Tata group’s real challenge is to find the right successor

Tata group’s real challenge is to find the right successor
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Story Dated : October 25, 2016

An unexpected turmoil at the top of any business group is counter productive and especially when it is is at the top of India’s foremost business group, the Tatas — a $103-billion conglomerate that operates in more than a hundred countries, employs 7,00,000 people and has a total market capitalisation of over $125 billion (about 7.5 per cent of BSE’s total).

The Tatas are not known for boardroom coups, at least they have not been for the last two decades, after Ratan Tata consolidated his hold on the group by easing out satraps in various companies.

What transpired in Monday’s board meeting of Tata Sons where Chairman Cyrus Mistry was “replaced” is, therefore, unprecedented.

Succession at the top of the group has always been smooth ever since it was founded, and the easing out of Mistry, the chosen successor to Ratan Tata who now returns as interim chairman, is not just out of the ordinary but also a mystery.

To soften the impact, the board has drafted the resolution very carefully.

There is no reference to the past or to the reasons but only to the future. “In its collective wisdom and on the recommendation of the principal shareholders (Tata Trusts) and in the long-term interests of the Tata group and Tata Sons the Board has resolved to replace Cyrus Mistry as Chairman,” says the resolution.

Was it because of under-performance in his role as Chairman? Of course, whether he had a vision for the group and if so, what it was, was always a mystery.

Was it because of his inability to take along the top managers? Was it specifically due to his handling of two issues that have caused discomfort and embarrassment in recent times — the legal tussle with DoCoMo that led to an adverse arbitration award of $1.2 billion and the imbroglio over exit from the UK business of Tata Steel? Or was it related to governance issues?

With the Board deciding not to elaborate on the reason(s), the speculation that is now on in the media, market and among analysts is certainly not good either for employee morale or the confidence of other stakeholders in the group.

Even as it faces the prospect of a legal challenge from Mistry, who remains a director and whose family owns a little over 18 per cent of Tata Sons shares, the group will have to deal with the critical issue of finding a successor.

The decision to appoint Ratan Tata as interim chairman is obviously designed to reassure stakeholders, including the markets, and also to have a familiar hand at the wheel.

Tata, who’s pushing 79 now, will have to draw upon his immense goodwill to keep things steady till a successor is found.

The composition of the search panel and the four-month time limit given to it are encouraging but it is not going to be easy to find the right person, especially given the current circumstances.

Though the Tata Trusts own over two-thirds of Tata Sons, any legal challenge from the Mistry family can complicate matters and lead to serious distraction for the conglomerate.

 

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