Chapter Two

Genesis and Evolution of Corporate Social Responsibility

2.1 Introduction

The relationship between the corporate sector and society is as old as the trade itself.
Business people were continuously striving to engage with the community, which
provides legitimacy to company to operate. This chapter will trace the historical roots
of CSR and the contribution of different scholars in the development of the CSR

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concept. The first section reviews the evolution of CSR in the international context.

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This mainly discusses the contribution of different theorists to the CSR scholarship.

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Section second explores the historical development of CSR in the Indian context.

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2.2 Historical Roots of Corporate Social Responsibility
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
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Ethical Obligations of the Corporate Sector in the 1950s
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The concept of CSR has been increasingly recognized in the corporate sector from the
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last few decades and its core idea can be traced through history. Specifically, with the
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end of world war second academia begins to address the concept of CSR. This can be
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understood as the beginning of the modern theoretical construct of CSR. The book
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'Social responsibilities of the businessman' (1953) by Howard R. Bowen, marks the

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beginning of formal literature on CSR. Bowen opined that corporations emerged as

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major power centers and they affect the lives of the population in various ways, which
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makes it imperative for corporate entities to change their basic business philosophy.
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Bowen questioned the basic philosophy of corporate entities and queried, "what
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responsibilities to society may businessmen reasonably be expected to assume" (P.

xi). Howard Bowen in 1953 set forth an initial definition of the social responsibilities
of businessmen as follows: "It (SR) refers to the obligations of businessmen to pursue
those policies, to make those decisions, or to follow those lines of action which are
desirable in terms of the objectives and values of our society" (p. 6). Howard Bowen
is called as the father of CSR for his seminal work (Carroll, 2006).

After Bowen, Peter Drucker espoused the philosophy of CSR by emphasizing that the
corporate sector should progress and set the company objectives in terms of public

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responsibility. Drucker (1954) stated that corporate entity "has to consider whether the
action is likely to promote the public good, to advance the basic beliefs of our society,
to contribute to its stability, strength, and harmony" (Drucker, 1954, p. 388). Few
other management theorists who contributed during this period to CSR scholarship
are Selekman's, Moral Philosophy for Management' (1959), Heald's 'Management's
Responsibility to Society: The Growth of an Idea' (1957) and Eels's 'Corporate Giving
in a Free Society' (1956). During this period, CSR was mostly in discussions than in
practice. In this period, corporate executives begin to educate themselves about CSR
and changing their attitude towards corporate responsibilities. According to William
C. Frederick, CSR in the 1950s revolved around three core ideas: the idea of corporate

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managers as public trustees, the idea of balancing claims of different stakeholders and

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the acceptance of philanthropy as a sign of good corporate citizenship (Frederick,

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2006).

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 CSR Concepts and Practices Proliferate in the 1960s us
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In the 1960s, the interest in CSR was influenced by the increased awareness in the
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society and social movements (Agudelo, Jóhannsdóttir & Davídsdóttir, 2019). The
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burning issues during this period were rapid population growth, environmental
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pollution, labour rights and resource depletion (Pisani, 2006; Carroll, 1999). During
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this period, CSR was approached as a response to the problems of modern society.
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Keith Davis (1960) argued that the changing political, social and economic condition
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of society drives companies to re-examine the role of corporate firms in society. Davis
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(1960) asserted that corporate entities should take relevant responsibilities in terms of
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economic and human values (Carroll, 1999; Davis, 1960). The significance of Davis'
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ideas is that he indicated that the "social responsibilities of businessmen need to be

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commensurate with their social power" (p. 71). Avoidance of such responsibility
would reduce the company's social power (Davis, 1960). Other influential
contributors of this time were Frederick (1960), McGuire (1963) and Walton (1967).
This period saw the emergence of big corporate firms and the accumulation of wealth
by these firms. The power center hypothesis of Bowen's resurfaced in the 1960s
again. Frederick (1960) asserted that the change in the social and institutional
networks increased the economic power of corporations. He gave five principals for
corporate responsibility:

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1. The whole economic activities of the company should promote total socio-
economic welfare.
2. The company should establish new management and production techniques.
3. To acknowledge that the current social context has its historical context.
4. To recognize that the behavior of business people is a function of its role within
society.
5. The responsible behavior of the company is established after deliberate and
conscious efforts.

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McGuire (1963) further validated the assertion of Davis by emphasizing that the

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business environment and institutional framework have changed and corporate people

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should look beyond the legal responsibilities. Walton (1967) also argued that change

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in the business framework saw corporations as potential contributors to society. On

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the contrary, Milton Friedman criticized the management theorists for developing a
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case for CSR. He posits that the company should only limit its activities to profit
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maximization and CSR is no business of corporate entities (Friedman, 1962). Overall

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the focus of management theorists remained on the formalization of CSR and the
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importance of CSR in changing the business environment (Carroll and Shabana,

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2010). On a practical level, CSR remained limited to the philanthropic character

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during this period (Carroll, 2008).

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 Period of Rapid Growth in the Concept of CSR During the 1970s

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CSR received a maximum response in this period. In this period, the focus was on the
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conceptual framework of CSR with emphasis on what CSR encompasses. At the same
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time, alternative themes begin to emerge, such as corporate social responsiveness

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(Ackerman, 1973; Ackerman and Bauer, 1976) and corporate social performance
(CSP). The growing sentiments against the war, growing sense of social awareness
and social context translated CSR to a new level. The path-breaking work on CSR
came from the committee for economic development in its 1971 publication, 'social
responsibilities of business corporations'. The report suggested that "business
functions by public consent and its basic purpose are to serve the needs of society
constructively—to the satisfaction of society" (p. 11). Committee for economic

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development observed that the relationship between society and business are changing
in dramatic ways:

"Business is being asked to assume broader responsibilities to society than ever before
and to serve a wider range of human values. Business enterprises, in effect, are being
asked to contribute more to the quality of American life than just supplying quantities
of goods and services. Since the business exists to serve society, its future will depend
on the quality of management's response to the changing expectations of the public"
(p. 16).

The CED developed three concentric circles of social responsibility. The inner-circle

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deals with basic economic responsibilities such as product, jobs and better utilization

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of resources. The intermediate circle deals with pursuing economic function by taking

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cognizance of social values and priorities, such as with the workforce, environmental

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conservation and customer welfare. Outer responsibilities mostly deal with emerging
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and nebulous issues, such as poverty and urban blight. (p.15)
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The significant contribution in the definitional construct was from the management
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theorist Archie B. Carroll. He made a landmark contribution by proposing a four-part

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definition of CSR. He defines CSR as "the social responsibility of business

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encompasses the economic, legal, ethical and discretionary expectations that society
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has of organizations at a given point in time" (Carroll, 1979, p. 500). This work
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received wide acceptability as it adequately addresses the responsibilities corporate

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sector has towards society: economic, legal, ethical and discretionary. These four
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themes categorize the social responsibilities of businesses more exhaustively. The

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conceptual framework kept dominating this period and different debates emerged on
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the conceptual framework of CSR. Johnson (1971) describes CSR as conventional

wisdom where a "socially responsible firm is one whose managerial staffs balance a
multiplicity of interests. Instead of striving only for larger profits for its stockholders,
a responsible enterprise also takes into account employees, suppliers, dealers, local
communities and the nation."

Friedman (1970) floated his theory of profit maximization as the only responsibility
of corporate entity. He further extends his argument that "there is one and only one
social responsibility of business—to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of the game, which

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is to say, engages in open and free competition without deception or fraud." The
1970s was a decade during which managers addressed the CSR issues through
traditional management functions (Carroll, 2008).

 Complementary Themes to CSR Ascend in the 1980s

During the 1980s, the process of recasting CSR led research on CSR to new heights,
and corporate entities become more responsive to their stakeholders. During this
period, few related, but new terms emerged in academia to enrich the debate. The
enthusiasm for CSR did not die out; the alternative themes started to recast into
alternative or complementary concepts, theories and models. The important

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contribution in this period came from Thomas M. Jones (1980). He defined CSR as:

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"Corporate social responsibility is the notion that corporations have an obligation to

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constituent groups in society other than stockholders and beyond that prescribed by

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law and union contract." us
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He emphasized CSR as a process rather than principle and focused more on the
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operationalization of CSR. Arguing that it is extremely hard to arrive at a consensus

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with respect to what establishes socially responsible conduct, he suggests that CSR
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should be seen not as a set of outcomes, but as a process (p. 65). Another significant
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contribution came from Freeman. His book 'Strategic management: A Stakeholder

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Approach' (Freeman, 1984) triggered a new debate on CSR. His understanding of

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corporate responsibilities and the integration of ethics & values into the company
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recast into stakeholder theory. Freeman's stakeholder theory deals with two important
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issues that are:

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1. Redistribute benefits to stakeholders.

2. Redistribute important decision-making power to stakeholders.

On redistribution of benefits to stakeholders, Freeman asserts that ''my thesis is that I

can revitalize the concept of managerial capitalism by replacing the notion that
managers have a duty to stockholders with the concept that managers bear a fiduciary
relationship to stakeholders." "The crux of my argument," writes Freeman, "is that we
can reconceptualize the firm around the following question. For whose benefit and at
whose expense should the firm be managed" (p. 39)? On redistribution, important

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decision-making power to stakeholders, Freeman posits "each of these stakeholder
groups has a right not to be treated as a means to some end and therefore must
participate in determining the future direction of the firm in which they have a stake"
(Freeman, 2002, p. 39).

He extended the scope of CSR by proposing that the firm is responsible for "any
group or individual who can affect or is affected by the achievement of the
organization's objectives". In his theory, the dichotomy of social and economic goals
was no longer relevant, as all corporate performance was observed to be affected by
other stakeholders as well apart from shareholders (Carroll, 2008). One important

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aspect which emerged during 1980 was the understating of how CSR impacts the

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performance of the business. Drucker (1984) posits that CSR provides an opportunity

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for businesses to improve financial performance. Phillip Cochran and Robert Wood

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also study the impact of CSR on financial performance. In this decade, researchers

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extensively studied the economic and social interests within organizations. It was
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found that social and economic interests came closer and became much more
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responsive but could not yet be tightly coupled together (Lee, 2008).
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
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Strategic CSR in the 1990s

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Around 1990, there was a major shift in the world economy as globalization became a
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buzz word. It was during this decade that the CSR gained international appeal,
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perhaps as the result of the international institutions, like International Labour

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Organization, Work Bank, World Trade Organization and United Nations

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Organization. During this period, Donna J. Wood did the major academic work on
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CSR. Wood (1991) reformulated Carroll's CSR model. In first, she delineates how
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Carroll's four levels are related to the principle of social legitimacy, public
responsibility and managerial discretion. Second, she recognized social
responsiveness forms as environmental assessment, stakeholder management and
issues management, which goes beyond Carroll's responsiveness categories (reactive,
defensive, accommodative and proactive). Third, she took Wartick and Cochran's
strategies and Carroll's social issues class and redesigned them under another subject
of results or yields of corporate behavior.

Burke and Logsdon also contributed to CSR from the perspective of strategic
management. They tried to link CSR with financial performance and evaluate the

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benefits of the strategic implementation of CSR. For them, CSR has a value and can
be integrated with corporate strategy to improve performance (Burke and Logsdon,
1996). In the early years of the twenty-first century, Craig Smith pointed out that
CSR has changed from being a response to the public interest to positive social
impact. He put forward a new definition:

"Corporate social responsibility refers to the obligations of the firm to its stakeholders
– people affected by corporate policies and practices" (Smith, 2001, p. 142).

He further argued that "these obligations go beyond legal requirements and the firm's
duties to its shareholders. Fulfillment of these obligations are intended to minimize

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any harm and maximize the favorable long-run impact of the firm on society" (p.

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142).

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Smith's definition was inclined towards making CSR as part of corporate strategy.

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The discussion after globalization shifted from the conceptual framework to
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performance orientation and from macro-level to the micro-level (Leite and Padgett,
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2011). The essence of CSR in this decade revolves around the theme 'doing good to
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do well'.
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Porter and Kramer (2006) developed a shared value theory1 on the premise that CSR
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creates a competitive advantage through the creation of shared value in terms of

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benefits for society and the company. Porter and Kramer (2006) emphasized that the
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company should look inside to map the social impact of the value chain and focus on
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those social issues that have significant strategic value. In the same way, the firm
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should assess the impact of its social issues on productivity and the execution of
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business strategy (Porter and Kramer, 2006). The understanding of this

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interrelationship between society and the corporate sector will pave the way for better
business strategies (Porter and Kramer, 2006). Porter and Kramer (2011) argued that
shared value is essential for the progress and growth of the business. Shared value
theory focuses on "identifying and expanding the connections between social and
economic progress" (Porter & Kramer, 2011, p. 2).

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Shared Value theory is the “Policies and operating practices that enhances the competitiveness of a
company while simultaneously advancing the economic and social conditions in the communities in
which it operates.”

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The notable contribution from Porter and Kramer was his redefinition of the purpose
of business. They argued that "the purpose of the corporation must be redefined as
creating shared value" (p. 2). This perspective of the creation of shared value is
evident in what Trapp (2012) calls the third era of CSR.

2.3 Evolution of Corporate Social Responsibility in India

India has a long tradition of corporate philanthropy and charity that has been put to
practice. The history dates back to Kautilya, who emphasized the moral value while
doing business in India (Kumar &Rao, 1996). CSR in India was practiced in different

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forms and had been changing its nomenclature. Usually, it was practiced in the form

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of charity and social giving in the time of famine and for the underprivileged section

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of the society. The current history of CSR in India can be traced back to a few

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centuries when modern industrialization starts. The development of CSR can be

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divided into five phases. us
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 Ethical Approach: CSR as Charity and Philanthropy (1800-1914)

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The culture of social spending has a long history in India, given its rich culture and
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tradition. The dominant approach of CSR during this period was the charity, donation
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and philanthropy. Although there was no formal approach to CSR, big business
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houses were regularly investing in the social issues of the society. The charity was
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limited to religious issues and some societal crisis. The corporate people usually were
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investing in temples, educational institutions and donated from their repositories at

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times of hardship (Sundar, 2000). Social issues usually dominated the donations and
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in times of crisis, they throw open godowns of food and treasure chests' (Arora &
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Puranik, 2004). During this period, the corporate sector in India was dominated by
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Tata, Birla, Bajaj, Lalbhai, Sarabhai, Godrej, Shriram, Singhania, Modi, Naidu and
Mahindra who were devoted philanthropists (Mohan, 2001).

 Second Phase: CSR for India's Social Development (1914–1960)

This period was dominated by the Indian struggle for freedom and anti-colonial
attitude developed against the British raj. In 1914, the Indian leader, MK Gandhi,
introduced the concept of trusteeship, which impressed upon the business people to
establish trust for the welfare of common people. The concept of trusteeship viewed

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corporate entities as the stewards of the community resources and use them for the
welfare of common people (Gopinath, 2005). The concept of trusteeship later evolved
as the ethical model of CSR (Kumar et al., 2001). Gandhi strongly emphasized that
corporate entities should engage in eradicating poverty and social evils by
establishing schools, colleges and training institutions (Mohan, 2001). This also
included the programs, like the abolition of untouchability, women's empowerment
and rural development (Arora & Puranik, 2004). This period was mostly dominated
by establishing the social institution to protest against colonial rule. The nationalistic
tendencies were visible during this time among Indian industrialists and they
contributed to the cause of social change, poverty alleviation, women empowerment

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and caste systems as a mark of protest against colonial rule (Sundar, 2000).

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Third Phase: CSR under the Paradigm of the Mixed Economy (1960–1980)

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After the freedom from the British raj in 1947, the Indian state adopted the socialist
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and mixed pattern of the economy. The prime minister of India, Jawaharlal Nehru,
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introduced the statist model of CSR in India. This gave rise to the Public Sector
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undertakings (PSUs) and state-owned companies. This era is also called the era of
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'command and control' where stringent laws were introduced to regulate private
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companies (Arora and Puranik, 2004).

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During this phase, CSR issues like labor laws and environment protection rose on the
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political agenda and quickly became the subject of legislation. However, the notion
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that public sector units could track the developmental projects fades away quickly and
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the private sector was given re-entry to take the socio-economic development.
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 Fourth Phase: CSR at the Interface between Philanthropic and Business

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Approaches (1980-2008)
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The liberalization of the Indian economy characterizes this phase and global players
started to establish a business in India. These companies introduced the western type
of CSR 2 and came with modern corporate values. Indian companies started to
abandon the concept of charity and adopt the concept of stakeholders.

2
A Western form of CSR is considered more secular, inclusive in terms of caste, creed and community,
and aimed at bringing progress to society through modern institutions (Sundar 2000).

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CSR and sustainable practices were integrated into a core strategy of the business. In
1990, the government of India liberalized the economy to integrate India into the
global market. The growth in the private sector does not lead to the reduction of
philanthropy, but it increased the ability and willingness of companies to contribute
towards society. Indian companies started to realize that if they have to compete with
the global players, they need to adopt the modern concept of CSR. So, after 1990,
companies started the modern CSR by adopting the credo that "doing all that we can
to do the most good, not just some good." Market competition among Indian exporters
influenced more and more compliance with the International standards related to CSR
and corporate governance.

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 Fifth Phase: Legal Framework - Guidelines and Implementation of CSR

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in India (2009-Present)

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CSR has evolved significantly over the last few years and is now witnessing
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unprecedented interest and investments across the value chain. In the recent past, the
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Indian state has taken noteworthy decisions to drive companies to invest more in CSR
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activities. In 2007, then the Prime Minister of India, Dr. Manmohan Singh, released
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the ten-point social charter, which called Indian companies to share benefits with the
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less privileged community and takes responsibility in nation-building. This was

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closely followed by the corporate week 2009, which laid down six principles to
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advance CSR in India. The report highlighted that "companies should disseminate
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information on CSR policy, activities and progress in a structured manner to all their
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stakeholders and the public at large through their website, annual reports and other
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communication media" (First India Corporate Week, 14–21 December 2009). In

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2012, the security exchange board of India (SEBI) issued a notification to direct the
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top 100 companies to report their social, environmental and economic activities in
their annual report. After years of debate, the Indian parliament in 2013 took a
landmark decision to make CSR mandatory for corporate entities. The section 135 of
Indian Companies Act, 2013 makes "CSR mandatory for all those companies which
have an annual turnover of Rs 1,000 crore (10 Billion) or more, or a net worth of Rs
500 crore (5 Billion) or more, or a net profit of Rs 5 crore (50 Million) or more".
Under the clause, "companies need to invest at least 2% of their average profit in the
last three years". The major areas for CSR interventions are: "poverty-alleviation
programs including livelihood and skill training, health care, nutrition, water and

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sanitation, education and sports, ecology and environment, programs specifically
designed to address the needs of women, disabled and aged people and marginalized
groups of society for overall rural development" (Appendix-II).Further, In 2016 BSE
signed a memorandum of understanding with the Global Reporting Initiative to
encourage listed companies to report on and act upon reducing environmental and
social impact. The most important CSR model based on the phenomenon of mandated
CSR in India is the Chatterjee Model. The Chatterjee Model puts forward that "CSR
activities should be projectivised, implying that when CSR is done by a company, it
looks at it as a serious endeavor; to really be able to strategies as to what it is doing,
why it is doing, what are the results that will flow from that, that will build up to

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contribute to the National Agenda" (Chatterjee & Mitra, 2017). The crux of the

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Chatterjee Model lies in the clear outcome orientation. The CSR is growing in India

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and companies have taken it with pride to contribute towards the society.

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