Mumbai: There is expectation that N. Chandrasekaran’s elevation as the executive chairman of Tata Sons will bring some stability to the $103-billion group that is feuding with its former boss. As an insider — and a Tata Consultancy Services lifer — he knows about the Tata way of doing things. But multiple challenges await the chairman as he takes charge next month, said experts.
For one, Chandrasekaran will have to restore the reputation of the group and brand Tata. Ousted chairman Cyrus Mistry’s allegations of corporate governance violations has besmirched the reputation of the group. Since the fracas broke out after Mistry was removed in a boardroom putsch on 24 October, listed Tata firms have collectively lost Rs42,470 crore, or close to 5% of their market capitalization. Some shareholders have even moved the Bombay high court claiming damages in a class action suit.
“It’s not going to be a cake-walk for him and he will have to tread cautiously and most importantly restore credibility of brand Tata,” said Kavil Ramachandran, executive director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business.
Second, Chandrasekaran will have to establish a good working relationship with the principal shareholders, the Tata Trusts, who own two-thirds of Tata Sons, while still ensuing that he is his own man.
The trusts, and their chairman Ratan Tata, have been at the centre of the spat with Mistry saying he was a “lame duck” chairman, alleging excessive interference by certain trustees (although this had been refuted).
“I think Chandrasekaran has been chosen because some level of agreement already exists,” said Morgen Witzel author of Tata, the Evolution of a Corporate Brand.
“Even when you are the CEO of a company, you have to listen to the board,” said Motilal Oswal, chairman and managing director at Motilal Oswal Financial Services Ltd.
The working relationship with the trusts is also important — and this is the third point — because Chandrasekaran now needs to figure out ways to replicate his success with TCS and build many more cash cows in the group. The trusts have complained about the slow growth of dividends under Mistry and some trustees have cited this as one reason for his sacking, apart from a “trust deficit.”
As things stand, Tata Sons is dependent on just two companies — Tata Consultancy Services Ltd and Tata Motors Ltd — for dividends and cash-flows. The inability to create more such cash cows and lead the company successfully into newer, profitable businesses was yet another reason pointed out by Tata Sons for removing Mistry.
Indeed, Tata watcher Witzel says that the root of the problem between Mistry and the Tatas did not lie in governance, but “it was more about disagreement regarding the direction the group should take”.
Fourth, Chandrasekaran has to deal with the so-called legacy hotspots of the group. In a letter to the Tata Sons board, a day after his dismissal, Mistry had warned of a possible $18 billion in asset write-downs. The hot-spots included Tata Steel Ltd’s UK operations, Tata Tele Services Ltd and Indian Hotels Co Ltd.
The arbitration with NTT DoCoMo over a share buyback is another area where his moves will be watched closely.
It’s critical that Chandrasekaran acts with alacrity and addresses them effectively, said J.N Gupta, managing director and co-founder at Stakeholder Empowerment Services, a proxy advisory firm.
“While the headwinds are common for any business, Chandrasekaran should be able to effectively deal with the so-called “legacy hot-spots,” identified by the former chairman,” pointed out Gupta
To be sure, the challenges ahead are not lost on Chandrasekaran.
In a media briefing after his appointment, he said, “While I feel very honoured, I also feel overwhelmed because I don’t think anyone can easily get into the job. This leadership requires several leadership qualities and compassion. And I feel I will grow into this role over a period of time. It is a responsibility that requires binding the group together,” he said.