Tata Group's Unique Succession Strategy: Family vs. Professional Management

Billionaire Mukesh Ambani just had his 3 children appointed as non-executive directors to the board of Reliance Industries Limited.

He has already set in motion his succession plan with son Akash being named Chairman of Reliance Jio, daughter Isha taking over Reliance Retail, and youngest Anant leading the new energy and oil businesses.

India’s second richest man, Gautam Adani, has involved the next generation in his business for some time now, with son Karan being the CEO of flagship business Adani Ports and more recently taking over as Chairman of ACC Cements, while sitting on the boards of multiple companies.

Adar Poonawalla runs Serum Institute of India, founded by his father Cyrus. India Inc seems to be taking succession seriously.

But if there is one business house where it continues to remain a question as to what the next generation’s role will be, it’s the Tata Group, a name synonymous with the country’s development and which just purchased an entity to assemble iPhones.

Tata Group founder Jamsetji Tata was named the largest philanthropist of the last 100 years, with a value of $102 billion given to charity by him and his family.

Picture credits: Business Standard

Shareholding Pattern:

• Tata Trusts: Hold 66% of the shares of group holding company Tata Sons.
• Shapoorji Pallonji family: Holds 18.6%
• Tata Group companies: Historically hold 13%
• Ex-Chairman Ratan Tata and his brother Jimmy Tata: Hold 1.6% together.
• Noel Tata: Holds 1%

The Tatas are unique compared to other Indian business families. The last two chairmen with the surname Tata, J.R.D. and Ratan Tata, did not have children.

Picture credits: Tata Central Archives

This leaves Noel Tata’s children as the only members directly in the Tata family whose parent(s) have had active involvement in the upper management of the Group.

Cyrus and Shapoor Mistry’s families will have an 18.6% stake in Tata Sons. Cyrus Mistry has two sons, while Shapoor Mistry has a son and a daughter.

These Mistry family members will probably have a significant say in which Tata family members continue in leadership. They are first cousins. Noel Tata’s wife, Aloo, is the sister of Cyrus and Shapoor Mistry.

But to date, unlike other family members in large Indian business houses, including that of the Mistry family, none of Noel Tata’s children sit on the Board of any Tata Group Company, let alone Tata Sons.

• Leah Tata works with IHCL.
• Maya Tata works with Tata Digital.
• Neville Tata, the youngest, works with Trent.

The Tata family members on the Tata Trusts Board are Ratan Tata as Chairman, his brothers Jimmy and Noel as Trustees. As of now, no member of the Tata or Mistry family sits on the board of Tata Sons.

How Have Other Multinationals Transitioned Beyond Family Management?

• Robert Bosch: 92% of shares are owned by the Robert Bosch Foundation. However, since the foundation does not relate to the business, it does not have voting rights. 93% of voting rights remain with a Board of experts since the company is private. One family member sits on the supervisory board of the company as a representative.
• DuPont: 4,000 family members hold shares in the American chemical company valued at $16 billion. The company is professionally managed and has one family member sitting on the board of directors.
• Hearst Corporation: The Board of Directors has a minority representation of family in the famous American media company. The shares are managed by a family trust, which allows only 5 out of 13 trustees to be family members.

These companies have managed to push their opportunities far beyond the family members being involved in the business, just like the Tatas.

Questions for the Future:

• Will the Tatas go into the next generation purely professionally managed?
• How will the Tata Trust Board evolve in the coming years?

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