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The move comes within days of Noel Tata’s elevation as head of Tata International. Noel Tata, half brother of Ratan Tata, is a possible, though not the obvious, candidate.
Tata Sons said in a statement that its board had formed a selection committee which was in the process of formulating criteria for identifying the most suitable candidate, taking into account the global nature and complexity of the group’s business.
The statement said the group would require someone with experience and exposure to direct its growth amid the challenges of the global economy. “The selection process for a prospective candidate would consider suitable persons from within the Tata companies and other professionals in India as well as persons overseas with global experience,” it said.
India’s most celebrated chronicler of family run businesses, who has written on Tata group and Ratan Tata and who did not wish to be identified by name in this report, said, “To my mind this (the Tata move) is going to be close to the GE model. I see a lot of similarities between GE and the Tata group, both are in the B2B and B2C space, and have diverse multi-lingual, mutli-locational and multi-pronged businesses. They too had a committee to choose the successor. The GE model is a very good template.”
The former director of IIM-Ahmedabad, Bakul Dholakia, said, “I think the Tata decision to set up a committee is a welcome move in the Indian context, for it brings in transparency. Nobody forced it on the company. This, indeed, as and when the plan gets through, would be a benchmark given the kind of diverse businesses, diverse locations, and diverse in-house talent available in the group. Indian family-run businesses, most of which have relatively younger bosses (Reliance Industries, ADAG, the Aditya Birla group and Bharti), would learn a lot from the Tata plan. This is a nice beginning.”
Rahul Bajaj, chairman of Bajaj group, who has been Ratan Tata’s “good friend” for 40 years, said, “I would not like to comment on his retirement.”
There has been intense speculation on the composition of the selection committee, though the Tata group has not formally announced any names. Among Tata’s close associates who are almost certain to be on the committee are Shapoorji Pallonji Mistry and NA Soonawala, both of whom are also related to the Tata family through marriage. Names of two outside associates, Bombay Dyeing chairman Nusli Wadia and former CII chief mentor Tarun Das, were also doing the rounds. None of these names could be independently confirmed.
Mistry is the largest single shareholder in Tata Sons with a 18.5 per cent stake. He acquired his stake mainly by buying the shares from the late Dorab Tata, JRD’s brother, and from Rodabeh Sawhney, JRD’s sister.
One important reason why these shares went to Mistry was that under the articles of association of Tata Sons, any shareholder who wished to sell his or her shares had to first offer them to existing shareholders.
Since the trusts were forbidden to buy shares and other directors like JRD never had an yen for gathering personal fortunes, Mistry was well placed over the years to take up those offerings.
Soonavala is in the Tata group corporate centre, a forum where broad policy issues relating to the growth of Tata companies are reviewed and entry into new areas are discussed. The centre also plays a key role in protecting and promoting the Tata brand in India and abroad. He is also a trustee at both Sir Dorabji Tata Trust and Sir Ratan Tata Trust.
Noel Tata, aged 53, is the son-in-law of Mistry. Noel is also in charge of Tata Investor Corporation and was responsible for Trent, the retail arm of the group.
Earlier this year, Ratan Tata had said after the launch of Nano, the smallest and the cheapest car in the world, that it would be a good time to step down and there would be a timeframe to it. “I do have the responsibility to have a successor and both these things will take place soon.”
His tenure at the helm of the group, ever since JRD Tata vacated his saddle in 1991, has run almost synchronously with India’s economic reforms, now in its 20th year. It’s been an eventful two decades since then. Soon after taking over as chairman of Tata Sons, Ratan Tata had said, “My goal is to attain market leadership or at least be one of the top three players. Otherwise we must seriously consider getting out of a business.”
Tata Tea is the world’s largest tea company. Tata Motors holds 70 per cent of the Indian market for commercial vehicles and is among the country’s three biggest carmakers. Tata Salt, manufactured by Tata Chemicals, is the No 1 branded salt and Tata Steel is the world’s sixth biggest steelmaker.
The Tata group went on a major acquisition spree in the international market a few years ago, lapping up the Anglo-Dutch steel maker Corus in 2006 for $12 billion, followed by another big-ticket acquisition of Jaguar & Land Rover in 2008 for around $2 billion. Both the acquisitions were spearheaded by Ratan Tata.
When Ratan Tata took over the mantle from JRD he inherited a huge territory with powerful satraps ruling over powerful fiefdoms. While Ratan Tata himself had till then managed Tata Motors, then known as Telco, Russi H Mody managed Tata Steel, Darbari Seth looked after Tata Chemicals and Tata Tea, Homi Sethna ran Tata Electric, A H Tobaccowala managed Voltas, Freddie Mehta managed the textiles business, Nani Palkhiwala was looking after Tata Exports, Ajit Kerkar headed Indian Hotels, Simone Tata managed Lakme, Xerxes Desai managed Titan and JJ Bhabha ran the publishing business.
Ratan Tata retired most of these stalwarts after pitched turf battles, the most celebrated of which was with Tata Steel strongman Russi Mody.
By May 1997 Ratan Tata had embarked on a move to create a common system within the group which would enable the transfer of star managers from one company to another as part of its efforts to emerge as a unified corporate group rather than a loose band of companies. Ratan Tata had said then the group was trying to “identify bright stars and shining stars in individual companies and try and create a mechanism whereby those individuals can, in fact, see opportunities in other group companies, be identified, be moved around and see career growth in the group as a whole.” But till date, he has never let out his mind on a likely successor.
One of the key features that he brought to the refocused group was that while companies enjoyed autonomy, they operated under a common code of conduct and business ethics. By September 1997, Tata Management Training Centre (TMTC) was working to herald a change in the group, forge a new identity of a single corporation and a uniform system of values. Tata wanted to develop TMTC on the lines of GE’s Management Development Institute at Crotonville.
In the present context of Tata adopting GE’s succession planning model, we asked the business historian quoted earlier in this report whether the dissimilarities in the cultural and social context might limit the model transplant from GE. The historian said, “Not really, there is a high level of hygiene about processes whatever be the context. If the process is good it will work. The objective is ultimately to have a world class company and if there is no confusion there, then the context becomes secondary and the process takes over.”
However, Dholakia said, “First of all, succession planning in large conglomerates is a matter of contextual reality of the environment they operate in. Therefore, there might not be a case for transplanting a global template. Succession planning is not to be viewed in the same way as that of another management practice. This takes place in the specific cultural, political and social context, and one does not need any benchmark to make a success of it. Succession plan takes another perspective when it comes to family run businesses in the Asian context.”
On the proportion or the lack of it between internal and external members on the Tata committee, he said, “It is good that they have more people from inside. This would help assess a successor better since these people know the company inside out and have the best possible view of the diversity as also the complexity of it all and thus the challenges thereof.”
(With inputs from Rupesh Janve and Reji John)
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