Corporate Social Responsibility

Nitin Chhatwani1
Sehaj Sofat2

Corporate Social Responsibility (CSR) is a concept that has been around for over 50 years. The
shift in focus on CSR now has changed the attitude of businesses all over the world. The
definition of CSR is difficult to narrow down as different authors, researchers and organizations
have diverse views about it. World Business Council for Sustainable Development defines CSR
as “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.”

Within the literature, there exists three discernible ‘schools’ of thought and practices of corporate
social responsibility. These schools are neoliberal, neo-Keynesian, and radical political economy
approaches. Neoliberal views CSR as a set of voluntary policies, codes or guidelines, initiated by
the corporation whereas Neo-Keynesian recognizes the role of external factors as major player in
the definition of CSR. Radical political economy approach has a more distinct view from other
two schools as it argues CSR to be a concept that lacks critical political economy analysis and
therefore, fails to understand and incorporate a realistic view about the power structure that exist
in society and its economic environment.

The concept of CSR is not new to India as in its oldest forms its reflection can be inferred from
corporate philanthropy and the Gandhian Trusteeship model. After the beginning of
liberalization in 1990s Indian Economy shifted from Philanthropy based model to a multi
stakeholder approach, thereby making companies accountable to all stakeholders. Section 135 of
the Companies Act, 2013 talks about CSR and its application in India.

In conclusion the article will draw a comparative analysis between development and emergence
of CSR in Third world countries like India and other first world countries.

1
4th year, School of Law, UPES, Dehradun. M : 8947973687.
2
4th year, School of Law, UPES, Dehradun. M: 7088712854.
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HISTORICAL BACKGROUND

The current wave of interest in corporate social responsibility (CSR) dates from the early 1990s.
It is only a new manifestation of a longstanding debate over the relationship between business
and society. Since the late nineteenth century, this debate has continued, through periods where
power of corporations was ascendant and the period where society started attempts to regulate
growth of corporate power. Corporations attempted to re-establish their legitimacy over public
criticism by adopting the strategy of Corporate Social Responsibility.

In the late nineteenth century, Anti-trust movement in US emerged because of large corporations
and the era of the robber barons. Corporations in response to this movement emphasized on
corporate responsibility and philanthropy to prove that government regulations were
unnecessary. Furthermore, in the 1930s the Great Depression produced a second wave of
regulation and led to Roosevelt’s New Deal in the US. Parallelly, in UK nationalization and
regulation by the postwar Labor government took place.

In the postwar era during late 1960s and 1970s a new wave of concern about growing social and
environmental impact of transnational corporations (TNCs) led to a third period of increased
efforts to regulate corporate activities. More generally US corporations started exploiting the
economies of developing countries throughout the world. This made the regulation of corporate
activity as an international issue which forced UN to establish codes of conduct for the activity.
This attempt of UN was resisted by various corporations and governments who suggested self-
regulation as an alternative. Several other multilateral agreements also emerged in the 1970s
sponsored by the ILO, the UN, the OECD and other international organizations.

During the 1990s, criticism of corporate practices escalated. A series of corporate scandals in
US, several environmental disasters caused by global corporations, awareness regarding the use
of sweatshops and child labor in developing countries attracted the attention of community
activists in developed societies, etc. led to a mass protest against engagement with corporations.
The demand for greater social responsibility came from a wide range of sources including
international trade unions, development NGOs, human rights organizations and environmental
groups. Corporations were again forced to respond to bad publicity surrounding their activities
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and led to the emergence of Corporate social responsibility as a direct response to these
pressures.

SCHOOLS OF THOUGHT

In literature there exists three discernible ‘schools’ of thought and practice about corporate social
responsibility. These schools may be characterized as the neoliberal, neo-Keynesian, and radical
political economy approaches.

1. Neo Keynesian
Neo-Keynesian approaches tend to utilize a wider definition of Corporate Social
Responsibility that clearly recognizes the active role of the corporation’s stakeholders
and the state. However, CSR is generally defined as an approach adopted voluntarily by
corporations without external regulation by either stakeholders or the state. For example,
the European Union’s (EU) Green Paper Promoting a European framework for Corporate
Social Responsibility describes corporate social responsibility as a concept in which
companies integrate social and environmental concerns in their business operations along
with the interactions with their stakeholders on a voluntary basis.
Neo-Keynesian discourse around CSR differs from the neoliberal perspective in various
ways. Firstly, there is a recognition that corporate behavior can at times have negative
impacts through market failure, corporate lack of awareness or deliberate strategy.
Secondly, Neo Keynesian analyses on different reasons for the development of CSR
strategies which includes avoiding problems caused by unregulated corporate behaviors
thereby ensuring environmental and social sustainability. Lastly, Neo-Keynesian is more
inclined towards the idea of a positive role of the state in the development and regulation
of CSR and its practices.
2. Neo Liberal
Neoliberals defines Corporate Social Responsibility as the adoption of a set of voluntary
policies, codes or guidelines, initiated and driven by the corporation. For example, the
Australian Treasury defined CSR as a company’s management of the economic, social
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and environmental impacts of its activities. The basic assumption of neoliberals is that
CSR is a minor component of corporate strategy.
Much of the discourse on CSR in business and management publications shares this
assumption.
3. Radical Political Economy
Radical political economy discourse has more critical stance around CSR on various
issues. All ‘schools’ of thought in the CSR debates have normative views about the role
of business and corporations in the society. However, radical political economy analyses
a very different set of assumptions regarding the existence and abuse of corporate power
in global, national and local economies. Generally, Global corporations possess
enormous power which is often exerted ruthlessly in their own self-interest on the cost of
society and the environment. It is a perception that the promoters of voluntary CSR lack
critical political analysis and therefore fail to understand and incorporate a realistic view
of the power structures that exist in society and its economic environment. Hence, the
policies and practices developed to practice CSR are alleged as naive, ineffectual and
inadequate.

In India, the concept of Corporate Social Responsibility dates to the Mauryan history where
philosophers like Kautilya emphasized on the need of ethics and morality to practice business.
However, the term is new to India, but the concept exists from centuries in different forms. CSR
was practiced informally in ancient times in the form of charity to the poor and disadvantaged.
India has the concept of caring and loving deep routed in its culture as mentioned in its
scriptures. Religion played a major role in developing the concept of CSR. Islam promoted this
idea through one of its law called “Zakkat” which states that one must donate a portion of his
salary to the poor or needy. Hindu merchants promoted this idea by creating night shelters, etc.
for poor class from the portion of their incomes. Manufacturers and sellers used to charge a
certain amount from the purchaser as charity following the principle of “Dharmada”. Sikhs
followed the same concept called “Daashant”.

The history of CSR in India is divided into four phrases depending upon the community
engagement, socially responsible production and employee relations. The first phase of CSR is
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marked by noble deeds of philanthropists and charity. This phase was influenced by religion,
family values, traditions and culture along with industrialization. The wealthy businessman used
to share their income for the upliftment of the society by setting up temples and other religious
institutions. After 1850, the change in approach towards CSR was marked with the arrival of
colonial rule in India. Pre-independence, industrialists like Birla, Tata, Modi, etc. promoted this
concept by setting up educational institutions, healthcare institutions, etc. for the welfare of the
society.

India’s independence struggle marks the second phase of CSR where industrialists were
pressurized to work for the benefit of the society through the concept of Trusteeship. Trusteeship
helped in the socio-economic growth of the underprivileged sections of the Indian society. These
trusts were also formed to enhance the social reforms like women empowerment, rural
development, etc.

1960-1980 marks the third phase of CSR development in India. Public sector undertakings were
set up to ensure the proper distribution of wealth in the society. During this period corporate
malpractices in private sector was at its hike and therefore, there was a need for legislation
regarding corporate governance and environmental and labor issues. Public sector undertakings
were not successful and therefore, there was a shift from public sector to private sector and their
involvement in the socio-economic development of the society. In 1965, a national workshop
was organized on CSR laying down the concept of social accountability and transparency.

In the fourth phase, CSR was integrated into the concept of sustainable business strategy.
Globalization and economic liberalization in 1990s motivated companies to contribute more
towards social responsibility. This led to the boom in the economic growth of the country. The
concept of charity in ancient time became the responsibility in the modern India.

In present India, Companies Act, 2013 governs the matters related to companies throughout the
country. The Companies Act of 1956 was amended in December 2012 by mandating companies
to spend 2% of their average profits of last three financial years towards CSR. The act was
amended keeping in mind the agenda of Corporate social responsibility in the current socio-
economic scenario of the country.
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The Companies Act, 2013 introduced mandatory CSR provisions for the first time which may be
classified into two. First, Provisions of CSR universally applicable to all companies. Second,
provisions of CSR applicable to specified companies. Section 135 of the Companies Act, 2013
states that every company must constitute a specified net worth or turnover or net profit of any
financial year to the Corporate Social Responsibility Committee of the Board. The Committee of
the board must formulate policy including the activities specified in Schedule VII of the 2013
Act. According to the Section 135 of the Act board need to disclose all the content of the policy
mandating the CSR obligation applicable to all companies. No such provisions were mentioned
in the previous Act of 1956. CSR obligations are applicable to all companies covered by section
135(1) irrespective of their listing status and whether they are public or private. Rule 5 of the
CSR rules deal with setting up of CSR committee for unlisted private and public companies.

The Companies Act, 2013 keep pace with the concept of “Socialism” as mentioned in the
preamble of the Constitution of India. The application of CSR has covered the ambit of socialism
by enforcing law which requires companies to spend a part of their profit for the welfare of the
society. There are some specific activities like eradicating hunger, poverty, malnutrition,
promotion of healthcare and sanitation, safe drinking water, etc. which are made part of the
business responsibility along with other professional responsibilities. Such laws have made
India, the first country to enforce and practice CSR keeping in the mind the idea of Socialism
thereby, introducing a parallel term for the CSR i.e. Corporate Socialist Responsibility.

Currently, the attitude of CSR in India is led in a positive direction as there are multiple enabling
organizations and regulatory bodies like DPE (Department of Education), MCA (Ministry of
Corporate Affairs), and IICA (Indian Institute of Corporate Affairs), etc. that have already set the
wheels in motion and are playing an important role in making CSR a widespread practice
thereby ensuring success in reducing inequalities within society without risking business growth.

Laws and codes in India and UK are heavily influenced from the local customs and tradition.
There have been many reforms introduced in the field of corporate governance in both the
countries. UK laws are slow in moving and revising the company law legislation as they learn
from the experience of other countries in the particular area.. On the other hand, India has made
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many rapid changes in corporate scenario by introducing new act through amendments i.e.
Indian Companies Act 2013.

Corporate Social Responsibility is a managerial concept where companies integrate social and
environmental concerns while carrying out their business operations and interactions with the
stakeholders. In UK, legislation has introduced some important new concepts in the Companies
Act which aims at simplifying company law by focusing on the small firms which is the majority
among all type of firms.

To the contrary, the concept of CSR is governed by clause 135 of the Indian Companies Act,
2013. The provisions with respect to CSR in the Act is applicable to companies with annual
turnover of Rs. Thousand crore and more, or a net worth of Rs. Five hundred crore and more, or
a net profit of Rs. Five crore and more. The new rules as per 2013 Act also require companies to
form a CSR committee consisting of their board members. This committee must include at least
one independent director thereby, encouraging companies to spend at least 2% of their average
net profit of previous three years on CSR activities. The new Act requires that the board of the
company to consider the recommendations made by the CSR committee and approving the CSR
policy for the company. It also requires the disclosure of the contents of the policy in their report
and the same should be published on the company's official website, if any, in a manner as may
be prescribed. If the company fails to do so than it must specify the reasons for the same in their
report. Unlike the UK’s Company law the publication of such report is not mandatory in India
but is voluntary.

CONCLUSION

The debate between the Neo-Keynesian and the Neo-Liberals on CSR being a cost benefit is still
controversial. However, In India the role of CSR has been in favor of bottom line as it has
proved to be an effective management tool with multi-dimensional benefits. Also, it has been
confirmed by ISO certification that CSR offers a new way to investigate the relationship between
business and society which does not consider corporate growth and social welfare as a zero-sum
game. Another dispute among the various schools of thoughts on CSR being contrary to the
responsibilities of Directors has been resolved to an extent in India by introducing Section 135 in
the Companies Act, 2013. The act ensures that there need to be a Corporate Social Responsibility
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Committee of Board to regulate policies with regards to CSR. Despite of various controversial
debates about effect of CSR on Stakeholder theory, it being a social responsibility or
accountability, etc., there is still a consensus among all the commentators on CSR being an
effective tool for business and social growth in the coming time. This aim of it being an effective
tool can be achieved by grounding CSR in the values, purpose and strategy of the business and
treating it in entrepreneurial fashion.