Niti and Nyaya

In June 2020, Ankur Jain had written on a blog by the same name – Niti and Nyaya, which I thought was just awesome! I wanted to share my 2 cents on the same topic.

Niti is moral conduct. Nyaya is legal conduct.

Our governments impose Nyaya or the rules for how we should conduct ourselves. But Niti is what your conscience tells you on how to behave. Do you just follow the rules in letter but not in spirit? Or do you do more than what Nyaya tells you?

I have admired people and management teams that do more than the necessary. They uphold themselves to a standard much higher than what the law of the land tells them to. Here are a few such real life stories.

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In the 1970s, Warren Buffett and Charlie Munger through their company Blue Chip Stamps owned about 8% of Wesco because it was a wonderful business. Then, the management of Wesco decided to merge Wesco with an inferior company. Both Buffett and Munger thought it was a terrible idea and through repeated appeals to various board members, they managed to convince them to not go ahead with the merger. When the news of the failed merger broke out the stock price of Wesco tanked.

Buffett and Munger wanted to buy more shares of Wesco. But instead of buying it at the really low price, they told their brokers to buy it at the price it was before the news broke. In short, they paid more than the current prevailing price because they felt responsible for the price tanking and felt it morally wrong to take advantage of the situation caused by them. Munger said:

We decided in some quixotic moment that this was the right way to behave.

Charlie Munger

In Ankur Jain’s blog, he quotes another example of how Charlie Munger paid some widows a price higher than what they asked for, because they didn’t know what the fair price was.

Contrast Buffett and Munger with Harshad Mehta and Ketan Parekh who manipulated the stock prices to a higher level only to sell it at the highest price thereby taking advantage of a situation they themselves created. It was neither Niti nor Nyaya.

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In June 2019, the board of Thyrocare questioned Dr. Velumani on starting a new line of business which had been making losses for 8 years. I thought it was fantastic that a board was questioning the founder and Chairman. But the response was even more fantastic. Dr. Velumani offered to buy the loss making unit thereby making good all shareholders.

This was not the first time Dr. Velumani acted with Niti and Nyaya. Back in 2017, he refused to accept a salary or even royalties from the company (as the company was using brands registered under his name).

You can read more about Dr. Velumani in a previous blog.

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One of my favorite business heroes is Howard Schultz, ex CEO of Starbucks. Because his own father was injured at work during an era when there was no workers’ insurance, he made it a point to offer the best insurance policy to cover all Starbucks employees and even part time employees.

The cost of medical care rose far faster than the consumer price index, especially during the late 1980s. Few companies covered part-time workers at all, and those who did restricted benefits to those working at least thirty hours a week. Most executives were actively looking for ways to contain their medical insurance expenses. Starbucks went the other direction: Instead of cutting health-care benefits, we found a way to increase ours. I saw my plan not as a generous optional benefit but as a core strategy: Treat people like family, and they will be loyal and give their all. Stand by people, and they will stand by you.

Some of our customers are such regulars that the minute they walk into the store, a barista recalls their favorite drink. If that barista leaves, that strong connection is broken. Part-timers, I argued, are vital to Starbucks. In fact, they represented two-thirds of our workforce. Our stores have to open early—sometimes at 5:30 or 6 A.M.—and often don’t close until 9 P.M. or later. We depend on people willing to work short shifts on a steady basis. In many cases, part-timers are students or individuals who are juggling other obligations. They want health-care benefits as much as the full-time employee does, and I argued strongly that we should honor and value their contribution to the company.

Howard Schultz. Pour Your Heart Into It

In another incident, Schultz says that at one point in the 90s, coffee bean prices shot up because of a frost that damaged crops in Brazil. At that point Starbucks did not decide to mix superior coffee with inferior coffee as customers may not find out. This may have been permitted by Nyaya but Niti did not.

To me, what’s even more remarkable about our decisions during those tense months of June and July is that we never once wavered in our dedication to providing the highest quality coffee. The easiest thing for us to have done, without question, would have been to tell our coffee buyers, “Okay, the time has come. We want you to start buying lower-quality coffee. We have to keep costs under control and protect our profit margins.” That conversation never took place; no one even considered it as an alternative. We could also have tried the tactic other companies seemed to be using: blending high-grade coffee with cheaper beans and raising the price anyway. Many customers would not have noticed the difference. We would have saved a ton of money, but we would have had a different kind of crisis on our hands.

Howard Schultz. Pour Your Heart Into It

Would you take shortcuts just because the client is unlikely to notice? And if you get away with it once, are you likely to stop or continue? If Schultz had taken the inferior but easy path my guess is in future too they would be likely to repeat it. And pretty soon Starbucks wouldn’t be Starbucks.

In Infosys there is a legend that once Narayana Murthy refused to deliver the code because the code was faulty. Such legends reinforce the culture of the organization and help future generation of employees deal with similar dilemmas (take shortcut now or take longer path and face consequences).

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A friend of mine sells airline tickets. Since March 2020, he has hardly sold any tickets because planes have hardly flown internationally. If he had laid off his staff, no one would’ve faulted him. Even Indigo first cut salaries and then it was letting go of employees. Yet he has retained all his staff till date and paid them the same salaries as before. His logic was: I made a lot of profits because of them and so I have to take care of them now. And he was acutely aware that those employees had home loans, car loans and kids to take care of. He may lose some money but if he fires them they lose their livelihoods.

He didn’t have to yet he went over and beyond.

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You can see that these are not isolated incidents but are patterns. Warren Buffett wrote : there is never one cockroach in the kitchen. That is, if you find a management lying or stealing, you can be sure that there could be other things that are going on that you don’t know about.

I’d like to flip it around and say if you find a management that follows Niti and Nyaya, you can be sure that they are going over and beyond in other things too. How you do one thing is how you do everything.

-Cheers