COLLOQUIUM
Management Paradigms Beyond
Profit Maximization
S K Chakraborty, Verghese Kurien, Jittu Singh,
Mrityunjay Athreya, Arun Maira, Anu Aga, and
Anil K Gupta
Pradip N Khandwalla (Coordinator)
Executive Summary
KEY WORDS
Profit Maximization
Humane Management
Corporate Social Responsibility
Stakeholder Management
Good Governance
Social Capital
Corporate Spirituality
VIKALPA • VOLUME 29 • NO 3 • JULY - SEPTEMBER 2004
includes debate by practitioners and
academicians on a contemporary topic
The dominant paradigm today, both in corporate management and in business educa-
tion, is profit maximization and maximization of the wealth of the owners. But, the
obsession with ‘profit at any cost,’ when carried to an extreme, can lead to Enrons,
WorldComs, and Parmalats and the shortening of hundreds of thousands of lives in sweat
shops.
Fortunately, alternatives have appeared that successfully blend concern for profits
with humane concerns. Today, virtually, every Fortune 500 company has adopted a code
of conduct and put in place the needed management structures and processes to ensure
compliance. Similarly, corporate social responsibility has gathered momentum. Spiritu-
ality in management, the democratization of the workplace including internal justice
systems and ‘good citizenship’ behaviour in the organization, and catering to the needs
of all the stakeholders—not just shareholders—are some of the other offshoots of
humane corporate management.
In a developing country context, in which there are so many battles to be won against
poverty and deprivation and in which a society needs to be modernized without losing
track of its ethical and spiritual moorings, humane business management is a necessity.
In this colloquium, our panel members addressed the following issues:

What humane alternatives there are to mindless commercialism and how to manage
each alternative without loss of profitability.

How to enrich business practices and what we teach in business schools with these
new paradigms of management.
The salient features of the responses are as follows:

The globalization strategy of a few powerful nations has robbed country after
country of its right to choose its own path—not only economic but cultural as
well—with the new milieu verging on the inhumane. An immense effort is
necessary to nourish humane values as the cause and ethical conduct as a
consequence.

Cooperative enterprises or new workers’ enterprises can provide the organiza-
tional means whereby a significant proportion of humanity takes on the tasks of
creating productive employment and overcoming poverty, thus achieving social
integration without placing undue importance on the interests of capital provid-
ers.

Enduring companies have demonstrated that by simultaneously attending to a
variety of stakeholders and focusing on composite goals, rather than profit
maximization alone, it is possible to acquire and maintain industry leadership.

Firms need to move from a feudal relationship with their business partners to a
‘strategic partnership’ and invest more in hygiene factors and HRD for long-term
employee satisfaction, performance, and development.

The need is to evolve through dialogue among businessmen, government, and
civic society a consensus on what the social responsibility of business is and what
are legitimate and illegitimate actions.

A larger social conscience can emerge if corporate leaders recognize that they
cannot ensure long-term growth without generating sufficient ‘social capital.’
‘Social capital’ involves the creation of trust, reciprocity, and tolerance of third
party actions.

There is a bonus from corporate social responsibility, ethicality, and spirituality
in terms of stronger staff bonding with the organization and stronger motivation.
This can be converted into higher productivity, better product quality, better and
faster implementation of the needed changes and innovations.
97
97
INTRODUCTION TO THE COLLOQUIUM
Pradip N Khandwalla
Former Professor
IIM, Ahmedabad

I
n the 18th century, Jeremy Bentham and John Stuart Consider some facts. According to World Bank es-
Mill, two Utilitarian philosophers, enunciated the timates, up to $ 80 billion a year are given as bribes to
ethics of the greatest good of the greatest number. officials in developing countries (Pacini, Swingen and
Adam Smith, a philosopher of morality and economics, Rogers, 2002). In the US alone, 0.7 million children are
came up with the idea that the greatest good of the illegally employed in businesses and on farms, and some
greatest number is effectively served by the Invisible 0.2 million get injured at work (Khera, 2001) — the
Hand of self-interest. Alfred Marshall and other econo- numbers may be in millions in the Third World. Thanks
mists refined Smith’s idea into an economic theory that in part to unbridled cigarette promotion by tobacco
argued that under competitive conditions, profit max- companies, often targeted at the young, some four million
imization by firms leads to the most efficient allocation are dying each year from lung cancer and other smoking-
of resources, lower prices than under monopoly, and related diseases (Hilts, 1996). The crime becomes graver
larger aggregate output than under monopoly. Such because, for 30 years, the tobacco industry concealed
excellent theoretical results elevated profit maximiza- from the public its knowledge of the addictiveness of
tion to an academic cult. One of the foremost exponents smoking and the associated health risks. Globally,
of this cult is Milton Friedman of the University of business dumps several billion tons of pollutants in the
Chicago. He once boldly proclaimed: “There is one and air, not to mention billions of tons of solid and liquid
only one social responsibility of industrial waste. Millions of people
business — to use its resources and Executive compensation lose jobs without due compensation
engage in activities to increase its schemes through stock and a livelihood cushion before they
profits” (Friedman, 1962). Later, he options have bolstered find another job. Prosecuted corpo-
relented a little by accepting that the profit and wealth rate frauds increased in the US by
profit maximization should be at- 150 per cent between 1984-85 and
maximization cult. But, it
tempted within a legal framework 1998-99 (Chirayath, Eslinger and de
can extract a fearful cost,
and subject to broad social ethical Zolt, 2002).
especially in societies
norms (Friedman, 1970).
where ethics, legal What can be done? Seven Indian
Profit and wealth maximization structure, and governance panelists, who can be considered
has become a business cult as well are weak. philosopher-royals of management,
(Kennedy, 2000). Executive compen- have attempted to analyse the ma-
sation schemes through stock options laise and provide answers.
have bolstered this profit and wealth maximization cult.
But, it can extract a fearful cost, especially in societies Professor Chakraborty has long been a votary of
where ethics, legal structure, and governance are weak. spirituality in management. His piece, sharply polem-
In these societies, millions of workers work in sweat ical, is from the heart. In the climate of globalization,
shops in which frequent diseases, subsistence wages, WTO, and hyper-competition, it is, he says, pointless to
and accidents shorten life; bribing government officials talk of humane management because the mindset of
to evade taxes or get favours is rampant; share prices bottom-line maximization converts all noble initiatives
are manipulated through insider trading; lethal pollut- into instrumentalities: “One of the chief, though unre-
ants are dumped into rivers, lakes, wells, and air; shod- cognized, difficulties in the way of business/manage-
dy, frequently harmful products are palmed off to un- ment ever reviving humaneness is its penchant for in-
suspecting customers; competitors are driven off from strumentalization, thereby trivializing every ennobling
the market through underhand means; non-unionized or uplifting ideal…. For example, ethics is good because
employees are laid off at the whim of the owners, it is ‘good business.’ Ethics is not its own justification.”
depriving families of livelihood. Presumably, managers need to get spiritual first before

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they can contemplate humane management. As he puts calls for a stakeholders’ model of management in which
it, “Let us learn to sit before wishing to walk or run.” the management acts as a trustee for all the stakeholders.
Listing of companies on stock exchanges has led to short-
Dr Verghese Kurien, considered by many to be the
term attempts at maximizing EPS and PE ratios and this
father of India’s ‘white revolution,’ excoriates greedy
harms the long-term interests of the companies through
commercialization or profit maximization at any cost.
“neglect of R&D, training, customer care, employee
He discusses three value orientations: the egocentric
engagement, ecology, and ethics.” So, balance needs to
perspective that argues that what is in the interests of
be restored. He calls for a stronger customer orientation,
the individual is in the interests of society; the social-
a stronger HRD and employee satisfaction emphasis, a
altruistic perspective which tries to promote the greatest
strategic partnership with vendors and dealers, and
good of the greatest number; and the eco-centric per-
greater corporate social responsibility and corporate
spective that emphasizes conservation, thrift, and sta-
philanthropy. He calls for enlightened self-interest. As
bility. He advises: “Management professionals can be
he says, “The motto should be ‘where society thrives,
beneficial in the long run only if they can shed their
business flourishes.’”
narrow loyalties to shareholders and recognize their
obligations to strive for the larger social good without Mr Arun Maira, the India head of an MNC mana-
undermining social harmony and ecological balance.” gement consultancy with experience in industry, has
He believes that the cooperative form of organization pointed to an important need. Given that the privilege
is best suited to avoid the excesses of egocentrism and of limited liability of a company is provided by society,
greedy profit maximization. As he puts it, cooperative as a creature of society, the company has social respon-
enterprises “constitute a model for a sibility. But what is its social respon-
people-centred and sustainable form sibility? As Maira puts it, “What,
Modern corporations are
of societal organization based on therefore, is the proper role of the
“expected to meet the company in society? Without an
equity, justice, and solidarity.” diverse expectations of all agreement on this, how can we argue
Professor Jittu Singh, distin- their stakeholders. While about how to measure its perform-
guished both as a corporate execu- earning their profits, they ance?” The need, he says, is “to
tive and as an academic, separates must conduct themselves evolve through dialogue between
profit maximization as an efficient righteously… and keep in businessmen, government, and civic
pricing and resource allocation tool mind the well-being of all society a consensus on what the social
from the profit-at-any-cost mindset their stakeholders.” responsibility of business is and what
that has led to widespread unethical are legitimate and what are illegiti-
business practices, cut-throat com- mate actions.”
petition, and corporate social irresponsibility. He sup- Ms Anu Aga, who turned around an ailing Ther-
ports a multiple stakeholders’ perspective that implies max, reviews some of the forces that have made corpo-
multiple criteria for assessing businesses, not just profit. rate social responsibility pre-eminent. She argues that
As he puts it, modern corporations are “expected to meet corporate social responsibility makes good business sense
the diverse expectations of all their stakeholders. While and can earn much patronage to the company. She
earning their profits, they must conduct themselves right- identifies six groups of stakeholders that need to be
eously… and keep in mind the well-being of all their served by the company and provides several sugges-
stakeholders. In the end, they must be perceived as tions for how they should be served. She says that the
having enriched all of society.” He provides the example company “should balance the short-term interests of the
of Tata Steel which has met the expectations of most of present day shareholders with the need to safeguard the
its stakeholders, been an ethical company, discharged interests of all the stakeholders — now and in the fu-
its corporate social responsibilities effectively — and has ture.” She argues for a partnership between the corpo-
had a very good record of profitability. rate sector on the one hand and civil society institutions
Dr Mrityunjay Athreya, a former academic who and the government on the other: “In partnership with
turned into a leading management consultant, traces the government, NGOs, and concerned citizens, it can make
roots of business misconduct to ‘profit obsession.’ He a significant and measurable contribution towards
VIKALPA • VOLUME 29 • NO 3 • JULY - SEPTEMBER 2004 99
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improving the lot of the less fortunate men, women, and
children of our country.”
Professor Anil Gupta, equally well-known as an
academic and as an activist champion of the intellectual
property rights of rural innovators, points to the high
prevalence of bad business behaviour, but also to the
fact that there are corporations with a social conscience
that are able to generate for themselves substantial social
capital or goodwill through their benevolent activities.
He identifies several opportunities for collaboration
between the corporate sector and the social and small
enterprises sector. He calls for a new social contract
between the small sector and the corporate sector. He
says, “The new paradigm based on incorporating social
capital in the analysis of corporate purpose and profits
does not see the social sector as a ‘sink’ of resources.
On the contrary, the social sector including small enter-
prises is seen as a ‘source’ of innovations, creativity,
values, and perspectives that can improve motivation
and efficiency even in the corporate sector.”

S K Chakraborty
Founder, Management Centre for Human Values
IIM, Calcutta

H
ere are a few unprofessional convictions from are now stuffed with money from head to foot at less
a simple heart. Brickbats alone are expected for than 30, and then squeezed dry in ten years. Add to this
them. the glorification of a 24-hour instant gratification soci-
ety. With all our information, intellectual, and know-
The phrase ‘human resource management’ should
ledge capitals in the secular El Dorado, moral capital is
exit before humane management can be ushered in (I
at its nadir. Is this not a terrain barren enough for humane
have been protesting against this phrase for the last 15
management to hew its path? Yet another factor com-
years). It is an affront to call any ‘human being’ a ‘human
pounding the above bewildering man-scape (both man
resource.’ Long before Greek thought had labelled man
and management) is the loudest mantra of the past two
as a ‘rational animal,’ ancient Indian thought had chris-
decades: Globalization. Is globaliza-
tened him as amritasya putrah. The
tion’s agenda humane? Who are its
more we highlight the ‘resource’ in
With all our information, votaries? What are their motives? Are
the human, the more we lose out on
intellectual, and they imposing it out of love for
the ‘being’ in him/her. All the rest
knowledge capitals in the humanity? Teaching us about trans-
follows inevitably. Now, ‘animal’ and
secular El Dorado, moral parency, are they themselves trans-
‘resource’ put together can only be
capital is at its nadir. parent? What are the motives of those
a recipe for inhumane management.
Indians who tend to wax eloquent
Whatever the sphere of human en-
about it? An honest French professor
deavour, be it business or otherwise, the true aim is to
of management, who had been on the boards of a few
help the person to recover his/her ‘being’ through the
well-known MNCs but who resigned from them in
process of ‘becoming.’ Is this irrelevant philosophical
disgust, had told me in Geneva in the year 2000: “These
stuff? No. A sound philosophy is the most practical thing
MNCs are all sharks and crooks.” Sometime in 1996-97,
— in the long term. All are not dead in the long term.
when the WTO was just born, a professor of the Copen-
When the human genome got decoded a few years hagen Business School, who loves India and visits the
ago, The Economist exultantly declared that man has now country a couple of times each year, had told me: “The
left Nature far behind, and that the future could look WTO is one of the most inhuman engines to bulldoze
forward to human progeny performing ‘inhuman feats’! developing countries.” Yet, a year or two later, I heard
So, whither ‘being’ and ‘becoming?’ Whither ethics? This an RBI Deputy Governor chastising the Government of
is an era not only of disposable income but of disposable India for delaying its decision to join the WTO!
nappies to disposable spouses as well. So, employees Ironically, it is from these very quarters that we
are disposable too — at the altar of competitiveness. The have to take lessons on ‘human rights.’ The globalization
‘resource’ notion comes in handy, of course. Employees strategy of a few powerful nations itself is robbing country

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after country of its right to choose its own path — not a new avenue of academic and consultancy ventures in
only economic but cultural as well. Thus, the entire management. Let us learn to sit before rushing to walk
milieu has vergevd by now on the inhumane. Too many or run. Unless we begin to combat squarely the glo-
basics have crumbled. Can cosmetic adjustments or noble balized scourge of ‘I need your greed for my greed,’
homilies achieve much? Where is the courage of indi- values and ethics have little chance to revive. Without
vidual and collective conviction to return to the basics, such a base, spirituality will get no foothold.
to swadharma?
Nevertheless, here are two worthy examples of
Given the above capsule vision, it makes strange ethical and humane management — one from a small
reading when prestigious organs like the Harvard Busi- retail business, another from a large enterprise.
ness Review launch out on spirituality. It appears from
these organs as if the domains of values and ethics have • Amal and Kamal, father and son respectively, had
already been straddled and fully annexed. Our capacity built up a thriving retail groceries shop. One of their
for self-delusion is unlimited. So is our audacity. About suppliers, having delivered a large consignment of
the same time when the magnificent collapses of Enron, rice and sugar, left the bill with Amal. Amal kept
WorldCom, and others were occurring, such writings on it in a small cabinet in the shop. Then, both the
spirituality had also begun to emerge. Interesting coin- suppliers and Amal forgot about it. After about eight
cidence! The few such samples that months or so, at the end of March,
we have read unmistakably reveal One of the chief, though Kamal began to clear up the backlog
the same persistent streak (veiled or unrecognized, difficulties and looked carefully into the cabi-
explicit): Can spirituality become yet in the way of business/ net. He discovered the unpaid bill
another means or instrument to and informed Amal. Amal was
management ever reviving
improve competitive strength, mar- shocked. He asked Kamal to contact
humaneness is its
ket share, and bottom line ? If yoga the supplier immediately and clear
penchant for
reduces tension and high blood pres- his dues. Kamal replied: “No father.
instrumentalization,
sure, then human resources will It is the supplier’s duty to remember
thereby trivializing every
‘yield’ more work and output. Of and collect his dues. Why should we
ennobling or uplifting
course, slaughterhouses are ready to chase him?” Amal replied, “Son, that
ideal.
finish off the carcasses left on the is not the way honourable people do
trail. business.”

One of the chief, though unrecognized, difficulties
in the way of business/management ever reviving hu-
maneness is its penchant for instrumentalization, there-
by trivializing every ennobling or uplifting ideal. This
is the bane of ‘doing’ cultures that play the pied piper
today. For example, ethics is good because it is ‘good
business.’ Ethics is not its own justification. Ethics should
bend to business, not the other way round! Let spirit-
uality at least be spared the Midas touch!
I feel it is premature to speak or write about spiri-
tuality in business in the present climate of hedonistic
egotism. We in management do not understand what
spirituality is. Let us not bring it down to our low-level
consciousness. Spirituality is the ultimate saviour of
humanity, not a business tool. Immense toil is necessary
to nourish human values as the cause and ethics as the
effect. We have not even scratched the surface of this
dimension as yet. Spirituality, therefore, has to wait as
• Sometime in 1999, I had interviewed Dr S C Dutt,
the Chairman of DCL Group of companies. Among
other things, I had asked him whether and how he
would differentiate between the approaches in man-
aging the Group’s Indian units and its American unit
(Kuljian Corporation had been acquired by DCL in
1974). Dr Dutt’s reply was: “The business outlook
in the West is basically self-oriented and strongly
success-driven. But, here, we cannot adopt such an
orientation. Our main business area, power plant
design, is in crisis today. Ninety per cent of our
income used to be from this source. But, for the last
three years, this flow has dwindled to a trickle. Yet,
we do not think of sacking our people. The better
ones of course can always fend for themselves. So,
we carry on with the rest, though they too are not
much worse, and certainly more loyal. We are di-
versifying into software in a big way to hold on to

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 those who would wish to remain with us and, of anchored in the teachings of Sri Aurobindo and The
course, taking in new people.” Mother (of Pondicherry). He is about 85 years old to-
Incidentally, Dr Dutt is a deeply spiritual person, day.

Verghese Kurien
Chairperson
National Dairy Development Board, Anand

The lesson of history is that to the degree people
and civilizations have operated in harmony with
correct principles, they have prospered. At the
root of societal declines are foolish practices that
represent violations of correct principles.
— Stephen Covey
is compassionate and promotes universal happiness
provided advances in science and technology do not lead
to production-consumption patterns that violate social
and ecological laws that sustain nature. Human beings
seem to have forgotten the ancestral heritage of nature
worship and reverence for that harmony which sustains
the universe on its spiritual-material foundations.

I
find misunderstandings about profit maximization
Individual and societal environmental practices, in-
are often at the core of disharmony within organ-
cluding those of managers, will tend to be consistent
izations; conflicts among different sections of po-
with the ethical grounds on which they are based
pulation within society; and cause of wars between na-
(Merchant, 1992). Stern, Dietz and Kalof (1993) have
tions. Can we interpret profit so narrowly, as is often
identified ‘egocentric,’ ‘social-altruistic’ and ‘eco-cen-
done, to mean only profit maximization to shareholders
tric’ as three value orientations and perspectives that
who contributed capital, leaving out the workers who
shape practices. Management paradigms and practices
contributed labour and suppliers who contributed ma-
can be examined from these perspectives.
terials; the wider society in which the enterprise is em-
bedded and operating; and the natural context in which Egocentric perspective refers to the maximization
activities have to be carried out of self-interest. In this perspective,
within the environmentally benign people adhere to the philosophy that
Egocentric perspective
limits of depletion and pollution? ‘what is good for each individual
refers to the maximization
Such narrow interpretation of profit will benefit society as a whole.’ The
encourages many enterprises to get
of self-interest. In this
‘Invisible Hand’ that Adam Smith
away with obnoxious practices like
perspective, people
uncovered in 1776 was thought to be
underpayment to workers, employ-
adhere to the philosophy universal. This assumption under-
ment of child labour, and many in- that ‘what is good for lies most of the management para-
human practices harming the inter- each individual will digms. Closer observation shows
est of workers and their families; pau- benefit society as a that, quite often, socio-economic, po-
perization of farm produce suppli- whole.’ litical, and cultural evolution is gov-
ers; depletion of precious ground erned by a contrary process — in
water; intolerable pollution like in many chemical indus- serving one’s own interests exclusively, the individual
tries — all in the name of pursuing greater profits to may go against the interests of the society as a whole.
shareholders.
Social-altruistic perspective has been studied by
The right to life is sacred and the foremost among Heberlein (1972) using the Schwartz (1977) norm-acti-
the human rights; but one needs pure air, potable water, vation model of altruism. The Schwartz model (Schwartz,
and nutritionally balanced food to nourish life. Words 1970) holds that an individual experiences a sense of
such as ‘environment’ or ‘environmental’ include both moral obligation (a personal moral norm). The person
social and ecological aspects. Viewed from the larger acts on it when one believes that adverse consequences
societal perspectives, such anti-life practices cannot be are likely to occur to others (awareness of consequences
allowed to go unchecked. They must be curbed. Nature to others) and that one personally can, by appropriate
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102
action, prevent or ameliorate those consequences (as- ing, and rapid turnover as not ends without limits, and
cription of responsibility to self). People who apply such consequently emphasize conservation, thrift, and stabil-
values judge management decisions on the basis of costs ity. More importantly, this view brings into focus the
or benefits for a human group, such as a community, cyclical (as opposed to linear) nature of social and natural
ethnic group, nation or all humanity laws based on principles of feedback
within a society, or for shareholders, Cooperative enterprises or and reciprocal influencing.
employees, suppliers, distributors or new workers’ enterprises
consumers in the context of an enter- Management professionals can
provide the organizational
prise. These people believe in ‘the be beneficial in the long run only if
means whereby a
greatest good for the greatest number they can shed their narrow loyalties
significant proportion of
of people,’ adopting social justice as to shareholders and recognize their
humanity is able to take
their guiding doctrine. However, obligations to strive for the larger
into its own hands the
managerial actions are often guided social good without undermining
tasks of creating
by group interests within the enter- social harmony and ecological bal-
productive employment, ance.
prise rather than encompassing all
overcoming poverty, and
the stakeholders. Societal concerns
achieving social I believe cooperative enterpri-
too are limited and still narrow, as
integration without ses or new workers’ enterprises
the concept of society in many cases
placing undue importance provide the organizational means
has not yet become all inclusive as
to the interests of capital whereby a significant proportion
the concept of ‘Vasudhaiva Kutum-
bakam,’ in which the whole earth is
providers. of humanity is able to take into
its own hands the tasks of creat-
to be treated as one’s family.
ing productive employment, overcoming poverty, and
Eco-centric perspective holds that rational, scienti- achieving social integration without placing undue
fic belief systems should be based on laws of ecology importance to the interests of capital providers. They
and in consonance with the ‘unity, stability, diversity, constitute a model for a people-centred and sustain-
and harmony’ of the ecosystem. This view looks at profit able form of societal organization, based on equity,
maximization, growth, change, ‘development,’ spend- justice, and solidarity.

Jittu Singh
Tata Steel Professor of Management
XLRI, Jamshedpur

F
or the ‘puritanical’ cult of capitalism, of which
Adam Smith is the high priest and Milton Fried-
man the most forceful evangelist, profit maximi-
zation is the most sacred mantra. Though this cult may
have shrunk to a minority status in recent years, its
surviving zealots still cling passionately to their belief
that profit is the noblest objective of all. Those who
pursue it with single-minded devotion are regarded as
contributing the most to society and, therefore, being the
true inheritors of the ‘kingdom of heaven.’
The scripture of their faith is Smith’s The Wealth of
Nations (1937). It preaches the doctrine of self-interest.
According to it, seeking the maximum gain, or profit,
for oneself is both natural and constructive from the
society’s point of view. High profits represent high
efficiency. When a firm succeeds in earning the maxi-
mum profit for itself, it also renders the most efficient
service to its customers. Therefore, society is the greatest
beneficiary of the combined efficiency of all its constit-
uents.
True, there may be conflicts of interest among
economic players. To ensure that they do not adopt
unfair methods to gain competitive advantage and al-
ways act in the interest of the society in general, Smith
invented the ‘Invisible Hand’ of the market. It was
bestowed with the mysterious power to supervise the
pursuit of self-interest (or profit maximization) and guide
resources into uses that would have the greatest social
value. This magical hand would mediate in such a way
that all parties would emerge with ‘win-win’ solutions

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103
— with each being conferred the maximum benefit costs to others of the pollution they generate is not
possible. charged to the polluters, they have a hidden incen-
tive to produce more than is socially optimal.
In reality, Smith’s cult has belied its promise. The
pursuit of self-interest has seldom been orderly. It has In view of these shortcomings, effectiveness in the
degenerated into a vicious zero-sum game with com- present era ought not to be defined only from the per-
petitors employing ingenious methods to gain advan- spective of investors and owners. Such a bias is clearly
tage at the expense of their rivals. The Invisible Hand unacceptable to other interest groups; it discriminates
that was expected to come into play has proved to be against their respective needs. They would welcome
conspicuously inept at its mediating role. Its failure is profits of the legal owners being lowered and the funds
reflected in unfair trade practices, emergence of mo- thus made available being redirected towards meeting
nopolies and cartels, consumer grievances, exploitation their own expectations.
of labour, environmental degradation, corporate fraud,
unethical conduct, and social irresponsibility. Profit max- It would be wrong to infer that profits are not
imization is now synonymous with ugly cut-throat important. On the contrary, they are crucial for survival.
competition. Only when a firm is profitable can it hope to continue
in business. Profits are needed to finance current oper-
All evidence suggests that profit maximization by ations and future growth plans. They also contribute to
a firm does not necessarily confer the overall image of a company.
maximum benefit on all parties. Potential investors, suppliers, cus-
Instead, it results in inequitable con- It is important to be tomers, and employees would hesi-
sequences. Much of the explanation profitable; but to make a tate associating with a loss-making
for this failure lies in ‘market imper- fetish out of profit company.
fections.’ The Invisible Hand can maximization would be
function efficiently only when there But, to earn reasonable profits is
counterproductive.
is: quite distinct from treating it is as
Beyond a reasonable
the raison d’etre of corporate exist-
level of profits, it is
• perfect competition in all eco- ence. In the end, profit is like oxygen
important to pay attention
nomic activities — necessary for survival, but not the
to a higher set of
purpose of it. Therefore, it is impor-
• proper pricing of all effects re- objectives.
tant to be profitable; but to make a
levant to the welfare of all stake-
fetish out of profit maximization
holders (i.e., there are no exter-
would be counterproductive. Beyond a reasonable level
nalities).
of profits, it is important to pay attention to a higher
The real market is characterized by the absence of set of objectives.
these conditions. Its principal features are:
Existing laws confer ownership of modern firms on
• Disproportionate concentration of economic and shareholders — people who have invested their money
market power as a result of which the market is not in financial equity. As a result, they have been given
a self-regulating cybernetic system where consumer exclusive rights to the profits earned. They are naturally
demand regulates resource allocation, production, interested in maximizing the profit accruing to them and
and equilibrium. also in the appreciation of the market value of their
investments.
• An inequitable distribution of resources and in-
comes. But, a modern company has several types of equity
in addition to financial equity. Investments in these
• The widespread nature of externalities which are
other equities are made by a variety of stakeholders. For
not priced in the market, e.g., pollution. Firms do
instance:
not generally pay for these inconveniences (or social
costs) that they impose upon others. Therefore, they • Intellectual equity: Employees invest their ideas in
continue polluting without restraint. Also, since the improving technological processes, product quali-

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 ty, cost management, marketing techniques, and
customer service. These initiatives usually go far
beyond the call of normal duty for which they are
compensated.
• Goodwill equity: The community around a firm
invests its goodwill; it continues to support opera-
tions in spite of inconveniences it suffers in the form
of, for example, environmental pollution and traffic
congestion.
As the flurry of recent corporate frauds that have
come to light suggest, the single goal of profit maximi-
zation has the germ of unethical conduct. It acts as a
trigger for a variety of unethical practices:
• bribery to secure orders
• deceptive advertising to boost sales
• launching of products which have not adequately
been tested for safety

• Growth equity: The government’s investment is in • financial jugglery to exaggerate corporate perform-
the form of law and order, infrastructure develop- ance and influence stock prices
ment, and economic policies conducive to business • withholding of information about problems from
growth. shareholders and the public
• Knowledge equity: Educational institutions invest • misreporting of profits to increase personal bonuses
their expertise through their research and their and stock options.
students.
If firms are embedded in a society and draw all their
From their point of view, it is unfair for shareholders resources from it, then they must act
to appropriate all the profits. They like responsible citizens. While pur-
too would like to receive some di- If firms are embedded in suing their interests, they must also
vidends for their investments. a society and draw all ensure that they contribute to the
Can a person, at the end of his their resources from it, well-being of those around them.
life, be judged simply by the amount then they must act like They must apportion some of their
of wealth he accumulated in his life- responsible citizens. surplus resources to a variety of
time? The answer is unequivocally While pursuing their socially-oriented activities. These
no. We would also take into account interests, they must also could be directed either towards
the means he employed to generate ensure that they neutralizing some of the adverse
his wealth, how he used it subse- contribute to the well- consequences arising from their own
quently, his other accomplishments, being of those around operations or towards more activist
and the overall quality of his life. We them. social causes.
attach greater value to those who
The history of enduring compa-
live ‘rich’ lives, rather than merely
nies (those that have met the test of time and have
become rich. Very often, those who are most admired
maintained a consistent track-record of excellence) sug-
are not necessarily those who are the wealthiest. Success
gests that it is indeed possible to go beyond profit
is multivariate.
maximization. They have demonstrated that by simul-
Modern corporations are multi-dimensional. There-
taneously attending to a variety of stakeholders and
fore, like individuals, they too cannot be judged by a
focusing on composite goals, rather than profit maximi-
simple measure of profit maximization. They are viewed
zation alone, it is possible to acquire and maintain
not only as wealth-creators for their legal owners (their
industry leadership.
equity shareholders), but also as vehicles for economic
and public policy. They are expected to meet the diverse Tata Steel is a notable Indian example. Founded by
expectations of all their stakeholders. While earning Jamsetji Tata, an exceptionally enlightened industrialist,
their profits, they must conduct themselves righteously, it has a deep, abiding commitment to sharing its wealth
uphold social norms, and keep in mind the well-being with the community around it in addition to enriching
of all their stakeholders. In the end, they must be per- its shareholders. It has always been guided by the
ceived as having enriched all of society. If they have a principle that wealth must be ploughed back where it
multi-dimensional role, they cannot be judged in terms is generated. This is the only way to sustain it and
of a single measure. multiply its impact.

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 Each year, it spends on an average five per cent of
its profits on a portfolio of social activities in the un-
derdeveloped, tribal communities around its steel plant,
collieries, and mines. The range of social programmes
includes health care; education; family planning; water-
shed management; sports; tree plantation; tribal art and
culture; rural development; disaster relief and women’s
empowerment.
These programmes, undertaken voluntarily rather
than in response to legal requirements, have been sus-
tained through ups as well as downs of the company’s
life cycle and therefore are a testimony to its unflinching
commitment to its social responsibilities.
Do expenditures on such programmes compromise
the interests of the shareholders? The answer is a re-
sounding ‘no!’ Tata Steel has gained immeasurably from
assuming its social responsibilities. It has earned the
goodwill of all its stakeholders and is a preferred busi-
ness partner for them. Its goodwill has translated into
its sustained record of high performance in the steel
industry. If anything, expenditures on such social pro-
grammes have added both to the profitability and the
reputation of the company.
The experience of Tata Steel, and other like-minded
companies around the globe (Matsushita, for example),
makes it sufficiently clear that business firms must pursue
a higher goal than mere profit maximization.

Mrityunjay Athreya
Management Advisor
New Delhi

T
he worldwide domestic liberalization of the erst- the others imitating them have focused on somehow
while command economies and the simultaneous reporting short-term quarter-on-quarter rising profits,
globalization of the hitherto closed economies are even if this means sacrificing the long-term, as well as
unleashing more of the animal spirits of capitalism and product quality, safety, jobs, ecology, etc.
competition. While this has potential benefits such as
Wisdom consists in striking a balance between
better quality, service and price for the consumer, higher
multiple objectives — hard and soft, commercial and
growth of the economy, jobs, etc., it
social, private and public, etc. I have
also has costs, primarily social and
The basic value is for the been advocating a ‘stakeholder man-
ecological. There are rising concerns
promoters and agement model.’ The basic value is
about the sustainability of such
managements to be for the promoters and managements
growth, consumption, life styles, in-
‘trustees’ of all the to be ‘trustees’ of all the stakehold-
equalities, stress, crime, conflict, and
stakeholders. As a start, ers. As a start, the management of
erosion of the eco-system.
a company must empathize with and
the management must
The conventional management understand its stakeholders and their
empathize with and
paradigm stressed profit maximiza- expectations. It also needs to antici-
understand their
tion as the sole, or, at least, the most pate their future expectations which
stakeholders and their
important objective of business. The are usually rising not only quantita-
expectations.
parameter was basically taken from tively but also qualitatively.
economic theory. But, Herbert Si-
mon, a non-economist, got the Nobel Prize in Economics There are five important stakeholders. They are not
for challenging two of its axioms, namely profit maxi- all on the screens of most managements. For example,
mization by firms and utility maximization by individ- before economic reforms, state-owned enterprises (SoEs)
uals. He noted the prevalent human and organizational tended to work more for the benefit of their political and
tendency to ‘satisfice’ rather than maximize. Cyert and administrative masters, employees, and their local com-
March came up with an alternative, ‘behavioural’ theory munities. On the other hand, private enterprises used
of the firm. However, the maximization thesis has to be primarily concerned with the interests of the pro-
continued to hold sway. The collapse of the Soviet Union moters. Profit was not a popular word. It smacked of
and the reforms in Britain, China, and India, have seen profiteering. The pendulum is now swinging the other
the rise of global capitalism. The US corporations and way. As their shares get listed on the stock exchanges,

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106
both SoEs and companies focus more and more on tions. With respect to shareholders, the promoters need
‘maximizing the shareholder value’ measured by their to put the interests of the outside shareholders first. To
market capitalization. This leads to attempts at shoring some extent, they are forced to take into account the
up their EPS and PE ratios. This has, in many cases, led interests of FIIs and FIs, because of their clout. But, they
to short-term strategies, such as the neglect of R&D, should be visibly fair to retail shareholders. As the share
training, customer care, employee engagement, ecology, of MFs in stocks rises, more of this will happen. The
and ethics. A balance needs to be restored. It is hap- government, as owner, should also not divert SoE funds
pening to some extent through valid critiques, legisla- for its budgetary and party convenience.
tion, exposure through court cases and punishments, as
The initial impacts of the Indian reforms have been
in the case of Enron, Martha Stewart, Samir Arora, DSQ,
to benefit the long-neglected customer, and, to a lesser
and others.
extent, the shareholder. The employee, especially in the
The following may be a balanced approach: Harmo- organized, unionized sector, has been under some pres-
nize the expectations of the following five stakeholders sure to catch up with globally competitive levels of
— customers, shareholders, employ- quality, productivity, speed, and
ees, business partners, and society. work culture. With on-going indus-
The expectations of these five stake- While globalization and try and corporate restructuring, firms
holders make it imperative that man- the WTO regime are need to invest more in hygiene fac-
agement keeps in mind multiple ob- giving undreamt of tors and HRD for long-term employ-
jectives and does not go fundamen- freedom to businesses, ee satisfaction, performance, and de-
talist on profit as the sole objective. they also greatly increase velopment.
There are four objectives that are now their corporate social Business partners, primarily
mandatory for all enterprises — prof- responsibility. vendors and dealers, have also been
itability, growth, image, and surviv- They have to go beyond under pressure to reduce costs. The
al. The reckless pursuit of profit by earning just profit for the paradigm has shifted from ‘cost-plus
any means led to the extinction of owners. They have to pricing’ to ‘price-minus costing.’ The
Enron. Survival is threatened not only become the primary price tends to be a globalized price,
by competition but also by the law engines of growth, job influenced by the competitive pres-
and its sanctions. Firms with inju- creation, innovation, sure of countries like China. Firms
rious products, unfair employment, exports, etc. need to move from a feudal relation-
procurement or other such practices
ship with their business partners to
face an erosion in their image with
a relationship of ‘strategic partner-
negative impacts on their profits and growth that may
ship.’
even threaten their survival. A recent case is that of The
Body Shop. Ethical investors, like Calpers Fund, have While globalization and the WTO regime are giving
made good practices a condition of their institutional undreamt of freedom to businesses, they also greatly
investment. Some retail investors follow their example. increase their corporate social responsibility (CSR). They
have to go beyond earning just profit for the owners.
Firms need to recognize that there are no more They have to become the primary engines of growth, job
internal bosses and servants, but all have a common boss, creation, innovation, exports, etc. In addition, they should
namely the customer. A well-deserved revenue stream is directly, and through philanthropy, support many worth-
the only basis of long-term high performance. After while causes without leaving all of them to the govern-
dominating the Indian car market in the 1990s with 85 ment. Such causes include support to NGOs, SHGs, etc.,
per cent market share, Maruti’s share fell sharply to 50 for their activities relating to the provision of basic health,
per cent. The management adopted a set of core values, education, water, care for the elderly and the disabled,
the first being customer ‘obsession,’ not just ‘orienta- art, culture, etc. Internationally, there are the examples
tion,’ or even ‘focus.’ It is fighting its way back to retain of Ted Turner of CNN giving a billion dollars to the UN
and enhance its leadership by being more sensitive and for population management and the Gates Foundation
responsive to customer complaints, needs, and sugges- helping AIDS awareness. In India, besides the better

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107
known traditional houses, newer businesses are also business and not at all in conflict with profits. These
engaging in CSR. The need and the scope are enormous concerns are a part of enlightened self-interest. The
for decades to come. motto should be ‘where society thrives, business flour-
The above set of concerns is not a diversion from ishes.’

Arun Maira
Chairman, The Boston Consultancy Group (India)
Private Limited
Mumbai

A
fter the collapse of the Soviet Union, many physical environment such as by afforestation and re-
people thought that capitalism had triumphed duction or elimination of pollution. The second is com-
for good. But, the corporate scandals in the US munity development such as meeting the community’s
and elsewhere led many to wonder whether the capi- needs for education, health, water, infrastructure, etc.
talist establishment was not too much focused on its own The third is attempting to improve public policy and
benefits rather than the well-being of the people. Bill governance. There is reasonable consensus on the role
Emmott, the Editor-in-Chief of The Economist in his book of business in preserving and improving the physical
20:21 Vision: Twentieth Century Lessons for the Twenty-first environment and on improving social development
Century questioned why, if capital- through community development. But, attempts by
ism is the best option, it has faced business to improve governance and
repeated challenges. May be all is The need is to evolve the political environment can be in-
not well within contemporary capi- through dialogue between terpreted as meddling in the politi-
talism and a battle may have to be businessmen, government, cal system. The need, therefore, is to
fought to alter it for the greater good evolve through dialogue between
and civic society a
of society. businessmen, government, and civic
consensus on what the
society a consensus on what the social
The limited liability company, social responsibility of
responsibility of business is and what
the dominant business form, is itself business is and what are
are legitimate and illegitimate ac-
a creature of society. In The Company: legitimate and illegitimate
tions. Without such a consensus,
A Short History of a Revolutionary Idea, actions.
business can be damned if it does
Micklethwait and Wooldridge of The
and damned if it does not. Leaders
Economist point out that such a com-
of business must proactively initiate this dialogue.
pany could operate with limited liability because it was
allowed to do so by the state, which represented the The need for a consensus on business responsibility
interests of society. The privilege of limited liability is even more critical in India than in the West. Tradi-
greatly encouraged the formation of such companies and tionally, there has been a distrust of business. At the
made capitalism such a productive force. But, the core same time, business has the resources to alleviate phys-
concern in permitting limited liability was the greatest ical, social, and political concerns. The need in a poor,
good of the greatest number. Every such company, under-developed country like India for better facilities
therefore, is duty bound to protect not only the interests for health, education, etc., is obviously far more urgent
of its investors but also of society’s. than in the West. Unfortunately, public sector compa-
nies are withdrawing from their corporate social respon-
What, therefore, is the proper role of the company sibility mandate under pressure to become more com-
in society? Without an agreement on this, how can we mercially-oriented, while private sector companies are
argue about how to measure its performance? Measur- retreating to core business concerns in the face of esca-
ing only its profitability would clearly be a very incom- lating competitive pressures. Indian businesses, both in
plete measure. A major new development, thus, is the the public and private sectors, need to reconsider their
notion of corporate social responsibility. It embraces stances vis-à-vis corporate social responsibility and
three concerns. The first is preserving and improving the evolve consensus on an activist, legitimate agenda.

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108
Anu Aga
Chairperson, Thermax Group
Pune

S
ince corporations have to draw on the community damage. The ‘greenwash’ mentality, where things are
in which they operate for all resources, they also done just for the sake of appearances and statutory
have obligations to their multiple stakeholders, compliance, will no longer hold. It can eventually lead
namely, those who get affected by corporate policies and to a full-blown crisis—be it a devastating oil spill, a killer
practices who may affect the corporation in turn. Today, gas leak, or a product recall crisis.
it is acknowledged that business has not just financial
accountability but also has social and environmental Socially responsible behaviour makes good busi-
responsibility — popularly known as the triple bottom- ness sense and firms could be rewarded by increased
line of good governance. patronage. Merck, the pharmaceutical giant, developed
a treatment for a tropical disease which in layman’s
language is called ‘river blindness.’ This disease afflicts
One definition of corporate social responsibility is
millions of people in some of the world’s poorest re-
‘achieving commercial success in ways that honour ethical
gions. Despite having no commercial market for this
values and respect people, communities, and the natural
drug in the West, Merck invested millions of dollars in
environment.’ The fundamental idea embedded in cor-
developing this drug. In 1987, in collaboration with the
porate social responsibility is that business corporations
World Health Organization, Merck
can no longer act as isolated econo-
organized free distribution of this
mic entities detached from the broad-
The fundamental idea drug. Around 25 million people a
er issues of society. Although there
embedded in corporate year are treated under this pro-
is a clear difference between corpo-
social responsibility is gramme to eliminate the risk of
rate social responsibility stemming
that business corporations premature blindness. Doing this has
from a desire to do good (the norma-
can no longer act as in no way diminished the profitabil-
tive case) and corporate social res-
isolated economic entities ity of the company. As a matter of
ponsibility that reflects an enlight-
detached from the fact, this humanitarian gesture has
ened self-interest (the business case)
broader issues of society. enhanced its reputation capital.
in many cases, a firm’s reasons for
embracing corporate social respon- A company is responsible to all
sibility reflect a mixture of both these motives. its stakeholders:
• customers
Powerful forces have contributed to the recent
• employees
visibility of corporate social responsibility in India —
• shareholders and investors
increased consumer and societal expectations from
• environment and community
business, voiced by powerful NGOs like Greenpeace,
and closer home, by the Delhi-based Centre for Science • suppliers
and Environment which has exposed the wrong-doings • government.
of cola and bottled water majors. The extended reach
It should balance the short-term interest of the
of media, assisted by advances in information techno-
present day shareholders with the need to safeguard the
logy, has made these corporations run for cover, forcing
interests of all the stakeholders—now and in the future.
them to orchestrate expensive and elaborate damage
control exercises. The first obligation of business is to its customers.
Corporate social responsibility starts with producing
What is expected of companies is not their bragging quality products on time at fair prices and with plough-
about the positives in media releases and annual reports ing back a substantial part of profits so that the products
but rather their reporting candidly what has gone wrong can be further improved, delivered faster, and at much
along with a credible plan of action to limit or undo the lower costs.

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109
 With the advent of information of universalization of elementary
technology and service industry, cor- The neglect of education in India and currently runs
porations have suddenly realized environment and society 1,900 schools in various parts of the
that employees today represent the can be very detrimental country. Infosys currently commits
most valuable ‘intellectual property’ and can actually shake up to 1.5 per cent of its profit after
that is their most precious asset. They the foundations of a tax annually for social and commu-
have become aware that this asset business that has been nity causes which include education,
has legs and could walk out! Since built over decades. This women’s projects, healthcare, com-
working people spend most of their is best illustrated by the munity development, and preserva-
waking hours at work, is it not the examples of Union tion of art and culture. For the last
responsibility of the company to Carbide in India and the two years, Thermax has decided to
make the environment challenging, tobacco giants in the US. contribute one per cent profit after
joyous, and collaborative, so that each tax to social causes.
individual gives out her/his best?
From literacy promotion to the creation of sustain-
Profits are a must for the survival of any organi- able livelihood, there is a world of opportunities for
zation but being profitable is not an end in itself. It is Indian corporations. It is predicted that by 2020, there
a means to other more wholesome pursuits. Excessive will be an acute water shortage because of wastage and
focus on profits at any cost has tempted companies to also because we have indiscriminately polluted our sur-
fudge accounts, take a short-term view, and do anything face and ground water. Can corporations take a lead in
to look attractive. Instead of taking a narrow, short-term harvesting rainwater, recycle, and reuse this precious
view and defining the purpose of business as profiteer- vital resource?
ing, can we define the purpose of business as human
well-being? Companies are now required to take the responsi-
bility to ensure at least minimum and humane standards
With the growing awareness and concern about a supplier must offer to its work force. The case of Nike
environmental degradation, depletion of natural resour- being forced to review the employment practices of its
ces, and the phenomenon of global warming, there is overseas factories, some of which employed child la-
moral and legal pressure on corporations to behave bour, is a classic example.
responsibly in the interests of our future generations.
The neglect of environment and society can be very For years, government and business have been
detrimental and can actually shake the foundations of viewed as adversaries in different camps. We need to
a business that has been built over decades. This is best move away from this mindset, and industry and gov-
illustrated by the examples of Union Carbide in India ernment together need to find solutions that will mean-
and the tobacco giants in the US. ingfully address problems of the community. The gov-
ernment through its various regula-
The initiatives of the Tatas in the
tory bodies tries to protect the inter-
social sphere have been very well
Instead of taking a ests of various stakeholders.
documented. The National Dairy De-
velopment Board (NDDB) has trans- narrow, short-term view
and defining the purpose The corporate sector has finan-
formed huge areas in Indian villages
of business as cial and organizational muscle. In
by empowering producers and cre-
profiteering, can we partnership with governments,
ating a marketing outlet for their
define the purpose of NGOs, and concerned citizens, it can
produce. Operation White Flood is a
business as human well- make a significant and measurable
result of this initiative. Wipro,
being? contribution towards improving the
through the Azim Premji Founda-
lot of the less fortunate.
tion, has dedicated itself to the cause

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110
Anil K Gupta
Kasturbhai Lalbhai Professor of Entrepreneurship
IIM, Ahmedabad

F
ew corporations realize that if tions do not elicit similarly focused
they have to pay for all the The social contract reaction from the judiciary, state or
services that society provides between a corporation civil society. Extraction of ground
in securing the safety, well-being, and the state is that the water without harvesting rainwater
and happiness of their workers and state provides the or recycling waste water is a perva-
executives, they would be left with infrastructure and sive problem in India. Numerous
little profit, if any. The social con- regulatory environment hoardings advertise chemical pesti-
tract between a corporation and the that enables a corporation cides but one never finds a single
state is that the state provides the hoarding anywhere advertising the
to generate profit. In
infrastructure and regulatory envi- safety precautions that workers
return, the corporation
ronment that enables a corporation ought to take while spraying pesti-
acts like any good
to generate profit. In return, the cor- cide. Some MNCs use different stand-
citizen.
poration acts like any good citizen. ards of accountability in different
Often, corporations, like other actors countries. For instance, years ago,
in society, generate, in addition to profit, considerable there was an advertisement in Newsweek, the American
negative externalities that are not factored into their news magazine, captioned ‘A Case Where Prevention is
balance sheets. However, a reasonable autonomy has Not Better Than Cure.’ The implication of the advertise-
to be granted to every private corporation to unfold its ment was that farmers should not make preventive sprays
creative and managerial potential that the government of chemical pesticides, but let nature take care of the
is seldom able to grant to its organizations. The civil problem; and only when the pest population goes be-
society, comprising of various associations, NGOs, and yond a threshold level, they should spray. This adver-
also NGI (Non-Government Individuals) bridges the tisement, so relevant in developing countries, was never
social aspirations of a large majority in the unorganized issued in the edition sold in India.
sector and the privileged access to resources enjoyed by
There are many instances where corporations en-
the organized sector and the state bodies. It is natural
gage in corrupt business practices and yet complain
that, with the passage of time, democratic forces would
about the rising level of corruption in society. However,
expand expectations in the civil society about the role
the corporate world is not characterized only by unethi-
of various actors in fulfilling the social contract. Nobody
cal or irresponsible behaviour. There are many signi-
expects a corporation to take care of all the problems
ficant examples in the country of large corporations
in its neighbourhood. But, it is expected that, in any
engaging with local unorganized communities to con-
society, a responsible corporate citizen would fulfil at
serve resources, generate opportunities for social well-
least the minimum expectations derived from ethical,
being, and trigger entrepreneurial de-
environmental, economic, and social
velopment in the hinterland. They
norms. Profit with a purpose do not snatch or tear off the nets of
When a corporation paints its larger than one’s narrow the fishing communities just because
advertisements on beautiful natural self-interest is the best they dared to fish in the sea near
rocks injuring the aesthetic rights of guarantee for long-term their jetties or pipelines. On the
the society, the Supreme Court inter- peace, stability, and contrary, they develop technologies
venes and punishes the action. Like- social cohesion, and is for the desalination of water or the
wise, when a corporation releases its fundamentally necessary use of saline water for flushing toi-
toxic effluents in a river, in the sea for corporations to pursue lets and make such water available
or in bores, people protest. But, a their business unhindered. to local municipalities and other
large number of actions of corpora- bodies. Many corporations run rural

VIKALPA • VOLUME 29 • NO 3 • JULY - SEPTEMBER 2004 111

111
development programmes and set up foundations that that they would not pay bribes or follow any unethical
fund social development efforts. But, a culture in which practice for securing orders or supplying materials. Some
every corporate citizen accounts for every drop of water years ago, they sent a particular component for repairs
used, the air polluted by him/her, the trees planted or abroad. The concerned company, instead of repairing
uprooted, and soil reclaimed or eroded is yet to unfold. it, replaced it. The customs department charged duty
on this machine part claiming that it was an import of
Let me share some signs of hope and suggest that a new component and thus merited duty. Instead of
India might, not in a very distant future, have a com- settling the matter with a bribe, Mr Dhand paid the duty
passionate, collaborative, and creative culture nurturing under protest and pursued the matter till he recovered
partnership between the state, the civil society, and the it. In their factory, they have an interesting rule about
private sector for the common good. A mature capital- the health entitlement of their workers. The workers go
istic society is characterized by a relatively high degree to the same doctor who treats the children of the owners.
of self-regulation, so that neither the state nor the ju- Some years ago, the two friends decided to divide their
diciary is required to intervene in the legitimate pursuit business to let the new generation take over the respec-
of profits. Profit with a purpose larger than one’s narrow tive parts. The principle they used was very interesting.
self-interest is the best guarantee for long-term peace, One of them made two parts of the company and the
stability, and social cohesion, and is fundamentally ne- other chose any one of the two. The partition of the
cessary for corporations to pursue their business unhin- company did not partition their hearts.
dered.
In another construction company, Alacrity in Chen-
nai, an assurance was given to the owners of houses that
The corporate sector needs to do more. When an
they would be compensated for delay in delivery every
earthquake struck Gujarat a few years ago, there was
day after the promised date. The
indeed a tremendous upsurge of con-
lineman responsible for giving elec-
tribution by the corporate and civil It is possible to humanize trical connections wanted a bribe to
society in working together to pro- the environment within do what anyway was the entitlement
vide relief and helping in rehabilita- and outside the firm. of the company under the law. Alac-
tion. Similar cooperation was unfor- After all, a person spends rity chose to pay compensation of a
tunately largely absent when the re-
much more time outside few hundred thousand rupees to the
habilitation of riot victims was to be
the company than in the owners of the houses for not having
organized. Perhaps, the difference
company. Shouldn’t the delivered homes with all the facili-
was in the willingness of the state
company be concerned ties on the due date rather than pay
institutions to mediate in the emer-
about the quality of life just a few hundred rupees as bribe.
gence and execution of the social
of its workers? The trade-off created substantial
contract. The House of Tatas has
social capital for Alacrity, besides
supported some of the most outstand-
setting an example in a corruption-
ing fundamental research institutions of India. This busi-
ridden industry. Customers who wanted hassle-free
ness group has created an unsurpassed benchmark for
occupation of houses without having to make any black
trust, reciprocity, and responsibility. However, even the
money payment increasingly went to Alacrity. This social
Tatas have been trapped in the glory of the past and have
capital paid-off through social network that influenced
stopped creating new benchmarks and standards of
the company’s business growth. It is a different matter
social, ethical, and environmental responsibility.
that in this company, unlike Parishudh Sadhan Yantra,
Let me illustrate some of the humanizing practices the noble purpose could not yield adequate profits.
that have emerged in small companies. This can perhaps
spur other actors in the society to follow suit. It is possible to humanize the environment within
and outside the firm. After all, a person spends much
Parishudh Sadhan Yantra (now Micromatic Machine more time outside the company than in the company.
Tool) was a precision tool unit in Ghaziabad started by Shouldn’t the company be concerned about the quality
Mr N K Dhand and his friend Mr Goindi. They decided of life of its workers? Can the quality of life of workers

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112
be insulated from the quality of life of other people ledge-rich but economically poor people and cor-
amidst whom they live and the quality of the products porations can emerge for mutual advantage.
they make or the services they provide? An enlarged • Large corporations often have huge infrastructure,
social conscience can emerge if corporate leaders recog- including R&D facilities, which frequently may not
nize that they cannot ensure long-term growth for their be utilized optimally within the boundaries of the
businesses without generating sufficient social capital firm. The small-scale sector, on the other hand, does
or goodwill. Social capital is generated through trust, not have R&D facilities to solve its technological
reciprocity, and tolerance of third party actions. Ac- problems. Joint product development or leasing out
countability to one’s self is enough — it can actually of R&D facilities on concessional terms to small
deliver larger corporate social res- enterprises may spawn new partner-
ponsibility if only the leaders of these ships between the large and the small
corporations dare to listen to their An enlarged social sectors.
inner voice. The only way authentic- conscience can emerge if
• Academic institutions are be-
ity can be achieved is by harmoniz- corporate leaders
coming more and more insular in
ing one’s inner and public voices. recognize that they
terms of social responsibility and ac-
Breakthroughs in life occur when cannot ensure long-term
countability. More than 0.4 million
cutting corners becomes impossible growth for their technology students carry out
because of watchful inner eyes. Fu- businesses without projects. A majority of these projects
ture leaders will perhaps have the generating sufficient solve no real life problems. Why not
courage to look inwards so that they social capital or goodwill. let the small sector influence the
can relate to the world outside cre-
choice of projects in technology
atively, and with compassion, col-
institutions? Corporations that have
laboration, and healthy respect for dissent, diversity,
the capability to manage knowledge in a distributed
and a more holistic development. I offer a few sugges-
manner could provide mentoring and monitoring
tions for corporations:
support for such ventures.
• Many social enterprises need managerial inputs to The new paradigm based on incorporating social
improve their efficiency. Corporations can offer serv- capital in the analysis of corporate purpose and profits
ices in managing accounts and marketing and pro- does not see the social sector as a ‘sink’ of resources.
vide design and developmental support to such On the contrary, the social sector including small enter-
ventures. prises is seen as a ‘source’ of innovations, creativity,
• During the last decade and a half, the Honey Bee values, and perspectives that can improve motivation
Network has identified numerous grassroots inno- and efficiency even in the corporate sector. The envi-
vators, inventors, and traditional knowledge hold- ronmental, ethical, equity, excellence, and efficiency
ers. Many of their inventions have the potential to dimensions of enterprises can be converged if we nego-
be commercialized. Corporations can license these, tiate a new social contract between these two sectors.
incubate them, help commercialize them, and share Such a contract can contribute to India becoming a com-
the benefits equitably with the knowledge holders petitive, collaborative, compassionate, and creative
or innovators. A new social contract between know- society.

CONCLUDING REMARKS
Pradip N Khandwalla

M
ost of the panelists have identified two kinds
of ‘profit maximization’ behaviour of compa-
nies. The first is the greedy kind, the second
one is the responsible kind. The greedy kind of ‘profit
maximization’ is the one where ethics, corporate social
responsibility, and the concern for stakeholders other
than the promoters do not matter. The responsible kind
of ‘profit maximization’ is subject to ethical restraints,
appropriate discharge of the company’s social respon-
sibility, and a balanced concern for the needs of all the

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113
stakeholders, not just the promoters. conduct requires that the managers
The greedy kind is disastrous for The responsible kind of and other staff members are assessed
mankind; the responsible kind is the ‘profit maximization’ is on how they have performed vis-à-
future of civilization. This differen- subject to ethical vis the code of conduct, and suitably
tiation has enormous implications for restraints, appropriate rewarded and punished; whistle-
our ideas about professional man- discharge of the blowing mechanisms are emplaced
agement. It means that institutiona- company’s social so that breaches are swiftly observed,
lizing ethics in business is as vital a responsibility, and a reported, and punished; periodical
function of management as, say, balanced concern for the audits or stock-takings of the utili-
marketing; managers need to get as needs of all the zation of the code of conduct are
skilled in assessing and discharging stakeholders, not just the conducted for suitable modifications.
corporate social responsibility as, promoters.
Corporate ethicality can, in fact,
say, in developing and evaluating
be quite beneficial for staff morale.
investment proposals; and the top
Surveys have indicated that ethical organizations elicit
management needs to listen responsively as much to all
high employee loyalty (Joyner and Payne, 2002). Staff
the stakeholders — vendors, customers, regulatory agen-
commitment to the organization is correlated with how
cies, minority shareholders, the leaders of the local com-
ethical the organization is perceived to be by the em-
munities in which the company is operating, workers,
ployees (Valentine, Godkin and Lucere, 2002), and with
white collar staff, junior and middle level managers —
how ethics supportive the organization’s climate is seen
as to promoters and financial analysts. A lot more needs
to be (Herudon, Fraedrich and Yeh, 2001). The perceived
to be incorporated into the professional management
integrity of the leader is correlated with the level of
paradigm. Here is a sampling:
motivation of the followers (Parry and Procter-Thom-
As some of the panelists have indicated, business son, 2002). An effective management can convert the
ethics are the foundation of the institution of business. bonus from corporate ethicality, in terms of stronger
Most of the Fortune 500 companies have adopted a code staff bonding with the organization and stronger mo-
of conduct that spells out what is appropriate ethical tivation, into higher productivity, better product qua-
behaviour of the company towards its staff, customers, lity, better and faster implementation of needed changes
etc.; of its staff members vis-à-vis each other and the and innovations, etc.
company, and vis-à-vis their dealings with the compa-
As the panelists have indicated, corporate social
ny’s stakeholders (Schwartz, 2002). Merely adopting a
responsibility is multi-dimensional. It extends to eco-
code of conduct may not lead to more ethical conduct.
nomic, legal, ethical, and philanthropic aspects (Aup-
The code of conduct needs to be institutionalized, that
perle, 1982). More concretely, it encompasses ‘greening
is, accepted by the rank-and-file, with practical, meas-
policy’ aimed at protecting the en-
urable consequences. One large Hong
vironment from pollution by the
Kong company, for example, brought
in experts from an MNC to launch
An effective management company; ‘affirmative action,’ in-
can convert the bonus volving the employment and/or
a code of conduct. Internal change
from corporate ethicality, training of the members of the dis-
agents secured the endorsement of
in terms of stronger staff advantaged sections of society; com-
the CEO and the support of other
bonding with the munity development activities; ‘do-
senior managers by seeking inputs
organization and stronger main development’ (Khandwalla,
from them. Much training materials
motivation, into higher 1990), that is, activities aimed at
were developed. A training pro-
productivity, better strengthening the domain of activity
gramme was participatively de-
product quality, better of the organization such as its indus-
signed for educating the staff in what
and faster implementation try or sector; activities aimed at
the code of conduct implied and the
of needed changes and increasing the social and economic
entire staff of 6,000 was put through
innovations, etc. development of the nation such as
the training programme (McDonald,
through import substitution or pro-
2000). Institutionalizing a code of
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114
duction and distribution of products/services of nation- American survey, it was found that nearly 50 per cent
al priority; and activities aimed at improving the quality of the consumers polled preferred to buy from a corpo-
of governance in the country (through, for example, rate social performance company (other things being
lobbying the government for ‘reform’ of governance or equal), and 70 per cent indicated that they would not
a more rational tax structure). Corporate social respon- do business with socially irresponsible firms, regardless
sibility does not mean that every company does all of of price (Joyner and Payne, 2002). In another American
the above. Just as it is selective in what products/ser- study, there was a strong positive association between
vices to market and in which markets, the company the corporate social performance of the organization and
needs to be selective in what corporate social respon- how attractive prospective employees found the organ-
sibility activities to engage in, to what extent, and how. ization (Turban and Greening, 1997).
For this, it needs to identify projects, allocate resources,
As several of the panelists have pointed out, the
and develop execution, monitoring, and review mech-
shareholders are not the only stakeholders of the com-
anisms.
pany. There are several others. But, the top management
An effective way of managing corporate social re- of large companies frequently gets distanced from the
sponsibility is through developing the corporate social concerns of various stakeholders such as vendors, dis-
performance scorecard (Wartick and Cochran, 1985; tributors, financing institutions, minority shareholders,
Wood, 1991). Wood has developed an elaborate model local community leaders, and regulatory agencies. Their
of corporate social performance that concerns, queries, and suggestions need to reach the ears
includes principles of corporate so- of the top management, and equally,
cial responsibility, processes of cor- All the major institutions the vision, plans, and expectations
porate responsiveness, and the out- of the society need to be of the top management need to reach
comes, respectively, for business as democratized and these the stakeholders. Stakeholders’ coun-
a whole, the particular business, and include business cil is an effective way of ensuring
the manager. organizations. In the this (Freeman and Reed, 1983). An
corporate context, effective way of designing interac-
Corporate social performance is tion with stakeholders is to set up a
democratization implies
desirable in its own right. But even council for each type of stakeholder.
robust systems of
in corporate business performance Each council should have represent-
terms, the research to date indicates
grievance redressal, staff
atives of the relevant stakeholders
that corporate social performance is
participation in
and should meet with the manage-
generally positively associated with
management, a
ment of the company periodically
business performance (Griffin and participative style of
for a productive interaction. An MIS,
Mahon, 1997). As an example, in a management decision-
centered around periodic surveys of
study of 385 American banks, there making, and
stakeholders for their expectations
was a strong positive relationship institutionalization of
from the company and their satisfac-
between the bank’s social perform- ‘basic’ rights.... tion level, can usefully supplement
ance scores and their financial per- stakeholders’ councils. For this pur-
formance (Simpson and Kohers, pose, the key requirements are the identification of key
2002). Corporate social performance has been found to stakeholders, their needs, their expectations from the
reduce the riskiness of the firm (Orlitzky and Benjamin, company, their strategic importance to the company, the
2001). By raising the return on investment and by re- resources that the company needs to devote to each
ducing risks, corporate social responsibility practices stakeholder type, and the effective implementation of
may raise the stock market valuation of the company the programmes aimed at stakeholders’ satisfaction.
and, therefore, contribute to the maximization of the Effective management of the interface with the stake-
wealth of the investors. holders can significantly increase the competitive ad-
vantage of the organization (Jones, 1995).
Corporate social performance can also bind custom-
ers and employees more closely to the company. In an A calm mind is required to make corporate deci-

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115
sions that are ethical, socially responsive, and in the organizational effectiveness, organizational justice sys-
long-term interests of the organization. A variety of tems are associated with staff commitment to the organ-
techniques, mostly originating in India, are available for ization, and managerial rights and freedoms are asso-
this purpose. Professor S K Chakraborty, one of the ciated with perceived organizational excellence (Khand-
panelists, has conducted several training workshops with walla, 1995; Levine and D’Andrae Tyson, 1990; Likert,
companies aimed at mind-stilling through yoga and at 1961; Verma, 2002; Viswesvaran and Ones, 2002). Cor-
aligning the managers’ values and perceptions to Indian porate democracy may confer substantial competitive
spiritual values (Chakraborty, 1995). Some quite remark- advantage in securing high quality human resources in
able results have been reported for the practice of tran- the emerging knowledge society.
scendental meditation (TM) popularized by Maharishi In a hyper-competitive world, if ethics, social res-
Mahesh Yogi (Druhl, Langstaff and Monson, 2001). TM ponsibility, spirituality, stakeholders’ management, cor-
studies in the corporate context have shown that not only porate democracy and so forth erode corporate profits,
do the participants in TM training programmes improve there may not be too many corporate takers for them.
their mental, psychological, and physiological function- Fortunately, evidence suggests that these need not be
ing, teams become more effective, at the cost of profitability. Indeed, if
open, and cohesive. In a US chemi- they are properly managed, they
cals and auto parts manufacturing In a hyper-competitive may enhance profitability. There are
company, during the years TM was world, if ethics, social a whole lot of companies throughout
widely practised, productivity rose responsibility, spirituality, the world that are seeking the res-
54 per cent, sales per employee rose stakeholders’ ponsible sort of profit maximization.
88 per cent, and absenteeism declined management, corporate These include Weizhi Corporation
by 89 per cent. democracy and so forth of China, Merck Pharmaceuticals of
erode corporate profits, the US, Matsushita of Japan, Dow-
There are some political philos-
there may not be too Canada of Canada, Fisher-Paykel of
ophers who believe that democracy
many corporate takers for New Zealand, SbN Bank of Denmark,
is incomplete if the political estab-
them. Fortunately, and The Body Shop of the UK. In
lishment alone is democratic (Hirst,
evidence suggests that India, too, there is no shortage of
1993). All the major institutions of
the society need to be democratized
these need not be at the such companies: Tata Steel, Bharat
and these include business organiza-
cost of profitability. Heavy Electricals, Godrej & Boyce,
Infosys, Wipro, Hindalco, Thermax,
tions. In the corporate context, de-
Dr Reddy’s, Titan, Bajaj Auto, and so
mocratization implies robust systems of grievance re-
forth come readily to mind. Many of these profitable
dressal, staff participation in management (industrial
companies have won awards for corporate social respon-
democracy), a participative rather than an authoritarian
sibility. Not that they are perfect, but they are trying
style of management decision-making, and institution-
hard to be both profitable on the one hand and ethical
alization of such ‘basic’ rights as the right to criticize
and socially responsive on the other, and they are suc-
management decisions without being victimized, the
ceeding. They are the living examples from which we
right to information about how well or ill the company
can learn a lot and develop a new paradigm of profes-
is faring and about its strategy and plans, the right to
sional management.
form associations, the right to empowerment through
training, career planning, and counselling, the right to Can a civilization-enhancing paradigm of profes-
appeal against ‘arbitrary’ decisions of superiors (such sional corporate management emerge that stresses cor-
as concerning one’s promotion, transfer, etc.) or ‘ill- porate democracy, social responsibility, ethics, spiritu-
treatment’ and victimization by them, the right to be ality, and concern for all the stakeholders? Yes, indeed;
heard when a grievance arises, etc. A considerable body we already know its feasible outline although many
of research suggests that participative management is details need to be grafted into it. Will it? Possibly, if we
associated with high productivity, job satisfaction, and so will it.

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