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Tata trusts get sweeping powers to appoint next Tata Group Chairman

In a major change in the Tata Sons' Article of Association providing for the constitution of a selection committee, the power to appoint the next chairman has been completely handed over to two trusts - the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust.

twitter-logo Anand Adhikari        Last Updated: April 11, 2013  | 14:35 IST

The Tata Sons board has given sweeping powers to two Tata Trusts to appoint any future chairman of  the $100 billion Tata Group.

In a major change in the Tata Sons' Article of Association providing for the constitution of a selection committee, the power to appoint the next chairman has been completely handed over to two trusts - the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust.

These two big trusts along with others have a combined equity shareholding of  66 per cent in Tata Sons, which is the holding company for the Tata Group.

With Cyrus Mistry having taken over as Chairman of the group from Ratan Tata last December, and his Shapoorji Pallonji group holding 18.5 per cent share in Tata Sons,  the change clearly seems aimed at protecting the interests of the majority shareholders, the Tatas.

According to documents available with Business Today, in an extraordinary general meeting (EGM) held recently, the Tata Sons board changed the composition and structure of any future selection committee that will appoint a new chairman of Tata Sons. Under the new amended article, the five member selection committee will comprise three persons nominated by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust who may or may not be directors of the holding company.

Earlier, as for instance in the committee that chose Cyrus Mistry, the two trusts had the power to nominate only two members.  

The trustees of these two trusts will also 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," it says.   

Tata Sons will have the power to nominate only one member to the selection committee. There were two members in the earlier committee chosen by Tata Sons. As in the earlier selection committees, there will be one independent member.

The other big change is the power to select the chairman of the selection committee. "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," says the amended article of association of the company.

There are also provisions to keep out dissenting voices. "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," the altered Article of Association says. The quorum requirement in the earlier committee was the presence of all the members of the committee. So in future, if a Tata Sons nominated member or the outside independent member differs from the trusts' choice or stays away from the meeting, the three members of Tata trusts will have the power to initiate a meeting and select a new chairman.

"The same process shall be followed for the removal of the incumbent chairman," the amended article says.  This power was not there with the earlier selection committee. So the trusts have also the power to initiate removal of a Tata chairman.   

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