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5 reasons why N Chandrasekaran has his task cut out at Tata Sons (but is the right man for the job)

The Tata Consultancy Services CEO is the first non-Parsi chairman to take over the holding company of the conglomerate.

Veteran Tata insider and CEO of Tata Consultancy Services N Chandrasekaran takes over as the first non-Parsi chairman of the salt-to-software Indian conglomerate at a turbulent time. While there is no specific track record of Chandra, as he is popularly called, to judge him on how he will manage a diversified business of over $100 billion, there is unanimity that there could have been no one better than the TCS lifer to steer the group. After all, he grew the outsourcing business by leaps and bounds, which now contributes over 70% to the group’s turnover.

Here are five reasons why Chandra is unlikely to disappoint the house of Tatas.

1. Managing Ratan Tata

Chandra is as insider as it can get for a diversified conglomerate as Tatas which is conservative in values but has taken aggressive bets that have left its rival groups gasping for breath. The former chairman, Cyrus Mistry, was also considered an insider, with his family holdings in Tata Sons around 18% – the single largest non-promoter shareholder in the company. But what Mistry lacked, Chandra has in abundance. His chemistry with Ratan Tata is the key to maintain the balance between his responsibility towards the shareholders of the group as well as the trusts who own the majority stake in Tata Sons.

Under Cyrus Mistry’s reign, the relationship had taken a toss with both sides making serious allegations against each – Ratan Tata accused Mistry of lacking vision and shutting down businesses, while Mistry returned the favour by alleging that he was “never given a free hand” in running the group and there were serious corporate governance lapses by Tata and his chosen men on the board.

2. Stellar record at TCS

Chandra’s track record at Tata Consultancy Services, where he joined as an intern in 1987 and the only company he ever worked for three decades, is stellar. When he took over as CEO in 2009 – he was already being groomed for the job by former CEO S Ramadorai and had risen through the ranks through various roles – the company was in the midst of the global financial crisis that had set in. Under his watch, the company’s sales grew from Rs 30,000 crore to over Rs 1 lakh crore.

Profits also jumped three times from Rs 7,000 crore to over Rs 24,000 crore. This at a time when profits of rival Infosys grew a little over two times from Rs 5,800 crore to over Rs 13,000 crore. Clearly, Chandra knows how to grow a business even during turbulent times and has done it convincingly in a business that he has solely managed for the Tatas.

3. Managing Tata trusts

One main reason for disconnect between the Tata trusts and Cyrus Mistry has been the roadmap of dividend payouts that help the trusts run its various charity activities around the country. Tata Sons holds 70% stake in TCS and hence is overdependent for dividend income on the software giant who constributed over 80% of all dividend paid by group companies in financial year 2015-’16.

This article points out that while dividend payout by the 18 listed firms grew at a compounded annual growth rate of 15.7% during Mistry’s three-year period, it was all thanks to TCS. Most of the other group companies like Tata Motors, Tata Steel, Tata Power and Tata Chemicals either skipped dividend or kept it stagnant under his tenure.

Chandra’s task is cut out. He has to show that his deal making skills go beyond outsourcing in a bid to cut overall group debt, rationalise loss making divisions even as he manages Ratan Tata’s legacy of over-sized bets that spread the resources of most of these companies.

4. Ending battle with Cyrus Mistry

The Tatas announced a new chairman 45 days ahead of the deadline it had set for itself to find a successor. One major reason for the urgency is to delineate the functioning of the group from the legal battles that have come up at various legal forums. While Ratan Tata can now fully concentrate on battling Mistry, Chandra’s role as a peacemaker will be crucial to ensure the bad blood doesn’t escalate.

Chandra’s soft skills at managing people and the ability to stay calm, almost Buddha-like, will come extremely handy even as his other skills to take up new tasks like running marathons across the world (which he took only post the age of 40 to control diabetes) will be a big blessing. The war of words that is spilling out daily through leaked letters and press releases may soon come to an end with Chandra playing a key role to get the warring sides to hammer out a compromise away from the public eye, even as the battle continues in the courts.

5. TCS: Take Chandra seriously

Within TCS, the company’s is also called “Take Chandra Seriously”. His calm and soft-spoken attitude may often deceive people but he is clearly no pushover. Known to keep a punishing schedule, travelling around the world for about 20 days a month to meet global clients and his team, Chandra is said to love data and to help solve problems rather than allow them to fester for a long time.

Either way, there are not many candidates who can boast of having a track record of managing a group of this size with businesses ranging from salt to steel to auto to software. Post the Cyrus Mistry fiasco, expectations will be tempered and while the adversarial relationship between the chair and the promoters may not exist, they will have to give room to Chandra to take some crucial decisions. Top priority will be to end the dispute with former telecom partner Docomo, which has won a $1 billion award against the Tatas, and to take a final call on the steel business in Europe that Mistry had decided to exit before he was sacked at Ratan Tata’s behest.

When Chandra took over at TCS in 2009, he restructured 23 business units into eight with each unit having a head responsible for the profit and loss and business targets. This ability to not micro manage but only look at the strategic direction of the business will come in most handy as he takes on his new role on February 21.

This article first appeared on BOOM.

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