Chandra as chairman: Tata Group needs a structure that transcends people

N Chandrasekaran’s appointment as the chairman of Tata Sons coming less than three months after Cyrus Mistry was defenestrated, speaks of the urgency to have someone take control. The Tata group, built over 150 years, has been steadily losing its reputation these past few months.  A steadying hand was needed not just to protect its legacy, but for the group to remain relevant in future.

N Chandrasekaran (Chandra) has many things going for him. He has been running TCS, whose dividends have been firing the Tata group engine. Second, having run one of India’s most profitable companies he is hugely respected by all stakeholders. And finally, being an old Tata hand, he will have a great deal of familiarity with the various issues raised in the leaked Cyrus Mistry letter. Investors are looking for signals regarding how these will be addressed, which given his likely familiarity, he is in the best position to quickly provide. Four, being from the IT sector, he recognises the merit of speed: If you let things drift, the opportunity is lost.   

While investors focus on the operating companies and expect Chandra to focus on these too, the long-term success of the group hinges on what is happens at the shareholder level i.e. Tata Sons and at Tata Trusts. There are several issues that have surfaced over the past three months.

  

First, the relationship between Tata Sons and the Tata Trusts, its largest shareholder. And then you have the relationship between Tata Sons and the operating companies. As long a Ratan Tata (and before him JRD Tata) chaired all three, they were in sync. But the moment Tata Trusts and Tata Sons (and by virtue of this, the operating companies) had different persons at the helm, disagreements cropped up. While Ratan Tata and Chandra might see eye-to-eye, there is already talk of Tata Trusts starting to look for a successor to Ratan Tata. You need a structure that transcends people.

A related issue is that the Tata Trusts have a veto power over the decisions at Tata Sons, shifting the balance of power between the independent directors of Tata Sons and Tata Trusts. As long as the Trusts remain dependent on the dividend income from Tata Sons, there will be pressure on Tata Sons to move the cash up rather than make it available for the businesses. But the recent events have highlighted, that the group needs to shore-up its holdings in group companies. This is an added pressure point. 

In addition to the various legal imbroglio's that the group is now involved with, which will periodically flare-up and need to be doused, there are a host of other issues - the strategic direction the group takes, its corporate culture and most importantly the brand and how to keep it relevant.  And equally importantly ensuring a governance structure, practices and disclosures are put in place, so that the recent events are not repeated.

There are difficult decisions to make. Politicians are advised to take the difficult decisions in their first six months in office. Today, there is no one better than Chandra to take these.

  

The author is founder and managing director, Institutional Investor Advisory Service India Limited. 

Twitter: @amittandon_in