Tata Insider Takes Over Indian Conglomerate

India’s Tata group today began rebuilding its seriously damaged image as India’s most respected and stable conglomerate when it announced the appointment of Natarajan Chandrasekaran, 53, who heads the highly successful Tata Consultancy Services, as executive chairman of Tata Sons, the main holding company.

Chandrasekaran will take over on Feb. 21 from Ratan Tata, 79, chairman for 21 years who reappointed himself as interim chairman on Oct. 24 when he organized a boardroom coup that ousted his chosen successor, Cyrus Mistry, 50. Chandrasekaran began to emerge as the possible choice when Ratan Tata picked him to join the Tata Sons board a day after the Mistry sacking.

It was almost inevitable that an insider would be appointed, partly because it was most unlikely that any outside candidate would accept the job, given the way in which Ratan Tata has for the past 25 years dominated Tata Sons, the main operating companies and the Tata trusts that hold the majority of shares. It was Tata’s unwillingness to let go of the reins and be content heading the Tata trusts, along with a new life as a venture capital investor, that largely led to the Mistry bust-up and sacking.

Given the history, it was also essential that the new chairman should be trusted by Tata and be able to work well with him, which Mistry could not. Chandrasekaran has headed TCS as chief executive officer and managing director since 2009 and, although Tata was little involved in its affairs, the two men will have established mutual respect.

Tata might well also step down from chairmanship of the trusts later this year when a new chairman is found. Media reports last month, including interviews with one of Tata’s close advisers, indicated that he is willing to go when he thinks it appropriate, maybe some time this year.

When that happens, it will mark a new era and the US$100 billion group could be on its way to restoring its battered image.

Ratan Tata has been widely criticized for the impulsive way in which he organized Mistry’s sacking after three years of increasing frustration and months of plotting, and for not providing coherent justification for the move. He presumably assumed that Mistry would go relatively quietly, but he was wrong, and he certainly could not have had any idea of the corporate earthquake he was unleashing.

Mistry has fought back, publicly. That has led to a series of headline allegations and counter allegations that have criticized Tata’s governance and lifted the lid on its businesses and some of their more dubious dealings. Legal cases have been started in courts and regulatory tribunals, including the key National Company Law Tribunal, by Mistry and Tata. Mistry is challenging the legality of his dismissal and of other actions taken by Ratan Tata, and is also accusing the group of malpractices.

Chandrasekaran will therefore take over a group that not only needs urgent action to sort out what are dubbed operating companies’ “legacy” problems inherited from Tata’s 21 years in charge, but one that is also embroiled in a potentially embarrassing and damaging legal jungle.

A statement from the company this evening says that the Tata Sons board “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 with the practices of the Tata group which have stood it in good stead.”

That is not just public-relations-speak. It goes to the heart of the Tata-Mistry dispute, with Ratan Tata accusing Mistry of not adhering to those values and practices. Mistry (below) denies he deviated from the standards and that has said he was indeed trying to ensure that the business’ potential was realized by operating companies including the debt-laden Tata Steel with its loss-making Corus business in the UK, Tata Motors with the loss-making Nano mini car, Taj Hotels which needed slimming down, and similar exercises elsewhere.

Chandra, as he is known, joined TCS in 1987 straight from engineering college. He has played a leading role in the growth of what is by far the group’s most profitable business that contributes 70 percent of Tata Sons’ revenue and is India’s largest IT company. Turnover and profits tripled while he has been in charge, with annual revenues of US$16.5 billion.

He leaves TCS however at a difficult time because of Donald Trump’s likely presidential moves to curb US companies using offshore IT firms. At a TCS press conference today announcing buoyant quarterly results, Chandrasekaran said the industry would be able to “tackle any headwind.” He has had extensive experience dealing with leading multi-national banks and companies that use TSC’s services. He is also credited with being a strong chief executive who implemented a corporate reorganisation that broke down what was a monolith into more than 20 business units.

The Tata and the Mistry families belong to the Parsee (Zoroastrian) community and religion, and Chandrasekaran will be the first non-Parsee chairman of Tata Sons. That marks a major break with tradition. He will also be only the second chairman not to have the Tata name, Mistry being the first. His appointment means that Noel Tata, Ratan’s low-profile stepbrother who heads some of the group’s retail companies, has for the second time been passed over for the top job.

“I like the way the peaceful Buddha can influence that giant creature,” Chandrasekaran has said, talking about his favorite painting of a meditating Buddha seated near an elephant, the Business Standard newspaper reported on Jan. 12. That was in 2014, long before he could have even dreamed that one day he would be in charge of the giant Tata creature.

John Elliott is Asia Sentinel’s New Delhi correspondent. His blog, ridingtheelephant, appears at the right side of Asia Sentinel’s homepage.