The merger of Tata Steel Ltd and Corus Group—a larger UK company—hit the headlines in India, the UK and beyond.
Sunyoung Lee is a PhD student at the Saïd Business School, University of Oxford.
Asked what the Tata group would do about retaining the existing workforce at Corus, Tata Steel’s managing director, B. Muthuraman, said: “This deal ensures that there will be no job losses at Corus. Tata has a long history of taking good care of people.”
While this was good news for Corus employees, and Tata certainly has this enviable reputation, Tata’s position as a multinational company in a substantial merger inevitably begs several interesting ethical and cultural questions. Does the Tata group have a moral responsibility for the employees at Corus? In its ethical decision-making, should Tata follow Indian norms or measure its actions by English standards?
As globalization comes of age and developing and developed nations interact, such questions increasingly are coming up. More and more firms in developing nations are showing their economic power by investing overseas, especially in developed countries. Such so-called “reverse colonization”—outward foreign direct investment by developing countries in developed countries—has become noticeable over the past decade. Indian foreign investment in the UK, for instance, increased 110% in 2005-06. India now ranks as the third largest foreign investor in the UK and the second largest from the Asia-Pacific region.
The Tata group itself is becoming one of the fastest growing global players—with the Eight O’Clock Coffee Co. in the US to Tata Steel-Corus and the ultra luxurious Taj group of hotels worldwide. They have established a presence in mature markets that are very different from their base market—India.
Illustration by: Jayachandran / Mint)
Developing world companies often suffer from the perception that a poor society is less ethical than a rich one. Fears arise from stereotypes of the developing world as a place replete with corruption, illiteracy and inadequate infrastructure. There are also sometimes cultural tensions. And, perhaps naturally, following the Tata-Corus merger, fears were expressed by some in Corus.
The Tata group has a history of corporate social responsibility (CSR) stretching back more than a hundred years; dating back to 1892, when the JN Tata Endowment was set up. It was the first Tata benefaction in the field of education, and it preceded Andrew Carnegie’s groundbreaking endowment of $1 million (around Rs4.3 crore now) to the Carnegie Mellon University.
Tata’s policy is to keep social spending independent of its economic performance, and its social spending has been unaffected by fluctuations in its profits. “It is not CSR if any ulterior objectives are behind it,” says Muthuraman.
The motivation for Tata’s engagement in such activities is quite different from so-called “strategic CSR”, which is built on the view that CSR and profit maximization are inseparable—that what is good for society will be good for business.
Many of Tata’s CSR activities have little to do with its core business—steel. Some commentators say this approach to CSR helps Tata differentiate itself in a very competitive market.
For example, the investment in the city of Jamshedpur, which incorporates a wide range of CSR programmes, has helped the company stay competitive by improving employee productivity.
Sanjiv Paul, managing director of Tata’s Jamshedpur Utilities and Services Co. Ltd (Jusco), comments: “Tata Steel attracts the best talent in the country because of the lifestyle provided in this oasis in the middle of nowhere.”
Despite the lack of a strategic profit motive behind Tata’s CSR activities, financial benefits for Tata do seem to accrue. One example would be the growth and success of Jusco. The company was established by Tata Steel mainly to manage Jamshedpur’s water, power, sewage, roads, municipal services, solid waste management and integrated township maintenance. Jusco’s expertise—as the only private operator in India that provides comprehensive municipal services—has become a competitive advantage.
The company has taken the initiative in converting a public service into a profit-making, customer-oriented company which provides municipal services with a high degree of user satisfaction.
The company recently won the bid for the development and management of water supply and sewerage systems for sector V, Salt Lake, Kolkata, on a 30-year build-operate-transfer contract. It has also secured other water projects outside Jamshedpur at Haldia, Muzaffarpur, Bhopal, and Turamdih mines for the Uranium Corp. of India Ltd in Jharkhand.
The financial success of Jusco, however, is really a by-product of its CSR. Programmes such as Jusco are not narrowly philanthropic but should be seen as instruments for creating broader societal value—which make the conditions for business more favourable only in a roundabout way.
Tradition of giving
All this suggests that Tata Steel is taking a long-term perspective which favours “giving” over gaining immediate results.
But, the tradition of giving in India has many facets. Giving is also seen as being essential to business success. A common Indian belief is that power is maintained through renunciation, giving away, self-sacrifice and self-denial. Followers are attracted to transformational leaders because these leaders provide an opportunity to fulfil such higher order needs. Some have argued that a world of giving may actually increase the efficiency of the economic system. This idea dramatically challenges Western economic thought from Adam Smith onwards. In this view, giving bridges the gap between subject and object—in this case, giver and receiver. Giving, in an economic context, means care, responsibility, respect and knowledge and far more than the mere transfer of concrete favours or goods.
Tata’s philosophy applies everywhere it does business, although the means of “giving” vary according to the circumstances and lifestyle of the peoples involved.
It may be too early to predict how the merger between Tata and Corus will play out, but the idea of improving quality of life in communities through investment will continue to be a driving source of businesses for companies such as Tata.
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