Corporate Social Responsibility

CSR is a concept with many definitions and practices. The way it is understood and
implemented differs greatly for each company and country. Moreover, CSR is a very broad
concept that addresses many and various topics such as human rights, corporate governance,
health and safety, environmental effects, working conditions and contribution to economic
development. Whatever the definition is, the purpose of CSR is to drive change towards
sustainability.

Meaning of CSR

CSR is referred as different terms such as responsible business conducts, corporate citizenship,
sustainable programs etc. CSR is a company’s sense of responsibility towards the community
and environment (both ecological and social) in which it operates.

Corporate social responsibility is a gesture of showing the company’s concern & commitment
towards society’s sustainability & development. CSR is the ethical behavior of a company
towards society.

Definition:

According to WBCSD (World Business Council for Sustainable Development) “The continuing
commitment by business to behave ethically and contribute to sustainable economic
development while improving the quality of life of the workforce and their families as well as of
the local community and society.”

Concept of Social Responsibility

The concept of social responsibility has emerged due to several economic, social, political and
legal influences. These forces, which have obliged, persuaded and helped businessmen to
become aware of their responsibility to society, are as follows:
Public opinion: Public interference with the help of the government has instilled a fear in the
heart of businessmen. The threat of public regulation and public ownership has compelled
them to acknowledge the fact that responsible behaviour is essential on their part for survival
in the private sector.
Trade union movement: The recent development of socialism that boosted the strength of
labour unions has forced businessmen to give a fair share to workers. Human relations and
labour legislation have facilitated trade unions to increase their influence.
Consumerism: Consumer organizations have encouraged awareness about consumer rights.
Consequently, businesses have become more responsive to consumer needs and stress the
dictum of ‘consumer is the king’. Businessmen can no longer adopt the approach of ‘let the
buyer beware’.

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 Education: Extensive education has made businessmen conscious about the quality of life,
moral values and social standards. Liberal business leaders have been pressing the business
community to acknowledge its social obligations.
Public relations: Modern businessmen are aware that a good public image contributes to their
growth. There is a greater alertness in their hearts that business is a construction of society and
hence, it should consider and react positively to the expectations of society.
Managerial revolution: Separation of ownership from control in large corporations has resulted
in professionalism in management. A professional manager is fairly aware of the society’s
expectations and attempts to meet the demands of all social components, like customers,
employees, shareholders and the government, in a well adjusted manner.

Benefits of CSR:

 Better brand recognition

 Positive business reputation
 Increased sales and customer loyalty
 Operational costs savings
 Better financial performance
 Greater ability to attract talent and retain staff
 Satisfied Employees
 Organizational growth
 Easier access to capital
 Reduce regulatory burden 
 Identify new business opportunities
 Long term future for business
 Differentiate the business from the competitors

Responsibilities of a Business towards various Interest Groups

Interest groups consist of the various persons connected with a business, such as consumers,
shareholders and the community. The responsibilities of a business towards various interest
groups are as follows:

Responsibilities towards consumers: A consumer is a person who determines what goods shall
be produced and whether they should be sold in the market or not. Consumers not only
determine the income of the business but also affect the success and survival of the business.
Therefore, a business has some basic responsibilities towards the consumers and these are as
follows:
(i)To produce those goods that meet the needs of consumers of different tastes, classes and
purchasing power
(ii)To establish the lowest possible price with efficiency and reasonable profit to the business

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(iii)To ensure fair distribution of products among all sections of the consumers and (iv)To make
the products more satisfactory to consumers through the study of consumer needs
(v)To handle the complaints of consumers more carefully and to analyze them properly
(vi)To answer consumers’ enquiries related to the company, its products and services.

Responsibilities towards shareholders: The basic responsibility of a business is to ensure the

safety of investment and higher rate of return on the investment. Owners of a business may be
proprietors, partners or shareholders. The interest of shareholders lies in participating in the
management and getting regular dividends at appropriate rates. It is, therefore, the
responsibility of the management to improve communication between the company and its
shareholders. This can be done by providing maximum information to the shareholders through
newsletters, annual reports or by holding the annual general meeting of the company at an
appropriate time and place so that the maximum number of members can come and
participate in the discussions.

Responsibilities towards community: The management has the responsibility of informing the
community about the organizational policies, activities and contribution towards the
betterment of society. The various other responsibilities towards the community are as follows:
(i)Financial help to the municipal and district boards for the improvement of housing conditions
(ii)To help the community by aiding hospitals, schools, colleges, religious institutions, and so on
(iii)To organize community forums and group discussions to promote better understanding of
national and local affairs
(iv)To encourage sports and provide recreational facilities.

Responsibility towards Government

(i)Obey rules & regulations.
(ii)Regular payment of taxes.
(iii)Cooperating with the Govt. to promote social values.
(iv)Not to take advantage of loopholes in business laws.
(v)Cooperating with the Govt. for economic growth & development

Responsibility towards Employee

(i)To provide a healthy working environment.
(ii)To grant regular & fair wages.
(iii)To provide welfare services.
(iv) To provide training & promotion facilities.
(v)To provide reasonable working standard &norms.
(vi) To provide efficient mechanism to redress worker’s grievances.
(vii)Proper recognition of efficiency & hard work.

History and Evolution of Corporate Social Responsibility In India

In India, the concept of corporate social responsibility has developed in phases. In the 19th
century, business families like Tata, Birla, Godrej and others were inclined towards social causes

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and they continue to do the same now that too in a larger scale. Between 1960-80, when the
Indian companies were facing high taxes, licensing and restrictions, private companies got
involved in corporate malpractices. This is the time when legislations on corporate governance,
labour and environment issues were enacted. CSR was also given a try to be implemented.
Post-1980, when licensing was reduced to a certain extent, companies became more willing to
contribute towards the social causes as corporate social responsibility. The Companies Act,
1956 had clear provision for CSR but the new Companies Act, 2013 makes CSR mandatory for
companies which fall within the ambit of section 135(1). The said section is to be read with the
Schedule VII and Companies (Corporate Social Responsibility) Rules, 2014.
CSR in India has evolved through different phases, like community engagement, socially
responsible production and socially responsible employee relations. Its history and evolution
can be divided into four major phases.

Phase 1 (1850 To 1914): The first phase of CSR is known for its charity and philanthropic nature.
CSR was influenced by family values, traditions, culture and religion, as also industrialization.
The wealth of businessmen was spent on the welfare of society, by setting up temples and
religious institutions. In times of drought and famine these businessmen opened up their
granaries for the poor and hungry. With the start of the colonial era, this approach to CSR
underwent a significant change. In pre-Independence times, the pioneers of industrialization,
names like Tata, Birla, Godrej, Bajaj, promoted the concept of CSR by setting up charitable
foundations, educational and healthcare institutions, and trusts for community development.
During this period social benefits were driven by political motives..

Phase 2 (1910 To 1960): The second phase was during the Independence movement. Mahatma
Gandhi urged rich industrialists to share their wealth and benefit the poor and marginalized in
society. His concept of trusteeship helped socio-economic growth. According to Gandhi,
companies and industries were the ‘temples of modern India’. He influenced industrialists to
set up trusts for colleges, and research and training institutions. These trusts were also involved
in social reform, like rural development, education and empowerment of women.

Phase 3 (1950 To 1990): This phase was characterized by the emergence of PSUs (Public Sector
Undertakings) to ensure better distribution of wealth in society. The policy on industrial
licensing and taxes, and restrictions on the private sector resulted in corporate malpractices
which finally triggered suitable legislation on corporate governance, labor and environmental
issues. Since the success rate of PSUs was not significant there was a natural shift in
expectations from public to private sector, with the latter getting actively involved in socio-
economic development. In 1965, academicians, politicians and businessmen conducted a
nationwide workshop on CSR where major emphasis was given to social accountability and
transparency.

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Phase 4 (1980 Onwards): In this last phase CSR became characterized as a sustainable business
strategy. The wave of liberalization, privatization and globalization (LPG), together with a
comparatively relaxed licensing system, led to a boom in the country’s economic growth. This
further led to an increased momentum in industrial growth, making it possible for companies to
contribute more towards social responsibility. What started as charity is now understood and
accepted as responsibility.

Argument in favor of Social responsibility

The main points that support the assumption of social responsibility by business enterprise are
as follows:

(i)Long-term self-interest of business: As stated earlier, a good public image is bound to give
better returns to a business enterprise. Businessmen can benefit in the long run by providing
for the welfare of the society through education and better living conditions. This will result in
better employees in business and enlightened customers in society who will benefit through
their increased purchasing power.
(ii)Ascertainment of law and order: Social responsibility on the part of business can avoid
unrest in society. If the society feels that it is not getting its appropriate share in business, it is
bound to create disorder by adopting anti-social and illegal activities and rebellions. Pursuing
the doctrine of social responsibility can help business organizations prevent social chaos.
(iii)Maintenance of free enterprise: Government or public regulation can hinder the
development of business by decreasing the flexibility of decision-making and the freedom of
choice and action. Therefore, the voluntary assumption of social responsibilities is essential for
the growth of a business organization.
(iv)Creation of society: Business is a part of society and survives on the demands of the society.
Therefore, it should be responsive to social expectations and welfare. The right of the business
to grow goes hand in hand with its awareness of social responsibility and welfare. It is the duty
of the business enterprise to contribute in some way to the well-being of its society.
(v)Moral justification: Enlightened businessmen have now become more aware about their
moral duty to serve the society. Business has the resources and power to solve social problems.
Therefore, its power should be balanced with social responsibility.
(iv)Profitable environment: To ensure a profitable environment in the society in which it
operates, business needs to meet the challenges of social evils. Active interference on the part
of businessmen in solving these challenges can convert them to opportunities, which in turn
will ascertain not just the existence, but also the benefits of the organization.
(vii)System interdependence: Business system and social dependence are interrelated and thus
affect each other.

Arguments against Social responsibility

The arguments against social responsibility on the part of business enterprise are as follows:

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(i)Dilution of profit maximization: Economic value is the main criterion by which the success of
a business should be estimated. According to Milton Friedman, ‘Few trends could so thoroughly
undermine the very foundation of our free society as the acceptance by corporate officials of a
social responsibility other than to make as much money for shareholders as possible. This is a
fundamentally subversive doctrine. Management’s spending for society is hypocrisy. Only
people can have
responsibilities not corporations.’
(ii)Loss of incentive: The motivation to utilize resources effectively is decreased when social
responsibility is considered important. It is the profit motive principally that encourages
optimum use of resources and manpower to run the business with enthusiasm.
(iii)Lack of standard: Besides the effort motive, profit serves as a standard to measure the
performance of business. A business organization goes off course as it loses the guiding
measure that depicts the efficiency of its performance and thus hinders decision-making.
(iv)Business is an objective venture: The emotional insights and experience essential to tackle
social problems are lacking in the temperament of businessmen. They cannot determine what
is in public interest. The solutions to social problems should be expected from specialized social
agencies and not from businessmen.
(v)Undue use of power: If business organizations are involved in social institutions they are
likely to dominate the decisions of these institutions for their own interests. They can use their
financial power to take decisions concerning the functioning of these institutions. This may
further lead to increased social detriment.
(vi)Market mechanism gets distorted: The principle of social responsibility is based on the
assumption that market mechanism is not the appropriate way to allocate scarce resources to
alternative uses and so it should be replaced by political mechanism. If the market price of a
product contains the cost of social actions, it does not actually represent the relative cost of
producing it and thus the market mechanism gets distorted.

Corporate Social Responsibility in India: Features under Companies Act, 2013

For decades, companies in India has been regulated and governed by the outdated Companies
Act, 1956. After years of debate and contemplation, The Indian Parliament passed the New
Companies Act, 2013. It is divided into 7 schedules, 29 chapters and 470 sections.
It has brought various new features to corporate legislation which include but are not limited to
mandatory spending on Corporate Social Responsibility of at least of 2% of net profit, curbing
corporate delinquency by introducing punishment for falsely including a person to enter into an
agreement with a bank or a financial institution to obtain credit facilities, introduction of new
entity called ‘one person company’, simplified the procedure for mergers and acquisitions,
limitation on the number of companies in which the same auditor may be appointed,
strengthening the role of women by stipulating appointment of at least one women director in
the board room, limit in the number of maximum partners etc.
The Companies Act, 2013 came into force on 12th September 2013. But the provisions of
section 135 relating to CSR came into effect on 1st April 2014. The features of Section 135 read

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with Schedule VII and (Corporate Social Responsibility Policy) Rules, 2014 are described as
below:
APPLICABILITY OF THE CSR:
The applicability of the CSR provisions on the certain class of Companies having:
(a) Net worth of the company rupees Five hundred crore or more; OR
(b) Turnover of the company rupees One thousand crore or more; OR
(c) Net profit of the company rupees five crore or more.
during any financial year to constitute a Corporate Social Responsibility (CSR) Committee of the
Board.  Any financial year has been clarified as to imply any of the three preceding financial
years.
Note: the provisions of CSR are not only applicable to Indian companies, but also applicable to
branch and project offices of a foreign company in India.
CALCULATION OF CONTRIBUTION UNDER CSR:
The company spends, in every financial year, at least 2% of the *average net profits of the
company made during the three immediately preceding financial years, in pursuance of its
Corporate Social Responsibility Policy:
Activities of the company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for Corporate Social Responsibility activities
defined under the Schedule VII of the Companies Act 2013.
If the company fails to spend such amount, the Board shall, in its report made under clause (o)
of sub-section (3) of section 134, specify the reasons for not spending the amount.
* “average net profits” shall be calculated in accordance with the provisions of Section 198 of
the Companies Act 2013.

A new concept of fund transfer on non-utilization of CSR:

• if a company fails to spend CSR amount, then the company shall transfer the unspent
amount to a fund under Schedule VII
• or if a company holds amount for ongoing projects, then such amount be transferred to
Unspent Corporate Social Responsibility A/c within a period of 30 days from the end of
financial year and spend the same within 3 years for the project.
• If a company fails to spend for ongoing project within a period of 3 years of transfer to
unspend CSR A/c, the same be transferred to fund under schedule VII mentioned under
the Companies Act, within 30 days of closure of Financial Year.
• if a company fails to spend CSR amount, then the company shall transfer the unspent
amount to a fund under Schedule VII

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 • or if a company holds amount for ongoing projects, then such amount be transferred to
Unspent Corporate Social Responsibility A/c within a period of 30 days from the end of
financial year and spend the same within 3 years for the project.
• If a company fails to spend for ongoing project within a period of 3 years of transfer to
unspend CSR A/c, the same be transferred to fund under schedule VII mentioned under
the Companies Act, within 30 days of closure of Financial Year.

Illustration for CSR unspent amount:

If a company fails to spend CSR amount Then the company shall transfer on or
for FY 2019-20 as on 31st March 2020 before 30th April 2020 to the Funds as
mentioned in Schedule VII.

If a company is holding the unspent Then open an account Unspent

amount for ongoing project for FY 2019- Corporate Social Responsibility A/c and
20 as on 31st March 2020 transfer the unspent amount of CSR
before 30th April 2020.

Such amount shall be spend within 3

years from the date of transfer i,e., on or
before 30th April 2023.

If a company fails to spend amount in Then the company shall transfer on or

unspent CSR A/c – for a period of 3 years before 30th April 2023 to the Funds as
mentioned in Schedule VII.

IF company fails to fulfill the CSR provisions:

• the company shall be punishable with fine which shall not be less than fifty thousand
rupees but which may extend to twenty-five lakh rupees 
• and every officer of such company who is in default shall be punishable
with imprisonment for a term which may extend to three years or with fine which

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 shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or
with both.
CSR Reporting:
• The Board’s Report referring to any financial year initiating on or after the 1st day of
April 2014 shall include an annual report on CSR.
• In case of a foreign company, the balance sheet filed shall contain an annexure regarding
report on CSR.

CONSTITUTION OF THE CSR COMMITTEE:

The CSR committee shall be constituted with 3 or more directors, out of which at least one
director shall be an Independent Director.

Types of the Company Board of CSR Committee

Listed Companies 3 or More Directors including at least one

Independent Director

Public Company 3 or More Directors including at least one

Independent Director

Private Company 2 Directors

Branch and Project Offices of a At least 2 persons, one person resident in India

Foreign Company authorised to accept on behalf of the company
service of process any notices or other documents
served on the company and another person shall be
nominated by the foreign company

The composition of the Corporate Social Responsibility Committee is required to be disclosed in

the Board’s report prepared under the Act.
CSR COMMITTEES FUNCTIONS:
In accordance with section 135 the functions of the CSR committee include:

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(a) Formulating and recommending to the Board, a CSR Policy which shall indicate the activities
to be undertaken by the company as specified in Schedule VII;
(b) Recommending the amount of expenditure to be incurred on the CSR activities.
(c) Monitoring the Corporate Social Responsibility Policy of the company from time to time.
(d) Further the rules provide that the CSR Committee shall institute a transparent monitoring
mechanism for implementation of the CSR projects or programs or activities undertaken by the
company.
The CSR Committee shall formulate and recommend to the Board, a policy which shall indicate
the activities to be undertaken (CSR Policy); recommend the amount of expenditure to be
incurred on the activities referred and monitor the CSR Policy of the company. The Board shall
take into account the recommendations made by the CSR Committee and approve the CSR
Policy of the company.
DISPLAY OF CSR ACTIVITIES ON THE COMPANY’S WEBSITE:
The Board of Directors of the company shall, after taking into account the recommendations of
CSR Committee, approve the CSR Policy for the company and disclose contents of such policy in
its report and the same shall be displayed on the company’s website, if any, as per the
particulars specified in the Annexure.
Activities That Can Be Undertaken As CSR Initiatives
The Policy recognizes that corporate social responsibility is not merely compliance; it is a
commitment to support initiatives that measurably improve the lives of underprivileged by one
or more of the following focus areas as notified under Section 135 of the Companies Act 2013
and Companies (Corporate Social Responsibility Policy) Rules 2014:

i. Eradicating hunger, poverty & malnutrition, promoting preventive health care & sanitation &
making available safe drinking water;

ii. Promoting education, including special education & employment enhancing vocation skills
especially among children, women, elderly & the differently unable & livelihood enhancement
projects;

iii. Promoting gender equality, empowering women, setting up homes & hostels for women &
orphans, setting up old age homes, day care centers & such other facilities for senior citizens &
measures for reducing inequalities faced by socially & economically backward groups;

iv. Reducing child mortality and improving maternal health by providing good hospital facilities
and low cost medicines;

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v. Providing with hospital and dispensary facilities with more focus on clean and good sanitation
so as to combat human immunodeficiency virus, acquired immune deficiency syndrome,
malaria and other diseases;

vi. Ensuring environmental sustainability, ecological balance, protection of flora & fauna, animal
welfare, agro forestry, conservation of natural resources & maintaining quality of soil, air &
water;

vii. Employment enhancing vocational skills

viii. Protection of national heritage, art & culture including restoration of buildings & sites of
historical importance & works of art; setting up public libraries; promotion & development of
traditional arts & handicrafts;

ix. Measures for the benefit of armed forces veterans, war widows & their dependents;

x. Training to promote rural sports, nationally recognized sports, sports & Olympic sports;
xi. Contribution to the Prime Minister‘s National Relief Fund or any other fund set up by the
Central Government for socio-economic development & relief & welfare of the Scheduled
Castes, the Scheduled Tribes, other backward classes, minorities & women;

xii. Contributions or funds provided to technology incubators located within academic

institutions, which are approved by the Central Government;

xiii. Rural development projects, etc.

xiv. Slum area development

Benefits a Corporate House Gets From Corporate Social Responsibility

(i)Improves Public Image: Positive social responsibility improves a company’s public image and
relationship with consumers. Companies that demonstrate their commitment to various causes
are perceived as more philanthropic than companies whose corporate social responsibility
endeavors are nonexistent. A corporation’s public image is at the mercy of its social
responsibility programs and how aware consumers are of these programs. Remember,

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consumers feel good shopping at institutions that help the community. Clean up your public
image (and broadcast it to the world!). Corporations can improve their public image by
supporting nonprofits through monetary donations, volunteerism, in-kind donations of
products and services, and strong partnerships. By publicizing their efforts and letting the
general public know about their philanthropy, companies increase their chances of becoming
favorable in the eyes of consumers.
(ii)Increases Media Coverage: Having a strong CSR program can increase the chances that your
company gets news coverage. It doesn’t matter how much a company is doing to save the
environment if nobody knows about it. Companies need to form relationships with local media
outlets so they’ll be more likely to cover the stories that particular company has to offer them.
On the other hand, if a corporation participates in production or activities that bring upon
negative community impacts, the media will also pick this up. Unfortunately, bad news spreads
quicker than good news. Media visibility is only so useful in that it sheds a positive light on your
organization.
(iii)Boosts Employee Engagement: Corporate social responsibility helps attract and retain
engaged and productive employees. Employees like working for a company that has a good
public image and is constantly in the media for positive reasons. Happy employees almost
always equal better output. Nearly 60% of employees who are proud of their company’s social
responsibility are engaged at their jobs. When companies show that they are dedicated to
improving their communities through corporate giving programs (like matching gifts and
volunteer grants!), they are more likely to attract and retain valuable, hardworking, and
engaged employees. If a corporation is philanthropically minded, job-hunting individuals are
more likely to apply and interview for available positions. Once hired, employees who are
engaged will stay with a company longer, be more productive on a daily basis, and will be more
creative than disengaged workers.
(iv)Attracts & Retains Investors: Investors care about corporate social responsibility and so
should companies. Investors who are pouring money into companies want to know that their
funds are being used properly. Not only does this mean that corporations must have sound
business plans and budgets, but it also means that they should have a strong sense of corporate
social responsibility. When companies donate money to nonprofit organizations and encourage
their employees to volunteer their time, they demonstrate to investors that they don’t just care
about profits. Instead, they show that they have an interest in the local and global community.
Investors are more likely to be attracted to and continue to support companies that
demonstrate a commitment not only to employees and customers, but also to causes and
organizations that impact the lives of others.
Benefits A Non-Profit Corporate House Gets from Corporate Social Responsibility
(i)Funding Via Matching Gift Programs: Matching gift programs have the potential to double,
and sometimes even triple, an organization’s fundraising revenue. Corporations that offer

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matching gift programs essentially double the donations that their employees are giving to
eligible nonprofits. What more could an organization want? Truthfully, matching gifts are a bit
more complicated than that. Each company has a different set of guidelines, deadlines, and
requirements that must be met before they’ll match an employee’s contribution to a nonprofit.
However, the opportunity to receive twice as many donations still hangs in the air for
organizations looking to benefit from corporate social responsibility programs.

(ii)More Volunteer Participation: Matching gift programs have the potential to double, and
sometimes even triple, an organization’s fundraising revenue. Corporations that offer volunteer
grants are outsourcing helping hands to eligible nonprofit organizations. A corporation with this
kind of program might offer (for example) $250 to a nonprofit once an employee has
volunteered at least 10 hours with the organization. There are also pay-per-hour grants that
many corporations offer that pay a certain amount per hour volunteered. This kind of socially
responsible program is a win-win for every party involved. Employees of corporations are seen
volunteering and donating their time to important causes in the community, and nonprofits are
receiving free time and volunteer work, which are essential for the success of so many
nonprofits.

(iii)Forging Corporate Partnerships: CSR brings nonprofits and companies together, creating
strong partnerships between the two. Yet another positive impact corporate social
responsibility has on nonprofit organizations is the possibility of corporate partnerships. These
partnerships are vital to the work a corporation can do in the local community and important to
a nonprofit that may not have the resources for major marketing campaigns. For a nonprofit
organization, a partnership with a local or national corporation puts its name on tons of
marketing materials that otherwise could not have been afforded on tight budgets. A key
benefit is that the partnership brings additional awareness to the nonprofit’s cause.

(iv)Varied Sources of Revenue: Corporate social responsibility programs can be another source
of revenue for nonprofits. Nonprofits cannot solely rely on individual donations for support.
Granted, individuals make up roughly three-fourths of an organization’s total monetary
contributions, but this doesn’t mean that nonprofits should discount corporations and
businesses as viable sources of revenue. In fact, companies with strong corporate social
responsibility programs are looking for nonprofits to be the recipient of grants, matching gift
programs, and volunteer grant programs. CSR initiatives can help nonprofits make up that left
over 25% after they’ve looked to individual donors.
CSR Initiatives Taken by Companies and Impact of Section 135
Tata Power: A subsidiary of Tata Power Company, Coastal Gujarat Private Limited (CGPL), has
their 4000MW Ultra Mega Power Plant in Kutch and the company, being highly involved in
Corporate Social Responsibility, set out to discover the crux of the issue and go about fixing it.
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In 2012, in partnership with Aga Khan Rural Support Programme, India, CGPL launched a
community-based sustainable livelihood programme. This initiative, called Sagarbandhu, was
focused in the villages of Modhva and Trigadi in Mandvi Taluka which are the major areas
where the fisher folk live and return to when the fishing season ends, and do their alternative
jobs, which are highly seasonal.
The Sagarbandhu programme went beyond just looking for way of providing the fisher folk
alternative employment for the rest of the year, but also inspired to help develop the
community and a sense of ownership and independence within the villagers. Activities
undertaken include VDAC formation, value chain analysis, revolving fund at the start of the
season, roof rain water harvesting, exposure visits, regular meetings, SHG formation, drinking
water and sanitation facilities, school-level interventions, and distribution of boat lights, fishing
nets and marketing equipment. Local institutions designed to help with the development of the
community were set up. These included Self Help Groups (SHGs) and a Village Development
and Advisory Council (VDAC). Through these, the fisher folk and villagers are offered training on
new and different fishing techniques. There has also been improvements made to the
infrastructure in the villages to provide easier access to local markets.
The communities have been greatly encouraged by the initiative of CGPL and Aga Khan Rural
Support Programme and have responded with great enthusiasm. They then decided to launch a
second phase of Sagarbhandu in 2013 to help widen the scope of the programme and reach
more villages in the area. Once again, they were successful in their endeavors garnering praise
and enthusiasm from the fisher folk.

Generic Models of CSR

STAKEHOLDER THEORY:
Stakeholder Theory is a view of capitalism that stresses the interconnected relationships
between a business and its customers, suppliers, employees, investors, communities and others
who have a stake in the organization. The theory argues that a firm should create value for all
stakeholders, not just shareholders.

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In 1984, R. Edward Freeman originally detailed the Stakeholder Theory of organizational
management and business ethics that addresses morals and values in managing an
organization. His award-winning book Strategic Management: A Stakeholder
Approach identifies and models the groups which are stakeholders of a corporation, and both
describes and recommends methods by which management can give due regard to the
interests of those groups.
The theory has become a key consideration in the study of business ethics and has served as a
platform for further study and development in the research and published work of many
scholars.
It lists and describes those individuals and groups who will be affected by (or affect) the
company’s actions and asks, “What are their legitimate claims on the business?” “What rights
do they have with respect to the company’s actions?” and “What kind of responsibilities and
obligations can they justifiably impose on a particular business?” In a single sentence,
stakeholder theory affirms that those whose lives are touched by a corporation hold a right and
obligation to participate in directing it.

Corporate Social Responsibility and Stakeholders theory:

As a simple example, when a factory produces industrial waste, a CSR perspective attaches a
responsibility directly to factory owners to dispose of the waste safely. By contrast, a
stakeholder theorist begins with those living in the surrounding community whose environment
might be poisoned and begins to talk about business ethics by insisting that they have a right to
clean air and water. In other words, the community members are stakeholders in the company
and their voices must contribute to corporate decisions. It’s true that they may own no stock,
but they have a moral claim to being involved in the decision-making process.

Once a discrete set of stakeholders surrounding an enterprise has been located, stakeholder

ethics may begin. The purpose of the firm, underneath this theory, is to maximize profit on a

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collective bottom line, with profit defined not as money but as human welfare. The collective
bottom line is the total effect of a company’s actions on all stakeholders. Company managers,
that means, are primarily charged not with representing the interests of shareholders (the
owners of the company) but with the more social task of coordinating the interests
of all stakeholders, balancing them in the case of conflict, and maximizing the sum of benefits
over the medium and long term. Corporate directors, in other words, spend part of the day just
as directors always have: explaining to board members and shareholders how it is that the
current plans will boost profits. They spend other parts of the day, however, talking with other
stakeholders about their interests: they ask for input from local environmentalists about how
pollution could be limited, they seek advice from consumers about how product safety could be
improved, and so on. At every turn, stakeholders are treated (to some extent) like
shareholders, as people whose interests need to be served and whose voices have real power.

In many cases transparency is an important value for those promoting stakeholder ethics. The
reasoning is simple: if you’re going to let every stakeholder actively participate in a
corporation’s decision making, then those stakeholders need to have a good idea about what’s
going on.

What’s certain is that stakeholder theory obligates corporate directors to appeal to all sides and
balance everyone’s interests and welfare in the name of maximizing benefits across the
spectrum of those whose lives are touched by the business.

Stockholders & stakeholders model: - The model talks about two types of social orientations of a
firm towards its economic stockholders and social stakeholders. Also, there are two types of
motives under these two orientations i.e. self-interest and moral duty.

Productivism and philanthropy are two orientations of stockholders.Productivists believe that the
only mission of a corporation is to maximize the self-interest i.e. profit. Philanthropists believe that
helping the poor and the needy can be justified in terms of morality. However, their motive towards
CSR is dominated by moral obligations and not self-interest. But they believe that the primary
social duty of a corporation is to obtain profits.

Progressivism and Ethical Idealism are the two orientations of stakeholder’s model.
Progressivists are of the view that although corporate behavior is basically motivated by self-
interest, yet there should be some scope for a social change that can transform the society towards
becoming more humanistic. Progressivists are in favor of enlightened self-interest where, in spite of
self-interest, socially good works can be undertaken. To ethical idealists, the line of demarcation
between business and society is rather thin, and they believe in sharing the corporate profits for

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humanitarian activities. According to them, CSR is justified when business corporations support
stakeholders.

Shareholder Value Theory

Shareholder value theory is the dominant economic theory in use by business. Maximizing
shareholder wealth as the purpose of the firm is established in our laws, economic and financial
theory, management practices, and language. Nobel Laureate Milton Friedman (1970)
introduced the theory in favor of maximizing financial return for shareholders. His capitalistic
perspective clearly considers the firm owned by and operated for the benefit of the
shareholders. He says ‘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. …’

Friedman’s statements reflect three fundamental assumptions that lend support to the
shareholder view of the firm. The first is that the human, social, and environmental costs of
doing business should be internalized only to the extent required by law. All other costs should
be externalized. The second is that self-interest as the prime human motivator. As such, people
and organizations should and will act rationally in their own self-interest to maximize efficiency
and value for society. The third is that the firm is fundamentally a nexus of contracts with
primacy going to those contracts that have the greatest impact on the profitability of the firm.

1. Externalization of Costs According to this perspective, maximizing shareholder value as the

goal of the firm is the means to most efficiently achieve the best outcome for society. Taken
literally, however, this theory holds that management should run the business to maximize cash
flow to shareholders—maximizing revenue, minimizing cost, and reducing risk. One way to
reduce cost is by externalizing it through such means as polluting the environment.

2. Self-Interest as the Prime Human Motivator The fundamental assumption of modern

economic theory is a view of the individual self, acting rationally in self-interest "The first
principle of Economics is that every agent is actuated only by self-interest”. The view of
Friedman (1970) is traceable back to Adam Smith (1776)—every person acting rationally in their
own self-interest maximizes efficiency and value for society. Building on “individual motivated
by self-interest” model, agency theory predicts a conflict between shareholders (principals) and
managers (agents) in a publicly owned corporation.

In sum, dominant views on corporate governance and curricula of most business schools
support the perspective that the sole purpose of business in our community is business.
Business acting beyond its economic concerns is at best misguided and is misallocating and/or
misappropriating societal resources. Business adds value to the economy through the efficient
delivery of goods and services. Social and environmental concerns are related to business
through the marketplace and governmental regulations.

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Shareholder theory V/S Stakeholder Theory

Shareholders theory is introduced by Milton Friedman. In 1970, Friedman wrote in NY Times

that “there is one and only one social responsibility of business: to use its resources to 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.” The idea of
the shareholder theory is that managers primarily have a duty to maximize shareholders’
interests in the way that is still permitted by law or social values. On the other hand,
shareholder theory asserts that shareholders give capital to a company’s managers, who are
supposed to spend corporate funds only in ways which have been authorized by the
shareholders. In words of Milton Friedman, “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 engages in open and free competition, without deception or fraud.”

Stakeholder theory is introduced by Edward Freeman in 1988. Stakeholders is a group that is

broader than shareholders. They are individuals or groups that provide critical support to
business firm, such as shareholders, employees, suppliers, customers, local community,
environment, even the world community. Therefore, they get benefits and risks regarding their
involvement with the company. According to stakeholder theory, business leaders’ duty is to
balance the shareholders’ interests with other stakeholders’ interests. In other word,
stakeholder theory demands that interests of all stakeholders should be considered. It also
shows the importance of social contracts, not just a business contracts. According to the
Stakeholder theory, managers are agents of stakeholders who must ensure that the ethical
rights of stakeholders are not violated and their legitimate interests are balanced while making
decisions

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Common Misconceptions of Both Theories

Stockholder theory is often misunderstood to mean that business managers must do anything
necessary to maximize a business’s profits. While maximizing profits is at the root of the
theory, managers are encouraged to increase profits legally and through non-deceptive
practices. Additionally, many understand the stockholder theory to prohibit charitable giving
altogether. While social responsibilities are structured as stakeholder initiatives, proponents
of stockholder theory will say that charitable projects are supported within the theory, as
long as these projects either benefit the corporation’s bottom line or are the best capital
investment available at the time.

Misconceptions also surround the stakeholder theory. Some believe that profit must be
completely disregarded when adhering to this theory. In reality, profit is a piece of the larger
ethical puzzle that should be considered when determining what impact the company has on
the stakeholders in question.

here is debate between both theories supporters. With “maximizing shareholders’ interests”
jargon, shareholder theory is frequently misunderstood as it allows executives and managers to
do anything that can make profit. It should be remembered that shareholder theory obligates
managers to increase profits only through legal, non-deceptive means. Therefore, this theory
puts laws and ethics as control mechanism how company conducts business.

On the other hand, the stakeholder theory is also criticized by its opponents. They claim that
the stakeholder theory does not put focus on profitability. Even though the ultimate objective
of stakeholder theory is the concern’s continued existence, it must be achieved by balancing
the interests of all stakeholders, including the shareholders, whose interests are in profits.

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Both theories can be applied in daily business activities. Executives and managers should be
clear about the choice of theory applied in internal and external corporate communications. If
employees are confused about the corporation’s objectives, they will likely make inconsistent
decisions which, at the end, will backfire to company itself. The clear choice will provide same
ground to decide in daily business.

(i)Carroll's CSR Pyramid

Carroll's CSR Pyramid is a simple framework that helps argue how and why organizations should
meet their social responsibilities.
The key features of Carroll's CSR Pyramid are that:

(i)CSR is built on the foundation of profit – profit must come first

(ii)Then comes the need for a business to ensure it complies with all laws & regulations
(iii)Before a business considers its philanthropic options, it also needs to meet its ethical duties
According to Carroll, to be socially responsible means that profitability and obedience to the
law are foremost conditions when discussing the firm’s ethics and the extent to which it
supports the society in which it exists with contributions of money, time and talent”. And the
different layers in the pyramid help managers see the different types of obligations that society
expects of businesses.

The four responsibilities displayed on the pyramid are:

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Economic responsibility in Carroll’s CSR Pyramid : It concerns the responsibility of business of
producing goods and services needed by society and selling them making a profit. Novak (1996)
has contributed to this are by defining seven responsibilities of companies. Companies have
shareholders who demand a reasonable return on their investments, they have employees who
want safe and fairly paid jobs, and they have customers who demand good quality products at a
fair price. So, here comes the first responsibility of the business as it is to be a properly
functioning economic unit and stay in business. And this is the base of the pyramid, where all
the other layers rest on.

Legal responsibility in Carroll’s CSR Pyramid : the legal responsibility of corporations demands
that businesses abide by the law and play by the rules of the game. Should companies choose
to “bend” or even ignore their legal responsibilities the price can be very high for the business.
And US software giant Microsoft has faced a long running anti-trust case in Europe for abusing
its monopolistic position to disadvantage its competitors which resulted in tough settlements
against the company.

Ethical Responsibility in Carroll’s CSR Pyramid : the main concept of ethical responsibility as
defined and expressed by Carroll (1991) is that the ethical responsibility consists of what is
generally expected by society over and above economic and legal expectations. Ethical
responsibilities of companies cover its wide range of responsibilities. Ethical responsibilities are
not necessarily imposed by law, but they are expected from ethical companies by the public
and governments And this case was seen in the example of Shell, where the decision of the
government was reversed for disposing of oil platform after a campaign and disagreement by
the society and public.

Philanthropic responsibility in Carroll’s CSR Pyramid: as it is in the top of the pyramid, it

focuses on more luxurious things such as improving the quality of life of employees, local
communities and ultimately society in general. Some points of the philanthropic responsibilities
of the businesses can be controversial and requires separate studies aimed to it. For example,
who should decide on what cause to spend the money, how much, and on what basis these
decisions should be made.

(ii) Ackerman’s Model

Even before the concept of modelling CSR initiatives according to priorities or liabilities or even
responsibilities came into the picture, Ackerman proposed his model that was laid down in
three phases (Ackerman & Bauer, 1976). More than a model, it was a strategy that guided the
implementation of CSR activities, but not their formulation. The first phase was about the top
managers recognizing a social problem, the second phase was an intensive study of the
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problem and finding out solutions by hiring experts and the last phase was implementation of
the proposed solutions. It is obvious that this model, rather a plan, merely provides strategies
to deal with problems having social implications. Other parameters and constraints of CSR
activities did not come under the purview of this model
(iii) Corporate Citizenship
What Is Corporate Citizenship?
Corporate citizenship involves the social responsibility of businesses and the
extent to which they meet legal, ethical and economic responsibilities, as
established by shareholders. Corporate citizenship is growing increasingly
important as both individual and institutional investors begin to seek out
companies that have socially responsible orientations such as
their environmental, social and governance (ESG) practices.

The Basics of Corporate Citizenship

Corporate citizenship refers to a company’s responsibilities toward society. The
goal is to produce higher standards of living and quality of life for the
communities that surround them and still maintain profitability for stakeholders.
The demand for socially responsible corporations continues to grow, encouraging
investors, consumers and employees to use their individual power to negatively
affect companies that do not share their values.

All businesses have basic ethical and legal responsibilities, however, the most
successful businesses establish a strong foundation of corporate citizenship,
showing a commitment to ethical behavior by creating a balance between the
needs of shareholders and the needs of the community and environment in the
surrounding area. These practices help bring in consumers and establish brand
and company loyalty.

Companies go through different stages during the process of developing

corporate citizenship. Companies rise to the higher stages of corporate
citizenship based on their capacity and credibility when supporting community
activities, a strong understanding of community needs, and their dedication to
incorporate citizenship within the culture and structure of their company.

Development of Corporate Citizenship

The five stages of corporate citizenship are defined as:

1. elementary;
2. engaged;
3. innovative;
4. integrated; and
5. transforming.
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In the elementary stage, a company’s citizenship activities are basic and
undefined because there is scant corporate awareness and little to no senior
management involvement. Small businesses, in particular, tend to linger in this
stage. They are able to comply with the standard health, safety, and
environmental laws, but they do not have the time nor the resources to fully
develop greater community involvement.

In the engagement stage, companies will often develop policies that promote the
involvement of employees and managers in activities that exceed rudimentary
compliance to basic laws. Citizenship policies become more comprehensive in
the innovative stage, with increased meetings and consultations with
shareholders and through participation in forums and other outlets that promote
innovative corporate citizenship policies. In the integrated stage, citizenship
activities are formalized and blend in fluidly with the company’s regular
operations. Performance in community activities is monitored, and these
activities are driven into the lines of a business. Once companies reach the
transforming stage, they understand that corporate citizenship plays a strategic
part in fueling sales growth and expansion to new markets. Economic and social
involvement is a regular part of a company’s daily operations in this stage.

Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is a broad concept of corporate citizenship
that can take various forms depending on the company and industry. Through
CSR programs, philanthropy, and volunteer efforts, businesses can benefit
society while boosting their own brands. As important as CSR is for the
community, it is equally valuable for a company. CSR activities can help forge a
stronger bond between employee and corporation; they can boost morale and
can help both employees and employers feel more connected with the world
around them.

In order for a company to be socially responsible, it first needs to be responsible

for itself and its shareholders. Often, companies that adopt CSR programs have
grown their business to the point where they can give back to society. Thus, CSR
is primarily a strategy of large corporations. Also, the more visible and successful
a corporation is, the more responsibility it has to set standards of ethical behavior
for its peers, competition, and industry.

Example of Corporate Citizenship: Starbucks

Long before its initial public offering (IPO) in 1992, Starbucks was known for its
keen sense of corporate social responsibility, and commitment to sustainability
and community welfare. Starbucks has achieved corporate citizenship milestones
such as reaching 99% ethically sourced coffee; creating a global network of
farmers; pioneering green building throughout its stores; contributing millions of

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hours of community service; and creating a groundbreaking college program for
its partner/employees. Going forward, Starbucks’ goals include hiring 10,000
refugees across 75 countries; reducing the environmental impact of its cups; and
engaging its employees in environmental leadership.

Issues and Challenges of CSR in India

There are number of issues and challenges to the successful implementation of corporate social
responsibility in India. They are enumerated as follows:-

1. Lack of Awareness of General Public: In CSR Activities there is a lack of interest of the general
public in participating and contributing to CSR activities of companies. This is because of the
fact that there exists little or no knowledge about CSR. The situation is further aggravated by a
lack of communication between the companies involved in CSR and the general public at the
grassroots.

2. Need to Build Local Capacities: There is a need for capacity building of the local
nongovernmental organizations as there is serious dearth of trained and efficient organizations
that can effectively contribute to the ongoing CSR activities initiated by companies. This
seriously compromises scaling up of CSR initiatives and subsequently limits the scope of such
activities.

3. Issues of Transparency: Lack of transparency is one of the key challenge for the corporate as
there exists lack of transparency on the part of the small companies as they do not make
adequate efforts to disclose information on their programmes, audit issues, impact assessment
and utilization of funds. This negatively impacts the process of trust building among the
companies which is a key to the success of any CSR initiative.

4. Non-Availability of Well Organized Non-Governmental Organizations: There is non-availability

of well-organized nongovernmental organizations in remote and rural areas that can assess and
identify real needs of the community and work along with companies to ensure successful
implementation of CSR activities.

5. Visibility Factor: The role of media in highlighting good cases of successful CSR initiatives is
welcomed as it spreads good stories and sensitizes the population about various ongoing CSR
initiatives of companies. This apparent influence of gaining visibility and branding exercise often

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leads many non-governmental organizations to involve themselves in event based programmes,
in the process, they often miss out on meaningful grassroots interventions.

6. Narrow Perception towards CSR Initiatives: Non-governmental organizations and

Government agencies usually possess a narrow outlook towards the CSR initiatives of
companies, often defining CSR initiatives more as donor-driven. As a result, corporates find it
hard to decide whether they should participate in such activities at all in medium and long run.

7. Lack of Consensus on Implementing CSR Issues: There is a lack of consensus amongst

implementing agencies regarding CSR projects. This lack of consensus often results in
duplication of activities by corporate houses in areas of their intervention. This results in a
competitive spirit between implementing agencies rather than building collaborative
approaches on issues. This factor limits company’s abilities to undertake impact assessment of
their initiatives from time to time.

Recommendations
The following recommendations are listed for serious consideration by all concerned
stakeholders for their effective operationalization to deepen CSR in the company’s core
business and to build collaborative relationships and effective networks with all involved.

1. It is found that there is a need for creation of awareness about CSR amongst the general
public to make CSR initiatives more effective. This awareness generation can be taken up by
various stakeholders including the media to highlight the good work done by corporate houses
in this area. This will bring about effective change in the approach and attitude of the public
towards CSR initiatives undertaken by corporate houses.

2. It is noted that partnerships between all stakeholders including the private sector,
employees, local communities, the Government and society in general are either not effective
or not effectively operational at the grassroots level in the CSR domain. This scenario often
creates barriers in implementing CSR initiatives. It is recommended that appropriate steps be
undertaken to address the issue of building effective bridges amongst all important
stakeholders for the successful implementation of CSR initiatives. As a result, a long term and
sustainable perspective on CSR activities should be built into the existing and future strategies
of all stakeholders involved in CSR initiatives.

3. It is found that corporate houses and non-governmental organizations should actively

consider pooling their resources and building synergies to implement best CSR practices to
scale up projects and innovate new ones to reach out to more beneficiaries. This will increase
the impact of their initiatives on the lives of the common people. After all, both corporate
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houses and non-governmental organizations stand to serve the people through their respective
projects and initiatives. It is recommended that the projectisation, scaling up and sustainability
of CSR projects need to be safeguarded at all costs for their efficiency and efficacy.

4. It is found that many CSR initiatives and programs are taken up in urban areas and localities.
As a result, the impact of such projects does not reach the needy and the poor in the rural
areas. This does not mean that there are no poor and needy in urban India; they too equally
suffer from want of basic facilities and services. While focusing on urban areas, it is
recommended that companies should also actively consider their interventions in rural areas on
education, health, girl child and child labor as this will directly benefit rural people. After all,
more than 70 per cent people still reside in rural India.

5. It is noted that the Government should consider rewarding and recognizing corporate houses
and their partner non-governmental organizations implementing projects that effectively cover
the poor and the underprivileged.

6. It is noted that CSR as a subject or discipline should be made compulsory at business schools
and in colleges and universities to sensitize students about social and development issues and
the role of CSR in helping corporate houses strike a judicious balance between their business
and societal concerns. Such an approach will encourage and motivate young minds, prepare
them face future development challenges and help them work towards finding more innovative
solutions to the concerns of the needy and the poor. It is recommended that involvement of
professionals from the corporate sector, non-governmental organizations and business schools
would be key in ensuring youth participation in civic issues.

Conclusion
Society’s expectations are increasing towards the social development by the companies. So, it
has become necessary for the companies to practice social responsibilities to enhance their
image in the society. Even though companies are taking serious efforts for the sustained
development, some critics still are questioning the concept of CSR. There are people who claim
that Corporate Social Responsibility underlies some ulterior motives while others consider it as
a myth. The reality is that CSR is not a tactic for brand building; however, it creates an internal
brand among its employees. Indulging into activities that help society in one way or the other
only adds to the goodwill of a company. Corporate Social Responsibility is the duty of everyone
i.e. business corporations, governments, individuals because of the reasons: the income is
earned only from the society and therefore it should be given back; thus wealth is meant for
use by self and the public; the basic motive behind all types of business is to quench the hunger
of the mankind as a whole; the fundamental objective of all business is only to help people. CSR
cannot be an additional extra - it must run into the core of every business ethics, and its

26
treatment of employees and customers. Thus, CSR is becoming a fast-developing and
increasingly competitive field. Being a good corporate citizen is increasingly crucial for
commercial success and the key lies in matching public expectations and priorities, and in
communicating involvement and achievements widely and effectively.

After the enactment of the Companies Act-2013, it is estimated that approximately 2,500
companies have come in the ambit of mandated CSR; the budget could touch approximately
INR 15,000 – 20,000 crores. It is very likely that the new legislation will be a game-changer,
infusing new investments, strategic efforts and accountability in the way CSR is being conceived
and managed in India. It has opened new opportunities for all stakeholders (including the
corporate sector, government, not-for-profit organizations and the community at large) to
devise innovative ways to contribute to equitable social and economic development. Currently,
CSR in India is headed in a positive direction as there already exists a multitude of enabling
organizations and regulatory bodies such as the Department of Public Enterprises (DPE),
Ministry of Corporate Affairs (MCA), and Indian Institute of Corporate Affairs (IICA). These
institutions have already set the wheels in motion and are playing an important role in making
CSR a widespread practice and in ensuring success in reducing inequalities without risking
business growth

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