Defined by a deeply rooted set of values and beliefs, corporate governance in the Tata Group rests on the twin pillars of trust and integrity

It is a term as amorphous in definition as it is prevalent through lip service, but the essence of corporate governance remains uncomplicated enough: ethical business behaviour in every sphere and with all constituents. This crystal-clear characterisation has been the bedrock on which the Tata Group has built its enterprises.

Honesty, as the British writer John Ruskin noted, can never be based on policy. Corporate houses cannot mandate ethical business behaviour any more than the weather bureau can summon rain or shine. But they can ingrain it in the character of the organisation — through tradition, value systems and a commitment to the letter as much as the spirit of laws and regulations. This is what the Tatas have endeavoured to do in the 100-plus years of its existence.

Corporate governance as practiced by the Tata Group translates into being fair and civic-minded, fulfilling its duties to the entire spectrum of stakeholders, and, most importantly, making integrity an article of faith across all its operations. There is nothing serendipitous about how this has come to be. The group's adherence to ethical business conduct is rooted in the vision of its founder, Jamsetji Tata, for whom the 'end' of entrepreneurial triumph was always secondary to the 'means' by which it was achieved. "We do not claim to be more unselfish, more generous or more philanthropic than other people," he wrote at the turn of the 20th century, "but we think we started on sound and straightforward business principles, considering the interests of the shareholders our own, and the health and welfare of the employees the sure foundation of our success."

That foundation was built on a collection of values that has since become implicit to the functioning of the Tatas. Complementing the unwritten rules underpinning the Tata way of business is a growing catalogue of explicit policies, most notable the 'Tata code of conduct', a comprehensive template of ethical behaviour that guides the actions and decisions of the group's employees. Crucial as the explicit is, it is the implicit that truly defines, and constantly reinforces, the Tata edifice. Values and beliefs are more vital in this context than structures and systems.

Group chairman Ratan Tata's views on the issue are illuminating. Speaking in an interview in 2002, he said: "Business, as I have seen it, places one great demand on you: it needs you to self-impose a framework of ethics, values, fairness and objectivity on yourself at all times. It is easy not to do this; you cannot impose it on yourself forcibly because it has to become an integral part of you. What has to go through your mind at the time of every decision, or most decisions, is: does this stand the test of public scrutiny…? As you think the decision through, you have to automatically feel that this is wrong, incorrect, or unfair…"

The 'leadership with trust' philosophy that has come to play such a vital role in how the world perceives the Tatas is all the more remarkable given the climate of unparalleled public distrust of people in positions of authority, whether in business or politics. Protecting this trust from the fallibilities of individuals and institutions is, for the group, an obligation rather than a burden. From here stems the Tata conviction that, while openness, transparency and accountability, the pious sentinels of corporate governance, are crucial, they cannot override what actually occupies the heart of good governance: credibility, trust and integrity.

Making honesty your strongest business ally is no trifling task. The culture of fraudulence that pervades our times means that no one can be assumed to be entirely immune from contagion. It follows that, as with justice, business organisations don't just have to do the right thing; they have to be seen as being above board in all their dealings. The group's handling of the Tata Finance affair is representative of how it has striven to stay true to this ideal.

J. J. Irani, the former managing director of Tata Steel and currently a member of the Tata Group Corporate Centre (GCC), has a commonsensical take on the scandal. "You can never guard against a dishonest person," he says. "I believe it is human nature that some people are basically honest and some people are basically dishonest; the rest, a very large number, sit on the fence. In the case of Tata Finance, one person decided to be dishonest. It is to the credit of the Tatas that we pursued that person. We did not try to sweep it under the carpet and we ensured that no depositor — and I was one of them — suffered."

The troubles at Tata Finance alerted the Group to the need for processes to prevent scams of the sort erupting again. Says Ishaat Hussain, the present chairman of Tata Finance and another GCC member, "There were not enough checks and balances then; today we have put in controls and processes. We have an active audit committee in place, chaired by an independent director. We have strengthened the internal auditing function and supplemented it with external auditors. Chief financial officers of Tata companies now have a direct reporting line to Bombay House (the Tata headquarters). We also have a corporate assurance department; there is far more accountability…"

The explicit component of the Tata Group's corporate governance rubric includes an ethics counsellor in every Tata company and a group ethics council. Governance issues are dealt with by senior executives and companies have the freedom to settle matters internally. Frivolous complaints keep coming, but then, as the wise woman said, to enjoy the rainbow you have to put up with the rain. The group ethics council comes into the picture only when a company, or board, refers a case. "We don't make a brouhaha about complaints," says Mr Irani. "Most often cases are of a small financial matter. If somebody is found guilty in such matters, he or she is asked to resign. The prime concern is making sure nobody suffers."

The ethics code in the Tata Group covers much more than financial dealings. There is the question of customers, of suppliers and vendors, of quality in products and services, and of satisfying shareholders. A whole lot of these heads come under the umbrella of the Tata Business Excellence Model, a framework that helps Tata companies achieve their business objectives through specific processes.

Many group companies have also adopted guidelines laid down by the Global Reporting Initiative (GRI), an independent body that is part of the United Nations. GRI has what is known as the 'triple bottom line' (TBL) approach: financial, social and environmental. Companies following its guidelines have to report their performance on these three parameters. "We have a person designated to help Tata companies prepare these TBL reports," says Mr Irani, himself a member of the GRI. The GRI has rules and methodologies for nearly everything under the business sun, but Mr Irani, for one, still prefers the Tata way of managing — by example and precedent. "Good corporate governance is a matter of conforming to accepted practice," he says.

One area in which there has been a significant change from accepted practice is in the attitude to shareholders. A constituency once taken almost for granted now has been accorded criticality. Similar is the status afforded to customers and, in a wider context, to quality.

According to the Tata lexicon, good governance has to stretch way beyond staying on the right side of the law — and it has to come from faith rather than force. "Yes, we have a code of conduct, but ethical behaviour cannot be enforced by diktats and through written documents," says Kishore Chaukar, GCC member and chairman of Tata Industries. "You have the Bible, the Bhagwad Gita, the Koran; they all tell you how to behave. Doesn't help. The Indian Penal Code is clear about what constitutes criminal behaviour, but that hasn't stopped the rapes and the murders, the felonies and the burglaries."

An implicit sense of ethical business conduct has been the cornerstone of the Tata way of corporate governance. Rules and regulations certainly have a place in this scheme, but they supplement rather than supplant the traditional values on which the group has been shaped. Good governance has taken root in and spread to all branches of the Tata Group. There's nothing amorphous about that.