|From Cyrus to Chandra|
|Monday, 16 January 2017 04:57|
Letting new chief function, unlike old one, critical
After the severe blow to its reputation following the unseemly spat between Ratan Tata and Cyrus Mistry, the Tata Sons board has done well to quickly appoint N Chandrasekaran as it chairman. Given that few outsiders would have considered joining the group after the shabby treatment meted out to Mistry, it is just as well a star performer from within has been chosen for the top job. A Tata employee for nearly three decades, Chandrasekaran earned his spurs at Tata Consultancy Services (TCS), where his performance has been nothing short of spectacular.
But the new chairman has a tough task ahead of him, and cleaning up the Tata stables will require far more from him than running TCS ever did. Not only are several companies like Tata Steel and Indian Hotels financially stretched, thanks to expensive acquisitions made under Ratan Tata’s watch, Tata Teleservices has been bleeding for years and can probably never be revived. For some reason, the telecom company has not been wound down in all these years and it remains to be seen whether Chandrasekaran will be able to come up with a solution. As has been pointed out, the Tata group may be a $100-billion-plus conglomerate, but it is primarily TCS that’s profitable; most of the other group companies are over-leveraged and need major financial overhauling. Indeed, there are several businesses—the passenger cars segment in Tata Motors, for instance—that probably need to be junked given they are only a drag on the company. Cyrus Mistry had started the process of cleaning up the balance sheets; not only did he insist that impairments be taken with a hit to the profit and loss account so that the accounts reflected the true picture, he also initiated sales of unprofitable and unviable assets in companies such as Tata Chemicals and Indian Hotels.
But even though Mistry has done some of the heavy lifting, there’s a lot left to be done, and for that, Chandrasekaran must have the support of the board. While Ratan Tata and the Tata Sons board are likely to be more accommodating and less dominating with the new chairman, not wanting to risk another public showdown, it is unlikely they would be open to very drastic changes in the way businesses are dealt with. So, while they may give Chandrasekaran more freedom than they gave Mistry, that may not be enough. For the new chairman to be overhaul the group companies in a manner that’s best for minority shareholders, Ratan Tata must accept he has made a whole lot of costly mistakes. Else, no chairman, even one as competent and capable as Chandrasekaran, can make much of a difference.