India's JRD Tata: Can he handpick a successor to carry on a corporate legend?
International Management  Magazine — February 1983

By dubbing his nephew, Ratan, heir apparent, JRD has taken a step that could split up the famed house of Tata.

(As the nephew of the childless JRD, and the son of deputy group chairman Naval Tata, Ratan was the obvious choice as heir apparent to the Tata throne. A graduate of Cornell University in Ithaca, New York, he worked in both Tisco and Telco before assuming a role as the group's unofficial trouble-shooter. Over the last 10years, he has been given credit for turning around two group companies, the National Radio and Electronics Corp.(Nelco) and a 100-year-old textile mill. Still a bachelor, he remains wedded to his work. He believes that his primary task as chairman of Tata Industries is "to try to encourage the directors of the different companies to work together toward trying to rebuild a closeness of the group that has diminished over the years)

Jehangir Ratanji Dadabhoy (JRD) Tata, head of India's huge Tata industrial empire, is renowned as a cautious man who always listens to other people's counsel. So when the 78-year-old industrialist recently decided to make a solo flight in a vintage aircraft from Karachi to Bombay, refusing to listen to warnings that it was "the hare-brained idea of an old fool", it was clear that he had not lost his sense of determination.

JRD's 600-mile flight last October was a re-enactment of his pioneering effort 50 years ago, when he began Air India's first commercial airmail service. The touchdown in Bombay was witnessed by crowds of admirers, many of them young people. One reason for making the flight, explained JRD to a battery of microphones and clicking cameras, was "to rekindle enthusiasm among the younger generation".

Although observers may have viewed JRD's sudden change of behaviour as a second childhood, what it really signals is his recognition that after 45 years as chairman of Tata Sons, the group's parent company, he will soon have to hand over the reins. A long period of government-imposed restraints on the growth of big business houses such as Tata is now giving way to opportunities for massive expansion, and JRD would like a younger man to take over the helm.

The apparent crown prince in the wings is his 45-year-old nephew, Ratan. Just over a year ago, JRD startled trusted colleagues by stepping aside as chairman of Tata Industries, the group's major policy-making body, and named Ratan as his successor. The move catapulted Ratan to the front of the succession queue for the chairmanship of Tata Sons. The decision created consternation among several expectant, more experienced and longer-serving Tata executives.

But the matter is far from settled. JRD hastily smoothed the ruffled feathers of the group executives by ensuring them that when he retires, or dies, his successor as chairman of Tata Sons would be chosen by the board of Tata Sons. Virtually all of the senior Tata executives who lay claim to the top job sit on the board of the parent company.

At stake is arguably the most prestigious corporate post in India. As the head of Tata, JRD guides the activities of 30 autonomous companies employing more than 237,800 people, a payroll that is a tribute to Tata's efforts to help keep India's unemployment rate down. Indeed, Tata has become a modern-day legend for its commitment to look beyond the needs of its own business interests and address the wider concerns of a poverty-stricken nation.

All of the Tata companies are bound by common ideals and goals that strive to carry on the founder's tradition of social responsibility — often at the expense of profits — that was established before the turn of the century. JRD's successor will be expected to carry on the Tata legacy of mixing big business with philanthropy.

Historically, the Tatas have also been at the frontier of the development of India's heavy and basic industries. The group's two largest companies, which combined account for well over half of last year's total group sales of $2.9 billion and pre-tax profits of $321 million, are Tata Iron and Steel Co. (Tisco) and Tata Engineering and Locomotive Co. (Telco). Tisco was India's first steel mill and is the only one left in the private sector. Telco is the country's largest motor vehicle manufacturer. Other group interests include power generation, textiles, chemicals, tea, hotels, publishing, toiletries and computers.

Until the mid-1970s, Tata also held indisputable claim to being the largest grouping of companies in the private sector in India. Since then, years of stagnant growth have allowed it to be overtaken in both sales and assets by its main rival, the Birla group.

JRD was quick to pounce on criticisms of Tata's slothful growth record, among other things, during a recent three-hour interview with International Management that was interrupted by a couple of meetings with key executives and several telephone calls.

JRD...think big, but check the details
Quiet spoken, with piercing green-blue eyes, and aquiline nose and an aristocratic air, JRD remains a much revered figure within the Tata organisation and some what of an institution abroad. His October feat was a front page story in The Times of India, featured under a three column headline: "JRD re-enacts historic flight".

A casual dresser, he refrains from the ostentatious lifestyles of many Indian industrialists, preferring to live in a rented bungalow surrounded by skyscrapers in downtown Bombay.

JRD scoffs at the idea of being characterised as the Rockefeller of India. "I have never had an interest in the accumulation of wealth." He says. "I have always been more interested in what wealth can do for the betterment of society.

"I suppose the big difference between the Tatas of India and the other great founders of trusts and foundations is that, while the Fords and the Rockefellers have remained very wealthy, the Tatas have retained very little individual wealth."

He reckons that his personal wealth is probably just over $200,000, noting: "I am not even close to being a dollar millionaire, because whatever I inherited I put into a charity trust many, many years ago."

Though he rarely flies now, a sense of the young aviator's zeal for adventure lingers on in the ritual winter skiing holiday in the Swiss Alps. "I used to go skiing for three weeks but have cut it back to one week in the last three years." He say in a rare concession to the frailties of age. "When I turned 60, I found skiing a most strenuous sport."

Age hasn't changed his penchant for perfection, nor his habit of wanting to get involved in everything. "My standard has always been to aim for perfection, if you want to achieve excellence," he says.

"He's a great one for details, spending hours discussing the precise meaning of a word or looking up a date," say a Tata director. Others accuse him of periodically scrutinising the second floor of Bombay House, where his office is located, to ensure that the pictures are hanging straight on the walls, the floors are scrubbed and the guards have all the button on their uniforms.

As for his round robin approach to making decisions. JRD believes that it all stems from when he became chairman of the Tata group at the age of 34. "I had to deal with executives who were older and more experienced than me," he says. He is firmly convinced that his ability to get consensus is one of his greatest strengths as a manager.

Others see it differently. "He thinks around a decision too much ," says a colleague. "He should go with his instincts. Invariably, they prove right. But he ends up with nothing, because he lets you, me and the lamppost all have their say and then tries to take account of all the opinions." Bounding up and down with pulsating energy from a chair in his huge, sparsely furnished office at Tata's headquarters in Bombay, he pinned the blame squarely on nearly four decades of ideological government policies aimed at holding back the development of large companies.

"Anti-monopolies legislation and a system of government licensing of new products were used to ensure that there would be no large concentrations of economic power in private hands," he said. "This prevented us from growing within our own sectors of industry. It also restricted our expansion into new industries."

Recently, however, the climate for big business in India has improved considerably. One reason for the transformation is that Prime Minister Indira Gandhi appears to have concluded, after years of lip service to socialism, that "bigness" in the private sector is not necessarily bad.

With favourable business conditions auguring a new era of opportunity, JRD sees the urgent need for a more cohesive and unified group approach to expansion and diversification. Ratan's appointment was a first step in this direction.

Rata must earn group loyalty
One of Ratan's first acts after taking over as chairman of Tata Industries in October, 1981, was to call for a reassessment of Tata's business interests. The study, due to be completed next month, will almost certainly recommend the rationalisation of several businesses.

More important, it will formulate a strategic 10-year plan designed to shift Tata's emphasis from capital-intensive basic and heavy industries to the more glamorous and rapid growth high-technology businesses that are so sorely lacking in the group's current makeup.

An essential part of the plan is to bring more synergy to group activities. Ratan points out that over the years the Tata companies have been allowed to become so parochial that there is no longer "a single directed objective of the group as a foremost endeavour".

Whether Ratan's plan will ever be implemented is open to a much speculation a the succession issue. The uncertainty is due to the peculiar equity and corporate power structure of the Tata empire. It really is a sort of corporate commonwealth that JRD rules more by consent and persuasion than by the weight of the family's vested interests.

JRD and his relatives, in fact, have only minute equity holdings in the companies that make up the group. With limited financial resources, the Tata have always relied heavily on wide public participation to launch new businesses. Family shareholdings have been further diluted over the years by descendants endowing their wealth to trusts, a tradition started by the founder.

The Tata charitable and philanthropic trusts, which pioneered the principle
of corporate participation in the development of the educational, social and scientific infrastructure of India at the turn of the century, now receive more than 80% of Tata profits accruing to the parent company.

JRD is mindful of criticisms of Ratan's relative lack of experience and stature. He is also aware that Ratan does not command the allegiances from other top executives in the group that will be vital in preventing companies drifting away.

He admits as much when conceding, "Ratan has the talent and now has been given the means to acquire the position of confidence that will show that he is fit to be a leader. I would like to continue the tradition of having a Tata lead this group. But I believe that the position has to be earned."

JRD clearly expects that the intense personal loyalty of Tata executives towards him will persuade them to go along with his wishes over his successor. If the level of loyalty among the ordinary workers is any thing to go by, it probably will.

Four years ago, several ministers of the Janata government began mooting the idea of nationalising Tisco. The union at the steel mill responded bypassing a resolution warning that such a move "would lead to considerable discontent among the workers". The idea was quietly dropped.

This unsolicited act by the workers moved JRD. "The spirit of the workforce at Tisco is quite extraordinary." He says. "Such loyalty cannot be bought at any price."

To a large extent this loyalty is based on JRD's faithful adherence to the ideal of social responsibility set down by the founder, Jamsetji Nusserwanji Tata. Tisco for example, provides the sole livelihood for the 400,000 inhabitants of the city of Jamshedpur, which was named after the founder. For the last 75 years, the company has made it a practice to defray the annual deficit (not running at about $10 million) incurred by the city's educational, hospital and utility services. It also sponsors a wide variety of social and rural development projects in 125 surrounding villages.

A more pragmatic view
In the field of labour welfare and relations, Tisco pioneered concepts long before they were practised in the West. It introduced the eight-hour work day in 1912. Three years later, employees were given free medical aid. By 1920, benefits such a leave with pay, a pension and accident compensation were provided to Tisco's workers. Maternity benefits were added in 1928 and a profit-sharing plan was instituted in 1934.

In 1957, Tisco set up a joint consultative worker-management council to handle employee grievances. Two and one-half years ago it became the first Indian company to conduct a social audit of its activities.

Ratan, however, may take a more pragmatic view than his uncle of Tata's social role, and this may work against his aspirations to succeed JRD. Questioned over the costs of the social commitments at Jamshedpur and whether he will emulate JRD in spending as much time managing the various trusts as managing th business, he replies, carefully hedging his words: "I do believe that the founder's traditions should be continued. But I also recognise that profit motives must also be met. One issue cannot be isolated form the other.

"In short, perhaps there is scope for a little more hard-boiled look at some of the facilities we are giving. Times do change."

Jules Arbose / Pearl Marshall