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Ratan Tata to retire on Friday, Cyrus Mistry to take over

Corporate Dec 27, 2012

How Ratan Tata Made the Bumblebee Fly

By R Jagannathan

One of the myths of aerodynamics is that the bumblebee cannot fly, given their body structures, wing sizes and other shortcomings. But they do fly.

Given the laws of Indian corporate dynamics, and the poisonous hand of government, the House of Tata should have been extinct by now. The singular achievement of Ratan Tata, who turns 75 tomorrow (28 December) and who will be formally handing over the reins of power to Cyrus Mistry as Chairman of Tata Sons, is to prove everybody wrong. He has proved that the Tata Group can not only fly, but also grow additional wings to spread itself all over the globe.

Ratan Tata's achievements are simply put: In 21 years, he has welded the Tata group into one fighting force. AFP

It is customary to discuss the successes and failures of iconic people when they are about to retire. This article will do some of that, for sure, but would actually like to look beyond the individual and consider the circumstances in which Tata achieved his successes, and account for his occasional failures. This is because success is too easily attributed, after the event, to an individual's vision, ability or actions. But luck and circumstances always play a part.

No laurel wreath

Ratan Tata's achievements are simply put: In 21 years, he has welded the Tata group into one fighting force, with a strong group identity, something that may not have been possible for any other person to do.

Consider the group he inherited. Under JRD "Jeh" Tata, the group was held together by the sheer personality of Tata, with minimal shareholding power. JRD could have chosen anybody for a successor-Russi Mody, Darbari Seth, Sumant Moolgaokar, Ajit Kerkar, AH Tobaccowala. Every one of them had more laurels to their credit than Ratan Tata, who, even at the time of his anointment as Tata Sons Chairman in 1991, had nothing much to show for-a small Nelco turnaround, some ideas for Tata Industries.

So why did JRD choose Ratan? Possibly for two reasons: the Tata name, and the belief that Ratan had the clarity of thought and toughness of spirit to do what was necessary to stitch the group together in adverse circumstances. Ratan could do what JRD could never have done.

Given the power of the Tata satraps, only someone with a Tata name could have had the moral authority needed to get the Tata trusts to back him in his efforts to consolidate group shareholdings, and drive out the non-conformists. In due course, Russi Mody and Kerkar had to be driven out, and the other two did not survive long enough to pose a challenge.

That JRD chose right is evident not only from the size and scale the Tata group has grown to under him, but from how Ratan Tata is himself handling his succession. He, too, could have chosen his half-brother, Noel Tata, and nobody would have demurred. When JRD chose a Tata, what would have been wrong in Ratan choosing another Tata to run the group?

Tough mantle

But this is Ratan Tata's own genius. He knows the group is vastly different now. It is held together by strong core shareholdings, and its sheer size and global presence-over 100 operating companies in 80 countries-makes it impossible for one individual to personify the group even with the Tata name. His choice for succession was Cyrus Mistry, son of construction magnate Pallonji Mistry. Ratan Tata is not choosing a clone to succeed him.

Tata's shoes will be difficult ones to fill for Mistry, but Tata has managed to change the game subtly. Mistry may not have the Tata name, but he is the biggest shareholder in Tata Sons. That counts. More important, it is no longer possible, or even desirable, to run the group like Ratan did.

Given the diversity of the group -from steel to automobiles to software to beverages and many more things-the Tatas may actually have to revert to the old JRD scheme of running the group-develop professional managers who will act in the interests of the company, even while maintaining the group's identity. There will be no satrapies, only professionals who will not threaten the group identity. Ratan Tata's own example of stepping down at 75 ensures that no satrapy can ever develop. The norm has been reinforced.

So, while Mistry is the chosen man, Ratan, meanwhile, will continue to be a presence on the various Tata trusts, which control Tata Sons with a 66 percent shareholding. And Ratan Tata is not resigning as chairman of the various Tata trusts. He will remain like a super-shareholder of Tata Sons, even while letting Cyrus make his moves. Big Brother may not be boss, but he will be watching. And let's not forget, if Cyrus stumbles-but then Ratan Tata is still around-there is always another Tata waiting in the wings-Noel. Ratan Tata's succession strategy has a second string to his bow.

If the handling of succession has sent a strong signal of continuity and change, there's still the matter of assessing Ratan Tata's own tenure for its high points and low points.

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by R Jagannathan

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