Tata alters policies to consolidate group operations under one umbrella

Ratan Tata, chairman of Tata Trusts, has made several changes to the group’s holding company Tata Sons’ policies to consolidate operations under one umbrella.

The recent change in Tata Sons’ articles of association (AoA) that separates the positions of Tata Trusts and Tata Sons’ chairman is part of a series of decisions taken by the group’s patriarch since 1991. This had helped Tata Sons to remain in conformity with the changes in corporate governance norms.

With recent changes in the AoA, Tata, who was the chairman of Tata Sons till 2012, will be the last to hold the chairman posts in Tata Trusts as well as Tata Sons.

Tata Trusts holds 66 per cent stake in Tata Sons while other Tata group companies hold 12.87 per cent stake. The Mistry family holds 18.37 per cent stake in the group’s holding firm. The rest is held by Tata family members and other small shareholders.

Tata started his journey with the controversial removal of various satraps from Tata group companies.

In 1998, he also asked Tata group firms to pay brand fees of 0.25 per cent of their revenues to Tata Sons to use the Tata brand name.

“The idea was to use the funds to increase Tata Sons’ stake in various group companies. The stakes were alarmingly low in the 1990s,” said a former Tata executive.

In 2000, Tata first amended the Tata group retirement policy of 70 years to bring in younger leaders and remove older directors.

But in July 2005, Tata Sons amended its retirement policy yet again for non-executive directors to remain in the board till 75 years.

This allowed Tata to remain chairman up to 2012 till he attained the age of 75.

Tata, then 67 (in 2005), was to step down after a few years on his 70th birthday and the increase in retirement age effectively solved the problem of succession.

In September 2000, Tata group introduced several changes in Articles 104B and 121 through a new version of the AoA at the annual general meeting (AGM) of Tata Sons.

Article 121 was amended again in April 2014. This entitled the two trusts to nominate one third of the directors on the Board of Tata Sons with veto power.

After Cyrus Mistry was removed from the Tata Sons’ board in October 2016, the company became private limited in 2017, making transfer of shares difficult.

The move to go private restricted Mistry from selling the shares to any outsider without taking Tata group’s permission.

Early this year, Tata Sons made another change to its retirement policy. It removed the retirement age limit for the trust-nominated director on its board.

With this, Vijay Singh, a former bureaucrat and a Tata loyalist, rejoined the Tata Sons board.

On Tuesday, Tata Sons shareholders cleared another amendment to the AoA. This paves the way for the positions on Tata Sons and Tata Trusts board to remain separate.

Tata insiders said this is to separate management from ownership and part of the good-governance practices. “The amendments to the articles are intended to legally ensure that the chairman of Tata Sons Pvt Ltd cannot be a person, who is also a chairman of either (or both) of the trusts. The rationale for the amendment, it seems, is to formalise the decoupling, which was ordinarily followed post 2012. The amendment reiterates the ethos of the group, which is known for its impeccable corporate governance and promoting independent management,” said Gaurav Mistry, partner at DSK Legal. 

Changes in AoA

1. 1998: Levies a brand fees on all Tata group companies using Tata brand name
2. 2000: Tata Trusts get more power to manage Tata Sons affairs after change in AoA
3. 2005: Retirement age of non-executive directors increased from 70 years to 75 years; Tata remains at helm till 2012
4. 2011: Cuts retirement age for Tata Sons executive directors from 75 years to 70 years
5. 2012: Amendment in Article 118 of AoA confers affirmative rights in favour of Directors of Trusts
6. 2017: Tata Sons becomes a private  company after Mistry is removed 
7. 2022: Removes retirement age of Trusts nominees on Tata Sons board from 70 years
8. 2022: Tata Trusts changes AoA of Tata Sons to separate positions of Chairmen of TSPL and Tata Trusts