Feature February-April 2005
Ratan N. Tata: Linking shareholder value and social responsibility
As Chairman of Tata Group, India's largest and most diversified industrial house, Ratan N. Tata presides over a sweeping business and philanthropic landscape. Tata Group operates more than 80 companies ranging from software and automobiles to steel, consumer goods and telecommunications. With 200,000 employees across India, it is the nation's largest private employer.
Tata Group is also unique in that nearly two thirds of the equity of the parent firm, Tata Sons Ltd., is held by philanthropic trusts endowed by Sir Dorabji Tata and Sir Ratan Tata, sons of Jamsetji Tata, who founded the family business in the 1860s. These multipurpose trusts, chaired by Ratan N. Tata, include two of the earliest and largest private grantmaking organizations in India. Through these trusts, Tata Sons gives away on average between 8 to 14 percent of its net profit every year.
Trained as an architect at New York's Cornell University, Ratan N. Tata opted instead to enter the family business, putting in time on the shop floors in key Tata industries. After assuming the Chairmanship of the Group in 1991, he proceeded to streamline the sprawling Tata Group around seven core business sectors. In corporate social responsibility he has given new direction and focus to the Tata Group's disparate activities with the creation of the Tata Council for Community Initiatives (TCCI) in 1996.
Named Business Man of the Year for Asia by Forbes in 2004, Tata serves on the board of the Ford Foundation and the program board of the Bill & Melinda Gates Foundation's India AIDS initiative.
Global Giving Matters: Is your vision of philanthropy different from that of your predecessors in your family, and if so, how does your vision reflect current realities in Indian society today?
Ratan N. Tata: There's not much difference in the fundamental vision. My predecessors decided that their efforts would not only raise the level of the quality of life for people of India, but they would also deal in human development. None of that has changed, but the fabric of the field of work has changed with time and I think the demands of philanthropy in India are today both in dimension and scope in some ways more intense than they were before.
In the early days, philanthropy was about creating development institutions such as hospitals, and initiatives of a nature which at the time were more about nation building than ours are today. Today, our philanthropic initiatives have greater focus, for example, on creation of awareness of things like discrimination against the girl child; on microfinance, to get people away from moneylenders; on water harvesting and conservation; in moving more to small community initiatives.
GGM: What do you see as the primary challenges to effective philanthropy in India today?
Tata: From our own grantgiving, we have found that the greatest challenge is to find appropriate, professionally managed grantees or NGOs. It's one of our biggest problems. There are a lot of calls for money but there is often inadequate professionalism and management, which doesn't give us a lot of comfort in channeling money in that direction.
GGM: Do you see that situation changing at all -- are you optimistic about the ability of that sector to grow and become more professional in India?
Tata: All I can say is that more and more people are being driven by a real dedication, but they're still individuals, they still need help in creating institutions. We have recognized that those people have to be encouraged, almost cajoled, into building an organization that will survive beyond them.
Philanthropic institutions in India still believe they're charitable and therefore must operate on a shoestring, that creating an organization is almost a luxury. This needs to change -- they have to recognize that a nonprofit has as much responsibility for being professionally run as a corporate body.
There's a tremendous need to move into grassroots levels and create savings programs in villages, education, hygiene awareness, and help for water harvesting and water conservation, but not many organizations are doing these things. The few we have found, we support very heavily, but not all of them have the organizational strength to really grow in this area, to have a meaningful presence in the country.
Where they do operate, the results are phenomenal. I think some of our water conservation grantees have transformed the areas in which they are working, and whatever we have seen there is just amazing. A number of our grantees have worked with villages -- villages starved of water that have had no livelihoods -- and with water harvesting and conservation, they've created year-round water supply and changed the entire fabric of these villages [see related story on Samaj Pragati Sahayog's work in rural Madhya Pradesh].
GGM: You took TCS (Tata Consultancy Services, India's oldest and biggest software firm) public last year in the country's largest IPO ever, and it generated a lot of attention as well as a lot of income. Can you tell me what impact this new infusion of funds will have on the work of the Trusts?
Tata: The Trusts will have an increase in cash of about Rs.100 crore (US $22.7 million) The holdings of the Trusts by and large are holdings in Tata Sons Ltd., which is still a privately held company. We gave all the shareholders of Tata Sons about 10 percent of the shares of TCS, which they can liquidate after the [lock-in] period is over.
One of the things we're looking at with the Trusts is another round of building major institutions, such as my predecessors built. Another possibility is the computer learning initiative to promote literacy for adults [see related story on the Computer-Based Functional Literacy program] -- we might give that substantial support. Simply putting more money into the same type of programs we've been doing is, as I've said, difficult, because we have problems locating and funding appropriate grantees. We'll probably make an announcement in this current year because this is our centenary.
GGM: Given what I've read in the press about your desire to expand your business operations on a more global footing, do you see your philanthropy being focused externally as well, or are you intending to keep your efforts mostly at home?
Tata: I think we'll keep our efforts largely at home. A few years ago, we reactivated the Chair in development economics at the London School of Economics established by Sir Ratan Tata at the turn of the century, and we're looking at doing something similar in Indian or Asian studies in another institution outside of India. We are also exploring opportunities in computer based functional literacy and vocational skills in South Africa. But barring some isolated instances of this nature, our philanthropic activities will be focused mostly on India.
GGM: A July 2004 cover story in Business Week [India] quotes an investment banking source as noting that your challenge is to "ensure that the Tata group's sense of social obligation doesn't collide with shareholder value creation." Is there anything about these two goals that is inherently incompatible in your view?
Tata: My personal view is that they're not incompatible. What we've done in our discharge of social responsibility should be of value to our shareholders. Our efforts result in a more prosperous country, and lead to a greater quality of life that benefits all. Our failure to do so contributes to a poor India with continued shortages and inequities.
Companies end up supporting these societal needs, either through the costs of corporate social responsibility or taxation, so all companies pay one way or another. However, the cost is relatively small, and the benefits are relatively great.
GGM: You've said that you plan to retire as Chairman of the Tata Group in 2007. What's ahead when you retire?
Tata: I want to retire when I can still walk. I've seen colleagues still in office when they can hardly get around on their own. When I have more time, I would like to pursue some of the causes that are most important to me. I can't truly define them at this time, but I will say that I am very much a nationalist and I would like to give more of my time to the development of India and to South Africa, for which I feel a great deal of love and affection. I will continue to remain Chairman of the [Tata philanthropic] Trusts.
Read related story on India's Tata Group: Empowering marginalized communities.
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Safe drinking water for rural India: low-tech solutions from a high-tech lab
Thanks to a partnership between the research lab of software giant Tata Consultancy Services (TCS) and a range of local NGOs, clean and safe drinking water is available for the first time for thousands of households in rural Maharashtra.
These villagers are using a household water filter that relies on commonly available agricultural waste to screen out harmful pathogens, contaminants and sediments. Developed specifically for rural areas, the filter is the result of years of research and field trials by scientists at the Tata Research Development and Design Centre (TRDDC), the Pune-based R&D division of TCS.
"They've been trying to bridge the divide between the IT world and the rest of India, and this has come out of that effort," explains Ratan N. Tata.
While the connection between information technology and low-tech water filters may not be obvious, the project exemplifies Tata philanthropy's emphasis on rural communities and water conservation and is squarely in keeping with TRDDC's mission to use research to transform lives.
Known as the SUJAL filter, this innovation holds the potential to bring a range of benefits to rural households. Easily assembled from everyday items such as rice husk ash, pebbles, Portland cement, plastic containers, nylon mesh and sand, the cost of the basic unit is about $7, less than commercial filters. The device yields about 20 liters of drinkable water a day, enough for a small- to medium-sized family.
TRDDC does not manufacture and sell the filters, but instead networks with interested NGOs, providing them with free training and other support as part of TCS's corporate social responsibility efforts. The research center is currently partnering with more than 25 local NGOs and UNICEF to make the SUJAL filter available to rural residents of Maharashtra.
To date, at least 200 people have been trained to fabricate the filters, which can be produced in a factory setting by local entrepreneurs, or put together by individuals on a "do-it-yourself" basis. More than 3,000 filters have been produced for village households in the region.
Meanwhile, TRDDC is working with Sir Dorabji Tata Trust, the Confederation of Indian Industry and local NGOs to pursue scaling up deployment of the filter technology in various regions of the country.