Behind Gopinathan’s abrupt exit, simmering tensions

Gopinathan has steered TCS to grow its quarterly revenue from $4.45 billion at the end of March 2017 to $7.075 billion at the end of the December quarter, an impressive 59% growth. (PTI)
Gopinathan has steered TCS to grow its quarterly revenue from $4.45 billion at the end of March 2017 to $7.075 billion at the end of the December quarter, an impressive 59% growth. (PTI)

Summary

Differences over key issues had cropped up between Gopinathan and Tata Sons chairman

BENGALURU : Last week, when Rajesh Gopinathan resigned as the chief executive of Tata Consultancy Services, Tata Sons chairman Natarajan Chandrasekaran accepted his resignation without a demur, indicating that the differences between the mentor and the successor over how India’s largest software services firm was being run had reached an impasse, multiple people close to the situation said, speaking on the condition of anonymity.

Issues ranging from certain aspects of Gopinathan’s management style to some of the strategic decisions taken by the company and relative underperformance had become enduring sources of stress and the CEO ultimately might have picked up on the sense of waning enthusiasm for his leadership from the group chairman, these people said.

Gopinathan has steered TCS to grow its quarterly revenue from $4.45 billion at the end of March 2017 to $7.075 billion at the end of the December quarter, an impressive 59% growth.

But Infosys reported a faster growth than TCS in 2020, 2021 and 2022, while Accenture, too, reported higher growth than TCS in 2021 and 2022. Under Gopinathan’s watch, TCS is expected to add $10 billion in incremental revenue between 1 April 2017 and 31 March 2023 (TCS declares its fourth-quarter and full-year numbers on 12 April). But during this same period, Infosys will add at least $8.5 billion in incremental revenue. Put simply: The gap between TCS and Infosys is closing even though TCS, which ended with $25.7 billion in revenue last year, is comfortably ahead of Infosys, which ended with $16.3 billion in revenue.

Accenture, which ended with $61.5 billion in revenue last year, added more than $30 billion in new business in the last six years.

A Tata Sons spokesperson declined to comment on the development.

One of the aspects of Gopinathan’s management style that ultimately became a liability for him was that he could be abrasive in review meetings without regard to the seniority of the person at the receiving end. This had rubbed a number of senior leaders at TCS the wrong way. This was felt acutely also because it was in sharp departure to the style of his predecessor, who balanced being tough and demanding with a personal outreach that built loyalty over the years and across the ranks.

Another difference, one person who has observed both senior leaders in TCS CEO roles observed, was that while Chandra weaved client visits into his work regime and would not hesitate to “wait at the door" of a client, Gopinathan preferred to meet the chief executives of the company’s customers, including large banks and retailers.

But what made TCS’s senior leadership team most upset was that the outgoing boss always kept “an eagle’s eye on the bottom line and margins, even willing to forsake multi-million-dollar orders to protect margins". “You have to grow your top line (sales revenue) and sacrifice margins at times to optimize fixed costs," one executive said.

While a CEO has to balance topline growth with margins, in an aggressive market for tech services where others found ways to be flexible, this led to TCS losing some substantial contracts.

To be sure, Chandrasekaran’s unhappiness over what can be called relative underperformance of TCS compared to Accenture Plc. and Infosys Ltd is not new. In November 2021, Mint reported that Chandra had expressed his displeasure at a strategic meeting in Switzerland in August that year on the company’s slow growth compared to peers.

At TCS’s annual strategy meeting in Doha last month, there was no bitterness between Chandra and Gopinathan, Mint reported last week, citing three executives familiar with the matter.

Gopinathan offered to resign before the board, after which a three-member nomination and remuneration committee, headed by former State Bank of India chairman Om Prakash Bhatt put company veteran K. Krithivasan at the helm last Thursday.

Chandrasekaran and Hanne Birgitte Breinbjerg Sorensen are the two other members of the panel.

Chandrasekaran had confided about the change of guard at TCS with some members of the 10-member board of Tata Sons and kept Ratan Tata, chairman emeritus of Tata group, in the loop, one of the executives cited above said.

But it was a “gracious exit", keeping in mind the long relationship the two personalities—Chandra and Gopinathan—enjoyed, he said.

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