Worthy successor

The plan announced by the Tata group to find a successor for chairman Ratan Tata, who will retire in December 2012, is welcome and breaks fresh ground in India’s corporate tradition and culture. Changes of leadership in Indian companies have been mostly marked by adherence to family values and practices: the weightiest member of the promoter’s family is often the official heir, whether he is fit to hold the position or not.

There have also been fracas like in the case of Reliance. Such changeovers have many times worked against the interests of the company and its shareholders. The problem is basically one of attitude. Even public limited companies where the promoters do not have high a shareholding are considered personal fiefdoms. This is not conducive to the growth of the best corporate culture and practices, especially when major companies play important roles in the nation’s economy and more and more citizens have developed stakes in companies.

A search team has been appointed to look for a successor to Ratan Tata, who in about two decades has presided over the fastest and largest expansion of the Tata empire. He took the company to a $70 billion multinational entity from a $ 4 billion Indian company, made large acquisitions abroad, produced the world’s cheapest car and enhanced the strength, prestige and credibility of the brand he inherited. A company with such diversified and complex operations needs a professional head to take it forward to its next level. The mandate of the search committee is precisely this. Noel Tata, Ratan Tata’s stepbrother, who holds a top executive and management position and is the son-in-law of the largest shareholder would have been a natural choice. He still has a chance but the selection process throws the field open to outsiders too. Ratan Tata has indicated that the new leader could even be a foreigner.

Even Ratan Tata was not anointed by his predecessor JRD Tata. He had to be independently selected and had to assert his authority over other aspirants within the company and had to prove and establish himself with his talent and abilities. If a new chairman is decided now, he or she will have enough time to learn the ropes and the transition will be smooth. The professional management of succession and the institutional procedure set up for it should be a good example for other Indian companies, big and small.