Tata Sons – The change at the top was expected; and it is positive

With a unanimous vote on a third term for N Chandrasekaran unlikely, he did the right thing. He just decided to step down and not offer himself for a third term. The onus now shifts to Noel Tata and the Tata Trusts board to appoint the next chairperson.

Why the decision by Chandrasekaran was correct

People often use statistics to drive home a point, but in management battles it is never about statistics. The profits of the Tata group and the combined market cap of the group had grown 3-fold during his tenure. That is not a small achievement for a group of the size and complexity of Tatas. However, Chandra and Noel Tata differed on 3 crucial areas; Loss making businesses, capital allocation, and listing of Tata Sons. Chandra knew that as long as these 3 questions were open, he would never get a unanimous third term. His exit was something Chandra himself had reconciled to, a long time back.

Why Noel Tata opposed a third term for Chandrasekaran

At the end of the day, the differences were never over Tata Sons listing, capital locked in loss-making businesses, or market cap performance. It was about what management style will the Tata group adopt in the next 10-15 years. Each head of Tata Sons has put his own stamp on the top job. JRD was all about delegation, incubating businesses and letting regional satraps drive these businesses. Ratan came at a time when technology outlays and control became the central issues. The weight on the shoulder of Noel Tata is about keeping the Tata group thriving for the next 2 decades. That will need his own stamp, and that means a clear departure from the shadow of his predecessor.

What will happen to the 3 questions here?

The answers will depend on who takes over the chairmanship of Tata Sons. On market cap growth, the group has done well. It only needs to make more companies contribute to market cap growth than just a handful of names. Secondly, new businesses like semiconductors, digital, airlines etc will define the future trajectory. Quite often, a line of business needs sustained investments before it can deliver results. Now, these questions will have to be answered by Noel Tata. On the listing front, it looks like Tata Sons may just face tighter regulation, but not mandatory listing. That should solve the problem. It will now depend on the style of management Noel Tata chooses to adopt.

Who will be the next chairman of Tata Sons

That is anybody’s guess, with prominent names like T V Narendran of Tata Steel coming up. Remember, Narendran also spent 35 out of his 38-year career at Tata Steel with Ratan Tata. That influence will be hard to ignore. The best solution for now is for Noel Tata to take charge as chairperson of Tata Sons to drive the future direction over the next few years. That way, he can also leave a strong imprint on the management style of the group. He has 6 year to reach the age of 75 and that gives enough time to stamp his own imprint and groom gen-next for the top job. The group is currently in a state of flux, and it needs Noel Tata to step in and steer the ship.