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17 September, 2010

R Gopalakrishnan (Photo: Blair Cummock)
R Gopalakrishnan (Photo: Blair Cummock)
The central purpose of business is to service society,’ asserted R Gopalakrishnan, Executive Director of Tata Sons and a member of the executive board of the Tata Group, the Indian conglomerate. He dismissed the approach of the economist Milton Friedman that the sole responsibility of business was profit and shareholder value. On the contrary, Gopalakrishnan said, ‘Do what is good for your consumer and the profits will be there.’

He was giving a lecture at a conference on ‘Trust and Integrity in the Global Economy’ at the Initiatives of Change centre in Caux, Switzerland, on 13 August. He appreciated the conference title, and linked the current world economic crisis to ‘a deficit of trust’. The theme of his talk was ‘Beyond consumer capitalism--towards sustainability and free trade’.

He highlighted key lessons he had learnt during his business career, admitting that when he first joined Tata’s he had been cynical about its emphasis on ‘What are we doing for the community?’ The question had come up time and again amongst his peers, and ‘the notion rubbed off on me. I have never come across a circular in Tata’s which tells managers that their presentations must end in that way. People seemed to do so because they are genuinely of the view that their job is to earn profit for the betterment of society.’

Very few nations of a comparable size to India had attempted to achieve rapid economic growth concurrently with a full-franchise democracy, he said. China had ‘an authoritarian form of capitalism’, but he also emphasised that ‘it doesn’t matter what is different from you but learn to respect what is different from you.’

He urged that businesses should follow the principle of ‘obliquity’. Focus on stakeholder welfare and profits would follow, he said. Companies were ‘an organic part of society. When businesses put social responsibility at the core of their activities, other “lag” measures like profits automatically follow.’

Some corporations had ‘lost the plot’ because they focussed solely on shareholder return. But he praised Paul Polman, CEO of Unilever, who ‘sensibly said he was focused on serving consumers and that returns and profits would follow.’ Media analysts had flayed him, ‘but in my view Polman is right’. He had confirmed to Gopalakrishnan that he would ignore his critics.

TIGE Caux Lecture: R. Gopalakrishnan (Photo: Adriana Borra)
TIGE Caux Lecture: R. Gopalakrishnan (Photo: Adriana Borra)
The central purpose of giving what it earns back to society is the reason why Tata’s continue to flourish,’ he asserted. Tata’s founding father, Jamsetji Tata, had never said he wanted Tata’s to be the biggest or most profitable company in India. Nonetheless, the Tata Group is now the largest private group in India in terms of market capitalisation and revenues, with a $70 billion turnover, 60 per cent of which is earned outside India. The group employs 360,000 people worldwide.

Few big corporations have an ownership structure similar to Tata’s. The principal shareholder of the parent company, Tata Sons, is its charitable trusts, whilst some three million shareholders own individual companies within the Tata group. This ownership structure gave a sense of ‘humility and humanity’ to the whole group, Gopalakrishnan claimed, ‘whereby you can run the company and be a servant of society’. The Bosch group was similar, with a 92 per cent shareholding by its charitable foundation.

Gopalakrishnan wondered why the notion of serving society had been so lacking in the banks that had caused the financial and economic crash. He emphasised frugality which looked to the needs of the most disadvantaged in society who had no access to basic amenities. ‘Frugality has not been a virtue till now but the paradigm is changing,’ he said. He cited, as an example, the need for affordable and safe drinking water. Tata Chemicals had launched Tata Swach, an innovative and portable water purifier, with a replaceable filter, which costs only 30 rupees (£0.40 UK) per month for a family of five.

It was necessary to play to the best in one’s inherent nature. ‘When it comes to the rubber hitting the road, everyone is taking care of their own interests first. But that may not be my nature, my interest.’

The epicentre of growth is shifting’ back towards Asia, but this should not be seen as a threat, he said. ‘Authoritarian capitalism’ may be seen as an oxymoron. But ‘Tata’s are a social capitalist model. Tata is not unique but perhaps different.’ The challenge it faced was not to so much to pass on its values to others ‘but to maintain those core values in ourselves.’

We have been born into the world to live in coexistence,’ he concluded. ‘We have not been born to be greedy and selfish.’

Gopalakrishnan has been president of the All India Management Association and is involved with education through his board membership of a school and two management colleges. He is the author of The Case of the Bonsai Manager: Lessons for Managers on Intuition, published by Penguin Books India in 2009.

>> Interview with R Gopalakrishnan (video)

>> Listen to R Gopalakrishnan's online

>> Download R Gopalakrishnan's speech

>> Further information about the International Caux Conferences 2010

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