In a country where bitterness has often ruled succession among some of India's most prominent companies, the 141-year-old, US$71-billion Tata conglomerate appears to be a remarkable exception.

Instead of getting set for a squabble as Tata's 72-year-old chairman, Ratan Tata, prepares to retire in 2012, the conglomerate has created a five-member panel to scout a successor. That is considerably different from the Reliance, Bajaj, Birla and Ranbaxy groups, whose siblings and scions have staged internecine wars for succession.

At that, there is still a whiff of nepotism. Tata's CEO-hunting team includes three members of the board of Tata Sons including Cyrus Mistry, the brother-in-law of the frontrunner, Noel Tata, Ratan's half-brother. Other names are current PepsiCo chief Indra Nooyi, former Vodafone head Arun Sarin and Renault Nissan chief Carlos Ghosn.

The Tata succession has global relevance, given that about two-thirds of group revenue is generated from abroad due to its welter of overseas acquisitions over the years. The group has a presence in over 80 countries and is the largest private sector employer in India with over 350,000 employees. The salt-to-steel conglomerate encompasses 98 operating companies – including India's foremost vehicle maker, software services firm, private sector power producer and the world's eighth-largest steel maker by output.

The group was founded in 1868 by Ratan Tata's great grandfather – Jamsedji Tata. Ratan Tata took over as chairman in 1991 and has since striven to give the group a more cohesive identity with Tata Sons as the flagship company. The tycoon is also credited with big-ticket acquisitions such as Anglo-American steel giant Corus and luxury carmaker Jaguar Land Rover.

An alumnus of Cornell University and Harvard University, Tata is a bachelor and fiercely guards his privacy. He drives his own car, flies his own jet plane and has lived for years in a bachelor pad surrounded by books and dogs in Mumbai's Colaba district.

The Tata succession issue coincides with recent research by US-based management consultancy Bain & Company which states that "more than 75 per cent of company boards in India do not discuss chief executive succession planning at all.

In a country where corporate leaders and politicians enjoy extraordinary professional longevity, the report says, "lack of succession planning is a key failure of boards at many family-owned businesses in India, leaving them highly vulnerable after the retirement or death of their leaders."

According to the report, scant effort is made at the board level to groom top leadership. "Some family business members delay the process of succession planning as their decisions could create conflicts and criticism among the family. Some leaders find it difficult to let go of the reins and want to retain their powers as a leader. Also, issues like death could be uncomfortable to discuss," the report further said.

The publicly fought succession between the Ambani brothers – Mukesh and Anil, inheritors of the Reliance group after the 2006 death of their father and founder of the group, is part of corporate folklore. The matter had to be resolved through intervention by the country's Supreme Court. However, despite the distribution of the group's assets, the siblings, who feature regularly in the Forbes' rich list, continue to be at loggerheads.

Similarly the protracted feud between Bajaj Auto Ltd Chairman Rahul Bajaj and his younger brother Shishir, who controlled Bajaj Hindustan Ltd, dominated headlines in 2003 before family friends stepped in to attempt to make the duo see reason.

"Most of the succession squabbles within Indian industrial houses are linked to culture," says Apoorva Sinha of the Faculty of Management Studies (FMS), Delhi. "The patriarchal system which endows the familial head with unlimited powers, unquestioning children who often have to bottle up their frustrations over injustices and a large number of claimants due to close family ties, are prime reasons for inheritance battles in Indian industrial houses."

Ratan Tata himself had to battle for his supremacy within the group as his mentor, JRD Tata, failed to give him the unstinted support he needed to bypass other strong contenders, notably Russi Mody at Tata Steel, Ajit Kerkar at Indian Hotels, and Darbari Seth at Tata Chemicals. But despite this, the tycoon emerged as the winner.

Tata has reinforced that merit alone will determine his choice of a future CEO. A candidate who fits into the global nature and complexity of the group's diversified businesses would be ideal. He is open to considering people from both within the group and professionals within and outside India.

However, an expatriate is highly unlikely given the complexity of orchestrating a diverse group headquartered out of India.

"It would certainly be easier if that candidate were an Indian national," Tata told journalists recently. "But now that 65 percent of our revenues come from overseas, it could also be an expatriate sitting in that position with justification."

He or she will also need to deal with the debt resulting from the twin acquisitions of Jaguar-Land Rover and Corus Steel, the tycoon said, which was brought on by economic freefall after top-of-the-market acquisitions.

Tata said the group was still digesting those acquisitions, which had been made harder due to the global financial crisis and economic downturn. The downturn pushed Tata to ask his group companies to undertake a major cost-cutting drive. "Tata Motors was able to extinguish its borrowing of US$3 billion through this difficult period, and most people don't realize the magnitude of that task," he said.

Adding complexity to the succession is that the Tatas belong to the rapidly dwindling minority Parsi community in India which numbered about 70,000 according to the 2001 census. The Parsi community is putting subtle pressure on the Tatas to choose an heir from one of their own. A prime reason for this could be that apart from being a well-respected business house, the group is very active in philanthropy. Jointly, the Tata trusts are the largest foundation in India and in 2008-09 disbursed Rs 2.6 billion towards educational and medical grants.

The community's wish may be granted given the fact that Noel Tata is tipped to be a particular favorite to fill the top slot. He was first appointed as the chairman of Tata Investment Corporation in June and later named managing director of Tata International after giving up his position as managing director of retail firm Trent Ltd.

What obviously works in Noel Tata's favor is the Tata name. Also, Noel Tata is the son-in-law of Pallonji Shapoorji Mistry, the single largest individual shareholder in Tata Sons, with a holding of around 18 percent. Pallonji Mistry's son Cyrus is also on the board of Tata Sons.

What are the challenges that lie ahead for Tata's successor? First is to steer the conglomerate through the choppy waters of the economic downturn and subsequently to infuse growth in a slow-growth era. The successor will also be faced with molding the Tata Group into a truly global entity.

Neeta Lal is a New Delhi-based freelance journalist. She can be reached at neetalal@hotmail.com