Fire-side chat with Ratan Tata, former Chairman of the Tata Group, as part of the Stanford’s View from the Top Speaker Series. Tata was Chairman of the Tata Group from 1991 until his retirement in December 2012. Here is the transcript of the full chat…[Event took place in March 2013]
Charles Atkins: Ratan, thank you so much for joining us today. It’s an honor to speak with you. And I know I speak for many here in the audience when I say that we’ve been looking forwards to this for quite some time.
Ratan Tata: Thank you, Charles.
Charles Atkins: I wanted to start at the beginning of your career. As the Dean mentioned, you were educated at Cornell as an architect and a structural engineer and plan to spend the rest of your career in the United States. But you returned to India starting on the shop floor, and I wonder what that was like as a young man returning from the United States to India?
Ratan Tata: Well, quite frankly, it was, as much a cultural shock. I’d been away for 10 years and, things had changed, and yet they had not changed, and the difference was quite substantive. In addition to its — I didn’t return to India to spend time on the shop floor. So I didn’t really understand what was being done. And several times during that period of time I thought of going back to the U.S., and pursuing my career as an architect.
Charles Atkins: You spent several years, as the Dean mentioned, moving around different parts of the Tata organization. Were you surprised when you got the call from your uncle in 1991 to be Chairman of Tata?
Ratan Tata: Yes I was. Mainly because, there were many contenders – handful of contenders for that position from his own team of of people.
Charles Atkins: Right. And you faced quite a formidable challenge as the Dean mentioned. When you took over as CEO, the organization Tata, was large and sprawling with independent business heads that regarded their own, their own businesses, their own personal fiefdoms to necessarily play together well. And you went in to an economy that was changing rapidly. And your uncle was considered a titan of Indian business. And very large shoes for a young CEO to fill. How did you go about establishing your credibility as a leader in those early days?
Ratan Tata: I had two problems. One was with the actual market problems of a large business house that had operated very traditionally. And the other was internal to the company of several titans if you like, who didn’t want any change to take place. And I guess a certain amount of resentment also. So the first five years were akin to, Clint Eastwood, if you like which tended to be filled with trying to get these elderly, very prominent people out of the way. Not done with bullets, just done with persuasion and sorry to say with money. So the first five years were spent in creating an environment where change was possible.
And then, I’ve been blessed with an organization that has been displaying considerable spirit in wanting to make a change. And, many things that we did had not been done before. But I was always pleased to see that the response from the organization was tremendous. Without that, it could not have been done.
Charles Atkins: And one of the things that many of us here at Stephens, we study, is the inertia of organizations in the face of change. How did you go to inspire the leaders and front-line staff to believe in the vision that you set out and some of the changes that you wish to implement?
Ratan Tata: That was difficult and to some extent, I would have to humbly say that I failed. One of the first promises I made publicly was that we’d rationalize the group and reduce the number of businesses and reduce the number of companies. I often talk about the first thing that I did with great gusto which was to get us out of the soaps and toiletry business which didn’t seem to fit. And I ran head long into an issue of what were we doing. We were getting rid of a company that had second and third generation employees, it was an unheard of thing. And, who was this person that was making change for the sake of change?
Charles Atkins: Right.
Ratan Tata: And I got attacked from all quarters. The media attacked me, the stock market attacked me, and of course there was a resentment from within the company. So which company would follow now after this? That result was the new Chairman, seeking to succeed and not wishing to have failure, suddenly being bombarded from all quarters. There was no second company that got sold, and I put my tail between my legs and try to look at other forms of growing.
Charles Atkins: Right. And you’ve said in the past that risk is a necessary part of a business philosophy. And certainly over your career you’ve made some significant bets. And the Dean mentioned a number of the acquisitions. I would also think here of the launch of the Indica, India’s first indigenously manufactured motor vehicle. How did you get comfortable making such consequential decisions and, to your point, convincing others to follow you into them?
Ratan Tata: I think convincing myself that it would work was –is a judgment call in terms of the faith you put in your people to do this. And case in point was on the Indica. Conventional wisdom said that you couldn’t enter the car business without having a collaboration. And certainly to think of designing a car domestically and producing it was an unheard of thing. And my friends, as we launched the car, started to distance themselves from me. And it wasn’t from me, it was to distance themselves from failure. And it was the trust one had in the young team to put this together that drove it.
The other is that from time to time, I think change has caused a lot of people in the company to question the wisdom that such a change would be based on. And I’ve been lucky and in some cases, it’s been difficult, but by and large India is a country that has such a great potential that change is by and large well received.
Charles Atkins: And we’ve heard a lot of anxiety about the Indian economy, and we know that there’s a lot of potential there. But there’s been recently at least a lot of noise in the press about how reform hasn’t kept pace with growth. And it’s possibly cramping India’s growth potential. What do you think lies ahead for the future of India?
Ratan Tata: Well you know I’ve always been very positive about the new India. And I’ve been saddened by the fact that after several years of very progressive growth, there’s been a stumbling, activity. That has been a country driven by accusations of corruption. Not wrong accusations, rightly so. Crony capitalism and a government that has withdrawn its pace of growth. At the same time I feel that, that that has bottomed out and we’re on a path again to grow. But we’ve got to rebuild. We’ve gone from a 8% plus growth rate, down to sub five briefly. We will grow back to the growth rate we had. We will need to control inflation, but I think India will — once again the same spirit of the people will make it happen.
Charles Atkins: Right. And one of the things that you mentioned is, that’s often remarked about in India. And for that matter, a number of emerging markets is this phenomenon of crony capitalism. And you’ve spoken in the past about how you value personal integrity, both in your own leadership, but then also in the leaders you admire. Have you ever faced an opportunity which you had to turn down for ethical reasons, or for the ethical consequences of that decision?
Ratan Tata: Several instances with that would be so. I think, perhaps, the most visible one was, when we wanted to form an airline. Oddly enough we were asked to form an airline by the then Prime Minister. The vested interests made sure that we didn’t form an airline through three successive Prime Ministers. And that was the most visible of the thing which we walked away from. Because we could have probably had it by succumbing to subjective issues of bribery or corruption. And we walked away from that. When airline would have been something we really wanted to do, we pioneered aviation at the turn of the century and it was emotionally something that we would have liked very much to be in again.
Charles Atkins: Right. I know both you and your uncle JRD were both aviation enthusiasts, I can imagine the disappointment you must have felt. One of the hallmarks of your 10 years as CEO has, in fact, been the move away from India in transforming Tata from an Indian business into a true multinational. What’s prompted the move abroad and, what were some of the biggest challenges you faced, in doing so?
Ratan Tata: To a great extent it was the issue of having the need to grow and a need to take a view that you have grown in India in some cases with fairly substantial market share. And that as a group, we ought to look beyond the shores of India. To another economic cycle in which we would operate. You know that that, it’s pluses and minuses. We didn’t ever foresee that Europe would go through the downturn that it did, and that was where our major investments lay. So it was a quest of growth and, and changing the ground rules to say that we could grow by acquisitions which surely we had never done.
Charles Atkins: Right. The international expansion though was not without some controversy and aside from the economic rationality. There was also emotional consequences and I am thinking here of the acquisition of Tetley tea. The idea of a beloved British Tea brand being bought by an Indian company, must have stirred some hearts in England, and —
Ratan Tata: If they did, it was quite quiet and dignified. The more vocal one was when Jaguar and Land Rover got acquired. And that was far more emotional and far more visible different reactions from different quarters. Some concerned that an Indian company was going to take over, vaulted to very venerable brands. What were they going to do with it. Ford had made, not been able to make a profit with them, so what was this Indian company that had no experience in the premium car segment do with such a company.
Concerned by the workers that we were going to close down plants and move them to India. And a general feeling that, in England, that another English brand was gone. Quite frankly all we did after we got involved was to tell the management of the company to make their own destiny. That we’d support them in terms of what they wanted to do. And of course, the marketplace has been very conducive to what we have done.
So I think the Jaguar Land Rover thing was much more fiery than the tea. Then there’s done very, very quietly and then as I said in a very dignified way.
Charles Atkins: No doubt the British stiff upper lip was what they applied there.
One of the remarkable aspects of Tata is its sheer complexity. It strikes me as being an enormously difficult challenge to be able to manage this company day to day. You have, as the Dean mentioned, almost half a million employees world-wide, over 100 operating companies, 36 of which are publicly listed. Dominic Barton of McKinsey, when he was here this week spoke about great leaders needing to have both have microscope and a telescope. That is an ability to focus on the fine details where they really count, but also to see the larger picture and to see the secular trends transforming the markets. How did you go about managing Tata day to day and balance that need for a micro and macro perspective?
Ratan Tata: I think by and large all our companies have had strong CEOs that have run the businesses. And the only thing I would say is that I’ve had a funny type of role where you sit apart looking at the overall company on a strategic basis. And then when there is a problem you go into the company much more than may happen elsewhere in the world, where you find yourself playing the same role as a CEO in terms of either firefighting, or moving a company in another direction. And then, move back again into a macro position where you’re looking at the company or the group in its broader sense.
So exactly what you said – it inadvertently has been what has been done.
Charles Atkins: How did you make sure that you had the information you needed to make the decisions? So we’ve had in the past VFTT CEOs come in and speak about how they would covertly conduct visits to the front line and visit factory floors, just to get to gauge the spirit morale of their workforce.
Ratan Tata: I think that that’s an absolute given. The worst thing that can happen is to determine where the company’s going through the eyes or the mouth of one person, i.e., the CEO. Far more is gained by walking on the shop floor and talking to the people and trying to communicate. One of my weaknesses has been, I think – I’ve never communicated in [alpha] adequately with our people. Partly because I’m a shy person. And secondly, because I didn’t realize the importance of communication. But I think communication with the employees is an exceedingly important function that any company chairman has to do and be visible in that sense.
Charles Atkins: Did you ever have to overrule? Or disagree with decisions made by some of the leaders of your businesses based on information you were hearing from the front line?
Ratan Tata: Oh yes. Very much so. That’s usually quite an eye opener because you have a trusted CEO. And you find either inadvertently or consciously you’re getting a colored picture of a situation.
Charles Atkins: Right. Another one of the approaches that you took at Tata which is a hallmark of your tenure is the focus on the bottom of the pyramid consumer. And we all know the story of the Tata and Nano and a number of us visited your factory last year in Gujarat. And I was pleasantly surprised to find that I could fit quite comfortably inside.
Ratan Tata: I’m glad you did.
Charles Atkins: Well, I heard it was modeled after you. So someone of your stature needed to fit comfortably. But the Nano as we spoke about before the interview has also met with some challenges. And so I’m curious whether you’re still as enthusiastic about the bottom of the pyramid market today and what lesson do you take from the Nano episode?
Ratan Tata: Good question. The Indian market, the known consumer market is about 250 million to 350 million people. If you take the base of the pyramid and look at developing products below that into the segment of the market that’s moving into that consuming area. The market size extends to 500 million to 600 million people. That’s a huge market. 300 million of which you don’t have products to address. So if you can think of how to reach that, how to reach that market, you have an exceedingly large potential market.
And a case in point, might be the cell phone industry in India. When I grew up in school you waited seven to ten years to get a telephone. There was a government incumbent company or a government monopoly that it had limitations that it refused to grow. Rates were high. So apart from people like me, a little shop keeper or a hand cart puller let’s say, could never dream of having connectivity other than through a payphone.
Today with cellphones, it’s bypassed all of that. And the handcart pusher can buy a prepaid SIM card and a low cost phone and he’s connected. He has a number. He can be reached. He has an identity and a self esteem. So you have cellphone subscribers that are maybe 600 million in India. And the fastest growing industry that the country has seen. So, it has come because technology has made it a phone available and it’s no longer dependent on copper wires or optical fiber. And this has happened.
Again, who would have thought that 10 years ago that you would have had 500 million telephone subscribers in India. So, I think the potential of the Indian market is huge if you address yourself to that. I don’t think the Nano adequately did that. And the lesson we learned is, you can’t do something on the basis of trying to sell it the same way as you would sell another car. We should have been selling it like one sold a scooter or motorcycle. And instead of two wheels, give them four wheels and a safe form of family transport. We’ve learned our lessons on that and we will rectify that as we go forward.
Charles Atkins: Right. So, important profit motives. But also social consequences of really addressing that market.
Ratan Tata: Yes.
Charles Atkins: And Tata has a remarkable record of — its involvement with philanthropic causes. And how do you view the role of organizations like Tata and in particular, the role of corporate social responsibility, in addressing needs in society.
Ratan Tata: Well I think, this transcends to personal life also. You’ve got a country with tremendous disparity of income. You’ve got very rich people on the hand, and abject poverty on the other. You have to be sensitive to the fact that, this gap cannot continue to widen while there’s a large discontented number of people who are looking at the inequities of the environment as they see it.
To — for companies therefore, I think there has to be a sensitivity to doing something in the communities around which you operate. And making an effort to raise the quality of life so that there’s not envy and distaste for what was there. But the company is looked at in a more positive sense, and in enhancing the quality of life of the people around them.
We spend about 4% of our net profit in these rural development activities, and we do it ourselves. And someone may argue that this is shareholders’ money which it is. But I think it has brought a sense not just tolerance, but a sense of welcoming our companies in wherever they’ve been. And enhancing whatever we have been trying to do in the product area or the services area to community area, being part of the community.
Charles Atkins: Would you view the role of corporate social responsibility as being quite different in the United States versus an emerging market, like India?
Ratan Tata: I don’t know enough about the United States to make a comment, but I think in one form or another it becomes an issue that all corporations will have to deal with. And we think as businessmen, have to consider ourselves and removing the image of being the ugly businessman, the [banal] businessman, and being heads of companies, leaders whose interests go beyond that of their company to the communities they serve.
And if I think if we can do that, we can undo an image that has been created over the last century, of greed and self-serving desires. So, I think it’s something that we need to be sensitive about.
Charles Atkins: So Stanford has a reputation for entrepreneurship, and many of the students here in the crowd have aspirations to be entrepreneurs. Do you think the innovation taking place in emerging markets is going to be driven by more multinationals like Tata? Or do individual entrepreneurs have the ability to disrupt major markets in India and others like it?
Ratan Tata: I would hope that it’s the latter. I would hope that we can homegrow enterprises in various countries. I think what the United States has had, which is very different is it’s had an environment where a good idea driven by people with merit has a better chance of being supported and financed and nurtured than you might find in developed countries. Very often a good idea dies in a developed country, or even, I mean in developing country or even a developed country outside the United States. And that person finally moves to the United States and makes a success. And it is because the environment allows that to happen.
So I think there’s a need for supporting environment to take place. But I would hope that we would see more and more local companies being entrepreneurial and creative and being at some stage, global players.
Charles Atkins: And certainly we’ve seen a number of countries try to replicate the success of Silicon Valley and have found that it takes a unique mix of ingredients. Whether it’s human capital, legal institutions, and so on. Are you hopeful that India will be able to create that dynamic within its own country?
Ratan Tata: I think the potential exists, whether India does or doesn’t will depend. Unfortunately, to a much greater extent on government policy than it does in a totally free environment.
Charles Atkins: I mentioned when you took over that many, many external observers they thought you had large shoes to fill in taking over from your uncle. Now, with another transition of power Cyrus Pallonji Mistry has his own lodge he has to fill, that of yourself. I wonder what advice you’d give Cyrus as he takes on this task as Chairman.
Ratan Tata: I’ve told Cyrus that he needs to be his own person that, finally, it was something I did. I realized the shoes I had to fill were far too big for me to mimic the person that I was following. And I just decided that just be myself and do what I thought was right would be the way to go. I’ve told Cyrus the same thing. I think he should feel that he is being his own person and let his personality and his conscience, if you might, drive him.
Charles Atkins: In a moment, I’m going to turn it over to the audience for questions. But one last question before we do. In Stanford we ask one question of all our applicants to the MBA program which is, what matters most to you and why? I wonder how you’d answer that question.
Ratan Tata: I’d obviously fail in Stanford because I don’t know how I can answer that question. To me I think short term the transition of suddenly having a lot of time and being able to be the master of that time is, is a lovely luxury. Whether that luxury becomes boredom as time goes on is something that will need to be seen and how it gets filled with other pursuits.
As head of the trust, I will be involved in some of the things we’ve talked about a little in the past few minutes of trying to make a difference in what – in quality of life of the people in India. But, to what extent did my next few years would lead, lead me to fulfill that or change from that view, I don’t know. So, with humility, I’d have to say, I wouldn’t fall into the success model – the Stanford graduate would, in answering your question.
Charles Atkins: I think over a lifetime of service that we can draw in conclusions to sme of things that have clearly mattered to you in terms of the impact that you’ve had on Indian society.
Ratan Tata: I think, if seriously — if I said I would like to be seen as being someone who could continue to try to make a difference, I think that would be a very satisfying thing for me to achieve.
Charles Atkins: Well, I think that’s a great point to turn it over to questions.
Question-and-answer Session
Male Audience: A question we have been struggling with in some of our classes is the role that large companies have in creating macro-changing. You’re clearly doing that in India. And I’m wondering if you have any anecdotes of ways in which you’ve been able, by your position to influence the government to make certain decisions that were in the best interests of the country, when, maybe, they wouldn’t have?
Ratan Tata: Your, your question relates to how we are channeling or deciding how and where to channel our funds. And in that sense or?
Male Audience: Or almost the influence that a large business, a large business that is, that has a vision for good for the country can have in changing what influencing policy, positively?
Ratan Tata: I think I don’t know if I’m answering your question adequately. But I think large business has to have an element of orienting themselves to serve a social need also in addition to just serving a business need. And in our case I think there’s — we may be driven by a business motivation. But we should always be conscious of areas that we feel are not in the public interest. And now going into dangerous waters, but we withdrew from activities in the liquor business. Because we felt that this was an area that, that tended to be serving a consumer base that we –that perhaps we didn’t want to be in.
We look very hard about being in, in certain natural resource business which should become rather banal how those businesses were run. And I think similarly we’ve entered businesses that, maybe small, in a small way which have been what we considered to be a worthwhile thing to do for the communities, that we’ve been in. But I don’t think there’s been an open in a very constructive way to do, what you’ve suggested, as here.
Charles Atkins: Thank you Ratan.
Ratan Tata: Thank you.
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