Jan 14, 2017 11:46 AM IST | Source:

5 key challenges for new Tata boss Chandrasekaran (COMMENT)

Chandra's new role is expected to be more challenging as he now leaves TCS, the only organization he has ever worked in, and moves over to macro manage other Tata group companies.

N Chandrasekaran, the marathoner, has a long run ahead of him as he takes over as the Chairman of Tata Sons. But he’s setting off on a hurdle race as much as a test of endurance.

Chandra, as he is universally known, is reported to be a Ratan Tata loyalist. But more importantly, he has restructured TCS into a fighting fit organisation and helped it vault over Infosys.

However, his new role is expected to be more challenging as he now leaves TCS, the only organisation he has ever worked in, and moves over to macro manage other Tata group companies.

Here are the five challenges Chandra is likely to encounter in the near future:

  1. Cyrus Mistry: The most immediate issue in front of Chandra will be handling the legal issues that are a result of the sacking of his predecessor, Cyrus Mistry. Tata Sons filed a legal notice against Mistry for violating the law by making public confidential information; Mistry in turn filed a contempt of court petition at National Company Law Tribunal claiming that Tata Sons violated the quasi-judicial body’s directives by initiating a procedure to remove him from its boards. Chandra, being a non-Parsi and a non-family member is on neutral ground between the fighting factions and best suited to resolve the issue.

  2. Perception: Tata group has not really covered itself in glory over the Mistry episode. Washing its dirty linen in public has hit the holier-than-thou image of the group. Sacking independent directors who did not toe the line has made a mockery of its reputation for corporate governance. Chandra has his job cut out to bring in transparency in decision-making and restore the position of independent directors whose job is to dissent when appropriate.

  3. Investment decisions: All eyes will be on Chandra on how he handles Mistry’s allegations of bad investment decisions. His handling of Tata Steel’s acquisition of Corus, the UK will be the first test to prove his independence. The UK unit has been bleeding Tata Steel. After Cyrus’ decision to exit the business was annulled, it was decided that investment would again be made in the UK unit. Analysts have questioned the decision of pumping good money after bad. Other investment decisions like those made by Tata Motors, Indian Hotels and Tata Chemicals will also require his attention. Chandra’s every action will now be closely monitored, more to gauge his independence, especially in light of Mistry’s complaints of being reduced to a lame duck.

  4. TCS: Chandra was heading the cash cow of Tata group of companies, TCS, which accounts for 65 percent of all profits of the group. However, despite generating cash, TCS has hardly grown over the past few quarters. Though growth is missing from the software industry, TCS, being the leader in the sector, has a responsibility of leading the way forward. Tata Sons gets 70 percent of its revenue as dividend from TCS and as chairman of the group, the board would be expecting Chandra to increase the quantum.

  5. Domestic growth: The fact is that out of the 25 Tata group listed companies only two (TCS and Tata Motors) contribute 95 percent of the profit and almost all the revenue of Tata Sons by way of dividend.  It is a sign of how badly other companies are doing, at least on a relative basis. Chandra has been credited with restructuring TCS and bringing it back on the growth path when he took charge in 2009. He now has six loss-making listed companies with a collective loss of Rs 3,471 crore in FY16 to exercise his talents on. Many are too small in the overall scheme of things – they need to be either sold off or strategically merged; some others need to be refocused. This would require pushing through hard decisions. Chandra’s man management skills will be put to the test during his tenure as Chairman.

No surprise then, that Chandra will be a marked man for both media and investors as he takes on the mantle.

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