The debate over who will succeed Ratan Tata to head India?s largest corporate group with $70 billion in turnover and 28 listed entities has many interesting dimensions?economic, political and sociological. The Tata group is not just about a clutch of businesses being run efficiently on a global scale. The Tatas were closely associated with the Indian nationalist project before and after independence. JRD Tata was among the industry stalwarts who actively supported the famous Bombay Plan under which Nehru worked on the project to build a heavy industry base for India through massive public investments. The Tatas, Birlas and other major groups supported this option then as capital was too scarce for the private sector to drive big investments in basic industries.
Going back further in time, Jamsetji Tata, an audacious entrepreneur by all accounts, proved his critics wrong by launching a spinning and weaving mill with over 14,000 spindles and 450 looms. This enterprise, named Empress Mills, was formally launched on Jan 1, 1877, and later Jamsetji acquired another mill located at the Bombay suburb that was named Swadeshi Mills. This produced finer yarn varieties. Subsequently, there were more such acquisitions in textiles.
More importantly, Jamsetji distinguished himself for his big vision and foresight in following certain management practices. He was perhaps the only one to have introduced provident fund and other labour welfare measures in his companies. Besides, as far back as in the 1880s, he experimented with a management system wherein he was a salaried managing director reporting to an independent and functional Board of Directors. Unfortunately, this is something large sections of India Inc are still to practice in true spirit.
Of course, Jamsetji?s idea of reporting to a functional board of directors also proved way ahead of its time as India was still a largely feudal society where decentralised capitalist development was yet to take roots. Jamsetji eventually settled for the managing agency structure and put his business under the care of his family firm Tata and Sons. He, however, linked the managing agents? salary to profits and not sales, and this became a general practice among businesses years later.
The point to note is historically the Tatas had been pioneers in innovative management practices. Fortunately, a lot of that DNA seems to have been retained by the group, which even today has a fairly decentralised system of functioning with established management templates. Perhaps it is this quality?common vision and yet decentralised implementation?that enables such a diversified group to adapt itself to the emerging realities in the global business arena. This has enabled the group to remain among the top four or five business enterprises by sales and profits over many decades. Many erstwhile leading groups have fallen by the wayside because they did not adapt to changing times.
It is in this context that one needs to examine the Tata Group?s attempt to find a successor through a search committee. Ratan has also made a categorical statement rejecting the notion that the Tatas are a Parsee group and therefore a Parsee need not be a natural claimant to head Tata Sons. Perhaps Ratan was also obliquely trying to scotch speculation that Noel Tata, son-in-law of Pallonji Mistry, the largest shareholder in Tata Sons, would be more equal than the others when it came to choosing a successor. In a way, it may be a bit unfair to Noel Tata because the search committee may now want to be seen as not favouring a Tata for the job. This would be a somewhat tricky issue to handle. The search committee will look at many talented CEOs from among the group companies as also from the universe outside. The one big advantage Tata Sons have is a robust second line of leadership. This has always been the strength of the Tatas. In many other big family driven business houses, a clear second line is largely missing, although there are highly talented people who assist the family from behind the scenes but never become the company?s public face. The Tatas operate quite differently. The head of every company is also its public face and has considerable operational autonomy within the framework of a common vision outlined by the group head.
Such a decentralised model has its risks in certain situations?especially during overall leadership change?when human ego comes in the way of the larger organisational goals. For instance, when Ratan Tata took charge of the group in 1991 there were stalwarts like Russi Mody, Darbari Seth and others who were highly empowered satraps and very close to JRD to boot. They initially did not cooperate with Ratan and had to be gradually eased out.
Last week Russi Mody, now 93-year-old and settled in Kolkata, showed a lot of grace by admitting that he was wrong about his assessment of Ratan Tata.
Since Ratan took over in 1991, the group has grown over 13 times to a turnover of about $70 billion. There have been over 20 acquisitions worth nearly $15 billion. The group has gone global in steel, automobiles, hospitality, software, etc.
So Ratan proved to be the dark horse who delivered at the end of the day. In fact, some years before Ratan Tata formally took charge, he had submitted to JRD Tata a new agenda and vision for the group. Described as the Tata Strategic Plan, it was about developing a common group vision to create the largest diversified conglomerate with presence in auto, telecom, infotech, biotechnology, oil exploration services and alternative energies. This was seen as too ambitious by the then Tata satraps. But Ratan pursued this very plan in the 1990s against a barrage of persisting scepticism. To his credit, he stayed the course in the most determined manner. Fundamentally, the credit for this must also go to the peculiar DNA of the decentralised Tata knowledge system. Whoever succeeds Ratan cannot lose sight of this fact.
mk.venu@expressindia.com
