Tata-Mistry Conflict: Lessons for Leadership and Succession Planning
By Tulsi Jayakumar
The ‘House of the Tatas’ is yet again in the news for providing a textbook case on leadership lessons and corporate values. Only this time round, the Tatas may be in for some learnings as well.
As late as in September 2017, almost a year after the controversial ouster of Chairman, Tata Sons, Cyrus Mistry, shareholders of the Tata Sons Ltd. voted in favor of the Tata Holding Group becoming a private company. The move, expectedly, was opposed by the Mistry family, which owns an 18.4 per cent stake in Tata Sons. While the final outcome of this battle is anyone’s guess, the moot question remains: Have Indian Family businesses, even those which have gone professional, learnt succession planning effectively? A related concern pertains to the use of emotional and social intelligence by family business leaders to create shared vision among successors, as also various stakeholders in the family and business.
To gain insights into the dynamics of the family and family business interface using the Tatas example, we first need to ask the question: Can the Tatas be equated to a family business? On the face of it, Cyrus Mistry not being a Tata ‘family member’, the association of the Tata- Mistry fight with family dynamics may appear vague, if not flawed. However, the term ‘Family Business’ itself is open to interpretation as the Tata case amply demonstrates. The Tata group, although firmly associated with the Tata family legacy, has not been led by a direct descendant of Jamsetji- the founder of the Tata Group, in recent times. In 1991, Jehangir Ratanji Dadabhoy (JRD) named Ratan Naval Tata (RNT), his adoptive nephew, as his successor. Thus, in 2012, when Ratan Tata approached the mandatory retirement age of 75, and there was no ‘family’ member on the Tata side, with Tata never having married, history seemed to repeat itself. Cyrus Mistry, the scion of the family that was Tata’s largest private shareholder, and an outsider to the Tata family was appointed the successor to RNT. The succession plan seemed fool-proof, given Mistry’s knowledge of the Tata management style and functioning, having spent 6 years working as a Tata Director prior to his being anointed Tata’s successor.
The failure of the latest succession plan in the Tata business is symptomatic of most family businesses, even in the global arena, which ignore family dynamics and the resultant dynamics between the family and family business interface. At the heart of a successful transition of leadership, especially in a family business, is a shared vision and a leader who exhibits ‘Resonant Leadership’.
The term ‘Resonant Leadership’ was first used by Richard Boyatzis and Annie McKee, who described resonant leaders as those who inspire people in their organizations, institutions and communities. They find new opportunities and create hope. They build relationships with others that can be described as being in tune with those around them and help create ‘shared vision’.
The creation of a shared vision has been identified as the driver of sustainable change. However, such shared vision is easier stated than achieved. Research in the area of Intentional Change Theory shows that the leaders’ vision of the organisation, as to how the organisation should be, kicks into motion among the members of the organisation/team, the notion of the ‘ought self’. The latter is essentially based on expectations of others. Such ‘ought self’ often causes conflict with the ‘Ideal Self’. The members of the family or the organisation, in such a scenario, capitulate to the expectations of the leaders – the ‘ought self’ – so as to reduce the cognitive and emotional dissonance. However, such a distance between the ‘ought’ and ‘ideal’ self leads to people feeling lost, without a sense of purpose or get anesthetized to their possible dreams. There is no shared vison in such cases.
The most effective leaders, then, are people who demonstrate:
– Emotional Intelligence (EI) competencies, in particular emotional self-awareness, emotional self-control, achievement orientation, adaptability and positive outlook;
– Social Intelligence (SI) competencies, in particular empathy, organizational awareness, inspirational leadership, influence, coach and mentor, conflict management, teamwork; and
– Cognitive competencies, in particular systems thinking and pattern recognition.
Such leaders use social and emotional intelligence and cognitive competencies to build resonant relationships and shared vision.
Research in the family business space indicates that among other factors including trust, confidence in management, and developing a learning network, shared vision is the most powerful predictor of long-term financial success of family businesses. Such shared vision comprises essentially of three elements:
– shared values and philosophy to build on a core identity with the past and distinctive strengths;
– shared hope built on emotional contagion and
– the shared image of a desired ideal future.
The Tata-Mistry imbroglio clearly demonstrates the lack of a ‘shared vision’ between the incumbent and the successor. In lesser family businesses, such lack of shared vision, may result in a demotivated and ineffective successor leadership and eventual organisational decline; in Tatas, it has assumed the form of a full-blown conflict.
The shares of the Tata Group companies fell in the immediate aftermath of the ouster of Mistry. The lack of shared vision and any resultant family conflict is likely to have a far severe financial impact on smaller family businesses.
In the context of family businesses, it is this cultivation of resonant leadership and effective succession planning that should constitute the key takeaways from the Tata-Mistry imbroglio. However, a recent survey of Indian family businesses by PwC suggests that succession planning is not perceived as a key challenge for family businesses. Only 25% of the 102 family business respondents surveyed considered succession as a key challenge, as opposed to a global figure of 34%. Consequently, only 15% of family businesses surveyed had a robust, documented and communicated succession plan. Even more interestingly, ensuring that the business stays in the family appeared extremely low in order of priority, with 44% of those surveyed indicating that this goal was not very important. Even more unimportant appears to be the goal of ensuring that employment opportunities are created for other family members, with 72% considering this as unimportant, while only 12% considered this ‘very important’. Paradoxically, 78% of family businesses in India have next-gen family members working in the business, with most of them working in senior executive roles.
Such results may be explained by the perceived relative unimportance of family dynamics when compared to business challenges in achieving long-term business goals of family businesses. Thus, business challenges such as the need to innovate, keep pace with digital and new technology and dealing with competition were seen as the key immediate challenges by Indian family businesses, while long-term personal and business goals included ensuring the long-term future of business, improving profitability and enjoying work and staying interested.
Yet, as the Tata-Mistry fight exemplifies, ignoring family dynamics, especially those relating to succession planning and enduring leadership, and concentrating purely on business issues can jeopardise the achievement of any business goal. Family business leaders will need to understand the relevance of creating resonant relationships and a shared vision for the next gen to own and build on. A robust succession plan, comprising of helping the next gen bridge the three key gaps, namely the generation gap (between their experience and that of incumbents), the credibility gap (to establish themselves) and the communication gap (both in family and business), together with a shared vision is the mantra to success for family businesses.
The writer is Professor & Program Head, Post Graduate Program for Family Managed Business, S.P. Jain Institute of Management & Research (SPJIMR), Mumbai