Companies

Tata Cyrus: A clear case of the need for succession planning

Rashmi Pratap Mumbai | Updated on January 27, 2018 Published on October 25, 2016

Most Indian companies do not have a formal process for a smooth transition

Back in 2002, when Ratan Tata was set to retire at 65, the Tata Sons board re-designated him as non-executive chairman so that he could continue for another five years.

In 2005, the board increased the retirement age of non-executive directors to 75, ensuring that Tata would be in office till 2012. And finally, when he packed his bags at Bombay House and handed over the baton to Cyrus Mistry, it was only to return four years later in 2016.

It’s been done before

But the Tata Group is not the only one opting for the comeback of a renowned leader. Back in 1997, Apple brought back founder Steve Jobs when the company was in trouble. He masterminded a corporate turnaround and remained Apple’s CEO until his death in 2011.

Howard Shultz, who left Starbucks in 1986 to start his own chain of espresso bars, was back not once but twice – in 1987, and then again in 2008. He continues to be the chief executive even now.

And closer home, Narayana Murthy was back at Infosys when things were not rosy with the IT bellwether.

“In most cases, promoters or senior leaders of a company either build a business from scratch or have worked in the organisation for a very long time. They have a full understanding of every nut and bolt of the business and it is the easiest solution to look at them when there is a need to steer the organisation in a new direction,” says Tatwamasi Dixit, a consultant and coach specialising in family businesses.

Technically, the Tata Group has transitioned from a family-run to a professionally-run business, but Tata Trust still holds 66 per cent of Tata Sons, the holding company.

After a rigorous search for a successor, the role had gone to another family member (Mistry is the brother-in-law of Ratan Tata’s half brother Noel Tata) in 2012. “The succession process did not move away from family hands. In a large family business corporation, when you do a transition from predecessor to successor, there has to be a cohabitating period of at least three to four years, which was missing in this case,” Dixit adds.

Slow and steady

Mistry had joined the Tata Board in 2006. He was not hands on with most group businesses as being the group chairman is a different ballgame altogether from being a board member.

In contrast, Ratan Tata joined the group in 1962 and became its chairman only about three decades later, in 1991. By then, he knew the group inside out.

“In such a large corporation, you cannot transition in one year. Mistry would have required four to five years of joint hand-holding. There is clearly a lack of alignment between the group and the way he led the business,” says Dixit.

R Suresh, Managing Director, RGF Executive Search, says it is all about business and people. “Mistry was good in work and business, but not taking people along. He belonged to a different industry and a different generation. The group had stalwarts and you cannot instruct them. You have to show restraint.”

It is in such a scenario that succession planning gains utmost importance. In the West, a succession plan is an important deliverable for a leader, Suresh points out. But in India, most companies don’t have a formal process to ensure a smooth transition.

Clear mandate needed

Dixit points out that in any emergency, the board should have a written mandate as to who will fill the gap as the chairman. “If they had one, they would not have proposed Mr Tata’s name for the interim. It is a serious governance flaw,” he adds.

Whatever it is, for now, Tata Group has to live with it. As Dixit says: “I don’t believe that they will be able to find a successor in four months’ time; they don’t have any firm contestants in place yet. We need to wait and watch.”

And going by the history of the Tata Group, it might be a long wait indeed.

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Published on October 25, 2016
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