:: Issue analyses Tata Group names a young successor: talent trumps family relations Lee Dae-woo Business Analyst of POSCO Research Institute n November 23, 2011, the board of directors of Tata Sons, the holding company for Tata Group, announced its appointment of Cyrus Pallonji Mistry as deputy-chairman O and chairman-designate of the company. In the history of the chairmanship succession of Tata Sons, Mistry, 43, is the second not named Tata to take charge of the Group, after Nowroji Saklatvala in 1932. Tata Group reportedly conducted 14 rounds of interviews with candidates from within and outside of the Group. ○● Cyrus Mistry, young brother-in-law of Ratan Tata Cyrus Pallonji Mistry, born in 1968, is the youngest son of Pallonji Mistry, the chairman of the infrastructure construction giant, Shapoorji Pallonji Group. He is an Irish Parsi, descendants of Zoroastrian refugees from Persia who sought asylum in India centuries ago. Pallonji Mistry is the single largest individual shareholder (18.4%) of Tata Sons, the only larger 103 Spring 2012�POSRI Chindia Quarterly shareholders being Tata Trust and other affiliates of Tata Group. Because India does not allow dual citizenship, Cyrus Mistry has held only Irish citizenship, by virtue of being born to an Irish mother. Cyrus Mistry will become the first foreign-national chairman of Tata Group. Before being appointed the next chairman of Tata Group, Cyrus Mistry was the president of Shapoorji Pallonji Group, and had been a If the global economy shows director of Tata Sons since 2006. His slowing momentum at the end elder sister, Aloo, is married to Noel of this year, Cyrus Mistry’s Tata, the 55-year old half-brother of management ability will be put Ratan Tata. to the test right away. After studying at a Mumbai high school, Cyrus Mistry graduated from Imperial College in London with a BE in civil engineering and he holds a master of science in management from the London Business School. Cyrus Mistry is known to be low-profile, like his father, and to have a decisive personality. The Pallonji family first formed a relationship with Tata Group when Mistry’s grandfather bought shares of Tata Sons. The fourth chairman of Tata Group, J.R.D. Tata, had a thorny relationship with his brother Darab Tata. After Darab Tata sold his shares to Pallonji Mistry, the Pallonji family became involved in the corporate governance of Tata Sons. The Pallonji family and Tata Group formed a family tie through the marriage between Noel Tata and Aloo Mistry. ○● A preference for young blood The Indian press is busy explaining Cyrus Mistry’s background, praising his skills and his eligibility as Chairman of Tata Sons. However, some media suggest that there have been other factors that influenced the appointment of Cyrus Mistry. 104 POSRI Chindia Quarterly�Spring 2012 :: Issue analyses Noel Tata, the incumbent president of Tata International, was considered the frontrunner for the chairman’s post. Cyrus Mistry suddenly emerged as a dark horse and won the race. Cyrus Mistry was initially a member of the five-member selection committee for the new chairman. This added to the speculation about how Cyrus Mistry came to be Tata Group’s heir apparent. One leading theory is that Cyrus’s father, Pallonji Mistry, the largest individual shareholder of Tata Sons, influenced the selection process. Some people guess that Chairman Ratan Tata did not wish for his half-brother, Noel Tata, to become the next chairman, and Noel Tata, realizing that he would not become chairman, backed his brother-in-law, Cyrus, in order to secure his footing. The official explanation of the appointment, reported in the media, was that Ratan Tata preferred young blood for his successor. Ratan Tata was named successor to the chairman at the age of 44, and was elected chairman of Tata Group when he was 54. The new chairman-designate had to be young, passionate, and have the potential to become a visionary for the Group. Being Parsi was another important criterion (the Tatas are Parsi). Older candidates and non-Parsi candidates were excluded from the race, and Cyrus Mistry turned out to be the person best fit for the post. ○● Concerted efforts toward globalization Chairman Rattan Tata will resign in December of 2012, and the young new chairman, in his mid-forties, will appear on the front lines. Tata Group is one of the largest conglomerates in India, and has over a hundred years of history. The Group operates in dozens of business areas, from tea to automobiles, with more than a hundred affiliates. Under Ratan Tata, Tata Group has grown rapidly, and has become a global company, with a presence in foreign markets in Europe, Asia, and Africa. As a result of the globalization of its businesses, Tata Group’s organization has become more complex. Under such circumstances, Tata 105 Spring 2012�POSRI Chindia Quarterly Tata Group’s revenues (Unit: USD 1 Bil.) 83.3 67.4 62.5 Average annual growth rate 15.1% 21.9 14.2 10.4 9.0 8.7 8.9 5.8 6.0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2011 (Year) Source: Tata Group website Group is in need of fresh, young leadership with the ability to break through challenges. The selection of a young successor to Ratan Tata shows Tata Group’s determination to look beyond the status quo and make a more concerted effort toward globalization. Tata Group has expanded significantly under the leadership of Chairman Ratan Tata; however, it is facing headwinds in many of its businesses, as it went through two global financial crises. Tata Steel is still suffering from the aftereffects of the acquisition of British steel company Corus Group, and is making great efforts to increase efficiency in its steel plants in Europe. Tata Motors is also facing difficulties in management, because Nano, an ambitious project of Ratan Tata, has not taken off. At first, Tata Motors expected an explosive demand for Nano, but with increased raw materials costs around the world, maintaining the target price of INR 100,000 has become taxing. In addition, Tata Motors had to relocate its plant due to opposition from local residents and, as a result, experienced falling sales due to quality issues. Only Tata Consultancy Service (TCS), dubbed the cash 106 POSRI Chindia Quarterly�Spring 2012 :: Issue analyses cow of Tata Group, is doing relatively well despite the US-led financial crisis and the European sovereign debt crisis. Tata Group’s selection of the next chairman is meaningful in that a system for the selection and nurturing of successors is being established. Ratan Tata has himself been ready to resign according to the retirement age of 70 imposed on Tata Group executives. (He initially planned to retire at 70, but delayed his retirement until 75, because the Group had found no suitable successor.) Cyrus is the second non-Tata to head Tata Group. If the first case was rather experimental, this second case shows that Tata Group’s succession culture, putting greater emphasis on talent than on family relationships, is taking root. Many companies have trouble selecting successors due to conflicts over whether family relationship or ability is a more important selection criterion, which leads to various causes for dissonance. Only time will tell whether Cyrus Mistry will bring good results for the company as the new chairman, but Tata Group has selected its successor without major conflicts. Tata Group has set a good example for other large corporations by prioritizing talent in the selection of its next chairman. ○● The year 2012 and the fate of Tata Group Before the passing of the crown, Ratan Tata will likely quicken the training of his successor. Ratan Tata has already been making public appearances with Cyrus Mistry. They were seen together at the Delhi Auto Expo, held in January. However, perhaps because of his low-profile personality, Cyrus Mistry did not interact actively with others, save for at a few events at which he gave speeches. This year appears to be the appropriate time for Cyrus Mistry’s management training. The global economy will face sudden changes this year, according to how the European sovereign debt crisis worsens or subsides. If the crisis becomes more serious, a credit crunch equivalent to 107 Spring 2012�POSRI Chindia Quarterly Chairmanship succession of Tata Group First chairman: Jamsetji Nusserwani Tata (1887~1904) Second chairman: Sir Dorabji tata (1904~1932) Third chairman: Sir nowroji Saklatvala (1932~1938) Fourth chairman: J.R.D. Tata (1938~1991) Fifth chairman: Ratan Tata (1991~2012) Sixth chairman: Cyrus Mistry (2012.12~) that of 2008 will likely emerge. Under such circumstances, Tata Group will face a crisis, as it did in 2009 when it faced many serious challenges, such as putting up stock as collateral for a loan. If the global economy shows slowing momentum at the end of this year, Cyrus Mistry’s management ability will be put to the test right away. If Tata Group overcomes the crisis successfully, the transition will guarantee safe sailing. If it is not successful, Tata Group will not be free from criticism for an untimely transition of chairmanship. In many ways, the end of this year will serve as an important turning point for the future of Tata Group. 108 POSRI Chindia Quarterly�Spring 2012.