Conscious Capitalism

This case was written by Sumit kumar das, IBS Kolkata for management studies on Business ethics & corporate governance. It was compiled from published sources, and is intended to be used as a basis for class discussion.

They must consider the impact their decisions will have on all the stakeholders. 2. employees. 1. Social Purpose: The first principle is that businesses have a social purpose beyond merely maximizing profits for the shareholders.” . “Through this case on TATA GROUP we will discuss the way they do business promoting Conscious Capitalism. Leadership Philosophy: The third principle is that business leaders are professionals who are ethically bound to put the interests of all stakeholders ahead of their own. Stakeholder Principal: The second principle is that businesses must consider the interests of the interconnected stakeholders—shareholders. Business Culture: The business culture must nurture the leadership and stakeholders by encouraging all of them to recognize the principals of Conscious Capitalism. customers and the community. 3. 4.Introduction Conscious Capitalism sheds a shining light over the business community and reveals a deeper purpose for business—a much deeper and more noble purpose than just maximizing profits for the shareholders. suppliers. Under the umbrella of Conscious Capitalism business is based on four principals.

the seeds of several significant societal ‘movements’ were germinating. complexity. its visibility. Clearly for the group as a whole. the world itself began moving philosophically towards the Tata way of doing business.TATA GROUP Background Note TATA GROUP captures both the deep roots and careful nurturing of the Tata way — a philosophy of trusteeship. These movements were led by enlightened CEOs. one can ask how the Tata values and philosophy of ‘benign’ capitalism will be affected by this complex new global potpourri. coupled with bold innovation and diversified growth — that has now vaulted the group to a new apex in its 151 year history: $67. a 350. the largest Tata companies have acquired and integrated into their operations 13 global companies that span multiple continents. impact and responsibilities have increased substantially. As often happens. Will the Tata brand and the values it embodies flourish in the 21st century as it did in the 19th and 20th? What will the group need to do exceptionally well for it to remain the pioneer it has always been? Taking the question of the Tata brand and values first. At the same time. Since 1990. . valuable and trusted in the world. in the very depths of the justly named ‘decades of greed’. Coupled with increasingly empowered internet-generation consumers and media. The Tata brand is now one of the most recognized.4 billion in revenues. they began to exalt and reward businesses that practised responsible capitalism and were a positive force in their communities and countries of operation.000 member family and a presence in 80 countries. the high probability answer is an emphatic yes! This is because the group kept its unique approach intact even as it went aggressively global in the ’90s. academic thought leaders and numerous nongovernmental organisations. community and corporate responsibility. In this journey of success and national pride.

electric power. Tata Motors. Jamsetji started up his own trading company in 1868. That ideal was the notion that business should benefit people and society as a whole—or. printing. steel. Born to a Parsi family of Zoroastrian priests in the western state of Gujarat. Jamsetji's policy was not resistance (let alone acts of terrorism) but trust in the power of a higher ideal. fertilizer. and sustain a thriving business in that harsh environment. "In a free enterprise. the community is not just another stakeholder in business. pharmaceuticals. As Jamsetji Tata put it himself. that the purpose of business was not simply the pursuit of personal profit. The famous Taj Mahal Hotel in Mumbai—much in the news. and the software solutions firm Tata Consultancy Services (TCS). when terrorists barricaded themselves there as part of a coordinated series of attacks—was built by Jamsetji Tata in 1903. Tata's biography describes in exhaustive detail his struggle to create. electronic goods. but is in fact the very purpose of its existence. and finally Ratan Tata.The Tata Group: A Conglomerate with Heart Those who have heard of the Tata Group are probably aware that it is India's largest conglomerate. at the age of 29. real estate. JRD Tata. and from there branched out into the textile. tea. who leads the group today. Met with obstruction. The Tata story begins with the founder of the business. involved in almost every sector of industry. harassment and non-cooperation by British colonial officials. India was entering the final phase of colonization by Britain. The corporate empire Jamsetji built was passed down to his eldest son Dorabji Tata and thence to Nowroji Saklatwal. Today its three core companies are Tata Steel. During that time it grew into India's biggest conglomerate. oil refinery." . When Jamsetji first started his business. Jamsetji Tata (1839–1904). and hotel industries. foster. automobiles. however. What makes the Tata Group special. conversely. ready-made apparel. is not so much its size or high profile as the "Tata values" that have been passed down from the founder and kept alive over the years. and finance. cosmetics. including chemicals.

Guiding Principles of JRD Tata 1. their problems cannot be solved by the market mechanism alone. This is the basic idea underlying the "Tata values. But because human beings are highly complex creatures. anecdotes. including also customers. keeping sight of their functional limitations. And just as the diversity of species within the forest sustains the ecosystem as a whole. In this sense it performs a vital function for economic development. and widening the disparities between rich and poor. not the individual stakeholders but the community in the largest sense. 2. aphorisms. our challenge is to use them to our best advantage. His focus was not the trees but the forest—that is. These values find expression in a vast collection of writings. and the local community. our people are too easily susceptible. to be sure. employees. just as it is oriented to efficiency rather than waste. is oriented by its very nature toward homogeneity rather than diversity. including admonitions. by contrast. Nothing worthwhile is ever achieved without deep thought and hard work. . The market. The argument was that corporations have a responsibility not simple to maximize shareholder value but to do what is right by each group of stakeholders. so the community is essential to the survival of humanity. Moreover when market forces are allowed to function unfettered they tend to undermine community ties by rewarding the strong. unfortunately. business partners. Just as the forest is essential to the preservation of biodiversity.Stakeholders versus Community When the debate over shareholder sovereignty was at its height. punishing the week. Jamsetji had a more holistic perspective. so the diversity of groups within the community is essential to the survival of the human race. Instead of putting ourselves at the mercy of market forces. however. One must think for oneself and never accept at their face value slogans and catch phrases to which. opponents frequently argued for an emphasis on stakeholders instead of shareholders." The "Tata values" are a body of precepts forged from the ideals of Jamsetji Tata as practiced over the years by his successors and other leaders of the Tata Group. and analogies.

4. People who put aside their "large-minded and compassionate" impulses lose sight of their customers. or even perfection. in effect. in harmony with one another. Eight Keys to Longevity . the greater community that is the sum total of these stakeholders. and. strive for the public good. in any task however small.3. a business run by people like that cannot survive for long. and never be satisfied with the second best. The idea is that true value can only be achieved by those who believe in human potential. 5. It adds up to humanistic management. their business partners. think deeply and work diligently. the local community. Losing Sight of the Big Picture Permeating all these principles is a reverence for humanity and a largeness of spirit that calls to mind the Hindu gods themselves. and live the way people were intended to. One must forever strive for excellence. Who would willingly do business with or buy goods or services from those who care about nothing but their own profits and their own well-being? Clearly. In business management such behavior poses lethal risks. their employees. In retrospect. No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people and is achieved by fair and honest means. Good human relations not only bring great personal rewards but also are essential to the success of any enterprise. businesses have lost since economic bubble of the 1980s burst is this large-spirited reverence for humanity and the humanistic management that it engenders.

and sense of mission Long-lived businesses have clear guiding principles regarding their purpose and their nature as an organization. When a business consistently puts the customer first. such as goods and money. or be enshrined in an all-encompassing code that expresses those values through conduct. (3) Humanistic. They also develop effective training systems to maximize this growth and place priority on employee welfare. They view employees not as replaceable parts but as entities capable of growth. and activist shareholders demanding that cash on hand be distributed as dividends. vision. giving human resources higher priority than other management resources. This brand of management also places high priority on the confidence and the reputation the company builds up through such a long-range orientation. The principles may be recorded in the corporation's organizational memory in the form of quotations and anecdotes concerning the founder. and sales and profits will grow as a result. (2) Long-range focus The longest-lived companies are generally nonpublic enterprises and are free from the tyranny of daily stock price fluctuations.(1) Clear value system. This and this alone is what it means for a company to create value. all of which pays off by making it more competitive. quarterly profit statements. or a family charter. and so forth. (4) Customer-first orientation The foundation of any business is its customers. the company can go all-out with investments geared to sustainable growth and commit itself to the development of human resources. The organization members are inculcated with and shaped by values that are firmly associated with the company and its employees. protocol. In some cases they also have built-in mechanisms for unseating incompetent executives. Businesses that rest on their reputation or lose sight of the customer in their race for higher profits are on . as in the case of the Tata Group. people-first management The businesses that last longest are the ones that put people first. Because many are family-run firms. family precepts. more and more people will naturally seek out the goods or services the business offers. their executives invest time in choosing and training a successor. and they draw on those principles in their management. Since the focus of management is long-term health and growth.

Their motivation to contribute to society stems from their independence. While making the most of their existing strengths. It is a fundamental awareness that the business. This kind of self-imposed frugality and economy also helps to foster a serious attitude toward one's work and a desire to produce fine goods or services. Companies that embody these eight principles are not unthinking entities that function mechanically. or stand in one place but are always adapting to a changing world.the path to self-destruction. a community. as a member and a beneficiary of society. they have the will to cut loose businesses that are out of step with the times and reinvent themselves. A Common Philosophical Thread . (6) Continuous innovation and internal reform The companies that endure do not rest on their laurels. The similarity between these principles and the "Tata values" discussed earlier is striking. (7) Frugality and economy Companies need to save up for the future so that when the opportunity arises they can make bold investments in new business undertakings. requires the kind of frugality that takes every sensible measure to save on a daily basis. (5) Social consciousness This is not simply a matter of diligently practicing "corporate social responsibility" (CSR). of course. Businesses steeped in this social consciousness do not angle for concessions or depend on the government to get them out of every fix. has a duty to give back. Long-lived companies have mechanisms to sustain a culture in which employees never lose sight of this basic tenet of business and are conscious at all times that the company's fate is in the customers' hands. in which all the elements are organically linked to create and sustain an ecosystem—in other words. Each is like the aforementioned forest. This. lapse into complacency.

which referred to business as "the way of the Bodhisattva. the endowment is a self-renewing corpus. no matter who committed to CSR. The idea of business as a means of doing good would surely meet resistance from Western business executives." they would argue. it is clear that the Tata group is the original embodiment — from the 1860s — and the largest. most complex. His philosophy calls to mind the precepts of the famed merchants of Ômi (modern-day Shiga Prefecture). The Acumen Fund. business was something one did to benefit people and society. I call this "community capitalism. any more than they can exist on money alone. But there is also an essential.Just looking at the eight headings above. "If you want to engage in philanthropy. haven't Western companies been working hard to build a corporate culture that supports business ethics in keeping with the "value shift" advocated by Lynn Sharp Paine and others? Isn't the idea of putting the customer first found in the credos and codes of many excellent companies in the West? And isn't social consciousness essentially the same as the notion of CSR that has become so fashionable in recent years? No doubt there is some element of truth to this. some might be inclined to argue that this is also the direction in which Western business management has been heading in recent years." Convergence Into The Next Millennium While the rest of the world is discovering the concepts of conscious capitalism." Business. Take. For Jamsetji. one of the very first in the world and far ahead of the Rockefeller (1913) and Carnegie (1911) trusts. "Business is not philanthropy. do like Bill Gates and establish a foundation." It is a management philosophy to which the "logic of capital" could never give rise. multi-business exemplar of conscious capitalism in the world. Established on the principle of a loan rather than a grant. But human beings cannot act on logic alone. and it all boils down to Jamsetji's concept of the community. a wonderful . unbridgeable difference. is the path of assisting one's fellow human being and helping society. After all. in other words. for instance. the JN Tata Endowment Trust that was established in 1892.

the global brand are uniquely positioned to tap that groundswell of need. is widely considered ‘innovative’. One reason is that they appear to be better aligned with the changed demands of the global marketplace.organisation that follows this principle today. They do better at retaining and attracting talent. staying steadfast on the path of conscious capitalism and purpose maximisation is thus likely to be critical to the future relevance and success of the Tata brand globally. If anything. conscious firms emerge as the leaders of the pack — needing to spend dramatically less (up to 90 per cent less!) on marketing in comparison to their competitors while enjoying higher name recognition and customer satisfaction. enjoy higher productivity. In the face of huge growth and further diversification that is coming. In this environment. the Tata group and consequently. In this millennium the positive outcomes that societies are demanding from their corporations are clear. This further underscores how much more innovative Jamsetji Tata must have been! The Conscious Capitalism Institute’s research shows there are clear reasons why firms that exemplify conscious principles outperform their competitors over the long term. the implication for the group is to intensify its commitment to maintain its core philosophy and reap a global harvest from its longstanding investment in integrity and responsible business. So call it conscious capitalism or responsible capitalism — the rose still smells as sweet — and in the coming decades it could well lead to Advantage Tata. All this augurs very well for the global Tata brand and its underlying foundation of values. Tata Steel Conferred Best Conscious Capitalist Award By Forbes India . With purposive effort. Equally critical for the brand’s ongoing success is another key learning from the research of the Conscious Capitalism Institute and one that the Tata group has always understood deeply: the real revolution in corporate responsibility occurs when firms use that focus to innovate breakthrough solutions and empower populations and not to bolster their own reputations. They represent more robust risk-mitigated investments and provide healthy returns over extended periods. operate with leaner organisations — all elements that contribute directly to their sustained superior performance over time. have fewer legal disputes.

The TATA Group . Veerappa Moily presented the trophy and commendations to Mr Koushik Chatterjee Group CFO. customers. apart from profit maximization. The award was given out at a scintillating event attended by the crème de la crème of corporate India. the community and shareholders. This should be evident in the way the company deals with all its five stakeholders . The criteria of the selection was that the organization should have a turnover of least 1000 crore. Infosys and Wipro.employees. Union Minister for Corporate Affairs Mr. On receiving the Award.” Other industry players who were nominated for “Best Conscious Capitalist Award” were Marico. suppliers. Chief Financial Officer. Cipla.Tata Steel was conferred with “Best Conscious Capitalist Award” for 2011-2012 at the Forbes India Leadership Awards. the organisation must have demonstrated a higher purpose. The jury found Tata Steel excelling in all parameters in the criteria. Tata Steel. Tata Steel stated “it is a great privilege to be honored by Forbes India. To be recognized by Forbes from amongst the best corporats in India means that our constant endeavor to stand up to the expectations of our various stakeholders are paying off. held in Mumbai. Mr Koushik Chatterjee.

587 14.162 Gross block 396.227 49.063 50.913 65.960 250.884 43.136 13.723 79.994 96.129 321.714 78.543 129.987 25.507 86.643 20.849 247.635 23.280 23.457 Sales turnover 471.179 237.574 .613 68.018 55.927 49.218 334.276 193.000 Value of assets 373.334 251.338 292.573 79.Tata group figures Year 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 Total turnover 475.721 379.076 12.134 48.169 60.029 45.852 31.675 319.766 68.045 374.481 40.026 313.293 113.534 325.248 261.424 54.721 33.416 128.434 52.247 177.275 61.100 37.365 (Rs crore) Exports 44.377 94.687 311.

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