How Tata’s New Chairman Plans to Fix India’s Biggest Company

July 21, 2017, 10:30 AM UTC

Shortly after Natarajan Chandrasekaran turned 44, his doctor diagnosed him with diabetes. As the chief operating officer of Tata Consultancy Services (TCS), India’s largest IT firm, Chandrasekaran (who insists that everyone call him simply Chandra) led a hectic life consumed by long work hours, innumerable client meetings, and constant travel. But his doctor minced no words. “He said to me, ‘You’re an intelligent man. Don’t be stupid about your health,’ ” Chandra recalls. “ ‘You need to get some exercise.’ ”

The next morning, Chandra, a computer engineer and lifelong math geek with no prior penchant for athleticism, laced up his shoes, stepped into the sweltering heat of downtown Mumbai, and began to run. Months later, he stumbled across the finish line of his first marathon. In the years that followed he kept running, completing all six of the world’s major marathons (Boston, Berlin, Chicago, London, New York, Tokyo). As his running times fell, Chandra’s corporate star ascended. In 2009, two years after he began training, he was chosen as TCS’s CEO, and he proceeded to transform the consultancy into one of India’s most valuable companies, with a market capitalization of $71 billion. Now 54, he runs at least one full marathon and several half marathons a year, and he claims to have beaten diabetes without the help of medication. “Running has made a world of difference for me,” he says. “It has made me calmer, more reflective, and given me more perseverance.”

Chandra will need those qualities in his latest corporate assignment. In February he was installed as chairman of Tata Sons, the private holding company that controls TCS and hundreds of other businesses that make up the Tata Group, India’s largest and most venerable conglomerate—one that owns Western brands such as Land Rover and Tetley Tea. His appointment as chairman (which at Tata is essentially the CEO role) followed an abrupt board decision last October to sack Tata Sons’ previous chairman, Cyrus Mistry, a scion of the family that remains Tata’s largest private shareholder.

Natarajan “Chandra” Chandrasekaran on the roof of the Taj Mahal Palace Hotel in Mumbai, with the Gateway of India monument in the background. As a chairman of Tata Sons, he oversees a sprawling conflomerate with some 700,000 employees and more than $100 billion in revenue.Vivek Singh for Fortune Magazine
Vivek Singh for Fortune Magazine

Mistry’s ouster sent shock waves through the Indian business community and erupted into a messy and ongoing legal dispute. And it left Tata adrift at a moment when overall revenues are shrinking and many of the group’s largest businesses are losing market share and bleeding cash.

Colleagues and investors hope Chandra can transfer to the rest of Tata some of the digital magic he sprinkled on TCS, where he tripled sales and profits during his seven years as CEO. But, as one might expect of a relentless marathoner, Chandra himself suggests that whipping Tata into shape will involve some grueling workouts. “One of my key messages is that we’re going to look at performance for every operating company—growth rates, profitability, return on capital,” he says. “You can’t perform if you’re not fit. If you want to run a six-minute mile, you have to bring your weight down.”

It’s hard to overstate how large the Tata name looms in Indian life. The group was founded in 1868 by Jamsetji Nusserwanji Tata, a Parsi—a member of a small but commercially adept community whose Zoroastrian forebears fled Persia to escape religious persecution in the eighth century. Jamsetji began in his father’s trading company, then struck out on his own with profits from outfitting British troops in Abyssinia. He invested in textile mills, built the grand Taj Mahal Palace Hotel across from Mumbai’s Gateway of India, and, before his death in 1904, laid plans to construct India’s first steel factory, in what is now the state of Jharkhand.

A 1944 Fortune profile of the “House of Tata,” written decades after Jemsejti’s death, described the founder as “bearded, beturbaned, almost Biblical in appearance” but “nevertheless India’s most outstanding native industrialist.”

Over its 149-year history, the Tata Group has metamorphosed into a sprawling conglomerate whose modern portfolio is often described as ranging “from salt to software.” That’s literally true: It owns India’s largest packaged salt brand, TCS, and myriad companies in between. But the phrase only hints at the diversity of the Tata’s empire. The group’s biggest business by sales is Tata Motors (TTM), which ranks No. 247 on this year’s Global 500, with revenues of $40.3 billion. Other holdings include India’s second-largest steelmaker; the nation’s largest power company; a leading chemical manufacturer; a chain of luxury jewelry boutiques; a gaggle of financial services firms; a leading aerospace and defense manufacturer; and investments in 51 tea plantations stretching across India and Sri Lanka.

Tata is among India’s most cosmopolitan conglomerates. Its overseas acquisitions include Tetley Tea, the world’s second-largest tea brand; Corus, a giant steelmaker formed by the 1999 merger of British Steel and Dutch rival Hoogovens; and Jaguar Land Rover (JLR), purchased from Ford Motor (F) in 2008. The Tata Group’s Indian Hotels Co. owns luxury lodgings including the Pierre Hotel in New York and 16 other hotels outside India. In 2011, Tata Global Beverages struck a deal with Starbucks (SBUX) to bring the Seattle company’s coffee shops to India.

Nicolas Rapp
Nicolas Rapp

In all, Tata Group companies employ nearly 700,000 people, and claim combined sales close to $104 billion. If bundled into a single listed entity, the group would almost crack the top 50 of the Global 500.

The group’s star performers are TCS and Jaguar Land Rover. During Chandra’s tenure, TCS—which derives 94% of its revenue from work for clients outside India—pulled far ahead of its two domestic rivals, Infosys and Wipro. The company reported net profits of nearly $4 billion on sales of $17.6 billion in the fiscal year ended in March.

Jaguar Land Rover has had an equally standout run. British ministers extol JLR as the poster child of their nation’s industrial renaissance. Supported by Tata and steered by CEO Ralf Speth, a native German and former Ford and BMW executive, the once-troubled company has become the U.K.’s biggest car manufacturer and reported record sales of 604,000 vehicles in the year to March, up 16% from a year earlier. JLR now earns 80% of its sales outside the U.K., and sales are especially hot in China.

But such stars notwithstanding, much of the House of Tata is in urgent need of renovation. Some of its biggest businesses have grown sluggish and vulnerable to smaller, nimbler rivals. Some are too small to compete globally. Some compete with one another. And all its components operate under layers of managerial overlap that can create competing agendas and pose a challenge to any would-be reformer.

JLR’s parent, Tata Motors, may be the most visible symbol of the company’s recent doldrums. The company once dominated the enormous Indian market for commercial trucks. But its share of that segment tumbled to 44% last year, down from a peak of over 60% in 2012.

Production Of Land Rover Defenders At Tata Motors Ltd.'s Jaguar Land Rover Vehicle Manufacturing Plant
A Land Rover moves down the inspection line at a Jaguar Land Rover manufacturing plant in the U.K.Simon Dawson — Bloomberg via Getty Images
Simon Dawson — Bloomberg via Getty Images

At Tata Steel, domestic operations remain prosperous, thanks to continued high demand in India. But the company’s European business is mired in debt and has posted losses in four of the past five years. Discussions about a possible joint venture between Tata Steel Europe and Germany’s Thyssenkrupp are on hold pending resolution of a dispute with the British government about Tata’s pension obligations. As of the end of 2015, Tata Steel’s U.K. operations were losing a million British pounds per day. Tata Power, Tata Chemicals, Indian Hotels, and Tata Teleservices are all in trouble, earning poor returns or suffering losses.

In the financial year ended in March 2017, TCS and Tata Motors accounted for 59% of the group’s combined revenue and 90% of its net profit, and generated 80% of dividends. In an email sent to directors days after he was removed, Mistry said the group faces $17 billion in write-downs from five unprofitable companies. (Tata Sons disputes that claim.)

Chandra must move quickly to stanch the bleeding. In an April town hall with executives from Tata companies, he stressed the importance of group unity and collaboration with a slide deck touting the virtues of “One Tata.” But in other meetings, that message has been twinned with a warning that the group must have clearer lines of accountability, and that Chandra will establish detailed metrics to evaluate the performance of the various operating companies.

Chandra has vowed to reorganize the group to focus on growth and scale. Tata’s corporate roster is rife with opportunities for consolidation, with multiple companies competing in the same segment. Even veteran Tata executives are hard-pressed to explain why Tata Finance, Tata Housing Finance, and Tata Capital Finance operate as separate companies.

In conversations with Fortune, Chandra seemed at times to channel Jack Welch, suggesting that he plans to remake Tata’s portfolio to include only large businesses that lead their industry. “Tata is already a $100 billion group,” he says. “To get to the next level we need scale. We can’t do it with multiple small companies. We need top companies. I am not saying specifically that all companies need to be No. 1 or 2 [in their sectors], but we need to have top companies.”

He’s not ruling out selling off underperformers. “We won’t exit a business just to get a headline. But we will exit if we aren’t getting returns today and we don’t think we’ll get them tomorrow. I have thought a lot about this. We’ll definitely prune the portfolio.”

Chandra has sent a clear signal that he plans a major shake-up by hiring some of India’s most respected corporate financiers, including Ankur Verma, formerly with the Bank of America Merrill Lynch; Nipun Aggarwal, from Standard Chartered Bank; and Saurabh Agrawal, head of corporate strategy at the Aditya Birla Group.

Tata Steel welding line
Tata Steel, whose factories include this plant in Willenhall, England.Ben Birchall — Press Association/AP
Ben Birchall — Press Association/AP

Agrawal, a former Merrill Lynch dealmaker who helped to broker TCS’s 2004 IPO, will lead the charge as Tata Group’s chief financial officer. He speaks frankly about his marching orders. Tata’s holdings, he argues, should be reshuffled into four or five large groups. “No chairman can have more than a handful of executives reporting to him,” he says. “You just can’t be effective.”

He also wants to clear away small ventures, whether through merger or sale. “We want to be in businesses where we can scale up, which can be large, which can deliver shareholder returns. There’s a huge amount of rationalization which is going to take place in over the next 24 to 36 months.”

Agrawal wants to take a razor to Tata’s listed companies too. He says he’d like to shave the number in Tata’s portfolio from the current 29 to a figure “down into the single digits.” He promises a “huge streamlining” of Tata’s portfolio. “I’ll be surprised if we are not able to take at least a third of the companies out of the system,” Agrawal tells Fortune.

For a group like Tata, all this is radical stuff. How long will it take to achieve? “If I were to tell you, ‘Well, we’ll get to it over the next five to 10 years,’ I wouldn’t be in this chair tomorrow morning,” says Agrawal. “If you ask Chandra, he’ll say, ‘I want it done in 30 days.’ ”

Any effort to reorganize Tata’s business portfolio must grapple with the group’s byzantine organizational structure. Senior executives at Tata sometimes compare the group to diversified conglomerates like General Electric, private equity funds, or even investment companies like Berkshire Hathaway. The parallels are misleading. Whereas GE is ultimately a single company with a single stock price overseen by a single chief executive, the Tata Group encompasses hundreds of operating companies that are only loosely organized under the group’s control.

Tata Sons, the private holding company, is typically the dominant shareholder of the operating companies, and supports them by appointing managers and board members, providing investment capital, and spreading best business practices among the group. All bask in the goodwill accorded the Tata brand. But under the current structure, it is practically impossible for the group chairman to track the performance of so many different ventures, let alone force them to execute a common strategy.

One of Tata’s 51 tea plantations in Kerala, India.Courtesy of Tata
Courtesy of Tata

And unlike a private equity company, Tata doesn’t invest in existing companies with an eye toward a profitable exit. Typically the companies Tata invests in have been created by the group in the first place. Most carry the Tata name and operate with the understanding that they are members of the Tata family and aren’t at risk of getting auctioned off.

As if that’s not tangled enough, Tata Sons, in turn, must answer to representatives from the Tata Trusts, which control 66% of the holding company. The trusts are nonprofit charities. Their mandate is to ensure Tata Group companies reflect the values of its founders and “give back” to Indian society as a whole. But they depend on Tata dividends to support their philanthropic activities—and those dividends could be imperiled if Tata keeps struggling.

That philanthropy is central to the Tata legacy. In the years before India cast off British rule, the “House of Tata” was a source of pride for many Indians who saw the group’s industrial prowess as proof that homegrown businesses could prosper despite attempts by colonial masters to hold them back. Founder Jamsetji and his descendants burnished the group’s reputation by cultivating an ethos of social responsibility, channeling their personal wealth into a network of trusts that remain among India’s most generous philanthropic institutions to this day. Large bequests from Tata Trusts helped found the Indian Institute of Science, devoted to developing the technical skills of India’s youth, and the Tata Memorial Hospital in Mumbai, the nation’s leading center for cancer treatment and research.

That ethos shows in Jamshedpur, the built-from-scratch city where the family established the first Tata Steel plant, in the first decade of the 20th century. The Tatas invited socialist economists Sydney and
Beatrice Webb to India to advise them on social services for workers. Outside the plant, Tata carved a suburban oasis complete with schools, hospitals, cricket pitches, and public gardens. Jamshedpur remains
the only municipality in India where you can drink water directly from the tap.

Decades of this kind of industrial achievement and public munificence have cemented Tata’s status as India’s most-trusted company. The company gained global cachet under the leadership of Ratan Tata, who reigned as Tata Group chairman from 1991 to 2012.

Tall, ruggedly handsome, and taciturn, Ratan Naval Tata (often referred to by his initials, RNT) has long been seen as the Grand Old Man of Indian business—chairman not just of Tata but, in a figurative sense, of India Inc. RNT is not a direct descendant of Jamsetji, the group founder; rather, he is the great-grandson of a niece of Jamsetji’s wife. His father, Naval (whose family name also happened to be Tata), was a poor orphan who was adopted by the widow of Jamsetji’s second son, Ratan. Thus, though Naval came from a poor family, he and his son were raised as part of the wealthy Tata household. After earning an architecture degree at Cornell in 1962, Ratan returned to India and was dispatched to Jamshedpur for an apprenticeship amid the blast furnaces of Tata Steel. He was later taken under the wing of group chairman JRD Tata, his adoptive uncle, who in 1991 named Ratan as his successor.

As chairman, Tata cut a dashing figure, celebrated in the Indian press for his love of small planes (he is an accomplished pilot), expensive cars (he is often spotted cruising Mumbai’s Marine Drive in his red Ferrari California), and stray dogs (at his behest, the city’s mongrels are allowed to roam freely in the lobby of group headquarters in Bombay House).

RNT was the driving force behind Tata Group’s global expansion after 2000. He championed the acquisitions of Tetley, Corus, JLR, and the Pierre. And yet he exuded a quiet humility that enabled him to blend images of ambitious global industrialist and modest man-of-the-people. At home, his signature initiative was the Nano, a car for low-income families that sold for as little as $2,000.

Legal documents filed in the courts by Cyrus Mistry paint a less flattering portrait of RNT. The Mistrys have a long history with Tata Group. The Mistry family business, one of India’s largest construction and engineering conglomerates, helped to build factories for Tata Steel and Tata Motors, as well as Tata’s flagship Taj Mahal Hotel. There are differing accounts of how the Mistry family accumulated the 18.4% share in Tata Sons that made it the holding company’s largest private shareholder. But by 1980, the family’s influence was well established, and that year, Cyrus’s father, Pallonji, took a seat on Tata Sons’ board. There, his reputation as a quiet, behind-the-scenes power broker earned him the nickname “Phantom of Bombay House.” Cyrus became a Tata director in 2006 after his father retired, and was regarded by other directors as intelligent and hardworking.

The Tata-owned Taj Mahal Palace Hotel in Mumbai, India in July.Vivek Singh for Fortune Magazine
Vivek Singh for Fortune Magazine

Mistry declined to comment for this article, and Ratan Tata declined to make himself available for an interview. But in the aftermath of Mistry’s defenestration, Tata Sons has sought to portray Mistry as a bumbling corporate naïf, dependent for ideas on a coterie of outside advisers and flummoxed by the complexities of running a large conglomerate. The company’s official explanation is that Mistry had to go because he moved too slowly to turn around the group’s money-losing businesses, failed to show sufficient respect for the group’s culture, and lost the confidence of the rest of the board.

Mistry’s version, reflected in a letter sent to Tata Sons’ board days after his ouster, is that he was sacked because he pushed too hard to clean up messes left to him by his predecessor and raised too many questions about the Tata Group’s dealings with Ratan Tata’s friends and business partners. He claims that at every turn he was “severely constrained” by Trust-appointed directors beholden to RNT.

In Mistry’s account, the idea that he take over as chairman was Ratan Tata’s in the first place. He says that when Tata invited him in 2011 to be considered as a candidate, Mistry demurred, saying he was happy running his own business. But Ratan Tata was approaching the mandatory retirement age of 75, and the Tata Sons search committee failed to turn up acceptable alternatives. There were no obvious family candidates on the Tata side; Ratan had never married. It would not have been lost on Mistry that his father’s stake in Tata Sons was now far more valuable than his own family businesses. And so, in 2012, when Tata approached him a second time, Mistry acquiesced. (Tata Sons says the decision to appoint Mistry as chairman of Tata Sons was made on the basis of a recommendation by a selection committee, not RNT alone.)

Cyrus Mistry, left, scion of a family that is one of Tata Sons’ largest shareholders, was ousted as the company’s chairman in October 2016. Mistry’s predecessor, Ratan Tata (at right, in blue suit with Chandra) had groomed him for the post, but Mistry eventually lost his job after clashing with the company’s board.Bhushan Koyande—Hindustan Times/Getty Images
Bhushan Koyande—Hindustan Times/Getty Images

In announcing Mistry as his successor, Tata was effusive and promised to give the new chair “space.” But there were problems from the start. Tata had ruled the group with a free hand. He served as chairman of both Tata Sons and Tata Trusts, and over the years installed loyal allies on the boards of both.

But Tata balked at giving that much authority to Mistry. He surrendered his position as chairman of the holding company but stayed on as chairman of the trusts.

Shortly after Mistry’s appointment, Tata pushed through a change in company bylaws granting greater power to trust-appointed directors on Tata Sons’ board. In 2014 he won approval of a second change in Tata Sons’ bylaws that gave trust-appointed directors “affirmative voting rights,” which Mistry claims effectively granted them a pocket veto over any major board decisions. Tata Sons says the changes were designed to improve decision-making efficiency, not constrain the authority of the chairman, and were adopted with Mistry’s support. But Mistry came to see the trust-appointed directors as “postmen” whose sole function was to deliver instructions from Tata himself.

In his letter to the board, Mistry charges that soon after his appointment as chairman, Tata pressured him to approve proposals for two joint ventures with Asian air carriers—one with Malaysia’s AirAsia, and another with Singapore Airlines. Mistry saw these as a vanity projects, reflecting Tata’s personal obsession with airplanes, rather than carefully considered business propositions. He says he protested both deals but felt compelled to accede. “My pushback was hard but futile,” he wrote.

Mistry also claims Tata resisted his efforts to close Tata Steel’s U.K. operations and kill off the Nano, the low-cost passenger car. Mistry thought the Nano had no hope of ever turning a profit. He claims Tata fought to preserve the car partly for “emotional reasons” and partly because the Nano was a crucial supplier for an electric vehicle company in which Tata had a personal stake. Tata and Tata Sons have denied those allegations. Tata Sons says the board voted to “substantially divest” from its U.K. steel operations and that no pressure was put on Mistry to keep them. The company also says Nano’s supply arrangements with the electric vehicle manufacturer in which Ratan Tata had a stake were for prototypes only and that RNT fully disclosed his financial interest in the manufacturer to Tata Sons board in advance of the transaction.

Mistry also has charged that during Ratan Tata’s final years as chairman, the Tata Group made more than $3 million in fraudulent payments to fictitious businesses in Singapore and India, granted uncompetitive contracts to one of RNT’s friends, and allowed another, south Indian businessman C. Sivasankaran, to take a large stake in a Tata telecom venture at an artificially low price. (Tata Group says the claims are “baseless” and that the sale to Sivasankaran was a “matter of commercial negotiation” approved by the Tata board.) At Mistry’s last board meeting a month before he was fired, he had successfully argued that action should be taken against Sivasankaran’s Siva Group in relation to a 2008 agreement involving Tata, Siva, and Japan’s NTT DoCoMo.

Tata Sons has denied those allegations, and so far Mistry has made little headway in India’s courts. In April, the National Company Law Tribunal refused to grant a waiver to Mistry family firms from the minimum shareholding requirement for filing a petition alleging mismanagement and oppression of minority shareholders.

His success in turning TCS into a cash cow made Chandra a logical candidate to lead the group. In other ways he is an unlikely choice: In Tata’s 149-year history, he is the first non–family member chosen to chair the group. And he is a Tamil, not a Parsi.

Chandra grew up in a rural village in the southeastern state of Tamil Nadu. His father was a farmer. Chandra excelled in math and computers at the regional engineering college where he earned his undergraduate and master’s degree, and accepted an internship at TCS in 1987 that led to a job offer a few months later. Until February, he had never worked for any other company, and he jokes that he’s never had to bother with a résumé.

Colleagues describe Chandra as disciplined and hardworking. Clients applaud him as an affable, attentive listener. Many ascribe TCS’s success to Chandra’s insistence on meeting face-to-face with customers to understand their needs. To get in front of clients as often as possible, he typically spent 200 days a year on the road in Europe, the U.S., and Asia, often sleeping many nights in a row on a plane.

At TCS, Chandra shared his passion for running, cajoling senior executives to join him at 5 a.m. for “team building” runs, and offering support for local running clubs. In India, Chandra’s enthusiasm for marathons is widely credited for sparking a boom in the sport. His coach, Deepak Chandra (no relation), calls the executive “the father of running in India.” Chandra has signed on TCS as a sponsor for marathons in Boston, Chicago, Amsterdam, and Berlin. And in 2014, the company became the title sponsor of the New York City Marathon.

TCS World 10K run in Bangalore
Competitors in the World Men’s 10K Bangalore 2013, one of dozens of races worldwide sponsored by Tata Consultancy Services. Chandra’s advocacy has been credited with sparking a boom in distance running in India, and the company now sponsors marathons and other races worldwide.EPA/Getty Images
EPA/Getty Images

What stands out in conversations about Chandra’s leadership style, at his company and in his athletic passion, is his fascination with data. “Nearly every conversation I have with Chandra is about how we can advance things through technology,” chuckles Michael Capiraso, president of New York Road Runners, the organization that manages the New York City Marathon.

With TCS’s help, New York’s marathon has become the most data-driven major race in the world. More than 300,000 people have downloaded a TCS-designed marathon app that helps spectators to track runners and monitor their performance. Ask Chandra about TCS’s work to digitize the marathon, and his eyes light up: “We have records for the 200,000 people who have run the race over the last 40 years. Who struggles at the Queensboro Bridge? How many people hit the wall when they come to the Bronx? You can dissect by age, by gender. We can know so many things. There is so much we can do.” Chandra says he wants bring that same focus to Tata. “Every company in the world can benefit from data,” he declares.

Will Chandra have more latitude to call the shots than Mistry? Ratan Tata remains ensconced as chairman of the Tata Trusts. And RNT’s former executive assistant, R. Venkataramanan, has been appointed managing trustee. But Chandra isn’t pushing significant changes to the reporting relationship with the trusts: “I am not briefing [them] on what we’re doing with every single company. But they are the primary shareholder for the group. I don’t think there is a conflict in keeping them informed.”

He’s treading carefully with projects near and dear to RNT. On the Nano, for example, Chandra stresses that Tata Motors will have other priorities. “Passenger car sales are small, and within that the Nano is even smaller,” he says, but adds, “I don’t think shutting down the Nano plant is a decision the team will make.”

He’s philosophical about his role: “You know the corporate world. If you are asking if I feel like I have as much power as any other CEO, the answer is yes. But it’s a process. It’s not like I can get up in the morning and say, ‘Hey, I want to exit financial services.’ There’s a discussion. I have a long conversation with the board. Every decision has to be thought through, explained to the management … I’m pretty happy with the amount of freedom I have.”

Chandra sounds less sanguine about prospects for Tata Sons’ relationship with the Mistry family: “It’s in the courts. I can’t talk about it … I don’t know much about the history. We’ll let the court case come to its conclusion.” How will that relationship work in the future? Chandra has a three-word answer. “I don’t know.”

It’s a lot to tackle. But Chandra is preparing for the challenge. He’s also started training for the New York City Marathon. So far at least, Tata’s new long-distance runner shows no signs of slowing down. 

CORRECTION: An earlier version of this article incorrectly stated that Tata’s Indian Hotels company owns the Cipriani Hotel in Venice.

A version of this article appears in the Aug. 1, 2017 issue of Fortune with the headline “India’s Marathon Man.”

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