Umbrellas, Pineapples, Tata and The India Way

What is the India Way? Last week I was at The Drucker Forum in Vienna to explore this question in a dialogue with a range of entrepreneurs, leaders and experts from India and elsewhere convened by the Living Machine Institute (LMI).  I was asked to reflect on what Tomorrow’s Company has learned over thirty years about the nurturing of long-lived companies. One of my key messages was ‘Avoid the Mistakes of the West’.

While preparing I came across a book which I had bought in Mumbai in 2013 - the year I launched my own book about Indian companies. Entitled ‘The India Way’.it described the influence on India of American authors and observed:

‘Caught by a Mumbai traffic light, waiting drivers were often surrounded by street vendors selling fresh pineapples, cheap umbrellas and Jack Welch’s books.’

Jack Welch was for many years celebrated as the ultimate authority on management and leadership. His company, GE, delighted the stock market by always ‘making its numbers’ and delivering the promised earnings. 

Toughness was his middle name. as we learn from another book on my shelves - ‘Power Failure’  an account by Willaim Cohan of the rise and fall of GE

‘All fat people were told to stay out of sight. A plant manager in Cincinnati kept a list of deceased former employees who had worked in the factory in case Jack showed up and asked to see progress in job reductions.”

This didn’t harm the reputation of GE. When Welch retired in 2001, Fortune magazine had just named it the USA’s most admired company for the fifth time in a row.

Yet the company which for so many years piled quarter upon quarter of promised profitability was soon to collapse into bankruptcy.  Welch’s teachings may have outlasted the vendors’ pineapples but probably not the umbrellas.

GE is a case study in what Unni Krishnan of LMI calls ‘Bleeding Insolvency’. Welch may have been a dynamic leader, pushing his company to ever higher levels of operational efficiency. But he was dealing in the visible zone, the 30% of the company’s value-creating capacity. By squeezing every visible resource to deliver financial results, he was steadily destroying the vitality of GE, which LMI describes as the Living 70% of the company.

For LMI it is your attention to the company’s vitality that will determine whether your company lasts. The enduring strength of an organisation lies not in its financial performances but in its human relationships, its culture, its capacity for trust and its ability to nurture human potential.

LMI started its life in response to a series of questions from Tata & Sons Chairman Ratan Tata. He first asked ‘does a company have a soul?’  Later in the Vienna discussion former Tata leader Harish Bhat spoke about his recent biography of Rata Tata. One of Ratan Tata’s most significant early moves as chair of Tata Sons was to increase the stake it held in each group to at least 26%, to protect Tata companies from opportunistic takeover and short term market pressure.    

Japan is a great teacher. While in Vienna I talked about the 2009 book by Haruo Funabishi. Funabashi tells us about 20,000 companies in Japan that lasted 100 or more years 600 were over 300 years and 5 were over 1000. What did they have in common? Not a relentless drive for shareholder value. Not a series of aggressive CEOs. Just a combination of leadership driven by clear values, a strong sense of legacy, a vision of the long term an emphasis on the value of people, a commitment to society, a habit of innovation and continuous improvement, and financial prudence.

These lessons from Japan are reinforced in ‘Incorruptible’ a powerful book by Silicon Valley native and lean start-up expert Eric Ries about which I was also asked to speak in Vienna.  Ries has advised and worked with many company founders who have had cause to regret their decision to float on the stock market. Founders and employees with a strong sense of purpose and clear vision for the future realised too late that that future was now out of their hands, and the company which they had co created as a living organism was now a tradeable commodity. No wonder that Ries tells us of a 2018 study in which 76% of founders reported that within a year of their IPO they regretted it.

Of course with time ownership of a company needs to change but as Tata and Ries both show us, there are ways of protecting a business from extractive ownership. Some founders hand on to their offspring and join the band of family businesses. Some create employee ownership trusts, and research suggests that the more employee ownership they create the better they seem to do. Some follow the Tata example:  while exposing themselves to external investors they create differential voting structures and steward ownership mechanisms that ensure that control is retained by those committed to be stewards of the underlying purpose and values.

The pressures are now intensifying – from the capital markets and from the AI revolution. In India the capital market regulator is, inexplicably, putting pressure on Tata Sons to list on the stock exchange. In the USA Anthropic has published its prospectus for its listing. It contains the warning that AI poses a risk to humanity. Recognising the AI risks all the big AI companies have chosen some form of steward ownership mechanism ahead of flotation. Will it protect them – and humanity - against the pressures of Wall St? Around the world we are approaching the biggest test yet of the India Way. Let us hope we have learned from the past mistakes of the West.

Mark Goyder is Founder of Tomorrow’s Company and the author, with Ong Boon Hwee, of Entrusted: stewardship for responsible capitalism World Scientific