Succession Planning with reference to TATA Groups

Introduction

“Good succession planning is not just looking at who is next in line for a slot, but looking at people early in their careers and determining what kind of training they need to become leaders.”

            There was a time when organizations had many managerial levels, and the abundant leaders spent a substantial amount of time in strategic activities such as process improvement, training and mentoring. It was every supervisor’s responsibility to develop the next generation of leaders. The executives who rose through the ranks during this period are now retiring. It has been said that 1 in every 5 senior executives of the Fortune 500 are eligible to retire, and more than 50% of all senior government executives in the US are also eligible to retire.

            An ASSOCHAM Business Barometer (ABB) Survey has revealed that India Inc. has a long way to go for putting in place its succession plan at top level. The ABB Survey of 275 leading management consultants, corporate, academicians and professionals on ‘Missing Link in Succession Plan’ found that only a few companies in India formulate and effectively implement succession plan for the key positions in their organization structure. This was confirmed by 75 per cent of the ABB respondents. They rated Indian companies, ‘4’ on a scale of 10 in terms of long term planning and grooming of the successor to the head of a firm. Almost half of the Indian top 100 organizations are family run businesses. Though astute in business, when it comes to sorting out matters of succession some of India's oldest business families may still need to do their homework. Be it the Ambanis of Reliance Industries, the Bajajs of Bajaj Auto, the Nandas of Escorts, or the Modis of Modi Rubber - each family has, in the recent past, faced succession and ownership issues and found them tough to resolve. Except for a handful of companies like Infosys; where the passing of baton from N.R. Narayana Murthy to Nandan Nilekani then to Kris Gopalakrishnan later to S. D. Shibulal, happened without a hitch. 

Definition:

             “Succession Planning can be defined as a purposeful and systematic efforts made by an organization to ensure leadership continuity, retain and develop knowledge and intellectual capital for the future, and encourage individual employee growth and development”.

-       (Schein, 1997; cited in Caruso, Groehler & Perry, 2005).

Succession Planning Process

Introduction to TATA Group:

            The group takes the name of its founder, Jamsetji Tata a member of whose family has almost invariably been the chairman of the group. The Previous chairman of the Tata group is Ratan Tata who took over from J.R.D Tata 1991 and is currently one of the major international business figures in the age of globality. The Company is currently in its fifth generation of family stewardship.

SUCCESSION PLANNING IN TATA

                        Ratan Tata has taken the group he inherited from his uncle JRD from       $5 billion to $70 billion. However, it has been a difficult search to find a successor to carry forward his vision. The group, for the first time, is looking for someone outside the Tata family to head the group even though it has not stopped looking within.

Family Tree of TATA Group

            Tata Sons, the holding company of the Tata Group, announced the members of the five members Committee announced to find a successor to the Group Chairman Ratan Tata who is due for retirement by December 2012.

The members include:

1)    N A Soonawala Vice Chairman of Tata Sons,

2)    Shirin Bharucha, a lawyer who has worked with Tata Group for several years,

3)    R K Krishnakumar, Director, Tata Sons,

4)    Cyrus Mistry, Board Member, Tata Sons and  an outsider,

5)    Lord Bhattacharya, Director WMG-Innovative Solutions.  

Executives Nominated for becoming Successor (by Committee):

Challenges for Committee for the Selection of Successor:

1)    Looking for someone to run Tata Sons (which is a holding company) or someone to head the whole group, which is what Ratan Tata is doing now?

2)    Why a professional CEO with the experience of running multinational companies should join a group’s privately-owned holding company? As In Ratan Tata’s case, the jobs of Tata Sons’ chairman and group executive head were combined. And he was a Tata. The same symbolised the unity of the two objectives — being head of the holding company and boss of the group.

3)    Can a non-Tata manage to do both?

To answer this, we need to understand the business of Tata Sons. It is a holding company, and its main business is to get its shareholdings to deliver returns. In short, its business is portfolio management.

            The purpose of hiring a professional CEO is to maximise shareholder value.  A holding company needs a fund manager and not just a professional CEO. Is it any surprise Indira Nooyi, Arun Sarin & others have not expressed any great enthusiasm for a fund management job. Hence resulting in selecting Cyrus Mistry

Reasons for choosing Cyrus Mistry:

1)    A major shareholder in TATA Sons.

2)    Experience of being a Managing Director in Shapoorji Pallonji Mistry’s Construction Group.

3)    Age and belonging to Pharsi religion.

4)    His career achievements and his financial knowledge were considered at the time of his vote.
5)    The family is very familiar with the Tatas and that could be one of the influencing factors & only person who knows totally about TATA than compared to other people shortlisted for the post.