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The India Ceo Forum: EXECUTIVE BRIEFING: Business & Management
The India Ceo Forum: EXECUTIVE BRIEFING: Business & Management
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status quo. In fact, he has, at times, helped remove impediments for the Group, with no expectations of a payoff of any kind. And in return, he has used Tata largesse in offering equipment and labour to civic improvement projects such as urban sanitation. The lesson here is that one need not fall in line with the rest of the world and it is possible to play the game of business according to the rules, even if ones competitors do not.
Although a Tata officer was once kidnapped by the Naxalites, he was released, unharmed, three weeks later, without any ransom having been paid once it was established that the man was a Tata employee. (As a matter of principle, the Group does not pay ransoms, regardless of the circumstances.) Since then, no kidnappings have taken place. IMA India
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Resultantly, the community is solidly in support of the Tata Group, and would not tolerate any excesses on the part of the Naxalites. Weighing the costs and benefits of the programme, there is little doubt that it makes business sense. Its cost a little over Rs 1 crore a year pales in comparison with the losses from any potential disruption to the mining operations. Substituting one days worth of output from Bokaro (10,000 tonnes) with imported coal (costing Rs 6,000-7,000 more per tonne) would cost Tata Steel Rs 6-7 crore. Thus, a disruption of several days would cost as much as the entire CSR programme has in its entire existence! Clearly, while the aim of the programme is altruistic, it has proven financially rewarding as well.
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subsequently came to know of the Tatas cooperation with the authorities. This caused serious problems, and was the only time in his life that Ratan Tata needed, or was given, Government protection. Question: How does the Tata Group manage to keep corruption out of its organisation? Dealing with the outside world is a corporate decision; internally, though, it is an individual decision to be honest. Answer: There is a prominent case, which is still in court, of the MD of a Group company attempting to walk away with clients money. When this affair was exposed, the Tatas did not try to sweep it under the carpet. Instead, even while under no legal obligation to do so, they decided to return what people had lost. Although this created a massive financial hole, Tata Sons accepted the moral responsibility of filling that hole. Further, they ensured that the person involved was caught and put behind bars. There is a simple process in place to facilitate honesty: that is, not to tolerate even a minor case of dishonesty. All employees are made aware that there are four ways to leave the company: death, retirement, a voluntary shift, or having a case of dishonesty proved against oneself. So ingrained is this idea that even the unions do not take up a case on behalf of a dishonest person. There is, moreover, a culture of openness, with not just employees, but vendors and customers being encouraged to speak freely, and without fear of reprisal. There are also ethics counsellors, and an ethics manual is in place which is now being amended to reflect the evolving and more international nature of the Group. Any charges made under anonymity are considered baseless and rejected. But the concept of whistle blowers is supported most seriously and every allegation by identified personnel pursued to ensure justice. Question: Many discussions on ethics centre on bribery, or dealings with the Government. Strictly speaking, bribery is illegal, so it should be beyond the spectrum of choices that companies have. In this context, what is general state of affairs in India and what is the longer-term outlook on what works, and what doesnt? Answer: While giving bribes and dealing with corrupt officials is something that is very personal in nature, it is clear that more and more business houses, particularly in Western and Southern India, are following a more ethical model. As a country, India was, for very long, moving in a downward direction on ethics, but has now turned a corner, and is improving again both on the individual level, and at the company/institutional level. This is part of a worldwide trend: globally, large institutional investors, including hedge funds, now invest almost exclusively in companies that are ethical. Today, investors are unwilling to tolerate a corrupt management, and many customers in turn prefer to buy only from ethical organisations. That said, there is a broader question of principles, and the willingness to accept ones moral obligation in a particular situation. For instance, there are many cases where a parent company has not come to the rescue of its subsidiary, which may have been imperilled by corruption among its employees. In contrast to the Tata case cited above, these companies have been allowed to go into liquidation and the parent has refused to take responsibility. Those who achieve a position of seniority in the Tata Group tend to value ethics highly. Although the Group pays higher salaries than it once did, these are nowhere close to what other firms are prepared to pay. Yet, there are cases of managers who leave the firm for a salary three times higher, and then return to the Group for such intangibles as ethics. Question: In its M&A and JV dealings, does the Tata Group place an emphasis on the ethical code? Would it refuse to go ahead with a partnership if the partner firm fell short on the ethics front, even though compelling financial reasons pointed otherwise? Answer: Most emphatically, yes. On account of its reputation, the Group is inundated with requests to form joint ventures with outsiders. However, there is a strong emphasis on due diligence, and the Group never proceeds with partnerships where its ethics may be compromised. For instance, it does not participate in the film industry, on account of the possible underworld connections that exist. Yet, a particular Tata firm decided that it would enter the film industry as an extension of its existing business. Since its board was independent, it decided to do so regardless of the Groups expectations and beliefs. Immediately, Tata Sons withdrew its nominee from the board, sold its share in the firm,
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and withdrew its name. As a policy, the Group does not go into areas where it risks compromising on its ethics. It also avoids entering the liquor and tobacco businesses as a matter of principle. Question: How can third parties be aligned with ones governance structure through an audit, or a contract? Answer: This is a challenge. In general, there should be an understanding that the party one is dealing with will follow the same principles as oneself. If it ever proved that ethics were violated, the Tata Group terminates its relationship with the third party but proof is a necessary precondition. At times, third parties complain that their work cannot proceed quickly due to visits by Government inspectors, who demand a pay-off. In such cases, the Tatas commit to stand by their partners, and support them as much as possible even monetarily. It is, however, difficult to judge whether the partner is being honest on this account and you have to just try to do your best in the due diligence. At the broader, country level, this is the real difference between India and China. Even as bureaucracy is prevalent in China - 18 clearances were required to set up a new manufacturing unit of a Tata company in the country - unlike in India, on each of the days when the sanctions were required, these were delivered by the authorities to the Tata offices.
The contents of this paper are based on discussions of The India CEO Forum with Dr JJ Irani, Director, Tata Sons in Mumbai. Some elements of the discussion are not encapsulated in the above due to the closed-door nature of the session and with due respect to confidentiality.
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