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Cyrus Mistry, former chairman of the $108 billion conglomerate Tata Sons, may not have seen what was coming but probably had an idea of the direction things were moving in.
He was barely 17 months into the job when amendments were introduced to the Tata Sons’ Articles of Association (AoA), which effectively curtailed his powers. The Articles laid down a company’s constitution and the role and responsibilities of its directors. It is also a document which defines the relationship between shareholders and the board of a company.
Cyrus Mistry was appointed as the vice chairman of Tata Sons by the board on 23 November 2011. He was to shadow Ratan Tata for over a year before taking over as chairman of the group in December 2012 when Ratan Tata retired on turning 75.
Early into Mistry’s tenure, Tata Sons moved seven resolutions to amend the AoA. Five of these, detailed below, were key in curtailing the powers of the chairman. These resolutions were put forth at the company’s extraordinary general meeting (EGM) of 9 April 2014. BloombergQuint has access to these documents filed with the Ministry of Corporate Affairs.
Article 104 of the AoA lays down the guidelines for the nomination of directors. The AoA allows for a minimum of 3 and a maximum of 15 directors on the board. One of the amendments introduced was a resolution that allowed the Dorabji Tata Trust and Sir Ratan Tata Trust ‘acting jointly’ to nominate one-third of the prevailing number of directors on the board.
The AoA also allowed the two trusts to remove or replace any of its nominee directors. The resolution specified that both trusts will appoint the directors together. In case of a dispute, the view of a majority of the trustees will prevail.
In August 2016, the trusts nominated Amit Chandra to the board of Tata Sons as their third nominee director. Vijay Singh and Nitin Nohria, who had been on the board since 2014, are the other two nominee directors of the trust.
A second resolution at the EGM introduced an amendment to Article 105 of the AoA. This amendment said that powers may be conferred on the chairman or managing director ‘only by way of prior board resolution’.
Prior to the insertion of this clause, the AoA allowed directors to operate within a less restrictive framework and powers could be conferred on the chairman without board resolutions within defined boundaries.
Another amendment that effectively shifted control in favour of the Tata Trusts was the altered Article 121, which deals with the manner in which a resolution is passed by the board. The amendment introduced a clause suggesting that the ‘affirmative vote of the majority of the directors appointed pursuant to Article 104B’ would be needed for any resolution to go through.
Article 104B dealt with the appointment of nominee directors of Tata Trusts on the board of Tata Sons. This essentially meant that a majority of the nominees of the trusts had to approve every board resolution.
Article 121A, also introduced at the EGM, put down a long list of items that needed board approval. These included:
The introduction of Article 121B also gave more heft to the voice of a director.
The article said that any director of Tata Sons could ensure a discussion on an issue, provided the board was given 15 days notice. The article said that it shall be mandatory for the board to take up such a matter or resolution for consideration and vote at the board meeting next held after the period of such a notice.
(The article was originally published on BloombergQuint.)
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