Conscious Capitalism

This case was written by Sumit kumar das, IBS Kolkata for management studies on Business ethics & corporate governance. It was compiled from published sources, and is intended to be used as a basis for class discussion.

Introduction
Conscious Capitalism sheds a shining light over the business community and reveals a deeper purpose for businessa much deeper and more noble purpose than just maximizing profits for the shareholders. Under the umbrella of Conscious Capitalism business is based on four principals. 1. Social Purpose: The first principle is that businesses have a social purpose beyond merely maximizing profits for the shareholders. 2. Stakeholder Principal: The second principle is that businesses must consider the interests of the interconnected stakeholdersshareholders, employees, suppliers, customers and the community. 3. Leadership Philosophy: The third principle is that business leaders are professionals who are ethically bound to put the interests of all stakeholders ahead of their own. They must consider the impact their decisions will have on all the stakeholders. 4. Business Culture: The business culture must nurture the leadership and stakeholders by encouraging all of them to recognize the principals of Conscious Capitalism.

Through this case on TATA GROUP we will discuss the way they do business promoting Conscious Capitalism.

TATA GROUP

Background Note TATA GROUP captures both the deep roots and careful nurturing of the Tata way a philosophy of trusteeship, community and corporate responsibility, coupled with bold innovation and diversified growth that has now vaulted the group to a new apex in its 151 year history: $67.4 billion in revenues, a 350,000 member family and a presence in 80 countries. Clearly for the group as a whole, its visibility, complexity, impact and responsibilities have increased substantially. Since 1990, the largest Tata companies have acquired and integrated into their operations 13 global companies that span multiple continents. The Tata brand is now one of the most recognized, valuable and trusted in the world. In this journey of success and national pride, one can ask how the Tata values and philosophy of benign capitalism will be affected by this complex new global potpourri. Will the Tata brand and the values it embodies flourish in the 21st century as it did in the 19th and 20th? What will the group need to do exceptionally well for it to remain the pioneer it has always been? Taking the question of the Tata brand and values first, the high probability answer is an emphatic yes! This is because the group kept its unique approach intact even as it went aggressively global in the 90s. At the same time, the world itself began moving philosophically towards the Tata way of doing business. As often happens, in the very depths of the justly named decades of greed, the seeds of several significant societal movements were germinating. These movements were led by enlightened CEOs, academic thought leaders and numerous nongovernmental organisations. Coupled with increasingly empowered internet-generation consumers and media, they began to exalt and reward businesses that practised responsible capitalism and were a positive force in their communities and countries of operation.

The Tata Group: A Conglomerate with Heart Those who have heard of the Tata Group are probably aware that it is India's largest conglomerate. The Tata story begins with the founder of the business, Jamsetji Tata (18391904). Born to a Parsi family of Zoroastrian priests in the western state of Gujarat, Jamsetji started up his own trading company in 1868, at the age of 29, and from there branched out into the textile, steel, electric power, and hotel industries. The famous Taj Mahal Hotel in Mumbaimuch in the news, when terrorists barricaded themselves there as part of a coordinated series of attackswas built by Jamsetji Tata in 1903. The corporate empire Jamsetji built was passed down to his eldest son Dorabji Tata and thence to Nowroji Saklatwal, JRD Tata, and finally Ratan Tata, who leads the group today. During that time it grew into India's biggest conglomerate, involved in almost every sector of industry, including chemicals, oil refinery, electronic goods, automobiles, pharmaceuticals, fertilizer, cosmetics, printing, ready-made apparel, tea, real estate, and finance. Today its three core companies are Tata Steel, Tata Motors, and the software solutions firm Tata Consultancy Services (TCS). What makes the Tata Group special, however, is not so much its size or high profile as the "Tata values" that have been passed down from the founder and kept alive over the years. When Jamsetji first started his business, India was entering the final phase of colonization by Britain. Tata's biography describes in exhaustive detail his struggle to create, foster, and sustain a thriving business in that harsh environment. Met with obstruction, harassment and non-cooperation by British colonial officials, Jamsetji's policy was not resistance (let alone acts of terrorism) but trust in the power of a higher ideal. That ideal was the notion that business should benefit people and society as a wholeor, conversely, that the purpose of business was not simply the pursuit of personal profit. As Jamsetji Tata put it himself, "In a free enterprise, the community is not just another stakeholder in business, but is in fact the very purpose of its existence."

Stakeholders versus Community When the debate over shareholder sovereignty was at its height, opponents frequently argued for an emphasis on stakeholders instead of shareholders. The argument was that corporations have a responsibility not simple to maximize shareholder value but to do what is right by each group of stakeholders, including also customers, business partners, employees, and the local community. Jamsetji had a more holistic perspective, however. His focus was not the trees but the forestthat is, not the individual stakeholders but the community in the largest sense. Just as the forest is essential to the preservation of biodiversity, so the community is essential to the survival of humanity. And just as the diversity of species within the forest sustains the ecosystem as a whole, so the diversity of groups within the community is essential to the survival of the human race. The market, by contrast, is oriented by its very nature toward homogeneity rather than diversity, just as it is oriented to efficiency rather than waste. In this sense it performs a vital function for economic development, to be sure. But because human beings are highly complex creatures, their problems cannot be solved by the market mechanism alone. Moreover when market forces are allowed to function unfettered they tend to undermine community ties by rewarding the strong, punishing the week, and widening the disparities between rich and poor. Instead of putting ourselves at the mercy of market forces, our challenge is to use them to our best advantage, keeping sight of their functional limitations. This is the basic idea underlying the "Tata values." The "Tata values" are a body of precepts forged from the ideals of Jamsetji Tata as practiced over the years by his successors and other leaders of the Tata Group. These values find expression in a vast collection of writings, including admonitions, aphorisms, anecdotes, and analogies. Guiding Principles of JRD Tata 1. Nothing worthwhile is ever achieved without deep thought and hard work; 2. One must think for oneself and never accept at their face value slogans and catch phrases to which, unfortunately, our people are too easily susceptible;

3. One must forever strive for excellence, or even perfection, in any task however small, and never be satisfied with the second best; 4. No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people and is achieved by fair and honest means; 5. Good human relations not only bring great personal rewards but also are essential to the success of any enterprise.

Losing Sight of the Big Picture Permeating all these principles is a reverence for humanity and a largeness of spirit that calls to mind the Hindu gods themselves. The idea is that true value can only be achieved by those who believe in human potential, think deeply and work diligently, strive for the public good, and live the way people were intended to, in harmony with one another. It adds up to humanistic management. In retrospect, businesses have lost since economic bubble of the 1980s burst is this large-spirited reverence for humanity and the humanistic management that it engenders. In business management such behavior poses lethal risks. People who put aside their "large-minded and compassionate" impulses lose sight of their customers, their business partners, their employees, the local community, and, in effect, the greater community that is the sum total of these stakeholders. Who would willingly do business with or buy goods or services from those who care about nothing but their own profits and their own well-being? Clearly, a business run by people like that cannot survive for long.

Eight Keys to Longevity

(1) Clear value system, vision, and sense of mission Long-lived businesses have clear guiding principles regarding their purpose and their nature as an organization, and they draw on those principles in their management. The principles may be recorded in the corporation's organizational memory in the form of quotations and anecdotes concerning the founder, family precepts, or a family charter, as in the case of the Tata Group, or be enshrined in an all-encompassing code that expresses those values through conduct, protocol, and so forth. The organization members are inculcated with and shaped by values that are firmly associated with the company and its employees. (2) Long-range focus The longest-lived companies are generally nonpublic enterprises and are free from the tyranny of daily stock price fluctuations, quarterly profit statements, and activist shareholders demanding that cash on hand be distributed as dividends. Since the focus of management is long-term health and growth, the company can go all-out with investments geared to sustainable growth and commit itself to the development of human resources, all of which pays off by making it more competitive. This brand of management also places high priority on the confidence and the reputation the company builds up through such a long-range orientation. (3) Humanistic, people-first management The businesses that last longest are the ones that put people first, giving human resources higher priority than other management resources, such as goods and money. They view employees not as replaceable parts but as entities capable of growth. They also develop effective training systems to maximize this growth and place priority on employee welfare. Because many are family-run firms, their executives invest time in choosing and training a successor. In some cases they also have built-in mechanisms for unseating incompetent executives. (4) Customer-first orientation The foundation of any business is its customers. When a business consistently puts the customer first, more and more people will naturally seek out the goods or services the business offers, and sales and profits will grow as a result. This and this alone is what it means for a company to create value. Businesses that rest on their reputation or lose sight of the customer in their race for higher profits are on

the path to self-destruction. Long-lived companies have mechanisms to sustain a culture in which employees never lose sight of this basic tenet of business and are conscious at all times that the company's fate is in the customers' hands. (5) Social consciousness This is not simply a matter of diligently practicing "corporate social responsibility" (CSR). It is a fundamental awareness that the business, as a member and a beneficiary of society, has a duty to give back. Businesses steeped in this social consciousness do not angle for concessions or depend on the government to get them out of every fix. Their motivation to contribute to society stems from their independence. (6) Continuous innovation and internal reform The companies that endure do not rest on their laurels, lapse into complacency, or stand in one place but are always adapting to a changing world. While making the most of their existing strengths, they have the will to cut loose businesses that are out of step with the times and reinvent themselves. (7) Frugality and economy Companies need to save up for the future so that when the opportunity arises they can make bold investments in new business undertakings. This, of course, requires the kind of frugality that takes every sensible measure to save on a daily basis. This kind of self-imposed frugality and economy also helps to foster a serious attitude toward one's work and a desire to produce fine goods or services.

Companies that embody these eight principles are not unthinking entities that function mechanically. Each is like the aforementioned forest, in which all the elements are organically linked to create and sustain an ecosystemin other words, a community. The similarity between these principles and the "Tata values" discussed earlier is striking.

A Common Philosophical Thread

Just looking at the eight headings above, some might be inclined to argue that this is also the direction in which Western business management has been heading in recent years. After all, haven't Western companies been working hard to build a corporate culture that supports business ethics in keeping with the "value shift" advocated by Lynn Sharp Paine and others? Isn't the idea of putting the customer first found in the credos and codes of many excellent companies in the West? And isn't social consciousness essentially the same as the notion of CSR that has become so fashionable in recent years? No doubt there is some element of truth to this. But there is also an essential, unbridgeable difference, and it all boils down to Jamsetji's concept of the community. For Jamsetji, business was something one did to benefit people and society. His philosophy calls to mind the precepts of the famed merchants of mi (modern-day Shiga Prefecture), which referred to business as "the way of the Bodhisattva." Business, in other words, is the path of assisting one's fellow human being and helping society. I call this "community capitalism." It is a management philosophy to which the "logic of capital" could never give rise. But human beings cannot act on logic alone, any more than they can exist on money alone. The idea of business as a means of doing good would surely meet resistance from Western business executives, no matter who committed to CSR. "Business is not philanthropy," they would argue. "If you want to engage in philanthropy, do like Bill Gates and establish a foundation." Convergence Into The Next Millennium While the rest of the world is discovering the concepts of conscious capitalism, it is clear that the Tata group is the original embodiment from the 1860s and the largest, most complex, multi-business exemplar of conscious capitalism in the world. Take, for instance, the JN Tata Endowment Trust that was established in 1892, one of the very first in the world and far ahead of the Rockefeller (1913) and Carnegie (1911) trusts. Established on the principle of a loan rather than a grant, the endowment is a self-renewing corpus. The Acumen Fund, a wonderful

organisation that follows this principle today, is widely considered innovative. This further underscores how much more innovative Jamsetji Tata must have been! The Conscious Capitalism Institutes research shows there are clear reasons why firms that exemplify conscious principles outperform their competitors over the long term. They represent more robust risk-mitigated investments and provide healthy returns over extended periods. One reason is that they appear to be better aligned with the changed demands of the global marketplace. In this environment, conscious firms emerge as the leaders of the pack needing to spend dramatically less (up to 90 per cent less!) on marketing in comparison to their competitors while enjoying higher name recognition and customer satisfaction. They do better at retaining and attracting talent, enjoy higher productivity, have fewer legal disputes, operate with leaner organisations all elements that contribute directly to their sustained superior performance over time. All this augurs very well for the global Tata brand and its underlying foundation of values. If anything, the implication for the group is to intensify its commitment to maintain its core philosophy and reap a global harvest from its longstanding investment in integrity and responsible business. In the face of huge growth and further diversification that is coming, staying steadfast on the path of conscious capitalism and purpose maximisation is thus likely to be critical to the future relevance and success of the Tata brand globally. Equally critical for the brands ongoing success is another key learning from the research of the Conscious Capitalism Institute and one that the Tata group has always understood deeply: the real revolution in corporate responsibility occurs when firms use that focus to innovate breakthrough solutions and empower populations and not to bolster their own reputations. In this millennium the positive outcomes that societies are demanding from their corporations are clear. With purposive effort, the Tata group and consequently, the global brand are uniquely positioned to tap that groundswell of need. So call it conscious capitalism or responsible capitalism the rose still smells as sweet and in the coming decades it could well lead to Advantage Tata.

Tata Steel Conferred Best Conscious Capitalist Award By Forbes India

Tata Steel was conferred with Best Conscious Capitalist Award for 2011-2012 at the Forbes India Leadership Awards, held in Mumbai. The award was given out at a scintillating event attended by the crme de la crme of corporate India. Union Minister for Corporate Affairs Mr. Veerappa Moily presented the trophy and commendations to Mr Koushik Chatterjee Group CFO, Tata Steel. On receiving the Award, Mr Koushik Chatterjee, Chief Financial Officer, Tata Steel stated it is a great privilege to be honored by Forbes India. To be recognized by Forbes from amongst the best corporats in India means that our constant endeavor to stand up to the expectations of our various stakeholders are paying off. Other industry players who were nominated for Best Conscious Capitalist Award were Marico, Cipla, Infosys and Wipro. The criteria of the selection was that the organization should have a turnover of least 1000 crore, the organisation must have demonstrated a higher purpose, apart from profit maximization. This should be evident in the way the company deals with all its five stakeholders - employees, customers, suppliers, the community and shareholders. The jury found Tata Steel excelling in all parameters in the criteria.

The TATA Group

Tata group figures Year 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 Total turnover 475,721 379,675 319,534 325,334 251,543 129,994 96,723 79,913 65,424 54,227 49,457 Sales turnover 471,045 374,687 311,129 321,849 247,416 128,377 94,714 78,275 61,434 52,134 48,000 Value of assets 373,026 313,960 250,179 237,247 177,293 113,573 79,766 68,018 55,063 50,927 49,162 Gross block 396,218 334,338 292,248 261,276 193,507 86,613 68,169 60,029 45,884 43,481 40,365

(Rs crore) Exports 44,100 37,852 31,721 33,987 25,280 23,635 23,643 20,587 14,136 13,076 12,574