Two amendments to the Articles of Association of Tata Sons, including the change of a single word in one of them, helped the Tata trusts consolidate power at the holding company of the conglomerate and aided in the abrupt removal of Cyrus Mistry as Chairman.
Article 118 of the Articles of Association of Tata Sons, which deals with the appointment and removal of the Chairman by constituting the “Selection Committee”, was changed on December 6, 2012 and concentrated power in the hands of directors of the board nominated by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust. Prior to the amendment, the committee of five consisted of two trust-nominated directors, two other directors from the board, and one independent, board-appointed external member.
This article was amended mandating that the committee be comprised of three trust nominated directors, one director from the board, and one independent.
“I think the most strategic move for the Tatas was to ensure that the majority of the selection committee was constituted by members from the Tata Trusts,” said a Chennai-based lawyer.
Another clause in the amendment, that was germane to Monday’s events at the Tata Sons board, was with regard to the definition of a quorum. A “quorum of the Selection Committee” was changed from requiring the presence of all members of the Committee to the presence of a majority of the members, nominated by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust. This was the second change to the Article that enhanced the trusts’ influence over the appointment/ removal of Chairman.
Still, the final decision- making needed the backing of the entire board. This was because Article 121 required “the affirmative vote of all Directors.” An extraordinary general body meeting of Tata Sons, on April 9, 2014, made a change to this by substituting the words “vote of a majority of the directors” in place of the “ affirmative vote of all the directors”.
