Ethics, profitability can coexist: Narayana Murthy

Sustainable practices can coexist with a company’s pursuit of profit, says the Infosys co-founder and Catamaran Ventures founder. The 74-year-old, known for his philanthropy, points out that shared values can not only create great companies but can also spawn a sustainable and just society.

THE SUSTAINABILITY DEBATE

Is there a blurring of lines between sustainability, CSR (corporate social responsibility), and philanthropy within India Inc.? Do we need an - other law on sustainability?

Sustainability is based on the fundamental principle that we have to preserve the only habitable place in the solar system for our children and grandchildren. For me sustainability does not end [with] tackling just the climate change issue, it transcends that; it is about ensuring that our planet, our nation, our citizens, our corporations, and the stakeholders of our corporations advance and lead a better quality of life in a harmonious and sustainable way.

Coming to CSR, the most important stakeholder of a corporation is the society as it contributes employees, customers, investors, vendor-partners, bureaucrats, and politicians. Therefore, earning the goodwill of the society is an absolute necessity to ensure the longevity of a corporation. CSR rests on a fundamental principle articulated by the late U.S. President John F. Kennedy that “a society that cannot help the many who are poor, it cannot save the few who are rich”. Therefore, in some sense, CSR is a self-preservation exercise for the rich, the powerful, and the elite in any society.

On the other hand, philanthropy is a voluntary action at an individual or institutional level. It comes out of the basic human instinct of caring for others and is not [just] about donating money. It is also possible to be philanthropic in kind through human efforts. I have seen more poor people take part in philanthropy in small ways than the rich. My father was a high-school teacher with eight children and we also had our grand - mother. He had 11 mouths to feed twice everyday on a teacher’s salary. But my mother made sure that she invited a child from a poorer family for dinner. We had seven different poor children, one each day of the week, sharing our dinner. The point is that individual philanthropy, even among the lower middle class, has been a part of the Indian tradition for a long time. Hence, I’m not a great believer in the government forcing these things. Such generosity, such largeness of heart, has to come from within. It can’t be forced.

For a corporation to manage conflicting demands from different stakeholders is quite difficult. So should corporations engage closely with the government or does it have its own pitfalls?

I’m not at all in favour of corporations closely engaging with the government, except in the area of nation-building. Their most important duty is to follow the laws of the land, create jobs wherever possible, pay legitimate taxes, and follow good governance principles. However, when I talk about creating jobs we need to understand that a very important duty of a corporation is also to improve the per capita revenue productivity of every employee. They cannot reduce per capita revenue productivity of employees by having more and more employees do the same job. That is not the way the nation can grow. Once people retire from the corporate world, I believe they can add value to the nation. Nandan Nilekani’s work with Aadhaar is, perhaps, the finest example of such an engagement.

How would you define sustainability for a company that leverages on data and network effects, especially around individual freedom?

I am a firm believer that duties come before rights in a civilised society. I’m all for individual freedom. But I believe that earning that freedom requires hard work, discipline, team- work, discharging one’s obligation to the company and society in full and following every rule, norm, and process of the company without exception. While I agree to improving norm and process by courteous and civilised discussions, I’m not one for equating indiscipline with individual freedom.

Will ESG activism make a difference in India, at least in the case of listed companies?

I do believe that ESG is a very important framework for today’s corporations as it aims to enhance the harmony between a corporation and its stakeholders. Every company, whether it is promoter-owned or not, should follow the best practices of ESG since it is good for the corporation itself just like exercising is good for keeping your body in shape. I shouldn’t do it because someone is pushing me to do that.

Will sustainability matter more for companies which have a business or raise capital from the West?

It is not fair to say that values, sustainability, and good corporate governance have come only from the West. My business hero, J.R.D. Tata, followed the best ESG principles of his time, almost 80 years ago. I have come across so many contemporary Indian corporate leaders who are second to none in their commitment to sustainability and in their sense of fairness, transparency, and philanthropy. Let us be fair to our corporate leaders and applaud their efforts to become the best in ESG.

ETHICS VERSUS PROFITS

Do you think Nobel laureate Milton Friedman’s assertion holds true today that “there is one and only one responsibility of business—to use resources and engage in activity to increase profits as long as it stays within the rules of the game”?

Milton Friedman was one of the finest intellectuals of the 20th century. It is difficult to argue with his thoughts. When he enunciated his principle, the society was not as activist as it is today. Globalisation was not as pervasive as it is today. Customers were not as demanding as they are today. The government was not as prescriptive on corporate conduct as it is today. Sustainability and environmental issues were not the front-burner issues that they are today. After all, rules are based on the opinion of the society and they get changed based on the climate of opinion. My view is that as long as you follow the rules laid down by the society, your focus should be on maximising profits of the company legally and ethically, while you are paired with your stakeholders. What you do with your after-tax profits is the decision of the shareholders of the company.

In the days to come will the adage still ring true: ‘What is good for the customer is good for business’ or ‘what is good for society is good for business’?

During my 21 years as founder-CEO of Infosys and during 30 years as executive chairman of the company, these principles that you said are the derivatives of what my parents and my teachers had taught me as the right things to do. These principles gave me a good night’s sleep. They gave me confidence, and energy to work hard and make sacrifices. All that I can say is I hope they become the standard principles of operation for every corporation across the world.

In the absence of any empirical study to prove that doing good delivers better returns for shareholders, in such a scenario will it be okay for a CEO to just say ‘doing good’ is good enough?

It is very important to remember that no individual can help the weak, the poor, and the less fortunate in a society or a country, unless he or she has the power to bring in change, and is strong morally, economically, and physically. For example, a sick doctor cannot cure sick patients. Patients go to a doctor only if he or she exudes physical and mental health. In the case of a corporation that power comes from two important areas: moral strength and economic strength.

Moral strength comes from the leaders of a corporation. Leaders are shaped in moral strength by their values, by their culture, by their parents, teachers, and role models. Economic strength comes from striving hard, making sacrifices, to ensure good growth in revenues, profits, and retained earnings. These should be earned through ethical means while ensuring fairness, transparency, and accountability to the various stakeholders. Good performance in the moral and economical areas comes only from aspirational, value-based, and confident leaders who take fair, correct, tough, and timely decisions through a process based on fairness, transparency, and accountability.

It is important to remember that the essential aspect of doing good is to demonstrate excellence in values, excellence in everything a corporation does to deliver on every promise to every stakeholder, and to pay every rupee of the legitimate taxes to the government. Therefore, no corporation can succeed unless they become strong using legal and ethical means.