I have feelings of satisfaction and fulfillment at the end of a long
Corporate career, including over four decades with the Tata Group. I
have been especially fortunate in interacting closely with several of
the Tata Greats, among whom Sumant Moolgaonkar and J.R.D.Tata had special influence.
Since I entered a leading U.S. Management School almost fifty years ago, I have been very involved in management training and have viewed with some amusement the ever-changing mantras of Management Gurus. Recipes for success of executives and corporations change with almost the same unpredictability and frequency as fashions in the length of women's skirts or the width of men's ties. Management practice being a marketable product needs to be repackaged and given a new look from time to time. I hope I will be forgiven if I comment on some of the current prescriptions for success.
It is obvious that no corporate individual, institution or organisation
can long survive without producing an economic surplus. Those who
contribute resources to an enterprise - capital, labour or any other
asset - expect a return which over time must at least equal that
obtainable from alternative uses. Such return may be contractually fixed or be the residual surplus - the profit of the owner. While the
measurement of this surplus may become more sophisticated and precise
and bear different names - the concept of profits is surely co-terminus
with economic activity.
What is alarming is the current insistence of many that the sole and
exclusive objective of management is the maximization of owners' or
shareholders' profits, all other considerations being secondary or even
irrelevant. To this notion is added the deceptive precision of several
performance measurement formulae under various names - Economic Value
Added (EVA), Return On Net Worth (RONW) and the like.
Comparative assessment of management efficiency is, of course, essential. However we need to be very aware that profitability is so
often and so largely dependent on external factors: a significant
variation in the rate of interest can dramatically alter EVA, particularly in capital intensive activities. It is relatively easy to
have a large and positive EVA in an environment characterized by a Dow
Jones hovering at 11,000, high consumer confidence and low unemployment; however, even for managements of equal calibre, a large EVA is more difficult to achieve in a situation of recession, high unemployment and endless corporate failures.
Also, can the surplus for the shareholders be the only concern of a
manager and can other stakeholders in the activities of an enterprise
be considered secondary: employees, customers, the community? The
assumption that legislation or market forces will protect the interests
of these groups is contrary to experience. While seeking to meet
shareholders' expectations, managements cannot overlook distributive
justice for employees and for the community. Employees expect to
participate in the values they create. Our fellow countrymen expect to
benefit from economic growth and their expectations are rising and
becoming more insistent. So also, with the growing abundance of capital seeking outlets and the increasing shortages of knowledge-based and managerially-experienced personnel, the price that capital can command becomes lower and the values generated by economic activity accrue increasingly to others.
Another management consultant warning : do not venture into activities
about which you know nothing. Fortunately we have had entrepreneurs and visionaries who have ventured into uncharted waters and who developed competence in entirely unfamiliar areas or simply in building managements or in creating investor confidence. Jamshetji Tata forsook
his trading background in pursuit of a modem industrial India, in which
the interest of his shareholders was but one, though an important one,
of his objectives. He, his two sons and JRD Tata created national institutions which are as much a tribute to them as the Companies they
established. Fortunately, entrepreneurs continue to flourish and to
establish major companies. But for the vision and courage of such persons, the newer industries - plastics, information technology, biogenetics, cable TV and many more - would not have developed so spectacularly and even many of the older industries would never have
Nobody suggests proliferation of activities or unrestricted diversification such as resulted from the licence/permit raj of the
past. However with, at last, easy access to the latest technology and
little hindrance to securing services of specialized personnel from
anywhere, why should entrepreneurs not venture into new industries and
activities which they believe to be the most promising. Exiting and
entering businesses are surely the hallmark of entrepreneurs -
discerning opportunities and trends invisible to many others. Through
the mechanism of autonomous divisions, subsidiary companies and the like, the competence and technology appropriate to each of several industries can be nurtured and developed to the critical size when they
can be spun off. Tata Industries is quite effectively doing precisely
Unfortunately Indian law, unlike that of many other countries, does not
require companies to disclose the profitability of each of their major
activities and in each significant geographic area; this results in
investors being unable to discipline managements, who year after year
continue to pursue pet projects which are unviable, depriving their
company's shareholders of legitimate profits.
The case made out for quite some years for multi-faceted conglomerates
was just as convincing and probably as deceptive as the current
insistence on a single-focus approach. Today conglomerate and
diversified have become dirty words though some of the world's most
respected companies - GE, Hitachi and Siemens - are just that. Of course, activities and interests appropriate to a past environment may
be outdated today : emphasis on manufacturing know-how gives way to
marketing expertise and systems building to technological excellence.
But surely that is the function of entrepreneurs and managers : not only to adapt to change but also to be agents of change. A company that does not grow, dies.
There is no question about the need to dramatically increase the efficiency and productivity of all economic enterprises in India, to
better utilize all resources : material, financial and plant, as much
as there is the need to enhance employee productivity. No company or
country can for long survive, particularly in an integrated global economy, if its resources are not used at efficiency levels comparable
to those of other countries and companies. It is unquestionable that
almost all resources in India - working capital, fixed assets, managerial time, distribution channels and employees - are inefficiently used though emphasis seems to be given primarily to the generally abysmally low level of employee productivity. The need to reduce our employee numbers, to ensure discipline in the work place, to enhance productive efforts are all accepted and need to be vigorously pursued, though the short-term consequence of these in any industrial organisation may be reduction in employment especially in industries,
such as banking, where technology has revolutionized processes.
Technology has also dramatically reduced the need for shop floor
employees but they can be retrained or redeployed. Employment growth
comes through ancillaries and supporting industries.
It does seem strange to me that successfully down-sizing, which is
generally a euphemism for reduction in employee numbers, has become a
matter to boast of or to be proud about rather than to consider it a
matter of regret and economic compulsion. Surely the creation of
additional productive employment should be as much an objective of
responsible corporate endeavour as the creation of economic surpluses,
especially in countries such as ours which have no social security and
high unemployment. If the world has become more knowledge based, the
requirement is for an increased number of trained knowledge-oriented
employees; the obligation of organisations must be to create the
environment and to establish the institutions which will develop the
skills and capabilities required in the future. Since service industries are not only those with the highest profit and growth potential but also those with generally the highest employment, surely
our national efforts should be to examine how to increase and develop
the service industries. This is without denying that the rigidity of
our labour laws greatly impedes the growth of employment in organized
industries and leads to the substitution of labour with capital.
It was precisely because they combined technology and were service-oriented as well as fulfilled national needs while offering high profit potential, that I encouraged the entry of Voltas into pollution control equipment, branded processed foods and all aspects of water management (locating, extracting, purifying and distributing for human and agricultural uses). However, with a radically altered external environment, and following current wisdom as well as the preference of Financial Institutions, we decided that Voltas should now almost wholly focus on air-conditioning, trading in industrial engineering products and the contract manufacture of White Goods.
The Voltas Scene
When I relinquished executive responsibilities for Voltas on 31st March
1994, I confidently believed that the Company's 40-year record of unbroken dividend payments would be maintained. I am glad, as I am sure shareholders also are, that after a two-year break Voltas has for 1998-99 declared a modest dividend signifying an end to an unforeseen
difficult period. Voltas has great inherent strengths : its fine
reputation, its membership of the Tata Group, its well-tested organisation, its invaluable real estate, its brand name, a much improved product range for which there is an increasing demand, and much else.
Shareholders will appreciate that unlike other companies in its industries, Voltas has not raised large funds through frequent capital
issues at high premia. The present Net Worth of the Company consists
largely of earnings retained in the business after payment of reasonable dividends. No rights issues have been made for 25 years during which bonus shares were declared on two occasions. The performance of Voltas in the past has been favourable in comparison with that of other companies as a glance at the past 15 years will show.
Year Earnings Return on Net Worth
per share Dividend Capital Emp. PAT/Own Funds
1984-85 1.24 10 11.55 4.05
1985-86 2.44 10 14.83 5.63
1986-87 5.36 16 21.25 13.05
1987-88 7.59 22 23.89 22.01
1988-89 11.18 24 19.01 17.96
1989-90 9.15 24 20.69 29.31
1990-91 9.22 27 20.76 24.43
1991-92 7.66 27 17.61 18.88
1992-93 3.26 27 10.93 6.68
1993-94 11.65 30 16.66 25.82
1994-95 6.34 35 10.64 13.19
1995-96 4.58 25 9.69 9.11
1996-97 - 0 6.02 -10.8
1997-98 - 0 7.90 -6.61
1998-99 3.87 12 13.85 8.14
Shareholders have assurance that the Company will sustain its
well-earned reputation of providing outstanding products and services
to its customers, satisfactory returns to shareholders and reasonable
job security to its employees. Voltas can, must and will do well in the coming years. It is with this confidence that I will soon lay down my Office as Chairman of the Company to devote more time to the several Foundations and Trusts in which I have been increasingly involved in the past few years.
To all of you, shareholders of Voltas, most of whom have so generously
supported me with trust and confidence, I send my sincere greetings and