Вы находитесь на странице: 1из 33

Succession Planning of the Tatas

There are two types of CEO transitions and, although they share some key elements, they differ in the challenges they present to the Board and in how they are implemented. One is the planned transition in which the CEO notifies the Board of an intent to leave, enough in advance to allow the Board and the organization to prepare. The second is a sudden departure whether by sudden change in circumstances, illness, death or termination by the Board. In either case, the organization needs to be prepared. Selecting a new CEO may well be the most important task ever undertaken by the Board. It is a pivotal opportunity. Two issues emerge (a) whether in their succession planning, theyd consider external candidates and (b) whether theyd consider non-Indian candidates. On the first issue, it seems quite clear that Indian firms prefer recruiting for top jobs from within their organization. In the TCS example, Mr. Ramadorais successor Chandra was long seen as the heir apparent. With respects to having a non-Indian at the helm, there arent many examples but the obvious one that comes to mind was that of Alan Rosling, who Ratan Tata appointed to coordinate strategy at Bombay House, the TATA HQ in India. There was a look of horror on other industry veterans, when Rosling was appointed and had to represent TATA in global industry platforms.


Definition - Succession Planning is a process by which one or more successors are identified for key posts and career moves and/or development activities are

planned for these successors. Successors may be fairly ready to do the job or seen as having a long term potential By Wendy It is classified broadly into three types: a. Management Succession Planning b. Business Succession Planning c. Family Business Succession Planning Broadly, it is the process of identifying and preparing suitable employees through mentoring, training and job rotation to replace key players. A succession plan clearly sets out the factors to be taken into account and the process to be followed in relation to retaining or replacing the person. Succession Planning involves having senior executives periodically review their top executives and those in the next lower level to determine several backups for each senior position. It is not easy to give up power, particularly when you have been the object of so much adulation. I must say that Infosys has done a good job in bringing two such transitions before I leave the portals of this company, said Mr. Narayana Murthy in his farewell speech before he stepped down from the board in 2011 and became Chairman Emeritus. At the Tata Steel annual general meeting (AGM) in mid-August 2011, shareholders tributes for chairman Ratan Tata were louder than usual. Tata Sons, the holding company of the Tata Group, had just set up a panel to find a successor for Ratan Tata, who was the then chairman of the group and several of its larger companies. Dont leave us, implored one shareholder. We cannot lose our Ratan (jewel in Hindi), said another. Ratan Tata hoped that he will have some presence after that as someone sitting in the audience asking questions, he told audience members at the AGM. Thus Succession Planning is a bit of a painful process for both the Management and Shareholders of the Firm or Conglomerate.


Traditionally, in India and elsewhere, the insider has had the edge. Outsiders are about change: insiders are about continuity, said Cappelli. So when things are going fine, insiders are preferred. When they are not, outsiders come in. Adds Singh of Bain: For most companies, an internal candidate makes sense. Not only do they know the business very well, but they are also completely in tune with the culture, which is essential. However, in those situations where a transformation is required, or where performance has been lagging for some time, an outsider may be the right person to shake things up, to bring in new perspectives, to break some sacrosanct shackles, and to inject additional external talent into different parts of the organization. Notes S. Raghunath, professor of corporate strategy and policy at the Indian Institute of Management Bangalore (IIMB): The outsider can make a huge difference when a company needs radical change. The insider may not see how much needs to be changed. The insider would be more focused on implementation issues. According to Amit, External candidates have a lot of cost associated with them. They may not know the company and the industry, and people may not be happy with the way an external candidate leads the company; people dont like change. Former Citibanker Mukerjee lists the reasons why companies go outside to find a CEO: - Change of strategy, business models or nature of business that require a significant change from the way the organization ran earlier; - No one successor clearly identified; - Identified successor not ready; - As part of good governance, looking for the best person rather than only from within; and - For enhancing the image of the organization by hiring a well-known CEO from outside. - There is another reason that some observers cite: to keep talent from leaving the company. If three people are in the running for the CEOs job, two would probably quit when the third is appointed. Getting an outsider which is often regarded as a temporary arrangement postpones the

fight and flight to another day; it keeps the hopes of the prospective CEOs alive.


The downside of appointing an internal CEO can perhaps be seen at ICICI Bank. After it was publicly made known that Chanda Kochhar would be the next managing director and CEO, there has been a hemorrhaging at the top. No organization can afford to lose so much top talent in so short a time, said Mukerjee. But it does depend on your bench strength. Added Singh of Grid Consultants: The leadership pipeline has to be full. Bench strength doesnt just happen; it has to be created. Says Chittoor of ISB: In well-managed companies, there is a focus on developing a long pipeline of talent. In such companies, managers are groomed for senior management positions right from the time they join. Just as there are other forms of capital, I believe companies also possess what I call talent capital. The talent capital of the company is determined on the depth of management talent it possesses, though many companies do not pay attention to this. In companies that are well endowed with talent capital, there are multiple candidates-in-waiting for each senior management position, including that of the CEO. CEO succession planning in such cases boils down to selecting the best candidate among those already identified and groomed for the job. Some people dont feel that naming an insider as a successor should necessarily lead to the departure of those who are not selected. In fact, they point to a retention advantage in communicating that internal candidates are being considered. Its a fantastic way to retain talent by communicating that there is the chance for you to be the CEO, they say of a well-orchestrated succession process. What about those who dont make it? K. Ramkumar, executive director ICICI who looks after HR, said that people put two and two together and make 10; it is just coincidence that so many top-level people left ICICI in the months after Kochhar

took charge. Of the list *who quit ICICI Bank+, there is only one person who left because she was in the reckoning with Chanda Kochhar for the top job, he noted. Irrespective of who was selected, the others would have left. This happens time and again in all global organizations. It is naive and idealistic to expect anything else. The others were talented, but some had interests which ICICI could not have met given its institutional charter, a few had misplaced notions and thought themselves bigger than the organization. They were asked to move on by former CEO Kamath, and not Chanda Kochhar. They had no place in the way ICICI Bank was chalking out its future strategy. Ramkumar has his own take on the broader issue of insider vs. outsider. There comes a time when every organization has to fearlessly de-clutter its leadership and put in place a team which is relevant for the future, he says. Jack Welch, Paul Polman, Ratan Tata and Kamath, to name a few, have shown the way to do it. Purging and de-cluttering leadership is an important part of succession management and enabling the organization for the future. The key question here is: Does the organization have sufficient leadership depth and bench? If it is like GE, Unilever, Tata and ICICI, then it is possible to carry out this strategy. Look at Unilever. In 2008, the company appointed Paul Polman from Nestle but originally from archrival Procter & Gamble as CEO. He brought in a new chief financial officer Jean-Marc Huet. This is a clear case of an outsider taking over and creating enormous disruption in the system. If one examines the performance of Unilever over the past few years, the company clearly required that disruption. This is positive disruption. When Ratan Tata took over the Tata Group, he was an insider. In the early days, he was pilloried for taking on the satraps. In the first five years, he created a huge amount of disruption. It was needed. Similarly, Jack Welch spent his early years at GE cleaning out the cobwebs. Kamath at ICICI Bank was an insider-outsider. [Kamath had joined ICICI -- then the Industrial Credit & Investment Corporation of India, a development financial institution -- straight out of business school in 1971. He left in 1988 to join the Asian Development Bank. He was wooed back to ICICI as managing director and CEO in 1996.] Kamath also was a disruptive influence. He brought in a focus on technology and innovation. He continues: The point I am trying to make is that the debate should not be about insider vs. outsider. What is important is the context. What matters are the time and the

environment. Was Gandhiji an insider, outsider or insider-outsider? Does it matter? If Gandhiji had returned to India 20 years earlier when the political landscape was dominated by strong-willed people like Bal Gangadhar Tilak he would never have been the leader of the freedom movement.


The Tata case is interesting. From what is publicly known, succession planning was not a strong point until the late 1980s. In the late 1970s, the unsuccessful succession planning attempt by Voltas is etched in the public mind. The Tatas have gone down this road before. In 1981, group company Voltas hired a search firm to find a CEO. There was a worldwide search, said P.N. Singh, who was in charge of HR at Voltas when the exercise took place. A global agency was employed. There were ads in global media and people were asked to apply for the job of CEO. Chairman Tobaccowala initiated a high visibility, open search which resulted in the recruitment of Ramesh Sarin of ITC as the CEO and finally, Sarin from tobacco-to-hotels major ITC was chosen as MD. The experiment worked for only a few years. Subsequent events proved that Tobaccowala had no intention of giving up his executive power and authority. Inevitable clashes followed and Sarin fell out and moved on. It was a question of culture and control, says Singh, who is now chairman of Grid Consultants, which conducts Blake & Mouton grid seminars. ITC had a different culture and Tobaccowala had a different idea of control. He was unwilling to let go. Tobaccowala was an entrepreneur and Sarin was a manager. So the two should actually have worked well together. But something positive by way of process must have happened during the last 20 years under Ratan Tata. It is known that Ratan Tata set up a group HR function as part of his re-organization plan in the 1990s. The intent was to introduce good practices within the companies with respect to talent management and succession planning. While there is not much outside information about how much progress the companies have made, something right must be going on. The succession transitions are impressive from an outsider's perspective. Further, the board directors seem to be involved and to drive the leadership changes in the companies.

In Tata Steel, Jamshed Irani became CEO in 1991 amidst tumultuous circumstances of the Russi Mody departure. In earlier interviews, Irani had mentioned that by the late 1990s, he presented to Ratan Tata a comprehensive review of possible successors; together, they zeroed in on a few possibilities. From this list, B. Muthuraman emerged as the CEO in 2001. Muthuraman, it is learnt, did a similar exercise and discussed it quite early on with Ratan Tata and the board while choosing his successor in 2009. He too accomplished a successful transition. In Tata Consultancy, S. Ramadorai took over from the legendary F.C. Kohli in 1996. He was filling big shoes. He grew the business dramatically over the next decade and a half, including the IPO of the company. By mid 2000s, he is reported to have made a short list of potential successors for discussion with Ratan Tata and the board. From this list emerged N. Chandrasekharan. Ramadorai walked out of his TCS office on the date of his retirement so that his successor would have a free hand. In Tata Chemicals, change was sought in 2001. Outsider Prasad Menon was recruited to succeed Manu Seth. Perhaps because of what he had learnt at ICI, his earlier company, Prasad Menon started to think about succession early on. Apart from pacing potential, solid internal leaders, the leadership brought in a young TAS officer into the company and tested him through hugely challenging assignments. All the identified candidates were watched, coached, talked about and nominated to Advanced Management Programmes. Finally a choice was made by selecting R. Mukundan, with a short bridging role by veteran Homi Khusrokhan. The successful transitions completed in the listed Tata companies during the last two decades are impressive: Titan (where Xerxes Desai gave way to Bhaskar Bhat), Voltas, Rallis, and Indian Hotels. The conclusion is that whatever the process, the Tata group seems to have got succession about right - not perfect, but it seems to be effective and deliver positive results. In 2011, Tata was in the midst of the mother of all successions, finding a successor to Ratan Tata. Instead of focussing on the possible candidates, it is purposeful to reflect on the streamlined and effective process of succession they had announced.

Firstly, a search committee was appointed with its composition and membership placed in the public domain. The choice of candidate was kept wide open: man or woman, Indian or foreigner, internal or external. Secondly, the search committee provided brief public updates of the status; it wasnt surprising that the details or candidates were not revealed. Thirdly, the search committee set itself approximate time targets so that their work inadvertently did not become desultory. Lastly, they internally adopted relevant criteria and a methodology, taking the assistance of a specialist firm. There seemingly wasnt much else to do by way of a process. Based on the recent track record of successful transitions and the transparent process for the chairman succession, the Tata group did have a good chance of getting the succession right. People had no choice but to wait for the search committee to complete its job rather than to keep speculating on names and individuals.

Ratan Tata was a surprise choice to head the group after JRD (as J.R.D. Tata was popularly known). He studied at Cornell University, specialized in architecture, and had an offer from International Business Machines Corp., but returned to India because his grandmother was unwell, and joined Tata Steel Ltd (then known as Tata Iron and Steel Co., or Tisco) as an apprentice on the shop floor of its Jamshedpur plant. The year was 1962. In 1971, he was appointed director-in-charge of the ailing National Radio and Electronics Co. While Tata managed to turn around the firms fortunes, it was to be a temporary success. In 1977, he was asked to turn around another troubled company, the Mumbaibased Empress Mills. Tata managed to do so, but was refused an investment he thought was required. The Mumbai textile workers strike led by Datta Samant also hurt the company, which eventually closed down in 1986.

Maybe because of these failures, few people understood why he was chosen as the person who would replace JRD in 1991. At the time, Tata was still perceived as an outsider in Bombay House, the groups headquarters. Several group companies were also led by individuals who had been given considerable autonomy by JRD and were, sometimes, more closely associated with their companies than the groups chairman himself. Among these executives were Russi Mody at Tata Steel; Darbari Seth at Tata Tea and Tata Chemicals; Ajit Kerkar, who transformed the Taj group (Indian Hotels) into a major hospitality chain; and Nani Palkhivala, a director on the boards of several Tata companies and chairman of the erstwhile Associated Cement Companies (ACC Ltd), in which the Tata group was one of the original promoters. It had been widely expected that one of these individuals would succeed JRD, and Tatas appointment resulted in some bitternessand not all of it remained unvoiced. Mody sparred openly with Tata. Kerkar and the new chairman had different views on the management of the chain. J.R.D. Tata had around him a team of senior managers, all of them people of substantial understanding in their respective spheres, Tata said in an interview posted on the Tata group website on 6 December for some time before being inexplicably taken down. While they may have acceded to his wish that I take over the chairmanshipand this happened suddenlyI must confess that I did not feel any sense of joyousness on their part, because some of them had aspirations to have the job themselves. In 1993, Mody was sacked after a messy scrap involving the appointment of senior executives. In 1997, Palkhivala quit, citing ill health. And Seth retired in 1995 and Kerkar in 1997, after Tata brought in a new policy that set the retirement age for directors at 70 and senior executives at 65. In my personal view, when JRD saw this scramble among the company chiefs to succeed him and the unpleasant innuendos that surfaced, he may have appointed someone who understood the Tata ethos, which was always very important to him; and, perhaps, he thought Ratan Tata was someone who could uphold this ethos, Piramal said.

She added that the concept of succession planning was nascent in JRDs time. Its only in the last five years that large business groups have realized the need for this, she said. Indeed, perhaps because of the rocky start that he had, Tata appointed a five-member selection committee, comprising N.A. Soonawala, Shirin Bharucha, R.K. Krishna Kumar, Cyrus Mistry and Lord Kumar Bhattacharya, to identify his successor. In hindsight, Tatas ascension in 1991 was the best thing that could have happened to the Tata group, according to a business historian and writer. Tata, like every Indian company, was suddenly in a new environment. It could not keep operating under the old market rules, the old certainties, said Morgen Witzel, a UK-based management writer and author of Tata: The Evolution of a Corporate Brand. Ratan Tatas strategy was to change Tata to help it keep pace with a changing India, he said. And, after spending nearly five years quelling the challenge of the satraps, thats just what Tata did.


Once the dust over the succession issue settled, the conglomerates new chief Mr. Ratan Tata came into his own. His primary focus was the improvement of the operational efficiencies of several of the groups manufacturing companies and reiterating the very conglomerate nature of the entity. The main beneficiaries of the focus on operations were Tisco and Telco (Tata Engineering and Locomotive Co.). The former soon emerged as one of the lowestcost steel makers in the world. The two companies were also renamedTisco as Tata Steel and Telco as Tata Motors. Simultaneously, Tata convinced group companies to pay royalty to Tata Sons for the direct or indirect use of the Tata brand name. He also moved towards increasing the promoters shareholding in key group firms. Until then, the promoting firms held minority stakes in most group companies, making them vulnerable to takeovers.

The group also exited businesses such as cement, textiles and cosmetics even as it increased its focus on others such as software, and entered telecommunications, finance and retail. These divestments and investments helped the Tata group shake off the slightly fusty image it had built up in the 1980s and make it fit for purpose in the modern world, according to Witzel. Indeed, today, the Tata groups most profitable company is information technology firm Tata Consultancy Services Ltd (TCS), which boasts around $10 billion (around Rs.54,700 crore) in revenue and serves customers around the world. I think the creation of the corporate brand was quite important. The Tata corporate brand is one of the worlds most valuable global brands because it harnesses the power of the whole group and creates a strong image in the minds of the stakeholders, Witzel added. Tata himself sees the re-establishment of the group identity as one of his achievements. In the interview that was posted on the groups website, he said one of his most satisfying moments as chairman was the welding of the organization together in a more cohesive way than it had been in the past that it was able to identify itself more as a group. And, even as some of these efforts to establish himself, improve the operational effectiveness of some companies, and reiterate a group identity were bearing fruit, Tata went out and made a big-ticket global acquisitionthe Tetley group in 2000.


In the mid-1990s, Tata Tea had tried and failed to acquire British tea maker Tetley. In 2000, it tried again and succeeded. The acquisition was meant to harness Tata Tea and Tetleys synergies. Tetley had a well-established distribution network and experience of selling tea bags in markets such as the US, UK, Canada and Europe. Tata Tea was strong in countries like India and in the Middle East,

according to Tata LogEight Modern Stories From a Timeless Institution, a book by Harish Bhat, managing director and chief executive of Tata Global Beverages Ltd (earlier Tata Tea). The groups biggest acquisition to date is Tata Steels purchase of Anglo-Dutch steel maker Corus Group Plc in 2007. The company has since been renamed Tata Steel Europe. The acquisition of Corus, which was Europes second largest steel maker, catapulted the company into becoming the worlds seventh largest steel producer, although it hasnt been as financially remunerative as stock market analysts would have liked.

Another acquisition, and more fruitful than the Corus purchase to date, was Tata Motors acquisition of the iconic British car maker Jaguar Land Rover. The acquisition provided a hedge against the weakness faced by the companys domestic passenger car business. There have been several other acquisitions: TCS bought CMC Ltd; Tata Sons acquired a controlling stake in state-run Videsh Sanchar Nigam Ltd (now known as Tata Communications Ltd); Tata Motors bought the heavy vehicles unit of

Daewoo Motors in Korea; Tata Steel acquired Singapores NatSteel; and Indian Hotels Co. Ltd took over management of The Pierre in New York. But if globalization reflects the buy side of the Tata story, then efforts to innovate indicate the make side of it.


One day in January 1998, Ratan Naval Tata, chairman of Tata Motors Ltd and head of the Tata group, walked out onto a brightly lit stage in a hall in New Delhis Pragati Maidan to announce something that would forever change the fortunes of Indias largest truck maker. The dimensions of a (Maruti) Zen, the cabin size of an Ambassador and the fuel efficiency of a Maruti 800that was the promise with which Tata announced the Indica, the companys car. The launch was presided over by then industry minister Murasoli Maran and Tata dedicated it to India. The symbolism wasnt lost on anyone present at the launch during Auto Expo, Indias biennial car show: Maran was fighting a bruising battle with Suzuki Motor Corp. over the management of Maruti Udyog Ltd (now Maruti Suzuki India Ltd) in which the state and the Japanese firm were equal partners. Later that year, bookings opened for the car, and a little over 100,000 people signed up and paid an advance for the Indica. Despite the manufacturing and quality problems the initial lot of vehicles ran into (and the Rs.500 crore loss Tata Motors declared in 2001), the Indica became a best-seller and marked the real entry of Tata Motors into cars, although the company had already signaled its intent with the launch of the Sierra, which would be called a cross-over vehicle today, and the Estate, a station wagon. I bought one of each for my Mumbai house, a technology entrepreneur who moved from Mumbai to Bangalore once said in a conversation with a Mint editor.

They werent good, but I told myself, Its an Indian company, its doing something; we should support it. The Indica would change the trajectory of Tata Motors, but it was also more than just a car. Recent history is partial to the Nano, the Rs.1 lakh car launched by Tata in 2009, but it was the Indica that started it all. The launch was a sign that Tata Motors had made the transition to serious carmaking, an indication of the manufacturing and operational renaissance that characterized the Tata group in the late 1990s and the early 2000s. In many ways, the Indica started a trend in the Tata group. Every year since, Ratan Tata has feted individuals or teams that have worked on an interesting project even if it didnt succeed, under a programme called Dare to Fail. The Nano is, of course, the pinnacle of this innovation journey, but there have been other successes as well. Among them is Swach, a low-cost water purifier aimed at making clean drinking waterhard to find in rural areasavailable to the economically weak. Swach began as a corporate social responsibility initiative by TCS and soon became a business idea, commercially viable on its own. He (Tata) has played a strong role in encouraging innovation, but he has not been alone in this, Witzel says. Tatas leadership style is to suggest ideas, offer encouragement and motivation, not to lead the charge. Its clearly an approach that has paid off. The groups aggregate sales at the end of 2011-12, at Rs.4.51 trillion, are 43 times the turnover in 1992-93, the first full fiscal after Tata took over as chairman. Net profit growth in the same period has been even more spectacular, rising 51 times to Rs.33,664 crore. The aggregate market capitalization of the group at Rs.4.54 trillion in fiscal 2012 is 33 times higher than it was in 1992-93. In the same period, the Sensex, the benchmark equity index of BSE, grew nearly eight times. The Tata groups closest competitor, in terms of turnover, is the oil-to-yarn and retail conglomerate Reliance Industries Ltd (RIL). RILs net sales in fiscal 2012 were Rs.3.58 trillion and it had a net profit of Rs.19,747 crore. Though RILs revenue

growth in these two decades has been much higher than the Tatas, having grown 90 times, its net profit growth is lower. The result of Tatas strategic thinking reflects in the groups market capitalization, Piramal said. What Tata did after taking over wasnt very different from what Kumar Mangalam Birla did with the Aditya Birla Group after his fathers death. Kumar Birla took over as chairman of the group in 1995 at the age of 28 after his fathers sudden death and is credited with transforming the Indian business group into a multinational conglomerate.

It hasnt always been smooth sailing for Ratan Tata or the Tata group. A case in point is the Corus acquisition of 2007, which wasnt panning out too well for the company. Sales and profitability at Tata Steels European operations had taken a hit, due to the 2008-09 financial meltdown and the subsequent euro zone crisis. Company executives did not expect the situation to improve soon. The Nano wasnt a huge success either. Tata, in his interview on the group website, said the Nano was marketed like other cars, but as a minimal automobile at a low price. I would love to have a chance to implement a new marketing plan for the product, if that were possible, Tata said. The emergence of a strong rival to Tata Motors in the passenger car segment, Mahindra and Mahindra Ltd (M&M), was another cause of concern articulated by Tata at the companys last shareholders meeting in August. We should do a great deal of introspection as to why M&M is ahead of us. I have great respect for the company. But we should look at this in sadness that we let that happen, Tata remarked. The conglomerate was also sitting on a debt pile of $26 billion (around Rs.1.42 trillion), a number that was causing concern among some investors. This needed to be seen in the context of the 29 listed group companies combined net worth

of Rs.1.43 trillion, and cash and cash equivalents of Rs.36,289.38 crore, according to data from Capitaline.


Tatas had often been criticised for not being enterprising enough to diversify into new fields. Mr. J. R. D. Tata himself attributed this in 1991 to two factors an unwillingness to compromise on certain principles in the licence and permit raj prevalent then, and a long-held belief that the groups principal role was to develop basic industries. From textiles, hotels and a premier institute of learning, the group took a leap of faith to set up the first steel plant in India at the beginning of the last century. Then it ventured into hydro-electric power, soaps and detergents, cement, tin, soda ash, housing and commercial vehicles. Post 1947, when India gained independence, the group went in for cosmetics, steel tubes, refrigeration, fisheries, refractories and pharmaceuticals. Tea, watches, bearings and several others followed. During Mr. Ratan Tatas tenure, the group improved its focus on the business horizon. In tune with the changing times, TOMCO, Lakme, Merind, ACC, Nerolac Paints and others got hived off. Businesses like IT, telecom and financial services got added to the groups portfolio. TCS became a flagship company, leading Indias march into the knowledge economy. In 2000, Tata Tea took over UK brand Tetley. During 2007, Tata Steel acquired Anglo-Dutch rival Corus. The buyout of JLR in 2008 supplemented the core competency of the group company now referred to as Tata Motors. This move further established the global aspirations of the group a segment which today contributes 60% of its revenues. Leveraging its strengths in the automobile sector, the group entered the territory of passenger cars, overcoming such hurdles as the Singur controversy. Nano is an innovation which has been taken note of globally. Mr. Ratan Tata did not have it easy. Due to a negative business environment, the entry of Tatas in the field of airlines got aborted. It moved in time to save Tata Financial Services when the top management there committed fraud. In the

telecom field, it had to grapple with a nascent industry which is still plagued by policy uncertainty. The controversy surrounding the infamous Radia tapes went on to show that what would have been considered a minor transgression by any other business house proved to be a demoralizing factor, somewhat sullying the groups pristine white image. Referring to the airline fiasco, he claimed in a press interview that he was rather proud of the fact that he could not handle political manipulations.


Industrialists complaining about environmental regulations and land acquisition issues today could surely learn a few lessons from Mr. J. N. Tata when he went about setting up Indias first steel plant during the early 1900s in what was then a predominantly forest area, inhabited by tribals. In a letter written to his son in 1902, five years before the site of the steel plant was finally located, Mr. J. N. Tata laid down broad guidelines covering the design of the industrial complex which was to come up at Jamshedpur: Be sure to lay wide streets planted with shady trees, every other of a quick-growing variety. Be sure that there is plenty of space for lawns and gardens. Reserve large areas for football, hockey and parks. Earmark areas for Hindu temples, Mohammedan mosques and Christian churches. When TELCO Pune was planned, thousands of trees got planted first. Since trees needed water, an artificial lake was created with a circumference of four kilometres. The factory buildings came up much later. At the Leather Complex at Dewas (MP), other than a massive plantation of trees of all kinds, a deer park was also set up. The Accounts Department was often twiddling its thumbs to figure out if the cost incurred on the animals upkeep was reasonable!

The average Tata manager is sober, knowledgeable, mature, restrained, dignified, humane and downright ethical. He does not boast of, but is quietly aware of, being part of a group which has always conducted its affairs in a transparent and ethical manner. There is an in-born self-belief that the values Tatas follow are not a mere statement of pious intentions; rather, these form a blueprint which guides and permeates all the activities the group. Tata Steel had several firsts to its credit in the realm of labour welfare. An eighthour working day was introduced in 1912 itself, whereas the law mandated it only in 1948. Likewise, free medical aid, establishment of a Welfare Department, formation of a Works Committee for handling employee grievances and leave

with pay, provident fund, etc. were introduced much before the relevant laws came into being. The social welfare measures across various Tata companies may vary, but the standards set by them somewhat exceed the legal requirements. Tax planning, yes; tax evasion, never. The groups foray into education, fine arts and other socially relevant projects was planned and executed at a time when CSR norms were not even heard of. How closely the value of compassion is cherished became very clear in the aftermath of the 26/11 terrorist attack on The Taj Mahal Hotel. The conduct of the employees during the attack and the subsequent support they received from the management is a case study in organizational behaviour and employee motivation.


Job rotation, technical training and job knowledge apart, the exposure to the nuts and bolts of business ethics left an everlasting impression on the psyche of employees. A bribe was a simply not payable, whatever the commercial cost of keeping an entire manufacturing facility idle for three weeks. A senior manager who made the error of judgment of offering a bribe to a government servant for securing a permission was publically rebuked and persuaded to leave the company. Instead, a junior officer then, was sent to accomplish the task without any speed money being paid. Luckily, he happened to manage this feat, though the company ended up incurring a cost of five times the bribe amount on his trip alone! Ethics mattered and it still does matter to the Tatas. Humata, Hukhta, Hvarshta - These words form a part of the Tata crest, designed by the founder Mr. Jamsetji Tata. In the ancient Avesta language, these mean Good Thoughts, Good Words and Good Deeds. The premium that the Tata brand enjoys in the market is the culmination of more than a century of efforts of the group, based on these principles and values preached as well as practised by the group.


As per Mr. J. R. D. Tata, One of the weaknesses of our country is that we are satisfied with the second or third best in everything. The basic attitude of chalega, ayega, dekhega. Therefore almost everything we do, we do it poorly. He always maintained that You cant achieve high standards by aiming at those standards. You can only achieve a standard by aiming at something more. If you want excellence, you must aim at perfection. This implies painstaking attention to detail, a trait which permeates all spheres of the groups activities.


Mr. Jamsetji N. Tata was the founder of the group. In 1904, he handed over the baton to Sir Dorab Tata, who was at the helm of affairs till 1932, followed by Sir Nowroji Saklatvala who was there till 1938. The group was then steered by Mr. J. R. D. Tata till 1991, when the charge passed on to Mr. Ratan Tata. It was on March 23, 1991, that Mr. Ratan Tata was told by his uncle that he intended to handover the baton of the group to him. Coinciding with the economic reforms unleashed by Dr. Manmohan Singh, the group has had a remarkable journey since then! Mr. Ratan Tata took over the reins of the group at a time when it was an empire made up of several independent fiefdoms, run by stalwarts like Mr. Darbari Seth, Mr. Russi Mody, Mr. Ajit Kerkar and Mr. Nani Palkhivala. Mr. Ratan Tata was barely 54 when he assumed control of the Tata Group in 1991. His successor was searched for, keeping in line with a whole lot of other Tata company managing directors who were then in their 40s. The group had brought people in their 40s and 50s to run some key companies. Observers said that the next leaders will be from among them. They included Tata Power MD Anil Sardana, TCS MD Natarajan Chandrasekaran, Tata Chemicals MD R Mukundan, Tata Teleservices MD N Srinath, Tata Global Beverages head Peter Unsworth, Tata Motors MD Carl-Peters Forster, India Hotels chief Raymond Bickson and Tata International MD Noel Tata.

The activities of the group were and are overseen by two bodies. The Executive Office reviews business activities of all group companies. Besides Ratan Tata, it had R Gopalakrishnan, Ishaat Hussain, Kishor Chaukar and Arunkumar Gandhi. Then there is the Group Corporate Centre, which reviewed policy issues related to growth and took decisions on entering new areas. It also promoted the Tata brand and provided advisory services to group companies in human resources, finance and legal affairs. It comprised Ratan Tata, JJ Irani, R K Krishna Kumar, R Gopalakrishnan, Ishaat Hussain, Kishor Chaukar and Arunkumar Gandhi. The members of both these groups were then in their 60s and 70s. Tata Steel's acquisition of Corus, Tata Motors buying Jaguar Land Rover and TCS going public were some of the significant milestones after Mr. Ratan Tata took over from JRD as Chairman of the group. The Tata Group comprises over 100 operating companies in seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals. The group has operations in more than 80 countries across six continents, and its companies export products and services to 85 countries. The total revenue of Tata companies, taken together, was $83.3 billion (around 379,675 Cr INR) in 2010-11, with 58 per cent of this coming from business outside India. Tata companies employ over 425,000 people worldwide. The Tata name has been respected in India for 140 years for its adherence to strong values and business ethics. Every Tata company or enterprise operates independently. Each of these companies has its own board of directors and shareholders, to whom it is answerable. There are 31 publicly listed Tata enterprises and they have a combined market capitalization of about $77.44 billion (as on November 17, 2011), and a shareholder base of 4.3 million. The major Tata companies are Tata Steel, Tata Motors, Tata Consultancy Services (TCS), Tata Power, Tata Chemicals, Tata Global Beverages, Indian Hotels, Tata Communications, Tata Teleservices and Titan. Mr. Tata has taken the group to great heights and we hope the new Chairman will take it to greater heights, said an official closely associated with the selection committee. The five-member committee held 18 meetings over the last on-and-ahalf years and interviewed a large number of candidates, both Indian and expatriates.

Mr. Tata had a tougher clean-up exercise where there were many powerful individuals who were running their own fiefdoms. He managed to do this while carving out a new global agenda for the Group. The new Chairman will have a relatively easier job on his hands, an industry veteran said. Much like the few erstwhile Kings who chose a successor based on merit alone, the group had invariably followed the principle of meritocracy when choosing a successor in the past. What the new Chairman would have had to take over from Mr. Ratan Tata was a much more well-knit and cohesive group, united by a shared philosophy, vision and identity.


There is always a lot of hoopla surrounding the succession planning of leaders. Whenever a visible leadership change occurs, the image of the incoming leader appears to be much less than the exiting leader. The fallacy lies in our tendency to make an unfair comparison between the embellished profile of the outgoing leader and the unclear profile of the incoming leader. That is why Lal Bahadur Shastri initially looked inadequate as a replacement for Jawaharlal Nehru, Homi Sethna looked inadequate compared to Homi Bhabha and Vikram Sarabhai, and Ratan Tata was thought to be less than J.R.D. Tata. But all of these turned out to be successful transitions. There were many challenges ahead for the young Chairman-to-be. STEEL Weak demand and decline in global steel prices were the key challenges faced by Tata Steel's European operations. This was even as the prices of raw materials such as coking coal and iron ore ruled high as compared to 2010. Tata Steel had reduced its capacity utilization marginally in line with weakening demand and may have had to resort to production cuts if demand did not improve in Europe. Even in India, the company was up against weaker demand from sectors such as construction and automotive, but expected volumes to grow by eight per cent for the year 2011.

AUTOMOTIVE The big disappointment was the Nano which was clocking modest numbers. The car business needs to rev up though commercial vehicles had been doing well. The Tatas were and are the market leader in trucks and buses but a lot depended then on the state of the economy over the next few months.

TELECOM In the telecom sector, the Tatas had their hands full with major challenges for both Tata Teleservices and Tata Communications. Tata Tele was now the fifth largest telecom player in a crowded market with as many as 14 in the arena. But the overall telecom sector was witnessing disturbing trends over the past year. All the operators' revenues, including Tata Teleservices, were stagnating, profitability was declining, and investments were slowing and costs were rising. Tata Teleservices undertook a major restructuring exercise in bid to cut costs and rationalize operations. The Successor had to ensure that this paid off in the long term. Apart from the tough market conditions, there were a whole host of regulatory issues especially those related to spectrum. Tata Teleservices still did not have GSM spectrum in key markets like Delhi. The company's 3G roll out was also under a cloud with the Government raising questions over roaming agreements. On the Tata Communications front, the worry was to bring the company back into profitability. The company, which once had a monopoly over the international long distance segment, had to reposition its strategy with more focus on foreign markets. While this paid off to some extent, the then ongoing dispute with the Government over funding and land sale put the company's expansion plans on hold. Another immediate challenge for the new Chairman was to be able to steer the company away from all that happened with Ms. Niira Radia and the 2G scam. Although there were no business implications, the Tatas had taken a major hit on its image, which the new Chairman would have had to build.

IT SERVICES The offshore IT/BPO players were grappling with macro uncertainties in key overseas markets such as the US and Europe, and, at the same time, coping with currency volatility back home. For TCS, the largest Indian IT Services Company, the challenge was also to sustain its pole position in a market that had already started seeing a reshuffle in the pecking order of Tier-1 vendors, said Mr. Sanjeev Hota, Associate Vice-President Institutional Equities at Sharekhan. Also given its over two lakh employee base, TCS had to chase, perhaps even more aggressively, the non-linear growth strategy (beyond adding employees). Deals such as the recent $2.2-billion contract from Friends Life (a British financial services firm) will be critical in this regardIf TCS wants to scale up further, it will be important that the revenue growth outstrips the employee growth, noted Mr. Harit Shah, Senior Research Analyst at Nirmal Bang Institutional Equities. Though the company had been growing at a scorching pace in the last few quarters, the euro zone crisis and the rupee volatility were the key challenges. Mr. Tata's acumen when it came to the business of technology was well known. Would the new Chairman's lack of expertise in the technology space be a deterrent going forward? was a key question to be considered. I do not think soat the top level people settle into their roles pretty quickly. Sometimes a complete outsider can bring a completely new perspective to the business of technology, TCS sources had said.


The committee set up to find a successor to Tata group Chairman Ratan Tata had shortlisted around 11 candidates. Out of them, four-five were group employees. The frontrunner in the Tata race appeared to be Noel Tata, Ratan Tatas half brother who was then promoted to overseeing the groups international operations. Some 65% of the conglomerates US$70.8 billion revenue (April-

March 2008-2009) came from outside India, so this was a significant responsibility. Additionally, Noel Tata was the son-in-law of Pallonji Mistry, who owned 18.4% in Tata Sons, which made him the single largest individual shareholder (most of the equity being held by charitable trusts). But others were in the race, too. The Economic Times speculated that the internal candidates include Tata Sons executive directors Ishaat Hussain and R. Gopalakrishnan; and B. Muthuraman, Ravi Kant and S. Ramadorai, vice chairmen of Tata Steel, Tata Motors and Tata Consultancy Services (TCS), respectively. The younger group included the CEOs of TCS (N. Chandrasekaran) and Titan (Bhaskar Bhat). But they were long shots at best, observers had reported. There was also a speculation that, given the groups increasing global focus, the choice need not be an Indian. The Times of India said that the candidates could include Indra Nooyi of PepsiCo, former Vodafone head Arun Sarin and Renault Nissan chief Carlos Ghosn. The selection process would consider suitable persons from within the Tata companies, other professionals in India as well as persons overseas with global experience, said a Tata Sons press release. Ratan Tata had also clarified that the new chief need not have to be either a Parsi or a Tata. (The Parsis are a wealthy business community in India, and the Tata chief has traditionally been a Parsi.) The Parsis are a shrinking community. Birth rates are very low and women who marry outside the community are excommunicated. There are now less than 60,000 Parsis left in India, and it is inevitable that the Tata baton will pass on to a non-Parsi sooner or later. It was evident that it would have to pass on to a non-Tata, too. The Tatas are a small clan. Apart from Ratan, there was his 80-year-old French stepmother, Simone, who was obviously not in the running for his job. His brother, Jimmy, who was close to 70 and had retired from Tata Power. Aloo Tata (who was by birth a Mistry) wouldnt have got precedence over her husband, Noel. And their three children Liya, Maya and Neville were still studying. So, Noel was the only Tata who was eligible. The composition of the selection panel had some critics speculating that the choice of Noel was pre-decided. It consisted of Tata Sons directors R.K. Krishna Kumar and Cyrus Mistry (who was Noel Tatas brother-in-law), Tata veteran N.S. Soonawala, group legal advisor Shirin Barucha and independent member Lord

Kumar Bhattacharya of the Warwick Manufacturing Group of the U.K. There was only one external member, said Pradeep Mukerjee, founder-director of Confluence Coaching and Consulting. Mukerjee, who had worked for several years in the HR area with Citigroup in the U.S., says that in the West, such selection panels have many more external members. What good is a panel stuffed with internal members? I wonder what the true purpose is. Thus, the panel did have to face some criticism but it was worthwhile to keep a panel that was in keeping with the core values of the Tata Group for such a strategic decision-making which would bear fruit in the long run.


Cyrus Mistry, then 43, is the son of construction tycoon Pallonji Shapoorji Mistry. Valued at $8.8 billion, Pallonji held an 18.5 per cent stake in Tata Sons, making him the single largest shareholder. Mr. Mistry is the younger son of Pallonji and is married to Rohika Chagla, the daughter of lawyer Iqbal Chagla. He has an elder brother - Shapoor Mistry and one of his sisters is married to Noel Tata, Ratan Tata's half-brother. He had been a director of Tata Sons since September 1, 2006. He served as a Director of Tata Elxsi Limited, from September 24, 1990 to October 26, 2009 and was a Director of Tata Power Co. Ltd until September 18, 2006. Mr. Mistry served as Chairman of the Board of Shapoorji Pallonji Group and Afcons Infrastructure Limited before he became the Chairman of the Tata Group. Mr. Mistry also served as Director of various companies including - Forvol International Services Ltd, Shapoorji Pallonji & Co. Ltd, Cyrus Investments Ltd, Shapoorji Pallonji Power Co. Ltd, Buildbazaar Technologies (India) Pvt Ltd, Sterling Investment Corporation Pvt. Ltd, Samalpatti Power Co. Pvt. Ltd, Shapoorji Pallonji & Co. (Rajkot) Pvt. Ltd, Shapoorji Pallonji Finance Ltd, Shapoorji Pallonji Infrastructure Capital Co. Ltd, Oman Shapoorji Construction Co. Ltd and Muscat Pallonji Shapoorji & Co. Pvt. Ltd.

Mr. Mistry had been a Non-executive Director of Forbes Gokak Limited since June 23, 2003. Mr. Mistry is Fellow of the Institute of Civil Engineers. He holds a BE in Civil Engineering from Imperial College, London and a Master of Science in Management from London Business School. He holds a Bachelor of Commerce from Mumbai University. An avid golfer, Mr. Mistry is also a founder member of the Construction Federation of India. He is a trustee of the Breach Candy Hospital Trust, Mumbai. He is also on the board of Imperial College India Foundation.

(Courtesy: PTI on Nov 23rd, 2011; Published by the Hindu Business Line) Cyrus Pallonji Mistry succeeded Ratan Tata at the helm of Tata Sons. He was appointed as Deputy Chairman and worked with Mr. Tata for one year as per the plan chalked out for him as a successor, before taking over in December 2012. 43-year-old Mistry was a director of Tata Sons and Tata Elxsi (India). Ratan Tata retired in 2012 when he turned 75. He joined the Tata group in 1962 and was the Chairman since 1991. Mr. Cyrus Mistry took over from a man who over the last two decades transformed the Tata Group into a global enterprise.

Endorsing the appointment then, Mr. Tata had said, "The appointment of Mr. Cyrus P. Mistry as Deputy Chairman of Tata Sons is a good and far-sighted choice." (Courtesy: Press release from Tata Sons) "I will be committed to working with him over the next year to give him the exposure, the involvement and the operating experience to equip him to undertake the full responsibility of the Group on my retirement," Mr. Tata had added. Mr. Mistry had said that he was deeply honoured by his appointment. "I am aware that an enormous responsibility, with a great legacy, has been entrusted to me," he had reported in a statement. He announced that he will legally dissociate himself from the management of his family businesses to avoid any issue of conflict of interest. Shapoorji Pallonji Mistry, the father of the new deputy chairman, was owner of 18 per cent stake in Tata Sons. The Shapoorji Pallonji Group is into construction, textile, water treatment and other businesses. Cyrus Mistry was the managing director of the two billion dollar SP Group. Apart from the Tata Group, he also serves as a director on the board of several other companies, including Shapoorji Pallonji & Co, Forbes Gokak, Afcons Infrastructure and United Motors (India). Mr. Mistry was also a part of a search panel appointed last year to find Mr. Tata's successor. He withdrew himself when his name was suggested. He then entered the process as a candidate. The 5-member panel also comprised of N A Soonawala, vice-chairman, Tata Sons; R K Krishna Kumar, non-executive director, Tata Sons; Lord Bhattacharya, a businessman based in the UK who runs Warwick Manufacturing; and Shirin Bharucha, a lawyer for the group. The committee is said to have met 18 times before announcing the succession plan.


If there is any class on succession planning scheduled, Ratan Tata will surely be the one who rightfully deserves to give tutorials. For the man who took the Tata group worth US$ 5 bn to US$ 70 bn, the decision to relinquish the control must not have come easy, followed by a tough job to search the right candidate who could step in his large shoes. The same retirement rule that saw some of JRDs satraps leave the group mandated Tatas retirement as well. Some people have suggested that the retirement policy should not apply to the chairman, Tata said in his interview on the website. I have always believed that you dont make exceptions for yourself. So I took the view that the rule should apply to me too. I realize that I have to live by the rules that I have set and step down when the time comes. And that time has come. Cyrus Mistry had been working with Tata for a year before he stepped down, and Tata had said the Tata Sons chairman-designate has the analytical skills to steer the business forward and the integrity to uphold the Tata ethos. Later, Tata Sons formally announced that Mistry would take over on 28 December 2012 and Ratan Tata would become Chairman Emeritus. Some of the challenges that lay ahead of Mistry were akin to those Tata faced when he ascended to the top job. The succession this time round was not as acrimonious as it was during Tatas time, but with many of Tatas chieftains nearing retirement, Mistry has had to scout for young talent from within the group and outside to fill the void. He had already started doing that. Madhu Kannan, a former chief executive officer of BSE, was his first hire. You can live in a house, drive a car, make a phone call, season your food, insure yourself, wear a watch, walk in shoes, cool yourself with air-conditioning, and stay in a hotel all courtesy of Tata firms, said an article dated 1 December 2012 in The Economist. The dilemma is that the group may not necessarily be making money doing all of this. Tatas telecom business, for instance, was under severe strain following the upheaval in the sector in the wake of the 2G scam, and its future was uncertain. Elsewhere, though Taj was still one of the most respected names in the Indian hospitality industry, Indian Hotels wasnt too profitable, with

acquisitions weighing on the firm. Problems with Tata Steels European operations persisted and the current dynamics of the steel business at home werent too exciting either. Tata Sons, a holding company (which is the only unlisted from among the group), needed not just a professional executive but a smart fund manager as well at the helm of affairs. Mistry had to manage to do both. While a year of working and learning closely with Mr. Tata before taking the full responsibility of the group in December 2012 did help, the responsibility was enormous. But to begin with, he had showed good intentions by announcing a legal dissociation from the management of his family businesses (Mistry was MD of SP Group which was into construction, textile and water treatment etc.) to avoid any conflict of interest. His selection was important in the sense it sent some important signals - Tata Group will choose the one it considered responsible and worthy enough to run the group, even if it were a non-Tata (Mistry had been chosen over Noel Tata, Ratan Tata's half brother who had served as the managing director of the retailing company- Trent and is now serving as non-executive chairman - to merge some Tata Group retailing operations). Especially then when Tata Group holdings were high enough to be insulated from takeover threats. While Cyrus doesn't bear the name Tata, he was no outsider to the group. He had served as a Director of Tata sons and was expected to have a strong hold over the group values. Besides, roping in someone who belongs to a family that has significant holdings in Tata sons (Cyrus being son of Mr. Pallonjee Mistry, who has largest 18% stake in Tatasons) made good strategic sense as shareholding is the key to control for the group like Tata which is more global than ever. Thus, Mistry didnt just have big shoes to fill, he also needed to hit the ground running.


Did Tata have his timing right? Says Cappelli: Im not a big fan of picking a successor way in advance. I think the better approach is to develop candidates, several of whom could step in. Then very near retirement if thats the change event the successor gets named in time for people to get comfortable. But the downside of naming a successor is that if it turns out that things change and that person is not appointed, then their career is really damaged. Singh of Bain agrees that succession planning is a process, not an event. The ideal succession planning is evergreen, he said. The formal announcement of a successor depends on factors such as size and scale of the business. For a group of Tatas scale and diversity, a long transition is required. For most companies, a sixto 12-month overlap and transition would be appropriate. Announcing anything earlier than this simply invites trouble for both the incumbent and the designee and may lead to the unintended and costly departure of one or both, besides resulting in dysfunctional organizational behavior. In practice, though, there are often disasters. Why? Raghunath of IIMB said, Failure of succession planning has its roots in the mindset that all termination is an unpleasant act if not death and the ritual leading up to it is painful. However, Mr. Ratan Tata, having handed over the reins in the able hands of Mr. Mistry, we conclude that the future of the Tata Group stands bright and is moving on, on a high pedestal. Kudos!!!


http://www.ummid.com/news/2011/May/19.05.2011/tata_succession_plan.htm http://www.equitymaster.com/tm/tm.asp?date=11/25/2011&title=Tatasuccession-Will-the-year-long-planning-pay http://www.thehindubusinessline.com/companies/tatas-succession-for-cyrusmistry-the-challenges-ahead/article2653848.ece http://www.livemint.com/Companies/n47iePUboPWvCqG5FM8IVK/Ratan-TataA-journey-in-four-stages.html http://knowledge.wharton.upenn.edu/article/tata-group-infosys-and-others-thepainful-but-necessary-succession-planning-process/ http://vikaspota.com/2009/10/10/succession-planning-in-indian-companies-thetcs-way/ http://sureshine.blogspot.in/2011/12/succession-planning-for-corporateindia.html http://www.thenational.ae/business/industry-insights/economics/tata-looksbeyond-the-family-and-sets-example http://www.studymode.com/essays/The-Amazing-Story-Of-How-Ratan853085.html http://www.firstpost.com/business/is-ratan-tatas-succession-plan-focused-onthe-right-thing-16726.html http://ashokbhatia.wordpress.com/tag/succession-planning/ http://www.ndtv.com/article/people/who-is-cyrus-mistry-152527 http://www.ndtv.com/article/india/press-release-from-tata-sons-152505