N Chandrasekaran & Tata Sons

Beyond The Obvious

Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.

– Marcus Aurelius

So it has finally happened. The TATA Group through its holding company, decided to move with alacrity to anoint N Chandrasekaran as the first non-parsi Chairman at the helm of the holding company TATA Sons. Given that the battle for control of the holding company shifted the field of engagement to the legal domain, there was considerable anxiety especially given that the group as a whole was losing reputation, value and equity on a daily basis. With the battle now shifting to the National Company Law Tribunal (NCLT), the matter is likely to come up for an express hearing given the sensitivity and the prestige of the matter involved. Chandra’s (as he is fondly referred to) elevation to the top job in the Group has not only been welcomed by the broader industry and markets, but is a reflection of the decisiveness with which the current leadership under the Interim Chairman Ratan Tata, seems to be reorganizing itself. Of course Chandra’s appointment is subject to clearances from NCLT as the matter pertaining to removal of Cyrus Mistry as the erstwhile Chairman is under consideration. Further a petition has already been filed to maintain status quo with respect to the affairs of Tata Sons, so Chandra’s selection is likely to need ratification.

So let us try and understand the significance of this decision. Chandra is a Group veteran having been with the crown jewel of the Group, Tata Consultancy Services, for over three decades now. He took charge of the company at a time when the global financial crisis had just hit and had left debris of institutions in its wake. Chandra not only skillfully managed this painful transition but also maneuvered TCS into a position of unassailable strength to become the most valuable IT company in the world just after IBM. TCS apart from Jaguar Land Rover happens to be the principal contributor to Group profitability and cash flows, accounting for nearly 80% of the Group profitability. Being India’s largest IT company with operations spread across almost 50 countries with a top line in excess of USD 16 Billion, TCS represents the pride, ambition and the excellence that the Group is known for.

The Obvious Gains –

Where does this appointment take the Group? Clearly there are obvious benefits and advantages this appointment brings, that come to mind. These include –

  • A TATA Group Insider – Has spent over three decades with TCS and TATA Group – understands the inner workings and dynamics of the Group
  • Relative young age – He is just 53 years and can potentially have a long innings at the helm
  • Strong Pedigree – Has successfully managed and maneuvered TCS – Group’s largest operating firm
  • Global Outlook – having straddled TCS operations across almost 50 countries, understands the challenges of running a global business conglomerate
  • Customer Centricity – More than half his time is spent traveling and visiting key clients across global markets
  • Managing Scale & Diversity – Successfully grew TCS into a USD 16 Billion global IT giant with over 3,50,000 employees
  • Leadership Style – Believes in collective and democratic decision making to augment leadership bandwidth and also improve decision making quality/ depth

TATA Sons faces a somewhat similar predicament and uncertainty as what TCS faced in 2008, given that only a handful of firms are contributing cash flows to the group kitty. Most of the firms are facing headwinds in varying degrees and there is a mountain of debt that needs to be serviced. The situation is quite demanding and needs careful and skillful handling in terms of managing the Group operating firms. It requires sharp focus, close attention and deep persistence to recreate a resilient business in shaping the destiny of the Group. More so, given that the Group is facing intense scrutiny both globally as well as locally, for the unwanted attention the removal of Cyrus Mistry brought in its wake. Given this complex background, it was evident that the Group needed a leader at the helm who was adept at managing challenging business environment and come with prudent, long term oriented strategic solutions. This is where Chandra’s ascent to the Chairman of TATA Sons assumes great significance.

‘Beyond The Obvious’ Value –

While the above are well distilled and broadly understood pointers, there are some deeper linkages that could perhaps become the vectors of building long term, enduring success at the TATA Group under Chandra’s leadership. These include –

  • TATA Brand – House of TATAs or the TATA Group is known as a proxy to Indian economy. It may not be an overstatement to suggest that it stands to represent ‘India Inc’ given its global footprint, size, scale, impact and touchpoints. So any adverse commentary on the Group is likely to negatively impact the potential of several other business groups. By decisively addressing the leadership challenge with an accomplished insider, TATAs will bring back the lost halo and prestige that the Group is known for.
  • Decisive Orientation – Chandra understands the importance and significance of achieving an internal orientation that aligns the objectives of the Trust, Holding Company and the Operating Firms into a unifying factor. This alignment will be defining to collectively gain promoter sponsorship for pushing through reforms as well as disruptive ideas
  • Institution Familiarity – Having spent three decades with the Group, as also led the Group’s largest business outfit for several years, he is familiar and aware of the institutional way in which the Group operates. Can hit the ground running with fast acclimatization and quick assimilation
  • Identity Supremacy – Is well versed with the underlying Philosophy as well as the Purpose that defines the priorities and pursuits of the TATA Group. He will be sensitive to the larger identity of the Group in terms of its defined outcomes, especially with respect to the social sector contribution. He has an acute understanding of connecting Purpose to Profit models and will use these effectively to forge closer synergies amongst operating businesses
  • Business Turnaround – Instead of taking the more comfortable path of looking at businesses as portfolio operation (which Cyrus Mistry tried to do at the expense of challenging the established collective identity of the Group), Chandra will bring a more nuanced strategic understanding to solve complex business problems and turning them around for enhanced profitability and value creation
  • Binding Force – Chandra is uniquely positioned to leverage global market access through the TCS platform and use it as a binding element to build deeper traction and linkages with global markets. Technology is a fundamental building block in virtually all businesses, thereby getting TATAs more invites to global high table of business
  • Deep Resilience – For a business group of the size of the TATAs, the most critical ability to drive through serious engagements is resilience. Critical changes will take time to demonstrate meaningful outcomes and given the fact that Chandra astutely navigated recent 4-5 quarters of difficult business period at TCS while managing stakeholder expectations, both within and outside, he will be able to bring that learning to good use
  • Team Builder – Chandra while being hands on, involved leader believes in giving sufficient latitude as well as autonomy to his management teams. He is known to build next generation leaders and has created extraordinary bench strength in a large business enterprise like TCS. Proof of this capacity building lies in the smooth transition of leadership mantle at TCS with his elevation to TATA Sons Chairmanship
  • Embraces Innovation – TCS under Chandra has been a proactive and significant investor in global innovation practices. This was made possible on account of successfully multiplying topline/ bottomline performances thereby creating sufficient capacity to channelise resources towards long term growth and value creating opportunities. Chandra will draw upon this significant strength and create a pan group, innovation culture to take the TATA Group into the next orbit

Clearly these are interesting times and the TATA Group has undergone an intensely disruptive event that may not only define its own destiny, but also the course of corporate trajectory in the country. In more ways than one it is seen as the template for managing diverse businesses that reflects abundant prosperity, shared objectives and long term value creation orientation. Chandra would be committed in his pursuits of the Founder’s vision and taking the Group forward towards higher purpose and sustainable growth.

The Road Ahead –

It is important to note that this will not be Chandra’s challenge alone. Given the adverse impact that the Group has gone through in the last 3 months, there is considerable effort required to bring it back to its glory days. It demands sharp internal alignment of purpose, priorities and pursuits in ensuring the entire team pulls its collective weight behind Chandra in this journey. He needs to assume the stewardship role in carrying the aspirations and hopes of the entire Group through the difficult waters. For that he will need to marshal all their support by commanding their respect and securing commitments unequivocally. It will not be easy but then Chandra comes suitably primed and prepared for the role. Given the overall situation and the challenges lying ahead, TATA Group could not have made a better choice.

Here is wishing N Chandrasekaran the very best in his new quest.

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Independence Dilemma

Challenges for Independent Directors

Last few weeks have brought into sharp focus the role, responsibility and performance of Independent Directors on boards of Indian companies, especially the TATA Group. With clear division in the rank and file of the boards of different TATA Business firms, the spotlight is firmly on the understanding and definition of the term “Independence”.

The Companies Act 2013 as well as the SEBI Listing guidelines, have laid down specific criteria on who qualifies as Independent Director and generic definition of their fiduciary duties. While these are operative guidelines, and boards are expected to comply with these, the broader question is, how can one understand the intended role of Independent Directors. Most of the media coverage as well as exposure, since the board events at TATA Business firms started playing out, has been on trying to decipher the stated guidelines and decisions made by different sections of Independent Directors at the various operating firms. While the jury is still out on which side seems to be enjoying an upper hand in the high stakes of boardroom control, what has added to the mix has been the diverse interpretations and actions that have been executed at various boards of the operating firms. Clearly it appears that there is no one unanimous view/ interpretation on the role of Independent Directors with each version seemingly giving an articulated response for its stated position. And therein lies the difficulty – The “Independence Dilemma”.

To understand this dilemma or lack of clarity on what constitutes the duties of Independent Directors, we need to first comprehend their intended role as well as associated responsibilities. An Independent Director is someone who acts in trusteeship on account of every stakeholder in general and no one in particular. Most importantly, Independent Directors should not be seen to represent any specific constituent of stakeholder community. This means maintaining reasonable, sufficient and equal distance from every interested party connected with the enterprise while evaluating all information to arrive at considered, nuanced and informed decisions. In the process, ensure actions are taken without fear or favour to display equanimity and non-partisanship in orientation and approach.

Given this nuanced role, what therefore are the issues that the Independent Directors should be concerned with? Should they be restricting themselves only to discharge duties around strategy, performance management, business financials or should they go beyond the operational issues and task themselves with bigger challenges that confront institutions – defining distinctive identity, establishing institutional culture, create enduring business architecture, establish leadership depth and succession, managing forces of disruption and brand / reputation management amongst other key matters. It would appear that the present state of affairs at TATA Business firms have been the absence of an articulated role for Independent Directors that goes beyond mere compliance. And this issue is not limited to TATA Group alone. It just finds itself injected into public glare and intense scrutiny given the recent happenings at TATA Sons. Had the Board at these firms been seized of the more critical matters that deserve highest priorities, the present set of issues may not even have cropped up. These are matters that essentially define the soul of an enterprise. Without leadership attention on issues that define the culture and inner workings (spirit) of an enterprise, any performance measure will be short lived and the enterprise eventually will lose its way in the mindless quest for numbers. What brings sanity to numbers is an unquestioned leadership belief in bringing meaning to institutions’ pursuits.

Independent Directors, more than any other class of stakeholder representative, have a fiduciary responsibility to provide stewardship of the highest standard to an enterprise. Being independent, they have the necessary courage and motivation to focus boardroom agenda on long term value creation goals. They need to leverage this unique position to drive through institutional models that are timeless in their impact and relevance. It is in helping design an institutional identity and vibrant business architecture of enterprise that they ensure a firm’s autonomy while securing its long term economic objectives.

Lessons from the TATA Sons episode clearly highlight that it is not enough to just comply with stated regulatory guidelines – time has come wherein Independent Directors become more assertive in discharging their duties and move towards deeper institutional commitments. This calls for recalibration of orientation and mindsets on how an Independent Director role is viewed, both inside and outside the boardroom. What is required is to bring transformation inside the boardroom that looks to establish institutional supremacy over ownership representation – whether major or minor. It is only when decisions get formulated beyond the limitations of a select group, can there be long term sustenance of an enterprise that looks over and above special interests.

We would therefore all do well to remember that the role of Independent Directors is not a “good to have” showpiece but can be the very difference between enduring prosperity and short lived promises. Advantaged would be the boards that empower their Independent Directors in taking proactive, bold and forward looking roles that goes beyond the limited defines of law. This means having faith, conviction and confidence in Independent Directors to take on the role of sentinels by becoming guardians of an institution’s rich legacy and inspiring spirit. It is only by safeguarding the soul of an institution that they protect its legacy and honour its traditions – Things that give a unique sense of identity and purpose to establish and secure its relevance across the shifting sands of time.

Will the Independent Director please stand up?