Purging Tata Of The Titans

AUGUST 31 is the day the last of the titans of the Tata group will be moving out from active corporate executive life. Ajit Baburao Kerkar, 65, will retire as managing director of Indian Hotels Company Ltd (IHC) which owns the Taj chain of hotels. Kerkar will be retiring after 37 years in the company, about 27 as managing director and well over a decade as chairman and managing director. Even as the executive powers of managing director will be handed over to a successor, Kerkar will continue as chairman.

August 31 could also be the day that Ratan Tata will heave a sigh of relief. Kerkar also happens to be the last obstacle in Tata's journey to run his group the way he wants to. J.R.D. Tata created a group of entrepreneurial super managers and gave them total freedom to run their companies. Under JRD, this was the key success formula for the group's immense growth. Russi Mody at Tisco, Darbari Seth at Tata Chemicals and Tata Tea, and Kerkar at Indian Hotels built megacorps: in values, attitude and style, they were more owners than managers, bowing only before the benign charisma of JRD. But what worked so well under JRD soon turned into a bed of thorns for his successor, mainly because these powerful satraps found it difficult to accept Ratan as their leader.

Ratan Tata managed to get rid of Mody pretty easily. Seth, now 75 years old, quit as chairman of Tata Chemicals and Tata Tea two years ago. Ratan Tata stepped in as chairman in both. This month, Seth has resigned from the boards of both ACC and Tata Sons. Though the gossip mill has already seen this as a signal that Seth is being smoked out of every vestige of power, those close to the man insist that there is nothing to be read in this: Seth simply wants to hang up his boots.

Which makes the countdown to the IHC Board's meeting before month-end to find Kerkar's successor crucial and suspense-ridden. On it will depend the way the scales will tilt for Tata and Kerkar. Informed circles say that R.K. Krishna Kumar, currently managing director, Tata Tea, is tipped to be successor. "Since Kerkar will continue as chairman, he could continue to wield sufficient control," says a market analyst. This is why it is critical for Tata to ensure that his own man—Kumar—takes executive control. "This is his great chance to get his foot in the door," says a shareholder.

Kerkar, in answer to a shareholder's question last year, took the names of the three executive directors of the group as possible successors: Camellia Punjabi, Leonard Menezes and N.B. Daruwala. He stated that all three directors were equally in the running given their past achievements, and that he had forwarded all three profiles to the Board. The Board, he said, would take the final decision.

THAT Tata is systematically fortifying his own position is clear. At last year's annual general meeting of Indian  Hotels, he announced a royalty to be paid by all group companies to Tata Sons for the direct or indirect use of the Tata brand name. The money would be utilised to build the brand. "Being a Tata himself, this would eventually endorse his own name and therefore strengthen his standing," comments a critic.

But given the stakes involved, Ratan Tata seems to be relooking at a few things already. Possibly as a direct result of Tata's demand for brand royalty, ACC chairman Nani Palkhivala categorically stated that his company was not a Tata group company but one "closely associated with the group," so there's no question of paying for the Tata name. In a clear climbdown, Tata Sons has now reviewed the proposal and presented a modified, voluntary brand strengthening fee scheme. All collections from group companies—which would probably end up being far lower than last year's ambitious target of Rs 40 crore—will be retained in a separate trust to develop the Tata brand name.

The brand royalty issue had, in fact, brought the cold war between Ratan Tata and Kerkar to freezing point. Kerkar has never brooked any interference from Tata in his domain, and Tata has refused to fund his expansion plans. So when Ratan floated the brand royalty idea and even wanted to change the Taj brand name to include the Tata name, Kerkar refused to comply with either demand.

The Taj group, he believes, and with some justification (see box), owed nothing to the Tatas except for the fact that Jamshedji Tata had set up the Bombay Taj hundred-odd years ago. Indeed, even Kerkar's harshest critics agree that the Taj name has been built by him and not the Tatas. Again, when Tata wanted Kerkar to help out by buying shares of Tata Sons worth Rs 10 crore, Kerkar refused, saying, reportedly, that he needed the money for expansion of the chain. "Amidst all this, Tata has realised that he has very little say in the Taj group despite Tata Sons' holding of 11.2 per cent and the entire Tata group's holding being close to 40 per cent," comments an analyst.

 Within the Taj group, Kerkar's word is law for the 10,000 plus employees. Naturally. His achievements are spectacular (see box); he has built the Taj group from a single-property—and badly run—company to a highly successful 50-hotel chain. And the visionary that he is, in the early '70s, when the IHC share dived much below par, Kerkar, hailing from a well-off family with interests in textiles, picked up considerable equity in the company. Today, the share is trading at over Rs 600.

As he steps down, say sources, he is promoting Menezes for his job. Argues a shareholder, "He (Menezes) is well-qualified for the job as he has been in charge of all international business." This, while Krishna Kumar comes from an entirely unrelated business. The argument, however, gets immediately shot down by a Tata backer: "At that level the incumbent needs to understand broader trends, finance and management rather than day-to-day operations of a business."

 Ratan Tata sees control over IHC as crucial: service industries are expected to grow exponentially over the next decade. A recent report made by management consultancy firm McKinsey & Co for the Tatas suggests that the empire re-align itself in three broad groups: the five core companies (Telco, Tisco, Tata Tea, Tata Electric Companies and Tata Chemicals); infotech and telecom; and the services group comprising companies like IHC and Tata Services. IHC is also a golden goose. Performance has been excellent with the last two years showing large leaps in profits. Gross revenue increased from Rs 300 crore in 1993-94 to about Rs 380 crore and then nearly Rs 550 crore in the following two years. Profits grew substantially from about Rs 67 crore to Rs 105 crore and then Rs 180 crore over the same period. Last year, a dividend of nearly 80 per cent was declared.

As Kerkar's retirement date has approached, the battle for the Taj has turned increasingly bitter. The two camps are even said to be slowly poisoning the atmosphere for each other by spreading rumours. Or this itself could be another of the rumours, for there have been several in the last few months. For example, Tata Sons, the rumour mills insisted, had reduced its stake in IHC. Clarifies Ravi Dubey, vice-president, corporate communications, Tata Group: "There has been no strategic dilution." Tata Sons, he states, dis-invested only 2.3 lakh shares which accounts for less than half a per cent of total shares held. Anyway, these too were transferred to a subsidiary company.

THEN, Ratan Tata was off from work through July and the markets were rife with gossip that he was seriously ill. The group had to, in fact, issue a press release denying this.

Meanwhile, Kerkar loyalists claim that Tata men are digging for dirt in the Taj titan's background. Kerkar's son, Peter, is chief executive and a stakeholder of travel agency Cox & Kings. According to industry sources, nearly 60 per cent of Cox & Kings' business—close to Rs 15 crore—comes from the Taj. Says an analyst: "If the travel agency belongs to the group, there is no clash of interest but in such a case it can be dubious." Some questions that are being aired now are: How are profits being shared? Who is benefiting? Are decisions being taken in the best interest of the Taj group? The Taj group has given Cox & Kings a travel desk at most of its properties around the country. "This is almost like ensuring that its maximum business goes to Cox & Kings," states an industry insider. Furthermore, the Taj group is, reportedly, planning to shift all its reservation business to a single international reservation agency, Utell, of which Cox & Kings is the sole Indian agent.

Everyone, though, is definite that no matter who comes to the helm of the Taj chain of hotels, business will not be largely affected. The systems are perfectly in place, the hotels are recognised as the best in the country, the share price is steady: nearest competitor, the Oberoi group, trades at about half the price.

But new ventures may be beginning to suffer. Three hotel projects in Mumbai are running far behind schedule. The hotel industry, anyway, is in a bit of a recession. Occupancy rates are falling to lower than 50 per cent on an average. And leading hotels like Leela in Mumbai have begun slashing rates already.

What the IHC board decides in the coming days will dictate what Tata's next move needs to be and how the picture will develop further. But what is truly unfortunate is that the last days of a great manager's career should leave a bad taste in everyone's mouth.