Ratan Tata: An enduring entrepreneurial legacy
The iconic industrialist, who transformed the highly respected but conservative Tata Group into a nimble-footed, aggressive global giant, retires on Friday. An analysis of what Ratan Tata really means to the $100 billion conglomerate
By Sourav Majumdar & Sulekha Nair
After an intense 14-month wait, when Tata Sons finally announced the name of the relatively unknown 43-year-old Cyrus Pallonji Mistry as the Chairman-Designate of the venerable Tata Group (2011-'12 turnover $100.09 billion) one November evening in 2011, it took most of Corporate India by surprise.
Mistry was hardly seen as a probable contender for the top job at the sprawling salt-to-software group which is part of Indian corporate folklore.
A five-member search panel had been constituted in August 2010 to hunt for a successor to Ratan Naval Tata, who is slated to retire after he turns 75 on December 28, 2012. The panel included Mistry, but he had excused himself from the deliberations once he emerged as a candidate. By all accounts, the committee's task was Herculean.
Finding a successor to Ratan Tata was never going to be easy and RNT, as he is known in corporate circles, had transformed the group into a massive global player with aggressive strategies and global ambitions across its several businesses.
Under Ratan Tata, the group had grown from around $10 billion in revenues in 1991 to about $83 billion by 2011, with iconic acquisitions like Tetley, Corus and Jaguar Land Rover under its belt.
A Mistry at Bombay House
The move to select a person who would possess the capabilities of becoming chairman of the Tata Group was a meticulous process. And it had to be. After all, in the Tata Group's 144-year history, the group has had only five chairmen: Jamsetji Nusserwanji Tata, Sir Dorab Tata, Sir Nowroji Saklatwala, JRD Tata and Ratan Tata. Only one of them did not carry the Tata name.
This was going to be one of the most-watched corporate searches in India and, predictably, during the course of the panel's sittings, several names were speculated upon in the media. Prominent among these was another Tata-Noel, chairman of Trent Ltd. and also half-brother to Ratan Tata; NR Narayana Murthy, Founder and Chief Mentor, Infosys; Indra Nooyi, CEO, Pepsico among others.
And so, when a perceived 'outsider' like Cyrus Mistry, son of Pallonji Mistry who has an 18.4 percent stake in Tata Sons and is its single largest shareholder, was named successor to Ratan Tata, there was more than a minor element of surprise.
However, after the initial reactions, many who had followed the Tata Group closely saw this appointment as a logical one. After all, Mistry had also been a director in Tata Sons since 2006 and was well aware of the Tata culture and ethos. Mistry is also related to the Tata family by marriage-his sister is married to Noel.
In more than one sense, then, Mistry was far from an outsider at Bombay House. And from Ratan Tata's initial comments following his selection as the next Tata Group chairman, it was clear that Mistry had the complete confidence of the illustrious gentleman whose shoes he would be stepping into.
Tata said he had been impressed by the 'quality and caliber' of Mistry's participation on the Tata Sons board and his 'astute observations and his humility'. In some ways, Mistry is seen as the perfect successor to Ratan Tata-quiet and understated, with the right qualities and pedigree.
Several Tata-watchers see the appointment as a mix of continuity and change and the fact that RNT himself groomed Mistry for a full year when the latter was group Vice-Chairman is also bound to help him when he takes over at Bombay House, the landmark South Mumbai headquarters of the group.
Ratan Tata's comments on Mistry, in a sense, were reminiscent of what JRD Tata told his biographer, Russi M Lala, after the appointment of Ratan Tata as chairman in 1991. In an interview to The Economic Times, Lala said he had asked JRD on the choice of Ratan Tata as his successor. "Was it because of his integrity?" JRD replied, "Oh, no, you can't say that! It would imply that the other contenders did not have integrity. I think he will be more like me."
The Ratan imprint
What, then, does Ratan Tata mean for the House of Tata? Several things, actually. But clearly, one of the biggest contributions he made to the group was bringing about a sense of renewal to it and getting back its purpose, integrity and wholesomeness at a very challenging time.
When Ratan Tata took charge of the Tata Group from the legendary JRD in 1991, critics did not give him much of a chance. Tata had major challenges to contend with. The holdings of the Tatas in various group companies were rather low, the economy was liberalising rapidly and new players from overseas were knocking on the doors.
JRD was getting on in years and many key group companies were being run by chief executives who were heavyweights in their own right and were used to functioning almost independently. The task before Ratan Tata, to put it mildly, was daunting.
Says R Gopalakrishnan, Executive Director, Tata Sons, who was a veteran at Hindustan Lever (now Hindustan Unilever) before joining Tata: "The model at the group was of 'distributed entrepreneurship' as I like to call it. JRD had got in several talented people during his time and having got them in, he had let them flourish. When one raises children, not all those children will function exactly as the parents want. That's what happened perhaps, though individually these people may have been great. These chief executives became used to running their own show and went on that way."
Gopalakrishnan, who says he has the benefit of being both an insider for 14 years and an outsider having come in from Levers, points out at the time Ratan Tata took charge, the group faced the distinct possibility of disintegration.
Likening Ratan Tata's initial stint to that of earlier chairman Dorabji Tata who had to concentrate more on executing father Jamsetji's vision during his initial years, Gopalakrishnan says Ratan Tata came in as India threw its doors open to the world by way of economic liberalisation.
"He came in with a modern mindset and had to confront a set of tough situations." The Cornell-educated Tata, known to be very American in his way of thinking, decided to bring the group together and ensure it did not fall apart. Dealing with the heavyweight CEOs-Darbari Seth at Tata Tea, Russi Mody at Tata Steel and Ajit Kerkar at Indian Hotels, among others-was important and necessary, and Tata did exactly that, though it did result in bitter face-offs with them.
Gopalakrishnan, who likes to divide Ratan Tata's tenure into two phases-1991 to 2001 and 2001-2011-says if one went by the history of empires, the fifth generation is when the decline of an empire is supposed to begin. But Ratan Tata ensured this did not happen at the House of Tata.
"One of Ratan Tata's very big achievements has been to stem an imminent decline and renew the purpose and integrity of the group. This took all of the first 10 years," he says.
"He prevented the place from falling apart. It's almost like the flight of a rocket. You first have to build a huge amount of energy to get it into space, and then need to have the energy to hold it at elevation, since the rocket starts to flag. You need booster rockets to ensure it does not flag off. Ratan Tata came in as the booster to the Tata Group," explains Gopalakrishnan.
Having tackled the initial challenges in the first 10 years, Tata spent the second phase in doing what heads of institutions would be expected to do. He concentrated on nurturing the principles and purpose of the institution, its processes and its people. He put in place the Tata Business Excellence Model (TBEM) across the group, covering seven core aspects of business operations: leadership; strategic planning; customer focus; measurement, analysis and knowledge management; workforce focus; process management and outcomes of financial and non-financial parameters; and business results. He also got in senior people from other companies for an 'outside-in' perspective on the businesses.
Recalls Gopalakrishnan: "I was a Levers man and no one from Levers had joined Tata Sons directly earlier. There was an eclectic mix which Ratan Tata built up. The group already had brilliant and talented people like Ishaat Hussain and Noshir Soonawala. As a pattern, internal people were moved to key roles and so were those who came in from outside. There were those like B Muthuraman and Prakash Telang from within and others like Prasad Menon, Ravi Kant and me." While the first half of Tata's tenure was about re-establishing the group's credentials and its right to grow, the second half saw rapid and aggressive growth.
A scorching pace
Renewal apart, one of Ratan Tata's other big contributions has been the imparting of a global footprint and ambition and an aggressive pace of growth.
Says Harsh Goenka, Chairman of the diversified RPG Enterprises and a self-confessed admirer of Ratan Tata: "During the first five years, Tata appeared somewhat tentative but exercised control; in the next five, he consolidated shareholding in all Tata companies and later, he saw to it that the group grew on an entirely different orbit."
Under Ratan Tata, the group grew into a bold, dynamic and fleet-footed entity which dared to take on the biggest on a global scale. Viewed in totality, the 21 years Ratan Tata has been at the helm have seen a kind of transformation few chief executives in corporate India-or even worldwide-can boast of.
Consider the facts and figures. Between 1994 and 2012, the group's revenues pole-vaulted from Rs 18,953 crore to a jaw-dropping Rs 4.75 lakh crore. As the group expanded abroad, international revenues also soared from a modest $4.7 billion in FY05 (27 percent of group revenues) to a hefty $58.5 billion in FY12, accounting for a 58.5 percent share of total revenues.
Today, the Tata Group boasts of several companies of global scale. Tata Steel is among the top 10 steelmakers in the world, Tata Motors among the world's top five commercial vehicle makers.
Tata Global Beverages is the world's second-largest tea company, while Tata Chemicals ranks second in the world in soda ash.
Two group companies-Tata Motors and Tata Communications-are listed on the New York Stock Exchange.
It was during Ratan Tata's tenure that the group dared to move into and capture international markets on a scale that few Indian conglomerates have been able to match. The Tata Group now has 100 operating companies (31 listed) spread across 80 countries in six continents, employing 4.5 lakh people worldwide. Significant to note also is the acceleration in the pace of acquisitions. While in the first 12 years of his tenure the group saw only five acquisitions, between 2006 and 2010 there were as many as 37.
Says Gopalakrishnan: "While globalisation is really a mindset and we may still be on the way to achieving it, what the acquisitions did was to trigger the imagination of people not just within Tata but in corporate India in general. By his actions and the frequency of those actions he restored the native spirit of entrepreneurship which always existed but was suppressed for 60 years. And what is important is he did all that by example, not just by speeches or by preaching."
Hungry for M&A
The rapidly growing pace of M&A in the second part of Ratan Tata's tenure left most in the corporate sector in awe. The group, once perceived as slow-moving and stodgy, began pulling off massive and bold acquisitions with the world as its playground. If it was the Tetley Group in the tea business in 2000, it was Tata Consultancy Services' acquisition of Computer Maintenance Corporation (CMC) as part of the government's disinvestment process the very next year. The other big acquisitions which followed were those of Videsh Sanchar Nigam Ltd (VSNL), again by way of the government-sponsored disinvestment process in 2002, Tata Motors' acquisition of Daewoo Commercial Vehicle Company in 2004, Indian Hotels' buyout of Starwood Group of Australia (2005) and Tata Steel's purchase of NatSteel Asia of Singapore the same year.
But the biggest and boldest came in 2007, when Tata Steel gobbled up Anglo-Dutch Corus Plc for $12 billion (6.1 billion) in a nail-biting bidding war with CSN of Brazil, which finally proved to the world that Tata was now a truly global name. But this wasn't enough. Ratan Tata followed this up quickly with another awe-inspiring acquisition, this time of iconic British auto company Jaguar Land Rover for$2.3 billion.
The spate of M&As is seen by many in corporate India as one of the highlights of Tata's tenure at the top. "Look at the audacious acquisitions. Ratan Tata has the ability to turn opportunities and to infuse growth. He remains an icon of Indian enterprise on a global platform," says Goenka.
Though some of his bold acquisitions were initially panned by critics and analysts, Tata did not fail his stakeholders despite tough global conditions. Says Prashant Sawant, Convertible Bond Specialist, KNG Securities LLP, London, "While many Indian companies either defaulted or deferred payments on FCCB obligations citing the impact of the slowdown, Tata Motors and Tata Steel have never defaulted on FCCB repayments. Their commitment to stakeholders remains unquestioned."
If equity markets are a barometer of how Tata has fared, he has done rather well on that front as well and kept his 3.8 million shareholders largely satisfied. The group's 31 listed companies together command a market capitalisation of about Rs 4.79 lakh crore ($87.72 billion) today, which is over 7 percent of the total market capitalisation of the Bombay Stock Exchange (BSE).
Tata Consultancy Services (TCS), which was listed on the bourses in August 2004 and is the jewel in the group's crown as far as market cap is concerned, accounts for about Rs 2.53 lakh crore.
Bankers who have worked closely with the group also have high words of praise for Tata. Says Vishwavir Ahuja, Managing Director and CEO of Ratnakar Bank who, during his long stint as India managing director and CEO of Bank of America, had worked on several strategic deals for Tata, "His stature as an entrepreneur is immense. He has made India proud."
Ahuja points out that despite the Tata footprint spreading across the globe, one of the most important attributes of the group under Ratan Tata is that it still remains very much an Indian brand. "Though over the years, a majority of the revenues and assets of the group have come from outside India, Tata still embodies patriotism and pride in India more than any other business house. The Tata brands are household names and the group makes us hold our heads high," says Ahuja.
What is it about Ratan Tata that makes him the distinguished entrepreneur that he is? Tata's style of functioning is characterised by his low profile as a person despite the fact that he holds one of the most important corporate positions in the land. Simply put, he likes to let his bat do the talking. That he hardly gives interviews and rarely reveals his personal side makes him somewhat of an enigma in corporate circles. Tata Group insiders who have worked closely with him for long say it is his quiet resolve which is the hallmark of the man as a leader.
"He has a silent determination which is often underestimated by his critics," says FA Vandrevala, Chairman and Managing Director, Hirco, who was managing director at Tata Power Company between 2002 and 2005.
Tata has been able to seamlessly straddle the diverse businesses in the group, making the Tata brand a global name. "He has ensured that the group companies are in safe professional hands. They have clear growth strategies as well," says Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management and Clinical Professor of Entrepreneurship at the Indian School of Business.
Brand Tata, too, has gone up several notches under Ratan Tata's stewardship. That is why, Goenka says, "he is identified as the keeper of the Tata flame". Colleagues call him imaginative and laud his ability to advocate what he believes in and successfully sell a business idea both internally and outside the group.
"Ratan Tata is passionate about what he believes in," points out Gopalakrishnan.
And Tata is quick, too. Says Kishor Chaukar, former managing director, Tata Industries and Chairman of Tata Centre for Community Initiative (TCCI): "Ratan Tata takes a decision which is his, but it comes about after a lot of internal discussions. It is not correct when people say that he dithers when it comes to taking a decision. In the 14 years that I have been here, no decision of significance has taken more than 24-48 hours."
His style, his senior managers say, is highly delegative. "He delegates enormously if he believes what you will do is good for the business. For instance, I have raised issues regarding risks and costs and he has said, 'Do it.' He allows you to define parameters of resources and time limits and then lets you do it," says Chaukar.
Even other entrepreneurs who don't know him that well applaud the energy he has brought into the group. Says Harsh Mariwala, Chairman and Managing Director of consumer goods major Marico: "I don't know Tata, but as an entrepreneur, he has delivered the right mechanism which has enabled the group to foster growth."
Despite the successes the group has seen under Tata, it's not as if he has not had his share of setbacks along the way. Tata joined the group in 1962 working on the shop floor at Tata Steel, Jamshedpur. When JRD gave him independent assignments as director, Nelco (National Radio and Electronics), and later Empress Mills, both were stymied by political problems and the infamous Mumbai textile strike, respectively.
As chairman, Tata had to contend with problems of varying degrees. Success was never easy, especially with regard to Tata Motors. Though Tata trucks were ubiquitous on Indian roads, the dream to make it a name in passenger cars faced several roadblocks. While his plan of launching a passenger car was severely criticized, Tata Motors went ahead and launched India's first indigenously designed and manufactured car-Indica-in 1998.
The company also ran up hefty losses in the early 2000s and later again in 2009 after its ambitious acquisition of JLR, as the global economy went into a tailspin.
The biggest challenge for Tata Motors came when Trinamool Congress leader Mamata Banerjee stoutly resisted his plan to set up the ambitious Nano "Rs 1 lakh car" project in Bengal, arguing against the manner in which land had been acquired for it by the then Left Front government in Bengal. The opposition to the Nano project was so intense that Tata was forced to relocate it to Gujarat, leading to intense debate.
But once he had taken the call to move out of Bengal, he stuck to it, ready to face the political fallout which came with such a decision.
Other fronts threw challenges at Ratan Tata too. Tata Finance, the group's finance company was beset with massive governance issues which also tested his resolve to the hilt. And then there was the 2G scandal in the telecom industry which, at one point, threatened to envelope the group too in its wake.
But all these problems also showed Ratan Tata's firmness of resolve as he went about addressing each of these problems personally. He not only set things right at Tata Motors (the company clocked consolidated net revenues of Rs 165,655 crore and profits of Rs 13,517 crore for FY12), the Tata Finance problem was also set right with a deft hand which is typical of the manner in which he handles crises.
After admitting to the existence of the problem and its severity without hesitation, Ratan Tata put the group's full strength behind the troubled company and its depositors, pumping in funds and arriving at a swift solution. Eventually, Tata Finance was merged with Tata Motors. The Nano, despite niggling issues, is on the roads, and the Tata Group has been given a clean chit after a government probe into the 2G scandal.
Tata-watchers see a common thread in the way he thought through most of these problems. The first was an enormous, unshakeable and almost obstinate commitment to the principles he believes in, which are rooted in certain values.
The Nano was born from the simple question why a family of a husband, wife and two children should be forced to commute on a scooter. In the 2G case, he firmly put forward his stance that the group had done nothing wrong in securing the spectrum allocations. At Tata Motors, he went about identifying the problems and addressing them one by one. In the Tata Finance case, he admitted the company had made a mistake in governance, accepted responsibility and ensured no one lost money.
Recalls Chaukar: "When the Tata Finance crisis took place, he stood behind what was right and took a personal beating because of someone else. But he was rock solid. 'We haven't done anything wrong. We will see it through,' he said. He told me, 'Kishor, for God's sake, let us stand up for the truth.'"
"He has an almost workman-like approach to fixing problems," says Gopalakrishnan. "If there is a leak in the pipe, don't debate it and try to palm off responsibility. Fix the leak. Put a team together and set things right-that's his style."
Little wonder then that the chorus within the group with regard to Tata is almost reverential. "He speaks little and yet conveys decisions without being overbearing," says a veteran at Bombay House.
Humane and dignified
Indeed, dignity in the manner in which he conducts himself is one of the key attributes of Tata as an entrepreneur. "Tata hardly ever lets himself get involved in public spats," says a Bombay House insider. "He knows such spats can get inelegant and that's never going to be an option with him."
At a time when several industrialists are seen doing the rounds of the corridors of power in New Delhi, few can claim to have seen Tata hobnobbing with politicians and lobbying with government officials to get things done.
"One often sees industrialists moving in and out of North Block in Delhi to get their way. Ratan Tata's style is far from that. He seeks to depoliticise business, and that can be a good sign for the future of entrepreneurship in this country," remarks a Tata official on condition of anonymity.
"In times of crises, it is important to check where the leader was. Was he in the deck or engine room or commentating from the shore? In the US, if companies fail, no one hangs around Washington," adds the official.
Some people speak of Tata's commitment and compassion which they feel the outside world does not get to know or hear about, but which speak for the kind of man he is. Gopalakrishnan has an interesting story to tell. It was a few months before the Kargil War that he had joined the Tata Group.
Various business houses were giving funds for Kargil martyrs and their families. What Tata decided to do was unusual. He convened a meeting of senior people in the group and asked them instead to find a way to ensure that the company could reach relief to the right people who were really in need of assistance.
"Around four to five meetings were held, a welfare trust was set up and Rs 14 crore raised. The money was given also to next of kin of martyrs who died in the 1964 and 1971 wars. Funds were specified for education, prosthetics etc and reports sent every six months. To me, it was a moment of revelation. Tata defined the problem instead of blindly aping Corporate India," recalls Gopalakrishnan.
This humane side of Tata captures the attention of anyone who has known him. Says Chaukar: "When we closed some of our companies involved in floriculture and sericulture, he told me, 'Kishor, I don't have any issues with closure but do it the Tata way'. What he meant was that labor should never be short-changed."
Vandrevala says Ratan Tata possesses qualities similar to JRD's. He recounts what he says was an embarrassing moment with JRD when he and his son, then all of six, were waiting for the lift at the lobby of the Taj Mahal hotel.
"The lift doors opened and my son ran in, bumping into JRD who was inside. I got nervous. JRD went down on his knees and asked my son, 'What does your father do?' My son replied, 'He is a senior officer at the Tatas.' JRD then had a conversation with me, combed his hair and went out. It is the same dignity that JRD shows to others no matter what their rank or importance which I have seen in Ratan Tata."
Industrialists have their own Ratan Tata moments too. When Goenka met Ratan Tata at a wedding, both began a conversation in earnest. "A Tata shareholder-the persistent kind-came up to him and I walked away. After some time, Tata came back to me and said, 'I am sorry, Harsh. I had to attend to that shareholder and could not talk to you.' That is what Ratan Tata is all about-dignity and humility," adds Goenka.
"Every time you meet him, he is so affable, warm, friendly and down-to-earth. It's just so easy to talk to him," adds Ahuja.
It is this humane element in Ratan Tata which will come to the fore after he steps down from Tata Sons in December: Tata will remain Chairman of Tata trusts, which control 66 percent of the shares of Tata Sons. The trusts support a wide variety of causes and Tata has already said he would focus on issues like child nutrition and rural development after his stint as Tata Sons chairman.
"Post-retirement, he will pay a lot of attention to trusts and look at them in a holistic and organised manner and undertake programs with a futuristic perspective," says Chaukar.
The next frontier
Cyrus Mistry steps into this landscape which Ratan Tata has painted with formidable colors. For Mistry, to traverse the path forged by Tata will be a challenge even though the road map has been clearly laid out by his predecessor. How Mistry charts a new path for the group will be interesting to watch, say analysts. No drastic changes in policies or functioning are expected as Mistry takes after Ratan Tata in reticence and an aversion to flamboyance.
"Both Tata and Mistry share the same values for human dignity. There will be both a subtle change and continuity," feels Vandrewala, adding that Mistry will indeed have big shoes to fill. The legacy is astounding but it can be replicated, say some Tata-watchers.
"Mistry will have to establish himself across the group but this may be facilitated by Tata who will continue to be available as a mentor (unlike JRD who passed away soon after Ratan Tata took over). Also, Mistry has been a member of the Tata Sons board for many years and has known the group well," says Ramachandran of ISB.
"Of course, it will take some time before he can say that he is in full control of the group. It also depends on how well he handles the group companies. That will be a test of his leadership skills. At least he does not have to worry about fighting powerful leaders of group companies."
Says another leading industrialist: "Tata has taken the business global and successfully integrated it into the Indian organisation. He leaves behind a top class legacy for his successor."
"The world has changed a great deal and one has to adapt to it. Adapt without giving up on one's basic values. This is what succession is all about," says Gopalakrishnan.
Chaukar feels the foundation for the future has been set by Ratan Tata and the group's commitment to doing business responsibly will continue to be its distinctive feature even under Mistry.
"Ethical business is what defines the House of Tata-of doing business in sync with the interests of society. You will never hear of a Tata company doing business and ravaging the environment. Also, Tata has been able to leave his thought processes in varying degrees in each of his senior people and that will make sure the company does not do anything drastic, " Chaukar says. "Each one of us has a little bit of the thinking of Ratan Tata in us."
Adds Ahuja: "Ratan Tata embodies the qualities of the ultimate professional. And even after so many years of expansion and growth, the group still retains the tag of being one of the cleanest and most professionally-run business houses in the country."
In an epilogue to RM Lala's The Creation of Wealth, Ratan Tata writes in 2003 about his successors, "I would hope that my successors would never compromise and turn to soft options to meet their ends and never allow the Tata group to join the growing number of companies in India which have shed their values, forgotten about their integrity and closed their eyes to maintaining ethical standards."
Significantly, Ratan Tata has recently talked about two major disappointments as he steps down. In an interview to American broadcast journalist Charlie Rose in July this year, Tata was candid in admitting that internally, he had not been able to create an "open, flat and transparent organisation". He also said the group hadn't been able to succeed in embracing the customers as it could have, although it had moved in that direction from being a manufacturing company in a seller's market.
Tata also lamented that the group had not been able to touch the levels of the population as it had hoped. "The Nano is one example but serving the bottom of the pyramid for India and thinking of making products... affordable to that segment of the population. I think that's a real challenge. We haven't... succeeded in being innovative enough to do that," Tata said in the interview.
The task for Mistry, then, is clearly cut out. Perhaps, while nursing a cup of coffee from Starbucks, the latest offering from the House of Tata, Ratan Tata will be musing over what he has left behind and what is being shaped from it as he busies himself with an equally significant innings , this time in philanthropy.
First published in Entrepreneur magazine.
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