India Watch : Tata Sons Limited starts search for Ratan’s replacement

Automotive News Europe/Bloomberg, 5th August, 2010

MUMBAI (Bloomberg) – Tata Sons Limited is searching for a successor to Chairman Ratan Tata, whose acquisitions of Jaguar Land Rover and Tetley Group Plc charted India’s emergence as a global economic power.

The 72-year-old Ratan, who built Tata Group into India’s biggest with revenue of more than $70 billion, will retire at the end of 2012 after two decades running the Mumbai-based company. A five-member committee will vet candidates for the role, Tata Sons said in an e-mailed statement yesterday.

The successful candidate will control a group whose 96 companies make cars from the $72,500 Jaguar XJ to the $2,500 Nano, produce steel and grow tea served at the Tata-owned Boston Ritz-Carlton. Tata accounts for almost 7 percent of India’s gross domestic product.

‘They should be looking for an international profile, which doesn’t mean necessarily a foreigner,” said Andrea Goldstein, senior economist at the Organization for Economic Cooperation and Development in Paris.

Ratan Tata studied overseas ‘then years later, this outlook shows how the company has changed.”

Ratan, a Cornell University-trained architect, took the reins in 1991 and steered its expansion through at least 35 overseas acquisitions, including steelmaker Corus Group Plc and Jaguar Land Rover, according to Bloomberg data. The group gets 65 percent of its revenue from outside India.

Opening Economy

Ratan took charge when India’s current Prime Minister Manmohan Singh, as Finance Minister, started opening up the economy. Ratan increased group revenue 12-fold during his tenure, mirroring India’s expansion to Asia’s third-largest economy and a member of the Group of 20 top nations.

‘Tata kept the business group together and internationalized it,” said Vikas Sehgal, a Chicago-based partner at Booz & Co. The successor would need the ‘same depth and breadth that Ratan Tata brought to the table, the kind of bandwidth as a manager to deal with an eclectic mix of companies.”

Indian newspapers including the Economic Times have speculated that Noel N. Tata, Ratan’s half brother and son-in- law of Shapoorji Pallonji Mistry, the largest individual shareholder of Tata Sons, may be groomed to lead the group.

Noel will join Tata International Limited, the overseas unit, as Managing Director after stepping down from the same position at Trent Limited, the group’s retail arm, on August 12, Trent said in a statement to the Bombay Stock Exchange on July 29. Noel spent 11 years at Mumbai-based Trent. He wasn’t available when called at his office.

Share Performance

Tata Group shares were mixed in Mumbai trading today. Tata Motors Limited added 2 percent at 2:03 pm local time, extending its gain in the past year to 91 percent, making it India’s best performing benchmark stock. Tata Consultancy Services Limited, the second-best performer on the Sensex in the past year, rose 1.2 percent to a record high. Tata Steel Limited added 0.3 percent and Tata Chemicals Limited declined 0.9 percent. Trent lost 1.2 percent.

The Tatas belong to the Parsi religion, a small, Zoroastrian community, which originated in Persia and found sanctuary centuries ago in India. The Tata Group was founded by Ratan’s great grandfather Jamsetji Nusserwanji Tata, who started a textile-trading business in 1868 and then built the country’s first steel mill and hydroelectric plant. He also built The Taj Mahal Palace & Tower hotel in Mumbai, which was damaged in the November 2008 terrorist attacks.

Community’s Pride

‘From a community point of view, the Tata name should continue and, if there is someone competent within the Tata family, there would be continuity,” said Khojeste Mistree, Managing Trustee of Mumbai-based Zoroastrian Studies. ‘They’ve brought great amount of pride and glory to the community.”

Ratan, who never married, is childless.

The conglomerate has changed considerably since Ratan took over, and its global profile may allow the search committee to attract a wider range of candidates, said Goldstein.

‘The Tata name has a cache and that might enlarge the pool of interested managers,” said Goldstein, the author of a January 2008 paper called ‘The Internationalization of Indian Companies: The case of Tata.” ‘It’s good that you can offer more than just money. And that means that they can go for someone who is more visionary than any ordinary CEO who is looking at the next quarter.”

First Acquisition

Ratan made his first purchase overseas in February 2000 when he paid $407 million for U.K.-based Tetley Group — the biggest by an Indian company at that time. He followed with 65 more mergers or purchases in India and abroad, bringing overseas revenue to $45.9 billion of total sales in the year to March 31, 2009, from $2.5 billion in 2003, according to the Tata Group’s website.

In an interview with the Businessworld weekly magazine in January 2008, Ratan said he didn’t want to go out in a ‘wheelchair” and would look to hand over charge so that his successor can imbibe the values of the group.

‘Tata’s big contribution is to get the company oriented around a global mindset,” said Tarun Khanna, the Jorge Paulo Lemann Professor at the Harvard Business School. That makes it important that the committee find ‘someone who pursues that global mindset, which has begun to take hold in the different Tata companies in the last 10 to15 years.”

[Source: Automotive News Europe/Bloomberg]


Clive Goldthorp

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