The Tata Group has been at this inflection point twice earlier, and stepped back both times. In 2002, when Tata was to retire at 65, the Tata Sons board promptly redesignated him non-executive chairman, which meant he could continue for another five years.
Three years later, the board upped the retirement age of non-executive directors to 75. The message is clear: Ratan Tata is indispensable.
And it’s not just the board that feels that way. There were loud cries of support from shareholders at the Tata Steel AGM in August, held soon after the announcement that Tata Sons had created a panel to find Tata’s successor.
“We can’t lose our ratan (jewel),” said one shareholder, while others asked him to stay on as chairman emeritus.
Whether or not he acknowledges it openly, Tata must be feeling vindicated by this public recognition of his worth. When he took over as Tata Group chairman on March 25, 1991, critics were loud and unrestrained in their disapproval and scepticism.
Ratan Tata was considered to have gained his position purely on the strength of his surname; he was incompetent, raged opponents both within and outside Bombay House, and he didn’t possess an iota of the charisma of his uncle and predecessor, JRD Tata.
Nearly 20 years later, Ratan Tata has achieved almost everything on his 1991 agenda. At Rs 3.46 lakh crore (Rs 3.46 trillion), Tata Group revenue is 40 times the 1991 level, while net profit has gone up four times.
It is the largest Indian multinational conglomerate; more than 65% of the group’s income comes from overseas and it has 98 operating companies (28 listed) spread across 56 countries in six continents.
In the past decade — the decade that marked the glorious years of Ratan Tata — nearly $18 billion was shelled out to acquire 22 companies worldwide, including Tetley Tea and Corus Steel in the UK, New York’s Pierre Hotel and Jaguar Land Rover.
The Tata Group includes India’s largest private steel company, the biggest auto manufacturer and the largest IT outsourcing firm.
“Ratan Tata outperformed JRD. He toppled people as strong as Russi Mody, thought out of the box and came up with path-breaking concepts like the Nano,” says Bala V Balachandran, faculty member at Kellogg School of Management, and dean of the Great Lakes Institute of Management.
Not bad going for a man who was once likened to the clown in a circus (by his loudest detractor, Russi Mody). For Tata’s successor — whoever that turns out to be — the bar’s been raised sky high.
“Tata’s job is the most difficult one in the country today. Whoever runs the Tata Group has to provide strategic leadership, direction and inputs on multiple businesses, which is hugely challenging,” says Rajeev Gupta, managing director of private equity firm Carlyle India.
The new chairman may be relieved of the responsibility of running individual companies, but he or she will have to head a team of extraordinarily talented and able leaders.
Not only will the heir have to ensure continuation of the group’s growth momentum, but also provide the direction and vision for future growth. It’s not an easy task. But then, nor was Tata’s.
The Ratan Tata of 15 years ago would never have gone for broke on deals like Corus and JLR. The JLR deal was audacious. Tata’s interest was sparked as soon as the banks told the group that the marques were available. Why? According to him, “First, as Tata Motors in the number two SUV builder in India, owning [Land Rover] the gold standard of SUVs would be an enormous benefit to us. Second, to own a luxury brand with an immense history and heritage such as Jaguar is a virtually irresistible opportunity.”
There’s a personal angle to the “immense history”: Ratan’s father Naval was one of five people in India who took delivery of a new Jaguar XK120 in the late 1940s. “I remember the XK with great nostalgia,” Tata commented to a Jaguar team. “I particularly remember the instruments on the dashboard and how stylish they looked.”
Less than two weeks after the $3-billion deal was inked, Tata flew into the US on his private jet to meet Jaguar and Rover dealers across the country; for many dealers, it was their first ever interaction with a company executive.
Several years ago, in an interview, Tata dismissed the notion that he was a risk-taker. “There have been certain occasions when I have been a risk taker. Perhaps more so than some, and less so than certain others. It is a question of where you view that from. I have never been speculative. I have never been a real gambler in the sense that some very successful businessmen have been,” he said.
Going by that logic, Ratan’s ‘follies’ were decisions guided by prescience and not instinct and gut feel.
Of course, he’s not perfect. Ratan Tata personally, and the Tata Group in general, have been bogged down by their share of controversies. When it comes to the environment, especially, the group gets a “can do better” grade.
In recent years, Tata Steel’s joint venture with Larsen & Toubro to construct a port at Dhamra, Orissa, has come under the scanner for its proximity to two protected areas, one of which is the world’s largest nesting site for the endangered Olive Ridley Turtle and the other India’s second-largest mangrove forest.
A soda ash extraction plant in Tanzania also came under fire because of the threat it poses to a nearby lake and its flamingo population
Tribal rights have also been a touchy subject. In 2006, several tribals were killed while protesting a wall being built by Tata Steel on land that was historically theirs. And Ratan Tata’s pet Nano project was mired in controversy about land acquisition for the factory. After farmers in Singur, West Bengal, protested about forcible evictions and inadequate compensation, and Mamata Banerjee leapt into the fray, the Tatas pulled out of the state.
The company shifted the factory to Sanand, Gujarat, but Ratan Tata’s subsequent praise for controversial Gujarat Chief Minister Narendra Modi also drew criticism.
It will be some months before even the shortlist for Ratan’s successor is known. It’s anybody’s guess who will finally make the cut, but the qualities expected of this paragon are fairly clear to all.
In an interview a few years ago, Ratan had drawn up a somewhat simplistic checklist: someone “younger”, ideally in his 40s, who believes in Tata values, demonstrates managerial ability and has the vision to run the Tata Group.
More recently, he also spelled out what the person doesn’t need to be: a Tata, Parsi, or even Indian. “The successor should be the right person,” was his emphasis at the Tata Chemicals AGM in August.
For the record, in its 142-year history, the Tata Group has had only five chairmen, all of whom were Parsis. The only non-Tata to make it to the top was Nowroji Saklatwala, who was chairman from 1932 to 1938. Of course, he was still family: Saklatwala was Jamsetji Tata’s sister’s son.
“There will be a vacuum if a non-Tata person is at the top. Any new person without the Tata name starts with a huge disadvantage,” says Harish Bijoor, brand specialist and CEO of Harish Bijoor Consults.
Still, considering there aren’t too many Tatas around anymore, perhaps it does make sense to keep an open mind about candidates from outside the family. But not outside the company, and certainly not outside the country, seems to be the majority opinion.
Former Tata Steel CMD Russi Mody doesn’t consider the lack of the right surname a handicap — “I was a chairman although I wasn’t a Tata,” he says — but is quite sure that only a company man will do for the job.
“This is an Indian company and an Indian should be appointed chairman. A company man will have loyalty to the group,” he declares.
Preety Kumar, managing partner at global executive search firm Amrop, gives the neutral observer’s viewpoint. “Internal succession always has smoother transition than an external one. In some of our work, successor appointments have been made two or three years before the succession, which helps change perceptions,” she says.
Sanjay Teli, MD of executive search firm ESP Consultants, adds that group acceptance of and support to the heir apparent is critical. “Ratan Tata’s personality and the changes he brought about helped attract the best talent to the group. Retaining some of those people may become an issue in the future,” he warns.
Those and other important issues must be top of mind for the selection committee as it searches for the ideal candidate. The five-member panel — comprising Tata Sons vice chairman NA Soonawala, group advisor Shirin Bharucha, British businessman Lord Bhattacharya, Tata Sons director Cyrus Mistry and Indian Hotels vice chairman R K Krishnakumar — is expected to announce its choice by March 2011, which leaves room for a reasonably long handover period.
The actual selection process isn’t public, but it is known that Tata and other senior executives have given their inputs on what to look for. “It’s a scientific process,” says a person familiar with the broad workings of the panel.
“The candidates will be evaluated on leadership qualities, management skills, operational performance and other criteria. There will be a matrix and the top scorer will get the top job.”
As it happens, those are precisely the qualities that catapulted B Muthuraman to the top job at Tata Steel in 2001. When J J Irani’s retirement was imminent, three people were considered likely successors — Muthuraman and T Mukherjee, both executive directors, and Firdose A Vandrewala, who was responsible for sales and marketing, as well as new business initiatives at the company.
“Tata asked all three to prepare a presentation on the future of Tata Steel. Muthuraman’s vision and roadmap was crisp, clear and the most appropriate,” says a 30-year veteran of the company.
Background and prior domain expertise aren’t make-or-break criteria for Ratan Tata, perhaps because he’s living proof that track records can be deceptive or misinterpreted.
Anil Sardana was CEO of North Delhi Power when he was picked to lead Tata Teleservices (TTSL), a different industry altogether. He’s already proved that the group’s confidence in him was justified: from a user base of 15 million in August 2007 when he took over, TTSL now has 75 million.
The old order changeth
In many ways, the successor’s task will be easier than Ratan’s. It begins with the selection process itself. When Ratan took over from JRD, it was a succession fraught with intrigue, suspense and bad blood.
Resentment from established camps within the group at what was seen as an arbitrary decision was only compounded by Ratan’s own admission of surprise at the announcement. The ongoing selection process may be equally opaque — at least, at present — but there is some logic and purpose behind it, which should make the panel’s decision easier to accept.
The new chairman is also not likely to be battling cliques and fiefdoms within the group — his predecessor has already taken care of that. Instead of the “corporate commonwealth” that Ratan inherited, the Tata Group now operates more or less as a cohesive unit, which will work to the successor’s advantage.
Besides, there is now frequent churn at the board-level as senior members attain retirement age — most Tata Sons board members are nearing 75, when non-executive directors have to retire. The heads of the three biggest companies in the group also retired last year: there’s fresh blood at the top at Tata Motors, Tata Steel and Tata Consultancy Services.
Also, when Ratan took over, the Tata family had neither financial nor managerial control over many group companies. Indeed, at one point in the 1980s, the Birlas owned more stock in Tisco than the Tatas (through Tata Sons) did. That vulnerability to outside interference is now greatly reduced: Tata Sons’ holding in most group companies is now around 26%, sometimes more.
Clearly, the old order has changed. But some things will remain constant — Tata stepped into the shoes of a giant in 1991. His successor will do likewise.
Ratan Tata, the person
- 1937 Born in Mumbai on Dec 28.
- 1962 Completes BSc in architecture from Cornell University.
- 1962 Joins Tata Group.
- 1971 Appointed Director of The National Radio & Electronics (Nelco).
- 1974 Becomes a Director in Tata Sons.
- 1975 Completes management programme from Harvard Business School.
- 1977 Given charge of Empress Mills.
- 1981 Named Chairman of Tata Industries.
- 1984 Sale of Tomco
- 1991 Takes over as group chairman from JRD Tata.
From driving cars to flying choppers, from charity to business strategy, Ratan Tata does it all, and he does it passionately. But, despite being the cynosure of all eyes, very little is known about the Tata Sons chairman’s personal life.
“He is a very private man. Even his closest business aides know little about what he does in his free time,” says a veteran at the group.
It’s anybody’s guess what Tata will do after he steps down from the country’s top private sector job. Those who know him well believe he will indulge in all his pet interests, things he didn’t have enough time for while helming the Tata Group.
A bachelor, Tata continues to live in a flat in Colaba, filled with books and dogs. Cars and planes are his biggest — and perhaps, only — indulgences. He has eight or nine cars in his stable, including a Chrysler Sebring, Land Rover Freelander and Indigo Marina. (There are rumours of a metallic blue Ferrari California and a Maserati also finding their way into his collection.)
“Unfortunately, I do not get enough time to drive. Sunday is when I take my cars out. The cars that I really like, I tend not to let my chauffeur drive,” he said to an auto magazine almost a decade ago.
Now he’ll have time to spend with his cars, as well as his other mechanical passion, planes. Like his predecessor and uncle JRD Tata, Ratan is an accomplished pilot and flies both planes and helicopters.
He made his first solo flight at 17 and enjoys piloting his Falcon 2000. He has also flown the F-16 and F/A-18 fighters, getting into their cockpits at the Aero India 2007 show.
“I‘ve got a type rating [a licence that allows the holder to fly specific aircraft] for the Falcon business jet, but lately I’ve been getting more into flying helicopters. I love the engineering in them and they’re challenging to fly well,” he says.
There’s also likely to be more time for swimming and golf, post 2012. Tata used to scuba dive regularly, but punctured his eardrums “too many times”. He’s had to give that up, but still swims “a lot”.
Ratan Tata grew up in the lap of luxury — in the south Mumbai mansion that now houses Deutsche Bank, driven to school in a Rolls Royce.
All that was forgotten in the decade he spent in the US studying architecture at Cornell, taking on odd jobs — including washing dishes — to supplement the pittance that the Reserve Bank of India allowed as foreign exchange allowance.
Returning to India and joining the Tata Group didn’t mean any substantial improvement in his standard of living. Ratan’s first jobs were on the Tata Steel shop floor in Jamshedpur, where he is believed to have done all manner of tasks, including shovelling coal into the furnace. Which is perhaps why he retains the common touch, and focusses on innovations that will make the lives of ordinary people easier.
Although Ratan Tata will retire in 2012, he will continue to be associated closely with the Tata Group — nearly 60% of the group holding company is controlled by two charitable trusts, the Sir Dorabji Trust and the Sir Ratan Tata Trust. Tata heads both.
That will mean that not only will he get the chance to sit in the audience during group company AGMs and ask questions (as he said he’d like to do), he will also be able to carry on the Tata family tradition of philanthropy.
“The Tata Group is associated with many charitable activities. It is logical that Tata will increase his involvement in that work,” says an insider.
Tata may also spend a lot of time working with educational and business organisations with which he is associated. Clearly, Ratan Tata will be a busy man even after moving out of the hot seat.