“Business with a Purpose” is a longstanding catchline. But last month, it got an endorsement from an unexpected quarter. Business Roundtable — the largest network of American CEOs — surprised the world last month with a declaration that reversed its longheld position on the enterprise principle of ‘shareholder primacy’. The who’s who of corporate America came together to redefine the purpose of corporations to mean commitment to all its stakeholders and not just to advance the interests of the shareholders.
Does this landmark decision have some resonance for India Inc? Very much, if you go by what the founder of the Tata Group, Jamsetji Tata once said: “In a free enterprise, the community is not just another stakeholder in the business, but is in fact the very purpose of its existence.”
That’s an unusual approach for the Indian business landscape. Dominated by family-owned and -run businesses, it has historically followed the principle of ‘primacy of the majority shareholder’ — wherein the promoter interest is held paramount. But in recent years, this trend has shifted.
Today, the Tata Steel management echoes its founder’s sentiments. “Enhancing economic value for shareholders is not an antithesis to what we do for constituents of a larger stakeholder group,” the company’s spokesperson told ET.
In context of Business Roundtable statement, the spokesperson said “at Tata Steel, we have amply demonstrated that our definition of stakeholders is much broader and goes beyond than just shareholders”.
2007’s social charter urged cos to partner with govt
In the summer of 2007, the then Prime Minister Manmohan Singh unveiled a 10-point social charter for India Inc — urging companies to partner with the government in creating a ‘culture of caring, sharing and belonging’.
More than a decade later, the nudge has transformed into a regulatory imperative with companies having to spend a small proportion of their profit on fulfilling obligations to society.
But there’s also a business case for enterprises to be socially responsible. “Purpose not only helps the business integrate better with society, but also helps business attract more customers, especially customers who see value in purposeful businesses as opposed to in only greedy moneymaking machines,” says Milind Sarwate, a former FMCG executive who is now on the boards of several companies.
Institutional investors too expect companies to be compliant to the environmental, social and governance (ESG) standards.
“Businesses exist for making profits — but that does not mean they make illegitimate profits or maximise profits at the cost of other obligations,” said Nilesh Shah, managing director of Kotak Mahindra AMC. “We would love our portfolio companies to engage in social good, even if it were not compulsory.”
Agreeing with the Business Roundtable manifesto, Mahindra & Mahindra Group CFO V Parthasarathy says, “In fact, we at Mahindra have been abiding by this philosophy for several decades now. Our commitment to customers, employees, communities and the environment underscores the seriousness with which we view our responsibility towards society.”
The M&M Group’s flagship programme is Project Nanhi Kali, initiated in 1996 and now jointly managed by the KC Mahindra Trust and Naandi Foundation.
It has provided educational support to more than 310,000 underprivileged girls enrolled in government schools from grades 1-10, well before the government launched its “Beti Padhao, Beti Bachao” campaign. It has created immense goodwill among present and potential customers.
“Companies that are serious about doing CSR continue to do it — irrespective of the law or economic slowdown,” says Sudhir Sinha, professor at the Institute of Rural Management, Anand.
Experts have held the company’s journey from profit to purpose to be one that is gradual and incremental. “There is a similarity between how individuals climb up Maslow’s hierarchy of needs and how companies evolve over a period,” says Sarwate. “Just as an individual moves from physiological needs to safety, belonging, esteem and then self-actualisation, corporations evolve from basic profit-making to building a robust model of revenue, profits and cash. Once that is established, they move to self-actualisation which is embodied in their purpose and responsibility towards society,” he added.
Marrying two objectives
According to Bino Paul, professor at Tata Institute of Social Sciences, the most crucial question is how do businesses shape common purposes. Pursuit of pure profit is adversarial to that, but as they attain more compliance, companies become more conscious of common purposes. Increased disclosures, social media and a globalised business environment too have increased scrutiny on companies’ actions. “The regulatory compulsions, realisation of the company that resources are limited and stakeholders’ activism has culminated into the shift in paradigm that businesses cannot continue plundering the resources required for doing business,” said JN Gupta, former executive director of Sebi and founder of shareholder advisory firm SES.
Firms are now trying to marry the two objectives of purpose and profit. For instance, an auto company might create initiatives aimed at increasing road safety.
“Companies don’t need a separate CSR policy — social responsibility needs to be a pillar of its corporate policy,” said Joy Sharma, co-founder of Impactify, a startup that helps companies to connect with the non-profit sector.
“90-95 per cent of businesses are struggling to figure out a cause to take up that will result in social good as well as make sound business sense,” he added.
Fabindia is a classic example of such a model, creating value by providing livelihoods to ethnic weavers.
With many signs pointing to an economic slowdown, the current environment might be a good one for companies to shift more focus towards purpose, even as they continue to chase higher profits.