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Friday, 25 November 2011 05:54
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Tata's new ratan

Mistry's shareholder status can't be scoffed at

 

Larsen & Toubro chairman AM Naik had the best take on Ratan Tata’s successor. After talking of Tata chairman-designate Cyrus Mistry’s qualities as a manager (since L&T works closely with Mistry’s Shapoorji Pallonji), he said Mistry’s ownership stake would go a long way in ensuring acceptance by powerful board members as well as the chiefs of group firms. Look at the years Ratan Tata lost trying to recoup power from the Tata satraps and it’s obvious a smooth succession will be a major plus; or look at the huge mess Hewlett-Packard’s dysfunctional board has got it into. In the context of the political class, look at the problem the BJP is facing without a clear successor versus the Congress where family ownership has settled the issue. But Rahul Gandhi’s acceptability is one thing, his winnability another. Ditto for the 43-year-old Mistry. What will help enormously is the succession planning by Tata; a search committee was put in place two years before he was to retire and Mistry will be mentored by Tata for one year—the process was muddied a bit when one committee member publicly said it simply wasn’t possible to find a successor for Tata, but that is behind us.

Family first, many will scoff, and certainly that would have played a big role in Mistry’s appointment, but keep in mind that family businesses are perhaps more agile than board-run companies when it comes to seizing opportunities that get thrown up in developing economies—Reliance’s or Bharti Airtel’s abilities to get into diversified areas has surely a lot to do with the fact that Mukesh Ambani and Sunil Mittal hold controlling stakes in the companies. Not surprising then that a Credit Suisse report points out Asian family businesses comprise around half the listed companies in the region and have delivered higher returns than the MSCI ex-Japan Asia Index in the last decade.

Mistry’s record appears a good one and flagship Shapoorji Pallonji has grown ten-fold over the decade, though running a $2 billion construction/infrastructure empire is very different from running an $83 billion one with 58% of revenues coming from overseas. Which is why Deutsche Bank’s Anshu Jain, Vodafone’s ex-CEO Arun Sarin and Merrill Lynch’s John Thain were in the reckoning for the job. While Mistry doesn’t have the same global experience, he is the perfect insider-outsider, on the board for five years but yet an outsider. Global names are quite grand, but the

current US-EU crisis suggests they may have been overrated, even Sarin’s big gambles look a lot less exciting with the Indian market tanking after he bought Hutch for $11 billion while saddling Vodafone with a huge income tax liability case. Mistry has big challenges—among others, the Nano hasn’t taken off, the European buys are once again looking iffy with the global crisis and the 2G controversy has hit the group’s image. He will surely welcome the one year of mentoring Tata has promised him.


 

 

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