Tata Steel has an unbeaten track record

Name: Tata Steel

Why they won: For operating with a higher organisational purpose beyond just maximising profits. For aligning the interests of multiple stakeholders - customers, employees, partners, investors, the community and the environment. For successfully balancing doing well with doing good.

It was the early 1990s and Prime Minister PV Narasimha Rao had invited the country’s top industrialists to Delhi for an informal chat. The Tata group was represented by chairman Ratan Tata and Tata Steel Managing Director JJ Irani. At one point during the meeting, the Prime Minister suggested that companies should contribute 1 per cent of their profits for community development. The Tata chairman and Irani gave each other a knowing look.

Once back in the office, the two quantified Tata Steel’s spend on this head. They discovered that the company had been using 3 to 20 per cent of its profits for community development for over a decade.

The story is now part of folklore in India’s largest steel company and doesn’t surprise insiders. But as more companies in India embrace concepts like sustainable development and corporate social responsibility, Tata Steel’s 100-year-old history and track record as a conscious capitalist is being seen in a new light.

Even today, the company is among the very few in the country to include contribution to community development as a fixed cost to manufacturing on its balance sheet. So, while the money contributed as a per cent of profits might vary according to the company’s financial performance, the absolute amount remains unchanged.

In fact, as Tata Steel’s management reiterates, it has only increased. On conditions of anonymity, company officials put the figure at “near Rs. 1,000 crore.”

The money though is just another aspect of the overall vision of the company. “Tata Steel’s formation, and its existence, continues to be based on the vision of our founder Jamsetji Nusserwanji Tata, who believed that ‘in a free enterprise, the community is not just another stakeholder in business but is, in fact, the very purpose of its existence,’” says Managing Director H.M. Nerurkar.

It is an approach that has elicited awe from competitors. “What makes Tata Steel special is that the company has been doing this [conscious capitalism] historically, when they were not required to. Public perception about them on the ground is way above others in the industry,” says a senior executive from a rival private company that competes with the Tata firm in all steel products.

Of course, the biggest show piece of Tata Steel’s enterprise is the town that developed around its plant and is named after its founder - Jamshedpur. The company’s leased area in the town is managed by Jamshedpur Utilities & Services Company (JUSCO), which was carved out of Tata Steel in 2004 as a separate Tata group company. Backed by its 90-year experience in managing a city, JUSCO claims to be India’s only comprehensive urban infrastructure service provider. “It is a tribute to the company’s track record when Jamshedpur was selected as a UN Global Compact City, edging out the other nominee from India, Bangalore,” says Suhel Seth, owner of brand management and marketing consulting firm Counselage.

But it is not just the experience in managing water or roads of a city that matters in today’s business environment. Over the last century, Tata Steel has successfully engaged and worked with the local community. And that experience, coupled with the founder’s vision, now guides the company as it steps out of its comfort zone, acquires plants overseas and sets up new ones in other parts of India.

Despite this, its initial steps in Kalinganagar in Orissa, where the company is setting up a mega steel plant, were almost disastrous. Locals protested at the plant and more than 10 people were killed in police firing. Undeterred by the 2006 incident, Tata Steel got its officials to engage with them to change their perception of the company.

It began through a scheme called Tata Steel Parivar and teams were formed to look at aspects of the rehabilitation. Today, the company has been able to rehabilitate nearly 1,000 of the 1,195 families affected by its project. Protests are now unheard of in Kalinganagar.

Tata Steel spends Rs 25 crore every year in developing the local community around the area. “The local people are very satisfied with us and the results are there for all to see,” says Nerurkar.

The same focus and drive is now visible as the company integrates its global units under the same unifying scheme. Through an acquisition drive that lasted three years, Tata Steel bought companies in Europe and South East Asia. After the initial challenges - especially in the Corus unit in England where labour unions were vocal in their protests of job cuts in the economic downturn - it looks like the company has begun to turn the tide.

“The brand migration process has been completed,” says Nerurkar of the process that saw international units shedding their old legacy and taking on the Tata Steel name. “We are focussed on quality, R&D and technology integration. Best practices and productivity and cost ideas are shared by our colleagues located in different geographies. Process improvement teams comprising people from across our global operations have been put in place. All systems and processes are aligned towards the common objectives of the group,” adds Nerurkar.

‘The culture at Tata Steel is egalitarian’

Shubhro Sen, Co-founder and Executive Director of the Conscious Capitalism Institute Tata Steel has been practicing what we now call conscious capitalism in a more or less holistic fashion for close to 100 years. The philosophy becomes clearer once you look at the four pillars in the organisation.

Firstly, there is a higher purpose that is broader than generating financial returns on investment. Profit as a purpose is narrow. Like happiness, it ensues as a byproduct of things that you are doing well. Tata Steel has done that well. From its early days, the purpose is not only making steel in the most efficient manner, but also making sure that the impact on environment is minimal. They have, of course, constantly competed with other companies to become more efficient.

The second pillar of conscious capitalism is stakeholder management and we see this through the acronym SPICE. This stands for Society, Partners, Investors, Customers and Employees. The proposition is that when you start a firm, you begin by aligning yourself with the needs of society. You provide products and services that are ultimately for net good. Given that the bulk of the value comes from suppliers and partners, Tata Steel has done a good job. It has engaged its stakeholders in a pro-active way, instead of squeezing them for margins in the short term.

The company has sought to give its employees meaning and purpose. It is empowering the local people including Dalits. And is also empowering women, giving them alternative professions.

By not being focussed narrowly on the interests of its shareholders and squeezing out other stakeholders, Tata Steel has taken the more balanced view. It has proved that there doesn’t need to be a trade-off between two stakeholders.

The third pillar is leadership. I have got to know their senior leadership over the years. Their hearts and values are at the right place. The leadership is not imperious, commanding or controlling. There is listening capacity. It is clear from the efforts to integrate executives from the acquired units in the central management.

The final dimension is culture. Within Tata Steel, the culture is egalitarian. There are seven attributes of conscious culture - TACTILE, which stands for trust, authenticity, caring, transparency, integrity, learning and empowerment. They have done an effective job of translating their culture to their acquired units. They have taken that step and made deep efforts to integrate and make the new units feel part of that single global Tata Steel family.

As it goes global, a challenge remains. Tata Steel will increasingly deal with foreign investors who may be less patient. They might admire the social attitude of the company, but might focus more on financial returns. The company will have to strike a balance here.

(As told to Prince Mathews Thomas)