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SummaryThe neatly managed succession process at Tata Sons holds lessons for the private sector

On Wednesday, Tata Sons officially released the news that a successor to its current chairman, Ratan N. Tata, has been found. Cyrus Mistry, 43, was appointed deputy chairman, and will take over the group after Tata retires in December next year. Mistry may not bear the Tata name, but he is the youngest son of Tata Sons’ largest shareholder, Pallonji Mistry of the construction group Shapoorji Pallonji, who owns 18 per cent of the group holding company. Mistry has said he will detach himself from any managerial role in the Pallonji family companies in order to minimise any conflict of interest.

This is a suitable point at which to reflect on the changes that have come to India’s private sector in the past two eventful decades, and how those changes are reflected in what is still, perhaps, India’s best-known group of companies. In 1991, P.V. Narasimha Rao’s government began the process of liberalisation; and, in the same year, Ratan Tata took over the Tata group from his uncle JRD. Over time, the haphazard collection of companies he inherited was streamlined and made more cohesive. Unlike many other companies that had endured and profited under the licence-permit raj, Tata managed to survive the initial disorientation of the 1990s. In recent years, its troubles and triumphs have reflected the larger problems besetting India’s private sector, magnified perhaps because of the group’s greater visibility: the troubles at Tata Motors’ Singur plant reflected how land acquisition and politics have slowed down India’s industrialisation; and the group’s high-profile external acquisitions — Tetley, Corus and Jaguar-Land Rover among them — have demonstrated how Indian entrepreneurs have both the capability and the need to look beyond these shores.

While India’s companies have unquestionably been dynamic, it is an open question as to whether they have succeeded in modernising their holding patterns sufficiently. Promoters still retain too much power, and succession and ownership are too often closed affairs; too many companies and groups are held together purely by personal charisma and connections or family solidarity, ties which are easily eroded by time. It is welcome, therefore, that the atmospherics around this closely watched search were professional and relatively transparent, with a selection committee that included external input, and from which Mistry recused himself early on when he was informed he was a candidate. Tata Sons’ choice to professionalise the succession process — a declared retirement, a two-year transition

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