The selection of Natarajan Chandrasekaran as the next executive chairman of Tata Sons should come as a big relief to thousands of shareholders of group companies who have been mere witnesses to an embarrassingly public slugfest between his two predecessors. Mr Chandrasekaran has several things going for him. He has an impeccable track record as the head of the Tata group’s most profitable company that accounts for 60 per cent of the conglomerate’s combined market capitalisation of $116 billion, besides contributing 70 per cent to Tata Sons’ revenue. Second, Mr Chandrasekaran may be the first non-Parsi head of the Tata empire, but he is the quintessential company man as a 30-year veteran with a clean image. In that sense, he knows by heart the “Tata culture and ethos” that Ratan Tata was looking for — something an outsider with a much bigger global profile would have taken the time to absorb.
The Tata group seems to have learnt from the mistakes it made while selecting the previous chairman. Cyrus Mistry had no prior executive experience that would have prepared him to run a group as complex as the Tatas. So it led to conflict of styles and goals. But having selected a new chairman, the group should now look ahead. It is obvious that the Tata trusts as shareholders need to take more of a back seat and act through the Tata Sons board, not outside it, when dealing with the chairman of the group. This was a point that surfaced several times during the messy battle between the Mistry camp and Mr Tata. As proxy advisory firm Institutional Investors Advisory Services has said in a research note, the root cause of the current conflict in the Tata group is the operating structure itself under which the trusts exert control over Tata Sons, which in turn exerts control over operating companies, several of which are listed and subject to scrutiny by external stakeholders. A point that has been raised several times in the past is whether a charitable institution should continue to exercise control over a business group.
Besides, one of Mr Chandrasekaran’s biggest tasks will be to convince investors in Tata group companies about good governance, about which many questions have been raised since October 24. Also, the group mandate now seems to be that it should build, not downsize. Mr Chandrasekaran has to judge whether this will be the best course for troubled companies in the group that may not have a great future. After all, the group has over $30 billion in debt. Besides tackling perception issues, the new chairman will also need to perhaps take some very unpleasant business decisions if he wants to improve profitability across group companies. An earlier statement by Tata Sons reveals the precarious state some companies are in: Almost 90 per cent of the group’s profit accrues from just TCS and Jaguar Land Rover. These two companies also account for around 50 per cent of the turnover of the whole group. If the dividend from TCS is excluded, Tata Sons made operating losses over the last three years with a small surplus in between.
In many of his interviews, Mr Chandrasekaran has attributed his success at TCS to the “enormous freedom” that was given to him by Tata Sons. Hopefully, this benefit will extend to his new role as Tata Sons chairman. After all, Mr Tata will surely want the next chairman to be his own man and chart his own course.