Corporate Social Responsibilty Learning Outcomes 41 Explain the meaning of Corporate Social Responsibility 42 State the dimensions of Corporate Social Responsibility 43 Describe Corporate Philanthropy in India 44 Explain the relationship between CSR and Corporate Sustainability 45 Explain Carrol's Model of CSR 46 Explain Classical Model of CSR 47 Explain Stakeholders Model of CSR 48 Explain Trusteeship Model of CSR 49 Examine Implementation of Corporate Social Responsibility 410 Describe Corporate Social Responsibility in India 4M Highlight the relationship between Ethics and CSR 412 Highlight the relationship between CSR and Corporate Governance Business is a part of the society. In fact, it owes its existence to the society. Naturally, it should function under the overall control and discipline of the society. The society requires every business to perform certain obligations. The performance of such obligations is essential not only for the well-being of the society, but also for the survival and well-being of the business itself. Thus, the obligations of a business to the different segments of the society determine its overall objectives. George A. Steiner has rightly said, “In the real sense, the assumption of social responsibilities implies recognition and understanding of the aspirations of the society and determination to contribute to its achievement” . _ Modern corporations cannot shirk their social responsibility because their activities exert a tri-dimensional impact (economic, social and environmental) on the society. This chapter is an attempt to explain the concept, need, models and important areas of social responsibility of the corporates. A MEANING OF CORPORATE SOCIAL RESPONSIBILITY Corporate social responsibility (CSR) is the commitment and activties of an organisation to meet the society’s expectations on economic, environmental faire: 41 Scanned with CamScanner42 Corporate Governance, Ethics & Social Responsibility of Busines and social performance. In practice, a number of terms such as ‘sustainable growth’, ‘corporate responsibility’, ‘corporate citizenship’, etc. are used in the context corporate social responsibility. According to World Business Council for Sustainable Development, “Corporate Social Responsibility (CSR) is the continuing commitment by business to behave ethically and contribute to economic development while improving the qualit, of life of the workforce and their families as well as of the local community and th society at large.” Social responsibility of a corporation means obligation to act ina manne, which will serve the best interests of the society. Social obligation of a busines; is different from legal obligation. Legal obligation is fulfilled by mer compliance with the provisions of the law. But social obligation relates to the voluntary efforts on the part of business organisations to contribute to the socia| well-being. It is based on the assumption that what is good for the society is also good for the business. DEFINITIONS OF SOCIAL RESPONSIBILITY (CSR) “in the real sense, the assumption of social responsibilities implies recognition and understanding of the aspirations of the society and determination to contribute to its achievement.” — George A. Steiner “Social responsibility requires managers to consider whether their action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength, harmony’. —Peter F. Drucker “By social responsibility we mean the intelligent and objective concern for the welfare of society that restrains individual and corporate behaviour from ultimately destructive activities, no matter how immediately profitable, and leads in the direction of positive contributions to human betterment, variously as the latter may be defined.” — Kenneth R. Andrews Every individual living in the society has certain obligations towards the society. He has to observe the social norms of behaviour. Viewed in this perspective, the managers of corporations must take care of their socia responsibilities and must fulfill the expectations of the society. Busines: activities must be conducted according to what the society considers desirable Undesirable activities should not be undertaken for the sake of profits. Fo! instance, manufacture and sale of adulterated goods is against the interest o! the general public though it may help the business in maximising its profits Such a practice is against the concept of social responsibility; so it must be avoided. CSR and Corporate Responsibility (CR) Many people don’t make a distinction between corporate social responsibilities (CSR) and corporate responsibility (CR). But CR is a wider concept than CSR, CR comprises of not only CSR, but also issues like ethics Scanned with CamScannerCorporate Social Responsbility 43 environment and corporate governance. In Corporate Social Responsibility the focus is mainly on the social obligations of business i.e., on giving back to the society. That is why, companies should adopt a wider and long-term Perspective by moving from CSR to CR. The World Business Council for Sustainable Development (WBCSD) CR includes of the following concepts in the scope of corporate responsibility (CR) : (® Corporate Social Responsibility (@ Corporate Financial Responsibility (ii) Corporate Environment Responsibility. Thus, CSR is one of the means of discharging CR. CSR is doing good to the society whereas CR is doing good to everybody. CR is doing good on a Sustainable basis rather than on adhoc basis. CSR should be considered an integral part of corporate responsibility. The concept of corporate social responsibility is based on right based perspective. This perspective stresses that consumers, employees, affected communities and shareholders have a right to know about corporations and their business. Corporations are private initiatives, true, but increasingly they are becoming public institutions whose survival depends on the consumers who buy their products and shareholders who invest in their stocks. This perspective stresses accountability, transparency and social and environmental interests as the key aspects of corporate social responsibility. 4.2 DIMENSIONS OF CORPORATE SOCIAL RESPONSIBILITY Corporate social responsibility covers there aspects as follows : _ @) Traditional corporate philanthropy, i.c., charity for socio-cultural and ~ teligious purposes. @ Corporate social responsibility, with a focus on sustainable __ development and attending to stakeholders’ priorities. __ @) Ethical business based on social values and the stakeholders’ long- term interests. _ These dimensions have been discussed below : (1) Corporate Philanthropy : It dates back to the 19th century and emerged because of concern for the welfare of the immediate members of the i,, the staff and their families. Later, the concept was extended to members of the immediate community where the corporation production facilities are located. Philanthropic activities include charity, provision of health care facilities, contribution for social-cultural activities, etc. These activities are voluntary in nature. __ Corporate social responsibility is qualitatively different from the traditional concept of corporate philanthropy. It acknowledges the debt that the corporation owes to the society within which it operates. It also defines the Scanned with CamScanner44 Corporate Governance, Ethics & Social Responsibility of Busines®: ies corporation's partnership with social action groups in providing financial and other resources to support development plans, specially among disad vantaged communities. Today, corporate social responsibility goes far beyond the old philanthropy of the past, i.e., donating money to good causes at the end of the financial year. It is instead an all year round responsibility that compares) accept for the environment around them, for the best working practices, for theirengagement in their local communities and for the recognition that brand names depends not only on quality, price and uniqueness, but on how, cumulatively, they interact with the stakeholders. Now we need to move towards a challenging measure of corporate responsibility, where we judge results not just by the inputs but by its outcomes : the difference we make to) the world in which we live, and the contribution we make to reduce social inequality. (2) Stakeholders’ Priorities and Sustainable Development : This perspective on corporate social responsibility focuses on responsibility towards stakeholders (shareholders, employees, management, consumers and community) rather than on maximisation of profits for shareholders. There is alsoa stress on long-term sustainability of business and environment and the distribution of well-being of people. There is an increasing recognition of the triple-bottomline : People, Planet and Profit. The triple-bottomline stresses: the following : {@ The stakeholders of a business are not just the company’s shareholders. They also includeemployees, managers, suppliers, local community, society, government, etc. (i) Sustainable development and economic sustainability is essential to ensure availability of natural resources for future generations. (iti) Corporate profits should be analysed in conjuction with social - prosperity. (3) Ethical Business : Ethical business is the more fundamental emerging’ trend on the international scene. Its focuses is on : (a) how a business is conceptualised; (b) how a business is operated; and (c) the notion of fair profit. Inanethical business, the essential thrust is on social values and business is conducted in consonance with broader social values and the stakeholders” long-term interests, Is Corporate Philanthropy the Same as CSR? The essence of philanthropy is doing good to others. Carrol has included corporate phitanthropy in his model of CSR which suggests that philanthropy Scanned with CamScannerCorporate Social Responsbility 45 isanelement of CSR. Philanthropy is an old concept which emerged out of the a. desire to donate for charitable or social causes like education, water, health aid, etc., for the poor. Corporate social responsibility far beyond philanthropy, it also covers economic responsibilities, legal and ethical responsibilities of a corporation. companies make planned efforts to meet the expectations of ers and reconcile their interests. The major points of difference ‘and corporate philanthropy have been given in Exhibit 4.1. While “means providing welfare activities to people around the of operation, corporate social responsibility refers to company’s s all its stakeholders in the society in which it operates. responsibility is, thus, wider in scope than philanthropy. sa 2) 4.1: CSR vs. CORPORATE PHILANTHROPY Corporate Philanthropy 44, tehas a narrow perspective. Its focus is more on charitable activities of the company. . It deals with humanitarian cause. . It concentrates on _ profit maximisation for shareholders and spending a part of profits on public welfare activities. |. It flows from corporates top management values. . Its focus is on short-term viability of the company . The philanthropic efforts are voluntary in nature and they may not require the services of experts. Scanned with CamScanner46 Corporate Governance, Ethics & Social Responsibility of Busine, Reasons for Corporate Philanthropy The rationale of philanthropy lies in both (i) economic, and (ii) non economic motives as discussed below, (i) Economic Motives, Many corporations give donations for social cause as they expect economic benefits in the long-run, This improves public imap or goodwill of the companies concerned. Corporate charity also generate market, improves contacts with the respective governments and social group, and saves taxes. It is difficult to build a successful large scale business w ithoy forming a partnership with local governments and publicat large. For example Bill Gates of Microsoft donated $100 millions for ‘AIDS’ program in India i 2004 with a view to create goodwill for Microsoft and its products. Thus corporate philanthropy is good business. (ii) Non-Economic Motives. Many corporations provide funds organisations of trusts engaged in public health, educational, religious ang social development a ies. They recognise that business and society ar interdependent and tl jerests are common. This community of interest prompts corporations to be more concerned and caring for the society. In short corporate philanthropy is inspired by the principles of charity and trusteeship Benefits of Corporate Philanthropy The major benefits of corporate philanthropy are as under. (@ Itenhances the public image and reputation of the corporation. (ii) Itbrings new customers to the corporation and increases their loyalty (iii) It strengthens the employees’ commitment and loyalty. This leads tc higher productivity, (iv) It helps the corporation to expand their operations to new markets. (0) It sustains health and welfare of the local community where the company’s productive facilities are located. These days companies are increasingly integrating philanthropy with thei! business plans. Although objections have been raised from many corners sayin that philanthropy done to indirectly benefit the organisation is not philanthropy in the true sense of the term; rather it is a way of publicising the business, Bul there is no reason why an organisation should not get benefited by it: philanthropic activities. In fact, an organisation can do philanthropy only wher itis making profits, And integrating business plant with philanthropy can creat a win-win situation both for the society and for the corporation. 4.3 CORPORATE PHILANTHROPY IN INDIA The story of business philanthropy in India isalso largely a story of Indian business families, and especially of some business dynasties. The story of Indian business is itself largely a story of family-owned and controlled businesses Scanned with CamScannerCorporate Social Responsbility 47 The companies belonging to the Birlas, the Tatas, the Goenkas, the Bajajs, the Dalmias, the Modis, the Godrejs, etc. have been pioneer in the area of corporate philanthropy in India, The Tatas set up Tata Institute of Social Sciences, Tata Institute of Fundamental Research, and Tata Memorial Centre. Tata Steel Rural Development Society (TSRDS) launched community development project in 700 villages spread over Bihar, Orissa and M.P. The Lupin group launched Lupin Support Programme in Rajasthan in 1988 to provide infrastructure so that the benefits of Government programmes could reach the rural poor. Usha Martin set up Krishi Gram Vikas Kendra in Ranchi to reduce disparity in the living standards between their workers and other rural families. The Bajaj group set up the Jamnalal Bajaj Foundation which has started institutes for management studies and also offers scholarships to meritorious students in various fields of higher learning. The Birla group has built the Birla Planetorium and the Birla Science and Art Museum in Calcutta and three institutes of Technology and Science for promoting technical education. It runs an orphanage for 250 destitute boys in Bombay. Each of the group company is engaged in the rural development activities. In fact, philanthropic activities are being undertaken by most of the business groups in India now. They have become a part of their corporate strategy. Many of the old multinationals such as ICI, Hindustan Lever and ITC became Indianised and began to feel the same responsibility as the indigenous businesses. For the new wave of MNCs, which have come into India in the wake of liberalisation, philanthropy is more an exercise in public relations and market development than a sentimental attachment to a community. SOME EXAMPLES OF CORPORATE SOCIAL RESPONSIBILITY AND PHILANTHROPY ~ TISCO has been a pioneer in discharging social responsibility and has made ‘several contributions in areas such as community development, social welfare, _ tribal area development, agriculture and related activities, rural industrialisation, and so on. @ Asian Paints has funded a large-scale community development project to enable farmers to use local resources effectively. 62 'BHEL has contributed to the development of the quality of life in rural areas, healthcare: and family welfare, adult education, and so on. SAIL has contributed to the sectors of agriculture, industry, education, healthcare, Beioend spon. Colgate-Palmolive has done pioneering work in the promotion of sports, dental health, and small industry development. Escorts has contributed to farm mechanisation, agricultural development, Scanned with CamScanner48 Corporate Governance, Ethics & Social Responsibility of Busine 44 CSR AND CORPORATE SUSTAINABILITY Today's business leaders face a global business environment which poses many challenges and dilemmas. CSR is closely linked with the principle of “Sustainable Development” which propogates that a corporation should be obliged to make decisions based not only on the financial/ economic factors but also on the social and environmental consequences of their activities. According to the Bruntland Commission, 1987, “Sustainability grounds the development debate in a global framework, within which a continuous satisfaction of human needs constitute the ultimate goal”. At the level of business, corporate sustainability means meeting the needs of a firm’s direct and indirect stakeholders like, shareholders, employees, customers and clients, communities, government etc., keeping in mind the firm’s ability to meet the needs of the future stakeholders as well. Sustainability is often equated with eco-efficiency, socio-efficiency, and ecological equity, which most of the companies endorse in their functioning asa guiding principle. Corporate sustainability is a business approach that aims at creating long-term consumer and employee value by not only following a “green” strategy aimed towards the natural environment, but also with concern towards all aspects of business that operates in the social, cultural, and economic environment. Corporate Social Responsibility is closely related to the concept of sustainability. Corporate sustainability is the broader term that endorses ethical corporate practices such as Corporate Social Responsibility (CSR). Business, while endorsing CSR takes into consideration social and environmental factors and goals. Sustainability incorporates societal and environmental issues within a business model imperative for success of any business. Hence, a sustainable business will employ CSR practices. BOX 2: SUSTAINABLE DEVELOPMENT The main source of the concept of corporate sustainability is ‘The Brundtland Commission's Report- Our Common Future’. Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable development is about making living environment better, improving quality of life for everyone, now and in the future, based on eco-efficiency and innovative and participatory solutions for all the countries and mainly the developing countries in the global economy. Corporate sustainability is the corporate response to sustainable development manifest in strategies and’ practices that address its paramount issues. According to Dow Jones Sustainability Index, “Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments”. So, corporate sustainability is the inclusion of social and environmental concerns in business operations, organization's products and services and even ae Scanned with CamScannerCorporate Social Responsbility 49 in interactions with stakeholders. Transparency, accountability, public disclosure, stakeholder engagement, societal approach to business etc. comprise essential features of corporate sustainability. The goal of corporate sustainability is to integrate the economic, ecological and social aspects in a triple bottom line. A company’s societal and environmental impact as well as its financial returns is known as a co! ’s Triple Bottom Line (TBL). Elkington (1999) elucidated the concept ofthe Triple Bottom Line which describes that business goals are inseparable from the society and environment within which they function. If the business goals do not recognize social and environmental effects while pursuing short- term economic gains, the business practices are unsustainable. Business aims to generate boost in company, consumer, and employee value by creating opportunities and managing risks derived from environmental and social developments. Economic Sustainability Environmental Sustainability Social Sustainability i Fig. 4.1. Three Dimensions of Sustainability. _ Due to emergence of corporate sustainability, long term performance Stability has become a key concern of the companies in developing their eee strategies. They aspire to integrate short term and long term aspects to achieve sustainable goals. Although, due to stiff competition by the considerations of stock market, the companies are forced to ene nor on the short term gains and quarterly results which might to the principles of sustainability. Hence, there is a pressure on the companies to meet the needs of stakeholders in the future as well as the present, This motivates the companies to contribute to a global partnership for esare increasingly contributing to societal value in diverse human rights, regional development, climate stabilization, preservation, endorsing technologies to reduce the emission of and implementing efficient environmental risk management taking responsibility for minimizing their impact a teducing pollution, emissions, toxic and non-toxic Taw materials, accepting greener strategies, improving Dy se ahr Scanned with CamScanner4.10 Corporate Governance, Ethics & Social Responsibility of Business energy efficiency etc. Due to present compulsions, business is moving towards sustainable development and eco-innovation including increasing use of renewable energy, green marketing and sustainable supply chains. ategy for Corporate Sustainability In the present scenario, the managers have to consider corporate sustainability as a “precondition for doing business” and have to pursue strategies to realize it. They also make persistent efforts to have dialogue with the politicians on the issue of sustainability so as to have a conducive policy framework for it. The strategy of corporate sustainability of the firms include appointing corporate sustainability officers, publishing public sustainability teports and integrating principles of sustainability into their corporate communication strategies. Companies proactively develop and implement a corporate sustainability strategy due to the following benefits : (i) Sustainability improves Business : Sustainability is very helpful for overall improvement of business and it results in higher profits, better return on investment or shareholder value. Sustainability increases revenue of the business, decreases unwanted cost, reduces expenses on resources, energy and water, increases employee productivity and reduces strategic and operational tisks. The profit of the company can become manifold if measures like waste reduction and waste management, reducing energy use to improve recycling etc. are implemented for all this will ultimately decrease costs and increase profits. (ii) Sustainability encourages Transparency : Transparency is open environment within the company and the community that is instrumental in enhancing the performance and profitability of the company. Transparency leads to culture that promotes employee participation and motivates them to devise innovative products. (iii) Sustainability motivates Stakeholder Engagement : A sustainable company motivates active engagement, synergistic, win-together approach with all relevant stakeholders like, customers, suppliers, community, and non- government organizations with an objective to fulfill the environmental and social impact. Inaddition, corporate accountability is also a sustainable business practice improving financial performance of the company. It providesa legal and ethical basis for the company to take into account its effect on the society and the environment. Corporate sustainability framework offers a holistic, multi- disciplinary, multi-dimensional approach to management of business operations, addressing economic, environmental and social dimensions. Corporate sustainability encompasses a continuous set of values indispensable for companies endorsing the principles of ‘Profit-People-Planet’ and actions based on it. Addressing corporate sustainability contributes to the financial bottom line. However, Corporate sustainability initiatives go beyond legal om Scanned with CamScannerCorporate Social Responsbility 411 compliance and profit considerations. Corporate sustainability consists of balancing economic, social and ecological concerns into business activities and decision-making. Corporate sustainability is integrated and embedded inevery aspect of the organization. ‘The application of the principle of Sustainable Development through the introduction of a CSR policy is often accompanied by what is called triple bottomline reporting which contains not only financial results but also the social and environmental impact of business activities. Some countries (e.g. France) have made such reporting mandatory. However, measurement of social and environmental performance is difficult and so, new measurement Sa need to be developed. tionship between Corporate Sustainability (CS) and Corporate oes (CSR) ____ Various definitions of corporate social responsibility (CSR) and corporate ‘sustainability (CS) clarify difference and congruence between the two terms. There is wide discussion on the point whether sustainability is merely a component of corporate social responsibility or whether social responsibility is just one of the so-called bottom lines in sustainability’s Triple Bottom Line (TBL). Corporate Social Responsibility and Corporate Sustainability both refer ‘to social and environmental management issues, but there is no clear distinction n the two terms. two terms CSR and CS appear interchangeable but have a few as given Be : ition to society, while Corporate Sustainability (CS) has a ic approach to make business secure. emphasizes on compliance of business, while sustainability is business aiming at inter-generational equity between present e shareholders and stakeholders of the companies. on benevolent activities while CS concentrates more impact of a company on its environmental and beneficial es on stakeholders’ activities while CS fosters socio- nic development and social equity. . activities are taken up voluntarily and are not legally binding sense, CS is endorsed in laws that compel the companies performance of duties beyond shareholders and interests to the consumers, suppliers, society, nment etc. The legal norms of CS are strengthened by the te of reporting of social and environmental Scanned with CamScanner4.12 Corporate Governance, Ethics & Social Responsibility of Business eS The concept of corporate social responsibility is integrated to corporate sustainability and responsibility. At the organisational level, sustainability includes responsibility as well. Social sustainability is included in corporate social responsibility in the context of concerns for companies to develop strong and sustainable relationships with customers, employees, suppliers, stakeholders and community. Corporate Sustainability and Responsibility can be conceived as interconnected, representing economic, human, social and environmental systems. Both CSR and CS represent the way the companies achieve ethical standards and balance economic, environmental and social imperatives addressing the concerns and expectations of the stakeholders. The manifestation of sustainability and responsibility is closely inter-related, for example, ‘economic sustainability and financial responsibility; human sustainability and labour responsibility; social sustainability and community responsibility; and environmental sustainability and moral responsibility’. MODELS OF CORPORATE SOCIAL RESPONSIBILITY The important models of CSR are as under : ()) Carrol's model (i) Classical model * (ii) Stakeholders model (iv) Trusteeship model CARROL'S MODEL OF CSR Corporate Social Responsibility (CSR) is an umbrella term that includes economic, legal, ethical and discretionary (philanthropic) responsibilities of any business enterprise. To quote Carroll, “Corporate Social Responsibility encompasses the economic, legal, ethical and discretionary expectations that the society has of organisations at a given point of time.” Carroll's model considers four components of corporate social responsibility, namely, (1) Economic responsibilities, (2) Legal responsibilities, (3) Ethical responsibilities, and (4) Discretionary responsibilities (also called philanthropy). These components are not mutually exclusive. In practice, they intermingle with each other. However, this model can serve as a guide for the management of any organisation in discharging their social responsibilities as shown in Fig. 17.2. Scanned with CamScannerCorporate Social Responsbility 4.13 A Discretionary Responsibilities (Philanthropy) Do good to others Ethical Responsibilities Follow ethical (just and fair) pra Legal Responsibilities Obey the Laws of Land Economic Responsibilities Attain economic goals, i.e., survival, profitability and growth g aad ‘of Corporate Social Responsil A business is an economic entity so it must responsibil which are as follows : e economic interests of investors or shareholders, ie., alot return on vsti on sound aimed principles. for investment in business. ; bilities. These obligations have been created ey include the following : y it dues in time. ernment in achieving socio-economic on required by the government. d with following the social Scanned with CamScanner414 Corporate Governance, Ethics & Social Responsibility of Busines (@ To follow fair trade practices such as reasonable prices, good quality products and adequate publicity. (i) To safeguard the interests of labour, consumers and the community at large. (iii) To follow sound business principles for the advancement of its own interests and those of the society. (iv) To take anti-pollution steps. Discretionary Responsibilities/Philanthropy. These obligations are in addition to those mentioned above. The business houses have the discretion to assume the following responsibilities : (i) To contribute to the welfare of the local community. (i) To help weaker sections of the society. (ii) To contribute to the education of workers and general public. (i) To generate employment opportunities for the local population 4.6 CLASSICAL MODEL OF CSR According to the classical view, society's basic demands upon business are to produce goods and services efficiently. That was just about the one and only one social responsibility expected of the business. Thus, if a business was able to utilise efficiently the wealth-producing resources at its command and make available to the consumers goods and services of the right quality at reasonable prices, it was considered to be functioning ina socially responsible way. Nobel laureate economist Milton Friedman remarked, “...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 fraud.” The traditional view is based on the assumpton that ‘economic growth is the source of all progress — social as well as economic’. The engine providing the economic growth was considered to be the drive for profits by competitive private enterprise, The basic mission of business was, thus, considered to produce goods and services at a profit, and in doing so, the corporation was considered as socially responsible. The classical economists felt that the very concept of social responsibility is contradictory to the operation of the private enterprise system. We can sum up thearguments against assumption of social responsibilities by the business as follows: ( fa business assumes social responsibilities, it will violate the rule of (fi) There is no. economic justification of assumption of social responsibilities by the management. If they do so, they will be diverting the business resources. Scanned with CamScannerCorporate Social Responsbility 4.15 (iif) By assuming social responsibilities, the business will be diverting its attention from the economic objectives of business. (iv) The managers do not process the necessary social skills Cette to solve complex social problems. 4.7 MODERN VIEW OF CSR A modern corporation has many responsibilities towards society that go beyond the production of goods and services at a profit. Besides the shareholders, the corporations have many other stakeholders like customers, employees, suppliers, community, government, etc. Viewed in the light of this fact, corporate social responsibility means that corporations are more than simply economic institutions, and thus, they havea responsibility to help society in solving some of its most pressing social problems (many of which were and are caused in part by corporations) by devoting even some of their resources. Itisnow considered that a corporation can achieve its objectives by serving the society in a meaningful manner, i.e., by fulfilling its social obligations. The concept of social responsibility received an increasing attention during 1960s because of the need for corporations to respond to the changing social environment. This change was often described as a change in terms of the understanding between business and society that reflected changing expectations regarding the social performance of business. For example, during the 1970s, the Articles of Association of the major Tata companies were formally amended to read that, “The company shall be mindful of its social and moral responsibilities to the consumers, employees, shareholders, society and the community.” The concept of social responsibility is fundamentally an ethical concept. Itinvolves changing notions of human welfare and emphasises a concern about the social dimensions of business activity that have a direct connection with the quality of life in the society. The concept provides a way for business to concern itself with these social dimensions and pay due attention to the social impacts of its operations. Why should a Business assume Social Responsibility ? The important agruments offered in favour of business assuming social responsibilities are as follows : () Use of Society’s Resources. Business is a creation of society and so it should respond to the demands of the society. Business uses the resources which belong to the society, itis necessary that every business enterprise should fulfil its social obligations. Business managers are obliged to use the social resources for the common good of society. (i) Long-term Business Interest, The long-term self-interest of the business is best served when business assumes social responsibilities. There is a growing Scanned with CamScanner416 Corporate Governance, Ethics & Social Responsibility of Business realisation on the part of the enlightened businessmen that it is in their self- interest to fulfil demands and aspirations of the society. The people who have good environment, education and opportunities make better employees, customers and neighbourers for business than those who are poor, ignorant or oppressed. (ii) Moral Justification. It is moral and right thing to discharge social responsibilities. It is widely agreed upon that the businessmen today have a considerable social power. This poweris virtually granted to them by the society which must have a general relationship with social responsibility. The social tesponsibilities of businessmen need to be commensurate with their social power. If the businessmen do not assume social responsibility, their social power will be taken away by the society through Government controls and regulations and other measures. (@) Better Public Image. Public image of the business is improved. The business will retain the needed credibility with the public if it performs its social obligations. It will also avoid conflict with the society in its own interest. Good relations with the workers, consumers and suppliers will lead to success of business. (2) Conscious Customers. The consumers are well-informed. They expect higher quality products at a reasonable rates. If they do not get fair treatment from business, they will organise themselves and compel the business to assume its social responsibilities. (vi) Strong Trade Unions. The level Me education among the workers has been increasing. They understand the need of organising themselves into unions to advance their economic and social interests, The government has also enacted social security measures due to which it has become difficult for the business houses to ignore the interests of the workers. (vii) Government Intervention. There is a growing feeling among businessmen that if they do not rise to the occasion in meeting the social responsibilities, the Government will step in and make them assume such responsibilities through legislation. Such legislative regulation is expensive for business and stand in the way of flexibility and freedom in making decisions and meeting competition. Hence, it would again be in the interest of business community to voluntarily undertake to fulfil the social responsibilities. Drivers of CSR Why are today’s Corporations concerned more about their Social Responsibilities ? Most of the progressive corporations have ben showing greater concern about their responsibilities towards different stakeholders because of the following factors : () Compe Forces. The consumers are enlightened and better can make the government authorities intervene if the Scanned with CamScanner4.26 Corporate Governance, Ethics & Social Responsibility of Business CORPORATE SOCIAL RESPONSIBILITY IN INDIA “Social Responsibilities of Business” is not a new concept. Leadin, businessmen of the world have reaffirmed their belief in this concept. It affects their decisions and actions. Modern businessmen are more concerned with it than their predecessors. They recognise that since they are managing an economic unit in the society, they have an obligation to the society with regard to their decisions and actions affecting social welfare. J.R.D. Tata was the first leading businessman to explicitly Tecognise that business does not operate in isolation from. society, He remarked, “The most significant contribution organised industry can make is by identifying itself with the life and the problems of the people of the commiunity to which it belongs, and by applying its resources, skills and talents to serve and help them.” Today, business is going even beyond this old-style approach of supporting deserving causes and individuals and accepting its role as one of the driving forces of development. Over the years, several business houses in India have shown their concern for social responsibility through their contribution to health, education and tural development programmes. For instance, Tatas set up Tata Institute of Social Sciences, Tata Institute of Fundamental Research, and Tata Memorial Centre. Tata Steel Rural Development Society (TSRDS) launched Community Development Project in about 700 villages spread over Bihar, Orissa and M.P. The Lupin group launched Lupin Rural Support Pro; in Rajasthan in 1988 to provide infrastructure so that the fe ee programmes reach the rural poor. Usha sha Martin ot up seh Sram J iee Kenda in Ranchi to reduce disparity in ‘the living standards between their workers and other tural families. The Associated Cement Company has shown great concern for medical care, rural development activities and environmental conservation. It installed pollution control equipment 15 years before it became a legal necessity. It also takes special care to see that there is no ecological degradation during the process of mining limestone that is required to make cement. So, it undertakes restoration and rehabilitation of used up mining areas. The company also offers its experience and expertise in these areas to those willing to emulate ACC in such activities. The company has now shifted its focus to integrated rural development. All its healthcare, educational and vocational training measures aim at enabling the beneficiaries to fend for themselves. ACC has also taken up another social project that involves conservation of heritage buildings and structures, primarily in Mumbai. The Hindustan Ciba-Geigy started an ambitious project in 1990 to eliminate leprosy from Goa by 2000. The Lupin Laboratories launched ‘Lite for Life’ programme in 1993 to control and eventually eliminate tuberculosis from India. The Finolex Industries started the Hope Foundation in 1979 for the i Scanned with CamScannerCorporate Social Responsbility 4.27 detection and treatment of cancer. Besides several business houses have also created trusts to promote medical education in the country. Inshort, the business houses of today understand the need for contribution to national goals of economic growth, increase in employment, encouragement to sports, improvement of physical environment and development of backward Tegions in the country. They have shown concern for customers, employees, investors and suppliers. Besides, they have contributed to the ecological balance, increasing exports, encouraging ancillary industries and welfare of local communities where their plants are located. The public sector enterprises have also taken steps to fulfil their social responsibilities, Indian Railways, NTPC, BHEL and HMT, for instance, have contributed a lot to the welfare of people, generation of employment, development of human resources, introduction of new technology, import sustitution, growth of ancillary units, and rural development. 4.12 ETHICS AND CSR ifu eatide:' ‘The term ‘social responsibility’ conveys the moral conduct that relates to such broad issues as environmental pollution, discrimination, poverty, ment, and inflation. Accordingly, an organisation whose practices to inflation, unemployment, increased poverty and the like would sryasis socially irresponsible-as not fulfilling its responsibility to society. An automobile manufacturer who produces cars with faulty brakes, a pharmaceutical house that makes false claims about its coid remedies, or a food company whose TV ads promote sub-standard food items are socially espns a ple feel that social responsibility is linked to organisations and by people and, therefore, individual managers at some responsibility for every corporate decision. The executive ipetitor’s product, the manufacturer who markets a highly clothing, the industrialist who dumps pollutants into a nethically irresponsible way. The most meaningful way from social responsibility is in terms of adecision’s ), social responsibility is concerned with macroethics road it iphcations for a large segment of society. followed in practice. The term ‘ethics’ is ‘business is responsible to act credibly and behave significance of business ethics has arisen in the modern age ‘Scanned with CamScanner4.28 Corporate Governance, Ethics & Social Responsibility of Business because of the impact of business practices on customers, employees, industry, managers and the society as discussed below: 1, Customers. The customers of a business expect fair treatment. A business following social ethics will work in the interest of customers and will desist from undesirable practices such as hoarding, black-marketing, adulteration, etc. 2. Employees. The employees have their trade unions and can pressurise the business management to pursue those policies which are conducive to healthy industrial relations. It is unethical to deny the workers good working conditions, fair wages and other benefits of employment. 3. Industry. Business firms compete with each other for economic resources and for greater share of the market. Business ethics require them to follow fair trade practices resulting into healthy competition among the business units. 4. Managers. Business ethics serve as a clue to the business manager as to what type of response is expected ina given situation. He can adjust his actions accordingly and live harmoniously with various groups with whom the business has interaction. This will enhance the image of the business. 5. Society. Ethics are a part of the social environment of the country. If a business is careful about the ethical standards, the whole society is benefited. 413 CSR AND CORPORATE GOVERNANCE Corporate Social Responsibility (CSR) and corporate governance are closely inter-related. CSR is about managing the business process of a company so as to have a positive effect on the society. CSR is about giving back to the society what it has taken and being responsive to the needs of the society. The World Business Council for Sustainable Development, in its publication, namely, “Marketing Good Buisness Sense” by Lord Holme and Richard Watts defined CSR as : “Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.” Corporate governance can be defined as a system of structuring, operating and controlling a company’ with objective of fulfiling long-term strategic goals by ensuring compliance with legal and regulatory requirements and also the environmental and local community needs. The principles of corporate governance aim at achieving its objectives in relation to all its stakeholders like shareholders, employees, customers, investors, suppliers, government and regulatory authorities and the community at large. Scanned with CamScannerCorporate Social Responsbility 4.29 Both the concepts CSR and corporate governance interlinked and from each other. The principles of good corporate governance necessarily endorse corporate responsibility towards the society. Business does aim at maximising profits merely, but also has to give back to of good governance. Business, being an essential part of the has to adopt policies and programmes for the welfare of people enting the governmental activities. im of CSR activities should be to promote interests of different ensuring good corporate governance in the companies. CSR ivate the companies to engage in philanthropic activities and community development social welfare causes. Due to gravity of nent problems, the business should focus on ecological balance. Review Questions responsibility of business. Briefly discuss stokeholders model of corporate ty is about giving back to society’. In view of the statement, explain the tion of social responsibility by the business ? Give at least three reasons day business managers attach importance to social responsibility. issume social responsibility ? Discuss. certain obligations towards specific identifiable groups in society” Identify ture of obligations. context of Corporate Social Responsibility. responsibility ? Give arguments for and against corporate ds improving communities and thereby society ? it the same as CSR? Describe the CSR initiatives of any towards various stakeholders? by s enterprise ? How can a company enhance its long- Scanned with CamScanner