00 OutlookBusiness > October 16, 2010 00OutlookBusiness > October 16, 2010

THE TATAS WITHOUT RATANRATAN TATA CREATED INDIA’S FIRST TRULY MULTINATIONAL

BUSINESS GROUP. AS HE PREPARES TO STEP DOWN,THE BAR’S BEEN RAISED SKY-HIGH FOR HIS SUCCESSOR.

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. Th e Tata group has been at this infl ection 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 fi ve years. Th ree years later, the board upped the retirement age of non-executive directors to 75. Th e message is clear: Ratan Tata is indispensable.

And it’s not just the board that feels that way. Th ere were loud cries of sup-port from shareholders at the Tata Steel AGM in August, held soon aft er the announcement that Tata Sons had created a panel to fi nd 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 chair-man 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 (See: Ratan’s To-Do List). At O3.46 lakh crore, Tata Group revenue is 40 times the 1991 level, while net profi t has gone up four times. It is the largest In-

Meenakshi Radhakrishnan-Swami and Rashmi K Pratap

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.

COVER STORY RATAN TATA

PHOTOGRAPH BY FAWZAN HUSAIN; PAGE DESIGN BY MANISH MARWAH

COVER STORY RATAN TATA

OutlookBusiness > October 16, 2010

SIR RATAN TATAhusband of

Navajbai Sett

husband of Soonoo Commisariat

husband of Simone Dunoyer

NOEL TATAhusband of Aloo

MistryJIMMY TATA

Adopted

RATANBAI TATAwife of Edulji Bamji

MANECKBAI TATAwife of Kharsedji

Tata

Th ere’s been only one linear descendant in the House of Tata—Sir Dorabji Tata took over as chairman when his father and founder of the Tata group Jamestji Nusserwanji Tata died in 1904. Since his death in 1932, the business has been run by nephews and descendants of nephews, in succession. Now, for the fi rst time, with Tatas even more thin on the ground, there may well be a non-family member at the helm. Unless Shapoorji Pallonji Mistry asserts his right as the single-largest shareholder in group holding company Tata Sons and pushes his son Cyrus or son-in-law Noel Tata (Ratan Tata’s half-brother) to stake a claim to the chairmanship. In any case, Noel Tata is believed to be the frontrunner for the top job.

JIMMY TATA

TENURE OF CHAIRMANSHIP

• Jamsetji Nusserwanji Tata (1887 to 1904)

• Sir Dorabji Tata (1904 to 1932)

• Sir Nowroji Saklatvala (1932 to 1938)

• JRD Tata (1938 to 1991)

• Ratan N Tata (1991—)

dian multinational conglomerate; more than 65% of the group’s income comes from overseas and it has 98 operating compa-nies (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. Th e Tata group includes India’s largest private steel company, the biggest auto manufacturer and the largest IT outsourcing fi rm. “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 Mr Tata’s successor—whoever that turns out to be—the bar’s been raised sky high. “Mr Tata’s job is the most diffi cult 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 fi rm Carlyle India. Th e 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 continu-ation 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 StartLeft to himself, Ratan Tata would probably have stayed on in the US aft er 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 off er from IBM). In 1962, Ratan joined the family business, working on the Tata Steel shopfl oor at Jamshedpur, just one of several thousand employees.

He got his fi rst 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 O50 lakh investment required to make the tex-tile unit competitive. Empress Mills fl oundered and was fi nally closed in 1986 (by which time the infamous Mumbai textile

VIRBAIJI TATAwife of Bapuji

Saklatvala

DADABHOY TATA

brother of Jeevanbai Tata

husband of Bhikhibai

RD TATA (RATANJI

DADABHOY TATA)husband of

Suzanne (Sooni) Briere

KAEKOBAD SAKLATVALA

husband of Sehra Bardi

MINOCHER (MINOO) TATA

husband of Piloo Dastur

SYLLA TATA(Lady Dinshaw

Petit)wife of Sir Dinshaw

Petit (Bart.)

SIR DORABJI TATA

husband of Meherbai Bhabha SIR NOWROJI

SAKLATVALAhusband of Goolbai

Batliwala

RATAN N TATA

JRD TATAhusband of Thelma

Vicaji

RATANBAI RAOwife of Homsurji

Tata

COOVERBAI DABOO

sister of Hirabai Daboo

wife of Shapurji Rao

NAVAL H TATA

JERBAI TATAwife of Dorabji

Saklatvala

RODABEH TATAwife of Leslie

SawhnyDARAB TATA

DHUNBAI TATA

JAMSETJI NUSSERWANJI

TATAFOUNDER OF THE HOUSE OF TATA

husband of Hirabai

The two “failures” of Nelco and Empress Mills haunted Ratan Tata for decades.

THE TATA FAMILY TREE

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: TAT

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RCH

IVES

NUSSERWANJI R TATA

husband of Jeevanbai Tata

COVER STORY RATAN TATA

OutlookBusiness > October 16, 2010

workers’ strike had also taken its toll).Th e two “failures” haunted Ratan for decades. His track record

was suspect, he was jinxed, said his baiters. “My fi rst directorship was that of Nelco and the status of that company has forever been held against me. No one wanted to see that Nelco did be-come profi table, that it went from a 2% market share to a 25% market share,” Mr Tata said several years later.

Th e attacks became more vicious aft er 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 even-tual leadership of the entire Tata group, and that was completely unacceptable to many. So much so, that at one Tata Sons meet-ing, when Nelco’s losses were being blamed on Ratan (although he came to the company much later), JRD had to step in and defl ect the criticism. Later, re-calling the incident, Ratan was to remark, “Jeh came to my res-cue 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 empha-sised 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 gath-ered cobwebs as companies—many of which were run by their CEOs as independent fi ef-doms 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 in-dependent of Ratan, not because of him.

Ratan’s spell of bad luck continued—even as his successes grew. He was steadily fi nding 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 chair-man—and promptly found himself at the centre of a prolonged labour dispute, perhaps the worst industrial relations slide in Tata history. Ratan stood fi rm and eventually the matter was resolved in the company’s favour. In an interview some years

ago, Ratan recalled that Telco was “the fi rst company in which I could actually do something. In other companies, I was always put in a fi re-fi ghting situation.”

Back Against The WallTaking 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 re-calls speaking with JRD some 10 days aft er the announcement and asking whether Ratan had been chosen because of his in-tegrity. “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 refl ection 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 fi gure in his own right? Th e fi rst three or four years were engaged in struggles with the satraps,” says Lala. Individual company heads were larger-than-life per-sonalities in their own right, and had ruled these satraps for dec-ades: 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.

It didn’t help that they were more experienced and, many believed, more deserving than Ratan to head the group. In-deed, in an interview a few years ago, Ratan recalled his surprise on hearing of his appointment: he had thought Palkhivala and Mody to be neck-and-neck in the race for the top post. As it happened, Palkhivala’s political views and Mody’s clashes within the group worked against them.

Mody, though, continued to be a thorn in the fl esh of both JRD and Ratan. His battles with Ratan were loud, acrimonious and conducted in full public view, which went against the ethos of this low-key business house—an inside joke at the time was that Russi Mody had become Rude-i Mody. JRD fi nally dismissed him in 1993.

Ratan enforced the long-dormant retirement age rule for all business heads and directors, which eff ectively 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

A GLIMPSE OF HISTORY: The formal announcement of Ratan Tata’s Chairmanship, from Tata Central Archives.

44

COVER STORY RATAN TATA

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 UnusualTo his credit, Mr Tata didn’t let the criticism and internecine battles defl ect 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.

Th at meant rationalising the Tata business structure. Th e rem-nants of the era of government controls combined with inde-pendent functioning of group companies in decades past could be seen in the way the group had grown till then—unstructured, with overlapping business across multiple companies. When Ra-tan took over, there were three group companies manufacturing cement; fi ve were involved in pharmaceuticals, while nine com-panies operated in the IT space. One of his fi rst acts was to sell Tomco; swift exits from pharma and textiles and, later, cement, followed. Management consultancy McKinsey was brought on board to help with the reorganisation. Th e Tata group is still a diversifi ed, salt-to-soft ware group, but now there’s a method to the business expansion.

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 cos-metics business, Lakmé, which was later sold, and half-brother Noel’s retail business didn’t make the cut). Zia Mody, managing partner at law fi rm 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. Th e 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 diff erent take on Ra-tan Tata’s legacy. “Mr Tata put ‘de-sign’ into the group—in mergers and acquisitions, engineering or cars or anything else. It is a very forward-looking strategy, putting

Ratan Tata put ‘design’ into the group—in mergers and acquisitions, engineering or cars or anything else.

—GITA PIRAMAL Business historian and writer

Whoever runs the Tata group has to provide strategic leadership, direction and inputs on multiple businesses.

—RAJEEV GUPTA, Managing Director, Carlyle India

SANJIT KUNDU

COVER STORY RATAN TATA

OutlookBusiness > October 16, 2010

new competency in very old companies,” she says.

Ratan the ManagerPerhaps 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.

JRD is admired for creating world-class companies that could be globally competitive at a time when India was still not think-ing scale and was instead leaning towards a socialist set up. In contrast, Ratan had the vision to fore-see the direction the economy—and policy—was taking, consolidate the business accordingly, and embrace change to leap ahead.

Th e group was totally unprepared for liberalisation, which was knock-ing 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 sell-ing some businesses and rationalised the processes and functioning of the Tata group. Th at 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 fi xing 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 organisa-tion. 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 fi rst global venture—the February 2000 purchase of Tetley—had begun fi ve years ear-lier when Ratan Tata made a $318 million bid for the tea com-

pany. Th at didn’t work out, but Ra-tan didn’t lose heart and kept an eye on the company’s activities. Th e deal was fi nally clinched at $430 million. Sheer perseverance may have made that deal come true.

Th e Corus deal is also a telling ex-ample. A close associate recalls Ratan calling Tata Steel MD B Muthuraman, who was on a trip to Hong Kong. “I’ve learnt that Corus is up for sale. Do you think we can look at it?” he asked. Aft er some thought, Muthura-

man replied that they could perhaps pick up a strategic stake. Ratan had diff erent plans. “We must buy that company. Th ink it over,” he advised. Th e next morning, Muthuraman called Tata to say he was game. With no disrespect to Muthuraman and other leaders who have spearheaded the various companies in the group, it must be said that such gutsy deals can’t be done

The fi rst three or four years after Ratan Tata took over, he was engaged in struggles with the satraps.

—RM LALA, Tata Group Historian

The reputation of the group and its principles are uppermost in Ratan Tata’s mind while taking decisions.

—ZIA MODYManaging Partner, AZB & Partners

SOUMIK KAR

SANJIT KUNDU

50

OutlookBusiness > October 16, 2010 OutlookBusiness > October 16, 2010

become Tata Motors’ great success story—about a million units have been sold since its 1998 launch.

Th e group’s global ambitions were greeted with similar scep-ticism. Th e Corus deal would lead the group to bankruptcy, critics declared: investors dumped Tata Steel shares aft er 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. Th e group’s international acquisitions are do-ing well, some have started making money.

When Tata took over, less than 5% of the group’s revenues came from overseas. As the self-consciousness eased, the con-

fi dence grew. And with it, the scale of ambition. Th e Ratan Tata of 15 years ago would never have gone for broke on deals like Corus and JLR. Th e 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 benefi t to us. Second, to own a luxury brand with an immense history and heritage such as Jaguar is a virtually irresistible opportunity.” Th ere’s a personal angle to the “immense history”: Ratan’s father Naval was one of fi ve 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 aft er the $3 billion deal was inked, Tata fl ew into the US on his private jet to meet Jaguar and Rover dealers across the country; for many dealers, it was their fi rst ever interaction with a company executive.

Several years ago, in an interview, Mr Tata dismissed the no-tion that he was a risk-taker. “Th ere 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, especial-ly, 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 nest-ing 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 fi re because of the threat it

without a strong group backing or reputation. Th e Corus deal is proof of the kind of goodwill the Tata group

has created for itself across the world, not just within the coun-try. 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. Th e Corus management was happy to support the deal, placing its faith in the group’s reassurance that there would be no layoff s 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 fl ows from Corus, with no recourse to Tata Steel—a refl ection of the credibility the group enjoyed in glo-bal fi nancial markets.

Tata’s big deals are balanced by projects focusing on the low-est 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. Th at is, by recognising that the big market op-portunity lies in making desirable products aff ordable 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 O1 lakh car or for that matter, making water fi lters 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.

Ratan’s FollyStill, the markets have usually considered Mr Tata to be out of

his depth, questioning—and dismissing—his big, bold moves as “Ratan’s follies”. Th e Indica was the fi rst. People scoff ed 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”. Th e scepticism seemed justifi ed as project costs escalated to O1,700 crore and Tata Motors posted O500 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

Sep-10Dec-09Dec-08Dec-07Dec-06Dec-05Dec-04Dec-03Dec-02Dec-01Dec-00Dec-99Dec-98Dec-97Dec-96Dec-95Dec-94Dec-93Dec-92Dec-91

December 30, 1998Tata Motors introduces the Tata Indica.Tata Motors share price: M163.37

COVER STORY RATAN TATA

February 27, 2000Tata Tea buys Tetley UK.

Feburary 18, 2004Tata Motors buysDaewoo unit.

THE MAKING OF RATAN’S EMPIRE

January 31, 2007Tata Sons acquires Corus Group.

January 10, 2008Nano launch.Tata Motors share price: M720.56

January 26, 2008Ratan Tata awarded Padma Vibhushan.

2009 Ratan Tata appointed honorary Knight Commander of the British Empire.

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M-Cap

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OutlookBusiness > October 16, 2010

This is an Indian company and an Indian should become chairman. A company man will be loyal to the group.

—RUSSI MODY Former CMD, Tata Steel

poses to a nearby lake and its fl amingo 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. Aft er 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. Th e company shift ed the factory to Sanand, Gujarat, but Ratan Tata’s subsequent praise for controversial Gujarat Chief Minister Narendra Modi also drew criticism.

Situation VacantIt will be some months before even the shortlist for Ratan’s successor is known. It’s anybody’s guess who will fi nally make the cut, but the quali-ties 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. “Th e 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 fi ve chairmen, all of whom were Parsis. Th e 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: Th e Tata Family Tree).

“Th ere will be a vacuum if a non-Tata person is at the top. Any new person without the Tata name starts with a huge disadvan-tage,” 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. “Th is is an Indian company and an Indian should be appointed chairman. A company man will have loyalty to the group,” he declares.

Ratan Tata toppled people as strong as Russi Mody, thought out of the box and came up with the Nano.

—BALA V BALACHANDRAN, Kellogg School of Management

SANDIPAN CHATTERJEE

RA CHANDROO

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COVER STORY RATAN TATA

OutlookBusiness > October 16, 2010

Preety Kumar, Managing Partner at global executive search fi rm 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 fi rm 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.

Th ose and other important issues must be top of mind for the selection committee as it searches for the ideal candidate. Th e fi ve-member panel—comprising Tata Sons Vice-Chairman NA Soonawala, Group Advisor Shirin Bharucha, British business-man Lord Bhattacharya, Tata Sons Director Cyrus Mistry and Indian Hotels Vice-Chairman RK Krishnakumar—is expected to announce its choice by March 2011, which leaves room for a

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GOALS PERFORMANCE

Enhance shareholdingGroup holding company Tata Sons now has at least 26% stake in most group companies, up from less than 10% in 1991.

Defi ning core businesses /RestructuringCement, textiles and pharma hived off. Tomco and Lakme sold to Lever. Tata Motors diversifi ed from a commercial vehicle maker to multi-utility, sports utility and passenger car segments.

Common identity The group adopted a new, common logo in 1998.

Greater customer orientation Tata Motors’ foray into passenger cars. Launch of Tata Telecom.

Among top three in domestic market

Top player in IT Services (TCS), steel (Tata Steel), auto (Tata Motors), power (Tata Power in private sector), watches and jewellery (Titan), heating, ventilation and air-conditioning (Voltas), inorganic chemicals (Tata Chemicals) and hospitality (Indian Hotels).

Focus on shareholder value and profi table growthBarring telecom, nearly all group ventures are profi table, giving good returns to shareholders.

Business strategy formulationHired McKinsey to advise on restructuring; divested non-core businesses; launched new businesses; and internationalisation.

Offer world-class products and services From Tetley, Land Rover and Jaguar and Taj Hotels to Tata Steel, the group is globally renowned for its top class services.

Increase footprint in services sectorLaunch of Tata Teleservices, acquisition of VSNL (now Tata Communications), growth and expansion of TCS.

Strive for global competitiveness

Tata Steel is the sixth-largest steel maker; Tata Motors is among the top fi ve commercial vehicle manufacturers; TCS is a leading global software company; Tata Tea is the second-largest branded tea company in the world; Tata Chemicals is the world’s second-largest manufacturer of soda ash; and Tata Communications is one of the world’s largest wholesale voice carriers.

Internationalisation and globalisationGroup revenues from international operations is up from 5% in FY1991 to 65% in FY2009. It has a presence in 56 countries across six continents and its products and services are exported to 85 countries.

Address demand at bottom of the pyramidLaunches in the past decade include Nano car, Tata Swach water fi lter, the Ginger chain of budget hotels and Sonata watches.

The Chairman’s agenda in 1991 and what he’s achieved since then.

RATAN‘S TO-DO LIST

Compiled by Rashmi K Pratap

COVER STORY RATAN TATA

OutlookBusiness > October 16, 2010

reasonably long handover period. Th e actual selection process isn’t public, but it is known that Tata and other senior execu-tives have given their inputs on what to look for. “It’s a scientifi c process,” says a person familiar with the broad workings of the panel. “Th e candidates will be evaluated on leadership qualities, management skills, operational performance and other criteria. Th ere 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 JJ Irani’s retirement was imminent, three people were considered likely successors—Muthuraman and T Mukherjee, both execu-tive 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 vet-eran 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 diff erent industry altogether. He’s already proved that the group’s confi dence in him was justifi ed: from a user base of 15 million in August 2007 when he took over, TTSL now has 75 million.

The Old Order ChangethIn 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. Th e 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.

Th e new chairman is also not likely to be battling cliques and fi efdoms 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. Th e heads of the three biggest companies in the group also retired last year: there’s fresh blood at the top at Tata Mo-tors, Tata Steel and Tata Consultancy Services. Also, when Ratan took over, the Tata family had neither fi nancial 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. Th at vulnerability to outside interfer-ence 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 re-main constant—Mr Tata stepped into the shoes of a giant in 1991. His successor will do likewise.

—(With reports from

Mohammed Ekramul Haque and Ajita Shashidhar)

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Perhaps the secret of Ratan Tata’s enormous success lies in his ability to think big—and small.

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