India Inc’s Biggest Headhunt

Ratan Tata retires in 2012 as Tata Group Chairman and a five-member panel is searching for his successor. A look at how they might choose and who it could be.

There are some things almost every Indian who knows anything knows. That India won independence in 1947. That Satyamev Jayate is the national motto. And that the brand-name Tata stands for ‘trust’. What nobody but nobody knows right now is who the guardianship of this name shall be entrusted to once Ratan Naval Tata, 72, retires as chief of the Tata Group on 28 December 2012, when he reaches the group’s official retirement age. As of now, it is a $72 billion question—that’s how much business India’s most globalised group does, two-thirds of it overseas—and counting. 

Welcome to India Inc’s greatest ever headhunt: the search for a successor to Ratan Tata and occupant of a position once held by Jamsetji Nusserwanji Tata himself, the man who founded the group a century-and-a-half ago. It was a business baptism by holy thread, in a sense, for the founder—a thread that still represents the group DNA of trust entwined with longevity. 

It was in the mid-1860s that a young Jamsetji Tata found himself landing ashore London armed with Tata shares to sell, just as his family business of cotton exports to China was crashing, along with global cotton prices (earlier sent soaring by the US Civil War). Instead of hawking the shares, as he could easily have done, given the slow pace of information in those days, he shook his head in sad acceptance of their sudden worthlessness, and said so. Jamsetji Tata gathered no funds, but gained a reputation. Thus did he set the Tata name on a trajectory of integrity that each successor—Sir Dorabji Tata, Sir Nowroji Saklatvala, JRD Tata and Ratan Tata—has done his utmost to extend. 

Nothing less would now be expected of the new occupant of the corner office in Bombay House, that stately mansion that has guided the destiny of India’s most marvelled-at business success. As Ratan Tata himself told a US newspaper, “The person must maintain our values—because they are, in a manner of speaking, the DNA of the group.”

“The Tatas are different,” says Bimal Jalan, former Governor of the Reserve Bank of India, who has worked with both JRD and Ratan Tata as a director of various firms, “Creating value encompassing growth and being innovative is important, but holding on to cherished values of being a corporate citizen of ethical practice is absolutely critical. It’s encoded in the way this group thinks. I have no doubt that the successor will be chosen on parameters which include the retention of core values as a critical one.” 

Interest in the Tata succession has been spurred by the group’s recent setting up of a five-member panel to pick the man who will take charge from Ratan Tata. Hyper-interest in the selection, though, has been sparked by Ratan Tata’s clear declaration that the succession is open to anybody—Indian or not, Parsi or non.

The panel itself is diverse: NA Soonawala, group vice-chairman, Shirin Bharucha, a noted lawyer, RK Krishna Kumar, a top group director, Lord Bhattacharyya, an influential British peer, and Cyrus Mistry, son of Tata Sons’ largest individual shareholder Shapoorji Pallonji Mistry (who holds 18 per cent).

A family affair, it is not. That would be an outright anachronism in this era of globalisation. Sure, the Tata Group has always been family dominated, but it has never used the traditional patriarchal model to control its assorted companies (nearly a hundred now). A Tata firm, even if widely owned by public shareholders, typically has a chunk of its equity owned by Tata Sons—itself under the control of trusts which operate on clear principles. This way, group companies can support each other and plan long ahead, free of the ‘quarter se quarter tak’ tumult of stock performance. But they must always take shareholders along. This makes the leader’s vision all-so- important in the scheme of things.

“Family control is not limited to voting control,” explains Lloyd Shefsky, clinical professor of managerial economics and decision sciences and co-director of Kellogg School of Management’s Center for Family Enterprises, “It is often dependent on independent shareholders’ perception that the family has the talent, devotion and passion to make the company more successful than it would be under the control of others. Often, that perception is tied to the better results that family businesses achieve, possibly because of their long-term outlook—forsaking short-term benefits to achieve long-term results.”

An empire it is, and it also means that any family move attracts attention. Around the time the panel was set up, Noel Tata, who happens to be Ratan’s half brother and panel member Cyrus Mistry’s brother-in-law (married as he is to Aloo Mistry, Shapoorji’s daughter and thus Cyrus’ sister), was appointed managing director of Tata International. He was running Tata’s retail venture Trent earlier, and this would’ve looked like a routine shift no one would grudge—except that it echoes Ratan Tata’s move to Tata Industries just before he himself took charge from JRD in 1991. With diverse operations exposed to world markets, it was good preparation for leadership. Tata International, which also has myriad businesses, offers global exposure that’s no less valuable.

Until that stint, note observers, Ratan Tata didn’t have much to show in his career, his failures with the group’s TV maker Nelco and a textile firm being infamous. In Gita Piramal’s book, Business Maharajas, Ratan Tata recalls a Tata Sons meeting at which he was being pilloried for the Nelco disaster: “Jeh (JRD Tata) came to my rescue and slowly turned around the whole conversation. If you are confident, he will question you and grill you, but if you are fighting with your back to the wall, he will come and duel beside you.” 

Just how hard JRD fought for Ratan Tata, though, remains a matter of conjecture. In the late 1980s, the legendary Tata chief was thought to favour Russi Mody, chief of Tisco (now Tata Steel), as his successor. In the corporate drama that followed, involving JRD’s attempt to appoint Mody the chief of Telco in the face of company resistance, Ratan Tata ended up winning wide support within the group. When JRD finally handed over charge in 1991, just as the Indian economy was opening up, it was to Ratan Tata. After some years spent quelling insurgencies within the empire (Mody, notably), Ratan took firm charge of the scene, analysed the future, pushed the group to global competitiveness, and has had success upon success since—capped by the Corus buy and Nano launch. 

If Ratan Tata’s own succession was fraught with anxiety, he is determined to make sure this one is not. “For JRD, the thought of parting with the group was perhaps unthinkable,” says Morgen Witzel, author of a recent book on Tata as a brand, “To his credit, Ratan Tata had decided many years earlier to ensure that this is not repeated.” According to Shefsky, a big challenge for the panel beyond the actual selection involves “preparing all other stakeholders—such as shareholders, board, employees, customers, financiers—to be in tune with a decision of this magnitude”.

“Succession is a pivotal event in the life of any firm,” says John A Davis, faculty chair of the Families in Business Program at Harvard Business School, “It is tempting to look for a successor with an impressive management profile, and the company certainly requires world class management. But the most important factor to consider in the next business leader, Noel Tata or someone else, is his values and support for the long-term, patient, values-driven approach that has made this company great.” To this criteria set, add “skills at cultural leadership”, says Professor John L Ward of  The Family Business Consulting Group. 

Make that multicultural leadership. Managing Corus’ steel business in Europe, or workers at Daewoo’s South Korean truck factory that the group has acquired, demands an eclectic set of leadership skills. Even within India, it’s a business empire that makes everything from salt and cars to steel and software, and at the cutting edge in many cases: Tata Consultancy Services (TCS) has even helped make software that runs Ferrari Formula One cars. 

That is why the field has been kept wide open. “It is not necessary that an insider will be chosen,” says a source who has worked with the Tatas for over two decades, “There is yet a chance that an outsider may be brought in, though familiarity with the group’s core values would be an advantage.” 

Among the probable contenders doing the rounds is Carlos Ghosn, chief of Renault Nissan and a Brazilian-born man of Lebanese descent who has successfully managed teams spanning Tokyo and Paris. Ratan Tata has had a closed-door meeting with him, and the press has keenly been tracing the ups and downs of his company’s alliance with Bajaj to make a Nano clone in India.  

Other names often cited are Indra Nooyi, the global chief of PepsiCo, Arun Sarin, who once headed Vodafone globally, and Vikram Pandit, who is busy trying to revive Citicorp. But in a world where brand power is coming to hold more and more meaning, the Tata surname is an advantage that only Noel Tata has. With understated discretion, he refuses to be drawn into saying anything about the succession. 

Noel Tata’s leadership of Trent—which expanded from one store in 1998 to 100 today—has won him admirers within the group and without. “Noel shares with Ratan Tata an appetite for growth,” says a market analyst with a global brokerage on condition of anonymity, “He is undeterred by challenges of the retail industry. He stands out for his refusal to expand just because everyone else in the business was. He chose to go for calibrated not breakneck growth.” It was an approach that helped Trent ride out the downturn beautifully, even as the company quietly inked a partnership with the UK’s Tesco. If the retail sector is to be fully opened up to global competition, Trent will be well prepared.

If the man with the wonder name has kept a low profile, it’s in keeping with his temperament. Not given to media excess, little is known of his personal life except that he is said to be fond of long walks and fast cars. He has three children, all of whom are students at the moment.

If there’s one big advantage for which Ratan Tata’s successor ought to thank him profusely, it’s the group’s momentum this millennium. The group is on a roll. Its big businesses have seen off the downturn, as also the most daring of acquisitions, with self-assured elegance. Both Tata Motors, which bought Jaguar Land Rover in 2008, and Tata Steel, which swallowed Corus in 2007, are back to profits after some jitters. Even the Taj group of hotels has its flag fluttering afresh after the nightmare of 26/11. 

The Tata future as a global group seems assured. But then, complacency is a danger in itself. Business gurus say a brand is a ‘set of values’ that the consumer entrusts to his or her mind. Now, ‘trust’ itself is Tata’s core brand value. While there are n number of Indians ready to vouch for it, the same cannot be said of global consumers—yet. This will be no less of a challenge for the successor in 2012 than it was for Jamsetji Tata a century-and-a-half ago.

Ratan TatasuccessorTata Group