30 INTHEBL ACK DECEMBER 2009

Two global pioneers of admirable corporaTe pracTices are sTill moving ahead of the competition.

strong values woven into the DNA of daily business can produce outstanding results. Profit, people and planet get equal attention at Unilever and Tata – and their profit and loss statements show it.

Both groups are now capitalising on their impres-sive ethical heritage and breaking new ground on incorporating social benefits into the way they do business. It’s a big advantage in a digital age where consumer awareness is reinforced and companies have to sell reputation as much as product.

Tata began his dynasty in 1868 with the belief that the “business of business” is the creation of sustainable value – giving back to society what came from society. Twenty years later, Lever wrote down his ideas for Sunlight Soap – seen as a

revolutionary product that helped popularise hygiene in Victorian England. It was “to make cleanliness commonplace, to lessen work for women, to foster health and contribute to personal attractive-ness, that life may be more enjoyable and rewarding …”

The similarities between Lever and Tata’s legacies are remarkable. The inheritors of both companies went on to found massive endowment funds, science institutes, prestigious scholarships and build model towns for their workers. Tata introduced the eight-hour working day in 1912, and a provident fund and maternity leave were in place well before they became law in much of the West. Unilever also initiated better working and living conditions for its workers.

The way the founders structured their companies has kept them

One was a British soapmaker, the other an Indian textile manufac-turer. Both were endowed with extraordinary business acumen and a view on society that would see billions of dollars f low to charities across the world.

Some would say that William Hesketh Lever and Jamsetji Tata, founders of multi-billion dollar conglomerates Unilever and Tata, were the world’s earliest proponents of modern day corporate social responsibility (CSR). Long before it was fashionable to incorporate CSR into company policy, these early leaders entwined their social consciences with their profit goals and the legacy left by the Victorian era British philanthropist and Indian humanist equals enormous financial and social success for the enterprises they founded.

Lever, later to become Lord Leverhulme, founded what is now the epitome of the modern multinational. Unilever is the world’s third-largest consumer products company, with more than 400 brands spanning 14 categories of home, personal care and food products across 150 countries. The house of Tata’s 98 companies make a combined US$2 billion annual profit from steel, power, chemicals, cars and software.

For managers tempted to take a cynical “reputation management” stance on CSR or struggling to explain complex CSR initiatives to shareholders, both organisations are a fascinating study in how

By Jacqueline MacarthurAbove: London 1941, a mobile bath unit supplied by Lever Brothers to

blitzed areas for use by bombed-out families. Opposite page, top: Family portrait

including Tata founder Jamsetji Tata, seated at right, with his wife, sons and their wives.

Profit, people and planet get equal attention at Unilever and Tata

Dynastic diligence

cSr pioneers

INTHEBL ACK DECEMBER 2009 31

at the forefront of CSR activity for decades. Today the money still f lows to the community. The Tata group contributed more than US$100 million in 2006–07 by way of grants and social welfare schemes through its trusts and companies. Unilever contributed 91 million euros to CSR projects in 2008.

Tata Sons executive director R Gopala-krishnan is an avowed advocate of what he calls the “business of business” – serving society and making a profit. “At the time of the industrial rev-olution, the basis of competitive advantage was on industrial assets, physical assets. In the last 30 years, competitiveness is based on information assets, knowledge assets. As we go forward into whatever the next age will be called, I wonder whether the basis of competitiveness in the world of business will be on ethical assets,” Gopalakrishnan says.

“I realise this sounds pompous, but I can’t help feeling there is much evidence around us in society today that does merit exploring such an idea.”

Tata’s shareholding pattern, according to Gopalakrishnan, allows it to “do the right things in the right way with an eye on the long term”.

Tata companies are promoted by parent company Tata Sons, a private and unlisted company. The offspring, or “son and the daughter” companies are listed (Tata Steel, Tata Consultancy, Tata Motors and Tata Power). “There are some 3 million shareholders of the son, grandson and great grandson companies. The principal shareholder of the parent holding company Tata Sons is a clutch of charitable trusts. Recall that Tata Sons is worth billions of dollars … the structure of Tata embeds certain values, which you either practise or you do not belong,” Gopalakrishnan says.

The structure, he says, “gives you a sense of humility and humanity, whereby you can run the company and yet try to be a servant of society”.

“I get up and go to work every morning fighting to get every single extra rupee or dollar of profit to the extent of my influence or position. There are 350,000 other people [employees] doing the same thing.” They do it because two-thirds of every extra rupee or dollar above the target goes to charity. Both organisations have shown that when CSR programs are designed to operate as a

1890 Lever founds Port Sunlight to

house factory workers, including a cottage hospital and schools. He

also introduces schemes for welfare and education.

1915

Tata introduces free medical aid.

1917 Tata establishes a welfare

department.

1920 Tata introduces leave with pay.

1920

Unilever’s William Hesketh endows a school of tropical medicine at

Liverpool University.

1928 Tata introduces maternity benefits.

1996

Unilever and World Wildlife Fund International jointly set up Marine

Stewardship Council (MSC) – a non-government agency

conducting sustainable fish certification. Originally Unilever pledged to purchase only from sustainable sources by 2005.

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business strategy, rather than as risk or reputation insurance, they have the ability to advance key outcomes known to influence shareholder value, the recruitment and retention of top talent, successful entry into new markets, innovative product development and improved brand loyalty.

Even so, despite deeply institutionalised values, neither Tata nor Unilever claim they were perfect in the past or now. Tata, Gopalakrishnan points out, has 350,000 employees and it would be impossible to control the eth-ical standards of every one of them. But, a strong code of conduct prevents crises from deepening. He points to a 2002 scandal in which the CEO of Tata Finance was involved in a fraud that threatened to cost clients, share-holders and creditors more than US$200 million.

“At a meeting, an ordinary shareholder told how he might lose his life savings. At that point, we didn’t know the size of the scandal, but the chairman made a statement: ‘You have my assurance. Not one of you will lose a rupee.’ We could have filed for India’s version of Chapter 11; he could have said we’d stand behind the 22 per cent of Tata Finance that we owned. But the chairman stood instead for 100 per cent of the losses,” Gopalakrishnan says.

Unilever too has had its scandals. Founding father Lever’s employee welfare did not extend past Britain – he was publicly accused of using brutal slave labour policies in his Congolese palm oil concessions. More recently, Unilever was forced to temporarily close some of its Hindustan Lever operations in southern India after claims it had been dumping toxic mercury waste from a thermometer factory in 2001.

While many business benefits derived from philanthropic programs and the occasional lapses of judgement of each group may be similar, their modern day approaches to CSR programs differ.

Unilever is taking an inward look at product development and impact measurement while

forming alliances with non-government organisations and the United Nations to work on global social and environmental initia-tives. Tata has learned to leverage its core skills to help solve national development problems and instituted a central CSR coordi-nation approach while marshalling the efforts of an army of staff volunteers to rival some large NGOs.

Berna Wake, vice president of Unilever Marketing Excellence

Tata Interactive created e-learning modules to help children with learning disability

cSr pioneers

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Asia, Africa, Middle East and Turkey, says her organisation is keen-ly aware of its first mover advantage and plans to increase the lead. The Dow Jones Sustainability Index leader in the food and beverage category for 11 years running is now taking a more rigorous approach to its product development and measurement processes.

“Operating in this way is bringing us hard business benefits – it’s fuelling our innovation pipeline, delivering cost savings and helping us to ‘win’ with our retail and food service customers who have sustainability programs of their own and who want to work jointly with us,” Wake says.

Until recently, most of Unilever’s performance reporting was based on production-related metrics. New measures looking at different impacts per consumer use are now included. Wake says this is fundamental to enabling Unilever to manage the impacts of its brands. Unilever measures greenhouse gas emissions, water, waste, sustainable sourcing and the impacts of Unilever’s brands when used by consumers.

Meanwhile, Tata companies have started using their core skills to help in sustainable development of local communities. Tata Consultancy Services has developed a functional literacy program; Tata Interactive has created e-learning modules to help children with learning disability; and Tata Teleservices helps fishermen with

communications technology. Despite their head start on CSR innovation, both Wake and

Gopalakrishnan stress it is just the beginning of new ways of doing business.

“We must understand what real innovation means; applied invention is innovation. So what is it applied to? It is applied to society, it must do something good for a large number of people,” Gopalakrishnan says. n

“Corporate responsibility, governance and accountability: from self-regula-tion to co-regulation”, by Laura Albareda, Corporate Governance, No 4 2008.

“Making financial sense of corporate societal responsibility”, by S Gande, F Fortanier & R Van Tulder, Corporate Finance Review, July/August 2009.

“‘Society is out there, organisation is in here’: on the perceptions of corpo-rate social responsibility held by different managerial groups”, by J Hine & L Preuss, Journal of Business Ethics, August 2009.

Further reading

The following titles are provided by the CPA Library. They can be accessed via ProQuest, http://www.cpaaustralia.com.au/proquest. Contact the library on 1300 73 73 73 or email cpalibrary@cpaaustralia.com.au

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