Monday, August 23, 2010

Tata Group Succession Sutra

The Tata Group is all set for a paradigm shift, with Ratan Tata, 72, having announced his plans to retire as the chairman of Tata Sons, the holding company for the Tata group, in December 2012. Speculation is rife as to who will be named as his successor and head the global $71 billion conglomerate; which currently has 98 companies under its fold. A panel has already been formed by the Tata Sons to decide upon the best candidate. Several names are doing the rounds: Carlos Ghosn, Indra Nooyi, Arun Sarin and Noel Tata, to name a few.

Noel has emerged as the front runner for various reasons – He is the only Tata in the fray, and is the son-in-law of Pallonji Mistry, the largest (minority) individual shareholder in Tata Sons. He has also been made the non-executive chairman of Tata Investment Corporation and then managing director of Tata International within the last few months. However, Ratan Tata’s brief is that his successor does not even have to be an Indian, let alone a fellow-Parsi; throwing the field open for all the candidates.

While Ratan Tata could arguably do what JRD Tata did — unilaterally pick a long shot as his successor, and be proved right posthumously — such an action would not be in keeping with the corporate governance norms which Ratan has espoused throughout his career. Any procedure which the group adopts should be akin to that of any other global major in a similar position.

It is interesting to note that the search committee is packed with people who are trusted aides of Ratan Tata (for example N A Soonawala and Krishna Kumar), and it is inconceivable that they will pick someone whom he disfavours. However, Ratan is playing his cards very close to his chest and no one knows whom the great man has earmarked.

With 65% of the group’s revenues now coming from abroad, the primary skill the new chairman needs to have is a global world view and the ability to carry people from different nationalities together. Recent acquisitions like Corus and Land Rover need to be integrated into the group. The new honcho also needs to come up with the next big thing; and after the successes of Nano and Swach, the low-priced water purifier, expectations will be high.

Changes in the corner office at Bombay House are a rarity. Ratan Tata has occupied it since 1991. Before him, JRD Tata had held the office for 53 long years. Only time will tell who is going to be its next occupant.

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