29. Corporate Social Responsibility in India – Business Environment

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CORPORATE SOCIAL RESPONSIBILITY IN INDIA

This chapter presents a detailed analysis of corporate social responsibility (CSR), the conflicting perspectives on CSR, the history and the emergence of the concept, why business should have social responsibility, the growing global role of CSR, the theoretical justification for CSR, models for implementation of CSR, CSR as a business strategy for sustainable development, and then studies various issues relating to CSR in the Indian context.

In India, as in the rest of the world, there is a growing awareness that capital markets and corporations are, after all, created by society and must therefore serve it, not merely profit from it. In the age of globalization, corporations and business enterprises are no longer confined to the traditional boundaries of the Nation–State. One of the key characteristics of globalization is the spread of the market and the change in the mode of production—the centralized mode has given way to a highly decentralized one that has spread across the world. In the last 20 years, multinational corporations have played a key role in defining markets and influencing the behaviour of a large number of consumers. On the one hand, globalization and liberalization have provided a great opportunity for corporations to be globally competitive by expanding their production-base and market share, while on the other, the situation poses a great challenge to the sustainability and viability of such mega-businesses, particularly in the context of the emerging discontent against these multinational corporations in different parts of the world.1 Labourers, marginalized consumers, environmental and social activists have started protesting against the unprecedented predominance of MNCs in global business.

It is in this context that corporations understand the imperatives to allay the fears and worries of stakeholders about their single-minded pursuit of profit and do something to ensure corporate growth with a human face. As a result, corporate social responsibility (CSR) has become the new buzzword by which most corporations swear by these days. Gone are the days when CSR was equated with an occasional act of corporate philanthropy and considered it a useful appendage to showcase themselves as ideal corporate citizens. Today, CSR is assuming greater and greater importance in not only corporate circles, but also developmental debates. It is increasingly becoming an inalienable part of business strategy of successful corporations that take serious note of consumers wanting to buy products from companies they believe in; investors desiring to invest in firms committed to corporate citizenship; suppliers liking to associate themselves with companies they can trust; employees wishing to work for organisations they respect; and the government, civil society and NGOs wanting to link up with corporations that show concern and commitment to the welfare of the underprivileged and other areas of common concern. On their part, many corporations see a great future for earning both goodwill and profits through ethical conduct of business, complying with regulatory norms with an emphasis on employee health and safety and protection of environment. CSR is, thus, inextricably interlinked to each and every facet of such good business.

CONFLICTING PERSPECTIVES

The issue of social responsibility of business evokes varying—and often extreme—responses from both the intelligentsia and businessmen. Economists like Adam Smith and Milton Friedman were of the opinion that the only responsibility of business was to perform its economic functions efficiently and provide goods and services to society and earn for themselves maximum profit and it was better to leave social functions to other institutions of the society like the government.

To Adam Smith, “It is the profit-driven market system, also called price mechanism that drives business firms to promote social welfare, though they work for private gain.” He observed further: “Every individual endeavours to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end, which was no part of his intention. By pursuing his own interest, he frequently promotes that of society more effectively than when he really intends to promote it.”2 Likewise, Milton Friedman does not give much credit to the concept of social responsibility. To Friedman, the advocacy of social responsibility of business is the green signal to pure socialism.3 He argued: “Business has one and only one social responsibility, to make profits (as long as it stays within legal and moral rules of the game established by society). Few trends could so thoroughly undermine the very foundations of our free society as acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible”.4

However, those holding the opposite view have criticized this highly materialistic viewpoint on several grounds. In their perception, governments cannot and need not be the sole repository for promoting the welfare of masses. It is an area where the corporate sector can play a significant role. They assert that it is imperative for business to be socially responsible. Paul Samuelson, for instance, advocates a spirit of social responsibility as an inherent feature of a modern business firm. This view is based on the argument that business organizations, corporate or otherwise, are part of the society and have to serve primarily its interests rather Notwithstanding all these controversial thoughts, the concept of corporate social responsibility has come to mean that the responsibility of a corporate to the society is an inalienable part of its operations and strategy. CSR is about how companies manage the business process to produce an overall positive impact on the society.

 

 

Figure 29.1 Business in Society in Relation to its Responsibility

 

Consider Figure 29.1. Companies need to answer two questions relating to their operations:

  1. The quality of their management—both in terms of people and processes (the inner circle)
  2. The nature and quality of their impact on society in various areas.

These days, outside stakeholders show a good deal of interest and involvement in the way companies function. Most of them want to know things such as, what the company has been producing, whether these goods and services are acceptable to society in every respect or not, and also its impact on the environment and on local communities, or how it treats and helps its workforce to develop. These are depicted in the outer circle. In the final analysis, what is of great interest to the stakeholders is the past financial performance and the quality of management shown by companies so that they could easily draw inferences for their future performance.

EMERGENCE

The major thrust for the emergence and evolution of ethical business and CSR came from the USA and Europe in the 1980s and 1990s, from campaigns run by pressure groups such as Greenpeace and Friends of the Earth. However, there are several Indian writers and experts on these subjects who hold the view that the foundations of ethical business and CSR were laid ages ago in the Indian subcontinent. The Indian scriptures and literature talk of the importance of these value systems to those engaged in business. The Trusteeship Principle, about which Gandhiji emphasized so much was evolved from the Indian ethos. But, unfortunately, we do not have much to show in terms of recorded history. In the Western countries, in fairly recent times, events such as consumer boycotts, direct action, shareholder agitations, ethical shopping guides, ethical product labelling schemes, media campaigns and ethical competitors became increasingly effective in changing corporate perspectives. The mid-1990s witnessed a new sense of consciousness in international corporate polity. This was the time when two prominent MNCs were compelled by “ethical market forces” to re-orient their business attitudes. In 1995, for instance, Shell dumped its Brent Spar oil platform in the North Sea. Public agitation in Europe was so intense that sales fell by 70 per cent within a fortnight in Germany. Similarly, Nike, the shoe and apparel giant, ran aground thanks to a campaign against child labour and worker exploitation in many of the 700 factories across 40 countries where Nike worked with sub-contractors. It prompted the company to set up a full-scale team under a Vice President, Corporate Responsibility, in 1997.

In the early 1990s, the Greenpeace started a manufacturing unit in Eastern Germany to manufacture a CFC-free refrigerator. Within 6 months, mainstream producers in Germany followed suit. It was in the post-war period that the character and nature of business began to change in the Western world, with proprietary firms taking on corporate structures. By 1998, there were 45 registered MNCs and the income of the top 10 MNCs was higher than the GDP of over 50 countries. Corporate social responsibility is qualitatively different from the traditional concept of corporate philanthropy. It acknowledges the debt that the corporation owes to the community within which it operates, as a stakeholder in corporate activity. It also defines the business corporation's partnership with social action groups in providing financial and other resources to support development plans, especially among disadvantaged communities. The emerging perspective on corporate social responsibility focuses on responsibility towards stakeholders (shareholders, employees, management, consumers and community) rather than on maximization of profit for shareholders. There is also more stress on long-term sustainability of business and environment and the distribution of well-being.

There is an increasing recognition of the triple-bottom-line: People, Planet and Profit. The triple-bottom-line stresses the following: (i) The stakeholders in a business are not just the company's shareholders; (ii) Sustainable development and economic sustainability are important desiderata; and (iii) Corporate profits should be analyzed in conjunction with social prosperity.

WHY SOCIAL RESPONSIBILITY OF BUSINESS?

“The Business of Business is Business” was the motto of businessmen in early times. Narrowly interpreted, it would mean that corporations have only one responsibility, the single-minded pursuit of profit. “Profit maximisation by the continued increase of efficiency is the most socially responsible way of conducting business”. This implies making quick money, with an utter disregard for the responsibility of business towards society. This limited view of business would prove to be counterproductive in the long run. But on the other hand, the long range view of business, which would imply an aim at the long-term gains rather than at quick returns, would take into account the important dimension of social responsibility.

The ethical and social behaviour of corporations is essential for the generation of the ultimate “Profit”, owing its source to the reputation the corporation would acquire in view of its social behaviour.

James Burke, the chairman of the well-known consumer product and pharmaceutical company, Johnson & Johnson said this: “I have long harboured the belief that the most successful corporations in this country, the ones that have delivered outstanding results over a long period of time, were driven by a simple moral imperative, namely serving the public in the broadest possible sense better than their competitors”.5

If we are to compete effectively in the global market place, corporations must take a long, hard look at their values, practices and assumptions. They need to question their accepted modes of behaviour, promulgating new values and set up new standards of conduct which are openly held and shared within the corporation, while proclaimed to the outside world.

Accountability to Society

There is yet another reason why corporations should be conscious of their “social responsibility”. In a democratic society any kind of enterprise exists for the sake of society. If private enterprise is justified and allowed to exist it is because it is seen to contribute better than public enterprise to the common good. It produces better goods and functions more efficiently, thanks to the encouragement given to individual initiatives. At the same time, private enterprise is not encouraged because individuals may accumulate wealth for their own exclusive and selfish benefit at the expense of the public.

Industries are allowed to exist because they are perceived by the public to be useful in the attainment of the personal, social and material goals of the people. It is because of this ethical perception that the employees of TISCO and the general public protested in 1977 when the then Union Minister for Industry, George Fernandes attempted to nationalize TISCO. On the other hand, when the public perceives that certain corporations do not function in the general interest of the nation it does not object to their take over by the government, as it happened in the nationalization of the coal fields, the oil industry and the Indian Copper Corporation. Since corporations exist for the sake of the public, they are accountable to the public and have a social responsibility.

Debt to Society

Corporations whether public or private draw much from society. No corporation is an island in itself. It depends on society for developed infrastructure such as roads, water supply, electricity and an educated work force. It also depends on society for the maintenance of law and order, public health, transport facilities and for its reaching out to its customers through mass media. Finally, all consumers of its finished products are drawn from society.

If a corporation draws so much from society it has to make its contributions to society. It has a debt to pay to the society. In the first place, a corporation has to behave like a good citizen. This is to be shown in the faithful and full payment of taxes, the observation of all local and national laws and perhaps even going beyond the law in matters of pollution, of standards of operational and product safety, and energy and resource conservation. The corporation has to donate generously towards causes of public welfare and must get itself directly involved in social welfare programmes.

It is because of these aspects of social responsibility and public accountability that corporations have to take into account not only the interests of its shareholders, but also those of the workers, consumers, suppliers, the government and the general public who are its stakeholders. In short, corporations because of their social responsibility have to consider themselves the “custodians of public welfare”.

DEFINITIONS

What is Corporate Social Responsibility? It is not as simple as it sounds. The definitions differ vastly according to the perception and sensitivity of the analyst. The World Business Council for Sustainable Development in its publication Making Good Business Sense by Lord Holme and Richard Watts used the following definition: “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.6 The same report gave some evidence of the different perceptions of what this should mean from a number of different societies across the world. In the United States, CSR has been defined traditionally much more in terms of a philanthropic model. Companies make profits unhindered except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive any benefit from the giving. The European model is much more focused on operating the core business in a socially responsible way, complemented by investment in communities for solid business case reasons. It is believed that this model is more sustainable because: (i) Social responsibility becomes an integral part of the wealth creation process, which if managed properly should enhance the competitiveness of business and maximize the value of wealth creation to society; and (ii) When times get hard, there is the incentive to practise CSR more and better, if it is a philanthropic exercise which is peripheral to the main business, it will always be the first thing to go when push comes to shove.

But as with any process based on the collective activities of communities of human beings (as companies are), there is no “one size fits all”. In different countries, there will be different priorities and values that will shape how business acts. (i) Today, leading practitioners of CSR believe that CSR is an integral part of the wealth creation process and should enhance competitiveness of business and help the company in times of crisis; (ii) The stakeholder theory of CSR stresses that it is a manager's duty to balance the shareholders' financial interests against the interests of other stakeholders, such as employees, customers and the local community.

Nobel laureate, economist Milton Friedman, says: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it engages in open and free competition, without deception or fraud.”7 To Henry Ford, “The purpose of business is to do as much good as we can, everywhere for everybody concerned… and incidentally to make money”.8 No wonder the meaning of the concept of Corporate Social responsibility seems to differ from person to person according to their own sensitivity. To Manmohan Singh, Prime Minister of India, “Corporate social responsibility is no philanthropy. It is not charity. It is an investment in our collective future.”9

The simplest and the most significant definition of CSR was given by Mahatma Gandhi who said: “Wealth created from society has to be ploughed back into society. The sum and substance of all these definitions can be put into the following propositions:10

  1. It is an attempt made by companies to be voluntarily responsible to ethical and social considerations.
  2. It is not a legal binding for the company, unlike corporate accountability (which makes company adhere to legal and social norms).
  3. Obligations to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.
  4. The set of obligations an organization has to project, enhance, and otherwise work to the betterment of the society in which it functions.
  5. Corporate Social Responsibility is the overall relationship of the corporate with all of its stakeholders. These include customers, employees, communities, owners/investors, government, suppliers and competitors. Elements of social responsibility include investment in community outreach, employee relations, creation and maintenance of employment, environmental stewardship and financial performance.
  6. The social responsibility of business encompasses the economic, legal, ethical and discretionary expectations placed on organizations by society at a given point of time (Carrol 1989). This could be explained by the following equation.

Corporate social responsibility is essentially a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. This means not only fulfilling legal expectations, but also going beyond compliance and investing in human capital, the environment and relations with stakeholders.

To put in simpler terms, stakeholders are those organizations and individuals who have an interest or “stake” in the business or corporation and its success. This includes clients, the population of small business people, other business assistance organizations, other economic development organizations, legislators at the country, federal, and state levels, executive branches of government, executive departments and agencies, the staff and contracted consultants and trainers, vendors, and taxpayers. The list is very broad and inclusive.

The development of CSR reflects the growing expectations of the community and stakeholders of the evolving role of companies in society and the response of companies to growing environmental, social and economic pressures. Through voluntary commitment to CSR, companies are hoping to send a positive signal of their behaviour to their various stakeholders (employees, shareholders, investors, creditors, consumers, regulators, NGOs and the Government) and in so doing make an investment in their future and help to increase profitability.

Many driving forces are fostering the evolution of corporate social responsibility such as:

  • New concerns and expectations from citizens, consumers, public authorities and investors in the context of globalization and large-scale industrial change
  • Social criteria are increasingly influencing the investment decisions of individuals and institutions, both as consumers and as investors
  • Increased concern about the damage caused by economic activity to the environment
  • Transparency of business activities brought about by the media and modern information and communication technologies
A GROWING GLOBAL ROLE

It is obvious that the pressure on business to play a role in social issues will continue to grow. Over the last 10 years, those institutions which have grown in power and influence have been those which can operate effectively within a global sphere of operations. These are effectively the corporates and the NGOs. Those institutions which are predominantly tied to the nation state have been finding themselves increasingly frustrated at their lack of ability to shape and manage events. These include national governments, police, judiciary and others.

There is a growing interest, therefore, in business taking a lead in addressing those issues in which they have an interest where national governments have failed to come up with a solution. That is not to say businesses will necessarily provide the answers—but awareness is growing that they are occasionally better placed to do so than any other actors taking an interest.

THEORETICAL JUSTIFICATION FOR CSR

Social scientists have formulated several theories that justify the importance of corporates engaged in promoting social welfare of the society in which they operate. The following sections describe these theories:

The Trusteeship Model

The Trusteeship Model adopts a realistic and descriptive perspective in viewing the current governing situation of a publicly held corporation, drawing from the continental European conception of the corporation as a social institution with a corporate personality.

Kay and Silberston (1995) argue that a public corporation is not the creation of a private contract and thus not owned by any individual. Ownership is by definition where the owner has exclusive rights of possession, use, gain and legal disposition of a material object. Yet shareholders merely own their shares in a company and trade their shares with others in the stock market. They do not have rights to possess and use the assets of the company, to make decision about the direction of the company, and to transfer the assets of the company to others. The residual claims of the shareholders are determined by the company and if the company's performance does not satisfy the shareholders requirements, the shareholders are left with a single option of “exit” rather than “voice” as shareholders, in general, are in no way able to monitor the management effectively and neither are interested in running corporate business. In this sense, the assumption that the corporation is owned by the shareholders is in fact meaningless. For Kay and Silberston, ownership rights are not important to business.11 Many public institutions such as museums, universities, and libraries perform well without clear owners.

Indeed, the Indian Company Law does not explicitly grant shareholders ownership rights because the corporation is regarded as an independent legal person separate from its members, and shareholders are merely the “residual claimants” of the corporation. The company has its own assets, rights and duties, and has its own will and capacity to act and is responsible for its own actions. Therefore, Kay and Silberston reject the idea that management are the agents of shareholders. Instead, they suggest that managers are trustees of the corporation. The trusteeship model differs from the agency model in two ways: First, the fiduciary duty of the trustees is to sustain the corporation's assets, including not only the shareholders' wealth, but also broader stakeholders' value such as the skills of employees, the expectations of customers and suppliers, and the company's reputation in the community. Managers as trustees are to promote the broader interests of the corporation as a whole, not solely the financial interest of its shareholders. Second, managers have to balance the conflicting interests of current and future stakeholders and to develop the company's capacities in a long-term perspective rather than focus on short-term shareholder gains. To establish a trusteeship model, they ask for statutory changes in corporate governance, such as changing the current statutory duties of the directors, ensuring the power of independent directors to nominate directors and select senior managers and appoint CEOs for a fixed 4-year term and so on.

The Social Entity Theory

The theory has, in recent years, been promoted by three major social thinkers—the Democratic Political theorist, Robert Dahl (1985) using economic democracy, Paul Hirst (1994) using associationalism, and Jonathan Boswell (1990) 12 using communication notion of property. The social entity conception of the corporation regards the company not as a private association united by individual property rights, but as a public association constituted through political and legal processes and as a social entity for pursuing collective goals with public objections. The social entity theory views the corporation as a social institution in society based on the grounds of fundamental value and moral order of the community. “With the fundamental value of human rights and standard of a corporation's usefulness is not whether it creates individual wealth, but sense of the meaning of the community by honouring individual dignity and promoting over all welfare.” Sullivan argues that corporations are granted charter entity for a commercial purpose, but more importantly, as a social entity for general community needs. The corporation identity and executives are representatives and guardians of all corporate stakeholder's interests.

The recent resurgence of the moral aspect of stakeholder perspectives has been, in general, associated with the social entity conception of the corporation.

The Pluralistic Model

The Pluralistic Model supports the idea of multiple interests of stakeholders, rather than shareholder interest alone. It argues that the corporation should serve and accommodate wider stakeholder interests in order to make the corporation more efficient and legitimate.

It suggests that corporate governance should not move away from ownership rights, but that such rights should not be solely claimed by, and thus concentrated in, shareholders; ownership rights can also be claimed by other stakeholders, particularly employees. Stakeholders who make firm specific investments and contributions and bear risks in the corporation should have residual claims and should participate in the corporate decision making to enhance corporate efficiency.

It is asserted that if corporations practise stakeholder management, their growth and profitability will increase and they will be more stable.

WHAT ARE CORPORATES EXPECTED TO DO?

In support of the view that corporates have a moral and social obligation towards society, some economists argue that corporates depend on society for a number of facilities they enjoy such as developed infrastructure, peace and tranquility in the work place and a trained workforce. They also depend on society for the maintenance of law and order, without which they cannot carry on their productive or distributive activities, and also for reaching to their customers through mass media. Consumers of products, without whom they have no raison de‘tre, are all drawn from the society. If a business body draws so much from society, it has to make its own contribution to the welfare of the latter. It has a debt to pay in the first place. It has to behave as a good citizen inasmuch as it has to pay its taxes in full and on time, observe the laws of the land and, going beyond it, ensure a clean and healthy environment, standards of operational and product safety and help in energy and resource conservation.

The corporates among the business community also have a moral responsibility to take a long and hard look at their values, practices and assumptions. They have to ensure that the country's fair name is not compromised abroad during their deals, either as exporters or importers. They have to ensure maintenance of the quality of their products, keeping up to the delivery schedule, etc. In the Indian context, socially responsible corporates are expected to create employment opportunities directly and set up ancillaries for the disadvantaged persons; provide financial resources in several ways such as financing customer-related marketing; by sharing skills in marketing, technical and management areas in many ways; make available marketing support both by purchasing products and services from disadvantaged communities; and by sharing, company facilities of donating company's products and services.13

PRIVATE SECTOR NEEDS THE GOODWILL OF SOCIETY

For historical and other reasons, private enterprises are not much favoured in countries like ours because these enterprises accumulate wealth for their own exclusive benefit at the expense of the public and are not generally seen to contribute to the common good. Corporates should, for their own good, come forward to erase such perception in the minds of the common public. In an era of intense competition, accentuated by the advent of MNCs, it is necessary for them to generate and sustain “goodwill” among their clients and the general public. Active participation in social welfare projects will definitely improve their visibility and place them on a pedestal of public esteem. They should understand the fact that economic goals and social responsibility objectives need not be contradictory to each other and that these could be achieved simultaneously. They should donate generously towards public causes and must get themselves directly involved in social welfare programmes, if they have to create goodwill among the public and to avoid being branded as profiteers and self-seekers.

To summarize,

  • Private sector is generally seen as not favouring the society. The trend is accumulation of wealth for its own cause at the expense of the public.
  • Corporates need to erase this perception, with the intense competition in mind.
  • Corporates should participate in social welfare projects which will improve public esteem.
  • Corporates should understand that economic and social responsibility goals can be achieved simultaneously.
  • The private sector also has to maintain the country's fair name when they export and import by maintaining the quality of products and sticking to delivery schedules.
  • Corporates should create employment opportunities for the disadvantaged.
MODELS FOR IMPLEMENTING CSR

There are four models of corporate responsibility globally. In the first model, whose major proponent was Mahatma Gandhi, the emphasis is on companies taking to public welfare on their own volition, without any prodding from external agencies such as the government. In the second model, Pandit Jawaharlal Nehru, the votary of state ownership of enterprises, held the view that public ownership and the legal requirements that govern them define CSR. In the liberal model of CSR, whose proponent was Milton Friedman held the view that CSR is limited to private owners and not to other stakeholders. Finally, the stakeholder model, as propounded by Edward Freeman, emphasises the view that companies should respond to the needs of all stakeholders. All these four models are highlighted in Table 29.1.

CSR AS A BUSINESS STRATEGY FOR SUSTAINABLE DEVELOPMENT

What is CSR strategy? To IBM, CSR strategy refers to enhancing stakeholder value and the delivery of measurable results to society at large.14 It the context of developing societies, “CSR is about capacity building for sustainable livelihoods”. When CSR is adopted as a business strategy for sustainable development, it goes to improve corporate performance. It offers manifold benefits to corporates both internally and externally. Externally, it creates a positive image and goodwill among the public and earns a special respect amongst peers, customers, government agencies, investors and media, all of which go a long way in promoting long-term shareholder value and sustainable development. Internally, it cultivates a sense of loyalty and trust amongst employees in the organizational ethics. More significantly, it serves as a soothing diversion from the mundane workplace routine and gives workers a feeling of satisfaction and a meaning to their lives. Companies like Infosys, Wipro, Tata Steel, Reddy's Lab and Polaris, for instance, find ways and means of getting their employees interested in CSR activities. There are reasons to believe that such employee involvement has reduced attrition rates in these organizations. It is because of all these positive factors that prompt organizations involve themselves in socially responsible investing (SRI). SRI is gaining importance due to two factors: (i) Socially responsible companies offer long-term value and (ii) evaluating a company's social impact on top of its financial performance provides an additional hedge against risk.15 For instance, a Chennai-based automotive parts manufacturing company faced a severe risk in its new plant in Pune when a posse of thugs barged into the plant and demanded INR 2.5 million as ransom when several locals who were the beneficiaries of the company's CSR unit came to the rescue of the company and offered to guard it against the extortionists in future. Many MNCs which have socio-political problems in markets they operate, especially in emerging economies, find such socially responsible investing one of the means to blunt the adverse sentiments against them and as a strategy to ensure their sustainable development. Most critics of CSR are against it because they look at it separately from business strategy. It is an outcome of business models that go beyond just financial viability. Cost of helping communities to develop becomes cost of the business, like materials or labour. Billions of poor people have a potential to become part of the market if helped. Before making the poor into a potential market, the future business models must build sensitivities and capabilities to reach out to the poor.16

 

Table 29.1 The Four Models of Corporate Responsibility to Society

Model Emphasis Proponent
Ethical Voluntary commitment by companies to public welfare Mahatma Gandhi
Statist State ownership and legal requirements determine corporate responsibilities Jawaharlal Nehru
Liberal Corporate responsibilities limited to private owners (shareholders) Milton Friedman
Stakeholder Companies respond to the needs of stakeholders—customers, creditors, employees, communities, etc. R. Edward Freeman

Businessmen fail to appreciate the fact that CSR is a key constituent of business strategy, as to many of them it is pure philanthropy and “do good” activity unconnected with their business. “Strategy strives to provide the business with a source of competitive advantage. For any competitive advantage to be sustainable, the strategy must be acceptable to the wider environment in which the firm competes.”17 Lack of CSR or its improper execution is bound to threaten the competitive advantage a corporate may hold in an industry. Besides there are certain costs associated with being a socially irresponsible organization. Nike suffered significant damage to its brand and sales when it was brought to light that the company had poor labour standards in its supply chain. On the other hand, Nike gained its brand and sales once it started improving its labour standards down the line and publicized its efforts to comply with them. Nowadays, Greenpeace and other activist groups highlight socially irresponsible corporate behaviour that leads, sometimes, to voluntary corrective action on the part of companies themselves, and at other times inviting government action as we have seen on several instances of public interest.

Practioners of CSR stress the fact that it is a cost-effective way to gain competitive advantage. Corporates in their effort to engage in strategic CSR aim to match business objectives with the needs of the community. For instance, in the rain-starved Wada taluk of Thane district of Maharashtra where its bottling plant is located, Coca-Cola has been harvesting rain water since 2003 to recharge groundwater and has been supplying water to people in summer, in addition to instituting miniwater supply schemes in some villages. All these CSR efforts of the company have been integrated with its business strategy and have helped it to earn the goodwill of village folks, apart from reducing absenteeism in the workplace. An IT company for instance could help educate school or college students in its neighbourhood who could become their potential employees, or for that matter, a BPO can create its future workforce by providing vocational and soft skills training to the children in neighbouring communities. This symbiosis between corporates and the surrounding communities will go a long way in integrating CSR and business strategy to the mutual advantage of both.

ASSESSMENT OF CSR ACTIVITY

How to evaluate CSR activities of corporates? Experts suggest three basic principles to measure the impact of CSR—sustainability, accountability and transparency.18 Sustainability of CSR activity implies that there must be a clear linkage established between use of resources and their regeneration, like the soft drink industry that uses plenty of water trying to maintain water tables through rain water harvesting and recycling; Or a paper manufacturing company that destroys thousand of trees to make paper pulp will do well to plant and nurture an equal number of saplings. Accountability lies in an organization assuming responsibility for the effects of its action that have impacted the external environment. This will call for the organization matching the cost of damages caused by its actions through creating benefits to all affected stakeholders that exceed costs; and transparency means that the organization reports to all stakeholders the impacts of its action truthfully without disguising them in any manner. This will enable stakeholders to have a full and fair view of the situation.

INADEQUATE RESPONSE TO CSR IN INDIA

If in spite of such strategy-based advantages, why does Indian industry lag behind those in advanced countries in socially responsible investment? A survey conducted by Indianngos.com19 shows that the major obstacles to CSR in India are lack of awareness and conviction amongst the managers, and lack of impact analysis, i.e., a system of measuring the impact of social activities. Absence of a clear linkage between CSR and financial success is another barrier to CSR. Besides, there aren't enough trained managers and experienced advisers available to overcome these obstacles and support the process.

ADVANTAGES

There are several advantages to corporates when they exhibit a sense of CSR and implement it. The following are the advantages CSR brings to companies:

  1. Improved financial performance: Sometime ago a Harvard University study has found that “stakeholder balanced” companies showed four times the growth rate and eight times employment generation when compared to companies that focused only on shareholders and profit maximization.
  2. Enhanced brand image and reputation: A company considered socially responsible can benefit both by its enhanced reputation with the public, as well as its reputation within the business community, that would enhance the company's ability to attract capital. Studies have found that excellent employee, customer and community relations are more important than strong shareholder returns in earning corporations a place in Fortune magazine's annual “Most Admired Companies” list.
  3. Increased sales and customer loyalty: A number of studies have suggested a large and growing market for the products and services of companies perceived to be socially responsible. While businesses must first satisfy customers' key buying criteria, such as price, quality, appearance, taste, availability, safety and convenience, there is a growing desire also to buy things based on other value-based criteria, such as “sweatshop-free” and “child labour-free” clothing, products with smaller environmental impact, and absence of genetically modified materials or ingredients. A 2001 Hill & Knowlton/Harris Interactive Poll showed that 79 per cent of Americans take corporate citizenship into account when deciding whether to buy a particular company's product; 36 per cent of Americans consider corporate citizenship an important factor when making purchasing decisions. A 2002 Cone Corporate Citizenship Study found that of US consumers who learn about a firm's negative corporate citizenship practices, 91 per cent would consider switching to another company, 85 per cent would pass the information to family and friends, 83 per cent would refuse to invest in that company, 80 per cent would refuse to work at that company and 76 per cent would boycott that company's products.20
  4. Increased ability to attract and retain employees: Companies perceived to have strong CSR commitments often find it easier to recruit employees, particularly in tight labour markets. Retention levels may be higher too, resulting in a reduction in turnover and associated recruitment and training costs. Tight labour markets as well the trend toward multiple jobs for shorter periods of time are challenging companies to develop ways to generate a return on the consideration resources invested in recruiting, hiring and training.
  5. Reduced regulatory oversight: Companies that demonstrate that they are engaging in practices that satisfy and go beyond regulatory compliance requirements are being given less scrutiny and freer reign by both national and local government entities. In many cases, such companies are subject to fewer inspections and paperwork, and may be given preference or “fast-track” treatment when applying for operating permits, licenses or other forms of government permission.
  6. Innovation and learning: Innovation and learning are critical to the long-term survival of any business. Corporate responsibility stimulates learning and innovation within organizations helping to identify new market opportunities, establish more efficient business processes and to maintain competitiveness. Eighty per cent of the European business leaders believe that responsible business practice allowed companies to invigorate creativity and learn about the market place. The long-term survival of organizations is dependent upon its ability to understand and act on societal and technological change. Many organizations are co-innovating with business partners to identify new approaches that deliver business benefits whilst tackling a social or environmental issue.
  7. Risk management: CSR provides a means by which companies better understand and manage risk. The effective management of social and environmental risks presents business opportunities. Corporations are broadening their definition of risk to encompass wider and longer term risks that incorporate social and environmental issues. In addition, they are engaging with a wider external audience to understand needs and expectations and take action where appropriate.21 There is growing pressure for companies to understand and act on a widening range of risks across their business.

    Over the past few years, there had been a number of guidelines and initiatives to encourage business to manage risks across their business. London-based Morley Fund Management introduced its Sustainability Matrix, which ranks companies listed on the FTSE 100 Index based on their social and environmental performance. Companies now recognize the long-term financial risks they face by ignoring environmental and social impacts.

  8. Easier access to capital: The Social Investment Forum reported that, in the United States in 1999, there was more than USD 2 trillion in assets under management in portfolios that use screens linked to ethics, the environment, and corporate social responsibility.22 It is clear that companies addressing ethical, social, and environmental responsibilities have rapidly growing access to capital that might not otherwise have been available.
  9. Reduced operating costs: Some CSR initiatives can reduce operating costs dramatically. For example, many initiatives aimed at improving environmental performance such as reducing omissions of gases that contribute to global climate change or reducing use of agrochemicals, also lower costs. Many recycling initiatives cut waste-disposal costs and generate income by selling recycled materials. In the human arena, flexible scheduling and other work-life programmes that result in reduced absenteeism and increased retuention of employees often save money for the companies through increased productivity.
SCOPE

Three levels of social responsibility can be identified (evolution of areas of social responsibility):

  • Market forces: Responding to the demands of the market. Managerial decisions that involve business responding to the economics of the market place by efficiently and effectively using resources. The greatest impact of business on society comes from “normal” operations, therefore, shows greatest social responsibility.
  • Mandated actions: Government mandates or negotiated agreements (regulatory requirements and guidelines, contracts/agreements with stakeholders). Managerial decisions that reflect business responses to government mandated requirements and/or pressure group stakeholders (e.g. unions).
  • Voluntary actions: Managerial decisions that are undertaken without outside pressure: voluntary social programmes
    • Legal plus: “go beyond status” and regulatory requirements
    • Respond to national consensus; recognized problems
    • In areas with no consensus

The following are the issues that are commonly addressed in corporate social responsibility

  • The community, assistance in solving community problems
  • Health and Welfare
  • Education
  • Human rights
  • Natural environment
  • Culture (i.e., music, arts, sports, etc.)
DIFFERENT CONTEXTS IN WHICH CSR IS RELATED

The social status which people enjoy, the social groups to which they belong and within which they have grown and from which they have initially received their value system, deeply influence, and not infrequently, determine their understanding of social responsibility. This is true of the business world as well. JRD Tata in his key note address at the inauguration of the Tata Foundation for Business Ethics some years ago outlined the ethos/tradition of the Tatas in these terms: “The Tata Industrialist Ethos inherited from the great Jamsetji himself, tried to combine high standards and quality production with sincere concern for ethical values such as fair and honest management, product quality, human relations in industry and industrial philanthropy.”23

The scope of social responsibility is wide and could be considered in terms of different viewpoints, some of which are given below:

Protecting and Promoting Stakeholders' Interests

Some consider social responsibility in terms of services rendered to claimants or stakeholders, who could be both insiders and outsiders. The insiders are employees and shareholders while outsiders include consumers, suppliers, creditors, competitors, government and the general public. Consumers expect quality goods and services at fair prices. Workers expect fair wages without being exploited. Shareholders expect reasonable dividends and fair return on investments. Managers expect challenging jobs with attractive salary. Government and the general public expect them to add to the wealth and welfare of the country without polluting the environment. In short, business organizations have to consider themselves the “custodians of public welfare”, by rendering such services to the various sections of society. The following sections outline the corporate social responsibilities to different groups of stakeholders.

Social Responsibilities of Business Towards Consumers and Community

  • Goods must meet the requirements of different classes, their tastes and purchasing power
  • Goods must be reasonably priced, must be of dependable quality and of sufficient variety
  • Provision of after-sales service advice, guidance and maintenance
  • A fair widespread distribution of goods and services among all sections of consumers and community
  • Provision of free competition and prevention of concentration of goods in the hands of a limited number of producers or purchasers or groups
  • Present a “good image” in the minds of the public for honesty and integrity of character
  • Advertising policy should be based on moral/ethical principles. It should not mislead by false, misleading and exaggerated advertisements
  • Support to educational, charitable and other programmes for the benefit of the community
  • Social accountability to consumers and public regarding the business conditions
  • Avoidance of social and moral dangers of “high spots” and “social tensions”
  • Prevention of the growth of slums, improvement of housing conditions, elimination of crimes in industrial areas, and meeting the heavy costs of pollution and waste disposal
  • Business should have a progressive outlook
  • Proper training should be offered to the existing employees
  • Should behave like a law-abiding citizen to the State
  • To pay its dues and taxes to the state fully and honestly
  • Maintain impartiality towards political affairs, i.e., to abstain from direct political involvement; and not to support political parties
  • To follow honest trade practices, and avoid activities leading to restraint of trade and commerce
  • To try not to contact public servants for selfish ends
  • To sell commodities without adulteration

Social Responsibilities Towards Employees

  • Promote a spirit of cooperative endeavour between employees and employers through participation in decision making and in improving production and administration
  • To pay fair and reasonable wages to labour and fair salaries to executives
  • To develop and adopt a progressive labour policy based on recognition of genuine trade union right; settlement of disputes and conciliation; to create a sense of belonging to the business, and improving human qualities of labour by education, training, living conditions, housing, leisure and amenities
  • To provide reasonable and just work conditions
  • To recognize labourers as a “human being” and respect their dignity, and preserve their individual liberty
  • Provide facilities for joint consultation and collective bargaining
  • Help development of proper leadership from among the employees
  • Guarantee religious, social and political freedom to workers to take part in the civic activities

Social Responsibilities Towards Owners and Inter-business

  • To provide a fair return or dividend on the capital invested
  • Give fair and impartial treatment to all
  • Develop healthy cooperative business relationship between different business
  • Advance of such unfair practices as price-rigging, undercutting, patronage, unfair canvassing and unethical advertisements
  • Help in the control of monopoly and promotion of healthy competition

Social Concern and Promotion of Common Welfare Programmes

Another way in which the scope of social responsibility could be viewed is in terms of social concern and promotion of common welfare programmes for the benefit of the poor and the indigent public. Companies have highlighted social issues and brought them to the notice of the public through hoarding and other means of drawing the attention of people to the issue in question and generate public awareness. There had been occasions, though limited in number, where corporates have joined hands to sponsor advertisements promoting public causes or issues of social concern such as drug addiction and smoking. Business organizations could also consider social responsibility in terms of relatedness to their own activities. Producers of dental or eye care products organize mass clinics in villages and semi-urban areas where surgeons attend to the medical needs of the poor and indigent. Such attempts greatly relieve the burden on the finance-strapped State in a developing country like India where people, due to poverty and for historical reasons, depend solely on the government to render every type of service.

As an Act of Philanthropy

There are others who view social responsibility as philanthropy. “Philanthropy has always been the reflection of a society because in it depended on a division between givers and poor recipients. The wealthy have not only given because they have more; but because by alleviating distress they have secured their own position against those who might displace them”. Philanthropy by big business is generally exercised through “Foundations”. Such philanthropic activity not infrequently adds to the prestige of an organization, builds up a humanitarian image among the public, and, more importantly, widens the organization's influence to fields which often are of vital importance to the business world. In fact, some research studies have found that “the major Foundations function as public rather than private institutions. Inevitably they have become one of the major institutional forces in modern societies often hand in hand with the State. In particular, their influence is of increasing importance in the determination of educational policy, the goals of research in all fields and the direction of thinking in international affairs.” Ford, Rockfeller and Carnegie Foundations have been key investors in the growth and development of higher education institutions, think tanks and research centres around the world. Indeed, The Ford Foundation has been described as the world's largest investor in new ideas. They are architects of international networks of scholars and agencies involved in the production and dissemination of knowledge. Through these institutions and networks, they have been in a unique position to influence cultural and social policies on an international scale.

J.R.D. Tata in his keynote address at the inauguration of the Tata Foundation for Business Ethics some years ago outlined this equation thus: “The Tata industrialist ethos inherited from the great Jamshetji himself, tried to combine high standards and quality production with sincere concern for ethical values such as fair and honest management, product quality, human relations in industry and industrial philanthropy”.24 However, in a strict sense, the concept is restricted to the observance of rules and regulations that govern business transactions, and in a way facilitates a smooth running of business. “In a wider sense, it demands conformity with accepted norms and interpretations of the laws dealing with business activity. Moreover, in a business world, where cut-throat competition and survival of the fittest dictate the law and have the upper hand over humanity, philanthropy also means a display of humanity which will manifest itself in some form of benevolent activity among the larger public. It undoubtedly benefits some individuals or communities in need.”25

Take the instance of how industrialists came to the rescue of the quake-devastated people in Gujarat. When Gujarat was shattered by the fury of the worst earthquake recorded in history over the past 50 years, a free phone facility set up by Care India, Bharti-BT and CISCO provided the most immediate emotional relief for people anxious for news of their families as well as access to medical assistance and advice. Industrialists through the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) have committed large funds that have enabled several NGOs adopt villages that were most severely hit and provided several others a great deal of relief measures.26 Likewise, when disaster struck New York and Washington in the aftermath of terrorist attacks on 11 September, 2001, American MNCs played their part as good corporate citizens. Most have donated substantial amounts towards the disaster relief funds and made serious gestures towards their social responsibility. While the US food giant McDonalds had offered food for the rescue workers at different locations across the country in addition to a donation of USD 2 million, General Motors, General Electric, Ford Motor and Unocal also did their best to alleviate the sufferings of those affected by the tremendous human tragedy.

Good Corporate Governance Itself Is a Social Responsibility

Some social thinkers even view in the context of emerging economies that good corporate governance itself is an ingredient of corporate social responsibility. Indian corporates for instance, have insulated themselves for too long from wholesome developments evolving elsewhere. A closed economy, a sheltered market, limited need and access to global business/trade, lack of competitive spirit, a regulatory framework that enjoined mere observance of rules and regulations rather than realization of broader corporate objectives marked the contours of corporate governance for well over 40 years.

Corporate democracy, professional management and maximization of long-term share-holder value are attributes of good corporate governance. Corporate governance has acquired a new urgency in India due to the changing profile of corporate ownership, increasing flow of foreign investment, preferential allotment of shares to promoters, gradual unwinding of the control mechanism by the State that had hitherto provided protective cover to even poorly managed corporates and the increasing role of mutual funds since 1991.27

Corporates in the Vanguard of Rendering Social Service

Some industrial houses have been promoting activities that supplement the efforts of public authorities in certain areas that are important for all-round human development. The Tatas have contributed to the growth of fundamental and social sciences by building and nurturing institutions of higher learning in these areas. The Birlas have been building and maintaining beautiful and monumental places of worship in several cities in addition to popularizing science through planetoriums. Some corporates like Britannia Industries and MRF Tyres have been sponsoring sports events and helping sportspersons attain international standards. TISCO has made several contributions in such diverse areas as community, especially tribal area development, rural industrialization, etc., SAIL has done its mite in agriculture, health care, drinking water supply, dairy and poultry farming. ITC Ltd. is socially active in agriculture, sports and pollution control, while Brooke Bond has interests in animal welfare, providing veterinary services and improvements in animal breeding. Down south, several corporates have done yeoman service in the field of education and related areas such as sports, building of institutions that train personnel as well as render social service.

Social Responsibility is Abiding by Rules and Regulations

In common practice, generally the concept of ethical responsibility is restricted to the observance of rules and regulations that govern business transactions. Such a concept is widely accepted since it facilitates a smooth running of business. It demands conformity with accepted norms and interpretations of the laws dealing with business activity. When we stress that corporates should abide by rules and regulations, it implies that they should observe them not only in the letter, but also in spirit. They should abide by the law of the land in every respect, comply with the rules and regulations imposed on them by SEBI, stock exchanges, Department of Corporate Affairs, pay taxes in full and on time and protect the fair name of the country if they are engaged in external trade.

Social Responsibility as the Creation of Wealth

Rev. John Mahoney S. J., Dixon Professor of Business Ethics and Social Responsibility at London Business School tends to see in the very activity of a business organization something beneficial in itself for society and truly praiseworthy from an ethical and social point of view. He explains, “Developing the earth's resources to produce goods and services to satisfy the needs and aspirations of the increasing millions of its inhabitants not only adds value in economic terms. It enhances the value and quality of human living, by expanding human freedom and culture, and by providing a social environment in which human dignity too can develop and prosper. Within this line of reflection the business of creating wealth in and for society is then seen to be a positive and constructive occupation for men and women.28

Therefore, social responsibility has to do with much more than producing goods and services thus increasing the earth's wealth. Social responsibility has to do with the type of goods and services which are offered. Social responsibility lies in wanting to know for whom the goods are produced and whether these goods respond to the real needs of the majority of the population inclusive of its poor. It has to do with a concern for the needs of the generations to come. It has to do with such things as “sustainable development” and “safeguard of the environment”. Unfortunately, on all these accounts the performance of business in the past few decades has been most distressing.

Ensuring Ecological Balance

Most corporates while producing goods have allowed the environment to be polluted, atmosphere and water bodies poisoned. They have, therefore, a moral responsibility to restore ecological balance. Reducing harmful environs, low pollutants harmony with nature are important elements in corporate social responsibility. Many Indian corporates are already doing this: NTPC Ltd, Tata Steel, ITC, Sakthi Masala Pvt. Ltd., Srinivasan Services Trust organized by TVS Motors Ltd., and Sundaram Clayton, and Pricol Industries.

Human Element Focus

Companies committed to CSR would improve quality of work-life; reduce harzards, offer equality in employment opportunities and wages. They would settle industrial disputes within the legal framework, collective bargaining and minimum economic disruption. While relocating plants, they would ensure employees are being assisted in adjusting to new arrangements. Job and retirement security of a reasonable nature would be provided; bonded-labour, slavery, etc. are the ills to be scrupulously avoided.

Improving Productivity

Organizations committed to CSR would ensure the following: Employees to be made creative and their treatment to be humane. Working costs should be reduced. Induction of new technology and being alert to negative impacts are other imperatives. They would, even while adopting superior technology and expertise, ensure employees are not thrown out of employment. Workers could be offered training so that they could be deployed and increase productivity.

Sponsoring Social and Charitable Causes

Some entrepreneurs had not only built industrial empires, but also contributed individually to certain social and charitable causes. J.R.D. Tata's contribution to the growth of the Indian airlines industry, population-related research, education of the underprivileged, etc had been exemplary. Late D. C. Kothari, with his wide-ranging interests, had been the moving spirit behind several charitable trusts and institutions of higher learning, apart from being the prime-mover of the Standards Movement in the country and earned the rare distinction of becoming the President of International Organization for Standardisation (ISO) from a Third World country. There are several other captains of Indian industry who have done themselves and the country proud.

Corporates Should Supplement State Efforts

There are several areas where corporates can supplement effectively the ever-growing welfare activities the State is expected to undertake, but does not have the resources to carry on. Corporates can run schools, either in their own areas or in any other adopted village of their choice, providing good quality primary education. If each of the more than 200,000 corporates the country has adopts three villages, we will be able to cover the entire country and provide better primary and elementary education to our children. It will go a long way in promoting literacy and overall development of the country. In this context, it should be borne in mind that the Asian Tigers like Thailand, Philippines, Indonesia, Malaysia and Singapore have achieved much higher growth rates before the currency crises overshadowed their achievements because of universalization of primary education in these countries since 1950s, which we have failed to do.

Corporate resources can also be allocated to run family planning clinics, medium-sized hospitals in villages, literacy campaigns and adult education programmes, campaigns against smoking, pollution, AIDS, casteism and communalism and to provide housing, sports and recreational amenities for slum-dwellers, etc. Corporates can also contribute effectively towards urban management as has been done in places like Jamshedpur.

The maintenance of the public health system is another area where the corporates can show their concern for the social welfare. Corporates cannot be mute spectators to the deterioration in public health. Besides the moral and social aspects involved, they have to appreciate the fact that all their activities, business or otherwise, will come to a standstill, if any disease of epidemic proportions breaks out. In 1999, The Hindu reported a unique government—industry participation to improve public health in Tamil Nadu. In the first phase of the programme, 57 primary health centres (PHCs) and 6 government hospitals were adopted by 19 industrial groups based in the State. According to official sources, another 40 more PHCs would be adopted in the second phase with more industries joining in due course. The then Chief Minister, while inaugurating the programme, commended the whose-hearted and voluntary participation of industrial houses that would go a long way in enhancing the welfare of the people.29

ICC'S PRACTICAL STEPS TO CSR

The International Chamber of Commerce (ICC) recommends the following nine steps to attain corporate social responsibility:

  1. Confirm CEO/Board commitment that priority to responsible business conduct comes first
  2. State company resolve and agree on company values
  3. Identify key stakeholders
  4. Define business principles and policies
  5. Establish implementation procedures and management systems
  6. Benchmark against selected external codes and standards
  7. Set up internal monitoring
  8. Use language that everyone can understand
  9. Set pragmatic and realistic objectives

Corporations exist because they, in a sustainable fashion, enable people to constructively practice their craft and create jobs, economic value, and wealth for the society and the enterprise especially free societies.

THE INDIAN PERSPECTIVE

India has had a strong tradition of philanthropy. Business and corporate philanthropy can be traced to the pre-independence days in India, when companies funded education and other social welfare activities. But there is a fine line of distinction between CSR and philanthropy. CSR essentially means a more integrated and proactive action towards all the stakeholders while philanthropy could be a charitable donation to the people in and around the area of operation of the company even without ethical values. An organization needs to take a balanced view of the components of CSR and implement the strategies in coherence with the vision, mission and values of the organization.

While companies in the United States and Europe are pressured by the stakeholders to adopt CSR practices, the Indian companies so far have not experienced any such pressures. Indian companies are still not legally bound to formally report CSR activities unlike the developed countries which adhere to the Global Reporting Initiative (GRI).30 India ranks last in terms of the level of social responsibility demanded from companies. But according to the survey conducted by Centre for Social Markets, there has been a growing change in the attitude of Indian firms towards CSR.

CHANGING ATTITUDES TO CSR

There is increasing evidence to suggest that we need to explore innovative ways of doing business so that all the stakeholders are able to participate, when differences are valued, policies are inclusive and the impact on the society is positive. There are no indicators of measurement to help evaluate the CSR initiatives but increasingly the companies are building an integrated model that is in alignment with the business processes and functions.

Social responsibility is not the exclusive domain of the government and only “passive philanthropy” no longer constitutes CSR. Most of the corporates perceive ethical conduct including compliance and transparency of business and nation building as the closest definition of CSR. A recent survey revealed that business ethics, compliance with regulatory requirements and consistency in value delivery are three of the most important factors that impact social reputation of a corporation. Only 12.4 per cent of Indian companies pursue strategic philanthropy compared to 48 per cent of the multinationals. Charity is pursued by 35 per cent of Indian companies and 62 per cent of the multinationals. Both Indian and multinational corporations give money primarily to support education services, environment, health services and uplifting the living condition. Support for art and culture, employee volunteerism, event sponsorship and matching grants are some important activities of the multinationals but not Indian companies. The most responsible companies in India are the following:

  • MNCs—Unilever, Sony, Johnson & Johnson, Coca-Cola and P&G. The main reason stated was that these were trusted brands. Coke was mentioned because of its sponsorship of sports events. However, the factors of environmental care, human rights, transparency were not mentioned.
  • Indian—Tatas, Reliance, Birlas and BHEL. The reasons mentioned were ethical care, environmental practices and social work. MNCs were rated lower than Indian companies.

India is moving from corporate philanthropy to the stakeholder model. For example, the Tatas are known for their work in Tatanagar (Jamshedpur) and have set up a Tata Council for Community Initiatives. But by and large, Indian companies have a long way to go in imbibing corporate responsibility as a business strategy. Corporate philanthropy is only a part of corporate responsibility.

INDIA ON THE ETHICAL/CSR MATRIX

There is a difference in approach towards CSR in India vis-à-vis developed nations. Companies in India do exert considerable influence on the government to shape favourable business policies and have regulatory frameworks in place. But barring a few, Bajaj, Godrej, Tata, Infosys, Reddy's Labs, etc., most companies do not seem to display a social conscience.

But every year, Indian companies are putting in more money in community activities. There are several reasons for this. First, it's an ideal tool for building “reputation capital”. Second, it stems from the concept of optimization of profits as against maximization of profits.

A number of recent surveys have been conducted in India to understand what CSR means in the Indian context, what the expectations of different stakeholders are and the drivers and barriers facing companies.

As per “The Corporate Social Responsibility Survey 2002, by UNDP, British Council, CII and PwC”, the perception of CSR among the Indian corporates is that of ethical conduct including compliance and transparency of business and nation building. They consider business ethics, compliance with regulatory requirements and consistency in value delivery as the three of the most important factors that impact social reputation of a corporation. In the absence of a structured approach to defining CSR and systems for its deployment, companies are often unaware of the nature of CSR-related initiatives undertaken and the magnitude of their investments in CSR-related initiatives and since the investments are not systematically deployed, these at times prove to be ineffective. The survey also indicated that many companies (nearly 42 per cent) deploy CSR by instituting a certified management system but only few (19 per cent) have a periodic performance monitoring mechanism in place. This may be a manifestation of the fact that in the absence of mechanisms and guidelines for the assessment of outcomes of CSR initiatives, the companies are restricted from undertaking performance monitoring and evaluation.

There is a transition from the ethical-statist model emphasizing philanthropy and employee relations to the liberal-stakeholder concept. Ethical model constitutes a significant portion with 48 per cent of the companies having delineated policies for charitable contributions. The shades of statist model in the current perception and practice of CSR are visible with concerns like employee welfare (66 per cent), labour practices (61 per cent) and customer relations (64 per cent).

Wider adoption of CSR in Indian companies will be enabled by

  • Provision of tax, duties and custom benefits
  • Inclusion of CSR performance of promoters as a parameter in according fast track clearance to projects
  • Decreased government interventions
  • Depreciation benefits where asset investments are made
  • Development guidelines on estimation of socio-economic impacts
SOCIAL RESPONSIBILITY AND INDIAN CORPORATIONS: A SCORE CARD

The corporate world is now reaching out to the community. And philanthropy is no longer limited to signing cheques. The commitment is getting much deeper as a large section of employees, including members of the top management, are now doing their bit for the causes close to their heart.

According to Sunil Rajshekhar of the Times Foundation, “Corporate contribution earlier was limited to financial donations. This is giving way to more holistic approach as employees are now getting involved and companies like GE, Tatas, Infosys, Hughes Software and Agilent encourage their employees to give back to communities who sustain their business”.

And the initiative doesn't end with an odd blood donation. More companies are joining hands with NGOs to set up labs, adopt schools and even villages, educate kids and women in slums, and start welfare programmes for cancer and AIDS patients.

At GE, for instance, the initiative runs right from the top as Scott Bayman, president and CEO, GE (India), finds satisfaction in his endeavour to develop confidence among young school dropouts and help restart their education and help them gain skills for employment. “About 60 of our employees are involved in voluntary programmes and at least 30 of these are very very active,” says Bayman and added. “GE has implemented many such initiatives globally but I had some apprehension about how popular it would be in India. Thankfully, our people embraced it very fast.”

Indian industry is also equally aggressive in its drive to being socially responsible. North Delhi Power, a joint-venture of Tata Group and the Delhi government, has joined hands to help out AIDS patients and improve awareness in industrial areas of Naraina. Badri Naryan, NDPL says, “The migrant population in the 1,500 industries is here, living away from their families for over eight months every year and hence AIDS awareness is very important”.

And the attempts to pay back the communities who sustain your businesses are proving to be an effective HR measure too. Hewlett Packard' subsidiary, Agilent, boasts of an attrition level of about 8 compared to over 30 seen by competitors and attributes it to their employees satisfaction level achieved from social causes. Venkatesh Valluri, Managing Director, Agilent India assets: “People really feel good about it. It's easy for people to donate money and clothes, but actually working for society shows how we can make a difference. It might sound tough initially but soon be-comes more like a habit and slowly takes the shape of a movement”.

For others like HSS, adopting villages, helping physically and mentally challenged kids comes as naturally as forming a cricket club. The company has created an NGO called Jagriti within the company. Social responsibility is among corporates' top priorities today. “Being socially responsible is a part of being successful, being a great company and being a respected company,” sums up Scot Bayman.

A large number of Indian companies discharge their social responsibilities quite satisfactorily. There are many companies which have excelled in such activities but when seen in the light of the country's vast needs, the achievements fall short of requirements. The money spent for social causes by companies is generally an significant proportion of their turnover.

Here are a few illustrations of the different social responsibility functions that Indian companies typically perform.

  • AMM Foundation of Murugappa group provides assistance to communities in education, health care and research in rural development.
  • Asian Paints funded a large-scale community development project to enable farmers to use local resources effectively.
  • AV Birla Group is involved in social and economic development of communities.
  • BHEL has contributed to the development of quality of life in rural areas, health care and family welfare, adult education, etc.
  • Britannia Industries promote sports especially, tennis.
  • Brooke Bond has been interested in animal welfare, providing veterinary services, and improvements in animal breeding.
  • Colgate Palmolive did pioneering work in the promotion of sports, dental health, and small industry development.
  • Reddy's Labs promotes education, livelihood and community development.
  • Escorts Ltd has worked for farm mechanisation, agricultural development, health care, etc.
  • Godrej Group focuses on environment and conservation.
  • Gujarat Ambuja Cement has been helping communities around its facilities.
  • Hindustan Lever focuses on health, empowerment of women, and education of special children.
  • ICICI Bank's focus areas are elementary education, universal access to financial services, etc.
  • Infosys through its Infosys Foundation provide assistance to social development, art and culture, schools, libraries, for higher education and research.
  • ITC Ltd. is socially active in rural development especially in the areas of agriculture, culture, sports and pollution control.
  • MRF Tyre Industries promote sports activities, especially cricket.
  • Raymond focus area is combating malnutrition and rehabilitation of school children.
  • SAIL contributes to the sectors of agriculture, industry, education, health care, dairy, poultry, fisheries and drinking water supply.
  • Satyam Computers contributes to social welfare.
  • Tata Steel has been a pioneer in discharging social responsibility and has made several contributions in areas such as community development, social welfare, tribal area development, agriculture and related activities, rural industria-lisation, etc.
  • Thermaux has been focusing on education.
  • Titan Industries has been training women and physically challenged people in making ornaments. Several other Tata companies are training local communities in water harvesting, storage and recycling.
  • TVS group companies through their Srinivasan Services Trust is passionately involved in rural/tribal development, primary and technical education.
  • Wipro Technologies are passionately involved in spreading quality primary education through its Azim Premji Foundation.
THE FUTURE OF INDIAN CSR

There is a clear need to develop a more coherent discourse on CSR. It is often seen as a strategy to clean the sins of pollution, or to provide a facelift to company's public image. But it should be more of a tool to give a cleaner reputation and socially responsible identity to companies, involving them and their employees in the long-term process of positive social transition.

Most of the organizations in India have not instituted structured systems for approaching or deploying CSR. The organizations need to structure the CSR initiatives through articulation of policies and guidelines for CSR, allocation of resources, CSR performance evaluation and reporting followed by the institution of management systems.

Nearly 90 per cent of the corporates recognize that there is a paradigm shift occurring wherein investors of the future shall demand greater transparency in disclosure of both financial and non-financial information to better understand companies and most of the corporates are gearing up to respond to such requirements from investors as most (88 per cent) believe that they shall benefit from such transparency.

Corporates of tomorrow see themselves as entities that earn profits but through ethical practice, complying with regulatory requirements and with a specific substantial focus on protecting the environment and improvement of employee safety and health. Many corporates expect to listen more to the concerns of the stakeholders, provide equal opportunity, avoid child labour, pay taxes and create jobs.

Given the current perception of CSR and in view of the increasing expectation of the stakeholders on transparency, ethics and professional integrity, it becomes imperative that managers of tomorrow be ethical, team players and sensitive to the developments in the surroundings. Corporates predominantly continue to believe that CSR will be compliance centric. Several companies are transitioning from compliance to stakeholder engagement and attributes such as handling public, community work, etc. which have been accorded low importance are currently being given greater importance.

The vision of holistic stakeholder approach to CSR is now getting firmer. There is an all-round desire to be a good corporate citizen. However, transition from the present compliance-centric approach to the new paradigm requires creation of an enabling environment and an array of support measures. A suitable strategy based on the barriers and drivers for change need to be developed. This process will be facilitated by the business schools in the country teaching CSR as a part of the course curricula. Industry associations will also play a critical role in sharing experiences and rewarding best practices. Also, there is a need to incorporate into Indian CSR the public policies that are being developed globally. International agencies have a role to play in cross-country sharing experience.

Social responsibility is not an exclusive domain of the government and only “passive philanthropy” no longer constitutes CSR. Majority of the corporates in India perceive CSR as a mechanism to proactively approach and address the significant regulatory requirements. Accordingly, in pursuit of CSR, systems, policies/guidelines are delineated for concerns such as health, safety and environment.

SUMMARY
  • The concept of CSR has come to mean that the responsibility of a corporation to the society is an inalienable part of its operations and strategy. CSR is about how companies manage the business process to produce an overall positive impact on society. It is qualitatively different from the traditional concept of corporate philanthropy. It acknowledges the debt that the corporation owes to the community within which it operates.
  • Corporations, whether public or private, draw much from society. If a corporation draws so much from society it has to make its own contribution to society.
  • Social scientists have formulated several theories that justify the importance of corporations engaged in promoting social welfare of the society in which they operate. These theories are as follows: the trusteeship model that adopts a realistic and descriptive perspective in viewing the current governing situation of a publicly held corporation, as a social institution with a corporate personality. The social entity theory regards the company not as a private association united by individual property rights, but as a public association constituted through political and legal processes and as a social entity for pursuing collective goals with public objectives. The pluralistic model supports the idea of multiple interests of stakeholders, rather than shareholder interest alone. It argues that the corporation should serve and accommodate wider stakeholder interests to make the corporation more efficient and legitimate.
  • When CSR is adopted as a business strategy for sustainable development, it goes to improve corporate performance. It offers manifold benefits to corporations, both internally and externally. The scope of CSR is wide and could be considered in terms of different viewpoints. These include protecting and promoting all stakeholders interests such as those of employees, consumers, creditors, business associates, dealers, government and environment; social concern and promotion of common welfare programmes including those meant for the benefit of the poor and indigent public; taking up issues such as drug addiction, drinking and smoking, and helping NGOs fight against them; corporate philanthropy which manifests itself in some form of benevolent activity at times of natural calamities such as earthquakes, tsunami, etc.
KEY WORDS
conflicting perspectives environmental concerns Indian perspective
mandated actions operating costs philanthropic responsibilities
pluralistic model risk management social entity theory
statist model sustainability of business trusteeship model
DISCUSSION QUESTIONS

 

  1. Discuss the conflicting perspectives relating to corporate social responsibility that exist among economists. In this context, explain the viewpoints of Adam Smith and Milton Friedman, on one hand, and Paul Samuelson and Galbraith on the other.
  2. Why should public limited companies engage themselves in corporate social responsibility, when their one and only objective is to earn profits for their stockholders? Give reasons for and against the argument and also substantiate them.
  3. To what extent Indian corporations zealously espouse the cause of CSR in their activities? Give illustrations. Will it be correct and appropriate to say that whatever has been done in this direction is good, but a lot more needs to be done in the context of the grinding poverty we have in India?
  4. Discuss in detail CSR as a business strategy for sustainable development drawing examples, as far as possible, from the Indian situation.
SUGGESTED READINGS

Bhattacharya, C. B., Sankar Sen and Daniel Korschun. “Using Corporate Social Responsibility to Win the War for Talent”. MIT Sloan Management Review 49(2) (2008), 37–44; “The Good Company”. The Economist, 20 January 2005, http://www.economist.com/surveys/displayStory.cfm?Story_id=3555212.

Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press, 1962.

Friedman, Milton. “The Social Responsibility of Business is to Increase Its Profits”, New York Times Magazine, 13 September 1970.

Mittal, K. M. Social Responsibilities of Business—Concepts, Areas and Progress. Delhi, India: Chanakya Publications, 1988.

Singh, Shalini. “India Inc. Shuns Mana Mask, Wears Human Face”, Economic Times, 5 July, 2001, p. 1.

Smith, Adam. An Enquiry into the Nature and Causes of Wealth of Nations. New York N.Y.: Random House/Modern Library, 1985.

Williams, Cynthia A. and Ruth V. Aguilera. “Corporate Social Responsibility in a Comparative Perspective”, in Crane, A. et al. (PDF), The Oxford Handbook of Corporate Social Responsibility. Oxford: Oxford University Press, 2008.

Wood, D. “Corporate Social Performance Revisited”. The Academy of Management Review 16(4)(Oct., 1991), http://www.jstor.org/stable/258977.