The crisis that led Ratan Tata to be JRD Tata’s chosen successor

In 1985, Ratan Tata was appointed deputy chairman of TISCO (today known as Tata Steel). In September of the following year, he also became chairman of Air India, which had begun, under JRD, as Tata Airlines. But JRD was not moving Ratan into the chairmanship of Tata Sons just yet. Instead, in 1988, he decided to position Russi Mody, chairman of TISCO since 1984, as chairman of TELCO as well. Had this second chairmanship materialised, it would have given Mody the top spot in Tata’s two largest companies, which, between them, represented half the group’s total sales.Mody was a Parsi, Indian-born but educated in England (St Cyprian’s, Harrow, and Christ Church College, Oxford), who had worked his way up from the position of office assistant at TISCO. Following his elevation in TISCO, Mody boasted that he would shortly be also chosen to head TELCO, then considered to be the most forward-looking company in the group.The loose chatter alarmed some TELCO executives, including the company’s serving chairman, Sumant Moolgaokar, who was widely credited with the building of TELCO from a sleepy railway locomotive manufacturer into a leading commercial vehicle producer. Plagued by ill health, Moolgaokar had been looking forward to the relief of retirement, but now reversed himself and refused to yield the chairmanship to Mody.Great pressure was brought on Ratan, who was being appointed deputy chairman, to refuse to serve under Moolgaokar. Out of enormous respect for him, however, Ratan refused to undermine Moolgaokar’s position, and Mody finally had to withdraw from the battle. Eventually, Ratan became the deputy chairman of TELCO and finally its chairman, when Moolgaokar’s failing health at last disenabled him to chair the company’s board.At this most difficult of junctures, labour relations at TELCO’s massive truck plant in Pune began rapidly deteriorating. Even before Ratan was appointed deputy chairman, labour demonstrations had begun severely slowing production. In December 1988, when Moolgaokar’s failing health prompted him to turn over the chairmanship to Ratan, the unrest was heating up. Outside observers, however, were not watching the labour situation as much as they were focusing on Ratan Tata. They were waiting to see how Mody, having so unexpectedly stumbled in his ascent to the post of JRD’s heir apparent, would act to unseat him. But then the real assault came instead from a fiery internal union leader named Rajan Nair. medium114128480In March 1988, Nair was suspended after allegedly threatening to kill a plant security guard. Shortly after his suspension, he was fired. A few months later, Nair vowed that he would ‘bring the TELCO management to its knees’. To rally the workers behind him, he took up the cause of the still-unresolved wage agreement and presented himself as their representative in negotiations. Before talks could begin, however, Nair demanded that Tata officially recognise him as the leader of the plant’s workers.Ratan, who had moved up from deputy chairman of TELCO to chairman in December 1988, refused to recognise Nair on two grounds: firstly, Nair was no longer employed by the company; and, secondly, he had a criminal record. Ratan made it clear that he and the rest of the management were very willing to negotiate with other union members, but could not accept Nair as the employees’ representative.Tensions mounted. On January 31, 1989, Ratan visited the Pune plant, where workers greeted him on the shop floor by laying down their tools. It was an ad hoc ‘tools down’ strike. In a stroke of bad timing, Pune police authorities decided to take Nair into ‘preventive custody’ on this very day. When news of this reached second-shift workers, they commandeered the buses that had been hired to transport them to the plant and drove them instead to central Pune, where they laid siege to the district courthouse until authorities set Nair free.While this was going on, Ratan was meeting at the plant with one of Nair’s aides and others. When Nair announced — falsely — that Ratan had ordered his arrest, the meeting broke down, and negotiations were suspended. On March 15, ‘Nair’s men’ targeted some 22 management personnel and ‘rival unionists and assaulting and stabbing them in various parts of the city’. Nair did not deny this, but later claimed that ‘the provocation was from the management because the previous day one of the TKS [TELCO Kamgar Sanghatana], the union he led, members was slapped on the shop floor’.The events that followed, Ratan says, were among the most painful and challenging he ever dealt with. Here he was, the newly appointed chairman of the company ‘and suddenly your people are being stabbed. Your workers are being hit on the road and beaten up. The police are in the guy’s pocket. You don’t know what to do. You go to the shareholders meeting. The whole hall is full of these red handkerchief union leaders’ — Nair and his loyalists wrapped red bandanas around their foreheads — ‘who are out to heckle your shareholders’ meeting. And so, that was a time when I was nervous and new’. medium114124384But Ratan had not backed down from JRD and Mody. He did not now back down from Nair and TKS, even in the face of violent labour intimidation. ‘If you put a gun to my head,’ Ratan told Nair, ‘you better be prepared to pull the trigger, as I will not be moving my head!’ With that, he refused any further negotiation with Nair and his loyalists.Ratan reached out instead to the rest of the workforce and to the local community. In a break with the company’s conservative corporate tradition, he led management in a campaign to win over workers through face-to-face, one-on-one meetings. As for the community, which had a major stake in the prosperity of Tata’s plants, Ratan used the media to shape favourable public opinion. As public relations campaigns go, it was a slow, methodical slog, but it paid off.On September 19, TELCO management signed a three-year contract with TELCO Employees Union, a rival of TKS. Not only did the agreement offer a generous wage hike, but it also made a lump-sum payment of arrears. TELCO management reported that 1,570 workers accepted the deal, to which Nair responded by leading his diehard supporters to Shaniwar Wada, where they intended to take refuge and stage a hunger strike.The ruins of a Peshwa fortification built in Pune in 1732, Shaniwar Wada was a popular tourist site. Leading about 3,000 workers, who identified their allegiance to their champion by tying around their foreheads bright red bandanas emblazoned with his name, Nair settled in for a long haul. When the strikers’ fast passed the one-week mark, local government authorities feared that someone would die in Shaniwar Wada, touching off massive violence in Pune.Sharad Pawar, chief minister of the state of Maharashtra, brokered a meeting on September 27, 1989, between Nair and Ratan at the minister’s official residence. Nair showed up late, and the meeting broke up soon after it got underway.Informed that the labour and management had failed to reach an agreement, Pawar launched Operation Crackdown. At 2.30 on the morning of September 29, Maharashtra and Pune police rolled out to Shaniwar Wada aboard some 80 buses. After cordoning off the fort, they stormed it and removed the workers. Most were transported to various police stations in Pune, but Nair and his entourage were separately jailed on charges of attempted suicide and ‘defying prohibitory orders’.The police action ended the strike, and by the close of 1989, daily production, which had fallen to a mere handful of vehicles during the worst of the labour action, recovered by November to an output of 70 vehicles a day (still well below the normal production of 140), with the number of employees on duty up from a skeleton-crew low of 700 to 2,500. medium114124394The media was full of stories that told the story of Ratan’s triumph over a rogue union leader. Ratan himself rejected this interpretation, however, and publicly commented that the recovery from the strike was a vindication of the principles and values Tata had held since the company’s founding in the 19th century. He gave full credit to courageous workers who faced down intimidation and to white-collar office staff, who ‘were manning machines and people in the accounts department [who] were moving materials’.‘We started producing vehicles with about 800 people. I think that the kind of spirit that was created in Pune then [during the strike] would never have been created were it not for the conflict.’ Ratan conceded to the press that it was a victory for the company and its team, but it was a victory ‘caused by circumstances which were, ironically, created by Rajan Nair’. He spoke about the ‘sense of friendliness’ that now prevailed in the plant. ‘I can walk around the shop floor and talk to people. They come and talk to me. We smile and shake hands.’Ratan is often described as a modest, reserved and even shy man. Colleagues describe him as eminently approachable and very affable. For him, conversation, smiling and shaking hands with workers came naturally. He discovered that he was very good at the one-on-one management approach, the approach that treats employees as members and teammates.It is also clear that he took away from the difficult, at times violent, strike a valuable lesson. ‘Perhaps,’ he told the press, ‘we took our workers for granted. We assumed that we were doing all that we could for them when probably we were not.’As for Nair, Ratan recognised him for what he was — the product of dysfunctional management. ‘We gave Rajan Nair — or any name — a chance to come and do what he did.’Chairman RatanUnderstandably enough, Ratan’s successful resolution of the long labour crisis at TELCO did not sit well with the man who had counted on having this job. Mody had been on the verge of claiming the two major chairmanships that would have put him unassailably in position to take over as chairman of Tata Sons when JRD stepped down.His having fumbled and thereby lost the TELCO chairmanship to Ratan was bad enough, but Ratan’s performance in resolving the labour crisis made it even worse. Mody had enjoyed a reputation as the Tata Group’s go-to leader in the field of labour relations. Now it was the quiet, unassuming Ratan Tata who emerged as a strong manager in a crisis.And it had to do with more than overcoming one particular crisis. While the media continued to portray him — with admiration — as a tough manager of labour, Ratan himself, quietly, out of the limelight, pursued a strategy of rebuilding and improving labour relations at TELCO for the long term.Crisis management became a platform from which he could do more than merely prepare to fight the next fire. Ratan wanted instead to prevent future fires by building a culture of trust between management and labour. medium114124064The strategy worked. On March 31, 1991, the end of the year’s first quarter, TELCO, so recently crippled by strikes, beat out TISCO — chaired by Mody — for first place among India’s private sector companies. As measured by sales, it was TELCO, not TISCO, that was now the biggest single company in India. TELCO sales rose by nearly a third, before-tax profits rose 58% and vehicle production hit 81,931 units, a 26% rise.Some crises make a man. Some break him. The long, violent labour dispute at TELCO threatened to break Ratan, but ended up making him — making him the successor to JRD Tata as chairman of Tata Sons on March 25, 1991. On November 10, 1993, 89-year-old JRD — who in just 19 days would succumb to a kidney infection in a hospital in Geneva, Switzerland — spoke of why he had, two years earlier, chosen to pass the torch to Ratan.‘I knew what Ratan’s strengths and abilities were, and I was totally convinced that he was the best man to succeed me, not only because of his abilities, but [also] because he totally shared my sense of values.’ Commenting on this, Ratan Tata agreed that ‘it is only right’ to put so much emphasis on values, ‘considering that values are fundamental to the Tata ethos’. But the fact was that Ratan had come into the Tata companies way back in 1962 already in possession of those values.Three decades later, when he became chairman of Tata Sons at the age of 53, he had learnt something else: that ‘values by themselves should be subservient to corporate performance’. An expression of the delicate balance between philanthropic ethos and competitive capitalism, the balance at the core of the Tata companies, this was a position Jamsetji Tata himself would have embraced passionately.Excerpted with permission from The Fall of Cyrus Mistry: Uncovering the Rift with Ratan Tata (published by Penguin Random House).