Home / Opinion / Transition at Tata Sons: Convenient but short sighted

For a fellow professional, without the crutches of a hallowed family name, to see N. Chandrasekaran, or Chandra as he is popularly known, take the helm at Tata Sons Ltd was indeed a proud moment. Undoubtedly, it has been a journey nothing short of inspirational.

But this article is not about him. It is an insight into the leadership decision style at Tata Sons—the reason for its current difficulties, as I have written earlier. It is necessary to examine this fundamental aspect in detail. Firstly, Chandra’s core leadership skills devolve around a clinical execution capability with a detail orientation. The information technology (IT) sector has been purely a growth industry requiring a totally different set of management characteristics from those in managing complex turnaround situations requiring tough actions involving a highly unionized labour force across diverse manufacturing industries.

Furthermore, the culture in the IT industry is one of youthful exuberance, service orientation, technological innovation and collaborative learning—an antithesis to the rough and tough shop floor realities of old world industries. Personally, having worked in leadership positions on both sides of the spectrum, I can say that this cultural and skill set mismatch will be a major challenge—though charismatic leadership can overcome some of this. The Tatas could have found a much better fit among professionals from across the globe including India.

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Secondly, from a public shareholder perspective, the task at hand is of increasing the management efficiency across the Tata group sans Tata Consultancy Services Ltd (TCS) and Tata Motors Ltd, specifically in the areas of executive accountability and capital efficiency. The fundamental shift from grandiose visions, high-octane strategic intent but unprofitable growth necessitates hard questions on factual parameters like financial results and market cap growth as a result of such initiatives—a tough job, especially when a compliant media is itself a prisoner of its own making in passionately building up a larger-than-life persona based on Ratan Tata’s many strategic moves in the past decade.

A newspaper claimed huge outperformance of Tata group’s market cap in rising from Rs8,000 crore to Rs4.62 trillion under Ratan Tata’s tenure from 1991 to 2012 versus a relatively mediocre Rs4.62 trillion to Rs8.5 trillion under Cyrus Mistry since 2012. This conveniently overlooked the fact that TCS and Titan Co. Ltd, being unlisted in 1992, contributed Rs2.5 trillion and Rs25,000 crore to the kitty of Rs4.62 trillion, thereby implying that the group market cap during Ratan Tata’s 21-year regime was just in line with the market. Liberalization boosted the BSE Sensex from 1,000 to 20,000 points in the same period.

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Most of Ratan Tata’s expansion initiatives through acquisitions were value-destructive, to say the least. Apart from Corus Group Plc’s purchase by Tata Steel Ltd, Tata Global Beverages Ltd and Indian Hotels Co. Ltd figure among group companies that made high-profile international acquisitions which have not borne results despite many years of realignment and the huge debt taken to finance them. Despite all the associated hype, new product introductions in the domestic market, including the Nano and Indica, have been failures, along with its telecom venture with NTT DoCoMo. Market caps of all these companies will testify to this. The debt overhang on most companies, bleeding business models/questionable contractual agreements and balance sheet exposures (e.g.: Tata Capital) are just some instances where a repeated pattern of poor business decisions, and indeed corporate governance concerns, are evident. The pattern of investments at any cost continued with the Air Asia joint venture.

Mistry went about his job of cleaning up the mess with a single-minded focus on enhancing shareholder value by putting executive managements under pressure to the extent that even sleepy laggards like Tata Global Beverages and Tata Chemicals Ltd had lately sprung to life. Slashing assets, instituting divestitures, eliminating unviable product lines and cutting costs were on the agenda too. Mistry cannot be faulted on this count; perhaps his relative inexperience, and the lack of managerial depth of his team, with respect to the speed, method and politics of driving fundamental change did him in. But will Chandra be able to address these core issues and drive meaningful transformation?

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Thirdly, TCS needed Chandra at the helm over the next few years to steer it during what is arguably the most difficult period being faced by the IT industry where its entire labour arbitrage-based business model is up for disintermediation due to highly disruptive technological changes ranging from artificial intelligence, cognitive computing and automation to rising protectionism. To catapult the CFO, Rajesh Gopinathan, to this hot seat just because of his business finance skills is patently unfair. Navigating customers, employees and technology strategy in this tumultuous phase requires a totally different profile. The implications of Mindtree Ltd elevating its CFO to replace Krishna Kumar as the CEO purely on grounds of being a co-founder are apparent to all.

I will not delve into the age-old debate of an insider versus an outsider in such situations. Lou Gerstner and Jack Welch are two of the celebrated examples from both ends of this spectrum.

In the absence of any defined succession strategy in place in Tata Sons (which by itself reflects on the group’s famed HR practices), Ratan Tata has stuck to loyalty as the overriding consideration in this appointment, regrettably a decision not taken based on what was imperative to leverage the formidable Tata platform to increase shareholder wealth manifold in the next 25 years in an increasingly uncertain, but exciting, world of opportunities that is unfolding, precipitated by transformational technologies.

I will accept the judgement of posterity for the above hypothesis and make peace with my ignorance if proven wrong.

Prabal Basu Roy is a Sloan Fellow from the London Business School and a chartered accountant. The writer presently manages a PE fund and has formerly been a director and group CFO in various companies.

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