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Rediff.com  » Business » Why Ratan Tata should not retire

Why Ratan Tata should not retire

By Govindraj Ethiraj
April 01, 2008 14:48 IST
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For a while now, Tata Group chairman Ratan Tata has been asked in interviews as to whether he has identified a successor. Mr Tata has been mostly evasive on this one but the answer by inference quite clearly is that he has not.

The reason the question keeps popping up is evident; Mr Tata is getting older and he has no children who he could hand over the business to. Not that he could or would have even if he did but the general belief is that the Tata Group would follow a 'professional' succession plan.

I am often reminded of an interview I did five years ago, with Sundaram Fastners chairman Suresh Krishna. In it, he spoke about how he regretted not having been born later. "My generation has missed the opportunities that are now opening up." Worse, he said, the best years of his youth had been spent battling the system.

And yet, there is something about the business environment which suggests that the old warhorses are not doing too badly. Actually, they are thriving like never before, displaying energy levels and alacrity which would put much younger CEOs and promoters to shame.

If that is indeed the case, then do succession plans really matter at this specific point for the larger constituency (shareholders, media) when the leadership in question is working harder than ever before. I would acknowledge it's not the most burning issue but it has some bearing if you were to accept that corporations and their heads (promoters and managers, or both) need to be empowered to see through their longer-term plans.

If I were to roll forward from Mr Krishna's interview, in the last five years, the opportunities have grown manifold. Almost all of the Tata Group's international acquisitions have happened since then and every subsequent move has been bolder than the previous one. And while I am sure Mr Krishna and Mr Tata along with others of their generation occasionally reminiscence about the time lost, they are fighting to make up for it as well.

Look around and you will find that the CEOs of most companies who are most aggressively acquiring and expanding their businesses at this point are anywhere in their mid-fifties to seventies. That includes the Tata companies, Bharat Forge, Sona Koyo Steering, DLF Group, to name a few companies that have recently done deals.

So who is getting it right and who is not? It's tough to answer that one but my sense is that the older business leaders have confined their expansionist moves to businesses they have been in for long years while the younger ones have gone hell for leather for new businesses and rapid diversifications thereon, fuelled of course by liberal availability of money.

Neither are wrong but it's interesting that the Tatas, Birlas or groups like Mahindra & Mahindra have barely diversified from their original businesses, save for the occasional foray into retail. And they have yet expanded aggressively. Possibly age and legacy (in the case of the Birlas since it's run by a youthful Kumar Mangalam Birla) has something to do here.

If the older lot are broadly sticking to their knitting - which can't be too much of a wrong thing to do - and yet doing the right thing by growing their businesses in geometric proportions, then should they be retiring at the mandated ages or be allowed to run till they can? Or their boards allow them?

An aside, on the other hand, the likes of Mr Tata have not additionally enriched themselves (at least visibly) as they inch towards their retirement and exit. And yet they've worked harder for their companies and shareholders in recent years. I would place the leadership of the top IT companies in this category, too.

This is not to say the younger lot, originating in sectors like financial services, are not doing well. Groups like Indiabulls and MCX, led by much younger entrepreneurs, have used the faith reposed in them by the financial markets for their growth and execution strategy to diversify rapidly. As it happens, the second (or is it third) post-liberalisation flowering of the retail equity market has helped.

Firms like Indiabulls are diversifying from stockbroking to power, an area where companies who have been around for nearly a century are struggling to put up fresh projects. The moves are blessed by the same financiers who might view a move from small cars to a Jaguar-Land Rover acquisition with some scepticism.  The good news is that both types can and will co-exist till of course the inevitable downturn forces some degree of focus.

So the markets are broadly rewarding the young and the old. But importantly, the old is not at a disadvantage as it may have appeared even a couple of years ago. Which brings us to the corporate governance question that inevitably arises. I would argue that boards ought to look at the whole issue of retirement and exit afresh. Actually it's not so much of a board issue as a perception issue.

Boards need to tie tenure to specific performance and deliverables, as it is in many global corporations. This approach has its own downsides but this is not something that Indian companies need to think too much of at this point.

But more than a board matter, the perception issue is what really needs addressing, amongst all of us. For sure I can't imagine why a Tata Motors board would want a successor to Mr Tata right now. He looks like someone who is just getting ready to take-off, I don't mean in a fighter jet.
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Govindraj Ethiraj
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