The Hindu : Opinion / News Analysis : The business ethics of J.R.D. Tata

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Friday, Jul 29, 2005

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Opinion - News Analysis

The business ethics of J.R.D. Tata

R.M. Lala

A tribute to a great captain of industry on his 101st birth anniversary.

— Photo: Studio Shirodkar

J. R. D. Tata... setting high standards.

IN THE public mind, ethics in business are mainly connected with financial integrity. Important as that is, the real meaning of the word "ethics" goes far beyond that. The Oxford Dictionary defines it as "the science of morals in human conduct, a moral principle or code."

So the word ethics encompasses the entire spectrum of human conduct. Business ethics encompass how a person in business deals with his or her:

1. Colleagues,

2. Staff and workers,

3. Shareholders,

4. Customers,

5. The community,

6. The government,

7. The environment and even,

8. The nation, and its interest.

JRD always said his model in whatever he did in business was the founder of the House of Tatas, Jamsetji Tata and that whenever he needed inspiration, he would read about his life. In 1895, Jamsetji Tata said in one of the few speeches he delivered:

"We do not claim to be more unselfish, more generous or more philanthropic than other people. 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 the employees the sure foundation of our prosperity."

JRD started Tata Airlines in 1932 along with an English friend, Neville Vincent. Tatas and Neville had an agreement whereby Neville would get one-third of the profit. The investment and the services of JRD came from the Tatas.

In the first year of operation, the profit was Rs.60,000, which by today's value would be a hundred times more. Five years later in 1937 when the contract expired, the profit was ten times as much! JRD was not then the Chairman of Tatas and the legal advisor of Tatas, J. D. Choksi, felt the contract should not be renewed on the same terms as the profit was much larger. JRD was not happy but went and told Neville Vincent so. Neville Vincent was terribly upset. JRD knew in his heart that it was not fair to the man who had come to him with the idea and helped him to establish it. He went to another solicitor, a friend and advisor on his personal matters named Dinshaw Daji. Daji opined that while Choksi was legally correct, but morally his opinion was not so. JRD recounted, "I went and told Neville, `forget it,' and assured him that the terms would be the same as before."

"But did you not consult your co-Directors?" I enquired.

"No," JRD replied. "It was not right and fair and I just told him."

JRD was then thirty-three years old. Only a year later was he selected Chairman of Tata Sons.

What guided JRD was the power of his conviction and not the fine print of law.

JRD was meticulous on financial ethics. When I observed to him in 1979 that Tatas had not expanded as much in the 1960s and 1970s as some other groups had, he replied firmly:

"I have often thought about that. If we had done some of the things that some other groups have done, we would have been twice as big as we are today. But we didn't, and I would not have it any other way."

One of India's best known tax consultants, Dinesh Vyas, says that JRD never entered into a debate between "tax avoidance" which was permissible, and "tax evasion" which was illegal; his sole motto was "tax compliance."

On one occasion a senior executive of a Tata company tried to save on taxes. Before putting up the case, the chairman of that company took him along to JRD. Dinesh Vyas explained to JRD: "But sir, it is not illegal."

Softly, JRD replied: "Not illegal, yes. But is it right?"

Vyas later wrote in an article, "JRD would have been the most ardent supporter of the view expressed by Lord Denning: `The avoidance of tax may be lawful, but it is not yet a virtue'."

JRD's strong point was his intense interest in people and his desire to make them happy. Towards the end of his life he often said, "We don't smile enough." Once he added: "When people recognise me from a passing car, I smile at them. It costs me nothing and makes them happy."

When I was writing The Creation of Wealth, he told me about his dealing with his colleagues:

"With each man I have my own way. I am one who will make full allowance for a man's character and idiosyncrasies. You have to adapt yourself to their ways and deal accordingly and draw out the best in each man."

"At times it involves suppressing yourself. It is painful but necessary ... To be a leader you have got to lead human beings with affection."

It is a measure of his affection that even after some of them retired he would write to them. He thought not only of business but also of people.

In dealing with his workers he was particularly influenced by Jamsetji Tata who at the height of capitalist exploitation in 1880s and 1890s gave his workers accident insurance and a pension fund, adequate ventilation, and other benefits.

JRD wanted the workers to have a say in their welfare and safety, and he wanted their suggestions on the running of the company. He founded in 1943 one of the early personnel departments in Indian industry. As a further consequence, two pioneering strokes of Tata Steel came about, namely a profit-sharing bonus, and a joint consultative council.

Then, JRD looked further ahead. In a speech in Madras in 1969 he called on the management of industries located in rural areas or semi-urban areas to think of their less fortunate neighbours in the surrounding regions:

"Let industry established in the countryside "adopt" the villages in its neighbourhood; let some of the time of its managers, its engineers, doctors and skilled specialists be spared to help and advise the people of the villages and to supervise new developments undertaken by co-operative effort between them and the company."

To put JRD's ideas into action, the articles of association of leading Tata companies were amended and social obligations beyond welfare of employees were accepted as part of the objectives of the group. The articles of association were altered to include that the company could "subscribe or continue or otherwise to assist or to guarantee money to charitable, benevolent, religious, scientific, national, public, political or any other useful institutions, objects or purposes."

In the nineteenth century the poet, Baron Edward Thurlow, had asked, "Did you ever expect a corporation to have a conscience?"

The answer from J.R.D. Tata was, "Yes."

On shareholders

He had his own way of dealing with shareholders. Once at the annual general meeting of Tomco, a shareholder said: "Sir, the quality of Hamam Soap has deteriorated. Even the wrapping paper is not as good as before."

"Who says so?" JRD shot back. "Sir, my wife says so." "In that case you can do either of two things: you change your soap or change your wife." Shareholders delighted in such repartees by him. At the same time he was very conscious of the shareholders who were the owners of his companies.

Thinking for the nation

He was never against government participation but wanted government and private industry to move in harmony together. He succeeded in starting Air India International on that basis. It was his first and last success along these lines.

He never bent the system for his benefit. L.K. Jha recalled in 1986 that when he was a Secretary to the government, JRD never approached him on behalf of any Tata company but the whole industry. He wanted no favours, only fairness.

Business ethics is sustained by a purpose higher than one's own self-interest. Prime Minister Narasimha Rao observed "His (JRD's) business endeavours were embellished by a higher vision ... a concern for the nation and a social purpose."

When JRD was once asked what his guiding principles were, he spelt out five points one of which was:

"No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people and is achieved by fair and honest means."

Concern for the environment

In his last years he was very conscious of the environment and the industry's part in spoiling it. In 1992, he wrote in his Foreword to The Creation of Wealth: "I believe that the social responsibilities of our industrial enterprises should now extend, even beyond serving people, to the environment. This need is now fairly well recognized but there is still considerable scope for most industrial ventures to extend their support not only to human beings but also to the land, to the forests, to the waters and to the creatures that inhabit them. I hope that such need will be increasingly recognized by all industries and their managements because of the neglect from which they have suffered for so long and the physical damage that the growth of industry has inflicted, and still inflicts on them."

The JRD Tata Centre for Ecotechnology at the M. S. Swaminathan Research Foundation was established in furtherance of his desire.

Love for people

To JRD, India was not a geographical expression. It was people. When travelling by car with him once an unkempt man with a bundle on his head was crossing the road — a sight familiar to all of us, and hardly noticed. JRD turned to me and said, "Look this is probably all the poor man possesses."

When he was awarded the Bharat Ratna in 1992 Tata employees arranged a function where a gentle breeze was blowing inland from the Arabian Sea. When JRD rose to speak he made the point:

"An American economist has predicted that in the next century India will be an economic superpower. I don't want India to be an economic superpower. I want India to be a happy country."

This was not only his hope, it was also his life. He brought sunshine into the lives of many of us who knew him.

(This is an excerpt from the Afterward in the writer's book, In search of Ethical leadership, New Edition, Vision Books, New Delhi 2005.)

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