largest stake of 52% in Tata Sons.
Ratan Tata became chairman of SDTT in 1995, four years after he took over as chairman of Tata Sons following JRD’s death. He had already become chairman of SRTT, the other principal Trust, in 1988. When he retired from Tata Sons in December 2012 at age 75, the positions got decoupled as he retained chairmanship at the Trusts while Cyrus Mistry succeeded him at Tata Sons. This was also possible as the Trusts do not have a retirement age for its chairman (read trustees).
Mistry, thus, was the first Tata Sons chairman in the history of the over 150-year-old conglomerate who was not made chairman of the Trusts. After being ousted from the leadership post in 2016, Mistry had criticised the diarchy system, accusing Ratan Tata of interfering in his functioning. Tata Sons had dismissed the claim. Chandrasekaran subsequently succeeded Mistry.
With Tata Sons deciding that its chairman will not be chairman of the Trusts, a formal arrangement has been set in place. This will mean that even a Tata family member cannot hold both positions. It remains to be seen who will succeed Ratan Tata at the Trusts as this position exerts immense influence over how Tata Sons and, by implication, how the broader conglomerate is managed. Trusts didn’t respond to TOI’s queries.
Thomas Kuruvilla, managing partner at the consultancy Arthur D’ Little, said, “You should never have the same person chairing both the company and the foundation which owns it, except for the initial years as it helps in carrying out the vision and strategy. After that, it is best to have separate chairmen so that the respective goals are managed independently and objectively and the foundation is not biased towards supporting the company’s business interests.” Globally, foundations that own companies (like Robert Bosch and Hershey) have separate chairmen/chieftains for both.
Traditionally, chairmen of Tata Sons have held the position of chairman at Tata Trusts too. That is until 2012, when Ratan Tata retired from the conglomerate but did not step down as chairman of Tata Trusts. He continues in the post despite two regime changes at Tata Sons after him.
The decoupling will ensure that the two positions remain independent, with the Trusts having near-absolute control over the holding company of the $103-billion conglomerate. This will also mean that current Tata Sons chairman N Chandrasekaran will be barred from the chairman’s seat at the Trusts.
Tata Sons declined to comment on the decision. At the meeting on February 11, the item was passed to be included in the Tata Sons Articles of Association stating that a Tata Sons chairman and a Trusts chairman cannot be the same person, to ensure “better governance”. This will be tabled before Tata Sons shareholders for approval.
The Trusts comprise a dozen-odd charitable organisations, of which Sir Dorabji Tata Trust (SDTT) and Sir Ratan Tata Trust (SRTT) – established by the children of the conglomerate’s founder Jamsetji Tata – own the largest stake of 52% in Tata Sons.
Ratan Tata became chairman of SDTT in 1995, four years after he took over as chairman of Tata Sons following JRD’s death. He had already become chairman of SRTT, the other principal Trust, in 1988. When he retired from Tata Sons in December 2012 at age 75, the positions got decoupled as he retained chairmanship at the Trusts while Cyrus Mistry succeeded him at Tata Sons. This was also possible as the Trusts do not have a retirement age for its chairman (read trustees).
Mistry, thus, was the first Tata Sons chairman in the history of the over 150-year-old conglomerate who was not made chairman of the Trusts. After being ousted from the leadership post in 2016, Mistry had criticised the diarchy system, accusing Ratan Tata of interfering in his functioning. Tata Sons had dismissed the claim. Chandrasekaran subsequently succeeded Mistry.
With Tata Sons deciding that its chairman will not be chairman of the Trusts, a formal arrangement has been set in place. This will mean that even a Tata family member cannot hold both positions. It remains to be seen who will succeed Ratan Tata at the Trusts as this position exerts immense influence over how Tata Sons and, by implication, how the broader conglomerate is managed. Trusts didn’t respond to TOI’s queries.
Thomas Kuruvilla, managing partner at the consultancy Arthur D’ Little, said, “You should never have the same person chairing both the company and the foundation which owns it, except for the initial years as it helps in carrying out the vision and strategy. After that, it is best to have separate chairmen so that the respective goals are managed independently and objectively and the foundation is not biased towards supporting the company’s business interests.” Globally, foundations that own companies (like Robert Bosch and Hershey) have separate chairmen/chieftains for both.
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