Tata keeps things in the family

November 28, 2011

By Jeff Glekin
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Cyrus Mistry’s appointment as Tata’s next chairman preserves Indian companies’ habit of dynastic succession. That may not be such a bad thing. But Mistry can promote outside talent by stepping back from subsidiary chairmanships held by his predecessor.

Mistry is not a well-known figure outside India. An engineer by training, he is currently managing director of Shapoorji Pallonji Group, a construction firm. But his links to the Tata business are as strong as can be. Mistry’s grandfather first bought shares in Tata in the 1930s. His father Pallonji Mistry is now the largest single shareholder in the parent company. He has served on the Tata board for five years.

Some investors may be disappointed that familial familiarity trumped outside talent. But close association between senior management and the Tatas has created few obvious difficulties recently. An outside appointment, moreover, might have suggested something was amiss. Continuity is a good thing, as long as the fundamental business strengths suggest it is merited.

It seems that an appointment outside the family, and the immediate group of Tata companies, was seriously considered. Top names from India’s formidable executive diaspora were mentioned: among them PepsiCo’s chief executive Indra Nooyi and Arun Sarin, former chief of Vodafone.

One way to find balance would be for Mistry to step away from the chairmanships in the three big Tata firms – Tata Consultancy Services, Tata Steel and Tata Motors – now held by Ratan Tata. That would free Mistry up to develop new centers of growth for the holding company and counter any fears that insularity could lead to stagnation.

The succession has been tricky – not least because the new chief has such a hard act to follow. Ratan Tata has been at the helm of the group, which was founded by his great-grandfather in 1868, for 20 years. He has lead Tata down a path of international expansion through the acquisitions of Corus and Jaguar Land Rover. Its overseas revenue is now larger than its internal flows.

But while Ratan Tata will retire from the head of the company next year, he won’t be out of the picture. He is likely to remain as chairman of the two philanthropic trusts which together control around 66 percent of the Tata parent. No doubt he will keep a watchful eye over the young Mistry.

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