India Watch : Tata succession likely to rock corporate India

Joe Leahy, FT.com, 11th June, 2009

Late last month Tata Consultancy Services (TCS) released what appeared to be a routine announcement to the stock exchange. N. Chandrasekaran, Chief Operating Officer of Tata Consultancy Services, was to succeed the Chief Executive Officer, S. Ramadorai, when he stood down in October from his post as head of India’s largest information technology outsourcing company, the statement said.

However, the TCS announcement was more significant than it appeared. The changes at TCS kick off a succession process across the Tata Group that promises to change not only the face of India’s largest conglomerate but also that of corporate India itself. The heads of the group’s three most important companies, TCS, Tata Steel and Tata Motors, are all set to step aside this year, having reached Tata’s executive retirement age of 65.

This will set the stage for the impending retirement in 2012 of the group’s genial Chairman Ratan Tata, one of corporate India’s most influential figures. Investors will watch closely the group’s ability to handle this transition. Tata also has its own share of problems after making some ill-timed acquisitions during the boom years.

It will be up to Mr Kant’s successor, Prakash Telang, whose last job was as the head of Tata Motors’ commercial vehicles division, the biggest and most profitable business of the Indian part of the company, to deal with the potential albatross of Jaguar and Land Rover.

Of all the group’s scores of companies, Tata Motors is in the most trouble, after it borrowed $3bn to buy Ford’s Jaguar and Land Rover marques last year and managed to refinance the loan only last month, a few days before the repayment deadline. The company is not yet out of the woods. The group’s domestic and international sales are still struggling, even as Jaguar and Land Rover are battling to secure additional finance with backing from the UK government. Tata Motors’ outgoing Managing Director, Ravi Kant, was, nevertheless, able to declare his retirement from the top job last month, a few days after the TCS announcement, with some optimism.

The group has begun selling its newest creation, the Tata Nano, the world’s cheapest car, despite having to delay full production for a year. Volumes in its domestic market are also improving. It will be up to Mr Kant’s successor, Prakash Telang, whose last job was as the head of Tata Motors’ commercial vehicles division, the biggest and most profitable business of the Indian part of the company, to deal with the potential albatross of Jaguar and Land Rover.

Tata Steel, meanwhile, has also been struggling after it bought the low-margin Anglo-Dutch steelmaker Corus at the peak of the commodity boom for £6.7bn ($11bn). In addition, with steel markets the worst they have been in decades, the group has been forced to cut back heavily in the UK and Europe.

B. Muthuraman, Tata Steel’s charismatic Managing Director, had been expected to be replaced by Philippe Varin, Corus’s former Chief Executive, until the Frenchman stepped down this year. Mr Varin remains on the Tata board and is being replaced at Corus by American-born Kirby Adams, who has been running the Tata partner Bluescope Steel in Melbourne.

The group in 2005 modified its policy on compulsory retirement for non-executive directors by extending the maximum age from 70 to 75 to enable Mr Tata to stay at the helm until 2012. However, with that extension nearing an end, speculation has increased over who might succeed the man who has transformed the Tata group into a company that earns well over half its revenues outside India – the name most discussed is that of Noel Tata, Ratan’s younger half-brother.

Speculation in the Indian media has shifted from Mr Varin to Tata Steel’s 59-year-old Chief Operating Officer H.M. Nerurkar as the likely replacement for Mr Muthuraman when he retires in September. All of these changes foreshadow the eventual retirement of the group chairman, Ratan Tata.

The group in 2005 modified its policy on compulsory retirement for non-executive directors by extending the maximum age from 70 to 75 to enable Mr Tata to stay at the helm until 2012. However, with that extension nearing an end, speculation has increased over who might succeed the man who has transformed the Tata group into a company that earns well over half its revenues outside India.

The name most discussed is that of Noel Tata, Ratan’s younger half-brother, whose father-in-law is Pallonji Mistry, one of the biggest shareholders in the Tata Group. Noel Tata, who is in his early 50s, runs the group’s retail operation, Trent, which has a tie-up with the UK’s Tesco. Some analysts say his role at one of the conglomerate’s lower-profile businesses hardly recommends him as a future Chief Executive but others say the same things were said about Ratan before he took over in 1991.

[Source: FT.com]

Clive Goldthorp

About the Author:

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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