Search the Internet          Tips  Sites: Finance, Investment

Recent Specials

In defence      of privatisation The economics      of housing Beyond the ratings      blame game Arun Shourie's      tactical errors Stalling of India's      industrial engine Divestment: Will the      horse fly again? UTI bailout: Common      man feels the pinch The fiscal impact      of bailouts Cellular phone war      hots up again

Some lessons in management from the Tatas

T Thomas

Ratan Tata has to be complimented for the very candid interview he has given to Business Standard recently.

It was a very good exercise in corporate communication and will hopefully be repeated by him. Very few chairmen would have been so courageously open on sensitive subjects.

There are lot of achievements he could have boasted about e.g. the turnaround of Telco, the success of Tata Steel, the superb performance of TCS, the generational change in management, et cetera.

Instead he was honest enough to discuss the debacle in Tata Finance and problems in VSNL. He comes through as an honest, sensitive and transparent individual.

Most of us are well wishers of the House of Tata and of Ratan who has done so much to clean up the Augean stables left by satraps of the past.

He has been a breath of fresh air. The Tatas are still the most respected Indian business group and we as Indians would want it to continue to shine as a truly Indian enterprise with an international outlook.

The recent developments in Tata offer some lessons to all Indian groups which aspire to become professional and international like the Tatas.

Lessons:

Need for strong finance, and HR heads at group level:

The advantages for an individual business in belonging to a group like Tata is that it will have access to three major group resources, viz. (a) finance (b) management and (c) technology.

To ensure proper utilisation of these resources the group would exercise control over the performance of each constituent business.

In a group like Tata where companies have diversified technologies the controls will relate mainly to finance and management.

To exercise such controls the group should have strong finance and personnel directors with knowledge of its subsidiaries and a network of finance and personnel heads in the subsidiary companies who have strong functional linkage to the corresponding group directors. In the absence of such a network the individual companies can and will stray.

Such a functional network enables the finance director in a subsidiary to be more independent in giving advice to his CEO who will be aware that he has a reporting line to the group finance director.

With such a network in place the group would have been alerted to, if not avoided a debacle like in Tata Finance.

Similarly the group personnel director has a key role in orchestrating the performance review and promotional moves of managers above a certain job level in all group companies.

If a large multinational like Hindustan Lever has produced a succession of able Indian CEOs (and also provided CEOs for many other companies in India) it is due to its very effective management development programme administered through a strong personnel function. Any Indian group can certainly do the same.

Formal reviews of individual company performances by group chairman:

Each subsidiary company's performance has to be reviewed at least three or four times a year by the group chairman along with the group finance and personnel directors.

These reviews can be for a whole day or more depending on the size and complexity of the business. It should cover marketing, finance, manufacturing, personnel and all major aspects of the business.

While it is a means of updating himself and debating issues with the managers concerned it also enables the group chairman to assess the calibre of senior managers.

Group chairman to visit individual businesses:

In my experience written reports and statements while essential are no substitute for personal visits and meetings by the group chairman with people in the subsidiaries.

It enables him to understand better the business and the people involved at operating levels and is a means of making himself aware of issues that may crop up. In addition, it is a bonding exercise within the group.

However far-flung one's empire, it is essential for the group chairman to visit the major businesses at least once or twice a year and spend at least some days with each business - visiting the marketplace, factories, etc. and spending time with the people in the company.

Need to influence government policies:

Despite all the liberalisation in India, it is still necessary for large companies to have continuous dialogue with government.

This is true even in the US or Europe. It is true that several Indian business groups have thrived by influencing politicians through bribery.

But from my experience of heading Hindustan Lever through the tumultuous anti-private sector phase of Mrs Gandhi's tenure, I can say that it is possible even in our country to get major changes accepted by civil servants and their political masters without bribery.

It requires lot of perseverance, sustained and effective communication at many levels and the ability to establish a mutually respectful relationship between government and the company.

In order to achieve this the chairman of the group may have to spare time to serve on government committees and provide help and advice on national issues. He has to take it up as a part of his obligation.

Such conscious effort by the group chairman can establish a reputation and a sound relationship that can offset the less ethical tactics of competing groups.

Succession planning:

Strict retirement age and a well administered management development process are essential precursors for any succession planning.

It is such a process that enabled Hindustan Lever to promote a 45 year-old some 30 years ago and to repeat that process since then.

It should be possible for Indian groups like Tatas with a much bigger pool of managers to find a competent person for instance to head Telco. Why should they have to go and get people from outside. In Malayalam there is a saying that 'the jasmine that grows in one's frontyard is not as fragrant.'

Some Indian groups suffer from this jasmine syndrome or they are risk averse when it comes to promoting younger people from within.

It is only by making bold promotional moves placing merit above seniority that a business group can develop the best CEO.

Groups do outgrow need for patriarchal succession:

The fact that a business group has been headed by a man with a particular family name for some decades, does not mean that only a man with the same family name can succeed him. To a consumer or a shareholder the name Tata does not any more stand for any individual or a family.

It is more like a brand. It represents a set of values and a tradition in which he can place his faith. The founding families of most large international business groups have been eventually succeeded by professionals after a few generations.

The Tatas as a group were fortunate in having JRD and Ratan as successive chairmen over the last few decades.

Today, the Tatas like many large international companies has outgrown the family name. The name Tata represents values like honesty, fairness, reliability, technological innovation and above all Indianness.

To uphold these values you need as the head of the group the best manager available in the group - not necessarily a man with the name Tata.

Conversely a man with the family name but without the requisite abilities can diminish the standing of the group. Succession has to be on the basis of proven merit and not the family name.

Need to define role of chairman.

It is necessary to distinguish clearly between the roles of executive chairman (or CEO) and that of non-executive chairman.

I can say from personal experience that for someone who has been a successful executive chairman it takes a great deal of conscious effort to become a non-executive chairman even in a different company.

It is much more difficult to make that transition from executive to non-executive chairman in the same company, which will be the case in Tata as well as in many Indian groups.

Therefore, it is necessary to define the difference between the two roles well in advance of such transition by an individual.

The essential difference is that an executive chairman is profit responsible and hence has the responsibility for operational aspects of the company.

A non-executive chairman will not have responsibility for short-term profits or for operations. He will concentrate on ensuring the proper functioning of the board and the CEO, corporate governance and the long term direction of the enterprise.

Powered by

ALSO READ:
More Specials
More Money Headlines