Replacing successful CEOs who retire is never an easy task at the best of times. When it comes to looking for a successor for an iconic figure who, during a 21 year tenure, has re-structured, consolidated and transformed the group into a global powerhouse with his vision and integrity, the challenge becomes daunting indeed.
Ratan Tata took over as Chairman of the Board of Tata Sons, the holding company of the Tata Group, in 1991 when the turnover of the group was US$ 5 billion, most of it generated from India based businesses. When he retires on 28th December he will leave behind a global behemoth which operates 100 companies in 7 business sectors in 80 countries and with expected revenues of US$ 100 billion this year, a twenty-fold increase in a 21 year time span. About 60% of these revenues will be generated from outside India.
Mr Tata returned to India in 1962 after obtaining a Degree in Architecture from Cornell University (and subsequently an MBA from Harvard). His uncle, the legendary JRD Tata who was Group Chairman at the time, refused to allow him to accept an offer from IBM and sent him onto the shop floor of their steel plant in Jamshedpur instead. Over the next 29 years, Mr Tata was given various assignments within the group as a part of his grooming to become the next Chairman. Taking over from his uncle who had held the post for 53 years was no easy task and the early years were challenging. He set about converting “the corporate commonwealth” of different Tata-affiliated companies into a cohesive company.
When the Indian Government launched a programme of economic liberalisation in 1992, Mr Tata astutely rode the wave to expand the group’s business interests abroad, making important acquisitions like Tetleys, Jaguar Land Rover and Corus Steel. While these significantly enhanced the presence and reputation of the group worldwide, not all of them were successful. Also, several of the Indian companies remained in the doldrums and did not live up to expectations in terms of returns on capital invested. Today, Mr Tata’s successor will need to address several important issues when he takes over. Both the telecom and steel companies have been making huge losses (particularly Corus in Europe); the hotel company is barely breaking even after going on a buying spree; and overall group debt is US$ 26 billion, which is a manageable two times gross operating profit. However, given the vagaries of the international markets since 2008 and the difficult economic climate, the group has weathered the storm remarkably well.
In November 2011, the board of Tata Sons unanimously nominated 44 year old Cyrus Mistry to succeed Mr Tata at the end of 2012. Mr Mistry’s family has an 18.4% stake in Tata Sons and is the largest single shareholder. Charitable trusts set up by the family own 66% of the stock and Mr Tata will break with tradition and remain chairman of the Tata trusts after he hands over to Mr Mistry at Tata Sons. As such, he will continue to exercise a strong influence on the future of the group.
Interestingly enough, Mr Mistry’s career path is similar to Mr Tata’s in many ways. Educated abroad, he has a BE degree in Civil Engineering from Imperial College, London and an MS degree in Management from the London Business School. He was inducted into his family’s construction business by his father and took over as Managing Director in 1994. He increased the turnover of the group ten-fold through expansion and acquisitions and took over his father’s seat on the board of Tata Sons in 2006. He was mentored by Mr Tata and was known to be his first choice as successor. In fact, they have worked closely together over the last 12 months and are similar in nature and attitude; a stable transition is thus assured.
As for Mr Tata’s future, he has no intention of slowing down and will concentrate his energy on the Tata trusts of which he will remain Chairman. The trusts disbursed a total of US$ 80 million to various causes in 2011 and there is already talk of learning from, and international collaboration with, the Bill and Melinda Gates Foundation. Water management is one of the areas which he wants to focus on in the coming years. Other issues on his list of priorities include rural infrastructure and nutrition with a focus on maternal health and malnutrition.
With such an outstanding career Mr Ratan Tata has continued the tradition of excellence, vision, innovation and philanthropy established by his distinguished ancestors over the last 144 years. Will Mr Mistry be able to do so as well? That is the 100 billion dollar question…
by Anil Rikhye, Consultant, Business & Trade, Geneva Business News