New Delhi: Tata lifer N Chandrasekaran has been handed the baton at Tata Sons at perhaps the most difficult time in the history of the over $100 billion Tata Group. His first and foremost task would be to assure all stakeholders that the Tata group’s values and ethos will be upheld. And for that to happen, he needs to convince thousands of investors in Tata group companies about good governance, something over which many questions have been raised since 24 October. That was the day a similarly chosen Tata Sons’ chairman, Cyrus Mistry, was ousted by a majority vote of the board. Since then, Mistry has raised many important governance issues, has leveled several allegations against undue interference by Tata Trusts which holds majority stake in Tata Sons and which is headed by Ratan Tata. Chandra would do well to dispel doubts over corporate governance at the Tata group.
His journey could be all the more difficult since he will not only be required to keep up the Tata values, but will have to steer clear of the shadow of his predecessor Mistry, who has walked out after showing the mirror to Tata Sons. Since his sacking, Mistry has made several allegations, released documents to allege that things were not well at India’s most well known and respected business house. Besides tackling perception issues, Chandra would also need to perhaps take some very unpleasant business decisions, if at all his vision is to improve profitability across group companies.
That Chandrasekaran is qualified for the top job is not in question. But what if a repeat of the Mistry sacking plays out again? Sometime in the future, if there were to again be a clash between what Tata Trusts want and what Chandrasekaran decides, who will prevail? Well, a group insider said this possibility of a repeat of the Mistry sacking is virtually nil since Chandra doesn’t have a family empire. Remember, Cyrus Mistry and his family, the powerful Shapoorji Pallonji Group, own 18 percent stake in Tata Sons. Of the many points of contention between Mistry and the Trusts, several pertained to perceived conflict of interest between the Tatas and the Mistrys.
But to assume that the road ahead will be smooth for Chandra simply because he has no family empire would be naïve. An earlier statement by Tata Sons revealed the precarious state some companies are in: almost 90 percent of the group’s profit accrues from just two entities – TCS and Jaguar Land Rover (JLR). These two companies also “probably” account for around 50 percent of the total turnover of the whole group. Then, Chandra has virtually no experience in manufacturing or in running businesses such as auto and steel. According to this report in ET today Chandra said "I cannot all by myself. I need a team to guide me" when asked about how he will handle manufacturing and related businesses without any prior experience."
This shows that building the right team, along with correcting corporate governance issues within the group could be two key challenges for the new chairman.
The Tata Group is struggling under almost $30 billion debt. If we exclude dividend from crown jewel TCS, even before impairment provisions, Tata Sons was making operating losses over the last 3 years (with a small surplus in between). This means if something happened to alter/worsen TCS performance over the coming years, the group’s precarious profitability would become, well, even more precarious. Now that Chandra has been moved to the corner office, will TCS remain the goose laying the golden eggs for the group?
Then, an earlier Tata statement had said that during the last three years, the group has written down/ written off or made provisions for impairment worth thousands of crores. Tata Steel alone has written off a “large” part of its investment in its UK/European assets. Tata Steel is one business which is mired in a tangled web and needs unraveling. Another serious contentious issue is the public spat with Japanese telecom major DoCoMo over the latter’s exit and the price at which this will happen. The telecom business has anyway been a money guzzler for the Tatas.
Apart from TCS, Jaguar Land Rover is the only other business which has done well – but then the domestic automobile business under Tata Motors continues to be a drag. Chandra will not only have to convince the Tata Sons’ board (Tata Sons is the holding company for group arms) to take hard, unpleasant decisions, he will perhaps face severe opposition if he at all focuses on improving profitability of key group companies.
In a letter to Tata Sons’ board members earlier, Mistry had leveled several charges. For instance, he had said emotions attached with the Nano project, not economics, forced him to keep it afloat. He alleged that Nano consistently lost money, peaking at Rs 1,000 crore, because it was always more expensive to produce the Rs one lakh price tag, and any turnaround strategy for Tata Motors requires this car to be junked. Only emotional reasons – the obvious reference to Ratan Tata’s emotions - were keeping the Nano afloat.
His letter alleged instances of financial irregularities in the AirAsia India joint venture (which are now being probed by government’s investigating agencies) and also referred to a potential write down of Rs 118,000 crore for “legacy hotspots”. Indian Hotels, the passenger vehicle business of Tata Motors, Tata Steel Europe, Tata Power Mundra and Tata Teleservices are described by Mistry as “legacy hotspots”. Capital employed in these companies by 2015 was Rs 196,000 crore, an increase of Rs 64,000 crore in a four-year period due to operational losses, capex and interest.
Mistry also alluded to changes made in the articles of association after he came on board and how directors on the board of Tata Sons were taking orders from Ratan Tata even now. Of course, all of Mistry’s charges were rubbished by Tata Sons and several matters are now pending in courts.
This profile of Chandrasekaran from a 2012 interview tells us he is one of the six siblings who went to a Tamil-medium school till class Xth and excelled in mathematics. Later, he found to stay in a hotel after he moved to another city for studies, a big change in his otherwise “protected” life. Well, the move now to the corner room at Tata Sons will undoubtedly be the biggest change for Chandra, even bigger than staying away from family after class Xth. He will not only have to manage the unclear relationship that continues between Tata Trusts and other shareholders of the group’s flagship, Tata Sons, but also ensure that he turns around the several marquee loss making businesses.
Published Date: Jan 13, 2017 11:18 AM | Updated Date: Jan 13, 2017 11:49 AM