Tata empire patriarch J.R.D. Tata steps down, nephew Ratan Naval appointed chairman

JRD (right) and Ratan Tata: Keeping it in the familyEvery six months, a convoy of glittering limousines speeds down a highway in the United States or Western Europe. Flanking the convoy are motorcycle escorts while a helicopter filled with heavily-armed security guards hovers overhead.The obsession with security is understandable. Inside the curtained limousines are a handful of men who between them control billions of dollars: Giovanni Agnelli of Fiat, David Rockefeller of Chase Manhattan, the current head of Ford Motor Car Company, Dr Henry Kissinger, a representative from Mitsubishi of Japan and a ramrod-straight hawk-nosed man with piercing eyes and an easy-going manner. The rest of the group refer to him affectionately as "JRD" at their biannual meetings sponsored by Chase Manhattan.His full name is Jehangir Ratanji Dadabhoy Tata, at 77 head of the Rs 2,000 crore Tata empire and a legend in his lifetime. Unlike the rest of the group, JRD, as he is universally known, faced one peculiar problem - appointing a successor to his empire.For months now, speculation has swirled in industrial circles regarding the man he would eventually pick. For an abdicating monarch, the problem could not have been more complex. Last October, when JRD, after 42 years at the helm of the Tata empire, launched a search for his successor, it was obvious that the decision would trigger an unseemly controversy.There was no dearth of contenders for the throne. A highly professional group encompassing largely autonomous units operating within a common policy framework, the Tatas have, in the last 30 years, nurtured a bank of top level executives many of whom could legitimately lay claim to the throne that JRD was hesitantly vacating: Nani Palkhivala, 62, the top flight constitutional and lax lawyer and former Indian ambassador to the United States: Rusi Mody, 63, head of the Tata Iron and Steel Company (TISCO): Sumant Moolgaokar, 75, the near-legendary head of the Tata Engineering and Locomative Co Ltd (TELCO); Fredie Mehta, 53; Naval Tata, 77, the number two man in the Tata hierarchy and his son Ratan Tata, 44, JRD's nephew.Of the contenders Naval Tata and Moolgaokar were considered too old to take over from JRD and the choice really lay between Mody, Mehta, Palkhivala and Ratan Tata.Unexpected Choice: JRD is well-known as a conservative captain of industry who looks extremely carefully before he leaps. But this time, he leapt in an unexpected direction - on October 21, Ratan Tata was appointed chairman of Tata Industries, the flagship, and, along with Tata Sons, the holding company of the Tata group.The choice shocked quite a few of the professional technocrats who head the various companies in the group; many felt that the much-vaunted Tata reputation for professionalism had suffered a blow. Ratan Tata "has vaulted over seasoned campaigners like Palkhivala, Mody, and Mehta, who is credited with bringing about considerable sophistication in the group's planning.When it came to the crunch, however, it turned out to be a contest between Ratan and Palkhivala. However, the brilliant lawyer was an obdurate opponent of Mrs Gandhi and a staunch supporter of the Janata Party and as such, a dubious choice for the top post in an industrial group practically dependent on the continued goodwill of the Government. With Mrs Gandhi back in the saddle, Palkhivala's hopes were dashed, although he is actively involved in the group's plans and expansion programmes.Tata insiders maintain that, despite a politically partisan copybook, Palkhivala has a stature that Ratan Tata can never hope to match; that of all the Tata men only Palkhivala can hope to command universal respect when JRD steps out. Ratan and the trusted few who supported his appointment were treading softly last fortnight for fear of widening the perceptible cracks in the structure.Said the new Tata Industries Chairman: "There is a lot of heartburn, and I do not want to add to this. There have been other contenders, there probably still are. But I have not jockeyed a position for myself, nor did 1 see it as my birthright."Massive Programme: The rumblings at the top ranks of a private industrial empire are understandable. At stake is a kingdom which includes power generation, steel, chemicals, computers, textiles and transport and whose combined sales in 1980-81 crossed the Rs 2,000 crore mark.It's only from habit that they listen to JRD and this hold is concentrated in the person of JRD. It's entirely open to question whether this control will last after JRD finally gives up the reins.More important, the Tatas are all set for a massive modernization and diversification programme which will push them once more to the forefront of the Indian industrial arena, unseating the Birla group which overtook them a few years ago both in terms of assets and sales, TISCO, the group's prime unit, will in the next three years spend over Rs 210 crore on modernization schemes ensuring the blue-chip company an increase of at least 15 per cent in its current turnover of Rs 520.8 crore. TELCO in the same period will increase its output from 36,000 vehicles to 56,000 vehicles a year, adding to its gross sales by more than Rs 300 crore.Other Tata companies will not lag behind. Capitalising on the shift in government policy which now allows large industrialists to expand into core and infrastructural areas, the Tata electric companies, pioneers in the field of electric supply, are reaching for the sky - India's largest thermal power plant, expected to generate 500 mw, is coming up at Trombay and will virtually double the supply generated by the three Tata power companies.On another crucial front, a sub-diary of Tata Chemicals has planned two major fertiliser plants, one petroleum-based and the other phosphatic, during the Sixth Five Year Plan period which ends in 1985. If government clearances come through, the projects could boost the group's assets by as much as Rs 600 crore. All in all, the Tata leap forward-in the '80s is expected to almost double the group's present size over the next five years.Difficult Choice: That JRD's search for a successor took place when the group was poised for greater things only made his task more difficult. All the participants in the leadership sweepstakes are actively involved in both formulating and implementing the expansion strategies which call for more cooperation and collaboration between the units than ever.Said a leading Bombay-based business analyst: "This situation requires far more tact and delicacy than ever before. If the choice of successor is not acceptable to the heads of the different Tata corporations it could seriously jeopardise both group unity and the success of the expansion programme."The surprise election of Ratan Tata suggested to many observers that the issue of succession had finally been clinched. Matters of consequence to the Tata industrial units are traditionally decided by the directors of Tata Industries and Tata Sons. Both are private holding and investment companies closely held by the Tata family and public charitable trusts floated by them.While the once powerful holding companies wield virtually no legal powers over the far-flung empire, their boards continue to serve as an old boys club. Chief executives of virtually every Tata company are automatically co-opted onto the board of Tata Industries and a select few onto that of the apex Tata Sons.Last fortnight the elders were reluctantly admitting that Ratan's election as head of Tata Industries is in all probability only a stepping stone to his taking over the entire group.But they had their reservations about the power he would wield. Said a director of Tata Industries: "We have long ceased to be an empire, Ratan Tata has to preside over a commonwealth. He will be the first among equals. The first certainly, but one also among equals."Dictating Policy: With the abolition of the managing agency system on April 9, 1970, the tightly controlled Tata group of companies was rapidly reduced to a nominal partnership which left the Tata family with little in the way of physical control over its constituents. Though no longer able to direct the operations of the units promoted by it.Tata Sons continued to dictate broad policy making in the Tata companies through the directors and company chiefs assembled on its board. Hand-picked and groomed by JRD, the technocrats in actual charge were an intensely loyal lot who owed allegiance to the ageing patriarch. Tata insiders point out that it is only this loyalty which gives JRD his hold over the group.The question of succession is made all the more important in view of the tenuous controls exerted by Tata descendants over the activities of the group. Tata Sons, the holding and investment company, holds as little as 3 per cent of the shares of TISCO and TELCO, the two major corporations in the group.(From left) Naval Tata, Moolgaokar, Palkhivala, Mehta and Mody: The cream of Tata managementThe family-run holding company controls only 10 per cent of the scrips in each of the Tata Oil Mills (TOMCO) and Tata Chemicals and as little as 1 per cent in the electric companies. In contrast, institutional lenders, banks and quasi-governmental bodies, control an average holding of 45 per cent in each of the above companies and in some others privately owned blocks of shares account for at least as much voting power as that of the Tatas.But the Tata management has rarely given its shareholders any cause for worry, and the institutional vote has traditionally supported JRD and his trusted lieutenants.Historical Hold: Despite the apparent decentralisation of the Tata management, there has never been a real threat to JRD's hold over the group. Although he divested himself of the chairmanship of some units soon after taking over in 1938, effective control over these units was merely passed on to Naval Tata who remains chairman of the Tata textile factories and the three electric companies.Further, as historical head of the entire Tata empire, JRD continues to closely supervise the operations of each individual unit, including those of which he is neither chairman nor director. He still receives monthly operating reports on every Tata-promoted company and exercises considerable influence over their workings."But this is only a historical hold," said a Tata observer who has watched the group both from within and without for over 30 years. "It's only from habit that they listen to JRD and this hold is concentrated in the person of JRD. It is entirely open to question whether this control will last after JRD finally gives up the reins."Remarkable success stories in their own rights, many Tata managers have been growing increasingly independent and free of the traditional controls. Five years ago the chairmanship of TELCO passed on to Moolgaokar, chief executive of the company, who is widely accepted as the person responsible for the company's growth and phenomenal success. Today Moolgaokar makes his own policy decisions and company insiders claim that he does not even take the Tata Sons board into his confidence.Autonomy: Other Tata-promoted companies like Voltas function in near-total autonomy today. Although Tata Sons owns 18 per cent of the Voltas shareholding giving it the single largest private block, company Chairman Akbar Hydari is a non-Tata man and with the recent appointment of Sareen from ITC as its chief executive there is every likelihood that the company will cease to be a Tata fiefdom.Throwing over the Bombay House hierarchy for professional managers from outside the group, A.H. Tobaccowala, the last managing director of Voltas, selected his own successors from among professionals already successful in other industrial groups. Sareen replaces Tobaccowala as president. S.K. Chopra, a director of Hindustan Lever has been brought in as senior vice-president and another senior executive from Britannia is likely to join up before the year is out.On the fringes of the Tata world, corporations like the Associated Cement Company (ACC), Rallis and Forbes, Forbes Campbell and Company continue to follow the broad ethos of the group without actually following its policies. Palkhivala is chairman of ACC and Moolgaokar its director, and each of the others has at least one Tata director, but there are few real links with the group.While there is no immediate risk of other Tata companies following this trend, many business and corporation analysts confess misgivings about whether this happy state of affairs will survive once JRD is off the scene. Professional managers like Indian Hotels" Ajit Kerkar. Tata Chemicals' Darbari S. Seth, Tata Electric's K.M. Chinappa, TISCO's Mody and TELCO's Moolgaokar, they assert, are unlikely to listen to anybody who lacks the stature of a JRD.In that context, it is easy to see why Ratan Tata's appointment as Tata Industries chairman - the only man above him will be JRD himself, as chairman of Tata Sons - sparked off such intense speculation. Predictably, few insiders at Tata headquarters in Bombay House are willing to go on record against Ratan Tata's appointment.But a sizeable number of insiders feel that Ratan seems ill-suited for the challenges ahead. A bachelor who studied architecture and structural engineering at Cornell University, USA, Ratan had his apprenticeship in TISCO and TELCO and since then has been associated with none of the Tata blue-chip companies.His major experience within the set-up has been limited to the National Radio and Electronics Corporation (NELCO) which has the unfortunate reputation of being a black sheep of the Tata group. Ratan has been NELCO's director-in-charge since 1971 and, consequently, in the public mind, he is associated more with failure than success.I think that until and unless policies generally change vis-a-vis the private sector and the bureaucratic hold over industrial development of the country is relaxed, growth will not be as fast as it could and should be. His lack of flamboyance and of the over-publicised operating style of most of his contemporaries is another drawback. Says Ramu Pandit, genial, diminutive secretary of the Indian Merchants Chamber: "For many in the business world, Ratan Tata will be a hazy, little-known personality. His appointment came as a great surprise because he has not been associated with any public activities which one has come to expect of a Tata head."But Ratan's projected drawbacks could be deceptive. A personable, good-looking man with few airs and graces, he is credited by outsiders as possessing the kind of tact and humility which could win him far more support and cooperation than any amount of entrepreneurial achievement. "His six-year spell at TISCO, says a Tata insider, "has done him more good than any amount of grooming by JRD could have. He did not throw his weight around at all and his modesty and humility earned him loyal friends and supporters."Fiery Baptism: Even the NELCO experience, which is currently being held against him, was not really as indicative as his detractors are at pains to point out. He took over NELCO after it had racked up losses for most of its 31 years of existence. By 1972-73, the company had started registering modest profits and by mid-'75, half its accumulated losses had been wiped out and the company had a consistent growth rate of 40 per cent per year.With the partial recession during the Emergency, the company once more dived headlong into the red and it was bailed out of a seven-month lockout by a massive injection of funds. But many Tata executives feel that Ratan's experience in NELCO has been a sort of baptism under fire, and has steeled him for the far greater battle ahead.Three years ago, Ratan was given charge of the century-old Central India Spinning, Weaving and Manufacturing Mills. By last year, the ageing company had written off its accumulated losses and posted profits of Rs 1 crore till the crippling recession in textile units this year once more drove it back into the red. But Ratan's stint had already earned him a reputation as a trouble-shooter and last month he was co-opted onto the board of the sick Tata Mills as vice-chairman in the hope that he would manage to turn the company around.Ratan's biggest challenge is the obvious one - to fill the shoes of the man who might bequeath him the empire, JRD himself. The septuagenarian is something of a demi-god in the Tata corporate family - the myth is composed of hard achievement and awed anecdotes about his business prowess, unerring industrial instinct and compassionate humanism.As an industrialist he is credited with placing the Tata group firmly on the international map; as an aviator, he is romantically seen as an adventurer and pioneer flier who brought commercial aviation to the country, rearing an airline which now grosses over Rs 600 crore annually; as a patron of the arts, he is revered by India's artists, sculptors and performing artistes, for under JRD's tutelage, the Tatas have become the biggest buyers, promoters and supporters of the art world; and as a philanthropist, he is greatly respected for keeping alive and building up the tremendously active Tata charitable trusts.Born to Ratanji Dababhoy Tata and his French wife Suzanne, nee Briere, in Paris on July 29, 1904, Jehangir was brought up in France, where his parents had settled after Ratanji had some differences with his cousin and partner, Sir Dorab Tata, then head of Tata Sons and the units it controlled, JRD was schooled in Bombay's Cathedral School, spending his holidays in France, where his father ran a small trading house and export firm.Two years during World War I were spent in Yokohama, Japan, and at the end of his schooling he returned to France, where he was conscripted into the army for his compulsory military service. In 1924, the budding industrialist was riding an Arab pony in a crack cavalry regiment camped in the sands of Algeria.Hard Training: Possibly realising that an apprenticeship in Tata Steel would serve his son better than the Cambridge education planned for him, Ratanji got JRD a place as aide to John Peterson, the dour Scotsman who ran the company in the '20s. According to JRD, Peterson put a desk in his own room and for the next five years every paper that passed across Peterson's desk was routed through JRD.In an interview with R.M. Lala, author of a book on the Tatas called The Creation Of Wealth, JRD says that Peterson included him in every discussion and interview he had; he was also a workaholic and admits that he worked 75 hours a week.JRD (second from left) prepares to take off from Karachi in 1932: pioneering flightIn 1926, after the death of his father, JRD inherited a seat on the board of Tata Sons, the company he was to control for more than half his lifetime. By 1938, when Tata head Sir Nowroji Saklatwala died, the flegdling industrialist had jockeyed himself to a position of power which left him the undisputed head of the board. The rest is history.But JRD's first love was flying - at the age of 15, he decided to become an aviator - and in 1929, he became the first Indian to obtain a commercial pilot's licence. A year later, there occurred an incident which was really the start of the JRD legend. He along with Aspy Engineer was competing for the Aga Khan Trophy offered to the first Indian to fly between India and England. When JRD landed at Aboukir. Egypt, he met a restfallen Engineer who had been stranded for lack of a spark plug. In typical fashion JRD offered him a spare plug and eventually, Engineer beat him to the prize by a few hours, JRD quipped later: "I'm glad Aspy won because it helped him get into the Indian Air Force." Engineer was to become the second chief of the air force.Pioneering Airline: Some time later, JRD teamed up with Neville Vintcent, a daredevil Englishman, and, after a protracted battle with Sir Dorab Tata, Tata Airlines was launched as a division of Tata Sons. In October 1932, a single-engined Piper took off from Karachi carrying a cargo of mail and with JRD at the controls - this was the humble beginning of Air-India.JRD and Vintcent took turns flying the plane, and since the makeshift runway at Juhu, Bombay, was flooded throughout the monsoon, the airline would shift lock, stock and barrel to Pune for four months each year, taking the two planes, the spare engine and mechanics.By this time, JRD had other charges, and he started expanding the Tata set-up with alacrity. In the year after his ascension, he set up Tata Chemicals, and the two decades which followed saw the start of the Indian Tube Co, TELCO, Voltas, Tata Services, Tata Exports, Air-India Limited and Air-India International. Tata Industries, floated in 1945, became the managing agent to the group, building up an unassailable reputation as a talented and highly successful management house.Although JRD divested himself of the chairmanships of the textile companies and the power company trio which supplies most of western India's power requirements, and encouraged professionals to become independent in their daily operations, he maintained autocratic control of the growing Tata empire.Said a Tata director: "There is no doubt that the Tatas have a greater degree of professionalism than other groups, but JRD is an absolute dictator in the industries he controls. The directors are mere chess pieces, he can place or move them entirely at will."Mixed Success: Air-India was JRD's first love, and despite the Air Corporations Act of 1953, which nationalised all airlines in the country, JRD, as chairman of the international carrier until 1978, continued to supervise closely his brainchild's working."He had an unerring instinct for the aviation business," says an keen JRD-watcher, "and he relied heavily on it. He would push his decisions through if he felt they were right and almost invariably they were."In other areas though, the JRD touch was not always so sure or successful. The problem-struck Tata textile companies defied solutions, and he finally passed them on to Naval Tata. The star performers in the Tata stable responded not so much to him as to the superb chief executives: TELCO is more a triumph for Moolgaokar than anyone else; Darbari Seth was already an accomplished chemical engineer trained in sophisticated American factories when he was picked up to start a chemicals unit. Other top-level professionals like Palkhivala had distinguished themselves outside the group before they joined it.In fact, at the upper levels of Tata management a distinct resentment against the patriarch is beginning to manifest itself, which the Ratan Tata decision will fuel. Critics blame JRD for the virtual slump in Tata affairs during the '60s and the '70s.A senior Bombay House manager accused him of frittering away time on Air-India which constituted only a fraction of Tata revenues at the time, and ignoring the interests of the textile units, most of which are on the brink of terminal sickness today.Others claim that the image of JRD as a benevolent employer is in large part created by good public relations; they add that his man-management is so bad that he is not on speaking terms with Naval Tata, Palkhivala and Moolgaokar. Says a person who has been closely associated with JRD for over 25 years: "There is too much hero worship in our country, and people rarely look at the warts. And JRD is a man with more than his fair share of warts."Clean Image: For the overwhelming majority of the people in the organisation, however, JRD is an awe-inspiring figure. Quick-witted, with an inquisitive mind, the man exudes a rare, aristocratic air. And whatever the grumblings inside Bombay House, his major contribution to his empire is, as Rusi Mody puts it, "presenting to the country an image that big business can be as clean as we are".Legend has it that when JRD prepared to vacate his rented bungalow in Bombay, tiring of the annual eviction notice each time his landlord wanted an increase in the rent, the landlord himself broke down and persuaded JRD to stay, and said: "I will rot in hell if I throw such a great man out of my house." JRD now has a lease on the house which will only expire two months after he dies.Married to a hazel-eyed Austrian beauty in 1930, JRD's life-style has been in marked contrast to his main competitors like the Birlas and the Modis. In keeping with his image, JRD prefers to stay in the rented bungalow that stands defiantly alone surrounded by towering skyscrapers in the heart of Bombay on Cumballa Hill. He has steadfastly refused to move into the vast ancestral house in downtown Bombay built by his great-grandfather.JRD is very much a fitness freak and one of his favourite rooms in his bungalow is a well-equipped workshop-cum-gymnasium where he works out regularly. Only recently has he given up tennis but still plays golf and skis three weeks every year. During his spare time, JRD spends hours in his library stocked with books on aviation, military history and motor racing (he was a keen racer and one of his ambitions was to compete in the Grand Prix).Agile Figure: At an age when most of his contemporaries are six feet under, JRD still walks ramrod straight and his eyes are as piercing as ever. Over four decades of heading one of the great industrial houses of India has mellowed the man but he has retained his own peculiar style and philosophy. "As chairman," he once said, "my main responsibility is to inspire respect." And in that, as in everything else he has attempted, he has succeeded admirably.But with his long and illustrious innings coming to an end, keeping the Tata companies within one cohesive corporate family is not going to be easy. An independent observer asserts that, regardless of who is in charge at Tata Sons and Tata Industries, corporations within the group will tend to drift away from the erstwhile fountainhead.According to reports, Moolgaokar is already bent on choosing his own successor, and sources in Bombay House suggest this will either be Palkhivala or TELCO Joint Managing Director J.E. Talaulicar. In Voltas, Tobaccowala has already nominated his own successor.Ultimately, feel observers, what will matter is not the succession to the two holding companies, but the individual successions to each of the industrial units. As one executive of a smaller Tata corporation puts it: "In the long run it will be Ratan who will be most acceptable to the heads of companies, but I personally feel that whether it's Ratan or Palkhivala, the probability is that the companies will go their own way in the end. It's only JRD who holds the group together even today."Big Plans: Will Ratan Tata succeed, as JRD has done, in keeping the different units of India's most powerful industrial empire in the family? That is a question that only time can answer, but Ratan by last fortnight was already drawing up plans for Tata Industries - he sees the role of his new charge as an agency instrumental in identifying new growth areas and promoting industries in them, much like the Tata Sons of old. With the ability to think big in his planning, and age on his side, Ratan's chances of making a success of it, if and when he succeeds JRD, would appear to be bright.More important, if Ratan does eventually inherit the Tata empire, he will be getting a business group which is at its peak, both in growth and profitability. Coming out of a ten-year slump which left its assets and productivity virtually stagnant but for the additions made by inflation, the past two year found the group vigorously pushing expansion plans.Shareholder confidence was also at its peak: TISCO scrips' which till 1979 sold for only Rs 100, even though their break-up value was Rs 250, were being quoted at Rs 345 post-bonus which put their pre-bonus value at around Rs 460. TELCO's Rs 100 share was going for Rs 665 on the Bombay Stock Exchange, a Rs 10 share of Indian Hotels for over Rs 80, and a Rs 10 share of Tata Chemicals for Rs 49.Said Arvind Dalai, partner in a leading Bombay stockbrokers firm: "I think we should be optimistic about Ratan Tata. Barring the textile companies, I see the next five years as a tremendously good period for Tata scrips, and every individual company is at its peak with a superb man at the helm. Unless Ratan fiddles with the established structure there is really nothing which can go wrong."Cynics, both inside and outside the empire, have started questioning Ratan Tata's ability to hold together the accomplished lot of managers guiding the Tata group's fortunes. But much of the doomsday predictions are concerned with the time when Ratan will be on his own.At the moment of course, the great JRD is still there, JRD has not stepped out of the boardroom, he has only stepped aside to make way for his nephew. With all that experience guiding him, Ratan Tata could prove his detractors wrong, and his uncle right, by adding to the laurels gathered over a productive century.THE FAMILY: TRAIL OF TYCOONS If and when he is anointed as the head of the Tata empire, Ratan Naval Tata will become the fourth-generation Tata to join the long line that began with Jamsetji Nusserwanji in 1868, when the first Tata company, Tata & Sons was founded.On Jamsetji's death in 1904 - the year JRD was born - his son, Dorab, took over the reins and converted the partnership firm (capital Rs 20,000) into a private limited company in 1917 with a capital of Rs 1.5 crore.Dorab died in 1932 and was succeeded by Nowroji Saklatvala, a cousin by marriage. Saklatvala died suddenly in Europe in 1938 and JRD was installed on the family 'gaddi'. But for the short Saklatvala period of six years, a Tata has always headed the business clan, a family tradition that Ratan, who is in direct line of succession to Jamsetji, being the son of Jamsetji's adopted grandson, Naval, will carry on when he succeeds JRD.Published By: AtMigration Published On: Oct 23, 2013 09:38 IST--- ENDS ---

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Tata empire patriarch J.R.D. Tata steps down, nephew Ratan Naval appointed chairman

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