R. Gopalakrishnan*

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.

Unilever
Trusts or foundations are a twentieth-century phenomenon. The first major American foundations were the General Education Board, established by John D. Rockefeller in 1902, and the Carnegie Foundation, set up in 1911. The first major British foundation to be established was the Leverhulme Trust Fund in 1925.

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 Lever’s 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."

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* R. Gopalakrishnan is the executive director of Tata Sons.