The Tata Group

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WORKING PAPER: 06-03

Mar. 2006

The Tata Group after the JRD Period: Management and Ownership Structure by Ram Kumar Kakani & Tejas Joshi XLRI, Jamshedpur 831001, India E-Mail: kakani@xlri.ac.in

Last updated in Feb. 2008

Electronic copy available at: http://ssrn.com/abstract=889394

XLRI Working Paper: 06-03

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The Tata Group after the JRD Period: Management and Ownership Structure1 Ram Kumar Kakani & Tejas Joshi E-Mail: kakani@xlri.ac.in

Abstract
Complex ownership structures are a common phenomenon across Asian business groups. There has been a large amount of international work focusing on the various aspects of ownership structures and strategies adopted by international business groups. In the Indian literature, we found little work, especially with respect to case studies. In this paper, we use public information of a well known business group (the Tatas) passing through a major restructuring and document the development of ownership structure. The country’s second-largest conglomerate, the Tata group, with year 2005 revenue of over Rs. 80,000 crores (US$ 20 billion) and core interests ranging from steel, cars and telecommunications to software consulting, hotels and consumer goods, ¬has come a long way since JRD Tata passed the leadership mantle to Ratan Tata, in 1991. We examine the interrelation of ownership structure, corporate strategy, and external forces for one of the largest conglomerate from India. In all Tata group affiliates, control is enhanced through pyramidal structures, and cross-holdings among affiliates. This case study on the oldest business empire also explores the rationale behind these moves and examines the tensions and complementarities between stronger ownership ties among group affiliates. While bridging ties among group affiliates does benefit the new leadership in creating a more cohesive business group yet the findings hold enough water to conclude that these moves are contradictory to the interests of the minority shareholders in the individual operating companies (i.e., its own affiliates). Key Words: Business Groups, management control, conglomerates, ownership structure, cross ownership, cash flow rights, corporate governance, agency costs, India, and pyramids.

The authors would like to express that the discussion and analysis mentioned herein is purely for academic purposes with no other intentions whatsoever. The author wishes to acknowledge the feedback from S Rajagopalan, Dr. Jittu Singh, Dr C Krishna Kumar, Dr Pingali Venugopal, Dr. Parthasarathi Banerjee, and Dr. Rajeev Sharma. The views from seminar participants (at XLRI Jamshedpur and IIM Kozhikode) have also helped. However, the views mentioned in the paper are personal.

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Electronic copy available at: http://ssrn.com/abstract=889394

XLRI Working Paper: 06-03

3

The Tata Group after the JRD Period: Management and Ownership Structure || “One hundred years from now, I expect the Tatas to be much bigger than it is now. More importantly, I hope the Group comes to be regarded as being the best in India — best in the manner in which we operate, best in the products we deliver, and best in our value systems and ethics. Having said that, I hope that a hundred years from now we will spread our wings far beyond India ...” ⎯ Ratan Tata 2 ||

1. Introduction
A pleasant December evening breeze blew through the Jubilee Park of Jamshedpur3. Reputed businessman, Mr. Satyanarayana Bansal4 was on his usual evening walk, part of his life style for over four decades. Bansal, a retired Tata Steel employee had come to Steel City after graduating in Metallurgy from the illustrious Indian Institute of Technology (IIT) Kharagpur. Thus, began his life long stint with the Tata Group, and his affection for Steel city which made him take a decision to settle here. Bansal was a member of the old guard and had seen winds of change at the helm and across the group during his career. He had seen the successes,...
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