New Tata Sons boss starts putting his A-team together: What it means

A change in leadership is often characterised by a change of guard at the level of key executives manning crucial functions within an organisation.  

In the cult 1972 American crime film: The Godfather, one of the first things that Michael Corleone (played by Al Pacino) does after taking over the reins of his family’s mafia empire from his father Don Vito Corleone (Marlon Brando) is to effect organisational changes.

In a famous scene from the Francis Ford Coppola film, based on Mario Puzo’s book, Michael relieves Tom Hagen (Robert Duvall), a Corleone family loyalist and his father’s consigliere, from his duties and sends him away to Las Vegas to handle legal matters pertaining to business there.

When Tom inquires about the reasons for removing him as consigliere, Michael, who was strategising against his foes who wanted to obliterate his family’s existence, remarks that Tom wasn’t a “wartime consigliere”.

While the $103 billion-Tata group is not at war (even the intensity of a pitched corporate battle with its former chairman Cyrus Mistry has ebbed with the matter now in court), there are pressing concerns that need to be dealt with on a war footing. And the salt-to-software conglomerate’s new boss is putting his own consiglieres in place to deal with the challenges that lie ahead.

N Chandrasekaran (also known as Chandra), who took over as chairman of Tata Sons, the flagship holding company of the business house, in February, has appointed two key lieutenants in as many days. And their appointments, as well as some other key hires made in the recent past, are an indication of where Chandra’s priorities are.

On May 22, Tata Sons announced that it had appointed Saurabh Agrawal as its chief financial officer (CFO). Agrawal will join Tata Sons in July after spending around a year at the Kumar Mangalam Birla-led Aditya Birla Group, where he was head of strategy. A veteran investment banker who cut his teeth in merchant banking at DSP Merrill Lynch, under the mentorship of Hemendra Kothari, Agrawal went on to head the corporate finance unit of Standard Chartered Bank, before joining the Aditya Birla Group (ABG).

In Agrawal’s appointment, Chandra’s preference for a group CFO – a position that was lying vacant since Tata Sons’ finance director Ishaat Hussain gave up executive responsibilities in 2012 – with deep domain expertise in the fields of technology and telecom is evident.

Before assuming the role of Tata Sons chairman, Chandra was the chief executive officer and managing director of the group’s best performing company Tata Consultancy Services (TCS). Chandra had worked closely with Agrawal in 2004 when the latter, as head of investment banking at DSP Merrill Lynch, was instrumental in taking TCS public.

More recently, at ABG, Agrawal was the chief architect of a crucial deal that would see the metals-to-financial services conglomerate’s telecom arm Idea Cellular merge its operations with Vodafone India, which would lend the combined entity greater muscle power to withstand the competitive intensity in the telecom sector. Agrawal was also part of the team at DSP Merrill Lynch that was mandated by Ramalinga Raju to find a buyer for Satyam, an IT services company that he had founded, and which was later acquired by Tech Mahindra after being mired in an accounting fraud scandal. This is where Agrawal’s forensic accounting skills and eye for detail came to the fore when he discovered gaps in the company’s accounts and brought it to the notice of his firm as well as the regulators.        

In a statement announcing Agrawal’s appointment, Chandra said the group’s new CFO’s expertise across industries would help drive “rigour and synergy in capital allocation decisions, investment management as well as consolidation and optimisation of the group’s business portfolio”.

It is clear that an investment banker has been appointed as the finance chief of the 148-year-old conglomerate with an eye on potential mergers and acquisitions (M&A) in the future. A lot of such M&A at the Tata group is possible within its telecom and technology-oriented businesses. The prime example of this is Tata Teleservices (TTSL), the group’s beleaguered telecom entity.

Tata Sons’ former chairman Cyrus Mistry’s plan was to bring TTSL back to relatively better financial health than it was when he was at the helm of affairs and ready it for a merger with another telco. The stumbling block, as far as this plan was concerned, was a spat that the group got into with its Japanese partner in the telecom venture, NTT DoCoMo, which wanted to exit the venture at a pre-agreed price, which Mistry felt was untenable as per Indian laws.  An arbitration tribunal in London even awarded in DoCoMo’s favour and directed Tata Sons to pay the former a compensation.  

The tiff with DoCoMo was finally settled under Chandra’s leadership with the two parties amicably agreeing to terminate their partnership and the Delhi High Court approving this plan. Now that the decks have been cleared for Tata Sons to give DoCoMo an exit by buying out the latter’s stake in TTSL, it opens up the possibility of exploring a merger (or even outright sale) of its telecom venture with that of another telco. This is where Agrawal’s expertise as an investment banker – especially one who was hands-on on the Vodafone-Idea Cellular deal – will benefit the group.

The other major M&A player within the group could be Tata Consultancy Services (TCS). With the traditional IT services model facing disruption due to new digital technologies such as automation and Artificial Intelligence, large incumbents such as TCS will need to re-evaluate their business models and aim for a greater share of turnover coming from such new-age services. This opens up the possibility for acquisitions of digital services firms, which will give TCS a ready portfolio of offerings, which could take longer for the company to build organically. Agrawal’s past experience is bound to be of help here as well.

There are several other commonalities between the businesses of the Tata group and ABG. These include a presence in metals, financial services and retail. Agrawal’s experience of dealing with these businesses on a global scale at the Birla-led conglomerate will be an asset for Chandra, especially for ventures like Tata Steel’s struggling European operations, which is in the midst of a restructuring that includes divestment of certain parts of the business.

Agrawal isn’t the only investment banker to be hired by Tata Sons since Chandra took over. The company also hired Ankur Verma, former managing director of Bank of America Merrill Lynch’s investment banking division, in March. Like Agrawal, Verma also has extensive dealmaking experience, especially in the telecom space; and like Agrawal, Verma is also an alumnus of the Indian Institute of Management, Calcutta.

A trend among business houses in the country like ABG and the Anil Ambani-led Reliance Group has been to cut deals with the expertise of in-house M&A experts, and with the profile of its new high-level recruits it won’t be surprising if the House of Tata goes the same way.

The other key hire announced by the conglomerate on May 23 was that of Shuva Mandal, who will assume charge as group general counsel in July. Mandal has over 17 years of experience in corporate law, 15 of which were with AZB Associates. He spent the last two years of his career with Shardul Amarchand and Co (Advocates and Solicitors) as partner and national head for corporate, M&A and private equity.

The M&A theme resonates in Mandal’s appointment as well, with the statement announcing his appointment stating that he has extensive experience in deal structuring, advising on securities law and development of legal strategy for corporations. In his last job at Shardul Amarchand, Mandal has worked closely with Tata Sons, as it firmed up its legal strategy against Mistry, who was replaced as Tata group chairman on October 24 under acrimonious circumstances, which led to a rather public spat that ended in a legal challenge.

Mistry’s legal challenge, through which he has alleged oppression of shareholders and mismanagement at Tata Sons, isn’t over, with the matter pending before the National Company Law Appellate Tribunal. Mandal can be expected to play a larger role with the group’s internal and external legal team to fend off Mistry’s legal challenge.

Also, Mandal replaces Bharat Vasani, who has been the Tata group’s general counsel for the last 17 years. The statement issued on May 23 says that Vasani has evinced his desire to move to a “more strategic and advisory role” as a legal advisor to the chairman’s office.

It is worth noting that in the past, Vasani has shared some of the concerns that Mistry had also voiced with respect to the way in which Tata Sons functioned. For instance, in an email to Mistry dated February 1, 2015, Vasani had observed: “Article 121A of Tata Sons Article (of Association) does not contemplate any prior consultation with the Trustees on matters to be approved by the Tata Sons Board or Tata Sons Chairman, in his capacity as Chairman of operating Tata Companies.” In the same email, Vasani also writes: “The note sent by Mr NAS (Noshir A Soonawala) to you (Mistry) making his suggestions with regard to fund raising for Tata Sons, etc, has the danger of the Trustees being regarded as “shadow directors” of Tata Sons under the Companies Act, 2013 and also “Insiders” under the new Insider Trading Regulations. There are legal liability issues.”

These were also concerns raised by Mistry when he alleged that there was undue interference from the  trustees of Tata Trusts when it came to matters of Tata Sons (in which the Tata Trusts collectively own 66 percent), and that Mistry was reduced to a “lame duck chairman”. The former Tata Sons chairman, who belongs to the family that is the single largest shareholder in Tata Sons with an 18.4 percent stake, had also raised concerns over the potential violation of insider trading regulations when it came to sharing business information with the Trustees beforehand.  

The new appointments may be reflective of Chandra’s intention to start off with a clean slate, with his trusted professionals in key positions. Going by the quality of talent the group is attracting, it may well be said that Tata Sons, led by Chandra, is making offers that can’t be refused.