Time Line For Ratan Tata
He’s packing his bags—again. December 2012, when he turns 75, is the third scheduled retirement for Ratan Tata. The Tata group has been at this inflection point twice earlier, and stepped back both times. In 2002, when Mr 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 Mr Tata’s successor. “We can’t lose our ratan,” said one shareholder, while others asked him to stay on as chairman emeritus.
Whether or not he acknowledges it openly, Mr 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.
Not bad going for a man who was once likened to the clown in a circus (by his loudest detractor, Russi Mody). For Mr Tata’s successor—whoever that turns out to be—the bar’s been raised sky high. “Mr 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 Mr Tata’s.
A Shaky Start
Left to himself, Ratan Tata would probably have stayed on in the US after training as an architect at Cornell University. But the son of Deputy Group Chairman Naval Tata and the nephew of JRD Tata couldn’t be allowed to work outside the group (he had an offer from IBM). In 1962, Ratan joined the family business, working on the Tata Steel shopfloor at Jamshedpur, just one of several thousand employees.
He got his first independent assignment less than a decade later—as director of National Radio and Electronics (Nelco), in 1971—but it was a mixed blessing. Nelco was in dire straits when Ratan came on board—losses of 40% and barely 2% share of the consumer electronics market. Just when he turned it around, the Emergency was declared. A weak economy and labour issues compounded the problem and Nelco was quickly near collapse again. Ratan’s next assignment was just as trouble-stricken. He was asked to turn around the sick Empress Mills. He did, but was refused the Rs 50 lakh investment required to make the textile unit competitive. Empress Mills floundered and was finally closed in 1986 (by which time the infamous Mumbai textile workers’ strike had also taken its toll).
The attacks became more vicious after 1981, when JRD stepped down as Tata Industries chairman, naming Ratan his successor—in one leap, Ratan had moved to the head of the queue for eventual leadership of the entire Tata group, and that was completely unacceptable to many. So much so, that at one Tata Sons meeting, when Nelco’s losses were being blamed on Ratan (although he came to the company much later), JRD had to step in and deflect the criticism. Later, recalling the incident, Ratan was to remark, “Jeh came to my rescue and slowly turned around the whole conversation.”
But even JRD’s backing wasn’t enough to help Ratan achieve many of his ambitions for the group. Foreseeing expansion of capital markets, which meant easier access to money for new projects, Ratan helped draw up a group strategic plan in 1983. Among other things, it emphasised venturing into hi-tech businesses; focusing on select markets and products; judicious mergers and acquisitions; and leveraging group synergies.
Accordingly, Ratan promoted seven hi-tech businesses under Tata Industries in the eighties: Tata Telecom, Tata Finance, Tata Keltron, Hitech Drilling Services, Tata Honeywell, Tata Elxsi and Plantek. But elsewhere in the group, his blueprint gathered cobwebs as companies—many of which were run by their CEOs as independent fiefdoms under JRD’s benevolent leadership—blatantly ignored it or at best, paid lip service to the 1983 plan. New businesses and M&As in these companies, if they happened, occurred independent of Ratan, not because of him.
Ratan’s spell of bad luck continued—even as his successes grew. He was steadily finding a place on the board of many group companies, having become a director at Tata Sons back in 1974. In 1988, he took over from Sumant Moolgaokar as Telco chairman—and promptly found himself at the centre of a prolonged labour dispute, perhaps the worst industrial relations slide in Tata history. Ratan stood firm and eventually the matter was resolved in the company’s favour. In an interview some years ago, Ratan recalled that Telco was “the first company in which I could actually do something. In other companies, I was always put in a fire-fighting situation.”
A Glimpse Of History: The formal announcement of Ratan Tata’s Chairmanship, from Tata Central Archives.
Back Against The Wall
Taking over from JRD as group chairman in 1991 didn’t resolve matters either, even though it was a Tata Sons board decision to make him group chairman. Tata group historian RM Lala recalls speaking with JRD some 10 days after the announcement and asking whether Ratan had been chosen because of his integrity. “Oh no, I wouldn’t say that; that would mean the others did not have integrity,” JRD replied. “I chose him because of his memory. Ratan will be more like me.”
JRD may have seen his own reflection in his successor but others, both inside and outside Bombay House, did not, at least initially. “Who expected Ratan Tata to become such a towering figure in his own right? The first three or four years were engaged in struggles with the satraps,” says Lala. Individual company heads were larger-than-life personalities in their own right, and had ruled these satraps for decades: Russi Mody at Tata Steel, Darbari Seth at Tata Chemicals, Ajit Kerkar at Indian Hotels, and Nani Palkhivala at ACC. Getting them to toe a group line and work in tandem with other companies was next to impossible.
Ratan enforced the long-dormant retirement age rule for all business heads and directors, which effectively dealt with Seth and Kerkar (ill-health hastened Palkhivala’s departure). But the crown remained shaky for several years—there was conjecture as late as 1997 that Shapoorji Pallonji Mistry would oust Ratan and take over the mantle of Tata group head. (Mistry is the single largest shareholder in Tata Sons and, incidentally, the father-in-law of Noel Tata, Ratan’s half-brother and the frontrunner in the current succession race.)
Business As Unusual
To his credit, Mr Tata didn’t let the criticism and internecine battles deflect him from his chosen path. On taking over in 1991, he dusted off the 1983 plan and updated it, taking the newly-opened economy into account. Now, the thrust was equally on technology-driven leadership, global competitiveness and being among the top three domestically, regardless of the line of business.
Mr Tata also paid attention to brand Tata. By 1998, there was a single group logo and the Tata brand belonged to Tata Sons. Now, companies needed to sign brand equity and business promotion agreements with Tata Sons before they got use of the brandname. And Ratan was choosy about its use (stepmother Simone’s cosmetics business, Lakmé, which was later sold, and half-brother Noel’s retail business didn’t make the cut). Zia Mody, managing partner at law firm AZB & Partners, which has advised the Tatas on acquisitions like Corus and Jaguar Land Rover, believes the group-culture Ratan Tata has created will stay on as his legacy. “He has institutionalised processes. The reputation of the group and its guiding principles are uppermost in his mind while taking decisions,” she points out.
Business historian and writer Gita Piramal has a different take on Ratan Tata’s legacy. “Mr Tata put ‘design’ into the group—in mergers and acquisitions, engineering or cars or anything else. It is a very forward-looking strategy, putting new competency in very old companies,” she says.
Ratan the Manager
Perhaps the secret of Ratan Tata’s success lies in his ability to think big—and small. While he guides the Tata group to pick up the luxurious Pierre Hotel in New York, he’s also driving the launch of the budget Ginger hotels in India. He has the ability to envisage an automotive business that encompasses diverse businesses such as the iconic Jaguar and Land Rover marques on the one hand, the world’s cheapest car the Nano, on the other, and hardy, rough-road trucks sandwiched in between.
The group was totally unprepared for liberalisation, which was knocking on the door when he took over. Ratan knew the Tatas required a radical change in mindset and he set out to work in that direction. He streamlined the organisation by selling some businesses and rationalised the processes and functioning of the Tata group. That explains why it still remains among the top three business groups in the country while many have fallen by the wayside—or dropped in the rankings—in the post-liberalisation era.
Yet almost none of this change came at the cost of people or employee morale. Be it the fixing of a retirement age for various employees or the creation of a close-knit group that could meet the group’s ambitions, Ratan created a nimble-footed organisation. Insiders say that those who were asked to leave were given full salary till the age of 60.
It’s no secret that the genesis of the Tata group’s blockbuster moves can be traced to him. Tata’s first global venture—the February 2000 purchase of Tetley—had begun five years earlier when Ratan Tata made a $318 million bid for the tea company. That didn’t work out, but Ratan didn’t lose heart and kept an eye on the company’s activities. The deal was finally clinched at $430 million. Sheer perseverance may have made that deal come true.
The Corus deal is proof of the kind of goodwill the Tata group has created for itself across the world, not just within the country. Unlike the Mittal Steel bid for Arcelor, which created a huge furore, the Tata bid faced little opposition. Although the Anglo-Dutch company had several plants in the UK, there was little attempt to stop the deal by either political parties or trade unions. The Corus management was happy to support the deal, placing its faith in the group’s reassurance that there would be no layoffs and that pension shortfalls would be taken care off. Not just that. Given that Tata Steel was bidding for a company four times its size, it could not have funded the entire deal. In fact, the company put up just 25% of the equity; the rest was funded through foreign debt. And even that was to be funded only through cash flows from Corus, with no recourse to Tata Steel—a reflection of the credibility the group enjoyed in global financial markets.
Tata’s big deals are balanced by projects focusing on the lowest common denominator. In fact, Mr Tata has been among the very few to perfectly understand the pysche and the needs of the Indian consumer—and build successful businesses around those insights. That is, by recognising that the big market opportunity lies in making desirable products affordable for a larger audience and creating successful products to cater to a market need—be it the passenger-car foray with the Indica in the early 1990s, the promise to create a Rs 1 lakh car or for that matter, making water filters that don’t need electricity (for rural areas). Hemendra Kothari, the doyen of investment banking in India who has worked on most Tata group deals, has watched Mr Tata’s working style closely. “He is a very discerning person when it comes to decision-making. And once he has made up his mind, he is prepared to go all out to achieve his objective, be it Corus or Nano,” he says.
Still, the markets have usually considered Mr Tata to be out of his depth, questioning—and dismissing—his big, bold moves as “Ratan’s follies”. The Indica was the first. People scoffed openly, when, in 1995, Mr Tata spoke of building a passenger car with “the Zen’s size, the Ambassador’s internal dimensions and the price of a Maruti 800”. The scepticism seemed justified as project costs escalated to Rs 1,700 crore and Tata Motors posted Rs 500 crore in losses—the biggest splash of red in Indian balance-sheet history. “Even within Tatas, people kept asking me to distance myself from the project so that when it failed I wouldn’t be stuck with the blame. And when I refused to do that, they distanced themselves from me,” Tata said in an interview a few years ago. Ratan proved his detractors wrong, and how. Indica went on to become Tata Motors’ great success story—about a million units have been sold since its 1998 launch.
The group’s global ambitions were greeted with similar scepticism. The Corus deal would lead the group to bankruptcy, critics declared: investors dumped Tata Steel shares after the announcement, and the share price plunged 11%. And Tata was driving straight to disaster with the Jaguar Land Rover deal: the brands were troubled, demand was low. Tata went on to prove everyone wrong. The group’s international acquisitions are doing well, some have started making money.
Several years ago, in an interview, Mr 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 RatanTata’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.
Ratan‘s To-Do List
The Chairman’s agenda in 1991 and what he’s achieved since then.
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 (See: The Tata Family Tree).
“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.
As it happens, those are precisely the qualities that catapulted B Muthuraman to the top job at Tata Steel in 2001. When JJ 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. “Mr 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.
Photograph by Indiatodayimages.com
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—Mr Tata stepped into the shoes of a giant in 1991. His successor will do likewise.
Meenakshi Radhakrishnan-Swami and Rashmi K Pratap With reports from Mohammed Ekramul Haque and Ajita Shashidhar
Email us at business AT outlookindia.com
The cover story is an apt tribute to Ratan Tata. It is difficult to be born in a lineage of great men and make one’s way to the top—a task that Ratan Tata has achieved with ease. Tata will be an Indian whose life every management student will want to study.
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