Maratha Mandirs Babasaheb Gawde Institute Of Management Studies

CORPORATE SOCIAL RESPONSIBILITY & BUSINESS STRATEGY - A CASE STUDY ON THE TATA GROUP UNDER MR RATAN TATA
Pednekar. Mahesh C. Research Student, JJTUniversity, Rajasthan [email protected] Dr. Jha Nishikant Associate Professor, Thakur College of Science & Commerce, & Research Supervisor, JJT University, Rajasthan, [email protected] Introduction:
As Chairman of Tata Group, India's largest and most diversified industrial house, Ratan N. Tata presides over a sweeping business and philanthropic landscape. The Tata Group operates more than 80 companies ranging from software and automobiles to steel, consumer goods and telecommunications. With 200,000 employees across India, it is the nation's largest private employer. The Tata Group is also unique in that nearly two thirds of the equity of the parent firm, Tata Sons Ltd., is held by philanthropic trusts endowed by Sir Dorabji Tata and Sir Ratan Tata, sons of Jamsetji Tata, who founded the family business in the 1860s. These multipurpose trusts, chaired by Ratan N. Tata, include two of the earliest and largest private grant making organizations in India. Through these trusts, Tata Sons gives away on average between 8 to 14 percent of its net profit every year. Trained as an architect at New York's Cornell University, Ratan N. Tata opted instead to enter the family business, putting in time on the shop floors in key Tata industries. After assuming the Chairmanship of the Group in 1991, he proceeded to streamline the sprawling Tata Group around seven core business sectors. A pioneer in several areas, the Tata group has consistently followed the path of innovation, growth and development. Tata is credited with pioneering India's steel industry, civil aviation and starting the country's first power plant. Tata was the market leader in several diverse fields - it had the world's largest integrated tea operation, was Asia's largest software exporter, and is the world's sixth largest manufacturer of watches (Titan). Objectives: We have undertaken this study to understand the importance of CSR in not just nation building but as a strategy to successfully build up a business. We shall try to understand how the Tata group under the leadership of Ratan Tata has successfully carried forward the vision of his forbearers and used it to further develop the business of the Tata Group CSR and the Tata Group In a free enterprise, the community is not just another stakeholder in business but is in fact the very purpose of its existence." - Jamsetji N. Tata, Founder, Tata Group. "Corporate Social Responsibility should be in the DNA of every organization. Our processes should be aligned so as to benefit the society. If society prospers, so shall the organization..." - Manoj Chakravarti, General Manager - Corporate Affairs and Corporate Head - Social Responsibility, Titan Industries Limited in 2004.

Maratha Mandirs Babasaheb Gawde Institute Of Management Studies

The guiding mission of the Tata group was stated by JRD Tata in the following words: "No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people." Today's buzzword, Corporate Social Responsibility or CSR has been part of the Tata Group ever since the days of Jamshetji Tata. Even while he was busy setting up textile ventures, he always thought of his workers' welfare and requirements of the country. From granting scholarships for further studies abroad in 1892 to supporting Gandhiji's campaign for racial equality in South Africa to giving the country its first science centre, hospital and atomic research centre to providing relief and rehabilitation to natural disaster affected places - they have done it all. From its inception, the Tata group has taken up a number of initiatives for the development of society. A unique feature of the group is that 63 percent of the equity capital of the parent firm - Tata Sons Limited is held by Tata trusts, which are philanthropic in nature. According to a statement on the Tata group's website (www.tata.com), "The wealth gathered by Jamsetji Tata and his sons in half a century of industrial pioneering formed but a minute fraction of the amount by which they enriched the nation. Jamshed Irani, Director, Tata Sons Ltd, says, "The Tata credo is that 'give back to the people what you have earned from them'. So from the very inception, Jamshetji Tata and his family have been following this principle." Moreover 'he says that for any business to sustain in the long run they have to look beyond business. Ages ago when Corporate Social Responsibility was either the government, or charitable organizations headache, the Tatas aggressively worked for the upliftment of the community. Tata initiated various labor welfare laws, like the establishment of Welfare Department was introduced in 1917 and enforced by law in 1948 or Maternity Benefit was introduced in 1928 and enforced by law in 1946.The group has always been recognized as a value-driven organization. The company's values were imbibed from the founder of the group and his successors who took on the leadership of the group. All the individuals who headed Tata institutions emphasized the importance of philanthropy and the utilization of wealth to enhance the quality of public life. The core values espoused by the group included integrity, understanding, excellence, unity and responsibility. The values of the founders are reflected in the mission statement of the group, which lays great emphasis on CSR. The group's mission statement states, "At the Tata group, our purpose is to improve the quality of life of the communities we serve. We do this through leadership in sectors of national economic significance, to which the group brings a unique set of capabilities... Considered as pioneers in the area of CSR, the Tata group has played an active role in nation building and socio-economic development since the early 1900s. A survey conducted by the website www.indianngos.com revealed that Tatas spent Rs. 1.5 billion on community development and social services during the fiscal 2001-02 - the highest by any corporate house in India. Even when economic conditions were adverse, as in the late 1990s, the financial commitment of the group towards social activities kept on increasing, from Rs 670 million in 1997-98 to Rs 1.36 billion in 1999-2000. Over the recent years too as earlier, the Tata philosophy to 'Give back what you get' has been followed by all their enterprises across India. Be it relief measures, rural development, health care, education and art and culture, they have been very forthcoming. As result every year, the Tata Group's contribution to society has been phenomenal. In the fiscal year 2004 Tata Steel alone spent Rs 45 crore on social services. Different Tata companies have been actively involved in various social works. Like Tata Consultancy Services runs an adult literacy programme, Titan has employed 169 disabled people in blue collar workforce at Hosur, Telco is fighting against Leprosy at Jamshedpur, Tata Chemicals runs a rural development programme at Okhamandal and Babrala, Tata Tea's education programme and Tata Relief Committee (TRC) which works to provide relief at disaster affected areas. The group's policy is to provide livelihood instead of giving money. "How long can you give rice and dal? What is required is the means to live. And that is what the company does. During natural calamities

Maratha Mandirs Babasaheb Gawde Institute Of Management Studies

there are two phases of assistance relief measures and rehabilitation programme. After the Gujarat earthquake the group built 200 schools in two years and they rendered help during the Orissa floods when people lost cattle. Even after the Tsunami disaster members of TRC immediately reached the places and figured out what is required. CSR and Business Strategy The Tata group has long accepted the idea that CSR makes business sense. This was realized by JN Tata way back in 1895, when he stated, "We do not claim to be more unselfish, more generous or more philanthropic than others, but we think we started on sound and straightforward business principles considering the interests of the shareholders, our own and the health and welfare of our employees... the sure foundation of prosperity." Since inception, the Tata group has placed equal importance on maximizing financial returns as on fulfilling its social and environmental responsibilities - popularly known as the triple bottom line. After decades of corporate philanthropy, the efforts of the group in recent years have been directed towards synchronization of the Triple Bottom Line (TBL). Through its TBL initiative, the Tata group aimed at harmonizing environmental factors by reducing the negative impact of its commercial activities and initiating drives encouraging environment-friendly practices. In order to build social capital in the community, the group has got its senior management involved in social programs, and has encouraged employees to share their skills with others and work with community-based organizations... JRD Tata, the son of RD Tata, who was a business partner and relative of JN Tata, strongly believed that the CSR initiatives of the Tata group should be institutionalized and it should not be left to individuals to carry them forward. Therefore, suitable amendments were made to the Articles of Association of the major Tata group companies in the 1970s. Newly included was an article stating that the "company shall be mindful of its social and moral responsibilities to consumers, employees, shareholders, society and the local community." In another bid to institutionalize the CSR charter, a clause on this was put into the group's 'Code of Conduct.' This clause stated that group companies had to actively assist in improving the quality of life in the communities in which they operated. All the group companies were signatories to this code. CSR was included as one of the key business processes in TISCO. CSR was one of the eight key business processes identified by TISCO's management and considered critical to the success of the company... Ratan Tata: Carrying the mission forward In corporate social responsibility he has given new direction and focus to the Tata Group's disparate activities with the creation of the Tata Council for Community Initiatives (TCCI) in 1996. Named Business Man of the Year for Asia by Forbes in 2004, Mr Ratan Tata serves on the board of the Ford Foundation and the program board of the Bill & Melinda Gates Foundation's India AIDS initiative A July 2004 cover story in Business Week [India] quotes an investment banking source as noting that the companys r challenge is to "ensure that the Tata group's sense of social obligation doesn't collide with shareholder value creation . According to Ratan Tatas view these two objectives are not incompatible. What the company has done in their discharge of social responsibility should be of value to their shareholders. Their efforts result in a more prosperous country, and lead to a greater quality of life that benefits all. Their failure to do so would contribute to a poor India with continued shortages and inequities. Companies end up supporting these societal needs, either through the costs of corporate social responsibility or taxation, so all companies pay one way or another. However, the cost is relatively small, and the benefits are relatively great. He further states that there is not much difference in his fundamental vision. His predecessors decided that their efforts would not only raise the level of the quality of life for people of India, but they would also deal in human development. None of that has changed, but the fabric of the field of work has changed with time and the demands of philanthropy in India are today both in dimension and scope in some ways more intense than they were before.

Maratha Mandirs Babasaheb Gawde Institute Of Management Studies

In the early days, philanthropy was about creating development institutions such as hospitals, and initiatives of a nature which at the time were more about nation building than ours are today. Today, the companys philanthropic initiatives have greater focus, for example, on creation of awareness of things like discrimination against the girl child; on microfinance, to get people away from moneylenders; on water harvesting and conservation; in moving more to small community initiatives. From their own grant giving, they have found that the greatest challenge is to find appropriate, professionally managed grantees or NGOs. It's one of our biggest problems. There are a lot of calls for money but there is often inadequate professionalism and management, which doesn't give us a lot of comfort in channeling money in that direction. More and more people are being driven by a real dedication, but they're still individuals, they still need help in creating institutions. They have recognized that those people have to be encouraged, almost cajoled, into building an organization that will survive beyond them. Philanthropic institutions in India still believe they're charitable and therefore must operate on a shoestring that creating an organization is almost a luxury. This needs to change -- they have to recognize that a nonprofit has as much responsibility for being professionally run as a corporate body. Theres a tremendous need to move into grassroots levels and create savings programs in villages, education, hygiene awareness, and help for water harvesting and water conservation, but not many organizations are doing these things. The few the company has found, they support very heavily, but not all of them have the organizational strength to really grow in this area, to have a meaningful presence in the country. Where they do operate, the results are phenomenal. Some of their water conservation grantees have transformed the areas in which they are working, and whatever they have seen there is just amazing. A number of their grantees have worked with villages -- villages starved of water that have had no livelihoods -- and with water harvesting and conservation, they've created year-round water supply and changed the entire fabric of these villages. Thanks to a partnership between the research lab of software giant Tata Consultancy Services (TCS) and a range of local NGOs, clean and safe drinking water is available for the first time for thousands of households in rural Maharashtra. These villagers are using a household water filter that relies on commonly available agricultural waste to screen out harmful pathogens, contaminants and sediments. Developed specifically for rural areas, the filter is the result of years of research and field trials by scientists at the Tata Research Development and Design Centre (TRDDC), the Pune-based R&D division of TCS. "They've been trying to bridge the divide between the IT world and the rest of India, and this has come out of that effort," explains Ratan N. Tata. While the connection between information technology and low-tech water filters may not be obvious, the project exemplifies Tata philanthropy's emphasis on rural communities and water conservation and is squarely in keeping with TRDDC's mission to use research to transform lives .TRDDC is working with Sir Dorabji Tata Trust, the Confederation of Indian Industry and local NGOs to pursue scaling up deployment of the filter technology in various regions of the country One of the things Mr Ratan Tata is looking at with the Trusts is another round of building major institutions, such as his predecessors had built. Another possibility is the computer learning initiative to promote literacy for adults. Simply putting more money into the same type of programs as they have been doing is difficult, because they have problems locating and funding appropriate grantees. Further he states that the company will keep their efforts largely at home. A few years ago, the company reactivated the Chair in development economics at the London School of Economics established by Sir Ratan Tata at the turn of the century, and they are looking at doing something similar in Indian or Asian studies in another institution outside of India. Recently he donated a huge sum to Harvard University. They are also exploring opportunities in computer based functional literacy and vocational skills in South Africa. But barring some isolated instances of this nature, their philanthropic activities will be focused mostly on India. TBEM - Striving for Business Excellence To ensure that Tata group companies achieved high levels of business excellence, Tata Quality Management Services (TQMS - a division of Tata Sons) had been entrusted with the task of

Maratha Mandirs Babasaheb Gawde Institute Of Management Studies

institutionalizing the Tata Business Excellence Model (TBEM).The role of TQMS includes setting up of standards of business excellence using the TBEM framework and assisting group companies in achieving those established standards. The TBEM provides each company with an outline to help it improve business performance and attain higher levels of efficiency. The TBEM is a tool based on the Malcolm Bald ridge National Quality Award. It aims to facilitate the understanding of business performance imperatives, manage planning activities and organizational learning, enhance organizational performance capabilities and the delivery of results, and recognize excellent performance and identifying and sharing best practices. Recognition of CSR The dedicated CSR efforts by various Tata group companies have been globally recognized. The different group companies have received several awards for their fulfillment of social responsibility. For instance, TISCO was awarded 'The Energy Research Institute (TERI) award for Corporate Social Responsibility (CSR)' for the fiscal year 2002-03 in recognition of its corporate citizenship and sustainability initiatives. As the only Indian company trying to put into practice the Global Compact principles on human rights, labor and environment, TISCO was also conferred the Global Business Coalition Award in 2003 for its efforts in spreading awareness about HIV/AIDS... CSR as a future strategy While today eyebrows are being raised about corporate doing social work, the Tata Group feels it is the need of the hour. Thus, where in the West companies are doubtful of spending the shareholders money and corporate are considering discontinuing Corporate Social Responsibility. Says Irani, "Which is fine for them, but not for a country like India. The governments of the western world have a strong social security net so corporate can concentrate on making profits and paying taxes regularly but in this regard India still lags behind. We are far away from reaching that phase of economic development where government is solely responsible for the basic needs of the public. We don't have a social security, adequate health and education services. So till then corporate houses should fill the gaps." Further he explains that for any establishment to be successful public support is vital. One cannot be a spike of prosperity on the sea of poverty. In any society there is one section that makes huge profits and richer than the rest which leads to disparity. Over a period of time it has been witnessed that corporations die out if they do not support the masses. Moreover, Irani proudly claims that none of the Tata Board of Directors will ever be in the list of rich people. They have a trust that accumulates the profits of the company, which are then disbursed for various social causes. "We generate wealth but personally don't get any of it. These trusts accumulate the funds and disburse accordingly," concludes Irani. In July 2004, B. Muthuraman, Managing Director, Tata Steel Limited (TISCO), announced that in future TISCO would not deal with companies, which do not confirm to the company's Corporate Social Responsibility (CSR) standards. Speaking at the annual general meeting of the Madras Chamber of Commerce and Industry, Muthuraman stated, "We will not either buy from or sell to companies that do not measure up to Tata Steel's social responsibility standards."

Suggestions
Thus, we have seen in our case that CSR is truly very important in the Indian context; given the state of underdevelopment in vast sections of the Indian Society and the success of the Tata group over the years shows that it is possible to reconcile social objectives with profitability and other corporate need to emulate this strategy and this will surely take India into the league of developed nations. Conclusion Tata is a window into the rise of India. While that rise is often traced to free-market reforms that began in the early 90s, Tata executives emphasize that even now, the company grows despite obstacles thrown up by red tape and special interests. Unlike Chinas boom, which was orchestrated by the state, Indias is primarily the story of an enterprising private sector. The United States sees India as an outsourcing

Maratha Mandirs Babasaheb Gawde Institute Of Management Studies

economy that threatens to siphon off service jobs but Indias wider potential is mirrored in the range of Tatas ambitionsfrom luxury hotels and jewelry to the 1 Lakh Nano cars. In recent years, as Tata began listing some of its affiliates on Wall Street, Americans often compared Tata to the model conglomerate they know best: General Electric. But Tata executives, many armed with Western M.B.A.s who have all read about GE and many of their American tacticsfrom mass layoffs to hostile takeovers say these are violations of the Tata way. Ratan Tata says his company is not driven to grow over everybodys dead bodies. Some 66 percent of the profits of its investment arm, Tata Sons, go to charity, and executives make clear they have no intention of relinquishing control to Wall Street. At Tata, corporate social responsibility, to use the Western buzzword, has real money behind it.

References
1) 'Visionaries,' CSR Initiatives of Tata Group, www.indianngos.com, December 2004. 2) 'Tata Champions,' Tata Group, www.indianngos.com, December 2004. 'Social Responsibility Vital for Tata Steel Dealings,' The Hindu Business line, July 03, 2004. 3) Cover story July, 2004; Business week 4) Forerunners in corporate social responsibility March 16 2005 The Indian express 5) Tata,Corporate Social responsibility, Milton & Milton friedman, Filed under: Business Yazad Jal @ 7:49 am ,The Indian economy Blog Oct 24 2005 6) Excerpts taken from Case Study: The Tata Group: Integrating Social Responsibility with Corporate Strategy; Case Code: BECG050 - IBS center for management research