YC Deveshwar: Making ITC socially responsible - Moneycontrol.com
June 08, 2010
Transcript of the interview of Mr. Y C Deveshwar by Ms. Shirin Bhan, CNBC-TV18
It will turn a 100 later this August, it has a market capitalisation of USD 22 billion, it is India's largest cigarette company and now one of its most diversified. It is ITC.
One of India's blue chip private sector companies, employing 25,000 people with more than 60 locations across India. The last few years have seen a transformational change, from being the country's largest cigarette manufacturer to a company that aspires to be one of India's foremost fast moving consumer goods (FMCG) players.
In keeping with its diversification and expansion, ITC has also been focusing on sustainable and equitable growth. Led by YC Deveshwar, ITC believes shareholder value must be aligned to making the valuable contribution to society.
Along with diversification, YC Deveshwar has fought hard to make ITC more sustainable, in fact it's one of the few Indian companies that actually puts out its sustainability report annually. YC Deveshwar's vision is to make ITC relevant socially for the future.
YC Deveshwar steered ITC through many a storm. ITC's commitment to conduct business while respecting the environment can be seen in this 170,000 sq feet Green Center, the company's hotel division's headquarters in Gurgaon. It is the world largest zero percent water discharge non commercial green building with a 30% smaller carbon footprint as compared to similar buildings. It is designed in a way that all functions can happen as naturally as possible.
For its energy efficiency efforts, the US Green Building Council has awarded platinum rating to the ITC Green Center.
ITC is sustainability practices can be seen in their status as a carbon, water and solid base recycling positive company. But just being certified green is not enough.
Q: The skeptic say that there is no such thing as a socially responsible tobacco company that is really a misnomer, anything that you do on a sustainability side or the corporate social responsibility side is a mere distraction, how do you respond to them?
A: Firstly, it is not for me to say that ITC should get out of tobacco business because I am working for the shareholders. What I can do for this company is to say that we deal with tobacco business much more responsibly. The money generated out of the tobacco business because if we did not do it, somebody else would do it. If India does not produce it for consumption in India, it will come across the boarders and revenues would be lost.
Q: It was a very deliberate conscious decision on your part to move to being carbon positive, water positive, solid positive so that you can actually prove to the world that you are a responsible tobacco company.
A: Even before that to create a portfolio of businesses that are businesses of tomorrow that is for the next century and those businesses that sub serve societal purposes of tomorrow. Then ofcourse to conduct the business in a manner where it is not a burden on environment and it contributes to the formation of social capital and natural capital. I can tell you that we have created a global standard.
Q: You have been supporting this triple bottom-line philosophy for many years and in fact you are the one of the few companies that actually puts out or reports which you are doing on a sustainability efforts in a sustainability report. I believe you have put out a sixthe sustainability report, take me through the genesis of how this evolved and why the approach to the triple bottom-line and when did that start for you?
A: Increasingly, people have begun to wonder whether the purpose of business should really be confined to a narrow purpose of creating shareholder value. For that we should redefine the purpose of business.
Q: How would you re-define the purpose?
A: The purpose of business is to serve society. If you do it well then as owners of risk capital you should be rewarded and that is what is called shareholder value. So the triple bottom-line actually says that you can create financial capital providing you also not to destroy natural capital, but actually build upon it. You also contributed to the social capital. So these are the three dimensions.
Q: Were you trying to do all of this on a sustainability front to prove a point to the detractors or do you feel that this sits well with your own conscious?
A: Isn't it a nice thing to do?
- It is an excellent thing to do.
If you can create greater value than what normally people expect of you, it is not that we have taken away from the shareholder anything we have created a compound rate growth in shareholder returns of more than 23% over the last 14 years, so that is good but in addition we have created so much more. Tomorrows civil society as consumers will provide, will actually subscribe of value to such companies that create for sustainability of society.
Q: But it was a pretty lonely battle that you actually fought because even your own shareholder didn't really buy into your whole idea and philosophy of diversification?
A: Yes that is true. That is what is called vision that everybody does not see. People begin to appreciate it when they get closer. So people don't buy into things that are vague and into the future.
Q: So how much of diversification has to do with the fact that you want ITC to continue to be relevant and socially acceptable going forward?
A: That is a business unless it serves a society purpose will not remain relevant. It is axiomatic. Ultimately you will have to be reinventing yourself all the time to be relevant to society and relevant to consumers.
Perhaps ITC's most relevant initiative to date has been partnering the Indian farmer. The company is working to bring farmers into the information technology age and has so far empowered almost 5 million people.
Linking everyone in the value chain including the small and marginal farmers like Narendra Singh, a wheat farmer in Uttar Pradesh who makes his way to the village internet kiosk to access ITC's e-Choupal programme.
Launched a decade ago e-Choupal has won over even the staunchest sceptics and the results speak for themselves. Managed by other farmers like him called Sanchalaks, Narendra uses the ITC created vernacular website to gather local weather forecast, expert knowledge on best farming practices and local, national and international agricultural commodity prices.
With the direct marketing channel linked virtually to the mandi system for price discovery and operating as a virtual buyer's cooperative, Narendra is able to better manage risk and maintain an efficient two way delivery channel of commodities.
The produce yielding farms is sold and the money earned is used to purchase FMCG goods, brought into the village and made available at the Choupal Sagar retail outlets. ITC presently has 24 Choupal Sagar hubs in 3 states, perhaps India's first rural retail chain.
Q: It's been a 10 year journey now as far as this initiative is concerned. What has been the biggest lesson that you have learnt? We have got a lot of people who are now trying to replicate this farm to fork approach that you started off 10 years ago and how can the state perhaps help in some of these initiatives going forward?
A: Actually the state has been the biggest obstacle as of now. The Essential Commodities Act that is periodically enforced actually hinders the creation of an organized supply chain that would actually be good for the consumer ultimately. Actually it is very sad because it really delivers a body blow to a very fine concept of e-choupal that brings to his doorstep the benefit of a competitive marketplace.
Q: What is the next 10-year plan as far as your idea with rural infrastructure is concerned?
A: This will continue as incomes rise there, opportunities open up and innovation will carry on. What we are always trying to do is trying to integrate the ideas of the corporate social responsibility and intertwine it with the strategy of our business, part and parcel of our business model.
Q: There is no ITC foundation that operates separately, core strategy; it is core to your business plan.
A: Basically it's born out of a realization that we cannot be internationally competitive unless the entire value chain is internationally completive. The first person in the value chain is a small and marginal farmer. We therefore wish to empower the farmer by making him competitive and making him more capable and making him more aware of his scarce resources and how to make them more productive so that we then in turn can become more competitive. And as his incomes rise we can sell more goods and services to him.
So it is all in the enlightened self interest that we have created this value chain, so that as we create more shareholder value, automatically the small and marginal farmers grow with it. So it is not something which is in the nature of charity. Individuals fade away, charities fade away because it is part and parcel of a business model then you have got a sustainable engine of empowerment to the weaker sections of society.
ITC's commitment to go beyond the corporation and create sustainable models for the country can be seen through its social and farm forestry programs. Through ITC, forestry has become a significant employment generator, generating 46 million person days of work till now for farmers like Muthuraman on land that might have been unproductive. Through intense R&D at ITC's laboratory at Bhadrachalam, to these resistant high yielding clonal saplings are created to help farmers grow higher yields in shorter times.
This land turned into Pulpit plantations are an additional source of income for landed farmers, which in turn is a sustainable source of high quality raw material for ITC's paper business. More than a 100,000 hectares of such planted area produce wood biomass, fuel and helps nurture depleted soils.
ITC's paper board and specialty papers division is India's largest, technologically advance and most eco friendly paper and paper boards business. One of the four units, Bhadrachalam, is India's largest integrated pulping and paper board manufacturing plant. The paper business has also been the first mover in the fields of collection and recycling post consumer waste from residential localities, corporates and even educational institutes.
Q: Let me talk to you about your social forestry program because in the hearts of Andhra Pradesh Naxal infected areas what to your mind is the solution to actually get that community, which is on the periphery, on the margin really to buy into what we are hoping to do with this 9%-10% growth?
A: In 1996, there was a overwhelming view that we should exit the paper business.
Q: It wasn't making money for you?
A: The business had gone sick, it was a separate company and it had defaulted on its repayments to financial institutions. But at that time, one could have been tempted to either exit from the business, one could easily import fiber from Indonesia, from Malaysia, from Finland or wherever, but that wouldn't have really created value for society.
So what did we do? We said that let us create through our R&D program clonal saplings of the variety that will be more robust and that the farmer can grow and that the tribals can grow on their private wastelands and really create sustainable livelihoods amongst them and create a source of sustainable fiber for ourselves. Today, we have a 100,000 hectare of renewable forest resource.
Q: And you don't own this land?
A: We don't own this land, we don't own any of this and they are free to sell it to anybody. But they sell it to us. The kind of Naxal problem that existed around our mill at that time and what it is now is the difference of chalk and cheese because lots of people have got employed and lots of people have got their earning potential enhanced significantly. So, this is where policy makers have to see this business model and encourage us to expand. We are unable to expand because we are not getting land to create bigger size mills.
Q: You are battling policy makers on every front. You are battling them on the cigarette taxes front, you are battling them as far as the agri reforms are concerned and you are battling them on this front as well.
A: But this is true that you have to see this business model and see what kind of multiplier benefit to society it has created and give us the opportunity.
Another opportunity ITC has seized on is its conservation initiative, which over the last few years has brought, not only to make the company, but also the entire nation water positive.
'Boond Se Sagar' or 'Drops of water make an ocean' is ITC's tagline for its nation wide initiative for water conservation. The project is funded from proceeds on the sale of Ashirwad products like Atta, Spices and Salt.
In states of Andhra Pradesh, Karnataka and Madhya Pradesh, over a thousand small and large water conservation structures have been built by the company to irrigate nearly 31,000 acres of land. ITC has also assisted farming communities to organise themselves into water user groups. The company contributes 75% of the cost, while the rest is mobilised by the farmers.
ITC's mission Sunehra Kal is a rural capacity building program, which fosters local initiatives to open up non-farm livelihoods as well as empower women and expand primary education. Sunehra Kal started in 2001-spreads across thousands of villages and 11 states of India. It is focused self-help movement, which has gained ground in village after village, with farmer co-operating to create much needed economic, environmental and social assets out of their own resources. This social developmental initiative facilitates sustainable livelihood creation are helping co-tribals make their wastelands productive, having rural women turn entrepreneurs as well as brewing schools. Sunehra Kal is an effort to achieve many of Indian millennium development goals.
Q: How do you ensure that after you are gone this tradition for creating benchmarks, global benchmarks for creating monuments of the future will really continue? How does the CSR governance code work because I understand a sub-committee looking at it from a board level? How do you ensure that what you have thought of continues after you are gone?
A: We have a three tier governance structure in ITC. The board level that looks at strategic supervision of ITC as a whole. Then at a corporate management committee that looks after the strategic management of the company and then the operating management at the divisional level and we have a written code of governance and I have to say that for CSR and for sustainability we have got a boards of committee that also supervises this particular area.
Q: Speaking about your sustainability efforts and the road ahead-you have worked on the environment side; you have worked on the social side. Is there another area that you perhaps would like to do a lot more and you haven't and that could be perhaps an area of opportunity for you in the next 10 years?
A: As we go into the future, it is going to be extremely important that we use science and technology to be able to really create differentiated product for the unmet needs of consumers. So what we have done in the last few years is invested very heavily in research and development. We have discovered that we are the only company in the world who has three delivery vehicles for health and well being. One is the agri-business-you can add the property to the agri-commodity that is good for health. Then there is value added foods-you can actually create functional foods that do less harm or actually accretive in the future. Then we have a third vehicle is the personal care. So there is a convergence of all these three. The other thing is that all the businesses that we are in, they are businesses of the future. There is enormous growth potential.
Q: So before we sign out let me ask you what is the Heart of Business to your mind?
A: Values, Vision and Vitality-the 3 V's lead to victory.
