CHAPTER 1

“Earn your crores but understand that your wealth is not yours; it belongs to
society.Take what you require for your legitimate needs and use the remainder for
society”.

—Mohandas Karamchand Gandhi.

INTRODUCTION

1.1 Era

Ancient Indian wisdom teaches us that our first responsibility is towards society,
second towards our family and third to ourselves. Social responsibility ought to be
the moral obligation of every citizen.

Business depends on the society not only for the required inputs like men, money
and skill, but also for market where products may be sold to the buyers. Thus,
business depends on the society for existence, sustenance and development. Every
decision the businessman takes and every action he contemplates have social
implications. Be it deciding on diversification, expansion, opening of a new
branch, closure of an existing branch or replacement of men by machines, the
society is affected in one way or the other Even routine matters like overtime and
night shifts, sub-contracting, and laying off employees due to load shedding have a
social impact. Whether an issue is significant or not the business man should keep
his social obligations in mind before contemplating any action.

In the olden days whenever there was famine, flood, earthquake, the leading
businessmen of the area would literally throw open their godowns and their

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treasure chest to provide food and other assistance to the needy. Even in ordinary
times it was business men who looked after the welfare of the destitute, wells and
ponds wherever water was difficult to get. So to accept the social responsibility is
no more than rededicating ourselves to the cherished values of our ancestors in the
field of business.

The corporate sector across the world is playing a new role in this competitive era
that is to meet the needs of the current generation. Entrepreneurs are serious about
responsibilities as their operations impact society and the environment.

The aim of the corporate is not only to earn profit but also to develop the
surroundings by improving the quality of life and build the leadership that will
create trust among the people. CSR represents goodwill creator of the corporates of
the present generation. Business requires a stable social environment that provides
a favorable climate to trade and for investments. CSR is the means by which a
business gets the strength to compete liberalization, privatization and globalization
by establishing and maintaining a corporate agenda which recognizes social
priorities and is tailored to meet them.

The phase of globalization has come up with a lot of possibilities, CSR is one of
them. As a consequence of Globalization and increased competition with MNC’s,
Indian Companies have shifted from personal interest to the social and
environmental interest.

1.2 This Chapter contains a brief overview of the research study and its rationale.

In this study researcher has enlightened the Corporate Social responsibility in a

way which reflects the base of Corporate Social responsibility and evolution of its

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activity in global context as well as Indian Context. In 21st Century Corporate
Social Responsibility is a ubiquitous term in the world as of now it’s not only
about to earn more profit and sustain in the global market, but it’s all about how to
compete, with sustainable growth from CSR activities. Previously all corporate
sectors like private and public sector had to maintain Corporate Social
Responsibility on voluntarily basis, but now scenario has changed. Most of the
countries like France and Malaysia have made it mandatory for companies to
disclose CSR activities in their Annual Reports. Currently India has taken an
initiative for the Corporate social Responsibility, and made it mandatory in a
specific condition, i.e. companies earning turnover more than Rs 1,000 crore or net
worth Rs 500 crore or more, or 5 crore profit and more they have to spend up to 2
percent of their average net profits (of past three years) on corporate social
responsibility (CSR) (MCA 2013). Corporate Social Responsibility in India is
finally a reality. Indian businesses realized that they have to look not only at the
economic dimension of their companies, but also at its ecological and social
impact.

In today’s world, widespread business failure is unthinkable, because we seem

increasingly less able to imagine an alternative to the free enterprise economy. Yet
individual companies find themselves under social, as well as competitive
pressure. They are subjected to new level of transparency, whether in terms of
demands that the largest stock markets make for greater disclosure and changes to
corporate governance or in terms of public outcry on issues as diverse as
environmental pollution, consumer rights, child labour, corruption and support for
military regimes. Adverse disclosure threatens shareholder confidence, brand
reputation, product stability, employee trust, and other corporate assets, both
tangible and intangible. So there is a tradeoff situation between company’s

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shareholder benefit and social benefit. In 1970 Corporate Social Responsibility of
companies was to get profit and give maximum return to their share holder and
owner of firm as per opinion of Milton

Friedman. But slowly and gradually concept of CSR has grown and now
companies are responsible for every related party, directly or indirectly to the
company.

Here researcher has considered CSR Reporting and disclosure in India as main
theme of research because Companies Act makes drastic change in disclosure
pattern. Earlier it was voluntarily so mostly companies followed the National
Volunteer Guidelines for business responsibility reporting.

Researcher has classified the net 103 items of CSR disclosure and main four ways
of disclosure like Qualitative, Quantitative, Monetary and Pictorial aspect. Apart
from this researcher has made analysis of pattern of combination of all four aspects
by using permutation mathematic tool.

In this study, total 9 themes have been identified by researcher from all 103 items
of CSR activities and all the themes have different number of items. So researcher
has found out the variation among all the themes disclosed by the companies.

This research will be useful to all the stakeholders of the companies as in this
research it is shown how companies are reporting and disclosing about CSR
activities. It reflects the ground reality of CSR disclosure, so it will be beneficial
for companies to decide the pattern and way of CSR disclosure in efficient manner.
Investors will come to know how companies utilize CSR fund. Government can
use this research as a base to frame policy for CSR disclosure. This research will

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be helpful to identify which areas are covered most for CSR activity and which
areas are still untouched for CSR. So it will be possible to cover untouched and
untapped areas and activities. This research is useful to companies to know their
position and what is the impact of CSR disclosure on various organizational
factors. It will be useful to the accounting board to frame the policy for CSR
disclosure and effective format for CSR disclosure.

1.3 Researcher has used systematic approach for this analytical study.

In the next after reviewing several articles and research papers, the researcher has
prepared an overview of CSR concepts, meaning and definition across the globe
and how it has evolved in India and abroad. Researcher has described briefly about
international standards and guidelines for the CSR disclosure. Researcher has
studied the theories for CSR reporting, and has thrown light on the New
Companies act 2013.

1.4 Need of Corporate Social Responsibility (CSR)

Service to humanity is the best work of life. If you take from Society, then you
have to give back in one or the other way. The more you give, more it will add to
the wealth, directly or indirectly. Manufacturing companies play a vital role in the
growth and development of countries like India and the health of the company is
largely dependent on the society in which it operates in the Domestic and Global
economy. CSR reiterates the notion that development of the society is not
exclusively the responsibility of the Government; corporate too has a legitimate
and responsible role to play for the betterment of the society. If the company
spends some percentage out of the profit earned towards the betterment of the
society directly or indirectly, then there is a chance that society will in return
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support the growth of the company. Companies are serving society through the
medium of corporate social responsibility and it is seen that Corporate Social
Responsibility has always been taken care of by the companies in India after the
Companies Act 2013. The Companies started realizing that they would have to
rise over and above the Profitability and take care of all those associated with their
survival in the society directly or indirectly. Corporate Social Responsibility is a
Company’s commitment to operate in an economically, socially and
environmentally sustainable manner, while recognizing the interest of the
stakeholders.

1.5 CSR is one such effective tool that synergizes the efforts of Corporate and the
social sector agencies towards sustainable growth and development of societal
objectives at large. Because of the globalized market, countries without
boundaries have emerged, stimulating unbalanced growth. At the same time, this
has resulted in unbalanced development where a division between rich and poor
arises, leading to social conflicts. At this point Corporate Social Responsibility
plays an important role to reduce the gap between rich and poor. Through CSR a
company achieves a balance or integration of economic, environmental and social
imperatives, while at the same time addressing shareholders and stakeholders.
Corporate Social Responsibility had inbuilt connection in India.

1.6 Corporate Social Responsibility had inbuilt connection in India.

Corporate Social Responsibility is more than the business strategy or a response to

issues by the community. CSR is concerned about Planet, People and Profit.
Studies have shown that Corporate Social Responsibility is directly related to the
development of the community. However, researchers have rarely tested practices

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of Corporate Social Responsibility among the different types of companies
belonging to the manufacturing sector.

The present study has made an attempt to explain how Corporates in

manufacturing sector might resolve social problems through CSR practice.1The
corporate houses have been instrumental in creating employment, wealth, products
and services, yet the pressure on a company to play a role in social issues involving
employees, stakeholders, society, environment, government etc. is constantly
rising. The society is questioning the existence of corporate houses, especially in
the wake of the scandals and scams in response to it, the organizations around the
globe are forced to wake up to the need for being committed towards Corporate
Social Responsibility. It has become so important that many organizations have
rebranded their core values to include social responsibility in their agenda. Almost
all corporate websites, policies and reports talk about their CSR which ensure the
fulfillment of all the obligations towards society. These activities of CSR range
from small donations to bigger projects for social welfare and the sustainable
practices differ from organization to organization depending on the resources
available to them.

Corporate Social Responsibility is one of the important styles in which an

organization can distinguish itself from its competitors. A powerful tool like CSR
not only enhances the brand image and reputation of the business but also leads to
improvement in sales and customer loyalty, and an increased ability to attract and
retain employees. Through CSR, the organizations can improve their financial
performance and attract more investment with immense economic value. The word
CSR has, as a result, occupied a very important place in the plans and strategies of
the organizations in the present era.

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1.7 Why Corporate Social Responsibility

There could be several reasons why companies need to be responsible to society

.Each of these makes good ‘business sense’.

 Internal reasons like employee morale and customer and shareholder

satisfaction.

 External reasons like satisfying local communities, publicity and tax benefits

 Enlightened self-interest wherein a stable social environment and increasing

prosperity mean a larger market, and hence more profits in the long run.

1.8 Concept of Corporate Social Responsibility

The concept is based on the premises that business has greater impact on society
than merely earning profit on capital employed. The idea was suggested by
renowned economist Alfred Marshall in 1890.

In India, Gandhiji was among the few persons to develop the idea with his own
philosophy. In this regard, Gandhian principles of ’Trusteeship' and ’Sarvodaya’
plays an important role. The theme of Gandhi, a 'Trusteeship' is that everyone
should utlise his resources and abilities for the common good of the people and not
for his own selfish benefit. The trustee is not the owner. In other words, it
expresses the inherent responsibility of business enterprise to its consumer,
workers, shareholders, and the community at large. Gandhi emphasized that “the
rich cannot accumulate wealth without the co-operation of the poor in society. If
this knowledge were to penetrate to and spread amongst the poor, they would
become strong and would learn how to free themselves by means of non-violence

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from the crushing inequalities which have brought them to the verge of
Starvation".

The Concepts of Ethics, Corporate Social responsibility and sustainable

development are emerging as major issues of corporate strategy. Earning profit is
crucial for any business organization. Under section 11(2) of Indian Companies
Act 1956, a company is formed to “carry on any business with the object of profit
or gain”. But earning profit is no longer acceptable as the sole purpose of business

one of the most famous and widely accepted conceptualization of CSR known as
pyramid of CSR was developed by Carroll (1979) which identified four categories
of CSR namely Economic, Legal, Ethical and Philanthropic.

CSR is a multilayered concept having four aspects namely, Economic

responsibility required by society, legal responsibility required by society, Ethical
responsibility as expected by society and philanthropic responsibility being desired
by society. True

CSR requires satisfaction of all four levels consecutively. It leads to definitions of

CSR like: “CSR includes the Economic, Legal, Ethical and philanthropic
expectations placed on organization by society at a given point of time.

Hemphill (2004)summarized the four layers of CSR as to be profitable (economic),

obey the law (legal) be ethical (ethics) and be good corporate citizen in its
relationships with Stakeholders (philanthropic).

The Times of India, New Delhi, (2008) the First International summit on CSR in
India jointly organized by the Corporate Affairs Ministry and ASSOCHAM at
New

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Delhi from 29th – 30th January 2008. While inaugurating the summit, the former
President of India Dr. A.P.J. Abdul Kalam highlighted the need for developing
national ethics for continuous economic prosperity and peace. If a nation is to have
ethics, society has to promote ethics and value system. If society is to have ethics,
society has to promote ethics and value system. If society is to have ethics and
value system, families should adhere to ethics and value system; if families have to
evolve with ethics and value system, parenthood should have inbuilt ethics and the
parental ethics come from great learning, value based education and creation of
clean environment that leads to righteousness in the heart. Corporates can play an
important role by adopting the schools particularly in rural areas in their region,
Making available infrastructure for the schools in the form of clean drinking water,
toilet facilities, transportation facilities for children coming from far away
distances, Constructing the sport complexes by full-fledged equipments and
providing computing facilities for technology assisted learning so that they can be
empowered by these facilities.

1.9 Definitions of Corporate Social Responsibility

The general understanding of the term Corporate Social Responsibility is that

business has an obligation to society, which extends beyond its narrow obligation
to its owners or shareholders.

The World Business Council for Sustainable Development defined

CSR as 'the continuing commitment of business to behave ethically and contribute

to economic development while improving the quality of life of their workforce
and their families as well as of the local community, and society at large”.

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Frederick (1960) defines social responsibility as the use of society’s resources,
economic and human, in such a way that the whole society derives maximum
benefits beyond the corporate entities and their owners.

Keith Davis (1960) set forth his definition of social responsibility by arguing that
it refers to “businessmen’s decisions and actions taken for reasons at least partially
beyond the firm’s direct economic or technical interest”

Milton Friedman (1970) Milton Friedman’s beliefs that "there is only one
responsibility of business, namely to use its resources and engage in activities
designed to increase its profits The inclusion of strategic philanthropy, innovation,
environmental sustainability and transparency demonstrate how diverse and far
reaching CSR has become embedded into management strategy and most recently,
corporate financial performance and the measurement of CSR activities is causing
corporations to understand the strategic value of CSR through the realization of the
implication to a business”.

Joseph W. McGuire stated, (1971), “The idea of social responsibility supposes

that the corporation has not only economic and legal obligations but also certain
responsibilities to society which extend beyond these obligations”. Further he
elaborated by saying that the corporation must take an interest in politics, in
welfare of the community, in education, in the happiness of its employees and in
fact in the whole social world. A landmark contribution to the concept of
Corporate Social Responsibility came from the Committee for Economic
Development (CED), which observed, “A business functions by public consent and
its basic purpose is to serve constructively the needs of society to the satisfaction
of society”.

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 Backman (1975) considers social responsibility as other stated objectives by
business, which are not directly related to economic, but rather address its negative
externalities, improve employee’s conditions and the societal quality life.

Patricia Ditzler (1983) defined Social Responsibility as a voluntary expenditure

or activity by a corporation with charitable intent, for which marginal returns are
less than those available from other alternative activities.

Donna Wood (1994)Corporate Social Responsibility means “a business

organization’s configuration of principles of social responsibility processes of
social responsiveness and observable outcomes as they relate to the firm’s societal
relationships.”

Michael Hopkins (2003) Corporate Social Responsibility is concerned with

treating the stakeholders of the firm ethically or in a responsible manner. Ethically
or responsible means treating stakeholders in a manner deemed acceptable in
civilized societies. Social includes economic and environmental responsibility.13

Wikipedia (2020) has one of the best definitions of CSR. It states that it “is a
concept that organizations, especially corporations, have an obligation to consider
the interests of customers, employees, shareholders, communities, and ecological
considerations in all aspects of their operations.”

European Union

“CSR is a concept whereby companies integrate social and environmental concerns

in their business operations and in their interaction with their stakeholders on a
voluntary basis.”

Carroll’s Four Part Definition CSR encompasses the economic, legal, ethical
and discretionary (philanthropic) expectations that Corporate Social Responsibility

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(CSR) is a concept whereby organizations consider the interests of society, based
on the impact of their activities on customers, employees, shareholders,
communities and the environment, for all aspects of their operations.

Corporate Social responsibility is best defined by the World Business Council as

“The continuing commitment by business to behave ethically and contribute to
economic development, while improving the quality of life of theworkforce and
their families as well as of the local community and society at large”.

Peter Drucker “A business that does not show a profit at least equal to its cost of
capital is irresponsible; it wastes society’s resources. Economic profit performance
is the base without which a business cannot discharge any other responsibilities,
cannot be a good employer, a good citizen and a good neighbor. But economic
performance is not the only responsibility of a business. Every organization must
assume responsibility for its impact on employees, the environment, customers,
and whomever and whatever it touches. That is social responsibility.”

Sir Geoffrey Corporate social responsibility is concerned with treating the

stakeholders of the firm ethically or in a responsible manner. 'Ethically or
responsibilities means treating stakeholders in a manner deemed acceptable in
civilized societies.

1.10 Implications of CSR

Corporate social responsibility has much broader implications for the nation as a
whole. It reduces dependency on the government for social change. Most
governmental programmes quickly become embroiled in political manipulation,
corruption, communal overtones, and bitter infighting. There is a need for public-
private partnership with well-defined controls and processes for the best use of
resources for social change. Social reforms driven by the community will bring
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people together, turn the attention of the masses to tasks that benefit society, and
reinforce peace and harmony.

In recent times, a number of foundations set up by leading Indian firms, including

Infosys, Wipro, Tatas, TVS, and Dr. Reddy's Laboratory, have taken a keen
interest in corporate activism to improve healthcare, education, and living
conditions, and reduce poverty. These foundations support numerous government
primary schools and have developed processes and methodologies for effective
change. They support hundreds of non-governmental organizations and have built
orphanages, hospitals, and schools.

However, the challenges in India are enormous. Social responsibility should not be
limited to large successful corporations; there should be greater participation from
most small, medium, and large businesses. The goodwill firms can generate from
acts of social responsibility may, in fact, be worth far more to the businesses than
the amounts they give. Corporations collectively can make India a better place for
every citizen. Corporate social responsibility is about tradition and culture. Firms
can institutionalize voluntarism among employees through appropriate incentives
and recognition. Internal performance evaluation of employees could recognize
community work. Community work can take many forms: teaching in government
schools, supporting NGOs financially, empowering women, cleaning parks,
planting trees, volunteering in orphanages, protecting the abused. Many
corporations in the U.S. allow employees to write about their community service as
part of their annual evaluation report. Even if companies do not reward community
activities, at least, the idea that the company cares will have a positive impact.

Creating shared value (CSV) and CSR CSV are policies and practices that
strengthen a community at the same time that they advance the economic

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objectives of a company (Porter & Kramer, 2005). This concept shows how
important social factors were to the competitive success of companies, and how
corporate strategy really is intertwined with social issues. There are opportunities
for companies to make money by solving social problems. It is not philanthropy
because shared value is not merely a contribution or a donation. It is instead
initiatives that create profit for the company. It is also not the same as CSR and
sustainability, even though it overlaps with them. If, for example, a company
reduces its energy consumption—that may be sustainability, but there are certainly
many sustainability initiatives that do not have an economic benefit to the
company and would not be considered shared value. And when companies create
new products and new services that solve social problems that are not problems
that they themselves caused, that are shared value, but are not what is typically
seen as sustainability. Businesses can develop initiatives that help address social
problems – it doesn’t have to be through philanthropy. There is a mandate that
companies donate a certain percentage of profits to CSR, and instead of
philanthropy companies can invest this amount in shared value initiatives that
really deliver measurable benefits to addressing social problems or helping
populations in need.

The following steps need to be taken for creating shared value from CSR:

 Calculating benefits and costs to make the business case;

 Identifying and managing positive as well as negative impacts;

 Integrating CSR best practices into key business areas;

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 recognizing outstanding efforts towards this end. Corporations and Civil
Society as Good Neighbors

 recognizing the links between the welfare of society and that of the company;

 Proactively examining opportunities designed to benefit the organization and

the community in terms of the environment, diversity, human rights, social impact,
and the economy;

 facilitating relationship building between NGOs and Corporations as co-actors

of development

 One of the key drivers of Indian corporate social responsibility is found in the
country’s cultural heritage. The concept of “trusteeship’ asserts the right of the
capitalist to accumulate and maintain wealth to use it to benefit society.

Researchers have established connections between CSR and trusteeship, (Renold

1994; Masani, 1956; Pachauri, 2004). Gandhi’s view of the ownership of capital
was that of trusteeship, motivated by the belief that essentially society was
providing capitalists with an opportunity to manage resources which need to be
managed on behalf of the society in general.

 Although researchers have generally accepted the notion that Corporate Social
Performance (CSP) is multidimensional (Carroll 1991; Griffin& Mahon 1997)
most CSR ratings have combined the various dimensions used to measure the
construct into one aggregate measure

(Griffin &Mahon 1997). However, as Griffin and Mahon noted, Collapsing the
KLD's multiple dimensions into a uni-dimensional index may mask the individual
dimensions that are equally important and relevant Johnson and Greening (1999)
suggest two, conceptually distinct, dimensions;

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(1) The people dimension, including community, women, minorities, and
employee relations and

(2) The product quality dimension, a product quality and environment dimensions.
In addition, another dimension can be adopted:

(3) CSR activities influencing institutions directed at the state such as advocacy
and campaigning work. Applying this typology to the case of India, content
analysis based on CSR reports reveals that most existing

CSR programs in India have tended to focus on the people centric dimension with
active community participation at all levels. According to a survey (UN et.al
2004), 84 percent of the respondents said what CSR means to the company and
what it focuses on is ‘Corporate Community Involvement (CCI).’ If numbers and
statistics are any indication, India currently is home to approximately 2 million
NGOs, employing approximately 25 million people (if volunteers are also counted)
with deep grassroots penetration. These NGOs work in diversified areas and
engage with different stakeholders to promote, protect and advance a peoplecentric
agenda (CII 2002). Further, the corporations themselves have moved away from
charitable initiatives like financial grants or sponsorships to providing products and
services in a manner that would make a real difference in the target communities.

1.11CSR – New challenges and opportunities

Although community development and social initiatives have been the focus of
CSR activities of Indian companies, there has been a shift in the focus of CSR in
some industries such as the IT and ITES industries which have emerged from
globalization. These industries have a separate corporate rationality different from
the older brick and mortar industries and therefore have different approaches to
CSR. Since the information technology companies are knowledge driven, people
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are the key differentiator. In addition as Indian companies have begun to play the
global market they are also under great pressure to improve environment
sustainability. Such evolving demands for Indian companies have led to a shift in
CSR in the new industries and some have already begun efforts to turn such
challenges into opportunities. Ansoff (1980) argues that social demands could
present potential opportunities for the firms like the way that they convert external
threats into opportunities by aggressive entrepreneurial management.

1.12Background of the Study

The growing interest in ‘CSR’ and ‘sustainable development’ can be attributed to

the growing size of businesses and the corresponding

shrinking role of governments. With the advent of scientific inventions and the
dominance of democratic forms of governance in most parts of the world, and the
exponential growth of the middle class all over the world , the expectations from
corporate houses have increased manifold.

The concept of CSR emerged from the sense of responsibility among polluting
industries such as oil, chemicals, tobacco and mining. CSR today is thriving, with
full time managers, websites, newsletters and professional associations. The annual
report of almost every major company has several pages devoted to the social goals
and community activities undertaken by it. Although economic considerations
constitute the main driving factor in any business activity, there is a growing
resistance against the conventional view that business is chiefly meant for
improving the economic condition of an individual or a group of individuals.

The concept of CSR is qualitatively different from the traditional concept of

philanthropy. As Indian companies grow global, in many corporate houses,
ownership is becoming distinct from management. This coupled with other
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socioeconomic pressures has resulted in a shift from corporate philanthropy to
corporate social investment.

The desire and urge in business to be sensitive about social responsibility has a
significant and far-reaching impact on financial performance, resulting in increased
revenues and reduced operating costs. CSR is a business process, wherein the
institution and the individuals are sensitive and careful about the direct and indirect
effect of their work on internal and external communities, environment and the
outside world.

In this context, there is a need to understand the business case for CSR as in the
years to come, displacement of people for accommodating industries, large scale
migration of people from rural to urban areas and the impact of industries on the
communities and the environment are set to take center stage.

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