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Published: February 23, 2010
 / Spring 2010 / Issue 58

 
 

Too Good to Fail

After J.N. Tata’s death in 1904, Dorab assumed the title of chairman. He and Ratan Tata (namesake of the current chairman) took over the leadership of their father’s company, which they renamed Tata and Sons (later, Tata Sons) in his honor. They spun out other industrial companies, making such products as tin plate, steel tubes, and vehicles. (The Tata Engineering and Locomotive Company later became Tata Motors.) These and other new businesses were set up to supply some commercial good or service that India didn’t yet have. Tata made paper, cement, and soaps; sold insurance; and printed and published books. India’s first airline was Tata Airlines, which took flight in 1932; by 1953, it had been nationalized and renamed Air India.

Most of the managing directors (CEO equivalents) of these companies were not members of the Tata family. But the chairman of Tata Sons has always been a relative by marriage or blood. Dorab and Ratan Tata (who were both later knighted by the British Indian Empire) carried out their father’s commitment to economic development and community welfare. In 1912, they completed the steel mill begun by J.N. Tata and built the town he envisioned (later named Jamshedpur after their father), and eventually powered it with India’s first hydroelectric plant.

Also in 1912, they expanded J.N. Tata’s notion of community philanthropy to include the workplace. Dorab instituted an eight-hour workday, ahead of just about every other company in the world. In 1917, he invited the famous British labor social scientists Beatrice and Sidney Webb to recommend a medical-services policy for Tata employees. The company would be among the first worldwide to institute modern pension systems, workers’ compensation, maternity benefits, and profit-sharing plans.

Over the years, Tata’s complex, interwoven governance structure evolved to ensure that profits would be reinvested on behalf of stakeholders, especially customers and local communities. Each new Tata company was set up independently, with its own board of directors; some sold shares publicly, while others maintained private ownership. All paid fees to use the Tata name. Tata Sons, which remained privately held, kept equity stakes in nearly all the group businesses; today, it provides investment capital and sets overall group strategy. In its history, there have been only five chairmen of Tata Sons, all family members: J.N. Tata; his son Dorab; J.N.’s nephew Nowroji Saklatwala (who also pursued a career as a professional cricket player, even during his tenure as chairman); J.N.’s second cousin, Jehangir Ratanjani Dadabhoy (J.R.D.) Tata; and current chairman Ratan Tata, the founder’s great-grandson, who joined the group in 1962.

(There is no clearly acknowledged successor to Ratan, who turns 73 in 2010. One candidate may be the only other Tata family member working for the group: Ratan’s half-brother Noel, the managing director of Trent Inc., a Tata retail company in India.)

J.R.D. Tata, who was chairman from 1938 to 1991, is generally credited with expanding the group’s success in India after the country gained independence. He nurtured its reputation for integrity and innovation, and continued exploring new technological domains. In 1968, for example, Tata established Tata Consultancy Services (TCS), which became the first Indian provider of offshored IT services. TCS is now one of the largest IT service providers in the world and India’s largest company in this business. Other individual businesses came and went over the years (soaps and toiletries, for example, were sold to Unilever), but the same “big five” industries represented the core sources of revenue through the 2000s: steel, motor vehicles, power, telecom, and IT services.

Service without Sin

Perhaps the most unorthodox aspect of the overall Tata structure is the central role of the 11 charitable trusts that together own 66 percent of Tata Sons and that are intimately involved in its governance. (Family members own only 3 percent.) No other company of this size and visibility has placed its charitable arm at the controlling nexus of the business. The trusts fund a variety of projects (for example, in clean water delivery, literacy, and prenatal care); they founded and still support such cherished institutions as the Indian Institute of Science (a premier research university), Tata Institute of Fundamental Research, the National Centre for the Performing Arts, and the Tata Memorial Hospital, an innovative cancer treatment center in Mumbai. Each Tata company, in turn, channels more than 4 percent of its operating income to the trusts, and every generation of Tata family members has left the bulk of its wealth to them. This makes the Tatas noticeably less wealthy as individuals than their counterparts at other Indian family-owned megacompanies.

 
 
 
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Resources

  1. R. Gopalakrishnan, The Case of the Bonsai Manager: Lessons from Nature on Growing (Penguin Portfolio, 2007): “The leader needs to think about issues at the edges of the spectrum of the obvious.”
  2. Ann Graham, “The Company That Anticipated History,” s+b, Summer 2006: How South African power utility Eskom Holdings Ltd. combined social leadership with business strategy to prepare for the end of apartheid.
  3. Ronald Haddock and John Jullens, “The Best Years of the Auto Industry Are Still to Come,” s+b, Summer 2009: The Nano’s prospects in context.
  4. Tarun Khanna, Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours (Harvard Business School Press, 2007): Macro view of today’s two great sources of emerging business creativity.
  5. Nirmalya Kumar, India’s Global Powerhouses: How They Are Taking on the World (Harvard Business Press, 2009): Profiles of ArcelorMittal, Infosys, Hindalco, Mahindra & Mahindra, Tata Group, and more.
  6. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: Impossibly low-cost, high-quality products and services (including one from Tata’s hotel group) that start by cultivating constraints.
  7. Tata Group website: Comprehensive information, original interviews and stories, public media reports, and links to other resources about the company.
  8. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/global_perspective.
 
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