If the tawdry battle in the most rarefied of Indian corporate boardrooms underlines anything, it is that, contrary to the received wisdom, the Tata governing ethos is not all that different from the rest of corporate India, where family dominance is unquestioned. The irony, perhaps, is that the culture is being put to a unique challenge in India’s largest corporate group.
To put it another way, the real test of the Tata group’s reputation will depend on how it works through the contradictions embedded in its controlling structure. That legacy was rarely contested principally because the circumstance of a diminishing promoter group made it expedient for J R D Tata to encourage non-family talent. The group was certainly the stronger for it. Each of the satraps, as they informally came to be known — Sumant Moolgaonkar, F C Kohli, Darbari Seth, Russi Mody, Xerxes Desai — were giant personalities in their own right.
J R D Tata presided over them with a light touch but managed to retain universal respect and cohesiveness, exercising control with often minimum stakes in the companies that bore his name. The system worked but disguised a predicament with which most Indian family-controlled conglomerates, with no shortage of young heirs and heiresses, rarely have to contend (on the contrary, they mostly suffer a problem of plenty).
Despite the many manifest abilities of the satraps and the management cadres they developed, there was never any doubt that JRD’s young nephew, with an underwhelming record, would succeed him as head of the holding company that gave the sprawling group its name. No one questioned this succession perhaps because no one anticipated the atypical problems that would emerge in the 21st century.
Ratan Tata inherited a solid set of companies nurtured by the satraps in an era of protection and control. It was about to face unknown challenges as the Licence Raj came to its precipitous end. His first notable success in charge came early when he managed, with the help of a cooperative state government, to break a strike at Tata Motors’ (or Telco as it was then known) plant in Pune. Soon after, Telco overtook Tata Steel (Tisco, in those days) as the group’s largest company, a development that precipitated an incendiary (and for the press, extremely entertaining) battle with Tisco’s colourful chief Russi Mody.
Moving swiftly to strengthen his grip, he put in place a group retirement policy that required executive directors to retire at 65 and non-executive directors at 75, a development that helped him see off most of the fractious old guard. From then on, the Tata group culture was metamorphosed. The flamboyant satrap era was over.
Sure, there were able chief executives to run the group companies, doing, in low key fashion, what needed to be done to ready them for global competition. But it was Ratan Tata who set the agenda and took the big decisions as he bound the group identity more tightly through royalty payments for the Tata brand name (for the professional CEOs, the rewards usually came in the form of post-retirement accession to advisory roles in the chairman’s office).
When he stepped down after 21 years, Ratan Tata’s style appeared to be vindicated by the broad performance metrics: An increase of 51 times in turnover and profits and an indubitable global profile. The proprietary management style was largely overlooked.
Did it matter? One almost non-sequitur line in Cyrus Mistry’s letter to the Tata Sons board talks of the need to “ease out hangers-on who are prone to flaunt their proximity to power”. It could also mean that a culture of sophisticated servility, so endemic to other large Indian family-run enterprises, precluded anyone from cautioning Mr Tata against his more flamboyant follies, the ~1-lakh Nano or the grossly inflated Corus acquisition being just two.
Indeed, it was the stock markets that comprehensively advised him in advance of the risks of the Corus acquisition, though he professed bewilderment at the plunge in the Tata Steel scrip after the news. In that sense, Mr Mistry’s letter is probably the first time an insider has proffered an unvarnished assessment of Mr Tata’s mis-steps.
Still, his own appointment as Mr Tata’s successor went unquestioned because of his pedigree. He was family, by marriage ties. His construction firms’ long-standing relationship with the Tata group as contractor of choice for their projects and as 18 per cent shareholder in Tata Sons seemed to validate the search committee’s choice. He was One of Them. But not quite — and that was the problem.
Why he chose to hang on when the Tata Sons’ articles of association were changed in 2012 — soon after he took charge — to give the Ratan Tata-headed trusts a dominant role in the selection and removal of the chairman remains a mystery. The bigger mystery will be whether any self-respecting executive would take on a job for which the levers of power are vested in non-profit institutions presided over by an ageing scion of a shrinking family and no clear visibility in succession. That remains the Tata group’s big corporate governance dilemma.
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