Relationship Between Tata Sons And Tata Trusts And Why Noel Tata Can't Become Chairman Of Both

Tata Trusts led by Sir Ratan Tata Trust and its allied trusts and Sir Dorabji Tata Trust and its allied trust held over 66% stake in the Tata group's holding company Tata Sons Pvt. Ltd. Despite owning two-third of the company there are clear demarcation of their roles. The most important demarcation established by Ratan Tata in 2022 was ensuring Trusts and the holding company will have separate board governance structures. There can be an overlap of board members, but both will not have the same Chairman.

Tata Trusts—the corporate structure assigned to manage the daily functions of all trusts—have clear philantrophic roles, while Tata Sons has been assigned to incubate companies in the new sectors and govern all its companies and safeguard stakeholder interests.

After the demise of Ratan Tata, the board of trustees of the two trusts appointed Noel Tata, who was one of the Trustee on the two trusts, as the chairman of Tata Trusts.

But Noel Tata cannot hold the Chairman seat at Tata Trusts and Tata Sons together. The story starts in 2017. Tata Sons was converted into a private limited company in that year after Cyrus Mistry was removed from the board of Tata Sons board.

After Cyrus Mistry was removed, the public spat raised questions on the governance standard and relationship between Tata Sons, the holding company for Tata group companies and owners — the two key trusts, Sir Dorabji Tata Trust and Sir Ratan Tata Trust.

Ratan Tata had by 2022, as Chairman of Tata Trusts, put in place a governance mechanism that created clear separation of Ownership and Operations of the Tata Sons.

He, as chairman of both the key trusts, ensured that the trustees of the Trust had a key role in the appointment of Chairman of the Board of Directors of Tata Sons.

In the Annual General Meeting of FY22, Ratan Tata sought to amend Article 118 which governs the appointment of Chairman of the Board of Tata Sons.

The Amendment read as, "Provided that a person who is the Chairman of either the Sir Dorabji Tata Trust or the Sir Ratan Tata Trust or of both, will not concurrently be eligible to be the Chairman of the Board of Directors."

The article of association also read that as long as the Tata Trusts held at least 40% stake in the company, a selection committee will be constituted for the appointment of the Chairman of the board.

The selection committee will comprise of three members nominated jointly by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust who may or may not be the directors on the board of Tata Sons. One member will be nominated from and amongst the board of director and one independent outside person selected by the board.

Currently Vijay Singh and Venu Srinivasan are directors on the board of Tata Sons and in the executive committee of Tata Trusts. Noel Tata was recently made the Chairman of the Tata Trusts after the demise of Ratan Tata.

The chairman of the selection committee will be amongst the members nominated by the two Trusts.

The quorum for the selection committee will be the majority of the members nominated by the Tata Trusts i.e. atleast two nominees.

Moreover, the article of association now requires the same process to be followed for the removal of the incumbent Chairman.

Currently, the Chairman of the board of Tata Sons is N Chandrasekaran. He was reappointed as Executive Chairman of board for a period of 5 years ending February 20, 2027.

Tata Sons does not have an age limit for the Chairman. It Sons removed the age limit for Chairman of the board in 2017 to allow Ratan Tata to assume interim Chairmanship of the board after Cyrus Mistry was removed from the board of Tata Sons. Prior to that had extended the age limit to 75 to allow Ratan Tata to remain as Chairman till he stepped down in 2012.

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