New Tata boss to face formidable challenges

N Chandrasekaran, the Tata Sons chairman, unexpectedly resigned earlier this month, leaving the top position vacant at India’s most revered conglomerate. The conglomerate’s $300bn empire includes Jaguar Land Rover, Air India, and manufacturing ventures for Apple. Chandrasekaran’s resignation was due to a deadlock over his reappointment and a widening rift with Tata Trusts, the charity arm which holds controlling shares in the unlisted commercial holding company.

The disagreements centered on public listing of Tata Sons and capital allocation for the group’s various new unlisted businesses, such as semiconductors, e-commerce, and aviation, all of which are facing financial losses. The group is currently in the largest capital investment cycle in its history, with tens of billions of dollars being deployed on ventures like building India’s first chip fabrication plant, manufacturing EV batteries, and reviving Air India.

The newly appointed Tata boss will need to navigate numerous challenges, according to Hetal Dalal from Institutional Investor Advisor Services. Assessing and absorbing the risks associated with this rapid expansion, understanding various new businesses, and maintaining strong relationships with regulators and the government will be crucial. The role requires a diverse skillset and extensive experience, making it difficult for both the new chairman and the selection committee to find a suitable candidate.

The complexity of the role has increased as the losses in new businesses have surpassed the cash flow generated by older companies like TCS, which has contributed to around 85% of the group's cash flows. However, TCS is no longer the sole pillar of support it once was. Even though losses at privately held companies have mounted, the performance of publicly traded, CEO-run Tata companies has been strong.

Tata Sons' internal candidates have a good bench strength, but finding a "plug and play fit" for the challenging role will be difficult. Some internal executives are good at managing existing business models, but the new chairman will need to understand and drive new business models for the four unlisted companies that are currently bleeding money.

Clear communication has been a major challenge within the Tata group, which may impact the public markets. The new chairman will need to focus on repairing the fractured relationship between Tata Sons and Tata Trusts, as it was a significant factor in the previous breakdown of the Tata leadership. Demonstrating that governance mechanisms are working and providing clarity around the leadership transition process will be essential priorities for the next Tata boss.