India’s antiquated labour laws have undermined its competitiveness on the global industry stage. Jamshed J. Irani, director, Tata Sons, argues that changes are not just necessary but essential for the country’s entrepreneurial efforts to come good in the new world economic order, and they must involve the triumvirate of management, union and government

When the National Institute of Personnel Management approached me to deliver the Naval Tata memorial lecture on ‘New direction to industrial relations to meet global competition’, my initial reaction was to decline on the ground that I am not an authority on the subject. Later, when I realised the importance of the memorial lecture and the honour that was being offered to me, I changed my mind. Mr Naval Tata was a true son of the house of Tata and reflected in all ways the good and progressive practices followed by the group for over a century in matters concerning labour and industrial relations. These practices, particularly those aimed at labour welfare, were well ahead of the times in which they were introduced in Tata companies.

Our country is currently trying to come to grips with the second phase of economic reforms. The first phase was initiated in 1991 and there was significant progress in the early part of the decade. Then came a hiatus of several years and now, over the past year, the present government, and particularly our finance minister, has been trying to push forward the second phase of economic reforms – with questionable success.

Competition in the marketplace has become very stiff and, in this context, it is essential to remodel the industrial relations set-up in India. This will create the ability to detect emerging trends quicker than the competition does, help in the taking of rapid decisions, and lead to agility in seeking new ways to do business. These things are possible only with strong human resource professionals acting together with the common objective of succeeding in business. But before I come to the present it would be worthwhile to peek into the past. I will obviously rely heavily on the experience of the Tata Group in general and of Tata Steel in particular.

In the early days of industrialisation in our country, labour was looked upon as a necessary input, just like machines, raw materials, energy and so on; nothing more and nothing less. Gradually the realisation grew that labour should be treated humanely and not mechanically like any other input. This promoted the trade union movement in our country, which was designed to fight for the rights and privileges of labour. Combative attitudes built up, with labour on one side and management on the other. This was unfortunate but inevitable since labour was an exploited lot in the early days of industrialisation.

Enlightened management saw the importance of the need to work together towards common objectives. The house of Tata was in the forefront when it came to understanding the important contribution that could be made by a willing workforce. Men of vision, such as Mr Naval Tata, led this movement. Tata Steel has a proud record of initiating several pioneering labour-friendly measures in India, measures, which became law many decades later. The role played here by leaders of the Tata Group was recognised by other industrialists and Mr Naval Tata represented the employers of India at national and international forums for several years.

Referring to industrial peace, Mr Naval Tata once said: "However strong our passion for peace and harmony may be, peace is not likely to descend on us from the heavens by mere exhortations and prayers. Serious efforts will have to be made by all concerned to keep the path of industrial peace free from misunderstandings, misrepresentations, and undue interference from third parties. The potholes cut in the path by rough passage of negotiations and/or breaches of agreements, strikes and lockouts need to be mended through an objective study. Then only can the caravan of industrial peace roll smoothly along."

Tata Steel, among other companies, put these principles into practice and the result has been the building of a strong culture of working together. This has resulted in over 70 years of industrial peace at the company. Not one single hour during this period has been lost through a strike, lockout or any other agitation not conducive to industrial progress.

In the early years of India's independence, there was a great urge to protect the rights of labour and stop their exploitation by the so-called capitalists. Parliament enacted laws to protect labour against the actual and imagined onslaught of owners and managers. The pendulum had swung to the opposite extreme. Many of the labour laws and judgements enacted then stay with us to this day and can be looked upon as impediments to our competitive status in the arena of global industry. What was good and fair then need not stymie our progress in the totally changed environment in which we find ourselves today.

If we are to succeed today, changes in our labour laws are not just necessary but essential. There are tenets in the Industrial Disputes Act, the Contract Labour Act and other laws which may have been pertinent five decades ago, but which are totally out of date in the present environment. In the years following the first phase of economic liberalisation, successive governments in Delhi have made important changes in legislation governing trade, finance and industrial policy. But similar changes have not been made in India’s labour laws. Legislation has been proposed and planned, but no changes have come about as yet. However, even under such conditions responsible labour unions and enlightened managements have arrived at ‘win-win’ situations. In spite of these deterrents to industrial progress, I am proud to say that Tata Steel has remained a pioneer as far as industrial relations are concerned.

It would be worthwhile to mention that while Tata Steel was making significant strides on the labour front, hundreds of other industries were facing great difficulties in dealing with their workforce and industrial relations were fraught with strikes and discords. It is well known that in the years following independence, the government's active intervention was sought by labour leaders in securing a better deal for the working class.

Tata Steel, with its focus on labour-friendly measures, was able to not just ensure the growth and development of our enterprise as a profitable and successful entity, but even today is considered the role model on industrial relations and harmony. Industries across the country have eagerly sought to emulate our principles and actions. In a recent note that I have received from the members of a jury that was assessing Tata Steel for an award, I was informed that we have set the industry benchmark in this aspect of management.

Tata Steel's exemplary success in the management of its workforce and the resolution of industrial disputes might be sufficient grounds for many to wonder why there is a need to change our approach at all. This is a legitimate question and needs to be properly addressed. Let me begin with a hint: the changing economic scenario necessitates that we look at industrial relations anew.

Most developing nations, I am aware, are being accused of adopting stringent policies when it comes to managing the workforce. In India we realise the positive impact that drastic manpower reduction strategies might have on the fortunes of an enterprise, especially in terms of corporate productivity and the bottom line. But such an approach can cause widespread discontent and should, hence, be avoided. The need is for more humane and creative ways of using people and ensuring that firms in India are at least as productive, if not more so, than their counterparts elsewhere in the world.

It has been rightly observed that there can be no significant gain without some form of pain. I am deeply conscious that in matters concerning people, the prospect itself of having to undergo change can be painful. As it is life is so fickle that one strives and hankers for stability, grasping at even a semblance of permanence. But despite all our striving we are impacted by myriad changes, both large and small in magnitude, that have a bearing on our emotional well being.

However, when the survival of an organisation is at stake everybody has to be made aware that, in the interest of the larger good of all, it is better to allow the surgeon to remove the tumour than to allow the malignant growth to spread unchecked. The role of the union and management in the education of employees, their families and the community becomes an integral part of the process of maintaining harmonious relations in such trying times. 

An understanding spouse greatly supports the efforts of her man working in the company and inevitably provides opportunities to further prepare the ground for rapid and wilful change. In Tata Steel, we have actively addressed this problem by instituting a rigorous and detailed programme of domestic management through which the spouses of our employees are educated in the role that the wage-earner has to play to ensure the overall well being of the corporation.

There is no doubt that we are living in times of momentous changes across the globe. These changes have been triggered by a number of political and economic interventions that have simultaneously demolished political boundaries and created economic engines while spawning greater opportunities than ever before. One of the most apparent outcomes of these interventions has been the fact that competition which was once non-existent or completely localised has increased dramatically. Since markets have begun to cut across geographic and political boundaries, everyone is affected by the presence of more efficient producers of goods and services, and all vying for the same set of customers. The age of ‘comfortable living’ is well and truly over for India’s industrial enterprises.

Pragmatic industry leaders and trade unions have to understand that businesses tend to be cyclic and that they are prone to react to the vagaries of the economy. Good years will always be followed by average ones. Therefore, realism calls for learning to survive during lean times: tightening one's belt, pruning costs and waiting and preparing for the inevitable upturn.

It is not enough, however, that this understanding be confined to management and union leaders alone. I believe it is the responsibility of all concerned to ensure that it be shared by the workforce in its entirety. Their well being can only be guaranteed when changes are made in anticipation of potential downturns. Also, managements and unions must together stimulate their workers, so that they can continuously upgrade themselves, keep abreast of changes in technology, and ensure that they possess the knowledge and skills necessary for success.

Managements and unions are crucial elements in ensuring the success of an enterprise, but there are other factors. There is no denying that changes in India’s legal system and, more importantly, our mindsets are essential to make the country more competitive in the current environment. Managements and unions need a ‘third partner’ and it is up to the government and its executive arm to play the part of that third partner to ensure India's economic success.

The government must change from its old role of being a regulator to become a facilitator. Managements and unions coming together and being facilitated by the government towards becoming more competitive in the international arena – that is the only road to success. The government must posses the political will to bring this about and the bureaucracy has to facilitate this change in attitude.

The recent statements of our finance minister – about how the government’s attempts to change important regulations and bring in new, progressive ones have been thwarted by the goings on in our Parliament – are a matter of concern. We have to realise that only wealth can be shared or distributed; poverty cannot be shared. Before wealth can be distributed, it has to be created. And to create wealth all the stakeholders in an industrial enterprise, including the government, have to pitch in and contribute their might.

The Tata Group has a belief which it practises actively: "What comes from the people goes back to the people", multiplied several times over, hopefully. This spirit is best embodied and displayed in a quote of J.R.D. Tata: "Every company has a special and continuing responsibility towards the people of the area in which it is located, and in which its employees and their families live. In every city, town or village, large or small, there is always need for improvement, for health, for relief, for leadership and for guidance. I suggest that the most significant contribution organised industry can make is by identifying itself with the life and problems of the people of the community to which it belongs, and by applying its resources, skills and talents, to the extent that it can reasonably spare them, to serve and help them."

What are the other changes that we are now called upon to make as a result of the events around us? In my opinion, the most fundamental change that has to occur is in the minds of employers, employees, trade union leaders and the government. All those who constitute the industrial relations system have to undergo a basic attitudinal change. All those involved in ensuring harmonious industrial relations at every level have got to understand how competition affects the businesses they are in. This calls for an understanding of the nature of competition, of the relationship between customers, suppliers, substitute products or services, and the possibility of new players entering the arena. It is equally important that all these players understand and appreciate the role played by government regulations, and how they impact the nature of competition worldwide.

This understanding, and an openness to the impact of competition on one’s industry, is not something that needs to be imbibed simply because it is academically interesting. It must be absorbed because today’s world is a tiny village where the efforts and initiatives of one player have a bearing on those of all fellow players. Everything has become so interdependent in the modern business environment that communities and markets are no longer distant or separated by political or national boundaries. Information technology and the tremendous power of communication technology have greatly helped to integrate the world like never before. Corporations are no longer looking at regional markets; they seek dominance on a global level.

If corporations choose to be myopic and fail to look outside their regional domains, they are likely to be swamped by the onslaught of outsiders eager to come in. We have to appreciate that the process of liberalising the economy is akin to uncaging a tiger. The cage, in the form of duties and other tariff barriers, not only served to keep the tiger safely confined but also prevented other predators from coming in. With the cage gone, all predators need to fend for themselves in the very same space. It is but natural that all will strive for dominance and that only the strongest will survive.

An understanding of competition will also help in the setting of organisational priorities. Competition necessitates that we become sensitive to strategies that deliver value to our customers while simultaneously enhancing shareholder value. There is no doubt that wise and progressive companies will continue to share their wealth with other stakeholders; not just their own employees or shareholders but with the community at large.

Since the interdependence between industries and the external public is a close-knit one, and the fortunes of an enterprise are intricately linked with those of the communities around it, such an approach is mutually rewarding. Creating islands of wealth and prosperity when the surroundings are dark and poor is neither the hallmark of a progressive corporate organisation nor is it conducive to the strengthening of harmonious industrial relations.

Another aspect of what needs to change concerns the opportunities available for two-way communication. ‘Change-ready’ organisations have to be humming with opportunities for open, two-way communications. This ensures that people address issues more readily, thereby providing a climate where rumours and canards are blown away with the freshness of facts and data. Besides, extensive opportunities for two-way communication also help align everybody to the objectives of the enterprise.

Industrial relations, as the name suggests, calls for conditions that provide for better relations in the long run. One of the more important factors that leads to this is a conscious attempt towards greater teamwork. This is all the more essential in organisations where there are a series of operations, where every department is a supplier committed to serving the needs of a downstream customer. A successful process is one where each supplier-customer group reflects a genuine customer orientation, and a desire to exceed the expectations of the next process. This is not possible without a conscious effort to give a fillip to teamwork, and to serve one’s customers with selfless dedication.

It is well known that no change is possible unless led from the top. If the organisation has to change, it has to change across all dimensions. That calls for changes that are both top-down and bottom-up. I believe that in order to bring to fruition some of the ideas I have enunciated above, it is critical that business leaders and leaders in trade unions serve as exemplary role models whom others can joyfully emulate.

It is often said that doing something that one would like others to do is far more inspiring, and definitely a more effective way of getting things done, than mere talk or exhortations. This is truer when touchy issues are involved, or goals have to be achieved entirely with the help and support of people. Leaders have to lead the way in a manner which makes their communications credible and convincing.

Leaders will also need to serve as a beacon to all those whom they represent or lead. This requires them to keep pace with changes in the external environment as well as with plans that have to be initiated. Pursuing the above goals, however, must not distract leaders from a continual emphasis on the maintenance of excellent relations with all concerned. Many organisations, in their endeavour to survive, resort to using harsh methods to pursue their agendas, causing needless discord and discontent. We believe there is no reason why discontent must arise from the pursuit of policies that are good for the company.

I have mentioned that change is inevitable and might cause pain, especially if the approach to implementing the desired future is flawed. Managements and unions must work together to soften the pain as far as possible. This calls for sensitivity, genuine concern and compassion. The time has come for leaders to move away from decisions or measures that are either populist or which bring about cheap acclaim.

I am convinced that in the years to come the emphasis on industrial relations will serve as a catalyst to harmonise management and labour priorities, and ensure that there is completely open and trust-building communication between the two. When buttressed by a conscious sharing of corporate information and other relevant data, such an approach ensures that management and union leaders jointly commit themselves to achieving the common goals of their enterprise.

I cannot complete the picture on how management, labour and the government can form a successful triumvirate in propelling India to economic heights without touching on a problem that has recently been the subject of appeals from the highest in the land. We should all be greatly concerned at the one factor that, more than any other, is eating away at the values embedded in several of our fine institutions. Corruption is the curse of society. It is a great tragedy that as we enter the arena of international competition, this malady is now all pervasive in Indian life.

Indians appear to have succumbed to the temptation of corruption in every facet of their lives. I can give no suggestion on how personnel management can cure us of this disease except to say that there are still some business houses that uphold ethics in business. Their value systems are largely untouched and they shine as a beacon to all those who want to do business the ‘right way’. The Tata Group is one such house, a house where the names of giants like Naval Tata will stand enshrined forever.

This is an edited version of the Naval Tata memorial lecture  that Mr Irani delivered at the National Institute of Personnel Management.