Picking a successor unilaterally would have violated the norms Tata has espoused.
In the year to March 2010, Trent had total sales of Rs 571.55 crore and profits of Rs 40.22 crore. For a thin-margin business like retailing, that is a very respectable profit margin. Although the company suffered a financial setback in 2009 because of the general recession, it has grown steadily, if unspectacularly, over the years. Unlike retailers like the Future Group, it has not sought to burn up the rubber, but nor has it lost substantial sums of money — as Reliance has — or gone belly-up, like Vishal Retail. Even the RPG Group’s retail forays (Food World, Spencer’s, etc) have had a patchy record.
Almost alone among all the retailing companies, Trent has done the sensible things, grown at a sensible pace, and built a store brand that is perhaps as well-positioned as Marks & Spencer’s in Britain, in terms of offering sensible products at sensible prices. In the process, it built a profitable niche for itself in the market. But ask the more ambitious retailers what they think of Trent, and you get polite noises, nothing more.
The company’s track record mirrors its chief executive’s penchant for the unspectacular, for shunning publicity, and focusing on the here and now. Noel Tata, half-brother to Tata Group Chairman Ratan, has nurtured the company since 1999, and not been involved in any other business -- with the exception of directorships at Titan and Voltas.
So if a global search committee tasked with finding the best candidate to lead a diversified Rs 280,000-crore corporate behemoth like the multi-nation Tata empire were to do its job properly, the chances are virtually zero that any such committee would pick the chief executive of a mid-size retailer like Trent. Quite a few Indian candidates suggest themselves as more obvious alternatives (Indra Nooyi, Arun Sarin and Nandan Nilekani, among others), and Ratan Tata’s brief is that it does not even have to be an Indian, let alone a fellow-Parsi.
Despite these reasons, if there has been speculation that Noel Tata (53) is very much in the race, with some people marking him out as the front-runner, it is because of three things: He is a Tata, he is the son-in-law of Pallonji Mistry, the largest (minority) individual shareholder in Tata Sons (the group holding company), and he has in the last couple of months been made non-executive chairman of Tata Investment Corporation and then managing director of Tata International (where he worked before taking charge of Trent).
You could cite two other reasons: He is personable and gets along well with colleagues; and his track record is perhaps better than Ratan Tata’s was in the 1980s when the latter was named chairman of Tata Industries, the stepping stone to becoming chairman of Tata Sons. Insiders criticised him then for a track record of business failures — first at Nelco, and then at Empress Mills, both of which had to shut down. Tata directors like Nani Palkhivala, Russi Mody and Minoo Mody were bitterly disappointed at Ratan’s choice.
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The point of course is that the world, the Indian corporate scene and the Tata empire have all changed dramatically in the last quarter-century. So while Ratan Tata could arguably do what JRD Tata did — unilaterally pick a long shot as his successor, and be proved right posthumously — the very corporate governance norms that Ratan Tata has espoused throughout his career mandate that Tata Sons undertake the formal succession process that any other global major would do.
Observers have noted that the search committee is packed with people who are trusted aides of Ratan Tata (eg N A Soonawala and Krishna Kumar), and it is inconceivable that they will pick someone whom he disfavours. And, if Ratan Tata had indeed thought of Noel as a potential successor, he would by now have given him additional business responsibilities in various Tata companies, so as to groom him and strengthen his claim for the top job.
Some insiders point out that Ratan Tata may have avoided doing this because of his own personal experience. The Tata satraps who ran various group companies under JRD Tata’s benign gaze had recognised early on that Ratan Tata was a long-term threat to their satrapies (as he eventually proved to be), and deliberately sabotaged Ratan’s business ventures, giving him two dud companies to run and then denying him the resources to make them successful ventures. In both cases, Tata pleaded with the Tata Sons board for money to revive the company and salvage jobs. When the board turned him down a second time, leading to the textile mill’s closure, an anguished Ratan refused to take his bonus for the year. It is argued that Ratan felt that anti-bodies would develop again within the group if he identified his successor too early by consciously grooming another Tata as his successor.
Yet, those in the know also argue the opposite: That all of Ratan Tata’s moves make it clear that his half-brother is not his preferred choice. Indeed, some argue that he has already sounded out one potential successor, and appointed the search committee only when he did not get his candidate of choice. No one knows the extent of truth behind such speculation, because Ratan Tata is either playing his cards very close to his chest, or playing with all his cards out in the open. The coming months will tell which, and, more importantly, who.