When I graduated with my Masters’ degree in plasma physics from St. Stephen’s College, Delhi, in 1964, I took the road much less taken by students in my college. I did not take the road onwards in science to the Bhabha Atomic Research Center to join the vanguard of Indian scientists building Nehru’s vision of a modern India. Nor did I join the IAS or IFS to serve the country, which is what most of the toppers in my college did. I had intended to join the civil services myself. But I was underage and had to wait one year to sit for the examination. Those days, the best in college did not aspire to join business organizations, even multi-national ones, even though they paid much more than civil servants and scientists were paid. The view was that large companies only make simple things like soaps, and Dalda ghee, and metal boxes, and made profits. But they weren’t building the nation, which is what my generation wanted to do.
Since I had time to pass, the Principal of St. Stephen’s College persuaded me to accept an invitation for an interview by Board members of Tatas who were selecting candidates for their young Tata Administrative Service. I had never seen Bombay before, as it was known then. I would travel first class and stay in a fancy hotel, which I had never done before. Go for a luxury tour, the Principal said to me. You may even enjoy the interview.
I was very impressed by the Tata directors. They did not sound like greedy businessmen at all. They told me the history of Tatas. How Jamshedji Tata built a steel plant here in Jamshedpur, amidst jungles, 120 years ago. The British rulers of India did not want him to and created many obstacles in his path. But he was determined to show that Indians could produce steel as well as the British could, and he did. The directors told us that Mahatma Gandhi had said that while he was fighting for India’s political freedom, Jamshedji was fighting for India’s economic freedom. They invited me to join Tatas to build the nation.
So, I showed up in the Head Office of Tata Steel in Bombay in January 1965. I was given a desk about twenty meters from the office of the Group Chairman, J.R.D. Tata. Neither I, nor any of the recruits to the Tata Administrative Service before me, had studied Management. In fact, IIM Ahmedabad, and Kolkata, the first Indian general management institutions were founded only in 1961. XLRI, founded in 1949, was the Xavier Institute for Labor Relations, a subject dear to Mr. Tata, and not as an institution of business management. Whatever management concepts TAS officers learned then were from working with Tata’s leaders and from discussions with them at the Tata Management Training Center opened in Poona in 1965, the year I joined.
There I heard J.R.D. Tata explain the criteria he used to resolve leadership dilemmas at his level. He said that whenever he had to take a tough decision, he always asked himself, what will be good for Tatas? And what will be good for India? And, if there was a conflict in the two, he would take the decision that was good for India. He said that those decisions somehow always turned out good for Tatas in the long run. This leadership dictum of J.R.D is well known.
When I heard him say it to us the first time, I heard him quietly say something at the end too. What he said was: I take the decision that is good for India, it somehow always turns out good for Tatas. But I also heard him quietly end with: “And if it does not turn out good for Tatas, does it really matter”. What he was saying, I thought, was what good would it do if Tata’s made profits and the poor people of India were not better off.
J.R.D. Tata, like Jamshedji Tata, was a nation-builder. As I was preparing for this tribute to J.R.D. Tata with my lecture on “Transforming Capitalism to Make the World Better for Everyone”, I saw the headline on the front page of the Times of India on November 8, 2023. It said: “Allahabad University students to learn management mantras of Lord Krishna, and top biz honchos.” Below the headline were two pictures. One of Dhirubhai Ambani, the other of J.R.D. Tata. This gave me a good way to frame my lecture. To anchor my lecture with the ethical principles that Lord Krishna taught Arjuna, when he was faced with an ethical dilemma before the great battle in Kurukshetra, and to contrast the management philosophies of India’s two largest business groups.
The film “Guru” starring Abhishek Bachchan and Aishwarya Rai, produced by Mani Ratnam in 2007, was a block buster celebrating the management philosophy of Dhirubhai Ambani. Abhishek, representing Ambani, is accused of sharp management practices to finish off his competition. In a famous scene, he speaks to thousands of Reliance’s shareholders in a stadium and asks them if their lives have benefitted by his management of Reliance. They applaud him thunderously. Reliance proved to be a guru of management practices to produce returns for shareholders. However, though Reliance has masses of shareholders, less than 5% of Indian citizens have any investments in stock markets even through mutual funds. What about improvement in the lives of the 95% outside the stock market, one should ask?
Contrast this with J.R.D. Tata’s philosophy. If he had a dilemma, he would choose what is good for the whole of India, not just for the shareholders of Tatas.
Which is the more ethical philosophy of management? Shareholder capitalism, or trusteeship for society?
Krishna gave Arjuna the answer in Chapter 3 of the Gita. He said: “You only have the rights to the work, not the fruits thereof”. In other words, you must do your work to the best of your ability, but the fruits of your success must not be yours alone to enjoy. They belong to everyone in the world that has created you.
My lecture on transforming capitalism to improve the world for everyone is organized around three concepts:
· The concept of ethics
· The concept of trust, and
· The concept of a societally responsible enterprise
Ethics
I begin with ethics. The engines of growth in a capitalist economy are business corporations. The modern business corporation is an artificial citizen of society created by law. The template for a limited liability company by law was the East India Company.
The East India Company was an English joint stock company founded in 1600. At its peak, the company was the largest corporation in the world by various measures. The East India Company had its own armed forces in the form of the company's three presidency armies totalling about 260,000 soldiers, twice the size of the British army at the time. The operations of the company had a profound effect on the global balance of trade, almost single-handedly reversing the eastward drain of Western bullion, in effect since Roman times. The governors of the Company met in London. Their only responsibility was to ensure that accounts of the profits generated were accurate and that the profits were equitably shared amongst its investors. They were not responsible for, and hardly aware of, the marauding of the company’s officers and armies in India, China, and other Asian countries.
The East India Company was nationalised by the British Crown, but its template has persisted in the designs of 21st century capitalist corporations. Corporate law enables capitalist business corporations to be selfish citizens of society. Corporations are given all the legal rights that ordinary, human citizens have: the right to own property, the rights to free speech, the rights to sue other citizens, and also the government in courts. However, they are legally set up to maximise the profits of their own shareholders, and not for producing benefits for society. Directors of the Boards of modern business corporations are responsible for ensuring that the corporation generates profits for shareholders and for the distribution of those profit amongst the shareholders equitably. Like the East India Company, they have a limited liability. They are not accountable for the impacts of their operations on society and the environment.
At the beginning of the 21st century, the mantra that the “business of business must be only business” had taken over economics and public policy around the world. “Ease of doing business” became the measure of a governments’ performance, with governments ranked by the World Bank, and progress of “deregulation” of business rewarded. The “ease of living” of common citizens, especially those at the bottom of the economic pyramid, became secondary.
The theory was that wealth would trickle down. However, wealth has been gushing upwards. Inequalities in monetary wealth have increased obscenely. The richest persons in the world have billions of dollars in their accounts, while the poorest have none. The poorest find it impossible to cross borders, stuffed in boats and trucks, seeking better opportunities for their families, while the money of the rich is given more freedom to flow across borders to make even more money for them.
India joined the liberalisation brigade in 1991. Dr. Manmohan Singh, who was the finance minister is recognised is the liberator of business corporations from pesky licensing and trade controls. De-regulation unleashed the animal spirits of Indian entrepreneurs. Their companies’ revenues and profits grew. Promoters and CEOs became millionaires and even billionaires. When “India was shining”, as it was described in those years, the CII invited Dr. Manmohan Singh to its annual meeting in 2008, when he was the Prime Minister. He was their economics’ guru, and they invited him to share his wisdom, like Krishna to Arjuna in Kurukshetra.
I will read some passages from Dr. Singh’s speech. He said:
“In a modern, democratic society, business must realise its wider social responsibility. The time has come for the better-off sections of our society—not just in organized society, but in all walks of life—to understand the need to make our growth processes more inclusive; to eschew conspicuous consumption; to save more and waste less; to care for those who are less privileged and less well off; to be role models of probity and moderation. I invite corporate India to be a partner in making in making ours a more humane and just society”.
Dr. Singh provided the assembled leaders of corporate India a Ten-Point Social Charter. I will read out two points from it.
“First, have a healthy respect for your workers and invest in their welfare. In their health and their children’s education, give them pension and provident fund benefits, and so on. Unless workers feel cared for at work, we can never evolve a national consensus in favour of much needed more flexible labour laws aimed at ensuring that our firms remain globally competitive.”
Skipping to the fourth principle in Dr. Singh’s charter.
“Four, in a country with extreme poverty, industry needs to be moderate in the emolument levels it adopts. Rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest.”
Let us review what has happened since Dr. Singh’s plea to corporate leaders on these two points.
Tragically, even the best of Indian companies, some even in the Tata Group, have adopted the practice of hiring contract labour to do regular work. These contract workers work alongside regular employees but are paid much less for doing the same work. This is a clear violation of the fundamental principle of equal pay for equal work. Moreover, these workers on so-called “flexible employment” terms do not have any social security.
No doubt, this unethical practice helps companies to reduce their costs. But not only is it unfair; It also does not help companies to build the skills they need to remain competitive in future. Skills are built on the job. Human beings are the only “appreciating assets” any company has. The values of all other capital assets—plant, machinery, and buildings—will depreciate with time. Only human beings can increase their own value if they are motivated to and enabled to.
J.R.D. Tata and Sumant Moolgaokar, Vice Chairman of the Tata Group, with whom too I had the privilege to work for many years, knew this. In fact, Moolgaokar called the new TELCO factory in Pune (now Tata Motors), “The Learning Factory”. He said that young Indians, mostly fresh out of college and schools, would work together there in various roles, as skilled workmen, designers, and young managers, together learning new skills on the job. And together showing the world that Indians could produce engineering products as well as, and even faster than companies in the advanced world.
To prove they could, in their “Project Jupiter”, as they called it, they designed, tested, tooled-up, and produced a new light commercial vehicle, the Tata 407, in 18 months. They beat the four largest Japanese companies the Government of India had permitted to sell in India when it opened the Indian truck market to foreign competition in the early 1980s. 18 months was a world record for a new product development process. The Japanese, who were the world’s best then, took 36 months, and the Europeans much more.
Sumant Moolgaokar was awarded the prestigious Sir Jehangir Ghandy Medal for Social and Industrial Peace, here at XLRI’s Annual day in 1984. I will read a few lines from his acceptance speech, which I also quoted in my book, The Learning Factory, How the Leaders of Tata Became Nation Builders. He said:
“When men and women take pride in their skill or craft and stive to perfect it they give scope to their creative impulses where one man’s gain is not another’s loss. There is nothing new in this source of human satisfaction. It has long been established that people enjoy exercising their innate and trained abilities and that this enjoyment increases as the abilities become more complex. If with faith in them, you ask our men and women for the best, they rise to your belief in their worth and create a momentum towards improvement that results in high standards in many things they do.”
Human beings are not just hands and legs with a computer attached. They are living beings with hopes, and dreams, and aspirations, and a will to learn and make their lives better. Automation can replace only the hands and legs, and the computation ability of human beings. It cannot create the human spirit.
Replacing human beings in enterprises to save costs and improve efficiency is the wrong strategy for competitiveness in India. Capital is more expensive in India than in rich countries. On the other hand, human beings are willing to work for much less money in India. Young Indians can be the source of a sustainable competitive advantage for Indian enterprises provided they are treated as the appreciating assets of an enterprise and nurtured, as Moolgaokar did.
The other point in Dr. Singh’s Social Charter for Industry was: “Resist excessive remuneration to promoters and senior executives and discourage conspicuous consumption (because) rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest.”
I return to the headline article in the Times of India that I mentioned at the beginning of my lecture with the pictures of Dhirubhai Ambani and J.R.D. Tata.
J.R.D. Tata, the chairman of India’s largest industrial enterprise lived in an apartment on Carmichael Hill in Bombay. He often drove his own car back from office. On the same hill, not far from where Mr. Tata lived, the successor of Dhirubhai Ambani has built one of the most expensive and ostentatious homes in the world for himself. There it stands towering above the slums beneath in which thousands of hard-working Indians live. It is a picture of capitalism that is not improving the world for everyone; only improving the world for the very rich.
Do not pay yourselves too much, Dr. Singh said. Sadly, the differential between the compensations of CEOs and other C-level executives in companies has soared. From a differential of around twenty times, between top and bottom salaries in the 1980s, it has increased to about three hundred times. Could it be that top executives have generally become fifteen times smarter than they were, while workers have not learned and improved at all?
Differentials between very high compensation levels at the top, with high salaries and generous stock options, and low wages at the bottom in temporary and contract work without social security, have become vulgar around the world. In the US, even the President of the USA stood with unions this year, demanding that auto companies treat their workers fairly. Top executive compensations had increased through the Covid disruptions, while workers had been asked to tighten their belts to enable the companies to survive. The time has come, even in the US, to heed Dr. Manmohan Singh’s advice to CII in 2008.
The ethics of capitalism need reforms. Capitalist leaders must heed the Gita. It says: “you have a right to do good work, but not to selfishly enjoy the work thereof”. The fruits belong to everybody.
Trust
This brings me to the concept of “Trust”. Mahatma Gandhi said he had no problem with capitalism. It is a process of accumulation resources, he said, which can benefit society. However, capitalists are not owners of those assets. They are only trustees on behalf of society.
Why do citizens in India trust Tatas more than other industrialists? Let me tell you a story.
I realised the great respect people in India had for the Tatas when I returned from a business trip to Singapore in 1969. At that time, travel abroad was a rare privilege for an Indian. I had a daily allowance of 9 pounds sterling, which is all the Indian government would allow, to pay for my hotel, meals, and transportation. However, thanks to the ‘all you can eat for two Singapore dollars’ deal at the Komala Villas restaurant, and by using public transportation
as much as possible, I could save a little money with which to buy many little things, for a few cents each, from the Chinese government emporium in Singapore, to bring back for the staff in the office.
I landed at Santa Cruz airport with my large bag of gifts and a list to show that their total cost was just under the Rs 500 customs allowance. The customs agent at the airport would not accept my word. Much to my embarrassment, the contents of my bag were spilt on to the table and all the little trinkets were examined before an increasingly impatient queue of people behind me. The hold-up brought a customs officer to the scene. He inquired as to what the matter was. His colleague apprised him of the situation with a ‘let’s get him’ look.
The officer asked me where I worked. I told him it was with the Tatas. The response stunned me. ‘If this gentleman says he has spent less than Rs 500, he has spent less than Rs 500,’ said the officer to the agent. ‘He works for the Tatas, and Tata people always tell the truth.’ That was the reputation of the Tatas, even when business people in India were generally suspected of cheating in quality and price to make a gain for themselves.
The point I want to make is that the public trusts Tatas, not because Tatas have created Trusts, but because of the ethical way in which Tatas run their businesses.
If a business is to be considered trustworthy depending on how much of the promoters’ and principal shareholders’ profits are spent on public welfare, public sector undertakings would be trusted far more than Tatas. Because all the profits made by government in these national undertakings go back to the government to apply for the public good.
Another point is, it is not how much of the profit is spent on social schemes, whether it is 2% under the CSR law, or even more as Tatas spend. The question is about the business practices with which all the revenues were generated, and all the profits were made. 2% of net profits may be only 0.2% of revenues. Therefore only 0.2%, or even 0.5% of income, is only a token offering in the temple at the end of the week, for atonement for whatever harm the 100% will have done during the week.
Social enterprises
The concept of “social enterprises” is becoming a buzzword to connect stock markets with enterprises who are devoted to improving the conditions of society and the environment. Let us explore the concept of a social enterprise further. For this, I will return to J.R.D. Tata’s explanation of the criteria he applied to solve dilemmas while taking big decisions. He said,
“I think about what will be good for India, and what will be good for Tatas. And if there is a dilemma, I do what is good for India.” And he added, “Which turns out in the long run to be good for Tatas too”. And he quietly asked, “If it does not, does it matter?” This is the message of Lord Krishna. You have a right to do good work, but not to the fruits thereof”.
After the liberalisation of the Indian economy, Tata Steel launched a campaign to remind everyone about the contributions to society Tata Steel had made and was continuing to. The slogan was, “We also make steel”. The point was that we do social good, and we are good at making steel too.
With the liberalisation of the economy, Tata Steel began to attract foreign investors, which was good for financing Tata Steel’s expansion. However, with foreign investments, came demands on the CEO to answer questions of financial analysts in quarterly earnings calls.
I remember Mr. Muthuraman, who had taken over as CEO of Tata Steel at the turn of the Millennium, telling me about his experience in his first earnings call with analysts in Wall Street. A young analyst asked him, “When is Tata Steel going to stop being a socialist enterprise and become a proper capitalist enterprise?” What he meant was, when was Tata Steel going to stop worrying about the condition of society and focus only on profits for investors. In other words, when was Tata Steel going to join the herd practising the Wall Street version of capitalism, in which “the business of business must be only business”, and in which the condition of society is an externality which must not be the concern of the CEO and the Board.
The problem of a socially responsible trust governing a business enterprise became vivid this week in the US, with the dismissal of the two founders of OpenAI—one the CEO, the other Chairman, by its governing Board. Shares of OpenAI are owned by a “trust”, whose Board was concerned that in the haste to make more profits and raise more capital from stock markets, the company’s CEO was pushing out new AI technologies, whose harms to society can be immense if they are not regulated by the government. US financial markets have reacted badly. They say this is an untenable corporate governance structure. Because the animal spirits of entrepreneurs must not be governed by societal concerns. Under market pressures, the CEO has been reinstated and the socially responsible board has been fired!
When genuinely social enterprises are plugged into a social stock exchange to get more funds from investors, they will inevitably face the same challenges. They will have to make a choice whether to conform with the values of their investors which are driven by financial valuations. New founders of social enterprises will not have the strength of a hundred-year-old culture of building a nation that Tatas have, and they will be changed into capitalist enterprises that investors consider attractive.
I conclude by saying that Society must be recoupled with the Economy. The laws governing a corporation must be changed to redefine its purpose to improve the conditions of society and the environment while it produces profits. Only then will the incentives of the Board and corporate executives, and their compensation too, become aligned with the good of society.
Indeed, the time has come for humanity to ask capitalist enterprises the opposite question that the young Wall Street analyst asked the CEO of Tata Steel. The time has come to ask capitalist enterprises when they will become more socialist. For this, the philosophy of capitalism must change from a process of “creative destruction” and greedy competition, to a process of co-creation of the public good, driven by compassion and cooperation, and by ethical values rather than financial valuations.
Or, as the Gita says, the time has come to be more concerned about others than about yourself. Gandhiji gave a talisman to all policymakers and business leaders. He said:
“Whenever you are in doubt, or when the self becomes too much for you, apply the following test. Recall the face of the poorest and the weakest man or woman whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him or her. Will she gain anything by it? Will it restore her control over her own life and destiny? In other words, will it lead to swaraj for the hungry and spiritually starving millions? Then you will find your doubts and yourself melt away”.
In conclusion: This is the core ethical principle for the governance of an enterprise, and for the conduct of one’s own life.
Arun Maira
November 23rd 2023