January 19, 2017 12:00 pm JST

Tata picks a familiar face for group chairman

After Mistry, founding family looks to Tata Consultancy CEO for peace and profit

ROSEMARY MARANDI, Nikkei staff writer

MUMBAI The short list for next Tata group chairman included some impressive names -- Jaguar Land Rover chief Ralf Speth and former Hindustan Unilever Chairman Harish Manwani among them, according to some sources.

The man who eventually landed the job, Tata Consultancy Services CEO Natarajan Chandrasekaran, has an equally impressive resume as head of India's most valuable company. And like Speth and Manwani, he is not related to the Tata family, either by blood or by marriage, representing a break with Tata tradition.

But Chandrasekaran has something the others on the list didn't: 30 years' experience with Tata and an intimate familiarity with the "Tata way." The question now is whether he will be able to avoid the pitfalls of his predecessor and live up to the founding family's lofty expectations.

THE RIGHT STUFF Chandrasekaran has spoken passionately about accountability, a lesson he said he learned from his lawyer-agriculturist father.

"Everybody has to take some accountability for other people, and look for ways to make small contributions to help others. Looking after people has to become everybody's responsibility," he told The New York Times in an interview in 2015. "Innovation and caring for people are cultures; they are not departments. It takes time to build that culture."

More recently, the Nikkei Asian Review caught up with Chandrasekaran at an earnings briefing last year and asked him if Tata Consultancy was considering exiting the Japanese and Chinese markets, where it had been having a difficult time. He responded with his characteristic confidence: "We don't invest to exit businesses."

Accountability and confidence were apparently what Tata was looking for in its next chairman. On the evening of Jan. 12, the 53-year-old Chandrasekaran was picked to lead the mammoth Tata group.

It took the selection committee and interim Chairman Ratan Tata less than three months to decide on a replacement for Cyrus Mistry. The previous chairman's relationship with the group soured after the Tata camp criticized him for what it saw as repeated breaches of Tata ethics rules and values.

PROVEN SUCCESS Mistry's trouble in this area likely helped Chandrasekaran stand out even more when the time came to pick a new chairman. A lifelong Tata employee, Chandrasekaran understands the group's values and ethics from the inside. His track record as CEO probably did not hurt, either.

Under Chandrasekaran, Tata Consultancy's profit expanded by double digits in all but a few difficult years. As of Jan. 5, the company accounted for around 60% of the over $117 billion market capitalization of the entire group and employs more than half of its workers.

Having dethroned rival Infosys, Tata Consultancy is the leader in India's IT sector. Chandrasekaran's legacy also includes reorganizing the company into smaller operational units, such as financial services, manufacturing, telecommunications and health care, with each segment generating its own profits. He is also credited with spearheading the company's efforts to adapt quickly to digital businesses.

Chandrasekaran is known as "the rainmaker" for bagging the first $100 million contract in the history of the Indian IT sector. The deal, with General Electric in 2002, came when Chandrasekaran was still under the mentorship of then-CEO S. Ramadorai.

"He is a true professional, an insider, a Tata lifer," said Deepak Parekh, chairman of Housing Development Finance and an independent director of one of the Tata companies. "He is a people's man and runs the company with the largest market cap. International Fortune 500 companies are his clients. For managing all that, you need to have values, ethos, some culture, you need leadership."

Parekh added that in the nearly two decades that he has known Chandrasekaran, he has never seen him lose his cool. "He takes a long-term view," he said.

ALL ABOUT VALUES Holding company Tata Sons and shareholders will naturally expect Chandrasekaran to replicate the success of Tata Consultancy in most if not all the 100 companies affiliated with the group. But even more than that, he will be expected to continue applying the value system that has made him, in the eyes of the founding family, deserving of the post.

"We believe he will now inspire the entire Tata group to realize its potential acting as leaders in their respective businesses, always in keeping with our value system and ethics and adhering to the practices of the Tata group which have stood it in good stead," Tata Sons said in a statement on his appointment.

At the heart of that value system is the Zoroastrian teaching -- "good thoughts, good words, good deeds" -- that group founder Jamsetji Tata incorporated into his dealings and strove to pass on to his family members.

In "Creation of Wealth," a book on the Tata group, author R.M. Lala wrote about how after a visit to the U.S., Jamsetji complained to his son Dorabji about the living conditions of steel plant workers. Jamsetji wrote to his son about his dream to build a steel city with "wide streets, planted with shady trees. ... Be sure there is plenty of space for lawns and gardens." This dream was eventually realized in 1908, when Dorabji initiated work on India's first planned industrial city, Jamshedpur, named after his father.

Separately, in the Hindu Business Line newspaper, Lala recalled how Ratan Tata was once told by the head of a group company that straight financial dealings would not work in a particular instance. According to Lala, Ratan replied that the Tatas would rather walk away from a company than compromise their values.

In an epilogue to one of the editions of "Creation of Wealth," Ratan Tata offered a word of advice for his successors: "I would hope that my successors will never compromise and turn to soft opinions to meet their ends. ... I hope that the future generation of Tatas will recognize this tradition as being critical to the fabric and fundamentals on which our group was built and grew so successfully for over a century."

TEST OF TIME Only time will tell if Chandrasekaran can live up to the expectations placed upon him, but he is clearly aware of the balance he will have to strike between values and profitability.

His predecessor Mistry chose quick fixes, such as asset monetization, to deal with problems -- an approach that pleased stock market investors, but did not seem to go down well with the board of Tata Sons.

Chandrasekaran will first focus his attention on the group's $24 billion of debt, which has come mainly from Tata Steel's struggling U.K. business, Tata Motors' passenger car business, a disappointing telecom venture and Indian Hotels.

He also faces the challenge of keeping the group together as it faces potentially lengthy litigation from Mistry and his company.

At the same time, he will have to stay in the good books of Tata Trusts, the network of philanthropic trusts that holds a 66% stake in Tata Sons.

Proxy adviser Institutional Investor Advisory Services reckons that the veto powers given to directors representing the Tata Trusts must be revoked to create a balance of power and maintain good governance. There is also a need to fix legacy hot spots and establish a succession plan that is enduring and not contingent on the chairman's relationship with different power platforms, the advisory said.

Asia300

Tata Consultancy Services Ltd.

India

Market(Ticker): BOM(532540)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 74,324.79M
Shares: 1,914.28M
Asia300

Infosys Ltd.

India

Market(Ticker): BOM(500209)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 34,970.37M
Shares: 2,296.94M
Asia300

Tata Steel Ltd.

India

Market(Ticker): BOM(500470)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 9,532.96M
Shares: 971.21M
Asia300

Tata Motors Ltd.

India

Market(Ticker): BOM(500570)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 19,344.47M
Shares: 3,395.85M
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