by Andrew Flowers
Is shareholder value the ultimate measure of a company’s success? Or is true success about how that value is used to the benefit of others? Indian conglomerate Tata has some of the answers.
We can all agree that a company exists to produce and/or sell something. Its shareholders invest their capital — be it intellectual, financial or material — to create a product or service for which there is demand. They sell this product or service at a profit and expect a return on their investment. In short, they expect value. Shareholder value.
But what if there was more to it than that? What if a company existed to create value not just for its shareholders, but also for other stakeholders? What if the mandate of the shareholders, as guardians of the value, was to extend that value beyond themselves or the company they represent?
Last summer I had the opportunity to meet with some people from Tata Consultancy Services, part of the Indian conglomerate Tata Group, which comprises more than 100 companies globally. Tata is an impressive enterprise with a youthful, almost futuristic feel to it — even though it was founded in 1868! And the company’s mission statement — the essence of which goes back to that time — made a lasting impression on me: “To improve the quality of life of the communities we serve globally, through long-term stakeholder value creation based on Leadership with Trust.”
Note how Tata refers to “stakeholders” and not “shareholders” as the ultimate beneficiaries of value creation. Or to quote Tata founder Jamseti Tata (1839–1904) himself: “In a free enterprise, the community is not just another stakeholder in business, but is in fact the very purpose of its existence.”
These are bold, visionary statements. And Tata lives up to them organizationally through a holding company called Tata Sons, of which 66% of the equity share capital is held by philanthropic trusts. These trusts in turn fund education, livelihood generation, health, art, culture and other initiatives in the communities where Tata operates.
Yes, Tata exists to make a profit like any other company, but its success is not defined solely by traditional notions of shareholder value. Instead, the very existence of the company is grounded in the act of giving back to the community. The notion of shareholder value has been extended, and success enjoyed by Tata is success enjoyed by other stakeholders too.
It’s an approach to admire and learn from. And it’s made me wonder how I could similarly create and share value from the work that I do.
Please note that these are my own personal opinions and observations. I was not solicited by Tata to write this article.