J. J. Irani

Corporate governance is being acknowledged as a significant promoter of business interests. Dr J. J. Irani, director, Tata Sons, elaborates on how the Tata Group is no stranger to the concept of doing good to society

Corporate ethics and governance, having once been edged into the backseat by blatant commercial interest, are now wending their way back into the boardroom. The Tata Group, however, has consistently adhered to the practice of corporate governance for many years. The group has initiated the process of the ‘triple bottom line,’ consisting of benchmarking with global practices.

The triple bottom line addresses the need for a company to assume responsibility towards environment and society. The triple bottom line, a three-fold manifesto, constitutes a company’s environmental obligation, its social responsibilities, and its financial bottom line. Traditionally, companies have followed a stringent reporting system of its financial position, whereas environmental and social obligations have been pushed onto the backburner. But the house of Tatas has been practising the triple bottom line way before it became a norm with corporate houses worldwide.

In the long run, it is worthwhile for an enterprise to play the game of business according to rules, even if their competitors do not. In effect, while this benefits society at large, it also helps build the community’s faith in the company. The Tata Group, for one, can illustrate this from its own business experiences. Bihar is a case in point. The state is a crucible of social and political unrest. Disruptive forces have made several attempts to undermine the good work done by other corporate houses, but the efforts of the Tata Group have never been adversely affected. The understanding was clear: you meddle with us and we will pull out. This would end our social activity in the area.

Community as fulcrum
The fulcrum between the two forces is the community that stands to benefit from the change in the order. This section, therefore, becomes the decisive force in winning over the warring faction in favour of the company. In Bihar, for example, the insurgents were offered a clear choice. The decision had its effect. The insurgents did not wish to strain their popularity with the local residents. We do not do social development work to gain a specific advantage. But our experience has been that, in the long run, such advantages come as a ‘bonus’ in an unexpected manner.

Today, business houses around the world are responding to the buzz of corporate governance. Members on the board of Global Reporting Initiatives are in the process of streamlining methods of corporate governance. It is heartening to know that this is one area where an Indian company can claim ‘one-upmanship’ over its global counterparts. While corporate houses the world over are adapting to the concept of the triple bottom line, the Tata Group can claim to be a pioneer in this field.

Corporate governance must be a company-wide movement, rather than an interaction between the project managers and the communities whose wellbeing is sought. It is important to speak about such activities in boardrooms, just as it is important to talk about activities on the shop floor. It is also important to explain the concept to stakeholders. Stakeholders appreciate a company’s active social-responsibility programme when they understand the benefits that arise out of such governance.

Also, a company must ensure that the values and initiatives floated by them are sustained. To ensure this, Tata Steel carries out a ‘social audit’ once in 10 years. Two studies have been done in the past; the third study will be tabled in March 2003. A team, comprising two prominent high court judges and a social worker, will carry out an independent study on the company’s community-development initiatives, concern for the environment, and responsiveness to all stakeholders.

These periodic surveys are part of an annual business plan. Budgets for this purpose are created in advance so that these expenses are built into the cost of business in a similar manner as any other cost, such as labour, raw materials, fuel, etc.

Local flavour vital
Another way to ensure sustainable development is to involve the locals and seek their association in projects. It is beneficial to provide manpower for an initiative rather than hand out a cheque to the local government. It is easy to write out a cheque, but very difficult to get thoroughly involved in a development project. Besides, the fate of the funds provided by a corporate house to a local government body remains largely unexplained after the money exchanges hands.

When the government of Bihar sought a cleanliness drive in Patna, Tata Steel provided manpower and equipment to facilitate the job, instead of just offering a meaty donation. Similarly, to improve medical services in Patna and elsewhere, the company initiated and maintained hospital services.

Companies can encourage social-development activities by ensuring that the efforts of employees on this front become part of their annual appraisal systems. In this manner each successful project can serve as an inspiration for the next round of social activity.

Although the Tatas do not advertise their community and developmental activities, the shareholders are aware of them. These shareholders have been supportive of the role played by corporations such as Tata Steel. The company’s annual reports also carry information on the various community initiatives and development programmes that are undertaken.

When Tata Steel turned its attention to rural development almost three decades ago, there was a debate on the areas it would help develop. To be absolutely fair, two concentric circles were drawn on the map of Bihar, with Jamshedpur as the centre. All the villages which fell between the two concentric circles were included as targets for the Tata Steel Rural Development Society.

Initially, Tata Steel workers were kept at bay by the villagers, who mistook them for government functionaries. However, once their identity and, more correctly, their objectives were realised, the villagers welcomed them with open arms.

Partnerships over charity
It has never been the objective of Tata Steel to indulge in mere charity. Rather, they have helped and guided villagers on the basis of partnerships. The village folk contribute land and labour towards projects, while Tata Steel experts guide them in water harvesting, and improving cultivation, animal husbandry, etc.

Three years ago a casual trip was made for a prayer ceremony to one of the villages on the banks of the Kharkai, a river near Jamshedpur. Little did the rural community realise then that this would be a turning point for economic prosperity in their community. While the village had a beautiful view of the factories at a distance, the immediate reality — their farming systems — was at least 100 years old. The nearby industry had not impacted their lives.

Eventually, the villagers were made to see all that they could gain from a prosperous society. They were coaxed into allowing water pumps and other modern agricultural equipment to aid them in their work. As a result of this initiative, the villagers now enjoy two crops a year, as opposed to a single harvest in the past. A single profitable industry helped expand the scope of its prosperity by sharing knowledge and benefits.

Corporate governance is in keeping with the Tata Business Excellence Model, which was instituted seven years ago. This model focuses on the efforts of Tata companies in helping and making a positive difference in the communities in which they exist.

Nowadays, many non-governmental organisations are actively involved in ensuring that companies behave in a socially acceptable manner. People for the Ethical Treatment of Animals, for instance, has taken up cudgels against the Tata Group’s leather unit, for alleged cruel treatment of cattle in India — without realising that the company imports leather from China and other countries!

The message, however, is clear. In future, communities will pronounce judgement on the initiatives and activities of corporate houses. Unlike some other countries, this may take a long time to happen in India. Ultimately (as has already happened abroad), communities will ‘sanction’ industries to exist within their boundaries, and shareholders will invest only in companies that are conscious of their responsibilities towards the environment and social development.

As told to Sudipta Basu

Uploaded in March 2003