For several months, this column has focused on organisational transformations. One may wonder whether this subject is becoming increasingly crucial for the leaders of the future, and if so, why. After all, transformations and strategy have been important from the times of the Mahabharata.
Organisational transformation is like rejuvenating the human body and mind. The pursuit of life and career imposes stresses on managers just as nurturing of start-ups does on the founding team. In the bloom of adolescence and youth, every person subjects the human body to enormous stresses through inappropriate habits, lifestyle, and bravado. Rejuvenation means going to a yoga center, naturopathy clinic, weight-loss camp, and rediscovering new ideas in old matters, for example, breathing techniques. The leadership actions in organisational transformation are the equivalent of yoga—what one may term as ayurveda for the corporation.
Leaders must, and do, adopt a regime of ‘corporate ayurveda’, not necessarily by using that phrase. The need manifests when the company misses a few health parameters, enters a phase of steady decline, or suffers an enterprise ‘heart attack’. Taking further the metaphor, one could view the process as the equivalent of resetting habits and diet, strengthening the core muscles of the body, and keeping the mind active and engaged. This requires an understanding of what patterns of action and mindset a long-life company adopts. One essential aspect for the company, as with human beings, is to adopt a satwik and responsible lifestyle.
There has been a resurgence of interest among management scholars into the subject of responsible (honest and sustainable) business in societal matters. What is responsible business and what is the role of business in society?
Two hundred years ago, the neanderthal version of modern enterprise adopted two remarkable innovations: double-entry accounting and the joint stock company. These two innovations permitted entrepreneurs to think big even with limited capital because the joint stock company limited its liabilities to the owners’ share capital. It facilitated taking greater risks, which is, of course, at the heart of enterprise. The accounting innovation required every transaction to be recorded in two aspects: debit and credit, corresponding to the person giving the benefit and the person receiving the benefit.
Thus, a trading mindset adapted and evolved into an industrial mindset. With the advent of the industrial revolution, industry could earn disproportionate wealth for the shareholder, which included the founder. Traders too earned money, but never on the scale that industrialists could.
Examples of such entrepreneurs are the founders of both the corporates where I had the privilege of working—Unilever and Tata. By the 1880s, William Hesketh Lever had amassed a fortune by launching his Sunlight and Lifebuoy soap empire. He started to build a township at Port Sunlight where workers’ families would get education and health facilities, a steady income, and standards of living could improve gradually from one generation to another. He also acquired a public profile. When asked what the ‘purpose’ of his soap empire was, he simply stated that he was trying to wash the teeming millions around the world. Unilever still washes the teeming millions, though the word washing now includes beautifying and nourishing people. Lord Leverhulme, as he became known by the time of his death, left his fortune in a Leverhulme Trust with a mandated social purpose.
In a striking parallel, Jamsetji Tata began his enterprise in textiles around the same time. By investing in risk-taking by acquiring sick textile mills, by deploying the latest techniques of production on looms and weaving, by producing textiles more productively than competition, viz. Lancashire, Jamsetji became wealthy. On that base, he built his imaginative ideas for a modern hotel, steelmaking, hydropower generation, and the setting up of an institute for science and research. In due course, these fructified as Taj Mahal Hotel, Tata Steel, Tata Power, and Indian Institute of Science in Bangalore. When explaining what the ‘purpose’ of his enterprise was, he unequivocally stated that it was to serve the community. “The community was not a mere stakeholder, but the very purpose of the existence of the firm,” he said. Stated that way, and that too in the 1890s,the view was quite remarkable! Jamsetji and his successors left wealth in trusts to engage in social issues.
Both William Hesketh Lever and Jamsetji Tata were influenced by the contemporary philosophical thinking in the world’s prosperous nations—Britain and America. Influenced by the thinking of English philosopher, Jeremy Bentham, British capitalism had several benign features. Entrepreneurship in America developed more sharply with the emergence of what history has come to refer to as the ‘robber barons’. Rockefeller, Carnegie, Ford, John Pierpont Morgan, for example, were controversial initially, but left their wealth to foundations for the community. Those foundations do a great deal of social and economic upliftment to this day.
Influenced also by prevalent ideas of the late 1800s, the initial corporations seemed to develop an ethical and socially oriented outlook. Initially, it took entrepreneurs time to shake off trading conservatism in decision-making. As entrepreneurs moved into manufacturing, employing large labor forces, attitudes morphed.
When such opportunity opens in an unanticipated manner, some entrepreneurs do get carried away—as the current surge in the start-up economy indicates. Innovation, creativity, and ambition abound, so also does a cowboy mentality, greater risk-taking, and an increased mortality among enterprises. In the drive for survival and growth, enterprises focused more on rational and technological aspects—labor productivity, new manufacturing techniques, capital efficiency, and squeezing out more and more from less and less.
The next few columns will cover how long-life corporations came to be so, and how the responsible corporation evolved.
The author was Director, Tata Sons and Vice Chairman, Hindustan Unilever