The purpose of a business
When I finished college in 1964, in the early years after India’s freedom, I wanted to help build India. A career in business was not attractive then, though one would earn much more. Because business was seen as a way of only making money whereas the civil services were the way to serve the country.
However, in an interview with the Tata group’s directors, they explained that Tatas also served the country. They built industries to produce what the country had been compelled to import from abroad—steel, chemicals, trucks and buses. Industries created jobs. They pointed out that Mahatma Gandhi had said that while he was fighting for India’s political freedom, Jamsetji Tata, the group’s founder, was fighting for India’s economic freedom. I joined Tatas.
Now young people aspire to work in business rather than government. They can earn much more. Wealth has become a pre-dominant measure of success. Management schools are rated by the salaries their graduates are offered by businesses. Corporate success is measured by the stock price, and personal success by one’s wealth. While businesses are producing wealth for their investors and their senior executives, sadly they are losing the trust of society.
India was very short of foreign exchange then. The country could not afford to import what the people needed. Travel abroad was extremely restricted too. If one was permitted to travel, as I was for a business trip to Singapore in 1969, the RBI allowed me a meagre nine pounds sterling a day for all expenses. One could reenter the country with only 500 rupees of purchases abroad. I returned with a bag full of cheap ‘foreign’ trinkets for my family and the staff in the office, purchased from the Communist Chinese emporium in Singapore. The customs officer did not believe so many items could be less than 500 rupees and asked for proof. There was a big hold-up in the customs queue, and I was greatly embarrassed when he spilt the contents of my bag on the table.
A senior customers’ officer appeared. ‘Why the hold-up?” he asked. “Because this person claims that he has spent less than 500 rupees”, the agent said. “What work do you do?” the officer asked me. “I work for Tatas, sir,” I replied. Then a remarkable thing happened. The officer said to the agent, “If he works for Tatas, he must be telling the truth”. And he helped me to put all my trinkets back in the bag, and said, “Sorry for the inconvenience, sir!” That is how much the Tatas were trusted then.
Times have changed greatly. Now young people aspire to work in business rather than government. They can earn much more. Wealth has become a pre-dominant measure of success. Management schools are rated by the salaries their graduates are offered by businesses. Corporate success is measured by the stock price, and personal success by one’s wealth. While businesses are producing wealth for their investors and their senior executives, sadly they are losing the trust of society. The Edelman Trust Index, and other global surveys, report that trust in business corporations has declined globally. Corporations are viewed as self-serving, and insufficiently concerned about the impacts of their business on society and the environment.
Twentieth Century concepts of capitalism cannot provide solutions to 21st century’s systemic challenges
My encounter with the Indian Customs is a story of the trust the Tatas enjoyed. J.R.D. Tata, the long-time chairman of the Tata group, under whom I had the privilege to serve, said that whenever he had to make a difficult decision, he asked himself first what would be good for India, and second what would be good for Tatas. Invariably, what was good for India, would turn out to be good for Tatas later, he said.
Business leaders are becoming aware of declining trust in large business corporations. They are becoming conscious of their responsibilities for the environment and towards masses of people around the world not able to earn adequate incomes. Consequently, ‘corporate social responsibility’ has emerged as a new industry with a growing profession of consultants offering advice. Corporate responses to the need to rethink business responsibility fall into three types: ‘Look Good’; Do Good; and, the most difficult, ‘Be Good’.
The ‘look good’-ers put CSR close to their public relations’ departments. They report how much they spend on community activities. They also spend on advertising their projects. The gloss covers up shallowness in substance and in sincerity. The ‘do good’-ers are more sincere. They set up departments dedicated to CSR and hire CSR professionals. Some deploy their wealth in ‘trusts’ devoted to CSR. Tatas have been forerunners of this approach. Many wealthy industrialists in the West have also created trusts with wealth earned from businesses that had earned social opprobrium for exploiting labour and damaging the environment. Thus, they could white-wash their past sins.
The ethical question for business leaders is not how much they have given back, but how the wealth was generated in the first place? Who accumulated the wealth, and at what social and environmental cost? Twentieth Century concepts of capitalism—that the business of business must be only business, when combined with 19th century concepts of philanthropy—accumulate a lot of wealth and give back some, cannot provide solutions to the 21st century’s systemic challenges. Fragile ecosystems and lop-sided economic growth demand a paradigm shift in the concept of business responsibility.
Fragile ecosystems and lop-sided economic growth demand a paradigm shift in the concept of business responsibility. The paradigm shift will begin with a redefinition of the purpose of business. A business’ core purpose cannot be to serve its investors. An ethical business must nourish the society and natural environment from which it receives sustenance. This was J.R.D. Tata’s orientation.
The paradigm shift will begin with a redefinition of the purpose of business. A business’ core purpose cannot be to serve its investors. An ethical business must nourish the society and natural environment from which it receives sustenance. Therefore, a business must measure its performance primarily by what value it provides society. This was J.R.D. Tata’s orientation.
Many young people set out to make a lot of money. When they have, some pause to ask what they will do with the rest of their lives. Then they belatedly confront the question, what is the purpose of their lives? Young people finishing college sometimes ask me what career they should chose. I ask them to think deeply about what matters to them most. The principal purpose of a human life cannot be to make a lot of money for investors in the enterprise one serves, or for oneself. Because human lives are civilization’s gifts to us to fulfill greater aspirations and serve larger needs.
(The writer is Chair of Helpage International and author of the book ‘Transforming Systems: Why the World needs a New Ethical Toolkit’)