Challenges That N Chandrasekaran Takes On As The New Tata Sons Chief
N Chandrasekaran takes charge as seventh chairman of Tata Sons on February 21.
N Chandrasekaran takes over as the seventh chairman of Tata Sons Ltd. on Tuesday.
“I am very proud of being a part of the Tata family and I look forward to working with all the group entities... We will work together to deliver business performance which are industry leading in all our businesses and lead, not follow,” Chandrasekaran told reporters at Bombay House, the group’s headquarters, before officially taking charge.
The first big challenge for Chandra, as he is fondly called, will be to restore credibility at the $103-billion salt-to-software Tata Group after the ouster of Cyrus Mistry as chairman on October 24, 2016, triggered a messy boardroom and a legal battle, according to investor advisory firms.
Mistry was also ousted as a director of Tata Sons in an extraordinary general meeting called on February 6 by the group’s holding company. He had chosen to step down from Tata Group companies after his removal from the board of Tata Consultancy Services Ltd (TCS).
In addition to various legal imbroglios that the group is now involved with, which will periodically flare up and need to be doused, there are a host of other issues – the strategic direction the group takes, its corporate culture and, most importantly, the brand and how to keep it relevant.Institutional Investor Advisory Services’ Note
The new chairman of Tata Sons will have to ensure that his shift from the group’s biggest company, TCS, does not impact the performance of software services provider, JN Gupta, founder of investor advisory firm Stakeholder Empowerment Services, told BloombergQuint over the phone.
Chandra will no longer have a direct oversight over the affairs of TCS. If it stutters, the group’s troubles will multiply. Ensuring that this does not happen needs to be high on the agenda.Institutional Investor Advisory Services’ Note
Rajesh Gopinathan has been named as Chandra’s successor at TCS and NG Subramaniam as the chief operating officer. Gopinathan and Subramaniam were also inducted on the board of TCS on February 20, 2017. V Ramakrishnan will take over as the new chief financial officer from Gopinathan, who begins his term as chief executive officer and managing director on Tuesday.
The street will keenly watch how Chandra handles the allegations levelled by Mistry about governance at the Tata Sons’ board.
Whatever issues have been flagged by Mistry, Chandra should get them reviewed by a third party, Gupta said.
He has to ensure that governance structures, practices, and disclosures are put in place so that the recent events are not repeated, Institutional Investor Advisory Services (IiAS) said in its note.
Tata Trusts alleged that Mistry failed to provide a detailed strategy plan for the group. Chandra must provide that strategic direction, especially on streamlining domestic businesses within the group.
In June last year, Mistry had presented a five-year plan for consolidation of domestic businesses, which was rejected by the majority shareholders of Tata Sons.
Shareholder Returns Vs Social Obligation
Chandra needs to strike a balance between expectations of stakeholders of group companies and Tata Sons with the group’s philosophy of giving back to society, Gupta said.
Governance And Tata Trusts
Institutionalising the role of Tata Trusts in Tata Sons and Tata Group companies should also be among Chandra’s priorities, Gupta said.
A related issue is that Tata Trusts have a veto over the decisions at Tata Sons, shifting the balance of power, he said.
As long as the Trusts remain dependent on the dividend income from Tata Sons, there will be pressure on Tata Sons to move the cash up rather than make it available for the businesses. But as the recent events have highlighted, the group needs to shore up its holdings in group companies. This is an added pressure point.Institutional Investor Advisory Services In A Note
Chandra will also have to deal with legacy issues like revamping Tata Motors Ltd.’s domestic operations and sale of Tata Steel Europe Ltd.
“Chandra should pay heed to advice given to newly elected politicians: take the difficult decisions in your first six months in office. Chandra may have age on his side, but after the recent imbroglio in the group, the markets will expect him to operate within a much tighter time line,” IiAS said in its note.