Head of Tata Trusts may be disallowed from heading a Tata Group company

Ratan Tata was the last person to chair both the companies, Tata Sons and Tata Trusts, after JRD Tata. He is deliberating on the issue to ensure that the interests of both companies are protected

People holding top positions at Tata Trusts may soon be disallowed from heading other Tata Sons companies while honouring the will of its founders. The company is in consultation with legal experts to introduce a clause in the trust deeds to implement this, according to a report by Economic Times.

According to the report, this clause is being introduced to plan the succession in the organisation. About 66 per cent of the group's equity capital is with the trusts owned by the Tata family. The highest share is held by Sir Dorabji Tata Trust and Sir Ratan Tata Trust.

Currently, Ratan Tata heads both Tata Sons and Tata Trusts. He was the last person to chair both companies after JRD Tata. He is deliberating on the issue to ensure that the interests of both companies are protected.

"For corporate governance purposes and to protect these institutions, changes need to be made 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," an official aware of the matter was quoted as saying in the report.

He further said that the case is different when a person with the stature of Ratan Tata and JRD Tata heads these companies. However, they said it is necessary to keep in mind the strategic needs of the Tata Group. The move is aimed at improving the corporate governance of the Tata Group.

Another person said, "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,"

They added, "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 the chairman of Tata Sons in 2016, and the company has been facing legal issues since.

Tata had earlier told the Supreme Court that members of the Tata family have no 'vested right' to that position or even to the chairmanship of Tata Sons. Tata and his relatives own less than a 3 per cent stake in Tata Sons, ET reported.

The amendments to the trust deeds will require the participation of shareholders, trustees and regulators. It might be a long process. However, amending the Articles of Association (AoA) takes less time.

The company may introduce a resolution to amend the AoA in the next annual general meeting.