Leadership with Trust

Implications for CFOs

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“Leadership with Trust” is the ethos we identify at the Tata Group. This timeless statement continues to spur us in all we do, while simultaneously providing us with the guard rails. What we do matters; How we do matters even more !

Demonstrating this is everyone’s job. And as a CFO, the implications of this statement are great. I wanted to share some of my experiences from the Tata group (I joined in 2017) and from prior roles in great organisations like Diageo and Merck & Co.

Our founder Jamsetji Tata said “the community is not just another stakeholder in business but is in fact the very purpose of its existence”. This statement has huge implications on Leadership. Jamsetji set up the Indian Hotels Co Ltd, because luxury hotels which offered accessibility to Indians did not exist. He set up Tata Steel, because he understood that India could not import all its steel requirement and we needed our own plant. And so on. The community was indeed the very purpose of our existence. And short-term profits were not the objective when these were set up. Indeed, the group went through significant financial struggle as these came up. Krishna Palepu in his seminal paper wrote in HBR that in emerging markets, companies must fit into the institutional context – a country’s product, capital, labour and regulatory conditions. These did not exist in the late 19th century/early 20th century India and so it devolved on Jamsetji Tata and the group to build these. And approach to leadership continues to the day at Tata Group – our forays into IT through TCS, our forays into automobiles with Tata Motors and recent forays into Digital, Defence and many other businesses is based upon the need to play the leadership role to create and build for the community.

In my last role, I worked at Merck & Co - the company that has been responsible for some of the greatest drug discoveries in the history of the world. The Tata Group had a joint venture with Merck in India called Merind – the Tatas sold their stake in the venture in the 90’s. George W Merck was an extraordinary leader. He said “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear." One of the most inspiring stories at Merck is the story of Ivermectin. In the mid-eighties, Merck came up with Ivermectin as a cure for River Blindness which ravages thousands of people in Africa. In 1987, Merck committed to supply Ivermectin free of cost, as much as needed, for as long as is needed to eliminate River Blindness in Africa. One of the greatest public-private partnerships was established with WHO and other agencies in this endeavour. To this day, the Ivermectin program remains the longest standing donor programs in medicine in the world. Merck is today a USD 60 billion company with a market cap of nearly USD 300 billion. And yet, this is built on the foundation that medicine is for the people and not for profits.

This approach has significant implications for a CFO in Capital Allocation. Milton Friedman’s postulate of Shareholder First has been the cornerstone of how financial thinking and capital markets have developed. And yet, we must find the capital to put into these ventures. The CFO needs to wear the Possibilities hat and stand in the future and help make big dreams into reality. I have faced this several times in my career. A key implication has been the requirement to communicate this effectively to the shareholders. Investor relations is critical – to communicate that these investments are not just good for the community but build long term value creation. And investors understand this – as they see the world class organisations like TCS, Tata Motors, Indian Hotels, Titan and others being created over the years. The Tata Group has become the proxy for India; to investors, a Tata Group stock is a must have in its portfolio.

Trust is like the common salt – invisible. However, the absence is acutely felt. The collapse of Arthur Andersen, the recent collapse of SVB and many other examples just emphasise the loss of Trust. Preserving Trust is a huge responsibility. The resolve to do the right thing under all circumstances has always been the hallmark of the Tata Group. We have all heard of Lady Meherbai Tata pledging the famous Jubilee diamond to provide the funds for Tata Steel. More recently, we say the group standing firmly behind the Tata Tele and fulfil all its commitments to partners and lenders. I have seen this uncompromising approach help us at Indian Hotels when the pandemic hit us. In 2020, when we realised that the pandemic would result in near zero revenues and we had significant expenditures to deal with, the banks gave us significant loans and a significant part of these loans were Unsecured Loans. As a CFO, these were moments of great responsibility, where I was the face of the company with the bankers. And to be able to authentically communicate our response to the pandemic was a huge responsibility.

In all of this, I have found Risk Management to be key. I have realised with experience that finance leaders have to enable Risk Taking. To use a football parlance, finance leaders don’t just keep score, they help score goals. The Risk hat that the CFO wears, helps organisations to ensure that new ventures and investments follow a carefully gated process where successive investments are made based on demonstrated success. Businesses have to have a clear path to profitability. Our Chairman has repeatedly emphasised that sustainable growth comes with strong profitabilities and strong free cashflows. Some new businesses may take a while to generate this, however, the path to profitability has to be defined. The CFOs role in keeping this front and centre of all discussions is critical here. This also builds trust with all the stakeholders.

Today’s world of Sustainability is bringing in a new focus on the Triple bottomline to benefit People, Planet and Profits. Climate Change is bringing in a new urgency – we in the Tata Group have defined Net Zero targets for 2045 and every company in the group is working on decarbonisation. Our companies are dealing with Physical and Transition risks. The CFOs along with the Chief Sustainability Officers in the group are increasingly making this a board room imperative as they deal with this. As CFOs we help the company to effectively make the necessary business model pivots in this fight for climate change.

Similarly the world of AI and all the recent news of Open AI and Deepmind have brought significant discussions around AI Ethics. The large data models which capture significant customer data for more accurate predictions of customer behaviour may make perfect sense in driving business; but these must be balanced with customer privacy imperatives. Some of these have huge business model implications. The CFOs role in enabling effective Scenario planning allows organisations to be capitalise on the upside while providing for the resilience on the downside.

The world is facing significant challenges – geopolitical, supply chain, wars, pandemics, climate change et al. We, in the Tata Group, must be proud that we are not just successfully navigating through these, but also providing the leadership to the world. As a CFO, the opportunity to play a lead role in navigating through all of this is a real privilege and a responsibility.

When I worked with Diageo plc, we had a simple ethos – “Proud of What we Do”. This simply meant that we will not do anything that we will not be proud of. And that to me is a simple way to remember and live by Leadership With Trust.

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