[Eyes of the Wise] Toward a Sustainable Business Model for the 21st Century (3)
April 6, 2009
What is the secret of success shared by Japan's longest-lived businesses and India's most venerated corporate group? Call it "community capitalism." Rooted not in the logic of capital but in Eastern ideas of interconnectedness, community capitalism is a responsible, people-oriented approach to management—that also happens to be highly profitable.
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It seems only yesterday that business management models predicated on market fundamentalism and shareholder sovereignty were the acknowledged global standard. But as the financial crisis has spread out from the United States to engulf the rest of the world, this orthodoxy is being called into question. The fundamental issue is whether these models are compatible with the broader goal of sustainability that has emerged as the crucial challenge of the twenty-first century.
At such a critical juncture, I believe that Asian management ideas rooted in ancient ideas can suggest a new way forward.
The Tata Group: A Conglomerate with Heart
Those who have heard of the Tata Group are probably aware that it is India's largest conglomerate and that one of its flagship companies, Tata Motors, is gearing up to launch a mini-car called the Nano that will sell for roughly 200,000 yen, or $2,000. But there is a good deal more to the Tata Group than that.
The Tata story begins with the founder of the business, Jamsetji Tata (1839–1904). Born to a Parsi family of Zoroastrian priests in the western state of Gujarat, Jamsetji started up his own trading company in 1868, at the age of 29, and from there branched out into the textile, steel, electric power, and hotel industries. The famous Taj Mahal Hotel in Mumbai—much in the news last November, when terrorists barricaded themselves there as part of a coordinated series of attacks—was built by Jamsetji Tata in 1903.
The corporate empire Jamsetji built was passed down to his eldest son Dorabji Tata and thence to Nowroji Saklatwal, JRD Tata, and finally Ratan Tata, who leads the group today. During that time it grew into India's biggest conglomerate, involved in almost every sector of industry, including chemicals, oil refinery, electronic goods, automobiles, pharmaceuticals, fertilizer, cosmetics, printing, ready-made apparel, tea, real estate, and finance. Today its three core companies are Tata Steel, Tata Motors, and the software solutions firm Tata Consultancy Services (TCS).
What makes the Tata Group special, however, is not so much its size or high profile as the "Tata values" that have been passed down from the founder and kept alive over the years.
When Jamsetji first started his business, India was entering the final phase of colonization by Britain. Tata's biography describes in exhaustive detail his struggle to create, foster, and sustain a thriving business in that harsh environment. Met with obstruction, harassment and non-cooperation by British colonial officials, Jamsetji's policy was not resistance (let alone acts of terrorism) but trust in the power of a higher ideal. That ideal was the notion that business should benefit people and society as a whole—or, conversely, that the purpose of business was not simply the pursuit of personal profit. As Jamsetji Tata put it himself, "In a free enterprise, the community is not just another stakeholder in business, but is in fact the very purpose of its existence."
Stakeholders versus Community
When the debate over shareholder sovereignty was at its height, opponents frequently argued for an emphasis on stakeholders instead of shareholders. The argument was that corporations have a responsibility not simple to maximize shareholder value but to do what is right by each group of stakeholders, including also customers, business partners, employees, and the local community.
Jamsetji had a more holistic perspective, however. His focus was not the trees but the forest—that is, not the individual stakeholders but the community in the largest sense. Just as the forest is essential to the preservation of biodiversity, so the community is essential to the survival of humanity. And just as the diversity of species within the forest sustains the ecosystem as a whole, so the diversity of groups within the community is essential to the survival of the human race.
The market, by contrast, is oriented by its very nature toward homogeneity rather than diversity, just as it is oriented to efficiency rather than waste. In this sense it performs a vital function for economic development, to be sure. But because human beings are highly complex creatures, their problems cannot be solved by the market mechanism alone. Moreover when market forces are allowed to function unfettered they tend to undermine community ties by rewarding the strong, punishing the week, and widening the disparities between rich and poor. Instead of putting ourselves at the mercy of market forces, our challenge is to use them to our best advantage, keeping sight of their functional limitations. This is the basic idea underlying the "Tata values."
The "Tata values" are a body of precepts forged from the ideals of Jamsetji Tata as practiced over the years by his successors and other leaders of the Tata Group. These values find expression in a vast collection of writings, including admonitions, aphorisms, anecdotes, and analogies. Here I would like to focus on the Guiding Principles of JRD Tata, who led the conglomerate over a period of 53 years, from 1938 to 1991.
Guiding Principles of JRD Tata
- Nothing worthwhile is ever achieved without deep thought and hard work;
- One must think for oneself and never accept at their face value slogans and catch phrases to which, unfortunately, our people are too easily susceptible;
- One must forever strive for excellence, or even perfection, in any task however small, and never be satisfied with the second best;
- No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people and is achieved by fair and honest means;
- Good human relations not only bring great personal rewards but also are essential to the success of any enterprise.
Losing Sight of the Big Picture
Permeating all these principles is a reverence for humanity and a largeness of spirit that calls to mind the Hindu gods themselves. The idea is that true value can only be achieved by those who believe in human potential, think deeply and work diligently, strive for the public good, and live the way people were intended to, in harmony with one another. It adds up to humanistic management.
In retrospect, it seems to me that what all too Japanese businesses have lost since economic bubble of the 1980s burst is this large-spirited reverence for humanity and the humanistic management that it engenders.
Corporate governance, legal compliance, quarterly reporting, the Japanese equivalent of the Sarbanes-Oxley Act—all are systems premised on mutual mistrust among human beings. To borrow from the teachings of the Japanese Confucian scholar and educator Ito Jinsai (1627–1705), when people base their decisions on narrow objective calculations alone, focusing on the trees instead of the forest, their "cruel and uncompassionate" (zannin kokuhaku) tendencies triumph over their "large-minded and compassionate" (kan'yu nin'atsu) nature.
I am convinced that in business management such behavior poses lethal risks. People who put aside their "large-minded and compassionate" impulses lose sight of their customers, their business partners, their employees, the local community, and, in effect, the greater community that is the sum total of these stakeholders. Who would willingly do business with or buy goods or services from those who care about nothing but their own profits and their own well-being? Clearly, a business run by people like that cannot survive for long.
Eight Keys to Longevity
I talked with dozens of executives from Japan's most long-lived businesses to write my book Shin Nippon eitaigura (2003; New Eternal Storehouse of Japan), and the single most important thing I learned from them was this notion of humanistic management. A presentation I delivered in India last year on the subject elicited such interest that the Tata Group offered to help get the book translated and published in India. In the English edition, Timeless Ventures, which came out this year, I sum up the secret of corporate longevity in the following eight principles.
(1) Clear value system, vision, and sense of mission
Long-lived businesses have clear guiding principles regarding their purpose and their nature as an organization, and they draw on those principles in their management. The principles may be recorded in the corporation's organizational memory in the form of quotations and anecdotes concerning the founder, family precepts, or a family charter, as in the case of the Tata Group, or be enshrined in an all-encompassing code that expresses those values through conduct, protocol, and so forth. The organization members are inculcated with and shaped by values that are firmly associated with the company and its employees.
(2) Long-range focus
The longest-lived companies are generally nonpublic enterprises and are free from the tyranny of daily stock price fluctuations, quarterly profit statements, and activist shareholders demanding that cash on hand be distributed as dividends. Since the focus of management is long-term health and growth, the company can go all-out with investments geared to sustainable growth and commit itself to the development of human resources, all of which pays off by making it more competitive. This brand of management also places high priority on the confidence and the reputation the company builds up through such a long-range orientation.
(3) Humanistic, people-first management
The businesses that last longest are the ones that put people first, giving human resources higher priority than other management resources, such as goods and money. They view employees not as replaceable parts but as entities capable of growth. They also develop effective training systems to maximize this growth and place priority on employee welfare. Because many are family-run firms, their executives invest time in choosing and training a successor. In some cases they also have built-in mechanisms for unseating incompetent executives.
(4) Customer-first orientation
The foundation of any business is its customers. When a business consistently puts the customer first, more and more people will naturally seek out the goods or services the business offers, and sales and profits will grow as a result. This and this alone is what it means for a company to create value. Businesses that rest on their reputation or lose sight of the customer in their race for higher profits are on the path to self-destruction. Long-lived companies have mechanisms to sustain a culture in which employees never lose sight of this basic tenet of business and are conscious at all times that the company's fate is in the customers' hands.
(5) Social consciousness
This is not simply a matter of diligently practicing "corporate social responsibility" (CSR). It is a fundamental awareness that the business, as a member and a beneficiary of society, has a duty to give back. Businesses steeped in this social consciousness do not angle for concessions or depend on the government to get them out of every fix. Their motivation to contribute to society stems from their independence.
(6) Continuous innovation and internal reform
The companies that endure do not rest on their laurels, lapse into complacency, or stand in one place but are always adapting to a changing world. While making the most of their existing strengths, they have the will to cut loose businesses that are out of step with the times and reinvent themselves.
(7) Frugality and economy
Companies need to save up for the future so that when the opportunity arises they can make bold investments in new business undertakings. This, of course, requires the kind of frugality that takes every sensible measure to save on a daily basis. This kind of self-imposed frugality and economy also helps to foster a serious attitude toward one's work and a desire to produce fine goods or services.
(8) Ongoing efforts to build an organizational culture based on principles (1) through (7)
Most long-lived companies use a wide range of mechanisms, devices, procedures, and protocols to reaffirm and put into practice their own value system, work code, and organizational memory, sparing no effort to make them part of the corporate legacy.
Companies that embody these eight principles are not unthinking entities that function mechanically. Each is like the aforementioned forest, in which all the elements are organically linked to create and sustain an ecosystem—in other words, a community. The similarity between these principles and the "Tata values" discussed earlier is striking.
A Common Philosophical Thread
Just looking at the eight headings above, some might be inclined to argue that this is also the direction in which Western business management has been heading in recent years. After all, haven't Western companies been working hard to build a corporate culture that supports business ethics in keeping with the "value shift" advocated by Lynn Sharp Paine and others? Isn't the idea of putting the customer first found in the credos and codes of many excellent companies in the West? And isn't social consciousness essentially the same as the notion of CSR that has become so fashionable in recent years?
No doubt there is some element of truth to this. But there is also an essential, unbridgeable difference, and it all boils down to Jamsetji's concept of the community.
For Jamsetji, business was something one did to benefit people and society. His philosophy calls to mind the precepts of the famed merchants of Ômi (modern-day Shiga Prefecture), which referred to business as "the way of the Bodhisattva." Business, in other words, is the path of assisting one's fellow human being and helping society. I call this "community capitalism." It is a management philosophy to which the "logic of capital" could never give rise. But human beings cannot act on logic alone, any more than they can exist on money alone.
The idea of business as a means of doing good would surely meet resistance from Western business executives, no matter who committed to CSR. "Business is not philanthropy," they would argue. "If you want to engage in philanthropy, do like Bill Gates and establish a foundation."
In Japan, however, the roots of this idea run deep. In his work Banmin tokuyo (Right Action for All) the Zen priest Suzuki Shosan (1579–1655) offered merchants these words to live by:
Offer this body to the world, and make up your mind that what you do is only for the sake of the land and of the whole people. Vow then that you will transport goods from your own province to others, that you will bring from other provinces to your own and trade them in lands and villages yet distant, and thereby please everyone . . . (trans. Royall Tyler in Sources of Japanese Tradition)
The ideas of Shosan, a Zen priest, and the Ômi merchants, generally followers of the Pure Land sect, can both be traced back to the teachings of the Buddha. And the same basic Buddhist views of the cosmos and humanity continue to influence the Japanese people today, albeit on an unconscious level.
The religion of Jamsetji and the rest of Tatas is Zoroastrianism, but since their home was always India, and the Tata Group grew up alongside the Indian community, it cannot have escaped the influence of Hinduism. I cannot help but think that the resonance between Japanese and Indian management philosophies derives ultimately from an underlying world view, traceable to ancient Indian thought, that stresses the interconnectedness of all beings.
It is rather amazing to see the people of Japan and India discovering in one another's management philosophies this common thread transcending time and space. Indeed, from a Buddhist perspective, one might be inclined to view it as an instance of karma.
Translated from “Komyuniti shihonshugi: Indo Tata Gurupu wa Nihon no nanni kyomei shita no ka" (Community Capitalism: What Is It about Japan that Resonated with India's Tata Group?), in Chuo Koron, March 2009; slightly abridged.