TATA POWER report

TATA POWER: CORPORATE SOCIAL RESPONSIBILTY AND SUSTAINABILITY

UNDER THE GUIDANCE OF

SUBMITTED BY

Dr.SUPRITI MISHRA

JAPKIRAT SINGH

ASSOCIATE PROFESSOR

SHIVA KRISHNA PADHI

IMI BHUBANESWAR

SUMAN PRADHAN

DECLARATION

We hereby declare that the report titled “TATA POWER: CORPORATE SOCIAL RESPONSIBILTY AND SUSTAINABILITY” submitted to IMI- Bhubaneswar is a work done by us under the esteemed guidance of Dr. Supriti Mishra, faculty member, IMIBhubaneswar.

JAPKIRAT SINGH SHIVA KRISHNA PADHI

SUMAN PRADHAN

1

A) TPC is undertaking CSR activities in 6 thrust areas; are the processes and people involved well-defined for the 6 thrust areas? How far will these activities help the company with long-term sustainability?

Answer As we know the six thrust areas are health, education, infrastructure, energy, environment and income generation activities. The main question here is whether TPC should go with a separate CSR department? Though there is voluntary participation from the employees but it is still not performed as a thing on a large scale. TPC has taken many initiatives like ecological conservation, vocational training, health care facilities etc. but they have not been that successful in helping the “key communities”, moreover if we see in the case it is clearly evident that they tried to give tailoring classes to women belonging to key communities, but just by giving training has not solved the purpose as the community lacks a market place where they could sell their products, even the initiative to help the key community is either borne by PBO or NGO, and if the CSR activity is borne by PBO then there may be an issue of budget. Here what we feel is the boundary spanners i.e. the employees should always be in contact with the top management as well as key community so that the could convey the exact social activities that need to be done so that it CSR activities can help the company on long term sustainability. We have seen in case TPC have tied up with NGO’s like REACHA and CONNECT to implement CSR activities in the community, but a holistic approach can be a better set of skill development of the key community by activities like vocational training, health awareness etc. which can help the community to increase the basic standard of living .

B)Looking at the financials of the company (Exhibits 8 through 10b), how should the course of action be for the resource allocation in the short-run as well as in the long run? Answer Interpretation of Financial Statement •

Company is doing long term capital investment. As It is investing a lot of money in fixed assets and expansion that will affect its expenditure pattern in CSR and other activities.

•

Company is trying to have good repute and win investors faith by providing good amount as dividend. It is well proven from its retention ratio that is less than 0.5.

•

We can see from the exhibits that, Although revenue is increasing year by year but the operating profit and other key profitability measures like (PBDIT, etc) is decreasing gradually

from 2003-07. This may be due to high cost of raw material. And also the huge investments company has made may be a reason behind that. •

Company has a very good book value. But it is not reflected in its market price. So it has very Low P/E and P/B ratios compared to the industry. It is a huge concern and deters it to be a growth security.

•

Company’s efficiency in term of asset utilisation and other turn over ratios is way below compared to the industry, Specifically ROCE and RONW etc. It shows its failure in utilisation of fixed asset and capital in the best way. It will affect company’s strategy in terms of investment and also in terms of expenditure in CSR.

•

Company needs to have higher retention. So that there can be Conversion from stable to growth security. It also needs to have more short term current investment rather that long term investment on fixed assets.

CSR budget allocation for short term should focus on•

Rather than expansion or creating new set-up focus should be on having new activities in existing setup. These include short term current investment rather that long term capital investment on fixed assets.

•

Awareness programmes

•

Sport tournament

•

Vocational training

•

Health care

•

Environment etc.

CSR budget allocation for long term should focus on•

Can plan for expansion and long term investment on fixed assets.

•

Infrastructure

•

Rural electrification

•

Drinking water and other schemes

2 A) TPC is spending Rs. 50 to 70 million annually on CSR activities. Are the expenditures sufficient in view of the sustainability? What are the tangible and intangible returns for the company? How would you structure the cost and benefit analysis?

Answer The net worth of the company as of 2007-08 was Rs. 80,520 million out of which reported net profit was about Rs. 8700 million. At that time it was an unwritten rule in the corporate world was the CSR budget should be 2% of the net profit which was afterward mandated in the Companies Act. Therefore the CSR budget would have been 2% of Rs. 8700 million that equals to Rs. 174 million. But the proposed CSR budget was only about Rs. 50-70 million. That amount when compared was too less and under proportionate.

Activities

Percentage

Infrastructure

15.02

Health Care

7.22

Environment

8.23

Vocational Training

7.22

Income Generation

2.02

Drinking Water Scheme, Rural Electrification, Awareness

6.21

programs, sports tournaments

The above table give a brief idea in percentages about the CSR expenditures out of the budget.

Some of the benefits which are tangible and intangible are as follows:

Tangibles: 

Development of structured, well planned, equipped town-ship



Availability of facilities (health, education, recreational, commercial, entertainment, agricultural/vocational )



Employable population

Intangibles: 

Eradication of illiteracy, poverty, mal-nourishment



Better connectivity [hence, development of socially aware, market driven, better adaptive community]



Good-will



Better relationship with stake-holders [communities, NGOs, environmentalists, government, and internal policies]

Cost Benefit Analysis:

Right now the costs are on the higher side because the company is at the asset building stage which will take time to reap the benefits from the assets. There are negative sentiments in the market about the company with ways of production of power with a huge skill-demand gap. The factors which are beyond control of the company are growing carbon foot-print which stems from over dependence on coal power, bargaining power of the NGO’s and lastly losing reliability on impact assessment technique.

B) Do you think that there should be different parameters for the impact assessment for various locations (see Exhibit 7)? What will be its impact on the overall benchmarking of CSR activities?

Answer

Different parameters on Impact Assessment:

It should be different across borders, because: 1. Different Ecology, Human Development Index and Factors, Culture 2. Different Input factor-based production strategy 3. Even within border, different strategies for hydro, thermal & wind based energy production has been observed. 4. Tying-up with field-expert from NGO’s are also good conduit to ground realities, communities 5. Need for regular ratification of sustainability measures

Benchmarking can be done on the following parameters: 1. Indices like Dow Jones Sustainability Index 2. Varied Nature, scale of activities and target stake-holder 3. Region-based institutionalization may be a possibility, but not a global one

3 A) CSR was integrated as part of the HR department at TPC until now. CSR activities were spread out across the functional departments. Participation in CSR was voluntary and was treated as one of key result areas for every employee. What are the arguments in favor and against of having a separate CSR department or integrating CSR with other functional areas?

Answer Establishing a new department of CSR:PROS  Dedicating working force:- if we will have a separate department for CSR than the employees of that particular department will only look at CSR activities of the company.

 Holistic approach:- the department will have the holistic approach. It will take the whole department as a single entity and they would work for CSR activities as single entity.  Centralized NGO data base:- it is difficult for the company to have data base of the number of NGOs now. If there will be separate department than there will be the centralized data base for the NGO’s CONS  Cost of creating: if there will be a new department the cost creating the whole new department will be huge.  Loss of focus, too much burden:- as TPC is not the small company, it is a globalized company so it will be having a number of projects, in order to look at every project by the department it will create a burden and also the department cannot focus or concentrate on the one project.  No self motivation:- the employee who are working there are getting salaries for their work so the it is difficult for them to get the feeling of self motivation because there are been paid for that and hence there will be less self motivation.

B)Do you suggest any changes in the existing structure of CSR activities as far as thrust areas are concerned? What are the Pros and Cons of doing CSR through NGOs and other similar organizations? Answer

The Pros and Cons of doing CSR through NGOs and other similar organizations PROS  Base line data:- In order to collect the base line data the NGOs can help the company because they are more close to the people or the society who are affected by the projects of the company.  Decrease burden:- NGOs will decrease the burden of the company. It will help the company in the need assessment, collecting the base line data etc.

CONS  NGO specializes generally in one area  Big NGO’s have high bargaining power

 Ngo might have different motives

Suggestions for changes in the existing structure of CSR activities as far as thrust areas are concerned:There should be CSR governing body o It should look after the CSR activities of the company. o Not solely responsible for CSR implementation only o Tie up with NGO’s o It should do the research work o Should have holistic approach o Need assessment o Employees can come and continue with their voluntary support for the CSR activities. As there was increase in 259 TPC employees who worked as CSR volunteers. This number had increased from 118 to 259 in six months.

4 A) With massive expansions in the company, the existing organizational structure is experiencing change. How should CSR department position itself in order to synchronize its activities with the company’s mainstream functions? Answer In order to position the CSR department, the organization structure will be designed with regard to the perceived benefits to be derived from CSR activities: economic value, environmental causes and social causes. The concern before the company is to decide whether it is necessary to establish a separate CSR department or continue with the existing pattern of having CSR as an embedded part of the key result areas for the heads of departments. We suggest the creation of a separate CSR department so as to achieve the objective of institutionalizing CSR activities and align them for the long-term sustainability of the company. A separate and dedicated department for the conduct and supervision of CSR activities will help in cultivating a sense of ownership among the local communities which is a major challenge as their ability to change is slow on the one hand and their expectations are large on the other.

As per the current scenario prevailing in the company pertaining to CSR, the functional heads of various departments are catering to the CSR activities and thus categorize under the “Leadership in Functional Excellence” which forms the bottom of the pyramid representing the organizational structure. But, as we consider the creation of a separate CSR department, it is vital to place the head or the governing body of CSR department amongst the board members thereby providing recognition to the key elements of CSR “On the Board” which forms the top of the pyramid representing the organizational structure. This will help in facilitating the smooth flow of operations considering the fact that if CSR gets positioned in the upper band of the power and authority hierarchy, the amount of hurdles pertaining to the permissions and procedural delays will get reduced thereby enabling effective achievement of the objectives and their desired impacts over the stakeholders involved.

B)Should TPC maintain its volunteer based strategy, or should there be some kind of incentive scheme for the employees who participate in programmes? Answer TATA Power Corporation at this point of moment using volunteer based strategy. They are engaging their employee in CSR activities and using their skills. But as we know the availability of reliable and quality power was a prerequisite for the growth of any country. The demand for power in India was enormous, as it was one of the fastest-growing economies. The vast Indian power market offered one of the highest growth opportunities for private players. And if we talk about the TPC they also need to grow with this growing demand of electricity in India. Beginning in 2006, TPC was planning to increase its production up to 10,000 MW over the next five years. This massive scale of expansion demanded significant acquisitions of some of the existing players, as well as the acquisition of land. So with this expansion their projects are also increasing. But TPC at this point of moment maintain volunteer based strategy which is right in short term, but for long term sustainability they need to give some kind of monetary or nonmonetary incentives. Incentive or rewards have a strong track record of motivating, retaining, rewarding key staff, raising morale and increasing loyalty. When companies add a community development component to an incentive component, not only do employee’s feedback ratings go off the charts, but a company’s CSR profile gets a boost. To conclude, a company undertaking an incentive scheme obtains the following benefits:    

Rewards, retains and motivates staff Increases employee loyalty Boosts their CSR-reputation Team building and bonding