Unit II: Fundamental of Corporate Social Responsibility

Concept
Corporate Social Responsibility (CSR) is the way a company’s achieves a social balance among its
economic, social and environmental responsibilities in its operation so as to address shareholder and
other stakeholder expectation.
Organization are established, exist and perform function in the society.
They utilize natural resources. It is the responsibility of the business organization to perform their
activities within the existing rules, regulations and norms of the society. Business has certain obligations
along with the fulfillment of economic interest. Social responsible business maximizes the positive
effects on society while minimize the negative effects.
“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 social at large.”
The World Business Council for Sustainable Development

Basic Constitution of CSR

Contribute
towards the Make Improvement Towards
sustainable desirable of social Business and
economic social change environment Society
development

Basic element of CSR

There are basically three elements of social responsibility.
1. Actions in response to market: Market force have always been dominating corporate activities
and the trend will continue in future too. When business respond to market, it is being social
responsible
2. Mandated (compulsory) social program: The second element includes mandated social
program. These programs are required by government, such as EEO, benefit program in wage
agreement.
3. Voluntary social programs: These are third element in social responsibility. These include,
healthcare, sanitation, rural development etc.
Benefits of CSR to Business and Society

Enhanced
Maintaining relation Increase in
happy with Customer
workforce stakeholder retention
s
Media
Access Winning
interest and
Funding new
good opportunities Business
reputations
Profit, Saving
Differenciating Enhance your
money and
yourself with influence in the
operative
competitors industry
cost

Argument of CSR
1. Public Expectation
2. Long-run profit
3. Ethical obligation
4. Better environment
5. Discouragement for further govt. regulations and intervention.
6. Balance of responsibility and power
7. Public image
8. Stakeholder interests
9. Possession of resources.
10. Superiority of prevention over cure.
11. Solving the social problem created by them.
12. Organization have resources to solve problems.
13. It is required for economic survival.
Argument against of CSR
1. Violation of profit maximization
2. Dilution of purpose (economic purpose)
3. Too much power
4. Lack of skills
5. Lack of accountability
6. Cost
7. Lack of broad public purpose
8. Competitive disadvantage
9. Domination by business
10. Legitimacy
11. Competency
Historical evolution of CSR (origin of CSR)

 In the late nineteenth century, with the emergence of the labor movement and spreading of
slums brought by the industrial revolution, business started to provide social welfare in a limited
scale, including a construction of hospital, bath houses and provision of food coupons.
 The Great Depression in 1929 further strengthened this trend with the introduction of public
trusteeship management (in addition to traditional profit maximizing management).
 The concept of CSR emerged in the 1950s. Bowen defined the CSR as the obligation of
businessman to make their decision which are desirable in term of values of society.
 Especially the 1960s and 1970s were distinguished by the rapid growth of social movements
advocating labor right, consumer protection and environmental preservation.
 At the end of the 1970s, perhaps most earliest and comprehensive framework of CSR was
proposed by Carroll (1979). He constructed three dimensional CSR.
 Responsibilities(economic, legal, ethical, and philanthropic)
 Social Issues
 Corporate action
 Since entering into the twenty-first century, more focus has been given to the implementation
of CSR.

Timeline of corporate responsibility

1. First Corporation Responsibility Texts (1920-1930)

2. New Deal and Welfare State (1925-1940)
3. Nationalism (1935-1950)
4. Return of Business and Society Debate (1950-1960)
5. Shifts of Business and Society Debate (1960-1970):
6. Introduction of Stakeholder (1970-1980):
7. Corporate Responsibility as Management Practices (1970-1980):
8. Environment Management (1980-1990)
9. Corporate Social Performance (1980-1990)
10. Stakeholder Partnership (1985-2000)
11. Business and Poverty (1990-2000)
12. Sustainability (1990-2000)
Historical evolution of CSR Nepal (origin of CSR)
1. 1950 (Focus on business Responsibility)
2. 1960 (Use of people ideas for Social Change)
3. 1970 (Traditional CSR issues)
4. 1980 (CSR becomes Nationally approved)
5. 2000 onward (CSR becomes Strategic Issues)
 Driver of CSR

1. External Driver
i. Globalization
ii. Environment
iii. International initiation
iv. Political
v. NGO
vi. Media
vii. Investment Company
2. Internal Driver
i. Risk Management
ii. Revenue and Management
iii. Employees
iv. Customer’s Competitive advantage
3. Global Driver
i. NGO Activism
ii. Responsible Investment
iii. Government Initiative
4. Driver for Developing Countries
i. Foreign Customer
ii. Domestic Customer
iii. FDI (Foreign Direct Investment)
Driving forces of CSR in Nepal
1. Growing affluence (prosperity): Affluence matters and leads to changing social expectation.
Firm operating in affluent societies, therefore face a higher burden to demonstrate they are
socially responsible. As a result, increasing affluence will continue to push the CSR.
2. Ecology sustainability: Due to the excessive use of natural resources, climate change is
threatening the Nepal. Thus, social expectation is enhanced by a growing concern for the
ecology sustainability.
3. Globalization: We live in an increasingly integrated world economy, characterized by the
continuous movement of the goods, service, and capital across the national borders. Product
and service we buy in Nepal may have come from India, United States or China. Thus
globalization has increased the potential to be exposed to a global audience if a firm’s action
fail to meet the need and expectation of the local community.
4. The free flow of information: The growing influence of global media make sure that any CSR
lapses by the companies are brought rapidly to the attention of the worldwide public.
5. Brands: Brands today are often the focal point of corporate success and should be protected by
integrating a strategic CSR perspective.
Theories of CSR
There are two contradicting and contrasting theories of CSR.
1. Shareholder Value theory (Milton Friedman)
2. Stakeholder Theory (R. Edward Freeman 1984)

Shareholder Value Theory (Milton Friedman)

Shareholder are the investor of the organization the success of an organization depends on satisfied
shareholder. It is the responsibility of an organization to value the shareholder. If shareholder is not
properly valued then they may create obstacle in the organization. Shareholder should get good
financial return. This approach views shareholders as the economic engine of the organization and the
only group to which the firm must be socially responsible. The goal of the firm is the maximization of
financial return for shareholders as a reward for the risk they took in investing in the firm.
Friedman statement reflects three fundamental supports to the
shareholder value theory.
1. Human, social and environmental costs of doing business should be internalized only to the
extent required by law.
2. People and organization should and will act rationally in their own self-interest to maximize
efficiency and value for society.
3. The firm is fundamentally a connector of contract with primacy going to those contracts that
have the greatest impact on the profitability of the firm.

Stakeholders Theory (R. Edward Freeman 1984)

This theory suggests the purpose of the firm is to serve broader societal interest beyond economic value
creation for shareholder alone. This theory expresses the idea that business organization are
dependent upon stakeholder for success and stakeholders have some stake in the organization. This
concept explain that,
 Business organization are dependent upon stakeholders for success and stakeholders have some
stake in the organization
 Managers have a moral obligation to consider and appropriately balance the interests of the all
stakeholders.

Corporate Citizenship (CC)

(Here corporate mean individual or organization and citizen is a part of a country which have certain
right to enjoy and some responsibility that need to be discharged like tax payment)
Corporate Citizenship means that the companies have certain responsibilities that they have to fulfill in
order to be perceived as good Corporate Citizenship. Corporate Citizenship includes a commitment to
ethical business behavior and balancing the needs of stakeholder while working to protect the
environment. This concept explains that just as private citizens are expected to fulfill these
responsibilities, companies are also expected to fulfil some responsibilities like payment of tax.

Business citizen is a business enterprise that responsibly exercises its rights and implements its duties to
individuals, stakeholders and societies.
Benefits of CC
1. Improved employees relations
2. Improved customer relationship
3. Improved business performance
4. Enhanced company’s marketing efforts

Corporate Social performance (CSP)

It is the integration of different concern of CSR into a model of corporate social performance. The
performance focus is intended to suggest that what really matters is what companies are able to
accomplish-the result or outcomes of their acceptance of social responsibility and adoption of a
responsive philosophy.
Prominent areas of Corporate Responsibility today
1. Business ethics
2. Human rights
3. Legal compliance
4. Corruption
5. Workers’ rights and welfare
6. Community investment
7. Market relations
8. Environmental mgmt.
9. Sustainability
10. Corporate grievances
11. Animal rights

The Pyramid of Corporate Social Responsibility

Discretionary
Responsibility
to be a good
corporate citizen

Ethical Responsibility
Do what is right and fair

Legal Responsibility
Obey the law

Economic Responsibility
Be profitability