Discuss the kinds of communication problems your managers might face in the host-country working environment. How should they prepare for and deal with these problems?

P A R T 4 : Comprehensive Cases

oil company with vast global operations. He transferred to the London office as a business analyst, then worked in strategy for three years, and one year in the Netherlands. Over an 18-year career at the company, he had held several top-level management positions in different business units in six countries, including heading the company’s Spanish operations in the late 1990s.

Chalon was fluent in four languages, including English, and had lived for six years in the UK. He had enjoyed working with colleagues from different countries and considered him- self to have had a very multicultural professional experience. But he had grown weary of moving every few years: “I had re- located a number of times over the years and I wanted to move back, so I started to look for opportunities that would allow me to settle down in France.”

In 2002, he joined an international automotive spare parts company headquartered in Paris, where he headed a large globally-positioned business unit and helped set up a number of global subsidiaries. By 2004, he was ready for new oppor- tunities. He was interested when Michelin approached him to lead a large division in North America. Although the position would be based out of their North American headquarters in Greenville, South Carolina, it was an exciting new challenge and Chalon jumped at the chance to work for the group. He expected the transition to be smooth: “I felt I knew the US well and figured the move to be easy. My sister-in-law is American, and with my fluent English, I felt prepared to work in an American environment.”

The Michelin Group Founded in the 1800s in Clermont-Ferrand, France, the Companie Générale des Etablissements Michelin was the lead- ing tyre manufacturer in the world with 19.2% market share for tyres in 2004 and was a global powerhouse with sales in 170 countries. Famous the world over for its road atlases, restaurant and hotel guides, and its iconic mascot, the Michelin Man, the company’s reputation was built on technical innovation and a focus on long-term growth. It employed over 120,000 people, including over 20,000 in North America.1 Within the industry it had a long-held reputation for excellence and for nurturing the careers of its employees.

“I had managed teams in six countries for large companies and had worked in a multicultural environment my entire career. I looked forward to moving to the US and working with Americans. With my fluent English and my six years’ experience in

the UK, I assumed that it would be an easy transition and I would fit right in.”

Olivier Chalon, President of a large business unit, Michelin North America

Case 9 Leading Across Cultures at Michelin

Greenville, South Carolina, 2004 How did it come to this? Olivier Chalon leant back in his chair and let out a frustrated sigh. For the first time in years he was starting to question his leadership style. Jeff Armstrong, the head of human resources for Michelin’s North American operations and whom Chalon knew personally, had just left his office. He had mentioned to Chalon that several of his colleagues and subordinates had bit- terly complained about Chalon’s management approach. Some individuals thought they were going to be fired or were seeking other positions within the company.

Chalon was shocked by the complaints people had made to Armstrong. Was it really true that people felt his leader- ship style was demoralising? That he lacked people skills? That he was an arrogant manager? Chalon was dumbfounded. Throughout his career he had been known for his ability to mo- tivate teams to accomplish great things and attain outstanding results. In his previous position he had successfully motivated a workforce of over 1,500 European employees to restructure a €1.2 billion business, leading to a profit increase of over 50% on a quarterly basis. The outstanding career success he had enjoyed over the last decade was largely built on his strong interpersonal skills and his ability to mobilise large groups of employees. Where could this criticism be coming from? Chalon knew he had to better understand this situation and to make some changes. “I need to address this before things get out of control and really damage the business,” he thought. He was concerned that his new position might be in jeopardy just six months after moving to Michelin. The stakes were high at Michelin and he was in charge of an important division that was in the midst of a turnaround.

Chalon’s Background Up until now, Chalon had had a long and very successful track record in the corporate world as a talented leader who consis- tently delivered top results. Trained as an engineer at one of France’s highly selective and prestigious Grandes Ecoles, he had started out in sales with the Paris office of a European integrated

1In 2007, Michelin had over 121,000 employees, operated 69 production sites in 19 countries, and had sales operations in 170 countries. The company held 17.2% of the world’s market share for tyres in 2008. (Source: Michelin 2007 Annual Report and Michelin Worldwide 2008 Factsheet.)

PC4-1

Winner of the 2010 European Case Clearing House Award in the category “Human Resource Management/Organisational Behaviour” This case was prepared by Erin Meyer, Adjunct Professor of Organisational Behaviour at INSEAD and case writer Sapna Gupta. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of personal or professional circumstances. Copyright © 2009 INSEAD

 

 

PC4-2 PART 4 COMPREHENSIVE CASES

considered himself close and open to his staff’s issues. Lacking the ability to motivate teams? Never! Of all the things Chalon could be accused of, this was certainly the most surprising. Given all that he had accomplished in his career, the accusation was ludicrous.

Armstrong had also relayed complaints about Chalon be- ing cold and distant, and that he had not made an effort to get to know people at work. Chalon was taken aback. He had been making an effort to walk around the office and to get to know his colleagues. He had an open-door policy with regard to his staff dropping by, and considered himself to be very accessible. He believed he was very transparent in the way he worked and he certainly did not hoard information.

At least Jeff had highlighted and praised Chalon’s client skills. Most of Michelin’s clients in the tyre service business were people who had built their companies from the ground up, and Chalon had made a point of meeting them to personally allay their fears about Michelin entering the business. He was able to relate to them remarkably well and explain Michelin’s new strategy while building their loyalty. It seemed to Chalon that the issues Armstrong had brought up were not about being unable to get along with Americans. Rather, the difficulties seemed to stem from his management style and how he inter- acted with his team and subordinates.

Chalon briefly wondered if there was something unique about Michelin’s corporate culture, which was different from the more confrontational, almost rough-and-tumble culture at his previous company. Somehow, though, he felt that the prob- lem was not due to just a difference in corporate style. In his former positions he had successfully instituted similar transfor- mations without this level of complaint or resistance. Chalon reviewed carefully in his mind his interactions with staff since arriving in his new post. These statements that Armstrong had recounted – where could they be coming from? “How did it come to this?” he wondered. “Why had my colleagues not con- fronted me and why hadn’t they brought this up earlier?”

Chalon recalled his first few months in Greenville:

“I was charged with turning around the division and that had the full support of the company CEO and president. The changes were necessary in order to turn the business around and we couldn’t deviate from the strategy, even if it meant stepping on the toes of some long-time manag- ers. I demanded that we do things differently, from the way we looked at our market to how we presented the market analysis. That is why Michelin had put me in charge: to make difficult decisions and change how we did business. Not everyone agreed with how I decided to implement the changes, but it is impossible to have 100% agreement, espe- cially in the beginning.

I instituted a monthly performance review of our sales team, and in these reviews I made it absolutely clear that I meant business. Often, my subordinates would present in- formation that was below their capabilities and this, I made 100% clear, was unacceptable. I frequently insisted my reports go back to the drawing board and present a more structured, detailed presentation, and prepare an in-depth

The company was organised along eight major product lines, including the car and light truck product line, the truck product line, and the specialities product line (comprising the aircraft, earthmover, agricultural, two-wheel, and component product lines). Michelin reached €15.69 billion in sales in 2004, with North American operations (comprising operations in the US, Canada, and Mexico) accounting for 33% of 2003 sales. The company’s shares had traded on the Paris Bourse (Paris stock exchange) since 1946 and its market capitalisation as of 31 December 2002 was €5.22 billion.2 Michelin stock was part of the CAC 40 and Euronext 100 indices.

In 2004, the North American business unit to which he was assigned faced several challenges: the company was trailing competitors in the aftermarket business and had experienced sliding sales and poor financial results several quarters in a row. The line of business was critical to Michelin and gener- ated close to $2 billion in annual sales. The Boston Consulting Group (BCG) had been brought in to conduct a comprehensive assessment of the unit’s operations, and it had strongly recom- mended that Michelin change course and alter its strategy in the tyre service business. This strategy had put the company in di- rect competition with its own long-time customers and required a significant realignment of the sales and marketing approach.

Michelin had hired Chalon to lead a division with several plants and 4,000 employees under his management. Even before accepting the position, he knew about the challenges facing the group. Furthermore, he was fully aware that he was expected to implement a turnaround by reinvigorating the sales and market- ing teams by having them enthusiastically support the new sales strategy, placating existing clients (most of them very large dealers) who would now see Michelin as a competitive threat rather than a supplier, and regaining lost market share. Chalon felt fully prepared to meet this new challenge. He wanted to work for Michelin precisely because the position would require his unwavering focus and ability to motivate personnel. “This could be the culmination of two decades of hard-won experi- ence motivating people and achieving results,” he thought.

Olivier Chalon’s Management Style Chalon considered himself a tough but fair manager – he was results-driven, disciplined, and he demanded complete ac- countability from his team. That was precisely why Michelin had hired him. He had to change the way business was done in his division and he expected some initial resistance from his team and subordinates. In his experience, being demanding and setting very high standards was the best way to mobilise a team to attain the desired results.

Nevertheless, Armstrong’s comments suggested some- thing deeper than resistance to changing how business was conducted in his division. These complaints were about him as a leader, about the way he interacted with employees. Perhaps he had been too blunt during meetings? However, important decisions had to be made and he had been careful to seek con- sensus and not make any decision on his own. He had been put in charge for a reason. Arrogant? Certainly not. In fact, he 2Michelin’s market capitalisation was €11.29 billion as of 31 December 2007.

 

 

CASE 9 LEADING ACROSS CULTURES AT MICHELIN PC4-3

Since moving into the general manager position in Greenville, Chalon had demanded greater accountability and realigned the division’s sales efforts. He had not been aware of any deep dissatisfaction among some of the key executives who reported to him. He had used the same tactics and meth- ods that had worked to fire up his staff while leading teams across Europe, and had not realised that they had fallen flat in this new environment. He felt blind-sided by the comments that Armstrong had passed along.

Chalon was, of course, aware that different skills were needed to motivate teams in different cultural environments. The US was not so different from Europe or the other environ- ments he had worked in. Or was it? Could this be a French vs. American cultural issue?

Headquarters were expecting a turnaround within two years. Chalon was under pressure to show results – but without the goodwill and energy of every single member of his team it would be impossible to implement the turnaround.

He needed to find a way to motivate his colleagues while regaining their trust and goodwill. During their con- versation, Armstrong had suggested that Chalon meet with a cross-cultural consultant who specialised in helping European managers adapt their leadership style to an American context. Other managers in France and America had struggled with cross-cultural issues, and Armstrong had attended a presenta- tion given by this consultant. He found that it had helped him work better with his French colleagues in Clermont-Ferrand, even after spending almost two decades at Michelin working alongside French people.

Chalon was initially sceptical but his conversation with Armstrong had touched a nerve and he very much wanted to turn things around. He picked up the phone and called Armstrong. His initial one-on-one meeting with the consultant was scheduled for the following week.

1. Discussion question: What differences in American and French value systems might be at the root of the difficul- ties Chalon is facing as he implements a new strategy?

analysis of the risks and opportunities down to the last dol- lar. I demanded a great level of detail about our market and I was upfront with my disapproval when I didn’t get what I was expecting. If I was displeased, I let them know it.

I was straightforward with my criticism and appar- ently I surprised some people with my direct style. But I was always upfront, and I knew from experience that the leader who demands the most from his people is the leader who will achieve the greatest results. Even when I was pleased with their results, I tried not to show it. I needed my team to push themselves further than ever before, and I didn’t want to encourage complacency by stroking people on the back. I was asking my team to give 110% percent of themselves to this new strategy, and I knew they were capable of it. My colleagues and subordinates were very smart and they worked very hard. I wouldn’t have been so demanding if I felt they weren’t up to the task.

Of course I was surprised that people complained that I was distant! I had made a point of frequently walking around the office and talking informally to my colleagues and subordinates. In truth, I was often a bit taken aback by the intrusiveness of the American culture. People asked one another such personal questions. Individuals I barely knew would ask me questions about my wife or our newborn son, which I found both surprising and inappropriate. I was not used to sharing this level of personal information at work, and now I began to wonder if this might have given people the impression that I was distant or cold.

Chalon wondered if he could have been misreading the cues his colleagues had been sending. Maybe he had been misled, fooled into thinking that his fluent English and two decades’ experience in a global work environment had prepared him for managing an American operation, even if it was the division of a French company. Perhaps he had miscalculated how to motivate this team. Would his first assignment in the US end in disaster? What could he do to regain his disgruntled colleagues’ loyalty and support?

 

 

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On his commitment not to indulge in corruption, Ratan said this had resulted in his group getting a raw deal because he had had to forsake a significant amount of business. He lamented that he had not been able to expand more in his home country due to bureaucratic delays, arbitrary regulatory decisions, and widespread corruption in such sectors as steel, power, aviation, and telecommunications. Despite this, the group upheld the traditions of the Tata Group and did not in- dulge in corruption, he said.

About the Tata Group The Tata Group, which was founded by Jamsetji Tata in 1868, had grown to comprise over 100 companies in seven business sectors: communications and information technology, engineering, materi- als, services, energy, consumer products, and chemicals. Initially inspired by the spirit of nationalism, the group had pioneered several industries of national importance in India: steel, power, hospitality, and airlines. As of early 2012, the major Tata compa- nies were Tata Steel, Tata Motors, Tata Consultancy Services, Tata Power, Tata Chemicals, Tata Global Beverages, Tata Teleservices, Titan, Tata Communications, and Indian Hotels. The group had operations in 80 countries across the globe, and its companies exported products and services to 85 countries. It had revenues of US$83.3 billion in 2010–2011, with 58 percent of this com- ing from business outside India. Tata companies employed over 425,000 people worldwide. The Tata Group’s contribution to the Indian exchequer for the year 2010–2011 was US$6.93 billion out of the total US$210.26 billion5 (refer to Exhibits I and II).

Each enterprise in the Tata Group operated independently, with its own board of directors and shareholders. These enter- prises had a combined market capitalization of about US$80.59 billion (as of January 19, 2012) and a shareholder base of 3.6 million. The Tata Group had had a series of illustrious leaders— Jamsetji Tata (1868–1904), Sir Dorab Tata (1904–1932), and JRD Tata (1932–1991)—who spurred the growth of the com- pany, taking it into newer businesses. However, it was Ratan Tata, who took over the reins of the company in 1991, who was credited with making Tata a truly global group.

Ratan, great grandson of the founder, was a graduate from Cornell University in architecture and structural engi- neering. He turned down a position at leading IT company,

“[W]e have endeavoured to uphold a value system that has been part of our tradition, and we’ve been disadvantaged repeatedly in that we have lost projects, projects have been delayed …,” said Ratan Naval Tata (Ratan), Chairman of Tata Sons Ltd., the holding company of the Tata Group, on the dif- ficulties of doing business in his home country, India. “And in that sense, we would like to keep the Group ferociously protecting this one asset….”3 As he prepared to hand over the reins of the group to his successor by the end of 2012, Ratan’s job was to ensure that his successor carried forward the legacy of the Tatas and did not view its ethical standards and values as a burden while operating in this key emerging market.

Ratan was credited with transforming the Tata Group under his leadership and bringing it into the 21st century. Although the septuagenarian was applauded as an astute leader and for con- tinuing the Tatas’ tradition of ethical leadership, his name was also drawn into the infamous 2G scam that surfaced in India in 2010. Allegations that the Tata Group had not “walked the talk” and that it was involved in what was being described as India’s biggest scam, had dented the image of the group. For genera- tions of Indians and even outside the country, the word Tata had been synonymous with “trust” and “integrity.” The group was well known for its corporate social responsibility and principles such as the “Tatas don’t bribe” and the “Tatas don’t indulge in politics.”4 Strict adherence to these principles had led to the group prospering under the predecessors of Ratan and under his reign becoming the best-known Indian group in the world.

Case 10 Ethical Leadership: Ratan Tata and India’s Tata Group

Maybe I’m stupid or old fashioned, but I really want to go to bed at night saying I haven’t succumbed to this.1

Ratan Tata Chairman, Tata Group, on paying bribes

“Ratan Tata has set an example with his transparency and integrity. In a milieu haunted by wheeler-dealers and a business climate where companies will stop at nothing to pouch contracts, [Ratan] Tata is an inspiration for young entrepreneurs.”2

Rajeev Chandrasekhar An independent member of the Indian Parliament and a former telecom entrepreneur

1Amol Sharma, “India’s Tata Finds Home Hostile,” http://online.wsj.com, April 13, 2011.

5http://www.tata.com/htm/Group_Investor_GroupFinancials.htm.

2“Tata Juggernaut Stirring,” Business India, www.tata.com, April 30–May 13, 2001. 3Shekhar Gupta, “‘The Most Noise Usually Comes from the People Who Have the Most to Hide’,” www.indianexpress.com, November, 28 2010. 4Girish Nikam, “Is Ratan Tata as Clean as He Claims: Why Is Niira Radia Talking to Karunanidhi’s Wife?” http://indiasreport.com, November 28, 2010.

PC4-5

This case was written by Debapratim Purkayastha, IBS Hyderabad. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case won the Third prize in the BLR Case Study Competition, organized by Business Leadership Review, the official journal of the Association of MBAs (AMBA), UK. 2013, IBS Center for Management Research. All rights reserved.

To order copies, call +91 9640901313 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@icmrindia.org. www.icmrindia.org

 

 

PC4-6 PART 4 COMPREHENSIVE CASES

companies.6 Moreover, the group seemed on its way to dis- integration, with powerful CEOs running some of the group companies like their personal fiefdoms and challenging the core structure of the group. Over a period of four years, Ratan managed to oust most of these CEOs.7 To bring in greater integration among the group companies, Ratan cre- ated the Group Executive Office, whose members were rep- resented on the boards of the Tata companies. To protect in- dividual companies from hostile takeovers, he also increased the stake of Tata Sons in each company.

Recognizing that the culture and the work ethic at the group were no longer relevant to the more competitive post-liberalization era, Ratan shook things up. In 1998, at a gathering of heads and

IBM, to join the Tata Group in 1962 in Tata Iron and Steel Company (TISCO, later renamed Tata Steel). After initially working on the shop floor alongside blue-collar employees, he was made Director-in-charge of The National Radio and Electronics Company (NELCO) in 1971 and continued in that position until 1974. In 1975, he completed an advanced management program at Harvard Business School. In 1977, Ratan was elevated to the position of chairman of TISCO. He became the chairman of Tata Engineering and Locomotive Company (TELCO, later renamed Tata Motors) and Tata Industriesi in 1981. A decade later, he became chairman of Tata Sons.

It was around this time that the Indian government began to initiate a series of reforms to open up the economy.ii The Tata Group companies, like most other Indian companies at that time, were not globally competitive and found them- selves facing the threat of competition from multinational

EXHIBIT I Financial Snapshot of Tata Group

Compiled from various sources including Tata Group’s website.

Year 2010–11

(US $ billion) 2009–10

(US $ billion) % change

Total revenue 83.3 67.4 23.6 Sales 82.2 65.6 25.3 Total assets 68.9 52.8 30.5 International revenues

48.3 38.4 25.8

Profit after tax 5.8 1.74 233.3 Net forex earnings 1.0 –0.16 –

(In Rs. million)

Year Total

turnover Sales

turnover Value of

assets Gross block Exports

2010–11 3,796,753 3,746,872 3,139,601 3,343,376 378,521 2009–10 3,195,339 3,111,290 2,501,786 2,922,475 317,210 2008–09 3,253,340 3,218,490 2,372,470 2,612,760 339,870 2007–08 2,515,430 2,474,156 1,772,931 1,935,072 252,801 2006–07 1,299,940 1,283,770 1,135,730 866,127 236,350 2005–06 9,67,230 9,47,140 7,97,660 6,81,690 2,36,430 2004–05 7,99,130 7,82,750 6,80,180 6,00,290 2,05,870 2003–04 6,54,240 6,14,340 5,50,630 4,58,840 1,41,360 2002–03 5,42,270 5,21,337 5,09,270 4,34,809 1,30,764 2001–02 4,94,568 4,79,999 4,91,622 4,03,647 1,25,738

Market Capitalization

(Rs. million) 2009 (End

March) 2010 (End

March) 2011 (End

March) As on Jan 19,

2012

Tata group 124,97.7 ($24.5bn)

344,13.9 ($76.2bn)

469,96.4 ($105.4 bn)

404,89.2 ($80.59bn)

Bombay Stock Exchange

3,086,07.6 ($605.7bn)

6,261,78.7 ($1387.2bn)

6,907,78.8 ($1550.0 bn)

5,893,15.2 ($1,173bn)

6“Complementing for Complexity: Leading through Managing,” www.etmgr .com, January–March, 2005. 7Robyn Meredith, “Tempest in a Teapot,” www.forbes.com, February 14, 2005.

 

 

CASE 10 ETHICAL LEADERSHIP: RATAN TATA AND INDIA’S TATA GROUP PC4-7

innovative products. For example, Tata Steel patented several new kinds of equipment such as a fuel and reducing gas genera- tor and an emulsion atomizer and processes such as the inert gas shrouding process and the corrosion- resistant steel production process. More importantly, the company started selling its prod- ucts, which until then had been sold as commodities under the Tata brand. Tata Motors, until then known for its bulky trucks, launched India’s first indigenous car, the Indica, in December 1998. The Nano car project too required Tata Motors to come up with innovative solutions to bring down costs so that the car could be priced at an almost unimaginably low price of Rs.iii 100,000.9 The Nano was finally launched in 2009.

Despite its strong position in India, the Tata Group’s overseas ventures had never been large enough to be worth a mention. Ratan was keen on the group companies entering new markets to take advantage of global opportunities.10 He felt that global operations would make them more competitive and ef- ficient. Ratan said, “Perhaps the most graphic moment came in 1997–1998 or 2000 when we had that economic downturn and when Tata Motors, at that time, produced that [Rs. 5 billion] loss. That told me that we had to do something where we would not in the future be dependent on one economic cycle, but we had to have more irons in the fire in different economies and if one economic cycle was down, the chances are that the other might be up. That accelerated the move to go and search, not for acquisitions, but for markets in a serious way.”11 In 2001, Ratan acquired a controlling stake in VSNL, a government company. In 2004, VSNL (renamed as Tata Communications), purchased Switzerland-based Tyco International’s undersea telecom cables to become the world’s biggest carrier of international phone calls. In the same year, Tata Motors acquired South Korean con- glomerate Daewoo’s commercial vehicles operations, making it the first Indian company to acquire a major foreign automobile company. In 2005, the group acquired Incat International, a major vendor for American auto and aerospace companies. In this period, India Hotels Company, the group’s hotel busi- ness, acquired renowned hotels like The Pierre (New York), the Ritz-Carlton Boston, and Camden Place (San Francisco). In January 2007, Tata Steel acquired the Anglo-Dutch steel com- pany Corus. In March 2008, Tata Motors acquired the iconic car brands Jaguar and Land Rover from Ford Motor Company. Ratan’s perspective on going global was not just to increase the turnover; it was also to engage creatively in the development of the countries in which the group entered. Keeping this perspec- tive in view, the group ventured into developing and emerging countries such as Bangladesh and Sri Lanka.

As of early 2012, the Tata Group was a globally renowned name with its brand ranked 41st among the world’s 100 most valuable brands in 2011. BusinessWeek ranked Tata 17th on the 50 Most Innovative Companies list, and the Reputation Institute, USA, in 2009, rated it 11th on its list of the world’s most reputable companies.

senior officials of group companies, he made a speech on the changes in the external environment and cautioned the senior man- agement that inaction would cost them dearly. He introduced the Tata Business Excellence Model (TBEM), a customized version of the globally renowned Malcolm Baldrige model, to support the group’s largest change initiative. Once a company signed up, it was annually evaluated on seven criteria: leadership, strategic planning, customer and market focus, information and analysis, process management, human resource focus, and business results. Each of these criteria was allotted points, totaling 1,000. Each par- ticipating company aimed to earn 600 points, at the least, over five years. Ratan also established the Group Corporate Center, an apex body that was to review the Group operations on a monthly basis. Using the TBEM framework, Ratan was able to transform the Tata Group’s companies into much leaner and agile companies.

When Ratan assumed leadership of the Tata Group, it was involved in many businesses: automobiles, steel, tea, oil mills, chemicals, cosmetics, power, and so on. In 1997, the group had 84 companies; however, only a few large companies contributed significantly to the group’s revenues and profits.8 In order to bring in greater focus, Ratan divested the group of businesses that he felt did not fit in with his vision for the group. In subsequent years, the group sold its stakes in Merind (including Tata Pharma), Goodlass Nerolac (a paint company), Lakmé (a cosmetics company), and ACC (a cement company). In addition to this and in order to create a single brand image, all the group companies that had earlier had individual logos began to use one common logo in 1999. Some of the group companies were also renamed.

Ratan’s broad direction for growth of the group was two-pronged. One was targeting the emerging mass market in India through product development and innovation. The other was to globalize, wherein the group planned to expand the markets for its existing products. Ratan strongly believed that to achieve growth at the Tata Group, it was necessary to create technologically superior and exciting products. According to him, the Tata Group would have to distinguish itself from other companies through innovation and low costs. Under his leadership, the group companies came up with several new and

Information technology and

communications, 16%

Chemicals, 3%

Consumer products, 4%

Energy, 6%

Engineering, 35%

Materials, 32%

Services, 4%

EXHIBIT II Tata Group’s Revenues by Segment

Adapted from Tata Group’s Annual Reports.

8“The New Raj at Tata,” BusinessWeek, www.tata.com, November 27, 1997.

9Kunal N. Talgeri and Sriram Srinivasan, “The Countdown Begins Now …” www.outlookbusiness.com, February 9, 2008. 10“Driving Global Strategy,” www.tata.com. 11“I Always Envisaged Tata Could be a Global Group: Ratan Tata,” http:// markets.moneycontrol.com, December 8, 2007.

 

 

PC4-8 PART 4 COMPREHENSIVE CASES

of the group and his successors who took on the leadership of the group (refer to Exhibit IV).

Considered pioneers in the area of CSR in India, the Tata Group had played an active role in nation building and socio- economic development. A unique feature of the group was that 63 percent of the equity capital of Tata Sons was held by Tata trusts, which were philanthropic in nature. At a time when ri- val group Reliance Industries Ltd.’s Mukesh Ambani featured among the richest people in the world and was in the news for building a 27-story home with three helipads, a health club, and 50-seat movie theater, Ratan wasn’t even counted among India’s billionaires. He had a stake of less than 1 percent in Tata Sons.15 According to JRD Tata, “The wealth gathered by Jamsetji Tata and his sons in half a century of industrial pioneering formed but a minute fraction of the amount by which they enriched the nation. The whole of that wealth is held in trust for the people and used exclusively for their benefit. The cycle is thus com- plete; what came from the people has gone back to the people many times over.”16 Over the decades, these trusts had promoted a number of public institutions of national interest, including hospitals, education and research centers, and scientific and cultural establishments. Besides the trust activities, individual

Leadership with Trust Since its inception, the Tata Group sought to function with ethics, integrity, social consciousness, and fairness. According to Ratan, these values were an integral part of the group, and the questions one needed to ask while making decisions were: “Does this stand the test of public scrutiny in terms of what I said earlier? As you think the decision through, you have to automatically feel that this is wrong, incorrect, or unfair. You have to think of the advantages or disadvantages to the segments involved, be it employees or stakeholders.”12 The group’s strategy of “Leadership with Trust” sought to achieve higher value for its stakeholders, better returns for society, and an ethical model of business (refer to Exhibit III).

The guiding mission of the Tata Group was stated by JRD Tata in the following words: “No success or achievement in material terms is worthwhile unless it serves the needs or inter- ests of the country and its people.”13 Even before him, Jamsetji Tata had said that, “Community is not just another stakeholder in business but is in fact the very purpose of its existence.”14 The group had always been recognized as a value-driven orga- nization. The company’s values were imbibed from the founder

Business Review Initiatives

Leadership With Trust

Tata Brand Enhancement Initiatives

Through: Tata Business Excellence Model Through: Management of Business

Results in: Stakeholder Value Enhancement Resulting in: Ethics in Business

Enabling: Higher Tata Reputation (Tata CoC)Enabling: More Returns to Society (CSR)

CORPORATE ORGANIZATIONAL

TRUST

Brand Equity

Corporate Identity and Standards

Promotion

Through Consistency in

EXHIBIT III Tata Group – Leadership with Trust

Adapted from “The Tata Group: Integrating Social Responsibility with Corporate Strategy,” www.icmrindia .org, 2005.

12“View from the Top,” www.tata.com. June 2002. 13“‘Visionaries,’ CSR Initiatives of Tata Group,” www.indianngos.com, December 2004. 14Ibid.

15Amol Sharma, “India’s Tata Finds Home Hostile,” http://online.wsj.com, April 13, 2011. 16“The Quotable Jamsetji Tata,” www.tata.com, March 2008.

 

 

CASE 10 ETHICAL LEADERSHIP: RATAN TATA AND INDIA’S TATA GROUP PC4-9

group companies had taken up community development initia- tives based on the needs of the local community. The combined development-related expenditure of the trusts and the companies amounted to around 3 percent of the group’s net profits in 2011. The group was engaged in social welfare and environment- related projects worth US$59.7 million for the FY2011.17

Employee welfare measures were also one of the major fo- cus areas of the group. The Tatas had initiated several labor wel- fare measures in their group companies even before these were made mandatory by law. Environment protection also figured high on the list of priorities of the Tata Group. “The kind of com- pany one would want to emulate is one where products and tech- nology are at the leading edge, dealings with customers are very fair, services are of a high order, and business ethics are transpar- ent and straightforward. A less tangible issue involves the work environment, which should not be one where you are stressed and driven to the point of being drugged,”18 said Ratan Tata.

Way back in 1895, Jamsetji Tata had stated, “We do not claim to be more unselfish, more generous, or more philan- thropic than others, but we think we started on sound and straightforward business principles considering the interests of the shareholders, our own, and the health and welfare of our employees … the sure foundation of prosperity.”19 JRD Tata strongly believed that the CSR initiatives of the Tata Group should be institutionalized. Therefore, suitable amendments were made to the Articles of Association of the major Tata Group companies in the 1970s to include: “Company shall be mindful of its social and moral responsibilities to consumers, employees, shareholders, society and the local community.”20 In addition to this, a clause was put into the group’s Code of Conduct (CoC), which stated that group companies had to as- sist actively in improving the quality of life in the communities in which they operated. All the group companies were signa- tories to this code. To ensure that the CSR measures started by the group were sustained, a social audit of companies was also carried out. The companies were required to conduct periodic surveys, institute community programs as part of the annual business plans, and earmark a budget for this purpose in ad- vance, so that these expenses were built into the cost of busi- ness as for any other cost like material, labor, and so on. The CSR programs undertaken by member companies had to be aligned with their core competencies and capabilities, and the CEO and operational heads acted as facilitators in the process.

Taking these initiatives forward, Ratan formed Tata Council for Community Initiatives (TCCI) in 1996 that acted as a facilitator for the group’s CSR initiatives as a whole. By 2000, TCCI had developed the Tata Model for Social Audit. The development of a business-compatible procedure to evalu- ate the impact of community programs in terms of their out- comes on human development was another area of focus for TCCI. This procedure was titled “Tata Social – Evaluation, Responsibility, and Accountability (Social – ERA).” In 2000, TCCI also developed a first-of-its-kind CSR index in India called the Tata Index for Sustainable Human Development, which was adopted by fifteen group companies.21

In the following year, TCCI appointed one Corporate Head – Social Responsibility for each of the group companies. TCCI’s effort toward community development was based on the concept of volunteering. TCCI’s approach was to shift the community from welfare-based dependence to self-reliance, and the company from social work to developmental work. TCCI also established the Tata Group Environment Network in 2000 for coordinating the group-level network on the environment, conservation of natural resources, and related initiatives.22 As of 2012, 42 Tata companies were signatories to the UN Global Compact, the highest in the world from a single business group.

In order to align its CSR initiatives with business processes, the Tata Group made efforts to develop mechanisms for integrating

Adapted from www.tata.com and various sources.

EXHIBIT IV Tata Group’s Purpose and Core Values

Purpose At the Tata Group we are committed to improving the quality of life of the communities we serve. We do this by striving for leadership and global competitiveness in the business sectors in which we operate.

Our practice of returning to society what we earn evokes trust among consumers, employees, shareholders, and the community. We are committed to protecting this heritage of leadership with trust through the manner in which we con- duct our business. Core Values Tata has always been values-driven. These values continue to direct the growth and business of Tata companies. The five core Tata values underpinning the way we do business are:

Integrity: We must conduct our business fairly, with honesty and transparency. Everything we do must stand the test of public scrutiny. Understanding: We must be caring, show respect, compassion, and humanity for our colleagues and customers around the world, and always work for the benefit of the communities we serve. Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day work and in the quality of the goods and services we provide. Unity: We must work cohesively with our colleagues across the group and with our customers and partners around the world, building strong relationships based on tolerance, understanding, and mutual cooperation. Responsibility: We must continue to be responsible, sensitive to the countries, communities, and environ- ments in which we work, always ensuring that what comes from the people goes back to the people many times over.

17www.tata.com. 18“Ratan Tata’s Words of Inspiration,” http://parsikhabar.net, August 27, 2008.

19“Beyond Business—Back to the People,” www.tata.com, December 2004. 20R Gopalakrishnan, “Improving the Quality of Life,” The Economic Times, September 1, 2001. 21“Tatas Index their Social Conscience,” Times of India, March 27, 2004. 22Anant Nadkarni, “Convergence Process,” Tata Workout, www.hdrc.undp .org.in, June 2002.

 

 

PC4-10 PART 4 COMPREHENSIVE CASES

In 2010, the 2G scam broke out in India, and Tata Teleservices was also dragged into it.v It was alleged that the Minister of Communications and Information Technology, Andimuthu Raja (Raja), had granted telecom operating licensesvi and allotted spectrum arbitrarily on a first-come- first-served basis. Across the world, spectrum, which was treated as a scarce natural resource, was generally auctioned and given to the highest bidders, but in India, the Ministry of Communications and Information Technology (MCIT) allocated spectrum to various companies between November 2007 and December 2010 at price levels agreed to in 2001 without any bids being called for. A preliminary report by the Comptroller and Auditor General of India (CAG), a federal

social responsibility with corporate excellence. The group focused on developing partnerships for benchmarking with the United Nations Development Program, Global Reporting Initiative, The Global Compact, World Business Council for Sustainable Development, Ford Foundation, and the Confederation of Indian Industry. In June 2002, a workshop titled “Towards Creating a Sustainable World” was conducted to assist Tata companies in developing a common system for social and environmental re- porting. The participants discussed the linkage between CSR and the TBEM and how the business excellence processes could be institutionalized to create value for all stakeholders while focusing on achieving long-term sustained competitive success. One of the core values of TBEM was social responsibility and citizenship.23

Ratan felt that doing business in India could be an exercise fraught with frustration due to the role of the bureaucracy. “It takes more time in India to undertake projects or to set up or develop mergers and acquisitions. A deal [like] Corus in India may not have been possible [because of government bureau- cracy],”24 he said. Despite that, he tried to ensure that group companies did not indulge in corruption and bribery to quicken the pace of work or secure permissions. There are certain clauses in the group’s Code of Conduct that explicitly stated this (Refer to Exhibit V). Ratan said, “You often have young em- ployees who ask me, ‘Why don’t you just do it (give bribe),’ but my reply to that is I would rather like to hold my head high.”25

2G Scam and the Tatas The Tatas were one of the first private players to foray into the Indian telecom sector. This sector had witnessed unparal- leled growth since the dawn of the new millennium, attracting the attention of Indian as well as global telecom companies.26 The growth of the Indian telecom sector was often attributed to the country’s good telecom policies. However, there were murmurs in certain sections that the leading players in the sector had grown by taking advantage of the government’s ignorance of the telecom sector in the earlier years of the rollout of services. For instance, they said that companies had manipulated the government’s policy by acquiring the bulk of the scarce spectrumiv for a very cheap price. The Indian companies operating in this market had a good understanding of the market and many of them were led by powerful people who had immense clout in India. Analysts felt that these people had no qualms about manipulating the public policy to their advantage.27 Some experts even suggested that many of these executives might owe their riches to “oligopolistic access to scarce resources” rather than to entrepreneurship.28

EXHIBIT V Excerpts from Tata Code of Conduct

Clause: 3 Competition “A Tata company shall fully support the development and operation of competitive open markets and shall promote the liberalization of trade and investment in each country and market in which it operates. Specifically, no Tata company or employee shall engage in restrictive trade practices, abuse of market dominance, or similar unfair trade activities. […]”

Clause: 5 Gifts and donations “A Tata company and its employees shall neither receive nor offer or make, directly or indirectly, any illegal payments, re- muneration, gifts, donations, or comparable benefits that are intended, or perceived, to obtain uncompetitive favors for the conduct of its business. The company shall cooperate with gov- ernmental authorities in efforts to eliminate all forms of bribery, fraud and corruption. […]”

Clause: 6 Government agencies “A Tata company and its employees shall not, unless mandated under applicable laws, offer or give any company funds or property as donation to any government agency or its represen- tative, directly or through intermediaries, in order to obtain any favorable performance of official duties. A Tata company shall comply with government procurement regulations and shall be transparent in all its dealings with government agencies.”

Clause: 7 Political non-alignment “A Tata company shall be committed to and support the con- stitution and governance systems of the country in which it operates.

“A Tata company shall not support any specific political party or candidate for political office. The company’s conduct shall preclude any activity that could be interpreted as mutual dependence/favor with any political body or person, and shall not offer or give any company funds or property as donations to any political party, candidate, or campaign.”

Adapted from www.tata.com.

23BG Deshmukh, “Tata Workout,” www.hdrc.undp.org.in, June 2002. 24Elliot Wilson, “Tata’s Global Ambitions Show No Sign of Abating,” www.asiamoney.com, July 2007. 25“Corruption in India Has Become Worse: Ratan Tata,” www.thehindubusinessline.com, August 24, 2011. 26Ayush Kanwar, “Boom in the Indian Telecom Sector Here to Stay,” http:// theviewspaper.net, January 15, 2010. 27M. Rajendran, “The Great War,” www.businessworld.com, February 15, 2008. 28Bala Murali Krishna, “Time to Tame India’s ‘Robber Barons’,” http:// asiancorrespondent.com, February 21, 2011.

 

 

CASE 10 ETHICAL LEADERSHIP: RATAN TATA AND INDIA’S TATA GROUP PC4-11

controversy as the content brought out the nexus between corporate-media-political houses to show undue regulatory sup- port to certain businesses at the cost of public welfare. As the New York Times observed, “The incestuous world revealed in the telecom scandal—one in which ethical lines are blurred between journalists, lobbyists, and politicians, and corporate bosses curry favor with the ministers—has reinforced the per- ception of an Indian economy dominated by a small, tightly connected elite.”34 It was also believed that Radia had lobbied for the appointment of Raja as Minister of Communications and Information Technology. From the tapped conversations, it ap- peared that “companies owned by Radia not only manage media but try to influence policy changes and decision of the various government departments to suit the commercial requirements of their clients.”35 Some observers alleged that the lobbying car- ried out by Radia had helped Tata Teleservices bag spectrum at lower prices. Radia’s taped conversations indicated that she had lobbied with Raja, his personal secretary RK Chandolia—one of the key suspects in 2G scam—and other officials belonging to the Department of Telecom (DoT) and ensured that the spectrum was allocated to Tata Teleservices at the same rate as to Reliance Communications, Swan Telecom, and Unitech Wireless.36

It was alleged that Radia had gathered inside information about policy changes and decisions from key bureaucrats in the DoT and other regulatory authorities, including the Telecom Regulatory Authority of India, and shared the information with Ratan and other senior Tata Teleservices employees. For instance, during a conversation on July 8, 2009, with Madhav Joshi, chief legal officer and company secretary of Tata Teleservices, Radia had passed on critical information about a key committee’s recommendations that was likely to influence the DoT’s future policy on spectrum pricing.37 One of the tapes of a conversation between Radia and Tarun Das, former head of the Confederation of Indian Industry, revealed how Radia was trying to sort out the antagonism between Ratan Tata and Sunil Mittal (chairman of the Bharti Group that owned Bharti Airtel Ltd.), so that they would align forces for effective lobbying to win spectrum from the MCIT. In that con- versation, Radia also stated that she was talking to Raja every day over spectrum allocation: “I am talking to Raja every day and I know, I can see his body language. Raja will be very cau- tious with what he has to do but we have to step in. Tatas and Mittals (are) telling him that we will take you all the way.”38

In a taped conversation with Sunil Arora, former Indian Airlines chief, during June 2009 Radia claimed, “My client Tata Teleservices has also been a beneficiary in this (read 2G scam).”39

agency for auditing public accounts in India, computed the loss to the exchequer at around US$40 billion (Rs. 1760 billion)vii due to the MCIT favoring allocation rather than open auctioning.29 Further, it was also alleged that the MCIT had flouted guidelines and eligibility conditions, altered cut-off dates (for receiving applications), and tweaked procedural conditions, resulting in certain companies getting an unfair advantage. Following the allegations, Raja was forced to step down from the MCIT and, since early 2011, faced corruption charges.viii Tata Teleservices was also named along with several Indian telecom companies that had come under the scanner for alleged irregular- ities in the grant of licenses and spectrum allocation: Videocon, Loop Telecom, Dishnet Wireless, S-Tel, Uninor, Allianz Infra, Sistema Shyam Teleservices, Idea Cellular, Etisalat (Swan), and Vodafone-Essar.30 In January 2011, the apex court in India, the Supreme Court, issued notices to these 11 private telecom com- panies on charges that they had been granted licenses despite allegedly being ineligible to secure telecom licenses per regula- tions or having failed to roll out services within a stipulated time frame per regulatory obligations.31

According to Rajeev Chandrashekar, “The impressive eco- nomic growth numbers hide an extremely dysfunctional and skewed economic model. On the one hand, we have govern- ments with wide administrative discretion, little oversight, and huge budget. On the other hand, entrepreneurs and companies act as proxies of politicians. This combination, if allowed to grow unfettered, represents a clear and present danger to the whole concept of Indian democracy and free markets.”32 It was widely reported that political leaders and bureaucrats were hand in glove with the corporate leaders and that corporate lob- byists were mediating between the two groups on the matter. Corporate lobbying, though not legal in India, was not con- sidered an offense if no rule was broken in the process. Niira Radia (Radia), head of Vaishnavi Corporate Communications, was one such business lobbyist who had interacted with the MCIT on behalf of prominent wireless services provid- ers such as Tata Teleservices and had allegedly influenced spectrum allocation decisions of the ministry in favor of her clients. According to the affidavit filed by the government in the Supreme Court against her, she had built up a Rs. 3 billion business empire within a short span of nine months.33

The Income Tax Department, with the approval of the Home Ministry, had tapped Radia’s telephone conversations be- tween 2008 and 2009 to ascertain the accuracy of her tax filings. These tapes were leaked to the media in late 2010. (Who leaked the tapes was kept a secret.) Two news magazines, Outlook and Open, published extracts from those tapes, triggering a

29“DoT Begins Survey of 2G Scam-Hit Cos,” www.businesstoday.intoday.in, November 22, 2010. 30“2G Scam: SC Reserves Order on Cancellation of Licences,” http://ibnlive .in.com, March 17, 2011. 31“2G Scam: Supreme Court Issues Notice to Centre, 11 Telecom Companies,” www.merinews.com, January 10, 2011. 32Rama Lakshmi, “Corruption Scandals in India Fuel Fears of Crony Capitalism,” www.washingtonpost.com, December 17, 2010. 33“How Radia Built Her R 300 cr Empire,” http://daily.bhaskar.com, December 11, 2010.

34Jim Yardley and Heather Timmons, “Telecom Scandal Plunges India Into Political Crisis,” www.nytimes.com, December 13, 2010. 35“Radia Admits to Liaising with Raja for Clients,” http://indiatoday.intoday .in, November 25, 2010. 36Unitech Wireless sold 60% interests to Telenor of Norway for Rs. 61.2 bil- lion and was subsequently renamed Uninor. 37Ashish Khetan, “My Client Tata Teleservices Has Also Been a Beneficiary in 2G: Radia,” http://indiatoday.intoday.in, December 3, 2010. 38“Too Close For Disclosure,” http://indiatoday.intoday.in, December 3, 2010. 39Ashish Khetan, “My Client Tata Teleservices Has Also Been a Beneficiary in 2G: Radia,” http://indiatoday.intoday.in, December 3, 2010.

 

 

PC4-12 PART 4 COMPREHENSIVE CASES

should be used for investigations only and could not be used for “unauthorized publication.” According to him, “the government has been given a special right to be able to invade people’s pri- vacy for national security or for enforcement of law. So they can do so. That additional power is a very special power which has to be exercised with a sense of responsibility. The content needs to be held for prosecution purposes and not to be misused and certainly not to go out and have a field day with.”46 Some ob- servers found it hypocritical that Ratan, on the one hand spoke of high moral and ethical standards while on the other, he wanted to deny the right of the Indian public for transparency in the Radia matters just because she was handling PR work for the group. They questioned why the group that could get the best talent in its payroll should hire someone like Radia to do its PR work.47

In April 2011, CBI gave a clean chit to the Tata Group.48 In the same month, Ratan faced questions about the group’s relationship with the DMK party and a number of related issues from the parliament’s Public Accounts Committee, which was probing the 2G scam separately. Ratan confirmed that it was his voice in the Radia tapes and that in November 2007 he had written a letter to M. Karunanidhi praising A. Raja.49 Ratan Tata also reiterated that his group did not believe in paying bribes.50

Taking the fight to its critics, the group argued that some of the transcripts of the Radia tapes had shown how the group had been disadvantaged in its mining-related projects in Jharkhand and Madhya Pradesh.51 In 2010, Ratan said that the group had had an ambition to get back into the airline business, which it had pioneered in India in 1932, but that had been nationalized in 1953. However, this ambition had been repeatedly thwarted for seven years as the group refused to pay bribes, leading to the group withdrawing its application in 1998, he alleged. “We went through three governments, three prime ministers, and each time there was a particular individual that thwarted our efforts,”52 Ratan said.

On February 2, 2012, the Supreme Court ordered the scrapping of 122 telecom licenses including those issued to Tata Teleservices. Some of the telecom operators were also fined. For instance, Tata Teleservices, Unitech Wireless, and Etisalat were fined Rs. 50 million each for selling equity in their respective companies to foreign companies after acquir- ing additional spectrum in 2008.53

Industry observers alleged that Tata Teleservices had benefited in two ways. First, Radia effectively lobbied for GSM spectrum across 18 telecom circles for Tata Teleservices at lower prices. The DoT allotted 4.4 MHz GSM spectrum to Tata Teleservices at the 2001 price, for which the company paid around Rs. 16 billion. The CAG report stated that the same amount of spectrum could have cost Tata Teleservices anywhere between Rs. 90 billion and Rs. 200 billion, had the DoT auctioned it. Second, Tata Teleservices was al- legedly given undue preference in license allocation. It was granted the license (ahead of 343 applicants) though it had submitted its application on October 20, 2007. The license was granted despite the MCIT advancing the cut-off date for submitting applications from October 1, 2007, to September 25, 2007, due to inad- equate spectrum availability. After the license allocation, the net worth of Tata Teleservices had shot up. In November 2008, Tata Teleservices sold 26 percent stake to Japanese telecom major NTT Docomo for US$2.8 billion and launched its services under the brand Tata Docomo.40

Following this, the Central Bureau of Investigation (CBI), a government agency of India, also started investigations on a Tata Group company’s transaction of Rs.16 billion with Unitech in 2007, months before the allocation of the licenses, and the Voltas land deal with the Karunanidhiix family.41 There were also allegations that in November 2007, Ratan had writ- ten a letter to M. Karunanidhi, the then chief minister of Tamil Nadu and leader of the DMK party, praising A. Raja.42 It was alleged that, in a handwritten letter, Ratan had praised Raja for his “rational, fair, and action-oriented” leadership and “legally sound, rational, and well reasoned” policies on the issue of spectrum allocation.43

Ratan Tata’s Response Ratan vehemently denied the allegations that Tata Teleservices had been a beneficiary of the 2G scam. Rather, he claimed that it was a victim. According to him, as Tata Teleservices complied with all application requirements, rivals with better political connections had jumped ahead in the queue and taken most of the spectrum. For getting its share of the spectrum, the company had had to fight an 83-day legal battle with the government. “We haven’t had a level playing field. We’re still waiting for spectrum. We’re still behind the eight ball on sev- eral of the things that we should get,”44 claimed Ratan Tata.

In late 2010, Ratan approached the Supreme Court, claim- ing that the Radia tapes infringed upon his right to privacy. He alleged that some of the conversations between him and Radia were personal in nature and were not related to the 2G scam investigation.45 His petition said that taping of conversations

40Ibid. 41Pradip R. Sagar, “2G Scam: Tata Group Gets Clean Chit,” DNA, April 3, 2011. 42“Ratan Tata Confirms Praising Raja in Letter to Tamil Nadu CM,” www .indiaeveryday.in, April 4, 2011. 43Ibid. 44Amol Sharma, “India’s Tata Finds Home Hostile,” http://online.wsj.com, April 13, 2011. 45Kian Ganz, “Ratan Tata Claims Radia Tapes Violated Privacy: Karanjawala, Perhaps Salve, to Rep,” www.legallyindia.com, November 29, 2010.

46“Ratan Tata & Right to Privacy?” www.moneycontrol.com, November 30, 2010. 47Dave Makkar, “Ratan Tata’s Double Standards on Corruption,” www .indiatribune.com, January 31, 2011. 48Pradip R. Sagar, “2G Scam: Tata Group Gets Clean Chit,” DNA, April 3, 2011. 49“Ratan Tata Confirms Praising Raja in Letter to Tamil Nadu CM,” www .indiaeveryday.in, April 4, 2011. 50“PAC Questions Ratan Tata, Radia: Key Takeaways,” www.moneycontrol .com, April 4, 2011. 51Amol Sharma, “On Radia Tapes, Tata’s Frustrations Show,” http://online .wsj.com, April 13, 2011. 52Amol Sharma, “India’s Tata Finds Home Hostile,” http://online.wsj.com, April 13, 2011. 53Nikhil Kanekal and Shauvik Ghosh, “Ruling Disconnects Telcos …,” Mint, February 3, 2012.

 

 

CASE 10 ETHICAL LEADERSHIP: RATAN TATA AND INDIA’S TATA GROUP PC4-13

corruption a normal part of doing business, especially while operating in emerging markets like India? How to ensure that his successors carried forward the legacy of ethical leadership of the Tata Group and do not view it as a burden?

Case Questions

1. Is corruption a normal part of business? 2. Corruption is often linked to the qualities of a particular

country and society. Are some countries more corrupt and prone to crony capitalism than others?

3. What is your opinion about the Tata Group? What role did ethical leadership play in the success of the group?

4. What do you think of Ratan Tata’s leadership? Do you think that Ratan was able to carry forward the legacy of the Tatas in letter and spirit?

5. What should Ratan Tata do to ensure that the group car- ries forward the legacy of ethical leadership of the Tata Group and does not view it as a burden while operating in emerging markets like India?

Endnotes

i. Tata Industries was set up by Tata Sons in 1945 as a managing agency for the businesses it promoted. Following the abolition of the managing agency system in the 1980s, Tata Industries’ mandate was to promote the group’s entry into new and high- tech areas.

ii. Until 1991, the Indian economy was mired in the so-called license raj, with government intervening quite a bit in normal businesses through quotas and sanctions on private business. All major industries were run by the government, including the telecommunications industry. This, coupled with the dire fiscal condition of the country, left India on the verge of bankruptcy and with foreign currency reserves sufficient for only two weeks of imports. In 1991, the economy was liberalized with most of the sectors and industries being privatized and government intervention being limited to only the issuing of mandatory per- missions and allocating of resources wherever necessary.

iii. Rs. = Indian rupees. As of early 2012, US$1 was approximately equal to Rs. 50.

iv. Radio spectrum, a part of the atmosphere that transmits electromagnetic waves, enables transmission of all types of wire- less signals. Spectrum is used to transmit all signals, including satellite, radar, mobile, and fixed telecommunications and broad- casting. Spectrum being a finite resource and vital for commu- nications, government controls its usage by allocating each lode for specific transmission purposes. In this way, some part of it is allocated to commercial mobile communications, which in turn is allocated to mobile carriers based on certain criteria.

v. In May 2009, Telecom Watchdog, an NGO, submitted a complaint to the Central Vigilance Commission, an apex Indian governmental body to address governmental corruption, point- ing out irregularities and requesting for an enquiry.

vi. The Indian telecom sector is divided into 23 service areas (com- monly called circles) consisting of 19 state telecom circles and 4 metro service areas for providing Unified Access Services (UAS). Operators need to procure a separate license from the government to operate in each service area or circle.

Time for a Leadership Transition Going forward, the Tata Group focused on new technologies and innovation to drive its business in India and internationally. The aim of the group was to build multinational businesses that would achieve growth through excellence and innovation while balancing the interests of shareholders, employees, and civil society. Ratan believed that one of the biggest challenges for the group was retaining its value systems as it grew bigger and more diverse. He believed that the group had to expand the managerial perspective while retaining the same ethical and moral standards.

Ratan’s age and the fact that he was a bachelor gave rise to concerns that his departure might result in the group’s breakup.54 There were also concerns that the value systems of the Tata Group might be lost because Ratan might be the last Tata to oversee the group. Some were of the view that after him, the future managers of the group might view the development projects and philanthropy as burdens during tougher times.

In August 2010, the Tata Group created a five-member com- mittee to find a successor to Ratan. In late 2011, the committee zeroed in on Cyrus P. Mistry, a director of Tata Sons and the son of Pallonji Shapoorji Mistry, a construction tycoon who was the single largest shareholder of Tata Sons with an 18 percent stake. Mistry was also a relative of Ratan. On Mistry’s selection, Morgen Witzel, the management writer who authored Tata: The Evolution of a Corporate Brand, said, “One of the key tasks of the leader of the Tata group is to act as guardian of the group’s traditions and values and reputation, which are in turn a powerful part of its brand. An internal candidate will already have absorbed all of this, and be much more connected with the group.”55

The Road Ahead Under the two-decade reign of Ratan, the Tata Group had been transformed into a global company while still retaining its pre- eminent position in India. However, the belief that “Integrity” and “Tata” were synonymous had come into question follow- ing the 2G scam. At the end of his illustrious career, Ratan himself seemed to be frustrated with the level of corruption in his home country, which, he argued, had held his group back. In his words: “I think corruption has become worse and if you choose not to participate in this, you leave behind a fair amount of business…. You have a non-level playing field and those who do not participate in this (paying bribes) live at a disadvantage.”56

In this scenario, one of Ratan’s prime concerns was how to deal with the problem of bureaucratic delays, arbitrary regulatory decisions, and widespread corruption. His succes- sor, Mistry, would soon have to decide which approach he wanted to take while managing the group. What if he considers

54Pete Engardio and Nandini Lakshman, “The Last Rajah,” www.business- week.com, August 13, 2007. 55PR Sanjai and John Satish Kumar, “Surprise Pick Mistry to Succeed Ratan Tata,” www.livemint.com, November 24, 2011. 56“Corruption in India Has Become Worse: Ratan Tata,” www.thehindubusinessline.com, August 24, 2011.

 

 

PC4-14 PART 4 COMPREHENSIVE CASES

ix. M Karunanidhi was the then chief minister of Tamil Nadu. He was the leader of the DMK party to which A. Raja belonged. His daughter, Kanimozi, a member of the Indian parliament, was also arrested on charges of being associated with the 2G scam. The DMK party was a coalition partner of the United Progressive Alliance that was in power in India.

vii. Calculation of loss was based on the 3G auction in 2010. viii. It was alleged that Raja had amassed bribes to the tune of Rs. 30

billion for favoring several telecom companies in the allocation of the 2G spectrum. (Source: “2G Scam: ‘Raja Used Wife’s a/c to Stash Bribe Money Abroad’,” www.daijiworld.com, March 2, 2011.)

 

 

P A R T 5 : Integrative Section

kind of reception do you anticipate from local governments, suppliers, distributors, and so on?

Draw up an organization chart showing the company and its overseas operations, and describe why you have chosen this structure.

Decide on the staffing policy you will use for top-level managers, and give your rationale for this policy.

Describe the kinds of leadership and motivational systems you think would be most effective in this environment. Give your rationale.

Discuss the kinds of communication problems your manag- ers might face in the host-country working environment. How should they prepare for and deal with these problems?

Explain any special control issues for this overseas opera- tion that concern you. How do you plan to deal with them?

Identify the concerns of the host country and the local community regarding your operations there. What plans do you have to deal with their concerns and to ensure a long- term cooperative relationship?

1 Integrative Term Project 2 IKEA in Russia: Emerging Market Strategies and Ethical Dilemmas

Integrative Term Project This project requires research, imagination, and logic in apply- ing the content of this course and book.

In groups of three to five students, create an imaginary company that you have been operating in the domestic arena for some time. Your group represents top management, and you have decided it is time to go international.

Describe your company and its operations, relative size, and so forth. Give reasons for your decision to go international.

Decide on an appropriate country in which to operate, and give your rationale for this choice.

State your planned entry strategy, and give your reasons for this strategy.

Describe the environment in which you will operate and the critical operational factors that you must consider and how they will affect your company.

Give a cultural profile of the local area in which you will be operating. What are the workers going to be like?

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