The Tatas After JRD
Business World — December 1993

Giving a sharp focus to the group's activities is the first of Ratan Tata's task. Years of unstructured growth have given the group a bagful of diverse businesses.

For the Rs. 13,500 crore Tata empire, these are critical times. And the task of steering India's premier business group through them rests on the shoulders of chairman Ratan Tata.

"I am a firm believer that the disintegration of the Tata group is impossible. Most business groups have disintegrated or drifted apart because of family ownership and management, with rival family members wanting to go their own way. In contrast, the Tata group companies are run by professionals at the highest levels of management who firmly believe in the trusteeship concept laid down by Jamshetji Tata, as also Mahatma Gandhi. We all believe that we are trustees, and not owners, of very important national assets and we work for social objectives."
— J.R.D. Tata (soon after he stepped aside as Tata Sons chairman in March 1991)

Two years after the doyen of Indian business, JRD Tata, made that statement in a newspaper interview and now after he has passed away, his words are coming alive in the highest echelons of the Rs. 13,500 crore Tata group. In the coming months, major group companies are slated to unveil their first ever show of solidarity. The most visible signs of that show will be a massive, Rs. 12 crore, multi-media advertising blitzkrieg, spread over nine or 10 months, with one basic theme: " The Tata group is united and will remain united."

The unprecedented campaign is the brainchild of the group's most important mand, Ratan Naval Tata, chairman of the apex company Tata Sons and of Tata Industries, as well as of the group's two biggest companies Tisco and Telco. Besieged for more than two years by adverse public opinion, the head of India's premier business house has decided that it is time to take the initiative. And silence all those prophets of doom who have forecast disaster for the group without JRD's cementing presence.

It couldn't have been a more opportune time. For the better part of the 33 months that Ratan Tata has been at the helm of the group, the House of Tata has been at the centre of a storm of unprecedented controversy. And a target of sustained criticism. Even five years ago, the word Tata was synonymous with the highest qualities in India's corporate and industrial world, untarnished and almost pristine. Today the halo has been slightly crimped. The unseemly Russi Mody affair earlier this year is still fresh in people's minds.

It is an unfortunate coincidence that Ratan Tata's new image-building campaign may be launched just weeks after group patriarch JRD's death. But the advertising is merely an external sign of what the 55-year-old chairman of the group will embark upon.

Ratan's tasks go well beyond that. Giving a sharp focus to the group's activities is the first of them. Years of unstructured growth have given the group a bagful of diverse businesses. From trucks, steel and cement to drugs, lipsticks and computers, the Tatas make them all. And like many other Indian business groups, with the dismantling of the licence raj, the group has realised it can't do everything. Not if it wants to do it well.

Ratan Tata has already recognised that. Last April, when he hived off the Rs. 420 crore detergent and soap major Tata Oil Mills Co. (Tomco) and merged it into Hindustan Lever, it was Tata's first move to get out of businesses that he felt the group couldn't manage.

But he has much more to achieve. In the past couple of decades, the group never really felt the need for restructuring. Each major company grew according to its own plans and in whatever direction it decided to take. In many cases, this has led to overlapping activities. For instance, the group has three companies making cement - giant ACC. Tata Chemicals and Tisco. Similarly, the group has two pharmaceuticals companies - Merind and Tata Pharma - while three other group companies, Rallis, Voltas and Lakme, have their own pharmaceuticals divisions.

Voltas is a typical example of where unstructured growth can lead. The company, whose main strengths are in refrigeration and air-conditioning, has tried its hand at a bevy of activities - beverages, foods, retailing and merchandising - with mixed success.

In the electronics business, the Tatas were early entrants, yet they couldn't match their wits with brash, first-time entrepreneurs who rule the roost today. The group's electronics company Nelco missed several opportunities and is in dire need of refocusing. In the information technology business, the Tatas have nine companies, many of them with global giants as partners. Yet there has been no attempt so synergise or build these businesses around core strengths. The result: in infotech, other Indian companies have achieved much more.

But before Tata can focus on his businesses, he will have to grapple with the Tata group's organisational issues. In the 53 years that the late JRD had been chairman of the group, Tata businesses were run in what even insiders call "an unstructured manner." JRD picked his managers - the Russi Modys, the Darbari Seths, the Sumant Moolgaokars, the Ajit Kerkars - and gave them little short of complete control over their businesses. Says Forbes chairman Fredie Mehta, who is also a director of Tata Sons: "That was JRD's style. He had this genius of identifying and inspiring geniuses that he saw around him."

Once he did that, JRD would give them near-entrepreneurial freedom, rarely stepping in the way of their decisions. Such an approach had its pluses. JRD's chief executives enjoyed tremendous opportunities to give vent to their entrepreneurial or managerial skills. And many of them emerged winners. Examples: Seth built the group's tea and chemicals businesses; Mody ran Tisco without even a whisper of industrial relations problems; the late Moolgaokar fashioned Telco into an impressive engineering giant; Kerkar took a one-hotel operation and turned it into a 10,000 room international business.

But JRD's policy was like a double-edged sword. On the minus side, his managers got used to the freedom and ran their companies the way they wished, almost like they were their own little empires. Says a Tata group insider: "Somewhere along the way, things got hazy and managers began to function like owners." The fact that the group had no effective retirement policy for its senior executives did little to prevent that. Observes a Bombay management consultant: "JRD himself decided to hang up his gloves at 86 and his managers who were in their seventies were not in a hurry to retire." Says a close associate of the Tatas: "It may not be nice to say so but it was JRD who allowed these people to stay for too long."

The resistance Mody put up when Ratan tried to push through the sensible and long-overdue retirement policy demonstrates that. It's well known that finally it was JRD who resolved the issue and cleared the decks for Mody's dismissal.

Even after JRD officially took a back seat in 1991, in practice he still played an active role in the group's affairs: before Ratan decided to hive off Tomco, JRD's seal of approval was sought; when Darbari Seth indicated to West Bengal chief minister Jyoti Basu that the Tatas may no longer be interested in the Rs. 3,000 crore Haldia petrochemicals project, it was JRD who, along with Ratan, met Basu and cleared the air.

Incidents like these may make observers wonder whether, in the absence of the patriarch, JRD's successor will be able to hold the Tata empire together. Tata-baiters are already predicting chaos in the group. Says an executive of a Bombay-based company: "Some members of the group's powerful old guard had kept their claws sheathed because of JRD. Now their opposition to Ratan may come out in the open." In particular, corporate circles are waiting to see whether Ratan runs into problems of the Mody kind with powerful players in the group like Palkhivala (who turns 74 in January) and Darbari Seth (who, at 74, is still chairman of Tata Tea and Tata Chemicals). When the Mody episode became public, many Indian business houses were gloating over what they billed as a "scandal" in the Tata group. Now they could be hoping for a sequel.

If they are, they could be disappointed. Says a senior Tata executive: "It's a myth that the Tatas are a bunch of feuding warlords, waiting to stick their knives into Ratan." In fact, some Tata seniors think exactly the opposite may happen. Says Indian Hotels chairman Ajit Kerkar: "If anything, in the post-JRD period our responsibilities will increase and we may become a more closely-knit group.

Others have already reposed their faith in Ratan. And why not? JRD's successor may have faced a rough time immediately after he took over, yet none can deny that he sent out the right messages about his capabilities. After all, in the face-off with Russi Mody it was Ratan who had the final say. In Tomco, his decision was quick and unfaltering. Says a Tata executive: "It is the press, unfortunately, which has tried to position Ratan as a harsh guy and they've got it all wrong. He's firm and committed."

Yet there are some who strike dissenting notes. Says a senior Tata director: "Ratan's problem is unfortunate. Early in his career he got saddled with the dud companies of the group and people tend to base their opinions about him on the poor performance of the companies he was assigned." Ratan was first given charge of the group's ailing textile mills and then the moribund electronics company Nelco, probably as a part of JRD's efforts to groom him. In both those businesses, the Tatas did badly and that perhaps got reflected in his reputation as a manager.

But today the Tomco decision and, perhaps more than that, the Mody episode have sent clear messages within Bombay House: Ratan knows what he wants to do and he will go ahead and do it. In the Tomco case, Ratan pushed through the merger proposal even though it's common knowledge that a couple of Tata satraps were against it. And in the Mody affair, despite strong pressures from the former Tisco chairman, Ratan firmly stood his ground. Even earlier, when he decided to be firm with the Rajan Nair-led militant trade union at Telco, Ratan showed his mettle and his steadfastness. Comments an executive: "He doesn't give in easily. " Friends and associates of the Tata Sons chairman talk about his strong principles. Says Kerkar: "Unlike JRD, he isn't an extrovert but he's straightforward and honest." Says Ratan's long-time friend and chairman of Bombay Dyeing Nusli Wadia: "Ratan has imbibed from JRD a very high value system. Most people today look at opportunities and not values."

Another of Ratan's strong points-and one he has already demonstrated is his ability to bring in new businesses. In the past couple of years, the Tata group tieups with IBM for computers and Mercedes Benz for card have been possible mainly because of Ratan's efforts. Technologically oriented - like JRD himself - Ratan's penchant for hi-tech businesses is well known. In the early eighties, when Ratan took over as Tata Industries chairman, he drew up a strategic plan for the group which stressed hi-tech ventures. That plan could not be implemented then, largely because Ratan didn't have enough of a say in other group companies.

That problem was only partially solved when JRD named Ratan his successor in Tata Sons. For Ratan may be chairman of Tata Sons, but the group apex company hardly holds sway over the bigger Tata companies because of its low shareholdings. As over 80percent of Tata Sons is held by charitable tursts, which cannot subscribe to rights issues, the group had in the past tried to work on a proposal that could circumvent the problem. The idea was to get group companies to subscribe to fresh Tata Sons equity and thus enable the apex company to increase its holdings in the group companies. In the late eighties that plan got stuck, chiefly because group satraps like Russi Mody resisted the move and Tata Sons shareholder Shapoorji Pallonji Mistry (a building magnate who holds 14percent) couldn't be persuaded to dilute his holding.

Now Ratan will probably revive that proposal. In the changed economic environment, where takeovers and mergers are becoming easier, the Tatas now have more reasons for increasing their shareholding in group companies. And this time round, Ratan may find it easier to get supporters. Says Tata Sons director S.A. Sabavala: "It wasn't the right time to do it then. Now things have changed."

Indeed they have. Last fortnight when senior Tata executives flew into Geneva to accompany the late patriarch's body to Paris, it could have looked like a show of solidarity. A part from Ratan, Darbari Seth was one of the first directors to fly to Geneva. Joining them were Tisco managing director J. J. Irani, Kerkar and Sabavala.

Yet some observers feel Ratan still has an uphill task. Group chieftains like Darbari Seth, Ajit Kerkar and Nani Palkhivala are formidable forces to reckon with. Take Seth, for instance. Seth, whom JRD used to affectionately call the "entrepreneur in Tatas," built two of the most profitable companies in the group - Tata Chemicals and Tata Tea (combined turnover: Rs. 790 crore). But he also ensured that his interests weren't affected. When Ratan revived the retirement plan, Seth unlike the tantrum-prone Mody accepted it and retired from his executive post, but not before ensuring that his son Manu was groomed to become the man who will eventually control the bigger company, Tata Chemicals. Like Seth, Kerkar, who wrote the Tata's success story in hotels, has also strengthened his constituency. Kerkar's son heads the country operations of Indian Hotels' associate company Cox and Kings. His wife, meanwhile, is a senior executive in his hotel company. As for ACC chairman Palkhivala, Ratan himself has gone on record engineering. Ratan has added new areas to that list — high-technology business (including infotech) and international operations. The sticky issues, however, pertain to the businesses that will have to go. The Tomco hive-off was relatively easy, but management experts feel the group has other non-compatible activities that should go out the window too. Several divisions of Voltas have to be re-looked at; new projects like the joint venture with Mercedes Benz at Telco have to be midwifed; cosmetics maker Lakme may have to opt for strategic alliances with global players if it wants to survive; the rash of computer companies that the group has spawned needs to be restructured; the fate of companies like Nelco will have to be decided... the list is long.

Ratan also has other tasks on the agenda. One of his efforts to knit the group closer is a proposal for a new logo for the group and a system of royalty payment to Tata Sons by companies which use the Tata name, arguably a strong asset of the group. Says Sabavala: "The Tata Sons board is discussing the proposal, but the details are still to be worked out." Sceptics wonder whether group companies will agree to it. Asks a Tata Sons director: "Companies have been using the name for years; will they now agree to pay money for that?"

But, then times have changed. Only months after the Russi Mody affair ended, the mood in the rarefied reaches of the Tata group appears to have altered. At least publicly, senior Tata men appear to be baking Ratan. Says Kerkar: "It is wrong to say that there is any dissension within the group. It is a myth being spread by certain people. JRD selected his cuccessor with everyone's approval and we all support Ratan Tata entirely."

Still Ratan Tata's job is no bed of roses. To make things worse, he had to fritter away precious time in the first couple of years after he took charge trying to grapple with problems which the group could have easily avoided. At 55, though way below the average age in Bombay House boardrooms, Ratan isn't exactly young. Many multinational companies and even government organisations have a retirement age of 58. One view is that JRD should have inducted Ratan at least 10 years ago. That would have given the man more time to do what he has to. But then you cannot rewrite history.