Trusteeship in practice

- By Arvind A. Deshpande

Trusteeship as perceived by Gandhi is all embracing. It is an attitude first, then a technique and finally a constitutional form. It tells us that to the extent that we command scarce resources, we are answerable to others. All human rights convey corresponding duties. Thus the Gandhian concept of trusteeship expresses the inherent responsibility of business enterprise to its workers, shareholders, consumers and the community and the mutual responsibilities of each to the other. This is the price of democracy. Without virtue in the individual and in the organs of society, democracy cannot survive.

At an international seminar on Trusteeship which took place in Bangalore from October 26 to 29,1979 the one conclusion that was arrived at was that business and industry includes such a variety of firms and companies with members ranging from a handful to many thousands and that any one model of a responsible enterprise cannot serve for all. There must be a multiplicity of models and the best will emerge through experience. Hence the importance of making a start.

One way was shown by Ernest Bader of Scott Bader Commonwealth who gave his company freely to his employees’ but retained a life pension and life chairmanship.

Spedan Lewis gave his much larger company to his employees in return for a payment of $ one million over a period of time.

Ernest Abbe Zeiss gave to his employees freely but at the same time made sure that a deed of trust would protect the interest of consumers and community alike. All surplus profits went permanently to the University and town of Gena in which the Zeiss Foundation was situated. Then take an individual proprietor of a business who ventures his saving in order to create something new. He is also a social benefactor and one to be respected. Now suppose a generation has passed. The proprietor has no heir and has to settle his business. What can he do? Trusteeship tells him that he may execute a deed of trust in favour of his employees and give his shares free or for a payment to be made to his family over a period of time.

What about a medium sized company jointly owned. Here the capital formation is critical. If there is equity capital it should over time, say 50 years, be repaid. Alternatively, the shares can be put up on the open market and put into trust for the employees or converted into fixed interest preference shares. There is no warrant in the moral law for permanent debts and all debts must in time be cancelable or repayable in any society that pretends to respect freedom. This gives the director a way of creating a trusteeship company via share ownership.

Another way is by a declaration of Corporate purpose that can be overseen by an independent group of social auditors.

Trusteeship becomes essential rather than desirable when we come to larger companies including nationalized industries and multinational corporations. Here the declaration of Corporate purpose and social audit can serve the purpose. Social responsibility is the beginning of Trusteeship. It can be expressed in many ways including sharing power and profits and management functions. It can be expressed in the existence of social purpose and objectives in companies’ articles and management’s role becomes that of balancing all claims including those of community and the consumers. If the company has no soul, it had better develop one.

Then there is the experience of several British and Spanish common ownership firms. Common ownership is different from co-operative societies, because here capital is sought on a loan basis and there is no equity capital.

An enlightened industrialist can, in the Indian conditions, float a private limited company by contributing the seed capital and the balance will come from a public financial institution like a bank. All the other directors will function as trustees and represent different interests like those of the community and the consumers without having any financial stake. The profits after payment of tax will be distributed as follows:–

• 25 % to pay back to the bank
• 25 % to build reserves for the future
• 25 % to be distributed equally among the workers
• 25 % to be given back to the community for rural development and other such causes.

The other alternative is to start a common ownership enterprise under Section 25 of the Indian Companies Act. The company will be registered with limited liability under Section 25 and as a public company. Such a company may be further registered both under the Public Trust Act as well as under Section 12 A of the Income Tax Act and can seek exemption under Section 10 (23) C (IV). It can secure exemption also under Section 80 G for contribution to the seed capital and also under Section 35 CCA if it is established in a rural area.

In the context of our situation, acceptance of social obligations not only means acceptance of normal business obligations but a commitment to national and community goals which include participation in the wider fields of rural development creating entrepreneurship and self-employment.

Source: Gandhi Today, Volume 4, 2007.