Corporate Social Responsibility

INTRODUCTION

Your business doesn't exist in isolation, simply as a way of making money. Your employees depend on your business. Customers, suppliers and the local community are all affected by you and what you do. Your products, and the way you make them, have an impact on the environment.Corporate social responsibility (CSR) takes all this into account and can help you create and maintain effective relationships with your stakeholders. It isn't about being "right on", or mounting an expensive publicity exercise. It means taking a responsible attitude, going beyond the minimum legal requirements and following straightforward principles that apply whatever the size of your business. This guide explains how you can exploit the benefits that CSR can bring to your bottom line.

Definition

CSR:

     ‘Corporate ,Social,’ and ‘Responsibility.’ In broad terms, CSR relates to responsibilities corporations have towards society within which they are based and operate, not denying the fact that the purview of CSR goes much beyond this. CSR is comprehended differently by different people.

Philip Kotler and Nancy Lee (2005):

          “A commitment to improve community well being through discretionary business practices and contributions of corporate resources”

 MallenBaker:
           “A way companies manage the business processes to produce an overall positive impact on society.”

World Business Council for Sustainable Development

  “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”.

HISTORY

The concept of CSR in India is not new, the term may be. The process though acclaimed recently, has been followed since  ancient times albeit informally. Philosophers like Kautilya from India and pre-Christian era philosophers in the West preached and promoted ethical principles while doing business. The concept of helping the poor and disadvantaged was cited in much of the ancient literature. The idea was also supported by several religions where it has been intertwined with religious laws. “Zakaat”, followed by Muslims, is donation from one’s earnings which is specifically given to the poor and disadvantaged. Similarly Hindus follow the principle of “Dhramada” and Sikhs the “Daashaant”. In the global context, the recent history goes back to the seventeenth century when in 1790s, England witnessed the first large scale consumer boycott over the issue of slave harvested sugar which finally forced importer to have free-labor sourcing.In India, in the pre independence era, the businesses which pioneered industrialization along with fighting for independence also followed the idea. They put the idea into action by setting uncharitable foundations, educational and healthcare institutions, and trusts for community development. The donations either monetary or otherwise were sporadic activities of charity or philanthropy that were taken out of personal savings which neither belonged to the shareholders nor did it constitute an integral part of business. The term CSR itself came in to common use in the early 1970s although it was seldom abbreviated. By late 1990s, the concept was fully recognized; people and institutions across all sections of society started supporting it. This can be corroborated by the fact that while in 1977 less than half of the Fortune 500 firms even mentioned CSR in their annual reports, by the end of 1990, approximately 90 percent Fortune 500 firms embraced CSR as an essential element in their organisational goals, and actively promoted their CSR activities in annual reports (Boli and Hartsuiker,2001).

BACKGROUND OF CSR

The role of corporate by and large has been understood in terms of a commercial business paradigm of thinking that focuses purely on economic parameters of success. As corporates have been regarded as institutions that cater to the market demand by providing products and services, and have the onus for creating wealth and jobs, their market position has traditionally been a function of financial performance and profitability. However, over the past few years, as a consequence of rising globalisation and pressing ecological issues, the perception

of the role of corporates in the broader societal context within which it operates, has been altered. Stakeholders (employees, community, suppliers and shareholders) today are redefining the role of corporates taking into account the corporates’ broader responsibility towards society and environment, beyond economic performance, and are evaluating whether they are conducting their role in an ethical and socially responsible manner. As a result of this shift (from purely economic to ‘economic with an added social dimension’), many forums, institutions and corporates are endorsing the term Corporate Social Responsibility (CSR). They use the term to define organisation’s commitment to the society and the environment within which it operates. The World Business Council on Sustainable Development’s

(WBCSD) report was titled Corporate Social Responsibility:

Making Good Business Sense and the OECD Guidelines for 1 Multi-National Enterprises which includes a discussion on how CSR is emerging as a global business standard. Further, there is a global effort towards reinforcing CSR programmes and initiatives through local and international schemes that try to identify best-in-class performers.

Arguments for socially-responsible behaviour

·         It is the ethical thing to do

·         It improves the firm’ public image

·         It is necessary in order to avoid excessive regulation

·         Socially responsible actions can be profitable

·         Improved social environment will be beneficial to the firm

·         It will be attractive to some investors

·         It can increase employee motivation

·         It helps to corrects social problems caused by business

CSR behaviour can benefit the firm in several ways

·         It aids the attraction and retention of staff

·         It attracts green and ethical investment

·         It attracts ethically conscious customers

·         It can lead to a reduction in costs through re-cycling

·         It differentiates the firm from its competitor and can be a source of competitive  advantage

·         It can lead to increased profitability in the long run .

      Corporate Social Responsibility (CSR): is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.With businesses focusing on generating profits, sustainability was not a popular concern among companies up until recently. Now, in an era of globalization, multinational corporations and local businesses are no longer able to conduct destructive and unethical practices, such as polluting the environment, without attracting negative feedback from the general public. With increased media attention, pressure from non-governmental organizations, and rapid global information sharing, there is a surging demand from civil society, consumers, governments, and others for corporations to conduct sustainable business practices. In addition, in order to attract and retain employees and customers, companies are beginning to realize the importance of being ethical while running their daily operations. The corporate response has often meant an adoption of 'a new consciousness', and this has been known as Corporate Social Responsibility since the 1970’s. As stated by the department of Trade and Industry in the United Kingdom, CSR represents "the integrity with which a company governs itself, fulfills its mission, lives by its values, engages with its stakeholders, measures its impact and reports on its activities". Although most people appreciate the recent advancement of CSR, some argue that corporations are still not doing enough or are only acting in self interest. These people say that multinational corporations are acting ethically in areas that are highly regulated, such as North America, but at the same time, they are acting in an opposite manner in other parts of the world (such as using cheap or 

child labor). In addition, while corporations must have good CSR policies in order to maintain their reputation, they are also expected to maximize profits for stakeholders such as shareholders, employees, and customers. Therefore, people argue that businesses do not put in a sufficient amount of resources to achieve what they have promised in their CSR policies.
In any case, companies are now expected to perform well in non-financial areas such as human rights, business ethics, environmental policies, corporate contributions, community development, corporate governance, and workplace issues. Some examples of CSR are safe working conditions for employees, environmental stewardship, and contributions to community groups and charities. The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; still others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.

What is CSR or Corporate Social Responsibility?

CSR was a buzzword created in the early 1970's although it was seldom abbreviated back then. Corporate social responsibility (CSR, also called corporate citizenship, corporate responsibility, responsible business and sometimes corporate social opportunity) is a concept whereby a business organisation considers the wider social and environmental effects that it has as a trading entity outside of its direct trading environment. For example, a mining company destroys the natural landscape when mining so part of its social responsibility to the community where they are mining could be to invest in reforestation projects.

Advantages of corporate social responsibility

   Japanese companies often have 100 year business plans. If you are planning to be around in business for the long-run then making sure ALL your stakeholders are looked after is wise. If you mess the environment up people notice. If you mess people around people remember. If you mistreat people they never forget. And yet when you care for the environment you are awarded. When you care for people you are awarded. You are rarely forgotten when you genuinely care. A business enterprise is no different to a human - people will have feelings about it and that impacts business positively or negatively.

  Ø  Many companies say they care and yet they may not take the actions of caring. Going beyond what is expected becomes exemplar and noted. An enterprise' actions are notes the most by its employees and staff. The business team that runs an organization knows what is going on. They know all the high and low points of a company. These exact same people interact each and every day with the businesses customers. How they feel about the company they work for impacts the bottom line of a company directly. A sales person who loves his work and the company will sell more. The receptionist who cares for her company will care for its customers making them feel better and of course they are then more likely to return.

  Ø  Many businesses make a loss the very first time a customer shops with them. This is an amazing little known fact outside of the business world. It may cost thousands of dollars for some companies to gain new customers because of long lead times or expensive advertising campaigns. If they only sell to a customer once then they don't ever recover their investment in acquiring that new customer or make a profit. Customers these days are spoilt for choice. Many customers choose a business on how they feel about the company of the people in the company. Most purchasing decisions are subjective. Adding subjective and hard to measure components to a business such as solid CSR programmes add to the perceived value added benefit a customer received when they shop with the company  .

    2008's Good purpose™ global study of consumer thinking showed that almost seven out of 10 (68%) consumers say they would remain loyal to a brand during an economic downturn if it supports a good cause. Surprising. And logic-defying!

  Ø  That same very recent study highlighted some other interesting things too. Like this: half (52%) of global consumers are more likely to tell others about a brand that supports a good cause over one that does not, with 54% saying they would help a brand promote a product if there was a good cause behind it. And going even further…Around the world, consumers have voiced a strong desire for business marketers to link their brands to social action. Forty-two percent say that if two products are identical in price and quality then the one that has the commitment to a social purpose trumps key factors like design, innovation and brand loyalty when selecting one brand over the other. Stunning isn't it?

      The citizen brand emerges. And this comment from this key report just says it all: It means that putting meaning into marketing is more important than ever. One of the Ø  reporters puts it this way: "These findings present brands with an opportunity to engage in 'mutual social responsibility'-brands and consumers working together to effect positive social change for mutual benefit -and to realize a 'return on involvement,' a new metric that looks at participation and involvement as true builders of brand loyalty. When a brand acts as a 'citizen brand,' contributing to community and society beyond its functional benefits, 'doing good' can translate to 'doing well' and the brand can forge a stronger emotional bond with its consumers.

    The rationale for Corporate Social Responsibility in India

     Gandhiji was a person who in several respects was ahead of his time. His view of the ownership of capital was one of trusteeship, motivated by the belief that essentially society was providing capitalists with an opportunity to manage resources that should really be seen as a form of trusteeship on behalf of society in general. Today, we are perhaps coming round full circle in emphasizing this concept through an articulation of the principle of social responsibility of business and industry. While the interests of shareholders and the actions of managers of any business enterprise have to be governed by the laws of economics, requiring an adequate financial return on investments made, in reality the operations of an enterprise need to be driven by a much larger set of objectives that are today being defined under the term Corporate SocialResponsibility (CSR).

The broad rationale for a new set of ethics for corporate decision making, which clearly constructs and upholds a company's social responsibility, arises from the fact that a business enterprise derives several benefits from society, which must, therefore, require the enterprise to provide returns to society as well. Of course, the system of taxation in most countries does ensure that basic services provided by government such as a system of law and order, provision of infrastructure that includes assets such as roads, transportation facilities, the benefits received from the apparatus of society for respecting and enforcing property rights, etc. are paid for through taxation on economic goods and services produced and consumed. But there are other aspects of services provided by society that have now become even more important than traditional relationship between government and business. These go far beyond what was the case a few decades ago.

Why should companies whose major objective has been to maximize profits for the benefit of their shareholders worry at all about serving the interest of society at large? The answer is simple and yet somewhat circular in nature. A business cannot succeed in a society which fails. This, therefore, clearly establishes the stake of a business organization in the good health and well being of a society of which it is a part. More importantly, in this age of widespread communication and growing emphasis on transparency, customers of any product or service are unlikely to feel satisfied in buying from a company that is seen to violate the expectations of ethical and socially responsible behaviour. We find, therefore, that to a growing degree companies that pay genuine attention to the principles of socially responsible behaviour are also favoured by the public and preferred for their goods and services.

     

    GLOBALIZATION AND CORPORATE SOCIAL RESPONSIBILITY

     Globalization andCorporate Social Responsibility – Anything New?  

      The social responsibilities of business in a market society have been discussed for decades, long before globalization became a catchword (see, e.g., Baumhart 1961; Bowen 1953; Donham 1927). The capitalist system, i.e., voluntary exchange on free and open markets, is widely considered the best societal coordination measure to contribute to individual freedom and the wellbeing of society (Friedman 1962, Hayek 1996). Though the functions of the state system have always been a matter of debate (see, e.g., Block 1994), it is generally acknowledged that in capitalist societies it is the task of the state to establish the preconditions for the proper working of markets, i.e., to define legal rules such as property rights and contractual rights, to erect an enforcement body, to provide public goods, and to reduce or avoid the consequences of externalities. At the same time, private firms are entitled to own means of production and to run a business, i.e. to supply goods and services for a return in private profits, as it is the “invisible hand” of the market which directs the behavior of firm owners towards the common good. The state, it was assumed, is capable of setting the rules in such a way that the consequences of market exchange contribute to (or at least do not harm) the well-being of society.

Business firms have to obey the law – this has always been a precondition and has been accepted as a minimum social responsibility of businesses, even by the harshest critics of CSR (see, e.g., Friedman 1970; Levitt 1970). However, as the system of law and the enforcement apparatus of the state are incomplete there is a likely possibility of regulation gaps and implementation deficits which have to be filled and balanced by diligent managers with pro social behavior and an aspiration to the common good (e.g., Stone 1975). In as much as the state apparatus does not work perfectly there is a demand for social responsibilities of business, i.e. corporations are asked to comply to the law when the enforcement body is weak and to even go beyond what is required by law, when the legal system is imperfect or legal rules incomplete.

With globalization, it seems, the negative consequences of businesses have intensified (see, e.g. Mokhiber and Weissman 1999, Korten 2001), as has the public call for corporate responsibility (Parker 1998). Several scholarly journals have dedicated special issues to the relationship between globalization and CSR (see, e.g., Business Ethics Quarterly 2004, 2006; Journal of Business Ethics 2005). Paradoxically, today, business firms are not just considered the “bad guys”, causing environmental disasters, financial scandals, and social ills. They are at the same time considered the solution of global regulation and public goods problems (e.g., Margolis and Walsh 2003; Matten and Crane 2005) as in many instances state agencies are completely overtaxed or unwilling to administer citizenship rights or contribute to the public good.

            The solution of globalization problems is not just a matter of degree of engagement in CSR, i.e. of more or less investment of business firms in CSR projects (McWilliams and Siegel 2001). Rather we suggest that with globalization a paradigm shift is necessary in the debate on CSR. Current discussions in CSR are based on the assumption that responsible firms operate within a more or less properly working political framework of rules and regulations which are defined by governmental authorities. The global framework of rules is fragile and incomplete. Therefore, business firms have an additional political responsibility to contribute to the development and proper working of global governance. 

     Conclusion:

Corporate Social Responsibility is not a fad or a passing trend, it is a business imperative that many Indian companies are either beginning to think about or are engaging with in one way or another. While some of these initiatives may be labeled as corporate citizenship by some organisations, there basic message and purpose is the same. A successfully implemented CSR strategy calls for aligning these initiatives with business objectives and corporate values thereby integrating corporate responsibility across the business functions and enhancing business reputation. The challenge for us is to apply fundamental business principles to make CSR sharper, smarter, and focused on what really matters.

      This can be done by:

         Focusing on priorities

•         Allocating finance for treating CSR as an investment from which returns are expected

•         Optimising available resources by ensuring that efforts are not duplicated and existing services are strengthened and supplemented

•         Monitoring activities and liaising closely with implementation partners such as NGOs to ensure that initiatives really deliver the desired outcomes

•         Reporting performance in an open and transparent way so that all can celebrate progress and identify areas for further action.

      A long term perspective by organisations, which encom-passes their commitment to both internal and external stakeholders will be critical to the success of CSR and the ability of companies to deliver on the goals of their CSR strategy. Wealth has to be created before it can be distributed. The responsibility to create wealth is of business. And responsibilities and rights must go together. Hence, the society cannot disarm business of its rights which are essential for creating value . Order Now