For business to have a larger purpose, the pursuit of profits must go hand in hand with a commitment to society. R Gopalakrishnan, the executive director of Tata Sons, explains why this issue has more resonance than ever before and provides two sterling examples to show it can be achieved
There are important voices in society which question whether business has any purpose other than to maximise profits. Milton Friedman famously proclaimed in 1963: "There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game." Many in business swear by Friedman. And then there is Jack Welch, who said in 1999 after extolling the virtues of legitimate profit-making: "These times will not allow companies to remain aloof and prosperous while the surrounding communities decline and decay."
On the one hand, investors show increasing impatience to see superior returns, which is a tough enough call by itself. On the other hand, society has increasing expectations about corporate social behaviour. To do both is really tough, but it is important to note that profit-making is skill-based while corporate social behaviour is attitude-based. The former represents what you do, the latter represents who you are. So the question is: what is the business of business? What is a company's corporate purpose? As Gandhiji said, "There is just the same unavoidable connection between the means and the end as there is between the seed and the tree."
The debate on the purpose of business has more resonance today than ever before. As economic prosperity grows, the environment gets more bewildering. People are withdrawing trust in traditional institutions. From trust me the refrain has become show me, as was demonstrated by the pitched battles in Seattle against big business, globalisation and their handmaidens the International Monetary Fund and the World Bank.
Between 1979 and 1997, the ratio of the average income of the top fifth of the US population to the poorest fifth jumped from nine times to fifteen times. As globalisation grows, the locus of power is also becoming global, with the result that politicians are increasingly finding themselves in various stages of powerlessness.
Globalisation demands a greater role for chief executive officers. Thanks, no doubt, to the increasing velocity of change of CEOs, they themselves are focused on outdoing Dalal Street's expectations for the current quarter. Business needs to build on the central message of the Gita: "Do your best and do not seek for yourself the fruits of your endeavour because the purpose of business is to maximise the potential of giving." In other words, earn more to give more. These thoughts are written about in contemporary management journals as new-wave thinking, but they are not.
I describe Unilever and Tata in what follows. I do not say they are the best or that they are unique. I happen to know them both quite well and that is the only reason they are mentioned to the exclusion of other worthy institutions.
William Hesketh Lever was born in 1851. At the age of 26 he started the Lancashire business which later became Lever Brothers. At 33 he introduced Sunlight soap, and never looked back. When Lever built the Port Sunlight soap factory at Liverpool, he bought 56 acres across the Mersey River because, from the very start, he envisaged it as a community as well as a business.
This was a bit like the community the Tatas built up in Jamshedpur. Lever believed firmly in profit as a reward for and as a test of enterprise, but profit was never the chief incentive that moved him personally. As was written of him on his centenary, "The ruling passion of his life was not money or even power, but the desire to increase human well-being by substituting the profitable for the valueless." Through his will in 1924, Lever left a part of his wealth to the Trust. Since then millions of pounds have been awarded to projects and proposals aligned to Levers own philosophy and approved by the trustees. These projects and proposals combine commitment to the adventure of learning and research with a concern for practical results.
Commentators believe that William Lever himself did not realise quite what he was starting when he endowed the Trust, just as he did not foresee the creation and development of Unilever within a few years of his death. This would not have worried him because, as he said, The road-maker is the best anonymous servant of humanity. He drives a great broad thoroughfare from town to town, and for generations men travel over the road, with their hopes and fears, with all their cares and joys, never once asking who it was that made the way easier for them."
Into this genealogy was born Jamsetji Tata in 1839, 12 years before William Lever. As early as 1892, long before the establishment of the Rockefeller and Carnegie trusts, Jamsetji established theJN Tata Endowment Scheme to provide higher education for deserving Indians. Since then 3,500 Tata scholarships have been awarded, including to the likes of President KR Narayanan and Dr Raja Ramanna. Before the dawn of the twentieth century, Jamsetji had already introduced accident compensation for his textile workers, something then unheard of.
Indeed, JRD Tata was very conscious that the social responsibility of his companies should not be left to individuals; he believed that it should be institutionalised. Therefore, in the 1970s, the Articles of Association of the major Tata companies were formally amended to read that the "company shall be mindful of its social and moral responsibilities to consumers, employees, shareholders, society and the local community". Companies commit themselves to their social expenditure in their business plans. In the last three years, when business conditions have been difficult, this has doubled: from Rs67 crore in 1997-98 to Rs136 crore in 1999-00.
The group institutionalised its social responsibility charter further when it included a clause on this in its Code of Conduct, by which companies have to actively assist in improving the quality of life in the communities in which they operate. The code was introduced recently and all group companies have signed it. In recent years, the feeling grew that the scattered community work done by Tata companies would be more effective if the various initiatives were brought together. The Tata Council for Community Initiatives was created to give the groups community activities greater focus and cohesion.
Yet another institution is the Tata Relief Committee and its standing groups of volunteers for disaster relief, which operate out of Jamshedpur and Mumbai. There are heroic stories about the work done by these volunteers for the victims of the Koyna earthquake, the 1999 Orissa cyclone and, more recently, for the victims of the Bhuj earthquake.
The problem was that while literacy was growing at the rate of 1 per cent per annum, the population was growing at the rate of 2 per cent. Even if the rate of growth of both indices remained constant, total literacy would remain a distant dream. However, if the literacy growth rate could, by some miracle, be stepped up ten times, then the backlog of illiteracy could be wiped out within our lifetime.
The National Literacy Mission, the Tata Consultancy team recognised, had done very good work but it was doing two things that could perhaps be improved. It was insisting on teaching the illiterate how to write and we all know how much more daunting writing is when compared with reading and speaking and it was going from alphabets to words, which is how we are all taught at school. After six months of study, the team came out with a package that would go from words to alphabets and would make adults functionally literate (being able to read newspapers, shop signs, bus numbers, etc) through a computer-aided programme of 30-45 hours of learning.
This programme is currently being implemented in some 40 villages in Andhra Pradeshs Guntur district. The package has now also been taken by the Madhya Pradesh government, which intends to adapt it in over 600 centres from July onwards. A television version of the lessons has been created, with the help of Siticable, which is being telecast every night for one hour in Guntur district. Its been found that the television version works just as well as the computer version. Some NRIs have been so inspired by the programme that they have committed themselves to financing 200,000 machines every year for it.
The stuff of longevity
It illustrates the spirit of what British economist Alfred Marshall wrote: "A score of Tatas might do more for India than any government, British or indigenous, can accomplish." And there is the Leverhulme Trust, which holds about a sixth of the British part of Unilever and, worth billions of pounds, ranks in the top ten in Europe in terms of expenditure.
So that is the story of Unilever and Tata, two organisations I have known intimately. Their founders lived and established their businesses at about the same time. They espoused similar values about the purpose of business. The two institutions, over 125 years old now, have probably exceeded their founders' expectations by a huge margin. Both have professionalised management to achieve what historian WJ Reader calls the stuff of longevity. And each one has done it in its own special way.