It is an exciting period of transition ahead for the group
He's young, he's Parsi, he's the son of the largest single shareholder of Tata Sons, the parent company of the Tata Group; he heads a successful construction business of his own and most important of all, he has endeared himself to Ratan Tata. Could there be better credentials for Cyrus Mistry to be anointed as the Crown Prince of the Tata empire?
Hindsight is always 20/20 vision, yet the fact remains that here was the potential Emperor right under the gaze of the media which completely missed his presence and speculated over his brother-in-law and Mr. Tata's half-brother, Noel Tata's, prospects.
What probably blindsided observers and the media was the inclusion of Mr. Mistry in the selection panel that was set up to interview potential candidates.
If indeed as is being spoken sotto voce in some quarters, Mr. Mistry was alwaysthecandidate but the selection rigmarole was gone through to make things look objective and correct, then Mr. Tata needs to be complimented. For, it was a master stroke to put Mr. Mistry in the selection panel and create a red herring that put the media off his scent.
Be that as it may, the choice has been made now and judging by initial reactions from observers of the group, other industrialists and the markets, Mr. Mistry's is an inspired choice.
He will be crowned at an interesting and critical juncture for the Tata Group.
Awakening a sleeping elephant
The challenge for Mr. Tata when the legendary JRD Tata passed the baton to him in 1991 was to awaken the sleeping elephant that was the Tata Group and make it fit and agile enough to dance.
He accomplished the task in his quiet, understated manner. Mr. Mistry now has the difficult job of ensuring that the tempo doesn't let up even as he is expected to teach the elephant newer tricks.
It was a different world when Mr. Tata stepped into the corner office in Bombay House, the headquarters of the Tata Group. The economy was still controlled and the country was at the brink of a default in repayment of its loan obligations.
Subjugating the satraps
The Tata Group was dominated by satraps who treated the companies that they were heading as their own personal fiefdoms. Russi Modi (Tata Steel), Ajit Kerkar (Indian Hotels) and Nani Palkhivala (ACC), were all iconic figures in their own right and under the benign gaze of JRD Tata, acquired larger than life images.
Mr. Ratan Tata's first task was to cut these icons down to size, no mean job considering that his only asset was his lineage and pedigree. He did not have a big track record as a manager or leader to speak of then. Compounding the problem was the fact that Tata Sons held a very small portion of equity in all these companies, in some cases less than 10 per cent. Legally, therefore, Mr. Tata was on weak ground as he could not dictate terms as the majority owner of these companies.
His efforts to reassert the sovereignty of Tata Sons over these companies and their head honchos caused tremendous unpleasantness and washing of dirty linen in public. Yet the most notable fact of those difficult times was the dignified silence that Mr. Tata himself maintained, refusing to join issue with those he was cracking down upon.
It was during this phase that Mr. Tata got critical support from Shapoorji Pallonji Mistry, the largest individual shareholder of Tata Sons with an 18 per cent stake, for his effort to regain control of the group companies. He eventually got the better of the entrenched titans to re-establish suzerainty over the group.
Wiser from this experience, Mr. Tata gradually began to increase the equity stake of the parent in all group companies through a combination of preferential offers and market purchases. Today, Tata Sons holds close to a third of the equity in all the major group companies except TCS where it holds three-fourths of the equity.
Once he gained control of the group, Mr. Tata set about restructuring the business with the core philosophy being “if we are not amongst the top three in the industry, then we should exit that business”. Thus, he sold off Tata Oil Mills Company (TOMCO), the original maker of the popular Hamam brand of soap, to Hindustan Unilever. That caused quite a ripple because the Tatas were not known to exit any business they started till then. But that was only the first of several path-breaking moves that Mr. Tata made that have made the group what it is today.
He identified new, emerging industries such as telecom and financial services as potentially major play for the group. He pushed the stodgy commercial vehicle manufacturer, Tata Motors, into the passenger car business in the late 1990s that resulted in the birth of the Indica and much later, the Nano. He goaded the group companies to go global, both as suppliers and acquirers.
Thus Tata Global Beverages (Tata Tea), Tata Steel, Tata Chemicals and Tata Motors put through a series of acquisitions with the most notable among them being the acquisition of Corus by Tata Steel and Jaguar Land Rover (JLR) by Tata Motors. If the Corus and JLR acquisitions were audacious in thought, they were brilliantly executed, financially and strategically.
The result of these acquisitions and the sharp focus on global markets is that almost 60 per cent of the group's revenues today come from overseas business. Mr. Tata also unlocked the value in Tata Consultancy Services (TCS) by taking it public in 2004; the company was a division of Tata Sons until then.
Yet, the biggest regret that Mr. Tata must be carrying with him now is not being in the airline business. The government nixed his plans to enter civil aviation in partnership with Singapore Airlines in the late 1990s. The group's entry into telecom and financial services has also not been very successful by its own high standards.
The telecom business has brought more trouble for the group than success. The revelations from the Radia tapes may also have taken off a bit of the shine from the Tata Group which has always prided itself on its lofty ideals.
The challenges for Mr. Mistry now are different. With more than half its revenues coming from overseas, it is an extremely complex operating environment for the group companies. Much of the overseas business comes from the Old Continent which is now in a perilous economic state.
The increasingly protectionist economic policies of countries such as the United States and Britain are also a major challenge for those such as TCS whose business is largely concentrated in these two countries. In the domestic market, the group is up against global competitors in most business but nowhere more so than in automobiles.
The Nano has flattered to deceive and Tata Motors needs to revisit its strategy for the car which has the potential to sell in much larger numbers than it has till now. With demand for steel slowing down due to the difficult economic conditions in the developed world, Tata Steel finds itself in a corner with Corus, an acquisition that has yet to fully pay itself back.
Yet these are challenges that the group can manage with its talent and resources. The tougher part of Mr. Mistry's job will be to strategise for an entry into newer businesses such as airlines and nuclear energy, both of which are in trouble at the moment in India.
What augurs well though is that he will have a long stint in the corner office given that he is only 43 years old now. This is an invaluable asset if the group plans to enter the capital-intensive, long-gestation businesses such as nuclear power or airlines.
With Mr. Tata likely to be Chairman-Emeritus of the group post-retirement, Mr. Mistry will never be short of guidance and advice. So, it is an exciting period of transition ahead for the Tata group. The elephant could be dancing to newer tunes in the years ahead.