This is part of a significant corporate governance exercise, which includes succession planning, they said. The wills left by members of the founding Tata family have no such stipulation. Both JRD Tata and Ratan Tata had held the post simultaneously.
About 66% of the equity capital of group holding company Tata Sons is with the philanthropic trusts endowed by members of the Tata family. The biggest of these are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust.
Ratan Tata, chairman emeritus of Tata Sons, heads the Tata Trusts. He’s keen to ensure that the interests of both institutions, the Tata Trusts and Tata Sons, are protected, the executives said. He was the last person to be chairman of both Tata Sons and the Tata Trusts after JRD Tata.
Amending the trust deeds will be a long procedure involving shareholders, trustees and various regulators. The group is consulting lawyers to iron out all issues before formally initiating changes.
The Tata Trusts are examining how to do so in a legally tenable manner, including making changes in the trust deeds. The subject has been debated within the trusts for some time now, said insiders.
The Tata Trusts didn’t comment on the matter.
Tata Sons had discussed a special resolution amending the Articles of Association at the meeting that approved a fresh five-year term for chairman N Chandrasekaran, ET reported in February. Ratan Tata, chairman emeritus of Tata Sons, had attended the meeting as a special invitee.
Amendments to the Tata Sons Articles of Association (AoA) are likely to take less time than changes to the trust deeds. A resolution to amend the AoA is expected to be presented at the Tata Sons annual general meeting (AGM) at the end of this month.
“It was a completely different situation when a person with the stature of Ratan Tata and JRD Tata before him was at the helm of these institutions,” said one of the persons cited. “For corporate governance purposes and to protect these institutions, changes need to be done accordingly. The purpose of seeking a legal view is to ensure that the founders’ wills are honoured, the strategic needs of the Tata Group are also taken care of and to ensure suitable checks and balances.”
The initiative is aimed at improving corporate governance within the group by avoiding the concentration of power.
“The move is aimed at ensuring that one person does not become the chairman of both Tata Sons and Tata Trusts is to prevent the misuse of power and protect the future of the institutions, whether a Tata family member or a non-family professional occupies any of the two roles,” an insider said. “The move is critical to also avoid the kind of conflict that arose during the tenure of former chairman and shareholder Cyrus Mistry.”
Mistry was ousted as chairman of Tata Sons in 2016.
The Tata Trusts will have to approach the charity commissioner to make relevant amendments in the trust deeds.
“Here, the idea would be to make sure that the power is not concentrated in one person. The move will also make sure that both the boards of trustees and Tata Sons remain independent in letter and spirit,” said Gaurav Dani, senior partner of law firm IndusLaw.
In one of the submissions to the Supreme Court, at the time of dispute with Mistry Group, Ratan Tata had said, “I happen to be the current chairman of these trusts. It could be somebody else, not necessarily with the surname Tata, in the future. An individual’s life is finite, whereas these organisations will continue.”
His submission further argued that “members of the Tata family have no ‘vested right’ to that position or even to the chairmanship of Tata Sons.”
There’s no special role for Tata family members, he had said.
“So far as the members of the Tata family (descendants/relatives of founders) are concerned, no special right or role has ever been stipulated or given to them in the company (Tata Sons), or its management, apart from the rights that they would have under law as a shareholder in the company,” Tata had said, referring to the fact that he and his relatives own less than 3% of Tata Sons.
In company law, the chairman is simply first among equals, when it comes to meetings of the board or shareholders, said Sujjain Talwar, partner at law firm Economic Laws Practice.
“He or she has no power or duties that are different to those of other directors,” Talwar said. “So merely by restricting the chairmanship, but permitting a person to be a director, does not alter anything in law. There may be changes as a result of this but nothing material from a legal perspective.”
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