Sustainablog

This blog will cover some news items related to Sustainability: Corporate Social Responsibility, Stewardship, Environmental management, etc.

8.4.06

The Dutch discount: A shareholder revolt in the Netherlands



The Dutch discount

Apr 6th 2006
From The Economist print edition



A shareholder revolt in the Netherlands

Reuters

Reuters
Twisting in the wind

WHEN a consortium of private-equity firms offered in January to pay up to €7.3 billion ($8.8 billion) for VNU, a Dutch business-information firm, the company's bosses welcomed the bid. New owners, they hoped, would at last bring some stability to a firm that has been in turmoil since last November, when shareholders forced VNU to scrap a plan to buy IMS Health, an American health-market research firm. As it turned out, the opposite has happened: the private-equity bid has provoked a new shareholder campaign that could turf out the entire supervisory and management board.

The upheaval at VNU is yet another example of increasing shareholder activism in Europe. Last year a group of foreign investors ousted Werner Seifert as boss of Germany's stock exchange, an act that Mr Seifert rails against in “Invasion of the Locusts”, his memoir published on April 3rd. In France a group of investors led by Vincent Bolloré, a French corporate raider, toppled Alain de Pouzilhac as boss of Havas, a big advertising agency. And two of the investors who were part of last year's coup at Havas recently bought a big stake in Vivendi, a French media group—which could herald the beginning of another campaign to force big changes to a company's strategy or its top management—or both.

Investor activism is particularly on the rise in the Netherlands, fuelled by changes in Dutch and European law. Stork, a technology company, is under pressure to de-list from the stock exchange. CSM, a food-ingredients group, has been targeted for its treatment of shareholder voting rights. Investors at Heineken are complaining about the brewer's ownership structure. “In the past Dutch companies were undervalued because of their poor governance,” says Hans Slob at Rabo Securities in Amsterdam. But the “Dutch discount” has been decreasing in recent months.

At VNU, some investors are unhappy with the private-equity offer, published on April 3rd in a memorandum of more than 200 pages from a consortium of six firms including Kohlberg Kravis Roberts and Blackstone. The rebels are led by Knight Vinke Asset Management (KVAM), a small but belligerent investor that had been one of the forces behind the failure of the bid for IMS. Knight Vinke commissioned a report by the Boston Consulting Group to prove its contention that the consortium's offer undervalues VNU by at least 25%—and maybe as much as 40%. It intends to reject the bid and wants other shareholders to do the same. Any sale would need to be approved by the overwhelming majority of investors.

Shareholders at VNU have until May 5th to decide. KVAM is confident of victory. Fidelity, one of the company's largest shareholders, is unlikely to back the consortium's bid. But is KVAM really acting in the interest of all investors? A rival bid is unlikely to emerge and the company's top management is in turmoil. After the failure of the bid for IMS, the chief executive and other members of the VNU executive board are planning to resign. No replacements have yet been found—perhaps because few people are keen to join a company with such an uncertain future. Maybe a stint under the ownership of demanding private-equity companies would be VNU's best bet.

Safe and Effective Hydrogen Storage

From Martin... thanks for sending it on :-)


http://www.teknologisk.dk/energi/17444


Safe and Effective Hydrogen Storage

Project description | Innovation | Expected results | The consortium

Efficient and safe storage of hydrogen for fuel cell applications has recently received enormous attention. However, it still remains a substantial challenge for the prospects of a hydrogen economy to provide a safe and dense storage method for hydrogen.

Novel hydrogen storage method
A new storage principle will be addressed in this project. It is based on the use of metal ammine complexes as an efficient hydrogen carrier. The synthesis and dissociation of ammonia is well understood. These reactions can take place at temperature levels as low as 325-375°C. Some metal ammine complexes contain more than 100 kg hydrogen per m3 and hereby exceed the goal made by US-DOE regarding hydrogen capacity in 2015 of 80 kg per m3. The new compounds can be handled in atmospheric air and only water and nitrogen will be emitted from an integrated power system consisting of the storage material, an integrated ammonia micro-reactor and a fuel cell. Today, ammonia is produced in large quantities from natural gas, but in the future it may also be produced from wind power and biomass – perhaps even in a direct electrolytic process.

Storage principle of ammonia pellets
A schematic illustration of the technology

The use of metal ammine complexes as energy carrier means a new way of thinking in relations to distribution, fuelling and storage. It is also likely that human barriers will have an influence on the implementation of a new fuel. Therefore it is important to work with balancing the risks so they as a minimum correspond to those we know from conventional fuels.
Safe and Effective Hydrogen Storage

Project description | Innovation | Expected results | The consortium

The implementation of this technology brings the energy production to the end-user and therefore represents a highly flexible solution. The technology serves as an alternative for the use of pure hydrogen and can be fully integrated in existing energy system elements.

Molecule structure of methane and ammonia

One of the advantages of using ammonia as a fuel is the wide knowledge about how to handle the fluid both in the refrigeration and the agricultural industries. Ammonia transportation is also easier than hydrogen transportation. As an example, almost half the chemical energy in hydrogen is lost if hydrogen is liquefied. The development of the metal ammine technology will result in a mobile, decentralized and pollution free energy production.

The ammonia in this energy carrier material can be produced from natural gas. This technology thereby expands the applications of natural gas. Potentially, remaining CO2 can be sequested centrally at large ammonia synthesis plants and, consequently, only water and nitrogen is released in the mobile fuel cell based unit. This is clearly an environmental force in terms of global warming effects. Likewise, the implementation of the technology is considered to be highly interesting for the Danish agricultural sector from which 93,000 tonnes of ammonia is discharged every year. Moreover, this solution is a possible path for environmental neutral use of fossil fuels, as ammonia can be produced from various sustainable energy sources.


Safe and Effective Hydrogen Storage

Project description | Innovation | Expected results | The consortium

The research work will result in a completely new and safe hydrogen production and storage technology. In addition the work will create fundamental knowledge about the optimal salt carrier material together with the integration between a fuel cell, an ammonia decomposition reactor and the storage material. Knowledge about how to have an effective NH3-cracking down to very low NH3 levels will also be obtained.

The safety issues that will be addressed during the project will form a basis for a scenario for the implementation of the technology within the existing energy system.

The requirement specifications will be listed describing the details of the system in order to develop the components needed. Moreover, know-how is gathered regarding the control and regulation mechanisms and a status of the standardization activities will be reported.

An assessment of possibility to link the salt solution to a solution for the problem of excess NH3 production in Agriculture will be made.

Prototypes of power units, including hydrogen storage, reforming and power conversion using fuel cell systems, will be developed.

Safe and Effective Hydrogen Storage

Project description | Innovation | Expected results | The consortium

The consortium consists of Danish Technological Institute, Amminex A/S, Technical university of Denmark and Grundfos A/S. The purpose of this team structure is to achieve a balanced mix of basic research, development, production and market know-how.

Financial support
The project is supported by The Danish Research Agency under The Strategic Programme: Renewable Energy and Environmental Sustainable Energy Production.

Project management
The manager of the project is senior consultant, Phd. Jens Christiansen. Jens Christiansen has been managed and participated in national and European projects within energy technologies for more than a decade. The projects include hydrogen storage, solid oxide fuel cells, batteries and high temperature superconductors. The Danish Technological Institute will have the over all responsibility of the project and the reporting to The Danish Research Agency.



For yderligere information kontakt

Jens Christiansen
Email:
jens.christiansen@teknologisk.dk
Telefon: +45 72 20 24 98

7.4.06

Analysis Advocates Strategic Approach to Corporate Social Responsibility


Analysis Advocates Strategic Approach to Corporate Social Responsibility

SocialFunds.com, 4 April 2006 - McKinsey Quarterly provides in-depth analysis of its January 2006 survey documenting increasing executive interest in CSR, a finding correlated by an American Society for Quality poll.

Polls of the business community continue to document rising interest in corporate social responsibility (CSR.) Unfortunately, they also continue to reveal significant lags in implementing commitment to CSR. Perhaps the most interesting aspect of this ongoing flow of CSR polls and surveys is the increasing depth of analysis applied to their findings.

A recent
poll by the American Society for Quality (ASQ), the appointee for creating and administering the US Technical Advisory Group (TAG) for the International Organization for Standardization (ISO) 26000 Social Responsibility standards, documents rising interest in CSR. The poll of 100 business leaders from Fortune 500 companies, conducted in February 2006, also reveals significant lags in implementing commitment to CSR. According to the ASQ poll, 96 percent of business leaders think their company's CSR behavior will greatly impact the nation’s economic future, but more than 40 percent still do not have any policy in place to guide their company's actions.

These findings correlate with the
McKinsey Quarterly Global Survey of Business Executives, which polled more than 4,000 executives from 116 countries in December 2005. While the January 2006 edition of McKinsey Quarterly published the results of the survey, the latest edition of the publication includes an in-depth analysis of the survey findings, entitled "When social issues become strategic".

The McKinsey Quarterly analysis takes a long step beyond the statistical picture the survey paints of the CSR landscape in broad brushstrokes by filling in the details with a pointillist's eye, extrapolating the real world significance of the survey's findings. Indeed, its most striking aspect is the forceful language used to assert the vital importance of CSR.

"Business leaders must become involved in sociopolitical debate not only because their companies have so much to add but also because they have a strategic interest in doing so," state McKinsey analysts Sheila Bonini, Lenny Mendonca, and Jeremy Oppenheim. "Social and political forces, after all, can alter an industry's strategic landscape fundamentally; they can torpedo the reputations of businesses that have been caught unawares and are seen as being culpable; and they can create valuable market opportunities by highlighting unmet social needs and new consumer preferences."

The McKinsey analysis maps out the social contract businesses must honor, extending it well beyond the traditional understanding of abiding by formal laws to encompass less formal stakeholder expectations and, increasingly, "frontier" expectations that are still developing. The authors cite obesity as an example, where responsibility has shifted from individuals who choose what to eat to companies that make or sell unhealthy foods, just as the debate around tobacco shifted from individual smokers to companies' marketing of addictive products.

The McKinsey analysts also point to the role of civil society in framing expectations.

"Trust in nongovernmental organizations (NGOs), citizens' groups, and online information sources has risen as inexorably as faith in business--Enron, WorldCom--has declined," they write.

While some debate the relative merit of these NGO stances, the McKinsey analysts take a more practical approach of acknowledging the reality of stakeholder power--instead of fighting it, they recommend acknowledging it and working with it.

"We believe that the case for adopting a wholeheartedly strategic approach to the sociopolitical agenda is threefold," they say. "First, these forces can alter an industry's landscape in fundamental ways."

"Second, the immediate financial and longer-term reputational impact of social issues that backfire can be enormous," they add, citing the Monsanto (
MTC) genetically modified organism debacle and the Exxon (XOM) Valdez oil spill. "Finally, new product or market strategies can emerge from changing social and political forces." Think Toyota (TM) Prius.

The analysis also recommends what might seem the antithesis of competitive capitalism: namely, collaboration and cooperation. They note that Coca-Cola (
KO) and PepsiCo (PEP) have experienced success through a common approach of implementing policy prohibiting the marketing of their core carbonated soft drinks to children under 12.

"As a rule, companies should consider responding on their own if they think they can capture the first-mover advantage (as
BP did in acknowledging the dangers of global warming), if they are a target, or if a collective approach is too difficult or costly," the analysts state. "Collaboration can be attractive if the stakeholders regard all companies as equally culpable, if regulation is imposed on an entire industry, or if isolated, individual action would clearly destroy value."

The shifting perception of CSR is extremely significant for the ISO 26000 Social Responsibility standards, due out in the fourth quarter of 2008, which will solidify how CSR is measured and managed. The ASQ poll is a tentative first step in the direction of gauging mainstream business community attitudes toward CSR. The McKinsey analysis is a much more important bellwether of CSR, because it merges statistical data (namely the Global Survey of Business Executives findings) with real-world examples to create a more well-rounded synthesis.

6.4.06

I.B.M. to Work With Start-Up on Chip That Uses Less Power



The New York Times
Printer Friendly Format Sponsored By





April 4, 2006
I.B.M. to Work With Start-Up on Chip That Uses Less Power
By JOHN MARKOFF

SAN FRANCISCO, April 3 — I.B.M. plans to announce an alliance on Tuesday with a small Silicon Valley company that has designed a flexible microprocessor chip intended to perform tasks like video processing using less than a tenth the power of today's chips.

The microprocessor was designed by a group led by a pioneer in the personal computer software industry, Andrew Singer. His company, Rapport, is one of a handful of Silicon Valley start-ups that have pursued reconfigurable computer hardware designs, a technology long thought by some computer designers to have great promise, but so far slow to find uses in more than niche applications in the computer industry.

The Rapport technology, known as Kilocore, will initially be aimed at portable applications like digital video delivered to cellphones. According to Mr. Singer, reconfigurable logic promises better energy efficiency, which has become a watchword in large computer data centers as well.

Mr. Singer said Rapport, which raised $7 million last year and is based in Redwood City, Calif., licensed a computing design from researchers at Carnegie Mellon.

That approach has permitted Rapport to create a chip with 256 computing elements that can be configured on the fly to adapt to different software problems. A follow-on version of the chip will have more than 1,000 computing elements and will contain a version of I.B.M.'s Power PC microprocessor.

"We picked the PowerPC because of I.B.M.'s experience building multiprocessors," Mr. Singer said.

An I.B.M. executive said the Rapport technology was a clever extension of several design ideas that I.B.M. had already proved in its Cell microprocessor to be used by Sony in its next-generation video-game console, PlayStation 3, and by I.B.M.'s own BlueGene-based supercomputers. "You begin to see hundredfold improvements in power efficiency," said Bernard Meyerson, vice president and chief technologist in I.B.M.'s systems and technology group.

At a computing conference scheduled to begin in San Jose, Calif., on Tuesday, Rapport will demonstrate the chip processing a stream of video images. While a standard industry microprocessor chip, the ARM 7, can process 3.3 images a second while consuming half a watt of power, the new Rapport chip will convert 30 frames a second while consuming only 100 milliwatts, about one-fifth the power.

He said that was a power-efficiency ability roughly 50 times the current industry standard component. The power savings are obtained by radically lowering the energy used in conjunction with each separate computing element in the system.

One Silicon Valley analyst said that the challenge for companies like Rapport is to show that the technology will work across a broad range of software problems.

"The problem is always the software development," said the analyst, Peter Glaskowsky of the Envisioneering Group, a research firm.

5.4.06

Top Global Companies Join Forces to Make 'Net-Zero' Buildings a Reality


Top Global Companies Join Forces to Make 'Net-Zero' Buildings a Reality
Source
GreenBiz.com
URL:
http://www.greenbiz.com/news/news_third.cfm?NewsID=30713

GENEVA, March 30, 2006 - The World Business Council for Sustainable Development is forming an alliance of leading global companies to determine how buildings can be designed and constructed so that they use no energy from external power grids, are carbon neutral, and can be built and operated at fair market values.

The industry effort is led by United Technologies Corp., the world's largest supplier of capital goods including elevators, cooling/heating and on-site power systems to the commercial building industry, and Lafarge Group, the world leader in building materials including cement, concrete, aggregates, gypsum, and roofing. The WBCSD and the two lead companies are in discussions with many other leading global companies that are expected to join the project and will be announced shortly.

Buildings today account for 40% of energy consumption in developed countries according to the OECD. The effort announced today for transforming the way buildings are conceived, constructed, operated and dismantled has ambitious targets: By 2050 new buildings will consume zero net energy from external power supplies and produce zero net carbon dioxide emissions while being economically viable to construct and operate.

Constructing buildings that use no net energy from power grids will require a combination of onsite power generation and ultra-efficient building materials and equipment.

The project will comprise three phases, each producing reports that together will form a roadmap to transform the building industry. The first report will document existing green building successes and setbacks, the second will identify the full range of present and future opportunities, and the third will present a unified industry strategy for realizing those opportunities by 2050, specifically in China, India, Brazil, the U.S., and the E.U.

Each report will take one year to complete and involve hearings and conferences with building contractors and suppliers, sustainability experts, government representatives, regulators, utility officials and others.

"Green" buildings already are erected in various parts of the world but current cost structure prevents widespread adoption by general contractors. The project will build on these examples, aligning costs and benefits in the building equation and by working in close collaboration with architects, builders, suppliers and building owners to promote a more sustainable approach to construction. Existing standards for energy efficiency in buildings will be the starting point for the industry-led alliance.

"Lafarge has been leading efforts in energy efficiency and sustainable construction in the building materials sector for a number of years, not only by reducing greenhouse gas emissions during the production process but also by developing materials that contribute to making buildings more energy efficient," said Bertrand Collomb, chairman of Lafarge.

"In this context, Lafarge has been collaborating with leading architects to promote sustainable construction as illustrated by our partnership with French Architect Jacques Ferrier, which led to the development of the 'Hypergreen' concept: This multi-use tower building, designed for the world's mega-cities, is highly energy self-sufficient thanks to the use of the latest construction methods and technologies."

"Buildings of tomorrow should be self-sufficient in energy and have carbon neutral emissions," said Jan van Dokkum, president of UTC Power, a United Technologies company.

"This can be done by incorporating renewable energy sources into a building's design, optimizing energy efficiency of support systems, and taking advantage of geographic and culturally acceptable building practices. Additionally, this aim is enhanced by using the 'cradle to cradle' concept of producing, using and later re-using building materials. This vision of energy and carbon neutral designs is a necessary evolution we need to embrace to achieve sustainability for buildings."

Björn Stigson, president of the WBCSD, noted that "being smarter and more efficient about how we use energy in buildings will help us conserve energy, reduce greenhouse gas emissions and address climate change. We believe this initiative can provide extremely cost-effective solutions. It will also set the course for self-sufficient and environmentally sound buildings in which future generations will live, work and be entertained. Our partners are industry leaders with technological expertise and presence that no single existing organization or government could provide on its own.

SUV Haters Vent In GM's Make-Your-Own Ad Contest


SUV Haters Vent In GM's Make-Your-Own Ad Contest

An online ad campaign for General Motors has apparently, um, backfired.

By
Antone Gonsalves
TechWeb.com

Apr 3, 2006 05:43 PM

General Motors is unlikely to choose the winner of its make-your-own Tahoe ad contest from the entries circulating the Web on Monday.

With GM providing all the online tools to let the creative juices flow, SUV haters took the opportunity to let their feelings show in ads that linked the gas-guzzling vehicles to global warming and inconsiderate drivers. The contributors' sometimes off-color text was superimposed on video of the new 2007 Chevy Tahoe tooling down an open road in the mountains or some other grandiose landscape.

"This powerful V8 engine only gets 15 miles per gallon. In a world with limited resources, you don't need a GPS to know where the road leads. Our planet's oil is almost gone. Peak oil is here. Maybe you should walk," one ad said.

"Larger than any normal mortal really needs with four-wheel drive for conditions you'll probably never encounter, and size to intimidate other drivers and damage others' cars more than yours," another said. "Give you false confidence, so you can continue to drive like a heedless jerk, because you're the only one on the whole damn planet."

GM launched the online ad campaign and contest with Donald Trump's "The Apprentice" franchise. Prizes range from a Jackson Hole Getaway to a trip to the Major League Baseball All-Star Game.

The Detroit automaker is not the first company to get stung in trying to use the Web's interactive power. The Los Angeles Times, for example, was forced to take down last year a wiki it launched to build a reader-created editorial on the war in Iraq. The "wikitorial" became a maintenance nightmare for the newspaper's editors, who spent too much time removing porn and profanity.

4.4.06

When social issues become strategic? [Another article on CSR in a series from McKinsey. They are obviously getting very busy in the space]


When social issues become strategic

Executives ignore sociopolitical debates at their own peril.

Sheila M. J. Bonini, Lenny T. Mendonca, and Jeremy M. Oppenheim

2006 Number 2


Executives with lingering doubts about the importance of sociopolitical issues to business will surely be convinced by this year's eye-catching McKinsey Quarterly survey on the topic. It's not just that an overwhelming majority of the respondents acknowledged a wider role for corporations than just maximizing investor returns, though this finding is remarkable in itself. More striking still is the way participants in our online poll saw environmental concerns, the offshoring debate, data protection, and other sensitive matters as potential threats to the creation of value and frankly conceded that their companies handled these issues poorly.

Although lobbying—often behind closed doors—is as old as business itself, high-level and concerted corporate activism in the social and political arena has been conspicuous by its absence. That deficiency, executives tell us, is the result of short-term financial pressures, a lack of familiarity with the issues, and the sense that specialists in the public-affairs and legal departments handle this sort of thing.

Such thinking, we believe, is dangerous and wrong headed. Business leaders must become involved in sociopolitical debate not only because their companies have so much to add but also because they have a strategic interest in doing so. Social and political forces, after all, can alter an industry's strategic landscape fundamentally; they can torpedo the reputations of businesses that have been caught unawares and are seen as being culpable; and they can create valuable market opportunities by highlighting unmet social needs and new consumer preferences.

The challenge is to find a way for companies to incorporate an awareness of sociopolitical issues more systematically into their core strategic decision-making processes. Companies must see the social and political dimensions not just as risks—areas for damage limitation—but also as opportunities. They should scan the horizon for emerging trends and integrate their responses across the organization, so that the resulting initiatives are coherent rather than piecemeal.

The social and managerial challenge

Businesses have never been insulated from social or political expectations. What's different today is the intensifying pressure and the growing complexity of the forces, the speed with which they change, and the ability of activists to mobilize public opinion. Yet even as the social contract evolves, the typical corporate response appears to have become increasingly flat footed.

The changing social contract

Companies have always had a contract with society. The contract embraces not just direct stakeholders (such as consumers, employees, regulators, and shareholders) but also, and increasingly, a broader set of stakeholders (such as the communities where companies operate, the media, academics, and the nonprofit sector).

Part of this contract (Exhibit 1) is formalized in laws and regulations, and violating them has obvious legal ramifications. Part of it is semiformal: the stakeholders' implicit expectations, which if ignored can bring about swift action. Most multinationals in the United States, for example, are expected to maintain at least some labor standards along their global supply chains, even if they aren't legally required to do so. Violations of that semiformal contractual obligation can seriously harm a company's reputation as well as consumer demand for its products. Ask Nike.

Chart: The social contract

This social contract is by nature a fluid one. Often, issues that lead to legislation start out as semiformal expectations about business; likewise, some aspects of the formal contract are "deregulated." Companies in Europe, for example, are still expected to uphold certain employment guarantees with their workers, despite their greater flexibility in deploying labor.

More challenging are the "frontier" issues that have not yet entered the formal or semiformal contracts but could, over time, become social expectations—something that business might not even realize. Take obesity. It had always been widely believed that the responsibility for avoiding it lay with individuals, who choose what they eat, not with the companies that make or sell fattening products. But the blame is shifting, much as the debate around tobacco shifted the responsibility from individuals to an industry perceived to be aggressively marketing addictive products. Food companies may not be forced to modify the fat and sugar content of their products, but the momentum on this issue could already be so great that lawmakers or regulators will step in and formalize social expectations by imposing new legal restraints.

Rising expectations

Increasingly, a company's sources of long-term value (for example, its brand, talent, and relationships) are affected by a rising tide of expectations among stakeholders about the social role of business. Two forces are colliding: an emerging set of sociopolitical megatrends (Exhibit 2) that are upending the lives of people, communities, and societies, as well as ever-more-powerful stakeholders wielding wide influence.

EXHIBIT 2
Types of megatrends affecting sociopolitical environment in which business operates
Trends

Previous Trend | Next Trend
Blurring boundaries between responsibilities and laws

It is increasingly unclear who should provide basic social services (eg, pensions, public-health services, school infrastructure), regulate business and personal behavior (eg, self-regulation vs government oversight), and be accountable for protecting rights, public goods, and resources.

What it means for business (selected examples):

  • Responsibility for obesity shifting from individuals to companies in food and beverage sectors
  • Provision of insurance benefits shifting from employer to employee
Butterfly effect

Growing interdependence and interconnectedness have amplified risks and opportunities for consumers, employees, businesses, and governments. As a result, issues that were once peripheral or local now have global impact.

What it means for business (selected example):

  • Local livestock contaminations (eg, mad cow disease, avian flu) threaten stability of global health and global food supply chains
Discontinuities in demographics and resources

Major shifts in population sizes and age distribution, coupled with climate degradation and depletion of fundamental resources, are transforming traditional social organization and practices (eg, pension provision).

What it means for business (selected examples):

  • Responsibility for negative implications of offshoring shifts to business
Growing safety and security concerns; sensitivity to risk

As technology advances and the world becomes even more connected, people are increasingly aware of their exposure to risks and are willing to invest in order to avoid them. However, people often misunderstand or miscalculate risks because of their unrealistic desire to avoid them completely.

What it means for business (selected examples):

  • Restrictions on nuclear power downplay long-term risks of fossil-fuel-based power generation
  • Drugs approved by US Food and Drug Administration later pulled from market because of potential health risks to small portion of population
Rising inequality

Globalization, economic development create unprecedented but unevenly distributed wealth, power. Rising inequality across and within countries, companies, industries, and value chains is prompting questions about the balance between equity and efficiency.

What it means for business (selected examples):

  • Pharmaceutical companies called on to provide drugs at discount prices to remedy unequal access to drugs in Africa
Shifting values, social norms

Attitudes in the world are shifting, colored by tensions between tradition and modernity, meaning and materialism, consumption and resource stewardship, and duty and individualism.

What it means for business (selected examples):

  • Principle of environmental stewardship creates demand for hybrid cars
  • Protection of indigenous land and mining rights raises cost of extraction
  • Consumer lending rates reduced because of ‘usury’ claims
Ubiquity of technology

Technology is transforming the way societies progress, how we interact, and how we view the world. Evermore pervasive, technologies are also creating both anxieties and new opportunities to understand and influence our lives.

What it means for business (selected examples):

  • Exposure to/fear of identity theft leads to increased compliance costs in financial-services industry
  • Technology enhances stakeholders’ ability to coordinate, communicate, raise funds for specific causes
Since 1990, more than 100,000 new citizens' groups have been established around the world. Even in China, a country not known for freedom of political expression, the number of social protests increased from just under 10,000 in 1993 to more than 58,000 in 2003.1 The balance of power has shifted in favor of individuals and small single-issue groups increasingly armed with tools and tactics that can easily be deployed through the Internet. Trust in nongovernmental organizations (NGOs), citizens' groups, and online information sources has risen as inexorably as faith in business—Enron, WorldCom—has declined.

Management's slow reaction

Large organizations must shift their thinking in this area. Typically, businesses are taken by surprise when faced with negative press and stakeholder pressure. After all, they provide plenty of benefits to society—products of good quality or low prices—and employ vast numbers of people. Yet the rising tide of expectations means that companies must now strive to anticipate and understand those expectations and to embed them in their business strategy.

In the banking industry, for example, money center banks have been caught out by higher expectations. Criticized for making loans to companies that damage the environment, several have now pledged, in different ways, to restrict their lending and underwriting for industrial projects that would have an adverse environmental impact. These moves were largely reactions to protests coordinated by the Rainforest Action Network.

Companies are often on the defensive because CEOs and others in the top team find it difficult to wield what Harvard's Joseph Nye calls "soft forms of power"2 or to deal with players, such as NGOs, that trade in emotional arguments. By comparison with the hard skills and in-depth knowledge of most senior executives, sociopolitical issues require statesmanship, the fostering of relationships with stakeholders, and the nurturing of assets that could be called "reputational." Irritatingly for many executives, the arguments of pressure groups are frequently low on evidence. Furthermore, estimating the impact of most sociopolitical trends on corporate value requires executives to make assumptions and test sensitivities that MBA textbooks generally don't discuss.

How to manage these forces

We believe that the case for adopting a wholeheartedly strategic approach to the sociopolitical agenda is threefold. First, these forces can alter an industry's landscape in fundamental ways. In pharmaceuticals, for instance, social concerns about the cost and safety of the industry's products, as well as access to them, have made the regulatory environment tougher during the past decade. CEOs should take part in the debate so that they, their employees, and their investors have a stable set of rules.

Second, the immediate financial and longer-term reputational impact of social issues that backfire can be enormous. Ask Monsanto, which lost significant market value in the backlash against genetically modified organisms (GMOs) in the European Union, or ExxonMobil, whose cleanup costs for the Exxon Valdez oil spill amounted to $2 billion—on top of $5 billion in lawsuits.

Finally, new product or market strategies can emerge from changing social and political forces. Toyota Motor's success with the Prius can be attributed to a growing interest in environmentally friendly products. Unilever's innovative product offerings in developing countries, such as its Wheel detergent brand in India, were a response to the unmet needs of lower-income consumers there.

At the practical level, a company can take a number of steps aimed at making its approach to sociopolitical issues more strategic. It can develop "radar" systems to anticipate future risks and opportunities, master the range of options available for dealing with them, engage in the external debate, and ensure that the entire organization takes part in a coherent and forceful way.

Develop reliable radar

Sociopolitical issues and regulatory shifts may appear to come out of the blue. But the success of savvy newcomers such as Whole Foods Market confirms the fact that companies can indeed spot new trends and that early-warning signs of imminent change are plentiful. Not all issues, of course, evolve in a way that changes the social contract. Nonetheless, an early awareness of the concerns of NGOs and stakeholders enables companies to join and shape the debate before it turns against them—or at least to prepare themselves for turbulence ahead. Businesses that end up publicly fighting their stakeholders can well damage the brand or destroy the morale of their employees; much better to engage in a minor strategic foray than to be forced into a full-scale war.

In fact, our survey suggests that executives already know that they need to anticipate social pressure much more successfully. In our view, they should use systematic methods, including trusted techniques such as economic analysis and scenario planning, to evaluate the strategic impact of sociopolitical trends. If companies had tracked topics such as the obesity debate in the media, they would have become aware that reports on those issues were appearing more and more frequently in the mid-1990s. But volume alone isn't a sufficient guide. New evidence from, say, a well-respected academic can quickly change the dynamics of an argument. The obesity debate is one of those that took a significant turn during the 1990s. We can measure the change by following articles in the New York Times (Exhibit 3): blame for the problem shifted from individuals (overeating, lack of exercise) to "environmental" causes, including corporate marketing. The new outlook was at least in part the result of research by Harvard's Walter Willett showing a link between childhood obesity and the marketing of junk food.

Chart: Responsibility shifts

Large-scale problems generally start as small regional ones before Western NGOs champion them

Local antennae are also vital. Large-scale problems generally start as small regional issues before they are championed by larger, typically Western NGOs that have the clout and media contacts to launch global campaigns. The triggers are often practices—for example, working conditions that are below Western standards or "facilitation payments" to local government officials—that seem acceptable in some countries but not others. These practices may have a detrimental effect on corporate reputations when activists highlight and replay them for a global audience. What's more, the damage will be done notwithstanding any ethical policies that may have been promulgated throughout a business. Most companies become aware of the risks only at this late stage, when their direct stakeholders have already started to change their behavior. Mapping the landscape of different stakeholders is therefore important for a company's sociopolitical radar system. An understanding of the influence of various groups, their agendas, and their level of activism is a vital first step before a company chooses the best partners for its socio-political strategy.

Companies should aggregate this information to identify where they are most at risk and the economic implications of potential actions by stakeholders—particularly when they face a number of issues all at once. To evaluate what's at stake, companies must scan the whole value chain, looking, for example, at the way they source raw materials and make and sell their products. They should develop potential future scenarios that take into account the reaction of competitors, shifts in consumer patterns, and the possibility of litigation and regulation. Governments, for instance, may ultimately regulate the sale of fast food in schools through legislation or enhanced nutritional requirements for any foods sold in them (this issue is currently under debate in the California legislature). Alternatively, the success of several class action lawsuits could force the food and beverage industry to negotiate multiyear settlements. At the consumer level, educational campaigns and articles in the media will likely promote healthier options for food.

Place strategic bets

Armed with a more solid approach to the management of social issues, companies can not only reduce the risk to their reputations by anticipating new regulations but also create value by making the most of social and political shifts.

Indeed, companies should place bets on opportunities that emerge from their radar-tracking activities. Toyota's Prius is an example: the car's initial success puts the company in a position to move hybrid technology toward profitability faster than its competitors can as well as to augment its reputation by helping to address environmental issues—even if the jury is still out on the technology's effectiveness. GE's ecomagination initiative, reinforcing the company's commitment to clean products and reduced emissions, is a relatively low-cost, low-risk way of anticipating products and services that might be built on the back of emerging sociopolitical trends.

In general, more uncertain circumstances warrant a broad set of strategic options, and less uncertain circumstances warrant more narrow ones. To cope with emerging sociopolitical issues, we would expect companies to use a wide range of small investments that should be culled and narrowed as the issues move further into the explicit social contract with business. Given the unpredictable way socioeconomic trends develop, a strategy using a portfolio of initiatives is particularly relevant.3

Participate in the external debate

CEOs should also be prepared to take the lead in socioeconomic debates that could alter the structure of their industries and the rules of engagement in the long term. Business, in essence, involves a series of complex and continually evolving social trade-offs. In the power sector, the goals of low prices, energy security, and environmental friendliness are in permanent tension. So are the affordability of drugs, product safety, and innovation in pharmaceuticals. Business leaders need to raise the public's understanding of these unavoidable trade-offs.

The seminal 1997 speech of John Browne, BP's CEO, on global climate change—when he promised that BP would become an active, concerned participant in dealing with the problem of global warming—was notable as the first time a multinational corporation (other than a reinsurance company) had joined the emerging consensus on the topic. Bruce Bodaken, of Blue Shield of California, was the first health plan CEO to offer a proposal specifically for universal health coverage in his state.

To reduce uncertainty for all players, including investors, businesses need stable guidelines about the future evolution of their industries. An analogy can be made with the technological shifts that occur before industries adopt common standards. Industry leaders are in a strong position to ensure that a rational, evidence-based discussion of social and political trade-offs takes place. Without such a discussion the social contract remains unpredictable, investors suffer, and the social benefits of finding appropriate solutions are deferred.

Like any strategic shift, calls for change in the social contract involve a degree of risk. But if a company could be seen to have any responsibility for causing a sociopolitical problem, change is a no-regrets move, particularly for an industry leader that has the scale to alter the market. In some cases, change can confer a clear strategic advantage: for example, after the "blood diamonds" campaign,4 De Beers helped to develop a global certification system that enabled it to charge a premium for diamonds mined in conflict-free areas. Few companies get involved in a sociopolitical debate at the stage when they might be at risk for being ahead of the curve. The prevalent risk is not getting involved early enough.

Collaborate, cooperate . . .

Many sociopolitical issues are intractable and can't be resolved by a single company or even an industry. The most successful companies see beyond competitive rivalries and look for collaborative ways both to meet social concerns and to find new ways for industries to create value. The difficulty is knowing when to work with others and when to go it alone.

Working across different organizations with different cultures can be time consuming and slow moving; Nike and other branded marketers took seven years to establish the Fair Labor Association to strengthen labor rights in the supply chain. Industry associations often lack the capabilities to tackle broad issues across a sector, as well as the power to mobilize enough support. That's why CEOs of mining companies recently set up a new body, separate from the existing industry association (the International Council on Mining & Metals), to take on the sociopolitical issues facing them.

Coca-Cola and PepsiCo have benefited from a common approach to marketing to children under 12: both have a clear policy not to market their core carbonated soft drinks to this group. For other collaborative efforts, the attractions are the potential revenue upside and the ability to share costs. As a rule, companies should consider responding on their own if they think they can capture the first-mover advantage (as BP did in acknowledging the dangers of global warming), if they are a target, or if a collective approach is too difficult or costly. Collaboration can be attractive if the stakeholders regard all companies as equally culpable, if regulation is imposed on an entire industry, or if isolated, individual action would clearly destroy value.

. . . and coordinate

As our survey indicates, most business executives expect CEOs to take the lead in managing the corporate sociopolitical agenda. What's more important, though, is how well companies integrate such issues not just into the making of strategy but also across all dimensions of the business (Exhibit 4). A piecemeal approach runs the risk of misalignment—a CEO saying one thing, the rest of the company failing to translate these fine intentions into practical action. A company whose external-communications strategy emphasizes the search for more environmentally friendly products and processes, for example, probably won't make much headway if the company's government and regulatory functions are simultaneously fighting limits on carbon dioxide emissions.

Chart: Organizational coordination

Without a CEO's personal involvement, sensitivity to the sociopolitical agenda probably won't become embedded in an organization's culture and values. Neither will organizational coordination—always difficult to achieve across different divisions and functions—for the CEO plays a vital role orchestrating departments (such as PR, legal, regulation, and marketing) that ordinarily wouldn't act in concert. When CEOs such as BP's John Browne and GE's Jeff Immelt show their personal commitment, the response from stakeholders is remarkably positive.

Sociopolitical trends will increasingly affect the strategic freedom of companies, which just can't ignore the rising tide of expectations resulting from these trends and the power and influence of the stakeholders who mobilize around them. For stakeholders, companies are, in many ways, already agents of social change and must become much more deliberate in understanding the way they affect society. Businesses that follow the approach we outline and proactively understand and engage with social issues will benefit most. They will be better able to shape the social contract and to identify ways of creating value from the opportunities and risks arising from sociopolitical issues.

About the Authors

Sheila Bonini is a consultant in McKinsey's Silicon Valley office, Lenny Mendonca is a director in the San Francisco office, and Jeremy Oppenheim is a principal in the London office.

The authors would like to thank McKinsey alumni Daniel Litvin and Judy Wade for their contributions to this article.

Notes

1Kathleen E. McLaughlin, "Chinese protesting more as social problems grow; Beijing may find it hard to retake the reins," San Francisco Chronicle, May 1, 2005.

2Joseph S. Nye Jr., Soft Power: The Means to Success in World Politics, Cambridge, MA: PublicAffairs, 2004. While Nye's ideas are more commonly understood in the geopolitical arena, they have strong implications for the business world as well, particularly in regard to sociopolitical issues.

3For more, see Lowell L. Bryan, "Just-in-time strategy for a turbulent world," The McKinsey Quarterly, 2002 special edition: Risk and resilience, pp. 16–27.

4During the 1990s, revenues from diamond mining were used to finance civil conflicts in some African countries, including Angola, Liberia, and Sierra Leone. The Western NGOs Global Witness and Partnership Africa Canada mounted a campaign demanding an end to sales of "conflict diamonds," focusing on De Beers as the biggest diamond producer.

What's next for Tata Group: An interview with its chairman


What's next for Tata Group: An interview with its chairman

Ratan Tata explains how the company is expanding abroad while cultivating an emerging mass market at home.

Ranjit V. Pandit

2005 Number 4


The hopes, challenges, and opportunities of India's globalizing economy are closely intertwined with those of Tata Group and its chairman, Ratan N. Tata. The country's second-largest conglomerate—with revenues of $17.8 billion (in the financial year ending 2005) and core interests ranging from steel, cars, and telecommunications to software consulting, hotels, and consumer goods—has come a long way since he stepped up as chairman, in 1991. That also happened to be the year when India launched the economic reforms that were to make it one of the world's fastest-growing economies.

When the 67-year-old Tata, a Cornell-educated architect, succeeded his uncle J. R. D. Tata at the helm of the then-stodgy company, he set out to unite, refocus, and modernize the sprawling group of almost 100 largely independent businesses. Helped by cash from its booming software unit (Tata Consultancy Services) and by the growth of India's economy, he has rebuilt its shareholdings in its largest subsidiaries (by revenue), including Tata Motors and Tata Steel, and increased its revenue sixfold. In 1995 he took on the passenger car business—an effort that three years later resulted in the launch of India's first indigenously designed, developed, and produced car, the Indica. The gamble paid off.

In 2000 Tata Group purchased the United Kingdom's Tetley Tea and followed this move with other big overseas acquisitions and investments. Restructuring or divesting nonperforming businesses, however, has proved to be more difficult.

In an interview with Ranjit Pandit, a director in McKinsey's Mumbai office, Tata spoke about the group's international strategy, his plan to create a $2,200 "people's car," his vision of India as a knowledge center for the world, and his dedication to the social responsibilities required from companies operating in developing markets.

The Quarterly: How would you describe Tata Group's growth strategies in a globalizing economy?

Ratan Tata: We have two guiding arrows. One points overseas, where we want to expand markets for our existing products. The other points right here, to India, where we want to explore the large mass market that is emerging—not by following but by breaking new ground in product development and seeing how we can do something that hasn't been done before.

The Quarterly: How do you select which countries to enter?

Ratan Tata: Our strategy has been a little more modest than a truly global one. We want to expand into geographies where, as a group, we can have a meaningful presence. Even though companies could probably be very satisfied in an Indian context with maybe a 5 percent market share in a foreign country, this is—at least in our view—not a sustainable level. So in the first instance we have chosen countries where we felt we could make an impact and, secondly, where we are able to participate, as we have in India, in the development of that country.

When you visit a country or examine a particular company, I think you intuitively know if there's an opportunity, and then you flesh out that opportunity in one form or other. If we get to the stage of justifying assembly or manufacturing operations, we will seek either to contract them or to invest in facilities in that country. That has been the way we have gone into, say, South Africa. An example of another way is South Korea, where we acquired the Daewoo truck company. We saw an opportunity in an entity that had a certain market share, that had a product line that we did not have, and that was a strategic fit for us. We brought in our marketing reach and made the company more profitable.

The Quarterly: Why South Africa?

Ratan Tata: I have been involved with South Africa for perhaps seven or eight years. There was such an enormous disparity between rich and poor, and I always felt that this large poor community had been exploited over the years. So I met [Thabo] Mbeki before he became president—this was in [Nelson] Mandela's time—and I said we really wanted to do something in South Africa to give to the country rather than take away from it.

One thing led to another. We started professional schools in South Africa that train people in trades so that they can be self-employed, and then I became more involved with the country by joining Mbeki's investment council. Eventually, this led to our launching our cars and trucks in South Africa, where we became quite successful, and then we were awarded a second network operator's contract for telecommunications in all of South Africa.

The Quarterly: Most of these big moves seem to be taking place in other developing countries. When will Tata be ready to go into developed markets?

Ratan Tata: We are, to some extent, in developed economies already. In Western Europe, I think Italy and Spain are among our most promising markets for automobiles. We're in software in several countries. We have made acquisitions to enter the hotel business, including in the United States. And we are now looking at opportunities to invest in steel companies in developed countries, but we are making sure that we have secure access to raw materials, because I really believe that owners of iron ore are going to rule the industry. They will be the OPEC1 of the steel industry.

The Quarterly: Turning to your plans for the Indian market, the most intriguing is perhaps the development of a people's car that would sell for 100,000 rupees.2 What's the thinking behind it?

Ratan Tata: It is propelled by the opportunity, but there is also a social or dreamy side to it. Today in India, you often see four people on a scooter: a man driving, his little kid in front, and his wife on the back holding a baby between them. It's a dangerous form of transportation, and it leads to accidents and hospitalizations and deaths. If we can make something available on four wheels—all-weather and safe—then I think we will have done something for that mass of young Indians. If you could position an all-weather car that was not a glorified scooter or a stripped-down car, then I believe there would be a market potential of one million cars a year.

The Quarterly: How do you make such an undertaking profitable?

Ratan Tata: Today we're producing a $7,000 car, the Indica. Here we're talking about a $2,200 car, which will be smaller and will be produced in larger volumes, with all the high-volume parts manufactured in one plant. We're also looking at more use of plastics on the body and at a very low-cost assembly operation, with some use of modern-day adhesives instead of welding. But the car is in every way a car, with an engine, a suspension, and a steering system designed for its size. We will meet all the emissions requirements. We now have some issues concerning safety, mainly because of the car's modest size, but we will resolve them before the car reaches the market, in about three years' time.

In addition—and this again touches on the social dimension—we're looking at small satellite units, with very low breakeven points, where some of the cars could be assembled, sold, and serviced. We would encourage local entrepreneurs to invest in these units, and we would train these entrepreneurs to assemble the fully knocked-down or semi-knocked-down components that we would send to them, and they would also sell the assembled vehicles and arrange for their servicing. This approach would replace the dealer, and therefore the dealer's margin, with an assembly-cum-retail operation that would be combined with very low-cost service facilities.

Chart: Biographical sketch of Ratan Tata

The Quarterly: You have launched another new low-cost venture—building a chain of basic hotels, the indiOne. What's the philosophy behind it?

Ratan Tata: It's exactly the same as the philosophy for the car, and it's a philosophy that's also being thrown out as a challenge to our watch company—why can't we produce a watch at a much lower price to go on everyone's wrist? The mandate has gone out to our people that we now really need to look seriously at the needs of the larger part of the Indian income pyramid, where most consumers can be found.3 If we don't do that, I think the Chinese will come and do it for us.

We have been a very measured, very cautious group, which has looked at the market, decided what was safe, and then moved in. We need instead to lead and not just follow. We have to take more risks and gain predominance in that manner. Targeting the larger part of the income pyramid is an important part of what Tata will be doing.

The Quarterly: What about going into China and producing for the emerging middle market there?

'Targeting the larger part of the income pyramid is an important part of what Tata will be doing'

Ratan Tata: We haven't found what we can do as yet in China. It's been very difficult to understand the market, at least for me. It is a market that seems, on the one hand, subservient to international brands and, on the other, very price conscious and very willing to buy unbranded products or local brands. It's pricing isn't fully comprehensible. In Beijing, you know, I was taken to some little alley where watches and clothing were sold. The watches were extremely attractive and very similar to known brands, but some had stopwatch buttons that didn't work. So I don't really understand the Chinese market. But if we could identify the right product, I think we would move in there. We do have a memorandum of understanding with a Chinese car company to manufacture our current car under its brand, but we haven't seen much action from that side.

The Quarterly: China is manufacturer to the world. What position do you see for India in a globalized economy?

Ratan Tata: If we play our cards right as a country, we could be a supplier of IT services and IT solutions to the world. We could also be a product-development center for pharmaceuticals. We could be a very good global R&D center in biotechnology and in some of the emerging technologies, such as nanotechnology, provided we really give them the focus they would need.

Does India have an entrepreneurial advantage over China? See "China and India: The race to growth."

If I may draw a somewhat oblique analogy: Singapore, which has done so much to build its biotech infrastructure, strangely isn't looking at creating any homegrown enterprises. I'm sure 90 to 95 percent of what comes out of Singapore's biotech infrastructure is the work of US companies and others. In India I would say it would be very different. It would be local—Indian—scientists and entrepreneurs establishing start-ups, very similar to the way this happened in Silicon Valley. Do we have the venture capital to support them? Probably not. Do we have government support? Probably not. But if we can get these supporting things in place and synchronize them with the need to create more risk-taking platforms, then I think some very interesting things could happen in India. We may not become the manufacturing base of the world, but I think we could be very much a knowledge center for the world.

The Quarterly: Do you see this as a joint government-business project or as something that happens through market forces?

Ratan Tata: We're so far behind on the infrastructure that the government will have to play a very active role. It may be a public-private partnership, but for the most part it will have to be the government.

The Quarterly: Why would India win in the knowledge area?

Ratan Tata: India has people with skills. And it has people with considerable intellectual capabilities who have been leaving India because the opportunities were not there. We have to create these opportunities. So if you are asking, why should this happen if all things remain as they are, the answer is that it won't. But if we can hold onto our best people in India, if we can attract our best people back, if we can create a sense of opportunity and reward, then I think India could be a very different place.

Indians coming back to India really go through a cultural shock. They give up a lot in terms of the quality of life, the education of their children, the availability of medical facilities. This will also have an impact when we want to hire people who are not Indians, as we will have to do in a world without boundaries. Even if we start only with pockets of the country and make those pockets less of a cultural shock, the benefits will spread. In some ways, this is what China did with the economic zones.

The Quarterly: You serve as chairman of the government's investment commission. Why do you think many foreign companies are reluctant to set up shop in India?

Ratan Tata: In some areas, rules and laws are more investor friendly in India than they are in some other countries, and in some areas they are less so. Most investors today cite caps on foreign investments as a deterrent. But there are sectors where even 100 percent is permitted, and you don't see people rushing in there. India has an impeccable record of repatriation of profits, so it's not that either. But a new investor looking at India does run up against different ministries, with each one seeming to have a different angle on the investment and throwing up roadblocks. So companies don't really come in as they do in China or Singapore, where they get clearance and are free to start their operations quickly. And once investors are in India, they quite often find that one bureaucrat interprets the law differently from another bureaucrat. All of us in India live with this. You can have an excise official in Maharashtra who takes a different view of the duty structure than an excise person in Bihar does. You'll go to court and fight that, but you're used to it. But a US, European, or Japanese company finds this terribly debilitating and gets all upset about it.

So I think a number of things, including red tape and corruption, deter investors from coming to India, which is a market with a middle class of 250 million people. It is a terrific opportunity for growth because you have the larger part of the pyramid rising in prosperity.

The Quarterly: Tata Group had to change when you stepped up as chairman, in 1991. What do you hope people will say in the future about you and your impact on Tata?

Ratan Tata: We used to live in a world of just raising our top line. I would hope people will say that I've helped make the Tata companies more competitive and more conscious about costs and the bottom line. I would hope they remember me for bringing the group together, because we were often referred to as a loose federation of companies that competed and fought with each other. By creating a common brand and a codified framework for how we operate, I think we have brought the group much closer together. I would feel sad to be remembered for not being able to change the structure of the company more radically.

The Quarterly: What about Tata Group's impact on India's economic development and consumers?

Ratan Tata: What I feel most proud of is that we have been able to grow without compromising any of the values or ethical standards that we consider important. And I am not harping on this hypocritically. It was a major decision to uphold these values and ethics in an environment that is deteriorating around you. If we had compromised them, we could have done much better, grown much faster, and perhaps been regarded as much more successful in the pure business sense. But we would have lost the one differentiation that this group has against others in the country. We would have been just another venal business house.

The Quarterly: Will Tata's social values endure after you leave?

Ratan Tata: I would hope so. I think it is wrong for a company in India to operate in exactly the same way, without any additional responsibilities, as if it were operating in the United States, let's say. And even in the United States, I think if you had an enlightened corporation that went into the Deep South, you would see more of a sense of social responsibility, of doing more for the community, than the company might accept in New York City or Boston. Because it is inevitable that you need to be a good corporate citizen in that kind of environment. And companies that are not good corporate citizens—those that don't hold to standards and that allow the environment and the community to suffer—are really criminals in today's world.

About the Authors

Ranjit Pandit is a director in McKinsey's Mumbai office.