The many challenges of Natarajan Chandrasekaran4 min read . Updated: 16 Jan 2017, 01:10 AM IST
He will have to restore stability as well as address the long-term strategic issues facing the Tata group
Natarajan Chandrasekaran is the first man with no family links to the Tatas to head the sprawling eponymous group. Even the two chairmen of Tata Sons who did not share their surnames with the founding family had close ties with it. Nowroji Saklatwala was at the helm of the Tata empire for six years. He was the nephew of Jamsetji Tata. Cyrus Mistry had a short stint of just four years. He is the brother-in-law of Noel Tata.
Chandrasekaran is 53 years old right now. He could thus be in charge for the next 17 years given the fact that the retirement age for senior Tata group executives is currently 70. This is another marathon for a man who has a passion for running. He is a Tata outsider if one considers family ties but a Tata insider if one considers his professional career: a paradox that may need to be resolved once he settles into his new role.
Chandrasekaran takes over at a time when the Tata group has been involved in a very public battle between the two most powerful families in the holding company. That battle is still not over. The new chairman of Tata Sons will not only have to repair the reputational damage but also perhaps offer Mistry options for an honourable exit. The deeper issue he will have to begin grappling with is the complicated relationship between the Tata Trusts, Tata Sons and the various operating companies. The interests of the millions of public shareholders in the listed Tata group companies should not become collateral damage in the battle at Bombay House.
There are some more strategic challenges as well. First, the relationship between the group headquarters and the operating companies has been a changing one. J.R.D. Tata preferred to oversee a loose confederation that accepted his overall authority. Ratan Tata famously took on the powerful group satraps who were not keen to give up their independence to a more centralized group headquarters in Bombay House. It will be interesting to see how Chandrasekaran manages the group. The deeper question is whether the complicated Tata group structure based on a powerful holding company as well as a web of cross holdings between the many operating companies is the best one in these times.
Second, one of the flash points that eventually led to the boardroom coup against Mistry was the undeniable fact that the group has too many underperformers. Many of the big bets made by Ratan Tata have not yet paid off, like the steel bet in Europe. Tata Global Beverages has stressed assets in Eastern Europe. Tata Teleservices is in the midst of a messy separation with NTT DoCoMo. On the other hand, Jaguar Land Rover has been a success.
An analysis by The Economist last year showed that most Tata companies earn less than their presumed cost of capital.
Chandrasekaran would surely not need to be reminded that the company he leads—Tata Consultancy Services Ltd—spews out most of the free cash for the group. Its dividends have given Tata Sons the money it required to fund other group ventures. Groups such as the Tatas are known to be patient investors with a horizon that goes into decades, so not every investment that is currently not earning its cost of capital needs to be killed.
However, there is no doubt that some strategic surgery will be needed. That leads us to our final point. Chandrasekaran will need to draw up a new strategic map for the Tata group. Ratan Tata made his mark in 1983 with a strategic plan that identified new areas such as telecom, electronics, financial services and biotechnology as future growth drivers. He then shed businesses after he took charge of the group in 1991. These included not just unrelated diversifications but also a few vanity projects. And his push to globalize the group over the past 15 years is very well know.
The new man at Bombay House will have to eventually work towards a broad strategic map for the Tata group, even if it is not as formal as the 1983 plan that Ratan Tata presented to J.R.D. Such strategic reorientation will not only involve the question of how group cash flows are to be used but also tough decisions of which businesses to either sell or shut down. Whether he can do this without taking Ratan Tata on board remains to be seen. The fact that Chandrasekaran is respected within the group could help.
The Tata group has seen several epochs—the early nationalist enterprises, the expansion despite the license raj, strategic reorientation after the economic reforms and the recent global push. The fact that the Tata group has not just survived but also maintained its lead is ample indication about its inner strength. The coming years under Chandrasekaran could see a new course being set.
Will Natarajan Chandrasekaran be able to effectively steer the Tata group out of its current troubles? Tell us at email@example.com