Cyrus Mistry For The Tata Group Chairman: The Real Concerns

That his experience had been limited to running a few, much smaller companies need not be any disconcerting factor; Ratan Tata’s track record till taking over as group head was nothing great to talk about and JRD himself was rumoured to have thought about having a successor from outside the family or group.

In the column Offhand in Business Line on November 28,2011,Mr.B.S.Raghavan had written about the succession plan at Tatas(“Greeting Cyrus Mistry with fingers crossed”).As the title indicated, the piece was mainly about concerns whether Mr.Mistry will be able to fill in the large shoes of the current chairman of Tata Sons, Mr.Ratan Tata, who steered the salt to software group from a sleeping domestic leader to a global force with two of his companies in the Fortune 500 list of global corporations. The skepticism at the back of Mr.Raghavan’s mind arises mainly from the fact that Mr.Mr.Mistry’s experience had been limited to running a few, much smaller companies in the Shapoorji Pallonji group(with approx.$2.5 billion in revenues and about 23,000 employees) compared to the large conglomerate that Tatas are today with about $83 billion in revenues and about 4,50,000 employees. But is that necessarily a cause for worry? If one recollects the path of growth and emergence of Ratan Tata as the group chief, most of these skepticism will be put to rest.

Ratan was not necessarily highly successful in the running of the enterprise which was assigned to him for his development within the Tata group, overseen by the redoubtable JRD. Nelco(which initially made radios and later diversified into instrumentation) was not a highly successful company. At best, it had a patchy record. And the company was small and Ratan was not necessarily exposed to many others even though he had some training in some companies like TISCO(the current Tata Steel).And, all throughout 1980, when there was speculation about the successor to JRD, Ratan’s name was not necessarily considered to be forceful considering his experience and track record till then. There were stalwarts(the so-called satraps) like Russi Mody, Darbari Sheth, Sumant Moolgavkar etc who had run some of the major companies within the group and also run them admirably. But most of them were too old to be considered successors with very short tenures ahead of them.JRD himself was rumoured to have thought about having a successor from outside the family or group, and Mr.Nusli Wadia’s (who was much younger than the peers and also on the board of major companies like Tata Motors& Tata Steel )name was very much in the air. Of course, as the old saying goes, blood is usually thicker than water and the mantle ultimately fell on Ratan. Even though he had not then demonstrated qualities required to lead the then biggest industrial group in India, he moved ahead briskly and calculatedly. He created a retirement policy for the CEOs and Directors within the group and had the satraps retired or removed from their respective fiefdoms, started a process of increasing the Group stake in almost all of the Tata companies(if one digs history, it could be found that Tatas had very small stakes in many of the companies they managed, thanks to the managing agency system, and in Tata Steel, the Birla company Pilani Investments had about 8% while Tatas held just above 4%!) and started exercising more direct control from the group holding companies, initially from Tata Industries and then from Tata Sons.

One should be able to appreciate the transformation of Ratan Tata, the leader, over the years based on the facts mentioned above. Leadership does not necessarily manifest if opportunities are not given. Ratan Tata was given the opportunity and, may be ,suddenly rose to the task. We have also heard stories of some of the best known CEOs failing in some companies and some of the little known managers showing class performance and becoming highly successful in some companies.Hene,it may be too early to assess Mr.Cyrus Mistry based on the fact that he was managing smaller operations. On the other hand, Mr.Tata and the search committee shall be hailed for showing courage to nominate somebody from outside the family which JRD did not show. And, by selecting a 43-year old Mistry, the group is giving lot of time to him, a possible 22 years as executive chairman and another 5 years as non-executive chairman, according to the current group policies. Notwithstanding the merits of the selection, at least three major concerns still remain:

• Why the search was not initiated earlier ? The group, reputed for its focus on nurturing talent, should have initiated the search much earlier and even identified a few potential candidates who should have been rotated through a number of assignments before zeroing in on one. Mr.Mistry has not ‘managed’ any of the Tata companies other than being on the board of the holding company.
• Will he be able to exert influence and take all people along considering that most of the current board members of Tata Sons and CEOs of group companies are elder to him and very respected and powerful in their own right?
• Ratan Tata took over when India had embarked on an economic reforms process and he could make best use of the changed scenario. Now, the group has grown and become not only highly successful but also global. Making a highly successful company or group even more successful is difficult than making a reasonably successful company more successful. Mr.Mistry is being handed over a strong-performing group on a platter. What changes will he initiate to ensure that the group continues to achieve even greater heights as it may be difficult to make everybody subscribe to changes by overcoming resistance to changes since every one may feel that the group is doing wonderfully well.