Tata takes global approach to finding a director

In spite of concerns about the corporate governance of family-controlled groups in India, both J.R.D. Tata, who served as chairman of Tata Group from 1938 until 1991, and Ratan Tata, his nephew and successor, are considered examples of founding-family scions turned effective managers.

When Ratan Tata took the helm nearly 20 years ago, he began reorganising the main subsidiaries, which today consist of India’s biggest private sector steelmaker, its biggest carmaker and its largest software outsourcing group.

He took the group global, buying Britain’s Tetley Tea in 2000. Tata Steel then acquired Corus, the Anglo-Dutch steelmaker, for £6.7bn ($10.6bn) in 2007, and the group bought Ford’s UK-based marques, Jaguar and Land Rover (JLR), for $2.3bn in 2008.

The Corus and JLR deals occurred as the global economic crisis loomed and were criticised as overpriced and ill-timed. But both companies have since returned to profit and helped transform the group into India’s first true multinational.

The question now is whether Tata can find someone capable of sustaining this growth. The group has appointed a five-member selection committee that comprises two directors of the group’s Tata Sons holding company as well as a former vice-chairman, a group adviser, and Lord Bhattacharyya, the British businessman.

Mr Tata has said he will not influence the decision, although those who know the group believe his stature internally makes it hard to believe he will have no say.

The leading candidate for the job is expected to be Noel Tata, Ratan Tata’s half-brother, who was recently named head of Tata International, the group’s trading arm. Noel is also the son-in-law of Pallonji Shapoorji Mistry – like the Tata family, a member of the tiny Parsee minority – who is the largest external shareholder in Tata Sons with an 18.4 per cent stake (the company is two-thirds owned by charitable trusts but these are said to rarely vote on its decisions).

Cyrus Mistry, Mr Mistry’s son and a director of Tata Sons, is among the selection committee members. This would normally make Noel a shoo-in for the job. But Tata Sons has expressly stated it will consider all contenders for the job.

The group has already shown it is serious about attracting outsiders, in the past two years appointing foreigners to key positions in Tata Steel and Tata Motors.

Others touted as potential candidates include people of Indian origin such as Arun Sarin, former head of Vodafone, the UK telecommunications group; and Indra Nooyi, boss of PepsiCo, the US food and drinks company. Foreigners such as Carlos Ghosn, CEO of carmaker Renault-Nissan, have also been mentioned.

One question the panel might have to address is the governance structure at Tata Sons. Mr Tata runs the group as non-executive chairman. There is no executive chairman or chief executive, leaving a concentration of decision-making power in one person.