The Tata Group, India’s largest conglomerate, spends millions each year on education, renewable energy, health care and charity. Can the Tata brand of compassionate capitalism take on-and take over-the global economy?
Jack Leenaars| May 2008 issue
Chudamani Sardar carefully stirs the cow dung until it’s well mixed with the water. The brown sludge slides through her bare hands and disappears into a reservoir. Sardar looks up in satisfaction. She smiles. Another day’s gas for cooking.
That’s how simple and effective the Tata Steel Rural Development Society’s biogas installations in Sidmakudar are. Life in this farming village in the poor eastern Indian state of Jharkhand is coloured by technology provided via the companies of the omnipresent Tata Group, the country’s largest industrial conglomerate. Light burns at night in Sardar’s small mud house thanks to the solar panel ceremoniously placed on the premises under the blazing sun by Tata BP Solar. “Tata’s arrival has improved life for us enormously,” 27-year-old Sardar says shyly under the shady trees. “Everything is different now that we have gas and light.”
“Different” is a label the Tatas have always borne. Not so much because of their exceptional business successes but because of the human principles of Jamsetji Tata, born in 1839 and the founder of the Tata concern that recently made headlines when it acquired Jaguar and Land Rover.
At the beginning of the 20th century, when ethical values were unheard of in Indian industry, Tata introduced the eight-hour work day, free medical care and paid leave for his employees—ideas he picked up on his travels to Europe and the U.S. long before 1948, when they passed into Indian law. For the ambitious Tata, it wasn’t enough to be the best in the world; as a member of the Parsi people who fled Persia (now Iran) in the 13th century and subscribe to the mystical Zoroastrian religion, he also had to be the best for the world: His parents had instilled this in him.
Looking at the structure and culture of the Tata Group, one can only conclude that his philosophy of giving back to society is alive and well. In spite of the fact that the Tata firm comprises almost 100 companies in an endless series of industries— trucks, airplanes, electricity, hotels, chemicals, pharmaceuticals, tea, watches, consulting—and represents a market value of more than $70 billion, wealth doesn’t really run in the family.
While Indian captains of industry like steel baron Lakshmi Mittal and Reliance Industries’ Ambani brothers figure high on Forbes’ annual rich list, Ratan Tata, Tata’s introverted chairman and great-grandnephew of the company’s founder, is conspicuous in his absence. The family, in fact, owns barely 3 percent of the shares in Tata’s holding company. Two-thirds of Tata Sons’ shares are in the hands of the Tata Trusts, a collection of charitable institutions. For founder Jamsetji Tata, the trusts symbolized a deeply held conviction: “What comes from the people goes back to the people many times over.”
Last year, $75 million was reinvested in Indian society, spent on education, research, health care and charitable causes. Chudamani Sardar’s biogas installation and solar panel are just two examples.
The Tatas made their fortune during the 19th century in the Chinese opium trade—an episode on which the official family literature is silent. But the “Tata bible”—The Creation of Wealth, 270 pages bound in gleaming black leather—does tell of the pioneering work of Jamsetji Tata. He dreamed of making India a technological and industrial superpower equalling those of the imperialist West. For him, having a steel industry with well-educated executives was essential to the success of this independent nation in the making.
Tata died in 1904 and never saw his dream come true. But within three years, his sons had built the country’s first steelworks in the eastern part of colonial British India, where tribal peoples, tigers and elephants ruled, atop the country’s best iron ore reserve. They named the city Jamshedpur in honour of its spiritual father.
A century later, the steel town still eats, sleeps and breathes Tata. Nowhere in India have Jamsetji Tata’s ideas been more convincingly preserved than in Jamshedpur. Unsuspecting visitors feel as though they’ve arrived behind a steel curtain, where Tatalitarianism indoctrinates society. It’s Tata this and Tata that. There’s Tata Airport and Tatanagar railway station; Tata Motors cars drive down Tata-laid roads, which are lit at night with electricity provided by Tata Steel’s power stations. To unwind, residents can attend cultural performances at Tata Auditorium or play sports at Tata Athletic Academy or Tata Football Academy. Founder’s Day is observed every year on March 3, the great helmsman’s birthday.
Jamsetji envisioned a model city that would bring development and dignity to India. “Be sure to lay wide streets planted with shady trees, every other of a quickgrowing variety,” he wrote to one of his sons in 1902. “Be sure that there is plenty of space for lawns and gardens. Earmark areas for Hindu temples, Muhammadan mosques and Christian churches.”
Jamshedpur is still an oasis of green parks, spacious residential complexes, first-class amenities like water and electricity and professional sports centres. It also boasts something extremely unusual for India: a modern, efficient garbage collection service. This 64-square-kilometre (25-square-mile) city is home to 700,000 residents—only 20,000 of whom are on Tata Steel’s payroll—and can justifiably be called a model city.
Against a background of imposing steelworks chimneys, the offices and green parks of Jamshedpur are graced with statues: of Jamsetji, naturally, but also of J.R.D. Tata, who led the firm more than 50 years ago and under whose direction it became involved in so many industries. Almost without exception, the statues are respectfully draped with fresh flowers.
From its Jamshedpur base, the Tatas’ business model developed into an example of a compassionate brand of capitalism. “Their social responsibility has always distinguished itself from other people’s, and still does,” says Meera Mitra, a development specialist and author of It’s Only Business: India’s Corporate Social Responsiveness in a Globalized World, published last year. “The Tatas are not unique in engaging in philanthropic activities in India. But while others focus on ‘patchwork philanthropy,’ the Tatas focus on constructive philanthropy.”
What she means is many charities feed and help the very poorest, while Tata, by contrast, focuses on sustainable development, setting up and supporting institutes and schools that help the country thrive in the long term. “The Tatas were the first to have institutionalized it into their corporate business,” she says.
At every level of the Tata Group, initiatives and instruments are developed to safeguard and encourage the company philosophy. Thus, a list was drawn up containing 25 provisos to which all Tata companies and their employees must adhere: no taking bribes; no supporting political parties; all business activities must benefit the country.
To ensure compliance, an ethics counselor—a kind of ombudsman—is appointed at every Tata company. Rekha Seal has fulfilled the function at Tata Steel in Jamshedpur for five years. “It is a position of trust where wrongs within the company can be broached at all levels,” says Seal, who wears a green sari. Her motto hangs in a frame behind her on the wall: We Manage with Trust.
“To keep our values means that it’s a matter of surviving on the long term,” Partha Sengupta, Tata Steel’s vice-president of business services, adds later in the company’s guest accommodations. He’s tired after a long trip that morning to the iron ore mines over dusty, potholed roads. “Instead of us compromising on our values, [the Tata model] is taking over the world.”
Not everyone is so enthusiastic. In 2006, a black page was added to company history when 12 protesting farmers in Kalinganagar were shot dead by the police in a long-running conflict over expropriation of their land, on which Tata Steel wishes to build a complex. A similar conflict is underway with landowners in Singur, a district of West Bengal, where Tata Motors plans to manufacture Nanos, the world’s cheapest car.
Where human rights are concerned, there’s still plenty of room for improvement, says Viraf Mehta, a former employee of Tata Steel Rural Development Society, now the director of Partners in Change, which fosters social responsibility in business. “The Tatas provide fair compensation and good alternative housing,” Mehta acknowledges, “but the residents of these areas don’t have much choice. In that respect, it remains an unfair battle.”
Mehta also says the environment is too far down on the Tatas’ priority list. “Take the Nano—a $2,500 car, a splendid achievement, and nice for the Indian masses,” he says in his office in the capital, New Delhi, “but it’s not an environmentally friendly car. Tata Motors has not focused on cars that run on biodiesel or alternative energy sources. The group really could have distinguished itself internationally that way.”
The new environment in which Tata operates today is nothing if not international. Under the current chairman, Ratan Tata, who’s been at the helm since 1991, the Tata Group has grown from an antiquated Indian industrial giant into a financially sound, globally active group that operates in 80 countries with nearly 300,000 employees. Total income for the 2006-’07 fiscal year hit $28.8 billion—more than 3 percent of India’s gross national product. Profits amounted to $2.8 billion.
With its spectacular acquisitions of steel producer Corus and tea manufacturer Tetley, the concern has developed a strong international profile. Last year, it earned more than 38 percent of its revenue outside India.
The Tata Group’s globalization is impressive, but are its social policies geared to the expansion? Insuffi- ciently so, in Mehta’s view. “In India, the Tatas have an imposing tradition of responsible business, but by international standards, their current achievements are less impressive. There’s still a lot of work to do.”
Seventy-year-old Ratan Tata—who lives in a self-designed bungalow in Mumbai with his dogs Tito and Tango— is the main guardian of the Tata philosophy within the firm. But he’s also the last Tata scion who’ll lead it, for there is no successor in the family.
Asked in a BusinessWeek interview early this year what the successor to his throne will have to possess, the mild-mannered tycoon replied, “Values. You could play the game that others play, and you would probably grow faster and you would probably be more profitable, but you’d be just like everyone else.”
This leaves unanswered the question of how the ethics in Tata’s business model will hold up in the global economy. After all—66 percent of shares in the possession of charities, $40 million a year spent running a model city of hundreds of thousands of people with no relationship to Tata Steel—in 2008, it all seems expensive, inefficient and far too idealistic.
On a small scale, cracks are already visible in the Jamshedpur city model, where in the past few years, thousands of people have settled in slums outside the city’s green zones, drawn as if to an oasis in the desert. Funds from the trusts can be used to better their living situations—and currently are—but they could also be appropriated for a new international takeover, which would cost billions.
Sengupta, of Tata Steel, has an answer to that: “You Westerners see it only from a cost perspective. But our values, trusts and philosophy are the DNA of our group. That’s what Tata is, in good times and bad times, in India or abroad.”
JACK LEENAARS is a journalist who lives in New Delhi, India.