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

Introduction

Tata Group was founded in 1868. It’s India’s largest conglomerate. The group is reputable for its ethics, integrity, social consciousness, and fairness since the very start. The heritage has been successfully carried forward by its successors. However, it is facing a challenge of corruption in its home country-India.

The case study deals with the challenge the group is facing in India-corruption. It also discusses how ethical play an important role in the group’s success and what Ratan Tata should do to ensure the group carry forward this valued legacy and not view it as a burden.

Company Background

The Tata Group is India’s largest conglomerate founded in 1868 by Jamsetji Tata and headquartered in Mumbai, India.[1] Under the management of Ratan Tata, the great-grandson of the founder, the group has successfully transformed from a national corporation to a leading multinational corporation.[2]

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It comprises 30 listed companies with a combined market capitalization of USD$ 145.3 million.[3] Each Tata Corporation operates independently with its own board of directors and shareholders. It operates businesses in 10 different industries (including information technology, steel, automotive, consumer and retail, infrastructure, financial services, aerospace, tourism and travel, telecom and media) spreads over 100 countries and employs more than 700,000 people worldwide.[4]

The group’s core values are Integrity, Understanding, Excellence, Unity, Responsibility. It has been reputable for consistently upholding the highest ethical standards. It does not only care about its shareholders’ benefit, it also takes into account the interest of its employees, communities, countries, and environments in which it works.[5]

Issue

According to the 2018 Corruption Perceptions Index, India ranked the 78 lease corrupt nation out of 175 countries.[6] Corruption has been a deeply rooted issue in India. There almost no improvement is being seen on this issue even though President Modi promised to clean up the corruption in India five years ago.[7]

Corruption impact India’s economy negatively. Companies is likely lost business to their competitors because of the unethical conduct. It would be hard or even impossible to stay competitive if the company do not indulge in bribery.

India’s largest conglomerate, Tata Group, who always uphold the highest ethical standard are also facing this challenge. The group involved in the biggest corruption case in Indian history-the 2G scam.[8] So, is corruption a normal part of business? Why some countries are more corrupt and prone to crony capitalism than others? And what should Ratan Tata do to ensure that the group carries forward the legacy of ethical leadership of the Tata Group and does not view it as a burden while operating in its home country India?

Analysis

1. Is corruption a normal part of business?

Corruption is “the abuse of entrusted power for private gain”,[9] especially in the form of bribery. Although corruption is an unethically and illegal business practice, unfortunately, yet Corruption Perceptions Index indicates corruption is found in every country.[10] However, every country is corrupted in a different level. Some are more corrupt than others.

In some countries, bribery is a prevailing phenomenon, under such business environment, business would find itself tough to not indulge in corrupt practices.[11] In order to avoid losing competitive advantage and market share, some businesses reluctantly choose to yield, which makes the corruption snowball rolling bigger and bigger. Corruption brings harm in many aspects that not only serve to destroy the normal market order but also damage consumers’ rights and interests, which leads to a blockage of economic growth..[12]

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?

The Corruption Perceptions Index 2018 (see Figure 1) reveal the level of corruptions in countries around the world with yellow color meaning a low level of corruption and red color meaning a severe level of corruption.[13] The top ranked nations that perceived to be the least corrupt are New Zealand, Finland, Singapore, Sweden, Switzerland, Norway, Netherlands, and Canada. And the nations that perceived to be the most corrupt are Somalia, South Sudan, North Korea, Syria, Afghanistan, Yemen.[14] The data indicates that “the more democratic a regime is, the less corrupt it is perceived to be.”[15]

The Corruption Perceptions Index report also notes that developing countries often have higher level of corruption than developed countries.[16] One of the reasons is that the economic system and business environment of developing countries are in the process of construction, the legal system to deal with corruption is unsound. These system defects provide space for the existence of corruption. Businesses would gain huge competitive disadvantage if not indulging in corruption in this non-level playing field. [17] Once the bribery virus spreads, it will gradually become the market’s underlying rule.

Figure 1. 2018 Corruption Perception Index[18]

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

Tata Group is an ethical and philanthropic corporation. Unlike many other corporations hold the view that corporation’s sole obligation is to maximize profit to the interest of the shareholder, Tata Group recognizes corporate social responsibility (CSR) as their top priority. 63% of Tata Son’s revenue is hold by the Tata Trust which is dedicated to CSR activities, for example, building hospitals, founding education and research centers.[19] [20]

The ethical leadership play a crucial role in the success of the group. It helps the group to uphold the core values of innovation. With the goal to develop an affordable car for the mass market, Tata Motors devises the $2500 Nano car-the world’s cheapest car.[21]

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?

I think his leadership style is more a charismatic and transformational style of leadership. Ratan Tata is a farsighted leadership who work with the goal of transforming their corporation.[22] His vision led the group to not only India but one of the world’s largest conglomerate. He took over the chairman position in time where the group is on its way to disintegration and struggle to compete with foreign companies, Ratan Tata restructured the group with ambition to compete in a global level. Under his management, the group has successfully transformed into a leading MNC and it is still expanding via overseas acquisitions and investments.[23]

From the very start, Tata group believes its sole responsibility is not just generating benefits for its shareholders and employees but also to give back to society and environment.[24]  More than a century ago, the group had committed to philanthropy. They built schools, churches, parks, hospitals and dormitories for the community. They provide free healthcare to its workers.[25] Tata’s precious legacy is continued and inherited in the hand of Ratan Tata. Ratan promotes education, health, upliftment and welfare of women in India and he launches The India Health Fund to address key health challenges in India.[26]

5. What should Ratan Tata do to ensure that the group carries 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?

To ensure that the group carries 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, Ratan Tata need to make sure the new chairman understand the corporation’s value of ethics, integrity, social consciousness, and fairness[27] and proud of it.

Provide anti-corruption training for its managers.

Summary

MNCs are facing challenge to do businesses in emerging market like India due to corruption. As one of India’s and the world’s largest conglomerate, Tata Group is facing the challenge. It just involved it a corruption scandal-the 2G scam-in 2010. For a corporation who is notable for upholding the highest standard for over one hundred years, Ratan Tata need to ensure the next chairman is able to carry forward the legacy of ethical leadership of Tata Group before he retire.

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Bibliography

• Deresky, Helen. International Management: Managing across Borders and Cultures: Text and Cases. (Boston: Pearson Higher Education, 2017), PC4-5.
• Desjardins, J. (2019). Visualizing Corruption Around the World. [online] Visual Capitalist. Available at: https://www.visualcapitalist.com/visualizing-corruption-around-the-world/ [Accessed 30 Jul. 2019].
• e.V., T. (2019). Transparency International – What is Corruption?. [online] Transparency.org. Available at: https://www.transparency.org/what-is-corruption [Accessed 30 Jul. 2019].
• e.V., T. (2019). Corruption Perceptions Index 2018. [online] www.transparency.org. Available at: https://www.transparency.org/cpi2018 [Accessed 30 Jul. 2019].
• Harvard Business Review. (2019). Being an Ethical Business in a Corrupt Environment. [online] Available at: https://hbr.org/2017/03/being-an-ethical-business-in-a-corrupt-environment [Accessed 30 Jul. 2019].
• Forbes.com. (2019). Corruption Is Still Thriving In Modi’s India. [online] Available at: https://www.forbes.com/sites/panosmourdoukoutas/2019/01/31/corruption-is-still-thriving-in-modis-india/#7589b7f174be [Accessed 30 Jul. 2019].
• Tata.com. (2019). Business Overview | Tata group. [online] Available at: https://www.tata.com/business/overview [Accessed 29 Jul. 2019].
• Tata.com. (2019). Tata releases report on contribution to Sustainable Development Goals. [online] Available at: https://www.tata.com/newsroom/tata-group-report-sustainable-development-goals [Accessed 30 Jul. 2019].
• Tata.com. (2019). Tata group | Tata and the Community. [online] Available at: https://www.tata.com/community [Accessed 30 Jul. 2019].
• Tatatrusts.org. (2019). History | Tata Trusts. [online] Available at: https://www.tatatrusts.org/article/history [Accessed 30 Jul. 2019].
• Tradingeconomics.com. (2019). India Corruption Rank | 2019 | Data | Chart | Calendar | Forecast | News. [online] Available at: https://tradingeconomics.com/india/corruption-rank [Accessed 30 Jul. 2019].

[1] Tata.com. (2019). Business Overview | Tata group. [online] Available at: https://www.tata.com/business/overview [Accessed 29 Jul. 2019].

[2] Deresky, Helen. International Management: Managing across Borders and Cultures: Text and Cases. (Boston: Pearson Higher Education, 2017), PC4-5.

[3] Tata.com. (2019). Business Overview | Tata group. [online] Available at: https://www.tata.com/business/overview [Accessed 29 Jul. 2019].

[4] Ibid.

[5] Deresky, Helen. International Management: Managing across Borders and Cultures: Text and Cases. (Boston: Pearson Higher Education, 2017), PC4-9.

[6] Tradingeconomics.com. (2019). India Corruption Rank | 2019 | Data | Chart | Calendar | Forecast | News. [online] Available at: https://tradingeconomics.com/india/corruption-rank [Accessed 30 Jul. 2019].

[7] Forbes.com. (2019). Corruption Is Still Thriving In Modi’s India. [online] Available at: https://www.forbes.com/sites/panosmourdoukoutas/2019/01/31/corruption-is-still-thriving-in-modis-india/#7589b7f174be [Accessed 30 Jul. 2019].

[8] Deresky, Helen. International Management: Managing across Borders and Cultures: Text and Cases. (Boston: Pearson Higher Education, 2017), PC4-5.

[9] e.V., T. (2019). Transparency International – What is Corruption?. [online] Transparency.org. Available at: https://www.transparency.org/what-is-corruption [Accessed 30 Jul. 2019].

[10] e.V., T. (2019). Corruption Perceptions Index 2018. [online] www.transparency.org. Available at: https://www.transparency.org/cpi2018 [Accessed 30 Jul. 2019].

[11] Harvard Business Review. (2019). Being an Ethical Business in a Corrupt Environment. [online] Available at: https://hbr.org/2017/03/being-an-ethical-business-in-a-corrupt-environment [Accessed 30 Jul. 2019].

[12] Ibid.

[13] e.V., T. (2019). Corruption Perceptions Index 2018. [online] www.transparency.org. Available at: https://www.transparency.org/cpi2018 [Accessed 30 Jul. 2019].

[14] Ibid.

[15] Desjardins, J. (2019). Visualizing Corruption Around the World. [online] Visual Capitalist. Available at: https://www.visualcapitalist.com/visualizing-corruption-around-the-world/ [Accessed 30 Jul. 2019].

[16] Ibid.

[17] Harvard Business Review. (2019). Being an Ethical Business in a Corrupt Environment. [online] Available at: https://hbr.org/2017/03/being-an-ethical-business-in-a-corrupt-environment [Accessed 30 Jul. 2019].

[18] e.V., T. (2019). Corruption Perceptions Index 2018. [online] www.transparency.org. Available at: https://www.transparency.org/cpi2018 [Accessed 30 Jul. 2019].

[19] Deresky, Helen. International Management: Managing across Borders and Cultures: Text and Cases. (Boston: Pearson Higher Education, 2017), PC4-5.

[20] Tata.com. (2019). Tata group | Tata and the Community. [online] Available at: https://www.tata.com/community [Accessed 30 Jul. 2019].

[21] Deresky, Helen. International Management: Managing across Borders and Cultures: Text and Cases. (Boston: Pearson Higher Education, 2017), PC4-5.

[22] Ibid.

[23] Ibid.

[24] Tata.com. (2019). Tata releases report on contribution to Sustainable Development Goals. [online] Available at: https://www.tata.com/newsroom/tata-group-report-sustainable-development-goals [Accessed 30 Jul. 2019].

[25] Tatatrusts.org. (2019). History | Tata Trusts. [online] Available at: https://www.tatatrusts.org/article/history [Accessed 30 Jul. 2019].

[26] Ibid.

[27] Deresky, Helen. International Management: Managing across Borders and Cultures: Text and Cases. (Boston: Pearson Higher Education, 2017), PC4-8.