Corporate Social Responsibility Course Book PDF

Corporate Social Responsibility
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COURSE DESIGN COMMITTEE
Chief Academic Officer

Dr. Arun Mohan Sherry
M.Sc. (Gold Medalist), M.Tech.
(Computer Science -IIT Kharagpur), Ph.D.
NMIMS Global Access – School for Continuing Education
Content Reviewer
Prof. Deepak R. Gupta
Assistant Professor, NMIMS Global
Access - School for Continuing Education
Specialization: Marketing
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Author : Arpita Singh

Reviewed By: Prof. Deepak R. Gupta
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Copyright:
2018 Publisher
ISBN:
978-93-86052-38-4
Address:
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NMIMS Global Access - School for Continuing Education School Address
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NMIMS Global Access - School for Continuing Education

C ONTENT S
CHAPTER NO. CHAPTER NAME PAGE NO.
1 Globalisation and Corporate Social Responsibility 1
2 Corporate Stakeholders 29
3 Philosophical Model of Csr 65
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4 Introduction to Corporate Social Responsibility 87
5 Developing a Csr Strategy 129

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6 Implementing Csr Strategy 155
7 Non-Governmental Organisations 191

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8 Monitoring and Measurement of Csr 219

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9 Csr Reporting 249
10 Role of Government and Voluntary Codes in Csr 287
11 Corporate Ethics and Governance 319
12 Case Studies 355

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C o r p o r at e S o c ia l Re s po n s ib ility
cu r r i cu l um
Globalization and its Impact: Economic, Social, Sustainable Development, Role of Business in
Sustainable Development, Business Organizations as Systems.
Corporate Stakeholders: From Shareholder Theory to Stakeholder Theory, Stakeholder Concept,

Typology of Stakeholders and their Influence, Stakeholder Engagement, Stakeholders versus
Shareholders, Dynamic Environment of Business.
History of CSR in India: Pre-Independence Period, Post-Independence India, Liberalization and

CSR, Emerging CSR Trends, Contemporary Scenario: Achievements, Theories of CSR: Friedman’s
Theory/Fundamentalist Theory, Social Contract Theory, Social Justice Theory, Rights Theory,
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Deontological Theory, Stakeholder Theory, Gandhi’s Trusteeship Theory.
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Corporate Social Responsibility: The Pyramid of Corporate Social Responsibility, Generations
of CSR, Changing Trends: Philanthropy, Strategic Philanthropy, CSR Arguments against CSR,
The Business Case for CSR, Importance of CSR for India: Current Business Scenario in India-
Contemporary Drivers for CSR.
Developing A CSR Strategy: Steps in Designing CSR Strategy, Develop a Working Definition of
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CSR, Review Corporate Documents, Processes and Activities, Developing a CSR Strategy: Build
Support with Senior Management and Employees, Research what others are doing, Prepare a
Matrix of Proposed CSR Actions, Develop Options for Proceeding and Develop the Business Case
for CSR Action, Decide on Direction, Approach and Focus Areas Implement CSR Commitments:
Develop an Integrated CSR Decision-making Structure, Prepare and Implement CSR Business
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Plan, Set Measurable Targets and Identify Performance Measures, Engage Employees and Others
to Whom CSR Commitments Apply, Design and Conduct CSR Training, Establish Mechanisms for
Addressing Problematic Behaviour, Create Internal and External Communication Plan.
Implementing CSR Strategy: Areas of CSR Implementation, CSR at Market Place: Benefits of
Marketplace CSR, Designing Market Place CSR Activities, CSR at Workplace: Benefits of CSR at
Workplace, Designing Work Place CSR Activities, Environmental CSR: Benefits of Environmental
CSR, Designing Environmental CSR, CSR with Communities, Types of Interventions: Benefits of
Community Interventions, Steps to Design CSR Intervention, Strategic Partnerships: Reasons for
Corporate NGO Partnership, Criteria for Selecting NGO Partner, NGO Strategies to Influence CSR.
CSR Monitoring and Measurement: Focus of Measurement , Measure Fewer Things Better,
Measure What Matters, Communicate Fewer Metrics in Multiple Ways, What is Monitoring?,
Internal Compliance Monitoring, External Monitoring and Measurement Importance.

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CSR Reporting: Benefits of Reporting: Whom to Report, How to Report, Contents of CSR Report,
Formats of CSR Communication and Reporting, The Reporting Team, Additional References for CSR
Reporting.
Role of Government And Voluntary Codes In CSR: Role of Government, Government Support at
International Level, Voluntary Codes in CSR: OECD Guidelines for Multi-national Corporations, ILO
Conventions, ISO 9000 & ISO 14000, SA8000, UN Draft Principles for Behaviour of Trans-national
Corporations, LEED, GRI, DOW Jones Sustainability Index, FTSE4GOOD, Smart Growth Network,
Equator Principles, UN Global Compact, Coalition of Environmentally Responsible Economies (CERES).
Corporate Ethics and Governance: What is Corporate Governance, Constituents of Corporate

Governance, The Corporate Governance Debate, Theories and Responsibilities of Corporate
Governance, Global Growth of Corporate Governance, History of Corporate Governance in India, The
Current State of Corporate Governance in India, Board Composition in India, Corporate Governance:
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Need to Strengthen: How to Improve Corporate Governance, Benefits of Corporate Governance, Efforts
to Improve Corporate Governance, Corporate Governance and CSR.
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C h a
1 p t e r
GLOBALISATION AND CORPORATE

SOCIAL RESPONSIBILITY
CONTENTS
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1.1 Introduction
1.2 Globalisation and its Dimensions
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1.2.1 Sustainable Development: Economic Social and Environmental Impacts
Self Assessment Questions
Activity
1.3 Role of Business in Sustainable Development
Activity
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1.4 UN Post 2015 Agenda

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1.5 Indian Companies Act 2013
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Activity
1.6 World Bank Group Goals 2030
1.6.1 India and World Bank Group Partnership Strategy
Activity
1.7 Business Organisations as Systems
Activity
1.8 Summary
1.9 Descriptive Questions
1.10 Answers and Hints
1.11 Suggested Readings & References

2 CORPORATE SOCIAL RESPONSIBILITY
Introductory Caselet
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SIEMENS’ SUSTAINABLE POWER SUPPLY SOLUTION

FOR CITIES
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Source: www.medias24.com
Nearly two-thirds of the energy consumed across the world takes

place in the cities. This calls for energy efficient and sustainable
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power supply solutions. Efficiency in power plant operations,
higher usage of renewable resources and low-loss power trans-
mission are the cornerstones of a reliable energy supply.
HIGHER ENERGY EFFICIENCY WITH COMBINED CYCLE

POWER PLANTS
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Combined cycle power plants make use of hot exhaust fumes from
gas turbines instead of wasteful emission into the air and instead
it is directly fed into special turbines that generate steam. As a
result, there is a substantial increase in energy efficiency. This
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helps in saving energy. Combined cycle power plants can have a

great role to play in the supply of urban power and energy infra-
structure. Siemens is a key components supplier for Dhuvaran
combined cycle power plant located in Gujarat, Western India.
The power plant supplies eco-friendly electricity to Vadodara, an
industrial city in Gujarat.
LOW-LOSS POWER SUPPLY WITH HVDC
Energy efficiency in power generation is a major component for

sustainable power supply for cities. The low-loss power trans-
mission that takes place from the source of power generation to
the site of energy consumption mainly the cities, is an import-
ant factor too. High-voltage, direct current transmission (HVDC)
technology is an efficient and highly recommended method for
achieving low loss power transmission. When power transmission
is needed over long distances, especially in the geographical to-
pology of large countries like India, this technology is highly suit-
able. HVDC is not only reliable and safe, but it also occupies little

GLOBALISATION AND CORPORATE SOCIAL RESPONSIBILITY 3
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space and still yields significant energy savings. Siemens is also

in the process of the installation of a HVDC power transmission
system that connects the city of Mundra located in India’s west
coast with the industrial regions of the state of Haryana near New
Delhi. Spanning over approximately 960 kilometers, the system
has a capacity of 2,500 megawatts, being Siemens’ third HVDC
system in India. A system that connects Bangalore with Talcher is
the world’s second, longest at 1,450 kilometers and another con-
necting Ballia with Bhiwadi near New Delhi 80 kilometers are the
company’s other two systems.
SIEMENS WIND ENERGY PLANTS IN INDIA
Wind energy is considered to be a vital source of power supply.
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Cities cause nearly 70 per cent of the world’s greenhouse gas
emissions, hence it is beyond any doubt that energy efficient and
green power supply is one of the important sustainable devel-
opment solutions for urban areas. This is so because it not only
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fulfils the energy requirement but also helps in the conservation
of natural resources and the environment. Siemens launched an
innovative direct-drive wind turbine in India in 2011. This turbine
is high energy efficiency and uses renewable energy sources to
support the sustainable development of India’s energy infrastruc-
ture. The company now plans to manufacture these turbines in
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Vadodara. The company is also currently investing in a research

and development technology centre.
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learning objectives
After studying this chapter, you will be able to:

>> Describe the concept of globalisation and its impact on eco-
nomic, social and environmental dimensions
>> Discuss the role of business in sustainable development
>> Discuss the UN Post 2015 agenda
>> Describe the Indian Companies Act, 2013 and CSR
>> Discuss the World Bank Group’s Goals by 2030
>> Enumerate World Bank Group Goals 2030 and describe In-
dia and World Bank Group partnership strategy
>> Explain the concept of business organisations as systems
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1.1 INTRODUCTION
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In this chapter, you will study the concept of Globalisation and Cor-
porate Social Responsibility (CSR) or Corporate Citizenship. CSR is
a way of an organisation to monitor its internal operations so as to
ascertain that local laws, international norms and ethical standards
are being complied with. CSR is considered to be a vital element in
a corporate’s relationship with the society in which it functions and
its stakeholders including governments and individuals. A series of
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economic, social, technological and political changes lead to globali-

sation. The world is now considered to be a flat or a borderless world
as business enterprises now span across borders of different countries
and operate across national boundaries.
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According to some world historians, the concept of globalisation dates

back to 1492 when Christopher Colombus stumbled on the Americas
in search of spices and 1498 when Vasco da Gama travelled around
Africa competing with the Arab and Venetian spice traders. On the
other hand, some historians believe that globalisation dates back even
earlier. Another view is that the world economy may have been global-
ised before the 19th century.
The Oxford dictionary defines globalisation as the process by which

businesses or other organizations develop international influence or
start operating on an international scale.
The Carnegie Endowment for International Peace defines global-

isation as a process of interaction and integration among the people,
companies, and governments of different countries, a process driven by
international trade and investment and aided by information technolo-
gy. This process affects the environment, culture, political systems, eco-
nomic development and prosperity, and physical human well-being in
societies around the world.

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Thus, globalisation is considered as a process of creating a world-

wide network in which economies and societies are integrated. As the
pace of global integration is increasing new changes in communica-
tion, transportation and information technology have made the world
more interdependent than ever. Globalisation has removed barriers
between different countries to encourage the flow of goods, services,
capital and labour. Moreover, lowering or removal of tariffs and quotas
has helped in globalising the world economy at greater pace. It result-
ed in the easy movement of resources, money and technology across
national borders. Globalisation has also helped in the expansion of
foreign trade in the world, which enabled countries to export and im-
port across the globe.
In addition, globalisation has helped in developing a global market by

enabling multinational corporations to produce products in several
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countries and sell them to consumers across the world. Moreover, glo-
balisation allowed the unrestricted circulation of ideas and cultures
across the nations, which resulted in the formation of laws, economies
and social movements at the international level. Globalisation has also
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resulted in an increased level of awareness towards human rights vi-
olation and environmental concerns. This compels organisations to
protect the interests of their stakeholders first.
One of the most positive effects of globalisation is an easy flow of for-

eign capital. India, for example, has been benefitted immensely with
this positive side of globalisation. A lot of organisations have invested
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in India by setting up their facilities in the country. Apart from this,

one of the most evident effects of globalisation is the improved quality
of products/services due to global competition. In order to remain in
competition and survive in the long run, organisations are compelled
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to raise their manufacturing standards and customer satisfaction

levels.
Besides several benefits mentioned above, globalisation also has its

negative effects. It results in increasing job insecurity problem. Many
organisations prefer to outsource several jobs in countries where the
cost of manufacturing products and wages is lower than in their own
countries. Though it is done as a cost-cutting measure, it results in
lesser jobs for the people of countries that are outsourcing jobs to oth-
er countries. Another drawback of globalisation is that it may lead to
fluctuations in prices. Due to an increase in competition, organisa-
tions are forced to lower down their prices for their products.
IMPACT OF GLOBALISATION IN INDIA
Globalisation has several positive and negative effects on culture, so-

ciety and economy of India. It has paved a way for opening new mar-
kets for Indian organisations to sell their products and services. With
cheap resources, such as labour, India can positively compete with
other organisations at international level. Moreover, availability of

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cheap resources has attracted a number of foreign investors in India

to establish their business. This has increased the level of competi-
tion among organisations in the country. With increasing competition,
organisations are producing quality products at competitive prices.
It is resulting in higher customer satisfaction as customers are get-
ting quality products at reasonable prices. This scenario has led to
the development of living standards of people in India. Organisations
are becoming more modern and adopting new technologies to survive
and grow in the market. With an increase in foreign investment, more
and more employment opportunities are surfacing and developing the
country’s economy.
Apart from positive impacts, globalisation has put several negative

impacts. With increasing industrialisation, the environment of the
country is getting affected at large scale. As India provides cheap la-
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bour, there are multiple possibilities that human resource is exploited
inefficiently and ineffectively. With the incoming of global players, it is
becoming difficult for small local firms to compete with them at such
scale. This situation in many cases is resulting in the closure of such
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small-scale local firms.
Globalisation has had a different impact in the different regions of the

world; for example:
Africa: The region faced a relatively negative impact of the change
due to unfair practices, inability to repay foreign dues, public
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health issues like high prevalence of diseases like HIV/AIDS. Poor

governance and low amount of foreign investments seems to have
a huge migration from the place.
Asia: India and China witnessed a positive impact on econom-
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ic growth and industrial productivity. There was also a decrease

in unemployment and poverty. However, globalisation replaced
many traditional occupations and led to mass migration of popu-
lations from rural to urban regions leading to inequalities in these
regions.
Europe and America: Liberalisation brought with it more oppor-
tunities for trade, inflow of capital and competition with interna-
tional players in the European regions. However a rise in income
disparities was seen as a downside there too. Outsourcing of back-
end jobs to lower-cost countries along with an increase in the com-
petition led to financial constraints for the state. European Union
was the outcome of response of the region to the rising pressures
of globalisation.
America, witnessed a more or less positive impact of the phenome-

non of globalisation, though the pressure of competition was faced by
companies there too, which resulted in reduction in wages and loss of
unskilled jobs to outsourced countries.

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1.2 GLOBALISATION AND ITS DIMENSIONS

One of the most salient outcomes of globalisation has been an increase
in the efficiency of trade operations and an increase in global compe-
tition. Further now there is an availability of many convenient sources
of transportation, availability of advanced technology machinery for
manufacturing, better modes of communication facilities through in-
formation technology, etc. There is no denying that global system de-
velopment has brought together economies, there have been certain
negative social impacts of globalisation. The impact of development
needs to be studied on all dimensions.
1.2.1 SUSTAINABLE DEVELOPMENT: ECONOMIC SOCIAL

AND ENVIRONMENTAL IMPACTS
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There are many distinct dimensions of globalisation of which the most
important ones are economic, social and sustainable development.
The interplay between various dimensions of globalisation is shown

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in Figure 1.1:
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Bearable Equitable
Sustainable
Environment Viable Economic

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Figure 1.1: Interplay Between Various Dimensions of Globalisation
Sustainable development is defined as a type of development that

meets the needs of the present without compromising the ability of
future generations to meet their own needs.
Sustainability is a term that is used to describe an economy that is

in equilibrium with the basic ecological support systems. Usually, the
term sustainable development is understood as development that is
done keeping in mind environmental issues. However, sustainable de-
velopment means equilibrium between environmental sustainability,
economic sustainability and socio-political sustainability.
Sustainable development refers to meeting the diverse needs of peo-

ple in different communities, maintaining social cohesion and creat-
ing equal opportunity to ensure a strong and healthy society. In other
words, it can be said that sustainable development focuses on finding
ways of doing things that do not affect the quality of people’s life.

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Sustainable development has three components namely economic

growth, environmental stewardship and social inclusion. Now, coun-
tries and organisations are recognising the importance of conserving
natural resources and investing in sustainable development. For ex-
ample, many people now prefer cycling instead of driving as it saves
them money in addition to improving their overall health. Businesses
are also finding better and energy efficient ways of doing production
and business.
There are three major goals of sustainable development which are as

follows:
Minimising the depletion of natural resources while undertaking
new developments
Undertaking development that can be sustained without causing
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harm to the environment.
Making provisions for modifying the existing development plans
or projects so that they can be made environmentally friendly.
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There are various national and international organisations (such as
United Nations) and NGOs that are working towards ensuring that
all the developments in the world are sustainable in nature. These or-
ganisations have also set up important sustainable development goals
such:
Eradicating poverty
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Promoting good health and well being

Promoting good health for all
Provision of clean water and sanitation for all
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Building infrastructure that supports inclusive and sustainable in-

dustrialisation
Incubating innovation
Access to affordable and clean energy
Achieving gender equality
There are various organisations in India and world over that practice
sustainable development. Let us look at a few examples.
The Leela Hotel was opened in 2010 in Delhi and Siemens’ Technol-
ogy has provided for total building solutions in addition to providing
comfort, security and energy efficiency at The Leela Hotel. Automated
building solutions include fire protection, voice evacuation and video
surveillance. In addition, Desigo automation systems have provided
efficient monitoring and control of heating, ventilation and air condi-
tioning. These systems monitor and control the cooling, fresh air sup-
ply and air quality in all the rooms of the hotel. The security of the

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hotel is ensured by fire protection and alarm systems, video surveil-

lance of all entrances, stairways and elevators. The Leela Hotel is an
example of green and smart buildings in India that contribute towards
sustainable urban development.
HelpUsGreen is a Kanpur-based organisation that makes ‘flowercy-

cled’ natural and certified organic products from flowers. This compa-
ny collects flower waste from places of worship and from the Ganges
River and recycles it into various products such as vermicompost, lux-
ury incense and bathing bars through proprietary methods.
ECONOMIC IMPACTS
As stated earlier, one of the three dimensions of globalisation is eco-

nomic impact it makes. It means that globalisation affects the growth
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of the countries and the entire economy.
There is a general agreement among major economists that globali-

sation provides a net benefit to individual economies of the world as
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a result of increased and efficient competition, better wealth distri-
bution and limiting the military conflicts. Some important benefits of
globalisation include:
Foreign direct investment: Due to globalisation, organisations
from one country invest in other non-home countries and the rate
of FDI is now greater than the growth rate of the total world trade.
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FDI also helps in boosting technology transfer, industrial restruc-

turing and growth of multinational organisations.
Technological innovation: Globalisation leads to increased com-
petition. Globalisation also stimulates new technology develop-
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ment in a bid to make processes more transparent. . All this leads

to increased economic output.
Economies of scale: Globalisation leads to an increase in the scale
of business and also enables large companies to reduce their costs
which lead to economic growth.
One of the most deeply affected parameter due to globalisation has

been the economic growth rate across many countries. Shift of busi-
ness processes and manufacturing to developing countries has result-
ed in a gradual reduction of the gap between the economic growth
rates of developing countries and advanced or developed countries.
The Gross Domestic Product (GDP) of Asian countries like India, Chi-
na, Taiwan etc. have shown an impressive rise in the past few decades.
This effect of globalisation has been termed as “convergence hypoth-
esis”.
Let us understand the concept of convergence in detail. Convergence

or catch-up effect refers to a hypothesis according to which the per
capita income of the poorer economies grows at a rate faster than that

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of richer economies. As per this hypothesis, inflation adjusted per cap-

ita income of all the economies would converge. Poor countries can
also replicate production methods, technologies and institutions of the
developed countries. Since the industrial technology can be acquired
by developing nations, they can take an advantage of the imbalance
in labour costs and increasing the demand for the given labour as the
nation builds wealth through exports.
Foreign Direct Investment (FDI) in developing countries too has been

an outcome of liberalisation and international trade expansion. Global
foreign direct investment inflows were estimated at US $ 745 billion
in the first half of the year 2013. Moreover, it is also remarkable that
over 60% of the foreign capital inflow volumes were driven by a rise
in cross-border mergers and acquisitions in south Asian and central
American economies like India and Brazil. This is further indicated by
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World Bank data, according to which the majority of developed coun-
tries like US, Germany and France have demonstrated a decline in
FDI. Among these countries, only the United Kingdom has displayed
an upward trend in FDI thus supporting convergence hypothesis.
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Private financial bodies like equity funds, rating agencies, banks,
hedge funds, etc. are experiencing increased influence as the gover-
nance structure of the global financial system changes with globali-
sation. Another sector that has witnessed a revolution is the informa-
tion and communications technology. Lower transportation costs with
more options have led to economically feasible production of goods
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and services in multiple countries.
With the options to outsource services, manufacturing activities to

developing countries, many corporations are leveraging the opportu-
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nity with manufacturing in low financial markets with lesser capital

investments and selling their goods in high profit margin markets. A
simple example of this would be the production of high end designer
leather handbags in countries like Vietnam and China which are sold
at exorbitant rates in the US and the UK.
SOCIAL IMPACTS
The social impact of globalisation can be understood by the following

points:
Increased free flow of information. Information might be general
or commercial
Increased exposure that has liberalised people’s attitudes, reduced
biases and predispositions about people, situations and communi-
ties worldwide
Different countries and their people now have greater awareness
of themselves and other countries and cultures of the world as a

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result of the advent of the Information and Communication Tech-

nologies (ICT)
Exponential increase in consumerism for goods and services
Rapid changes in the life-styles of people and adoption of world-
wide trends
While globalisation brought with itself many advantages and disad-

vantages for the economies of countries across the world, it also has
had substantial social impacts. On one hand, developing countries ex-
perienced a rapid increase in economic growth metrics like GDP, per
capita income etc., on the other hand, there has also been an increase
in economic inequality. The worst affected segments have been ru-
ral areas and the unskilled or illiterate labour class that remains mar
ginalised and faces poverty. Income gaps between the poor and rich
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remain wide, thus creating a large-scale inequality of income within
and across countries.
While it may not be easy to evaluate the impact of globalisation on

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poverty, it is also believed that the poor population has decreased in
China, and on the contrary, there has been a rise in the areas like
Sub-Saharan Africa, Europe and Central Asia. Another phenomenon
observed is the relative poverty which has shown an upward trend
across many countries after globalisation giving rise to cross border
migration across many countries around the globe. Women migrants
are often hit the worst who get thrown illegal activities such as ex-
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ploitation and trafficking. Relative poverty also seems to have led to

other situations like illegal cross-border activities like money launder-
ing, drug peddling and sex trades. Cheaper cross-border transporta-
tion has given a window to drug peddlers and illegal migrants to es-
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cape from the law.
ENVIRONMENTAL IMPACTS
The climate and environment of the earth too has been affected by
globalisation. The following factors associated with globalisation have
led to disruption in the balance of environment and ecology:
Increased trade across multiple borders
Increased level of pollution and poor control mechanisms of cor-
porates operating on foreign shores
Indiscriminate and unregulated use of natural resources
No doubt, the ecological balance in various parts of the world has

been disturbed by globalisation which has led to disruption of ecolog-
ical balance, thereby creating a constraint on natural resources like
water and minerals.

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self assessment Questions
1. CSR ensures the compliance of an organisation with:

a. Local laws
b. International norms
c. Ethical standards
d. All of the above
2. The GDP of the Asian countries like India, China, Taiwan, etc.
have shown an impressive rise in the past few decades. This
effect of globalisation is termed as _________.
a. Adverse Selection and the Lemons Problem
b. Convergence Hypothesis
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c. Comparative Advantage
d. New Trade Theory
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3. Foreign Direct Investment (FDI) in developing countries too
has been an outcome of
a. Liberalisation
b. Technology enhancement
c. International trade expansion
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d. Both a and c
4. Which of the following factors associated with globalisation
have led to the disruption in the balance of the environment
and ecology?
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a. Increased trade across multiple borders

b. Increased level of pollution and poor control mechanisms
of corporates operating on foreign shores
c. Indiscriminate and unregulated use of natural resources
d. All of the above
Activity
Visit the website of International Labour Organisation and read

about globalisation and its impact on rural economy.
ROLE OF BUSINESS IN SUSTAINABLE

1.3
DEVELOPMENT
Nobel Laureate Simon Kuznets first introduced the concept of sus-
tainable development, which has now assumed a large dimension in

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the field of corporate social responsibility. Sustainable development

and corporate social responsibility together aim to make judicious use
of resources to ensure economic gain not only in present but also in
future.
Businesses play a critical role in sustainable development of the so-

cieties, countries and the world. The role of business is increasingly
important for sustainable development and it is in the interest of busi-
nesses to become more sustainable economically, socially and envi-
ronmentally.
Sustainable development takes into account all dimensions of global-

isation i.e. social, economic and environmental factors. Social devel-
opment is an important contribution made by responsible corporates.
The role of businesses in sustainable development has been evaluated
by many schools of thought on multiple occasions. It has been reiter-
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ated by business leaders across the world that a balance between the
corporate efficiency goals and social effectiveness goals is required to
be drawn. Technical and economic efficiency is one of those metrics
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which if obtained leads to win-win situations. This can be seen as the
role of the private sector which has contributed to the reduction of
poverty across the world in the past.
Corporates, society and governments across the world have a new

challenge of sustainable development in the millennium where they
need to come together and work towards strengthening of each sec-
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tor to improve the quality of living for the citizens. Agencies like the
World Bank, United Nations etc. have expressed their concern for the
environment and have opined that if corporates and governments
across the world contribute FDI towards sustainable development, it
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can help the world face the environmental challenge. The green Socio
Economic Zones in India is an example of such methods.
Essentially speaking, business organisations are focussed around eco-

nomic activities; however, it cannot operate in an isolated econom-
ically oriented environment. It interacts with social, political and
technological entities during its operations and consequentially the
environment is shaped by the complex interaction of these forces.
Corporations aim at value creation for their investors, employees and

customers but this can’t be done at the cost of environment, hence
the developmental role remains integral to its way of functioning. It
may not be always possible for the government to take initiative and
engage in sustainable development activities, it needs the support of
structured entities like corporates to plan and execute sustainable
development initiatives. Thus, the issues of sustainable development
and poverty can only be addressed by developing collaborations be-
tween governments, corporates and other social elements.

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Let us discuss what enforces businesses to take part in sustainable

development:
Business activities are intertwined with various priorities and
issues of sustainable development: Businesses usually have a di-
rect relation with various environmental and social issues. You can
say that businesses are as much a part of the solution as a part of
the problem. For example, businesses cause pollution and emis-
sion of greenhouse gases; consume energy and natural resources
such as water; require transport; produce waste; affect species di-
versity; cause industrial accidents which may cause environmen-
tal damage. Businesses have a direct relation with most of the en-
vironmental issues facing the world. These issues include climate
change, biodiversity, fresh water, coastal zones, chemical risks,
desertification, etc. Therefore, it becomes the duty of the organisa-
tions to ensure development in a manner that is in harmony with
S
the nature.
Business’ interest: It is in the interest of businesses to be environ-
mentally sustainable.
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Good management practice: It is considered to be a good man-
agement practice to follow cleaner and ecologically efficient tech-
niques of production that reduce waste, emissions and discharges.
Government policy: The governments of countries are increasing-
ly making it mandatory for all organisations to indulge in activities
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and development that are sustainable.

Public opinion: Organisations that conduct its activities in a man-
ner that are considered to be sustainable are viewed as doing the
right thing and are held in high regard. This helps these organisa-
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tions make or create a positive public opinion.

Financial drivers: Insurance and financing organisations deal in
a better way with organisations that follow sustainable practices.
Getting finances and insurance becomes easier.
New opportunities: Organisations that follow sustainable devel-
opment practices may also lead to the generation of new markets,
new technologies and new partnerships.
5. Issues of sustainable development and poverty can only

be addressed by developing collaborations between
_____________.
a. Governments b. Corporates
c. Social elements d. All of the above

n o t e s
6. Businesses play a critical role in the sustainable development

of economies. Which one of the following is not a reason
behind sustainable development by businesses?
a. Business’ interest
b. Financial drivers
c. World Bank mandate
d. New opportunities
Activity
Your client uses coal for its manufacturing activities. An increase in

the cost of coal has led to decrease in their profits. Advice the client
how they can contribute in sustainable development by adopting
S
alternatives to coal.
1.4 UN POST 2015 AGENDA

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The present situation is rife with business all over the world contrib-
uting towards UN goals and objectives. To leverage the situation, the
UN has established its development framework with the Millennium
Development Goals agenda coming to an end in 2015. Corporates and
governments all over the world can help in establishing the future pri-
M
orities of the UN. This includes joint efforts of all stakeholders such as
the government, citizens, corporations, consumers, workers, educa-
tors and investors from across the world.
What needs to be reiterated here is that the private sector has a piv-
N
otal role to play. Being the prime centre of economic activities around
the world, any social development activity or initiatives to improve the
standard of living within populations cannot take place without the
involvement of businesses.
The UN Millennium Development Goals ended in the year 2015. How-

ever, to define the future global development framework, the United
Nations led the process for the Post-2015 Development Agenda that
would succeed the Millennium Development Goals. The new frame-
work, which started from 2016 is called Sustainable Development
Goals.
The High Level Panel on the Post-2015 Development Agenda released

a report on 30 May 2013 and it was addressed as “A New Global Part-
nership: Eradicate Poverty and Transform Economies through Sus-
tainable Development,” The report lays out a universal agenda that
aims at eradication of extreme poverty from the world by 2030 and
achieve sustainable development.

n o t e s
The new post-2015 goals drafted by the panel in this report encourage
five big transformation shifts, which are:
1. People: We are determined to end poverty and hunger, in all
their forms and dimensions, and to ensure that all human beings
can fulfil their potential in dignity and equality and in a healthy
environment.
2. Planet: We are determined to protect the planet from degradation,
including through sustainable consumption and production,
sustainably managing its natural resources and taking urgent
action on climate change, so that it can support the needs of the
present and future generations.
3. Prosperity: We are determined to ensure that all human beings
can enjoy prosperous and fulfilling lives and that economic, social
and technological progress occurs in harmony with nature.
S
4. Peace: We are determined to foster peaceful, just and inclusive
societies which are free from fear and violence. There can be
no sustainable development without peace and no peace without
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sustainable development.
5. Partnership: We are determined to mobilise the means
required to implement this Agenda through a revitalised Global
Partnership for Sustainable Development, based on a spirit of
strengthened global solidarity, focused in particular on the needs
of the poorest and most vulnerable and with the participation of
M
all countries, all stakeholders and all people.
The goals and targets will stimulate action over the next 15 years in ar-
eas of critical importance for humanity and the planet. The inter-link-
age and integrated nature of sustainable development goals are of
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crucial importance in ensuring that the purpose of the new agenda is

realised. If we realise our ambitions across the full extent of the agen-
da, the lives of all will be profoundly improved and our world will be
transformed for the better.
The UN and global corporate sustainability organisations are devel-

oping yardsticks to help companies understand the most tangible and
sustainable development issues specific to their sector. They will not
only determine the most feasible and relevant business solutions, but
also measure and communicate impact and establish expected out-
comes for its contribution towards the achievement of global sustain-
able development goals.
7. Which of the following is not an area of critical importance

under the sustainable development goals?

a.
Politics b.
People

c.
Prosperity d.
Partnership

n o t e s
8. Post-2015 Development Agenda succeeds the Millennium

Development Goals. The new framework, which started from
2016, is called _____________.
Activity
Study the Sustainable Development Goals on the website of UNDP

and analyse them in the context of India.
1.5 THE COMPANIES ACT 2013 IN INDIA

The Companies Act, 2013, replaced the Companies Act, 1956, makes
provisions to govern all listed and unlisted companies in the country
and modernises India’s corporate governance rules. Some highlights
of the Companies Act, 2013 are:
S
At least one-third of a company’s board should be made up of in-
dependent directors at least one of these board members must be
a woman.
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Companies should disclose executive salaries as a ratio to the av-
erage employee’s salary.
Shareholders can file class-action law suits.
It has become mandatory for organisations to spend 2% of their
net profit on social development. By doing so, India has become
the first country in the world to make CSR an obligatory activity
M
for all business flourishing in India.
As per the Act, every company should set up a CSR board committee
consisting of at least three directors, one of whom must be indepen-
dent. The purpose of this committee is to ensure that “at least 2% of
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the average net profits of the company made during three immediate-
ly consecutive financial years” is spent on “CSR” activities. In case of
non-compliance, the board must disclose the reason for non-compli-
ance in the annual report.
The clause is applicable to any company incorporated in India, irre-

spective of whether its domestic or a subsidiary of a foreign company
with a:
Net worth of ` 5 billion or more (US$83 million)
Annual turnover of `10 billion or more (US$160 million)
Or net profit of ` 50 million or more (US$830,000) during any of the
previous three financial years.
9. Which of the following is not true for the Companies Act 2013?
a. At least one-third of a company’s board should be made
up of independent directors, at least one of the board
members must be a woman.

n o t e s
b. Companies should disclose the executive salaries as a ratio

to the average employee’s salary.
c. Shareholders cannot file class-action law suits.
d. An important provision pertaining to CSR includes 2%
requirement and India has become the first country in the
world to mandate CSR.
10. As per the Companies Act, every company should set up a CSR
board committee, consisting of at least _________ directors,
one of whom must be independent.
Activity
Take an organisation of your choice and determine the applicability
S
of the Companies Act 2013 to it. Write a note on it.
1.6 WORLD BANK GROUP GOALS 2030

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The World Bank is on the forefront of institutions which are com-
mitted to achieving their established goals of economic development
across countries by leveraging models like the free market economy
system. It demonstrates an ideology that integrates business goals for
growth with that of economic and social development. Even though,
there has been a decline in poverty across many countries in the past
M
few decades, the world still faces many complex social problems. Mil-
lions of people all over the world are still homeless, and despite of
the booming economy in many countries, there is still inequality and
social exclusion in the same society.
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The World Bank Group laid down 17 goals. It is important to mobilise

international and national efforts towards the achievement of these
goals which are as follows:
Goal 1: No Poverty (End poverty in all its forms everywhere)
Goal 2: Zero Hunger (End hunger, achieve food security and im-
proved nutrition, and promote sustainable agriculture)
Goal 3: Good Health and Well-Being for people (Ensure healthy
lives and promote well-being for all at all ages)
Goal 4: Quality Education (Ensure inclusive and equitable quality
education and promote life-long learning opportunities for all)
Goal 5: Gender Equality (Achieve gender equality and empower
all women and girls)
Goal 6: Clean Water and Sanitation (Ensure availability and sus-
tainable management of water and sanitation for all)
Goal 7: Affordable and Clean Energy (Ensure access to affordable,
reliable, sustainable, and modern energy for all)

n o t e s
Goal 8: Decent Work and Economic Growth (Promote Sustained,

Inclusive and Sustainable Economic Growth, Full and Productive
Employment and Decent Work for All)
Goal 9: Industry, Innovation and Infrastructure (Build resilient
infrastructure, promote inclusive and sustainable industrializa-
tion and foster innovation)
Goal10: Reduced Inequalities (Reduce inequality within and
among countries)
Goal 11: Sustainable Cities and Communities (Make cities and hu-
man settlements inclusive, safe, resilient and sustainable)
Goal 12: Responsible Consumption and Production (Ensure sus-
tainable consumption and production patterns)
Goal 13: Climate Action (Take urgent action to combat climate
change and its impacts)
S
Goal 14: Life Below Water (Conserve and sustainably use the
oceans, seas and marine resources for sustainable development)
Goal
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15: Life on Land (Protect, restore and promote sustainable
use of terrestrial ecosystems, sustainably manage forests, combat
desertification, and halt and reverse land degradation and halt
biodiversity loss)
Goal 16: Peace, Justice and Strong Institutions (Promote peaceful
and inclusive societies for sustainable development, provide ac-
cess to justice for all and build effective, accountable and inclusive
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institutions at all levels)

Goal 17: Partnerships for the Goals (Strengthen the means of im-
plementation and revitalize the global partnership for sustainable
development)
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For each goal, there are different targets. For each target, there are
different indicators.
HISTORY OF WORLD BANK GROUP GOALS 2030
In 2013, the World Bank Group set out two goals (twin goals) to mea-
sure the success in promoting sustainable economic development in
the world. These twin goals include:
Eradicating extreme poverty globally within a generation. This
states that the percentage of people living with less than $1.25 a
day to fall to no more than 3 per cent globally by 2030
Promoting “shared prosperity”, an improvement in living stan-
dards for all citizens irrespective of their caste, education level or
race, not just the already privileged people. This includes fostering
income growth of the bottom 40 per cent of the population in every
country.

n o t e s
The goals were set in order to monitor the World Bank’s effectiveness
in delivering results.
The World Bank has solemnised that these goals would be pursued
in a sustainable manner, socially, economically and environmentally
over a period of time and across generations. It was decided that the
World Bank would achieve these goals in three ways which are:
1. Promoting sustainable and inclusive economic growth. This can
be done by increasing private investment in infrastructure.
2. Investing in activities critical to the growth and development of
a country over a long term such as early childhood development;
equal opportunities in education, health, and training; and
acquisition of job skills.
3. Inculcating a resilient culture and practices that would come in
S
handy in case of disasters, pandemics and migration.
Poverty reduction and promoting shared prosperity can be achieved

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only when there is social and environmental development. It is the re-
sponsibility of the present generation to ensure that the long term fu-
ture of the planet and its resources is secure and generations to come
get to use them.
It is evident that these two monetary indicators do not sufficiently

represent all the dimensions of poverty to align with their mission.
M
However, insertion of every dimension in an explicit way in a limit-

ed number of measures is likely to create a difficulty in adoption and
understanding of the objectives. While monetary measures define the
bank’s goals, its focus towards welfare remains multi-dimensional.
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1.6.1 INDIA AND WORLD BANK GROUP PARTNERSHIP

STRATEGY
India with its growing economy and demographic capabilities is in a

position to reduce global poverty and support prosperity growth. Even
though the country has the largest number of people who have got rid
of poverty but are still on the edge, the country is also struggling with
the burden of poverty with the largest number of poor people in the
world. The growth of India’s economy and its human development is
one of the most spectacular global achievements in the past few de-
cades. In a span of 5 years between 2005 and 2010, 53 million people
were relieved from poverty as India’s share of global GDP rose from
1.8 to 2.7 per cent. A Country Partnership Strategy (CPS) is planned
for a period of 5 years. CPS is important because the World Bank as-
sistance programmes are guided by it and these set out how the World
Bank Group proposes to build a growing partnership with the Gov-
ernment of India (GOI). The latest CPS in place was created in 2013
and is valid for a period of 5 years from 2013 to 2017.

n o t e s
As of May 2018, the CPS framework (CPF) for years 2018-2022 is un-
der consideration. The process for preparation of India-CPS 2018-22
has been initiated. It is expected that the new CPF for India would
identify key objectives and development results. These objectives and
results are used as reference by the World Bank Group (WBG) while
supporting a member country in its efforts to end extreme poverty
and boost shared prosperity in a sustainable manner.
The World Bank Group’s overarching objective of the Country Part-

nership Strategy (CPS) for the period FY2013-17 has the objective to
support poverty reduction and increase shared prosperity in India.
There is close alignment between vision for development stated in the
12th Five-Year Plan (FY2013-17) of India, calling for ‘faster, sustain-
able, and more inclusive growth’ with a focus on poverty reduction,
group equality, regional balance, empowerment, environmental man-
S
agement, and employment and the objective of the CPS. As per the
plan, the vision is to reduce poverty rate by 10 percentage points, cre-
ation of 50 million new work opportunities in the non-farming sector
and increase the average schooling of the population to 7 years. Elim-
IM
ination of social gaps on the basis of gender and schooling, reduction
in infant mortality, and improvement in girl to boy child ratio is also
on the agenda.
Achieving the twin goals for India is quite challenging because of the
low per capita income and deep and complex development challeng-
es. The World Bank is aware that it might not be able to provide the
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amount of finances actually required for meeting the said goals. How-
ever, the amount might act as a catalyst for change. This is the reason
World Bank continues financing support for India.
An assessment of the Indian poor had revealed that there are a lot of
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people who have risen above the poverty level recently and whose
consumption levels are close to the poverty line and may slip into the
previous level again as a result of shocks such as illness, natural disas-
ters, crop failures, etc. the people who have income at least twice the
poverty line are considered as non-poor.
The CPS for India (2013-2017) outlined a program for the lending of
$3 billion to $5 billion every year during the four years. Under this
program, 60% of the financing was to be allocated for state govern-
ment-backed projects. From this amount, 30% allocation shall be for
the low-income or special category states with extremely high costs of
public services.
It is expected that with CPS and inclusive growth strategies, pover-

ty shall be reduced to 5.5% of the population by the year 2030. This
would be a decrease from 29.8% in 2010. The objective is also to lift up
the proportion of population above the threshold of poverty to 41.3%
from 19.1%. The key strategic focus for the next five years will be on
the following areas:

n o t e s
Integration: It involves improvement in infrastructure including

public and private investments.
Transformation: It is estimated that by 2031, approximately 600
million people will start residing in urban India. The engagement
on rural-urban transformation especially pertaining to urbanisa-
tion is believed to become more intense as the strategy period pro-
gresses. It will focus on supporting the efforts of national, state and
city governments to improve the management and liveability of
medium-sized cities.
Inclusion: A strong focus on human development and inclusive
growth policies can immensely help not only economic integra-
tion but also rural-urban transformation and can further benefit a
large population. India’s fragmented and unequal healthcare sys-
tem together with poor health care system and poor nutritional
S
outcomes create a negative impact on its ability to compete. The
World Bank Group will support the governments and states in the
improvement of their indices pertaining to nutrition, education
with a more pronounced focus on quality. Efforts to improve fi-
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nancial accessibility and social protection coverage >90% of the
labour force in the informal sector will also be made.
11. The World Bank has set up certain business goals for
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growth that can be achieved in line with economic and

social development. In order to achieve these goals, the
organisation is trying to mobilise international and national
efforts. One of the steps in this regard is to eradicate
extreme poverty globally within a generation. This states
N
that the percentage of people living with less than $1.25 a

day should fall to no more than __________ globally by 2030.
a. 3%
b. 3.5%
c. 4%
d. 4.5%
12. Intangible dimensions of welfare does not include
a. education
b. nutrition and health
c. government accommodation
d. infrastructure

n o t e s
13. In a span of 5 years between 2005 and 2010, 53 million people

were relieved from poverty as India’s share of global GDP rose
from 1.8% to ______.
a. 2.7%
b. 2.8%
c. 2.9%
d. 3.0%
14. Which of the following is not a key strategic focus area of CPS
2013-17
a. Integration
b. Transformation
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c. Inclusion
d. Privatisation
IM
Activity
Using the Internet, find the key strategic focus of India in reducing
poverty and supporting prosperity growth.
BUSINESS ORGANISATIONS AS
1.7
M
SYSTEMS
A system is a group of subsystems combined to achieve an overall
goal of an organisation. It consists of input, processes, outputs and
outcomes with continuous feedback among different sub-systems. All
N
sub-systems are aligned in such a way that if one part of the system
is eliminated or does not perform well, the nature of the system is
changed.
In the business context, the systems theory helps management to have

a holistic view of business processes. In the past, managers usually fo-
cused on one part of business at a time and then shift their attention
to another part. However, there are a number of processes carried out
simultaneously in an organisation. In such a case, in spite of having
competent departments that operated on their own, the overall effec-
tiveness of the organisation suffered due to a lack of integration.
Now, management is recognising the significance of integrating var-

ious departments of the organisation. For example, by coordinating
central offices with other departments or one department to the other.
With the systems approach, management can now identify problems
in larger patterns of interactions. Now managers focus on behaviours

n o t e s
that determine events rather than reacting to events that always took
place in the past.
In the context of CSR, the systems approach provides a framework for

implementing fair practices and strategies at all management levels.
This helps in establishing a basis for sustainable development. More-
over, integrating CSR in organisational practices and strategies pro-
motes the well-being of employees and other stakeholders.
Activity
Using the Internet, find the importance of adopting systems ap-

proach.
1.8 SUMMARY
S
CSR is a way of an organisation to monitor its internal operations so
as to ascertain that local laws, international norms, and ethical stan-
dards are being complied with. CSR is considered to be a vital ele-
IM
ment in a corporate’s relationship with the society in which it func-
tions and its stakeholders including governments and individuals.
One of the most salient outcomes of globalisation has been an in-
crease in the efficiency of trade operations and also an increase
in the global competition. Further now there is an availability of
many convenient sources of transportation, availability of ad-
M
vanced technology machinery for manufacturing, better modes of

communication facilities through information technology etc.
There are many distinct dimensions of globalisation of which the
most important ones are economic, social and sustainable devel-
N
opment.
Nobel Laureate Simon Kuznets first introduced the concept of sus-
tainable development, which has now assumed a large dimension
in the field of corporate social responsibility. Sustainable develop-
ment and corporate social responsibility together aim to make a
judicious use of resources for economic gain such that economic
outcomes today are replicable in future too.
Leaders of 189 countries met at the United Nations in New York
in September of the year 2000 to endorse Millennium Declara-
tion. This declaration was a symbol of the UN and member coun-
tries towards their commitment to work together in order create
an environment of safety, prosperity and equity in the world. A
roadmap to fulfil the commitment was established that spelled out
eight time-bound and measurable goals that were targeted to be
achieved by 2015. These eight goals have named as the Millennium
Development Goals.
The new Companies Act of 2013 replaced the old Companies Act,
1956. It makes provisions to govern all listed and unlisted compa-

n o t e s
nies in the country and modernises India’s corporate governance

rules.
The World Bank Group laid down certain goals to mobilise inter-
national and national efforts towards the achievement of these
goals. The institution under its agenda is trying to:
eradicate extreme poverty globally within a generation
promote “shared prosperity”, an improvement in living stan-
dards for all citizens irrespective of their caste, education level
or race, not just the already privileged people
The World Bank Group's overarching objective of the Country
Partnership Strategy (CPS) for the period FY2013-17 has the ob-
jective to support poverty reduction and increase shared prosperi-
ty in India. There is a close alignment between vision for develop-
S
ment stated in the 12th Five-Year Plan (FY2013-17) of India, calling
for 'faster, sustainable, and more inclusive growth' with a focus
on poverty reduction, group equality, regional balance, empower-
ment, environmental management, and employment and the ob-
IM
jective of the CPS.
A system consists of a collection of smaller parts or subsystems
that are integral to each other and work in harmony to achieve
a common objective. An organisation is composed of a system of
people. Every system is made up of components like input, out-
puts, process and outcomes. Feedback among components is con-
M
tinuous and on-going.
key words
Economy: An area of the production, distribution and consump-

N
tion of goods and services by different agents.

Foreign Direct Investment (FDI): An investment in the form
of a controlling ownership in a business in one country by an
entity based in another country.
Gross Domestic Product (GDP): The monetary value of all fin-
ished goods and services produced within a country’s borders
in a specific time period.
Information technology (IT): The application of technology to
store, retrieve, transmit and manipulate data or information of-
ten in the context of a business or other enterprise.
Natural resources: Resources that occur within the environ-
ment in their original and natural form, undisturbed by human-
ity. They take years to form without the intervention of humans.
Economy: An area of the production, distribution and consump-
tion of goods and services by different agents.

n o t e s

Gross Domestic Product (GDP): The monetary value of all fin-
ished goods and services produced within a country’s borders
in a specific time period.
Information technology (IT): The application of technology to
store, retrieve, transmit and manipulate data or information of-
ten in the context of a business or other enterprise.
Natural resources: Resources that occur within the environ-
ment in their original and natural form, undisturbed by human-
ity. They take years to form without the intervention of humans.
S
1.9 DESCRIPTIVE QUESTIONS
1. Define globalisation. Explain the economic impact of
globalisation.
IM
2. What do you understand by sustainable development?
3. What is the Post-2015 Development Agenda? Explain its areas of
critical importance.
4. What is the Indian Companies Act 2013? Mention its highlights
and explain 2% requirement clause.
M
5. Write a short note on World Bank Group goals of 2030.

6. What is Country Partnership Strategy (CPS)? Explain in brief
the program highlights of CPS 2013-17.
N
1.10 ANSWERS AND HINTS
ANSWERS FOR SELF ASSESSMENT QUESTIONS
Topic Q. No. Answers

Globalisation and its Dimen- 1. d. All of the above
sions
2. b. Convergence Hypothesis
3. d. Both a and c
4. d. All of the above
Role of Business in Sustaina- 5. d. All of the above
ble Development
6. c. World Bank mandate
UN Post 2015 Agenda 7. a. Politics
8. Sustainable Development Goals

n o t e s

The Companies Act 2013 in 9. c. Shareholders can file
India class-action law suits.
10. Three
World Bank Group Goals 11. a. 3%
2030
12. c. government accommodation
13. a. 2.7%
14. d. Privatisation
HINTS FOR DESCRIPTIVE QUESTIONS

1. Globalisation refers to the process by which businesses or other
organisations develop international influence or start operating
S
on an international scale. Refer to Section 1.2 Globalisation and
its Dimensions.
2. Sustainable development and corporate social responsibility
IM
together aim to make a judicious use of resources for economic
gain such that the economic outcomes today are replicable in
future too. Refer to Section 1.3 Role of Business in Sustainable
Development.
3. To define the future global development framework, the United
Nations led the process for the Post-2015 Development Agenda
M
that would succeed Millennium Development Goals. Refer to

Section 1.5 UN Post 2015 Agenda.
4. The new Companies Act of 2013 replaced the old Companies
Act, 1956. It makes provisions to govern all listed and unlisted
N
companies in the country and modernises India’s corporate

governance rules. Refer to Section 1.6 Indian Companies
Act 2013.
5. The World Bank Group laid down certain goals to mobilise
international and national efforts towards the achievement of
these goals. Refer to Section 1.7 World Bank Group Goals 2030.
6. The World Bank Group's overarching objective of the Country
Partnership Strategy (CPS) for the period FY2013-17 has the
objective to support poverty reduction and increase shared
prosperity in India. Refer to Section 1.7 World Bank Group
Goals 2030.
1.11 SUGGESTED READINGS & REFERENCES
SUGGESTED READINGS
SanjayK Agarwal. (2008). Corporate Social Responsibility in India.
Response Books.

n o t e s
David Katamba (2012). Principles of Corporate Social Responsibili-

ty (Csr): A Guide for Students and Practicing Managers in Develop-
ing and Emerging Countries; Strategic Book Publishing & Rights
Agency, LLC
Dr K S Ravichandran (2016). Corporate Social Responsibility –
Emerging Opportunities and Challenges in India. Lexis Nexis
E-REFERENCES
(2018). Worldbank.org.Retrieved 6 April 2018, from http://www.
worldbank.org/en/news/press-release/2013/04/11/World-Bank-
Strategy-forIndia-Boosts-Support-for-Low-Income-States
Sustainable Development Goals. (2018). UNDP. Retrieved 6 April
2018, from http://www.undp.org/content/undp/en/home/sustain-
S
able-development-goals.html
Sustainable development goals - United Nations. (2018). United
Nations Sustainable Development. Retrieved 6 April 2018, from
IM
http://www.un.org/sustainabledevelopment/sustainable-develop-
ment-goals/
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C h a
2 p t e r
CORPORATE STAKEHOLDERS
CONTENTS
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2.1 Introduction
2.2 Business and Society
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2.2.1 How is Society Dependent on Business?
2.2.2 How is Business Dependent on Society?
Activity
2.3 Stakeholder Concept
2.3.1 Types of Stakeholders and their Influence
M
2.3.2 Stakeholders versus Shareholders

Activity
2.4 From Shareholder Value Theory to Stakeholder Theory
N

Activity
2.5 Stakeholder Salience Model and Stakeholder Engagement
Activity
2.6 Dynamic Environment of Business
Activity
2.7 Summary

30 Corporate Social Responsibility
n o t e s
CSR ACTIVITIES OF TATA MOTORS-PROVIDING

STAKEHOLDER VALUE
(Source: https://www.zigwheels.com)
Tata Motors, one of the major profit making companies under the
S
TATA Group has made several efforts towards organisational sus-
tainability. Sustainability for the company is not limited to making
huge profits but focuses on honesty and transparency towards the
IM
stakeholders, environmental protection, promoting human rights
and social issues prevalent in the world. The company has been
achieving the same through the various CSR initiatives adopted
by it over the years, some of which are as follows:
Pollution control: In 1992, Tata Motors entered into a joint
venture with Cummins Engine Company, USA, to introduce
M
fuel emission control technology in India. It has been associ-

ated with internationally renowned engine consultants such
as Ricardo and AVL, to manufacture environment friendly
engines to be used in its automobiles. Tata Motors has buses
that use compressed natural gas (CNG) and also launched its
N
passenger car, Indica that runs on CNG. Over the years, Tata
Motors has contributed to several research work carried out
in advanced emission-testing laboratories.
Restoring ecological balance: Tata Motors has planted trees
in regions of its operations. For instance, it has planted over
2.4 million trees in Jamshedpur, about half a million trees
in Pune, etc. The company insists that all the suppliers use
alternate material for packaging instead of wood boxes to
save trees. In Pune, the treated water from the manufactur-
ing plant is conserved as lakes that attract several species of
birds from all over the world. The CSR programme, “Vasund-
hara” strives to contribute to environmental sustainability by
facilitating the judicious use and augmentation of natural
resources.
Employment generation: Tata Motors encourages the family
and friends of its employees to engage in productive activities
such as re-cycling of scrap wood into furniture, welding, steel

CORPORATE STAKEHOLDERS 31
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scrap baling, battery cable assembly, etc. to generate employ-

ment opportunities and promote financial security. The Tata
Motors Grihini Social Welfare Society is an initiative to sup-
port its employees’ women dependents who now manufacture
a range of products, including pickles, electrical cable har-
nesses, etc. The CSR programme, “Kaushalya” aims to build
the capacity of the unemployed youth through vocational and
industrial training.
Economic capital: Tata Motors, Lucknow region has created
two Societies; Samaj Vikas Kendra and Jan Parivar Kalyan
Santhan for promoting rural development and offering health-
care to the rural areas, respectively. These societies have made
several efforts in the fields of health, education and women
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empowerment in rural areas. The CSR initiative, “Aadhaar” is
aimed at serving the socio-economically backward, scheduled
castes and scheduled tribes.
Human capital and community development: Tata Motors
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has initiated several scholarship programs to promote higher
education among underprivileged children. “Vidyadhanam”,
a scholarship program of Tata Motors supports thousands of
learners at different stages of their educational journey. The
organisation has entered into a Public-Private Partnership
(PPP) for upgrading the Industrial Technical Institutes (ITI)
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across the country. Also, the CSR initiative, “Amrutdhara” is

aimed towards providing safe drinking water across the coun-
try.
International initiatives: The CSR intervention of Tata
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Motors is not confined to India alone but has spread across

boundaries. The company has partnered with some reputed
non-government organisations (NGOs) in various nations to
serve and support marginalised communities.

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learning objectives

>> Explain how business and society depend on each other
>> Discuss the concept of stakeholder
>> Describe the shareholder and stakeholders theories and
changing perspectives
>> Explain the importance of stakeholder engagement
>> Describe the dynamic nature of business environment
2.1 INTRODUCTION
The previous chapter discussed about the concept of globalisation and
S
CSR. It was discussed that CSR helps an organisation to monitor its
internal operations so as to ascertain that the local laws, international
norms and ethical standards are being complied with. CSR is consid-
IM
ered to be a vital element in a business’s relationship with the society
in which it functions and affects its stakeholders.
This chapter begins with a discussion on the interdependent nature

of business and society. These two entities depend on each other for
mutual coexistence and have a symbiotic relationship. A business is a
reflection of the society that it operates in and relies on its resources
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for its sustenance. At the same time, the society depends on business-
es for conversion of its raw materials into tangible outcomes for con-
sumption and economic development.
There are various people, group or organisations that affect or can

N
be affected by the activities of a business. These entities are known

as stakeholders. Apart from the stakeholder, the chapter discusses
the concept of shareholders who have a financial stake in a business,
hence are as important as other stakeholders. Shareholders are al-
ways stakeholders in a business; however, stakeholders are not always
shareholders.
The stakeholders of a business may be of different types and can exert

their influence in many ways. Therefore, it is important for a business
to understand the needs of each stakeholder and engage with them
to create harmony and satisfaction. This can be done by a careful
thought out and ongoing way to engage the stakeholders in organisa-
tional decision making processes.
The chapter also discusses about the dynamic nature of the business
environment. Rapid change in marketplace activity, evolving prod-
ucts, expanding markets, advancing technology, social revolutions,
increasing customer awareness, etc. are compelling businesses to be
aware of and to react to these changes in the most efficient manner; if
they want to survive in the long run.

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2.2 BUSINESS AND SOCIETY

Business can be defined as any organisation that is engaged in eco-
nomic activities like trade of goods, services or both to its consumers
in exchange of a profit. Society on the other hand, can be defined as
a community, a nation or a broad group of people with similar tra-
ditions, values and interests. When speaking of business and society
relationships, we consider society in terms of local community, nation
and/or specific groups of stakeholders (consumers, employees, inves-
tors, environmentalists, etc.)
A society consists of a group of people or organisations/institutions

that are grouped together as they represent a common cause or share
a set of common belief about a particular issue. Since a society is cre-
ated by a group of individuals belonging to the same segment or sim-
S
ilar section, business forms a part of society. Businesses cannot stand
alone. For example, they need people (customers) to buy their prod-
ucts and services. Society offers stakeholders to a business, which is
necessary for strengthening the market position of the business and
IM
earning a profit.
The business and society relationship is studied in the context of eco-

nomic, social, ethical and environmental challenges that they both
face. Though, the business system has served society well, in the re-
cent decades, criticism of business and its practices has become very
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common. The business system and society faced a major blow when
the BP oil spill occurred in 2010. It was one of the worst environmen-
tal disasters in history and had put a severe impact on the ecology.
However, we cannot deny the fact that businesses are important for
bringing prosperity in the society. Business creates goods and services
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that are required to meet the needs and demands of the people, living
in a society. Through their commercial operations, businesses actively
contribute to the progress in the society.
Exhibit
BP Deepwater Horizon Oil Spill
(Source: www.telegraph.co.uk)

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‘Deepwater Horizon oil spill of 2010’, also known as ‘Gulf of Mexico

oil spill of 2010’ is the biggest sea oil spill in history. The oil spill was
caused by an explosion on the Deepwater Horizon oil rig, located in
the Gulf of Mexico on April 20, 2010. The rig was owned by offshore
oil drilling company Transocean and hired by oil company BP (for-
merly called British Petroleum).
The rig was placed over an oil well, positioned on the seabed 4,993
feet below the surface and extended approximately 18,000 feet into
the rock. On the day of the accident, a surge of natural gas blasted
through a solid core that was installed to seal the well for the future
use. However, the core was not strong enough to bear the pressure
of releasing natural gas.
The explosion killed 11 workers and injured more than 17 people.
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The rig sank into the water, breaking the riser, which resulted into
the leakage of oil into the gulf. As per U.S. government officials,
around 60,000 barrels of oil spilled into the water per day.
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In May, 2010 a containment dome was tried to place over the bro-
ken riser to close the path through which oil was leaking. However,
it did not work. A 2014 report by the U.S. Chemical Safety Board
claimed that the blind shear rams had activated sooner than previ-
ously thought and may have actually punctured the pipe.
By July 12, a government-commissioned panel of scientists claimed

M
that 4.9 million barrels of oil had already been leaked into the gulf.
It was only in early September when BP gained success in remov-
ing the defective blowout preventer (BOP) and replace it with a
functioning BOP.
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CLEAN-UP EFFORTS
The petroleum that had leaked from the well formed a slick that
spread over thousands of square miles of the Gulf of Mexico and pol-
luted an estimated 1,100 miles (1,770 km) of shoreline. The spread
was so huge that the oil and tar balls even reached the beaches of
Mississippi, Alabama and Florida.
(Source: blog.skytruth.org)

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The National Response Team, U.S. Coast Guard and the Environ-
mental Protection Agency (EPA) started various clean-up efforts.
However, the spill badly affected many industries like fishing, tour-
ism, etc. Moreover, it was not easy to remove oil from many areas,
as they were difficult to reach or the procedures involved in clean-
ing the oil could result into greater harm on the ecosystem.
ENVIRONMENTAL COSTS
The leaked oil plastered thousands of birds, mammals and sea tur-
tles. Dolphins were diagnosed with an unusual Brucella infection
that was caused due to the oil spill. A December 2013 study of liv-
ing dolphins in Barataria Bay, Louisiana, found that roughly half
were extremely sick; many suffered from lung and adrenal disorders
known to be linked to oil exposure. Some 1,100 whales and dolphins
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had been found stranded by 2015, a figure representing only a tiny
percentage of the animals affected.
IM
Many birds died due to the harmful effect of the oil. The brown
pelican, a rare species of birds, was affected from this incident, the
most. A 2014 study projected that perhaps 12 percent of the brown
pelicans and more than 30 percent of the laughing gulls in the area hit
by the spill had been wiped out. In addition, eggs of white pelicans
contained apparent amounts of contaminants that resulted from
the BP spill.
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N
(Source: www.britannica.com; www.telegraph.co.uk)
During 2010, around 65,000 endangered turtles died and by late

2012, more 1,700 turtles had been found dead. Several species of
fish and reefs were also exposed to the toxic effects of the oil. A
2014 study showed that many fish species, including tuna, likely de-
veloped heart defects after exposure to polycyclic aromatic hydrocar-
bons (PAHs) from the oil. Many areas of the seabed converted into
dead zones as numerous sedentary organisms had suffocated and
died by the material.
(Source: http://www.britannica.com/event/Deepwater-Horizon-oil-spill-of-2010)

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2.2.1 HOW IS SOCIETY DEPENDENT ON BUSINESS?
Business plays a vital role in the development of society. Successful

commercial operations are the primary benefits of business for the so-
ciety. Businesses are primarily laid with an objective to manufacture
and supply goods or services for their customers. Besides creating val-
ued goods and services businesses also provide employment opportu-
nities for the people of a society. They create jobs for individuals, dis-
tributors, suppliers and help them support their families. Businesses
pay taxes to the government, which helps in the overall development
of society. Let us discuss the major points that show how society is
dependent on businesses:
Supply of goods and services: Business provides goods and ser-
vices to the society thus, fulfilling the various needs and demands
of the society.
S
Harnessing capital and other resources in production: Busi-
nesses take capital and other resources from society and employ
those in productive activities. Thus, they harness capital in eco-
IM
nomic activities to exploit natural resources in utility creation or
value addition. This ultimately helps in generating employment
opportunities, increasing production and utilisation of resources.
Provision of employment: Businesses provide employment to a
large number of individuals and help in generating income, neces-
sary for the overall growth of the society.
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Research, development and innovation: Business continuously

makes research on developing new products and methods, finding
better uses of resources and making new innovations. This ulti-
mately helps in meeting the needs of society in better ways.
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Contribution to social development: Businesses also contribute

to the social development. Business growth increases national in-
come, which leads to social development. Profitable businesses
provide a huge sum of money as corporate taxes to the govern-
ment, which is used by the government in the development activ-
ities of the country. Moreover, corporate businesses contribute a
part of their profit for CSR activities, which ultimately increases
social welfare.
Contribution in the development of education, science and tech-
nology: Businesses contribute toward the development of educa-
tion, find new technology and apply science for better production.
This ultimately helps in the upliftment of the society.
Development of international relations: Businesses import nec-
essary commodities and export new or surplus products to over-
seas nations. In this way, they help in strengthening the relation-
ships with other countries.
Job creation: When businesses are set-up, they create jobs; thus,
they help the society in achieving a better life.

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Development of new goods and services: Businesses are useful

because they try to develop the goods and services that people
aspire for but might not have been developed till now. It is also
possible that certain goods and services that have been developed
by certain businesses fall short of the people’s requirements and
might need to be redeveloped or worked upon to create something
better.
Development of new processes and technologies: Research and
development activities of the businesses lead to the development
of new processes and technologies that can be further developed
to cater to the needs of the society. For example, earlier there used
to be only wired keyboards that came along with the computer sys-
tems. However, due to the development of wireless technologies,
people can work on wireless keyboards.
S
Spreading international standards and practices: Whenever
businesses are started by entrepreneurs, they try to assimilate the
international standards and best practices so that the final prod-
ucts and services are of advanced and acceptable quality. For ex-
IM
ample, Just-in-time and lean production practices were first prac-
ticed by Henry Ford but have now been accepted all over the world.
Skilling up people: When businesses set up new factories, pro-
duction lines and other offices where people work, they are also
taught to work upon new technologies and processes. This helps
in increasing the skills of employees. For example, in the field of
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computer testing, new automation tools are developed at lighten-

ing speeds and the IT organisations are expected to remain up to
date with the same.
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2.2.2 HOW IS BUSINESS DEPENDENT ON SOCIETY?
As society needs business, business also needs society for its sustain-
able existence. Businesses produce goods and services, but it cannot
do this without the help of society. Let us discuss why businesses need
society:
Need of capital and other resources: To operate successfully, a
business needs capital and other resources that are available to
the society. For example, a business cannot run without employ-
ees and human resource is one of the major resources existing in
society. Successful operations of a business not only depends on
employees, but also on resources like suppliers, retailers, whole-
salers, distributers, etc. which form an important part of a society.
Moreover, a business needs funds for ensuring its smooth opera-
tions. These funds are also made available by the society through
investors, banks, creditors, government and other financial insti-
tutions.
Need to sell products/services: Customers are an important part
of society and the very reason for the existence and survival of the

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businesses. The success of a business depends on the customer’s

acceptance to the product/service offered by the business.
Need to gain information: The successful execution of business
largely depends upon the accessibility of various types of infor-
mation, such as the market, technological, economic and political
information. A business needs these information to make effective
decisions on its functioning. In order to gain these information, a
business again depends on society.
Business exists to serve society: The main purpose of establish-
ing businesses is to cater to the needs of the society and its people.
In the long run, the interests of the stakeholders merge with the
interests of the society and communities.
Embed values in the business: Societies affect the business en-
tities and inspire them to address the social and environmental
S
issues facing the society. This also encourages the organisations in
developing social and environmental priorities as part of business
planning efforts.
IM
Source of innovation: Organisations produce goods, services, pro-
cesses and technologies. All these are inspired from and are devel-
oped for the society only. In the absence of a society, the organisa-
tions would not be able to justify the creation or development of
new products or services.
Society lets the organisation take into account the negative ex-
M
ternalities: Nowadays, the organisations are increasingly becom-

ing aware of the costs associated with the negative externalities
created by them. The society also reminds them that it is the or-
ganisation’s duty to create ways in which they can compensate the
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costs associated with the negative externalities caused by them.

Identification of social risks and their resolution: Organisations
work within the ambit of society and communities and derive the
resources from the society. The presence of society lets them ef-
fectively identify the social risks associated with the operations of
the organisations. After the social risks have been identified, the
organisation can make provisions for addressing them.
Business depends on socio-cultural factors: The socio-cultural
factors of the society impact the business operations of the organ-
isation. Socio-cultural factors include: lifestyles, buying habits,
education level, emphasis on safety, religion and beliefs, health
consciousness, sex distribution, average disposable income lev-
el, social classes, family size and structure, minorities, attitudes
towards saving and investing, attitudes towards green or ecolog-
ical products, attitudes towards for renewable energy, population
growth rate, immigration and emigration rates, age distribution
and life expectancy rates, attitudes towards imported products
and services, attitudes towards work, career, leisure and retire-
ment, and attitudes towards customer service and product quality.

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Thus, you can see that society and business create an interactive sys-
tem. Both of them need each other and both of them influence each
other. Action of one has a direct impact on the other. In other words,
despite being separate identities, both of them are connected to each
other. Business is an integral part of the society and the society makes
an important aspect of business decisions. Therefore, it becomes the
responsibility of both to help each other to survive and preserve the
surrounding, in which both exist. Together, they both need to handle
environmental problems, poverty, health issues, terrorism and many
more to make this world worth living.
1. _________refers to a community, a nation or a broad group of

people with similar traditions, values and interests.
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2. Society offers stakeholders to a business, which is necessary
for strengthening the market position of the business and
earning a profit. (True/False)
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3. Successful commercial operations are the primary benefits of
_________for the society.
4. Which of the following points shows that society is dependent
on businesses?
a. Supply of goods and services
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b. Provision of employment
c. Research, development and innovation
d. All of the above
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Activity
Write down the benefits of your organisation to the local communi-

ty. If you are a student, identify an organisation of your choice and
write down the benefits it offers to the community.
2.3 STAKEHOLDER CONCEPT

The term stakeholder has become a common term in the last few de-
cades of the 20th century, used in reference to a person or a group of
people with a legitimate interest in a project or business entity. An in-
dividual or a group of people who get affected or can affect the actions
of a business are known as corporate stakeholders. Stakeholders can
be categorised as:
Primary stakeholders: Primary stakeholders have a direct stake
in the activities and success of a business. Examples of primary
stakeholders include customers, suppliers, local community, em-
ployees, etc.

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Secondary stakeholders: Secondary stakeholders, though have a

mere representational stake in a business, can have a major influ-
ence on the public standing and reputation of the business. Exam-
ples of secondary stakeholders are civic bodies, media, competi-
tors, regulatory authorities, government bodies, etc.
Stakeholders include the following:

Customers: Customers are external stakeholders of an organisa-
tion. They do not have any direct relationship with the organisa-
tion. However, customers use the goods and services that are pro-
duced or provided by the organisation. The sales and revenue of
the organisation depend upon the customers of the organisation.
That is the prime reason organisations often pronounce that cus-
tomer is the king. As a stakeholder, customers are concerned with
value, quality, customer care and ethical products. For example,
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when a person A buys an A.C. from an electronics company B,
A becomes the customer of B and if he does not get the required
kind of customer care, he may become annoyed and never buy any
products of B.
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Employees: Organisations can provide or produce the best quality
goods and services to its customers only when its human resources
or the employees proactively do their work. As a stakeholder, em-
ployees are concerned with rates of pay, job security, compensa-
tion, respect, truthful communication, appreciation, acknowledge-
ment and recognition. When an organisation treats its employees
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fairly in an appropriate manner, motivates them in every way,

plans for their training and development, the employees develop a
sense of loyalty towards the organisation and do their jobs with all
conviction and in an immaculate manner.
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Shareholders: Shareholders are in a sense owners of the compa-

ny. It is important for the organisation to conduct its operations in
a manner that would help in maximising the value of its shares in
the share market. When the value of shares increases, the value
of shares held by the shareholders increase. There are certain or-
ganisations that sell a part of their ownership in the form of shares
to general public. When traders and general public buy shares,
they become a part owner in the organisation. For example, as-
suming that an organisation has kept 50% shares with the owners
and have listed the remaining 50% in the stock market for general
public to subscribe. If the 50% shares equal 50,000 and Mr. A pur-
chased 1000 shares; then Mr. A becomes the owner of 1% shares of
the organisation.
Suppliers: Suppliers are also stakeholders in organisations be-
cause they depend on the organisation for continuous orders. It
is the duty of the suppliers to provide best quality materials at the
quoted prices so that the organisation in turn can produce supe-
rior quality products that would fetch good prices in the market.
For example, a supplier X supplies bread to a fast food chain. If

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the business of the fast food chain decreases, it will also lead to
decrease in business and orders for supplier X.
Local community: Organisations derive resources from local com-
munities and societies. They also sell their products and services
in the local communities. If the organisation produces any harmful
products or engages in anything unlawful or illicit, its impact will
be felt by the society. The organisations must take into account the
interest of the communities while carrying out its planning and
decision making activities. For example, when a new coal-based
power plant is being planned, it must be analysed as to how it will
affect the surrounding communities. If any negative effects are
foreseen, steps must be taken to moderate them.
Media: For an organisation, media acts as a secondary stakeholder
because media helps in shaping up the public opinion and acts as
S
a source of information for the general public. For example, busi-
nesses use social media (newest type of media) to advertise their
products and services in order to target customer groups better.
Business
IM
partners: During the course of time, organisations de-
velop certain loyal relationships with a set of associates. The busi-
ness along with its partners develops certain shared goals, vision
and strategies to conduct the business. Business partners also ex-
pect that the business operates in the most ethical manner. For ex-
ample, if the business partner is of such a nature who has invested
a sum of money or initial capital in the business and gets a fixed
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percentage of profit; in such a case, the business partners concern

would be to get a consistent share of profit over the years.
Competitors: Competitors also act as stakeholders of a business
organisation because they are directly or indirectly affected by
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the organisation’s business. For example, if an organisation in

the same industry follows certain unethical practices, it may also
impact the reputation of other organisations (competitors) in the
same industry.
Future generations: While debating about the whole stakeholder
theory, it must be remembered that sustainable development is at
the core of it. It is the duty of the organisations to ensure that the
future generations are able to live in harmony and do not suffer (in
future) as a result of organisation’s misadventure.
NGOs: Of late, the NGOs have emerged as important stakeholders
that manage the process of globalisation.
An internal memorandum at the Stanford Research Institute in 1963

used the concept of stakeholders for the first time. As per this memo-
randum, stakeholder was defined as those groups without who support
the organisation would cease to exist. Since this definition is focused
only on organisation, the academicians prefer the definition given by
Freeman (1984) where a stakeholder is defined as any group or indi-
vidual who can affect or is affected by the achievement of the organisa-

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tion objectives. Thus, the concept of stakeholder includes every entity

which has an interest or a stake in the activities of a business. These
entities can be categorised into two groups:
Internal stakeholders: Individuals and parties within the organ-
isation that affect or are affected by the business are called as in-
ternal stakeholders. For example, managers, board of directors
(board members), employees, investors, staff members, former
staff members, volunteers, donors, etc. constitute the internal
stakeholders of a business. The stake of employees is the need
to earn money and stay employed. Stake of owners are to maxi-
mise the profit from the business. Investors have stake as invest-
ment in the business with an objective to earn income from the
investment. The internal stakeholders are affected or affected by
the business directly. In most cases, internal stakeholders serve or
are served by the organisation. Business organisation has a pri-
S
mary responsibility towards internal stakeholders. For this reason,
they are also known as primary stakeholders. Internal stakehold-
ers participate in the management of the organisation. They have
IM
vested interests in the organisation and are affected by its success
and failure. Internal stakeholders provide services to the organi-
sation and are affected by the decisions, performance, activity and
profitability of the organisation. Internal stakeholders are critical
for any organisation as it will not be able to survive without them
in the long run. The internal stakeholders are the ones who know
all the secrets of the organisation.
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External stakeholders: Individuals and parties outside the organ-

isation that affect or are affected by the business are called as ex-
ternal stakeholders. These entities not only belong to the business
but they do get affected by the performance of the business. For
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example, consumers, suppliers, regulator’s from external stake-

holders, government, community partners, NGOs, etc. Customers
expect the business to provide value for their money in terms of
quality goods at a lesser price. Suppliers expect the business to
purchase raw materials from them. Creditors expect businesses to
pay back their money on time. The community expects the busi-
ness to positively contribute towards the safeguarding of local en-
vironment and the uplifting of the society. The government expects
the business to function ethically and pay taxes on time. The exter-
nal stakeholders are affected or affected by the business indirectly.
In most cases, external stakeholders are affected by an organisa-
tion’s work. They are an organisation’s secondary responsibility.
For this reason, they are also known as secondary stakeholders.
External stakeholders are not a part of the management but indi-
rectly affect or are affected by the organisation’s work. The exter-
nal stakeholders are users of financial information of the organisa-
tion. They can assess the performance, profitability, and liquidity
of an organisation. External stakeholders do not participate in the
operational and managerial activities of the organisation and have
no information regarding the internal matters of organisation.

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2.3.1 TYPES OF STAKEHOLDERS AND THEIR INFLUENCE
As discussed, a stakeholder is an individual, group of persons or an

organisation that has an interest in the project or one that may affect
or be affected by a business. Stakeholders may be internal or external
to a business. It is important for a business to analyse what kind of
influence each stakeholder may exert on the business and business re-
quirements. In order to be successful, it is important for a business to
align its functions with the stakeholders’ requirements. Let us discuss
the different types of stakeholders and how they affect the functioning
of a business:
Sponsors: Person/organisation that provides resources to busi-
ness.
Customers and users: These are individuals/organisations that
S
will approve the final deliverables and use the final product and/
or service.
Sellers: These are individuals or vendors that provide the required
IM
supplies to be used by the business.
Business partners: These refer to individuals/organisations that
have a partnership relation to a business. These business partners
fulfil various roles such as providing training and support and in-
stallation services for certain machineries/parts, etc.
Organisational groups and their managers: Organisational
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groups such as legal, finance, human resources, manufacturing,

etc. headed by their respective functional managers constitute in-
ternal stakeholders. They help the businesses in successfully car-
rying out their project. Their help and input are sought whenever
required.
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Others: These include government regulators, subject matter ex-

perts, consultants, financial institutions, etc.
Exhibit
Primary and Secondary Stakeholders
Stakeholders can also be categorised as:

Primary stakeholders: Primary stakeholders have a direct
stake in the activities and success of a business. Examples of
primary stakeholders include customers, suppliers, local com-
munity, employees, etc.
Secondary stakeholders: Secondary stakeholders though have
a mere representational stake in a business, can have a major
influence on the public standing and reputation of the business.
Examples of secondary stakeholders are civic bodies, media,
competitors, regulatory authorities, government bodies, etc.

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2.3.2 STAKEHOLDERS VERSUS SHAREHOLDERS
As discussed, a stakeholder is a person or a group of persons who is di-

rectly or indirectly affected by business activities. On the other hand,
a person who legally owns one or more shares of stock in a public
or private corporation is called a shareholder. Further, a shareholder
may also be classified as equity shareholder or a preference share-
holder. The concept of shareholder is narrower as compared to that
of a stakeholder. Shareholder is also a stakeholder but a stakeholder
may or may not be a shareholder.
Shareholders are also considered as the owners of the business as

they pay a price for the company’s share. On the contrary, stakehold-
ers are not the owners of the business but they deal with the business.
A stakeholder can influence and can be influenced by the activities of
the organisation. They are the interested parties who help the organ-
S
isation to exist. In the absence of stakeholders, the organisation will
not be able to survive for a long time.
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In the traditional model of governance, a business used to be account-
able only to the shareholders. However, now-a-days, this scenario is
changing. This is so because many businesses are now of the opinion
that other than shareholders, other entities are also affected by the
business. For example, customer to whom the business is answerable.
Table 2.1 shows major differences between shareholders and stake-

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holders:
TABLE 2.1: DIFFERENCES BETWEEN SHAREHOLDERS

AND STAKEHOLDERS
Comparison Param- Shareholder Stakeholder
N
eter
Meaning A person who owns a Party which gets affected
share in the company’s by the activities of the
assets is a shareholder. business is a stakeholder.
Relationship with They are owners. They are affected parties
business but not owners.
Relationship with Shareholders are a sub- Stakeholders are a su-
others set of stakeholders. perset. They may or may
not be a shareholder.
Nature of business Only a limited or a list- Every type of organisa-
ed company can have tion has stakeholders.
shareholders.
Types Equity and preference Employees, customers,
suppliers, community,
government, etc.
Focuses on Profit maximisation Company’s performance.
and earning from in-
vestment.

n o t e s
5. An individual or a group of people who get affected or can affect

the actions of a business are known as corporate_____________.
6. Which of the following is an example of corporate stakeholder?
a. Employees
b. Shareholders
c. Suppliers
d. All of the above
7. Consumers, suppliers, government etc. are the internal
stakeholders of business. (True/False)
8. Person/organisation that provides resources to business are
S
called______________.
a. Sponsors
b. Sellers
IM
c. Business partners
d. Manufacturers
9. A person who legally owns one or more shares of stock in a
public or private corporation is called a ____________.
10. The concept of stakeholder is narrower as compared to that of
M
a shareholder. (True/False)
Activity
N
Select a retail organisation of your choice. Classify its stakeholders

into internal and external stakeholders.
FROM SHAREHOLDER VALUE THEORY

2.4
TO STAKEHOLDER THEORY
Dominant outlook of business has always been the maximisation of
shareholders wealth since ages. However, this view has been strong-
ly challenged in the recent past by a theory popularly known as the
stakeholder theory- the dominant theory evolved in the field of corpo-
rate social responsibility. Shareholder value theory and stakeholder
value theory are the two contradicting and contrasting theories of cor-
porate purpose. Let us discuss both the theories in detail.
SHAREHOLDER VALUE THEORY
The shareholder value theory is the dominant theory in business

schools and business practices in capitalist economies. As per the

n o t e s
shareholder value theory, the main duty of management of a business

should be to maximise shareholder returns. The origin of this view
is traced back to the central tenets within the book by Adam Smith,
named “The Wealth of Nations”.
Nobel Laureate Milton Friedman (1970) framed the shareholder value

theory in its current form. He argued that the increase in the profit
should be the only responsibility of businesses. In his words, 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
stays within the rules of the game, which is to say, engages in open and
free competition without deception or fraud.
Paper by Michael Jensen and William Meckling further reinforced the

thought of Milton Friedman. According to them businesses that pur-
sue goals other than wealth maximisation for shareholders are reduc-
S
ing social good by increasing the cost to the company. This academic
support led to dominance of shareholder primacy by the end of the
millennium. Global scandals and crisis in the past few decades have
IM
led to questioning of the premises of shareholders’ supremacy.
The laws, economic and financial theories, management practices

that are the foundations of management also hold that maximising
shareholder wealth is the primary duty of any business. In addition,
business schools also hold shareholder value theory as a central tenet.
M
In essence, it could be said that Martin Friedman believed that busi-

nesses do not have any moral or social responsibilities. The only duty
of the businesses is to maximise the businesses profit. Freidman, in
an extreme statement, also said that any employee who does anything
other than maximising the business profit is doing something wrong.
N
He also stated that any entity (such as government) that requires a

business to seek anything other than profit is also doing something
wrong. According to Freidman, managers, executives and other em-
ployees in an organisation are hired by the shareholders whose main
objective is to acquire profits. He said that if a business wants to do
some common good for the public or society, it would mean spend-
ing the owners or shareholders resources which, according to him,
amounts to stealing shareholders money. He also said that if the mon-
ey of shareholders is taken from them in order to make some other
entities better off, it can be seen as a form of taxation. According to
Freidman taxation is also unjust.
Friedman has based his theory on three fundamental assumptions

that are as follows:
1. Internalisation of the human, social, and environmental costs
of doing business to the extent required by law. All other costs
should be externalised.

n o t e s
2. All the people and organisations act rationally in their own self-
interest to maximise efficiency and value for society.
3. Firms are a nexus of contracts and those contracts that have
greatest impact on the profitability of the firm are given
importance.
Let us now examine the reasons to adopt shareholder theory:

Selfish businesses actually promote overall well-being: Accord-
ing to this view, it is held that businesses that act out of self-inter-
est actually help in promoting the well-being of the community.
For example, if an organisation engages in mis-selling, ill-treats its
employees or customer, it would most likely fail to generate profits
and its goodwill would be trampled upon. In essence, it says that
when a business is left unrestricted and allowed to pursue its prof-
S
it goals, it will end up making the world better and would serve the
interests of the society at large because it is in the organisation’s
self-interest.
Welfare
IM
is government’s job: It is held that a business enters the
market solely for the purpose of making profits and they try to
make profits by doing any business in a legal manner. Therefore,
if the government thinks that there is something that a business
should or should not do, it should make a law for the same.
Business-people are not moral authorities: This view suggests
M
that the businesses fulfilling social responsibilities arises as a mor-

al issue and if this power of moral authority is assimilated by those
who seek profits, it would result in implementation of selfish moral
values.
N
A survey was conducted in 2005 involving 401 financial executives by

Duke University’s John Graham and Campbell R. Harvey and Uni-
versity of Washington’s Shivaram Rajgopal. The survey revealed that
companies manage earnings with more than just accounting gim-
micks. In the survey, approximately 80% respondents said that they
would decrease value-creating spending on research and develop-
ment, advertising, maintenance and hiring in order to meet the profits
and earnings benchmarks.
For example, Enron was led by corporate governance for maximising

shareholder value by fixating on its stock price. The company inadver-
tently collapsed due to poor business decisions and fraud in account-
ing. Organisations that are monopolies may command maximum pric-
es for their products and services and hence maximise the profits for
their shareholders.
STAKEHOLDER VALUE THEORY
The stakeholder theory suggests that businesses are dependent on

stakeholders for their success and different stakeholders have differ-

n o t e s
ent stakes in the businesses. Thus, businesses must consider the inter-
ests of the stakeholders and also serve the broader societal interests
beyond money creation for shareholders alone.
In 1963, an internal memorandum at the Stanford Research Institute

used the term stakeholder for the first time. However, the concept was
popularised by Richard Edward Freeman in 1984. According to him,
it is the moral obligation of businesses to consider and balance the
interests of all stakeholders and not just the shareholders. According
to Evan and Freeman (1993), A stakeholder theory of the firm must re-
define the purpose of the firm…the very purpose of the firm is…to serve
as a vehicle for coordinating stakeholder interests.
The stakeholder theory expresses the ideas that as businesses are de-
pendent upon stakeholders for success; the management objective
should be to balance the interest of all stakeholders. The stakeholder
S
theory is considered to have a holistic approach to corporate purpose
by many academicians.
IM
According to the stakeholder theory, the organisation must be man-
aged in a way as to create value for all its stakeholders. This theory
states that there are various stakeholders such as company owners,
employees, customers and potential customers, suppliers and poten-
tial suppliers, creditors, society & communities, government, com-
petitors, local businesses and trade associations. However, sharehold-
ers, workers, customers, suppliers and community are the five major
M
stakeholders.
In essence, the stakeholder theory is a mirror image of the CSR. The

stakeholder theory suggests that the business must list and describe
the individuals and groups that affect or are affected by business’ ac-
N
tions. The business must delineate the rights, responsibilities and ob-
ligations of the different stakeholders.
For example, when an organisation produces certain products which

may involve generation of waste; it becomes the duty of the business
owners to ensure that the wastes so produced are being disposed-off
safely. In such a scenario, the people living in the nearby society also
act as a stakeholder because if the waste is not disposed-off safely, it
may lead to poisoning of their environment. Therefore, here we see
that owners and the society members constitute as stakeholders in a
business and contribute towards corporate decision-making. As per
stakeholder theory, if an entity is touched by a business’s actions; they
have a right to participate in business’s decision making.
There is no proper definition and geographical limit that can be de-

fined for a stakeholder. For example, a decision made by business
owners (sitting in USA) of a Business Process Outsourcing unit locat-
ed in India may cost one or more BPO workers their job.

n o t e s
The stakeholder theory also supports the concept of maximising prof-

it; however, the profit here is defined in terms of money as well as
human welfare. The managers of the company talk to various stake-
holders regarding their interests; ask the environmentalists regarding
how pollution could be limited, seek advice from consumers regarding
how the product safety could be enhanced .
While practising the concept of stakeholder interest, it is also held that

if the business participates in every decision of a corporation; they
must have a good idea regarding what is going on.
For example, Deutsche Bank conducts business responsibly in order

to ensure that the interests and needs of all the stakeholders are met.
CONFLICT BETWEEN STAKEHOLDER THEORY AND
S
SHAREHOLDER VALUE THEORY
The shareholder value theory has often been contradicted by the fol-
lowers of the stakeholder theory and many arguments have been giv-
IM
en in support of the stakeholder theory. However, there are many find-
ings, which suggest that practically the shareholder holder theory is
more effective. Even though the stakeholder theory offers a more ho-
listic approach and includes most of the affected parties, it still lacks
in many aspects.
As per Michael C Jensen, an American economist; the stakeholder

M
theory should not be considered as a competitor to the shareholder

value theory because it does not offer any specific direction to the cor-
porate objective function. On the other hand, the shareholder value
theory provides a single objective to corporate managers. The stake-
holder theory may cause conflict and confusion among managers as it
N
directs them towards many objectives. As a consequence, it may lead

to inefficiency and competitive failure of the business. There are many
others who agree with this aspect stating that a manager’s account-
ability to multiple stakeholders may be impractical. They argue that
accountability created this way is as good as non-existent. Another
argument against the stakeholder theory states that the fundamental
features of society get undermined by activities under the stakeholder
theory application.
Related to the stakeholder theory are two important concepts name-

ly Stakeholder Salience Model and Stakeholder Engagement. Let us
study these concepts in detail.
STAKEHOLDER SALIENCE MODEL
Stakeholder Salience Model was developed by Mitchell, Agle, and

Wood in 1997. Stakeholder Salience is a useful addition to the Stake-

n o t e s
holder Theory. According to Stakeholder Salience Model, identifica-

tion of a stakeholder can be done by the presence of one or more of the
following three attributes:
1. Power: Power is defined as a relationship among social actors.
Social actor A can get another social actor B to do something
which B would not do in the usual circumstances. Power can be
acquired by force or threat, by offering incentives or by acquiring
symbolic influences.
2. Legitimacy: Legitimacy is a generalised perception or it is an
assumption under which the actions of an entity are desirable, or
appropriate when compared with a socially constructed system
of norms, values and beliefs.
3. Urgency: Urgency is defined as the extent to which the claim of
a stakeholder or the relationship calls for an action or immediate
S
attention. It exists when a claim or relationship is of the nature that
is time sensitive or in a situation when the claim or relationship
is important to the stakeholder. The classes of stakeholders as a
IM
result of possession of the attributes are shown in the following
Figure 2.1:
Power Legitimacy
1. Dormant Stakeholder
M
5. Dangerous 4. Dominant
Stakeholder 7. Definitive Stakeholders
Stakeholders
3. Demanding 2. Discretionary
Stakeholder
N
Stakeholder 6. Dependent
Stakeholder
Urgency 8. None-stakeholder
Figure 2.1: Classes of Stakeholders according to the Stakeholder

Salience Model
The Salience is defined by the author as a degree to which managers

prioritise claims of competing stakeholders. As an assumption, man-
agers wishing to achieve a particular end pay attention to different
classes of stakeholders and the stakeholders’ Salience is dictated by
the perceptions of the managers. The stakeholder class can be identi-
fied on the basis of possession of either or all three attributes namely
power, legitimacy and urgency. Each stakeholder group has its own
influence, concerns that are unique to the relationship with the organ-

n o t e s
isation. As shown in the Figure, there are 8 areas of salience, divided

into four categories:
Latent or low salience (Areas 1, 2 and 3)
Expectant or moderately salient (Areas 4, 5, and 6)
Definitive or highly salient (Area 7)
Individualsor entities possessing none of the attributes are
non-stakeholders (Area 8)
Stakeholders possessing only one attribute have low salience and are
thus known as latent stakeholders. Their existence may not be of rele-
vance to managers are managers may decide to do nothing about the
stakeholders. Latent stakeholders too may not pay any attention to
the organisation. There are three types of latent stakeholders:
S
1. Dormant: Dormant latent stakeholders are those who have the
power to impose but they do not have a legitimate or urgent
claim. They do not exercise their power. There is hardly any
interaction of the stakeholders with the organisation. However,
IM
managers do not ignore them because they can become salient
on acquisition of one or two more attributes.
2. Discretionary: Discretionary latent stakeholders possess
legitimacy but do not have any power or urgency. Relationship
of the managers with the stakeholders is entirely at the will of
the managers because they are under no pressure to engage in a
M
relationship with the stakeholders.

3. Demanding: Demanding latent stakeholders have the attribute
of urgency but they lack power and legitimacy. Such stakeholders
may be troublesome but, not dangerous. Hence they deserve
N
only passing attention of the management.
In the past few years, other than profit maximisation, a wider vari-
ety of goals have been identified for business organisations. Some of
these goals generally include earnings per share, measures for em-
ployee welfare, employee and customer satisfaction, total sales, total
number of employees, extent of environment protection and so on.
One of the primary reasons for the adoption of stakeholder’s concept
across businesses worldwide is recognition of the fact that businesses
get influenced by the environment in which they function. Businesses
come in contact with external stakeholders frequently and the deci-
sions taken by businesses in all likelihood effect one or more of these
stakeholders.
STAKEHOLDER ENGAGEMENT
The process by which an organisation involves people who get affect-

ed by organisational decisions is known as stakeholder engagement.

n o t e s
According to AccountAbility, a global consulting and standards firm,

Stakeholder engagement is the process used by an organisation to en-
gage relevant stakeholders for a purpose to achieve an accepted out-
come. Generally, the main objective of stakeholder engagement is to
understand and respond to legitimate stakeholder concerns.
Stakeholder engagement is an important element of CSR which helps

organisations in engaging with their stakeholders to find out what so-
cial and environmental issues matter most to them. This type of en-
gagement lets the organisations know about their performance and
improve their decision-making and accountability skills. Stakehold-
er engagement is a prerequisite of the Global Reporting Initiative (a
network-based organisation with sustainability reporting framework),
used widely around the world. Moreover, the International Organi-
sation for Standardization (ISO) also mandates stakeholder engage-
S
ment for all its standards.
Stakeholder engagement provides a chance to the stakeholders to in-

fluence the decision-making process within an organisation. This is
IM
where the stakeholder engagement process differs from stakeholder
communication process where the objective is only to influence the
stakeholder to agree with the decision already made.
Stakeholder engagement provides a platform to align the practices of

business with the needs of society and its expectations. This helps in
driving long term sustainability and also maximising the stakeholder
M
value. Stakeholder engagement helps the practitioner to fully realise

the benefits and to have a competitive edge in an increasingly com-
plex and dynamic business environment. Stakeholder engagement
also helps in bringing about systemic changes towards sustainable
N
development. According to Altria Corporate Services, Inc. (2004), en-

gagement is not an end in itself, but a means to help build better rela-
tionships with the societies in which we operate, ultimately resulting
in improved business planning and performance.
Xerox follows an excellent stakeholder engagement strategy. Let us

now see what Xerox does to engage its different stakeholders in Table
2.2 as follows:
TABLE 2.2: STAKEHOLDER ENGAGEMENT AT XEROX

Stakeholder Category Engagement Strategy
1. Customers Implementing the Sentinel Customer Satis-
faction Measurement System which sends
real-time customer feedback in a closed-loop
process.
Conducting an annual customer satisfaction
measurement survey.
Conducting competitive benchmark surveys.
Assigning a different customer care officer
each day.

n o t e s
Stakeholder Category Engagement Strategy

2. Employees Conducting regular employee engagement
surveys.
Taking employee feedback using the sentinel
feedback tool present on the Intranet.
Following an open-door policy
Conducting employee roundtables
3. Shareholders Conducting annual meeting of shareholders
Conducting quarterly teleconferences
Conducting one-on-one investor briefings
Conducting annual investor conference
4. Suppliers Conducting quarterly business reviews with
key suppliers
Frequent review of key suppliersto ensure
S
compliance with the EICC code of conduct.
5. Communities Xerox’s employees contribute their time and
skills for various community-based projects.
IM
There are five approaches that can be used for stakeholder engage-
ment. Each approach provides a valid method for stakeholder en-
gagement but more suited to particular stakeholder types. The five
approaches of stakeholder engagement are shown in Figure 2.2 As
follows:
M
Partnership
Participation
N
Consultation
Push Communication
Pull Communication
Figure 2.2: Five Approaches of Stakeholder Engagement
The five approaches of stakeholder engagement are explained as fol-

lows:
1. Partnership: A partnership between the stakeholder and the
organisation calls for shared accountability and responsibility.
Both the stakeholder and the organisation are engaged in
learning, decision making and actions.
2. Participation: In this approach, the stakeholders are made a
part of certain teams that is engaged in delivering tasks or are
assigned certain responsibilities.

n o t e s
3. Consultation: In this approach, the stakeholders are involved

but not responsible and not necessarily able to influence
outside of consultation boundaries. This approach allows a two-
way engagement within limits of responsibility. For example,
organisations ask questions and stakeholders answer.
4. Push communications: One-way engagement. Organisation may
broadcast information to all stakeholders or target particular
stakeholder groups using various channels e.g. email, letter,
webcasts, podcasts, videos, leaflets.
5. Pull communications: One-way engagement. Information is
made available, and stakeholders choose whether to engage with
it e.g. web-pages, or construction hoardings.
S
11. Shareholder value theory is the dominant theory evolved in
the field of corporate social responsibility. (True/False)
IM
12. As per the ___________theory, the main duty of management
of a business should be to maximise shareholder returns.
Activity
Using the Internet, find two academicians, each in favour of the

shareholder value and stakeholder theories. Present their views in
M
a report.
STAKEHOLDER SALIENCE MODEL AND

2.5
STAKEHOLDER ENGAGEMENT
N
The process by which an organisation involves people who get affect-

ed by organisational decisions is known as stakeholder engagement.
According to AccountAbility, a global consulting and standards firm,
Stakeholder engagement is the process used by an organisation to en-
gage relevant stakeholders for a purpose to achieve an accepted out-
come. Generally, the main objective of stakeholder engagement is to
understand and respond to legitimate stakeholder concerns.
Stakeholder engagement is an important element of CSR which helps

organisations in engaging with their stakeholders to find out what so-
cial and environmental issues matter most to them. This type of en-
gagement lets the organisations know about their performance and
improve their decision-making and accountability skills. Stakehold-
er engagement is a prerequisite of the Global Reporting Initiative (a
network-based organisation with sustainability reporting framework),
used widely around the world. Moreover, the International Organi-
sation for Standardization (ISO) also mandates stakeholder engage-
ment for all its standards.

n o t e s
Stakeholder engagement provides a chance to the stakeholders to in-

fluence the decision-making process within an organisation. This is
where the stakeholder engagement process differs from stakeholder
communication process where the objective is only to influence the
stakeholder to agree with the decision already made.
Stakeholder engagement provides a platform to align the practices of

business with the needs of society and its expectations. This helps in
driving long term sustainability and also maximising the stakeholder
value. Stakeholder engagement helps the practitioner to fully realise
the benefits and to have a competitive edge in an increasingly com-
plex and dynamic business environment. Stakeholder engagement
also helps in bringing about systemic changes towards sustainable
development. According to Altria Corporate Services, Inc. (2004),
engagement is not an end in itself, but a means to help build better rela-
tionships with the societies in which we operate, ultimately resulting in
S
improved business planning and performance.
There are five approaches that can be used for stakeholder engage-
ment. Each approach provides a valid method for stakeholder engage-
IM
ment, but more suited to particular stakeholder types. Table 2.2 shows
the five approaches for stakeholder engagement:
TABLE 2.2: STAKEHOLDER ENGAGEMENT APPROACHES

Engagement Approach Description
1. Partnership Shared accountability and responsibility.
M
Two-way engagement joint learning, decision

making and actions.
2. Participation Part of the team, engaged in delivering tasks or
with responsibility for a particular area/activity.
Two-way engagement within limits of respon-
N
sibility.
3. Consultation Involved, but not responsible and not neces-
sarily able to influence outside of consultation
boundaries. Limited two-way engagement: or-
ganisation asks questions, stakeholders answer.
4. Push communications One-way engagement. Organisation may
broadcast information to all stakeholders or
target particular stakeholder groups using
various channels e.g. email, letter, webcasts,
podcasts, videos, leaflets.
5. Pull communications One-way engagement. Information is made
available, and stakeholders choose whether to
engage with it e.g. web-pages, or construction
hoardings.

13. Stakeholder engagement provides a chance to the
stakeholders to influence the decision-making process within
an organisation. (True/False)

n o t e s
Activity
Identify an organisation of your choice and list down the ways it

uses to engage its stakeholders. Justify your answer.
2.6 DYNAMIC ENVIRONMENT OF BUSINESS

Towards the end of the 19th century many lessons have been learnt
about the relationship between business and society that was not
clearly perceived earlier. The world has understood the impact of:
Absence of synchronisation between economic and political cycles
Institutional change on environment

Technological and market change and other related factors on the
S
overall climate and world environment
The business environment has become extremely dynamic. This can

be justified due to the presence of following factors as follows:
IM
Businesses today are viewed not only as means of economic growth
but also as vehicles of social development.
Governments alone cannot bear the responsibility of development.
Business organisations must also realise that they also have to put
efforts in the development of society in order to grow in the mar-
M
ket. This can become possible only through active participation of

businesses in the community building.
Increasing need for integration of the interest of the stakeholders
in the process of decision making is becoming essential for sus-
tainable development.
N
Consumer choices are also getting affected by issues pertaining to

child labour, environment, human rights etc. The reputation of the
business gets affected on violation of these issues.
Employees now express their concern over issues such as equal
participation, transparency in business decisions and ethical be-
haviour of the business entity. These expectations affect the inter-
nal labour market for the business organisations.
Business cannot remain viable in the long term without partici-
pating in the well-being of societies both at local and global level.
Only way forward is to build a culture of responsibility and be-
come actively engaged in finding solutions for societal challenges.
Exhibit
Green Production
Today, going green is not an option but an essential element for

the success of a business. This is because the business activities of

n o t e s
the organisation directly affect the environment and its stakeholders,

such as customers, suppliers, employees, shareholders and the soci-
ety. This imposes many organisations to adopt eco-friendly operations
as its stakeholders are aware of environmental protection practices.
Green production involves business strategies that lay emphasis on

attaining and maintaining profits by adopting environment-friend-
ly working processes. However, green production is not always suc-
cessful due to certain limitations, such as increased cost and lack
of awareness of green products. The following are some important
definitions of green production:
According to Meinyk and Smith (1996), green production is a sys-

tem that integrates product and process design issues with issues of
manufacturing planning and control in such a manner as to identify,
S
quantify, assess, and manage the flow of environmental waste with
the goal of reducing and ultimately minimizing environmental impact
while also trying to maximize resource efficiency.
IM
According to Liu, Chen, Kang, Ngai & Li (2005), green production
is a modern manufacturing mode considering both the environmen-
tal impact and the resource consumption during the whole product
life cycle, from design, fabrication, packaging, transportation, usage,
recycling, to waste disposal, and its objective is to minimise the neg-
ative environmental impacts and maximise the utilization rate of re-
M
source, and harmonize optimization of economic benefit and social

benefit with the maximum integrated benefit.
The reasons why organisations use green production practices are

as follows:
N
Help in objective accomplishment: Green production practices

help an organisation to produce environment-friendly products
and gain a better image in the market. For example, McDonald’s
uses waxed paper packing instead of clamshell packing. The in-
creasing consumer concern related to polystyrene production
and ozone depletion has lead McDonald’s to follow green pro-
duction practices.
Social responsibility: It is the accountability of an organisation
to the society. Some organisations promote their idea of being
socially responsible and use social responsibility as a marketing
tool. For example, Coca-Cola invests a large sum of money in
recycling activities, such as the less use of non-biodegradable in
packaging to minimise the negative impact on the environment.
Competitive pressure: It persuades an organisation to adopt
green production practices. For example, Xerox uses recycled
paper and this practice persuaded other competitors to follow
the same.

n o t e s
An organisation can adopt green production in the following forms:

Green inputs: It lays emphasis on minimising the adverse ef-
fects of materials used for developing and packaging a product.
For example, reducing the use of toxic and non-renewable ma-
terials and deploying renewable materials in production stages
helps in supporting green production. Procter and Gamble is
one example of an organisation that has successfully discontin-
ued the use of phosphates and solvents in producing detergents.
Product packaging is another important element of an ecologi-
cally sensitive production operation. Use of recycled substance
in packaging materials and refill alternatives are some mea-
sures that may help in supporting green production.
Green processes: It involves deploying operations and machines
that minimise the emission of air pollutants, reduce waste, save
S
water and energy and protect the health and safety of employ-
ees and customers. For example, Daewoo heavy industries have
reduced the use of paint consumption and VOC discharge in
IM
the painting process in order to minimise the harmful impact of
chemicals on environment.
Green design: It involves designing processes that can help
in reducing waste and energy consumption while producing
a product. Inefficient use of raw material and other resources
may lead to wasteful processes that may result into occupation-
M
al and public health risks. Therefore, green production aims at

achieving a ‘zero-waste’ goal that demands preventative actions
and continuous improvement at every level of production. For
this, organisations can change their design of production with
innovative technologies to support green production. For exam-
N
ple, opting for skylights, light-emitting diode (LED) or compact

fluorescent (CFL) lights may not only reap some savings but re-
duce energy also. Similarly, using solar heating and improving
ventilation for cooling may also help in going green.
Green practices followed at the completion of the product life
cycle: These practices involve recycling and disposing a prod-
uct at the end of its life cycle. Organisations should adopt waste
management strategies wherein products that can be reused
and recycled should be identified and used accordingly. For ex-
ample, the parts and components, used in BMW vehicles are
built of recyclable synthetics. Such materials, after the end of
the product life cycle, can be recycled and reused easily, thereby
encouraging green production practices.
14. The product demands get influenced by issues pertaining to

child labour, environment, human rights etc. (True/false)

n o t e s
Activity
Identify a fast moving consumer goods (FMCG) company of your

choice. List down the factors that may affect its demand in the mar-
ket. Justify your answer.
2.7 SUMMARY
Business can be defined as any organisation that is engaged in eco-
nomic activities like trade of goods, services or both to its consumers
in exchange of a profit. Society on the other hand, can be defined as
a community, a nation or a broad group of people with similar tradi-
tions, values and interests.
Businesses are primarily laid with an objective to manufacture and
S
supply goods or services for their customers. The major points that
show how society is dependent on businesses are:
Supply of goods and services
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Harnessing capital and other resources in production
Provision of employment
Research, development and innovation
Contribution to social development
Contribution in the development of education, science and tech-
M
nology
Development of international relations
Businesses produce goods and services, but it cannot do this with-
out the help of society. The major points that show why businesses
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need society are:

Need of capital and other resources
Need to sell products/services
Need to gain information
An individual or a group of people who get affected or can affect the
actions of a business are known as corporate stakeholders.
The concept of stakeholder includes every entity which has an in-
terest or a stake in the activities of a business. These entities can be
categorised into two groups:
Internal stakeholders
External stakeholders
The different types of stakeholders are:
Sponsors
Customers and users

Sellers

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Business partners
Organisational groups and their managers
Government regulators, subject matter experts, consultants,
financial institutions, etc.
A person who legally owns one or more shares of stock in a public
or private corporation is called a shareholder.
The concept of shareholder is narrower as compared to that of a
stakeholder. Shareholder is also a stakeholder but a stakeholder
may or may not be a shareholder.
The shareholder value theory is the dominant theory in business
schools and business practices in capitalist economies. As per the
shareholder value theory, the main duty of management of a busi-
ness should be to maximise shareholder returns.
S
The stakeholder theory suggests that businesses are dependent
on stakeholders for their success and stakeholders also have some
stake in the businesses. Thus, businesses should think of the
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stakeholders and serve a broader societal interests beyond money
creation for shareholders alone.
Stakeholder engagement is the process used by an organisation to
engage relevant stakeholders for a purpose to achieve an accepted
outcome.
Stakeholder engagement provides a chance to the stakeholders to
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influence the decision-making process within an organisation.

The five stakeholder engagement approaches are:
1. Partnership
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2. Participation
3. Consultation
4. Push communications
5. Pull communications
The businesses today are viewed not only as means of econom-
ic growth but also as vehicles of social development. It is a well-
known fact that governments alone cannot bear the responsibility
of development.
It is important for business organisations to realise that in order
to grow in the market they also have to put efforts in the develop-
ment of society.
key words
Economy: An area of the production, distribution, or trade, and

consumption of goods and services by different agents.

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Human rights: Moral principles or norms that describe certain

standards of human behaviour, and are regularly protected as
legal rights in municipal and international law.
Investment: An asset or item that is purchased with the hope
that it will generate income or appreciate in the future.
Non-profit organisation (NGO): An organisation non-profit or-
ganisation that operates independently of any government, typ-
ically one whose purpose is to address a social or political issue.
Value: The benefits and costs associated with the product of-
fered to the customer.
S
1. Define business and society. Explain in short their
interdependence on each other.
2. Explain the concept of stakeholder.
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3. Discuss the various types of stakeholders and how they influence
a business.
4. Compare and contrast stakeholders and shareholders in
business.
5. Write a short on shareholder value and stakeholder theories.
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6. Explain the concept of stakeholder engagement.

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Business and Society 1. Society
2. True
3. Business
Stakeholder Concept 5. Stakeholders
7. False
8. a. Sponsors
9. Shareholder
10. False
From Shareholder Value 11. False
Theory to Stakeholder
Theory

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12. Shareholder value
Stakeholder Engagement 13. True
Dynamic Environment of 14. True
Business

1. Business can be defined as any organisation that is engaged in
economic activities like trade of goods, services or both to its
consumers in exchange of a profit. Society on the other hand, can
be defined as a community, a nation or a broad group of people
with similar traditions, values and interests. Refer to Section 2.2
Business and Society.
S
2. The concept of stakeholder includes every entity which has an
interest or a stake in the activities of a business. These entities
can be categorised into two groups, internal stakeholders and
IMexternal stakeholders. Refer to Section 2.3 Stakeholder Concept.
3. The different types of stakeholders are sponsors, customers
and users, sellers, business partners, organisational groups and
their managers, government regulators, subject matter experts,
consultants, financial institutions, etc. Refer to Section 2.3
Stakeholder Concept.
M
4. A stakeholder is a person or a group of persons who is directly

or indirectly affected by business activities. On the other hand, a
person who legally owns one or more shares of stock in a public
or private corporation is called a shareholder. Refer to Section
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2.3 Stakeholder Concept.

5. As per the shareholder value theory, the main duty of
management of a business should be to maximise shareholder
returns. The stakeholder theory suggests that businesses should
think of the stakeholders and serve a broader societal interests
beyond money creation for shareholders alone. Refer to Section
2.4 From Shareholder Value Theory to Stakeholder Theory.
6. Stakeholder engagement is the process used by an organisation to
engage relevant stakeholders for a purpose to achieve an accepted
outcome. Refer to Section 2.5 Stakeholder Engagement.
SUGGESTED READINGS
Sanjay K Agarwal. (2008). Corporate Social Responsibility in India.
Response Books.

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ty (CSR): A Guide for Students and Practicing Managers in Develop-
Agency, LLC
DrK S Ravichandran (2016). Corporate Social Responsibility –
E-REFERENCES
Business and society: Creating shared value: In conversation with
N. R. Narayana Murthy, Founder, Infosys.
Difference Between Shareholders and Stakeholders | Difference
Between. Retrieved 16 April 2018, from http://www.differencebe-
tween.net/business/difference-between-shareholders-and-stake-
S
holders/
Stakeholder Engagement. Retrieved 16 April 2018, from http://www.
jubl.com/sustainability/stakeholder-engagement
IM
Stakeholder vs. Shareholder - What’s the Difference?. Retrieved
16 April 2018, from http://www.investorguide.com/article/15947/
stakeholder-vs-shareholder-wfu/
Stakeholders (Introduction) | tutor2u Business. Retrieved 16 April
2018, from https://www.tutor2u.net/business/reference/stakehold-
ers-introduction
M
Technology, M. (2018). The Shareholders vs. Stakeholders De-

bate. MIT Sloan Management Review. Retrieved 16 April 2018, from
https://sloanreview.mit.edu/article/the-shareholders-vs-stake-
holders-debate/
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C h a
3 p t e r
PHILOSOPHICAL MODEL OF CSR
CONTENTS
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3.1 Introduction
3.2 Evolution of CSR in India
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3.2.1 CSR in Pre-Independence Period
3.2.2 CSR in Post-Independence India
3.2.3 Liberalisation and CSR
Activity
3.3 Theories of CSR
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3.3.1 Friedman’s Theory/Fundamentalist Theory

3.3.2 Social Contract Theory
3.3.3 Social Justice Theory
3.3.4 Rights Theory
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3.3.5 Deontological Theory

3.3.6 Stakeholder Theory
3.3.7 Gandhi’s Trusteeship Theory
3.3.8 Principal – Agent Model
Activity
3.4 Summary

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THE TATA GROUP-APPLYING TRUSTEESHIP THEORY

TO BENEFIT ITS STAKEHOLDERS
The Tata Group was founded in 1868 by Jamshetji Nusserwan-

ji Tata. Today, the group has become one of the largest business
corporations in India and has nearly 100 companies operating in
various sectors like materials, earring products, automotive, in-
formation technology, consumer goods, services etc.
The Tata group would not have received so much respect without
serving the society and stakeholders for so long. The group has
always believed in cooperative approach of management and is
known to have excellent employee management practices. Com-
panies under Tata group provide several benefits like provident
S
fund, maternity leave, minimum working hours, gratuity, medical
leave, overtime provision etc. to its employees. In addition, the
employees also enjoy facilities like scholarships for meritorious
students, education for children, housing etc. It is because of the
IM
responsible behaviour of the Tata group towards its stakeholders
that the group has seen steady and increased growth in business
since its inception.
The Tata Steel Limited, a subsidiary of the Tata Group is one of

the top steel producing companies across the world. The compa-
ny was set up in an underdeveloped area of Jamshedpur. This is
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a tribal area with poor people but rich in mineral resources. The
factory was primarily set up because of availability of basic re-
sources for steel manufacturing but the company did not ignore
the needs of the local community. It tried to alleviate the miseries
N
of the local population by providing facilities like infrastructure,

medical care, schooling and education, employment etc.
Similarly, the Tata salt factory at Mithapur is also an example of

business operating with sustainable development and fulfilling
the needs of the local community by carrying out rural develop-
ment activities. Tata group companies are renowned for their
community development activities in areas surrounding the vil-
lages. Through these activities the company has fulfilled the ex-
pectations of not only the local community but also the country at
large by setting up world class educational institutions, hospitals
etc.
Word CSR is synonymous with the Tata in India. One of the most
admirable characteristics of Tata group is that 65% of the equity
capital from the parent firm (i.e. Tata sons Limited) is held un-
der the custody of Tata trust which is a philanthropic trust in na-
ture. Nearly 75% of the funds for the trust come from dividends
on the shares of Tata sons, the holding company of the group. The

PHILOSOPHICAL MODEL OF CSR 67
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balance funds come from the owner statutory investments of the

trust. The Sir Dorabji Tata trust was set up in 1932 by Sir Dorabji
Tata who was the elder son of the founder of the group Jamshetji
Tata. This trust is one of the oldest philanthropic organisations in
India. Division of the trust is constructive philanthropy and it is
dynamic and sensitive to the needs of the society. The trust sup-
ports programs and projects that are contemporary in nature. It
makes grants in broadly three areas:
1. Grants to institutions- endowment grants
2. Grant to Non-governmental organisations
3. Grants to individuals pertaining to medical necessity and
educational grounds.
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The sir Dorabji Tata trust has many allied trust under it. Some of
the allied trust are:
JN Tata Endowment: This was one of the first trust set up
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by the Founder Jamshetji Tata in the year 1892 with an objec-
tive to provide scholarship loans two students who wanted to
pursue higher studies in foreign universities. Every year from
across India 120 students are selected for this purpose.
Lady Tata Memorial Trust: This trust was established by Sir
Dorabji Tata in 1932 in memory of his wife lady Meherbai who
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suffered from leukaemia and died in 1930 because of the dis-

ease. Nearly four fifths of its income is spent on international
research on leukaemia. In addition the trust also supports re-
search carried out by recognised institutions in India in the
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field of leukaemia.
Lady Meherbai Tata Education Trust: Established in 1932
distrust offers scholarships to women graduates from rec-
ognised universities of India to pursue higher studies in for-
eign universities in the field of Public Health and social work.
Tata Social Welfare Trust, RD Tata trust, Tata Education
Trust, Tata and Thelma Tata trust also come in the umbrella
of allied trusts and focus on women and child development.
Sir Ratan Tata trust: Established in 1919 with the will of Sir
Ratan Tata, it was established in 1919 in accordance with the
will of Sir Ratan Tata, the younger son of group founder Jam-
shetji Tata. The trust provides grants to institutions of various
areas, its brands are focused towards organisations that can
become its partner in undertaking sustained and innovative
initiatives in order to make perceptible differences. In addi-
tion it also provides grants for endowments and has a separate
program for giving smaller grants to individuals for the pur-
pose of medical relief and education.

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learning objectives

>> Explain how CSR evolved in India
>> Discuss some of the important theories of CSR
3.1 INTRODUCTION
The previous chapter discussed about the concept of stakeholders
in CSR. This chapter will discuss how CSR evolved in the different
phases of Indian history. Even though academicians and business ex-
ecutives have started discussing about CSR since 1950, the concept
has been in existence from time much before that. CSR can be consid-
ered as an implied social contract between society and business and it
S
dates back to the work of the Greek philosopher Epictetus in the first
half of the 17th century. In 1938 Chester Bernard discussed about the
importance of socially responsible behaviour. However, it was How-
IM
ard R. Bowen’s work on ‘Social Responsibilities of the Businessman’
(published in 1953) that is considered to create a foundation by which
business executives and academics started considering CSR as a part
of strategic business planning.
Max Weber in ‘Protestant Ethic and The Spirit Of capitalism’, empha-

sises that the Calvinist sect of protestant had a high stress on the role
M
of business institutions in serving the society by generating jobs and

employment, offering products and fulfilling their responsibility and
obligation towards their investors and creditors.
Many of the emerging economies of the world have a common past of

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being colonised at the time of their first experience with the free mar-
ket economics. In 1933 corporate institutions were termed as ‘mon-
sters of Frankenstein’ by a US Federal Court in a verdict. At this time
there was the worldwide demand for systemisation of business be-
haviour to reduce the generalised feeling of mistrust. Businesses were
expected to add value to society as well as increase shareholder value.
In India, involvement of Indian business houses in social causes for

national development has traditionally been there since a long time.
It is necessary to understand the landscape of CSR in India, was insti-
tutionalised by several private and public companies. The age old pri-
vate sector companies such as Tata and Birla have been contributing
in trusteeship and nation building initiatives much before the concept
of CSR came into existence. In fact it is highlighted that few of the
private businesses which are forerunners in the CSR circles of India
are businesses being run from generations and having a long history
of philanthropy. Apart from private sector businesses, India witnessed
contribution to CSR activities by a number of public sector organisa-

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tions like Steel Authority of India Limited, Hindustan Machine Tools,

Oil and Natural Gas Corporation (ONGC) etc. as well.
In this chapter you will study how CSR evolved in India. You will study
how the role of business and the way it is perceived by society have
gone through several changes throughout the history. Apart from this,
you will study some of the important theories of CSR, which aim to
give you an idea of how CSR as a concept has been dealt by many dif-
ferent theorist and academicians and how the concept is still evolving
in today’s time, affecting both businesses and society.
3.2 EVOLUTION OF CSR IN INDIA

Even though the term CSR is relatively new, the concept is age old
and India has one of the richest traditions of CSR in the world. The
S
evolution of CSR in India has undergone various phases like commu-
nity engagement, socially responsible employee relations and product
manufacturing or service delivery. Culturally, CSR has been consid-
ered to be a charitable or philanthropic activity in India. It is due to
IM
this reason that even though it was carried out extensively, there is
hardly any documentation available about the specific activities that
were carried out in relation to this concept.
Today, CSR practices are not limited to cultural research and educa-
tion but it has been extended to community development through dif-
ferent projects. Due to global influences and raising awareness with-
M
in the communities, CSR practices are now becoming more strategic

than philanthropic. This can be observed from the trend of companies
reporting their activities in their annual CSR reports on their web-
sites. Let us now discuss in detail how CSR as a concept has evolved
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in India.
3.2.1 CSR IN PRE-INDEPENDENCE PERIOD
The pre independence period of India witnessed the dominance of

foreign invaders. The invaders were primarily of two types; those who
just ruled for their own benefit and the others who made this country
their own home and took interest in upliftment of the society, enrich-
ment of the culture and support of the educational institutions. These
rulers also took initiatives to build new infrastructure for the conve-
nience of the society. In the fifteenth and sixteenth century, many such
rulers were highly educated and worked towards the betterment of
the society, and they also enjoyed the blessings and goodwill of the
people. Such rulers often encouraged artists and scholars despite of
their religious background. This helped in the cultural, social, materi-
al and moral development of the society.
One leading example of such rulers is Sher Shah Suri on whose name,
the present Grand Trunk Road (G T Road) is attributed. It was earlier
known as Sadak-e Azam. During his reign, many roads were built with

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resting places for travellers. He is also credited with initiating organ-

ised mail and police service. Sher Shah Suri’s management style was
emulated and furthered by Akbar, who was a powerful yet benevolent
ruler. He first laid down the culture of holding meetings with people
in order to understand and get familiarised with their problems and
helped them with resolutions. Due to his generous nature, he gained
immense popularity among the public. This era also witnessed the
contributions of business like Bhama Shah who gave away his entire
treasure to the king Maharana Pratap for fighting against and resist-
ing Mughal’s aggressive forces.
CSR in pre independence period is mostly known for its charitable

and philanthropic nature. At that time, the CSR practices were ma-
jorly influenced by family values, traditions, culture and religion. The
money was spent basically on setting up temples and religious insti-
S
tutions. However, history has abundant example of instances where
businessmen have come forward to help the society in time of need.
For example, in times of drought and other calamities, there were
many businessmen who opened up their granaries for the poor and
IM
hungry.
With the start of the colonial era, the approach to CSR faced a sig-
nificant change. In pre-Independence times, the major industrialists
such as Tata, Birla, Godrej, and Bajaj promoted the concept of CSR
by setting up charitable foundations, educational and healthcare in-
stitutions, and trusts for societal development. However, during this
M
period CSR activities were majority driven by political motives.
During the colonial period, the European businessman overtook many

Indian businesses. This led to Indian Businessmen losing their liveli-
N
hood and forced them to face hardships during the late 18th and early
19th century. Despite of these difficult times there were many Indian
businessmen who continued to progress in their business and also
engaged in philanthropic activities. One of the most powerful busi-
nessmen of the 19th century in India was Virji Vora who earned a vast
amount of wealth by trading in cotton. He contributed towards the in-
frastructural development of the city like construction of educational
institutes, libraries, hospitals by donating a part of his earnings to the
local traders.
The idea of ‘Corporate Trusteeship’ for socio-economic welfare was

generated by Mahatma Gandhi. Corporate trusts used to help the
businesses in managing their funds and use them wisely in activities
related societal benefit. Mahatma Gandhi insisted rich industrialists
to share their capital for the uplifting of society. According to Gandhi,
companies and industries were the ‘temples of modern India’. He en-
couraged industrialists to set up trusts for research and educational
institutions. These trusts were also involved in social reform such as
rural development, education and empowerment of women.

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The following points summarise the role of CSR in the pre-indepen-

dence period:
During 1850-1914, the corporate CSR was majorly in the form of
dynastic charity.
Religion played a major role in promoting CSR at that time. Rich
and influential people used to donate money or other assets in the
form of charity to religious institutions.
In the 1900s, there were several industrialist families, such as
Tata, Birla, Modi, Godrej, Singhania, etc. that promoted the CSR
concept by establishing charitable foundations, educational and
healthcare institutions and community development trusts.
During 1914-1947, CSR activities started to focus on freedom
struggle.
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Industrialists at this time were pressurised to support the benefit
of the society.
Mahatma Gandhi was one of major influential personalities at that
IM
time, who urged powerful industrialists to share their wealth for
the benefit and upliftment of underprivileged section of the soci-
ety.
At this time, CSR efforts were not only driven by selfless and reli-
gious motives but also by political objectives.
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3.2.2 CSR IN POST-INDEPENDENCE INDIA
Even after India’s independence in 1947, approach to social welfare

through philanthropy continued to exist. With the government tak-
N
ing a keen interest in establishing a business for the benefit of soci-

ety, many business families in India demonstrated their philanthropic
approach towards activities like healthcare, education and grant of
funds for religious activities. One of the important examples of this
approach is that of Acharya Vinoba Bhave who was highly influenced
by Mahatma Gandhi and lived a saint’s life. Land Reform movement
known as bhoodaan (land donation) was initiated by him. Under this
movement he encouraged affluent land owners to donate and distrib-
ute their lands to the poor and homeless people. This was further ex-
tended to a movement called gram daan (village donation). Through
his efforts he was able to change the life of millions of people.
Integration of business conscience with social responsibility in India

post-independence was primarily attributed to business leaders like
Ramkrishna Bajaj, JRD Tata, Kasturbhai Lalbhai, Arvind Mafatlal.
These great Indian leaders were of the opinion that the business com-
munity has a responsibility of creating wealth as well as promotion of
social and ethical structure of the society. They considered the busi-
ness community as an integral part of the democratic society. They
also felt that a business enterprise that fulfils both these purposes will

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only be able to survive in the long run. R D Birla established a modern

Hospital in Mumbai for the free treatment of poor people with ad-
vanced facilities way back in 1950. A science and industrial museum
was started in 1959 that was built on the resident Birla Park, donated
to the government.
India adopted liberalisation of the business policies in 1990. This im-

proved the chances of community welfare as the country now needed
to enhance its competency in global market. Only a competent society
could help the businesses to meet the new challenges and fulfil the
global standard requirements.
The following points summarise the role of CSR in the post-indepen-

dence period:
The post-independence period showed the features of mixed econ-
S
omy and emergence of Public Sector Undertakings (PSUs).
The public sector was considered to be the driving force for devel-
opment. However, the private sector was not so encouraged at this
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time.
During this period, laws related to labour and environmental stan-
dards gained importance.
Several policies, such as industrial licensing, high taxes and re-
strictions on the private sector led to corporate malpractices.
Though PSUs were set up with an expectation to ensure suitable
M
distribution of resources, this was effective only to a certain extent.

Failure to mitigate poverty and accelerate economic growth led
to dissatisfaction. The scenario rose expectations from the private
sector again.
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From 1980 onwards, Indian organisations started integrating CSR

into a sustainable business strategy.
The liberalisation of the Indian economy in 1991 led the country to
a new globalised economic environment.
3.2.3 LIBERALISATION AND CSR
The strict legal rules and regulations governing the activities of the
private sector in the pre-liberalisation phase limited the role of private
sector businesses in CSR activities to a great extent. However, with
liberalisation of the Indian economy, most of the controls and licens-
ing system got terminated which gave a boost to the private sector
and ensured greater involvement of private sector businesses in the
socio-economic development of the country. Thus, liberalisation led
the nation to have a steady increase in the role of private sector in the
socio-economic growth of India.
Post liberalisation, opening up of Indian trade to foreign Investments

in 1990 has led to the achievement of a growth rate of 4% to 8% in the

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Indian economy. This kind of growth has been achieved by incorpo-

rating CSR as a vital business strategy with the goal to achieve share-
holder as well as social value. Businesses have now started to find
innovative ways to achieve a balance between revenue generating ac-
tivities for economic growth and community development activities
for societal upliftment.
The liberalisation and the consequent relaxation in rules and regu-

lation helped in making the Indian industry competitive and led the
Indian economy to grow at a fast pace. Today, it is expected that every
business should display ethical behaviour to its internal as well as ex-
ternal and take care of the society in which it operates.
Today, CSR can make a valuable contribution in dealing with a num-

ber of challenges such as poverty reduction, bridging of inequality
gap, etc. through social sector interventions. India’s development plan
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has two major objectives:
Raising the economic growth
Making growth more inclusive
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Private sector needs to work as an equal partner with the government
in achieving country’s development goals and thereby, contributing
towards nation building. In other words, besides government initia-
tives, private sector needs to focus on inclusive development through
its CSR activities and address concerns such as livelihood promotion,
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community development, environment protection, etc. The concept

of growth should not be limited to the economic growth only but it
should encompass sustainable development, corporate governance,
social inclusion and economic growth under its ambit.
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1. The idea of corporate trusteeship for social welfare was

generated by Virji Vohra.(True/False)
2. Private sector needs to work alone in achieving country’s
development goals and thereby, contributing towards nation
building. (True/False)
3. Increasing role of private sector in the socio-economic growth
of India is a major characteristic of:
a. Pre-independence period
b. Post-independence period
c. Post liberalisation period
d. Both (a) and (b)

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Activity
Using the Internet, find out the major areas of contribution by busi-
ness leaders like Ramkrishna Bajaj, JRD Tata, Kasturbhai Lalbhai,
Arvind Mafatlal in the area of CSR in post-independence period.
Prepare a report on it.
3.3 THEORIES OF CSR

Debate on CSR has been taken place since the second half of the 20th
century. Bowen in 1953 authored a book “social responsibilities of the
businessman”, since then the terminology shifted from social respon-
sibility of business to CSR. In the opinion of some institutes CSR is
only a legal responsibility or compliance; whereas many others feel
S
that CSR is an indication of socially responsible behaviour and demon-
stration of an ethical sense; while for many others it simply stands for
the charitable contribution. Hence, in order to have a clarification of
the term CSR in the field of business and Society it is important to
IM
study the theories of CSR in detail. The theories of CSR have been
developed on the basis of the extent of interaction between the society
and the business. Let us discuss the major theories of CSR in detail.
3.3.1 FRIEDMAN’S THEORY/FUNDAMENTALIST THEORY

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Friedman’s philosophy is well understood from his statement, given in

1983 that 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 stays within the rules of the game which is to say engages
in open and free competition without deception for fraud. When seen
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closely, the term ‘rules of the game’ indicates that social responsibility
is rooted in the general economic environment or the atmosphere in
which the business functions.
Friedman’s opinion about CSR presents a “legal recognition” view. As

per the legal recognition view, a business organisation is an autono-
mous entity that is owned and operated by an independent and freely
constituted group. According to this view of the business is not the
society’s creation. As a result, the corporation or the business does not
have any moral obligations towards the society. Corporations are eco-
nomic and private institutions, which are designed for the purpose of
making money. In Friedman’s words, business of business is business.
Followers of Friedman’s view are of the opinion that while taking

decisions regarding labour, installation of the environment, systems
waste management etc., marginal cost have to be invested. Thus, it
is obvious that with objective to minimise the firm’s expenses, some

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decisions might be taken that have the potential to create negative ex-
ternalities on the society, for example creation of environmental haz-
ards, exploitation of labour, etc. It is the duty of the government to lay
down policies for the amendment of such externalities and take the
necessary steps for market correction and restoration of the socially
optimal equilibrium.
3.3.2 SOCIAL CONTRACT THEORY
The social contract theory says that people live together in society ac-
cording to a social contract that establishes moral and political rules of
behaviour. People live morally by their own choice and not because it
is required by someone. The social contract theory is based on a series
of implicit and explicit contracts between institutions, organisations
and individuals. As per the theory, organisations or corporations enter
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into contract with individuals or other members of society. The two
parties receive goods, resources and approval of the society in order
to corporate in lieu of good behaviour.
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In 1960, for the first time, Keith Davis (an author, recognised for his
opinions on the relation between social responsibility and business
power), explored, the role of power in business and society. He also ex-
plored the social impact of power. Davis was of the opinion that busi-
ness is a social institution and it should use its power in a responsible
way. This led to the introduction of business power in the concept of
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CSR. Davis also insisted that the reasons for the social power of a busi-
ness may not necessarily be internal; it could also include external
reasons. The focus of these reasons would constantly shift between
the economic, political and the social factors. Davis also proposed two
principles for managing social power:
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1. The principle of social power equation: It states that the social

responsibilities of businessmen arise from the amount of social
power that they have.
2. Iron law of responsibility: It refers to the negative consequences
of the absence of power usage.
Davis in 1960 stated, whoever does not use his social power responsi-
bly will lose it. In the long run those who do not use power in a man-
ner which society considers responsible will tend to lose it because other
groups eventually will step in to assume those responsibilities. In other
words, if a business does not make use of its social power it will lose
its position in the society and it will be replaced by other groups, more
so in circumstances when the society expects business to display re-
sponsibility. The work of Davis was further by Donaldson in 1982. He
assumed that and implicit contract existed between business and so-
ciety and the business should honour the contract as it is not just an
economic institution but is also a social entity. In view of this the con-
cept of corporate citizenship was proposed.

n o t e s
3.3.3 SOCIAL JUSTICE THEORY
The theory of social justice has its focus on fairness and distributive
justice. It explains how and in accordance of which principles, the so-
ciety’s goods, like power, wealth and other intangibles get distribut-
ed among the society members. The followers of social justice theory
specify that in a fair society the needs of all members are taken care
of. Thus, business managers should be able to consider the most ap-
propriate distribution of these goods in the society.
Justice is the basic social and political institutional right which entails
equitable and fair distribution of benefits among all. In its simplest
form, social justice means that an individual should receive or get
what is due to him/her.
Social justice consists of principles closely related to human society. It
S
suggests measures necessary for existence and endurance of individ-
ual, family, society and the nation. Social justice principles take care
of the interests of the weaker sections of society by removing issues of
IM
inequality and unjust imbalances.
According to P. B. Gajendragadkar, former Chief Justice of India, The

concept of social justice is (thus) a revolutionary concept which gives
meaning and significance to the democratic way of life and makes the
rule of law dynamic. It is this concept of social justice which creates
in the minds of the masses of this country a sense of participation in
M
the glory of India’s political freedom. Social justice must be achieved

by adopting necessary and reasonable measures with courage, wisdom,
foresight, sense of balance and fair play to all the interests concerned.
That shortly stated is the concept of social justice and its implications. If
eternal vigilance is the price for national liberty, it is equally the price
N
for sustaining individual freedom and liberty in welfare state.
There are various sub-theories of social justice. Let us discuss the ma-
jor ones:
Utilitarianism: The theory of utilitarianism was supported by J.
Benthem (1748-1832), James Mill (1773 -1836), John Austin (1790-
1859) and J.S. Mill (1806-1873). As per the utilitarianism theory,
the value of justice is determined by its utility in favour of com-
mon interest. The theory says that in order to be just and ethical-
ly justifiable, justice should be useful or contain utility. In other
words, whatever is useless, evil and unjust, must be transformed
or changed in the interest of the greatest number of individuals.
Thus, the basis of justice lies in the principle of “The maximum
good of the greatest number of individuals”
Ambedkarism: From Ambedkar’s point of view, the concept of jus-
tice is grounded in human values. According to Ambedkar, justice
is simply another name for liberty, equality and fraternity. The the-

n o t e s
ory considers social justice a mode of life that gives every man his
right place in society. Its principles could be:
to live honourably
to give respect to all
to injure no one
to give every man his due without any discrimination
The Ambedkarism theory believes in the following precepts of so-
cial justice:
supremacy of constitutional rules
equality before law
grant of fundamental rights
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performance of duties
adherence to legal and social obligations
providevalue of justice, liberty equality, fraternity and dignity
IM
of human personality
3.3.4 RIGHTS THEORY
The theory of rights examines the underlying principles of human

rights and critically justifies them in the social context. The theory
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suggests that rights should be in alignment with moral behaviour and

should not overlook the major duty of an individual i.e. to protect and
promote the society at large.
For example, an individual has a right to property. However, his rights

N
of property should not be superior to human rights. This indicates

that even though the owners of a business or the shareholders of a
business have the right to the business property, it does not give them
the authority to override the basic human rights of the local commu-
nity and the employees or other stakeholders.
‘Rights’ in general is what an individual can expect as their due. They

are moral claims of individuals accepted by society. However, there
is always a duty associated with a right, which a person must fulfil to
maintain a balance in the society. Duties are moral obligations that
deal with the responsibility of persons. In other words, duties are mor-
al debts or obligations of individuals acknowledged by society.
An individual has certain rights that he/she enjoys under moral obli-
gation to use them well for the common good. Rights and duties are
eventually focused on the same moral laws and relations. The society
offers certain rights to its members for their own good and the good
of the society. In other words, society grants rights to an individual,
which are beneficial to the social good. When an individual has a right,

n o t e s
it becomes moral obligation of other men to respect it, and the individ-
ual himself is under moral obligation to use it for the common good.
Thus, duties and rights correlate to each other. Duties are moral obli-
gations and every right carries an obligation with it.
To summarise, the rights theory states that if you are given certain
rights from the society, you are under moral obligation to use them in
the best way for the betterment of the society.
3.3.5 DEONTOLOGICAL THEORY
Deontology is a Greek word for ‘duty’. It says, people should follow

rules to do their duties. According to this theory, choices should be
morally required, forbidden or permitted. It guides and assesses our
choices of what we ought to do. Thus, the theory judges the morality
S
of an action based on rules rather than the consequences caused by
the action. As an ethical theory, Deontology applies rules to determine
what is right and what is wrong.
IM
This theory is often associated with philosopher Immanuel Kant who
suggested that ethical actions should follow universal moral laws, such
as ‘Do not lie’, ‘Do not steal’, ‘Do not cheat’, etc. Kant argues that the
consequences cannot be used to determine that the person has a good
will. Good consequences could arise from a bad action and bad con-
sequences could arise from an action that had good intentions. When
a person has a good will then he/she acts out of respect for the moral
M
law. So, the only thing that really means is a good will. Moreover, good
will is only worthy when a person does something because it is that
person's duty, i.e. out of respect for the law.
N
The Deontological theory simply avoids subjectivity and entails you

to follow rules for performing any action or duty. It neither judges ac-
tions by their results nor weighs the costs and benefits of a situation.
The rigidness to follow rules makes the theory unacceptable by many
people. For example, suppose you are an army officer who got an order
to launch a missile that might start a war. You can cancel the launch,
but it would be against your professional code of ethics to disobey the
orders. As per the theory of Deontology, you should not violate the
orders and launch the missile. However, in letting the missile launch,
many people would die.
Therefore, following the rules makes the theory of deontology easy to

apply. However, in some cases, it also means ignoring the possible con-
sequences of actions when defining what is right and what is wrong.
3.3.6 STAKEHOLDER THEORY
We have already studied this theory in the previous chapter in detail.

Stakeholder can be defined as an individual person or a group of peo-
ple who have legitimate interest in a company. In other words, any en-

n o t e s
tities that get affected or can affect the actions of a business are known
as corporate stakeholders.
The stakeholder theory is a newer concept in comparison to the share-

holder value theory, which states that increase in the profit and share-
holder return should be the only responsibility of businesses. An in-
ternal memorandum at Stanford Research Institute in 1963 used the
term stakeholder for the first time. However, the concept was pop-
ularised by Richard Edward Freeman in 1984. The theory suggests
that businesses are dependent on stakeholders for their success and
stakeholders also have some stake in the businesses. Therefore, it is
the responsibility of businesses to think of the stakeholders and serve
broader societal interests by going beyond money creation for share-
holders alone.
The stakeholder theory is considered to have a holistic approach where
S
it states that the ultimate goal of a business should be to strengthen
their existing relationships with external entities in order to gain a
competitive edge. The theory focuses on why it is important for busi-
IM
nesses to work towards sustainable development. As per the theory it
is in the own interest of a business to work in the direction of corpo-
rate sustainability because by doing this, its relationship with external
stakeholders will not only strengthen, but it will also help the business
to fulfil its financial objectives.
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3.3.7 GANDHI’S TRUSTEESHIP THEORY
Mahatma Gandhi established the concept of trusteeship in his efforts

towards spiritualisation of economics. He was of the opinion that ev-
erything belongs to God, and was given by the God. According to Ma-
N
hatma Gandhi, in the event of an individual having more than what

he needed, he should become a trustee of that excess portion for the
people of God. Trusteeship would become a legalised institution in the
event of people accepting and imbibing this principle in general. This
theory was developed as a solution to bridge the inequalities within
income and ownership of materialistic things. The theory worked on
Mahatma Gandhi’s non-violent way to resolve economic and social
evils in the world. The major characteristics of this theory are as fol-
lows:
Trusteeship is a means of transformation of the capitalist order
into an egalitarian one.
There is no recognition of any right of private ownership of prop-
erty beyond what is permitted by the society.
Legislation of ownership and use of wealth does not get excluded
in this phenomenon.
Ifthe Trusteeship is state regulated, a person would not have the
freedom to use or hold his wealth for personal gains disregarding
the interests of the society.

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Similar to the case of a minimum living wage, ceiling should be

fixed for the maximum income of an individual in the society. It
should be ensured that the difference between minimum and max-
imum earnings is maintained as equitable and reasonable with an
objective towards elimination of the difference.
Production is determined by what the society needs rather than
individual greed.
As per the trusteeship theory when a person moves from the limita-
tions of personal gains and focuses on nobler concept of everyone’s
welfare, the person moves close to self-realisation. Possession of
wealth with an intention to prevent its misuse and to equitably dis-
burse it, is a move towards protection of human dignity. Possession
of wealth of any other objective is considered to be morally incorrect.
Mahatma Gandhi gave this theory as he was aware of the serious ill
S
effects of capitalism that was widening of the gap between the poor
and the rich.
Even though Gandhiji’s concept of trusteeship was against capitalism

IM
it differs from the Marxian economic philosophy. The Marxism theo-
ry evolved from the industrial revolution, whereas the Gandhian ap-
proach can be understood in the context of spiritual values of Indian
tradition. The Marxism theory basically suggested that the capitalist
class should be destroyed whereas the Gandhian theory suggested
that this particular class or institution should be reformed.
M
As per Mahatma Gandhi, a human being is an ethical being first and

then a social being. Another significant difference between Marxist
and Mahatma Gandhi’s theory lies in the method adopted to achieve
the objective of social equality. The Marxist socialism theory does not
N
shy away from violence. Gandhian theory on the other hand believes
that there should be a change in hearts of the rich. According to him,
violence should not have a place in the society, there should only be
trusted. In the trusteeship theory, a trustee is trusted by the common
man and the trustee plays the role of a custodian. Though in practical
it may be difficult to achieve this kind of social harmony, mahatma
Gandhi believed in the strength of human goodness and the value that
principles and morals could bring to the society.
3.3.8 PRINCIPAL – AGENT MODEL
The principal agent theory states that there should be a specification

of accountability to analyse and evaluate public accountability. In oth-
er words, it should be specified that who is accountable to whom. In
the principal agent model, an actor or a group of actors, known as
an agent undertake a specified action on behalf of another actor or a
group of actors, known as the principal.
To be specific, the model is applied in cases when one person or entity

called agent makes decisions and/or takes actions on behalf of anoth-

n o t e s
er person or entity, called principal and thereby, impacting the prin-

cipals’ interest. This in certain cases leads to moral hazards, when
agents act in their own interests, and ignoring the interests of the
principals. Figure 3.1 shows the basic idea of principal agent model,
where P: principal and A: agent:
information
Asymmetric
hires
P A
S
self self
interest interest
performs
IM
Figure 3.1: Principal-Agent Theory (P: principal, A: agent)
Some examples of the principal-agent relationship include:

Corporate management (agent) and shareholders (principal) rela-
tionship
Politicians (agent) and voters (principal) relationship
M
Brokers (agent) and markets (buyers and sellers- principals) rela-

tionship
In this model, the principal also has the authority to take decisions
for influencing the agent’s incentives in taking any of various possible
N
actions. The action of incentive structuring for the agent is one of the
main focus points of the principal agent model. The act of undertak-
ing decisions by the principal which governs the agent’s incentives for
taking actions forms a contract. The theory is considered to be part
of the broader contract theory, given by Bolton and Dewatripont in
2004. One of the most important characteristics of the principal-agent
theory is that it is not based on a specific set of assumptions or conclu-
sions. It is more accurately described as a group of formal models that
addresses related concerns with similar styles of analysis. Identifying
a member of the principal-agent models requires recognising:
What the agent(s) can do and how can this affect the principal(s)
What the principal(s) can do and how can this affect the agent(s)
Who the principal(s) and the agent(s) are
The model identifies a set of actors, possible actions they can take and
how consequences of their actions can be evaluated. You can anal-
yse the principal-agent relationship in many contexts. For example,
an employee acts on behalf of an employer and the employer receives

n o t e s
certain benefits from the employee’s actions. Similarly, you will find
a principal-agent relationship between an insurance company and an
insured as the insurer’s actions affects the principal, via pay-outs.
To summarise, in principal-agent theory the principal(s) uses avail-

able actions, to provide incentives for the agent(s) to make decisions
that the principal most prefers. The theory focuses on the reaction of
the agents’ decisions to the principal’s goals, and how this reaction is
facilitated by actions available to each actor in institutional settings in
which they interact.
4. According to Friedman’s opinion, corporations are economic

and private institutions, which are designed for the purpose of
making money. (True/False)
S
5. The principle of ___________ states that the social
responsibilities of businessmen arise from the amount of
social power that they have.
IM
6. The _____________ refers to the negative consequences of the
absence of power usage.
7. The rights of property can be superior to human rights. (True/
False)
8. According to which of the following theories when a person
M
moves from the limitations of personal gains and focuses on

nobler concept of everyone’s welfare, the person moves closer
to self-realisation.
a. Deontological theory
N
b. Stakeholder theory
c. Gandhi’s trusteeship theory
d. Social justice theory
9. The stakeholder concept was popularised by _________ in
1984.
10. The ____________ theory is based on the premise that every
individual inclusive of corporate managers has a moral
responsibility to treat everyone else respectfully.
11. In the principal-agent model the agent has the authority to
take decisions for influencing the principal’s incentives in
taking many of the possible actions. (True/False)
Activity
Study the Marxist theory and Mahatma Gandhi’s theory on trust-

eeship in detail. Write your views in favour and against of both the
theories.

n o t e s
3.4 SUMMARY
CSR in pre independence period is mostly known for its charitable
and philanthropic nature. At that time, the CSR practices were
majorly influenced by family values, traditions, culture and reli-
gion. The money was spent basically on setting up temples and
religious institutions.
Even after India’s independence in 1947, approach to social wel-
fare through philanthropy continued to exist. With the government
taking a keen interest in establishing a business for the benefit of
society, many business families in India demonstrated their phil-
anthropic approach towards activities like healthcare, education
and grant of funds for religious activities.
With liberalisation of the Indian economy, most of the controls and
S
licensing system got terminated which gave a boost to the private
sector and ensured greater involvement of private sector business-
es in the socio-economic development of the country.
The
IM
liberalisation and the consequent relaxation in rules and reg-
ulation helped in making the Indian industry competitive and led
the Indian economy to grow at a fast pace.
Private sector needs to work as equal partner with government in
achieving country’s development goals and thereby, contributing
towards nation building.
M
According to Friedman’s theory, the business is not the society’s

creation. As a result, the corporation or the business does not have
any moral obligations towards the society. Corporations are eco-
nomic and private institutions, which are designed for the purpose
N
of making money. In Friedman’s words, business of business is busi-

ness.
The social contract theory says that people live together in society
according to a social contract that establishes moral and political
rules of behaviour. As per the theory, organisations or corporations
enter into contract with individuals or other members of society.
The two parties receive goods, resources and approval of the soci-
ety in order to corporate in lieu of good behaviour.
The theory of social justice has been its focus on fairness and dis-
tributive justice. It explains how and in accordance of which prin-
ciples, the society’s goods, like power, wealth and other intangibles
get distributed amongst the society members.
This theory is associated with basic human rights and right to
property. Arguments in the right theory state that the rights of
property should not be superior to human rights.
The deontological theory is based on the premise that every indi-
vidual inclusive of corporate managers has a moral responsibility

n o t e s
to treat everyone else respectfully, that includes listening to and

consideration of their needs and necessities.
The stakeholder theory suggests that businesses are dependent
on stakeholders for their success and stakeholders also have some
stake in the businesses. Therefore, it is the responsibility of busi-
nesses to think of the stakeholders and serve broader societal in-
terests by going beyond money creation for shareholders alone.
Mahatma Gandhi established the concept of trusteeship in his ef-
forts towards spiritualisation of economics. He was of the opinion
that everything belongs to the God, and was given by the God. Ac-
cording to Mahatma Gandhi in the event of an individual having
more than what he needed, he should become a trustee of that
excess portion for the people of God.
The principal-agent theory states that there should be a specifi-
S
cation of accountability to help analysis and evaluation of public
accountability.
In the principal agent model, an actor or a group of actors, known
IM
as an agent undertakes a specified action on behalf of another ac-
tor or a group of actors, known as the principal.
key words
Economy: An area of the production, distribution, or trade, and

M
consumption of goods and services by different agents.

N
Industrial revolution: The phase determined by the change

from an agrarian and handicraft economy to one dominated by
industry and machine manufacturing.
Information technology (IT): The application of computers to
store, retrieve, transmit and manipulate data, or information,
often in the context of a business or other enterprise.
Natural Resources: Resources that occur within the environ-
ment in their original and natural form, undisturbed by human
interventions.

1. Describe the pre independence period of CSR.
2. Write a short note on Friedman’s theory.
3. What do you understand by the social contract theory?
4. Write a short note on the stakeholder theory.
5. Explain in brief Mahatma Gandhi’s trusteeship theory.

n o t e s

Evolution of CSR in India 1. False
2. False
3. c. Post liberalisation period
Theories of CSR 4. True
5. Social power equation
6. Iron law of responsibility
7. False
8. c. Gandhi’s trusteeship theory
S
9. Richard Edward Freeman
10. Deontological
11.
IM
False

1. CSR in pre-independence period is mostly known for its
charitable and philanthropic nature. At that time the CSR
practices were majorly influenced by family values, traditions,
M
culture and religion. The money was spent basically on setting up

temples and religious institutions. Refer to Section 3.2 Evolution
of CSR in India.
2. According to Friedman’s theory, the business is not the society’s
N
creation. As a result, the corporation or the business does not

have any moral obligations towards the society. Corporations are
economic and private institutions, which are designed for the
purpose of making money. Refer to Section 3.3 Theories of CSR.
3. The social contract theory says that people live together in society
according to a social contract that establishes moral and political
rules of behaviour. Refer to Section 3.3 Theories of CSR.
4. The stakeholder theory suggests that businesses are dependent
on stakeholders for their success and stakeholders also have
some stake in the businesses. Therefore, it is the responsibility of
businesses to think of the stakeholders and serve broader societal
interests by going beyond money creation for shareholders alone.
Refer to Section 3.3 Theories of CSR.
5. According to Mahatma Gandhi’s trusteeship theory, in the event
of an individual having more than what he needed, he should
become a trustee of that excess portion for the people of God.
Refer to Section 3.3 Theories of CSR.

n o t e s
SUGGESTED READINGS
Sanjay K Agarwal. (2008). Corporate Social Responsibility in India.
Response Books.
ty (Csr): A Guide for Students and Practicing Managers in Develop-
Agency, LLC
Dr K S Ravichandran (2016). Corporate Social Responsibility –
E-REFERENCES
S
Definition of Principle Agent Problem | What is Principle Agent
Problem ? Principle Agent Problem Meaning - The Economic Times.
(2018). The Economic Times. Retrieved 25 April 2018, from https://
IM
economictimes.indiatimes.com/definition/principle-agent-prob-
lem
Milton Friedman in His Own Words | Becker Friedman Institute.
(2018). Bfi.uchicago.edu. Retrieved 25 April 2018, from https://bfi.
uchicago.edu/news/post/milton-friedman-his-own-words
M
On Theory of Trusteeship | GANDHI PHILOSOPHY : Gandhi’s

Views. (2018).Gandhiashramsevagram.org. Retrieved 25 April
2018, from http://www.gandhiashramsevagram.org/gandhi-views/
on-theory-of-trusteeship.php
N
What is Marxism? A Bird’s-Eye View. (2018). Nyu.edu. Retrieved 25

April 2018, from https://www.nyu.edu/projects/ollman/docs/what_
is_marxism_content.php

C h a
4 p t e r
INTRODUCTION TO CORPORATE SOCIAL RESPONSIBILITY
CONTENTS
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4.1 Introduction
4.2 Corporate Social Responsibility
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4.2.1 Corporate and Strategic Philanthropy
4.2.2 Carroll’s CSR Pyramid
Activity
4.3 Generations of CSR
4.3.1 Changing Trends in CSR
M

Activity
4.4 Arguments in Favour and Against CSR
N
Activity
4.5 Business Case for CSR
Activity
4.6 Importance of CSR for India
4.6.1 Current Scenario of CSR in India
4.6.2 Contemporary Drivers for CSR in India
Activity
4.7 Challenges in Adopting CSR Practices
Activity
4.8 Summary

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CSR EFFORTS BY STARBUCKS
Starbucks is an American coffee chain shop founded in Seattle,

Washington. It is world’s largest coffeehouse company with more
than 27,339 stores, operating in 62 countries.
As a world famous coffee shop, Starbucks also understands its

responsibility in terms of implementing eco-friendly values and
ecological practices not only in store designs but also in its opera-
tions. Starbucks monitors all aspects of its business to reduce the
overall impact on the environment. In its CSR effort to ‘go green’,
the company relies heavily on agricultural products. In addition,
it is also opening eco-conscious stores on a global scale. Let us dis-
cuss some major CSR initiatives taken by Starbucks to ‘go green’.
S
LEED® Certified Stores
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M
N
Source: www.retail-focus.co.uk
Starbucks has been a leader in developing and implementing

a green building programme for retail stores. It joined the U.S.
Green Building Council® (USGBC) in 2001 and developed the
LEED® (Leadership in Energy and Environmental Design) pro-
gramme, related to new retail construction and business strate-
gies.
Starbucks now has more than 1000 LEED-certified stores in 20

countries. The stores use recycled coffee tables. These LEED-cer-
tified stores save more than 45 per cent of lighting through the
efficient use of LED fixtures.

INTRODUCTION TO CORPORATE SOCIAL RESPONSIBILITY 89
n o t e s
Recycling and Reducing Waste
S
Source: www.starbucks.com
Starbucks has made considerable progress in reducing the im-

IM
pact of litters produced in stores. Some of the wastes that are usu-
ally generated at stores include cardboard boxes, milk jugs, syrup
bottles, juice cartons, coffee grounds and leftover from customers.
Starbucks ensures that all these items are recycled through their
customer-facing and behind-the-counter recycling practices.
Starbucks greatly emphasises on recycling its cups and other

M
packaging items. For example, in 2006, Starbucks in North Amer-

ica started offering cups made up of 10 per cent post-consumer
recycled paper fibre that helped the company in its overall waste
reduction strategy. In addition, Starbucks follows improved pack-
aging design guidelines and supports local recycling infrastruc-
N
ture as an initiative to its CSR effort.
Water and Energy Conservation
Source: www.starbucks.com

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In 2008, Starbucks set a goal to lessen water consumption by 25

per cent in all of its stores by the year 2015. It identified a num-
ber of measures to save water resources. Some of such measures
include installing efficient fixtures; monitoring consumption; fo-
cusing on leak repairs and improving water filtration systems in
stores.
Starbucks also monitors the water consumption pattern in cof-

fee-growing fields. It provides support to coffee farmers at its
seven farmer support centres across the globe to increase their
produce and quality while helping them in reducing water con-
sumption levels. Starbucks creates awareness among farmers re-
garding protecting rivers and ensures that the farmers have ac-
cess to clean drinking water. In addition, Starbucks works with
S
many non-profit organisations to improve the quality of life in
many coffee growing regions. It invests in programmes that ad-
dress serious public needs such as clean water access, sanitation
and hygiene.
IM
Apart from water conservation, Starbuck’s goals for energy con-
servation are also very aspiring. It uses energy management sys-
tems to enhance heating and cooling within the stores. In addi-
tion, they follow specific guidelines for equipment optimisation
and lighting arrangements to save energy.
M
Investing in Renewable Energy

N
Source: www.uenergysolar.co.uk
In addition to reducing energy use, Starbucks is improving its re-

newable energy sources. It buys electricity from wind-farm own-
ers at competitive prices. By doing this, the company not only
uses the recyclable source of energy but also provides wind-farm
owners with additional revenue.

n o t e s
learning objectives

>> Explain the concept of corporate social responsibility
>> Describe the generations of CSR
>> Analyse the arguments in favour and against CSR
>> Define business case for CSR
>> Illustrate the importance of CSR in India
>> List challenges in adopting CSR practices
4.1 INTRODUCTION
Organisations and society are dependent on each other for their
S
growth and development. This is because an organisation takes inputs
such as skilled/unskilled labour, raw material and natural resources
from society and in turn provides goods and services to society and
IM
generates employment opportunities for people; thereby ensuring so-
cio-economic progress. However, the growth of businesses can lead
to a number of social problems and it is the moral responsibility of
organisations to address those problems.
Corporate social responsibility (CSR) is a concept that explains the

responsiveness of organisations towards social issues such as climate
M
change, fair trade practices, corporate governance and responsible in-

vestment. For the past few years, CSR has been the subject of many
discussions and research. As a concept, it has seen a significant de-
velopment both academically and commercially. It constitutes a set of
parameters for gauging the contribution of an organisation towards
N
the development of society. As per the European Union (EU), an en-

terprise is accountable for its impact on all relevant stakeholders. It is
the continuing commitment by business to behave fairly and responsibly,
and contribute to economic development while improving the quality of
life of the work force and their families as well as of the local community
and society at large.
According to United Nations Industrial Development Organization

(UNIDO), Corporate Social Responsibility is a management concept
whereby companies integrate social and environmental concerns in
their business operations and interactions with their stakeholders.
According to the European Union (EU), CSR is a concept whereby

companies integrate social and environmental concerns in their busi-
ness operations and in their interaction with their stakeholders on a vol-
untary basis as they are increasingly aware that responsible behaviour
leads to sustainable business success.
CSR ensures the success of an organisation by the inclusion of social

and environmental considerations into the organisation’s operations.
It aims at satisfying not only the interests of shareholders and cus-

n o t e s
tomers but also managing the expectations of other stakeholders in-

cluding employees, suppliers and the community at large. Moreover,
CSR helps organisations to ensure sustainable development, accom-
plishment of their economic, environmental and social objectives, ful-
filment of stakeholder demands and increased shareholder value.
Realising the importance of CSR, organisations today, are positively

incorporating socially responsible business practices. The basic objec-
tive of CSR implementation is to maximise the organisation’s overall
effect over the society and stakeholders, while keeping in mind the
issues of environment and overall sustainability.
This chapter begins by introducing the concept of CSR in detail. Next,

the chapter discusses the generations of CSR and presents arguments
in favour and against CSR. The chapter also discusses four major
business cases for CSR in detail. Apart from this, the chapter explains
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the importance and current scenario of CSR in India.
4.2 CORPORATE SOCIAL RESPONSIBILITY

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CSR is a management concept according to which it is the respon-
sibility of corporations/businesses functioning within the society to
contribute towards the development of the society. The development
could be in terms of economic, social and/or environmental develop-
ment which creates a positive impact on the society. Thus, you can say
that CSR is an ethical behaviour of an organisation towards society.
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The concept of CSR advocates that organisations must fulfil their re-
sponsibility of helping the society in which they operate.
Let us take a few examples of organisations that are known for their
efficient CSR practices. BMW, a German multinational, automobile
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manufacturer, is considered to be one of the most socially responsible

organisations in its industry. The company runs several programmes,
such as ‘The Schools Environmental Education Development Project’
to raise awareness of social and environmental issues. BMW’s key to
success is maintaining a balance between a good business model and
helping social causes.
Source: www.bmw.co.za

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Levi’s is another company that stresses on CSR practices. It also runs

a Worker Well-Being Initiative programme that is aimed to improve
the life of their employees. Levi’s has also started the ‘Water<Less’
campaign wherein it aims at consuming less water while manufactur-
ing products. By this campaign, Levi’s has successfully saved over one
billion litres of water and expects to better improve its manufacturing
process by the year 2020.
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Source: www.eco-business.com
As a concept, CSR studies the relationship between organisations and

societies and answers the rising concerns on ethical issues in busi-
nesses. It involves engaging directly with local communities, identify-
ing their needs and integrating those needs with corporate goals and
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strategic intent. CSR includes protecting the interests of stakeholders

and constituent groups of a society that get affected with the organisa-
tion’s operations. The stakeholder group involves consumers, employ-
ees, suppliers, creditors, regulating authorities, local communities
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and natural environment.
According to Archie B. Carroll, one of the most respected CSR aca-

demics, CSR is defined as the social responsibility of business encom-
passing the economic, legal, ethical and discretionary expectations that
society has of organisations at a given point in time.
As per the viewpoint of the Institute of Directors, UK, CSR is about

businesses and other organisations going beyond legal obligations to
manage the impact they have on the environment and society. In partic-
ular, this could include how organisations interact with their employees,
suppliers, customers and the communities in which they operate, as well
as the extent they attempt to protect the environment.
CSR covers a number of concerns that may vary across organisations

at different points in time. Recently ethics and corporate governance
have been of growing concern to practitioners of CSR. The major CSR
concerns are as follows:
Environmental management
Eco-friendly and responsible sourcing

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Stakeholder engagement
Labour standards and working conditions
Employee and community relations
Social equity
Gender balance
Human rights
Good governance
Anti-corruption measures
CSR is often considered to be a concept that is both a means and an

end. It acts as a means by forming an integral part of an organisation’s
strategy through defining the way the organisation should deliver its
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products and services to markets. It also acts as an end as it provides
the way of validating its actions in the society by bringing stakehold-
er concerns to the forefront. It ultimately defines the success of an
organisation, which is directly related to the organisation’s ability to
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incorporate stakeholder concerns into its business model.
A properly implemented CSR concept helps an organisation in gain-

ing a competitive advantage in terms of:
Enhanced access to capital and markets: An organisation needs
to manage its social and environmental impacts to improve access
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to capital and markets. In today’s dynamic environment, financial

institutions, apart from the conventional financial aspects, look to
invest in organisations that are socially responsible and take so-
cial, environmental and ethical considerations into account. This
is because, an organisation practising CSR is considered less risky.
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In other words, an organisation that is not practising CSR activi-

ties runs a risk of ruining its brand, losing shareholders’ money
and crisis management. Thus, in order to have easy access to cap-
ital and new market, organisations require taking CSR activities
seriously.
Operational cost savings: CSR activities can help in reducing costs
and increasing operational efficiencies through streamlining, sus-
tainability and energy saving. A number of environment-focused
operations explain the ways to reduce waste and recycle materials.
These eco-efficiencies can offer both environmental and economic
benefits by reducing energy consumption and implementing new
cost-efficient maintenance methodologies. This ultimately helps in
decreasing the overall operational cost of an organisation.
Improved productivity and quality: CSR initiatives focus on
well-being of employees and thereby motivating them to a great
extent. Increased level of motivation helps in the ease of hiring

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quality staff, employee retention and commitment, which ulti-

mately leads to increased productivity and quality level.
Efficient human resource base: CSR initiatives often result in
positive association of employees with their organisations. If an
employee is satisfied with an organisation, it is less likely that he/
she would look for a job elsewhere. This helps in retaining talented
and efficient employees. Moreover, an organisation with positive
image attracts more people to apply for a job rather than those
who take their staff for granted. More hiring choices ultimately
lead to building better and efficient workforce.
Improved brand image and reputation: Following CSR practices
establish an organisation’s reputation as a responsible and sus-
tainable entity. It also improves the organisation’s ability in terms
of being more effective in managing its communications and mar-
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keting to support existing customers, attracts new customers and
increases market share. Thus, engaging in CSR activities often
helps an organisation in improved brand image and reputation.
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Enhanced customer loyalty: Just like employees, customers also
like to be associated with a brand, which has good image and repu-
tation. Customers, these days, are well-aware of various social, en-
vironmental and ethical issues, prevailing in the society. They like
and admire organisations that fulfil their social and environmental
responsibilities and follow ethical business practices. If customers
admire an organisation, they are likely to buy more products/ser-
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vices of that organisation on frequent basis. Moreover, they also

spread good word-of-mouth about the organisation, which leads
to bring more customers. As per UK Small Business Consortium,
88% of consumers said they were more likely to buy from a compa-
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ny that supports and engages in activities to improve society. Thus,

engaging in CSR activities also help an organisation in building
loyal customer base.
Better decision making processes: An organisation that follows
CSR practices tends to involve in fair decision making process. De-
cision making is an important element in business as every busi-
ness decision not only affects the organisation’s shareholders but
also its stakeholders, such as community and environment. When
organisations think of social responsibility point of view, they take
decisions ethically, which benefits all the stakeholders and results
in the betterment of the society.
Increased sales and profits: Engaging in CSR activities help an
organisation to earn respect in the marketplace. This ultimately
results in higher sales, improved employee and customer loyalty,
and hire and retain better human resources. Moreover, CSR ac-
tivities focus on sustainability issues that not only lower costs but
also improve operational efficiencies. All these lead in increased
sales and profits for an organisation.

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Exhibit
TATA GROUP: Addressing climate change

as a part of its CSR activity
Source: www.slideshare.net
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The Tata Group believes that businesses have an important role
to play in fighting climate change. As a socially responsible group,
Tata Group plays a leadership role in addressing climate change.
By setting a climate change steering committee in 2008, the Group
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has come up with a series of plans, policies and initiatives for its
companies. The major points given by this committee is as follows:
Ensure Tata companies measure their carbon footprint and
project future footprints based on their growth plans
Encourage Tata companies to adopt aggressive abatement ac-
tions to reduce lifecycle footprint and drive growth through in-
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novation
Encourage a low carbon culture across group companies
through systems and processes
Collaborate on sustainability projects
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Generate knowledge and share best practices to evolve a strate-

gic tool for climate change
Explore technical solutions for a low carbon economy
The climate change agenda is now being extended to create sus-

tainability that comprises the environment and community initia-
tives. The group established the Tata Global Sustainability Council
in November 2014 to provide strategic guidance and thought lead-
ership to companies, along with the development of a group-wide
sustainability policy.
The Tata Group has also become a part of the Prime Minister’s low
carbon committee and was a member in the steering committee
of the ‘Caring for Climate’ initiative of the United Nations Global
Compact and United Nations Environment Programme. The Tata
Group believes that the private sector has a responsibility to ac-
tively participate in global efforts to decrease greenhouse gas emis-
sions, and to help leading the country to a low-carbon, climate-re-
silient economy.
Source: http://www.tata.in/sustainability/articlesinside/addressing-climate-change

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4.2.1 CORPORATE AND STRATEGIC PHILANTHROPY
Corporate philanthropy, an indispensable part of CSR, is a way busi-

ness give back to their community through financial donations and
non-cash assistance, such as time, expertise and tangible items like
medicines, computers, cloth, food and textbooks. For example, a bank
might donate money to buy uniforms for a school sports team. Thus,
it can be said corporate philanthropy efforts of organisations involve
donating a certain part of their profits to charitable causes. Such do-
nations may be done to specific charities or non-profit organisations.
Since these efforts may not affect the general public directly, it has a
narrower and limited scope than CSR. On the other hand, CSR ad-
dresses the overall business approach of an organisation towards its
employees, customers, environment and society at large.
Strategic philanthropy denotes to the strategy, key capabilities and
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application of an effective corporate philanthropy programme. An
organisation needs a strategic approach to philanthropy to align it-
self with social concerns that meet its mission, vision and corporate
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values. Cause-related marketing and community partnering are two
major types of strategic philanthropy.
According to Committee Encouraging Corporate Philanthropy

(CECP), “Strategic philanthropy” is a term that describes an effective
corporate philanthropy program that can benefit society while also serv-
ing business interests. Any grant can be a source of good will, but strate-
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gic philanthropy is meant to improve company profits through targeted

giving that corresponds to company interests. Instead of simply donating
resources to worthy causes, corporations now look for giving opportuni-
ties that are “news worthy.”
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Thus, you can say that strategic philanthropy is an exclusive and pow-
erful way to combine a business’s marketing goals by taking care of
the society at large. It is a positioning tactic that helps a business in
getting connected with a not-for-profit organisation or cause. In this
way, a business cannot only be helpful and working for the welfare of
the community, but also receives parallel benefits. These benefits can
be in the form of exposure, lead generation, employee retention and
increased in performance and productivity.
4.2.2 CARROLL’S CSR PYRAMID
As mentioned above, CSR includes protecting the interests of stake-

holders and constituent groups of a society that get affected with the
organisation’s operations. Therefore, it is of utmost importance for ev-
ery organisation to address the concerns of stakeholder groups and
consider their interests in their strategic outlook. To help organisa-
tions embrace these decisions and adjust the internal strategic plan-
ning process to maximise their long-term viability, Archie B. Carroll,
has presented a conceptual framework in a pyramidal form.

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The pyramid presents four types of responsibilities of an organisation.

The first one is the economic responsibility of being profitable. The
second is the legal responsibility of abiding by the laws set forth by so-
ciety. The third is the ethical responsibility that is to perform business
operations which are morally correct. The fourth is the philanthrop-
ic or discretionary responsibility which is to contribute resources to-
wards social, educational, recreational and/or cultural purposes.
The Carroll’s Pyramid of CSR is shown in Figure 4.1:
Philanthropic
Responsibilities
Be a good corporate
citizen.
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Ethical
Responsibilities
Be ethical.
IM Legal
Responsibilities
Obey the law.
Economic
Responsibilities
Be profitable.
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Figure 4.1: Carroll’s Pyramid of CSR

Source: Carroll (1996)
Economic responsibilities: They are concerned with the respon-

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sibility of a business to provide shareholders a reasonable return

on their investments, offer safe and fairly paid jobs to employees,
produce good quality products and services to customers at a fair
price. Economic responsibilities form the base of the pyramid,
where all other responsibilities rest on.
Legal responsibilities: Laws represent the society’s codification
of acceptable and unacceptable practices. The legal responsibility
of corporations states that businesses should abide by the law and
act as per the rules of the society. Legal responsibilities demand
organisations to:
perform in alignment with the expectations of government and
law
work in coherence with various federal, state and local regula-
tions
act as law-abiding corporate citizens

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fulfil all their legal obligations to societal stakeholders

provide goods and services that meet minimal legal require-
ments
Ethical responsibilities: They consist of what is generally expect-
ed by society irrespective of legal expectations. In other words,
ethical responsibilities are not always imposed by law, but they are
expected from organisations by the public and governments. The
following are the expectations from organisations while perform-
ing ethical responsibilities:
To perform consistently with societal norms
To recognise and respect new or evolving ethical/moral norms
adopted by society
To prevent ethical norms from being compromised to achieve
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business goals
Philanthropic responsibilities: They include organisations’ vol-
untary or discretionary activities. Philanthropy or business giving
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is voluntary or discretionary for organisations and not mandat-
ed by law. To fulfil their perceived philanthropic responsibilities,
organisations engage in various activities such as giving gifts of
monetary resources, making product and service donations, vol-
unteering by employees and management for social cause, engag-
ing community development efforts, etc.
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1. As a concept, CSR studies the relationship between

_____________ and ___________ and to deal with the ethical
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issues in businesses.
2. __________ is a business’s way of giving back to its community
through financial donations and non-cash assistance.
3. Cause-related marketing and community partnering are two
major types of:
a. Corporate philanthropy b. Strategic philanthropy
c. CSR pyramid d. None of these
4. According to the Carroll’s pyramid of CSR, the ___________
responsibilities are not always imposed by law, but they are
expected from organisations by the public and governments.
5. Which of the following responsibilities form the base of the
Carroll’s pyramid of CSR, where all other responsibilities rest
on?

a.
Economic b.
Legal

c.
Ethical c.
Philanthropic

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Activity
Using the Internet, identify five Indian companies that are engaged
in CSR activities. Prepare a report on CSR contributions of these
companies with specific focus on:
Section of the society affected by the CSR activity
Problem at which CSR was aimed
Outcomes of CSR efforts
Recognition of CSR efforts in media and its impact on organisa-
tion’s bottom-line
4.3 GENERATIONS OF CSR
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CSR is a dynamic concept that keeps on evolving with changes in the
cultural expectations of a society. Simon Zadek et al. (2001) in the re-
port Third Generation Corporate Citizenship to the Foreign Policy
Cent, explain the expansion of CSR through three generations. Let us
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discuss these three generations of CSR in detail.
1. First generation: The first generation of CSR indicated that
businesses can be socially responsible without hampering their
commercial success. Major developments at this generation
included adoption of a strategic approach to philanthropy,
increase in the geographical focus of corporates, etc. The first
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generation of CSR focused primarily on refraining businesses

from improper behaviours or violation of laws.
In this way, the underlying viewpoint within the first generation
of CSR is on generating benefits that arise when organisation
refrains from undesirable actions. The viewpoint says that
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businesses can run without any problem as long as they refrain

from illegal activities or otherwise unacceptable behaviour.
An example of first generation CSR is the approach promoted
by Milton Friedman in 1970 in which he advocated that the
only social responsibility of any organisation is to make a profit.
According to this view, earning profit for shareholders is the sole
objective of any business. However, here, it should be ensured
that profit is not earned from any illegal activity or improper
behaviour. Thus, the major focus of first-generation CSR is to
strengthen the principles and legal basis for corporate behaviour.
The first generation of CSR believed that an organisation should
identify ways for being responsible while having major focus
on commercial success. It denotes to the most traditional and
prevalent form of CSR and is usually characterised by corporate
philanthropy. Take examples of Bill Gates and Ted Turner who
use to donate a huge sum of money for the abolition of diseases,
like Polio and AIDS. Contributing to such charity work is not the
main business of Microsoft Corporation or Cable News Network;

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however, it adds commercial value to the businesses through

reputation enhancement.
Nowadays, many organisations are changing the way they
approach their philanthropy. For example, many organisations
are adopting strategic approach to philanthropy wherein the
organisations align the charitable giving with their core business
interests. Similarly, many organisations are expanding the
geographic focus of their charitable giving to show the needs
and expectations of global stakeholders. Organisations are
also developing management tools to evaluate the impact of
charitable contribution to their brand image. Organisations are
now focusing on finding innovative ways to incorporate greater
stakeholder participation in charitable activities, develop long-
term relationships with non-profit organisations and organise
their charitable activities.
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2. Second generation: The second generation of CSR practices
described CSR as an essential part of the long-term business
strategy. Values articulated in the second generation of CSR
focused majorly on providing fair living wages, family benefits
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and health care. The second generation of CSR focused on the
enforcement of positive activities and not just the avoidance of
negative behaviours.
Second generation CSR activities reflect human rights which
are secured in the form of protective legislation. For example,
it includes rights related with improved labour conditions and
product safety standards that were secured as a result of social
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disorder elevated during the 19th century period of western

industrialisation and capitalism. Thus, the second generation
CSR activities focus on securing positive rights for employees,
their families and local communities.
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The second generation of CSR generalises the concept of CSR as

an integral part of long term business strategy. In other words,
organisations are integrating CSR activities with business-
level strategies and on the basis of that, setting goals to address
the issue of “how should an organisation compete in a given
business?”
3. Third generation: The third generation of CSR practices is
still evolving with the focus on the need of addressing problems
like poverty, exclusion, environmental degradation, etc. The
third generation of CSR targets issues that go beyond voluntary
approaches by individual businesses and intends to remould the
entire market towards sustainability. It also covers issues related
with changing tax regime, mandatory social and environmental
reporting and consumer education.
Thus, the third generation of CSR reflects human rights that
goes beyond the concern of an individual or a particular group
and are actually concerned with humankind in a collective
sense. The third generation of CSR focuses on rights and
activities that are ‘global’ or ‘universal’ in nature for example,
the right to freedom of thought, conscience, and religion (United

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Nations 1948). As these rights are global or universal in nature

another major characteristic of third generation CSR is that the
protection of these rights becomes very complex. It is difficult for
a government, organisation or corporation to secure these rights
alone.
The third generation of CSR has been further evolved into the
concept of Creating Shared Value (CSV) by Prof. Michael Porter
and Mark Kramer. As per the CSV principle, economic value
should be created in a way that could also generate value for
the society by addressing its needs and challenges. Porter and
Kramer defined the concept of shared value as policies and
practices that increase the competitiveness of a business while
instantaneously developing the economic and social conditions
of the society at large. In other words, CSV tries to identify
common goals between business’s own needs and those of the
society. Porter and Kramer explained the following three ways
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to help businesses in creating shared value opportunities:
Reconceiving products and markets
Redefining productivity in the value chain
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Enabling local cluster development
The CSV concept advocates that if organisations start making
decisions and finding opportunities with the perspective of shared
values, it would generate greater value, benefit and growth not
only for the business, but also for the society. According to Porter
and Kramer, shared value is not merely social responsibility,
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philanthropy or sustainability, but a new approach to achieve

economic success.
4.3.1 CHANGING TRENDS IN CSR

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In recent times, CSR has become a crucial part of the business strat-
egy of organisations because of five identifiable trends. These trends
are apparently to grow in future business practices. Figure 4.2 shows
major trends in CSR:
Growing Affluence
Ecological Sustainability
Globalisation
Free Flow of Information
Brands
Figure 4.2: Changing Trends in CSR

n o t e s
Let us discuss these trends as follows:

Growing affluence: The level of affluence of societies decides the
extent of pressure exerted on organisations to demonstrate that
they are socially responsible. For example, a poor society that is in
need of job opportunities or internal investment may not impose
strict regulations for organisations against their business practic-
es. On the other hand, in affluent societies, consumers have an
option to choose products and expect more from organisations
that the production of those products does not harm the interest
of society.
Ecological sustainability: Changes in societal expectations and an
increase in general affluence are driven by a growing concern for
the environment. Economic activities performed by humans need
natural resources abundantly, which is reducing resources across
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the world and causing dramatic changes to the mix of gasses in
the Earth’s atmosphere. These changes in the atmosphere could
become irreversible in the near future. Consequently, organisa-
tions that are considered to be indifferent to their environmental
IM
responsibilities are most likely to be criticised and penalised in the
form of court-imposed fines, negative publicity or confrontation by
activity groups.
Globalisation: Nowadays, organisations perform not only domes-
tically but also across borders. Operating in multiple countries and
cultures poses a number of business complexities. Organisations
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need to follow not only laws and regulations related to business

but many more social and cultural norms. Moreover, multinational
firms are responsible for protecting the interests of various stake-
holders. In this case, globalisation has led to an increase in the
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potential to be exposed to global audience if a multinational firm

fails to meet the expectations of local communities.
Free flow of information: The growing influence of social media
has exerted pressure on organisations to be socially responsible.
Any lapse on the part of an organisation towards CSR can rapidly
bring to the attention of the worldwide public. In this way, tech-
nologies are allowing people to find new ways to protest against
organisations that are indifferent to their social responsibilities.
Brands: Nowadays, organisations focus on building their brand
reputation because brands act as a focal point of corporate suc-
cess. Strong brand image helps organisations to gain high compet-
itive advantage, which results in higher sales and revenue. Due to
the growing business complexity in the global environment and
availability of media channels, organisations’ image has become
precarious. In such a case, any indifference towards CSR activities
can harm the brand image of organisations.

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6. The first generation of CSR focused primarily on refraining

businesses from improper behaviours or violation of laws.
(True/False)
7. The principle of ___________ says economic value should be
created in a way that could also generate value for the society
by addressing its needs and challenges.
Activity
Find a real-life case study of an organisation that is making efforts

in the direction of ecological sustainability. Make analysis of the
case study and list the pros and cons of making such efforts by the
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organisation.
ARGUMENTS IN FAVOUR AND AGAINST

4.4
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CSR
Since the introduction of the concept of CSR, there have been a num-
ber of debates held over on the actual need for CSR. There have been
proponents and opponents of CSR. The proponents of CSR sight var-
ious reasons for adopting CSR, whereas its opponents state why CSR
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should not be adopted. Let us discuss arguments in favour and against

CSR.
ARGUMENTS IN FAVOUR OF CSR

Protect the interests of stakeholders: Every organisation needs
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skilled and competent employees for its business success. In or-

der to get the support of employees, it is of utmost importance for
organisations to protect the interests of employees in the form of
fair wages, comfortable shifts, a congenial work environment, etc.
Similarly, consumer is the lynchpin around whom marketing ac-
tivities of organisations revolve. Nowadays, consumers have an
umpteen number of options to choose from. Any dissatisfaction of
consumers on part of an organisation may make consumers switch
to other brands. Consumer sovereignty has made it mandatory for
organisations to become socially responsive. Assuming social re-
sponsibilities may bring losses for organisations in the short run;
however, fulfilling social obligations leads to business success in
the long run.
Long-term survival: Every organisation performs its business op-
erations in society. If organisations become irresponsive towards
social problems, their acceptance can be denied in society. There-
fore, organisations assume social responsibility for long-term suc-
cess of business.

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Self-awareness: With an increased awareness that businesses play

an important role in the growth and development of society, organ-
isations are motivated to assume their social responsibility. Organ-
isations take various steps to work for the social cause such as by
adopting moral and social standards, making timely payment of
taxes to the government, distributing dividends to shareholders,
providing fair wages to workers, offering quality goods to consum-
ers and so on.
Ward off government intervention: At times, callousness, apathy
and inaction of businesses with respect to social concerns lead to
worsening of social concerns. In such a case, government agencies
have to step in and regulate organisational practises by making
certain rules and regulations. If businesses conduct their opera-
tions in a self-regulated and disciplined manner, it usually helps in
preventing such government interventions.
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ARGUMENTS AGAINST CSR
Business
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is an economic activity: The opponents of CSR ar-
gue that the main purpose of organisations is to earn profits and
strengthen its economic position. According to them, it is only the
government that looks after the interests of the society. Therefore,
the government is chiefly responsible for assuming social respon-
sibility and not business enterprises.
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Compromise on global competitiveness: Opponents of CSR ar-

gue that when businesses are asked to assume additional CSR
responsibilities and expend certain amounts on it; it may mean
risking their global competitive strength. Being socially respon-
sible means that businesses must internalise the costs of all neg-
N
ative effects it has on the society which may include polluted air,
unsafe products, discrimination, etc. When businesses internalise
such social costs, it means increasing the prices of its products and
services to account for social costs. Increased prices may lead to
reduction in the global competitiveness of products and services.
However, this argument becomes weak due to the fact that CSR is
now being recognised rapidly across the globe.
Dilutes business purpose: This view suggests that if businesses
pursue CSR activities rigorously, then it leads to narrowing down-
off the primary purpose of the business. It is also stated that such
CSR activities leads to straying away of the business into unrelat-
ed domains which can cause the business to deviate from its actual
objectives and aims.
Too much power already: It is often argued that businesses al-
ready possess economic and technological powers. Businesses can
create a positive economic impact by generating maximum possi-
ble wealth. Businesses are bound by law to conduct its operations
in an environmentally friendly manner which gives it environmen-
tal power. Lastly, businesses nowadays are increasingly adopting

n o t e s
newer, better and much more environment friendly technologies

which lend them technological powers. Therefore, placing social
powers in the hands of businesses would mean placing excessive
amounts of power in the same hands.
8. Consumer sovereignty has made it mandatory for organisations

to become socially irresponsive. (True/False)
Activity
As the opponent of CSR, present your views on why an organisa-

tion should not assume social responsibility.
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4.5 BUSINESS CASE FOR CSR
In the context of a business, a ‘business case’ refers to a ground for
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investment in a project that promises to generate a significant return
for justifying the expense. The business case for CSR is based on the
principle of ‘doing well by doing good’. In other words, it refers to a
ground for investment in a project that promises to generate a signif-
icant return not only to the business but also to the society at large.
Thus, the business case for CSR deals with the basic question of why
businesses should accept and advance the CSR cause and what do
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they get out of CSR?
The business case for CSR presents an overview of how businesses can
benefit financially from engaging in CSR practices. Many businesses
found that CSR practices may result in increased product differentia-
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tion that can appeal to consumers. For example, fair trade or organic
goods. It is also experienced that CSR often results in decreased op-
erating costs for businesses. For example, CSR practices may lead to
increased staff loyalty, which, in turn, may reduce recruiting and re-
taining costs of an organisation. Businesses that follow CSR practices
often tend to face lesser objections raised by government and social
activists. Take an example of Walmart and Target. Walmart often faces
stiffer legal challenges while locating new stores. On the other hand,
Target has gained entry at locations, where Walmart could not enter.
(Sources: www.al.com; www.lapresse.ca)

n o t e s
The business case for CSR justifies the distribution of resources by

businesses to progress a certain socially responsible cause. However,
there is no single CSR business case to show how CSR improves tan-
gible benefits for businesses. Over the years, researchers have devel-
oped many arguments based on various assumptions of how value is
created and defined. There are four general types of business cases for
CSR, as shown in Figure 4.3:
Reduce cost and risk
Gain competitive advantage
S
Develop corporate reputation and legitimacy
Achieve win-win outcomes through synergistic value

creation
IM
Figure 4.3: Types of Business Cases for CSR
Let us discuss these types of business cases for CSR in detail:

M
1. Reduce cost and risk: As per this type, an organisation selects to

engage in CSR related activities to reduce costs and risks to the
organisation. In other words, engaging in certain CSR activities
may help an organisation to reduce its inefficient capital
expenditures and exposure to risk. Various CSR practices that
N
help in reducing cost and risk are:

Equal employment opportunity (EEO) policies and prac-
tices: These policies and practices increase long-term share-
holder value by reducing costs and risks. These policies are
necessary as they help in reducing employee turnover by im-
proving their morale.
Energy-saving and other environmentally sound produc-
tion practices: CSR activities, which are directed at the nat-
ural environment, can also help an organisation to reduce
costs and risks. In other words, being environmentally proac-
tive results in cost and risk reduction as it helps an organisa-
tion in increasing its efficiencies and driving down operating
costs.
Community relations management: CSR activities directed
at managing community relations may also result in cost and
risk reduction. For example, positive community relationship
may reduce a number of regulations imposed on an organisa-

n o t e s
tion if the organisation is perceived to be a sanctioned mem-

ber of the society.
Cost and risk reduction is one of the major types of business
cases for CSR and is gaining wide acceptance among
managers and executives. According to a survey (conducted by
PricewaterhouseCoopers) of business executives, 73 per cent of
the respondents indicated that “cost savings” was one of the top
three reasons companies are becoming more socially responsible.
2. Gain competitive advantage: CSR activities can be used by an
organisation to gain a competitive advantage as these activities
may differentiate the organisation from its competitors.
Organisations strategically manage their resources to meet
stakeholders’ demands and exploit associated opportunities for
the benefit of the organisation.
S
CSR activities can increase an organisation’s competitive
advantage to an extent that they may influence stakeholders’
decisions in the organisation’s favour. The stakeholders may prefer
IM
the organisation above its competitors due the organisation’s
engagement in CSR activities. Various CSR practices that help
in gaining a competitive advantage are as follows:
EEO policies: Organisations may also achieve a competitive
advantage through unique CSR strategies as these strategies
may serve as a basis for setting the organisation apart from
M
competitors. For example, strong EEO policies may provide

a competitive advantage to an organisation by successfully
retaining talented employees.
Customer and investor relations programmes: CSR pro-
N
grammes can contribute to strengthening an organisation’s

competitive advantage, customer support and brand loyalty.
Moreover, CSR programmes put a positive impact on inves-
tors and encourage them to invest in an organisation’s proj-
ects. Many investors avoid organisations that violate their
organisational mission, values and principles. An organisa-
tion with good records on employee relations, environmental
concern, community involvement and good corporate gover-
nance, can easily attract investors as against those organisa-
tions that do not follow CSR activities.
Corporate philanthropy: Organisations may also align their
philanthropic activities with their capabilities and core com-
petencies to enhance the efficiency of their charitable activi-
ties and create unique value for beneficiaries. Take an exam-
ple of McKinsey & Co. that offers free consulting services to
various social, cultural and educational non-profit organisa-
tions.
3. Develop corporate reputation and legitimacy: CSR activities
may also help organisations in creating, defending and sustaining

n o t e s
their legitimacy and strong reputations. An organisation is

considered legitimate when its activities are compatible with the
values of the society in which it operates. In other words, CSR
activities help an organisation in being legitimate in the eyes of
consumers, investors and employees. Various CSR practices that
help in developing corporate reputation and legitimacy are:
Corporate philanthropy: It is one of the easiest tools of le-
gitimisation. Organisations with the help of charitable con-
tributions build and enhance their corporate reputation and
legitimacy.
Corporate disclosure and transparency practices: Cor-
porations can also improve their reputation and legitimacy
through the disclosure of information related to their perfor-
mance on various social and environmental issues. It is also
S
called sustainability reporting. These reports provide infor-
mation on an organisation’s economic, environmental and
social performance. Moreover, through such reporting, an
organisation can document that its operations are consistent
IM
with social norms and therefore, can be perceived as legiti-
mate.
4. Achieve win-win outcomes through synergistic value
creation: The concept of synergistic value creation focuses on
merging contradictory demands of stakeholders. This is done by
connecting stakeholder interests and creating diverse definitions
M
of value for various stakeholders simultaneously. In other words,

with the help of synergistic value creation, organisations can
work on a cause big enough to unite many potential interest
groups. CSR activities that help organisations in achieving win-
N
win outcomes are:

Charitable contribution: Charitable contributions to society
results in the creation and conservation of a higher quality of
life. Management expert Peter Drucker argues that the prop-
er ‘social responsibility’ of business is to … turn a social prob-
lem into economic opportunity and economic benefit, into pro-
ductive capacity, into human competence, into well-paid jobs,
and into wealth. According to C. Wheeler, B. Colbert and R.
E. Freeman, it will not be too long before we can begin to assert
that the business of business is the creation of sustainable val-
ue— economic, social and ecological.
Take example of Novo Group, a life sciences organisation.
The organisation is highly involved in genetic modification
and yet maintains highly constructive relationships with
stakeholders.
Stakeholder engagement: The win-win viewpoint on CSR
practices targets at satisfying stakeholders’ demands while
ensuring financial success for an organisation. By satisfying

n o t e s
stakeholders’ demands, the organisation finds opportunities

that may help in generating profit with the consent and sup-
port of its stakeholders.
SEARCH FOR A BUSINESS CASE: A SHIFT IN PERSPECTIVE
As discussed, the business case for CSR justifies the allocation of re-
sources by organisations to promote a specific socially responsible
cause. However, coming to this statement was not so easy. Search
for a business case for CSR originated since 1960s. The input start-
ed coming from two groups of thinkers. One group included econo-
mists like Milton Friedman, who believed that the organisation should
think only of its shareholders’ economic interests. The second group
included thinkers who believed that an organisation involves a vari-
ety of stakeholders, such as employees, suppliers, customers and the
S
community where the company operates. These stakeholders not only
affect the operations of an organisation but also get affected by the
decisions of the organisations. Therefore, it is the sole responsibility of
the organisation to take care of its stakeholders as only this could lead
IM
to the creation of durable value for the shareholders.
Another research theory on the business case of CSR says that even
though CSR aroused as business concerns of putting detrimental im-
pacts on society, the subject of making money by improving society
has also always been in the minds of practitioners. With the increase
M
in resources being dedicated to CSR pursuits, it becomes more ob-

vious to raise questions about whether CSR was making economic
sense.
Researchers have always focused on establishing a positive relation-

N
ship between Corporate Social Performance (CSP) and Corporate Fi-

nancial Performance (CFP). From last few years, the debate on the
business case for CSR is clearly influenced by new market trend of
raising capital by maintaining a strong correlation between social and
financial performance. Thus, CSR theories, today, are shifting away
from an orientation on ethics to embrace a performance-driven orien-
tation. The CSR of the 1960s and 1970s was majorly driven by social
considerations and not economic ones. However, today, the essence of
CSR is “doing good to do well.”
CSR is evolving as a core business function, integrated to the organ-

isation’s overall business strategy and thereby proving to be a vital
part of business success. Today, the business case for CSR focuses on
question “is this possible for an organisation to financially perform
better by addressing both their core business operations and their re-
sponsibilities to the broader society?”
The answer to this question is a ‘yes’. Take example of Google. Goo-

gle is one organisation that has made aggressive moves on multiple
CSR fronts and towards good citizenship. However, it is also true that

n o t e s
every single effort of the organisation is paying off. For example, Goo-
gle aims at using resources efficiently and supports renewable power.
However, recycling and saving energy not only lowers the overall cost
for Google but investments in these efforts have shown real-world ef-
fects on the bottom line. Google has seen an overall drop in power
requirements by an average of 50 percent for their data centres. These
energy savings are efficiently redirected to other areas of the business.
Source: www.breakingtech.it
S
9. The ___________ for CSR justifies the distribution of resources

IM
by businesses to progress a certain socially responsible cause.
10. Which of the following CSR practices does not help

organisations in cost reduction?
a. Equal employment opportunity (EEO) policies and
practices
M
b. Community relations management

c. Energy-saving and other environmentally sound
production practices
d. Transparency practices
N
11. An organisation is considered __________ when its activities,

are compatible with the values of the society in which it
operates.
Activity
Using the Internet, find examples of three Indian organisations

that follow environmentally sound production practices. Write a re-
port on how being environmentally proactive helped these organi-
sations in reducing cost and mitigating risks.
4.6 IMPORTANCE OF CSR FOR INDIA

As discussed, CSR is a self-regulatory form of corporate conscience,
whereby businesses guarantee that they are keenly accommodating
with the force of law and ethical standards set by the society. The
concept of CSR is not new in India. There are many Indian business-
es, such as Tata Group that have gone out of the way to help societ-

n o t e s
ies. Today around 66 per cent of Tata Sons, the holding group of the
Tata Group, is owned by a trust. Organisations like ITC also practice
CSR as a vital part of their business strategy and make huge efforts
to improve the livelihood standards of rural communities. Unilever is
another organisation that uses micro enterprises to strategically en-
hance the penetration of consumer products in rural markets. IT or-
ganisations, like TCS and Wipro have developed software that could
help teachers and children across India to support the cause of educa-
tion. Adult literacy software is of huge help in increasing literacy level
in remote areas. Thus, it can be seen that CSR has rapidly evolved in
India with organisations focusing on strategic CSR initiatives to con-
tribute towards nation building.
CSR practices in India majorly focus on need-based initiatives aligned

with national priorities, such as public health, education, livelihoods,
S
water conservation and natural resource management. In the last few
years, the Government of India has also increased its focus on influ-
encing organisations to address social and development issues not
just as a part of their social responsibility, but also as their business
IM
practices.
The importance of CSR within an organisation is due to the two rea-

sons: (a) The changing policy environment and (b) The organisation’s
capability to meet business objectives. CSR activities help Indian or-
ganisations in the following ways:
M
Strengthening relationships with stakeholders

Enabling continuous improvement and encouraging innovation
Attracting the best industry talent as a socially responsible organ-
isation
N
Working as an additional motivational factor to employees

Mitigating risk because of an effective corporate governance
framework
Managing stakeholder expectations with increased capabilities
India is a country with huge population and faces myriad kinds of

problems, such as poverty, malnutrition, illiteracy, healthcare issues,
unemployment, environmental degradation, etc. The government
has been trying for years to get rid of problems affecting the holis-
tic growth of the country. However, it is impossible to bring about
radical transformation without the dynamic participation of corporate
sector.
Organisations can bring about a positive social change by indulging

in CSR efforts aimed at confronting poverty and illiteracy, creating
awareness about preventive healthcare, launching programmes for
skill development, generating employment opportunities, bridging
gender inequality, developing measures to empower (socially and eco-

n o t e s
nomically) backward groups, promoting environmental and ecologi-

cal sustainability, etc.
In India, CSR requires strategic intervention due to impact it is ex-

pected to create. Organisations integrate CSR as part of their busi-
ness strategy. This presents a win-win situation to both ends. Linking
CSR with business strategy expedites focused social development and
helps in stronger financial performance by organisations.
Exhibit
CSR EXAMPLES IN INDIA
ITC Limited
ITC is an Indian conglomerate dealing in diversified businesses,
S
including five segments: Fast-Moving Consumer Goods (FMCG),
Hotels, Paperboards & Packaging, Agri Business & Information
Technology.
IM
The company believes that an organisation’s performance must be
measured by its contribution to build economic, social and environ-
mental capital towards enhancing societal sustainability. It focus-
es on creating sustainable livelihood and environment protection
programmes. The company with its intense CSR efforts has been
able to generate sustainable livelihood opportunities for six million
M
people across the country. Their e-Choupal programme, which con-

nects rural farmers through the Internet for procuring agriculture
products, covers 40,000 villages and over four million farmers.
N
(Source: www.csrworld.net)
The company also runs social and farm forestry programme that
assists farmers in converting wasteland to pulpwood planta-
tions. Moreover, social empowerment programmes through micro
enterprises or loans have created to provide sustainable livelihoods
for over 40,000 rural women. Its integrated agricultural develop-
ment programme promotes a blend of solutions for optimising wa-
ter management and enhancing farm productivity. The company

n o t e s
also runs integrated watershed development programme in water

stressed areas where it provides water resources for agriculture
and rural communities and livestock.
Mahindra & Mahindra
Indian automobile manufacturer Mahindra & Mahindra (M&M)

founded the K. C. Mahindra Education Trust in 1954, followed by
Mahindra Foundation in 1969 with the purpose of endorsing educa-
tion. M&M focuses primarily on education programmes to help in
the elevation of society economically and socially. The company in-
vests in scholarships and grants, livelihood training, healthcare for
remote areas, water conservation and disaster relief programmes.
S
IM
(Source: www.gocrowdera.com)
M
M&M also runs programmes such as Nanhi Kali, a programme

focused on girl education; Mahindra Pride Schools for industrial
training; and Lifeline Express for healthcare services in remote ar-
eas.
N
Tata Group
The Tata Group conglomerate in India runs various CSR activities,

most of which focus on community improvement and poverty alle-
viation. The group is engaged in women empowerment activities,
income generation, rural community development and other vari-
ous other social welfare programmes. In the field of education, the
Tata Group provides scholarships and endowments to several in-
stitutions.
(Source: www.indianexpress.com)

n o t e s
The group also engages in healthcare projects, such as facilitation of

child education, immunisation and creation of awareness of AIDS.
Moreover, CSR activities at Tata Group include economic empow-
erment through agriculture programmes, environment protection,
providing sport scholarships. The group also focuses its attention
on infrastructure development, such as hospitals, research centres,
educational institutions, sports academy and cultural centres.
Ultratech Cement
Ultratech Cement, India’s biggest cement company is involved in

CSR activities across 407 villages in the country with an aim to cre-
ate sustainability and self-containment. CSR practices of the com-
pany focus on healthcare and family welfare, education, infrastruc-
ture development, environment and social welfare and sustainable
S
livelihood. IM
M
N
(Source: www.xedknowledge.com)
Under its CSR programmes, the company organises medical camps,

immunisation programmes, sanitisation programmes, school en-
rolment, plantation drives, water conservation programmes, indus-
trial training and organic farming programmes.
4.6.1 CURRENT SCENARIO OF CSR IN INDIA
Currently, CSR practices in India is heading in positive direction as

there exists a number of qualifying organisations and regulatory bod-
ies, such as the Department of Public Enterprises (DPE), Ministry
Of Corporate Affairs (MCA) and Indian Institute of Corporate Affairs
(IICA) which play an important role in making CSR a widespread
practice.

n o t e s
As per Section 135 of the New Companies Act, 2013, participating in

CSR activities has been made mandatory for all companies. According
to the Act, any company having a net worth of rupees 500 crore or more
or a turnover of rupees 1,000 crore or more or a net profit of rupees 5
crore or more should mandatorily spend at least 2% of last 3 years aver-
age net profits on CSR activities as specified in Schedule VII of the Com-
panies Act, 2013 and as amended from time to time. The law came into
effect from 1 April 2014. The Act further explains that CSR is not char-
ity or mere donations. It must integrate economic, environmental and
social objectives with the organisation’s operations and its growth.
Currently, there are only eight Indian companies in the Fortune Glob-
al 500 that spent $81 million a year on CSR activities. In comparison,
132 US companies in the Global Fortune 500 spend more than $10
billion on CSR. Let us have insight into the India CSR Outlook Report
S
published in September 2017:
One third of the companies spent more than the prescribed CSR
budget while at the same time almost one fourth of the companies
IM
failed to meet the prescribed CSR budget.
There was an 8% increase in the total amount spent on CSR over
2015-16.
Almost 20% of India’s actual CSR spent is in Maharashtra and Gu-
jarat states only.
M
Only 9% of the prescribed amount to be spent on CSR remained

unutilised.
Top 3 CSR spenders were Reliance Industries (659 crores INR),
ONGC (526 crores INR) and TCS (380 crores INR)
N
The biggest contribution was made towards the education sector

(35%) followed by Health & Poverty Alleviation (25%) and Rural
Development (13%).
The least contributions were received by areas concerning with
Elderly (0.04%) and Renewable Energy (0.05%).
Organisations in India are now aligning their CSR investments with

sustainable development goals. In other words, they are moving from
just being “donors” to “problem solvers”. Corporates are now focus-
ing to develop sustainable business strategy so that they could help
the community and at the same time, create value for their business.
It is expected that in 2018, a gradual shift would take place from the
short-term approach to a wider long-term strategic approach aimed to-
wards a much bigger impact and not just towards compliance norms.
Digital media is also expected to play a bigger role as storytelling be-
comes an important contributor of highlighting the impact.

n o t e s
Exhibit
CSR Analysis for India (Fy 2016-17)

Based on India Csr Outlook Report 2017
Top companies with more than the prescribed CSR (% wise)
Company Prescribed Actual CSR % of Actual to

CSR (INR Cr) Spent (INR Cr.) Prescribed CSR
UPL Ltd. 4.89 23.79 486.5%
Piramal Enter- 9.17 32.82 357.9%
prises Limited
Sobha Develop- 5.76 15.04 260.9%
ers Ltd.
Allcargo Logis- 2.48 5.70 229.8%
S
tics Ltd.
Kitex Garments 2.67 6.09 228.1%
Ltd.
IM
Somany Ceram- 1.36 2.98 219.5%
ics Limited
Elgi Equip- 1.83 3.20 174.9%
ments Ltd.
Navin Florine 1.76 3.02 171.6%
Int Ltd.
M
NHPC Ltd. 44.23 75.81 171.4%

Tata Steel Ltd. 115.80 193.61 167.2%
Top 10 state CSR spent-wise

N
State % in Countries Total INR Cr.

CSR Spent
1. Maharashtra 16.5% 1134
2. Gujarat 6.9% 474
3. Odisha 6.2% 427
4. Karnataka 5.9% 406
5. Tamil Nadu 4.3% 294
6. Rajasthan 4.1% 282
7. Andhra Pradesh 4.1% 279
8. Delhi 3.8% 262
9. West Bengal 3.5% 240
10. Jharkhand 3.4% 231

n o t e s
Theme-wise CSR Spent
Theme INR Cr
Poverty Alleviation & WASH 557
Healthcare 1142
Education 2198
Skills Development 376
Gender Equality & Women Empowerment 123
Heritage, Art and Culture 90
Environment & Sustainability 585
Technology Incubation 20
Sports promotion 142
Rural Development 996
S
Others, Miscellaneous & Admin 642
Note:
IM
Education projects received 32% of the total CSR spent while
healthcare received 17%
Technology incubation projects are still at the nascent stage
with less than 1% of total CSR spent
Skilling projects received 5% of the total CSR spent while
M
Swachh Bharat Mission related projects received INR 502 Cr

CSR funding, almost 7.3% of the total CSR spent
(Source: http://ngobox.org/media/India%20CSR%20Outlook%20Report%202017_V1.pdf)
N
4.6.2 CONTEMPORARY DRIVERS FOR CSR IN INDIA
As discussed earlier, the Indian government has implemented new

corporate social responsibility (CSR) guidelines that mandate organi-
sations to spend 2% of their net profit on social development. By doing
so, India has become the first country in the world to make CSR an
obligatory activity for all business flourishing in India.
The growing recognition of CSR in India suggests that the benefits of

running a strong CSR programme are becoming more tangible among
corporates. Donating money to charities, improving energy efficien-
cy and/or waste management are some CSR activities that positively
impact the bottom line, either indirectly through tax relief, or directly
through lower utility bills. All these benefits are working as key driv-
ers for promoting CSR in current Indian scenario. Let us discuss some
major contemporary drivers for investing in CSR practices in India:
Tax relief: Money spent on certain CSR activities could be con-
sidered for tax benefits. According to the Chairman of the Central
Board of Direct Taxes (CBDT) RK Tiwari, under certain Income

n o t e s
Tax Act, provisions of tax relief for investing in CSR activities like
farming, education, etc. are allowed. As per a report on CSR by
Deloitte, published in the year 2015, CSR expenditure to be in-
curred mandatorily under the Co Act is not deductible under section
37(1) of the Income-tax Act, 1961 (IT Act). However, if the expenses
are aligned with the other provisions of the Act i.e. Section 35(1)(ii),
35AC etc., tax efficiency can be brought in. Table 4.1 shows an illus-
trative list of probable benefits of investing in CSR activity under
IT Act:
TABLE 4.1: BENEFITS OF INVESTING IN CSR ACTIVITY

UNDER IT ACT
Mechanism Nature of CSR Contribution to / Probable ben-
Expenditure Expenditure on efits under IT
Act
S
Contribution Deduction in re- Prime Ministers 100% or 50%
Based spect of donation Relief Fund, Prime with or with-
to certain funds, Ministers Drought out restriction
charitable institu- Relief Fund, Jawa-
IM
tions etc. harlal Nehru me-
morial Fund, NGOs
Others as specified
u/s 80G
Scientific Re- Research associa- 175% of the
search Expendi- tion or to a universi- sum paid
M
ture ty, college, or other

institution to be
used for scientific
research
Research associa- 125% of the
N
tion, university col- sum paid

lege or other insti-
tution to be used for
social or statistical
research
Project Based Promoting social PSU or a local 100% of the
and economic authority or to an sum paid or
welfare or uplift of association / institu- expenditure
the public tion approved by the incurred
National Commit-
tee or expenditure
incurred directly by
such company on an
eligible project
Employment en- On any skill de- 1.5 times of
hancing vocation velopment project the sum paid
skills notified by CBDT
(Source: www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-tax-csr-%20place-
mat-noexp.pdf)

n o t e s
Recruit and retain talented employees: Organisations with a

reputation of being positive places to work can attract talented
employees. It becomes easier for an organisation, participating in
CSR activities to recruit and retain capable employees. It is also
seen that employees working in such organisations, tend to be
more committed to the organisation and have greater job satisfac-
tion. Employee engagement can lead to both growth opportunities
and cost savings.
Meet customer demand: Customers nowadays are more aware of
their surroundings and prefer to associate themselves with organi-
sations that have visible and well-established CSR practices. Such
demands by customers motivate organisations to participate ac-
tively in CSR practices and reap multiple revenue opportunities.
Manage risk and cost: Organisations that are engaged in CSR
S
practices send a message to stakeholders that they are committed
to meet stakeholder demands. Such organisations attract potential
lenders and investors as the positive positioning helps them to ap-
pear less risky.
IM
When an organisation engages in improving environmental issues,
such as reducing pollution and improving waste management, it
ultimately leads to better financial performance through increased
revenues and lower costs.
M
12. As per Section __________ of the New Companies Act, 2013,

participating in CSR activities has been made mandatory for
all companies.
N
a. 134
b. 135
c. 136
d. 137
13. Money spent on all CSR activities could be considered for tax
benefits. (True/False)
Activity
Using the Internet, make a list of at least five renowned CSR activi-
ties conducted by Indian companies in the field of agriculture.
CHALLENGES IN ADOPTING CSR

4.7
PRACTICES
Corporate Social Responsibility (CSR) is an important strategic busi-
ness practice. It is also considered to be a mechanism for corporate

n o t e s
self-regulation as it is integrated into an organisation’s business model.

CSR as a concept is quite significant specifically when its positive ef-
fects are highlighted. However, assuming social responsibility has nev-
er been easy for organisations as they need to invest a sizable portion
of their earnings for CSR activities. Figure 4.4 shows certain challeng-
es that organisations may face while assuming social responsibility:
Lack of Community Participation
Lack of Consensus
Non-availability of Regulatory Organisations
Visibility Factor
S
Narrow Perception towards CSR Initiatives
Non-availability of CSR Guidelines

IM
Figure 4.4: Challenges in Adopting CSR Practices
Let us discuss these challenges in detail:

Lack of community participation: Sometimes organisations do
not make serious efforts in spreading awareness about CSR prac-
M
tices. Such absence of communication leads to lack of interest or

non-participation of local communities in CSR activities. This can
act as a hurdle in the implementation of CSR activities of organi-
sations.
N
Lack of consensus: Many a time there exists a lack of consensus

among organisations regarding CSR activities, which results in
duplication of activities by organisations in areas of their interven-
tion. Consequently, competitive spirit takes place among organisa-
tions implementing CSR practices rather than building collabora-
tive approaches on issues.
Non-availability of regulatory organisations: Generally, in re-
mote and rural areas, there is non-availability of well-organised,
non-governmental organisations that can recognise needs of the
community and work along with organisations to ensure success-
ful implementation of CSR activities.
Earlier, meeting social and environmental objectives in the busi-
ness sector was considered to be the responsibility of governments.
However, over the years, government resources have depleted and
there occurred instances of distrust of regulations, which has led
to the exploration of voluntary non-regulatory initiatives. In such
a case, there is a lot of variation and duplication of CSR activities
in society.

n o t e s
Visibility factor: Most organisations undertake CSR initiatives

in order to gain positive publicity and branding for its products.
This often leads to a practice of conducting event-based CSR pro-
grammes which may divert the real purpose of implementing CSR
activities. CSR in such cases is used to gain visibility. Therefore,
designing and implementing CSR initiatives that focus on CSR as
well as visibility becomes important.
Narrow perception towards CSR initiatives: Most CSR imple-
menting authorities usually focus on donation-based CSR. They
have a narrow vision because they are unable to decide whether or
not they should participate in such events or not.
Non-availability of CSR guidelines: There are no clearly defined
guidelines related to CSR programmes of organisations. In India,
the government has fixed that the size and scale of CSR activities
S
depends on the profit and business profile of an organisation. But
other than that there are no clear-cut guidelines related to it.
IM self assessment Questions
14. Earlier, meeting social and environmental objectives in the

business sector was considered to be the responsibility of
governments. (True/False)
Activity
M
Find information on challenges that an FMCG company can face

while implementing CSR practices. What measures will you sug-
gest for the company to overcome those challenges?
N
4.8 SUMMARY
CSR is a management concept according to which it is the respon-
sibility of corporations/businesses functioning within the society
to contribute towards the development of the society.
Corporate philanthropy, an indispensable part of CSR, is a way
businesses give back to the community through financial dona-
tions and non-cash assistance, such as time, expertise and tangible
items like medicines, computers, cloth, food and textbooks.
Strategic philanthropy denotes to the strategy, key capabilities and
application of an effective corporate philanthropy programme.
Archie B. Carroll has presented a conceptual framework in a pyra-
midal form that presents four types of responsibilities of an organ-
isation. These four responsibilities in the Carroll’s CSR pyramid
are:
Economic responsibilities
Legal responsibilities

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Ethical responsibilities
Philanthropic or discretionary responsibilities
Simon Zadek et al. (2001) in the report Third Generation Corpo-
rate Citizenship to the Foreign Policy Cent, explain the expansion
of CSR through three generations.
The first generation of CSR indicated that businesses can be so-
cially responsible without hampering their commercial success.
The second generation of CSR practices described CSR as an es-
sential part of the long-term business strategy.
The third generation of CSR practices is still evolving with the fo-
cus on the need of addressing problems like poverty, exclusion,
environmental degradation, etc.
S
The third generation of CSR has been further evolved into the con-
cept of Creating Shared Value (CSV) by Prof. Michael Porter and
Mark Kramer. As per the CSV principle, economic value should be
created in a way that could also generate value for the society by
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addressing its needs and challenges.
The major trends in CSR are:
Growing affluence
Ecological sustainability
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Globalisation
Free flow of information

Brands
Arguments in favour of CSR are:

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Protect the interests of stakeholders

Long-term survival
Self-awareness
Ward off government intervention

Arguments against CSR are:
Business is an economic activity
Compromise on global competitiveness
Dilutes business purpose
Too much power already
The business case for CSR presents an overview of how business-
es can benefit financially from engaging in CSR practices.
There are four general types of business case for CSR:
1. Reduce cost and risk

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2. Gain competitive advantage

3. Develop corporate reputation and legitimacy
4. Achieve win-win outcomes through synergistic value creation
CSR practices in India majorly focus on need-based initiatives
aligned with national priorities, such as public health, education,
livelihoods, water conservation and natural resource management.
As per Section 135 of the New Companies Act, 2013, participating
in CSR activities has been made mandatory for all companies.
Some of the major contemporary drivers for investing in CSR
practices in India are:
Tax relief
Recruit and retain talented employees
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Meet customer demand
Manage risk and cost
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Certain challenges that organisations may face while assuming so-
cial responsibility are:
Lack of community participation
Lack of consensus
Non-availability of regulatory organisations
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Visibility factor
Narrow perception towards CSR initiatives
Non-availability of CSR guidelines
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key words
Corporate governance: A mechanism of controlling and direct-

ing an organisation and protecting the interests of stakeholders.
Corporate: A legal body that has a name and comprises people
who carry out duties in the interest of a concerned legal entity.
Employee turnover: The number of employees who leave the
organisation during a specified period of time, usually a year.
Ethics: A system of moral principles and code of behaviour of
individuals in a group.
Globalisation:A process of creating a worldwide network in
which economies and societies are integrated.
Risk: An event that has a potentially negative impact on an or-
ganisation’s assets, activities and operations.

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Stakeholder: An individual or group of individuals who hold a

risk or stake of an organisation and get affected by its decisions.
Sustainability:A concept that is concerned with preserving
resources and operating in a manner that is conducive to long-
term trading.

1. Explain the concept of corporate social responsibility (CSR) with
the help of some real-life examples.
2. Discuss the types of responsibilities of an organisation with
reference to the Carroll’s CSR pyramid.
3. Elaborate on different generations of CSR.
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4. What do you understand by business case for CSR? Discuss
different types of business case for CSR.
5. What are the contemporary drivers for CSR in India? Explain in
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brief.
6. List challenges that an organisation may face while adopting
CSR practices.

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Corporate Social Responsibility 1. Organisations; societies
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2. Corporate philanthropy
3. b. Strategic philanthropy
4. Ethical
5. a. Economic
Generations of CSR 6. True
7. Creating Shared Value (CSV)
Arguments in Favour and 8. False
Against CSR
Business Case for CSR 9. Business case
10. d. Transparency practices
11. Legitimate
Importance of CSR for India 12. b. 135
13. False
Challenges in Adopting CSR 14. True
Practices

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1. CSR is a management concept, according to which organisations
must fulfil their responsibility of helping the society in which they
operate. Refer to Section 4.2 Corporate Social Responsibility.
2. Archie B. Carroll has presented a conceptual framework in a
pyramidal form that presents four types of responsibilities of
an organisation. The first one is the economic responsibility
of being profitable. The second is the legal responsibility of
abiding by the laws set forth by society. The third is the ethical
responsibility that is to perform business operations which are
morally correct. The fourth is the philanthropic or discretionary
responsibility which is to contribute resources towards social,
educational, recreational and/or cultural purposes. Refer to
Section 4.2 Corporate Social Responsibility.
S
3. Simon Zadek et al. (2001) explain the expansion of CSR through
three generations. The first generation of CSR indicated that
businesses can be socially responsible without hampering their
IMcommercial success. The second generation of CSR practices
described CSR as an essential part of the long-term business
strategy. The third generation of CSR practices is still evolving
with the focus on the need of addressing problems like poverty,
exclusion, environmental degradation, etc. Refer to Section 4.3
Generations of CSR.
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4. The business case for CSR deals with the basic question of why
businesses should accept and advance the CSR cause and what
do they get out of CSR. Refer to Section 4.5 Business Case for
CSR.
N
5. Some of the major contemporary drivers for investing in CSR

practices in India are tax relief, recruit and retain talented
employees, meet customer demand, manage risk and cost. Refer
to Section 4.6 Importance of CSR for India.
6. Lack of community participation, lack of consensus, non-
availability of regulatory organisations, visibility factor, narrow
perception towards CSR initiatives, non-availability of CSR
guidelines, etc. are some major challenges that organisations
may face while assuming social responsibility. Refer to Section
4.7 Challenges in Adopting CSR Practices.
SUGGESTED READINGS
Carroll, A., & Buchholtz, A. (2015). Business & society: Ethics,
Sustainability, and Stakeholder Management (9th ed.). Cengage
Learning.

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Chandler, D., & Werther, W. (2014). Strategic corporate social re-

sponsibility. Los Angeles: SAGE.
Zadek, S. (2012). The Civil Corporation. Hoboken: Taylor and Fran-
cis.
E-REFERENCES
Carroll’s CSR Pyramid | tutor2u Business. (2018). tutor2u. Re-
trieved 20 March 2018, from https://www.tutor2u.net/business/ref-
erence/carrolls-csr-pyramid
Corporate Social Responsibility and the challenges ahead |
Lexology. (2018). Lexology.com. Retrieved 20 March 2018,
from https://www.lexology.com/library/detail.aspx?g=b-
22d13e7-1640-413b-9832-8a4d5454e8ab
S
Definitions of corporate social responsibility - What is CSR?.
(2018). Mallen Baker’s Respectful Business Blog. Retrieved 20
March 2018, from http://mallenbaker.net/article/clear-reflection/
IM
definitions-of-corporate-social-responsibility-what-is-csr
Dudovskiy, J. (2018). Carroll’s CSR Pyramid - Research Methodolo-
gy. Research Methodology. Retrieved 20 March 2018, from https://
research-methodology.net/carrolls-csr-pyramid-and-its-applica-
tions-to-small-and-medium-sized-businesses/
Forbes Welcome. (2018). Forbes.com. Retrieved 20 March 2018, from
M
https://www.forbes.com/sites/susanmcpherson/2018/01/12/8-corpo-
rate-social-responsibility-csr-trends-to-look-for-in-2018/#619f5c-
cc40ce
Four emerging trends in corporate social responsibility. (2018). Mal-
N
len Baker’s Respectful Business Blog. Retrieved 20 March 2018,

from http://mallenbaker.net/article/clear-reflection/four-emerg-
ing-trends-in-corporate-social-responsibility
The Business Case for Corporate Social Responsibility. (2018). Corp-
gov.law.harvard.edu. Retrieved 20 March 2018, from https://corp-
gov.law.harvard.edu/2011/06/26/the-business-case-for-corpo-
rate-social-responsibility/
What is CSR? | UNIDO. (2018). Unido.org. Retrieved 20 March 2018,
from https://www.unido.org/our-focus/advancing-economic-com-
petitiveness/competitive-trade-capacities-and-corporate-respon-
sibility/corporate-social-responsibility-market-integration/what-
csr

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C h a
5 p t e r
DEVELOPING A CSR STRATEGY
CONTENTS
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5.1 Introduction
5.2 Assessment of CSR in an Organisation
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5.2.1 Assemble a CSR Leadership Team
5.2.2 Develop a Working Definition of CSR
5.2.3 Review Corporate Documents, Processes and Activities
Activity
5.3 Developing a CSR Strategy
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5.3.1 Build Support with Senior Management and Employees

5.3.2 Research What Others are Doing
5.3.3 Prepare a Matrix of Proposed CSR Actions
5.3.4 Develop Options for Proceeding
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5.3.5 Develop the Business Case for CSR Action

5.3.6 Decide on Direction, Approach and Focus Areas
Activity
5.4 Summary

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CSR STRATRGY FOLLOWED BY COCA-COLA
The Coca-Cola Company (TCCC) is the world’s largest beverage

company, with more than 500 brands. In India, the Coca-Cola sys-
tem comprises of a wholly owned subsidiary of TCCC, namely,
Coca-Cola India Private Limited (CCIPL), which manufactures
and sells concentrates and beverage base and mixes to a com-
pany-owned bottling entity, Hindustan Coca-Cola Beverages Pri-
vate Limited (HCCBPL).
In India, CCIPL has established an unmatched portfolio of bev-

erages, with multiple brands like Coca-Cola, Coca-Cola Zero, Diet
Coke, Thumbs Up, Fanta, Fanta Green Mango, Limca, Sprite,
Sprite Zero, VIO Flavoured Milk, Maaza, Minute Maid range of
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juices, Georgia and Georgia Gold range of hot and cold tea and
coffee options, Kinley and Bonaqua packaged drinking water,
Kinley Club Soda and BURN energy drink.
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(Source: www.coca-colaindia.com)
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CCIPL is well aware of the impact, it has on communities in which

it operates. CCIPL believes that it is the responsibility of the com-
pany to change the lives of these communities and therefore, fo-
cuses on being a trusted partner, supporting the social, economic
and environmental progress of India. As part of its CSR strategy,
the company aims at creating economic opportunity for the com-
munities in which it operates. CCIPL contributes its time, exper-
tise and resources to help communities by undertaking a series of
initiatives that are locally relevant.
The CSR strategy of CCIPL focuses on sustainable development

and inclusive growth of communities by dealing with issues relat-
ing to water, environment, healthy living, culture, grass roots ed-
ucation, social advancement and promoting gender equality and
empowerment of women.
Following are the key CSR activities performed by CCIPL:

Mitigating water stress and promoting water sustainability.

DEVELOPING A CSR STRATEGY 131
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Removing hunger, poverty and malnutrition, promoting pre-

ventive health care and sanitation. The company contributes
to the “Swachh Bharat Kosh” set-up by the Central Govern-
ment for promoting sanitation and ensuring the availability of
safe drinking water.
Promoting active and healthy lifestyles.
Promoting education, including special education and em-
ployment generating vocation skills. For example, ‘Parivartan’
training program for retailers.
Promoting gender equality, empowering women, setting up
old age homes, setting up homes and hostels for women and
orphans.
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Ensuring environmental sustainability, ecological balance,
and protection of flora and fauna, helping in the conservation
of natural resources and maintaining quality of soil, air and
water. For example, the company contributes to the ‘Clean
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Ganga Fund’ setup by the Central Government for rejuvena-
tion of river Ganga.
Protecting national heritage, art and culture by setting up
public libraries, and encouraging traditional arts and handi-
crafts.
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Promoting rural sports, Paralympic sports and Olympic sports

by providing training to players.
Contributing to Prime Minister’s National Relief Fund for
socio-economic development and relief and welfare of the
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Scheduled Castes, the Schedule Tribes, other backward class-

es, minorities and women.
Contributing to technology incubators located within academ-
ic institutions which are approved by the Central Government.
Running projects for rural and slum area development.
As per the CSR strategy of CCIPL, the company spends 2% of its

average Net Profits (during every block of three years) on its CSR
activities every year. Any income or surplus that generates from
its CSR activities is also included in the CSR amount and is used
for the welfare of the society.
CCIPL has devised a “transparent monitoring mechanism” for

various CSR activities undertaken by the company. The monitor-
ing activities are performed by independent third party agencies
as and when necessary. Simultaneously, the company also obtains
feedback from its various stakeholders to measure the benefits
they receive by the CSR activities run by the company.

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At the beginning of each financial year, the CSR Committee of

the board prepares a list of CSR projects/activities/programmes
which the company intends to undertake during the financial
year. It specifies the implementation schedules for the CSR activi-
ties in the specific areas/sectors. The company takes up activities/
projects/programs that it finds appropriate. The Board of Direc-
tors of the company reserves rights to revise/modify/amend the
CSR strategy from time to time, depending on the current needs
of the society.
(Source: www.coca-colaindia.com)
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learning objectives

>> Explain the process of assessment of CSR in an organisation
>> Discuss the steps in developing a CSR strategy
5.1 INTRODUCTION
In the previous chapter, you studied about the concept and the need
for Corporate Social Responsibility (CSR) in the context of present
day business. The term CSR has many connotations including strate-
gic philanthropy, corporate citizenship, social responsibility and such
other names. Each name carries with it a certain meaning regarding
the role of business in society. Irrespective of the name being used, the
S
underlying CSR is centred on the notion of creating “shared value.”
According to the CSR model, every business should aim to create val-
ue for its stakeholders but in a manner that it also contributes to the
IM
society, manifesting itself as a holistic proposition. Given the benefits
of CSR, the question before business houses is not whether to adopt
CSR as their mainstream strategy or no, but to identify a CSR strategy
that reflects an organisation’s business values, while also addressing
social, humanitarian and environmental challenges.
Considering the vastness and diversity of businesses all over the

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world, it can be ascertained that not one CSR strategy would fit the
requirements and business objectives of all organisations. Every or-
ganisation has incongruent drivers of CSR and the underlying moti-
vation of the various CRS initiatives is also different. However, the ba-
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sic rules that guide the development of a CSR strategy would remain
the same for all organisations. Kellie McElhaney (author of Just Good
Business: The Strategic Guide to Aligning Corporate Social Responsibil-
ity and Brand (Berrett Koehler) describes seven rules to consider when
developing an effective CSR strategy. These are as follows:
Knowing your business objectives: An organisation’s CSR strate-
gy must be authentic and aligned to the organisation’s mission, vi-
sion, and business values. This would mean a win-win proposition
for both the business as well as stakeholders who will benefit from
the CSR strategy.
Matching the CSR with business: The goals of an organisation’s
CSR strategy must be in line with its products and services. For
example, if an organisation manufactures and sells women’s cloth-
ing, then a CSR initiative that actively supports breast cancer re-
search would be a good match with the business.
Being consistent: For any CSR strategy to be successful, it is im-
portant that everyone in the organisation is aware of the CSR
strategy and its goals. This will help in communicating the goals of

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the CSR strategy to one another and to the general public. The ini-
tiatives under CSR can be supported and implemented in a better
way if everyone in the organisation has a clear understanding of
his/her role with regards to the strategy.
Simplifying the goals of CSR strategy: In developing and im-
plementing a CSR strategy, it is important that goals are simpler
and relevant to social causes. For example, a food manufacturer
of healthy nutritious food having a CSR goal like “Healthy food,
healthy people, and healthy planet” connects to customers better
as they can easily understand what the company is committed to.
The customers may become brand loyal if they would believe in
what the organisation is trying to accomplish.
Involving employees: It is equally important that while develop-
ing a CSR strategy, the top management involves the employees in
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the process of developing and implementing it. Any CSR strategy
will be better accepted and understood if it involves the active par-
ticipation of the employees in creating and implementing it.
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Knowing one’s customers: While developing a CSR strategy, it is
always imperative to base it on the immediate needs of the cus-
tomers before addressing the societal issues of the world. These
needs may be as basic as the need for safety, love, belongingness,
self-esteem, and self-actualisation. If an organisation can address
these needs through its CSR strategy, it would not only have a
strong CSR strategy but also have loyal, lasting customers.
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Publicising the strategy: Once a CSR strategy is developed, the

organisation needs to announce its efforts in trying to become so-
cially responsible alongside its other success stories. Customers
are usually inclined towards organisations that operate in a so-
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cially responsible manner. Organisations can achieve this through

several mediums such as newsletters and brochures, company’s
website, and online social media such as Twitter, Facebook, Linke-
dIn, and YouTube.
In this chapter, you will study how organisations develop their CSR
strategy, in detail.
ASSESSMENT OF CSR IN AN
5.2
ORGANISATION
The purpose of carrying out a CSR assessment is to evaluate how well
an organisation has integrated the principles of CSR into its busi-
ness. The first step in monitoring the status and progress of any CSR
initiative is to conduct an assessment program. The main objective of
CSR assessment is to report an organisation’s CSR practices (environ-
ment, social, ethics, and supply chain). The CSR assessment report
gives an insight to the following:
The organisation’s CSR strategy is responding to emerging oppor-
tunities and issues

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The weak and strong areas of the organisation with respect to its
CSR strategy
The organisation’s values and ethics
The internal and external stimuli that motivate the organisation to
embark on a more systematic approach to CSR
The key CSR issues that affect the organisation operations
The key stakeholders and their concerns
The existing organisational decision-making structure
The human resource and budgetary implications of the existing
CSR strategy
The assessment report enables the top management to know how the
organisation is positioned with respect to CSR, and also communicate
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the CSR commitment to the various stakeholders. A CSR assessment
offers the following benefits:
It helps the top management to make important decisions for the
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future.
Intelligence gathered from the CSR assessment helps in avoiding
ineffective and uncalculated CSR approach.
It helps in identifying the CSR gaps and potential opportunities to
improve the decision making process.
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The first step of any CSR assessment process is to collect, analyse and
examine all the relevant data with respect to the organisation’s ser-
vices, products, initiatives, activities and decision making processes.
A good CSR assessment report should provide the following informa-
N
tion about the organisation in relation to four main areas shown in

Figure 5.1:
Environment Sustainable
Social Ethics
Procurement
Operations Human Resources Corruption & Suppliers
Energy/CO2 Employee Health Bribery Environmental
Water and Safety Anti- Performance
Biodiversity Working Competitive Suppliers
Pollution Conditions Practices Social
Waste Social Dialogue Responsible Performance
Products Career Marketing
Product use Management
Product end Human Rights
of life Child and Forced
Customer Labour
safety Non
Advocacy Discrimination
Fundamental
Human Rights
Figure 5.1: Information Provided in a CSR Assessment Report

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In the upcoming sections, you will study how a CSR assessment pro-
gram is carried out. The basic steps of a CSR assessment program are
outlined in Figure 5.2:
Assemble a CSR Leadership Team
Develop a Working Definition of CSR
Review Corporate Documents, Processes and Activities
Identify and Engage Key Stakeholders
Figure 5.2: Basic Steps of a CSR Assessment Program
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Let us discuss each step in detail.
5.2.1 ASSEMBLE A CSR LEADERSHIP TEAM

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Any organisational strategy or commitment requires high level of sup-
port and dedication at all levels of the organisation and CSR is no
exception to the rule. For the same reason, a CSR leadership team is
needed to overlook the commitment and dictate the role and respon-
sibilities at each level in the organisation. The CSR leadership team
includes representatives from the organisation’s owners, the board of
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directors, or the top management. It would also include volunteers

from different departments of the organisation that affect or are af-
fected by CSR matters. These representatives may comprise of senior
personnel from different departments such as human resource, envi-
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ronmental services, health and safety, law, community affairs, finance

and accounts, marketing and communications, etc. Front-line staff in
these departments and other employees who could act as key players
in implementing the CSR strategy of an organisation should also be a
part of the CSR leadership team.
The team members need to be encouraged at all levels to contribute

their time, energy and ideas towards the implementation of the CSR
strategy that the organisation would finally adopt. However, as the re-
sponsibilities of the team increase and a deeper understanding of the
implications of CSR tend to emerge among the team members, there
can be additions to the team or the responsibilities may change for the
existing members.
In case, a CSR leadership team does not include any member of the
board of directors of the organisation, the members would be directly
accountable to the senior management and eventually the board for
every decision or step taken. This is important because an effective
CSR strategy can only be implemented by integrating the principles

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of CSR into the organisation’s central values and undertakings. In-

volving the top management in the decisions of the CSR, team sends
a clear message that the organisation considers its CSR initiatives as
equally important to its other accomplishments.
The initial step of the CSR leadership team would be to develop a

working definition of CSR for the organisation which will form the
basis for the CSR assessment. Let us discuss how it will be done in the
next section.
5.2.2 DEVELOP A WORKING DEFINITION OF CSR
The definition of CSR should convey the general meaning of a firm’s

CSR undertakings to all the stakeholders. It should be specific and
should highlight the key areas that the firm intends to focus on its
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CSR initiatives. Involving people at all levels of the organisation in de-
veloping the definition of CSR right from the start will ensure support
and commitment from the employees in meeting the goals of the CSR
approach that the organisation would finally adopt. The involvement
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of members of the board, and the top management would prove spe-
cifically helpful in articulating a CSR definition as they are well aware
of the core objectives and values of the organisation.
Some examples of a working definition of CSR that the firms use are
as follows:
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CSR are the organisation’s practices and policies that contribute

towards the welfare of the environment and society. The CSR ini-
tiatives of the firm address the needs of the stakeholders, the gov-
ernment, and the general public and communities where the firm
operates.
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CSR includes the approach through which an organisation inte-

grates economic, environmental and social objectives with its key
activities and operations that address the needs of the stakehold-
ers.
CSR may be defined as the association between the corporation
and its stakeholders including customers, employees, communi-
ties, investors, government, dealers and competitors. The follow-
ing elements are included in its core strategy:
investing in community welfare
strengthening employee relations
creating and maintaining employment
caring for the environment
promoting responsible marketing
CSR is the organisation’s responsibility towards its stakeholders.
In the process, the main objective of the organisation would be to

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create a value for customers through its products and services and
contribute to social welfare. The organisation owes it to the society
that it operates on ethical business practices and expects a similar
behaviour from its suppliers and partners. The organisation should
aim to reduce the environmental impact of its facilities and prod-
ucts. It should create employment opportunities, pay taxes to the
government, support philanthropy and community development.
The organisation should give respect and involve its employees in
the decision making and encourage healthy competition.
Tata Group Companies have the following definition of CSR and its
sustainability stated in Clause No.10 of their Articles of Association:
A Tata Company shall be committed to be a good corporate citizen not

only in compliance with all the relevant laws and regulations but also by
actively assisting in the improvement of the quality of life of the people
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in the communities in which it operates with the objective of making
them self-reliant. Such social responsibility would comprise, to initiate
and support community initiatives in the field of community health and
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family welfare, water management, vocational training, education and
literacy and encourage application of modern scientific and managerial
techniques and expertise. This will be reviewed periodically in conso-
nance with national and regional priorities. The company would also
not treat these activities as optional ones but would strive to incorpo-
rate them as integral part of its business plan. The company would also
encourage volunteering amongst its employees and help them to work
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in the communities. Tata companies are encouraged to develop social

accounting systems and to carry out social audit of their operations.
The CSR leadership team also has the responsibility to identify key
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principles that motivate the organisation. It needs to find the specific

concerns of the members of its supply chain, such as involvement,
control and integrity. The identified issues may then be related to the
environment, workplace, community relations, human rights, stake-
holders, government relations, bribery and corruption, ethical prac-
tices, etc.
The CSR leadership team members should periodically refer and up-
date themselves with regards to the internationally-agreed standards
and instruments for CSR as this would ensure legality and uniformity
of CSR efforts.
The next step in the CSR assessment process is to review key cor-
porate documents, processes and activities for realistic and relevant
CSR implications. Let us discuss this further.
5.2.3 REVIEW CORPORATE DOCUMENTS, PROCESSES AND

ACTIVITIES
Once the CSR leadership team has developed a working CSR defi-
nition translating the organisational motivations behind a CSR ap-

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proach, the next step is to review key corporate documents, processes

and activities for assessing the exact and potential CSR implications.
Documents: The internal documents that need to be reviewed for
CSR assessment include the organisation’s mission statements,
principles and policies, codes of conduct, and other operating doc-
uments. The external documents such as sector-wide standards,
principles or guidelines concerning programs or initiatives that
the organisation is affiliated with, or subscribes to, may also be
reviewed. These documents need reviewing as they address im-
portant issues such as employee relationships, customer satisfac-
tion or environmental protection in some way, which form the core
objectives of any CSR strategy. These documents would offer the
leadership team, an insight to the present state of the important
CSR issues and acknowledge that they might need revisiting in
terms of the organisation’s CSR approach. The team may discover
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previous responses of the stakeholders with regards to CSR pres-
sure points.
By the same logic, the leadership team may also learn about the

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absence of any reference points to societal impacts or commit-
ments in these documents. This would help the leadership team in
creating a culture shift in the organisational approach to integrate
CSR successfully in the decision making process and other busi-
ness undertakings.
Processes: The main objective of CSR approach of an organisation
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is to promote holistic decision making and an integrated strategic

approach to social and environmental issues. Therefore, in order to
ensure that the organisation’s existing decision making processes
imbibe the CSR approach to include important issues, reviewing
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of the processes is required. Generally, organisations have definite

decision-making processes and related decision-making bodies
that address specific areas of operations, and these decisions may
affect the CSR approach of the organisation. For example, a health
and safety department would be responsible to take decisions re-
lated to allocate resources, train workers and implement programs
for the health and safety of the employees. The legal department
takes decisions about environmental protection initiatives in asso-
ciation with senior engineers. These decisions directly or indirect-
ly affect the CSR approach adopted by the organisation and hence,
require review to check that the decisions taken are in line with
the core concerns of a CSR approach.
In many organisations, the decision making authority is not so well
defined. For example, in some organisations, the authority con-
cerned with supplier decisions may also take all decisions related
to training, wages, and health and safety of employees. Therefore,
it is imperative that the CSR leadership team reviews these types
of decisions, the people responsible for these decisions and the
processes that affect these decisions. In addition to this, the team

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must also determine whether there is a system in place that coor-

dinates decisions having a societal dimension.
Activities: In addition to the documents and processes of an or-
ganisation, the activities related to providing products or services
to consumers are also linked with CSR. While reviewing the inter-
nal operations of the organisation will offer insight to the organisa-
tion’s status with regards to challenges and opportunities in CSR,
the leadership team may also find it useful to review the operations
of its competitors and other firms. The purpose of the examination
would be to become aware of the areas in which the organisation
may need to focus attention. Hands-on ideas related to CSR may
also be garnered by reviewing the activities of the overseas organ-
isations. The CSR leadership team should focus on reviewing the
activities of business partners as these may influence the decisions
of the firm considerably.
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5.2.4 IDENTIFY AND ENGAGE KEY STAKEHOLDERS
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The leadership work is to reveal key social issues, responsibility trends
and areas of opportunities. However, the team may miss key issues
which are more visible to people outside the organisation. Therefore,
the team might want to discuss these key CSR issues with external
stakeholders. When you map the stakeholders’ concerns and interests
with those of the organisation, it can show both potential issues and
opportunities.
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Now-a-days, many leading organisations view stakeholder engage-

ments as the key task to identify the problems that matter to them the
most. Being clear about the discussion’s purpose is important because
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stakeholders may see it as an opportunity of expressing their thoughts

in a more general way about the behaviour of the organisation. They
key to engage effectively with stakeholders is mapping their success
definition with the organisation. It will be helpful to identify the task
(such as publicly available CSR assessment summary).
The mapping exercise also allows identifying the variety of stake-

holder relationships an organisation has and assessing the relative
strength or proximity of those relationships.
It should be noted that although stakeholder mapping is listed as the

last step in the CSR assessment, this can be performed simultaneous-
ly with other steps of CSR assessment. Larger organisations might
select engaging one of the various independent consultants who spe-
cialise in mapping stakeholders for helping them with CSR processes.
Another thing to consider is the stakeholders’ capacity for remaining
engaged in a consultation that is ongoing.

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1. Opportunities for social innovation are greatest in which of

the following cases?
a. CSR is aligned with a firm’s core skills and capabilities.
b. CSR spending of a firm is larger than that of its competitors.
c. CSR is pursued by a firm to improve its reputation.
d. CSR is pursued by a firm to enhance human capital.
2. Which of the following is NOT an example of a genuine
business innovation?
a. Development of less polluting fuel
b. Investment in alternative energy sources
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c. New product targeted at low-income customers
d. Charitable donation to an ecological organisation
3. What is the key objective of the CSR approach of an
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organisation?
a. Create a culture shift in the organisational approach
b. Promote holistic decision making
c. Earn money
d. Allocate resources
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4. Which of the following enables the top management to know

how the organisation is positioned with respect to CSR,
and also communicate the CSR commitment to the various
stakeholders?
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a. CSR budget b. CSR strategy

c. CSR assessment report d. Social media
5. Which of the following includes representatives from the
organisation’s owners, board of directors, or top management?
a. CSR leadership team b. Human resources team
c. Managing team d. Social media team
6. To which of the following areas of the CSR assessment report,
does responsible marketing belong to?
a. Environment
b. Social
c. Ethics
d. Sustainable Procurement

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Activity
Using the Internet, create a list of CSR definitions of five Indian

organisations of your choice.
5.3 DEVELOPING A CSR STRATEGY

Any business approach requires the formulation of a well-researched
strategy that works as a guideline in its implementation and also
serves as a tool for monitoring the progress. The same stands true for
CSR approach and therefore, the organisation needs to carefully de-
velop a CSR strategy taking inputs from all levels of the organisation.
A properly formed CSR strategy helps in ensuring that an organisa-
tion shapes, maintains and constantly reinforces its identity, market-
S
place, stakeholder relationships and contribution to the society. Most
importantly, a CSR strategy works as a framework for a coherent busi-
ness approach which forms its basis on issues that concern the organ-
isation’s stakeholders.
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Different organisations may adopt different methods to develop their
CSR strategy. However, the basis on which the CSR strategy will be
formed (organisational values and principles) will be the same for all
the organisations regardless of their domain. A good CSR strategy will
be developed under the guidance of those who might provide assis-
tance, and would build on the organisation’s strengths and address
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the weaknesses. Moreover, the basic steps that are followed in the
process of developing a CSR strategy would remain the same. These
steps are as shown in Figure 5.3:
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Build Support with Senior Management and Employees
Research What Others are Doing
Prepare a Matrix of Proposed CSR Actions
Develop Options for Proceeding
Develop the Business Case for CSR Action
Decide on Direction, Approach and Focus Areas
Figure 5.3: Steps in Developing a CSR Strategy
Let us discuss each step in detail.

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5.3.1 BUILD SUPPORT WITH SENIOR MANAGEMENT AND

EMPLOYEES
You have studied earlier in this chapter about the importance of the
involvement of the top management and employees in deciding an or-
ganisation’s CSR strategies. The personal engagement of senior man-
agers, Chief Executive Officers (CEO) and employees at all levels is
usually vital for the success of any CSR initiative. The first step in the
process of formulation of a CSR strategy requires the CSR leadership
team to report back to senior management or board of directors about
the outcome of a CSR assessment and the ways to move ahead. A CSR
assessment may provide the following indications:
The areas of operation susceptible to external criticism
The real opportunities for synergies or new products
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The loopholes in current decision making on CSR issues
The CSR issues that are of major concern to the key stakeholders
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For the success of any CSR program, it is important that the CSR lead-
ership team continues to build support among employees, and com-
municate their roles in the implementation of the CSR strategy while
also following the direction of the senior managers.
5.3.2 RESEARCH WHAT OTHERS ARE DOING

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Every organisation is capable of developing a CSR strategy with the

proper involvement of its employees and senior managers. However, it
is still valuable to base the firm’s CSR approach drawing on the expe-
rience and expertise of others. There are three useful sources of infor-
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mation that the leadership team can use to develop the CSR strategy:
The CSR approach of other organisations
Industry associations
CSR-specialist organisations
The CSR leadership team needs to assess the CSR strategies and
approach other organisations (both domestic and international) and
evaluate the similarities and differences in the CSR approaches. It
can, then, adopt the strategies that drive positive social, economic,
and environmental impact. The leadership team may also evaluate
and compare the vision, values and policy statements of primary com-
petitors, along with their codes, CSR related product lines, and the
programs or philanthropic associations that they are part of. Evalu-
ating the benefits, costs, consequences, resource allocations, or any
alteration of current CSR policies may also provide helpful informa-
tion to the leadership team to bring about necessary changes in the
existing CSR strategy.

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5.3.3 PREPARE A MATRIX OF PROPOSED CSR ACTIONS
The next step in the process of developing a CSR strategy would be

to use the conclusions drawn by the leadership team and create a ma-
trix of proposed CSR actions, bearing environmental, social and eco-
nomic impact. The leadership team can plot existing and proposed
CSR activities, processes, products and impacts on the matrix, setting
them against the organisation’s current business operations to find
out how well they complement each other. An example of a CSR ma-
trix is shown in Figure 5.4:
Community Environmental
Workplace Market Place
Efforts Impact
Current Proposed Current Proposed Current Proposed Current Proposed
Initiatives
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Products
/services
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Impacts
Responsibility
centre
Figure 5.4: A Sample of Proposed CSR Matrix

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(Source: Green Kettle Consulting)
Table 5.1 shows an example of the CSR matrix for an organisation:
TABLE 5.1: EXAMPLE OF THE CSR MATRIX FOR AN ORGANISATION

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Environmental Activ- Social Activities Economic Activities

ities
Current Proposed Current Proposed Current Proposed
Initiatives Registered Kyoto Adopted Follow Registered Integrated
to ISO Emission 5 local Fair to ISO9001 Manage-
14001 Reduction schools Labour ment Sys-
and started Asso- tem (IMS)
Workers ciation
Education (FLA)
Program
Products/ Same All prod- NA at FLA Using ISO Keep
Services products ucts be present product 9001 logo well-in-
use the En- certified certifica- in organ- formed
vironmen- by Energy tion isation’s about ISO
tal Choice Star letterheads work on
logo IMS
Impacts Internal Supply Internal Supply Internal Supply
impact as- chain/ impact chain/ impact as- chain/
sessments community assess- com- sessments community
impacts ments munity impacts
impacts
Respon- Environmental Affairs Human Resources Manager, Customer Satis-
sibility Department Department faction, Quality
Centre

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5.3.4 DEVELOP OPTIONS FOR PROCEEDING
When the leadership team has proposed a CSR matrix of the current
and proposed CSR activities, the organisation has two options for pro-
ceeding further with the CSR approach. The organisation can either
opt to make certain additions to the existing CSR strategy or make a
comprehensive change in the organisation’s approach towards CSR.
Most organisations in India that had a voluntary approach towards
CSR mainly focusing on environmental and certain social issues have
now evolved and made additions to their CSR approach. For example,
UltraTech Cement, (Aditya Birla Group) India’s biggest cement man-
ufacturer has evolved considerably from when it began its operations
till present time. Its CSR activities now include healthcare and family
welfare programs, education, infrastructure, environment, social wel-
fare, and sustainable livelihood.
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On the other hand, some organisations may decide to change the di-
rection more fundamentally with respect to the social and environ-
mental impact of their CSR activities. For example, Walmart, one of
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the largest retail chains in the world, announced major changes in how
it plans to use the supply chain to improve social and environmental
conditions. In the process, it has decided to use renewable energy as
the source of power in its stores. Similarly, Philips, the Dutch electron-
ics manufacturer announced a range of new strategies built around
sustainable development challenges. Its “Green Flagship” (reduced
energy consumption, e-waste management, recyclability, etc.) and
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“Lighting the Bottom of the Pyramid” (provide modern lighting to the

poorest people) are some initiatives under its new CSR strategy.
GENERATING IDEAS
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Irrespective of the approach adopted by organisations, the most im-

portant aspect is to first find ways of integrating CSR into business op-
erations. For this purpose, the organisation can carry out brainstorm-
ing sessions with senior managers, employees, business associates,
etc. The participating members should have a clear understanding of
the need to align the CSR approach of the organisation with its core
business objectives and competencies. Some of the questions that can
be brainstormed in these sessions are as follows:
What social and environmental initiatives has the organisation un-
dertook so far?
What are the strengths, weaknesses, opportunities and threats of
these initiatives?
What useful information has the organisation drawn from the ex-
perience of others?
What are the organisation’s CSR objectives?

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Where does the organisation intend to be in ten years with regards

to its CSR activities and outcomes?
What are the main social issues that concern the world and how
can the organisation help?
What possible changes are needed in the existing CSR practices?
Is there any CSR initiative that the organisation could undertake
at zero or low cost?
Is there any area where a CSR activity could make a considerable
impact?
Can the proposed CSR changes be categorised into short, medium
and long-term deliverables?
What are the resource implications of these deliverables?
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Is there any change required in the organisational structure in or-
der to implement the said changes?
Are there any challenges (with regards to training needs, equip-
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ment or compensation structures) that might come in the way of
implementing CSR?
Are there any possibilities of cost reductions?
What are the probable risks associated if the organisation fails to
incorporate the broader environmental, social and economic im-
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pacts of its business operations in its CSR approach?

What should be the priorities in case the organisation decides to
do more by way of its CSR activities?
These brainstorming sessions would not only generate new ideas but
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also create awareness among the participants about CSR activities.

Informal networking with external sources is another way to assess
whether the organisation is moving on the right track.
5.3.5 DEVELOP THE BUSINESS CASE FOR CSR ACTION
The CSR leadership can combine the outcome of its research, inputs
from senior managers and employees, and brainstorming sessions to
develop a business case for potential initiatives that will ensure the
successful implementation of the organisation’s CSR strategy. The
business case should be in line with the organisation’s business objec-
tives, skill set and core competencies. It should focus on a number of
elements, some of which are as follows:
possible leverage points (on which considerable CSR success can
be achieved)
areas in which an organisation could potentially gain a competi-
tive edge
areas in which stakeholders exhibit major concern

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short and long-term objectives

estimated costs of implementing each proposed action
expected benefits
opportunities for cost reductions
major challenges for the organisation
broader changes that the organisation might need to make
the risks or threats each proposition poses
the outcome of each proposed action for new development
The characteristics of a comprehensive business case for CSR are

shown in Figure 5.5:
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Figure 5.5: Characteristics of Business Case for CSR

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(Source: BITCI News)
There is no single CSR business case that would meet the require-
ments of improving the outcome of an organisation’s CSR approach.
Over the years, researchers have developed several business cases
that can be grouped based on various approaches, issues addressed,
and underlying assumptions about how value can be created and de-
fined for CSR. The common consideration points in the important ar-
eas concerning CSR approach of an organisation include the follow-
ing:
Increasing efficiencies by reducing resource use, waste and emis-
sions
Managing risk by complying with regulatory requirements
Improving financial performance by selling environment friendly
products
Raising capital through socially responsible investing (SRI)
Attracting and retaining top talent

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Building a reputation of a responsible business

Increasing customer loyalty
Reducing regulatory oversight
Creating a positive impact on society and environment
Improving the government relationships
Improved relationships with stakeholders
Involving the local community to generate positive impact on com-
munities
Improving relationships with local authorities
Understanding the wider impact of the business operations
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5.3.6 DECIDE ON DIRECTION, APPROACH AND FOCUS
AREAS
At this point, the CSR leadership team has all the required informa-
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tion regarding the development of a CSR approach for the organisa-
tion. The final step in the process of the development of CSR strategy
would be to consult the senior management for an informed decision
on how the organisation should proceed further. In this regard, the
most important decision would be to determine the organisation’s
general direction, approach and focus on the areas with regard to
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CSR. These are discussed in detail:

Direction: This refers to the overall course that the organisation
aims to follow with regards to its CSR approach. It includes the
main areas of concern that the organisation intends to address
through its CSR strategy. For example, an organisation engaged in
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manufacturing automobiles may decide to emphasise on its work-

er’s health and safety. A pharmaceutical company may shift its fo-
cus on the country’s health issues. A chemical manufacturer may
decide to base its CSR approach on environmental issues created
due to waste disposal.
Approach: This refers to the organisation’s decision regarding
how it will move ahead in the identified direction. For example, an
organisation might decide to review its mission, vision, and values
and ethical declarations, and later adopt a new code of conduct
and finally communicate the changes to everyone in the organi-
sation. It might then take measures to train the employees based
on the new policy and practices and address the concerns of its
suppliers.
Focus areas: These refer to the areas that need the organisation’s
immediate concern. The focus areas should be clearly aligned with
the objectives of the business. The focus areas may be decided af-
ter identifying the gaps in the organisation’s processes, existing
business approach or stakeholders’ concern. The organisation

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may attempt to capitalise on a new market opportunity, address

the needs of the key business partners, etc. For example, a finan-
cial institution/bank could identify new security features to pro-
tect its clients’ personal information or tap the opportunities in the
field of micro-credit. Similarly, a food retailer may decide to focus
on healthy and nutritious recipes for its customers.
These decisions are based on the following factors:

Organisation’s priorities
Size and gravity of the problem
Projected effectiveness of possible solutions
Ease of implementation
Financial and human resources needed to implement the changes
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Legal requirements
Customer expectations
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Just like any financial or investment decision, the organisation’s CSR
initiatives would have certain resource implications. A casually deter-
mined CSR initiative could jeopardise the credibility of the organisa-
tion’s CSR approach as well as the organisation’s overall reputation.
Therefore, they require proper assessment and review before imple-
mentation.
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7. The personal engagement of senior managers, Chief Executive

Officers (CEO) and employees at all levels is not important for
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CSR leadership team. (True/False)

8. In which dimension of CSR responsibility would you classify
the issue of recycling and non-wasteful packaging?
a. Consumer welfare
b. Social and community involvements
c. Physical environment
d. Employee relations
9. What is the next step in the process of developing a CSR
strategy after building support with senior management and
employees?
a. Develop options for proceeding
b. Research what others are doing
c. Prepare a matrix of proposed CSR actions
d. Decide on direction, approach and focus areas

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10. Which of the following is not an indication provided by a CSR

assessment?
a. The areas of operation susceptible to external criticism
b. The real opportunities for synergies or new products
c. The loopholes in current decision making on CSR issues
d. The CSR approach of other organisations
11. ________ is a plot existing and proposed CSR activities,
processes, products and setting them against the organisation’s
current business operations.
12. Which of the following is not a characteristic of a comprehensive
business case for CSR?
a. Ensuring competitiveness
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b. Engaging employees
c. Promoting cost reductions
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d. Driving innovation
13. A business case estimates the costs of implementing each
proposed CSR action. (True/False)
Activity
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Make a list of the possible challenges that organisations may face in

the successful implementation of their CSR strategies.
5.4 SUMMARY
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The purpose of carrying out a CSR assessment is to evaluate how

well an organisation has integrated the principles of CSR into its
business.
The first step of any CSR assessment process is to collect, anal-
yse and examine all relevant data with respect to an organisation’s
services, products, initiatives, activities and decision making pro-
cesses.
CSR leadership team is needed to overlook the commitment and
dictate the role and responsibilities at each level in the organisa-
tion.
The definition for CSR should convey the general meaning of a
firm’s CSR undertakings to all the stakeholders.
Once the CSR leadership team has developed a working CSR defi-
nition, the next step is to review key corporate documents, pro-
cesses and activities for assessing the exact and potential CSR im-
plications.

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The internal documents that need to be reviewed for CSR assess-

ment include the organisation’s mission statements, principles
and policies, codes of conduct, and other operating documents.
In order to ensure that the organisation’s existing decision making
processes imbibe the CSR approach to include important issues,
reviewing of the processes is required.
In addition to the documents and processes of an organisation, the
activities related to providing products or services to consumers
are also linked with CSR.
A CSR strategy works as a framework for a coherent business ap-
proach which forms its basis on issues that concern the organisa-
tion’s stakeholders.
For the success of any CSR program, it is important that the CSR
S
leadership team continues to build support among employees and
senior managers.
Itis valuable to base the firm’s CSR approach drawing on the ex-
perience and expertise of others.
IM
The next step in the process of developing a CSR strategy is to
create a matrix of proposed CSR actions, bearing environmental,
social and economic impact.
The organisation can either opt to make certain additions to the
existing CSR strategy or make comprehensive change in the or-
M
ganisation’s approach towards CSR.

The final step in the process of the development of CSR strategy
would be to consult the senior management for an informed deci-
sion on how the organisation should proceed further.
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key words
Anti-competitive practices: The business, government or reli-

gious practices that are aimed towards reducing competition in
a market.
Brand image: The general impression of a product created
among existing or potential consumers.
Informal networking: The type of networking for information
transmission that lacks structure or medium. For example,
grapevine or rumour mill.
Socialdialogue: The negotiation or exchange of information
between government representatives, employers, and workers
on common issues relating to socio-economic policy.
Socially Responsible Investing (SRI): The investment strategy
that considers both business return as well as social/environ-
mental health to bring about a positive change in the society. It
is also known as green or ethical investing.

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1. Explain the importance of assessment of CSR in an organisation.
2. Discuss how an organisation develops a working definition of
CSR.
3. Describe the objectives of developing a CSR strategy.
4. What is the need to build support with senior management and
employees for decisions related to CSR?
5. Discuss the process of developing the business case for CSR
action.
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Assessment of CSR in an 1. a. CSR is aligned with a firm’s
Organisation core skills and capabilities.
2. d. Charitable donation to an eco-
logical organisation
3. b. Promote holistic decision mak-
ing
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4. c. CSR assessment report

5. a. CSR leadership team
6. c. Ethics
Developing a CSR 7. False
Strategy
N
8. c. Physical environment

9. a. Research what others are doing
10. c. The CSR approach of other
organisations
11. Matrix of proposed CSR actions
12. c. Promoting cost reductions
13. True

1. The purpose of carrying out a CSR assessment is to evaluate
how well an organisation has integrated the principles of CSR
into its business. Refer to Section 5.2 Assessment of CSR in an
Organisation.
2. The definition for CSR should convey the general meaning of a
firm’s CSR undertakings to all the stakeholders. Refer to Section
5.2 Assessment of CSR in an Organisation.

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3. A CSR strategy works as a framework for a coherent business

approach which forms its basis on issues that concern the
organisation’s stakeholders. Refer to Section 5.3 Developing a
CSR Strategy.
4. For the success of any CSR program, it is important that the CSR
leadership team continues to build support among employees
and senior managers. Refer to Section 5.3 Developing a CSR
Strategy.
5. The personal engagement of senior managers, Chief Executive
Officers (CEO) and employees at all levels is usually vital for the
success of any CSR initiative. Refer to Section 5.3 Developing a
CSR Strategy.
S
SUGGESTED READINGS
Carroll, A., & Buchholtz, A. (2015). Business & society: Ethics, Sus-
IM
tainability, and Stakeholder Management (9th ed.). Cengage Learn-
ing.
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cis.
E-REFERENCES
Corporate Social Responsibility Focus Areas - CSR & Sustainabil-
N
ity in India | Cairn India Limited | Oil and Gas Exploration Com-
panies – Oil and Gas Production Company In India | Cairn India
Limited. (2018). Cairnindia.com. Retrieved 18 April 2018, from
https://www.cairnindia.com/sustainability/community/focus-areas
CSR Assessment | EcoVadis. (2018). EcoVadis. Retrieved 18 April
2018, from http://www.ecovadis.com/us/csr-assessment/
The Business Case for Corporate Social Responsibilty. (2018). Busi-
ness in the Community Ireland. Retrieved 18 April 2018, from
https://www.bitc.ie/newsroom/news/the-business-case-for-corpo-
rate-social-responsibility/
The Business Case for Corporate Social Responsibility. (2018). Corp-
gov.law.harvard.edu. Retrieved 18 April 2018, from https://corpgov.
law.harvard.edu/2011/06/26/the-business-case-for-corporate-so-
cial-responsibility/

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C h a
6 p t e r
IMPLEMENTING CSR STRATEGY
CONTENTS
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6.1 Introduction
6.2 Implementing Corporate Social Responsibility and the Related Commitments
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6.2.1 Develop an Integrated CSR Decision-making Structure
6.2.2 Prepare and Implement CSR Business Plan
6.2.3 Set Measurable Targets and Identify Performance Measures
6.2.4 Engage Employees and Others to Whom CSR Commitments Apply
6.2.5 Design and Conduct CSR Training
6.2.6 Establish Mechanisms for Addressing Problematic Behaviour
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6.2.7 Create Internal and External Communication Plan

6.2.8 Make Commitments Public
Activity
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6.3 Areas of CSR Implementation

Activity
6.4 CSR at Marketplace
6.4.1 Benefits of Marketplace CSR
6.4.2 Designing Marketplace CSR Activities
Activity
6.5 CSR at Workplace
6.5.1 Benefits of CSR at Workplace
6.5.2 Designing Workplace CSR Activities
Activity
6.6 Environmental CSR
6.6.1 Benefits of Environmental CSR
6.6.2 Designing Environmental CSR
Activity

CONTENTS
6.7 CSR with Communities

6.7.1 Types of Interventions
Activity
6.8 CSR in Supply Chain
Activity
6.9 Summary
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IMPLEMENTING CSR STRATEGY 157
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COMMUNITY DVELOPMENT INITIATIVES BY

CAIRN, VEDANTA
Vedanta Limited, one of the leaders in diversified natural resourc-

es has taken up several community CSR initiatives under its Cairn
Oil and Gas vertical. The CSR approach of the organisation is to
adopt a parallel, triple focus approach:
to engage with the community
build relationships of trust, respect and goodwill
fulfil its corporate responsibility
The organisation has based its CSR approach on Millennium De-

velopment Goals (MDGs) that are in line with global viewpoints
S
on development needs and strategies. Key issues that are covered
under the MDGs are poverty, education, gender justice and health.
The organisation follows the tradition of their CSR approach to
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contribute in achieving India’s development goals. Cairn believes
in strengthening the local economy through business profits. The
community development interventions of the organisation are
designed and implemented after thorough consultation with lo-
cal authorities, NGOs and other partnering organisations. At the
national level, the organisation identifies development priorities
and basis its intervention on multi-level consultations. The or-
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ganisation identifies suitable areas for social investment, and de-

velops and implements community projects through community
participation.
CSR activities of Cairn are based on five main themes with the
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objective of improving the overall socio- economic status in the

community it operates. These activities include the following:
Providing healthcare, sanitation and safe drinking water to all
Improving employment opportunities through training and

vocational skill development
Improving household incomes through farm based and other
livelihood opportunities
Promoting education and sports among people
Working towards environmental sustainability
The organisation focuses on inclusive growth and improving the

socio-economic status of the underprivileged people through its
health and education initiatives. Cairn continuously works to of-
fer access to opportunities and resources to everyone through its
development and environment support initiatives.

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learning objectives

>> Describe the implementation of CSR and the related com-
mitments
>> Discuss the areas of CSR implementation
>> State the importance of CSR at marketplace
>> Explain the importance of CSR at workplace
>> Define environmental CSR
>> Discuss the significance of CSR with communities
>> Explain the importance of CSR in supply chain
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6.1 INTRODUCTION
Once an organisation has developed its CSR strategy, the next step is
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to implement the strategy to carry out the underlying CSR initiatives.
A successful CSR implementation is a long-term process that requires
creativity and careful planning. Some of the factors that are respon-
sible for successful implementation of the CSR strategy are commit-
ment from top management, valuable inputs of middle management,
clear assignment of responsibilities and clear communication of the
progress of implementation. To avoid communication gaps during
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the implementation process, an organisation should create a two-way

communication program which allows employees to put forward their
queries related to the formulated strategy. In return, the CSR leader-
ship team should answer the queries and inform employees about the
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new requirements, tasks and activities to be performed in future.
During the implementation of the CSR strategy, organisations can use

a communication model with the following elements:
Participants: The organisation should have a clear idea of who
will be involved in the communication process.
Message: It is the most important element of any communication
process as it explains what needs to be communicated.
Timing: It explains the time when communication is needed to be
placed.
Media: The next element of any communication model is to decide
the media. It is all about the methods adequate for communicating.
Milestones: It explains how and when results and outcomes are
measured.
Work plan: It explains what time and effort is required to develop
the communication model for CSR implementation.
The first step in the implementation process is to set out the propo-
sitions, which would suggest the theoretical framework of activities

n o t e s
that will be carried out during the implementation of a CSR strate-

gy. These propositions are divided into the four categories: Plan, Do,
Check and Improve. Each category offers a deeper understanding at
every level of the CSR implementation process. Each proposition is
explained through the CSR implementation model as shown in the
following figure 6.1:
Plan
Improve Communication Do
S
Check
IM
Figure 6.1: CSR Implementation Model
Source: The CSR Implementation process: Kristianstad University
Plan: The first step in the implementation phase in which the or-
ganisational working process is decided by clearly outlining the
instructions, mechanisms and approach that will be used.
M
Do: The next phase of the implementation process which involves

all activities undertaken by employees, top management, middle
management and others to accomplish the objectives of an organ-
isation’s CSR objectives.
N
Check: This is the third step in the implementation process. In

this part, the focus is on measuring the targets and recognising
the performance achieved so far. The progress made needs to be
reported as it is required for evaluation.
Improve: In order to improve the process of CSR implementa-
tion in an organisation, an evaluation of the operations needs to
be performed. The result of the evaluation is used to identify new
approaches of CSR along with the areas of improvement in the
implementation process.
In this chapter, you will study about the implementation of Corporate

Social Responsibility and the related commitments, in detail.
IMPLEMENTING CORPORATE SOCIAL

6.2 RESPONSIBILITY AND THE RELATED
COMMITMENTS
While defining and designing Corporate Social Responsibilities, each
organisation takes into consideration its own set of circumstances.

n o t e s
Every organisation is at a different level of accomplishment when it

comes to implementing CSR. Organisations develop their CSR strat-
egies in line with its mission, vision, culture, environment, risk profile
and operating conditions. Organisations may base their CSR initia-
tives on customer, employee, community and environmental activi-
ties. To engage in CSR activities proactively, the organisation must in-
tegrate CSR strategy with its overall business strategy. It should align
its decision making, management processes and business operations
with the CSR in an incremental or comprehensive manner.
An organisation can implement the CSR strategy using a familiar

model known as ‘Plan, Do, Check and Improve’. This is a generic
framework that has built-in flexibility so that it can be adopted by any
organisation.
An ideal CSR implementation framework integrates economic, social
S
and environmental decision making. It involves various stakeholders
such as board of directors, front-line officials, supply chain partners,
etc. CSR is intimately connected with effective corporate governance.
IM
Table 6.1 presents the generic implementation framework:
TABLE 6.1: GENERIC IMPLEMENTATION FRAMEWORK

Conceptual Task Delineation Checkpoints on the Journey
Phase (When?) (What?) (How?)
Plan 1. Conduct CSR Assemble a CSR leadership
M
assessment team
Develop a working definition of
CSR
Identify legal requirements
N
Review corporate documents,

processes and activities and in-
ternal capacity
Identify and engage key stake-
holders
2. Develop CSR Build support with CEO, senior
strategy management and employees
Research what others are do-
ing, and assess the value of rec-
ognised CSR instruments
Prepare a matrix of proposed
CSR actions
Develop ideas for proceeding
and the business case for them
Decide on direction, approach,
boundaries and focus areas.

n o t e s
Conceptual Task Delineation Checkpoints on the Journey

Phase (When?) (What?) (How?)
Do 3. Develop CSR Do a scan of CSR commitments
commitments Hold discussions with major
stakeholders
Create a working group to de-
velop commitments
Prepare a preliminary draft
Consult with affected stake-
holders
4. Implement CSR Develop an integrated CSR de-
commitments cision-making structure
Prepare and implement a CSR
business plan
Set measurable targets and
S
identify performance measures
Engage employees and others
to whom CSR commitments
apply
IM
Design and conduct CSR train-
ing
Establish mechanisms for ad-
dressing problematic behaviour
Create internal and external
communications plans
Make commitments public
M
Check 5. Assure and re- Measure and assure perfor-

port on progress mance
Engage stakeholders
Report on performance, inter-
N
nally and externally

Improve 6. Evaluate and Evaluate performance
improve Identify opportunities for im-
provement
Engage stakeholders
Cross-check One cycle complet- Return to plan and start the
ed next cycle.
Source: http://www.iisd.org/pdf/2007/csr_guide.pdf
In this section, we will discuss the steps that are undertaken in imple-
menting CSR commitments (step 4 of the process).
CSR commitments are policies or mechanisms that an organisation

formulates to indicate what the organisation plans to do to address
its social and environmental impact. CSR commitments are based on
the CSR assessment and strategy and are developed when the organ-
isation moves from planning to action. The benefits of CSR commit-
ments are as follows:
They ensure that the organisation’s CSR strategy is integrated
with its business values.

n o t e s
They help in integrating the organisation’s business strategy, ob-

jectives and goals.
They work as a guideline for employees.
They communicate the organisation’s CSR approach to its various
stakeholders.
The purpose of forming CSR commitments for any firm is to have a

medium to communicate the nature and direction of the organisa-
tion’s social and environmental activities. It helps the public and other
stakeholders to gauge how the firm will react in a particular situa-
tion. CSR commitments provide an understanding to the stakehold-
ers about what can be expected from the organisation. By articulating
these expectations through their CSR commitments, an organisation
minimises the chances of misunderstandings in future. Therefore, it
can be said that CSR commitments improve the quality of the involve-
S
ment an organisation has with its stakeholders. CSR commitment of
an organisation is a state wherein the organisation is fully dedicat-
ed towards fulfilling its CSR responsibilities. CSR implementation
involves implementing the CSR strategy of the organisation which
IM
involves carrying out processes, practices and activities and making
day-to-day decisions in a manner that the CSR commitments of the
organisation are fulfilled. It is often said that making CSR commit-
ments is equivalent to “talking the talk” and CSR implementation is
“walking the walk.”
For any business organisation, it is important to live up to its CSR

M
targets. If a business is unable to fulfil its CSR commitments, it may

lead to dissatisfaction among employees, shareholders, customers,
business partners and the communities.
Each organisation is different and approaches and implements CSR

N
in different ways. However, certain generic steps that can be used by

organisations to implement the CSR commitments are shown in Fig-
ure 6.2:
Develop an Set Measurable

Prepare and Targets and
Integrated CSR Implement CSR Identify
Decision-making Business Plan Performance
Structure Measures
Engage employees Establish

and Others to Design and Mechanisms for
Whom CSR Conduct CSR Addressing
Commitments Training Problematic
Apply Behaviour
Create Internal Make

and External Commitments
Communication Public
Plan
Figure 6.2: Implementing CSR Commitments

n o t e s
Let us now study the steps involved in implementing CSR commit-

ments in the upcoming sections.
6.2.1 DEVELOP AN INTEGRATED CSR DECISION MAKING

STRUCTURE
Each business organisation has its own decision making structure

in order to ensure that it can meet its commitments and customer
needs. The organisation also assesses its mission, size, sector, culture,
organisation, operations and risk areas, CSR strategy and CSR com-
mitments to determine the most efficient and effective CSR decision
making structure.
It is important to align CSR goals and decisions with overall goals and
strategies of the organisation. There is no one-defined way of creating
S
a CSR decision making structure for organisations because some or-
ganisations may prefer a centralised decision making structure, some
may prefer decentralised structure and still some others may prefer
a hybrid structure. It is difficult to identify people from the top level
IM
management who would be involved in decision making with regard
to CSR initiatives.
It is important that the CSR decision making structure of an organi-

sation must be an integral part of organisation’s governance activities
and should be visible in order to ensure transparency, accountabili-
ty and performance. All the levels of the organisation such as board
M
members, CEO, senior members, etc. must be involved in decision

making processes. The responsibility for CSR must be assigned to
board members so as to gain a strong buy-in of the management and
form a strong basis for effective chain of CSR accountability. To in-
N
volve the board members in CSR decision making, the following alter-
natives are available:
A board member could be given the responsibility of overseeing
CSR activities.
A board member having specific expertise in CSR could be ap-
pointed.
Existing board members could be given the combined responsibil-
ity of overseeing the CSR implementation.
A new CSR board committee could be formed.
For effective CSR implementation, the committee or the individual

responsible for overall CSR implementation within the organisation
must be identified and assigned resources to fulfil CSR activities. The
committee may be further divided into departments looking after dif-
ferent CSR responsibilities such as environment, health and safety
protection, worker relations, supplier relations, community relations
and customer relations. These departments report to the committee
or directly to the board. The board must solemnly resolve to build

n o t e s
CSR responsibilities and the incentives associated with them into job
descriptions and performance evaluations of employees.
6.2.2 PREPARE AND IMPLEMENT CSR BUSINESS PLAN
In the previous sub-section, you studied that the overall decision mak-
ing structure of the organisation involves CSR decision making and
a few people are assigned the responsibility of CSR implementation.
These people play a key role in developing and implementing the CSR
business plan which is based on the CSR strategy and commitments.
The CSR plan may be created as a separate plan or may be developed
as a part of the overall business plan. In the presence of strategy, com-
mitments and decision making structure, the CSR plan ensures that
the plan is converted into actions. The plan will be converted into ac-
tions provided that all the required resources such as human, financial
S
and other activities required to carry out the CSR plan are provided.
An example of CSR commitments may be that the firm will not offer
any bribes in order to get any contract or to get anything done. For ful-
IM
filling this CSR commitment, the organisation may take steps such as:
Creating a training course that differentiates between proper and
improper payments.
Reviewing and designing the organisation’s commission structure
that discourages improper behaviour.
M
Creating whistle-blower protection measures.
6.2.3 SET MEASURABLE TARGETS AND IDENTIFY

PERFORMANCE MEASURES
N
Just as an organisation measures its financial success by setting cer-

tain sales or revenue targets and measuring the actual outcomes
against the set targets; similarly, it tracks the performance of CSR
activities, it is important to set measurable targets for CSR commit-
ments. To achieve a particular goal, organisations and individuals set
intermediate goals which act as milestone along their journey towards
the ultimate goal. In this way, the progress of the CSR initiative can be
measured. In case, the initiative’s results are not on track, the CSR ap-
proach may be reviewed. To track the progress of CSR commitments,
measurable environmental, economic and social targets are set. To
measure the success of CSR, the objectives underlying the CSR com-
mitment must be identified, key performance indicators must be de-
veloped, the measurement method must be defined and the results
are measured. The organisation must set simple, measurable, achiev-
able, reliable and time-bound (SMART) targets.
For example, an organisation may commit to reduce the amount of

solid waste produced by it. The measure of this CSR commitment is
the reduction in the kilograms of garbage produced each month. As-

n o t e s
sume that an organisation usually produces 100 tons of solid waste per
month and it has committed that it will reduce the solid waste by 50%
by taking certain steps or actions. After the steps to reduce waste have
been implemented, it was recorded that the solid waste produced by
the organisation stood at 72 tons. It means that the organisation has
not achieved its CSR target of reducing waste to 50 tons. The mea-
surement of results may indicate a requirement for modifying the ob-
jectives. At times, it is not possible to develop measurable targets. In
such cases, qualitative targets are set. Qualitative targets are set by
obtaining feedback from a variety of stakeholders regarding the effec-
tiveness of qualitative targets.
Exhibit
Examples of Csr Targets
S
Reducing and reversing the effects of climate change is one of the
key objectives of CSR. For ensuring that this CSR commitment is
met, organisations are adopting approaches such as:
IM
setting targets for reduction in greenhouse gas emissions
(GHGs)
setting targets for energy efficiency
using renewable energy
becoming “carbon neutral
M
For example, Bayer (a German chemicals company) had set a target

of reducing its emissions by 50 per cent between 1990 and 2010. By
the end of 2004, the company already exceeded this target receiving
awards in the process.
N
As an another example, certain companies such as News Corp and

Marks and Spencer have made high profile commitments to be-
come “carbon neutral”.
6.2.4 ENGAGE EMPLOYEES AND OTHERS TO WHOM CSR

COMMITMENTS APPLY
We have already stated that there is no one-defined way in which CSR

commitments can be implemented. However, in our approach, it is
important to mention that inputs and suggestions are sought from em-
ployees and all other stakeholders at every stage of CSR implemen-
tation from preliminary assessment to strategy development and ful-
filling commitments. It can be said that employees play a central role
in CSR implementation. The decisions regarding CSR are taken by
the top management but the implementation depends largely on the
employees (and suppliers, at times) only. The employees act as ambas-
sadors, advocates and sources of new ideas and information regard-
ing CSR. There must proper communication among top management,

n o t e s
employees and employee representatives regarding CSR strategy and

CSR commitment.
For example, in 2005, Bayer launched a “Triple-I” initiative. This

meant inspiration, ideas and innovation. It was launched to embed
innovation throughout the organisation. As per this scheme, the em-
ployees were asked to speculate regarding their work, home and the
entire community and to find out the areas where there were unmet
challenges and business opportunities. In this way, Bayer empowered
1, 10,000 employees while driving innovation and change.
Employee engagement in CSR means that the employees are made

well aware of the CSR directions, strategies and commitments. Or-
ganisations need to motivate employees and suppliers and all stake-
holders in order to participate in CSR activities. It will also help in
developing a sense of pride and ownership in the organisation’s CSR
S
activities. Employee support for implementing CSR implementation
can be maintained in the following ways:
CSR components must be incorporated into job descriptions and
IM
performance appraisals must also evaluate an employee regarding
his/her CSR contributions.
Employees must be provided regular update regarding the prog-
ress of CSR initiatives.
Monetary and non-monetary benefits must be developed for seek-
M
ing useful advice and suggestions from the employees.

Reducing disincentives of CSR.
Offering incentives and recognition for providing good CSR ideas.
N
6.2.5 DESIGN AND CONDUCT CSR TRAINING
To ensure proper implementation of the CSR, the organisation must

design and conduct the CSR training. The training needs evolve along
with changing CSR issues. A comprehensive approach to CSR en-
sures that the employees have information regarding the organisa-
tion’s CSR commitments, programs and their implementation. In case
of multinational organisations, the training and related content must
be delivered and developed in languages understood by the employ-
ees while keeping in mind the cultural orientation of the employees.
There are certain organisations which have employees all over the
world. The training courses and modules for such organisations must
be developed keeping in mind the literacy level, culture and language
of such employees. Steps for developing a successful CSR training
program are:
Conducting a Training Needs Analysis (TNA)
Setting learning objectives

n o t e s
Designing the training program’s content, format, logistics, timing

and duration
Implementing the program
Evaluating the training program against learning objectives
For example, IKEA launched Co-Worker Environment and Social Re-

sponsibility Training Program in 1992 as first environmental action
plan. The training program covered environmental and social policies,
programs, goals and performance and all aspects of business such as
suppliers, transportation, waste management, CO2 emissions, prod-
uct design and packaging. Interactive training was offered in seven
languages and was made available in classroom and online formats.
6.2.6 ESTABLISH MECHANISMS FOR ADDRESSING
S
PROBLEMATIC BEHAVIOUR
CSR commitments can be met successfully only if problematic be-

haviour related to CSR is found out early and mechanism is developed
IM
for addressing them. It involves detecting activities that are contrary
to the CSR principles and commitments. Auditing and monitoring can
only reveal that there are certain behaviours that must not be there.
However, it is important to have in place certain mechanisms and pro-
cesses that would allow detection, reporting and resolution of prob-
lematic activities. Organisations may make provisions such as deploy-
M
ing anonymous hotlines, email boxes and ombudspersons in order to

report CSR commitment breaches. Mechanisms for dealing with CSR
breaches must be devised only as a last resort. It must also be borne
in mind that provisions for anonymous reporting can be abused be-
cause it encourages disclosures that are made with malicious inten-
N
tions and in such cases the person making false claims can escape
accountability.
6.2.7 CREATE INTERNAL AND EXTERNAL

COMMUNICATION PLAN
Information regarding CSR commitments, activities and performance

reporting must be communicated visibly to all the employees using
means such as newsletters, annual reports, intranet, meetings, train-
ing and any other possible means. Apart from internal communica-
tion to employees, external stakeholders must also be addressed by
deploying an external communication plan.
6.2.8 MAKE COMMITMENTS PUBLIC
One way of gaining the trust of public with respect to organisation’s

commitments to CSR is to make the CSR commitments public. All
those CSR commitments that an organisation is most likely to achieve
must be made public whereas the CSR commitments that the organi-

n o t e s
sations are still working on or are not sure about their success must be
worked upon quietly without publicising it . Communication activities
may include launching awareness campaigns, advertising, speeches,
creating CSR reports, etc. Organisations may also put up their CSR
activities on their websites. Communication must be customised for
different stakeholders such as employees, investors, communities, etc.
1. An organisation can implement the CSR strategy using a

familiar model known as ______.
2. _______ are policies or mechanisms that an organisation
formulates to indicate what the organisation plans to do to
address its social and environmental impacts.
S
Activity
List the CSR commitments of a few multinational corporations.

IM
6.3 AREAS OF CSR IMPLEMENTATION
Different organisations may direct their CSR activities in a number
of areas such as organisational governance, human rights, labour re-
form, environment, fair operating practices, consumer welfare, com-
M
munity development, etc. However, every organisation needs to out-

line the scope of its social responsibility, identify issues of concern and
set its priorities with respect to the CSR goals.
Seven core areas of CSR implementation which interest most organi-

N
sations are shown in Figure 6.3:
Organisational
Community Governance
Involvement
and Human
Development Rights
Organisation Labour
Consumer
Practices
Issues
Fair
Environment
Operating
Practices
Figure 6.3: Seven Core Areas of CSR Implementation

n o t e s
Let’s now discuss these seven core areas of CSR implementation:

1. Organisational governance: This core area implies the way a
business makes and deploys strategic decisions. All decision-
making processes need to be structured in a way that CSR
principles are applicable.
2. Human rights: Businesses should provide support to human
rights when collaborating with stakeholders and implementing
their operations. If a business partner is known to be violating
human rights, it is a case of human rights infringement. As the
business owner, you should terminate relationships with such
partner.
3. Labour practices: The CSR activities of an organisation must
focus on providing training to employees to increase their
efficiency. The CSR practices should also focus on the features,
S
such as employee’s health and safety, salary, working hours,
etc. Overall the employee focused CSR activities must include
policies, which could improve the working conditions of
employees.
IM
4. Environment: Some environmental principles include taking
responsibility for environmental impacts as a result of business
activities, the precautionary approach, environmental risk
management and bearing the cost of pollution caused due to
your business activities.
M
5. Fair operating practices: This core area focuses on ethical

conduct practices. These include anti-corruption policies,
responsible political involvement, fair competition environment,
social responsibility promotion and respect for intellectual and
physical property.
N
6. Consumer issues: This core area focuses on the business

responsibility to minimise risks when using your products and
services. Your customers must be aware of how to use products
and services. The marketing information cannot be misleading or
unclear. You must not hide any information about your business
partners.
7. Community involvement and development: As a business, you
must acknowledge the importance of communities, which include
the places of your branches, home base, suppliers’ locations and
subsidiaries. You can contribute to the development of these
communities by creating more employment, promoting arts
and culture, diversifying your economic activities and investing
socially.
In each core area, main aspects covered by CSR approach include

the economic, health and safety and value addition to products and
services. Each core area deals with a range of dynamic issues related
to the evolution of social, environmental and economic concerns in
the world, which form the basis for social responsibility. In addition to

n o t e s
these, organisations also consider different ways in which the general

public gets affected through each core area of CSR implementation.
An organisation must identify and address all relevant issues related

to the core areas of CSR implementation. However, there is no fixed
order in which an organisation should address the core areas. The
order of priority will depend on the nature of the organisation and its
background. All the core areas of CSR implementation are interre-
lated and complementary; with the only exception of organisational
governance, which may be different for each organisation depending
on the particular context.
An organisation should have a holistic approach to address all core

areas, which means that all core issues and concerns must be consid-
ered keeping in mind their interdependence, rather than concentrat-
ing on one issue at a time. Organisations should be aware that efforts
S
to address one issue may involve a trade-off with other issues. A cer-
tain improvement in the direction of a specific issue should not create
hurdles in the way of achieving improvement in another issue, such
IM
as adversely impact the life cycle of an organisation’s products or ser-
vices, its stakeholders or the value chain. Some of the key advantages
of addressing the seven core areas and integrating social responsibili-
ty within its decisions and activities are as follows:
inspiring informed decision making based on an improved under-
standing of the expectations of society
M
improving the organisation’s risk management strategies

enhancing the reputation of the organisation
promoting innovation
improving the competitiveness of the organisation
N
improving the organisation’s relationship with its stakeholders

increasing employee retention and participation
improving employee safety and health
achieving greater productivity and resource efficiency
improving the fairness of trade, fair competition, and minimising
corruption
minimising consumer conflicts related with quality of products or
services
3. Every organisation needs to outline the scope of its social

responsibility, identify issues of concern and set its priorities
with respect to CSR goals. (True/False)
4. Organisational governance is one core area for CSR
implementation that is common for all organisations. (True/
False)

n o t e s
Activity
Give examples of CSR initiatives that are usually undertaken by

organisations and classify them based on seven core areas of CSR
implementation.
6.4 CSR AT MARKET PLACE

The marketplace in terms of CSR can be defined as the way in which
an organisation manages its relationship with its employees, custom-
ers, suppliers and business associates. The core part of any business
is to buy and sell products or services. Ensuring that this is done using
fair practices is the main criteria to build an organisation’s reputation
and long-term viability. Figure 6.4 shows the main elements that cre-
S
ate the marketplace of an organisation:IM
Product
Quality and
Information
M
Sustainable
Marketplace Customer
Supply
Relations
Chains
N
Fair
Operating
Practices
Figure 6.4: Main Elements of a Marketplace
The main elements of marketplace are as follows:

Product quality and information: Product quality and CSR prac-
tices are two different but critical activities that are co-dependent
and interconnected with each other and help organisations in
attaining growth. As the ecological issues like water contamina-
tion, pollution, and other concerns are evolving, products should
be manufactured by using techniques that could be reduction in
wastage and prevention of harmful product-liability.
Customer relations: CSR related activities have a positive impact
on customer satisfaction level. This includes a framework for map-

n o t e s
ping out what organisations should seek for achieving successful

customer relation in terms of impacts of products and services.
Some of the related principles are respecting your customers, sup-
porting vulnerable customers, seeking potential customers, dis-
couraging product misuse, etc.
Fair operating practices: These practices deal with the ethical
conduct in an organisation’s dealings with other organisations.
Some of the topics include fair competition, anti-corruption, sus-
tainable procurement, responsible political environment and
property rights.
Sustainable supply chains: Some of the related practices to build
an ethical supply chain include ensuring that supplies are com-
pletely traceable back to their origin and assessing sustainability
risks of raw materials. These also include ensuring that materials
S
like paper, wood and palm oil are sourced responsibly.
Any issue related to CSR implementation that does not take into ac-
count the industry level realities, particularly of an economic nature;
IM
will usually fail to create the desired social impact. Therefore, some
sort of platform is needed by organisations to become aware of the
economic and social circumstances that need most attention in order
to develop and implement and effective CSR approach. This is where
CSR marketplace finds relevance. CSR marketplace is a platform for
organisations to engage and interact with one another, further im-
M
proving the relationship. It acts as a medium for stakeholders and

beneficiaries to gain insights into the areas of the social sector that
would deliver a larger social impact. It is a platform where business
practitioners present their organisation’s solutions to CSR challeng-
es and share experience with other participating organisations. This
N
helps CSR managers of different organisations to identify best prac-

tices suited to deal with different CSR issues.
6.4.1 BENEFITS OF MARKETPLACE CSR
Marketplace CSR offers organisations the opportunity for knowl-

edge sharing, expertise building and networking to identify ways of
strengthening partnership and undertaking sustainable CSR proj-
ects. The main advantages of marketplace CSR are as follows:
Bringing together organisations to share best practice on CSR
Innovating new ideas of conducting business
Devising new ways to strengthen relationships with stakeholders
Connecting with CSR representatives on a global level to find solu-
tions to different CSR issues
Determining the modern day business and political agenda on sus-
tainability and competitiveness

n o t e s
6.4.2 DESIGNING MARKET PLACE CSR ACTIVITIES
The main bases of designing marketplace CSR activities for an organ-

isation are the issues that are relevant to stakeholders. The main CSR
related marketplace activities are shown in Figure 6.5:
Responsible Customer Relations
Product Responsibility
CSR Product Labelling
Ethical Competition
S
Making Markets Favourable for All
Figure 6.5: Categories of CSR Marketplace Activities

IM
Let us discuss these in detail:
Responsible customer relations: These activities are related to
consumer rights, customer relationships, responsible marketing
and promotion, customer feedback, etc. Some of the main activi-
ties that go on in this class of CSR marketplace include:
M
Avoiding misleading marketing and advertising

Providing clear product information
Avoiding offensive advertising
N
Listening and responding to customer feedback and com-

plaints
Product responsibility: This refers to the effect that goods and
services have on customers. Whether the goods and services an
organisation delivers benefit the society and adds value or con-
versely it is potentially harmful for the environment and hence,
its people. Product responsibility is directly related to ‘Environ-
mental Product Responsibility’. Some of main activities under this
class include:
Ensuring product safety
Addressing potential misuse of products
Protecting vulnerable customers
Design, develop, produce and dispose ecologically safe prod-
ucts and services
Incorporating CSR impacts in product innovation

n o t e s
CSR product labelling: This helps organisations in marketing

specific social or environmental attributes of their products and
services. There are various formats of product labelling which of-
ten overlap with one another. Product labelling involves the inte-
gration of organisation and their suppliers to ensure the standards
live up to the benchmarks of the product label. Some activities in
this class include:
Marketing environmentally friendly products
Marketing organic food products
Marketing products respecting human and labour rights
Marketing fair trade products
Ethical competition: This class includes the use of fair trade prac-
S
tices, healthy competition and ethical business operations by an
organisation to interact with its peers, competitors and customers.
Some activities in this class include:
IM
Avoiding anti-competitive behaviour
Confirming to fair practices
Ensuring reasonable prices
Avoiding aggressive selling practices
Making markets favourable for all: This area of CSR marketplace
M
relates to broader issues of involving the poor or excluded sectors

of the world, both in the developed and the developing economies.
Some of the activities in this class include:
Ensuring accessibility to goods and services for less fortunate
N
Involving in “Base of the Pyramid” activities intended for the

billions of the world’s poorest people
5. _________ acts as a medium for stakeholders and beneficiaries

to gain insights into the areas of the social sector that would
deliver a larger social impact.
6. Which of these in NOT covered under CSR at marketplace?
a. Product quality and information
b. Employee relationships
c. Fair operating practices
d. Sustainable supply chains

n o t e s
Activity
List down initiatives taken by Indian organisations under their

CSR marketplace.
6.5 CSR AT WORKPLACE

As organisations are looking out to hire and retain a diverse work-
force, the same is exposed to a range of employee needs, values and
yearnings. For example, many modern day employees desire for per-
sonal fulfilment from the ability to make a positive impact on the
society. Human resource professionals need to consider how the or-
ganisation’s CSR strategies can be linked with the core values of the
employees that they wish to engage.
S
CSR at workplace is all about working towards fair treatment of em-
ployees in order to attract and retain the desired talent force. It seeks
to place an organisation as a compassionate employer, including peo-
IM
ple who are disadvantaged. It works on the ideology to provide a fair
chance to everyone and encourage and involve employees to maxi-
mise their potential.
6.5.1 BENEFITS OF CSR AT WORKPLACE

M
Some of the advantages of CSR at workplace are as follows:

CSR at workplace promotes higher-quality and closer relation-
ships between employees.
CSR at workplace enhances employee association with the organ-
N
isation.
CSR at workplace improves employee retention and their commit-
ment towards the organisation.
CSR at workplace makes organisations look more attractive to ap-
plicants and prospective employees.
CSR at workplace encourages better employee engagement and
performance
CSR at workplace increases employee creativity
6.5.2 DESIGNING WORKPLACE CSR ACTIVITIES
The main basis of designing workplace CSR activities for an organ-

isation are the issues that are relevant to employees. The main CSR
related workplace activities are shown in Figure 6.6:

n o t e s
Employee Communication and Representation
Ensuring Employability and Skills Development
Diversity and Equality
Fair Remuneration
Work Life Balance
Health, Safety and Wellbeing of Employees
Responsible Restructuring
S
Figure 6.6: CSR Related Workplace Activities

IM
Employee communication and representation: Involving the em-
ployees in deciding the business strategy and activities is an im-
portant aspect of how an organisation operates. Activities in this
class include:
Recognising employee to trade unions, labour parties, etc.
M
Involving employees in decision making

Ensuring grievance resolution
Encouraging whistle blowing
N
Opposing harassment and bullying

Respecting employee privacy
Ensuring employability and skills development: Employee train-
ing and development help them to build their skills and knowledge
for the success of the business in future and ensuring the retention
of the employees. Some activities in this class include:
Providing training and development opportunities
Planning the employees’ career
Encouraging knowledge management and organisational
learning
Carrying out periodical job appraisals
Diversity and equality: Diversity and equality activities focus on
ensuring equal (employment) opportunities for all and promoting
diversity among the workforce. The usually targeted groups in-
clude women, disadvantaged or minority groups such as people

n o t e s
from diverse ethnic backgrounds, sexual orientation, age, religion,

etc. Some activities in this class include:
Encouraging a diverse workforce
Promoting non-discrimination among employees
Extending equal employment opportunities to all
Supporting the career development for the less fortunate
Fair remuneration: This involves fairness in the payment of bene-
fits and compensation that employees receive. Some of the factors
that increase pose challenges to fair remuneration are increased
employee mobility, employee switching jobs frequently, employees
crossing international boundaries, nature of job (temporary, con-
tract, permanent), out-sourcing of business operations, etc. Some
activities in this class include:
S
Paying employees fairly
Ensuring equal benefits
IM
Following the minimum wage laws
Work life balance: This activity involves the promotion of work
life balance among employees. It helps employees in meeting their
work responsibilities without affecting their personal lives. Some
activities in this class include:
M
Addressing employee work life balance

Allowing flexibility at workplaces
Offering stress management
Health, safety and well-being of employees: Most organisations
N
have legal responsibilities towards the occupational health and

safety of their employees. However, some organisations may go a
step ahead and widen its initiatives towards employee well-being.
Promoting the health and safety of employees
Enabling child care, elderly care for employees
Providing employee health support programmes
Dealing with HIV/AIDS in the workplace
Responsible restructuring: This relates to the way in which an
organisation responds when restructuring the business, a specific
process which involves employee terminations. Some activities in
this class include:
Consulting employees during restructuring
Promoting job-sharing
Promoting voluntary layings-off

n o t e s
Using planned restructuring

Providing support for redundant employees
7. _______ works on the ideology to provide a fair chance to

everyone and encourage and involve employees to maximise
their potential.
8. Involving the employees in deciding the business strategy
and activities is an important aspect of how an organisation
operates is part of Workplace CSR. (True/False)
Activity
S
Workplace CSR.
IM
6.6 ENVIRONMENTAL CSR
The need to protect our environment and conserve resources has been
one of the major goals of organisational CSR activities. To promote a
green and clean environment, organisations actively implement the
CSR strategy that is focused on taking preventive measures to reduce
the environmental impact of business activities. For example, con-
M
servation of natural resources, pollution control, etc. are examples of

CSR for environment. Environmental CSR is aimed towards minimis-
ing the damaging effects caused to the environment from an organi-
sation’s business activities. Environment CSR activities may focus on
N
the following areas:

Energy utilisation
Water utilisation
Waste management
Recycling
Emissions from manufacturing activities

Eco-friendly workplace
6.6.1 BENEFITS OF ENVIRONMENTAL CSR
Environment CSR has several advantages such as minimising the

business risk, improving organisation’s reputation and providing op-
portunities for cost reduction. Even the simplest initiatives taken to
save energy can generate savings and make a significant impact for an
organisation. Some of the benefits of environment CSR are as follows:
CSR for environment can increase revenue as most people prefer
to purchase from environmentally responsible organisations.

n o t e s
It improves an organisation’s reputation among the stakeholders.

CSR for environment helps in conserving natural resources by fo-
cusing on the use of alternate sources of energy.
CSR for environment helps in implementing the concept of green
productivity and taking preventive measures for environmental
impacts caused by an organisation.
6.6.2 DESIGNING ENVIRONMENTAL CSR
Sustainable CSR practices for environment involve integrating the

specific environmental issues into CSR strategy, risk management
and compliance control system of any organisation. The main CSR
related environmental activities are shown in Figure 6.7:
S
Resource and Energy Use
IM
Pollution and Waste Management
Environmental Product Responsibility
Transport Planning
M
Figure 6.7: CSR Environment Activities

N
Resource and energy use: Organisations choose raw material that

is ecologically viable and depend on energy sources that are re-
newable. The organisation’s dependence on energy and material
sources reflect its concern with operational, cost and reputation
implications. Some activities in this class include:
Running environment awareness programs
Using ‘green’ technologies
Improving energy efficiency
Purchasing ‘green’ materials
Using locally generated renewable energy
Considering land use and biodiversity
Pollution and waste management: Industrial emissions to air and
water pose a great challenge for organisations and their proper
treatment and disposal is crucial to their long-term sustainability.
Treatment and disposal of hazardous waste is most crucial as it

n o t e s
poses serious health hazards to living organisms and the ecologi-

cal stability. Some activities in this class include:
Treating emissions
Re-engineering processes
Reusing and recycling
Managing localised environmental pollution
Environmental product responsibility: This relates to the or-
ganisation’s demonstration of a responsible attitude towards the
environment more holistically without restricting itself to the or-
ganisation’s operations alone. Organisations must consider both
upstream impacts (such as working with suppliers), and down-
stream (like use and disposal of products). Some activities in this
class include:
S
Managing the supply chain
Assessing impacts in product life-cycle
IM
Certifying and labelling products
Reducing packaging to reduce consumer waste
Using product take-back schemes
Transport planning: With globalisation, the impact from trans-
portation has increased with the greater movement of products
M
and people. An organisation needs to focus on the consequences

of employee travel and the distribution of goods. Some activities in
this class include:
Reducing transport of goods
N
Reducing employee travel

Adopting work-from-home to reduce employee travel
Using the web and teleconferencing for communication
9. CSR for community development is aimed towards minimising

the damaging effects caused to the environment from an
organisation’s business activities. (True/False)
10. _______ helps in conserving natural resources by focusing on
the use of alternate sources of energy.
Activity

CSR for Environment approach.

n o t e s
6.7 CSR WITH COMMUNITIES

Community refers to a homogenous group of people having a common
objective, who are interdependent for the fulfilment of their needs and
interact with each other on a regular basis. Community development
(CD) include the initiatives undertaken by community in association
with organisations to empower people by increasing their skill set re-
quired to effect change in their own communities.
CSR for community development in organisations is achieving greater

sustainability in their efforts which have resulted in noticeable growth
and progress in communities. This has become possible due to the
partnership of corporations and the development sector, such as the
NGOs. From the last five decades, CSR for communities in western
countries has worked in several dimensions including legal, ethical
S
as well as discretionary. However, in India, it is only recently that
dedicated CSR departments have been established to design effective
community oriented projects to bring some reforms in communities.
IM
Community activities are related to promoting the health and wellbe-
ing of the communities in which an organisation operates. Communi-
ty activities are also associated with other parts of the organisation’s
activities such as CSR activities for other concerns.
6.7.1 TYPES OF INTERVENTIONS
M
CSR interventions for community are based on the needs, priorities

and values of various individuals (not directly associated the given or-
ganisation) and other external organisations in a community. These
when incorporated into corporate decision making and CSR activities
N
bring about desired change in the communities. CSR interventions

for community by enterprises are usually undertaken through their
Corporate Community Investment (CCI). CCI refers to organisations’
realisation of their responsibility towards their local areas and society,
both. A socially responsible organisation is one which uses its resourc-
es to shape the lives of the fellow people. The main CSR related com-
munity interventions under CCI are shown in Figure 6.8:
Types of Community Support (CCI)
Giving Cash (CCI)
Giving Employee Time (CCI)
Giving Gifts (CCI)
Being a Good Neighbour
Figure 6.8: CSR Interventions for Community Development

n o t e s

Types of community support (CCI): CCI supports a wide range of
community causes such as public schools, environmental groups,
health and sanitation, cultural organisations, leisure and sports
clubs and other community organisations. Some activities in this
class include:
Supporting donations and charity
Partnering for social investment
Promoting commercial initiatives of the organisation
Giving cash (CCI): The cash donations are mainly to support a
charity or commercial activity carried in partnership with an or-
ganisation making social investments. Some activities in this class
include:
S
Donating money
Sponsoring a commercial initiative such as events, arts or
IM sports, etc.
Providing loans at low interest rates for community initiatives
Giving employee time (CCI): Giving time to employee to support
community initiatives is an integral part of partnering with char-
ities or local organisations working to resolve community issues.
M
Supporting employee volunteering

Encouraging part-time work assignments
Allowing provisions of employee time for community activities
N
Giving gifts (CCI): Organisations support community initiatives

by offering a number of gifts in kind. These gifts are usually meant
for charity, but may often include commercial initiatives or part-
nerships for social investment. Some activities in this class include:
Providing facilities
Offering loan facilities and assets
Giving assets
Being a good neighbour: Community activities involve some oth-
er activities than those undertaken by CCI. Some of these relate to
being a good neighbour or a good corporate citizen. Some activi-
ties in this class include:
Liaising with local communities
Encouraging social cohesion in the community
Reducing adverse effects of local operations

n o t e s
BENEFITS OF COMMUNITY INTERVENTIONS
CSR with communities has significant effect on the community re-

sulting in several direct and indirect benefits. The main advantages
received by the community through CSR activities as a result of social
commitment of organisations towards community development are as
follows:
CSR with communities help in building closer ties between organ-
isations and community.
CSR with communities enhances an organisation’s reputation
among people helping it source the best talent.
CSR with communities helps in the transfer of technology making
the less fortunate benefit from latest developments in the field of
product development and marketing.
S
CSR with communities helps in the conservation of environment
and natural resources by changing the attitude of the people to-
wards the environment.
IM
CSR with communities help the nation in its effort to alleviate pov-
erty and, hence, in developing communities.
CSR for communities ensure that advancements in markets, com-
merce, technology and finance benefit economies and societies ev-
erywhere.
M
STEPS TO DESIGN CSR INTERVENTION
The most important aspect in developing a CSR intervention for com-

munity is to be well versed with the issues that people in that commu-
N
nity face. CSR interventions based on this criterion will not only result
in community reforms but also find dedicated participation from the
community members. The steps to design a CSR intervention with
community are shown in Figure 6.9:
Assessing the Local Context
Involving Communities
Identifying Key Stakeholders
Setting Operational Parameters
Implementing the Project
Figure 6.9: Steps to Develop a Community CSR Intervention

n o t e s

1. Assessing the local context: This step involves getting a clear
understanding of the characteristics and difficulties of the local
community and use the data for strategic planning of community
intervention.
2. Involving communities: This step involves supporting the
process of community-driven planning so as to encourage the
people to define their own goals, identify opportunities and
resources and their utilisation, and prioritising of societal
concerns.
3. Identifying key stakeholders: This step involves categorising
individuals, groups, and other establishments that could affect
or be affected by the community interventions. This includes
finding information about individuals and local organisations in
S
order to understand their behaviours, goals, relationships and
areas of interests.
4. Setting operational parameters: This step involves defining
IM
the scope and objective of any community intervention/project
in line with the activities that the concerned organisation will
support.
5. Implementing the project: This step involves finding the
possible ways to deliver a community intervention taking into
account the various factors that affect the implementation of
M
a project such as community objectives, people engagement,

project timeframe, budget and local operating conditions.
6. Measuring and communicating performance: The last but most
important step following the implementation is to monitor and
N
evaluate the outcome of the project and use the information in

future planning. It is also crucial to communicate these findings
to all stakeholders including the community, the organisation
and other partners.
11. _________ include the initiatives undertaken by community

in association with organisations to empower people by
increasing their skill set required to effect change in their own
communities.

12. ________ refers to organisations’ realisation of their
responsibility towards their local areas and society, both.
Activity
List down the initiatives taken by Tata Group of Companies under

their CSR for Community Reforms.

n o t e s
6.8 CSR IN SUPPLY CHAIN

Suppliers are one of the most important stakeholders for any organi-
sation as they are crucial to business operations. The social and envi-
ronmental performance of suppliers is reflected in an organisation’s
end product. Therefore, it is important that organisations associate
with their suppliers to encourage good practices throughout the en-
tire supply chain. The main CSR related Supply chain activities are
shown in Figure 6.10:
Being a Fair Customer
Driving Standards
S
Promoting Social and Economic Inclusion
IM
Figure 6.10: CSR Activities in Supply Chain

Being a fair customer: By having a clear understanding with sup-
pliers, an organisation may strengthen its supplier relationships
which would lead to a strong collaboration to address issues in
M
supply chain and find suitable solutions. This can be achieved by

acting as a fair customer to these suppliers, making timely pay-
ments and treating them with respect. Some activities in this class
include:
N
Listening to and working with suppliers

Approving honest and fair trade with suppliers
Ensuring fair pricing
Driving standards: An organisation needs to take the responsi-
bility for its suppliers’ social and environmental impact. Organi-
sations must collaborate with suppliers to implement acceptable
standards of social and environmental performance across supply
chain activities. Some activities in this class include:
Examining the suppliers goods for compliance with social and
environmental standards
Monitoring social and environmental performance of suppliers
Integrating CSR standards throughout the supply chain

Promoting fair trade
Setting targets for suppliers
Devising policies against child and forced labour

n o t e s
Promoting social and economic inclusion: Organisations need to

promote social unity through their supply chain operations. The
financial status of the deprived urban and rural areas can be in-
creased considerably by proper business operations. Some activi-
ties in this class include:
Giving access for suppliers of minority groups
Offering access to small and local suppliers
Encouraging a sustainable local economy
Some of the benefits of CSR in supply chain are listed below:

Improving collaboration with suppliers
Saving cost and increasing supply chain efficiencies
Improving management quality
S
Ensuring compliance with the requirements and expectations of
customers
IM
Managing risks
Reducing risk of negative PR
Retaining old employees and gaining new ones
Offering security for creditors and investors
Providing new market opportunities
M
13. Monitoring social and environmental performance of suppliers

is CSR related Supply chain activity. (True/False)
N
Activity
Give examples of CSR initiatives taken in India for the develop-

ment of the communities in which organisations carry out their
business operations.
6.9 SUMMARY
Organisations develop their CSR strategies in line with its mission,
vision, culture, environment, risk profile and operating conditions.
CSR commitments are policies or mechanisms that an organisa-
tion formulates to indicate what the organisation plans to do to
address its social and environmental impacts.
The purpose of forming CSR commitments for any firm is to have
a medium to communicate the nature and direction of the organi-
sation’s social and environmental activities.

n o t e s
Different organisations may direct their CSR activities in a num-

ber of areas such as organisational governance, human rights, la-
bour reform, environment, fair operating practices, consumer wel-
fare, community development, etc.
The marketplace in terms of CSR can be defined as the way in
which an organisation manages its relationship with its employ-
ees, customers, suppliers and business associates.
CSR at workplace is all about working towards fair treatment of
employees in order to attract and retain the desired talent force.
Environmental CSR is aimed towards minimising the damaging
effects caused to the environment from an organisation’s business
activities.
Community refers to a homogenous group of people having a com-
S
mon objective, who are interdependent for the fulfilment of their
needs and interact with each other on a regular basis.
CSR for community development in organisations is achieving
IM
greater sustainability in their efforts which have resulted in no-
ticeable growth and progress in communities.
Itis important that organisations associate with their suppliers to
encourage good practices throughout the entire supply chain.
key words
M
Base of the Pyramid: A socio-economic concept that categoris-

es about four billion of the world’s poorest citizens that consti-
tute an invisible and unserved market facing barriers that stop
them from realising their human potential.
N
Offensive advertising: A type of advertising that, through the

use of product or manner of execution, can provoke feelings of
embarrassment, distaste, disgust, offence, or outrage from some
segments of the viewers.
Organisational governance: The system of rules, practices and
processes followed by an organisation to direct and control its
operations.
Training needs analysis: A learning and development tool
meant to analyse the skill gaps at the organisational level, both
group and the individual levels.
Whistle-blowing: The act of informing the authorities or the
public that the organisation an individual is working for is fol-
lowing unethical or illegal practices.

1. Discuss the areas of CSR implementation.

n o t e s
2. What is the significance of CSR at marketplace?3. CSR is an

indispensible part of workplace. Explain.
4. Describe the importance of environmental CSR.
5. Explain the importance of CSR with communities.
Topic Q. No. Answer

Implementing Corporate Social 1. Plan, Do, Act, Check
Responsibility and the Related
Commitments
2. CSR commitments
S
Areas of CSR Implementation 3. True
4. False
CSR at Marketplace 5. Marketplace CSR
IM
6. b. Employee relationships
CSR at Workplace 7. Workplace CSR
8. True
Environmental CSR 9. False
10. CSR for environment
M
CSR with Communities 11. Community Development

12. Corporate Community In-
vestment (CCI)
CSR in Supply Chain 13. True
N

1. Different organisations may direct their CSR activities in a
number of areas such as organisational governance, human
rights, labour reform, environment, fair operating practices,
consumer welfare, community development, etc. Refer to Section
6.3 Areas of CSR Implementation.
2. The Marketplace in terms of CSR can be defined as the way
in which an organisation manages its relationship with its
employees, customers, suppliers and business associates. Refer
to Section 6.4 CSR at Marketplace.
3. CSR at workplace is all about working towards fair treatment of
employees in order to attract and retain the desired talent force.
Refer to Section 6.5 CSR at Workplace.
4. Environmental CSR is aimed towards minimising the damaging
effects caused to the environment from an organisation’s business
activities. Refer to Section 6.6 Environmental CSR.

n o t e s
5. CSR for community development in organisations is achieving

greater sustainability in their efforts which have resulted in
noticeable growth and progress in communities. Refer to Section
6.7 CSR with Communities.
SUGGESTED READINGS
ing.
S
cis.
E-REFERENCES
IM
Corporate Social Responsibility Focus Areas - CSR & Sustainabil-
ity in India | Cairn India Limited | Oil and Gas Exploration Com-
panies – Oil and Gas Production Company In India | Cairn India
Limited. (2018). Cairnindia.com. Retrieved 18 April 2018, from
https://www.cairnindia.com/sustainability/community/focus-areas
M
Catalogue of CSR Activities: A broad overview (2018). Retrieved 27

April 2018, from http://tools.ashridge.org.uk/Website
Corporate social responsibility: environmental impact. (2018). ni-
businessinfo.co.uk. Retrieved 27 April 2018, from https://www.
N
nibusinessinfo.co.uk/content/corporate-social-responsibility-envi-
ronmental-impact
CSR: Role in Community Development. (2018). SKH. Retrieved
27 April 2018, from https://www.socialworkfootprints.org/articles/
csr-role-in-community-development
Handbook on Corporate Social Responsibility in India. (2013) (pp.
27-28). Gurgaon. Retrieved from https://www.pwc.in/assets/pdfs/
publications/2013/handbook-on-corporate-social-responsibili-
ty-in-india.pdf

N
M
IM
S
C h a
7 p t e r
NON-GOVERNMENTAL ORGANISATIONS
CONTENTS
S
7.1 Introduction
7.2 Introduction to Non-Governmental Organisation (NGO)
IM
7.2.1 Benefits of NGO to the Society
7.2.2 How to Start an NGO
7.2.3 NGO versus CSR Foundation of Corporates
Activity
7.3 Strategic Partnerships
M
7.3.1 Reasons for Corporate NGO Partnership

7.3.2 Factors Affecting Convergence of Interests Between Ngos and
Corporates
7.3.3 Criteria for Selecting an NGO Partner
N
7.3.4 NGO Strategies to Influence CSR

Activity
7.4 Summary

n o t e s
CORPORATE NGO PARTNERSHIP: IKEA AND SAVE

THE CHILDREN
IKEA is a privately held Swedish based multinational group that

designs and sells ready-to-assemble furniture, kitchen applianc-
es, and home accessories. It is one of the world’s largest furniture
retailers and its founder, Ingvar Kamprad is one of the ten rich-
est people in the world. IKEA owns and operates 411 stores in 49
countries and has sold goods worth of 36.4 billion Euros in the
year 2016. IKEA has the vision of “creating a better everyday life
for many people” and its products are designed with this vision.
IKEA being one of the major consumers of natural wood has a re-
sponsibility towards maintaining a sustainable growth focused on
reducing carbon emissions across the value chain from raw ma-
S
terial production to product end of life. In this regard, the compa-
ny has developed several sustainability growth initiatives. Apart
from this, IKEA is also partnering with NGOs worldwide towards
IM
corporate social responsibility initiatives. These initiatives are
carried out by the philanthropic arm of IKEA, IKEA Foundation,
a Dutch-registered charity. In India, IKEA Foundation has part-
nered with “Save the Children”, a global non-profit organisation
founded in 1919.
Save the Children is India’s leading independent child rights

M
NGO that has touched lives of more than 9 billion children in In-
dia. It has programmes running in the remotest corners of India
and in urban areas with the objective of providing children with
quality education, health care, protection from harm and abuse,
N
and life-saving aid during emergencies.
(Source: www.pinterest.com)
“Save the Children” organisation and IKEA foundation work to-

gether in India towards protecting children’s rights for secure
childhood with access to quality education. The shared values
of the two entities have created the foundation for a long-term
strategic partnership. The children’s child rights programmes

NON-GOVERNMENTAL ORGANISATIONS 193
n o t e s
in India and Pakistan of Save the Children have been funded by

IKEA foundation. The program has the objective of improving
the lives of children from hazardous forms of child labour, abuse,
violence, exploitation and neglect. There is a close relationship
and interaction between the two partners and IKEA foundation
guarantees a decision within 24 hours after receiving a funding
application from “Save the Children” in case of emergent funding
requirements like disasters and conflicts. IKEA foundation helps
“Save the Children” in expanding the humanitarian operations
programme into French-speaking countries, and in developing
training programmes for education and child protection.
As part of child care programmes, IKEA Foundation and “Save

the Children” created a 7 million Euro programmes to protect 8
S
lakh children living in cotton communities in the states of Punjab,
Haryana, and Rajasthan. It has got thousands of farmers pledge
to make their farms child-labour free.
IM
Another successful program was during 2012 Assam floods. With
support from IKEA foundation, “Save the Children” provided
children access to Nutrition Rehabilitation Centre facilities based
on a malnutrition screening program. The children were moni-
tored and provided with nutritional care and support. Pregnant
and lactating mothers were taught healthy recipes for avoiding
M
malnutrition. In order to fight against threats of contamination

during the floods, children and families were engaged in aware-
ness drives on health and hygiene.
As part of this successful partnership, IKEA Foundation has

N
agreed to donate one unit to UNICEF and “Save the Children” for
every SUNNAN solar power lamp unit bought by IKEA custom-
ers. This would help children to read, write and study after dusk.
The case of IKEA and “Save the Children” illustrates a success-

ful partnership between an NGO and a corporate that is keen on
Corporate Social Responsibility initiatives. The role of NGOs in
CSR initiatives has increasingly been recognised as an import-
ant role as shown by this caselet. It showcases a new CSR model
where corporations can play a more effective role in the areas of
corporate social responsibility, which are outside their core busi-
ness operations, by getting into mutually beneficial relationships
with NGOs who have a common vision and shared values in those
areas.
(Source: “Role of NGO in Corporate Social Responsibility Activities”, Save the Children,
https://www.savethechildren.in/role-of-ngo-in-corporate-social-responsibility-act)

n o t e s
learning objectives

>> Explain the concept and role of a Non-Governmental Organ-
isation (NGO)
>> List the major benefits of NGO to society
>> Explain the role of NGO with respect to Corporate Social
Responsibility initiatives of companies
>> Describe the criteria for selecting an NGO partner
>> Discuss about NGO strategies for influencing CSR
7.1 INTRODUCTION
S
In the previous chapter, we studied about how to implement Corpo-
rate Social Responsibility (CSR) strategies. CSR strategies are unlike
the corporate strategies as they pertain to social areas, and they re-
IM
quire valuable management effort & time to be spent outside the core
competency areas of the corporate. However, an effective implemen-
tation of the CSR initiative requires as much planning and manage-
ment efforts as the corporate might spend on its core business areas.
In this respect, NGOs play a similar and essential role in the society.
In fact, even before the emergence of the concept of CSR and their
M
widespread adoption, a group of NGOs has always been fighting for

corporate governance and business ethics in the past several decades.
However, this does not mean that NGO’s role should always have to
be one of whistle-blowing with respect to business practices of corpo-
rates. With the emergence of CSR concept, the corporates have start-
N
ed to adopt a voluntary focus on social causes that have always been

the domain of NGOs in the past. This has led to the possibility of a
cross-sector partnership between corporates and NGOs. Will it not be
great if the corporate can identify an external partner who has the
same shared values and objectives with respect to social causes, and
with whom it can partner towards implementing its CSR strategy?
The introductory caselet illustrates how the CSR initiatives of cor-

porations can be facilitated into a more successful and effective so-
cial development intervention through partnerships with NGOs. The
caselet talked about IKEA which is one of the leading MNC that has
adopted a very broad and visionary sustainable growth initiative. In
its report titled “Sustainability Strategy for 2020”, IKEA explains its
sustainable strategy of “People & Planet Positive” which is an ambi-
tious and far-reaching vision that covers all aspects of its business and
value chain. In the report, as part of its various strategic drivers, IKEA
lists NGO partnership as an important driver. It considers building
collaboration with NGOs an important strategic driver towards con-
tributing to change in society and achieving sustainable growth.

n o t e s
In this chapter, we shall study about the concept of NGOs and the role
they play in the CSR initiatives of corporations.
INTRODUCTION TO NON-
7.2
GOVERNMENTAL ORGANISATION (NGO)
The non-governmental organisations (NGOs) are not-for-profit organ-
isations that are different from the entities of both government and
business sector. The term “NGO” was first used by United Nations
(UN). During the World War II, there were several private organisa-
tions who involved themselves in healing the ravages of the war effects.
These were called NGOs by UN. However, such organisations existed
even before, with the first well known NGO being the Anti-Slavery
International (ASI) that was established in 1839, which fought against
slavery. At present, it is estimated that there are millions of NGOs op-
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erating in different countries. Some of these are large multination-
al organisations (around 40,000 of them having international opera-
tions), while others are small, village-based groups.
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The NGOs have the objective of promoting public interest and serving
the public well rather than having a profit motive or serving any nar-
row group of individuals. They function independently of the govern-
ment, political parties and religious institutions.
The NGOs are different from government and business sector entities
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in the following respects:

NGOs are organisations that focus on social and economic causes
and issues. The corporates entities are primarily driven by prof-
it motives. Though the objectives of NGOs are related to that of
government entities since their primary concern is also social and
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economic growth, NGOs are voluntary and unregulated organisa-

tions that function on donor funds. In this respect, NGOs can sup-
port the government in furthering the development of solutions to
social problems. Similarly, they can help corporate entities in their
CSR initiatives.
NGOs are not-for-profit organisations that run on funds raised from
various external organisations and they do not invest their funds
in generating revenue and profit. They do not need to achieve or
distribute profits to stakeholders. In contrast, corporate entities
have the primary objective of maximising shareholder wealth.
NGOs are formally organised private entities, self-governing and
voluntary in nature. Corporates can be public or private limited
institutions governed by company’s law and are owned and fund-
ed by equity shareholders. While corporates are operated entirely
by full-time employees, volunteers play a major role in activities of
NGOs that can range from participation in gross-root field activi-
ties to act as a voluntary board of directors.

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An NGO is not owned by any individual or group of people, and is

meant to serve the public well, and must have a group of people
who serve as the stewards of that public trust. They can be regis-
tered as a trust, non-profit organisations or charities and are not
governed by the usual company laws.
7.2.1 Benefits of NGO to the Society
The NGOs exist with the mission of making people’s lives better or for
solving a social problem. The NGOs can be of different types and all
these following terms refer to NGOs only: Civil Society Organisations
(CSOs), Non-profit organisations, Charities, Community based organ-
isations and voluntary organisations.
Some of the important and major social causes and issues served by
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NGOs are listed below:
Human rights: Human rights NGOs work towards upholding hu-
man rights through identification of human rights violations, gath-
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ering incident data, publishing the information and promoting
public awareness. Some examples are:
Vigil India Movement is a ‘grass-roots level’ NGO based in Ban-
galore that has committed itself to protection and promotion of
human rights in India. It views itself as a people’s movement
and has a mission of supporting the development of a truly
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democratic, secular and just society that values human rights.

Bachpan Bacho Andolan (BBA) is one of India’s largest grass-
roots movements that have dedicated itself to the protection of
children and ensures their quality education. Since 2014, BBA
has rescued more than 83,500 victims of trafficking, slavery and
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child labour, and has helped them re-establish trust in the soci-
ety towards promising futures.
Poverty: There are several NGOs that fight for the cause of allevi-
ation of poverty in society. CARE India is an example of an NGO
that focuses on alleviation of poverty and social exclusion. CARE
has well planned and comprehensive programmes in health, edu-
cation, livelihoods and disaster preparedness and response. It has
an overall goal of empowerment of women and girls from poor and
marginalised communities leading to improvement in their lives
and livelihoods. It is part of the CARE international federation.
Education and health: Smile Foundation is an excellent example
of an Indian NGO that has a mission of empowering underpriv-
ileged children, youth and women by imparting relevant educa-
tion, innovative healthcare aids and market focused livelihood
programmes.
Childcare: The introductory caselet discussed about ‘Save the
Children’ organisation, an independent leading child rights NGO.

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Working in 18 states of India, it has reached out to more than 22.7

lakh children ever since it started its operations in 2008. It believes
that every child deserves the best chance for a bright future and
runs programmes towards providing quality education, protection
from child abuse and health care.
Women empowerment: SNEHA is an example of a non-profit or-
ganisation that works with women, children and public health and
safety systems. It has innovative programs catering to urban infor-
mal settlements that aim to reduce maternal and neonatal mortal-
ity and morbidity, child malnutrition, and gender-based violence.
Youth development: Yuva Parivartan is one of the largest NGOs
providing livelihoods to underprivileged youth. It addresses the
problem of school drop-outs by focusing on alleviating both eco-
nomic and social poverty. It has developed a solution model that
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has identified four areas viz., community engagement, industry
partnership, livelihood training and livelihood support.
Environment: Greenpeace India is an NGO that fights for a green-
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er environment. It campaigns to protect India’s forests, for clean
air and water, to promote renewable energy especially solar power,
to prevent dangerous impacts of climate change and nuclear pow-
er, for safe food and ecological farming, and to protect freedom
of speech. It does accept donations from governments or corpora-
tions but relies on donations from citizens.
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You might have noticed that the above causes are also concerns for
government bodies that are being addressed by several government
policies, departments, and agencies. The unique role of NGOs in solv-
ing the above social problems lies in their comparative advantage over
government agencies in the following respects:
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They can reach out to the poor in remote areas where government
reach does not exist or is ineffective.
NGOs can operate at a lower cost due to the voluntary nature of
their activities and lower technological overheads.
NGOs can promote local participation by working with communi-
ty groups as partners, emphasising self-help initiatives and local
control of programmes.
NGOs can innovate and adapt to local conditions and needs.
The role of NGOs in solving the above social problems could be one of
implementers, catalysts or partners.
Asan implementer, an NGO mobilises resources to provide goods
and services in accordance with their mission.
As a catalyst, it inspires, facilitates or contributes towards so-
cio-economic development.
As a partner, it works with the corporate and government entities
in fulfilling its mission.

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7.2.2 How to start an NGO
An NGO should not be viewed as a one-man organisation or one that

is owned by a group of people. A successful NGO requires a vision-
ary founder who has a strong passion and conviction for some social
cause, and support of many volunteers - people who can provide re-
sources, and who believe in similar values. Successful starting and
running of an NGO require detailed planning, reaching out to the
community whom it is meant to serve, recruiting volunteers, raising
funds, designing and monitoring of social projects and evaluating re-
sults. A sustained level of long-term commitment and efforts over time
are required in order to build an effective and successful NGO.
Once an individual or a group of like-minded persons decides to work

for a social cause, the first step is to develop a clear mission and an
inspiring vision for the proposed organisation. The mission statement
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should provide the focus and direction, and the vision should inspire
others to work for the cause. Once formulated, the vision and mission
of the organisation need to be driven by qualified professionals and
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committed leadership. The leadership group might consist of an exec-
utive director, senior staff and the board of directors. During the initial
stages, these positions might be served by friends, family members
and colleagues. But over a period of time, the founder and the board
should bring in professionals from outside. Over a course of time, new
leadership should be cultivated at all levels in order to sustain the
NGO in the long term. This would avoid the fate of many unsuccessful
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NGOs who shut their doors once their founders depart due to lack of
the same level of commitment and knowledge from others.
Once the objectives, mission, and vision are finalised, and a board is
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appointed, the NGO should be registered with the appropriate gov-

ernment body as per existing laws of the country. In India, an NGO is
legally required to register under any one of the following acts: Indian
Trusts Act, Societies Registration Act or the Companies Act. An NGO
that decides to function as a charitable trust is however not legally re-
quired to obtain a registration unless required by the respective state
government acts. If the NGO is registered under the Indian Trusts
Act, it would be allowed for claiming income tax exemptions. An NGO
registered under Societies Registration Act may get more flexibility in
terms of regulations. Registration under Section 8 of the Companies
Act, 2013 (under Section 25 of the Companies Act, 1956) is possible but
does not imply that such NGOs can distribute dividends from prof-
its which are mandatorily required to be utilised for future projects.
Following are the documents that are required for registration of an
NGO:
Finalisation and details of members which could range from two
to eight
Name of the NGO and its address along with address proof
Main purpose and Objective of forming the NGO

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Memorandum of Articles / Trust Deed

Application for registration with ID and address proof documents
of members
Most of the NGOs are generally registered as Trusts. A trust is not

regulated by any government authority (unlike those registered under
companies act) and there is no requirement for filing of returns with
the registering authority under companies act. However, the trust has
to file its annual returns as required by FCR Act (pertaining to foreign
funding sources) and Income tax act. The differences between NGOs
that are registered as a company, society and trust are given below:
The registration is governed by different acts and legal provisions
as mentioned before.
Itis much easier to start an NGO as a trust than under companies
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act or societies registration act.
There are restrictions and regulations with respect to family mem-
bers becoming members of the NGO. Companies having the same
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family members as directors may not get funding approval from
certain government bodies. Societies act do not allow a member of
the same family to become a member of a society. However, there
is no restriction in this regard when the NGO is registered as a
trust.
The NGO registered under companies act would require at least
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two directors, while societies act would require seven members

and trustees act require at least two members.
Annual reports submitted to government authorities differ de-
pending on the legal status of NGOs. For example, Societies regis-
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tration act requires submission of an annual list of managing body

and resolutions for approval. No such requirement of filing is re-
quired for trusts.
After completion of the legal requirements, the next step is to trans-

late the mission into social projects and activities that can tangibly af-
fect the lives of the community it is meant to serve. The design of proj-
ects should be detailed enough to attract the attention of donors and
funding sources, who might be looking for community projects that
can provide tangible results. Once funding is secured and the project
goes on-stream, efforts should be made to reach out to the communi-
ty and build long-term relationships with all stakeholders like donor
organisations, professional associations, informal community groups
and other NGOs.
Over a period of time, the NGO should seek to diversify the funding
sources so that its operations are not tied-up with anyone funding
source. A fundraising committee involving the board, staff, and vol-
unteers can be appointed that is meant to work towards securing sus-
tained, long-term and diversified funding sources. An NGO may also

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generate income by selling products or services without any profit

motives, and through periodic community fundraising events.
To summarise, as a visionary founder, you need to perform the follow-

ing steps in order to start an NGO:
1. Get support of volunteers who can provide resources and believe
in similar values as yours.
2. Develop a clear mission and an inspiring vision for the proposed
organisation.
3. Create the leadership group.
4. Collect the required documents and register with the appropriate
government body as per the existing laws of the country.
5. Translate the mission into social projects and activities that can
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tangibly affect the lives of the community it is meant to serve.
7.2.3 NGO versus CSR Foundation of Corporates

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Both NGOs and CSR initiatives of corporates focus on social issues
and sustainable development. However, there are also a number of
differences between them. These are enumerated below:
First and foremost difference is that NGOs are not driven by profit
motives. Even though CSR initiatives of corporates are also not
profit-driven, they may arise out of societal pressure to give back
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something to the society whose support is essential for their long-

term profits, growth, and sustenance.
Providing solutions to social issues, helping underprivileged and
supporting sustainable development are the primary objectives
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and mission of NGOs. However, supporting similar social causes

are only secondary activities for corporates whose primary mis-
sion is to maximise shareholder wealth.
CSR activities of some corporates may be driven more by legal and
social requirements rather than due to a real passion for resolving
social problems. However, NGOs are funded and operated by indi-
viduals who are genuinely interested in social causes.
Even corporates that have serious CSR strategies are aiming to
build CSR activities into their main operations itself in such a way
that determines how they make the profit in the first place (e.g.
percentage of greener material used in value chain or reduction
of carbon footprint in various operations). In this regard, CSR ac-
tivities can also be a whole lot different from NGO initiatives. This
is especially so with regard to the paradigm of sustainable devel-
opment. Such initiatives can be a whole lot different from that of
NGOs. NGOs play a role of catalysts rather than implementers or
partners of such initiatives.

n o t e s
NGOs play a neutral and independent role that may even require
them to take on powerful corporations when their profit-driven
actions affect the society at large. In fact, historically, NGOs have
always taken a confrontation mode rather than partnership mode
when it comes to dealing with corporates.
NGOs are not hindered by any short-term profit motives when it
comes to their social projects and hence, are able to devote them-
selves to issues which occur across long time horizons like climate
change. This may not always be possible for corporates, who are
increasingly required to report their CSR performance in their an-
nual report.
NGOs can be considered as essential elements in the institutional
structure of any society as they fulfil important gaps that cannot
always be expected to be taken care by governments. However,
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CSR activities are of a recent phenomenon that is most effectively
carried out only by large corporates.
NGOs enjoy a high degree of public trust while CSR activities are
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meant to instil public trust on corporates and tend to be image
and reputation building activities rather than based out of genuine
social concerns.
All NGOs may not be amenable to collaboration with private sec-
tor and some would like to keep a distance as demanded by their
mission. However, it will always be beneficial for corporates to
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partner with the right NGOs.
Table 7.1 summarises the key differences between NGO and CSR ini-
tiatives of corporates:
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TABLE 7.1: NGO VERSUS CSR FOUNDATIONS

S. No. NGOs CSR Foundations
1 Completely non-profit driven May arise out of societal pres-
motives sure to give back something to
the society
2 Primary objectives are provid- Primary objective is to maxim-
ing solutions to social issues, ise shareholder’s wealth
helping underprivileged and
supporting sustainable develop-
ment
3 Funded and operated by in- Driven more by legal and social
dividuals interested in social requirements
causes
4 Act as catalysts of initiatives Act as implementers or partners
like percentage of greener of such initiatives
material used in value chain or
reduction of carbon footprint in
various operations

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S. No. NGOs CSR Foundations

5 Work in a confrontation mode Work in a partnership mode
when dealing with corporates when dealing with corporates
6 Not hindered by any short-term Mostly get hindered by short-
profit motives term profit motives
7 Essential elements in the insti- Most effectively carried out only
tutional structure of any society by large corporates
8 Enjoy a high degree of public Instil public trust on corporates
trust
Many corporates are also implementing CSR initiatives through a

separate arm in terms of creation of a CSR foundation. For example,
in the introductory caselet, we saw that IKEA executes its CSR ini-
tiatives through a separate arm called IKEA Foundation. These foun-
dations are different from NGOs even though they may have similar
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missions. Some examples from Indian Pharma corporate sector are
given in Table 7.2:
IM TABLE 7.2: CSR INITIATIVES BY SOME INDIAN
PHARMACEUTICAL COMPANIES
S. No. Company CSR Foundation Some CSR Projects
1 Glenmark Glenmark CSR initiative focuses on “Health-
Pharmaceu- Foundation ier Children, Healthier world” that
ticals works towards improving child
health and reduction of infant mor-
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tality.
2 Novartis Novartis Focuses on anti-leprosy. Provides
Foundation for comprehensive care for Leprosy
Sustainable patients, trains health care workers
Development and supports the reintegration of
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leprosy cured patients.

3 Piramal Piramal Founda- Develops innovative solutions to
Group tion resolve issues that are critical road-
blocks towards unlocking India’s
economic potential. One of the initi-
atives has the theme of “affordable
healthcare”.
4 Wockhardt Wockhardt Foun- The flagship program aims at op-
dation erating 1000 mobile Health Vans in
rural India providing free primary
healthcare to 25 million Indians
every year.
Table 7.3 exemplifies some of the Indian NGOs and their activities:
TABLE 7.3: EXAMPLES OF INDIAN NGOs

S. No. NGO Name Some NGO Activities
1 Save Life Enables community-driven emergency med-
Foundation ical response or bystander care or for road
accident victims

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S. No. NGO Name Some NGO Activities

2 CGNet Swara Enables normal citizens to report and discuss
local interest issues
3 Chetna Works on the empowerment of working and
street children in a participatory approach
4 Arth India Works for the attainment of better health of
the community supplementing, and not sub-
stituting, the current and future government
systems and networks in Indian healthcare
The Companies Act 2013 (Clause 135) has put CSR in the forefront
with a comply or explain mandate for companies with annual turn-
over of INR 1000 Crores and having more than INR 5 Crores as net
profit. This has opened new doors for Indian NGOs who can now raise
funds from corporates who are required by companies act to allocate
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funds for CSR initiatives. NGOs with certificates like an 80G regis-
tration that provides a 50% income tax exemption for the donor and
12A registration that allows tax-free income are in better position to
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source their funds from these corporates.
Many Indian companies have set-up CSR foundations to facilitate

implementation of their CSR strategies. A company foundation is a
legally registered not-for-profit organisation/society/company/trust
established and promoted by the parent company for implementing
its CSR commitments. The key drivers behind the phenomenon of
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corporate foundations are:

Facilitating implementation of CSR strategies with a focus
Creating a peaceful environment around operating areas of the
company
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Aligning CSR activities with overall company’s objectives

Consolidating CSR activities of various companies spread across
different locations of the group
Achieving sustainability goals
Creating a buffer zone between the main company and the com-
munity
Improving branding activities
Achieving tax benefits accrued from contributions to foundations
Following are stated as some major reasons as to why Indian compa-

nies prefer setting up foundations to tie up directly with NGOs:
With separate foundations, companies could achieve more effec-
tive results than that possible with NGOs. Foundations give them
the ability to give undivided attention to CSR activities.
NGOs had poor governance models and governance structures of
many NGOs were not up to the mark.

n o t e s
Time and resources required in performing due diligence while

selecting NGO partners.
Attracting and retaining talent is much easier in case of founda-
tions as opposed to NGOs.
Not many NGOs have a pan-India presence and if they do have,
the overhead costs were quite high.
Foundations could give the same benefits, albeit in a lot more way,
in terms of sensitising the parent company on societal concerns
and trends. They could act as the eyes and ears of the parent com-
pany by engaging directly with the community.
Setting up a foundation does not exclude NGO tie-ups. It can
be easier to select and manage NGO partners when approached
through the Company CSR foundations. Many companies could
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implement projects directly as well as work with the NGOs.

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1. Which of the following statements with regard to NGOs is
false?
a. NGOs are not-for-profit organisations that generate their
own revenue.
b. NGOs can be established as Section 8 companies under
the Companies Act.
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c. NGOs can be set-up by any individual or group of

individuals who have the passion for social development.
d. None of the above
2. NGOs are organisations that are not owned by anybody unlike
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companies which are owned by equity shareholders. (True/

False)
3. Select the incorrect statement with regard to the difference
between activities of NGOs and CSR foundations:
a. CSR activities could be different especially when
sustainable goals are considered as compared to NGO
activities.
b. At time, NGOs may be required to take on errant
corporations and hence may choose to remain neutral and
abstain from getting funds from such corporates.
c. Companies owing to funding availability can take a long-
term view on social projects as compared to NGOs.
d. All are correct.
4. Which of the following is not a key driver behind corporate
foundations?
a. Creating a peaceful environment around operating areas
of the company

n o t e s
b. Executing CSR activities through company department is

not legally allowed
c. Sustainability goals
d. Tax benefits accruing from contributions to CSR
foundation.
Activity
Visit the CII CSR Gateway website. This website provides an online
platform for companies and NGOs to come together and enables
them with appropriate social engagement capacities and opportu-
nities. Present a report on various features available on the website
and how it can be used by NGOs and CSR Foundations.
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7.3 STRATEGIC PARTNERSHIPS
In the previous section, we discussed how NGO activities can differ
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from CSR activities of corporates. It is important to note that it is not
always required that NGOs activities are amenable to a strategic part-
nership with corporates. The type of engagement between corporates
and NGOs can be a complex one and can involve any of the following
modes viz.:
Confrontation: Traditionally, the relationship between NGOs and
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Corporates was that of ‘Confrontation’. For example, there have

been several instances in the past of NGOs fighting against the
business practices of corporates when they are considered detri-
mental to the society in the long run.
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Communication and Consultation: Communication and consul-

tation mode refer to the involvement of NGOs in research and re-
porting, pertaining to social issues concerning the operations of
the corporates. NGOs may also take upon the consultation mode
where they lobby for the social causes with the leading corporates.
Cooperation: The cooperation mode refers to a sponsorship where
a corporate sponsors or funds an NGO program.
Collaboration: Finally, collaboration involves a deeper relation-
ship and refers to strategic partnerships based on shared values
and vision.
In this section, you shall study about NGO-Corporate partnerships

from the perspective of cooperation and collaboration.
7.3.1 Reasons for Corporate-NGO Partnership
Corporates are increasingly recognising the need to incorporate sus-

tainable development growth targets into their corporate strategy.
They would like to rebuild their businesses with “sustainability” as

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the primary foundation which requires them to take into account so-
cietal concerns, and the impact they make on the society. Corporates
are not only face public pressure but also legal requirements, in coun-
tries like India, in terms of taking up responsibility for the impact they
make on the society. In this context, the role of NGOs takes on a dif-
ferent dimension and opens up the possibility for corporate partner-
ships. A corporate-NGO partnership is an agreement between the two
that requires them to work jointly towards achieving common goals.
This may lead to collaboration that results in innovative solutions that
lead to a balance between economic, environmental and social goals
of the corporates.
In this regard, it is important to note that the strategic partnerships go

beyond the conventional notion of philanthropy with which a compa-
ny funds NGO projects. They may involve the following:
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Pool of resources and capabilities
Maximise available resources for social and environmental issues
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Offer innovative solutions
Offer a new paradigm for development that integrates economic,
social and environmental factors
Find solutions acceptable to everyone
Go further than the company would go on its own
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Apply credible solutions for society with the NGO acting as a

safeguard and guarantor of the reliability of corporate initiatives
Meet the expectations of governments and a large part of the
society
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As mentioned before, though the nature of the relationship between

corporates and NGOs could be anything from confrontation to col-
laboration, in recent decades, the relationship has moved away from
predominantly confrontation to a more cooperative and collaborative
mode. This can be attributed to a convergence of interests between
NGOs and corporates.
7.3.2 FACTORS AFFECTING CONVERGENCE OF INTERESTS

BETWEEN NGOs AND CORPORATES
The factors that led to a convergence of interest are listed below:

The widespread acceptance of the concept of corporate social re-
sponsibility has led corporates to focus on social issues which are
the primary driving force for NGOs. CSR requires voluntary inte-
gration of social and environmental concerns into the business op-
erations of companies. This provides a reason and impetus for co-
operation and collaboration with NGOs who share similar values.

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The convergence of interests has also been due to the emergence

of the concept of sustainable development. The concept requires
corporates to grow in such a way that they meet the present needs
of the society without compromising the ability of future genera-
tions to meet their own needs. This necessitates corporates to take
a relook at their value chain in order to ensure factors pertain-
ing to sustainable development are properly taken care of. This
new approach of doing business has greatly addressed many of the
longstanding concerns of NGOs.
Increasing awareness of consumers about green consumption and
other factors related to sustainable development requires organ-
isations to take into consideration the agenda of NGOs who fight
for similar causes.
Reputation management has become one of strategic importance
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especially for corporates whose business operations border on
ecological concerns.
In some countries, the rise in power of NGOs has forced corporates
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to take notice and has led to corporates including NGO alliances as
a tool in their sustainability and CSR strategies.
The changes in laws and regulations (whether national laws that
mandate minimum CSR spending or international laws) that are
meant to address ecological concerns have further converged the
interests of leading corporates and NGOs.
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The above factors leading to a convergence of interests have led to

common ground between corporates and NGOs which had given rise
to the possibility of strategic alliances. Corporates find that they are
not only required to maximise stakeholder wealth but have to achieve
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that objective in such a way that they also meet the social and en-
vironmental concerns and sustainable growth needs. In this regard,
they are forced to look for resources and solutions outside, which they
can obtain by forming strategic alliances with NGOs. They could find
effective and efficient solutions that could balance their profit motives
with the sustainable growth demands when collaborating with NGOs.
NGOs provide following advantages to corporates:

NGO can bring special knowledge and expertise that can be put to
use to enhance the company’s reputation and reduce its operating
costs.
NGO can bring outside vision that could be different from that of
the company. Shared visions could provide new solutions born out
of the cross-fertilisation of ideas.
NGO can act as ‘barometers of society’ by predicting social and
political trends that could be of tremendous value to the corporate
strategy.

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NGOs believe that collaborations with corporates can enhance busi-

ness understanding of societal issues and contribute to changing busi-
ness practices for better. They aim to effectively harness corporate
partner’s competencies and non-cash assets to make a significant im-
pact on mission objectives. They expect the partnership to engage in
deeper problem-solving relationships designed to address core mis-
sion-relevant or purpose-led issues in ways that create value for soci-
ety, and for them.
Some of the important factors that influence the Corporate-NGO part-

nerships are listed below (C&E, 2016):
Pressure on corporates to demonstrate societal consideration
within their business practices.
Increasing recognition of the need for companies and NGOs to
leverage each other’s competencies.
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Need for corporates to enhance reputation and brand image.
Increasing evidence on benefits partnerships can bring to corpo-
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rates and NGOs.
Need for NGOs to raise funds in a difficult economic climate.
Government and political support for partnerships.
External stakeholder pressure for more partnerships.
Internal stakeholder pressure for Corporates.
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Pressure on resourced driving the need to partner in order to re-

duce costs.
Some important factors that provide motivations for NGOs to seek

corporate partnership are given below (C&E, 2016):
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Access to funds: This is the most important factor that makes

NGOs seek corporate partnership. (Note that NGOs rely on exter-
nal donors for their operations and they cannot ignore financial
support from like-minded corporates who share the mission and
values of the NGO).
Access to people and contacts: Partnership can provide access to
people and contacts that can be crucial in achieving their mission.
Access to non-cash assets: Many NGOs are recognising that
non-financial support from companies can play a more significant
and major role in helping them achieve their mission.
Some important factors that provide motivations for Corporates to

seek partnership with NGOs are given below (C&E, 2016):
Credibility and reputation: The most important and primary fac-
tor that drives corporates to seek NGO partnership is the possibili-
ty of enhancing their reputation and credibility by associating with
the NGO projects.

n o t e s
Knowledge and expertise: Corporates also value the knowledge

and expertise of NGOs while implementing CSR strategies.
Innovation and creativity: NGOs can also bring innovative and
creative methods owing to their community and field knowledge
for solving CSR related problems.
Network: NGOs provide the community and institutional network
contacts that can be of help to corporates in addressing social con-
cerns and arriving at CSR solutions.
The other factors that promote corporate-NGO partnerships cited by

C&E Corporate-NGO partnerships parameter 2016 survey are long-
term stability and impact, human resource development, effective-
ness, access to new markets and efficiency.
7.3.3 Criteria for Selecting an NGO Partner
S
There are four basic criteria that researchers have identified as neces-
sary when selecting NGOs (Lewis, 2004). These are:
IM
1. Credibility: Many researchers assert that the credibility of the
NGO is the key element in the decision process when it comes to
choosing an NGO partner. Companies can always get knowledge
and expertise from external consultants, and it is the credibility
of the NGO partner that is close to everything. Companies have
to rely on the trust exhibited by NGO partner as they could deal
with the sensitive issues of reputation and corporate image. The
M
NGO should be known and acknowledged by the important

stakeholders of the company.
2. Cognitive capacities: This refers to knowledge, expertise, and
abilities of NGOs which may not form part of the traditional
N
skill set of corporates. Issues arising out of sustainable

development and corporate social responsibility objectives can
be better addressed when partnering with NGOs who might
have accumulated experience and expertise in these areas which
can be a source of competitive advantage. Some researchers
say that building capabilities within the company could be a
key motivation for NGO alliances. The following three areas of
expertise are valued most by corporates:
1. knowledge of working with local communities
2. their role of acting as a ‘barometers of society’; and
3. ecosystem management
3. Connections: Successful NGOs tend to build over time a
large network of members, local communities, other NGOs,
professional associations and government institutions. Such
networks can be of great value to corporates. Networks being
a great source of information, and their complementary nature
in the case of NGO environment, make them highly valuable
for corporates trying to fulfil their sustainable development

n o t e s
objectives. NGOs with their long built rapport with legislators

can help corporates lobby for laws that are not harmful to their
long-term strategies.
4. Capacity for confrontation: NGO alliance can also be a means
of preventing confrontations with stakeholders who espouse
the values of the NGO. NGO’s capacity for confrontation can be
nullified by getting into an alliance based on mutually agreed
goals in order to eliminate confrontation costs like loss of
reputation, legal expenses etc.
On the NGO side, the motivations for corporate alliance could be to

diversify their sources of funds and to carry out their mission by im-
plementing better solutions in partnership with corporates. Similar to
the corporates, NGOs can also be motivated by benefits arising from
cognitive capacities and connections offered by the partnering corpo-
S
rate.
7.3.4 NGO Strategies to Influence CSR

IM
There are several factors in recent decades that have made the devel-
opment of NGO strategies to influence CSR highly important. Some
of these are:
The shift of power from nation states to MNCs as surveys show
that a major number of world’s largest 100 economies were MNCs
M
Lack of social and environmental accountability of MNCs

Increasing concern for economic, social and cultural rights
Increasing emphasis on CSR and consequent recognition of a role
for NGOs
N
Traditionally, the method of NGOs in influencing activities of corpo-

rates used to be confronting them by putting pressure on their social
image and reputation. In recent decades, the agenda of NGOs was
greatly helped by the emergence of the concept of CSR and the volun-
tary code of conduct. As discussed in previous sections, the approach
of NGOs has now shifted towards strategies like cooperation (sponsor-
ships) and strategic collaboration (alliances).
Winston (2202) identifies eight tactics that various NGOs have suc-
cessfully employed in the past towards influencing CSR activities of
corporates. These are listed below:
1. Engaging MNCs through dialogue for promoting adoption of
voluntary codes of conduct: There is increasing recognition that
adopting CSR practices can be promoted through solid business
considerations. NGOs try to engage MNCs by making a business
case for voluntary adoption of CSR codes. NGOs argue and
highlight the following benefits that accrue to MNCs: enhanced
compliance with laws, benefit from better control over supply

n o t e s
chains, protection of reputation and brand images, enhancement

of risk management strategies, increased employee productivity
and loyalty, reduction of operating costs, enhancement of financial
performance and improvement in business relationships with
external stakeholders.
2. Advocacy of social accounting and independent verification
themes: Social auditing approach believes that corporates cannot
be trusted with adherence to voluntary CSR codes and their social
performance needs to be independently audited on a regular
basis by outside auditors. For example, NGOs like Fair Labour
Association (FLA) and Social Accountability International (SAI)
have developed comprehensive and rigorously auditable social
responsibility standards for the retail manufacturing business in
the US and their lobby for making these as common industry
and legal standard.
S
3. Shareholder activism: In this strategy, NGOs seek to influence
corporate policy by means of the adoption of shareholder
resolutions that mandatorily require the adoption of CSR codes.
IM
The resolutions could pertain to health and safety, tobacco,
weapons, environment, discrimination, labour and human rights
issues and issues of Corporate Governance. The Interfaith Center
on Corporate Responsibility has successfully used this strategy
to influence corporates.
4. Incident reporting and moral shaming: Moral shaming
M
and stigmatisation remain widely deployed NGO tactics for

influencing errant corporates. Since reputation and brand image
are very important for corporates, they are forced to act when
NGOs mold public opinion against their unethical practices.
N
5. Lobbying for the boycott of company products and divestment

of stock: When corporates could not be engaged in voluntary
CSR practices and also become insensitive to public opinion,
NGOs resort to putting economic pressure on them by calling for
a boycott of products in the market. There are many examples
where NGOs achieved success through a boycott of products like
the case of Nike, Starbucks etc.
6. Advocacy of selective purchasing laws: This involves putting
legal pressure on corporates by enacting selective purchasing
laws. A good example is the 1996 Massachusetts Burma Law,
a selective purchasing law that penalised companies that
continued to do business with the repressive reign in Myanmar
by adding a surcharge to contracts with the Commonwealth of
Massachusetts.
7. Advocacy of government-imposed standards: This tactic is
based on the assumption that only governments have sufficient
power and authority to force companies to adopt ethical practices
that protect human rights and the environment. In this tactic,

n o t e s
NGOs focus on enacting legislation to force MNCs to behave

properly.
8. Litigation seeking punitive damages: This tactic involves
resorting to litigation and seeking punitive damages for human
rights violations and unethical business practices. NGOs file suit
against erring MNCs in courts seeking punitive damages.
5. Which of the following is not a mode that describes the

relationship between an NGO and a corporate?
a. Confrontation
b. Cooperation
c. Collaboration
S
6. In recent decades, the NGOs were adopting a more collaborative
IM attitude to corporates than traditional confrontationist
attitude. Which of the following is the reason for this trend?
a. NGOs increasingly depend on corporates for cash
resources.
b. Number of corporates who violate human rights or follow
unethical practices has come down drastically.
M
c. There has been a convergence of interests.

d. None of the above.
7. Which of the following is not an important advantage in
engaging NGOs for CSR activities?
N
a. NGOs can bring special knowledge and expertise

b. NGOs can bring outside vision different from that of
company
c. NGOs can act as barometers of society
d. NGOs can provide cost-effective delivery
8. Which of the following is not a motivation behind NGOs
seeking corporate partnership?
a. Access to funds
b. Access to non-cash assets
c. Access to people and contacts
d. Enhance credibility and image
9. Which of the following cannot be considered as a motivation
behind corporates seeking partnership with NGOs?
a. To enhance their credibility and reputation by involving in
NGO projects

n o t e s
b. To gather knowledge and expertise in CSR domain

c. Innovation and creativity offered by NGOs
d. Effective governance model offered by NGOs
10. Which of the following cannot be considered as a tactic used
by NGOs to promote CSR activities of corporates?
a. Engaging corporates for voluntary adoption of CSR codes
b. Shareholder activism
c. Incident reporting and moral shaming
d. Tie-up with corporates
Activity
S
In this chapter, we studied that companies can also set-up CSR
foundations as Section 8 (Section 25 of the Companies Act 1956)
companies. Refer the relevant sections of Companies Act 2013 and
IM
list the salient features of registering a foundation as Section 8
Company.
7.4 SUMMARY
NGOs were playing a crucial role in enforcing corporate gover-
nance and business ethics during the past several decades. With
M
the onset of the concept of CSR, Corporates have started to make

voluntary steps towards complying with these requirements.
NGOs are not-for-profit organisations and are different from both
government and private sector entities. They serve the objective of
N
promoting the public interest and serving the public good unlike
being driven solely by profit motives.
NGOs are private, self-governing and voluntary organisations that
are not owned by any individual or group of individuals, do not
raise equity or debt capital or employ any revenue/profit generat-
ing mechanisms. They are run out of donor funds obtained from
external entities.
NGOs are created by visionary and passionate individuals with
the mission of making people’s lives better. They address some im-
portant social and economic problems like human rights, poverty,
education and health, women empowerment, youth development,
environment etc.
NGOs might play any of the following three roles for the above
causes: implementer, catalyst or partner
NGOs can be started under any of the following three legal provi-
sions: Indian Trusts Act, Societies Act and Section 8 (Section 25 of
the Companies Act, 1956) of Companies Act, 2013

n o t e s
Successful starting and running of NGOs require careful deci-

sions regarding mission & vision, planning and managing the
social projects for converting the mission objectives, raising and
sustaining funds, and monitoring the projects. Two important and
essential things to remember for long-term survival are to develop
leadership beyond the founders and to tie-up with diverse funding
sources with long-term commitment.
Though both the NGOs and CSR activities of corporates might
look similar, there are yet a lot of differences. While corporates
might be driven by societal pressures, NGOs purely work as driv-
en by their mission.
Corporates can execute their CSR strategies either directly or
through NGOs. The recent trend in this context is setting up of
CSR Foundations by corporates as a separate arm for the purpose.
S
There are several key drivers that explain the phenomenon of cre-
ation of CSR foundations, and why corporates chose the route of
setting up CSR foundations rather than partnering with NGOs.
IM
The relationship between corporates and NGOs can be one of con-
frontation, cooperation, communication or collaboration. While
the past decades saw most of the NGOs fighting against corporates
for enforcing corporate governance and to take social responsi-
bility, the recent years show the trend of a strategic partnership
between corporates and NGOs. This has been due to the conver-
M
gence of interests of NGOs and Corporates.

Strategic partnerships may go beyond the conventional notions of
philanthropy and may address strategic concerns of both the part-
ners.
N
Partnerships between NGOs and Corporates allow each other to

derive mutually beneficial advantages. While access to funds is a
major reason for NGOs seeking partnership, corporates are look-
ing for enhancing their credibility, accessing knowledge and ex-
pertise of NGOs on social issues and their network of contacts.
The four main criteria for selecting NGO partner are high credi-
bility, high cognitive capacities, high connections and low capacity
for confrontation.
Researchers have identified that NGOs generally eight generic
strategies/tactics to influence CSR activities of corporates.
key words
Charitable trusts: An irrevocable trust, established for charita-

ble purposes.
Empowerment: An act of providing authority and power to
someone so that they could take the initiative and make deci-
sions on their own.

n o t e s
NGO: An independent, self-governing and voluntary organisa-

tion that works for social causes.
Not-for-profit organisations: The organisations that do not
earn profits for their owners, but dedicate to promote a partic-
ular social cause.
Section 8 company: A company that is started under the Com-
panies Act is a (public or private) limited liability companies.
However, companies that wish to operate as an NGO can be
registered under Section 8 of the Companies Act, which allows
them to operate without an issue of shares or distribution of
dividends. These are now called Section 8 companies under the
latest companies act (these were called Section 25 companies in
the Companies Act, 1956).
S
1. Explain with examples the functions and benefits of an NGO.
IM
How do they differ from other organisations?
2. List how the CSR activities of corporates differ from that of work
of NGOs.
3. What are the factors that motivate Corporate-NGO partnerships?
4. Enumerate the eight strategies that NGOs use for influencing
M
CSR activities of Corporates.

N

Introduction to Non-Gov- 1. a. NGOs are not-for-profit organi-
ernmental Organisations sations that generate their own
(NGOs) revenue
2. True
3. c. Companies owing to fund avail-
ability can take a long-term view
on social projects as compared
to NGOs.
4. b. Executing CSR activities
through company department is
not legally allowed
Strategic Partnerships 5. d. None of the above
6. c. There has been a convergence
of interests.
7. d. NGOs can provide cost-effective
delivery

n o t e s

8. d. Enhance credibility and image
9. d. Effective governance model
offered by NGOs
10. d. Tie-up with corporates
Hints to Descriptive Questions

1. NGOs have the mission of promoting the public interest and
they serve towards alleviating social problems. They are private,
voluntary, self-governing and not-for-profit organisations.
Refer to Section 7.2 Introduction to Non-Governmental
Organisations (NGOs).
2. CSR activities of corporates can be based on different motives
S
than that of NGOs. Some of the CSR activities may be meant to
achieve sustainable growth that requires streamlining the value
chain of the company itself. In some cases, NGOs may take a
IMconfrontationist stand against corporates. Refer to Section 7.2
Introduction to Non-Governmental Organisations (NGOs).
3. Credibility and Reputation are an important motivating factor
for corporates while access to funds is one of the most important
factors that motivate NGOs towards corporate partnership.
Refer to Section 7.3 Strategic Partnerships.
M
4. Eight strategies/tactics are explained in this chapter. These

tactics range from engaging corporates to resort to litigation.
Refer to Section 7.3 Strategic Partnerships.
N
SUGGESTED READINGS
Berlie,L. (2009). Alliances for sustainable development: business
and NGO partnerships. Springer.
Binder-Aviles, H. (2015). The NGO handbook. Campus Manitoba.
Lewis, D. (2004). The management of non-governmental develop-
ment organizations: An introduction. Routledge.
Poret, S. (2014). Corporate-NGO partnerships in CSR activities:
why and how?.
Winston, M. (2002). NGO strategies for promoting corporate social
responsibility. Ethics & International Affairs, 16(1), 71-87.
E-REFERENCES
Folger, J. (2018). What is an NGO (Non-Governmental Organiza-
tion)?. Investopedia. Retrieved 31 March 2018, from https://www.

n o t e s
investopedia.com/ask/answers/13/what-is-non-government-orga-
nization.asp
How to start a successful NGO in 10 steps. (2018). Matador Net-
work. Retrieved 31 March 2018, from https://matadornetwork.com/
change/how-to-start-a-successful-ngo-in-10-steps/
Howard, E. (2018). 10 things you need to know about corpo-
rate-NGO partnerships. the Guardian. Retrieved 31 March 2018,
from https://www.theguardian.com/sustainable-business/2014/
nov/24/10-things-corporate-ngo-partnerships
Non-Governmental Organizations. (2018). UNESCO. Retrieved 31
March 2018, from https://en.unesco.org/partnerships/non-govern-
mental-organizations
Raj, R. (2018). How to Start NGO – Form, Register and Run
S
NGO. NGOs India : Resources for NGOs, NPOs, NGO, Funding
Resources and Support for NGOs. Retrieved 31 March 2018, from
https://ngosindia.com/ngo-registration/how-to-start-ngo-form-
register-and-run-ngo/
IM
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S
C h a
8 p t e r
MONITORING AND MEASUREMENT OF CSR
CONTENTS
S
8.1 Introduction
8.2 Focus of measurement
IM
8.2.1 CSR Frameworks and Guiding Principles
8.2.2 CSR Performance Measurement Systems
8.2.3 Benefits of Monitoring and Measurement of CSR
Activity
8.3 Social Auditing
M
8.3.1 Benefits of Social Auditing

8.3.2 Objectives of Social Auditing
Activity
N
8.4 Concept of Monitoring

8.4.1 Internal Compliance Monitoring
8.4.2 External Monitoring and Measurement Importance
Activity
8.5 Summary

n o t e s
CSR MEASURING AND MONITORING AT STARBUCKS

CORPORATION
S
(Source: http://www.thedrum.com)
Starbucks Corporation is the leading brand of specialty coffee

IM
in the world. It has more than 12,000 company operated and li-
censed locations world-over at places like North America, Latin
America, Europe, the Middle East and Asia Pacific. Starbucks is
also one of the leading multinational corporates that had taken
Corporate Social Responsibility (CSR) very seriously and had
made significant investments. In its CSR Report for year 2006,
Starbucks asserts that its commitment to good governance, eth-
M
ical conduct and social responsibility forms the core of its way of
doing business. For Starbucks, CSR means conducting business
in ways that produce social, environmental and economic bene-
fits for communities in which it operates and for the company’s
N
stakeholders. The report says the company has a sense of shared

accountability for CSR and a dedicated CSR group manages CSR
activities which are evolved over a period of time in a systematic
and integrated manner throughout the company.
To manage CSR programs, apart from the dedicated CSR group,

Starbucks had established three cross-functional teams with spe-
cific responsibilities related to the company’s CSR and gover-
nance. These are the Emerging Issues Council (EIC), the CSR Ex-
ecutive Committee and the Policy Governance Council. The EIC
has a cross-functional team of 18 Starbucks executives who were
responsible for proactively identifying, prioritising and mapping
key external trends and issues that may impact the company and
its business units at local, regional and global level. The CSR Ex-
ecutive committee is charged with setting CSR-related strategy
and policies, monitoring progress against car objectives, review-
ing and approving major CSR social investment activity, oversee-
ing global, regional and local CSR organisational structure and
accountabilities and ensuring CSR integration through the com-

MONITORING AND MEASUREMENT OF CSR 221
n o t e s
pany. The policy governance council oversees and approves gov-

ernance tools at the global enterprise level and ensures that they
are consistent with each other and are effectively communicated
to the partners.
Starbucks joined UN Global Compact in 2004 and seeks to contin-

ually learn how it can strengthen existing or develop new internal
practices and policies for CSR management. The CSR annual
report maps various initiatives with the ten universal principles
of UN Global Compact. Various dimensions in which CSR is mea-
sured and monitored are Products (Coffee), Society, Environment,
Workplace and Diversity.
For each of the five areas/dimensions, Starbucks had identified
S
different elements for promoting its CSR objectives and goals.
Then for each element, it had established CSR metrics which can
be used to measure and monitor the progress. The report then
gives for each element, the progress made in terms of quantitative
IM
metrics for each year and targets for future. In a way, Starbucks
report serves like a role model for companies that are interested
in professionally measuring and monitoring their CSR programs.
The table below gives different CSR areas, various CSR elements
selected under each area, the metrics established for monitoring
and measurement, and the progress made for future year along
M
with the target for the next year:
CSR Area CSR Metric 2005 2006 Target

Elements for 2007
Coffee Coffee and Pounds of green unroast- 77 155 225
N
Farmer ed coffee purchased from million million million

Equity Prac- CAFÉ practices approved pounds pounds pounds
tices suppliers (Goal: (Goal:
75 mil-
150 mil-
lion) lion)
Fair Trade Pounds of green unroasted 11 18 As per
Certified coffee purchased from Fair million million forecast-
Coffee Trade Certified Coopera- pounds pounds ed sales
tives (Goal: (Goal:
10 mil- 12 mil-
lion) lion)
Percentage of total green 4% 6% -do-
coffee purchases
Society Charitable Total Cash and in-kind $30.3 $36.1 -
Contribu- contributions million million
tions
Percentage of pre-tax 3.8% 4.0% -
earnings
Volunteerism Number of hours volun- 299,000 383,000 421,000
teered by partners and (Goal:
consumers 375,000)

n o t e s
CSR Area CSR Metric 2005 2006 Target

Elements for 2007
Environ- Electricity Kilowatt-hours per Sq.Ft of 6.4 6.57 -
ment retail space per month
Water Gallons per Sq.Ft of retail 24 36 -
space per month
Paper Percentage of post-consum- 49.5% 66.4% 66.9%
er fiber (Goal: (Goal:
48%) 50%)
Percentage of unbleached 85.9% 86.3% 87.1%
fiber (Goal: (Goal
90%) 86.5%)
The above table gives CSR metrics, goals, achievements and tar-
gets for the first three areas. The report gives similar data for the
remaining areas of workplace and diversity.
S
The achievements of CSR initiatives as tabulated above had re-
sulted from several CSR programs for each of the CSR areas.
For example, in the case of CAFÉ practices, Starbucks created
and launched a number of programs and initiatives over several
IM
years. They are part of the “Starbucks Sustainable Model for Cof-
fee Production”. Some of these are listed below:
CAFÉ practices guidelines formally introduced in 2004

Starbucks Farmer Support Center, an on-the ground field of-
fice that provides technical resources and ongoing support to
M
coffee farmers throughout the world

Starbucks Black Apron Exclusives program launched in 2004
to showcase and recognise the production of rarefied coffees
of exceptional quality and reward the origin forming commu-
N
nity with funding for a local project

An alliance with Conservation International to promote envi-
ronmentally sound practices aimed at preserving biodiversity
The purchasing of certified coffees, such as the Fair Trade
Certified and organic coffees from year 2000
Partnership with the African Wildlife Foundation to advance
sustainable farming practices in East Africa in 2005
Apart from the aforementioned practices, Starbucks had under-

taken similar programs and initiatives for each of the CSR ele-
ments listed in the above table in accordance with the UN Global
compact principles.
As a result of its leadership in CSR initiatives, Starbucks had

been recognised as a leader and had been listed on several So-
cially Responsible Investments (SRI) indices like Calvert Social
Index, Citizens Index, Dow Jones Indices, FTSE4Good indices,

n o t e s
KLD indices etc. It had also bagged a number of recognitions and

awards like “100 best corporate citizens”, “Model company for
Sustainable Economic Development”, “Top 25 Green Power Part-
ners”, “Top 50 companies for Diversity” etc.
(Source: “Starbucks Corporation: Corporate Social Responsibility / Fiscal 2006 Annual
Report”, https://globalassets.starbucks.com/assets/4dd6216d0fd0400f8689eceba0497e04.
pdf)
S
IM
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n o t e s
learning objectives

>> Explain the concept of CSR frameworks, CSR guiding prin-
ciples and CSR standards in the context of CSR measure-
ment and monitoring
>> Discuss the concept of measurement, metrics and perfor-
mance measurement systems of CSR
>> Describe the importance of measuring and monitoring the
progress of CSR programs
>> List objectives and benefits of social auditing
>> Explain how monitoring is done for CSR projects and need
for external compliance
S
8.1 INTRODUCTION
IM
In the previous chapter, you studied about the NGOs and their role in
CSR paradigm. You learned that companies can implement their CSR
programs either directly on their own, or through NGO partners or
through a separate arm of CSR foundation. You also studied that CSR
programs do not have profit motives. This means you cannot evaluate
CSR investments in the same way as that of corporate investments.
However, the CSR investments do have non-financial social objectives
M
and goals in tune with the mission of CSR initiatives, and hence do
require evaluation. In this chapter, you shall study the measurement
and monitoring of CSR programs.
Continuous measurement and monitoring of CSR programs can be

N
used as a tool to enhance an organisation’s ability to coordinate and

engage with a wide variety of stakeholders. The diversified evaluation
process leads to the identification of relevant issues in an appropriate
manner, which, in turn, enables the organisation to address the issues
through proper measures.
In the next chapter, you will study that companies are also required
to report their progress in CSR initiatives. It has now become a prac-
tice with all leading corporates to provide an annual report on social
responsibility accounting. In fact, this has already become a legal re-
quirement in some countries. For example, corporates are required to
report on their mandatory CSR investments and their progress along
with the annual reports in India. Similarly, SEBI requires the top 100
companies to report on business responsibility accounting. Effective
reporting and legal compliance presupposes existence of proper mon-
itoring and measurement systems for managing CSR projects.
In this context, you would have noted how Starbucks, the company
discussed in introductory caselet, have been successful in its CSR ini-
tiatives owing to its systematic method of monitoring and measuring

n o t e s
the progress of CSR investments through CSR metrics designed for

the purpose. In this chapter, you shall study about the concepts be-
hind CSR monitoring, measurement and auditing.
8.2 FOCUS OF MEASUREMENT

With regard to measurement of progress and success of CSR pro-
grams, it is necessary to understand it in the context of sustainable de-
velopment. Both the terms are generally used interchangeably. How-
ever, there are certain differences between the two. The differences
between these two concepts are:
Sustainability refers to the achievement of long-term corporate
sustainability through a balanced approach to economic progress,
social progress and environmental stewardship. However, CSR is
generally viewed with an emphasis on corporate philanthropy.
S
Sustainable growth of corporates requires them to factor-in so-
cial and environmental impacts of conducting their core business.
However, CSR projects can be independent of the core business
IM
with complete social focus.
Sustainable practices drive long-term profits and it deals with how
corporates make their profits. However, CSR is viewed from the
perspective of what is done with profits after they are made.
Sustainable growth requires effective corporate governance and
M
fulfilment of duties of social citizenship of corporates. This also

requires investments in social projects outside the core business.
Hence, CSR is a subset of the wider sustainable growth paradigm.
The concept of sustainable development requires companies to “meet

N
the needs of the present without compromising the ability of the future
generations to meet their own needs (Brundtland Report)”. This defi-
nition implies that the companies should aim for sustainable growth
which requires complete evaluation of its supply chain in terms of the
impact it makes on economic, social and environmental front. Sus-
tainable growth envisages growth and profitability without sacrificing
the future growth potential and without impacting socio-environment
which could be endangered by short-term profit motives.
For example, the introductory caselet talked about Coffee and Farm-
er Equity (CAFÉ) Practices of Starbucks. Though Starbucks would
have been able to meet its financial targets in terms of profitability
and growth, without being bothered about where it sources its coffee
beans, it had still made huge efforts and investments in terms of en-
suring a sustainable sourcing chain for its core raw material of coffee
beans. Starbucks is making these investments now so that its future
sourcing of coffee beans is secured without affecting the society or
environment, enabling at the same time to act as a responsible corpo-
rate citizen. Though this can be viewed as an act of corporate social
responsibility, it is executed as part of its core operations. On the other

n o t e s
hand, its programs for other dimensions of CSR in terms of Society,

Diversity and Environment etc., are not directly related to its business
operations and are generally more suitably termed CSR programs. In
reality, these CSR programs are also meant for ensuring the long-term
future of Starbucks and hence are considered part of the overall sus-
tainable growth initiatives.
The above discussion implies that while considering measurement

and evaluation frameworks for CSR programs, we should view it from
the more holistic perspective of sustainable growth initiatives. This
is especially so when it comes to reporting where CSR programs are
part of the sustainability reporting or social responsibility accounting.
CSR frameworks and guiding principles, which we shall study in this
section, are generally from these higher sustainability perspectives
and they also form the basis for CSR planning, execution, measure-
S
ment and monitoring.
8.2.1 CSR FRAMEWORKS AND GUIDING PRINCIPLES

IM
Several frameworks and standards exist that aim to provide a com-
prehensive set of objectives and goals for various dimensions of sus-
tainability like people, environment, safety, society, etc. These frame-
works can be used as the foundation on which CSR programs can be
planned, built, measured and evaluated.
The widely accepted international framework in this regard is the UN

M
Global Compact Management Model. The model envisages a contin-

uous improvement model that has following phases: Assess, Define,
Implement, Measure, Communicate and Commit. The model is based
on the premise that corporate sustainability should originate from the
N
company’s value system, and a principles’ based approach to doing

business. Table 8.1 shows the model with 10 universal principles that
every corporate should follow and incorporate in their Sustainability/
CSR programs:
TABLE 8.1: UN GLOBAL COMPACT PRINCIPLES

CSR Considerations Principles
Human Rights Principle 1: Businesses should support and respect
the protection of internationally proclaimed human
rights.
Principle 2: Businesses should ensure that they are
not complicit in human rights abuses.
Labour Principle 3: Businesses should uphold the freedom
of association and the effective recognition of the
right to collective bargaining.
Principle 4: Businesses should ensure the elimina-
tion of all forms of forced and compulsory labour.
Principle 5: Businesses should ensure the effective
abolition of child labour.

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CSR Considerations Principles

Principle 6: Businesses should ensure the elimina-
tion of discrimination with respect to employment
and occupation.
Environment Principle 7: Businesses should support a precau-
tionary approach to environmental challenges.
Principle 8: Businesses should undertake initia-
tives to promote greater environmental responsi-
bility.
Principle 9: Businesses must encourage the devel-
opment and diffusion of environmentally friendly
technologies.
Anti-Corruption Principle 10: Businesses should work against
corruption in all its forms, including extortion and
bribery.
S
Similar to the UN Global Compact Management Model, the Indian
government had formulated a “National Voluntary Guidelines on So-
IM
cial, Environmental & Economic Responsibilities of Business”. These
guidelines are refinement over the Corporate Social Responsibility
Voluntary guidelines of 2009 released by the Ministry of Corporate Af-
fairs. These guidelines emphasise that the business should endeavour
to become responsible citizens in the society so that their every action
leads to sustainable growth and economic development. It is expected
that all businesses in India, including MNCs, would deliberately work
M
towards following these guidelines which are constituted as minimum

requirements. These principles are listed as follows:
Businesses should conduct and govern themselves with ethics,
transparency and accountability.
N
Businesses should provide goods and services that are safe and
contribute to sustainability throughout their life cycle.
Businesses should promote the well-being of all employees.
Businesses should respect the interests of, and be responsive to-
wards all stakeholders, especially those who are disadvantaged,
vulnerable and marginalised.
Businesses should respect and promote human rights.
Businesses should respect, protect and make efforts to restore en-
vironment.
Businesses, when engaged in influencing public and regulatory
policy, should do so in a responsible manner.
Businesses should support inclusive growth and equitable devel-
opment.
Businesses should engage with and provide value to their custom-
ers and consumers in a responsible manner.

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Apart from the UN Global Compact Model and National Voluntary

Guidelines (NVG), there are several other important and globally
recognised frameworks and guidelines which can also be used as the
foundation for planning & implementing CSR programs, and for their
measurement and monitoring. These are:
The UN Guiding Principles on Business and Human Rights
ILO’s tripartite declaration of principles on multinational enter-
prises and social policy
OECD Guidelines on Multinational enterprises
AA100 series of standards issued by Institute of Social and Ethical
Accountability
SA8000 standards issued by Social Accountability International
(SAI)
S
ISO 26000
OECD CSR Policy Tool
The Social Return on Investments (SROI) Network
IM
The London Benchmarking Group (LBG) Model
Measuring and monitoring of sustainable initiatives including CSR

programs can be evaluated using several standards and metrics.
There are also independent frameworks and standards available for
each of the three dimensions of economic, social and environment.
Table 8.2 gives various management tools/standards available for each
M
dimension of sustainability (or Triple Bottom Line):
TABLE 8.2: TOOLS FOR DIFFERENT DIMENSIONS

Tools for Economic Tools for Social Tools for Environ- Tools for overall
N
Dimension Dimension mental Dimension Sustainability

Dimension
Financial manage- Social Audit and Environmental Global Reporting
ment parameters Social Reporting reporting Initiative (GRI)
like profitability,
efficiency ratios, etc.
Return on invest- Social Account- Environmental Balanced Score
ment (RoI) ing Accounting Card
Return on equity Socio-efficiency Eco-labels ISO 26000
(RoE) Indicators
Leverage ratios Ethical and social Eco-efficiency SD 21000
rating indicators
Liquidity ratios Occupational Environmental United Nations
Health and Safe- management Global Compact
ty Assessment standards Model
Series Specifi-
cations (OHSAS
18001)
Scorecards Social Accounta- ISO 14063 – Envi- National Voluntary
bility 8000 ronmental commu- Guidelines (NVG)
nication of India

n o t e s
Tools for Economic Tools for Social Tools for Environ- Tools for overall
Dimension Dimension mental Dimension Sustainability
Dimension
Shareholder value Ethical indexes ISO 14064 – Green AA 1000 standard
house gases
assessment and
reporting
8.2.2 CSR PERFORMANCE MEASUREMENT SYSTEMS
While there are several frameworks and guiding principles available

for establishing the sustainability/CSR programs that can form the ba-
sis for measurement and evaluation, there are no universally accepted
standards and metrics for measuring the Sustainability/ CSR prog-
ress. Different companies follow different approaches for monitoring
and measuring CSR programs. However, the reporting requirements
S
for CSR programs under several standards, and legal compliance re-
quirements, do mandate adoption of suitable measurement and re-
porting systems with relevant metrics.
IM
For sustainability based CSR activities, the measurement and moni-
toring will be linked to the establishment and operation of the opera-
tional value chain and monitoring can be done through the company’s
regular monitoring system itself. For other CSR activities, a separate
social or business responsibility accounting report may be required
and is usually included in the annual report as appendices.
M
Researchers suggest that for evaluating CSR programs, multi-dimen-

sional performance systems that implicitly or explicitly recognise var-
ious relationships that corporations have with different stakeholders
should be used, similar to the Kaplan’s Balanced Score Card System.
N
CSR performance measurement systems should consider the concept

of Triple Bottom Line that takes into account the performance of the
corporation in each of the three dimensions of Economic, Social and
Environmental aspects.
Companies have to decide on proper key variables, key performance

indicators and metrics to measure and evaluate their CSR programs.
At present, there are no universal and common KPIs that can mea-
sure the effectiveness of different corporates. These KPIs and met-
rics depend on individual projects as the nature of the projects can be
varied. To understand the nature of these KPIs and metrics, refer to
the Table 8.3, which gives some sample CSR measures for different
stakeholder group:
TABLE 8.3: SAMPLE CSR METRICS

Stakeholder Group Sample CSR Indicator Sample CSR Metrics
Shareholders Legal compliance Product recalls, Pollution
performance, Carbon
footprint

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Stakeholder Group Sample CSR Indicator Sample CSR Metrics

Employees Ethical behavior Measures on Staff motiva-
tion and morale
Corporate Donations as % of earnings
philanthropy
Retention of staff Staff turnover
Customers Product recalls As % of total output
Satisfaction Customer Satisfaction
Index
Government Pollution Performance against index
NGOs Recycling Conformance to voluntary
standards
Local Communities Corporate investment As % of earnings, Costs
S
and benefits of economic
contribution to local econ-
omy
IM
Once CSR Framework with guiding principles is chosen and CSR pol-
icies are framed, corporates should establish the CSR performance
measurement systems through the identification of KPIs and Metrics,
and establishment of procedures for tracking, monitoring and evalua-
tion. The measurement of CSR programs should focus on the follow-
ing primary objectives:
M
Monitor and control budget allocated to CSR

Track the progress of the projects through identified metrics
Review and Evaluate the results with respect to target goals estab-
lished
N
Highlight slippages, if any

Identify and implement corrective actions required, where appli-
cable
Report the progress periodically
Learn from experience
With respect to the metrics used for measurement of progress or suc-

cess of CSR projects, remember that the conventional standard finan-
cial parameters like return on investment (RoI) etc., won’t be valid in
the context of CSR. CSR investments should focus on non-financial
metrics that depends on the goals of CSR programs. For example, as
mentioned in the introductory caselet, some sample metrics used by
Starbucks are given in Table 8.4:
TABLE 8.4: STARBUCKS CSR PROGRAM METRICS

Starbucks CSR Program Metric
Coffee and Farmer Equity Pounds of green coffee purchased from
(CAFÉ) Practice CAFÉ Practices approved supplier

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Starbucks CSR Program Metric

Charitable Contributions Percentage of pre-tax earnings
Electricity Kilowatt-hours per square foot of retail
space per month
Water Gallons per square foot of retail space per
month
Paper Percentage of unbleached fiber
Workplace – Partner Engage- Percentage of engaged partners
ment
Health and safety Injury rate per 200,000 hours worked at
retail
Diversity - Suppliers Amount spent with certified minority and
S
women owned businesses in US
For measuring the CSR performance, key performance variables,

relevant metrics and target values should be selected/designed as a
IM
part of the planning phase itself of CSR projects. The metrics can also
be derived from established reporting frameworks like GRI (Global
Reporting Initiative – to be discussed in next chapter) and/or can be
built by the company in accordance with its own requirements so that
the necessary information required to support the management of
CSR programs is always available. These Key Performance Indicators
M
(KPIs) should be established in all three dimensions viz., social, eco-

nomic and environment areas.
Another important and unique aspect of monitoring and measuring

CSR projects is that the impact of the CSR projects takes long time
N
to manifest. For example, the results of a CSR program on child edu-

cation can be measured in short term through metrics like increased
enrolment and retention of students on a monthly basis etc. Howev-
er, the real impact can be ascertained only by measuring literacy and
learning levels which may take up to a year or more to measure. Sim-
ilarly, other CSR programs meant for climate change, poverty, health-
care etc., can be meaningfully evaluated only over a long period of
time after the investments have been made.
Separate tools, methodologies and frameworks can be adopted for

measuring impact of social programs which may also require empan-
elling external agencies who are specialist in respective areas. The
measurement methodology may involve selecting samples, conduct-
ing surveys, having focus group discussions and interviews etc., and
using statistical methods. Frameworks and tools like various models
discussed in earlier section like London Benchmarking Group, SROI
Model, Global Impact Assessment Tool, AA 1000 standard etc., can
also be used in the process.

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8.2.3 Benefits of Monitoring and Measurement of

CSR
Many organisations find it difficult to measure the impact of their CSR

initiatives. Some of the advantages like improved reputation and cus-
tomer loyalty cannot be quantified easily, which makes it difficult to
analyse the importance of the CSR activities. However, it is extremely
important to measure them, as it allows you to:
enhance the decision-making process as you make a progress to-
wards more CSR programmes
reveal the importance of your initiatives to your customers and
stakeholders
alignyour tasks with the organisation goals, for example, develop
employee skills or decrease employee turnover
S
When you measure the impact of your CSR activities, you are able to
connect their value with the bottom line of the organisation. For in-
stance, you can create a link between lower training costs and skill de-
IM
velopment, lower turnover rate and employee satisfaction, and much
more.
MEASURE WHAT MATTERS
Instead of concentrating only on profit, many of the progressive or-

ganisations measure what is known as Triple Bottom Line. These 3Ps
M
allow organisations to measure their performance in the below areas:

People that focuses on the community development and faithful-
ness to fair labour practices
N
Planet that focuses on the environmental impact and the integra-

tion of maintainable environmental practices
Profit is defined as the economic value that is created by the or-
ganisation after the deduction of all input costs, including the cap-
ital cost
COMMUNICATE FEWER METRICS IN MULTIPLE WAYS
One should measure a few things more carefully and in a thorough

way, instead of measuring multiple things carelessly. You should con-
centrate more on communicating what you measure and not on what
exactly you measure. You should keep in mind that stories trump fact
when considering how to communicate value. Now, this does not mean
that you should abandon the facts. However, you should communicate
in a way that it develops credibility and trust among the stakeholders.
STAKEHOLDER’S EFFECT
Through small focus groups, conversations and social media polling,

you can understand what is more important to your internal and ex-

n o t e s
ternal stakeholders. These stakeholders include community members,

employees, customers, suppliers and non-profit members. You should
take time to learn their goals, motivations and needs. You can then de-
velop a programme that serves their interests. You can be smarter in
selecting the metrics, stories and data, and selecting to report on the
metrics that your stakeholders value the most.
1. With respect to measurement and monitoring of CSR

initiatives, which of the following statement is true?
a. CSR measurement and monitoring should be separate
from sustainability reporting.
b. CSR measurement and monitoring is part of the overall
sustainability framework.
S
c. CSR reports are different from Sustainability or
responsibility accounting.
d. Sustainability initiatives are not measurable as they are
IM
part of operational value chain but CSR projects can be
measured and monitored.
2. Which of the following can be used as foundation framework
for planning, implementing and measuring CSR initiatives?
a. UN Global Compact Management Model
M
b. National Voluntary Guidelines (NVG) of India

c. OECD CSR Policy Tool
d. All of the above
3. Which of the following mapping is incorrect?
N
a. Sustainability Dimension – AA 1000 standard

b. Environmental Dimension – SA 8000 standard
c. Social Dimension – ISO 14063
d. All are incorrect
4. CSR performance measurement systems should focus on:
a. CSR metrics and measurements of social CSR programs
b. Environmental impact and their metrics
c. Triple bottom line results of economic, social and
environmental impact
5. With regard to CSR metrics, which of the following statement
is true?
a. CSR metrics cannot be universal and have to be identified/
selected/defined for each individual CSR program

n o t e s
b. Standard metrics widely accepted in industry should only

be used
c. CSR metrics generally focus on non-financial parameters
d. All except (b)
Activity
Visit the official website of AccountAbility (www.accountability.

org), which had issued the AA1000 series of standards. List major
elements and features of the standard from the perspective of sus-
tainability.
8.3 SOCIAL AUDITING
S
Social audit is a new concept that has emerged out of the growing
awareness of the responsibility of the business towards the society.
Social audit can be defined as “assessment of the social performance
IM
of an organisation”. A social audit is a way of measuring, understand-
ing, reporting and ultimately improving an organisation’s social and
ethical performance.
A social audit can contribute towards narrowing gaps between vision/

goal and reality, between efficiency and effectiveness. It is a technique
to understand, measure, verify, report on and to improve the social
M
performance of the organisation. Social auditing can also involve the

use of an independent auditing agency to verify a firm’s records of
social performance.
N
A relevant and important standard in this regard is the AA1000. It is

an accountability standard designed to ensure the quality of the social
and ethical accounting, auditing and reporting process. It is a founda-
tion standard that can be used as a tool to strengthen the quality of the
specialised accountability standards or as a standalone system and
the process for processing and communicating social and ethical ac-
countability and performance. Similarly, SA 8000 is another standard
which is another leading social certification standard. In comparison
with AA 1000, the SA 8000 focuses more on auditing procedures rath-
er than providing a CSR framework.
8.3.1 BENEFITS OF SOCIAL AUDITING
Some important benefits of social auditing are given below:

Ascertaining the exact picture of contributions made by a corpo-
rate to the society in terms of its social performance.
Performing social audit implies existence of systems for account-
ing and evaluating social performance. Social audit necessitates
existence of such systems.

n o t e s
Measuring the overall contributions made by a company to the so-

ciety and the national economy
Improving efficiency and effectiveness of social investments made
by a corporate.
Assessing physical and financial gaps between needs and
resources
Creating awareness among beneficiaries
Scrutinising various policy decisions keeping in view stakeholder
interests and priorities
8.3.2 OBJECTIVES OF SOCIAL AUDITING
Some important objectives of the social auditing process are given
S
below:
To make an assessment of social performance by an organisation
To inform the management of an organisation of the accuracy and
IM
fairness of its social accounts
To evaluate the socio-economic contributions made by the corpo-
rate
To throw light for public knowledge how far an organisation has
discharged its responsibility to the society
M
To advise the management in the preparation of social accounts

To evaluate with the help of financial data, various social actions of
an organisation and describe them in a properly analysed form in
the absence of socio-economic performance statement
N
To check whether various social actions of an organisation are

evaluated under proper categories like products, employees, envi-
ronment, community etc., in the social income statement
To examine the correctness of value added statements when the
contribution of an enterprise to the national economy is described
through such statements
To verify assets shown in social balance sheet and check their val-
ues
To examine the correctness of amount shown as social equity in
the liability side of the social balance sheet.
6. Social audit is a concept applicable for:

a. Governmental organisations
b. NGOs

n o t e s
c. CSR programs of Corporates

d. Corporates’ social performance
7. Which of the following standard can be used for social
auditing?
a. AA 1000 b. SA 8000
c. ISO 26000 d. Both (a) and (b)
8. Which of the following is an objective of social auditing?
a. It is used for ascertaining social performance of a
corporation
b. It is used for CSR reporting done along with annual report
c. It helps ascertain corporate governance standard
S
d. All of the above
Activity
IM
Visit websites of AA 1000 standard (www.accountability.org) and
SA 8000 standard (www.sa-intl.org) and study the two standards
that can be used for social auditing. Compare and contrast the fea-
tures of these two standards.
8.4 CONCEPT OF MONITORING

M
Monitoring is the process of systematic reviewing and verification

of the pre-defined outputs, together with the process through which
these results have been obtained, in order to obtain valid and relevant
N
information on work-in-progress on an ongoing basis. Monitoring pro-

vides data on CSR activities and allows the verification of progress of
projects and their effectiveness.
The objectives of CSR monitoring are:

To ensure proper standards and frameworks are used for estab-
lishing the CSR objectives & goals and that appropriate measure-
ment metrics are used
To manage CSR programs in accordance with the established
rules and policies
To track the progress of the project though identified metrics and
to review, evaluate and report the results periodically
To ensure that CSR goals, performance targets, KPIs are met as
the projects progress over a period of time
To ensure compliance with internal and external regulations
To identify slippage and implement corrective actions whenever
necessary

n o t e s
To facilitate proper support and guidance for projects in accor-

dance with the pace of progress
To ensure that best practices are used in executing and monitoring
projects
To ensure that processes are benchmarked, shared and commu-
nicated
To align CSR performance systems with operational management
systems
Effective monitoring requires integration and interpretation of vari-

ous data and indicators from multiple sources. When done properly,
effective monitoring can help in identifying patterns, as they emerge,
so that suitable remedial actions can be taken proactively to ensure
that the project meets target goals. Monitoring also helps in continu-
S
ous improvement of processes involved.
Guiding principles for establishing an effective monitoring system are:

Monitoring
IM
should involve cooperation between all the relevant
stakeholders
Itshould be a proactive and ongoing process, integrated and im-
plemented throughout the organisation
Itshould be incorporated into all relevant aspects of management
activities in order to elicit information on achievements or lack
M
their of, adherence to standards, norms and specifications, and

compliance with regulatory standards
Itmust follow clearly defined methodologies and must utilise and
support appropriate mechanisms and tools
N
It should be supported by dedicated resources

Itshould facilitate continuous improvement of management pro-
cesses involved and help learn lessons over the period of time
As the projects take-off, the progress of the projects should be tracked

by measuring the performance variables against the chosen metrics.
During the initial phase when corporates embark on CSR initiatives,
simple excel spread sheets can be used to capture and consolidate the
impact measurements. The necessary data should be gathered using
bottom-up approach where each of the company’s locations or each
region captures CSR performance data and transmits to the head
office. The data should then be consolidated centrally to enable the
company to measure and analyse the progress and identify addition-
al opportunities for improvement, as the projects gets sophisticated,
advanced tools involving databases can be established by the com-
pany to monitor the CSR projects. These performance measurement
systems should provide the top management a periodical report on
CSR performance on various guiding principles of the chosen CSR
framework.

n o t e s
8.4.1 INTERNAL COMPLIANCE MONITORING
Internal compliance refers to compliance with organisational poli-

cies and procedures setup for the purpose of CSR projects under the
CSR policy of the corporate. The internal organisational structure and
monitoring system for CSR should also comply with the applicable
laws of the country. In India, as per section 135 of the Companies Act
2013, companies that fulfil a certain criteria have to comply with spe-
cific CSR provisions.
The CSR provisions of Companies Act, 2013 require companies to

constitute a CSR committee of the Board to formulate and monitor
the CSR policy of the company. The committee should consist of at
least three directors, including at least one independent director. The
functions of the CSR committee are:
S
To formulate and recommend to the Board, the CSR Policy for the
company that describes various activities to be undertaken by the
company as specified in schedule VII of Companies Act
IM
To make recommendation on the amount of expenditure to be in-
curred on CSR activities to be undertaken
To monitor the implementation of the CSR policy from time to time
To institute a transparent monitoring mechanism for implementa-

tion of the CSR projects and activities
M
With regard to procedures and methods of monitoring, different com-

panies adopt different procedures for monitoring their CSR projects.
Figure 8.1 shows CSR monitoring & evaluation process adopted by
the Indian Pharma Major, GSK Pharmaceuticals Ltd. It has three lev-
els of monitoring for CSR projects that involves field officers, CSR
N
working group and CSR Committee. The high level CSR committee is
required to review CSR projects on a quarterly basis.
Site visits by CSR nodal officers

MIS and exception reports
Financial monitoring through audits conducted by
Level 1 external resource
CSR working group review on a quarterly basis

Level 2
CSR committee review on a quarterly basis

CSR committee appraisal to the Board of Directors
Level 3 on CSR progress from time to time
Figure 8.1: CSR Monitoring, Evaluation, Reporting at GSK Pharma

n o t e s
The CSR Policy of GSK Pharma also states that besides internal mon-
itoring and evaluation, an external social audit is conducted by re-
puted academic institutions/industry associations/consultants/market
research agencies, once in 3 years to assess the overall impact on com-
munity.
To further understand the methods and metrics used for measure-

ment and monitoring of CSR projects, study Table 8.5, which gives
some more sample CSR programs executed by leading Indian compa-
nies and their methods of monitoring and measurement:
TABLE 8.5: MONITORING & MEASUREMENT METHODS FOR CSR PRO-

GRAMS OF SOME INDIAN COMPANIES
Company CSR Program Monitoring and Measurement
Bharti Satya Bharti School Parameters: parent engagement, academ-
S
Foundation Program - Education ic achievement of students, extra-curricu-
initiative with 254 lar activities
rural schools and
sanitation program Detailed monthly tracking of parent and
teacher meetings, resources mobilised,
IM
workshops conducted, 100% toilet cover-
age for each household, details of toilets
constructed
Quality monitoring through sample

checks. Detailed daily, weekly and month-
ly monitoring of operations in order to
measure villages covered, households
M
identified, progress of construction etc
TVS Motor Integrated rural de- Villages are graded on a parameter of 1

Company velopment for 2501 to 5 based on development indicators and
villages self-sufficiency. Based on outcomes, vil-
lages moved to higher grade
N
Planning done on annual basis with quar-

terly and monthly targets. Activities like
trainings, number of meetings, number of
health camps etc are measured and com-
pared against targets
A detailed monthly MIS tracker measures
the complete development data of a vil-
lage on regular basis
Monthly reviews, peer reviews, quarterly
review with chairman of TVSST and CSR
Board
Hindustan Child development, Daily feedback of activities and progress

Petroleum Education, Health- is reported via sophisticated technology
care, skill develop- and tracking tools
ment, livelihood Partner reports and dipstick surveys
Regular third party audits
Monthly, quarterly and annual reviews
with partner organisations

n o t e s
Company CSR Program Monitoring and Measurement

L&T Social Infrastructure Monthly progress reports from various
field partners
Regular monitoring and review by engi-
neering teams
Third party audits every 3 years to under-
stand social impact
Mahindra Nanhi Kali Pro- Learning outcomes measured by special-
& Mahin- gramme on girl child ly developed methodology which includes
dra education recall charts and reflective learning tools
On ground monitoring and program
tracking through MIS
Standard templates on reporting on girl
child sent bi-annually to donors
8.4.2 EXTERNAL MONITORING AND MEASUREMENT
S
IMPORTANCE
The previous section discussed internal monitoring activities and

compliance requirements. It is also important to comply with external
IM
requirements that arise out of external stakeholders.
With the Companies Act 2013 bringing in CSR programs within the
ambit of government regulations, companies are now mandatori-
ly required to setup a CSR committee which is directly responsible
for monitoring and implementation of the CSR policy under Section
M
135(3) (c) as mentioned in the previous section. The company’s board

is directly responsible to ensure a minimum spend of 2% of profit on
CSR activities and report reasons for any unspent amount in the Di-
rector’s report and disclose its content on company’s website. The
Companies Act also requires mandatory CSR reporting. All this im-
N
plies that companies are now required to formulate proper CSR poli-
cy that is aligned with its core purpose and values, establish efficient
organisational structure to facilitate the implementation of programs,
efficiently govern the programs, setup robust monitoring, measure-
ment, evaluation and reporting frameworks. Companies need to en-
sure that their monitoring and reporting systems are in compliance
with these legal provisions.
Owing to complexities and efforts involved in ensuring compliance

of CSR programs with the Act, external consulting companies like
KPMG provide CSR Auditing services which can be used to review
CSR programs, ensure compliance with the Act and evaluate the ef-
fectiveness of internal control and governance framework.
Another dimension of external monitoring and compliance is the CSR

certification method which can be used to benchmark CSR practic-
es with industry parameters. Though there is no concept of standard
based certification requirement for CSR management as yet (ISO
26000 is only guidance standard), or existence of any mandatory certi-
fication requirements, companies may obtain voluntary CSR manage-
ment certification.

n o t e s
Companies like Bureau Veritas provide certification services under

ISO 26000. Companies can also obtain certifications under other stan-
dards like SA 8000. Such certifications can be of great help in project-
ing CSR standards and achievements of companies to the external
world. Similar to quality management system certifications, SME and
leading suppliers can seek to provide assurance about their CSR com-
mitments to buyers by obtaining such CSR certifications. There are
also organisations and international surveys that periodically evaluate
and rate leading companies on their CSR management practices.
CSR STANDARDS: ISO 26000
ISO has come out with an international standard, ISO 26000, for so-
cial responsibility developed to help organisations effectively assess
and address those social responsibilities that are relevant and signifi-
S
cant to their mission and vision, operations and processes, customers,
employees, communities and other stakeholders and environmental
impact. ISO 26000 is a guidance standard that provides only guidance
and not requirements, and hence cannot be used for certification like
IM
other standards (e.g. ISO 9000 of quality management systems). It is
meant to help in clarifying what social responsibility is, and helps busi-
nesses to translate these principles into effective actions and shares
best practices relating to social responsibility.
The standard focuses on seven core social responsibility subjects or

M
principles viz., Accountability, Transparency, Ethical behavior, Re-

spect for stakeholder, Respect for Rule of Law, Respect for interna-
tional norms and Respect for human rights.
The contents of the standard include the following elements of social

N
responsibility:
Concepts, terms and definitions related to social responsibility
Background, trends and characteristics
Principles and practices
Core subjects and issues
Integrating,implementing and promoting social responsible be-
haviour throughout organisation
Identifying and engaging with stakeholders and
Communicating commitments, performance and other informa-
tion related to social responsibility
CSR INDICES
There are also several national and international indices that have
been created to assess companies against their CSR achievements.
Companies are included into these indices based on the level of per-

n o t e s
formance with respect to CSR/Sustainability. Some well-known indi-

ces are:
Dow Jones Sustainability Indices: These are indexes that track
the financial performance of the leading sustainability driven
companies worldwide. It includes Dow Jones Sustainability Index
which covers the top 10% of the biggest 2,500 companies in the
Dow Jones World Index in terms of economic, environmental and
social criteria and Dow Jones STOXX Sustainability index which
cover the leading 20% in terms of sustainability of the companies
in Dow Jones STOXX SM 600 index.
FTSE4GOOD Index series: This is a family of global and regional
indices developed by the Financial Times Stock Exchange in asso-
ciation with Ethical Investment Research Service to track compa-
nies that exhibit good policy, management and performance with
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respect to CSR.
QUALITATIVE AND QUANTITATIVE TOOLS

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Organisations can adopt various quantitative and qualitative tools to
analyse and measure the impact of CSR initiatives and projects on the
varied stakeholder groups that they cater to. The major qualitative
tools include:
Media coverage- positive and negative
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Peer and expert evaluation

Stakeholder’s dialogue and feedback
Image in the government and regulatory authorities
Perception of other stakeholders
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The major quantitative tools include:

Customer surveys
Surveys on the attitude of society and local community
Surveys on employees for health and safety, productivity and effi-
ciency
SRI ranking and listing in sustainability indexes
Use of reporting tools such as the GRI and other internal audit
tools
9. With respect to CSR monitoring, which of the following

statement is not true?
a. CSR monitoring and reporting has become compulsory in
India under companies act, 2013

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b. Companies Act, 2013 requires setting up of CSR committee

for monitoring CSR programs
c. There are legal requirements for CSR investments but not
for CSR monitoring
d. All of the above
10. There is no standard procedure or standard for CSR
monitoring. Companies should decide and establish their own
CSR monitoring systems. (True/False)
11. Which of the following is true with respect to ISO 26000?
a. It is a ISO standard for CSR management certification.
b. It is an auditing standard for social accountability.
c. It is a CSR guidance standard only with no mandatory
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requirements.
12. A company has embarked on a CSR program that required
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an investment of INR 100 crores over five year period. The
program focused on social infrastructure for some rural
villages. Which of the following can be the measurement and
monitoring metric for this project?
a. NPV and IRR for five year period for rural infrastructure
provided
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b. Cost-Benefit analysis for five year period

c. Decrease in Transaction costs and increase in productivity
in the rural region
d. Both (c) and (d)
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13. A company has invested in rural education project. Which of

the following could be relevant metric for the project?
a. Increase in percentage of children going to schools
b. Increase in literacy levels
c. Third party audit results over five year period
d. All of the above
Activity
Perform a survey on leading CSR indices like the Dow Jones sus-
tainability index. For each index, list down top 5 companies in-
cluded in the index. Discuss the unique features of CSR programs
of these companies which have helped them to make it to the top
league of these indices.

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8.5 SUMMARY
CSR programs have no profit motives and hence cannot be viewed
strictly as financial investments. However, it is necessary to mea-
sure and monitor non-financial parameters pertaining to the mis-
sion and goals of the CSR programs.
CSR is a term that is sometimes used synonymously with sustain-
able growth. Sustainability is a wider concept that includes how
the profit is made with reference to impact on socio-environment
while CSR is generally viewed with the perspective of what is done
with profit. In this respect, CSR is a subset of Sustainability con-
cept. The measurement focus should hence take into account the
Triple Bottom Line perspective.
There are several CSR / Sustainability Frameworks and guiding
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principles available which can be used as the foundational frame-
work for planning, implementing and monitoring CSR initiatives.
In India, Government has issued the Nine Voluntary Guidelines
(NVG) in this regard.
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There are tools and frameworks available also for each of three
dimensions of economic, social and environmental aspects of sus-
tainability. Such frameworks can also be used to measure and
monitor the CSR activities.
Companies should establish CSR performance measurement sys-
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tems to measure and monitor their CSR programs. There are no

universally applicable measurement framework or measurement
metrics available owing to the specialised nature of individual CSR
programs. Companies have to design their performance measure-
ment system and the relevant metrics. An example is provided in
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the chapter as to how Starbucks has developed its own metrics.

CSR metrics involve both project and impact measurements. Im-
pact measurements take a long time to ascertain owing to the na-
ture of CSR social and environment programs.
Social auditing is a concept that strives to ascertain the overall
social performance of companies. Standards like AA 1000 or SA
8000 can serve as auditing standards. There are several benefits to
social auditing whose objective is to make an assessment of social
performance of the organisation.
Organisations should establish CSR monitoring systems to track
and improve the progress of CSR projects. This ensures that CSR
projects are carried out in accordance with CSR policies and they
are on track to achieve the goals stated in the program.
The Companies Act, 2013 requires companies to set up CSR com-
mittee at the highest level and design their CSR policies. The CSR

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committee should monitor the implementation of the CSR policy

from time to time.
CSR achievements of companies can also be certified with exter-
nal auditing services. Standards like ISO 26000, SA 8000 or AA
1000 can be used for certification purposes. This can help project
the CSR commitments of the organisation to the external stake-
holders.
key words
Auditing: A systematic and independent examination of books,

accounts, statutory records, documents and vouchers of an or-
ganisation to ascertain how the financial (or others like social
accounts) statements as well as non-financial disclosures pres-
ent a true and fair view of the concern.
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Metric: A standard of measurement used to measure system
parameters.
Monitoring:
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A process of systematically reviewing, observing,
checking and verifying the progress or quality of something
over a period of time.
Sustainability: An outcome achieved by balancing the social,
environmental and economic impacts of business. The concept
requires organisation to pursue their business goals without
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compromising any of the three elements.

Value chain: The value created by the distributed channel for
end use customers.
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1. Discuss various frameworks and guiding principles that can be
used as foundation for CSR monitoring and measurement. List
nine voluntary guidelines (NVG) suggested for Indian companies.
2. Discuss the concept of CSR performance measurement systems.
List various dimensions, standards and sample metrics of CSR
performance measurement.
3. Explain the concept, objectives and benefits of social auditing.
4. List the guiding principles for an effective CSR monitoring
system.
5. Explain legal provisions with regard to CSR monitoring in India.
What are the functions of CSR committee as per Companies
Act, 2013?

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Focus of Measurement 1. b. CSR Measurement and monitoring
is part of the overall sustainability
framework
3. a. Sustainability Dimension – AA
1000 standard
4. c. Triple bottom line results of eco-
nomic, social and environmental
impact
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5. d. All except (b)
Social Auditing 6. d. Corporates’ social performance
7. d. Both (a) and (b)
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8. a. It is used for ascertaining social
performance of a corporation
Concept of Monitoring 9. c. There are legal requirements for
CSR investments but not for CSR
monitoring
10. True
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11. c. It is a CSR guidance standard only

with no mandatory requirements
12. d. Both (c) and (d)
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1. There are several international and national frameworks, such
as UN Global Compact Management Model, National Voluntary
Guidelines, etc., available for CSR planning, implementation
and monitoring. Refer to Section 8.2 Focus of Measurement.
2. CSR performance systems should be designed by corporates
based on the framework chosen. There are no standard systems
or metrics available for performance measurement. The systems
should consider all dimensions of triple bottom line. Refer to
Section 8.2 Focus of Measurement.
3. Social auditing is meant to measure the social performance of
corporates. Refer to Section 8.3 Social Auditing.
4. There are several guiding principles that can promote effective
monitoring. For example, monitoring should involve cooperation
between all the relevant stakeholders, it should be a proactive

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and ongoing process, integrated and implemented throughout

the organisation, etc. Refer to Section 8.4 Concept of Monitoring.
5. The Companies Act, 2013 requires setting up of CSR policy and
CSR committee for effective monitoring and reporting. Refer to
Section 8.4 Concept of Monitoring.
SUGGESTED READINGS
Carroll,A., & Buchholtz, A. (2015). Business & society: Ethics,
Sustainability, and Stakeholder Management (9th ed.). Cengage
Learning.
Chandler, D., & Werther, W. (2014). Strategic corporate social
S
responsibility. Los Angeles: SAGE.
Zadek, S. (2012). The Civil Corporation. Hoboken: Taylor and
Francis.
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E-REFERENCES
4. Training module on social audit. (2018). Fao.org. Retrieved 5 April
2018, from http://www.fao.org/docrep/006/ad346e/ad346e09.htm
CSR Reporting, Measurement and Certification Processes - One 4
All CSR. (2018). One4AllCSR. Retrieved 5 April 2018, from http://
M
one4allcsr.com/courses/reporting-measurement-and-certifica-
tion-processes-in-csr/
Evaluating Corporate Social Responsibility Performance | Worki-
va. (2018). Workiva.com. Retrieved 5 April 2018, from https://www.
N
workiva.com/blog/evaluating-corporate-social-responsibility-per-
formance
Planning, monitoring and assessing the impact of CSR projects.
(2018). Slideshare.net. Retrieved 5 April 2018, from https://www.
slideshare.net/spande1952/planning-monitoring-and-assess-
ing-the-impact-of-csr-projects
The importance of measuring and evaluating your CSR impact.
(2018). edie.net. Retrieved 5 April 2018, from https://www.edie.net/
library/For-sustainability-to-be-more-impactful--measurement-
needs-to-be-meaningful/6696

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C h a
9 p t e r
CSR REPORTING
CONTENTS
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9.1 Introduction
9.2 CSR Reports – Mandatory or Voluntary?
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9.2.1 Nature of CSR Reporting
9.2.2 Regulatory Landscape
9.2.3 Benefits of CSR Reporting
Activity
9.3 Reporting in CSR
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9.3.1 What to Report

9.3.2 Whom to Report
9.3.3 How to Report
9.3.4 Contents of CSR Report
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9.3.5 Formats of CSR Communication and Reporting

9.3.6 The Reporting Team
9.3.7 Additional References for CSR Reporting
Activity
9.4 CSR Report of a Company
Activity
9.5 Summary

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CSR REPORTING IN INDIA – ACC LIMITED
In 2017, GRI (Global Reporting Initiative) Regional Hub South

Asia gathered some of the biggest Indian companies to promote
high-quality reporting in the region and initiate a discussion on
the corporate role in the 2030 Agenda for Sustainable Develop-
ment. ACC Limited was one of the prominent companies that par-
ticipated from India. ACC Limited, India’s leading cement and
concrete manufacturer, is one of the earliest adopters of the GRI
standards in India, ever since GRI’s global launch in 2016. It be-
came the first company in India to release its externally assured
sustainable development report 2016 as per new GRI standards.
ACC Limited says GRI standards brought better clarity with dis-
closures and have helped the company make its report more com-
S
prehensive and transparent.
ACC was a pioneer in India when it comes to Corporate Social

Responsibility (CSR) initiatives. In 1976, when ASSOCHAM in-
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stituted the first ever CSR award of the country, it went to ACC.
CSR was a formal process at ACC as early as in 1952, when it
introduced the village improvement scheme. By 2016, the compa-
ny’s community development programme reached out to benefit
over a 4.23 lakh people in 202 villages across the country. ACC was
also chosen among several other Indian companies to receive the
first ever “ICSI CSR Excellence Awards 2016” instituted by ICSI.
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It was also selected in 2016 as “India’s most sustainable company”

and was awarded the CII-ITC Sustainability Award for outstand-
ing accomplishment in recognition of its continued efforts and
commitment to the cause of sustainable development. It bagged
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this prestigious award for the third time in the last four years.
Hence, owing to its long record and success in corporate sustain-
ability initiatives, it is also the right company for studying CSR
reporting practices in India. We shall refer to ACC all through this
chapter to understand the concept of CSR reporting.
ACC considers sustainability as an essential part of its business

value chain and is deeply committed to ensuring that it remains
central to its strategy and decision making. It endeavours to
achieve high standards in customer excellence, innovation, re-
source conservation, environmental management and communi-
ty engagement to create value for all its stakeholders.
Companies adopt different methods of CSR reporting as we will

be discussing in this chapter. Some companies include CSR re-
porting as a separate component of its annual report; some others
make the annual report an integrated one that combines sustain-
ability with traditional reporting using an integrated framework
while others issue a separate sustainability report. ACC had cho-
sen the option of publishing separate annual report dedicated to

CSR REPORTING 251
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sustainability. The content of the sustainability report can again

be based on different frameworks/standards. ACC had chosen the
most prominent and widely followed international CSR reporting
standard, GR (Global Reporting) Standards, being the first com-
pany to do so in India, as mentioned before.
Apart from CSR reporting standards, companies also have to

choose relevant higher level guiding principles / CSR frameworks
which can help them in planning, implementing, measuring and
monitoring their CSR initiatives. We discussed these frameworks
in the last chapter. ACC had chosen to present its overall goals
and guiding principles for CSR / Sustainability in terms of UN’s
Sustainable Development (SD) Plan 2030. In its Sustainability re-
port for 2016, the company as part of its Sustainable Development
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(SD) 2030 plan outlines the path it wishes to take to build and
secure itself a sustainable future. It comprises a set of commit-
ments divided broadly into four main fields of action that address
climate change, circular economy, water & nature and people &
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communities. The plan also sets quantitative targets related to its
direct and indirect impacts over the whole life cycle of its prod-
ucts and services on which it will periodically monitor and report
progress.
Finally, Companies also have to decide on external assurance. As

we will see in this chapter, the legal provisions are different for
M
each of the following decisions with regard to whether they are

voluntary or mandatory (and they also differ in different coun-
tries) viz., CSR investments, CSR reporting and External Assur-
ance (CSR auditing). Though CSR auditing is not mandatory in
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India, ACC has got its Sustainability Report voluntarily assured

by an external auditing firm. The auditing again offers several
choices for companies. ACC chose to audit its report under AA
1000 standards and GR Standards.
In its report, the company had detailed its CSR / Sustainability

initiatives in all three Triple Bottom Line dimensions of Econo-
my, Social and Environment using GR standards. The GR stan-
dards reporting can be done at a “comprehensive level” or at
some specific standards. ACC chose to present its report using the
“Comprehensive Option” which requires a huge effort and very
elaborate measurement and monitoring. The report meticulously
details its approach and achievements in dimensions like stake-
holder engagement, materiality & strategy and business risks &
opportunities. It also provides the SD Scorecard for 2016 with
targets and achievements for several sustainability parameters
concerning carbon emissions, water conservation, energy conser-
vation and CSR commitments.
Source: “Sustainable Development Report 2016”, ACC Limited, http://www.acclimited.
com/assets/new/pdf/Acc--SD--Report2016.pdf

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learning objectives

>> Explain the legal provisions, standards and frameworks per-
taining to CSR reporting
>> Describe various elements of CSR reporting in terms of what
to report, whom to report and how to report
>> Discuss the various options available for corporates with re-
gard to CSR guiding principles, CSR reporting frameworks,
CSR reporting standards and CSR auditing standards
>> Explain the different formats of CSR reporting methods and
enumerate the contents of a typical CSR report
>> List the content and purpose of different CSR reporting
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frameworks and standards
9.1 INTRODUCTION
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In the previous chapter, we studied about CSR measurement and mon-
itoring systems. Though CSR investments by companies are made
without profit motives, it is necessary that CSR projects are measured
and monitored so that the achievement of non-financial goals, with
which the investments are made, is verified and validated. Another
benefit of CSR measurement and monitoring systems is CSR report-
M
ing. Without measuring something we cannot manage it. Similarly,

without such performance measurement systems, we cannot produce
reports that can be used to communicate with stakeholders.
CSR reporting is beneficial and important from the perspective of

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both internal and external stakeholders. Internally, measurement and

monitoring should go with reporting without which the progress and
success of the initiatives cannot be shared with internal stakeholders
including top management. CSR reporting is also important from the
perspective of external stakeholders, especially in the context of sus-
tainability objectives. Sustainability / CSR reporting helps corporates
engage with their various stakeholders.
In some countries, CSR reporting is also mandatory. But irrespective

of the legal requirements, CSR reporting has already become a nor-
mal feature with all the major MNCs. As indicated by numerous sur-
veys, most of the big multinational companies invariably report their
CSR / Sustainability Performance along with their annual report. For
the leaders of most of these big companies, there cannot be any debate
about whether CSR reporting is required or not. The debate is now
more about the nature of reporting frameworks, standardisation and
auditing methods.
In this chapter, we shall study about CSR reporting methods and

frameworks.

CSR REPORTING 253
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CSR REPORTS – MANDATORY OR

9.2
VOLUNTARY?
The concept of Corporate Social Responsibility & Sustainability is
based on the premise that “businesses perform best when they play
a strong role in the communities in which they operate”. This was
the premise that was at the heart of Adam Smith’s doctrine that soci-
eties function best when economic and ethical interests coincide. As
the trend of industrialisation progressed and the growing impact of
corporates in social and environmental dimensions were recognised,
corporates increasingly came under pressure to take cognizance of
the above premise. Ultimately, this has led to the concept and need
for Triple Bottom Line (TBL) reporting, where companies were re-
quired to report not only on their financial performance but also on
the impact they make on the society and environment in which they
S
function.
The responsibilities of major MNCs of developed countries, towards

IM
social and environmental impact they make, can be gauged by the fact
that the developed economies though inhabited by only 16% of the
world population account for 75% of the consumption of the world’s
energy and resources, and create the bulk of industrial and consumer
waste that questions the well-being of future generations.
Several worldwide initiatives like UNEP conference (1972), Earth

M
Summit (1992), the many subsequent green movement initiatives

stressed upon the importance of corporates taking social and environ-
mental responsibility and CSR reporting. In this regard, the Brundt-
land Report in 1987, which first introduced the term “sustainability”,
served as a major catalyst towards sustainable development. In India,
N
the National Environment Policy (NEP) was approved in 2006 which

recommended the use of standardised environmental accounting
practices and norms in preparation of financial statements of large
corporates.
Along with the sustainable development paradigm which stressed on

the premise “that sustainable development should meet the needs and
aspirations of the present without compromising the ability to meet
those of the future”, which focussed primarily on the overall economic
development of countries and the role of corporates in it, the concept of
sustainable growth for corporates also came into prominence. Though
major corporates have always undertaken CSR projects world-over
(as we saw, ACC Ltd of our introductory caselet, which we shall re-
fer all through this chapter, was undertaking CSR projects as early
as in 1952), the emphasis was on what is done with profits towards
social responsibility, “after they are made” rather than on “how the
profits have been made”. The sustainability paradigm for corporates
requires them to focus on “how they make profits” with reference to
the impact they make on society and environment. Corporates world-

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over are now linking these economy-wide goals, like UN Sustainable

Development Goals Plan 2030, with their value chain.
In earlier decades, leading and socially conscious corporates used to

mention their CSR initiatives as a part of their annual reports, on a
voluntary basis, pertaining to corporate philanthropic activities most-
ly unrelated to their core business. With the emphasis on Triple Bot-
tom Line reporting, corporates realised the need for the development
of management information systems and reporting practices to assist
them in their pursuit of sustainability.
In the concept of Triple Bottom Line reporting, the economic dimen-

sion refers to the creation of value through production of goods and
services, and through the creation of jobs and income. This is nor-
mally the subject of annual financial statements. The social bottom
line refers to how the company has benefited the society constituting
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customers, vendors, communities, governments and people in gen-
eral. The environmental bottom line refers to how the company has
contributed to the sustainability of its environment by minimising
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environmental damage and ensuring a sustainable inventory of nat-
ural resources. While the CSR reports were less than 100 in 1992, it
went up to more than 3000 in 2008. By early 2000, most of the world’s
leading companies were publishing TBL or sustainability reports as
a matter of course. The above discussion was to clarify the concepts
of CSR and Sustainability reporting and why it has become necessary
for corporates to report on their sustainability initiatives.
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9.2.1 NATURE OF CSR REPORTING
Different countries have different kinds of regulations with regard to

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CSR reporting. Some require some specific disclosures to sharehold-

ers while other regulations require the periodical and formal filing
of returns and reports. However, irrespective of legal necessity, CSR
reporting has already gone beyond legal requirements and has taken
the form of voluntary reporting with most of the leading MNCs.
The difference in regulations between countries can be attributed to

the lack of consensus in the debate related to whether CSR report-
ing should be made voluntary or mandatory. The majority opinion in
the past favoured the practice of voluntary reporting. It was felt that
making CSR reporting a legal requirement would force corporates to
take a defensive stand which might spoil the spirit of the whole exer-
cise. When the reporting is done out of the need for compliance, it was
thought that it may become a routine exercise that results in predict-
able standard reports which nobody might be interested in reading.
Some experts say that the CSR itself should be one of the voluntary ini-
tiatives that should begin where the law ends, and should be entirely
motivated by ethical and strategic concern over economic, social and
environmental issues. Hence, the reporting should also be voluntary

CSR REPORTING 255
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exercise. The issue; whether all companies should be forced to un-

dertake and report on CSR, or only major and big corporates, which
really make significant impact on the socio-economic environment
and can play a significant role in alleviating the problems, should be
asked to report on their CSR activities; is also being debated. At pres-
ent, the debate seems to be already over, especially with big leading
corporates, as almost most of the MNCs across the world have already
started publishing their annual sustainability reports. This also makes
regulatory requirement superfluous.
9.2.2 REGULATORY LANDSCAPE
The present trend and consensus seem to bring CSR reporting under
legal ambit, as also evidenced in the recent legislation of many coun-
tries. For example, the EU directives of 2014 on non-financial disclo-
S
sures mandate CSR reporting a legal requirement and require coun-
tries of the EU to legislate their respective own country laws for CSR
reporting. The EU directive applies to any EU public company that
has more than 500 employees. It requires the following information to
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be provided as part of the annual reports:
A brief description of the entity’s business model
A description of the policies pursued in relation to each of environ-
mental, social, labour, human rights and bribery matters including
the implemented due diligence processes
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The outcome of the policies

Principal risks related to those matters linked to the entity’s oper-
ations
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Nonfinancial key performance indicators relevant to the particu-

lar business
In the UK, some 86% of FSTE 100 corporations issued CSR reports
in 2007. In France, publishing CSR reports is a legal obligation and
French law requires all large firms listed on Paris Stock Exchange to
integrate CSR data into their financial reports. It is also mandatory
in emerging market economies like South Africa, Malaysia and India.
A 2016 survey of 71 countries, by Carrot & Sticks, focussed on trends

in sustainability reporting has revealed the following facts, with re-
gard to reporting instruments (i.e. regulations, code of conducts, guid-
ance, standards etc.):
Around 80% of the countries studied had introduced some form of
regulatory sustainability reporting instruments/directives/regula-
tions.
Around two-thirds of regulatory requirements are mandatory and
rest are of voluntary in nature. Around one in ten adopts a ‘comply
or explain’ approach.

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The requirements mandated by stock exchanges and financial reg-

ulators constituted around one-third of all sustainability reporting
requirements.
Governments and regulators increasingly require or encourage
companies to disclose sustainability information in their annual
reports.
There has been increasing number of directives that focus on pub-
lishing social information.
While there are reporting requirements that require disclosure
through stand-alone sustainability reports, most of the regulations
seem to be contented with the disclosure in the annual reports.
As of 2017, in countries like India, US, UK, European Union, Den-

mark, Finland, Japan, Korea, France, Pakistan, Malaysia and Canada,
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there is already some form of mandatory environmental / sustainabil-
ity reporting in place. In Sweden and Russia, the state-owned enter-
prises are mandated to report on environmental issues. Norway has
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passed legislation requiring large companies to report on how they
integrate social responsibility into their business strategy. South Afri-
ca had become the first country to require an integrated report from
listed companies based on guidelines of King Report III. More than
90% of companies in South Africa are providing sustainability reports
following this legislation.
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CSR’S REGULATORY LANDSCAPE – INDIAN PERSPECTIVE
The policies, acts, rules, amendments, notification and guidelines are

released by the Government of India, Ministry of Corporate Affairs
and the Ministry of Home Affairs from time to time. These documents
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govern the CSR in India and include the following:

Amendment to CSR Rules, 2016
Amendment to Schedule VII in Companies Act
Section 135 of the Companies Act 2013
Guidelines of Corporate Social Responsibility and Sustainability
for Central Public Sector Enterprises
You have already learnt that as per Section 135 of Companies Act
2013, every company having net worth of rupees five hundred crore
or more, or turnover of rupees one thousand crore or more or a net
profit of rupees five crore or more during any financial year shall con-
stitute a Corporate Social Responsibility Committee of the Board con-
sisting of three or more directors, out of which at least one director
shall be an independent director. The Corporate Social Responsibility
Committee would be responsible for formulating and recommending

CSR REPORTING 257
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to the Board, a Corporate Social Responsibility Policy which shall in-

dicate the activities to be undertaken by the company as specified in
Schedule VII of the Act. Section 135 also mandates that in each finan-
cial year a company must spend at least 2% of the average net profit
of the company made during three years immediately preceding fi-
nancial years towards Corporate Social Responsibility projects and
programmes.
According to Schedule VII of the Companies Act, 2013, a company

may take up CSR activities such as eradicating extreme hunger and
poverty; promoting education; promoting gender equality and em-
powering women; reducing child mortality and improving maternal
health; combating human immunodeficiency virus, acquired immune
deficiency syndrome, malaria and other diseases; ensuring environ-
mental sustainability; etc.
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Amendment to CSR Rules, 2016 came into effect in May 2016. These
rules enlist and describe corporate social responsibility, CSR activ-
ities, CSR committees, CSR policy, CSR expenditure and CSR re-
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porting. On 23rd May 2016, the Ministry of Corporate Affairs (MCA)
released a notification regarding the Companies (Corporate Social
Responsibility Policy) Amendment Rules, 2016, effective from 23rd
May 2016. According to the amended CSR Rules, companies can un-
dertake CSR activities through a S.8 company, a registered trust or
a registered society. However, if the company decides to undertake
the CSR activities through a S.8 company or a registered trust or a
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registered society, then the company, trust or society must have an

established track record of undertaking similar programmes for three
years. The company must also specify the projects and programmes
to be undertaken, method of utilisation of funds, and monitoring and
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reporting mechanisms.
9.2.3 BENEFITS OF CSR REPORTING
As per stakeholder theory, CSR reporting can be used as a key and

strategic tool for engaging with stakeholders. CSR reports can act as
a central charter for public relations, for communication and creation
of mutual understanding and for managing potential conflicts. Apart
from this, following are some major benefits of CSR reporting:
As per legitimacy theory, CSR reports can help corporates achieve
legitimacy through the fulfilment of their social responsibility. The
legitimacy theory explains that when corporate management re-
sponds to the expectations of the community, governments and
other stakeholders, the corporate gains more legitimacy, trust and
a social license to operate.
CSR reporting can help create a culture of trust, transparency and
accountability. Effective CSR communication can improve the
corporate brand image, social reputation and can create corporate
goodwill.

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CSR reporting allows a company to measure and improve its CSR

performance and forces companies to measure their CSR impact
constantly.
CSR reporting can promote an internal audit of what the company
does and why it is done.
CSR reporting can encourage companies to examine the align-
ment between their CSR strategy, their mission and overall cor-
porate strategy to ensure that they are on the pathway to strategic
CSR.
CSR reporting requires disclosing of social, environmental and
governance information which can lead to better identification
and management of issues that influence overall business success.
CSR reporting can help companies measure the true costs of their
S
operations, realise the cost of their externalities, understand the
financial impact of their CSR and improve their overall sustain-
ability, financially and non-financially.
IM
Good disclosure of non-financial information enables investors
to contribute to a more efficient allocation of capital and better
achieve long-term investment goals.
It can improve internal decision making and reduce costs. Organ-
isations that produce social and environmental reports develop
better internal control systems, improve their decision making
M
and reduce costs, resulting in continuous improvements.

Surveys indicate that companies find improvement in business
performance and innovation as one of the primary benefits of CSR
reporting.
N
The process of CSR reporting is found to be a powerful internal

communication tool. CSR reporting can improve internal aware-
ness and can act as a useful repository of information for all em-
ployees to use in their work and in their communication with ex-
ternal stakeholders including investors and analysts.
CSR can enhance competitive advantage of a company in the
market. CSR requires companies to review their core operations
across their value chain and work with a broader set of stakehold-
ers to achieve financial and social value over the long term.
1. Which of the following statements is false with regard to the

difference between Sustainability and CSR reporting?
a. Sustainability deals with how profits are made by corporates
with reference to their social and environmental impacts
while CSR is generally associated with what is done with
profits with reference to social responsibility.

CSR REPORTING 259
n o t e s
b. Sustainability deals with Triple Bottom Line reporting

while CSR as a concept generally deals with corporate
philanthropy.
c. Sustainability is more concerned with sustainable
development and growth of nations and economies with
regard to environmental degradation, human rights etc.
while CSR deals with the social responsibility of corporates.
d. Both the terms can be synonymously used but CSR as a
concept of corporate philanthropy has always been there
while sustainability paradigm is a wider concept that
focuses on corporate growth without sacrificing needs of
future generations.
2. Which of the following statements is false with regard to
nature of Sustainability / CSR reporting?
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a. The widely found sustainability reporting by major
corporates across the world is mainly driven by legal
mandates.
IM
b. Most of the major MNCs publish sustainability reports
voluntarily owing to the benefits it offers to them.
c. The growing consensus, in the debate of whether
sustainability reporting should be made mandatory or
voluntary, is that it should be brought under the legal
ambit.
M
d. Mandatory sustainability reporting has greater significance

when viewed from the perspective of major corporates. It
may not be of much significance as far as smaller companies
are concerned who may neither have as much impact on
society nor have the maturity to play a significant role.
N
3. In which of the countries, both CSR investment and CSR

reporting are mandatory?
a. European Union
b. US
c. India
d. South Africa
4. Which of the following is not a benefit arising out of CSR
reporting?
a. CSR reporting can lead to higher growth and profitability.
b. CSR Reporting offers legitimacy and social trust for
corporates.
c. CSR Reporting allows active engagement with
stakeholders.
d. CSR Reporting helps measure and improve CSR
performance.

n o t e s
Activity
India is the first country to legislate mandatory CSR investments.

Similarly, South Africa is one of the first countries that made sus-
tainability reporting compulsory. Study the regulations concerning
sustainability reporting in South Africa including King Report on
the subject. Compare and contrast the legislation of the two coun-
tries and provide your conclusions.
9.3 REPORTING IN CSR

In the previous sections, we studied about concept and rationale be-
hind CSR phenomenon and CSR Reporting, the legal landscape sur-
rounding CSR reporting and the benefits of CSR reporting. In this
S
section, we shall study the contents of CSR reports.
9.3.1 WHAT TO REPORT

IM
As we discussed before, CSR reporting in the wider context of sustain-
ability reporting involves reporting the Triple Bottom Line perfor-
mance of a company in the three dimensions of economic, social and
environmental performance. Earlier, we also differentiated between
CSR activities that concern “how profit is made” vs. “what is done
after profit is made” with respect to social and environmental respon-
M
sibilities of the company from the perspective of both the sustainable

economic development of nations and the sustainable growth of the
company.
Within this context, the CSR reporting can take many forms. Some
N
legal CSR reporting requirements may focus only environmental per-

formance while others on social performance of the organisation and
yet others on all the three bottom lines. Initially, the CSR reporting
evolved mainly in response to environmental responsibilities of major
corporations. This, then got extended to include human rights, labour
conditions, corruption etc., all of which got encoded in UN Global
Compact Management Model.
With respect to CSR activities pertaining to Social Philanthropy which

deals with “what is done for society after profit is made”, as we noted,
leading companies were already undertaking social projects. In the
recent times, the social responsibility of companies in terms of CSR
investments for such projects and its reporting has come under scru-
tiny which had led to some countries making it legal and mandatory.
The CSR reporting in India is more focused on “what is done after

profit is made” in terms of social projects which may be unrelated to
core businesses. The CSR reporting in cases like that of India does not

CSR REPORTING 261
n o t e s
necessarily focus on sustainability initiatives in all three dimensions.

Similarly, in some countries, the legal requirements for CSR reporting
may focus only on environmental or human rights regulations. Hence,
the content of CSR reporting, in terms of mandatory legal require-
ments, depends on the legal provisions of the particular country.
But, as we noted, all leading companies, across the world, have already
started voluntary CSR reporting in the wider context of sustainability,
which requires performance of the company in all the three dimen-
sions of economic, social and environmental aspect. The widely fol-
lowed principles framework is the UN Global Compact Management
Model and UN Sustainable Development Goals. The most widely fol-
lowed reporting framework is the Global Reporting Initiative (GRI).
These two mostly determine the content of the CSR reporting.
S
CSR REPORTING REGULATION IN INDIA
India is the first country in the world that required mandatory CSR
investments (most of the developed countries require mandatory re-
IM
porting but not investments). The Companies Act 2013 also requires
mandatory CSR reporting. The legal provisions with respect to CSR
in India are:
Companies with a net worth of INR 500 crores or Turnover of INR
1000 crores or net profit of INR 5 Crores have to spend 2% of their
profits on CSR activities.
M
Companies must establish a CSR committee comprising at least

three board members and an independent member.
CSR committee shall be responsible for developing and recom-
mending to the board a CSR policy that identifies the CSR activi-
N
ties to be undertaken in compliance with the ACT, implementation

schedules and monitoring of company’s CSR performance.
CSR committee shall recommend the budget for those CSR activ-
ities and evaluate the company’s efforts.
The obligation to fund CSR activities is coupled with a mandatory
reporting requirement. The annual report of board must provide
information on how the company is complying with the Company
Act, including the composition of the CSR committee, an outline
of CSR policy and information on the projects/programs to be un-
dertaken.
Ifrequired 2% of average net profits have not been spent on CSR
projects, the annual report should provide an explanation.
The CSR policy should be made available online through the com-
pany’s website.

n o t e s
The roles and responsibilities of the board and CSR committee are
given in Table 9.1:
TABLE 9.1: ROLES AND RESPONSIBILITIES OF THE

BOARD AND CSR COMMITTEE
Roles and Responsibilities of Roles and Responsibilities of the CSR
the Board Committee
Constitute CSR committee Formulate CSR policy and recommend
the same to the board for approval
Approve CSR policy Recommend projects which are in align-
ment with the Schedule VII of the Act
CSR disclosure in Director’s Recommend budget amounts to be in-
Report and company website curred for project implementation
Ensure compliance with the Institute a monitoring mechanism for
Act with regards to CSR spends CSR projects
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and disclosure
Ensure concurrence of CSR ini- Periodically monitor the CSR policy and
tiatives listed out in CSR policy projects
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and actual implementation
BUSINESS RESPONSIBILITY REPORTING IN INDIA
In India, apart from CSR reporting required to be done with annu-

al reports, all listed companies are also required by SEBI, to furnish
“Business Responsibility Report (BRR)” in accordance with the “Na-
M
tional Voluntary Guidelines” consisting of nine principles issued by

Ministry of Corporate Affairs (discussed already in previous chapter).
The listing regulations of SEBI specifies that the annual report shall
contain a business responsibility report describing the initiatives tak-
N
en by the listed entity from an environmental, social and governance

perspective in the specified format.
SEBI has prescribed the following format for BRR using which the
reporting has to be done. The format is given below:
SEBI’s Suggested Format for Business Responsibility Report

Section A: General Information about the Company
Section B: Financial Details of the Company
Section C: Other Details
Section D: BR Information
1. Details of the Director responsible for implementation of BR

policy
2. Details of BR head
3. Principle-wise BR Policy as per NVG
Section E: Principle-wise Performance of the Company

CSR REPORTING 263
n o t e s
SEBI regulations also state that Indian companies which prepare

CSR/Sustainability report in accordance with internationally rec-
ognised reporting frameworks need not publish a separate BR report.
Since ACC has published a sustainability report in accordance with
GRI Framework, it has not published a BR report.
9.3.2 WHOM TO REPORT
CSR reports are valuable to different stakeholders of an organisation

like investors, communities, NGOs, regulators, employees, suppliers
and managers. A survey by UK consultancy group SustainAbility
found that approximately 55% used CSR reports for consuming and
purchasing decisions, 45% for investing, 38% for engagement, 34%
for partnerships, 32% for finding employment and 26% for conduct-
ing business-business relationships. The CSR reports can satisfy the
S
needs of various stakeholders as discussed below:
Investment needs: CSR reports are valuable to the financial com-
munity. Through information provided in CSR reports, financial
IM
analysts gain insights on social and environmental products with
growth opportunities and the way organisations are managing the
CSR risks like social and environmental risks faced by companies
and the management approach adopted by companies for tackling
these risks.
Engagement needs: CSR reports can help community activists
M
and NGOs that want to engage the corporates on social and envi-
ronmental concerns. CSR reports provide information on the CSR
policies and practices on key social and environmental issues.
Management needs: Internal stakeholders like senior manage-
N
ment personnel and policymakers of the company can gain fo-

cused insights on CSR issues that are of strategic importance.
Purchasing needs: Purchasers of companies’ products and ser-
vices, including suppliers and governmental agencies associated
with the organisation, can assess how the CSR record of company
compares with that of competitors and the kind of CSR standards
internally maintained and externally demanded by the organisa-
tion.
Community activity needs: NGOs that are interested in partner-
ing with CSR activities of corporates can obtain the required in-
formation about the CSR activities of a company through the CSR
reports.
Academic needs: CSR reports can also provide information, to ac-
ademics and researchers involved in the field of CSR, on key social
and environmental concerns, its measurements and management
by leading corporates.

n o t e s
With regard to mandatory reporting, it may be required to be filed with

regulators with whom the annual report is filed, to stock exchanges
that have listing regulations mandating CSR reports, financial regula-
tors like SEC, SEBI etc. of respective countries and other government
regulatory authorities. Companies that follow international frame-
works like GRI may also be required to file a copy with the respective
institutions. Organisations like GRI, IIRC etc., maintain a database of
all the sustainability reports published by companies across the world
reported in accordance with their standards.
9.3.3 HOW TO REPORT
CSR reports can take any of the following forms:

Basic reporting: This may involve publishing few pages on the
company’s website or issued as some annexure to the annual re-
S
port in compliance with some legal requirements. Such reports
may even be compiled and prepared by the company’s marketing
and PR or compliance departments. The information contained
IM
in basic CSR reports is generally unrelated to the company’s core
operations or financial performance. Companies that do basic re-
porting may not have any legal obligations and/or may not consid-
er CSR issues to be of strategic importance. Most of the companies
were doing only basic reporting prior to 1990s. Though there are
countries that do not have the legal requirement for full CSR re-
porting or still have legal requirements only for basic reporting,
M
most of the leading corporates have started the practice of full

CSR reporting.
Full CSR reporting: Full CSR reporting refers to publishing a
stand-alone document on the company’s CSR performance. Nor-
N
mally, such reports deal with Triple Bottom Line and sustainabili-
ty performance and may adhere to some international CSR report-
ing framework or CSR/Sustainability standard.
Advanced reporting: Advanced reporting refers to CSR reports
that are integrated into the business operations with the involve-
ment of top leadership of the company. Companies that consider
CSR issues to be of strategic importance tend to follow advanced
reporting. Reports that follow GRI Framework can be considered
to be of advanced reporting type.
Integrated reporting: Full CSR reporting and advanced reporting
involve publishing a separate CSR report though comprehensive
and integrated into the business operations in the dimensions of
sustainability. Integrated reporting aims to provide the same in-
formation in a single document along with the annual financial
reports using an integrated framework. It is supposed to offer a
clear and concise statement of how the organisation creates and

CSR REPORTING 265
n o t e s
maintains value to internal and external stakeholders in the short

and long-term horizons. The International Integrated Reporting
Framework (IR) initiative of IIRC (International Integrated Re-
porting Council) is towards establishing a standard framework for
integrated reporting. The council published the first version of its
framework in 2013 and there are several global companies that
have followed this framework for their CSR reporting. In India,
Tata Steel follows the IR framework for reporting its annual report
and CSR performance.
9.3.4 CONTENTS OF CSR REPORT
We have already discussed the nature of the content of CSR / Sustain-

ability reporting and the required content of CSR report with respect
to legal requirements in India using ACC Ltd.
S
In this section, we shall refer to the GRI framework to understand
the generic content of a full-scale Sustainability/CSR reporting. Glob-
al Reporting Initiative (GRI) is the reporting framework followed by
IM
most of the leading global corporates around the world for publishing
their sustainability report, and it is also the most comprehensive of
all reporting frameworks. Note that however GRI framework is not
mandatory as it is an independent standard-setting organisation. The
organisations are free to decide on the content of their CSR/Sustain-
ability reporting unless otherwise specifically mandated by legal re-
M
quirements. However, most of the major MNCs that voluntarily report

on their sustainability performance have adopted the GRI Framework
which specifies requirements and guidance standards on content re-
quired.
N
The GRI framework sets the boundary of the content of the sustain-
ability report using the following three dimensions: Reporting Princi-
ples, General Disclosures and Management approach. The reporting
principles define the report content and the reporting quality. The re-
porting principles for report content help organisations decide which
content to include in the report. This depends on organisation’s ac-
tivities, impacts and the substantive expectations and interests of its
stakeholders. There are four principles recommended by GRI with
respect to what to report. These are stakeholder inclusiveness, sus-
tainability context, materiality and completeness. Let us discuss these
principles in detail:
1. Stakeholder inclusiveness: This principle requires organisations
to identify its stakeholders and explain how it has responded
to their reasonable expectations and interests. For example,
the sustainability report of ACC presents the stakeholders
identified by the company and the level of engagement planned.
It is analysed and reported in the two dimensions of impact and
influence on ACC and interface with and proximity to ACC.

n o t e s
Figure 9.1 shows two dimensions of impact and influence on

ACC and interface with and proximity to ACC:
High Impact and High Impact and

Influence and Low Influence and High
Interface and Interface and
Proximity Proximity
Employees
Shareholders
Customers
Investors
Channel Partners
Influencers
Vendors
Consultants and
Promoters
Advisors
Governments/
Regulators
Local Communities
Competitors
S
High Impact and Low Impact and
Influence and High Influence and Low
Interface and proximity Interface and
Mass Media Proximity
Employees Families Activists
IM Social Workers Future
/NGOs Stakeholders
Industry & National
Associations Community
Global Community
M
Figure 9.1: Impact-Interface-Influence-Proximity Matrix Of Acc

ACC also gives its stakeholder engagement strategy as required
by G4 guidelines, a sample portion is given in Table 9.2:
N
TABLE 9.2: STAKEHOLDER ENGAGEMENT STRATEGY OF

ACC AS REQUIRED BY G4 GUIDELINES
Stakehold- How We Engage Frequency Key Topics Our Response
ers Group and Concerns to Concerns
Employees Functional and Daily, week- To reduce Action plans
cross-functional ly, monthly, complexity in for closing
committees, town quarterly, the system, concerns are
hall meetings, half-yearly, to improve discussed,
extensive intranet annually initiatives on finalised and
communication health, to im- implemented.
through portals prove stand-
cultural events, ard operating
surveys procedures
Vendors & By regular inter- As and when Registration as As per our
suppliers action either by required an approved established
phone, VC, e-mail vendor, prod- procurement
or in person uct specifica- practices
tions, pricing,
delivery peri-
od, terms of
payment etc.

CSR REPORTING 267
n o t e s
Stakehold- How We Engage Frequency Key Topics Our Response

ers Group and Concerns to Concerns
Consumers We engage with The frequency Key concerns To bring com-
(Institu- this segment on a of engagement of the segment plete focus on
tional) one-to-one basis is based on the have been this segment,
through regular value of the timely supply we have
sales calls. We customer in and consisten- key account
position itself as a terms of vol- cy in product management
solution provider ume of cement quality for the teams in place
capitalisation on and period of entire project, who provide
our experience of consumption one window one window
80 years. Deploy- solution for all solution
ment of principles cement and
of key account concrete needs
management
Investors AGMs and Stake- Quarterly, Company’s fi- Each query
holder relation- annually and nancial health, and complaint
S
ship meetings ad- as & when growth and is addressed
dress grievances required performance; individually.
of investors and Dividend Most com-
shareholders. payments, plaints re-
IM and change of solved during
address the year
2. Sustainability context: This principle requires the organisation

to present its performance in the wider context of sustainability.
Note that this is applicable to those organisations that do the
CSR reporting by declaring their adherence to GRI Framework.
For example, for those who do not voluntarily adhere to GRI
M
framework, may not necessarily report comprehensively on

all dimensions of sustainability or their reporting may only be
sufficient enough to meet the mandatory legal requirements as
discussed earlier. For example, the mandatory CSR reporting
N
in India may not require the wider sustainability context based

reporting. As we shall see, the mandatory CSR reporting in India
focuses on how the organisations have spent the 2% mandatory
CSR investments on net profits. For example, ACC has adhered
to CSR regulation in India and has reported it as an annexure in
its annual report and provided information as required by law.
Apart from this, it has also published a separate sustainability
report that adheres to GRI framework.
3. Materiality: This principle requires the organisation to identify
CSR issues of material importance. These are issues at the
threshold for influencing the economic decisions of the users
of the CSR report. Organisations have to decide which relevant
topics are sufficiently important that it is essential to report on
them. ACC has identified key material issues and analysed it
using the two dimensions of stakeholder concern and impact &
influence on ACC, as shown in Figure 9.2:

n o t e s
High Stakeholder Concern and High Stakeholder Concern and

Low Impact & Influence on ACC High Impact & Influence on ACC
Respecting Human & Compliance
Indigenous Rights Health & Safety
Biodiversity Emissions, Effluents and
Grievance Mechanism Wastes
Diversity & Equal Energy, Water, Materials
Opportunity Anti-corruption
Investment Agreements Economic Performance
Equal Remuneration Market Presence
for Women Transport
Customer Health & Safety Community Development
Security Practices Employment Practices etc.
Low Stakeholder Concern Low Stakeholder Concern and
S
and High Impact & Influence Low Impact & Influence on
on ACC ACC
Anti-competitive Behaviour Expenses on Environment
Indirect Economic Impacts Customer Privacy
Supplier Assessment Public Policy
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Marketing Communications
Figure 9.2: Stakeholder Concern and Impact

& Influence Matrix of Acc
M
4. Completeness: This principle demands that the coverage of

content should be sufficient enough to enable stakeholders to
assess the performance of reporting organisation during the
reporting period.
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The GRI framework also gives various principles and tests pertaining
to quality of reporting viz., accuracy, balance, clarity, comparability,
reliability and timeliness.
GRI FRAMEWORK
In this section, we shall further study the requirements under the GRI
framework. The GRI framework was earlier published as G3 guide-
lines followed by G4 guidelines which are still in force. However, the
G4 guidelines were superseded with the publishing of the new “GRI
standards” which will come into force from July 2018. In this chapter,
we are focussing on GRI (as G4 is superseded) standards.
A primary objective of GRI standards is to create a common language

for organisations and stakeholders with which the economic, environ-
mental and social impacts of organisations can be communicated and
understood. The various GRI standards are devised to provide a bal-
anced and reasonable representation of an organisation’s positive and
negative contributions towards the goal of sustainable development.
The standards are meant to provide requirements and guidance per-

CSR REPORTING 269
n o t e s
taining to reporting on the impact an organisation makes on the econ-

omy, environment and society.
The framework consists of a set of universal standards and a set of

topic specific standards. The universal standards consist of GRI 101,
GRI 102 and GRI 103. The topic-specific standards include GRI 200,
GRI 300 and GRI 400. Let us first discuss the universal standards:
GRI 101 foundation: This is the starting point for using the stan-
dards. It provides the reporting principles governing the frame-
work, information on how to use the standards for sustainability
reporting and making claims related to use of the standards. We
have discussed these principles in the earlier section on the con-
tent of CSR reporting. We have already discussed the reporting
principles in the previous section.
S
GRI 102 general disclosure: This standard is meant for reporting
contextual information about the organisation. It deals with the
general disclosures pertaining to sustainability reporting practic-
es of the organisation and information on reporting organisation’s
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profile, strategy, ethics & integrity, governance, stakeholder en-
gagement practices and reporting process.
GRI 103 management approach: This standard provides require-
ments and guidance pertaining to reporting information on man-
agement approach adopted by an organisation for dealing with
each material topic identified as per GRI 101.
M
The topic-specific standards are:

GRI 200 economic: This is the topic-specific standard that pro-
vides requirements and guidance on economic performance of
N
the organisation through identified material topics. For example,

under a separate section titled economic performance, ACC has
given performance highlights in terms of graphs and tables as per
GRI 201-4 standard.
GRI 300 environmental: This is the topic-specific standard that
provides requirements and guidance on environmental perfor-
mance of the organisation through the identified material topics.
Under a separate section, titled environmental performance, ACC
has given various metrics and measurements in terms of target
and achievements. For example, in accordance with GRI 305-1, 2,
3 standard requirements, it specifies emission reduction targets
for carbon emissions at 545 Kg/t of cement as 32% lesser than 1990
level but 2% higher in comparison to 2015.
GRI 400 social: This is the topic-specific standard that provides
requirements and guidance on social performance of the organi-
sation through the identified material topics. For example, under
the sub-section of diversity and equal opportunity, ACC discusses
the steps taken towards achieving diversity and deliver sustain-

n o t e s
able performance with gender balance and inclusive work envi-

ronment in compliance with GR 405-1.
Table 9.3 shows that under SD Scorecard for 2016, ACC gives a snap-
shot of performance in 2016 against targets of sustainable develop-
ment roadmap charted for 2017:
TABLE 9.3: ACC’S PERFORMANCE IN 2016 AGAINST TAR-

GETS OF SUSTAINABLE DEVELOPMENT ROADMAP
CHARTED FOR 2017
Parameters Target 2017 Status 2016
CO2 To reduce specific CO2 emis- We have reduced specific
sions by 35% as compared to CO2 emissions to 545 kg
1990 CO2 / tonne of cement in
2016 which is 32% vs. 1990
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Thermal To achieve thermal substitu- We have achieved 3.22% of
Substitution tion rate of 10% thermal substitution rate
Rate in 2016
Water To reduce specific water con- We have reduced specific
IM
sumption for manufacturing water consumption by
of cement by 10% as com- 24% vs. 2012
pared to 2012
Specific To reduce by 3% as compared We have reduced by 6.22%
Total Energy to 2013 as compared to 2013
Intensity
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CSR To continue to expand out Our various CSR initia-

CSR footprint focus on in- tives impacted nearly 0.42
clusive business projects like million people in 2016
sanitation etc.
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Other guidelines and features of GRI reporting are:

Every report prepared in accordance with GRI standards is re-
quired to include a GRI content index presented in one location
that provides the page number for all disclosures reported.
There are two options for preparing a report in accordance with
the GRI standards:
Core options: These options indicate that the report contains
the minimum information needed to understand the nature of
the organisation, its material topics and related impacts and
how these are managed.
Comprehensive options: These options build on the core op-
tion by requiring additional disclosures on the organisation’s
strategy, ethics, integrity and governance. It is also expected to
report more extensively on its impacts by reporting all the top-
ic-specific disclosures for each material topic covered by the
GRI standards.

CSR REPORTING 271
n o t e s
9.3.5 FORMATS OF CSR COMMUNICATION AND

REPORTING
We can differentiate between formats of CSR communication and CSR

reporting. CSR communication refers to achieving one of the import-
ant objectives of CSR which is to raise corporate image and reputation
and to engage the stakeholders. CSR reporting, while addressing the
same objective, may also have to meet the formal demands of stake-
holders and legal requirements. CSR communication can be done,
apart from annual reporting, through other social media, especially
through the online platform. These could be periodical communica-
tion meant to disseminate major news pertaining to CSR activities
of the company and its achievements through PR messages, media
interactions and social media and through the dedicated section on
the company’s websites. Researchers point out that this communica-
S
tion can be unidirectional, bidirectional, symmetrical or reticular. The
annual reports are unidirectional forms of communication where the
company is the sender while the stakeholders are passive receivers.
The bidirectional communication allows the stakeholders to respond
IM
to the messages communicated. This could be through allowing stake-
holders to provide their views and comments in the sustainability sec-
tion of the website. The symmetrical flow of communication involves
equal communication channels for both the company and stakehold-
ers. This may involve the use of dedicated discussion forums and oth-
er social media channels to actively engage the stakeholders. The re-
M
ticular communication involves “many-to-many” where information

generation and dissemination happens through many nodes on inter-
action across the organisation and beyond the usual mode of a central
corporate node. All these CSR communications may not follow any
standard communication format and could be both formal and infor-
N
mal in nature.
These CSR communications may take the form of printed reports,

brochures, leaflets, slides, presentations, podcasts or video clips etc.,
using either some standard formats or through tailor-made formats
meant for respective stakeholders, which may be provided online in
readable or downloadable forms. Organisations that aim for active
engagement of stakeholders may prefer ongoing and interactive CSR
communication as against one-off annual printed reports.
The CSR reporting involves a unidirectional communication through

a standardised format employing a recognised framework. It may be
communicated through annexure to the annual report, as a separate
stand-alone section in the annual report, as separate stand-alone re-
port separate from annual report or as part of integrated reporting.
The format of CSR reports may be decided by the legal provisions

where CSR reports are developed in compliance with the legal man-
date. An example is provided as to how the CSR activities are com-
municated as an annexure to the annual report by ACC in compliance

n o t e s
with the format prescribed by the government. Alternatively, the for-

mat may be decided by the reporting framework chosen. For example,
GRI framework provides requirements and guidance as to how the
CSR reporting is done. Similarly, the Integrated Reporting (IR) frame-
work of IIRC also provides a reporting format and structure which
requires presentation of information through five capitals viz., finan-
cial capital, manufactured capital, human capital, intellectual capital,
natural capital and social capital.
For example, Sompo Holdings uses various tools to disseminate infor-

mation to their stakeholders and to ensure that they understand its
CSR initiatives. Sompo ensures transparent, active and fair reporting
keeping in mind social requirements for disclosure, CSR material is-
sues and other Environmental, Social, and Governance (ESG) issues.
Sompo’s communication can be shown using Figure 9.3:
S
Important/overview
Financial information Non-financial information

IM
Integrated Annual Report 2017
CSR Communication CSR

Booklet
Report 2017 2017
Website
M
Detailed/comprehensive
Figure 9.3: Sompo’s Communication

N
The company also releases its Communication Report. The Communi-

cation Report and the CSR Website provide details on company’s CSR
management vision, policies, plans, and progress. The CSR Commu-
nication Booklet of Sompo enlists and details the examples of CSR
initiatives undertaken by the company.
The company’s CSR Communication Report 2017 focuses on the fol-

lowing aspects:
Description of initiatives to improve corporate value through so-
cial responsibility
Initiativesundertaken to reach the Sustainable Development
Goals (SDGs)
Three topics namely climate change, nursing and healthcare, and
digital strategies were described in addition to Sompo’s initiatives
to address these
Stakeholder engagement
Description of initiatives aimed at improving information disclo-
sure credibility

CSR REPORTING 273
n o t e s
9.3.6 THE REPORTING TEAM
The CSR/sustainability reporting efforts are managed by different

departments in different companies’ viz., teams from separate CSR/
sustainability department, corporate communications department,
public affairs department, investor relations department, legal de-
partment etc.
A full-fledged CSR reporting may require separate department or

a team consisting of professionals from several cross-functional ar-
eas of the organisation. Such cross-functional teams can ensure that
the viewpoints of all relevant corporate functions, regions and busi-
ness units can contribute to shaping the CSR report. In a study by
consulting organisation ERM, 89% respondents stated that effective
cross-functional coordination as a key driver of business value derived
from CSR reporting. Cross-functional and cross-regional teams are
S
especially important for addressing sustainability issues like product
stewardship and supplier sustainability. Most of the leading compa-
nies have separate sustainability departments handling CSR activities
IM
and reporting.
9.3.7 ADDITIONAL REFERENCES FOR CSR REPORTING
There are many national and International bodies that provide CSR
certification to organisations and set standards for CSR practices. Let
us discuss about some of these bodies that play an instrumental role
M
in the implementation of CSR.
ACCA
N
ACCA (Association of Chartered Certified Accountants) is the lead-

ing international professional accountancy body. As a profession-
al accounting body, it has influence on global sustainability issues
and contributes to the development of solutions. The curriculum for
ACCA qualification includes topics on sustainability risks & opportu-
nities and sustainability reporting. ACCA also works with standard
setters like government and regulatory bodies to ensure that the stan-
dards and regulations concerning corporate sustainability are fit for
the purpose. It believes that organisations should be more account-
able for their impacts on the environment and society and be more
transparent on their material non-financial issues. It believes that an
organisation’s sustainability report should reflect the organisational
systems and processes in place, centre on its core strategy and mate-
rial items, and cover elements such as governance, performance, risk
and context (www.accaglobal.com). It suggests that companies should
use generally accepted reporting guidelines when producing sustain-
ability reports.
ACCA has not published any reporting framework on its own but pro-
vides policy comments on the frameworks of existing standard set-

n o t e s
ters. It believes that the regulatory bodies of countries should make

sustainability reporting a legal obligation, the sustainability reporting
should be integral to the integrated reporting process and that spe-
cific guidance from GRI and IIRC should be provided to achieve this.
ACCOUNTABILITY AA1000
AccountAbility is a global consulting and standards firm that works

with business, governments and multilateral organisations to advance
responsible business practices and improve long-term performance.
AccountAbility’s AA1000 series of standards are principles-based
standards and frameworks that can be used to demonstrate leader-
ship and performance in accountability, responsibility and sustain-
ability. There are three standards issued by AccountAbility viz.
1. AA 1000APS (2008) – AccountAbility Principles Standard
S
2. AA 1000AS (2008) – Sustainability Assurance Standard
3. AA 1000SES (2005) – Stakeholder Engagement Standard
IM
These standards are supported by guidance notes and user notes
which provide information on how to apply the standards.
The AA 1000 standard defines accountability as acknowledging, as-

suming responsibility for and being transparent about the impacts
of an organisation’s policies, decisions, actions, products and associ-
M
ated performance. It obliges an organisation to involve stakeholders

in identifying, understanding and responding to sustainability issues
and concerns, and to report, explain and be answerable to stakehold-
ers for decisions, actions and performance. The basic premise is that
the organisation will take action to establish a strategy based on a
N
comprehensive and balanced understanding of and response to mate-

rial issues and stakeholder issues and concerns. It will establish goals
and standards against which the strategy and associated performance
can be managed and judged and disclose information about strategy,
goals, standards and performance to those who base their actions and
decision on this information. These actions provide the basis for es-
tablishing, evaluating and communication accountability. The AA1000
APS provides principles that drive these actions. The standard pro-
vides definitions, explanations, criteria for three principles viz., Prin-
ciple of Inclusivity, Principle of Materiality and Principle of Respon-
siveness.
SUSTAINABILITY ACCOUNTING STANDARDS BOARD (SASB)
Sustainability Accounting Standard Board (SASB) is an independent,

private-sector standards-setting organisation established in 2011 and
dedicated to enhancing the efficiency of the capital market by foster-
ing high-quality disclosure of material sustainability information that
meets investor needs (www.sasb.com). It has developed and maintains

CSR REPORTING 275
n o t e s
sustainability accounting standards for 79 industries in 11 sectors to-

wards helping corporates disclose financially material information to
investors in a cost-effective and decision-oriented format. SASB re-
leased provisional standards that it had developed from 2012 to 2016.
In 2017, it had released the provisional standards termed exposure
drafts. The complete set of standards will be released / codified in mid-
2018.
SOCIAL ACCOUNTABILITY INTERNATIONAL (SAI)
Social Accountability International (SAI) publishes the SA8000 Stan-

dard. SA8000 is the leading social certification standard which can
be used for third-party auditing of factories and workplaces for so-
cially acceptable practices in the workplace. The framework offered
by the standard can help certified organisations to demonstrate their
S
dedication to the fair treatment of workers across industries and in
any country. The standard measures social performance in eight ar-
eas important to social accountability in workplaces, anchored by a
management system element that drives continuous improvement in
IM
all areas of the standard. The standard reflects labour provisions con-
tained within the Universal Declaration of Human Rights and Inter-
national Labour Organisation (ILO) conventions. The standard has
nine elements viz., child labour, forced or compulsory labour, health
and safety, freedom of association and right to collective bargaining,
discrimination, disciplinary practices, working hours, remuneration
M
and management system.
BLACK SUN
Black Sun Plc is a leading international stakeholder Communications

N
Company headquartered in London. It creates communication pro-

grammes designed to inspire and connect business with their corpo-
rate stakeholders. It believes in improving business performance by
winning stakeholders trust and support through such communication
programmes. The company has been working closely with IIRC to
improve the market relevance and value of integrated thinking and
reporting.
BITC CR INDEX
Business in the Community (BITC) is a business-led membership

organisation made up of progressive businesses of all sizes who un-
derstand that the prosperity of business and society are mutually
dependent. The organisation strives to set the course for responsi-
ble businesses. It guides its members on a journey of continuous im-
provement working across the whole responsible business agenda.
It offers expert advice and specialist resources towards community
engagement, diversity and circular economy etc. The organisation of-
fers a variety of benchmarking tools that can help companies measure

n o t e s
and report on responsible business in an integrated and systematic

way. The CR index of BITC is meant to challenge companies to devise
and deliver business strategies that have responsibility at their heart.
The index can function as a robust tool to help companies systemat-
ically measure, manage and integrate responsible business practice.
It is done through an online survey and companies follow a self-as-
sessment process intended to help them identify strengths and per-
formance gaps. BITC conducts annual CR index survey and company
ranking. Since its launch in 2002, the index has become the UK’s lead-
ing voluntary benchmark for responsible business.
EUROPEAN SUSTAINABILITY REPORTING ASSOCIATION
To rank and reward best sustainability reports, the European Sus-

tainability Reporting Awards (ESRA) has annually awarded the best
S
external environmental and sustainability reports of private as well
as public organisations across Europe with participants being accoun-
tancy bodies from 15 European countries each of which conduct sep-
arate national reporting schemes and submit the national winning re-
IM
ports to the European Sustainability Reporting Awards. These awards
which started in 1996 were discontinued after 2006.
ETHICAL CORPORATION
Ethical Corporation is part of FC Business Intelligence Ltd, an inde-

M
pendently owned company based in London. It provides business in-

telligence to more than 3000 MNCs every year with customer profile
that includes NGOs, think-tanks, academia, governments and consul-
tancies. It publishes leading responsible business magazine, website
and research reports. It serves the areas of CSR, compliance, risk and
N
governance communities with topical and insightful business intelli-

gence and meeting places.
SUSTAINABILITY
SustainAbility is a corporation that is serving as a think tank and advi-

sory firm for sustainability-related issues. It endeavours to inspire and
enable the business to lead the way to a sustainable economy. It offers
expertise that can enable leaders to drive change inside companies,
within value chains, across markets and through systems. It provides
consulting services that help clients make better decisions, integrate
sustainability into their business and create innovative solutions. As a
think tank, it provides an independent, agenda-shaping research and
advocacy that enables companies to transform how they think and do
business. It convenes the engaging stakeholder’s network, a global
network of companies that believe in transparency and integration as
critical drivers for positive business impacts.

CSR REPORTING 277
n o t e s
IIRC
The international integrated reporting council (IIRC) is a global coali-

tion of regulators, investors, companies, standard setters, the account-
ing profession and NGOs. The coalition is promoting communication
about value creation as the next step in the evolution of corporate re-
porting. It’s mission is to establish integrated reporting and thinking
within mainstream business practice as the norm in the public and
private sectors. It has the vision of aligning capital allocation and cor-
porate behaviour to wider goals of financial stability and sustainable
development through the cycle of integrated reporting and thinking.
IIRC has published the International Integrated Reporting Frame-
work (IR) which is meant to drive adoption of integrated reporting
across the world. The framework was released following extensive
consultation and testing by businesses and investors in all regions of
S
the world, including the 140 businesses and investors from 26 coun-
tries that participated in the IIRC Pilot programme. The purpose of
the framework is to establish the guiding principles and content ele-
ments that govern the overall content of an integrated report and to
IM
explain the fundamental concepts that underpin them. The primary
purpose of an integrated report is to explain to the financial capital
providers how an organisation creates value over time. It uses a com-
bination of quantitative and qualitative information using six capitals.
The capitals are stocks of value that are affected or transformed by the
activities and outputs of an organisation. The framework categorises
M
them as financial, manufactured, intellectual, human, social, relation-

ship and natural. An organisation’s business model draws on various
capital inputs and shows how its activities transform them into out-
puts. The (IR) framework is created on these principles.
N
5. Which of the following is the right statement with regard to

the concept of integrated reporting?
a. Integrated CSR reporting involves single document with a
separate section on sustainability.
b. Integrated CSR reporting aims at giving a single report that
combines both financial and sustainability performance.
c. Integrated CSR reporting requires adherence to GRI
framework.
6. A manufacturer of cement is preparing sustainability report
under GRI framework. Which of the following issues, along
with their targets, is likely to find a place in the report?
a. Percentage of sites with quarry rehabilitation plan
b. CO2 and climate protection

n o t e s
c. Water consumption
7. A company is involved in the manufacturing of biscuits and
procures wheat directly from farming community. Last year,
the company has found that crop yield and quality of wheat
procured from the farming community has been declining.
With respect to GRI framework, which of the following is true?
a. Crop yield is an issue of farming community and need not
come under the purview of the sustainability report.
b. GRI framework requires this to be identified as an issue of
material importance.
c. This issue need not be considered as part of GRI framework
based reporting but can be addressed through CSR
S
projects.
d. Such issues are covered under GRI 300 Environmental
standard.
IM
8. Which of the following is true with regard to GRI standards?
a. It has a set of universal standards and a set of topic-specific
standard.
b. The universal set consists of foundation principles, general
disclosures and management approach.
M
c. Separate individual standards are available within GRI

framework for economic, environmental and social
performance reporting.
d. GRI framework requires companies to identify issues of
material importance at the outset.
N
9. Which of the following statement is true?

a. ACCA has published its own guidance standard for CSR
reporting.
b. AA1000 can be used for CSR reporting.
c. SA8000 is a leading social certification standard issued by
SASB.
d. BITC CR Index is similar to Dow Jones Sustainability
Index.
10. The function of IIRC is
a. to regulate various reporting standards and frameworks
like GRI, SA8000 etc.
b. to create a standard for sustainability reporting
c. to create a reporting framework for integrated reporting
d. All of the above

CSR REPORTING 279
n o t e s
11. The difference between GRI and IIRC is:

a. Both offer reporting frameworks which are substitutable.
b. GRI focuses on sustainability reporting and not integrated
reporting.
c. IIRC’s focus is not on sustainability but on integrated
reporting.
d. Both (b) and (c)
Activity
The GRI standards and IIRC framework are freely available for
download. Download these reports and study the requirements.
ACC Ltd is a company that published sustainability report under
S
GRI framework while Tata Steel published the report under IIRC.
Download these two reports. Compare and contrast the two frame-
works. Which of the formats conveys more on the overall social per-
formance of the company in your opinion?
IM
9.4 CSR REPORT OF A COMPANY
We have already referenced salient features of sustainability report
of ACC Ltd in various places in the previous sections. In this section,
we shall study the CSR reporting of ACC Ltd., in compliance with the
M
Companies Act, 2013.
Companies are required to publish the CSR policy statement in their

annual report. The CSR policy statement of ACC Ltd is as follows:
N
Our vision is to be one of the most respected companies in India, de-

livering superior and sustainable value to all our customers, business
partners, shareholders, employees and host communities.
Our CSR initiatives focus on the holistic development of our host com-
munities while creating social, environmental and economic value to
society.
To pursue these objectives we will continue to:

1. Uphold and promote the principles of inclusive growth and
equitable development.
2. Devise and implement community development plans based on
the needs and priorities of our host communities and measure the
effectiveness of such development programmes.
3. Work actively in the areas of livelihood advancement, enhancing
employability and income generation, improving quality and reach
of education, promoting health and sanitation, conserving the
environment and supporting local sports, arts and culture.

n o t e s
4. Collaborate with the likeminded bodies such as governments, civil

society organisations and academic institutions in pursuit of our
goals.
5. Interact regularly with stakeholders, review and publicly report
our CSR initiatives.
Apart from publishing a separate sustainability report, ACC has also

provided an annexure with details on its CSR activities in compliance
with the Companies Act, 2013. The CSR report given in ACC’s annual
report is given (abridged version) in Table 9.4 for easy illustration of
contents involved:
Table 9.4: Annexure – A: Annual Report on Corpo-
rate Social Responsibility (CSR) Activities
S. No. The Companies Act 2013 Re- CSR Information Provided by ACC
S
quirements
1 A brief outline of CSR policy, The CSR policy is given above (The
including an overview of pro- web link is also provided in the
jects or programs proposed to annexure).
IM be undertaken and a reference
to the web-link to the CSR
policy and projects
2 The composition of CSR com- CSR committee consists of 4 mem-
mittee bers. Names of members of CSR
committee is given which consists of
three Independent Directors along
M
with the Executive Director, CEO,

and MD of ACC
3 Average net profit for last INR 812, INR 1156 and INR 1253
three years during the years 2015, 2014 and 2013
respectively
N
4 Prescribed CSR expenditure INR 21.47 Cr

5 Details of CSR spent for the Note: For this section, ACC’s CSR
financial year and amount report gives a detailed table of
unspent if any various CSR projects and activities
undertaken by ACC during the year
The tabular report shows that ACC
had budgeted INR 23.49 Cr for the
year out of which INR 22.27 Cr has
been spent during the year. The
amount has been spent either di-
rectly or through an implementation
agency. Some of the CSR projects
are ACC DISHA (2.80 Cr spent) for
youth employability, ACC-LEISA
(3.81 Cr) for sustainable agriculture,
ACC Sanrakshit Paryavaran (1.89
Cr) for the conservation of Environ-
ment, ACC-Drona for promoting
local, arts and culture (0.63 Cr) etc.

CSR REPORTING 281
n o t e s
S. No. The Companies Act 2013 CSR Information Provided by ACC

Requirements
6 Reasons if the company has Not Applicable (ACC exceeded this
failed to spend the required amount)
amount of 2% of average profit
7 A responsibility statement of “ACC CSR projects were designed,
the CSR committee that the implemented and periodically
implementation and monitor- monitored based on need assess-
ing of CSR Policy is in compli- ment reports and CSR policy of the
ance with CSR objective and company, which in turn is based on
policy of the company and implemented with statutory
requirements” – Report signed by
CEO and MD and Chairman of CSR
committee
With respect to sustainability reporting under GRI framework, the
S
standard does not give any reporting format which needs to be fol-
lowed. The framework only requires the companies to prepare the
report in accordance with the principles, requirements and guidance
specified in the standard. The framework, however, requires a con-
IM
tent index to be given which should reference various GRI standards,
general disclosures made pertaining to that standard and the rele-
vant chapter pages where they are addressed in the report. A sample
(abridged with one indicator for each standard) portion of ACC’s Con-
tent Index under GRI is given in Table 9.5:
M
TABLE 9.5: SAMPLE OF ACC’S

CONTENT INDEX UNDER GRI
GRI Indicator General Disclosure Chapter Page number
102-1 to 102-8 Details about the organisa- 1.2, 2.1 Pages 1 to 14
tion like activities, location,
N
ownership etc.
Management Approach
201-1 The direct economic value 5.1 46
created and distributed
201-2 Financial implications and 5.3 33
other risks and opportuni-
ties due to climate change
Environment
302-1 Energy consumption within 6.2 58
the organisation
302-3 Energy Intensity 3.4 34
Social
403-1 Worker representation, 7.1 74
worker health & safety
committees
404-1 Average hours of training 7.2 82
per year per employee

n o t e s
Note that only an excerpt of few standard references (GRI indicators)

is given above for sample illustration. In the actual report of ACC,
each and every GRI indicator is referenced in the content index (run-
ning to 4-5 pages) as ACC had chosen the option of “Comprehensive”
reporting of GRI framework.
12. Which of the following is not a CSR reporting requirement in

India?
a. The annual report should convey how CSR provisions
of Companies Act, 2013 are in compliance with by the
company.
b. CSR report should outline the CSR policy of the company.
S
c. List of composition of CSR committee and various CSR
projects undertaken.
d. Steps were taken by the company with regard to
environmental protection and energy conservation.
IM
13. Which of the following statements is true with regard to
Business Responsibility Reporting (BRR) in India?
a. Companies are free to comply with either BRR or CSR
reporting provisions.
b. BRR report should be based on national voluntary
M
guidelines proposed by Ministry of Corporate Affairs.

c. Companies that publish a separate sustainability report
based on international reporting frameworks like GRI
need not furnish CSR reports.
N
d. All of the above are true
Activity
Download annual report of any Indian company that had published

BRR. Compare the BRR report with other principles based models
like UNGC and UN SDG. How do they compare? What are the prin-
ciples that are found in NVG but not in UNGC or vice versa? Give
your brief evaluation of the two models.
9.5 SUMMARY
With big corporates playing a significant role in the world arena
and making a significant impact on society and environment, cou-
pled with the emergence of the concept of sustainable develop-
ment and growth, the concept of CSR/sustainability reporting has
gained importance in recent decades.
CSR reporting is not mandatory like the publishing of annual fi-
nancial reports of companies. However, owing to stakeholder pres-

CSR REPORTING 283
n o t e s
sures and benefits involved, all major global MNCs have started
voluntarily publishing CSR reports. The recent trend is also to
make it a legal requirement as evidenced by legislation passed in
several countries.
CSR reporting should focus on sustainable corporate growth and
performance of the company in the three dimensions of economic,
social and environmental areas. Where the reporting is mandato-
ry, the content is prescribed. The content boundaries of the report
are also determined to a large extent on the standard under which
it is published.
In India, both CSR investments and CSR reporting are mandated
by Companies Act, 2013. The Act specifies the content required to
be included in CSR report which should be published along with
the annual report.
S
Indian companies are also required by SEBI to publish the Busi-
ness Responsibility Report (BRR) based on the nine principles of
“National Voluntary Guidelines” issued by the ministry of corpo-
rate affairs.
IM
CSR Reporting can take the form of Basic Reporting, Full CSR
Reporting, Advanced Reporting and Integrated Reporting. The
concept of Integrated Reporting is different from Sustainability
Reporting.
GRI Framework of reporting standards is the leading standard ad-
M
opted by most of the leading MNCs across the world for Sustain-
ability Reporting. The reporting framework provides the reporting
principles, reporting requirements and reporting guidance to be
followed by the companies.
N
GRI framework recommends the four principles of stakeholder in-

clusiveness, sustainability context, materiality and completeness
with regard to reporting content. These are specified in GRI 101
Foundation standards which along with GRI 102 and GRI 103 form
the universal set of standards for general disclosure and manage-
ment approach respectively. Apart from this, topic specific set of
standards are applicable for three dimensions of economic, envi-
ronmental and social viz., GRI 200, GRI 300 and GRI 400.
There are several associations related to CSR reporting like pro-
fessional bodies, standard setters, CSR communication and sur-
vey companies etc. Among these, GRI and IIRC are major organi-
sations that determine the course of CSR reporting by establishing
reporting standards adopted by major leading corporates across
the world.
key words
Impact: The effect an organisation has on the economy, the en-

vironment, and/or society, which in turn can indicate its contri-
bution to sustainable development.

n o t e s
Management approach disclosure: Narrative description about

how an organisation manages its material topics and their relat-
ed impacts.
Materiality: The threshold at which an issue or indicator be-
comes sufficiently important that it should be reported as per
GRI standards.
Stakeholder engagement: The process by which an organisa-
tion involves its stakeholders who are the people who may be
affected by its decisions or who can influence the implementa-
tion of its decisions.
Sustainability reporting: The practice of measuring, disclos-
ing, and being accountable to internal and external stakehold-
ers for organisational performance towards the goal of sustain-
S
able development.
Sustainability: Outcome achieved by balancing the social, en-
vironmental and economic impacts of business. The concept
IMrequires the organisation to pursue its business goals without
compromising any of the three elements.

1. Discuss the evolution of the need for CSR reporting and debate
surrounding the nature of CSR reporting with respect to whether
M
it should be made mandatory.

2. List the various benefits of CSR reporting.
3. What are the regulations that pertain to CSR reporting in
N
India? List the important elements of a CSR report prepared

in compliance with the Companies Act, 2013. How does it differ
from Business Responsibility Reporting?
4. Explain the various contents of a Sustainability Report from the
perspective of GRI Framework and standards.
5. Write brief notes on functions of following organisations: SASB,
SAI and BITC.

CSR Reports – 1. c. Sustainability is more concerned with
Mandatory or sustainable development and growth
Voluntary? of nations and economies with regard
to environmental degradation, human
rights etc. while CSR deals with the
social responsibility of corporates.

CSR REPORTING 285
n o t e s

2. a. The widely found sustainability re-
porting by major corporates across the
world is mainly driven by legal man-
dates.
3. c. India
4. a. CSR reporting can lead to higher
growth and profitability.
Reporting in CSR 5. d. None of the above
6. b. CO2 and climate protection
7. b. GRI framework requires this to be
identified as an issue of material im-
portance.
8. a. It has a set of universal standards and
S
a set of topic-specific standard.
9. b. AA1000 can be used for CSR reporting.
10. c. To create a reporting framework for
IM
integrated reporting.
11. c. IIRC’s focus is not on sustainability but
on integrated reporting.
CSR Report of a 12. c. List composition of CSR committee
Company and various CSR projects undertaken
13. d. All of the above are true
M

1. The need for CSR reporting has evolved over a period of time
owing to the impact corporates make on society and environment
N
and consequent importance attached to the emergence of the

concept of sustainable growth. Refer to Section 9.2 CSR Reports
– Mandatory or Voluntary?
2. CSR reporting offers several benefits like stakeholder
engagement, legitimacy and social trust etc. Refer to Section 9.2
CSR Reports – Mandatory or Voluntary?
3. CSR reporting is mandatory in India under the Companies Act,
2013 which provides the requirements for reporting. Refer to
Section 9.3 Reporting in CSR.
4. The GRI framework consists of requirements and guidance
specified as reporting principles given in GRI 101 Foundation
Standard (which is part of the universal set of the standard)
supported by topic-specific standards for the three dimensions
of social, economic and environment. Refer to Section 9.3
Reporting in CSR.
5. SASB is a standard-setting organisation and maintains
sustainability accounting standards for 79 industries. SAI

n o t e s
publishes the SA8000 standard. BITC offers the BITC CR Index

for assessment of responsible business practices. Refer to Section
9.3 Reporting in CSR.
SUGGESTED READINGS
Agarwal,S. K. (2008). Corporate social responsibility in India.
SAGE Publications India.
Haski-Leventhal, D. (2018). Strategic Corporate Social Responsibil-
ity: Tools and Theories for Responsible Management. SAGE.
S
ing.
E-REFERENCES
IM
Financial Annual Results | ACC Limited | India’s Most Preferred
Brand. (2018). Acclimited.com. Retrieved 11 April 2018, from http://
www.acclimited.com/investor-relations/financial-annual-results
Global Reporting Initiative. (2018). Globalreporting.org. Retrieved
11 April 2018, from https://www.globalreporting.org/
Integrated Reporting. (2018). Integratedreporting.org. Retrieved 11
M
April 2018, from https://integratedreporting.org

Social Accountability International | Home. (2018). Sa-intl.org. Re-
trieved 11 April 2018, from http://www.sa-intl.org/
N
Sustainability Accounting Standards Board -. (2018). Sustainability

Accounting Standards Board. Retrieved 11 April 2018, from https://
www.sasb.org/
Sustainability Reporting. (2018). Globalreporting.org. Retrieved 11
April 2018, from https://www.globalreporting.org/information/sus-
tainability-reporting/Pages/default.aspx
Sustainable Overview | ACC Limited | India’s Most Preferred
Brand. (2018). Acclimited.com. Retrieved 11 April 2018, from http://
www.acclimited.com/sustainable

C h
10 a p t e r
ROLE OF GOVERNMENT AND

VOLUNTARY CODES IN CSR
CONTENTS
S
10.1 Introduction
10.2 Role of Government in CSR
IM
10.2.1 Government Support at International Level
Activity
10.3 Role of United Nations in Sustainable Development
Activity
M
10.4 Role of World Bank in Sustainable Development

Activity
10.5 Voluntary Codes in CSR
N
10.5.1 OECD Guidelines for Multi-national Corporations

10.5.2 ILO Conventions
10.5.3 UN Draft Principles for Behaviour of Transnational Corporations
10.5.4 Leadership in Energy and Environmental Design (LEED)
10.5.5 DOW Jones Sustainability Index
10.5.6 FTSE4GOOD
10.5.7 Smart Growth Network
10.5.8 Coalition of Environmentally Responsible Economies (CERES)
Activity
10.6 Summary

n o t e s
GOVERNMENT-PRIVATE SECTOR PARTNERSHIP FOR

CORPORATE SOCIAL RESPONSIBILITY IN INDIA
Corporate social responsibility may be considered, by default, a

voluntary initiative by corporates who want to become respon-
sible social citizens and strive for sustainable growth. However,
governments can also play a major role in promoting CSR. One
of the ways is by having a partnership with the private sector
in their CSR initiatives. The potential of such partnerships was
demonstrated in Gujarat.
The tribal-dominated region of Dangs in Gujarat is an area that

receives heavy rainfall but due to undulating terrain, the water
rushes past the district flowing downwards. The region faces
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large-scale migration in the summer due to water scarcity. The
situation was exacerbated by the old check dams that were in
need of renovation. To solve this problem, Gujarat CSR Authority
(GCSRA) decided to form a private sector partnership using CSR
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goals of corporates. There were about 2000 old and new check
dams that had to be taken up for repair which was done through
three projects with the support of leading corporate groups.
These projects along with other ongoing programs were expected
to enhance groundwater availability and augment water storage
capacity in the region.
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The projects received a total funding of `1.14 crores for aug-

menting water harvesting structures and increasing agricultural
income. Owing to the success of these projects, these have been
extended to the districts of Dahod and Chhota Udepur and have
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resulted in restoring 1.66 lakh cubic meters of water storage. An

estimated 1,400 acres of farmland were connected with irrigation
from the enhanced water harvesting.
This successful CSR partnership between Government of Guja-

rat through GCSRA and leading corporate groups have allowed
thousands of acres of farmland to be connected with irrigation
from enhanced water harvesting. It has also doubled the income
of hundreds of farmers in the area leading to the cultivation of
high-value crops. GCSRA also developed projects to promote and
support rural youth in agricultural entrepreneurship and provid-
ed relief to thousands of farmers in the drought-hit region. Corpo-
rates in these regions through these CSR efforts were also able to
enhance their brand image and a cleaner-greener reputation with
the local community.
With the success of this experiment, Gujarat government has now

called for corporates in the region, each to adopt a tribal district,
in tune with their CSR objectives. The government is wooing
the private players who are looking for CSR projects to invest in

ROLE OF GOVERNMENT AND VOLUNTARY CODES IN CSR 289
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these tribal districts. Using their CSR funds, they are expected
to train forest dwelling tribal on how to collect minor forest pro-
duce (MFP) and augment their sources of income. The ministry
of tribal affairs has also been on the lookout for private partners
who could use their CSR funds for investments in the tribal-dom-
inated state. The government is expecting corporates who adopt a
tribal district to organise self-help groups (SHGs) of 30 tribals and
train them in how to gather minor forest product, do basic pro-
cessing at home, store it and then sell it in bulk to the local mar-
ket. This CSR intervention is expected to cost `6 lakhs per SHG
and `5 Crores for an entire district. A number of corporates have
also been enthusiastic with their participation. Some important
names are Baba Ramdev’s Patanjali Group, Mahanadi Coalfields
Ltd, and Goa Shipyard Ltd.
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The government is keen on the secondary-level partnership
which involves setting up of value addition centres where the
tribal would be employed and taught to process raw minor forest
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produce. The Tribal Cooperative Marketing Development Feder-
ation of India (TRIFED) which manages the scheme has estimat-
ed that the investment required would be `2 Crores and five such
centres would be required to cover an entire district. Once value
added, the tribal organised in an SHG would be able to store it for
long and then sell it in bulk in the market. TRIFED expects that
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with private sector participation, the headloads of minor forest

products can be turned into bulk loads. The earlier government
had already rolled out the scheme of ensuring a minimum sup-
port price for the minor forest product. This Gujarat experiment
is a good example of how governments can play a major role in
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promoting CSR of corporates, outside CSR mandates and soft

laws, while at the same time achieving it within the context of
development goals of the government.
(Source: 1. “Centre taps corporates to adopt tribal districts with CSR funds”, The Eco-
nomic Times, 6th April 2018, https://economictimes.indiatimes.com/news/politics-and-na-
tion/centre-taps-corporates-to-adopt-tribal-districts-with-csr-funds/articleshow/63635622.
cms
2. “Being Responsible, the corporate way”, Governance Now, 9th April 2018, https://www.
governancenow.com/views/columns/being-responsible-the-corporate-way”)

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learning objectives

>> Explain the role of government in CSR.
>> Discuss the role of United Nations in sustainable develop-
ment.
>> Define the role of World Bank in sustainable development.
>> Discuss the voluntary codes in CSR.
10.1 INTRODUCTION
In the previous chapter, we studied CSR Reporting. While CSR initia-
tives of companies are mostly voluntary, the reporting of CSR activities
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can be either voluntary or mandatory. However, the voluntary nature
of CSR activities does not imply that it is an option for corporates. Be-
having in a socially responsible manner has become mandatory. The
huge impact the corporates can make on society and environment,
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and the consequent increasing, stakeholder pressures on them to act
responsibly, coupled with the realisation that being socially responsi-
ble is the way to achieve sustainable growth in the long term has made
CSR a mandatory activity irrespective of the legal mandate.
In a similar way, governments cannot be indifferent with regard to

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whether the companies are taking steps towards sustainable devel-

opment and growth. On the other hand, can they force CSR activities
on corporates considering that social development and environmen-
tal protection are all basically primary functions of the government?
What should be the role of government, what kind of legal provisions
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and regulations it should establish, and whether there can be a uni-

versal set of regulations applicable for all countries are all the ques-
tions that need to be studied. It is also necessary to understand the
role of other important stakeholders such as international institutions
(like UN and World Bank) in the promotion of CSR and sustainable
development.
In this chapter, you will study the role of government and interna-
tional institutions in CSR. You will also study the major international
regulatory voluntary codes pertaining to CSR.
10.2 ROLE OF GOVERNMENT IN CSR

In the last chapter, we discussed the nature of CSR reporting – wheth-
er mandatory or voluntary. Even in countries where the reporting is
mandatory, the CSR activities themselves are voluntary in nature (ex-
cept in countries like India where CSR investments are also manda-
tory). In these cases, there is an implied assumption that companies
who report on CSR activities should also anyway have some internal
policies and implementation mechanisms in place, which are not nec-

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essarily dictated by law. After all, many leading companies in devel-

oped countries undertake CSR activities owing to both external stake-
holder pressures and the inherent benefits associated with CSR and
not because of a legal mandate.
In countries where CSR activities are voluntary, the predominant

view could be that CSR by nature has to be voluntary and that CSR
starts where the law ends. Moreover, the very nature of CSR makes it
difficult to completely bring it into the legal ambit. However, we dis-
cussed in the previous chapter, several trends have made corporates
to voluntarily undertake and report CSR activities and these reports
do not undergo any government or legal scrutiny (except where there
are specific legal provisions). It is important to remember in this con-
text that it is also not easily judged whether a company has undertak-
en sufficient initiatives within its reach towards addressing all social
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and economic concerns it is related to. To satisfy the stakeholders,
companies voluntarily get their reports audited by external agencies
under some international social auditing standards.
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When corporates voluntarily report on CSR, we can only assume that
companies would have taken all necessary steps taking into view the
stakeholder pressure and its own future benefits arising out of sus-
tainable growth. While sustainable growth, obtaining legitimacy and
social trust, engaging various stakeholders etc., are all important rea-
sons, the role of NGOs and Government can also be crucial in making
companies undertake CSR activities. Another important dimension is
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the overlapping of CSR and Governance systems. CSR objectives by

their very nature overlap with the government objectives and func-
tioning. Hence, the subject of CSR is also important from the perspec-
tive of governments. In this section, we shall study about what exactly
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is and should be the role of government in CSR.
With regard to CSR, there have always been two schools of thought.
One school of thought was popularised by Friedman whose essay
“The Social Responsibility of Business is to Increase its Profits” dis-
tinguished between the responsibilities of business managers and the
government. He articulated that “the business of business is business”
and the government officials elected by electorates are only fit for and
can be accountable for social and environmental objectives. When
corporate managers focus on maximising shareholder wealth, it im-
proves the efficiency and effectiveness of the capital market function-
ing which should ultimately lead to greater social well-being. Beyond
that, it is the government’s role to undertake initiatives that should
address social and economic concerns. This school of thought leaves
no role of CSR by companies and hence government’s role in it.
The other school of thought which emerged along with environmental

concerns and the concept of sustainable development considers CSR
as a management model itself. As we discussed in previous chapters,
it is for the sake of their own benefits of the corporates to act as re-

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sponsible citizens and strive for sustainable growth that takes care
of present needs without compromising the future need. In this per-
spective, CSR has to be an integral part of the corporate strategy of
the companies and thus, it becomes a part of the management model
which ultimately has led the concept of “Integrated Reporting” that
goes beyond “Sustainability Reporting”.
The shift from Friedman’s school of thought to the school of thought

that promotes “Integrated Reporting” has been caused by several fac-
tors. We shall now discuss these factors:
Sustainability movement: You have already studied in the last
chapter how environmental concerns, unequal development and
corporate impact between developing and developed countries,
and the concept of the need for sustainable development growth
have led to the realisation of the need to focus on sustainable
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growth by corporates.
Stakeholder pressures: The voluntary reporting by all companies
need not necessarily has arisen out of intrinsic benefits of CSR and
sustainability initiatives but has also been driven by increasing ex-
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ternal stakeholder pressures from NGOs, human rights and labour
organisations, and the internal stakeholders’ interest and concern
for green movement.
Growing influence of transnational corporations: During the
last few decades, the size and clout of several Transnational Cor-
porations have grown huge to the effect of even lessening the im-
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portance of influence and policies of governments themselves. The

lack of international laws and regulations that can govern the ac-
tivities of such organisations pointed to the need for some control
mechanisms. Though there were some initiatives earlier to insti-
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tute “management codes” for such organisations through interna-

tional institutions like the UN to regulate such MNCs, it was soon
discovered to be impractical and infeasible to implement them.
However, events like financial crises that showed their potential to
affect the entire financial systems around the globe pointed out to
a necessity of some governance measures. The corporate gover-
nance measures instituted during these years got a boost with the
emergence of sustainability movement which ultimately led to the
pressure for corporates to publish a sustainability report.
Moreover, with the emergence of big corporates whose revenues were

comparable to the size of the economies of some small countries, there
also emerged the concept of “boundary-less organisations” that could
even perform some of the responsibilities of government themselves.
It was felt that it is right for big corporates to take up some of the roles
of governments and the traditional power of governments is likely to
naturally diminish in comparison to the power of these corporates.
The transnational nature of these corporations made some to believe
that they could be more neutral, spread right values and policies across
countries which even governments cannot achieve. This dangerous
view projected that TNCs could be justified in usurping some of the

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roles of government as a natural result of their size, clout, influence

and transnational character. The impractical nature of controlling
these organisations through international regulations also precipitat-
ed such views. However, financial crises came as an eye-opener and
revealed how such unregulated entities can cause systemic failure to
financial systems across the globe. Hence, the actual deficit of gov-
ernance, which earlier was shown as reasons as to why corporates
should play a major role, was now viewed in terms of controlling the
activities of the corporations.
In the earlier decades, governance deficit of governments in demo-

cratic capitalism was also stated as reasons for CSR activities of corpo-
rations. In fact, concern with impacts of racial discrimination and dis-
advantage in the USA led the corporations in the 1960s to develop the
CSR policies. It was also felt that if corporates do not act on their own
voluntarily, the government will be forced to act to take on the respon-
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sibility on itself which may affect the freedom of the management de-
cisions of corporates. Some researchers say that these developments
led to the emergence of CSR movement that resulted in business as-
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sociations like “Business in the Community” in the UK which now
has more than 700 corporations as its members. In other countries in-
cluding Europe, the privatisation movement led to more autonomous
corporations which resulted in a more active role for them leading to
CSR initiatives. These developments made corporations to step into a
“Sub-political” role which invariably created a policy space for CSR.
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The above trends, especially in the wake of globalisation, pointed out

the need for proper balancing of responsibilities of Government and
the Corporations. Corporate Social Responsibility paradigm became
the right tool for rebalancing the responsibilities. The need for pro-
active collaboration between various stakeholders especially between
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corporations and governments was realised, and both the CSR as a

management approach by corporates and as a policy tool for govern-
ment for corporate governance became equally important.
CSR as a governance approach requires governments to establish

conditions in which corporate responsibility can flourish. Govern-
ments realised that they should devise rules, regulations, legal provi-
sions and policy incentives that promote corporate responsibility.
CSR POLICY DRIVERS
The public CSR policies of governments can have the following driv-
ers:
Governments can address the social and environmental problems
in their countries more effectively by tapping the corporate sec-
tor’s management resources.
Governments can control the negative impacts made on the so-
ciety and environment by profit-driven corporates by supporting
sustainable growth objectives.

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Through appropriate policy and regulatory measures, govern-

ments can create a level of playing field for all corporates.
Voluntary initiatives by corporates can be used to bridge the gov-
ernance deficit.
Domestic companies can be integrated with global markets and
value chains.
New forms of governance can be explored by entering into pub-
lic-private partnerships designed to achieve common public goals
at the national and international level.
GOVERNMENT POLICIES IN DIFFERENT COUNTRIES
Researchers have found that CSR policies of countries widely differ.

Different governments have legislated different CSR policies and laws
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which are dependent on the social, governmental and environment
system of respective countries. There cannot be one single set of CSR
laws that can be made uniformly applicable to different countries. CSR
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policies of different nations were found to have evolved over a period
of time owing to unique nature of the culture and businesses operat-
ing in those countries. The factors that affect CSR policies of govern-
ments are the political and institutional structure, political processes,
social structure, cultural values, social attitude towards government,
attitude of corporates towards voluntariness, role of businesses, role
and positions of NGOs of the country and historical traditions. Dif-
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ferences in government role are found to be significant even in de-

veloped democratic and welfare capitalist countries. For example, in
United States there has not been much government regulation and
policies. But CSR involvement of corporates is found to be greatest
in the US. On the other hand, there has been significant regulation in
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countries of European Union. The explicit CSR strategies adopted by

American companies have resulted in a lesser need for institutional
framework and government policies. The CSR strategies of European
companies were more implicit in nature owing to the pre-existence
of an institutional framework for socially responsible business action.
Several researchers have also compared CSR policies of different oth-
er countries towards interpreting the reasons for the differences.
TYPES OF GOVERNMENT INTERVENTIONS
There are four major possible types of government interventions,

which are:
1. Awareness-raising: Government regulations and directives can
focus on disseminating ideas of CSR and providing incentives
for businesses to adopt them. These government instruments
should be aimed at demonstrating how companies can contribute
to sustainable development. Increasing awareness about CSR
related issues is an important first step that can lead to full-fledged
public sector engagement. Some of the CSR policy instruments

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in this regard are tax exemptions for CSR investments, incentives

for social or philanthropic initiatives, award schemes that
increase the visibility of CSR activities, training and capacity
building for SMEs and provision of funding for research on
developing an environmentally-conscious products.
2. Partnering: These are the central tools for CSR policy
implementation. This involves public-private partnerships that
aim to combine the expertise, competencies, and resources of the
public sector with those of businesses and other social institutions.
The government role could be that of initiator, moderator
or facilitator. Partnerships can focus on issues like poverty
reduction, child labour, access to health, safety and security,
educational infrastructure etc. Other modes of partnering may
involve multi-stakeholder involvement, collective action efforts,
and roundtables.
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3. Soft law: These can be termed non-regulatory interventions.
The UN Global Compact Management model and OECD policy
guidelines for Multinational Enterprises are the examples of soft
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law pertaining to CSR. At the national level, it may take the form
of a national action plan for CSR issues, public procurement
policies, corporate governance codes, implementation of
international conventions and principles, guidelines for CSR
reporting, export credit regulations etc. These are meant to
complement the relevant legislations and regulations on the
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respective issues. These policy instruments also allow flexible

approach towards achieving the CSR goals.
4. Mandating: Mandating instruments are used to set and
enforce a minimum set of standards for business performance
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in CSR policy areas like human rights, anti-corruption and

environmental protection, stock exchange regulations, penalty
provision for non-compliance etc. Though CSR is still seen as
voluntary by many, a number of governments have implemented
mandatory measures that oblige companies to report on their
CSR related business activities.
Table 10.1 gives examples of CSR policies instituted by different

countries:
TABLE 10.1: EXAMPLES OF CSR POLICIES INSTITUTED

BY DIFFERENT COUNTRIES
Country Instrument Public Agency Description
Brazil Regional Work- Office of the CGU officials are tasked
shops: “Talk to Comptroller with meeting representa-
enterprises” General (CGU) tives in business, associa-
tions, and confederations
in order to foster the
implementation of integrity
measures

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Country Instrument Public Agency Description

Germany CSR World- Federal Foreign An information portal was
wide Office created in cooperation with
partners from the public
sector and business sec-
tor with a goal to promote
corporate responsibility
among German companies
investing abroad
UK Toolkit, guides UK Foreign Three tools were developed
and virtual and Common- to promote the protection
maps to pro- wealth Offices of human rights in the
mote human course of business activi-
rights ties.
US Strategic US Department The Occupational Safety
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Partnerships of Labour and Health Administration
program (OSHA) provides opportu-
nities to partner with em-
ployees, employers, profes-
IM sionals, and trade or labour
associations with the aim
to encourage efforts to
prevent serious workplace
hazards.
CSR POLICY AREAS FOR GOVERNMENT INTERVENTIONS

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Government CSR policies, in general, may pertain to issues like hu-

man rights, poverty, environment, health, safety, social equality etc.
The actual focus of CSR policy areas in each country will depend on
the specific issues based on the respective countries. Following are the
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major CSR action areas for government intervention:

Corporate governance: Economic downturns, corporate fraudu-
lence, financial crises and declining business ethics have all led
to a push for improvements in corporate transparency and ac-
countability. Good corporate governance and business ethics are
essential for any company who wants to be a responsible business.
Along with environmental and social dimensions, governments’
CSR policies also address the corporate governance issues.
Reporting and disclosures: Transparency and accountability of
responsible businesses require proactive and honest communica-
tions with all stakeholders. We have already discussed the impor-
tance of non-financial disclosures in the previous chapter and the
government role in regulating CSR reporting.
Community involvement and development: Countries with
scarce resources and weak infrastructure could do well by involv-
ing corporates in a public-private partnership to complement the
government role in socio-economic development. The US program

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on Occupational Health and Safety aimed at bolstering workplace

safety and access to health care is an example.
Responsible management and sustainable production: Respon-
sible businesses should respect human rights and environmental
concerns. Governments adopt methods like technical advisory ser-
vices, state-led audits, capacity building, multi-stakeholder driven
codes of conduct and CSR/Eco-label certification procedures to
promote responsible management and production. Governments
can also establish CSR policies that provide incentives for the
production of goods and services with low environmental impact.
Based on such CSR policies, governments can also put-in-place
regulations pertaining to environmental concerns like CO2 emis-
sions and ozone depletion, social concerns like the prohibition of
child labour etc. The National Voluntary Guidelines (NVG) issued
by the ministry of corporate affair toward business responsibility
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reporting is an example of CSR policies in this action area.
Responsible consumption: With the increase in consumer aware-
ness about environmental degradation and the increasing need for
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sustainable growth, consumers are now concerned not just with
product quality and price but also on environmental and social
footprints of products purchased for consumption. Government
regulations in this context would involve supporting responsible
businesses through fair trade regulations and institute certifica-
tion schemes aimed at eco-labelling and environmental certifica-
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tion. Through such CSR policies, governments can aim to stim-

ulate demand for eco-friendly and socially acceptable products.
Governments can also establish policies aimed at increasing the
awareness of ethical products by appropriate regulations and con-
sumer education campaigns. Government departments can also
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follow procurement policies that support responsible and socially

conscious businesses.
MODEL FOR CSR POLICY FRAMEWORK FOR GOVERNMENTS
A United Nations Global Compact paper suggests the following steps

for developing a CSR policy framework by governments.
Step 1 – Context of CSR: As we discussed earlier, there cannot be any

universal prescription of CSR policy framework that is applicable to
all countries. The CSR policy framework should take into account the
local history, social and political contexts, cultural values and econom-
ic trends of the respective country. Economic factors that can impact
the CSR policy variables are the level of integration of the country’s
economy with the global economy, development of the economic sys-
tem and the degree of privatisation and growth and strength of the
private sector. Political factors that can determine the CSR policy are
the level of integration at the international political level, government
capacity to implement policies and monitor compliance and stability

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of the political system. Social factors are social cohesion and prob-
lems, environmental challenges faced by the country, the exchange
between societal actors, ability to negotiate conflicts, the participation
of interest groups like NGOs and capacity for change in terms of will-
ingness to reform. Subject to these factors, policy action areas can be
identified that can shape future policy agendas, community involve-
ment and development, responsible consumption, reporting and dis-
closure and responsible production.
Step 2 – Defining CSR: There is no single CSR definition that can be

acceptable by everyone. The concept of CSR has evolved over a period
of time depending on the various factors mentioned above. Principles
that can drive an appropriate CSR definition are of voluntary nature
of CSR, beyond compliance nature of CSR in three dimensions of sus-
tainable growth, corporate philanthropy and its market-changing im-
S
pact, the role of CSR in creating a level playing field, the necessity of
CSR for sustainable corporate growth, the role of CSR in rebalancing
responsibilities in society and finally, the complementary nature of
CSR to state interventions.
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Step 3 – Establishing CSR within a government structure: Good
CSR policy requires effectively placing its functions within the overall
governance structure and strategically involving various stakehold-
ers. Effective CSR implementation requires the establishment of a
government agency who will be responsible for defining the policy,
coordinating its implementation and engaging in a monitoring and
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impact assessment process. It could be a part of existing government

functions or may be made a separate department. For example, in
countries like Germany and India, one of the existing government
ministries takes care of CSR policy and implementation. In countries
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like Costa Rica and the UK, separate departments/agencies are cre-
ated to handle the function. Also, since CSR is a cross-disciplinary
issue, the policy development should draw on the expertise of exter-
nal stakeholders from the business, NGO, trade unions and academic
communities.
Step 4 – Defining the CSR public policy rationale: The next step
involves defining the CSR policy rationale. Some of the policy ratio-
nales are achieving sustainable growth, enhancing international com-
petitiveness, enhancing local investment climate, promoting local ex-
port-oriented business, responding to pressure from external actors,
addressing gaps in the government capacity, tackling key social and
environmental challenges, addressing challenges in socioeconomic
development and creating cross-sectorial synergies to achieve policy
goals.
Step 5 – Identifying appropriate types of policy interventions: The

important and major policy types are awareness raising, partnering,
soft law and mandating discussed in earlier sections. These were al-
ready discussed in the previous section.

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Step 6 – Monitoring and impact assessment: Governments should

set-up appropriate monitoring systems and assessment mechanisms
to complete the CSR policy framework. As of now, countries have
not yet established effective CSR policy evaluation processes. Gov-
ernments should strive for effective monitoring by setting clearly de-
fined goals for achievements and outcomes by following a course of
follow-up evaluation.
10.2.1 GOVERNMENT SUPPORT AT INTERNATIONAL

LEVEL
The government policies for supporting CSR at international level

can take the following forms:
Developing CSR codes for international business.
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Developing codes for foreign direct investments .
Creating guidelines and policies with respect to international sup-
ply chains.
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Encouraging and supporting policies for socially responsible in-
ternational investments.
Reporting regulations concerning CSR and Sustainability report-
ing.
Defining regulations regarding social, environmental and ethical
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impacts of global businesses.

Developing policies directed at increasing overall responsibility
standards of MNCs.
The above measures can be either from national governments or by

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inter-governmental or international organisations like the OECD. We

shall discuss the latter in the next section.
Government policies that support international CSR aim to promote

responsible standards for home-based MNCs. An example is the cre-
ation of Apparel Industry Partnership in the US, at the behest of US
government, by the representatives of the apparel industry, labour
unions, and NGOs, towards improving overseas working conditions.
It led to the subsequent development of the Fair Labour Association
whose industrial labour codes are one of the most important in this
category. A similar example in the UK is the role played by the UK
government in developing the voluntary code meant for the extractive
industry – Extractive Industries Transparency Initiative (EITE). The
purpose of the code was to increase the transparency of payments
made by corporations to governments in the extractive industry sec-
tor with the goal of reducing corruption and promoting public sector
fiscal responsibility. The UK government participates and facilitates
the EITE multi-stakeholder conferences and has given a GBP 1 mil-
lion subsidies for the implementation of the first phase. Other UK

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examples are Ethical Trading Initiative – an alliance of retail com-

panies, non-government organisations, and trade unions to improve
conditions in member company supply chains and ‘Fair Trade’ system
designed to help producers to raise their incomes through better man-
agement of retail supply chains.
The UK and US governments have also established the “Voluntary

Principles on Security and Human Rights”. Similarly, the German
government has established a “Round Table on Corporate Codes of
Conduct” in order to improve labour and social standards in develop-
ing countries.
Similarly, at the inter-governmental level, an example of Global CSR

policy intervention is the guidelines issued by the OECD to govern
the social and environmental conduct of multinational firms. We shall
now study the UN’s role in the next section.
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1. Which of the following school of thought of management
supports CSR?
a. Milton Friedman’s school of thought
b. School of thought that says “business of business is
business”
c. The school that says “Social Responsibility of Business is
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to Increase Profits”
d. The school of thought that views CSR as a management
model
2. Which of the following statement is true with regard to
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government regulations of CSR?

a. CSR has to be voluntary as it should begin where the law
ends.
b. CSR is considered as a new management model, and a
management model cannot be regulated.
c. As per new school of thought, CSR should be made
mandatory in all countries.
d. Both (a) and (b)
3. Which of the following statement is false with regard to
growing influence of transnational corporations?
a. Size and clout of TNCs has led to need for regulating their
activities.
b. TNCs owing to their size and influence are now in a
position to participate in the role of governments due to
their transnational existence.

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c. Unregulated TNCs are dangerous and can cause systemic

failures.
d. Mandatory regulations of TNCs have failed in the past.
4. Which of the following statement is more correct with regard
to government’s role in CSR?
a. CSR can be used as a tool for rebalancing responsibilities
of governments and TNCs.
b. CSR can be a policy tool for the government in regulating
TNCs.
c. CSR as a governance approach requires governments to
establish conditions where CSR can flourish.
d. All of the above are correct
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5. Which of the following is not a driver for public CSR policies
of governments?
a. Governments can address sustainable development
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problems by tapping the corporate sector.
b. Governments can address social and environmental
problems by promoting CSR that helps sustainable
corporate growth.
c. Government can CSR policy tool to create a level playing
field.
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d. All of the above are drivers

6. With regard to CSR policy framework of governments, which
of the following statement is true?
a. International organisations should strive for uniform CSR
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regulations across all countries.

b. CSR policies tend to be different in different countries
owing to distinct characteristics of respective countries.
c. CSR activity is driven more by regulations in the US.
d. CSR activity is driven more by voluntary initiatives in
Europe.
7. Corporate governance code of conduct can be considered
__________ type of CSR government intervention
a. awareness-raising
b. partnering
c. soft laws
d. mandating
8. The National Voluntary Guidelines issued by the Ministry of
Corporate Affairs belong to the partners of CSR intervention.
(True/False)

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9. In the following matches between CSR policy action area and

example, which one is wrong?
a. Corporate governance – CSR rules of the Indian Companies
Act, 2013
b. Reporting & disclosures – Section 135 of Indian Companies
Act, 2013
c. Community Involvement – US program on OHS
d. Responsible management and sustainable production –
NVG of MCA, India
Activity
A recent news report in Economic times suggested that mandato-
S
ry CSR investment regulation in India is a failure (“Five years on,
mandated philanthropy not delivering in India”, https://economic-
times.indiatimes.com/news/economy/policy/five-years-on-man-
dated-philanthropy-not-delivering-in-india/articleshow/63281080.
IM
cms). Read the report and the related discussions in this chapter
and give your views based on your own analysis and conclusions
with proper support.
ROLE OF UNITED NATIONS IN

10.3
M
SUSTAINABLE DEVELOPMENT
In accordance with the main priorities of the United Nations in achiev-
ing international cooperation in solving international problems of an
economic, social, cultural or humanitarian character and in promoting
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and encouraging respect for human rights, UN has been taking sever-
al initiatives for sustainable development. Earlier, UN worked for the
eradication of extreme poverty by the UN’s Millennium Development
Goals (MDGs). With the success of MDGs, the UN has now adopted
the ambitious 2030 agenda for Sustainable Development. With regard
to climate change, the UN has worked towards adopting a universal
global climate agreement in 2015.
UN SUSTAINABLE DEVELOPMENT GOALS (UN SDG)
The world leaders of 193 member states at a historic UN summit in

2015 adopted the 2030 agenda for sustainable development. The UN
launched its sustainable development portal “2015 Time for Global
Action for People and Planet” in 2015. It focuses on UN’s post-2015
sustainable development agenda and contains information on the
UN’s efforts to tackle climate change and many other sustainability
issues.
The sustainable development plan lays out a path to end extreme pov-
erty, fight inequality and injustice, and protect the planet. At the heart

n o t e s
of the Agenda for 2030 are the 17 sustainable development goals which
came into force in 2016. It is expected that over the next 15 years these
new goals will mobilise efforts to end all forms of poverty, injustice
etc., and tackle climate change. The SDGs not only identify where we
have to be in 2030 to create a sustainable world but also outline new
markets and opportunities for companies across the globe. The UNGC
is committed to being a leading catalyst for transforming these global
goals into local businesses.
The 17 SDGs are listed below:

1. No poverty: End poverty in all its forms everywhere.
2. No hunger: End hunger, achieve food security and improved
nutrition and promote sustainable agriculture.
3. Good health and well-being: Ensure healthy lives and promote
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well-being for all at all ages.
4. Quality education: Ensure inclusive and equitable quality
education and promote lifelong learning opportunities for all.
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5. Gender equality: Achieve gender equality and empower all
women and girls.
6. Clean water and sanitation: Ensure availability and sustainable
management of water and sanitation for all.
7. Affordable and clean energy: Ensure access to affordable,
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reliable, sustainable and modern energy for all.

8. Decent and economic growth: Promote sustained, inclusive and
sustainable economic growth, full and productive employment
and decent work for all.
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9. Industry, innovation and infrastructure: Build resilient

infrastructure, promote inclusive and sustainable
industrialisation and foster innovation.
10. Reduced inequalities: Reduce inequality within and among
countries.
11. Sustainable cities and communities: Make cities and human
settlements inclusive, safe, resilient and sustainable.
12. Responsible consumption and production: Ensure sustainable
consumption and production patterns.
13. Climate action: Take urgent action to combat climate change
and its impacts.
14. Life below water: Conserve and sustainable use of the oceans,
seas and marine resources for sustainable development.
15. Life on land: Project, restore and promote sustainable use of
terrestrial ecosystems, sustainably manage forests, combat

n o t e s
desertification, and halt and reverse land degradation and halt

biodiversity loss.
16. Peace and justice strong institutions: Promote peaceful and
inclusive societies for sustainable development, provide access
to justice for all and build effective, accountable and inclusive
institutions at all levels.
17. Partnerships for goals: Strengthen the means of implementation
and revitalise the global partnership for sustainable development.
United Nations has a separate division for promoting Sustainable

Development across the world. The Division for Sustainable devel-
opment (DSD) seeks to provide leadership and catalyse action in pro-
moting and coordinating implementation of internationally agreed
development goals, including the 17 Sustainable Development Goals
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(SDGs). It hosts the Secretariat for the High-level political forum on
Sustainable Development, the central platform within the United Na-
tions System for the follow-up and review of the 2030 agenda for Sus-
tainable Development. The division has six core functions, which are:
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1. To support UN intergovernmental processes on sustainable
development.
2. To analyse and develop policy.
3. To develop capacity at the request of member states
4. To coordinate Inter-agency
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5. To involve stakeholder engagement, partnerships, communication

and outreach
6. To handle knowledge management
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UN GLOBAL COMPACT (UNGC)
UN Global Compact (UNGC) is one of the major voluntary initiatives

of the United Nations based on CEO commitments to implement uni-
versal sustainability principles and to take steps to support UN goals.
UNGC works under the executive office of the secretary general
(EOSG) through a UNGC board with UN Secretary-General as the
Chair. The UNGC board has global network councils, regional net-
work councils and local networks functioning under it, the key stake-
holders are governments, businesses, civil society and labour organi-
sations and related UN global programs.
The UNGC had worked with the multinational businesses, interna-

tional labour organisation (ILO), and NGOs and formulated a frame-
work of responsible business management model that consists of ten
universal principles for responsible global corporate conduct which
the signatory firms are expected to meet. These ten principles are al-
ready discussed in chapter 8. To recollect, the ten principles, pertain to
human rights, labour, environment, and anti-corruption. The UNGC

n o t e s
helps MNCs in operationalising their commitments through policy di-

alogues, learning, country and regional networks, and projects. Since
its inception, more than 9500 firms from 160 countries have endorsed
the UN Global Compact.
The vision of the UN Global Compact is to mobilise a global move-

ment of sustainable companies and stakeholders for creating a world
where business becomes a force for good with shared responsibility
for achieving a better world. Towards this goal, UN Global Compact
supports companies to do business responsibly by aligning their strat-
egies and operations with ten principles of UNGC and take strategic
actions to advance broader societal goals, such as the UN Sustainable
Development Goals (SDG).
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10. Which of the following is true with regard to UNGC?
a. UNGC mandates international CSR codes for MNCs
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b. UNGC is a voluntary initiative to implement universal
sustainability principles by companies
c. UNGC published the UN SDG 2030 plan
Activity
M
In the chapter on CSR reporting, you studied sustainability report

of ACC Ltd. Companies that adhere to UN SDG plans give the map-
ping of their efforts to these goals. Download the ACC’s sustainabil-
ity report and study the mapping. How well has ACC implemented
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CSR initiatives related to UN SDG 2030 plan? Give a brief summa-

ry and your views.
ROLE OF WORLD BANK IN

10.4
SUSTAINABLE DEVELOPMENT
The World Bank’s working definition of Corporate Social Responsibil-
ity focuses on sustainable economic development – “Corporate social
responsibility is the commitment of business to contribute to sustain-
able economic development – working with employees, their families,
the local community and society at large to improve the quality of life,
in ways that are both good for business and good for development”.
World Bank also plays an important role in promoting CSR. The role
of World Bank, like other international organisations, is in terms of
soft law or market-based regulations. Instead of mandating specif-
ic kinds of CSR behaviour, they seek to encourage firms to act more
responsibly. The measures include reporting requirements for firms

n o t e s
and financial institutions, reports on business practices, support for

research and working with firms to establish voluntary codes, etc.
The CSR practice group of World Bank advises developing country

governments on the roles and instruments that they can most usefully
deploy to encourage CSR. The program involves building an under-
standing of CSR incentives and pressure points and improving stra-
tegic interactions and alignment between public policy goals and the
CSR related activities of businesses.
In India, World Bank seeks to strengthen the collaboration between

corporate business strategies and national development priorities by
supporting the Government of India’s Ministry of Corporate Affairs in
its efforts to develop the CSR activities of corporate enterprises. The
objective of the World Bank’s support in the form of technical assis-
tance is to foster an enabling environment for the corporate sector to
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work towards social inclusion and the achievement of the Millennium
Development Goals in partnership with government, non-government
organisations, civil society organisations, and communities. World
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Bank facilitates the sharing of best international practice to inform
India’s growing CSR agenda. The key engagement areas are analyti-
cal activities, institutional design, shareholder consultations, capacity
building and knowledge sharing. World Bank has helped the Indian
Institute of Corporate Affairs (IICA) to establish the National Founda-
tion for CSR (NFCSR). It is also engaged in helping the Department of
Public Enterprises to develop an independent institutional structure
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to facilitate the CSR work of state-owned enterprises.
The private investment arm of the World Bank, the International Fi-
nance Corporation (IFC), helps client organisations to understand and
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manage the environmental, social, and corporate governance (ESG)

risks they face. It partners with industry and other stakeholders to
find innovative solutions that open up opportunities for economically,
socially and environmentally sustainable private investments. IFC’s
ESG policies, guidelines, and tools are widely adopted as market stan-
dards and embedded in operational policies of corporations, investors,
financial intermediaries, stock exchanges, regulators, and countries.
The IFC has also promoted the adoption of the Equator Principles by
global banks. The equator principles are a risk management frame-
work for determining, assessing and managing environmental and so-
cial risk in projects and is intended to provide minimum standards for
due diligence and monitoring to support responsible decision making.
Around 92 financial institutions in 37 countries have officially adopted
the equator principles. The signatory banks have agreed to develop
procedures to assess and monitor the social and environmental im-
pact of project development financing in developing countries. The
principles are applicable globally for four financial products: Project
Finance Advisory Services, Project Finance, Project-related Corpo-
rate Loans and Bridge Loans.

n o t e s
The Equator Principles (2013) includes the following ten principles:

review and categorisation, environmental and social assessment, ap-
plicable environmental and social standards, environmental and social
management system and equator principles action plan, stakeholder
engagement, grievance mechanism, independent review, covenants,
independent monitoring and reporting and reporting & transparency.
IFC had also put in effect the IFC Performance Standards that define
clients’ roles and responsibilities for managing their projects and the
requirements for receiving and retaining IFC support. These stan-
dards are labour and environmental standards that cover the invest-
ment lines pursued by the private sector.
The Sustainability Framework of IFC articulates its strategic commit-

ment to sustainable development. IFC’s Performance Standards that
form part of its Sustainability Framework have become globally rec-
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ognised as a benchmark for environmental and social risk manage-
ment in the private sector. The Sustainability Framework consists of:
The policy on Environmental and Social Sustainability that defines
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IFC’s commitments to environmental and social sustainability.
The Performance Standards that define clients’ responsibilities
for managing their environmental and social risks.
Access to Information Policy that articulates IFC’s commitment to
transparency.
M
The IFC’s Sustainability Framework applies to all investment and

advisory clients whose projects go through IFC’s initial credit review
process. IFC uses the Sustainability Framework along with other
strategies, policies, and initiatives to direct the business activities of
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the Corporation in order to achieve its overall development objectives.
The Sustainability Framework consists of eight performance stan-

dards that establish standards that the client is to meet throughout
the life of an investment by IFC. These are given below:
1. Assessment and management of environmental and social risks
and impacts
2. Labour and working conditions
3. Resource efficiency and pollution prevention
4. Community health, safety, and security
5. Land acquisition and involuntary resettlement
6. Biodiversity conservation and sustainable management of living
natural resources
7. Indigenous Peoples
8. Cultural heritage

n o t e s
11. Which of the following is not true with regard to the role of
World Bank in Sustainable Development?
a. The role of the World Bank is in terms of soft law or market-
based regulations.
b. The World Bank has established mandatory regulations
for promoting CSR.
c. The World Bank encourages firms to act more responsibly
through various measures.
d. CSR practice of the World Bank advised developing
country governments on CSR policy framework.
12. Which of the following require banks around the world to
S
develop procedures and assess and monitor the social and
environmental impact of project development financing?
a. World Bank’s Sustainability Standards
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b. IFC’s Equator Principles
c. IFC’s Performance Standards
Activity
M
Download and study in detail the IFC’s publication on the Equator

Principles. Present your report on how the principles can be used
for due diligence of project financing.
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10.5 VOLUNTARY CODES IN CSR

In this section, you will study about some important voluntary organi-
sations that support the cause of sustainable development.
10.5.1 OECD GUIDELINES FOR MULTI-NATIONAL

CORPORATIONS
The OECD Guidelines for Multinational Enterprises are recommen-

dations addressed by governments to multinational enterprises op-
erating in or from adhering countries. They provide non-binding
principles and standards for responsible business conduct in a global
context consistent with applicable laws and internationally recognised
standards. The guidelines’ recommendations express the shared val-
ues of the governments of countries from which a large share of inter-
national direct investment originates and which are home to many of
the largest multinational enterprises. The guidelines aim to promote
positive contributions by enterprises to economic, environmental and
social progress worldwide.

n o t e s
The OECD guidelines are the only multilaterally agreed and compre-
hensive code of responsible business conduct that governments have
committed to promote. The OECD guidelines include General Policies
which MNEs should follow, Disclosure requirements, requirements
pertaining to human rights, employment and industrial relations, en-
vironment, combating bribery, consumer interests, science and tech-
nology, competition and taxation. The General Policies, for example,
require that companies should contribute to economic, environmental
and social progress with a view to achieve sustainable development,
respect human rights, encourage capacity building, encourage human
capital formation, abstain from local political activities etc.
10.5.2 ILO CONVENTIONS
The International Labour Organisation (ILO) defines CSR as a way in
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which enterprises give consideration to the impact of their operations
on society and affirm their principles and values both in their own
internal methods and processes and in their interaction with other
actors. ILO considers CSR to be a voluntary initiative, an integral part
IM
of company management, systematic and not occasional initiative,
linked to sustainable development and not a substitute for the role of
government. ILO believes that it can play an important role in CSR
because labour standards and social dialogue are key aspects of CSR
which is also its core business. ILO plays a role in helping to promote
dialogue between governments, workers’ and employer’s organisa-
M
tions and by providing assistance and tools to better understand the

labour dimension of CSR.
The ILO has identified 8 conventions which are listed below:

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1. Freedom of Association and Protection of the Right to Organise

Convention, 1948
2. Right to Organise and Collective Bargaining Convention, 1949
3. Forced Labour Convention, 1930
4. Abolition of Forced Labour Convention, 1957
5. Minimum Age Convention, 1973
6. The worst Forms of Child Labour Convention, 1999
7. Equal Remuneration Convention, 1951
8. Discrimination (Employment and Occupation) Convention, 1958
(No. 111)
The ILO conventions, when ratified at the national level become bind-
ing on governments and those governments must adopt legislation to
implement them. ILO has also designated another four conventions as
“priority” instruments thereby encouraging member states to ratify
them because of their importance for the functioning of the interna-
tional labour standards system. These are the Labour Inspection Con-

n o t e s
vention, the Employment Policy Convention, the Labour Inspection

(Agriculture) Convention, and the Tripartite Consultation (Interna-
tional Labour Standards) Convention.
10.5.3 UN DRAFT PRINCIPLES FOR BEHAVIOUR OF

TRANSNATIONAL CORPORATIONS
These draft principles drawn up in 1973 by a working group of the UN

Subcommittee on Human Rights provided an internationally binding
set of principles by which Transnational corporations (TNCs) should
operate. The principles relate to non-discrimination, war crimes,
worker’s rights, environmental protection, consumer protection,
TNC’s responsibilities under International Law etc.
These principles whose emphases were on the control of possible
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abuses of power by TNCs in both political and economic sphere are
now defunct. The draft code failed to secure general agreement as
a result of the irreconcilable differences between different countries
over the role of international law in the draft code. However, the fail-
IM
ure of the mandatory approach taken by the UN draft principles has
been followed with several successful voluntary initiatives by UN on
the subject.
10.5.4 LEADERSHIP IN ENERGY AND ENVIRONMENTAL

DESIGN (LEED)
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Leadership in Energy and Environmental Design (LEED) is the most

widely used green building rating system in the world. LEED pro-
vides a framework to create healthy, highly efficient and cost-saving
green buildings. LEED certification is a globally recognised symbol
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of sustainability achievement. It has become the international stan-

dard for the design, construction, and operation of high-performance
structures. LEED is developed by the US Green Building Council
(USGBC), a membership-based non-profit organisation. USGBC is
one of the eight national councils that helped found the World Green
Building Council.
10.5.5 DOW JONES SUSTAINABILITY INDEX
The Dow Jones Sustainability Indices (DJSI) is a family of global

sustainability benchmark indices. The indices track the stock perfor-
mance of the world’s leading companies in terms of economic, envi-
ronmental and social criteria. It is created jointly by S&P Dow Jones
Indices and RobecoSAM. The indices serve as benchmarks for inves-
tors who integrate sustainability considerations into their investment
portfolios and provide an effective engagement platform for investors
who wish to encourage companies to improve their corporate sustain-
ability practices. The DJSI family includes the following series of in-
dices: DJSI World, DJSI North America, DJSI Europe, DJSI Asia Pa-

n o t e s
cific, DJSI Emerging markets, DJSI Korea, DJSI Australia and DJSI
Chile.
The companies that form part of the indices are selected through a
transparent and rule-based component selection process based on
the companies’ Total Sustainability Scores resulting from the annu-
al RobecoSAM Corporate Sustainability Assessment (CSA). The top-
ranked companies within each industry are selected for inclusion in
the Dow Jones Sustainability Index family. The methodology selects
the top 10% of the most sustainable market caps per industry based
on the rating on sustainability scores. For example, the DJSI World in-
dex represents the top 10% of the largest 2500 companies in the S&P
Global BMI based on the long-term economic, environmental and so-
cial criteria. The top five companies in the index by index weight (as
of 2018) are Microsoft, Bank of America, Nestle, Samsung, Novartis,
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UnitedHealth group, Cisco Systems, Citigroup, Roche and Taiwan
Semiconductor Manufacturing co ltd.
10.5.6 FTSE4GOOD
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Similar to DJSI, FTSE4GOOD is an index series designed to measure
the performance of companies that demonstrate strong environmen-
tal, social and governance practices. The index is meant to be used
by market participants for assessing sustainable investment products.
The ratings are comprised of an overall rating that breaks down into
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underlying ESG exposure measures and performance scores that are

built on over 300 individual indicator assessments. The selection cri-
teria and ratings consider the three sustainability dimensions of en-
vironmental, social and governance that includes areas like climate
change, biodiversity, water use, health & safety, customer responsi-
N
bility, labour standards, anti-corruption, corporate governance, risk

management, tax transparency etc. The series includes more than 15
benchmark indexes based on research over 300 securities in 46 devel-
oped and emerging markets. The index can be used by market partic-
ipants to benchmark the performance of ESG-themed portfolios, cre-
ate financial instruments such as mutual or tracker funds, structured
products, exchange-traded funds etc., to help in investment decisions
to select companies that demonstrate good practice management of
ESG risks and to actively encourage companies to address ESG issues.
10.5.7 SMART GROWTH NETWORK
The Smart Growth Network is a partnership of government, business,

and civic organisations that supports smart growth. United States En-
vironmental Protection Agency (EPA) is one of the founding partners
of the network. The network has become a clearinghouse for informa-
tion about smart growth strategies. “Smart Growth” covers a range of
development and conservation strategies that help protect the health
and natural environment and make the communities more attractive,

n o t e s
economically stronger, and more socially diverse. The Smart Growth

Network has developed a set of 10 basic principles to guide smart
growth strategies that include mixed land uses, taking advantage of
compact building design, creating a range of housing opportunities
and choices, creating walkable neighbourhoods, fostering distinctive,
attractive communities, preserving open space, farmland, natural
beauty, and critical environmental areas, strengthening existing com-
munities, providing a variety of transportation choices, making devel-
opment decisions predictable, fair, and cost-effective, and encouraging
community and stakeholder collaboration in development decisions.
EPA’s Smart Growth Program helps communities improve their de-

velopment practices and get the type of development they want. It
works with local, state, and national experts to discover human health
and the environment, create economic opportunities, and provide at-
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tractive and affordable neighbourhoods for people of all income levels.
10.5.8 COALITION OF ENVIRONMENTALLY RESPONSIBLE

ECONOMIES (CERES)
IM
CERES is a non-profit coalition of investors, public pension trustees,
foundations, labour unions, and environmental, religious, and public
interest groups formed towards achieving the common goal of corpo-
rate environmental stewardship. The coalition has formulated the ten-
point environmental code of conduct for corporations. It represents a
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set of institutional constraints on transnational corporations that go

outside the state system to institutionalise guidelines for transnational
behaviour. Companies endorsing the CERES principles are required
to report annually on their implementation of the principles. It helps in
legitimising their activities by representing them ecologically respon-
N
sible. The principles also facilitate lobbying of environmental groups

for pressuring companies to remain faithful to their promises. At first,
only small and socially conscious firms endorsed CERES principles.
Later, many big companies of the US like General Motors, Coca-Cola,
Nike, Bank of America, American Airlines etc. became endorsers of
the CERES principles.
The CERES principles include protection of biosphere, sustainable

use of natural resources, reduction and disposal of wastes, energy
conservation, risk reduction, safe products and services, environmen-
tal restoration, informing the public, management of commitment and
audits & reports.
The GRI, the most widely followed Sustainability Reporting Frame-

work across the world, was at first ideated and floated by CERES.
GRI developed the set of guidelines for international standardised re-
porting covering environmental, social and economic impacts. Later,
GRI became an independent organisation with its own governance
structure.

n o t e s
13. Which of the following is correctly mapped?

a. CERES – Multilaterally agreed and comprehensive code of
responsible business conduct
b. ILO Conventions – Eight labour rights-related conventions
that are non-binding and voluntary in nature
c. LEED – A standard for sustainable energy consumption
d. Smart Growth Network – US Environment Protection
Agency
Activity
S
Study the DJSI Asia Pacific index. What are the major Asian compa-
nies that form part of the index? How many Indian companies form
part of the index? Do you think more Indian companies should find
a place? Study the selection criteria and give your views.
IM
10.6 SUMMARY
In earlier decades, it was always thought that “business of busi-
ness is business” and corporates should not waste their time on
other activities like CSR which is a domain of government func-
M
tion. When profit and wealth maximisation are sole objectives, it

was thought that it will lead to efficient and effective capital mar-
kets.
The factors like globalisation, the emergence of transnational cor-
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porations, increasing environmental concerns, and need for sus-

tainable development paradigm has shifted the business model to
one where CSR becomes a central tenet.
Governments have a significant role to play in regulating TNCs
and promoting CSR.
Government CSR policy framework differs in different countries
and there is no single framework that can be uniformly applied to
all countries.
The various types of government interventions are awareness-rais-
ing, partnering, soft law and mandating. The various CSR policy
action areas are corporate governance, reporting & disclosures,
community involvement and development, responsible manage-
ment and sustainable production and responsible consumption.
A model for developing a CSR policy framework for governments
involving six steps is discussed in this chapter. Government poli-
cies of the developed countries are also designed to influence and
promote CSR at international level.

n o t e s
The United Nations has always played an important role in so-

cio-economic issues. After its successful MDG agenda, UN has
now adopted the 2030 agenda for sustainable development. Sim-
ilarly, the UNGC is another major voluntary initiative of UN that
has set ten universal principles to be followed by corporates.
The World Bank, along with its constituent bodies like IFC, also
plays a significant role in promoting CSR. World Bank uses soft
laws and market-based regulations for promoting CSR. The CSR
practice of World Bank advises developing country governments
on the roles and instruments for framing CSR policies.
The IFC has instituted the Equator principles which are adopt-
ed by major banks around the world for performing due diligence
of project financing. These principles are meant to include sus-
tainability principles in the due diligence and the monitoring pro-
S
cesses of project financing. IFC has also framed the Performance
Standards that define client’s roles and responsibilities for man-
aging IFC funded projects which are also based on sustainability
framework.
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There are various international organisations like OECD, LEED
etc. that have promulgated various voluntary codes for CSR, and
play an important role in promoting sustainability principles in
the international arena.
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key words
Corporate governance: The system by which business corpo-

rations are directed and controlled through a number of prin-
ciples adopted by a company. Corporate governance structure
specifies the distribution of rights and responsibilities of vari-
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ous participants and is now increasingly also concerned with

holding a balance between economic and social goals and be-
tween individual and communal goals.
The International Labour Organisation (ILO): An institution
that seeks the promotion of social justice and internationally
recognised human and labour rights and formulates interna-
tional labour standards.
Stakeholders: Individuals and groups that affect and/or are af-
fected by an organisation and its activities
Sustainability benchmarking: The process used to identify,
assess and compare a company’s sustainability performance
with industry leaders and best practices. Sustainability indices
like DJSI can be used for sustainability benchmarking.
Sustainable development: Development process where the fo-
cus is laid on meeting the needs of the present without compro-
mising the ability of future generations to meet their own needs.

n o t e s

1. Discuss the role of governments in CSR promotion. What are the
drivers for public CSR policies of governments?
2. Explain the different CSR policies’ actions areas available for
governments.
3. List and explain the various types of government CSR
interventions with examples.
4. What kind of role is played by UN in sustainable development?
Explain the SDG 2030 agenda.
5. Discuss the role of World Bank and IFC in promoting sustainable
development.
S

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Topic Q. No Answers
Role of Governments 1. d. The school of thought that views
in CSR CSR as a management model
2. d. Both (a) and (b)
3. b. TNCs owing to their size and influ-
ence are now in a position to par-
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ticipate in the role of governments

due to their transnational existence
4. d. All of the above are correct
5. d. All of the above are drivers
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6. b. CSR policies tend to be different in

different countries owing to distinct
characteristics of respective coun-
tries
7. c. Soft laws
8. False
9. a. Corporate governance – CSR rules
of Indian Companies Act, 2013
Role of United Nations 10. b. UNGC is a voluntary initiative to
in Sustainable Devel- implement universal sustainability
opment principles by companies
Role of World Bank in 11. b. World Bank has established manda-
Sustainable Develop- tory regulations for promoting CSR
ment
12. b. IFC’s Equator Principles
Voluntary Codes in 13. d. Smart Growth Network – US Envi-
CSR ronment Protection Agency

n o t e s

1. The CSR can be a tool for rebalancing responsibilities and
as governance approach requires governments to establish
conditions in which corporate responsibility can flourish. Refer
to Section 10.2 Role of Government in CSR.
2. Corporate governance, reporting and disclosures, community
involvement and development etc. are some major policy action
areas. Refer to Section 10.2 Role of Government in CSR.
3. Different types of CSR interventions are awareness-raising,
partnering, soft law and mandating. Refer to Section 10.2 Role of
Government in CSR.
4. UN plays an important role in promoting sustainable
development. The UNGC and US SDG are major initiatives of
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UN in this regard. There are 17 SDGs which form part of the
2030 agenda for sustainable development. Refer to Section 10.3
Role of United Nations in Sustainable Development.
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5. The World Bank plays an active role in promoting CSR across
developing countries and it also advises governments of these
countries for the policy framework. Refer to Section 10.4 Role of
World Bank in Sustainable Development.

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SUGGESTED READINGS
Crane, A. (Ed.). (2008). The Oxford handbook of corporate social re-
sponsibility. Oxford Handbooks.
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Fox, T., Ward, H., & Howard, B. (2002). Public sector roles in strength-
ening corporate social responsibility: A baseline study. Washington,
DC: World Bank.
Lozano, J. (2016). Governments and corporate social responsibili-
ty. Palgrave Macmillan.
Moon, J., & Vogel, D. (2008). Corporate social responsibility, govern-
ment, and civil society. In The Oxford handbook of corporate social
responsibility.
E-REFERENCES
FTSE4Good. (2018). Ftse.com. Retrieved 17 April 2018, from http://
www.ftse.com/products/indices/FTSE4Good
LEED | USGBC. (2018). New.usgbc.org. Retrieved 17 April 2018,
from https://new.usgbc.org/leed

n o t e s
Smart Growth | US EPA. (2018). US EPA. Retrieved 17 April 2018,

from https://www.epa.gov/smartgrowth
Sustainability Indices | Sustainability Indices. (2018). Sustainabil-
ity-indices.com. Retrieved 17 April 2018, from http://www.sustain-
ability-indices.com/
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C h
11 a p t e r
CORPORATE ETHICS AND GOVERNANCE
CONTENTS
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11.1 Introduction
11.2 Corporate Governance
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11.2.1 Need for Corporate Governance
11.2.2 Constituents of Corporate Governance
Activity
11.3 Theories and Responsibilities of Corporate Governance
11.3.1 Board of Directors and Their Responsibilities
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Activity
11.4 Need to Strengthen Corporate Governance
11.4.1 How to Improve Corporate Governance
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11.4.2 Benefits of Corporate Governance

Activity
11.5 Corporate Governance and CSR
Activity
11.6 Ethics and CSR
Activity
11.7 Summary

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CORPORATE GOVERNANCE AND CSR: CAN COMPANIES

USE MANDATORY CSR INVESTMENTS TO PROMOTE THEIR
BUSINESS INTERESTS?
Puravankara Limited is a Bengaluru based leading listed real es-

tate company in India. The company came into existence in 1975
with a mission to meet the aspiration of teeming millions by of-
fering quality homes. It is found across India in major cities like
Bengaluru, Hyderabad, Chennai, Kochi, Mumbai etc. It has two
successful brands, Puravankara catering to premium segment
and provident brand positioned for the premium affordable seg-
ment. The company has been earning several awards every year
for its profitable projects. In 2017, it got awards like 9th Franchise
Estate Awards 2017 for best affordable housing project of the year
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– South, Best Developer of the year – south etc.
The company also includes a number of CSR initiatives with its

CSR investments for the year 2016-17 at INR 2.29 crores. In the
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CSR section of its Annual Report for year 2017, the company
states “In our endeavour to offer customers maximum utility and
amenities through quality residential products and services, the
Puravankara Group strives to engage in serious CSR through fair
corporate activities, promoting the preservation of the environ-
ment, contributing to local communities and engaging in social
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and skill building initiatives. Aiming to be a company with deep

roots in communities that we exist and are developing properties
in, we organise activities that enable us to contribute to local soci-
eties. The group is also focusing on programs aimed at promoting
culture, fostering human resource development and preserving
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the environment”.
As part of the mandatory CSR investments, Puravankara recently

made a donation to Bengaluru based Suchitra Cinema and Cul-
tural Academy Trust. As part of this CSR initiative, the Puravan-
kara, as a donating agency, made three conditions to Suchitra.
These are a) The trust should be renamed to include the name
of the donor; b) A permanent place for the donor on the board of
trustees; and c) The building should be named after the donor.
Suchitra Film Society was founded in 1971, and in 1980 with a

government grant of land, Suchitra Cinema and Cultural Acad-
emy were formed. The trust has been supported by the govern-
ment of Karnataka, and recently in 2011 when the land came
for lease renewal, BDA even waived off `50 lakhs from the lease
amount. The society recently decided to construct a new build-
ing and infrastructure in its vast land. N Shashidar, the outgoing
president of the Society said: “We wanted to keep up with new
innovations and technologies and to bring in change”. When the

CORPORATE ETHICS AND GOVERNANCE 321
n o t e s
Society was looking for funds, Puravankara provided it. The So-
ciety accepted the donations from Puravankara and agreed to the
three conditions. The Society had renamed itself as “Puravanka-
ra Suchitra Cinema and Cultural Academy Trust”. As per sourc-
es, Puravankara was supposed to offer INR 15 crores to construct
a new building and infrastructure that would include a hall with
Dolby Atmos Audio and Digital Projectors.
This had raised a number of questions with respect to Corporate

Governance, especially from the perspective of the donor in the
context of CSR law. Such donations with conditions with regard
to the use of funds and for monitoring have always been part of
the corporate practice in India. Brand building and corporate im-
age enhancement through such CSR activities may not have been
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considered a corporate governance issue in India earlier. Howev-
er, with CSR law requiring mandatory CSR investments, can such
CSR funds be used for building corporate image and reputation?
Are there not corporate governance issues involved?
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The CSR regulations require CSR investments to be made as a
mode of corporate philanthropy and it specifies various areas in
which such investments may be made. However, the spirit of the
regulation is that the companies should give something back to
the society acting as a socially responsible corporate citizen. With
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this being the driver for the CSR law, can such investments be
used to promote a company’s brand name similar to its market-
ing and advertising expenditures? Companies should make such
CSR investments with no expectations for any short or long-term
benefits for itself and should not treat such donations as surrogate
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expenses for the explicit brand building. Apart from seeking its
name being made part of the recipient organisation, Puravakara
also asked a board position in the society. Can CSR investments
be used as a tool to enhance business interests of the company?
From the perspective of good corporate governance practice, the
companies are expected to maintain an arm’s length relationship
with the organisation that has received funds. In no way, a man-
dated CSR investment can be used to further business interests
of a company.
Consequent to the decision of the Society, founders, and represen-

tatives of the Society and a wider community of artists, students
and writers had objected to prefixing the name of Puravankara.
They were upset that one of the best-known film societies of the
country had decided to add the name of a developer to its name.
Many of the founding members wondered how come a corporate
entity’s name can be added to a cultural trust. One of the legends
of Karnataka Cinema, Girish Kasaravalli, who was active in the
society earlier, decided to stay away from it, who opposed adding

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the name of Puravankara. He retorted “I hope it does not become

a commercial centre”. Many within Suchitra resisted the propos-
al to change its name and give partial control to the corporate
donor. It was considered “improper and unethical” and also “dan-
gerous” for companies to insist on such conditions while making
donations, and for the cultural organisations to give-in to them.
In a strongly worded letter, well-known writers of Karnataka de-
clared “such aggressive attitudes on the part of the corporates
and ‘pathetic slavery’ on the part of the public institutions would
only lead to perverse consequences”
After such widespread opposition, the Trustees of Suchitra Cin-

ema and Cultural Academy Trust resolved to drop the prefix Pu-
ravankara. In a statement, the Society declared “we have decided
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to keep the name of the society as it is. The decision was taken
in the wake of negativity surrounding the alliance and protests”.
The trustees have not made their stand clear on two other condi-
tions laid by the corporate entity – to name the premises after the
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company and to have board representation.
(Sources: “CSR’s problem with good governance”, May 2, 2017, M.S. Sriram, Live Mint,
https://www.livemint.com/Opinion/I7B5kpFWXgFxN6WGAFrynM/CSRs-problem-with-
good-governance.html
“Suchitra Cinema and Cultural Academy’s name to be restored”. April 7, 2017, http://
www.thehindu.com/news/cities/bangalore/suchitra-cinema-and-cultural-acade-
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mys-name-to-be-restored/article17872896.ece)
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learning objectives

>> Explain the concept of and need for Corporate Governance
>> Discuss some important theories of Corporate Governance
>> Describe the means of strengthening Corporate Governance
>> Analyse relevance of corporate governance in the context of
CSR
>> Examine the role of ethics with respect to the concept of CSR
11.1 INTRODUCTION
In the previous chapter, we studied the role of government and vol-
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untary codes in CSR. Governments have got another more important
and primary role than the promotion of CSR. This pertains to corpo-
rate governance. While corporate governance is a separate discipline
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by itself and the issues related to which have always been a major
topic of debate around the world, it is not entirely different from CSR.
In fact, corporate governance is a concept that is very similar to CSR
in the context of stakeholder theory. Corporate governance deals with
issues that concern with various stakeholders of any company.
Many CSR initiatives also consider corporate governance as part of

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their domain. It is normally combined with Environment and Social

issues and termed ESG (Environment, Society, and Governance) con-
cerns. In earlier days, corporate governance was considered as an is-
sue that arises between the shareholders and the management of the
company in the context of the agency problem as enunciated in the
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Agency Theory of Corporations. However, with sustainability para-

digm taking hold and impacting the corporate strategy and manage-
ment model, the issues related to governance of corporations are now
looked from the wider lens of entire stakeholders that include commu-
nity, customers, government, suppliers, environment etc., apart from
shareholders of the company. Another important issue in this context
is corporate ethics. This also has a major bearing and closely related to
CSR. In this chapter, we shall study about corporate governance and
ethics from the perspective of CSR.
11.2 CORPORATE GOVERNANCE

The subject of corporate governance deals with how companies are
structured and directed. A good corporate governance structure is ex-
pected to provide a system of checks and balances for a transparent
and accountable system for promoting long-term, sustainable value
creation for investors and other stakeholders.

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To understand the subject of corporate governance, we need to under-

stand the structure of corporations, and roles and responsibilities of
various entities involved. A corporate is a legal entity and an ongoing
business concern. It is run by managers who are not its owners and
who source funds from capital markets. Managers take decisions with
respect to how best to invest those funds, and how to run the business
operations in order that investors get the return they expect. Inves-
tors who part with their hard earned money to the corporations do
not have any direct control over the operations of the company. They
trust the managers to run the company efficiently in such a way that
their investments yield the required returns while at the same time
the managers get their remuneration in lieu of the services offered in
terms of management expertise.
For the society, the company is an important business entity that plays
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the role of satisfying the community needs and wants while also gen-
erating employment and social well-being. For the government that
has the objective of social and economic development and welfare
of its people, the corporates are an important entity whose roles and
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functions have to be regulated for the orderly conduct of business
and society. Ideally, a well-run corporation should meet all the above
needs of various stakeholders. Such a corporation is run by managers
who historically had the primary objective of profit maximisation. In
an efficient capital market, it was thought that the goal of profit max-
imisation will automatically serve all the various needs of different
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stakeholders of the company.
When it was found that profit maximisation objective could lead to

narrow short-term goals that might jeopardise the long-term suste-
nance, the concept of “shareholder wealth maximisation” came into
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existence whereby the managers are required to take decisions that

would maximise the long-term wealth of the shareholders.
As we have studied in the previous chapters, even the objective of

‘shareholder wealth maximisation’ may not lead to efficient manageri-
al decisions as the maximisation of shareholder wealth need not nec-
essarily satisfy the needs of the other stakeholders like government
and society. A company with the sole objective of maximising share-
holder wealth may not bother about the impact it makes on the wider
society and environment. This led to the need for corporates to have
sustainable long-term corporate growth objectives which imply that
corporates should strive to ‘maximising stakeholder wealth’. This ne-
cessitates corporates to act as responsible corporate citizens, and to
aim for sustainable growth with socially responsible investments and
initiatives.
In this regard, we studied the regulations concerning social respon-

sibility and whether these should be mandatory or voluntary, and
what role governments should play in this dimension. Corporate gov-
ernance is a subject that deals with how the corporations should be

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structured and regulated so that the needs of various stakeholders

discussed above are met.
11.2.1 NEED FOR CORPORATE GOVERNANCE
In the earlier section, we referred to different needs of various stake-

holders which corporations are expected to meet. The question is how
can we be sure that corporates will meet those needs by default? Why
should they meet all those needs and what drives them or constrains
them towards taking managerial decisions that ensure that they meet
those needs? This question is not something new that has arisen due
to the emergence of globalisation or MNCs or the concept of CSR and
Sustainability. This concern has always been there ever since the con-
cept of corporates as a legal entity came into existence. The concern
has only grown into wider dimensions with the above mentioned new
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phenomena that impact corporate decisions.
The concept of corporates as legal entities implies a separation of own-

ership and control. Corporates are owned by different entities while
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its operations are not under their control. An owner of a company is
a different legal entity who does not involve himself in the day-to-day
operations of the company. The managers of the company take deci-
sions on how best to run the company even though their decisions can
have a major impact on the owners who have invested in the compa-
ny. The owners are the “Principals” and the managers are required
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to perform as the “Agents” of the principals. This “principal-agent”

relationship forms the core principle on which the ‘separation of own-
ership and control’ of a legal corporate entity functions.
The primary and basic corporate governance question is why should

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the agent always work in the interests of the principal when he has nei-
ther any knowledge or say in the managerial decisions that are taken
by the agent. Though the agent is properly remunerated for his man-
agerial services, it is still not necessary that he should take decisions
that are in the overall interests of the principal. It is always possible
that he might take decisions that further his own personal interests
rather than the interests of the principal (and any other stakeholders
discussed above). The problem that arises due to the ‘agency-princi-
pal’ relationship is called ‘agency costs’ and the theory that explains
the relationship between the two main entities of corporates is termed
‘Agency Theory’ as we will discuss in a subsequent section.
If the owner runs his own company, he would ensure that all the de-
cisions are taken in such a way that it meets his goals. But when the
company is run by managers, it is quite possible that their decisions
might ‘cost’ the owners in terms of the wealth maximisation objec-
tive. Suppose a manager has to make an investment decision between
two choices. One choice requires a long-term investment that would
not give any immediate benefit to the company in terms of profitabil-
ity but ensures long-term sustainable growth. The competing choice

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would give immediate benefits that satisfy short-term profit maximi-

sation objective but leave the long-term sustenance of the company
into question. If the manager considers only his own tenure and finds
that the second choice could lead to higher remuneration owing to
immediate profit growth would choose the second choice over the first
choice. The loss to the company as a whole owing to the wrong choice
of choosing the second investment is the “agency costs” associated
with the ‘principal-agency’ relationship. How can the principal inves-
tors avoid such wrong decisions on the part of the managers and force
them to put the company’s interests above their own interests? This is
the concern that is the basis of the need for corporate governance. In
fact, there are several other types of managerial decisions that could
lead to agency problems which are:
Shirking by agent: This refers to agents not taking the right deci-
sions when they are required to do so.
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Diversion of resources: This refers to managers taking decisions
that divert organisational resources for their own interests for pri-
vate consumption rather than for serving organisational needs.
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Differential time horizon: This refers to differential time horizon
between principals and agents whereby managers may take deci-
sions with short-term objectives.
Differential risk aversion: This refers to managers being more or
less risk averse and taking investment decisions that are not com-
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mensurate with the risk characteristics of the projects.

Lack of transparency: The agency–principal relationship always
creates ‘information asymmetry’ whereby managers know more
about the company while the owners themselves lack the required
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information. Managers might decide to provide only positive news

that aids their personal interests while hiding the negative news.
Lack of accountability: In an agency-principal relationship, there
is no provision for proper accountability. While managers are ac-
countable to investors, there is no way this can be easily ensured
due to the separation between ownership and control.
The problem of lack of accountability mentioned above is more acute

problem with modern corporations where all the entities surrounding
the company keep changing. In fact, the ownership of a modern corpo-
ration is so widely dispersed that we cannot point out any entity as the
owner. Even those who hold the investments at any point in time keep
changing as the stock ownership keeps changing. If we consider insti-
tutional investors who generally hold the majority stake in all leading
corporations, they are also subject to corporate governance problem
as they are supposed to act on behalf of the investors whose interests
they should protect but who are separated from them by many layers
in a developed capital market. Similarly, managers who run the com-
pany change over the time, the governments who regulate the compa-

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nies change and those who run the institutional investors also change.
In reality, only nebulous legal corporate entities which are constituted
by ever-changing entities and impacted by several stakeholders who
also keep changing alone exist. In this scenario, a strong corporate
governance structure that ensures that the right decisions are made
transparently and managers who make those decisions are made ac-
countable to their stakeholders have become important.
11.2.2 CONSTITUENTS OF CORPORATE GOVERNANCE
Now that we have understood the concept and problems related to

agency-principal relationship that forms the core foundation of legal
entity stature of corporations, we can define Corporate Governance as
the collection of control mechanisms that a corporation should follow
in order to ensure that potentially self-interested managers do not en-
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gage in activities that are detrimental to the welfare of both the share-
holders and stakeholders.
Note that the above definition mentions both shareholders and stake-
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holders. The agency problems in the previous section consider only
the problems that affect the needs of the shareholders. But there
are several other problems that are related to stakeholder concerns
wherein the managers may take a decision that satisfies sharehold-
er wealth criterion but affects the society and environment. Though
the stakeholder concerns look different from that of shareholders’,
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the CSR paradigm calls for a management model where sustainability

concerns are given importance and where interests are all stakehold-
ers need to be considered if long-term shareholder wealth maximisa-
tion criterion has to be satisfied. In this regard, we need to understand
the various constituents of corporate governance who are affected by
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it and who influence it. Figure 11.1 shows the various constituents of
corporate governance:
Shareholders
Unions Government
Constituents
of Corporate
Governance
Society Market
Auditors Board
Figure 11.1: Constituents of Corporate Governance

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We have already discussed the primary constituents’ viz., managers

and investors in their role as principal and agents. The corporate laws
require companies to have a board of directors for mitigating agen-
cy problems and for effective corporate governance. These three viz.,
managers, shareholders and board of directors form the three key
constituents of corporate governance. We shall now briefly discuss the
remaining constituents:
Government: Government is responsible for the orderly function
of the capital and asset markets and economic growth of the coun-
try. This requires effective financial markets and efficient asset
allocation both of which depends on a healthy corporate sector
and its regulation. The regulation of the corporate sector is done
through, among others, companies law which prescribes regula-
tions pertaining to incorporation, and management of corpora-
tions. An important part of the companies act should devote to the
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governance of companies that take into consideration the nature
of corporations and the agency problems. Governments have the
responsibility to legislate and enforce laws pertaining to corporate
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governance.
Market: The market refers to customers, suppliers and other fi-
nancial institutions and entities like analysts, media etc. The func-
tioning of a company affects all these entities and the level of cor-
porate governance can impact all of these entities. For example,
managerial decisions of a company affect and are influenced by all
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these entities – customers face the socio-environmental impacts,

analysts should take into account the transparency and informa-
tion asymmetry, suppliers are affected by nature of partnership
that depends on the quality of governance, etc. The corporate gov-
ernance system should take into account the needs and influence
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of all these entities

Board: The board of directors are the primary tools for corporate
governance. We shall discuss the board and its responsibilities in
the next section.
Auditors: The auditors of the company in association with its
board serve an important role in increasing the transparency and
accountability. They function under the relevant corporate gover-
nance laws
Society: Corporate governance is earlier viewed only from the per-
spective of a shareholder. But now the perspective has changed to
one of ‘stakeholder perspective’. The society is an important stake-
holder and it is the society that gives the ‘legitimacy’ and the li-
cense to operate the corporation and the long-term survival of the
corporation depends on the society and its needs and objectives.
Hence, being a responsible social actor with long-term sustainable
growth strategy has become mandatory for corporates and this
need to be facilitated and controlled by corporate governance law
and structures.

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Union: Employees are internal stakeholders of a corporation and

the satisfaction of needs of employees is necessary for the corpora-
tion before it can fulfil the needs of the principals. The managerial
decisions of the company should also take into consideration the
employees apart from investors and society at large. The union
represents the employees and in countries where employee wel-
fare is given higher importance, the board is required to have a
representation from unions. For example, in Germany, the board
of a company is mandatorily required to have a certain proportion
of union representative members.
1. The structure of modern corporations is characterised by:

a. Separation of ownership and management
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b. Principal-Agent relationship
c. Management organisation supervised by a board of
directors
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d. All of the above
2. Managers need not always make decisions that further the
interests of shareholders as against their own. This is termed
as __________ problem
3. The CEO of a company has encountered an opportunity to
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acquire a new company which would offer synergy and

strategic competitive advantage over the long term. The
acquisition terms are mutually beneficial and available at a
discount. However, among other personal reasons, the CEO
also finds that he has to relinquish management control over
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the new entity and hence decides to ignore the opportunity.

The opportunity cost for shareholders associated with this
decision is termed _________ costs.
4. Effective corporate governance is necessary due to the
following reason(s):
a. To avoid agency costs
b. To improve accountability
c. To prevent frauds and improve business ethics
d. All of the above
Activity
One of the important constituents of the corporate governance

structure is the role played by auditors. Study the role of auditors
in corporate governance vis-à-vis board of directors, and present
your report.

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THEORIES AND RESPONSIBILITIES OF

11.3
CORPORATE GOVERNANCE
In this section, let us briefly study about different theories of corpo-
rate governance, shown in Figure 11.2:
Agency theory
Stewardship Theory
Stakeholder Theory
Resource Dependency Theory
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Figure 11.2: Theories of Corporate Governance
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Let us now discuss these theories in detail:
AGENCY THEORY
The Agency theory says managers of companies perform as agents of

owners, who are the principals. Due to the separation of ownership
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and control, agency problems could arise wherein the managerial de-
cisions of agents need not necessarily be in tune with the objectives
of the owner-principals. The Agency Theory states that agents would
work as utility maximisers, and where required they may put their
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own interests above the interests of the shareholders. Agency theory

predicts that it is quite possible that managers may not always act in
the interests of the organisation which could be due to self-seeking
behaviour or incompetence. This leads to agency costs for the owners
which we discussed in the previous section. The agency theory also
stresses the possibility that there could be information asymmetry be-
tween knowledge held by management and the knowledge available
to other stakeholders.
The agency theory asserts that owing to the possibility of agency costs
it is necessary that organisations have proper governance mechanisms
that prevent or dissuade managers from taking decisions that could
jeopardise the interests of the shareholders. The implication of the
agency theory is that good corporate governance that minimises the
agency problems should be led by the effective leadership role played
by the board of a company. The boards are responsible to mitigate the
risks inherent in the separation of ownership from management. The
main role of the board as per agency theory should also involve ob-

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taining the necessary information to monitor the performance of the

company and to hold managers to account.
A criticism of agency theory is that the theory is based on an import-

ant underlying philosophical and moral assumption about the nature
of man. The theory assumes that people are naturally self-interested
and not altruistic by default. The implication is that managers can-
not be trusted to act always in accordance with the interests of the
shareholders and sufficient mechanisms of control and governance
are required. This may lead to excessive controls in the name of cor-
porate governance which could affect the freedom of managers to take
decisions which they think is fit for the circumstances.
Alternatively, on the positive side, we can say that the concept of board
supervision itself can be considered the result of the apprehension
raised by the agency theory. The board is meant to act between the
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investors and managers towards minimising the agency costs. Agen-
cy theory also advocates the alignment of the interests of managers
and investors and minimising the conflicts of interests. This has led
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to mechanisms which satisfy both investors and managers while mi-
nimising agency costs. For example, devices like stock option grants,
incentive pay-outs etc., and force managers to work for the long-term
welfare of the organisation which also satisfies the needs of the inves-
tors.
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STEWARDSHIP THEORY
Another theory that tries to explain the relationships between inves-

tors and managers and the consequent steps required for corporate
governance is the Stewardship theory. As per this theory, the manag-
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ers are expected to act as stewards of the resources placed under their
command. As stewards, they can be trusted to work towards satisfying
the needs of the investors. The theory contends that managers will, on
average, undertake actions for the good of the firm and would place
less emphasis on their own personal goals relative to the goals of the
firm. Managers would be motivated by a need to achieve, to gain in-
trinsic satisfaction through successfully performing inherently chal-
lenging work, and would exercise responsibility and authority to gain
recognition from peers and bosses.
As against agency theory which is based on mistrust, the stewardship

theory is based on trust and suggests that managers can be expected
to work diligently to attain high levels of corporate profit and share-
holder returns. The major implication of this theory is that the role of
boards can be redundant as the managers are always expected to take
into account the interests of all stakeholders.
An emphasis on stewardship theory could lead to lesser importance

being placed on the role of the board and the board constitution. While
agency theory recommends that board should play an effective role

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between investors and managers which require more independent di-

rectors as board members, the stewardship theory would suggest en-
rolling more executive board members who are more knowledgeable
on the operations of the company rather than placing the emphasis on
non-executive independent directors as board members.
Alternatively, we can say that the stewardship theory considers board

members are stewards who work between the managers and inves-
tors. The value of the board directors lies in using their knowledge
to advise their executive colleagues on the board. The board’s role
should be one of strategist rather than that of monitoring and super-
vising as suggested by Agency theory. Investors are expected to trust
the board and managers and take the risks of placing their funds with
them to give the required rate of return.
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STAKEHOLDER THEORY
This theory views corporate governance from the perspective of all

the stakeholders. As against the principal-agency focus that leads to
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a shareholder perspective, the stakeholder theory emphasises the in-
terests of all stakeholders of a corporation. As per this theory, corpo-
rations should take into account the interests of all the stakeholders
like customers, society, suppliers, government etc. beyond the usual
shareholder interests in order to produce a satisfactory long-term cor-
porate performance. The board members, as per this theory, should
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work to understand and represent not only the shareholders but to all
those who have a stake in the organisation and whose participation is
critical to the sustainable performance of the organisation. As per this
theory, the managers are not just agents of shareholders alone but also
the agents of all other stakeholders.
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As per this theory, the role of the board is to ensure the long-term
survival and value creation for the organisation by recognising that
its dependence on the commitment of various other key stakeholders
apart from shareholders. The board should be able to understand and
appreciate the interests of various such stakeholders. The board may
have to take decisions that are complex trade-offs between the inter-
ests of shareholders and those of stakeholders.
The major criticism of this theory is that it could lead to giving free-
dom to companies to utilise their resources for ends other than one
of shareholder wealth maximisation which would confer them with
‘undesirable, dangerous and unscrupulous powers’.
RESOURCE DEPENDENCY THEORY
The resource dependency theory is derived from economics and so-

ciology disciplines and is concerned with the distribution of power in
the firm. The theory focuses on the role of the board of directors in
providing access to resources needed by the firm. An organisation as

n o t e s
per this theory is an amalgam of tangible and intangible assets and

capabilities. Strategic resources are those that are valuable, rare and
non-substitutable and the board itself is considered as a strategic re-
source. The theory suggests that managing external relationships to
leverage influence and resources is the primary purpose of the board.
The board of directors is expected to secure essential resources that
an organisation requires to meet its strategic objectives through their
linkages to the external environment. By implication, this theory sug-
gests the appointment of the board of directors who can help gain
access to resources critical for firm success and should be selected
for their background, contacts, and skills in ‘boundary spanning’. The
board has the potential to foster long-term relationships with key ex-
ternal constituencies. The theory focuses on minimising the uncer-
tainty caused by external environmental factors.
S
The theory views organisations as entities that depend on others for
survival and board members add value because of their background,
skills, and contacts. The main role of the board members is to leverage
and manage external relationships.
IM
Let us now discuss the roles and responsibilities performed by the
board of directors.
11.3.1 BOARD OF DIRECTORS AND THEIR

RESPONSIBILITIES
M
The corporate laws require companies to constitute a board of direc-

tors for corporate governance. The board of directors forms an im-
portant layer between shareholders and managers. They should act as
fiduciary for the shareholders of the company. A fiduciary is someone
N
who exercises power or holds money or assets on behalf of others. The

board of directors is not expected to directly involve in the day-to-day
operations of the company and they are not required to be employees
of the company. They are expected to provide advisory and oversight
functions. The advisory function involves consultation with manage-
ment regarding the strategic and operational direction of the com-
pany. The oversight function involves monitoring the management
and ensuring that it is acting diligently in the interests of the share-
holders.
In any company’s board, there are two broad categories of directors

namely executive and non-executive directors. Executive Directors
(EDs) have greater responsibility of primary management and lead-
ership in an organisation. EDs have extensive knowledge and skills
related to a variety of areas. There is no fixed set of responsibilities
that must be carried out by EDs. However, the most common respon-
sibilities of EDs are:
Board administration and support

n o t e s
Program, product and service delivery

Design, marketing, promotion, delivery and quality of programs,
products and services.
Financial, tax, risk and facilities management
Recommends an annual budget for board approval
Human resource management
Community and public relations
Fundraising (specific to non-profit organisation)
Non-Executive Directors (EDs) may have less knowledge and experi-

ence than EDs. They are less involved in providing management and
leadership to the organisation. However, the presence of Non-Execu-
tive Directors brings-in objectivity and external awareness to the or-
S
ganisation’s board. They are not directly involved in the day-to-day
management of the work. Non-Executive directors play the role of
an observer and whistle blower who have to ensure that the board
IM
members and the organisation adhere to good corporate practices.
Non-Executive directors share the legal duties and responsibilities of
the executive directors. Non-Executive Directors may be independent
or self-employed individuals. They also serve as advisors to the organ-
isation but their role is not restricted to being advisors.
The composition of members of the board is dictated by the compa-

M
nies act and corporate governance code recommendations. The list

below gives important requirements for the composition of the board
of directors as per the Companies Act, 2013
N
Exhibit
Board of Directors –
Important Provisions of the Companies Act, 2013
Section 149 – Company to have Board of Directors

1. Every company will have a board of directors consisting of
individuals as directors and shall have a minimum number of
3 directors in the case of a public company and two directors
in the case of a private company
2. The company shall not have more than 15 directors (without a
special resolution)
3. Every company shall have at least one director who has stayed
in India for a total period of not less than one hundred and
eighty-two days in the previous year
4. Every listed public company shall have at least one-third of
the total number of directors as independent directors

n o t e s
5. An independent director means a director other than a

managing director or a whole time director or a nominee
director who is a person of integrity and possesses relevant
expertise and experience and who is not a promoter or who
has no pecuniary relationship with the company and none
of whose relatives has a pecuniary relationship with the
company. The independent director or his relatives should
not hold any position of key managerial personnel and has
not been an employee of the company or its subsidiary.
6. Independent directors shall not be entitled to any stock option
and may receive remuneration by way of the fee provided
under related subsections. He can hold office for a term up
to five consecutive years on the board but shall be eligible
for reappointment but cannot hold office for more than 2
S
consecutive terms
7. The independent directors and non-executive directors
shall be held liable, only in respect of such acts of omission
IM
or commission by a company which had occurred with his
knowledge, attributable through board processes and with his
consent or connivance
The important responsibilities of the board of directors are given be-

low:
M
Board of directors should act as representatives of shareholders

and work towards creating shareholder value.
Align the interests of management with those of shareholders and
protect shareholder interests.
N
Work with the leadership of the company in defining the compa-

ny’s vision, mission and strategic goals, and support managerial
decisions to achieve these goals.
Appoint senior executives to manage the company in accordance
with established policies and procedures.
Oversee, monitor and supervise the company’s management and
performance by setting objectives and establishing strategies to
achieve those objectives.
Develop and approve executive compensation, pension, post-re-
tirement benefits plan etc.
Review annual financial statements, quarterly financial state-
ments and other important financial disclosures such as manage-
ment discussion and analysis, earnings releases and reports filed
with regulators.

n o t e s
Review management’s report on the effectiveness of internal con-

trol over financial reporting.
Provide counsel to the company’s senior executives including
CEOs on material strategic decisions and risk management.
Ensure company’s compliance with applicable laws, rules, and
regulations.
Approve the company’s major operating, investing and financial
activities.
Evaluate performance of the board, its committees, and the mem-
bers of each committee.
Approve dividends, financing, capital changes and other extraor-
dinary corporate matters.
S
Oversee the sustainability of the company in creating long-term
shareholder value and protecting interests of other stakeholders.

IM
5. As per agency theory, the agency costs arising out of separation
of ownership and management can be mitigated by:
a. Providing higher managerial remuneration
b. Establishing effective risk management and control
systems
M
c. Establishing a layer of the board of directors for the

organisation
d. Improving transparency and accountability in the
organisation
N
6. As per Agency theory of corporate governance, ________ are

the principals and ________ are the agents.
a. Investors; managers
b. Board of Directors; managers
c. Investors; board of directors
7. As per Stewardship theory, it is more proper to consider
_________ to be stewards of resources placed by investors with
the organisation.
a. Managers or executives
b. Board of directors
c. CEO

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8. While constituting the board of directors, it was decided

to empanel an independent director who was thought to
be influential in his field of expertise, with his network
of connections and clout with institutional investors. His
inclusion could be justified by which of the following corporate
governance theory?
a. Agency theory
b. Stewardship theory
c. Stakeholder theory
d. Resource dependency theory
9. In countries like Japan, the corporate governance model
emphasises more on the inclusion of executive directors over
non-executive independent directors. Which of the corporate
S
governance theory supports this principle?
a. Agency theory
b. Stewardship theory
IM
c. Stakeholder theory
d. Resource dependency theory
Activity
M
Different countries have different kinds of corporate governance

model. These models can broadly be classified into categories like
Anglo-Saxon, Continental, and Ottoman etc. Study the corporate
governance models of different countries and present your report
with reference to different theories of corporate governance.
N
NEED TO STRENGTHEN CORPORATE

11.4
GOVERNANCE
In the previous sections, we discussed the agency costs related to the
principal-agency relationship. We also noted that while the agency
theory predicts such problems, the stewardship theory takes an op-
posite view by expecting managers to act as stewards of resourced
placed with them. Given these two extreme theories, what exactly is
the real world situation? Do companies require a strong board and
effective governance systems in order that they fulfil their functions?
Should we consider agency cost-related problems as outlier events?
In the real world, the frequency of negative corporate events is quite
high that strongly supports the prediction of agency theory. This is
especially so in the developed countries which are highly driven by
free-market capitalism that functions on profit maximisation and

n o t e s
shareholder wealth maximisation objectives. Given below are the sta-

tistics that support this conclusion:
Several surveys in the US have found that managers were always
under pressure to deliver superior performance and were willing
to massage earnings to meet quarterly forecasts. This belongs to
the differential time horizon agency problem.
Approximately 10% of bankruptcies between 2000 and 2005 were
found to be due to some kind of fraud or violation of SEC or gov-
ernment rules and legal regulations. These cases have resulted in
complete loss of capital to shareholders which could have been
prevented with effective corporate governance systems. This be-
longs to the agency problem of diversion of resources.
Between 1996 and 2008, every year almost 200 class action law-
suits were filed against corporate officers and directors in securi-
S
ties fraud.
Around 167 companies have indulged in backdating of stock op-
tions in order for executives to get above normal stock market re-
IM
turns.
Those were incidents which were part of the negative corporate

events. Table 11.1 lists some important corporate governance issues
that have led to the failure of major corporations:
TABLE 11.1: EXAMPLES OF CORPORATE GOVERNANCE ISSUES THAT

M
LED TO THE FAILURE OF MAJOR

CORPORATIONS
Company Description of Failure Corporate Governance
Issues
N
Pacific In summer 2001, a drought reduced the There is no effective mon-

Gas and amount of hydroelectric power in north- itoring and supervision
Electric west states which force the company to of managers with respect
Company purchase additional electricity from sup- to long-term sustainabil-
pliers who took advantage of the situation ity. Short term decisions
and manipulated the market by creating have led to the ultimate
artificial shortages and charged very high collapse of the company.
electrical rates. A sequence of events
finally led to the collapse of the company
and its bankruptcy.
WorldCom CEO of WorldCom became wealthy with The board of directors
the increasing price of his holdings in the was not functioning as
company. In spite of the failure in corpo- stewards for investors,
rate strategy, he persuaded the board of and the CEO’s personal
directors to provide him corporate loans interests overtook that of
and guarantees in excess of $400 million the corporation and with
to cover his margin calls. The directors the failure of existing
used fraudulent accounting methods to corporate governance
push up the stock price. All this ultimate- mechanism, it had led to
ly led to the collapse of the firm. a failure of the firm.

n o t e s
Company Description of Failure Corporate Governance

Issues
Enron CFO and other executives misled Enron’s Enron was one of the
board of directors and audit committee biggest audit failures.
on high-risk accounting practices. They The auditors who are
also pressured the auditors, Arthur An- an important element of
dersen to ignore the issues. In collusion corporate governance
with auditors, Enron concealed large mechanism failed and the
losses in its projects. This led to poor board could not provide
financial condition and regular misstat- the required supervision.
ing of earnings which finally came to
light with the eventual bankruptcy of the
company.
REFCO REFCO was a New York based largest Lack of effective corpo-
broker on CME. The CEO and Chairman rate governance meas-
of the company hid $430 million in bad ures.
debts from the company’s auditors and
S
investors.
Corporate failures indicating lack of strong corporate governance

structures, regulations and systems have also occurred in India. Some
IM
notable major examples are failures of Satyam Corporation, Sahara
Group, Saradha group, Vijay Mallya’s Kingfisher group etc. In 2012,
a report by Espirito Santo Securities identified five Indian companies
that scored poorly on corporate governance. The list provides a sam-
ple list of some corporate governance issues at some leading Indian
companies. Table 11.2 gives the details:
M
TABLE 11.2: CORPORATE GOVERNANCE ISSUES AT SOME

INDIAN COMPANIES
Company Corporate Governance Issue
Dhanalaxmi Bank Bank’s accounting practices and uncertainty sur-
N
rounding the bank’s strategy post a management

change led to significant losses to shareholders
Biocon Aggressive accounting treatment of deferred reve-
nue coupled with the historic capitalisation of bio
similar insulin R&D resulted in considerable inflat-
ing of EPS for six years in a row.
3i Infotech The company made two QIPs to retire its debt. The
debt levels kept increasing in spite of raising money.
The QIP document was not transparent with regard
to company’s debt levels and business strategies
Financial Technol- Lack of consolidated quarterly reporting and dis-
ogies closures. There were no major conference calls
or analysts meetings for two consequent years. A
substantial proportion of the company’s standalone
revenues are from related parties as per the re-
search report
A major corporate governance issue pertaining to Indian companies

in the recent years at the international level was that of Ranbaxy. Ran-

n o t e s
baxy was accused of committing systemic fraud in its worldwide reg-

ulatory filings. It was also accused of selling adulterated drugs and
perpetrated a fraud on consumers, hospitals, value chain partners and
common Indians. This is in spite of having a board with independent
directors who were considered as very eminent and leading person-
alities in their fields. In the US case that dates back to 2004, Ranbaxy
finally made a criminal guilty plea and was fined $500 million in fines
and penalties.
The above discussion points out the importance of corporate gover-

nance and the need to strengthen the corporate governance systems
and regulations.
11.4.1 HOW TO IMPROVE CORPORATE GOVERNANCE
S
Researchers have identified different factors that shape the corporate
governance system and standards in a country. These factors are:
Efficiency of capital markets: Efficient capital markets act as dis-
IM
ciplining mechanism for corporations. Companies that fail to meet
the market standards get punished and those who continue to per-
form badly face the risk of decreasing share prices that may drive
them ultimately out of business. Firms can align interests of man-
agement and shareholders by offering equity-based incentives to
management and shareholders.
M
Legal system: The Legal system is another major disciplining

mechanism that facilitates improved corporate governance. Legal
system sets the rights and obligations of various parties and allows
contracts to be enforced in the court of law. A strong legal system
can mitigate the agency related risks.
N
Reliability of accounting standards: Strong accounting standards

and practices are critical for principals to evaluate the investment
risk and reward. It also helps in mitigating the information asym-
metry risks involved in an agency problem. Effective and reliable
accounting standards can guarantee the integrity of financial re-
porting and helps improve corporate governance.
Enforcement of regulations: Regulatory enforcement mitigates
the agency problems by dissuading managers from engaging in
fraudulent practices like insider trading, misleading disclosure
etc. A weak regulatory system would affect the investor confidence
and compound the agency problem.
Social and cultural values: Cultural values influence the relation-
ship between the company and its stakeholders. These forces can
play a significant role in shaping the corporate governance struc-
ture.

n o t e s
Among the factors listed above, the legal system is one of the most im-
portant as it mandates the nature of corporate governance a company
should adopt. The legal system governing the corporates requires the
establishment of a board of directors which is central to the adminis-
tration of corporate governance. In this regard, it is pertinent to dif-
ferentiate between “management” and “governance” as these are the
two different concepts. The term management refers to how the com-
pany runs its business through its CEO and other managers. The gov-
ernance of the company refers to monitoring and supervision of the
activities of the company and its managers, in terms of how well the
company is run and whether it is run in the right direction. The gover-
nance of the company is administered by the Board of Directors that
needs to be established in compliance with the corporate laws. Note
also that the board of directors does not appear as part of the tradi-
tional management hierarchy. Managers and executives are employ-
S
ees of the company and are subject to employment law. But the board
members are not employees and are subject to the company law. The
board may contain however executive directors who are involved in
supervising the managerial decisions and non-executive and/or inde-
IM
pendent directors who are not linked to the company in any form. The
responsibility of the board is to direct the company and to undertake
the four important functions of strategy formulation, policy making,
supervision of executive management and accountability to the stake-
holders. Together these functions contribute to an effective corporate
governance system.
M
Effective corporate governance system depends on four important

principles viz., transparency, accountability, responsibility and fair-
ness. These can be considered the four pillars of corporate gover-
nance. Transparency refers to ensuring timely, adequate, and accu-
N
rate disclosure of all material information. Accountability requires

managers to be accountable to the board of directors and they in-turn
to shareholders and other stakeholders of the organisation. The prin-
ciple of fairness requires fair and equitable treatment of all stakehold-
ers including minority shareholders. The principle of responsibility
requires an organisation to act responsibly and its managers and
board of directors to be responsible for their actions.
The UK is a leading country in devising and enforcing corporate gov-

ernance structure and systems. Over the years, the UK government
has formed several committees to analyse the corporate governance
requirements and devise an effective corporate governance system.
Based on these committee reports and consequent experiments, the
UK government has in 2016 released the “The UK Corporate Gov-
ernance Code” to improve the corporate governance system in the
country. The UK system of Corporate Governance follows a flexible

n o t e s
model of “comply or explain” approach. The salient features of UK

Corporate Governance Code are given in Table 11.3:
TABLE 11.3: SALIENT FEATURES OF UK CORPORATE

GOVERNANCE CODE
UK Corporate Gov- Important requirements for effective corporate govern-
ernance Principles ance
Leadership Every company should be headed by an effective board
which is collectively responsible for the long-term suc-
cess of the company. There should be a clear division of
responsibilities at the head of the company between the
running of the board and the executive responsibility for
running the business of the company. Non-executive di-
rectors should constructively challenge and help develop
proposals on strategy
Effectiveness The board and its committees should have an appro-
S
priate balance of skills, experience, independence, and
knowledge of the company to enable them to discharge
their duties and responsibilities effectively. A formal, rig-
orous, and transparent procedure should be used for the
IM appointment of new directors to the board
Accountability The board should present a fair, balanced and under-
standable assessment of the company’s position and pros-
pects. It is responsible for determining the nature and
extent of principal risks it is willing to take in achieving
its strategic objectives. It should maintain sound risk
management and internal control systems
Remuneration Executive directors’ remuneration should be designed
M
to promote the long-term success of the company which

should be based on a transparent procedure for develop-
ing policy for executive remuneration
Relations with share- There should be a dialogue with shareholders based on
holders the mutual understanding of objectives. The board has
N
responsibility for ensuring that a satisfactory dialogue

with shareholders takes place
For each of the above corporate governance principles, the UK Cor-

porate Governance Code gives supporting principles and code pro-
visions that list the various rules that should be adhered to. For ex-
ample, the codes under the principles of effectiveness describe the
various codes for the composition of the board wherein it stipulates
that the board should include an appropriate combination of execu-
tive and non-executive directors such that no individual or group can
dominate board’s decision making.
Similarly, every country has its own regulations and voluntary codes
for improving and strengthening the corporate governance system. In
India, the Corporate Governance Voluntary Guidelines, 2009, of the
Ministry of Corporate Affairs encourage the use of better corporate
governance practices through voluntary adoption. Voluntary guide-
lines focus on areas like board and its responsibilities, functions of

n o t e s
the board, roles and responsibilities of the audit committee, the ap-
pointment of auditors, compliance with secretarial standards, and
mechanisms for whistle-blower support. Market regulator SEBI also
prescribes the SEBI Listing Regulations (LODR) that provide various
corporate governance recommendations. These recommendations
were incorporated in Clause 49 of the Listing Agreement which makes
compliance with these recommendations mandatory for all listed
companies. With effect from financial year commencing 2012, listed
Indian companies are required to disclose in their annual reports, the
corporate governance practices with reference to the corporate gov-
ernance code.
11.4.2 BENEFITS OF CORPORATE GOVERNANCE
Effective corporate governance provides several benefits as listed be-
S
low:
Sustainable growth for corporates: Corporate governance re-
quires taking into consideration the needs and requirements of all
IM
stakeholders which can lead to long-term sustainable growth for
the organisation.
Effective governance of organisations: Good corporate gover-
nance provides proper incentives to both owners and managers to
achieve their objectives in an efficient way and ensures that organ-
isation is managed in a manner that promotes the well-being of all
M
the stakeholders.
Investor confidence: Good corporate governance builds investor
confidence and promotes financial market stability and efficiency.
Effective risk management and control systems: Good corporate
N
governance leads to the establishment of effective risk manage-

ment and monitoring & control systems. This leads to a reduction
of enterprise risk and incidents of corporate frauds and misman-
agement.
Reputation: A well-governed company is respected by all for its
improved reputation and brand image. Such companies can com-
mand a premium in financial markets.
Superior corporate performance: Surveys show a correlation be-
tween corporate performance and effective corporate governance.
Effectively governed companies also show improved stock perfor-
mance and lower cost of capital.
Transparency and accountability: Effective corporate gover-
nance leads to increased transparency, accountability, fairness and
responsibility all of which go a long extent to reduce agency risks
and related problems.

n o t e s
10. Which of the following problem could have been averted, if

only, a proper corporate governance structure had been put
in place earlier?
a. Ranbaxy’s problem in selling adulterated drugs
b. Failure of King Fisher Airlines
c. Dotcom bubble
d. All of the above except (c)
11. Four important principles that should be focused on to
improve corporate governance are ____, ____, ____, and ____.
S
Activity
Download the SEBI Guidelines for corporate governance and legal

requirements as per company’s act 2013. Compare it with UK Cor-
IM
porate Governance Code. Provide your comparison and findings.
11.5 CORPORATE GOVERNANCE AND CSR

The concepts of corporate governance and CSR are closely related.
We have studied in previous chapters that with the increasing size
M
and clout of big organisations, and the serious impact they make on
society and environment, the need for socially responsible behaviour
from corporates gained importance. This has further grown from the
dimension of social responsibility to sustainability wherein there was
a realisation that sustainable long-term growth of corporates depends
N
on their socially responsible behaviour and sustainable corporate pol-

icies and strategies.
This need for the concern of the society and environment from the
corporates while they strive to meet the needs of shareholders in
terms of wealth maximisation has become acute when the corporate
governance model followed for regulating the corporates relied sole-
ly on free-market capitalism and efficiency principles. In developed
countries like the US, it was always thought that when the executives
take managerial decisions that strive to maximise shareholder wealth,
the overall well-being of the society will automatically be taken care
of. However, this Anglo-Saxon model where free market competition
and capitalism are expected to discipline the corporates have not
proved successful. There were failures both from the dimension of
corporate governance and corporate social responsibility. This means
there has been several instances of corporate frauds and agency relat-
ed problems that have stressed the importance of the establishment
of effective corporate governance systems in terms of regulations and
voluntary codes. Even when companies are successfully driven by the

n o t e s
market efficiency criteria, it was not always found necessary that they
had taken care of concern of all the stakeholders. This narrow share-
holder perspective of corporate governance had given rise to the re-
cent emphasis on corporate social responsibility themes and sustain-
ability paradigm.
The Anglo-Saxon Model of corporate governance had arisen from

the basic corporate structure of separation between ownership and
management where the major problems to be tackled by corporate
governance system is that of agency related problems. This model of
governance does not have any intrinsic factors that require the board
of directors or managers to take into account the impact they make
on society or environment. The nature of the free market economy
is expected to discipline the corporations as a sustainable corporate
growth should naturally be a result of managerial actions that take
S
into account concerns of every stakeholder. However, in reality, the
managerial decisions do not automatically take into account these ac-
counts when the primary objective is wealth maximisation of owners.
This has resulted in the need for effective governance systems that
IM
explicitly takes into account wider stakeholders. However, the utility
of corporate governance systems is limited when considered from the
perspective of sustainability. In these corporate governance systems,
the dimension of sustainability is relevant only to the extent they re-
quire managers to take decisions that have the in-built realisation that
sustainable growth depends on socially responsible behaviour. Hence,
M
additional measures in terms of voluntary and mandatory regulations

for corporate social responsibility become important.
As against Anglo-Saxon Model, there are other models of corporate

governance that are followed in Europe, Japan etc., where the gover-
N
nance structure does not have the narrow perspective of shareholders

alone but takes into account wider stakeholder concerns. For exam-
ple, in the German model of corporate governance, it is mandatory
for corporates to have a supervisory board that has significant repre-
sentative director members from employee unions. Similarly, the Jap-
anese model of corporate governance is stakeholder-centric in tune
with their social values and culture. Japanese management philoso-
phy requires managers to encourage the success of the entire supply
chain including industrial and financial partners. It also requires very
high concern for employee’s welfare and overall social well-being. In
tune with this governance philosophy, Japanese companies main-
tain significant ownership positions among suppliers, customers, and
other business affiliates. These ownership positions are expected to
cement business relationships and encourage the firms to work to-
wards shared financial success. Thus, this model of corporate gover-
nance automatically takes into consideration the concern for society
and other stakeholders. However, owing to the risk involved in the
conglomerate structure and the obstacles to free market competition
and efficiency, the governance structure is moving towards the An-
glo-Saxon model in terms of the board with independent directors.

n o t e s
However, the governance structure still relies on stewardship theory

where the board of directors is expected to function as stewards of the
resources placed on them which implies that there is more emphasis
on executive directors (than independent directors). In other words,
while Anglo-Saxon model is moving towards a model where CSR and
Sustainability gain importance, the other corporate governance mod-
els have started giving more importance to the governance structure
that improves efficiency, as they are already focused on improving in-
terests of all the stakeholders of any organisation.
Whatever be the corporate governance model, it is no longer ques-

tioned that organisations should be accountable to a wider stakehold-
er constituency than simply the shareholders and their actions should
take into account the sustainability issues that affect society and en-
vironment. This has now become a central tenet, of not only CSR ini-
S
tiatives, but also the corporate governance systems. Leading organi-
sations have realised the relationships between CSR and Corporate
Governance and have made efforts to link these two. Good corporate
governance is now part of the CSR policies of these companies and
IM
also drives their relationships with other stakeholders.
12. Which of the following statement(s) is false with regard to

CSR and Corporate Governance?
a. Continental model of corporate governance followed
M
in European countries like Germany have stakeholder

perspective and hence has a naturally higher emphasis on
CSR.
b. Anglo-Saxon model of corporate governance relies on free-
N
market capitalism to discipline corporations and hence

require less corporate governance regulations.
c. The Japanese model of corporate governance gives
ownership positions to other stakeholders like suppliers,
banks etc., and hence have a natural emphasis on CSR.
d. None of the above.
13. Companies that have well planned CSR and sustainability
strategies, integrated into their business operations, need not
worry about their corporate governance model and systems.
(True/False)
Activity
Different countries have different kinds of corporate governance

model. These models can be broadly classified into categories like
Anglo-Saxon, Continental, and Ottoman etc. Study the corporate
governance models of different countries and present your report
with reference to different theories of corporate governance.

n o t e s
11.6 ETHICS AND CSR

Ethical behaviour in organisations refers to behaviours that are con-
sistent with the principles, norms, and standards of business practice
that have been agreed upon by society. Corporates can run huge risks
when they divorce ethics from business practices. This was made clear
when the Big Five Consulting firm Arthur Andersen was driven to
bankruptcy owing to its unethical dealings with Enron. When we dis-
cussed benefits of CSR in earlier chapters, we mentioned that it gives
the legitimacy and trust for the corporations to operate in the society.
This is more so when it comes to the requirement of business ethics.
For the long-term survival of corporations in the society, it is necessary
that they follow the values and ethics of the society. Corporations that
ignore the social and ethical concerns may be driven out of the society
and it is to their benefit to act ethically and responsibly. Business eth-
S
ics generally deals with ethics in the normal day-to-day operations of
the company. The way sustainable growth requires focus on activities
conducted through the entire value chain, business ethics should also
IM
pervade through all the activities of the corporation. The concept of
social responsibility goes further than the business ethics in terms of
ethical dealings with stakeholders external to the organisation. CSR
requires socially responsible investment and production activities
that take into account the ethical concerns of the society.
The CSR can be viewed from four types of responsibilities, discussed

M
as follows:
1. Economic responsibilities: This refers to the primary business
function of producing goods and services in a socially responsible
way that leads to sustainable development and growth. Economic
N
CSR responsibilities should be integrated into the long-term

strategies of the organisation. For example, sustainable business
practices that take into consideration socio-environment
concerns.
2. Legal responsibilities: This refers to compliance with the law and
government regulations. From the CSR perspective, it requires
the establishment of effective corporate governance structures
and systems and compliance with corporate governance
codes. For example, publishing corporate governance reports,
sustainability reports and compliance with voluntary codes and
protecting minority shareholders.
3. Ethical responsibilities: This refers to taking into consideration
all external stakeholders and ethical considerations while
making business decisions. Such decisions may not always
lead to profit in the short term. However, corporations that
are socially responsible are required to act ethically by taking
into considerations the views of all external stakeholders. For
example, taking ethical business decisions, even when they are

n o t e s
not conducive to profit goals but in compliance with social and

environmental ethical concerns.
4. Philanthropic responsibilities: This refers to philanthropic
activities meant to give something back to the society which is not
related to corporate strategy or business goals. Such activities
raise the reputation and image of organisations and allow them
to maintain a peaceful coexistence in the society. It also helps in
creating an ethical organisational culture with a sense of duty
and employee commitment. For example, supporting economic
and social development by investing in CSR projects.
The concept of business ethics pervades all the above four CSR re-
sponsibilities as the examples show.
Another way to differentiate between CSR and Ethics is to look at
S
the reasons for CSR. Companies can take CSR initiatives based on
pragmatic reason, ethical reason or strategic reason. Pragmatic rea-
son leads to taking CSR perspectives while dealing with economic re-
sponsibilities. The ethical reason for undertaking CSR goes beyond
IM
business goals and strategy and looks at the wider context of all ex-
ternal stakeholders. A company may decide to close down an opera-
tion owing to ethical concerns raised by society or may invest in less
profitable avenues for the sake of concern over its social values. The
strategic reason refers to CSR strategies formulated for sustainable
long-term corporate growth.
M
The introductory caselet talked about conditions being put by the do-
nor agency, Puravankara, for its philanthropic activity. Even though
this is done under the banner of CSR investments, it lacks business
ethics and cannot be considered as CSR activity in any of the four
N
responsibilities discussed above. If it is considered as an economic re-

sponsibility to further its long-term business goal, it lacks business
ethics and social responsibility as the critics have pointed out. It can
neither be considered as philanthropic CSR responsibility as the ob-
jective is to further its business interests rather than giving something
back to society without expecting any business returns. It neither fits
into the legal responsibility as even though it is done under CSR laws,
it mocks at the spirit of the CSR provisions as it amounts to using CSR
provisions for marketing and promotions. In terms of various reasons
for CSR, it can be considered as a strategic approach to CSR, but ow-
ing to the ethics involved and the backlash it had created, the compa-
ny may not have fulfilled that objective also.
14. Which of the following statement(s) is false with regard to

CSR and Ethics?
a. CSR is a subset of business ethics

n o t e s
b. CSR initiatives need not necessarily guarantee business

ethics
c. CSR can have pragmatic, ethical or strategic reasons
behind it
d. CSR can take the dimensions of economic, legal, ethical or
philanthropy
Activity
Many leading corporates do not believe in publicising their corpo-

rate philanthropic activities. However, some believe that corporate
philanthropy can be used for building corporate image and repu-
tation. Do you think it is ethical for organisations to use corporate
philanthropy to further their business interests? Give your conclu-
S
sions with proper support.
11.7 SUMMARY
IM
Corporate Governance had become a major issue of debate
around the world similar to CSR paradigm. Corporate governance
requires government regulations and it is increasingly shifting
towards stakeholder perspective from a shareholder perspective
and hence is closely related to the CSR.
M
A good corporate governance structure is expected to provide a

system of checks and balances for a transparent and accountable
system for promoting long-term, sustainable value creation for in-
vestor and other stakeholders.
N
The shareholder wealth maximisation criteria or free-market cap-

italism need not necessarily work towards automatic disciplining
of corporations. Explicit corporate governance requirements are
predicted by Agency Theory of Corporations.
Agency theory says the separation of ownership and control can
lead to several agency costs viz., shirking of responsibility by
agents, diversion of resources, differential time horizon problems,
differential risk aversion problems, lack of transparency and lack
of accountability.
Corporate governance system constitutes several players who play
different roles viz., investors, government, market, board, audi-
tors, society and unions.
There are four important theories of corporate governance viz.,
Agency theory, Stewardship theory, Stakeholder theory and Re-
source dependency theory. These theories can be used to under-
stand the nature of corporate governance model required.

n o t e s
Frequent occurrences of accounting frauds, bankruptcies, compa-

ny failures, corporate scams have repeatedly emphasised the im-
portance of good corporate governance systems.
There are different factors that shape the evolution of corporate
governance model in different countries. Effective corporate gov-
ernance models rely on the four important pillars viz., transparen-
cy, accountability, responsibility, and fairness.
As per SEBI regulations, it is mandatory for listed companies to
comply with the corporate governance recommendations pre-
scribed by it.
Corporate governance and CSR are closely related disciplines, es-
pecially in the context of increasing stakeholder perspective re-
quired for effective corporate governance systems. Anglo-Saxon
models have more shareholder perspective while the models of
S
other countries like Germany and Japan have more stakeholder
perspective.
CSR can be viewed from four types of responsibilities viz., eco-
IM
nomic, legal, ethical and philanthropic responsibilities. The CSR
activities themselves can have pragmatic, ethical or strategic rea-
sons. However, business ethics should pervade all the dimensions
including CSR activities.
key words
M
Board of Directors: Governance body meant to act in the best

interests of a company and its shareholders. The board shapes
the corporate strategy and exercises control over the activities
of executives and business operations of the company.
N
Executive director: A director of a company who holds an exec-

utive position within that company.
Governance: A system that defines how an entity is directed
and steered and can be different from management of the entity.
Independent director: The board member who has no relations
with the company other than as a board member.
Activity
Meet a technopreneur and discuss the technopreneurship process

followed by him/her.

1. Explain the problems associated with separating ownership and
control. List the different types of agency costs with examples.

n o t e s
2. Explain the various theories of corporate governance.

Differentiate how the responsibility of the board is viewed in
each of these theories.
3. What are major factors that drive the corporate governance
model? What are the four pillars of effective corporate governance
system?
4. What are the major benefits of effective corporate governance
system?
5. Discuss the relationship between corporate governance and
CSR.
6. Explain CSR from the perspective of business ethics.
S
Topic Q. No.
IM Answers
Corporate Governance 1. d. All of the above
2. Agency
3. Agency
M
Theories and Respon- 5. c. Establishing a layer of the

sibilities of Corporate board of directors for the or-
Governance ganisation
6. a. Investors; managers
7. b. Board of directors
N
8. d. Resource dependency theory

9. b. Stewardship theory
Need to Strengthen Cor- 10. d. All of the above except (c)
porate Governance
11. Transparency, accountability, re-
sponsibility, fairness
Corporate Governance 12. b. Anglo-Saxon model of cor-
and CSR porate governance relies on
free-market capitalism to dis-
cipline corporations and hence
require less corporate govern-
ance regulations.
13. False
Ethics and CSR 14. a. CSR is a subset of business
ethics

n o t e s

1. Separation of ownership and control leads to the agency problem
and agency costs. Shirking by agent, diversion of resources,
differential time horizon, differential risk aversion, etc. are
few types of agency problems. Refer to Section 11.2 Corporate
Governance.
2. There are four important theories viz., agency theory, stewardship
theory, stakeholder theory and resource dependency theory.
Refer to Section 11.3 Theories and Responsibilities of Corporate
Governance.
3. Efficiency of capital markets, legal system, reliability of
accounting standards, etc. are few factors that drive the shape
of corporate governance model adopted in different countries.
The four pillars of effective corporate governance system are
S
transparency, accountability, responsibility and fairness. Refer
to Section 11.4 Need to Strengthen Corporate Governance.
4. Sustainable growth for corporates, effective governance of
IM
organisations, effective risk management and control systems,
etc. are the major benefits of effective corporate governance
system. Refer to Section 11.4 Need to Strengthen Corporate
Governance.
5. Corporate governance and CSR are closely related subjects. Lack
of CSR perspectives in the governance structure of organisations
M
leads to poor corporate governance as seen in Anglo-Saxon

model of corporate governance. Refer to Section 11.5 Corporate
Governance and CSR.
6. CSR and Corporate Ethics are not one and the same topics in the
N
sense that ethical corporations are not necessarily CSR driven

or vice versa. Business ethics generally deals with values and
ethics of managerial decisions of internal business operations
of the companies. CSR has more external context and pertains
to dealing with external stakeholders. Ethics is important even
in the implementation of CSR initiatives. Refer to Section 11.6
Ethics and CSR.
SUGGESTED READINGS &

11.10
REFERENCES
SUGGESTED READINGS
ArAs, G. (2016). A handbook of corporate governance and social re-
sponsibility. CRC Press.
Baker, H. K., & Anderson, R. (Eds.). (2010). Corporate governance:
A synthesis of theory, research, and practice(Vol. 8). John Wiley &
Sons.

n o t e s
Crowther, D., & Aras, G. (Eds.). (2012). Global perspectives on cor-

porate governance and CSR. Gower Publishing, Ltd.
Larcker, D., & Tayan, B. (2015). Corporate governance matters A
closer look at organizational choices and their consequences. Pear-
son Education.
Trevino, L. K., & Nelson, K. A. (2016). Managing business ethics:
Straight talk about how to do it right. John Wiley & Sons.
Tricker, R. B., & Tricker, R. I. (2015). Corporate Governance: Prin-
ciples, policies, and practices. Oxford University Press, USA.
E-REFERENCES
5 companies that score poorly on corporate governance.
(2018). NDTV.com. Retrieved 23 April 2018, from https://www.ndtv.
S
com/business/5-companies-that-score-poorly-on-corporate-gover-
nance-306418
(2018). Frc.org.uk.
Retrieved 23 April 2018, from https://www.frc.
IM
org.uk/getattachment/ca7e94c4-b9a9-49e2-a824-ad76a322873c/
UK-Corporate-Governance-Code-April-2016.pdf
Bhattacharyya, A. (2018). Corporate governance failure at Ran-
baxy?. Business-standard.com. Retrieved 23 April 2018, from http://
www.business-standard.com/article/opinion/corporate-gover-
nance-failure-at-ranbaxy-113060900607_1.html
M
Corporate Governance | Ethical Systems. (2018). Ethicalsystems.

org. Retrieved 23 April 2018, from http://www.ethicalsystems.org/
content/corporate-governance
N

N
M
IM
S
C h
12 a p t e r
CASE STUDIES
S
Contents
Case Study 1 Mitsubishi Electric’s “Eco Changes” Strategy

Case Study 2 Stakeholders of Starbucks Coffee
IM
Case Study 3 Aditya Birla Group, Building the Road to Self Sustainability
Case Study 4 Canon India Pvt Ltd- Building India through CSR
Case Study 5 Nike CSR “Doing It the Right Way”
Case Study 6 Steering Reliance’s CSR Approach in the Right Direction
Case Study 7 Coca-Cola’s Branding and CSR Implementation
Case Study 8 CSR and NGO Partnerships: Amazon’s Gift a Smile Program
M
Case Study 9 Measurement and Monitoring of CSR Programs – Impact

Measurement Framework of RBC
Case Study 10 Integrated Reporting: Case of Tata Steel
Case Study 11 Role of Governments in CSR – The Indian Experiment
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Case Study 12 Corporate Governance at Infosys

Case study 1
n o t e s
MITSUBISHI ELECTRIC’S “ECO CHANGES” STRATEGY
This Case Study discusses the role of business in sustainable de-

velopment and how Mitsubishi contributes towards environmental
safety. It is with respect to Chapter 1 of the book.
(Source: https://mitsubishielectric.com/)
ABOUT THE COMPANY
S
Mitsubishi Electric Corporation is a Japanese corporation based
in Tokyo, Japan. It is a multinational electronics and electrical
equipment manufacturing company manufacturing electric and
IM
architectural equipment. The company was established on 15
January 1921.
MITSUBISHI ELECTRIC INDIA AND ITS CORPORATE SOCIAL

RESPONSIBILITY (CSR)
M
Mitsubishi electric is committed to environmental management

and achieving a greener tomorrow by the use of state of the art
environmental technologies combined with the organisational ca-
pability of manufacturing. The company’s CSR project towards
achieving the stated objective is known as “Eco changes”.
N
Minimisation of the negative impact of manufacturing and dis-

posal of electronic products is one of the top priorities of Mitsub-
ishi’s management. For this purpose the company’s activities are
directed towards achieving this objective by the use of technolo-
gy. The culture within the company encourages the employees of
Mitsubishi electric to incorporate positive changes in their ways
of working and collectively create a positive impact to bring im-
provements in their end-products, services, systems and recy-
cling of products.
As a part of their quality assurance policy, the company focuses

on product improvement through size and weight minimisation,
high-performance, resource optimisation and energy efficiency.
This initiative is in alignment with the company’s corporate state-
ment “Changes for the better”. Further the program Eco Changes
is representative of the company’s effort to work in collaboration

Case study 1: MITSUBISHI ELECTRIC’S “ECO CHANGES” STRATEGY 357
Case study 1
n o t e s
with the end users for bringing about positive changes and contri-
butions towards the environment.
MITSUBISHI ELECTRIC INDIA PVT LTD E-WASTE

MANAGEMENT PROGRAM
The central government of India has given guidelines under the

e-waste management rules 2016. As an extended producer re-
sponsibility (EPR), Mitsubishi Electric India Private Limited
company is committed to implementing the new e -waste man-
agement rules 2016 and defines its compliance as waste electrical
and electronic equipment, whole or in part discarded as waste by
the consumer or bulk consumer as well as projects from their manu-
facturing, refurbishment and repair processes.
S
As per the company it is extremely important to manage e-waste
because the waste contains harmful substances that can have ad-
verse effects not only on the environment but also on human life.
IM
Scientific disposal of e-waste can help environmental stability
and prevention of negative effects of the waste on human health.
In addition, e-waste also serves as an important source of useful
and economically beneficial materials including recoverable met-
als like copper, aluminium, iron, precious metals like platinum,
palladium, lead, cadmium, mercury, gold, silver and other materi-
als like plastics, glass etc.
M
COLLECTION, STORAGE, DISPOSAL OF E-WASTE UNDER THE

MITSUBISHI ELECTRIC E-WASTE MANAGEMENT PROGRAM
N
The company provides details on its website to facilitate and help

the customers, distributors, dealers, to dispose of the waste prod-
ucts.
In compliance with the government regulations on disposal of

e-waste, Mitsubishi electric has tied up with a government autho-
rised e-waste namely E-Parisaraa private on a Pan India basis.
It collects e -waste products of the company like air condition-
ers, printers etc. that can be collected from any location in India
for further storage and recycling. However this facility is avail-
able only for customers buying Mitsubishi products. E-Parisaraa
makes arrangement for the collection of e-waste from the custom-
er’s location, after which the company stores the e-waste tenets
local warehouses and consolidates all e-waste bikes dismantling
it in its main warehouse through a designated scientific process.
Once the dismantling is done E-Parisaraa provides a certificate of
recycling and destruction to the customer for their records.

Case study 1
n o t e s
(source: ewasteindia.com)
INCENTIVE SCHEME FOR RETURNING OF E-WASTE BY
S
CONSUMERS/BULK CONSUMERS
To encourage more customers towards disposal of e-waste
through proper channel, the company takes special initiatives
IM
for its consumers and by consumers towards sound environ-
mental management of e-waste and discounts up to 10% on
MRP as an incentive while purchasing Mitsubishi electric
air conditioners printers etc. from the authorised dealers, re-
sellers, distributors of the company on producing company
authorised letter.
M
Once the e -waste collector confirms the company regarding

the collection of e-waste from the customer, the company is-
sues an appreciation letter to the customer along with the in-
centive coupon within a time frame of 7 to 10 days.
N
Customers can use this coupon to avail discount on purchas-

ing Mitsubishi products like air conditioners within 3 months
from the date of issuance of the coupon.
DO’S & DON’TS OF E-WASTE RECYCLING
For the benefit of its customers the company offers guidelines on

the do’s and don’ts of e-waste recycling. The do’s of e-waste recy-
cling are:
Customer should discard electronic equipment only at autho-
rised collection centres for proper recycling.
Customers should encourage others like neighbours and mem-
bers of the family to adopt safe measures and regarding the
hazards of improper disposal or recycling of electronic waste.
As far as possible, customers should ask retailers about buy
back scheme.

Case study 1: MITSUBISHI ELECTRIC’S “ECO CHANGES” STRATEGY 359
Case study 1
n o t e s
In case of working or unwanted electronic equipment, consid-

er donation rather than disposal.
The don’ts of e-waste recycling are:

Discarded electronic equipment should not be disposed in
open or landfill sites as it leads to contamination of soil and
groundwater.
Discarded electronic equipment should not be disposed in
municipal dustbin or mixed with household waste.
Discarded electronic equipment should not be sold to trash
dealers.
Electronic equipment should be recycled because it helps to
save limited natural resources and also in reducing environ-
S
mental and health risks that are associated with improper dis-
posal of electronic waste.
Users should not open the electronic items on their own; they
IM
should approach authorised dealers for issues.
NEGATIVE CONSEQUENCES OF IMPROPER DISPOSAL OF

E-WASTE PRODUCTS
There are many hazardous chemicals or contaminants present in

the electronic equipment like cadmium, beryllium, lead, bromi-
M
nated flame retardants. Improper disposal, recycling, handling of

electronic waste can call release of these hazardous substances
into the ecological or biological system thereby leading to health
hazards.
N
The mixture of toxic material of e-waste with air, water, soil can
be harmful to health. Oil and gases present in e-waste work as an
environmental pollutant. Inadequately disposed e- waste not only
has a bad impact on well-being of humans, animals, flora and fau-
na but also is wastage of natural resources.
CONCLUSION
Mitsubishi electric India Private Limited strongly urges its cus-

tomers and distributors to adhere to the guidelines strictly lay
down under e-waste rules which also have a provision for penalty
under the Environment Protection Act 1986 for non-compliance.
This initiative of Mitsubishi is a step towards an environment

friendly atmosphere and a clean Green Earth. It is one of the ways
of the company to demonstrate its concern towards environmen-
tal sustainability.

Case study 1
n o t e s
questions
1. Discuss the CSR approach of Mitsubishi.

(Hint: Minimisation of the negative impact of
manufacturing and disposal of electronic products is one
of the top priorities of Mitsubishi’s management. For this
purpose, the company’s activities are directed towards
achieving this objective by use of technology.)
2. Discuss the process of collection, storage, disposal of
e-waste under the Mitsubishi e-waste management
program.
(Hint: In compliance with the government regulations on
disposal of e-waste, Mitsubishi electric has tied up with
S
a government authorised e-waste namely E-Parisaraa
private on a Pan India basis.)
IM
M
N

Case study 2
n o t e s
STAKEHOLDERS OF STARBUCKS COFFEE
This Case Study discusses the stakeholders in CSR and how Star-
bucks fulfils their needs. It is with respect to Chapter 2 of the book.
(Source: https://www.starbucks.com/)
S
ABOUT STARBUCKS COFFEE
Established in 1971 and based out of Seattle, Washington; Star-

IM
bucks Corporation is a Coffee House Chain and a Coffee company.
In today’s date the company operates from 27339 locations across
the world.
Starbucks offers variety of products like hot and cold coffee, in-
stant coffee, café latte and a host of other beverages like tea prod-
ucts, juices, Frappuccino beverages, and snacks like crackers,
M
pastries etc. Many stores of Starbucks across the world also offer
pre-packaged food products, sandwiches, and souvenirs or serve
ware like tumblers and mugs. In addition the company also has
retail products like coffee powder, bottled cold coffee etc. which
are stored and sold through retail stores.
N
The company reported profitability in Seattle in the early part of

1980s however it faced an initial economic downturn in the later
part of 1980s with its expansion into British Columbia and the
Midwest. In the early 1990s the company entered into the Califor-
nian market and reported profitability. In 1996 the first Starbucks
outlet opened outside North America in Tokyo. Now almost one
third of its properties are overseas. In the period between 1987
and 2007 the company opened an average of two outlets daily.
STARBUCKS COFFEE AND ITS CORPORATE SOCIAL

RESPONSIBILITY (CSR)
The company has different programs for CSR on which its stake-
holder management approaches are based. Starbucks advocates
CSR movements pertaining to sustainability in business. The
company management believes that it is not only a profit making
organisation, but also a society citizen hence it needs to be ac-
countable for the interests and demands of its stakeholders. Hence
it engages in activities that contribute to the benefit of local com-

Case study 2
n o t e s
munities and the environment in which it operates. Starbucks has

implemented various CSR programs for its related stakeholders.
The company enjoys a strong corporate and brand image, due to
its efforts for including stakeholders in its corporate strategy and
success. The company to reports that a majority of the stakehold-
ers’ interests are fulfilled due to efforts of the company towards
the fulfilment of its corporate social responsibility.
Starbucks is effective in its corporate social responsibility efforts,

although more effort is needed with regard to the stakeholder
group of coffee farmers, as well as the issues of youth rates and
tax avoidance in some regions.
STARBUCKS COFFEE’S STAKEHOLDER GROUPS
S
Some of the important stakeholders of Starbucks are:
Employees: Starbucks considers its employees as an import-
ant priority in CSR strategy. Employees often expect good
IM
working conditions, reasonable wages and job security as
stakeholders of a company. The organisational ethos of Star-
bucks stresses upon the employee’s attitude first. As per the
company its employees are paid wages well above the min-
imum wages mandated by law. In partnership with Arizona
State University Starbucks initiated the employee scholarship
activity in 2014. However, the company still feels that it can
M
further improve its performance in addressing stakeholder

needs of its employees.
Customers: Customers are considered as the most important
stakeholders at Starbucks. Customers usually expect value
N
for money and demand high quality of products and services.

Starbucks developed a culture where customer is considered
as a king. In its employee training also, the company stresses
upon maintaining friendly and warm customer relationship.
Suppliers: Wholesale supply farms and coffee farmers are the
primary supplier stakeholders of Starbucks. One of the prima-
ry interests of this group is adequate compensation for their
products and services and sufficient demand from Starbucks.
The objective of farmers is to increase the yield of coffee so
has to generate more revenues. Starbucks runs many corpo-
rate programs to fulfil the interest of this stakeholder group.
The company has a supplier diversity program to ensure that
suppliers from across the world can be included in supply
chain. Further, the company also runs a Starbucks coffee and
farmer equity (CAFE) program under which transparency is
maintained amongst wholesale suppliers to ensure that coffee
farmers are paid their dues adequately. As a result Starbucks
is able to fulfil the expectations of this stakeholder group.

Case study 2: STAKEHOLDERS OF STARBUCKS COFFEE 363
Case study 2
n o t e s
Environment: Starbucks runs several CSR programs for

ensuring environmentally sound business. The company’s
CAFE program has led to higher biodiversity and shade qual-
ity in certified coffee farms. Currently, 90% of Starbucks’ sup-
ply comes from CAFE-certified farms. This significant figure
shows that Starbucks is effective in addressing its corporate
social responsibility to this stakeholder group, although there
is room for improvement.
Investors: The company considers investors as an important
stakeholder. The main interest of investors is good perfor-
mance on the financial front. The global expansion of Star-
bucks along with dominating position in the coffeehouse in-
dustries demonstrates it high performance financially. Despite
its business losses in 2007 the organisation has recovered and
S
is now again on the path to success.
Government: Due to its global presence the company needs to
address the expectations and interest of the respective coun-
tries. In general, the company adheres to the business rules
IM
and regulations in the respective countries.
CONCLUSION
Starbucks has performed well in its CSR strategy to address the

stakeholder interest. In most of the instances the company is able
M
to fulfil the concerns of its various stakeholders like employees,

suppliers, environment, investors and the government. The com-
pany has scope to increase its performance towards a hundred
percent CAFE certified supply chain to maximise the benefits to-
wards the environment.
N
questions
1. Discuss the CSR approach of Starbucks. Who are its

stakeholders?
(Hint: Starbucks focuses on fulfilling the concerns
of its various stakeholders like employees, suppliers,
environment, investors and the government. The
company runs various CSR programs to maximise the
benefits towards its stakeholders.)
2. Discuss how Starbucks ensures environmentally sound
business?
(Hint: Starbucks runs several CSR programs for ensuring
environmentally sound business. The company’s CAFE
program has led to higher biodiversity and shade quality
in certified coffee farms.)

Case study 3
n o t e s
ADITYA BIRLA GROUP, BUILDING THE ROAD TO SELF

SUSTAINABILITY
This Case Study discusses how a company established in pre-inde-

pendence period of India, continues to be a leading example of CSR
leadership even in the post-independence period. It is with respect
to Chapter 3 of the book.
S
(Source: www.adityabirla.com)
ABOUT ADITYA BIRLA GROUP

IM
Based out of Worli, Mumbai in Maharashtra, Aditya Birla group
is a multinational company that is named after Mr Aditya Vikram
Birla. The company has its operational offices in 33 countries and
an employee strength of 1, 36,000.
Seth Shiv Shankar Narayan Birla established the company in

1857. The group has now diversified into various sectors like ce-
M
ment (UltraTech Cement), financial Services, metals fertilizers,

clothing and apparel, metal Works (Hindalco) etc. The company
reported a profit of approximately 40 million USD in the year 2012
making it the third biggest private Indian multinational company
USD after the Reliance Industries Limited with the reported rev-
N
enue of 74 million USD.
ADITYA BIRLA GROUP’S CSR STRATEGY
The CSR strategy of Aditya Birla Group is focused towards activ-

ities for rural development, with an objective to create model vil-
lages that are self-sustainable. The company follows a standard
approach towards implementation of its CSR projects.
Involvement of community in identification of their needs is an

important aspect of Aditya Birla's CSR project identification
strategy. Every project is recognised in a series of meetings with
community stakeholders and determination of the needs of the
community. On obtaining a consensus with the stakeholders like
village panchayat projects are prioritised. Every project of Aditya
Birla CSR program is carried out under the sponsorship of Aditya

Case study 3: ADITYA BIRLA GROUP, BUILDING THE ROAD TO SELF SUSTAINABILITY 365
Case study 3
n o t e s
Birla Centre for Community Initiatives and Rural Development.

The focus areas within the development of the villages are:
Education: Till date the group runs 45 schools and is also en-
gaged in activities pertaining to adult education, informal and
formal education, providing scholarships for girl students,
merit scholarship and technical education for boys, distance
education programs, computer education and digital literacy
awareness programs.
Healthcare and Family Welfare: The objective of Aditya Birla
group’s healthcare related CSR activities is to provide quality
healthcare services to people living in the rural community
which is facilitated through the group’s hospitals. The group
has 18 hospitals running which regularly organise healthcare
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activities like pulse Polio Programme, mobile clinics, surgi-
cal camps for cleft lip correction, child health and maternal
health care programs, supplementary nutrition care programs
awareness drive on tuberculosis, HIV/AIDS, sanitation and
IM
hygiene, blood donation camps etc.
Social Welfare: Aditya Birla group undertakes activities per-
taining to social causes within its CSR program. This includes
support pertaining to mass weddings, widow remarriage, in-
surance and social security, women empowerment sports and
cultural activities etc.
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Infrastructural Development: The company undertakes de-

velopmental activities pertaining to sustainable growth in the
local community areas like development of Community Cen-
tre, augmentation of village schools, rural roads, infrastruc-
N
tural development of hospitals and Healthcare centres, rural

electrification irrigation facility development storage tanks for
water etc.
Sustainable Livelihood: The CSR strategy of Aditya Birla
Group also incorporates activities pertaining to provisioning
of appropriate and Eco sustainable livelihood. For this pur-
pose the company makes use of self-help groups (SHGs), pro-
visioning of microfinance to farmers, microfinance to women,
watershed management, integrated livestock activity, micro
enterprise development, skill development, vocational train-
ing. The company disseminates skill training through the Ad-
itya Birla Technology Park and vocational training centre in
association with their industrial partners and plants.
CSR ACTIVITIES OF SUBSIDIARY COMPANIES OF ADITYA

BIRLA GROUP
The subsidiary companies of the Aditya Birla Group too have

their own CSR programs. An example:

Case study 3
n o t e s
HINDALCO INDUSTRIES LIMITED
Based out of its headquarters in Mumbai, Hindalco is a flagship

company of the Aditya Birla Group. The company is an alumin-
ium manufacturing company and it was founded in 1958. The
company reported revenue of 16 million US Dollars in the year
2016. It has employee strength of 20,238. Novelis, New Coal Mines
Limited, MORE are its subsidiaries. The first aluminium facility
of the company was made in 1962 at Renukoot in Uttar Pradesh.
Acquisition of Novelis Inc. an internationally reputed manufac-
turer of Can recycling and Aluminium rolling was an important
landmark in the history of Aditya Birla Group and aluminium his-
tory of India. Today Hindalco is ranked as one of the top 5 alumin-
ium manufacturers in the world that produces low cost alumina
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in high and processing factories.
The company engages in CSR activities pertaining to the local

community and factory workers welfare. The focus areas of these
IM
activities include:
Healthcare: The company has in the last few years has organ-
ised medical check-up of nearly 41112 villagers and treatment
of those suffering from illnesses. 359 students from 26 schools
have benefited from health check-up . 2414 cataract surger-
ies were performed and 1179 people were gifted spectacles for
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better vision.
The Aditya cement factory at Chittoor was the first in that
area that completed 4065 surgeries each year in the Mega eye
surgery camps organised by the company. The company also
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arranges for treatment of patients suffering from tuberculosis

who were detected during his camps. So far, 260 children have
also undergone cleft lip surgery and 170 patients have been
given artificial limb fitment during these camps.
The company has also signed a memorandum of understand-
ing with the Jan Kalyan trust and Gujarat state AIDS control
society, Kharach to set up an integrated counselling and test-
ing centre at Jan Kalyan Hospital for testing and counselling
of HIV/AIDS.
The company has also constructed water storage tanks and
water filter plant in 16 villages. Company runs hospitals in
various industrial plants where almost 300000 people are giv-
en treatment at nominal rate.
Mother and Baby Care: In the last few years, the company
has undertaken vaccination of 48754 children for polio and
diseases like Hepatitis B. In addition awareness programs
pertaining to family planning and redistribution of condoms is

Case study 3: ADITYA BIRLA GROUP, BUILDING THE ROAD TO SELF SUSTAINABILITY 367
Case study 3
n o t e s
also undertaken. Nearly 2268 people have availed the benefit

of family planning procedures.
Education: Owing to the efforts of the CSR activists of the
company, the school dropout rate in Nagda area has reduced
from 40% to 15% in the last few years. What started with near-
ly 575 children in Balwadis, 1,845 children are now enrolled
and learning in the company run Balwadis.
Kasturba Gandhi Balika Vidyalaya, run by the Kagina Jan
Seva Trust at Udgi, Selam has brought a difference in the lives
of 100 girl students from rural areas.
The Kagina Industrial Training Centre of the company that
has been recognised by Department of Employment and
Training, Government of Karnataka, 102 students were given
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skill development training in trades such as electronics, elec-
trical and mechanics followed by their successful placement.
The Bal Sanskar Kendras at Birla Cellulosic are continuous-
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ly rising with 340 children enrolled at present. All the school
children are given mid-day meals in collaboration with gov-
ernment and cooperative participation.
Sustainable Livelihood: The company CSR activities direct-
ed towards the benefit of agriculture programmes help in re-
ducing monsoon dependency and enhancing productivity. So
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far, in the last few years, more than 6000 farmers have gained
from company initiatives. Almost 100 biogas units were creat-
ed in the last year to promote organic farming and sustainable
living. 19,282 animals were vaccinated in the animal husband-
ry camps and 320 animals were treated last year. The company
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is also helping with dairy farming at Nagda, with maintenance

of 18 milk collection centres that help in provisioning of addi-
tional income to thousands of rural families. Water harvesting
structures have also been created in addition to the mainte-
nance and repair of the existing ones. This has helped in the
sustainable livelihood of more than 50,000 individuals.
Women Self-Help Groups: The women oriented activities un-
der Hindalco’s CSR initiatives include establishing and run-
ning tailoring training centres for single mothers, scheduled
castes, physically disabled and women from the weaker sec-
tions of the society. The company also provides stitching ma-
chines at subsidised rates.
The Ansuya Mahila Atma Gaurav Kendra, operations at
Kharach, nearly 200 women are trained every year in tailor-
ing, embroidery and knitting skills.
Infrastructure Development: The company supports infra-
structure development initiatives in many rural areas that in-

Case study 3
n o t e s
cludes repair and construction of approach roads, access to

drinking water, development of health centres and provision
of infrastructure amenities like low cost toilets etc.
The company has built 4 dams at Nagda, 43% of water stored in

these dams is used for farming and utilised for development of the
township and rural community. The company bore 20% of the to-
tal cost to create 3 village infrastructures around Kharach under
the 12th finance commission. In a joint venture with the district
administration Hindalco also helped in building 1,023 toilets for
below poverty line families of Arneeyapant Panchayat, Chittor.
CONCLUSION
CSR should be considered as an integral part of sustainable de-
S
velopment and social growth. It is important that all corporate
houses should be assigned social responsibility towards the so-
ciety, nature and the country in which it operates as it takes re-
IM
sources from these entities. As can be seen from the case of Aditya
Birla Group, a business can play an extremely vital role in social
and environmental development. The company has helped the
masses to raise their standard of living and to acquire necessary
skills to lead a dignified life.
M
questions
1. Discuss the CSR approach of Aditya Birla Group?

(Hint: The CSR strategy of Aditya Birla Group is focused
towards activities for rural development, with an objective
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to create model villages that are self-sustainable.)

2. Discuss the CSR approach of Aditya Birla Group’s
subsidiary Hindalco.
(Hint: The company engages in CSR activities pertaining
to the local community and factory workers welfare.)

Case study 4
n o t e s
CANON INDIA PVT LTD- BUILDING INDIA THROUGH

CSR
This Case Study discusses the importance of CSR in India and how
Canon fulfils the needs of the marginalized sections of the society. It
is with respect to Chapter 4 of the book.
(Source: https:// www.canon.co.in/)
ABOUT CANON
S
Headquartered in Tokyo, Japan Canon Inc. is a multinational cor-
poration which specialises in the manufacturing of imaging and
optical products like photo copiers, cameras, computer printers,
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medical equipment, steppers etc.
Canon India is a hundred percent subsidiary of Canon Singapore

Private Limited. The operations of this company in India started
in 1997. The product offerings of Canon in India include range of
over 200 sophisticated digital imaging products like digital copier,
sniper rifles, printers, SLR cameras, digital camera, card printers
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etc.
Canon India is focused towards execution of sustainable CSR

projects and it is a socially inclined, responsible corporate.
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CSR VISION OF CANON
The CSR philosophy of the company aims at bringing improve-

ment in the quality of life of the people belonging to the communi-
ty in which the company operates. The vision of the company is to
win the respect of people for the company’s commitment towards
social causes. The aim of the company is in alignment with its
corporate philosophy “Kyosei” meaning, living and working to-
gether for common good. The company CSR policy has been es-
tablished in accordance with this guiding philosophy. Under this
policy, the company shall offer under its own expense resources
and time towards contribution to various social causes. In addi-
tion, the company shall also provide full-fledged support to the
employees interested in contributing their skills and time towards
a social cause of their choice, however this shall not be considered
as a CSR expense by the company. So, the two priorities of the
CSR policy of the company include environment and community
at large.

Case study 4
n o t e s
OBJECTIVE OF CSR POLICY
The main objective of the CSR activities of Canon is to achieve a

long-term and of sustainable impact on the marginalised section
of the society by making available to them opportunities that help
them improve their quality of life.
AREAS OF THRUST UNDER CANON CSR POLICY
To achieve its objective of bringing about a positive change and

for making a sustainable impact on the local community, main fo-
cus of Canon India Private Limited is on initiative like “adopt a
village” that was started in 2012 and is Canon India’s flagship CSR
project. Canon India has adopted the village Sol Gohalia, located
near Kolkata in addition to Ferozepur village in Haryana, Maha-
S
raja Katte village in Bengaluru and Karanjoti village in Thane dis-
trict near Maharashtra.
The main objective of this initiative is an overall development of

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the villages that the company adopt with a special focus on 4E’s
including:
Education
Environment
Eye Care
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Empowerment
However, the company activities of CSR are not limited to only

these four areas. It also carries out many other activities that help
N
in benefit of the disadvantaged section of the society. These activi-

ties are carried out in the adopted villages as well as certain iden-
tified backward areas of India. Adhering to the guidelines of the
Companies Act 2013, Canon India Private Limited focuses on the
4E’s mentioned above and other important social issues like mal-
nutrition, education of girl child, health and disaster support etc.
In pursuance to this, Canon offers assistance in terms of financial
support and material support to community affected by a disaster.
The company also makes efforts towards minimizing the envi-

ronmental burden from electronic waste, through the effective
application of green technologies. The company engages in re-
search and development of resource conserving products that
are smaller, lighter and easier to recycle. Canon India undertakes
the responsibility of safe disposal of Canon’s end-of-life products
and other e-wastes by engaging with a government approved re-
cycling agency.

Case study 4: CANON INDIA PVT LTD- BUILDING INDIA THROUGH CSR 371
Case study 4
n o t e s
EXECUTION OF CSR ACTIVITIES
Canon India Private Limited undertakes the CSR activities char-

tered by the CSR committee by directly engaging organisations
working at the grass root level or by partnering with like-minded
corporates or Government agencies. Activities are carried out in
areas which maybe recommended for support by the company’s
CSR committee constituted under section 135(i) of the Companies
Act 2013.
GOALS OF CSR ACTIVITIES UNDER THE 4E’S STRATEGY
Education:
Provision of adequately equipped resource centre and train-
S
ing of teachers to improve the quality of imported education
for promoting the right to education.
Augmentation of school infrastructure by carrying out repair
IM
and donation of infrastructural accessories like chairs, tables,
benches, fans etc.
Make efforts to improve the rate of student enrolment and re-
tention of enrolees in the schools.
Provision of safe drinking water and sanitation improvement
by provisioning access to toilets.
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Introduction of extra-curricular activities and sports activities

in school.
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The company has partnered with SOS Children’s village across

India to support the education and overall development of less
privileged children in the villages.
Eye care
Set up canon vision centres in partnership with local hospitals
and provisioning of facilities for eye check-up.
Educate and make aware the local community about common
diseases of the eye.

Case study 4
n o t e s
Help in early identification, prevention, management of pre-

ventable blindness of the eye in adults and children (cataract
and refractive errors).
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Environment
IM
Conservation of water by promoting rainwater harvesting to
prevent water shortage.
Development of green belt in the villages.
Installation of solar panels at identified locations to promote
the use of alternative energy sources.
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Promotion of waste recycling.
Empowerment
Setting up of vocational training centres in the villages adopt-
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ed by the company.
Skill enhancement of youth.
Provide Computer training school for children and young
adults.
Student counselling to empower in selection of career options.
The company carries out a baseline study to analyse the feasibil-

ity and effectiveness of a proposed program before it commences
its work in a community. The study includes assessment of pa-
rameters like:
Indicators of health
Levels of literacy
Understanding the process of sustainable livelihood
Population data that includes data on population below pover-
ty line and population above poverty line
Availability and status of infrastructure

Case study 4: CANON INDIA PVT LTD- BUILDING INDIA THROUGH CSR 373
Case study 4
n o t e s
On the basis of this information the rollout plan is developed

which is aimed at a holistic development of the community.
CSR COMMITTEE CANON INDIA PRIVATE LIMITED
The board of directors of the company constitutes a CSR commit-

tee which consists of two or more directors. The responsibilities
of the community include:
Formulation and Recommendation to the board, the CSR pol-
icy and activities proposed to be undertaken by the company
as per schedule VII of the Companies Act 2013.
Recommendation on the budgetary amount for such activities.
Periodic monitoring of the company’s CSR policy.
S
After taking the recommendations of the CSR committee into ac-
count, the board of the company approves the CSR policy. The
contents of the policy are disclosed in the company’s annual re-
IM
port and it is ensured that the recommended activities are exe-
cuted.
The budget for CSR projects is also decided by the CSR commit-
tee and may be revised within the calendar year depending on the
net profit of the company.
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questions
1. Discuss the role of CSR committee of Canon India Pvt

Limited?
N
(Hint: The board of directors of the company constitutes a

CSR committee which consists of two or more directors.)
2. Discuss goals of Canon’s CSR activities under the 4E’s
strategy.
(Hint: To achieve its objective of bringing about a positive
change and for making a sustainable impact on the local
community, main focus of canon India Private Limited is
on initiative like “adopt a village” that was started in 2012
and is Canon India’s flagship CSR project.)

Case study 5
n o t e s
NIKE CSR “DOING IT THE RIGHT WAY”
This Case Study discusses how global company Nike implemented

CSR at its workplace and helped in changing trends in the applica-
tion of CSR in apparel industry. It is with respect to Chapter 4 of
the book.
(Source: https://www.nike.com/in/en_gb)
S
About the company
In 1964, Bill and Phil founded Blue Ribbon Sports that was lat-
IM
er renamed as Nike Inc. Operating at a global scale today; the
company is headquartered in Oregon, United States. A leader in
sportswear and apparel, Nike is also traded on NYSE. The prod-
ucts of Nike include sports footwear and apparel, equipment and
accessories recreational products. The company has a market
share of nearly 60% and has established a cult of fitness around
the world. At the same time, Nike is also involved in corporate so-
M
cial responsibilities. The company’s annual revenues exceeded $

13 billion in 2004 resulting in the market share of 60%.Some of the
important acquisitions by the company include Starter and Um-
bro in 2013. Hurley International and Converse Inc. are Nike’s im-
N
portant subsidiaries. With employee strength of more than 44,000,

in 2012, the company reported annual revenue of US$ 24.128 bil-
lion and a net income of US$ 22.23 billion. The company has oper-
ations in nearly 45 countries, and its products are available in over
180 countries. Nike Portfolio includes brand leaders like: NIKE
brand, Cole Haan (designer and distributer of luxury handbags,
shoes and footwear); Converse sportswear; Hurley International
LLC (lifestyle footwear, apparel and accessories); Umbro; Nike
Golf; and Jordan are its other brands providing similar products.
VISION OF THE COMPANY
The company is on a mission to inspire innovation in every athlete

around the world. The company feels that anyone who has the
physical form or body is an athlete. The company has so far man-
aged to achieve this through the implementation of 11 Maxims
that provide guidance to Nike’s employees in their routine, daily
duties and their global representations. These maxims are:
1. It is our nature to innovate.

Case study 5: NIKE CSR “DOING IT THE RIGHT WAY” 375
Case study 5
n o t e s
2. Nike is a company.
3. Nike is a brand.
4. Simplify and go.
5. The consumer decides.
6. Be a sponge.
7. Evolve immediately.
8. Do the right thing.
9. Master the fundamentals.
10. We are on the offense — always.
11. Remember the man (the late Bill Bowerman, Nike co-
S
founder).
The company leadership is of the strong opinion that by creating

the right organisational culture and bringing in motivating fac-
IM
tors to promote employee’s engagement in business activities will
help in achieving the company’s vision. The management team
works on the core principles of leading, coaching, driving and in-
spiring. The broad vision of the company is to help the business
as well as its other stakeholders to exist in an economy that is
sustainable with a perfect balance in the environment, commu-
M
nity needs of people and company profit. The company tries to

achieve this objective by integrating sustainable practices and
principles with the manufacturing operations. Some examples of
such practices include research and development of sustainable
materials, process redesign when required, and change advocacy
N
within the industry. The company intends to bring about a sys-

tematic change in the sports apparel and footwear industry by
the practice of sustainable business and innovation, creation of
sustainable products and business models.
CSR STRATEGY OF NIKE
The company has nearly 50,000 workers and a major part of man-
ufacturing is also carried out through subcontractors. The manu-
facturing units of Nike are mainly situated in the Asian countries
due to availability of cheap labour.
Nike started making public disclosures about their CSR activi-

ties from 2005 onwards. Audits of overseas factories carried out
by company representatives revealed that many of these facto-
ries were operating in poor working conditions with extremely
low wages and in poor health conditions. It was for the first time
that a major global organisation spoke in public about such is-
sues. In an attempt to correct such issues at grass root levels, Nike

Case study 5
n o t e s
has now adopted a new strategy and approach. The company now
undertakes the responsibility to bring about positive systematic
changes in the labour working conditions with other stakeholders
in the industry.
Apparel industry across the world is most in need of social re-

sponsibility interventions. Being a labour intensive trade and hav-
ing the need of unskilled low wage workforce makes it a suitable
choice for CSR activities. Apparel and sports manufacturers lack
trained personnel in the underdeveloped countries, added with a
lack of information on CSR and its benefits. These countries also
have inadequate infrastructure to support CSR. It is anticipated
that nearly 25% to 50% of the manufacturing factories in the South
Asian region have limited access to toilets and safe drinking water
during the working hours. This is so because the industry relies
S
majorly on contract manufacturing where a foreign firm is out-
sourced for production activities by the brand company. Another
problem is that demands often need to be fulfilled by employing
IM
labour in extra working hours leading to complications of poor
working conditions due to overtime.
Nike now intends to bring about a change in the perception of

their stakeholders like customers, suppliers, investors, govern-
ments and regulators about the company. For this purpose, the
leadership of the company is making efforts to change it from a
M
closed system to an open culture so that suppliers and customers

are in a position to relate to Nike. An open-system approach sim-
ply means that an organisation visualises its actions from a broad-
er point of view i.e. it takes into account the effect of its activities
N
on the whole social system including internal and external stake-

holders and the environment. In this endeavour, a major problem
for Nike has been in changing its leadership and management
style and replacing it with a culture of “leaders beyond borders”
which essentially means that the leaders are not only limited to
their professional role, but are also engaged with stakeholders on
common objectives. Another issue that Nike needs to resolve is of
trade flows, governance, and building positive relationships with
media to reach out to a larger audience.
Nike adopted the open-system approach with the anticipation that

every element, irrespective of the fact whether internal or exter-
nal will affect the future of the company. The company leadership
believes that a company’s profitability is dependent on a good so-
ciety, thus contributing to sustainability. Nike has with its efforts,
created a green life cycle. Under this initiative, Nike has man-
aged to eliminate the generation of waste and harmful substances
during production. Their new products are mostly recyclable and
re-usable. Nike has also undertaken lead in forming the Fair La-

Case study 5: NIKE CSR “DOING IT THE RIGHT WAY” 377
Case study 5
n o t e s
bour Association (FLA). All industry stakeholders acknowledge

and appreciate this initiative taken by Nike. The company’s new
processes amongst its own production units and those outsourced
have been lauded by the operation council of the Global Alliance
after carrying out a detailed audit.
questions
1. Discuss the challenges regarding corporate social

responsibility that companies in the apparel industry face
in their supply chains around the world.
(Hint: Apparel industry across the world is most in need
of social responsibility interventions. Being a labour
intensive trade and having the need of unskilled low wage
S
workforce makes it a suitable choice for CSR activities.)
2. Discuss how Nike executed its CSR strategy.
(Hint: Nike started making public disclosures about their
IM
CSR activities from 2005 onwards. Audits of overseas
factories carried out by company representatives
revealed that many of these factories were operating in
poor working conditions with extremely low wages and in
poor health conditions.)
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N

Case study 6
n o t e s
STEERING RELIANCE’S CSR APPROACH IN THE RIGHT

DIRECTION
This Case Study discusses about the direction, approach and focus
areas of the CSR strategy of Reliance Industries. It is with respect to
Chapter 5 of the book.
(Source: www.ril.com)
S
ABOUT THE COMPANY
Founded by Dhirubhai H Ambani in 1932, today, Reliance Group

IM
is the largest private sector company of India. The company op-
erates in energy and material sectors with Reliance Industries
Ltd. being its flagship company. The company contributes annual
revenue of US $ 66 billion to the group apart from being a For-
tune Global 500 Company. In the late 70s, the group expanded
its product offerings by venturing into textiles and enhanced its
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backward integration by undertaking production of fibre inter-

mediates, polyester, plastics, petrochemical and petroleum refin-
ing and natural resource production like oil and gas. Reliance also
takes pride in being one among the top five largest yarn and poly-
ester fibre producers in the world.
N
RELIANCE INDUSTRIES LIMITED CSR ACTIVITIES
Ever since its inception, the company has performed major con-
tribution towards betterment of society by fulfilling its social re-
sponsibilities. The company has contribution substantially in ar-
eas of education, environment conservation, health and has also
supported government agencies in natural disasters and infra-
structure development.
Some CSR activities undertaken by Reliance Industries Limited

include:
Education: In the last few years, the company has set up nine
schools, thus improving education facilities for 13,251 students
across the country. “The Kanya Kelvani” program run by the
company has been playing an important role in propelling

Case study 6: STEERING RELIANCE’S CSR APPROACH IN THE RIGHT DIRECTION 379
Case study 6
n o t e s
the “girl child education” initiative of the Indian Government

across the country.
The company has also implemented the Jagurti Project for
mentally challenged and dyslexic children belonging to the
socioeconomically backward strata. Under this project, the
beneficiary children spend 8800 hours to tackle dyslexia. The
company in partnership with UNESCO and BBC also makes
efforts to increase the level of awareness about dyslexia
amongst other villages’ students.
Community health care: The company has also contributed
immensely on the health care front by making vital improvi-
sation in the specific Community Medical Centres that pro-
vide adequate health care services to the local community.
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The Drishti project undertaken by Reliance in cooperation
with the Association of Blind has contributed in nearly 9000
free corneal grafted surgeries for underprivileged blind peo-
ple. Further, the Hazira Manufacturing division of Reliance
IM
has established an Anti-Retroviral Treatment Center in the
country for the benefit of drivers and cleaners of their product
transport vehicle along with awareness generation initiatives
for HIV / AIDS
Environment Initiatives for the Community: The company
started with a zero garbage campaign in order to develop the
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concept of proper disposal of solid wastage in the company’s

surroundings and residential areas. This campaign is aimed
towards provisioning of a cleanliness drive to foster a dis-
ease-free environment for its employee’s residential sites.
N
In addition, the company also runs a social and economic security

program for woman engaged in rag picking in collaboration with
an NGO. The project has a dual objective of reduction in plas-
tic waste as well as upliftment of the rag pickers. By making use
of this plastic waste, the company has built a 900-meter road by
using 5% plastic waste thus not only reducing the construction
cost but also make improvements in the quality of construction
of roads and improving the quality of life of the community mem-
bers.
RELIANCE RURAL DEVELOPMENT TRUST
Reliance Rural Development Trust (RRDT) is the company’s trust

that funds and initiates infrastructure development projects in
rural areas. With the help of the trust, the company recently un-
dertook 797 projects in 760 villages across 24 different zones of the
state of Gujarat. Under these projects, the company has supported
infrastructure development with the construction of 58 Concrete

Case study 6
n o t e s
Cement Roads, 61 underground tunnels and 06 check dams. All

the check dams under the project have been built in accordance
with 8.7 mcft water storage capacity. It is estimated that nearly
1065 hectares of land can be irrigated with these check dams.
LIVELIHOOD SUPPORT PROGRAM
The company has also initiated self-help group (SHG) programs

for women and youth within the surrounding villages with an
objective to improve their quality life while and also be self-reli-
ant to support to their families. The program supports women by
providing them vocational training courses like clothes and dress
stitching, dress designing, beauty services, nursing services, etc.
Further, for young boys there are courses available in pumping
S
and hand pump repairing, mobile repairing, computer hardware
repairing, light vehicle and heavy motor driving, etc.
IM
IMPROVING QUALITY OF AGRICULTURAL PRODUCTS
The company has also initiated CSR activities pertaining to farm-

ing by provisioning of advanced technologies for farming and lo-
gistics including storage, handling and distribution of products. A
pertinent example of this is the supply of “Lenobags”, for storage.
These bags are made up of polypropylene and prevent early deg-
M
radation of fresh produce like fruits and vegetables during han-

dling.
Reliance Industries Limited (RIL) has been lauded for its efforts
and has won the Golden Peacock Award 2017 for its Corporate
N
Social Responsibility initiatives. A special mention here would

be of the commendable work done by Reliance Foundation. The
awards jury for these felicitations is constituted under the Chair-
manship of Justice (Dr) Arijit Pasayat, former judge of the Su-
preme Court. Recognised by the Golden Peacock jury, is a major
project of Reliance Foundation intended to uplift the livelihood of
farmers through water and food security interventions.
(Source: www.reliancefoundation.org)
Reliance has initiated a programme called "Bharat-India Jodo

(BIJ)" under its rural transformation initiative. The company
works in close association with marginal and small farmers to en-

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Case study 6
n o t e s
courage farming as a preferred career option and for improving

the lives of these farmers.
The main strength of the programme is its activities to help em-

powerment of the rural communities, and their engagement in
setting up of strategies for rural development. The design of the
program is such that the element of sustainability is an integral
part of the plan. The primary objective of this program is direct-
ed towards land development and water security measures, other
key interventions include promotion of food and nutrition secu-
rity and helping the farmers in fair price realisation by creating
market linkages.
CONCLUSION
S
The corporate social responsibility pyramid considers the ethical,
social and environmental needs of all the stakeholders. Many or-
ganisations have now realised the importance of CSR approach
IM
as a mainstream activity for enhancing their reputation, winning
the confidence of local communities and goodwill. It is also a tool
to create a better working environment for employees and add
value to their lives because happy employees help in increasing
the shareholder profits too by higher productivity.
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questions
1. Discuss the CSR activities undertaken by Reliance

Industries.
(Hint: In the last few years, the company has set up nine
N
schools, thus improving the education facilities for 13,251

students across the country.)
2. Discuss why Reliance was a suitable choice for the Golden
Peacock Awards 2017 for its CSR activities.
(Hint: Reliance has initiated a programme called
“Bharat-India Jodo (BIJ)” under its rural transformation
initiative. The company works in close association with
marginal and small farmers to encourage farming as a
preferred career option and for improving the lives of
these farmers.)

Case study 7
n o t e s
COCA-COLA’S BRANDING AND CSR IMPLEMENTATION
This Case Study discusses the Corporate Social Responsibility com-

mitments implemented by Coca-Cola Vietnam. It is with respect to
Chapter 6 of the book.
The present case study discusses how the Coca-Cola Company

protected its multi-billion dollar brand image through communi-
ty-based water projects. For a healthy and safe lifestyle, commu-
nities require potable water that can be used for drinking, cook-
ing and cleaning. Right to safe drinking water is still a dream for
various people across the world. Today, the world is increasingly
facing shortage of water resources and its contamination due to
increase in population.
S
Around the year 2010, it was estimated that 40% of the rural com-
munities still lack access to clean water due to which they fall prey
to diseases such as cholera and dysentery. It is considered to be
IM
the basic duty of the government to provide clean and potable
water to its citizens. However, it also becomes the environmental
and social responsibility of private sector organisations that rely
heavily on water and use it for their business operations. It is con-
sidered to be a duty of these corporates to contribute expertise
and resources to fulfil CSR commitments in communities they
M
operate.
Coca-Cola’s CSR implementation in Vietnam is a classic case

to demonstrate how community-based projects can be linked
strongly to a company’s business model and commercial success.
N
This may also help ensure commercial success and minimise rep-
utational risk.
Coca-Cola operates in more than 200 countries having over 500

brands and over 3300 beverages. It is a company worth billions
of dollars. Coca-Cola states that Coca-Cola’s vision serves as the
framework that guides the company in achieving sustainable and
quality growth.
Coca-Cola’s CSR framework is based on 6 P’s viz. people, portfo-

lio, partners, planet, profit and productivity. It strives to be a great
place to work to inspire the best in people. It also aims to develop
and distribute a portfolio of beverages in the world that satisfy
people’s desires and needs. In addition, Coca-Cola also wants to
develop and nurture a network of customers and suppliers and
create a mutual and enduring value. It also strives to be a good
corporate citizen by building and supporting sustainable commu-
nities. Fourth P, profit relates to maximising the long-term return
to shareholders. For Coca-Cola, being productive means being ef-

Case study 7: COCA-COLA’S BRANDING AND CSR IMPLEMENTATION 383
Case study 7
n o t e s
fective, lean and fast moving. Coca-Cola was operating in Vietnam

in the pre-Vietnam war times, then left and re-entered in 1994.
It also invested a lot of money there. In Vietnam, Coca-Cola sells
products such as Coca-Cola, Sprite, Fanta, Diet Coke, Schweppes,
Minute Maid, Joy bottled drinking water and Samurai energy
drink. For Coca-Cola Vietnam, the main challenge was to find the
best way to localise its global corporate social responsibility pro-
gramme and at the same time protecting its brand image.
It was estimated that the company provided more than USD 82

million to local communities for implementing its CSR program
activities and more than 2.7 lakh hours of volunteer service by its
employees.
Environmental activists have blamed Coca-Cola and similar com-
S
panies regarding the use of water and held them as accountable
for depleting water supply, lowering water supplies and damaging
the environment by discharging waste water.
IM
To address the environmental concerns and to fulfil its CSR re-
sponsibility, Coca-Cola initiated water saving and water replen-
ishment projects. It is only natural for Coca-Cola to support a
water programme because it is the most critical element of the
manufacturing process. It takes more than 2.4 litres of water to
produce 1 litre of beverage.
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In one of its reports, Coca-Cola stated that, Our journey to attain

and maintain water neutrality will help us and others advance
emerging conservation and social science, to better understand im-
pacts and therefore better plan and execute such projects. Further
N
replenish is an integral part of our water stewardship strategy in-

volving plant performance, watershed protection, sustainable com-
munities, and helping to raise awareness. We fully acknowledge
water neutrality is a continuous journey, not a destination, and
we strive to attain and maintain our Replenish goal. The company
aims to become water neutral by 2020 and to return to commu-
nities the amount of water that they use in beverage production.
The water conservation and sustenance programme is based on

3R’s viz. reduce, recycle and replenish. Reduce relates to reduc-
ing the amount of water required to prepare the beverage. Recy-
cle means ensuring that 100% of the waste water is treated be-
fore releasing it into the environment. Replenish means working
together with local communities, NGO’s and government to re-
plenish water to nature and communities. 3R projects included:
watershed protection, expanding community drinking water and
sanitation access. By 2009, the company was able to replenish
638 million litres of water for communities, 28.8 litres for nature

Case study 7
n o t e s
which was approximately 22% of the water used in making the

beverages.
questions
1. Describe 6 P’s of the Coca-Cola’s CSR framework.

(Hint: The Coca-Cola’s CSR framework is based on 6
P’s viz. people, portfolio, partners, planet, profit and
productivity.)
2. Study the current position of water replenishment by
Coca-Cola as of 2018.
(Hint: By 2009, the company was replenishing
approximately 22% of the water used in making
S
the beverages. As of August 2017, it is replenishing
approximately 115% of the water it uses. For further
information please visit https://en.cocacolavietnam.com/
stories/water-replenishment-infographic and summarise
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your observations.)
Source: http://www.globalcompactvietnam.org/upload/attach/coca-cola.case.study.sub-
mitted.27-oct-2010.pdf
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Case study 8
n o t e s
CSR AND NGO PARTNERSHIPS: AMAZON’S GIFT

A SMILE PROGRAM
This Case Study discusses the innovative method adopted by Ama-

zon for its CSR program through NGOs. It is with respect to Chapter
7 of the book.
THE “GIFT A SMILE” PROGRAM
Amazon India, the company that runs a highly successful online

marketplace in India, launched its new CSR initiative in 2014. The
program titled “Gift A Smile” enables online customers to make
donations instantly and directly to beneficiaries from a cause of
their choice. With this initiative, Amazon could help NGOs work-
S
ing in areas like children, women, elderly and other marginalised
sections of the society. The program offers a unique opportunity
to all its online customers to donate in-kind. The program is run
IM
through the “Amazon Cares” platform that tries to create self-sus-
tainable initiatives with the help of organisations that have prov-
en track record of achieving social outcomes.
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(Source: www.amazon.in)
The products that can be gifted include categories like books,

toys, games, music, videos, sports equipment and personal care
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etc., among others. The customers can choose a cause, supported

by an NGO of his choice that he would like to associate with, and
purchase gifts from the NGO’s wish lists.
Apart from delivering the products directly to the NGOs, the sell-
er fees that accrue from these sales will be donated by Amazon to
the respective NGOs.
ADVANTAGES TO DONORS
The online customers can choose the NGOs to whom they want
to donate. These NGOs are selected by Amazon through a rigor-
ous validation process and the donors can be confident that their
donations are reaching the right hands along with the Amazon
promise of assured delivery to the recipient.
In the Amazon website, customers can browse the NGOs and the
various wish lists provided by each of these NGOs. They can select

Case study 8
n o t e s
the product from the wish list and then follow the usual checkout
and payment process. Amazon will deliver the products directly
to the Gift Registry Address mentioned by the NGOs and an email
& SMS confirmations will be sent to the online ordering customer
on successful delivery.
At present, the program has around 30 NGOs across 15 states of

India. Since its inception, customers have gifted more than 40,000
smiles through their donations-in-kind to the less privileged
across the country.
SELECTION OF NGOS
Amazon does not have any direct alliance or partnership with
S
any of these NGOs, other than validating them and giving them
a channel through which donors can make in-kind charity. How-
ever, the Amazon customers can send in-kind donations only to
those NGOs that have registered themselves with Amazon and
IM
who have been carefully validated for their track record.
The NGOs who want to participate in this program have to send

their details containing a brief of the organisation, registration
details, copies of 3 years annual audited reports, and details of
board members to Amazon. The basic eligibility criterion is that
M
the entity should be registered in India with 3 years of proven

track record in the field. Also, the NGO should agree to the terms
and conditions of the program and must not support, encourage
or promote intolerance, hate, terrorism, violence, money launder-
N
ing etc.
The profile of selected NGOs is displayed on the Amazon website

– “Amazon Cares”, along with their wish lists. NGOs can create
and continually update the wish list of items that they need form
the over 19 million products available on Amazon Cares platform.
The wish lists of NGO beneficiaries includes items like education-
al toys, books, dictionaries, sports equipment, clothes, personal
hygiene products, etc.
Customers can select the NGOs after going through the profile of
NGOs and the causes they support and browse their wish lists.
The browsing page automatically leads to a page where the items
from Amazon marketplace are listed, from which the customers
can select the item to the cart for purchase and delivery to the
NGOs.

Case study 8: CSR AND NGO PARTNERSHIPS: AMAZON’S GIFT A SMILE PROGRAM 387
Case study 8
n o t e s
VERIFICATION OF NGOS
Each of the NGO is reviewed and verified by a third party entity

based on its contribution to social welfare activities in the past 3
years. Validation process includes onsite project visit and engage-
ment with beneficiaries, apart from the standard verification of
NGO registration, annually audited financial reports and gover-
nance system within the organisation. The Charities Aid Founda-
tion (CAF) is partnering with Amazon in the due diligence process.
CHARITIES AID FOUNDATION (CAF)
CAF India is a registered charitable trust set up in 1998 to provide

strategic and management support to corporates, individuals and
S
NGOs with an aim to ensure greater impact of their philanthropic
and CSR investments. CAF India is part of an international net-
work with offices in nine countries. It has a decade of a proven
track record of conducting due diligence of non-governmental or-
IM
ganisations across India and have gained the trust of many indi-
vidual donors and organisations.
CAF’s NGO Validation and Partnerships initiative is meant to

provide an impartial and robust assessment of NGO’s credentials,
capacity and track record. CAF also supports capacity building
M
interventions and believes in building effective partnerships with

corporates. NGOs can use the third party accreditation and cer-
tificate of validation for gaining credibility and enhanced visibility
among stakeholders.
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THE PARTNERSHIP OF AMAZON AND CAF
Amazon has partnered with CAF to validate and select the NGOs
who can participate in the “Gift A Smile” program. Initially, the
program had around 25 NGOs in 2014 that were managed by CAF
India. These include NGOs like Magic Bus; Make a Wish foun-
dation, Pratham, READ India, Save the Children, CRY, Tropical
Health Foundation of India etc.
THE VALIDATION PROCESS OF CAF
CAF has its own methodologies and tools for carrying out the
exercise of validation by undertaking extensive research and
consultations with various NGOs and stakeholders. The process
involves a close assessment of NGO’s organisational and pro-
grammatic practices through both desk review and site visits. The

Case study 8
n o t e s
key parameters of assessment are basic profile, legal status, gov-

ernance, human resource management, program management,
service delivery, financial management, networking and partner-
ships, administration and image in virtual media.
The desk review requires the following documents to be provided

to CAF with requisite fees: Due diligence form, fiscal information
sheet, referral check from donors, document checklists for docu-
ments like trust deeds, 12A, 80G & Audit reports etc. A desk re-
view of documents sent by NGOs is done based on which further
information is sought where required.
After desk review, a representative of CAF visits the NGO sites

including Head Office and Project sites. The field assessor meets
S
the top leaders and executives of the NGOs and field staff to know
about their perspectives and evaluate their competencies. The
whole process takes 3-5 weeks and could cost up to INR 22,000. An
IM
annual validation renewal is also done for a fee. After validation,
a letter with a certificate of validation is issued to the NGO which
remains valid for 3 years.
THE SUCCESS OF THE PROGRAM
In the first year, the program had generated tens of thousands

M
of smiles. Individual donors have used the program to gift thou-

sands of products worth lakhs of rupees to less fortunate sections
and communities across the country. CAF India says the chal-
lenge was to ensure that each of the NGOs is benefitted equally.
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Also, delivery to some of the remote NGO locations was also found
to be difficult.
In 2015, the “Gift A Smile” program won the “Golden Peacock”

national award for Corporate Social Responsibility, one of the
widely recognised awards for corporate excellence and corporate
social responsibility
questions
1. Discuss the role of CAF India in the program. How

important is validating the NGOs and Amazon’s
partnership with CAF?
(Hint: There are numerous NGOs in India –as per a
survey, one NGO per 400 persons exist in India. Hence,
NGO selection and validation are important. Secondly,
having numerous NGOs in the web page may not be good
as customers may not spend the time to browse all and
select)

Case study 8: CSR AND NGO PARTNERSHIPS: AMAZON’S GIFT A SMILE PROGRAM 389
Case study 8
n o t e s
2. Comment on the validation process adopted by CAF

India. Can Amazon do the validation by itself? Should the
validation procedure and due diligence be different for
Amazon program?
(Hint: The regular validation and due diligence process
are sufficient for the program. Amazon cannot be expected
to select and continuously monitor these NGOs)
Sources: “Amazon India helps thousands of Indians “Gift A Smile” to the needy”, ET Re-
tail, Economic Times, https://retail.economictimes.indiatimes.com/news/e-commerce/e-
tailing/amazon-helps-thousands-of-indians-gift-a-smile-to-the-needy/48085247#
“Amazon.in spreads festive cheers with the “Gift A Smile” program, CAF India, http://
cafindia.org/media-center/caf-latest-news/press-release/item/69-amazon-in-spreads-fes-
tive-cheer-with-gift-a-smile-program
“Amazon Cares”, www.amazon.in, https://www.amazon.in/Online-Charity/b?ie=UT-
S
F8&node=4594605031
CAF Charities Aid Foundation, India. www.cafindia.org
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Case study 9
n o t e s
MEASUREMENT AND MONITORING OF CSR PROGRAMS

– IMPACT MEASUREMENT FRAMEWORK OF RBC
This case study explores an important and emerging concept in

CSR – the impact measurement and assessment of social programs
used by Royal Bank of Canada. The case study pertains to Chapter
8 of the book.
RBC’S CSR MISSION
Royal Bank of Canada (RBC) is one of the largest banks in Can-

ada. RBC wanted to design a CSR program that focuses on an
area where the significant impact on the society can be made. It
invested considerable efforts to select an important social issue
S
and zeroed in on youth education and empowerment. The result
was the creation of the RBC Future Launch program - a 10 year,
$500 million CSR program that was announced in February 2017.
IM
Based on studies, RBC realized that the future prosperity of Can-
ada depends on highly engaged and skilled workforce, driven by
today’s young people in the age bracket of 15-29 years. Its research
concluded that the current Canadian youth are set up to fail in a
disruptive and uncertain era with their present skills and capa-
bilities. As Canada’s largest corporation, it felt that it should play
M
a major role in engaging young people, rewiring the systems and

driving the change by deploying its vast organisational resources,
and through best-in-class partnerships, and based on its program
development strengths.
N
RBC FUTURE LAUNCH
RBC Future Launch is RBC’s commitment to helping the young

Canadians prepare for a drastically changing workforce. The
program is designed to empower Canadian youth for the jobs of
tomorrow. The program focuses on the three critical gaps viz.,
helping youth to get work experience, helping them to grow their
network and helping them to gain new skills. RBC wanted its CSR
program to go beyond the usual financial charity and investment
mode, by engaging public and private sectors to further under-
stand the problem of youth and make a significant impact on the
lives of young Canadians. Apart from funding, it decided to mar-
shal RBC’s capabilities, assets, and resources to address the issue.
It identified three critical barriers which youth have to overcome

viz., lack of relevant experience, lack of relevant skills and lack of
professional network and mentoring. As part of the program, it
decided to work with educational institutions, public and private

Case study 9: MEASUREMENT AND MONITORING OF CSR PROGRAMS
– IMPACT MEASUREMENT FRAMEWORK OF RBC 391
Case study 9
n o t e s
sectors and other partners towards co-creating long-term solu-

tions. Several programs have been launched to address the above
three issues in partnership with other institutions and NGOs. Ad-
mitting that it cannot solve or make a huge impact on the prob-
lem single-handedly on its own, it sought cooperation from oth-
er stakeholders like educational institutions, education-based
NGOs, training institutions etc. Some of the programs were run
by RBC, some others through the partner organisations and for
few others donations were made to external NGOs.
The donations to charitable programs under RBC Future Launch

focus on the three identified areas. The solution areas include pro-
viding equitable access to work-integrated learning experiences,
building long-term sustainable partnerships to address the skills
S
gap, harnessing the knowledge and goodwill of Canadians using
social media, mentorships and other resources to guide young
people to opportunities.
IM
MEASUREMENT & MONITORING: IMPACT MEASUREMENT
FRAMEWORK (IMF)
RBC had been using, in the past, customised measurement meth-

ods tailor-made to each of its CSR programs. These measurement
frameworks focused on input and output numbers such as dol-
M
lars spent, a number of participants and number of organisations

supported etc. RBC found that this measurement approach was
not helpful in studying and measuring the actual impact of the
programs on the participants.
N
To address this problem, RBC developed a new Impact Measure-

ment framework (IMF) that measures the social, economic, en-
vironmental, employee, business, and brand impact of CSR in-
vestments. The IMF provides a consistent way of measuring the
initiatives and investments across its portfolio and provides a
more meaningful view of holistic impact.
IMF METHODOLOGY
Based on an extensive review of best practices in social and en-

vironmental impact measurement methods, RBC developed the
“RBC Impact Measurement Framework (IMF)”. It was formulated
after studying existing methodology include leading sustainabili-
ty frameworks like Sustainable Development Goals and reporting
frameworks like Global Reporting Initiative (GRI). After consulta-
tion with internal and external stakeholders, the framework was
developed to help RBC track how the investments add value to
the community so that it can facilitate more informed decisions.
The IMF framework uses six pillars for measuring the impact on

Case study 9
n o t e s
different dimensions so that an overall holistic assessment can be

made. These pillars are social, environmental, economic, employ-
ee, business, and brand. The framework is used commonly across
the organization, and measures the value added, through all of
RBC’s CSR initiatives across the enterprise. It can also report the
metrics at any level of aggregation. The framework uses the fol-
lowing impact measurement definitions:
Inputs: The financial, human, material and information re-
sources used to produce outputs through activities and ac-
complish outcomes
Outputs: Direct products or services stemming from the activ-
ities of an organisation, policy, program or initiative
Outcomes: Changes related to the outputs of an organisation,
S
policy, program or initiative
Impacts: Changes that are directly attributable to a program
or initiative and take the form of a sustained change of state
IM
among beneficiaries
Outputs Impacts
Dollars Reducing in
Participants
M
invested in Number of unemployed

reporting
RBC Future program youth due to
improved
Launch participants RBC Future
preparedness
programs Launch
Inputs Outcomes
N
Figure: Impact measurements: RBC Future

Launch Program – an example
As the above Figure shows, the measurement & monitoring

framework focuses on the outcomes and impact of the CSR ini-
tiative rather than on the inputs and outputs like dollars spent on
the program, number of people who were trained by RBC Future
Launch programs etc., as against traditional measurement tech-
niques which focus only on inputs and outputs. Measurement of
outcomes and impacts allow organisations to improve operation-
al efficiency, acquire insights, develop informed programs and
demonstrate value to the stakeholders.
The measurement framework captures quantifiable benefits

across the six pillars based on the premise that every CSR initia-
tive drives impact across multiple areas. These include the impact
on the business model and strategy, on employees, on brand and

Case study 9: MEASUREMENT AND MONITORING OF CSR PROGRAMS
– IMPACT MEASUREMENT FRAMEWORK OF RBC 393
Case study 9
n o t e s
reputation, on people, groups, and organisations, on local, provin-

cial or national economic conditions and on physical environment
and ecosystem.
The IMF provides beneficiary-level metrics for RBC Future

Launch to capture the sustained change in preparedness for the
future of work achieved through education, skills, and training. It
will be used with every young person who participates in a pro-
gram supported by RBC Future Launch regardless of its content,
location or duration. The framework also provides portfolio-level
metrics such as efficacy rate which can help monitor the effective-
ness of the program delivery costs per outcome/impact produced.
Since IMF will be applied uniformly for all CSR and Sustainabili-
ty projects undertaken by RBC, it is expected to provide a holistic
S
lens through which the impacts can be measured and evaluat-
ed. It will show the positive social, environmental, and economic
impact the enterprise-wide programs, initiatives and investments
IM
are having and will generate business, employee and brand ben-
efits. The framework predicts that RBC Future Launch is expect-
ed to have strong social and economic impacts, and will generate
brand awareness and strengthen the employees’ connection to
their community. All these impacts can be quantitatively mea-
sured using the new IMF approach.
M
questions
1. RBC’s IMF framework is expected to be used uniformly

across all sustainability initiatives across the organisation.
N
However, the nature of sustainability initiatives that

seeks sustainable corporate growth in terms of adding
sustainable value through the value chain is different
from external CSR initiatives on the society. Can the same
framework be used for both the sustainability and CSR
initiatives?
(Hint: Internal sustainability initiatives like assuring
future availability of raw material, though primarily
pertains to the future sustainability of profits, also have an
impact on society which should be measured. Similarly,
CSR initiatives can also have an impact on sustainability
though may not be directly intended as in the case of
philanthropic activities. This is why IMF attempts a
holistic framework common for all initiatives)
2. Explain how impact measurements differ from traditional
CSR measurement and monitoring methods.

Case study 9
n o t e s
(Hint: Traditional CSR measurements focus on the

progress of projects and success of projects in terms of
project goals which are the direct output of the projects.
CSR impact measurements focus on the long-term impact
on the society and not on project metrics or output metrics.
Sources: “New Model for CSR”, Valerie Chort & Hamoon Ekhtiari, 2018, Standford So-
cial Innovations Review, https://ssir.org/articles/entry/a_new_model_for_csr
Royal Bank of Canada Corporate Citizenship Report 2017, Royal Bank of Canada, http://
www.rbc.com/community-sustainability/_assets-custom/pdf/RBC-CCR-Report-2017-e.pdf
RBC Future Launch, RBC, https://www.rbc.com/dms/enterprise/futurelaunch/programs.
html
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Case study 10
n o t e s
INTEGRATED REPORTING: CASE OF TATA STEEL
This Case Study discusses the integrated reporting framework ad-

opted by Tata Steel. It is with respect to Chapter 9 of the book.
Tata Steel is the first major company in India that has adopted
Integrated Reporting <IR> framework of IIRC. This case study
discusses Integrated Report of Tata Steel Annual Report 2017
with a comparison of DIMO (Diesel & Motor Engineering PLC),
a Sri Lankan Company, whose IR report has been awarded as a
role model report.
IIRC’S INTEGRATED REPORTING FRAMEWORK
S
The integrated reporting <IR> framework is developed by the
International Integrated Reporting Council (IIRC). As per IIRC,
the IR framework focuses on the ability of an organisation to
create value and how the value creation happens over time. The
IM
framework requires combined emphasis on conciseness, strate-
gic focus, future orientation, connectivity of information and the
capitals (viz., financial, manufactured, human, intellectual, social
& relationship, and natural) and their interdependencies. IR also
emphasises the importance of integrated thinking within the or-
ganisation. The IR report should take into account the capitals of
M
the organisation and their interdependencies, capacity of the or-

ganisation to respond to key stakeholders’ concerns, how the or-
ganisation tailors its business model to respond to external envi-
ronment and risks and performance of the organisation in terms
of its capitals.
N
The framework published by IIRC provides the fundamental con-

cepts, guiding principles and content elements. The fundamen-
tal concepts focus on value creation process and various capitals.
The guiding principles focus on strategic focus, connectivity of
information, stakeholder relationships, materiality, conciseness,
reliability & conciseness and consistency, and comparability. The
content elements of the report suggested are organisational re-
view and external environment, governance, business model,
risks and opportunities, strategy & resource allocation, perfor-
mance, outlook and basis of preparation and presentation. Con-
sidering the above key requirements, let us study some important
portions of the integrated reports Tata Steel and DIMO.
TATA STEEL’S INTEGRATED REPORT & ANNUAL

ACCOUNTS 2016-17
The Integrated Annual Report has around 380 pages divided into
three sections. The first section is titled “Integrated Report” and

Case study 10
n o t e s
runs for 64 pages. This is followed by a section on Statutory Re-

ports for around 20 pages and the remaining pages of the report
present the financial statements. When we say a report is inte-
grated, one might expect that the report provides an integrated
view where the financial performance is integrated with the rest
of the performances of the organisation. However, perhaps owing
to the statutory nature and importance, the financial performance
is presented as usual in a separate section in terms of financial
statements (after the section on statutory reports). Hence, the IR
framework is really applicable and used only in the first 64 pages
of the 380 page integrated report. If we refer to IIRC on wheth-
er any such integrated reporting format is required, we find that
there is no such framework (other than content list) given or no
such requirement is also specified. Hence, like a stand-alone sus-
S
tainability report, the integrated report can be given as a section
within the usual annual reports. In this case study, we shall delve
only into the material presented in the ‘integrated report’ section
of the Tata Steel Annual Report.
IM
With regard to framework for the integrated report section itself,
no specific requirement is given. The IR framework is declared as
one of principles based and most of the requirements given are
only guidance. The IR publication also states that the integrated
reports need not be structured on the lines of six capitals. The six
M
capitals are to be used to provide a theoretical underpinning of

how value is created over time through these capitals. The vari-
ous important topics covered under integrated report section are
performance highlights, business model, principal activities and
revenue streams, key market segments, footprint, Approach to
N
Value Creation, stakeholder engagement, interlinkage between

strategies & capitals, strategy, sustainability governance and
awards & recognition. We shall study some important sections
out of these.
The performance highlights page gives some key data under each
of the six capitals. The usual financial parameters like turnover,
PAT, EBITDA and Capex are given under financial capital. Under
manufactured capital, the data given pertains to manufacturing
capacity, production, sales and project savings are given. While
IIRC does not specify and define (unlike GRI for sustainability)
any standard KPIs for each of the capitals, it emphasises the con-
nectivity of information given around the six capitals. The data
given under manufactured capital looks like a stand-alone num-
ber and may not add much value in terms of benefits of an inte-
grated report. These observations are also applicable for perfor-
mance highlights of rest of the capitals. Also, if we compare the
integrated report of another steel manufacturer, we may end up

Case study 10: INTEGRATED REPORTING: CASE OF TATA STEEL 397
Case study 10
n o t e s
looking at discrete and un-comparable KPIs defeating the pur-

pose of an integrated report.
DIMO’S INTEGRATED REPORT
DIMO’s integrated report can also be divided into three sections

with first section focusing on integrated reporting which runs
for 95 pages with the rest of the 182 pages dealing with financial
statements and statutory annexures. The integrated report sec-
tion has following important topics viz., enterprise governance,
value creation model, strategy, stakeholder engagement, the cap-
itals report, business report, impact management report and risk
management report.
It also provides an introductory performance highlights page that
S
provides key data under each of the six capitals. In Tata Steel’s re-
port, we wondered about the utility of data given under manufac-
tured capital. As per IIRC, the capitals are to be referred as both
IM
as inputs and transformed outputs. Hence, manufactured capital
input should refer to raw materials and components used for pro-
duction and Tata Steel gives it in terms manufacturing capacity
and production. DIMO has decided to do away with a separate
manufactured capital section. It has combined the manufactured
capital along with financial capital and uses the term ‘monetised
capital’ to refer to the combined capital. Under relationship capi-
M
tal, the KPIs given are customer interaction points and customer
satisfaction index (CSI). The CSI data is also given in Tata Steel.
Since DIMO is basically a reseller, it does not talk about natural
capital in its report.
N
questions
1. Should IIRC provide an “integrated format” in <IR>

framework which would allow real integrated reporting
and comparisons between companies? Give your
comments and conclusions.
(Hint: IIRC declares IR to be a principle-based
framework with no strict formats. However, the lack of
an integrated format makes IR reporting just another
section in traditional annual reports with some additional
information on “capitals” (Some standardisation (e.g.
DIMO) may be attempted for capital based integrated
value creation model)

Case study 10
n o t e s
2. Should IIRC provide requirements for standard KPIs

under each capital?
(Hint: GRI provides and requires metrics and KPIs with
definitions. There are also other sustainability reporting
standards (SASB) that define industry-wide metrics. IIRC
should also define standard KPIs for different capitals or
for some integrated metrics. Though other than financial,
rest would vary between industries, either industry-wise
or some generalised KPIs should be defined. IIRC should
also revise the concept and number of capitals in the
framework)
Sources: IIRC, https://integratedreporting.org
Tata Steel, www.tatasteel.com
S
IM DIMO, www.dimolanka.com
M
N

Case study 11
n o t e s
ROLE OF GOVERNMENTS IN CSR – THE INDIAN

EXPERIMENT
This case study discusses the Indian experiment in legislating man-

datory CSR investments. This case study pertains to Chapter 10 of
the book.
BACKGROUND
The concept of CSR has always been there in developed coun-

tries especially among leading corporates. It gained momentum
with growth in size and influence of MNCs due to globalisation.
Leading companies realised that CSR and Sustainability have be-
come mandatory in the new corporate environment and it is to
S
their long-term benefit to behave in a socially responsible way.
This made most of the corporates frequently insisting on their
corporate communications about how they are behaving in a so-
IM
cially responsible way. This had also become an important way
to protect the corporate image and reputation. All this led to the
need for reporting of their CSR activities along with their annual
reports. Genuine corporates had already started publishing vol-
untary reports on their CSR activities. Owing to the importance
of CSR and its benefits, governments have also made regulations
that made CSR reporting mandatory.
M
In order to ensure that corporates are forced to report tangible

actions and impact on the front of CSR and Sustainability, sev-
eral international principles and reporting frameworks emerged.
N
This ensured that even though only reporting (and not CSR in-
vestment) is mandatory, corporates still anyway had to report in a
meaningful way which is possible only if they have made genuine
initiatives and investments, taking into consideration that their
integrity and reputation are at stake.
THE RATIONALE FOR CSR AND SUSTAINABILITY

INITIATIVES
Leaving the mandatory or voluntary reporting issue, if we move

to actual nature of corporate activities on this front, we can clas-
sify CSR and Sustainability initiatives into the following range of
activities:
Sustainability initiatives that focus on the value chain to take
care of social, economic and environmental considerations.
This is a strategic requirement that can guarantee sustainable
future growth.

Case study 11
n o t e s
Sustainability initiatives that have external focus in terms of

society and environment. These initiatives are generic in na-
ture like climate protection, carbon footprint, energy conser-
vation etc. This is required to project the corporates as socially
responsible citizens.
CSR initiatives that focus on economic and social develop-
ment. These might take the form of collaborating with govern-
ments and NGOs. This is meant to the image and reputation
of the corporates and to ensure government & community co-
operation.
CSR initiatives that are of corporate philanthropy type. This
is meant as an ethical way to give something back to society.
The international reporting frameworks like GRI, SDG 2030,
S
UNGC etc., meant to take into account the above types of CSR
initiatives and to provide a standard reporting structure. As of
now, most of the governments have made regulations that make
IM
CSR reporting mandatory. None of the governments has made
any recommendations or legislation that dictates the nature of
CSR activities except India.
CSR POLICY AND REGULATIONS IN INDIA
India is the first country in the world that has made CSR invest-
M
ments mandatory. Indian companies required to mandatorily

make CSR investments amounting to 2% of their average net
profits if they meet some size criteria. The CSR regulations also
seek proper policies and mechanisms that are required for meet-
N
ing these stipulations. The Companies Act 2013 also specifies a

list of activities that companies can undertake for qualifying un-
der the CSR provision. There are nine activities prescribed which
include the areas of poverty, education, gender equality, child
mortality, health care, environmental sustainability, employment,
social business projects and contribution to Prime Minister’s Na-
tional Relief Fund. Note that these nine activities mostly pertain
to points 3 and 4 and to some extent point 2 above.
The rationale and reasons behind such a CSR policy regulation

are very different from the CSR policy drivers of the governments
of developed countries. The CSR initiatives in western countries
are meant to discipline corporates in terms of their social responsi-
bility and sustainable growth (and these pertain to first two points
above). However, in developing countries like India, the CSR is
viewed as a mechanism that can be used to reduce the social in-
equality and unequal distribution of income. This is especially so
for India where the globalisation and privatisation processes have
contributed to excessive inequality and unequal economic devel-

Case study 11: ROLE OF GOVERNMENTS IN CSR – THE INDIAN EXPERIMENT 401
Case study 11
n o t e s
opment in the country. So, it was thought that corporates should

involve themselves in social and economic development.
THE DEBATE: NATURE OF MANDATORY CSR INVESTMENTS
In western countries, the shift with regard to CSR was a transition

from the view of “business of business is to generate profits and
maximise shareholder wealth” to making CSR and Sustainability
an integrated management model that forces corporate behave in
a socially responsible way. This, however, have not changed much
the underlying free market capitalist ideal that social well-being
is best achieved when corporates focus on efficiently maximising
social wealth. The change brought by CSR paradigm is the way
this profit needs to be made – in a sustainable and socially respon-
S
sible way.
On the other hand, the question of ‘should corporates involve

themselves in social and economic causes’ which are the domain
IM
of the government of the country is still valid in developing coun-
tries like India. We can question this way: “If the mandatory CSR
investments are going to be in the nature of corporate philanthro-
py (and not about sustainable profit growth or socio-economic
concerns), should we allow corporates free hand? Why should
they not be asked to contribute 2% of profits to a government CSR
institutional setup which undertakes these activities (like already
M
allowed contribution to Prime Minister’s National Relief Fund) so

that business of business remains business?”
As per the current regulations, corporates, who lack ethics, can

use the stipulated 2% CSR investments to boost their image and
N
reputation while they take no action with regard to socially un-

ethical and irresponsible business practices that they might fol-
low in making those very profits. This can no way be monitored
and controlled by the government as the CSR regulations simply
ignore the first three points listed earlier with regard to the ratio-
nale for CSR initiatives. Moreover, there is no way to monitor or
audit whether the companies have made these investments in the
right spirit impartially. The measurement framework like impact
based assessments is in very nascent stage and the regulations do
not insist on demonstrating the socio-economic benefits.
GOVERNMENT – PRIVATE SECTOR PARTNERSHIP FOR

SOCIO-ECONOMIC DEVELOPMENT
Among many reasons stated for the growth of CSR initiatives

worldwide is the reason for “Governance Deficit”. Some experts
believe that the governance deficit that led to socio-economic
problems in some countries required influential MNCs to take on

Case study 11
n o t e s
some of the responsibilities of the government duties. If we con-

sider this view as acceptable, an answer to the above question can
be that the CSR legislation requiring mandatory investments can
be used would involve private sector partnership for socio-eco-
nomic development. There have been such projects in India
where corporates have taken up some CSR projects on socio-eco-
nomic development in partnership with government bodies. But
the question remains as to how different it will be if the same in-
vestments are done as contributions to some government body
who will execute such projects. As per views of some critiques,
the mandatory 2% CSR investments is nothing more than equiva-
lent to an additional 2% tax which can be considered a back-door
way to increase corporate taxes. They say this amount could have
been used to further capital investments which would have led to
S
higher economic growth as the tax rate is already high in India.
THE RESULT OF THE EXPERIMENT

IM
The CSR regulations in India came into existence with the rati-
fication of Companies Act, 2013. After five years, the verdict with
regard to the success of the regulations and the benefits to the
corporates and the economy due to these regulations is not very
clear. As per the latest reports, the government is not happy with
corporates initiatives on this front. The government has come
M
across many instances of non-compliance with CSR rules which

itself shows the lack of social responsibility on the side of corpo-
rates spoiling the spirit of CSR regulations. Last year, the ministry
of corporate affairs had sought the explanation from many com-
panies as they were found to not have complied with CSR norms.
N
As per official data, 6,286 companies have spent `4,719 crores to-
wards various CSR activities in 2016-17 with a total number of
projects standing at 11,597. According to Prime Database, Indian
companies spent `9,309 crores on CSR projects in 2015-16 which
is actually `163 crore more than the amount required by law.
These data imply that the CSR law has been successful.
Some experts, however, declare that the CSR law in India can be
considered a failure. They say this failure can be attributed to lack
of coercive enforcement mechanism. They say that the reported
expenditure is not a good metric of societal welfare and may be
overstating the effect of law.
Another major criticism is that the increase in spending has not

gone to democratically determined priorities (which are the ac-
tual expertise of government bodies) but rather to whatever the
companies prefer to emphasise. As per statistics, 44% of total CSR
expenditure has gone to promoting education and combating dis-

Case study 11: ROLE OF GOVERNMENTS IN CSR – THE INDIAN EXPERIMENT 403
Case study 11
n o t e s
eases. Important causes like child mortality received no funding

and poverty programs could get only 6% of total CSR expendi-
ture. Similarly, the data also shows that few states have garnered
most of the CSR expenditures. All this reflects the preferences,
interests, and priorities of the business sector against government
priorities. These arguments do not support the rationale point-
ed out earlier for CSR investments – the role of private sector in
tackling governance deficit.
GOVERNMENT TO REVIEW THE CSR REGULATIONS
Based on these CSR data and criticisms, the government has de-
cided to review the CSR regulations. It has decided to set up a
12-member committee that would review the functioning of CSR
S
enforcement and recommend a uniform approach for enforce-
ment. The committee would study the guiding principles for en-
forcement of CSR provisions and basis, including the structure of
Centralised Scrutiny and Prosecution Mechanism (CSPM). The
IM
committee would also review the methodologies for monitoring
of compliance by companies for having an effective CSPM. The
panel will also revisit the schedule VII that gives the list of various
permitted CSR activities.
questions
M
1. Do the Indian CSR regulations fulfil the primary objective

of any CSR initiatives – that of making corporates socially
responsible and make them strive for sustainable growth?
N
(Hint: The regulation is biased towards corporate

philanthropic investments and does not include in its
purview sustainable growth and social responsibility.
Companies can continue to make profits through
socially irresponsible ways but make up with these CSR
investments to raise image. However, this is why these
CSR aspects are considered to be those of voluntary
nature in western countries)
2. Can the regulations be considered to fulfil the objective of
addressing ‘governance deficit’?
(Hint: Mandatory CSR investments can be used for
promoting public-private sector partnership towards
socio-economic development especially in countries like
India where corporate growth has led to greater social
inequality and has resulted in unequal income distribution
(possibly due to weak free market economy or due to

Case study 11
n o t e s
inherent weakness of capitalism). Additional institutional

structures, regulations and policies are required beyond
the current regulations to achieve those objectives)
3. Does the Indian experiment indicate CSR laws requiring
mandatory investments are based on wrong precepts?
(Hint: Not necessarily for underdeveloped countries
facing problems of weak financial markets and social
inequality. Scrapping the CSR law would make around
`5,000 to `10,000 crores absent for the needy and
weaker sections of the society and for the cash-starved
NGOs of the country. Though this amount may not get
distributed as dividends, it may go to increase the capex
of the corporates leading to higher corporate growth and
S
tax income. But the higher corporate growth may only
further increase the unequal social development. Hence,
government instead of scrapping the law, should look
IM
into making it more useful keeping with the spirit of the
concept of CSR)
Sources: “Government appoints panel to review CSR enforcement under Companies
Act”, 12th April, 2018, Jagran Josh, https://www.jagranjosh.com/current-affairs/govern-
ment-appoints-panel-to-review-csr-enforcement-under-companies-act-1523507562-1
“Why the CSR law is not a success”, 13th December 2016, Live Mint, https://www.live-
mint.com/Opinion/1wIQwFPRyRckBMg5IugW1K/Why-the-CSR-law-is-not-a-success.
M
html
N

Case study 12
n o t e s
CORPORATE GOVERNANCE AT INFOSYS
This Case Study discusses the recent corporate governance prob-

lems at Infosys. It is with respect to Chapter 11 of the book.
BACKGROUND
Infosys is the first company ever in India where the founder-pro-

moters voluntarily decided to retire on their own, trusting the
company to be run by professionals. This is something really great
in a country where most of the big companies are still run by pro-
moter families. Unlike western countries like the US where the
distribution of shareholders of major companies is wide with no
identifiable promoters, the major corporate groups in India are
S
always characterised by control by few promoter shareholders.
Considering this, promoters like N R Narayana Murthy leaving
the post of chairman can be considered as a landmark decision
IM
setting a great example in corporate governance.
Mr. N R Narayana Murthy, along with other co-founders, howev-

er, must have trusted too much either on the professional gover-
nance set-up which they have built and left for future generations
or on the incoming professionals on the board and executive man-
agement. This was evident from what had happened at Infosys
M
after Narayana Murthy left Infosys and the new CEO Vishal Sikka
took over. After a serious of corporate governance issues, the first
non-promoter CEO had to resign leaving the strength of the cor-
porate governance at Infosys to doubt.
N
CORPORATE GOVERNANCE AT INFOSYS
Infosys’ corporate governance was considered as one of the best

in the Indian corporate sector. Infosys got numerous awards for
its corporate excellence and governance including the “National
Award for Excellence in Corporate Governance” by the Govern-
ment of India in 2000.
In the latest annual report, Infosys says it abides by all of the fol-
lowing corporate governance codes (most on voluntarily basis):
SEBI listing regulations, Corporate Governance Voluntary Guide-
lines, 2009 of Government of India, Recommendations of Naresh
Chandra committee, Kumar Mangalam Birla Committee, Euro
shareholders Corporate Governance Guidelines 2000, Conference
Board Commission on public trust and private enterprises in US
and United Nations Global Compact (UNGC).

Case study 12
n o t e s
CORPORATE GOVERNANCE ISSUES
Given below are the major corporate governance issues raised

against Infosys over the last few years:
Infosys acquired an Israeli company, Panaya, at a huge cost
($200 mn), in disproportion to its value
The Chief Financial Officer, Rajiv Bansal, left the company
(which is suspected to be related to Panaya issue) with a huge
severance pay that was declared as “hush money” even by its
promoter-founder N R Narayana Murthy
On a whistle-blower accusation, Infosys arranged for a probe
by an external agency on the issues surrounding Panaya,
whose report was not made public
S
Promoter-founder N R Narayana Murthy was not happy with
the functioning of the company and its corporate governance
and raised publicly several concerns which was not given due
IM
importance by a board which was constituted with members
who had no role in building the company as much as original
founders
The CEO Vishal Sikka resigned with huge severance pay that
was not in harmony with the culture of Infosys but blamed N
R Narayana Murthy for interference
M
Infosys is said to be looking for selling the Panaya acquisition

after writing off nearly $ 90 mn on its account
DISCUSSION
N
Considering that Infosys was considered as a role model for corpo-

rate governance by many, the question arises how come a compa-
ny of its stature can face such huge corporate governance issues.
The failure of the corporate governance system in companies
like Infosys can even raise doubts about the utility of the current
model of corporate governance widely followed around the world.
Firstly, the acquisition is done by the new CEO at a huge cost of a
company which was about to shut its doors. As per whistle-blower
reports, the previous offers for the company were much less than
what Infosys had paid. In this case, it is the board's responsibility
to have questioned and validated the utility and cost of the new
acquisition. The failure of the board could have arisen at many
fronts: the board members were not aware of the problems either
due to lack of expertise or due to having skirted the necessary due
diligence required on their part. Or they agreed with the CEO that
the Israeli company needs to be rescued even at a huge cost to the
shareholders. Whatever be the case, the failure can be attributed

Case study 12: CORPORATE GOVERNANCE AT INFOSYS 407
Case study 12
n o t e s
to the incompetence of the board members who should also take

responsibility for the decision of the CEO. However, they chose
to hide the problems by hiding the issues which went against the
basic corporate governance principles of transparency, account-
ability and integrity. Moreover, they refused to give due respect to
the former chairman and promoter-founder when he got wind of
the problem and rightly raised the issue.
ANALYSIS
The corporate events at Infosys raise the fundamental question

that goes against the very purpose of the corporate governance
structure: Who is really in control of these corporations (where
there is no single promoter whoe has control)? This is an issue
S
that has ramifications not only for the shareholders but also the
wider stakeholders of the organisation including the corporate
sector and government. It is this issue of ‘separation of ownership
and control’ or ‘agency problem’ that the very concept of corpo-
IM
rate governance model should address. In the case of Infosys, if
we go by Agency theory which says CEO acts as the agent of prin-
cipal shareholders, we can conclude that CEO has failed in his
duty in taking care of the shareholder interest either due to lack
of competence or connivance. To alleviate the problem of agency
costs, corporate governance models require the board of direc-
M
tors who, as per Stewardship theory, should act as stewards of the

organisation on behalf of the investor shareholders. We find here
that board of directors has also failed their duty in taking care of
the interests of the shareholders.
N
Given that the board of Infosys was structured as per the existing
best practices in corporate governance, we then have to question
the very codes of corporate governance. SEBI decided to formu-
late a committee to go into the issues of corporate governance
after the Infosys failure headed by Uday Kotak, the chairman of
Kotak group. However, the report does not seem to have contrib-
uted much other than declaring that promoters should also be
given the right to seek information (maybe improvement from the
days when rights of minority shareholders were the major issue in
corporate governance models!).
Unfortunately, the Infosys founder N R Narayana Murthy was

also blamed for the fall in reputation of Infosys for having raised
the issues in public. However, there is a question of ethics here:
Which one is ethical corporate practice – to keep quiet on issues
because they would lead to nothing but affect only corporate rep-
utation, knowing well that they affect shareholder interests or to
come out with the issues considering the long-term sustainability
of the company ignoring the short term repercussions? If Infosys

Case study 12
n o t e s
founder had kept quiet on any of those issues keeping in mind the
image and reputation of Infosys, he would have failed the inter-
ests of the wider shareholders. In reality, N R Narayana Murthy
had to play the role of a board member when actual board mem-
bers kept quiet.
CONCLUSIONS
The emerging codes and frameworks of corporate governance

continue to focus only on things like the number of directors, the
ratio of independent vs. executive directors etc., remuneration
and committees. They are not looking at the primary issues that
corporate governance model should address as explained by vari-
ous theories of corporate governance. For example, by insisting on
S
independent director’s role in safeguarding the interest of share-
holders, the corporate governance codes seem to skirt the real
issues. These codes stipulate that the independent directors are
liable for criminal penalties when they really have no stake in the
IM
company while the actual offenders like executive directors who
make actual decisions have much higher influence and power in
the company. In this regard, it is worthwhile to revisit corporate
governance models other than Anglo-Saxon like models of Ger-
many and Japan which require wider stakeholder partnership
in the board that requires employee (union) participation, board
M
membership for suppliers, customers etc., which would make the

control over the company not restricted to few influential board
members who, not even being promoters or founders, could easily
get their agenda through the board.
N
questions
1. Why did Infosys fail in corporate governance in spite of

adhering to every available corporate governance code as
reported in their annual report?
(Hint: Regulations and codes of corporate governance
cannot enforce ethics and morality. In the case of Infosys,
it was the failure of chairman and other board members
who have failed to act in the interests of the shareholders)
2. The decisions that have been questioned might have been
taken as routine managerial decisions and the mistakes
could have been due to incompetence rather than ethics
or corporate governance. If this is so, is it right on Infosys
former chairman to have made these issues in public?
(Hint: Infosys’ ex-chairman has done the right thing in
making the issues public. When the CEO, Chairman, and
the board members failed their duties to shareholders, it

Case study 12: CORPORATE GOVERNANCE AT INFOSYS 409
Case study 12
n o t e s
is not right to cover up the issue – even if it is not going

to lead to anything other than affecting corporate image
and reputation – if we go by basic principles of corporate
governance. Hence, former chairman was both ethically
and professionally correct in raising the issues. The
outgoing CEO failed to manage the repercussions of the
wrong acquisition and had to leave the company).
Sources: “Corporate Governance badly down at Infosys, board needs an overhaul: NR
Narayana Murthy”, February 10, 2017, Economic Times, https://economictimes.india-
times.com/opinion/interviews/no-talks-on-strategy-with-vishal-sikka-infosys-founder-nr-
narayana-murthy/articleshow/57070727.cms
www.infosys.com
“Vishal Sikka Vs Infosys: Corporate Governance in question”, February 9, 2017, CXOto-
day, http://www.cxotoday.com/story/sikka-vs-infosys-corporate-governance-in-india/
S
“The board failed in governance”, August 18, 2018, The Hindu Business Line, https://
www.thehindubusinessline.com/info-tech/the-board-failed-in-governance/article9823257.
ece
“Infosys puts Vishal Sikka-acquired Israeli IT firm Panaya on sale”, April 14,
2018, Business Today, https://www.businesstoday.in/current/corporate/infosys-de-
IM
cides-to-sell-vishal-sikkas-acquisition-panaya/story/274845.html
M
N

N
M
IM
S

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Corporate Social Responsibility

Chief Academic Officer

Author : Arpita Singh

NMIMS Global Access - School for Continuing Education

CHAPTER NO. CHAPTER NAME PAGE NO.

1 Globalisation and Corporate Social Responsibility 1

3 Philosophical Model of Csr 65

5 Developing a Csr Strategy 129

7 Non-Governmental Organisations 191

8 Monitoring and Measurement of Csr 219

9 Csr Reporting 249

10 Role of Government and Voluntary Codes in Csr 287

11 Corporate Ethics and Governance 319

12 Case Studies 355

NMIMS Global Access - School for Continuing Education

Corporate Stakeholders: From Shareholder Theory to Stakeholder Theory, Stakeholder Concept,

History of CSR in India: Pre-Independence Period, Post-Independence India, Liberalization and

NMIMS Global Access - School for Continuing Education

Corporate Ethics and Governance: What is Corporate Governance, Constituents of Corporate

NMIMS Global Access - School for Continuing Education

GLOBALISATION AND CORPORATE

1.4 UN Post 2015 Agenda

Self Assessment Questions

NMIMS Global Access - School for Continuing Education

SIEMENS’ SUSTAINABLE POWER SUPPLY SOLUTION

Nearly two-thirds of the energy consumed across the world takes

HIGHER ENERGY EFFICIENCY WITH COMBINED CYCLE

helps in saving energy. Combined cycle power plants can have a

LOW-LOSS POWER SUPPLY WITH HVDC

Energy efficiency in power generation is a major component for

NMIMS Global Access - School for Continuing Education

space and still yields significant energy savings. Siemens is also

SIEMENS WIND ENERGY PLANTS IN INDIA

Wind energy is considered to be a vital source of power supply.

Vadodara. The company is also currently investing in a research

NMIMS Global Access - School for Continuing Education

After studying this chapter, you will be able to:

economic, social, technological and political changes lead to globali-

According to some world historians, the concept of globalisation dates

The Oxford dictionary defines globalisation as the process by which

The Carnegie Endowment for International Peace defines global-

NMIMS Global Access - School for Continuing Education

Thus, globalisation is considered as a process of creating a world-

In addition, globalisation has helped in developing a global market by

One of the most positive effects of globalisation is an easy flow of for-

in India by setting up their facilities in the country. Apart from this,

to raise their manufacturing standards and customer satisfaction

Besides several benefits mentioned above, globalisation also has its

IMPACT OF GLOBALISATION IN INDIA

Globalisation has several positive and negative effects on culture, so-

NMIMS Global Access - School for Continuing Education

cheap resources has attracted a number of foreign investors in India

Apart from positive impacts, globalisation has put several negative

Globalisation has had a different impact in the different regions of the

health issues like high prevalence of diseases like HIV/AIDS. Poor

ic growth and industrial productivity. There was also a decrease

America, witnessed a more or less positive impact of the phenome-

NMIMS Global Access - School for Continuing Education

1.2.1 SUSTAINABLE DEVELOPMENT: ECONOMIC SOCIAL

Promoting good health and well being

Building infrastructure that supports inclusive and sustainable in-