1

RESEARCH ARTICLE IN SOCIAL RESPONSIBILITY OF A

COMPNAY AND RESPONSIBILITY OF A COMPANY TO ITS
STAKEHOLDERS

Submitted in Partial fulfillment of the requirement for the Degree of

Bachelor of Laws
Submitted by
AKHIL BABU
LLB 3nd SEMENSTER

Under the Guidance of

Ms. SHIVANI RAJESH
CMR SCHOOL OF LEGAL STUDIES
2018

ACKNOWLEDGEMENT
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I would like to hereby thank School of Legal Studies, CMR University for providing me the
opportunity to work on this Research paper which by in itself was enriching experience. I
believe the learning experience it has given me, will be cherished forever and I am confident
the knowledge so gained has ingrained in me a greater thirst of making a mastery on the
subject. I would extend my sense of gratitude to all the faculty of School of Legal studies,
CMR University specifically to Shivani ma’am, who has been a constant support with her
valuable inputs and motivation required to be able to complete this project which has led to
opening of our eyes to new areas that we can explore our interests on.

Yours Sincerely,

Akhil Babu
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INDEX

SL.NO Particulars Page no

1 INTRODUCTION 4

2 STAKE HOLDERS OF COMPANY 4

3 RESPONSIBILITY TOWARS STAKE 5

HOLDERS

4 RESPONSIBILITY OF A COMPANY 6
TOWARDS ITS SOCITEY

5 CORPORATE SOCIAL RESPONSIBILITY

(CSR) 7

6 IMPORTANCE OF CSR
7

7 CONCENTRIC CIRCLE & CSR

8

8 CLASSIFICATION OF SOCIAL
RESPONSIBILITY 8

9 BENEFITS OF CSR
9

10 WHERE CAN A COMPANY CONTRIBUTE

FOR BETTERMENT OF SOCITEY 10

11
CONCLUSION 12

INTRODUCTION
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Company is an association of persons formed for the purpose of some business or

undertaking, which has a legal personality separate from that of its members. A company
may be formed by charter, by special Act of Parliament or by registration under the
Companies Acts. The liability of members is usually (but not always) limited by the charter,
Act of Parliament or memorandum of association. A company may be a public limited
company in which event its shares may be transferred freely among, and owned by,
members of the public. All limited liability companies that are not public limited companies
are private companies, denoted by the term Ltd. While companies are owned by their
members (i.e. shareholders), they are managed by a board of directors and the profits are
shared among their which is called as dividend.1
Companies are formed for the a purpose which can not be done by a
person alone or by a partnership firm. So companies always have duties and responsibilities
to its stakeholders to a larger extent. This project mainly discuss about company’s
responsibility towards society and where a company can help the society to improve.
STAKE HOLDERS OF COMPANY
Stakeholders are the individuals or groups that have an interest in the organization and are
affected by its actions. Stakeholders are customers, employees, suppliers, board of directors,
owners, shareholders, government agencies, unions, political groups, the media, and others.
Within the broad spectrum of stakeholders, stakeholders can be broken into two different
groups: primary stakeholders and secondary stakeholders. One of the primary functions of a
business is to serve the needs of its stakeholders, also known as stakeholder responsibility.2
1) Primary Stakeholders
Primary stakeholders have a vested interest in how the organization performs and the actions
it engages in to conduct business. Examples of these types of stakeholders are customers,
employees, suppliers, board of directors, owners, and shareholders. Primary stakeholders
benefit from a well-run company but are also harmed by the organization’s mishaps. Primary
stakeholders directly affect the success and failure of the company.
2) Secondary Stakeholders
Secondary stakeholders can influence, both positively and negatively, the actions of the
organization. They indirectly affect the organization by taking actions to make it difficult for
the organization to succeed or by supporting the organization’s efforts. Examples of
secondary stakeholders are government agencies, regulation agencies, trade unions, labor
unions, political groups, social groups, and the media.

RESPONSIBILITY TOWARS STAKE HOLDERS

1
Umar Farooq” What is Company Meaning, Definition & Characteristics of Company” 12/25/2014
2
Bruce Langtry” Stakeholders and the Moral Responsibilities of Business” 23 January 2015
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In this modern era the competition between companies is increasing and customers are
becoming more choose. So to sustain in this tight competition it is necessary for s business
or company to keep its stakeholders comfortable and run in favour of them. Earlier if profit
making was the only goal of a business, now fulfilling the responsibilities towards
stakeholders also have equal importants3

1) Responsibility to Employees

An organization’s first responsibility is to provide a job to employees. Keeping people

employed and letting them have time to enjoy the fruits of their labor is the finest thing
business can do for society. Beyond this fundamental responsibility, employers must provide
a clean, safe working environment that is free from all forms of discrimination. Companies
should also strive to provide job security whenever possible. Enlightened firms are also
empowering employees to make decisions on their own and suggest solutions to company
problems. Empowerment contributes to an employee’s self-worth, which, in turn, increases
productivity and reduces absenteeism.

2) Responsibility to Customers

To be successful in today’s business environment, a company must satisfy its customers. A

firm must deliver what it promises, as well as be honest and forthright in everyday
interactions with customers, suppliers, and others. Recent research suggests that many
consumers, particularly millennials, prefer to do business with companies and brands that
communicate socially responsible messages, utilize sustainable manufacturing processes, and
practice ethical business standards.

3) Responsibilities to Investors

Companies’ relationships with investors also entail social responsibility. Although a

company’s economic responsibility to make a profit might seem to be its main obligation to
its shareholders, some investors increasingly are putting more emphasis on other aspects of
social responsibility.Some investors are limiting their investments to securities (e.g., stocks
and bonds) that coincide with their beliefs about ethical and social responsibility. This is
called social investing. For example, a social investment fund might eliminate from
consideration the securities of all companies that make tobacco products or liquor,
manufacture weapons, or have a history of being environmentally irresponsible.

4) Responsibilities to Suppliers and Partners

Suppliers are no longer just companies you buy from. To maintain loyal, trusting
relationships where a company is look out for each other's interests, a company have to
operate fairly and honestly with suppliers. Being up front with its intentions and building
trust allows you to coordinate more efficient distribution processes, which minimize
inventory costs and reduce stock outs. Business partners also expect a company meet their
obligation to do business legally and ethically.

3
Neil Kokemuller” Responsibilities a Business Owner Has to Its Stakeholder Group” August 01, 2019
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5) Responsibility towards the Environment:

The foremost responsibility of business enterprises is to ensure that they should not damage
the environment and for this purpose they should reduce as much as possible air and water
pollution by their productive activities. They should not dump their toxic waste products in
rivers and streams to avoid their pollution. Pollution of environment poses a great health
hazard for the people and is a cause of several respiratory and skin diseases.

In economic theory pollution of environment is regarded as social cost that must be

minimised. There is now a growing awareness towards reduction in environment pollution.
According to the recent findings the climate change is occurring due to greater emission of
carbon dioxide and other pollutants. Therefore, the corporate enterprises should adopt high
standards of environmental protection and ensure that they are implemented regardless of
enforcement of any environment laws passed by the government. Many countries including
India have passed laws to protect the environment but they are not properly and strictly
enforced.Business enterprises in their attempt to maximise profits recklessly and negligently
pollute the environment. Therefore, it is required that government should take tough
measures and enforce environment laws strictly if environment is to be protected.

6) Responsibility to Society in General:

Business enterprises function by public consent with the basic objective of producing goods
and services to meet the needs of the society and provide employment to the people. The
traditional view is that in performing this function businesses maximise profits or
shareholders’ value and doing so they do not behave in any socially irresponsible way.

According to Adam Smith whose invisible hand theorem is often quoted that while
maximising their profits, businessmen are led by an invisible hand to promote the interests of
the society. To quote him, “An individual or business generally, indeed neither intends to
promote the public interest, nor knows how much he is promoting it…. He intends only his
own gains, and he is in this, as in many other cases, 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 the society more effectively than when he really intends to promote it”.

RESPONSIBILITY OF A COMPANY TOWARDS ITS SOCITEY

Social responsibility of company implies the obligations of the
management of a business enterprise to protect the interests of the society. When a new
company is establishing the society expect a lot from those companies. A company have a
very important role in development of a society. According to the concept of social
responsibility the objective of managers for taking business decisions is not merely to
maximize profits or shareholders’ value but also to serve and protect the interests of other
members of a society such as workers, consumers and the community as a whole.4
A business is always responsible to society. A business provides
a community with jobs, goods, and services. It also pays taxes that go to support schools,
hospitals, and better roads. Some companies have taken an additional step to demonstrate
their commitment to stakeholders and society as a whole by becoming Certified Benefit
4
Darshan Kadu “Social Responsibilities of Business towards Community” retrieved on 27-10-2019
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Corporations, or B Corps for short. Verified by B Lab, a global nonprofit organization, B

Corps meet the highest standards of social and environmental performance, public
transparency, and legal accountability and strive to use the power of business to solve social
and environmental problems via an impact assessment that rates each company on a
possible score of 200 points. To become certified as a Benefit Corporation, companies need
to reach a score of at least 80 and must be recertified every two years. There are more than
2,000 companies worldwide that have been certified as B Corps5

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The voluntary compliance of social and ecological responsibility of
companies is called Corporate Social Responsibility (CSR). Corporate social responsibility is
basically a concept whereby companies decide voluntarily to contribute to a better society
and a cleaner environment. Corporate social responsibility is represented by the contributions
undertaken by companies to society through its business activities and its social investment.
This is also to connect the Concept of sustainable development to the company‘s level. Over
the last years an increasing number of companies worldwide started promoting their
Corporate Social Responsibility strategies because the customers, the public and the investors
expect them to act sustainable as well as responsible.6
In most cases CSR is a result of a variety of social, environmental and
economic pressures. The Term Corporate Social Responsibility is imprecise and its
application differs. CSR can not only refer to the compliance of human right standards, labor
and social security arrangements, but also to the fight against climate change, sustainable
management of natural resources and consumer protection. CSR became only popular in the
1990s, when the German Betapharm, a generic pharmaceutical company decided to
implement CSR. The generic market is characterized by an interchangeability of products. In
1997 a halt in sales growth led the company to the realization that in the generic drugs market
companies could not differentiate on price or quality. This was the prelude for the company
to adopt CSR as an expression of the company’s values and using strategic and social
commitment.

IMPORTANCE OF CSR
Corporate social responsibility (CSR) plays a major role in developing the economy of a
country. It can be defined as the way in which a company manages various business entities
to produce an impact on the society. Companies with high CSR standards are able to
demonstrate their responsibilities to the stock holders, employees, customers, and the general
public. Business organizations that have high corporate social responsibility standards can
attract staff thereby reducing employee turnover and cost of recruitment.

What is the importance of corporate social responsibility?

Companies voluntarily contribute a large sum of money to make a better
society and a clean environment. Corporate social responsibility is a process in which all
companies come together as one and take part in the welfare of the society. Many
organizations conduct campaigns to create awareness among corporate, civic bodies, and
government bodies about the importance of corporate social responsibility. Many national
and multinational firms are booming in various developing countries. But at the same time,
5
Exforsys” Corporate Social Responsibility towards Stake Holders” December 4, 2015
6
Sneha D” Project Report on Corporate Social Responsibility (CSR)” retrived on 27-10-2019
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these countries suffer social challenges such as poverty, corruption, population growth, etc.
Therefore, it is important for all companies to strive together and adapt corporate social
responsibility standards to make the society better than before. An organization can exhibit a
better image in the society if it cares for its employees and involve them in social activities.
The responsibilities of an organization may range from providing small donations to
executing bigger projects for the welfare of the society. Many business houses around the
world show their commitment to corporate social responsibility. Importance of corporate
social responsibility: 7
1) Organizations understanding their role in developing a society and
2) Awareness among business houses, corporate bodies, and the people. Versatile, profitable,
and dynamic businesses are the driving forces that build the economy of the country. We
must remember that the growth of a country purely depends on the growth of the society and
the people in the society.
CONCENTRIC CIRCLE & CSR
In 1971, the Committee for Economic Development issued a report throwing
light on different dimensions of responsibilities to be fulfilled by the corporate. The
responsibilities of corporations are described consisting of three concentric circles.
(a) Inner Circle: Clear cut, basic responsibilities for the efficient execution of the economic
function, products, jobs and economic growth.
(b) Intermediate Circle: Encompasses responsibility to exercise this economic function with
a sensitive awareness of changing social values and priorities. Eg. With respect to
environmental conservation, hiring and relations with employees, expectation of customers
for information, safety factors, etc.
(c) The Outer Circle: Newly emerging and still amorphous responsibilities that business
should assume to become more broadly involved in actively improving the social
environment.
CLASSIFICATION OF SOCIAL RESPONSIBILITY
1) Responsibility towards itself: It is the responsibility of each corporate entity run
business and to work towards growth, expansion and stability and thus earn profits. If
the corporation is to achieve social and economic ends, organizational efficiency
should be boosted up

2) Responsibility towards Employees: Employees are the most important part of an

organization. Following are some of the responsibilities which a business entity has
towards its employees-
 Timely payment
 Hygienic environment
 Good and impartial behaviour
 Health care through yoga
 Recreational activities
 Encouraging them to take part in managerial decisions

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Subha Roy “Corporate Social Responsibility: A Case Study Of TATA Group” retrieved on 27-10-2019
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3) Responsibility towards shareholders: It is the responsibility of corporate entity to

safeguard the shareholders investment and make efforts to provide a reasonable return
on their investment. The company should stick on to the information given in MOA
and AOA as the shareholders who invest money in a company after reading the MOA
and AOA OF company.

4) Responsibility towards state: Out of the profit available, the state is entitled to a
certain share as per the income tax laws. Utmost transparency has to be exerted
regarding the profit &loss account and the balance sheet.

5) Responsibility towards consumer: The Company should maintain high quality

standards at reasonable prices. It should not resort to malpractices such as hoarding
and blackmarketing.

6) Responsibility towards environment: It is the responsibility of the organization to

contribute to the protection of environment. It should produce eco -friendly products.
Moreover, industrial waste management must be taken care of.

BENEFITS OF CSR

Organizations of all sizes are rapidly discovering that Corporate Social Responsibility (CSR)
and sustainable business practices can foster improved green programs and overall
environmental stewardship. Today, we are seeing increased awareness and active
participation by business professionals in the development of CSR policies. Organizations are
increasingly more involved in green initiatives by adopting sustainable processes and
practices, adapting products and services to the low-carbon economy and innovating in all
areas their business. The net positive on reducing waste, designing green buildings,
implementing green operations and maintenance plans  all have continually proven to yield a
positive return on investment (ROI). CSR has come to rely on a more complex set of factors
than corporate governance alone, and likewise also depends on sustainable development,
environmental impact and supply chain management. The development of the new carbon
trading markets, verified emission reductions (VERs), also known as carbon offsets, and
renewable energy credits (REC‘s), it has become easier for organizations to create and
measure direct ROI from CSR. Likewise, CSR efforts have shown to yield measurable
returns in waste reduction, improved efficiency, diminished liabilities, improved community
relations, and brand recognition.8 Through communicating clear and measurable
sustainability objectives and the implementation of practical and equally functional corporate
governance mechanisms, organizations are realizing that they can have a achieve ROI
through their sustainability efforts. Integral strategies in ensuring substantive long-term
results include:

1) Define path of progress in CSR and strategically manage expected organizational

outcomes

2) Ensure basic CSR values are culturally integrated across the organization
 
8
Michelle Seidel, B.Sc., LL.B., MBA “What Are the Benefits of Corporate Social Responsibility to a
Company?” November 08, 2018
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3) Adopt an effective engagement strategy with stakeholders to create buyer awareness

and loyalty
 
4) Properly map organizational objectives and critical success indicators with CSR
performance metrics

WHERE CAN A COMPANY CONTRIBUTE FOR BETTERMENT OF SOCITEY

The business owes a great irresponsibility to the community in various directions. Some of

the major areas where business can and does contribute towards community welfare as a part
of its social responsibility are:

1. In the field of Industry

An important social responsibility of business/industry is to help rural areas by introducing
“self help” and “earn-while-you-learn” programmes. Initially, such programmes may be labor
intensive in areas like pottery, carpentry, weaving, spinning, industry based on agriculture,
farming, dairy farming, pig rearing, poultry and storage, etc., so employment opportunities
could be provided in rural areas.
For this purpose, business experts should survey areas that need improvement, skill
requirement, financial assistance etc.

2. In the field of Agriculture

As a social responsibility, a large business house can play an important role in agricultural
development, to provide full-time employment to the vast unemployed rural labour force.

For this purpose, the business should get the survey done by its experts in the field of climate,
soil conditions, breeding of livestock facilities for irrigation and water supply and actual
supply of fertilizers seeds, pesticides, expertise, and finances. Non-agricultural activities
seeking linkage with the agricultural sector and the industrialized sector can also be
developed.

3. Housing Facilities
The social responsibility of business in this sphere is great, specially because a major
proportion of the rural population is doomed to diseases, squalid existence in hopelessly ill-
planned and filthy houses. Therefore, business can play a major role by extending financial
aid, by providing material and manpower support, home building practices etc.

In urban areas, slum clearance schemes, one or two room tenements with facilities for
sanitation should be provided in labour colonies.

4. Transportation
Business and other agencies can help the government by undertaking studies and programmes
of technical and financial assistance to develop cheap public transport, increasing the
operational efficiency and utilization of road capacity, enhanced licensing procedures, more
rational and scientific estimates for vehicle fleet size and manpower for different modes of
transport, improved maintenance and replacement policy for the spares, and structural
changes in urban and rural layouts.
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5. Health and Education

Business organizations have their responsibility towards improvement of the quality of the
people of the community. They can and should be engaged in works like improving drainage
system, adequate clean drinking water facility, enhancing sewage disposal system, waste
management, pollution control, improving sanitation, construction of toilets etc., which will
prevent many water-borne diseases. Medicines can be distributed free of cost, offering
healthy food to children, sick people, pregnant mothers and aged people. Organizing camps
should be conducted to treat minor ailments.

The problems responsible for ill-health in the rural areas need solution, for they result from
lack of health education, unhealthy environment, unclean habits of living, poverty, poor diet,
and the social culture. These problems can be solved through medical help, and the help of
social workers. Besides, rural education could provide individuals with knowledge and skills
to enable them to manage their families, to participate in cultural and economic life and to
sharpen problem-solving capabilities.

6. Industrial Aid to Education in Urban Areas

Progressive individual businessmen and individual business houses are running or supporting
schools, colleges and technical/professional educational institutions.

In fact, it is a part of modern social responsibility of business that it should support

educational programmes, more particularly technical education. In some cases, they help by
lending the services of their specialists (as visiting experts) and giving financial help.

7. Social Audit On Factual Assessment

This should be done by trained and professional personnel to show the social performance of
business. The term “social audit” generally meanshareholders, customers, employees,
community and the government.

A social audit should generally adopt a four-step process:

a. Firm must itemize all the activities that have a potential social impact
b. The circumstances leading to these actions or activities must be explained
c. Some evaluation of the performance must be conducted
d. The company must examine the relationship between the goals of the firm and those
of society to see how the programme relate to one another.

CONCLUSION

In this research project we mainly discuss about social responsibility of company and where a
company can help the society to develop. As we discussed companies and business
organisation plays a major role in development of a country. Not just by paying tax and
helping government to accumulate fund for social cause but also by doing or contenting
events for social good, building infrastructure, creating employment oportunites etc….
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