IBM UNIT 4

Part 1
SOCIO CULTURAL ENVIRONMENT
Managing diversity within and across cultures, country risk analysis,
macro environmental risk assessment, need for risk evaluation,
corporate governance, globalization with social responsibility-
Introduction, social responsibility of TNC, recent development in
corporate social responsibility and policy implications.
 1. Managing diversity within and across
cultures
• WORKFORCE DIVERSITY
• Workforce diversity is the inclusion of
employees from different backgrounds, races,
cultures, genders, ages, religions, and sexual
orientations in the workplace. It is also about
including employees with different abilities and
disabilities.
• In simple terms, it refers to a diverse
organisation with a heterogeneous workforce.
• What Is The Goal Of Workforce Diversity?
• The goal of workforce diversity is to create a
workplace that is inclusive and reflective of the
community in which it operates.
• By having a diverse and inclusive
workforce, businesses can benefit from a wide
range of perspectives and ideas, which can help
them to be more innovative and competitive.
 Importance Of Workforce Diversity

• To Reflect The Community: In order for businesses to be

truly representative of the communities they serve, it is
important that their workforce is diverse.

• To Retain More Employees: Employees are more likely to

stay with an organisation if they feel that they belong and
that their unique talents and perspectives are valued.

• To Attract Top Talent: In a competitive job market,

businesses need to be able to attract the best and the
brightest if they want to be successful.
• To Address The Needs Of A Changing Labour Market:. As such,
businesses need to be prepared to meet the needs of a diverse
workforce.

• To Better Understand Customers: A diverse workforce can help

businesses to better understand their customers and the
communities they serve.

• To Improve Their Reputation: A diverse and inclusive workplace

is often seen as a good place to work. This can help businesses
to attract new customers and to build a positive reputation.
 Types Of Workforce Diversity

• Internal Diversity: Internal diversity characteristics are those that the

employees are born into. This includes gender, race, ethnicity, etc.

• External Diversity: External diversity characteristics are those that employees

acquire from their experiences outside of work. This includes skills, education,
life experiences etc.

• Organisational Diversity: Organisational diversity relates to the characteristics

within the workplace like job functions, management status, employment
status etc.

• Worldview Diversity: The way different workers conceptualise world events,

problems, and solutions is known as worldview diversity. These include
political beliefs, moral values, and social attitudes.
 Challenges Of Diversity In Workplace

• The Potential For Conflict: . When people are from different

backgrounds and have different perspectives, it is possible for
them to clash.

• The Need For Training: Another challenge of diversity is the

need for training. Employees need to be trained on how to
work with people who are different from them.

• Communication Barriers: Communication can be a challenge

in a diverse workplace. This is because people from different
backgrounds may not be able to understand each other.
• The Risk Of Discrimination: There is always
the risk of discrimination when there is a
diverse workforce.

• Cultural Misunderstandings: People from

different cultures may not be familiar with the
customs and traditions of others. This can lead
to confusion and frustration.
 Benefits Of Diversity In Workplace

• The Ability To Serve A Diverse Customer Base

• Increased Creativity And Productivity
• A Better Representation Of The Community
• Increased Cultural Awareness
• Reduced Employee Turnover
• Attract And Retain Top Talent
• Improved Decision Making
 CULTURE
•  A set of beliefs, practices, and symbols that are
learned and shared.
•  It is dynamic, evolving based on the needs of the
people within it and as one culture comes into
contact with another.
• When people working in today’s global
organizations do not develop strategies for working
in a multi-cultural environment, misunderstandings
and miscommunication can occur.
ELEMENTS OF CULTURE

LANGUAGE
AGREEMENTS & INTERPERSONAL
CONTRACTS SPACE
TIME TIME
ORIENTATION ORIENTATION

DIMENSIONS
OF CULTURE
• LANGUAGE
• Language is a medium of culture.
• It provides access to the cultural
understanding needed to conduct business
and develop personal relationships.
• INTERPERSONAL SPACE
• The linear distance separating one individual
from others is interpersonal space.
• The extent of interpersonal space varies
culturally.
• Arabs and many Latin Americans, for example,
prefer to communicate at much closer distances
than the standard American practice.
• TIME ORIENTATION
• The way people approach and deal with time tends to
vary widely.
• For example, Mexicans may specify HORA AMERICANA
on invitations if they want guests to appear at the
appointed time, otherwise it may be impolite to arrive
punctually for a scheduled appointment.
• When working in Vietnam, punctuality is important
and communicates respect for one’s host.
• Religion
• One should always be aware of religious
traditions when visiting and working in other
cultures.
• When working in Malaysia, for example, it is
polite to schedule business dinners after 8 pm.
This allows the Muslims to complete their
evening prayer before dining.
• Agreements and contracts
• Culture plays an important role while entering into cross border
agreements and contracts.
•  For example, for an American, calling someone by the first name is an act
of friendship and therefore a good thing. For a Japanese, the use of the
first name at a first meeting is an act of disrespect and therefore bad. 
• For Americans, the deal is a signed contract and time is money, so they
want to make a deal quickly. Americans therefore try to reduce
formalities to a minimum and get down to business quickly. Japanese and
other Asians, whose goal is to create a relationship rather than simply
sign a contract, need to invest time in the negotiating process so that the
parties can get to know one another well and determine whether they
wish to embark on a long-term relationship. 
DIMENSIONS OF CULTURAL DIFFERENCE
• Psychologist Dr Geert Hofstede published his cultural
dimensions model at the end of the 1970s, based on a
decade of research. Since then, it's become an
internationally recognized standard for understanding
cultural differences.

• Hofstede studied people who worked for IBM in more than

50 countries. Initially, he identified four dimensions that
could distinguish one culture from another. Later, he added
fifth and sixth dimensions, in cooperation with Drs Michael
H. Bond and Michael Minkov.
• These are:
• Power Distance Index (high versus low).
• Individualism Versus Collectivism.
• Masculinity Versus Femininity.
• Uncertainty Avoidance Index (high versus low).
• Long- Versus Short-Term Orientation.
• Indulgence Versus Restraint.

• Hofstede, Bond and Minkov scored each country on a

scale of 0 to 100 for each dimension.
 1. Power Distance Index (PDI)

• This refers to the degree of inequality that exists – and is

accepted – between people with and without power.
• A high PDI score indicates that a society accepts an unequal,
hierarchical distribution of power, and that people understand
"their place" in the system. A low PDI score means that power is
shared and is widely dispersed, and that society members do not
accept situations where power is distributed unequally.
• Application: According to the model, in a high PDI country, such
as Malaysia (100), team members will not initiate any action, and
they like to be guided and directed to complete a task. If a
manager doesn't take charge, they may think that the task isn't
important. Low PDI countries are Israel, Denmark.
• High PDI
• Centralized organizations.
• More complex hierarchies.
• Large gaps in compensation, authority and respect.
• Low PDI
• Flatter organizations.
• Supervisors and employees are considered almost
as equals.
 2. Individualism Versus Collectivism (IDV)

• This refers to the strength of the ties that people have to

others within their community.
• A high IDV score indicates weak interpersonal connection
among those who are not part of a core "family." Here,
people take less responsibility for others' actions and
outcomes.
• In a collectivist society, however, people are supposed to
be loyal to the group to which they belong, and, in
exchange, the group will defend their interests. The group
itself is normally larger, and people take responsibility for
one another's well-being.
• Application: Central American
countries Panama and Guatemala have very low
IDV scores (11 and six, respectively). In these
countries, as an example, a marketing campaign
that emphasizes benefits to the community would
likely be understood and well received, as long as
the people addressed feel part of the same group.
• High IDV countries are United States, Great Britain
 3. Masculinity Versus Femininity (MAS)

• This refers to the distribution of roles between men and

women. In masculine societies, the roles of men and
women overlap less, and men are expected to behave
assertively. Demonstrating your success, and being strong
and fast, are seen as positive characteristics.
• In feminine societies, however, there is a great deal of
overlap between male and female roles, and modesty is
perceived as a virtue. Greater importance is placed on
good relationships with your direct supervisors, or
working with people who cooperate well with one
another.
• Application: Japan has the highest MAS score
of 95, whereas Sweden has the lowest
measured value of five. Therefore, if you open
an office in Japan, you should recognize you
are operating in a hierarchical, deferential and
traditionally patriarchal society. Long hours
are the norm. And this can make it harder for
female team members to gain advancement,
due to family commitments.
 4. Uncertainty Avoidance Index (UAI)

• This dimension describes how well people can

cope with anxiety.
• In societies that score highly for Uncertainty
Avoidance, people attempt to make life as
predictable and controllable as possible. If they
find that they can't control their own lives, they
may be tempted to stop trying.
• People in low UAI-scoring countries are more
relaxed, open or inclusive.
• Application: In Hofstede's model, Greece tops
the UAI scale with 100, while Singapore scores
the lowest with eight.
 5. Long- Versus Short-Term Orientation

• This dimension was originally described as

"Pragmatic Versus Normative (PRA)." It refers
to the time horizon people in a society display.
Countries with a long-term orientation tend to
be pragmatic, modest, and more thrifty.
• In short-term oriented countries, people tend
to place more emphasis on principles,
consistency and truth, and are typically
religious and nationalistic.
• Application: The U.S. has a short-term
orientation. This is reflected in the importance
of short-term gains and quick results (profit
and loss statements are quarterly, for
example). It is also reflected in the country's
strong sense of nationalism and social
standards.
 6. Indulgence Versus Restraint (IVR)

• Hofstede's sixth dimension, discovered and

described together with Michael Minkov, is also
relatively new.
• Countries with a high IVR score allow or encourage
relatively free gratification of people's own drives
and emotions, such as enjoying life and having fun.
• In a society with a low IVR score, there is more
emphasis on suppressing gratification and more
regulation of people's conduct and behavior, and
there are stricter social norms.
 Managing Diversity within and Across
Cultures
• Adler(1997) has identified the following
strategies for managing cultural differences.

1. Ignore differences
2. Minimize differences
3. Managing differences
 Ignore differences
• By following this strategy, managers do not
recognize cultural differences or its impact on
the organization.
• The belief is ‘our way is the only way’ to
manage and organize.
• They consider diversity and irrelevant.
• Popular in Parochial type of organizations.
 Minimize differences
• Managers do recognize cultural diversity but only
as a source of problems.
• The belief is ‘our way is the best way’ to organize
and manage.
• In this approach managers try to reduce the
problems of differences by reducing diversity. They
do not think about the advantages of diversity.
• This strategy is adopted by ethnocentric
organizations.
 Managing differences
• Under this strategy, managers recognize the impacts of
cultural diversity that leads to both advantages and
disadvantages.
• The belief is ‘our way and their way of behaving and
managing differ, but neither is superior to the other’.
• Organizations which use the strategy of managing
differences train their managers and employees to
recognize cultural differences and to use cultural
differences to create advantages for the organization.
• The organizations are synergistic.
Multi-cultural/Cross-cultural management

• Multiculturalism means that people from

many cultures interact regularly.

• Four tasks are crucial:

1. Spreading cross cultural literacy.
2. Culture and competitive advantage.
3. Compatibility between strategy and culture
4. Managing diversity.
• Spreading cross-cultural literacy: International
businesses that fail to understand host-country cultures
are likely to fail. The expectations of local people is
always higher from foreign companies than from a
native firm. Therefore cross cultural literacy is crucial.

• Culture and competitive advantage: Culture affects the

cost of doing business in a country. These costs
influence the ability of enterprises to establish a
competitive advantage in the global marketplace.
• Managing Diversity:
1. Focus on bringing best talent.
2. Geocentric policy should be the guiding principle.
3. Hold managers accountable for meeting goals of
diversity.
4. Diversify the company’s board of directors.
5. Develop an age, gender, ethnic profile of the
present workforce.
• Culture-Strategy Compatibility: A culture and
strategy fit is essential for the success of an
international business.
 KEY BARRIERS FOR CROSS-CULTURAL
MANAGEMENT
• CULTURAL SHOCK: The confusion and
discomfort a person experiences when in an
unfamiliar culture is known as culture shock.
•  ETHNOCENTRISM: Ethnocentrism happens
when we implicitly believe our way of doing
things and seeing things is the right and only
way. As a result, we negatively judge
behaviours that don’t conform to our world
vision.
• STEREOTYPING: It’s also common to rely on
oversimplified clichés about people from
different cultures.
• CONFLICTING VALUES: Cultural clashes
happen when other people’s behaviour
compromises our own values.
• SIMPLIFICATION: The process of exhibiting the
same orientation towards different cultural
groups despite the difference in culture.
 OVERCOMING BARRIERS
• Careful selection
• Compatible adjustment
• Pre-departure training
• Orientation and support in new country
• Preparation for reentry
 2. COUNTRY RISK ANALYSIS
• Country risk is the uncertainty associated with
govt continuity, regional politics, ineffective
legal and regulatory systems, currency
instability, convertibility, and home-host
country relations.
IMPORTANCE OF COUNTRY RISK ANALYSIS

• It can be used by MNCs as a screening device

to avoid countries with excessive risk.
• It can be used to monitor countries where the
MNC is presently engaged in international
business.
• To assess particular forms of risk for a
proposed project considered for a foreign
country.
 Types of country risk
• Economic risk — This type of risk is the
important change in the economic structure
that produces a change in the expected return
of an investment. Risk arises from the negative
changes in fundamental economic policy goals
(fiscal, monetary, international, or wealth
distribution or creation).
• Exchange risk — This risk occurs due to
an unfavorable movement in the exchange
rate. Exchange risk can be defined as a form of
risk that arises from the change in price of one
currency against another. Whenever investors
or companies have assets or business
operations across national borders, they face
currency risk if their positions are not hedged.
• Location risk — This type of risk is also
referred to as neighborhood risk. It includes
effects caused by problems in a region or in
countries with similar characteristics. Location
risk includes effects caused by troubles in a
region, in trading partner of a country, or in
countries with similar perceived
characteristics.
• Sovereign risk — This risk is based on a
government’s inability to meet its loan
obligations. Sovereign risk is closely linked to
transfer risk in which a government may run
out of foreign exchange due to adverse
developments in its balance of payments.
• Political risk — This is the risk of loss that is
caused due to change in the political
structure or in the politics of country where
the investment is made. For example, tax laws,
expropriation of assets, tariffs, or restriction in
repatriation of profits, war, corruption and
bureaucracy also contribute to the element
of political risk.
 SOURCES OF COUNTRY RISK
• Macro risks affect all the firms in the host
country.
• Micro risk are specific to an industry, firm or
project in a country.
 3. NEED FOR RISK EVALUATION
• The purpose of country risk evaluation is to
achieve above average performance.
• An international bank can perform better than
its competitors provided it anticipates risks
ahead of the market and moves into countries
with lower risk perceptions.
• Proper evaluation of country risk requires the following
qualifications:

• Deep awareness of the factors influencing country risk.

• Analytical ability to judge how these factors interact in
affecting the repaying capacity of the borrower.
• In depth knowledge of the political, socio-cultural and
economic conditions in the country concerned.
• Expertise in the techniques of economic forecasting and long-
term projections.
• Skills and expertise in rating and drawing conclusions.
 USE OF COUNTRY RISK ASSESSMENT

• Incorporating country risk analysis in capital

budgeting.
• Adjustment of the discount rate.
• Adjustment of the estimated cash flows.
 TYPES OF COUNTRY RISK ASSESSMENT
• 1.Micro-assessment of country risk:
• A micro assessment of country risk is the risk assessment of a
country as related to the MNCs type of business.
Techniques to assess country risk (micro)
• Checklist approach: it includes the following steps:
• Assigning values and weights to political and financial risk factors
• Multiplying the factor values with their weights, and summing
up to give the political and financial risk ratings
• Assigning weights to the risk ratings
• Multiplying the ratings with their weights and summing up to
give the country risk rating.
• The Delphi technique: involves collecting various
independent opinions and then averaging and
measuring the dispersion of those opinions.
• Quantitative Analysis: techniques like regression
analysis can be applied to historical data to assess
the sensitivity of a business to various risk factors.
• Inspection visits: involve traveling to a country
and meeting with govt officials, firm executive or
consumers to clarify uncertainties.
 MACRO ASSESSMENT OF COUNTRY RISK

• A macro assessment risk is an overall risk assessment

of a country without the consideration of MNCs
business.
• Intuitive Assessment Methods: All companies rely in
part on company executives to subjectively rate
political risk, but may also engage in a structured
dialogue among company executives and their
foreign managers.
• Companies like GE, XEROX, IBM assign letter grades
or rank scores to countries.
• Advisory assessment methods:
• MNCs supplement intuitive methods with
published risk rating services, consulting
reports, and govt advisory services that
provide a tremendous amount of data on
foreign affairs.
• Analytical assessment methods: Many
corporations generate their own systems for
analyzing political risk. These are studies that
attempt to quantify information.
• Example: GE has created a weighted-index of
factors that are used in conjunction with
reports from foreign managers.
• The Economist approach: The method assigns
risk to a country based on 100-point scale.
Risk is calculated on 3 broad categories, each
with specific variables. ‘Economic Factors’ can
contribute a maximum of 33 points on 6
variables; ‘political factors’ has a maximum of
50 points on 6 variables; and ‘social factors’
can contribute 17 points using 4 variable.
• Business Environmental Risk Intelligence(BERI)
Model: The BERI assessment model is called
POLITICAL RISK INDEX(PRI), based on composite
score from ratings by global experts on ten
variables. Between 70 and 100 experts are queried
on 10 variables in 3 categories, for approximately
100 countries. The PRI is based on assigned score
for each of 10 variables between 0(maximum risk)
and 7(no risk). This results in a maximum index of
70 points.
• Political Risk Services( PRS) Index: The PRS
assessment is a proprietary report furnished to
corporate subscribers with a comprehensive risk
analysis and commentary. It is based on probabilities
of losses rather than a scaled Index. PRS provides 18-
month and five-year forecasts for as many as 100
countries. A corporate subscriber would also receive
a monthly tailor-made report made specifically for
that country’s industry. The PRS models outperform
the BERI and the Economists models.
 CORPORATE GOVERNANCE
• Corporate governance is the system by which
companies are directed and controlled. 

• Corporate governance is the combination of

rules, processes or laws by which businesses
are operated, regulated or controlled.
• An example of good corporate governance is a
well-defined and enforced structure that works
for the benefit of everyone concerned by
ensuring that the enterprise adheres to accepted
ethical standards, best practices and formal laws.
• Alternatively, bad corporate governance is seen
as poorly-structured, ambiguous and
noncompliant, which could damage the image or
financial health of a business.
Key practices of good Corporate Governance 

• Strong and Qualified Board of Directors

• The Board should comprise of directors who are
knowledgeable and have expertise in the company’s
area of business.

• Defined Roles
• The roles and responsibilities of the Board, Chairman,
Chief Executive Officer (CEO), Executive Officers and
Management should be clearly defined to avoid
overlapping of duties. 
• Integrity and Ethical Dealing
• There should be a general culture of good working
ethics and integrity in business dealings.

• Risk Management
• Companies must be able to identify and assess
potential risks such as financial, operational,
environmental and legal risks. The Board should
exercise strategic leadership and develop a framework
for managing risk.
• Accountability and Transparency
• The Board is answerable to the shareholders
and other stakeholders of the company.
• There should be timely and accurate
disclosure of information by the company to
the shareholders and stakeholders on issues
such as the company’s financial position,
performance and governance.
 Need for Corporate Governance

• (i) Wide Spread of Shareholders:

• The idea of shareholders’ democracy remains confined only to
the law and the Articles of Association; which requires a
practical implementation through a code of conduct of
corporate governance.

• (ii) Changing Ownership Structure:

• The pattern of corporate ownership has changed considerably,
with institutional investors (foreign as well Indian) and mutual
funds becoming largest shareholders. These investors have
become the greatest challenge to corporate managements
• (iii) Corporate Scams or Scandals:
• Corporate scams (or frauds) in the recent years of the past
have shaken public confidence in corporate management.
The event of Harshad Mehta scandal, is perhaps, one of the
biggest scandals.

• (iv) Greater Expectations of Society of the Corporate Sector:

• Society of today holds greater expectations of the corporate
sector in terms of reasonable price, better quality, pollution
control, best utilisation of resources etc. 
• (v) Hostile Take-Overs:
• Hostile take-overs of corporations witnessed in several countries,
put a question mark on the efficiency of managements of take-
over companies. This factors also points out to the need for
corporate governance.

• (vi) Huge Increase in Top Management Compensation:

• It has been observed that there has been a great increase in the
monetary payments of top level corporate executives. There is no
justification for exorbitant payments to top ranking managers, out
of corporate funds, which are a property of shareholders and
society.
• (vii) Globalisation:
• Desire of more and more Indian companies to
get listed on international stock exchanges
also focuses on a need for corporate
governance.
 Principles of Corporate Governance
(or major issues involved in corporate governance)

• (i) Transparency
• Transparency means the quality of something which
enables one to understand the truth easily. 
• In the context of corporate governance, it implies an
accurate, adequate and timely disclosure of relevant
information about the operating results etc. of the
corporate enterprise to the stakeholders.
•  transparency is the foundation of corporate
governance; which helps to develop a high level of
public confidence in the corporate sector.
• (ii) Accountability
• Accountability is a liability to explain the results of
one’s decisions taken in the interest of others. 
• In the context of corporate governance,
accountability implies the responsibility of the
Chairman, the Board of Directors and the chief
executive for the use of company’s resources in
the best interest of company and its stakeholders.
• (iii) Independence
• Good corporate governance requires
independence on the part of the top management
of the corporation i.e. the Board of Directors must
be strong non-partial body; so that it can take all
corporate decisions based on business prudence.
• Without the top management of the company
being independent; good corporate governance is
only a mere dream.
• (iv) Reporting
• Adequate, accurate and frequent report to
shareholders and other stakeholders is
essential for good corporate governance.
 ETHICS IN INTERNATIONAL BUSINESS
• Business Ethics:
• Business ethics are principles of right or wrong
governing the conduct of business people. 

• Ethical Issues in International Business

• Many ethical issues and dilemmas are rooted in
differences in political systems, law, economic
development, and culture.
• Some key ethical issues in international business:
• Employment Practices
• When work conditions in a host nation are
clearly inferior to those in a multinational’s
home nation.

• Personal Ethics
• Example: An employee steals money from the
petty cash drawer at work.
• Decision making processes
• If the subordinates’ role is negligible in the
company’s decision making processes.

• Organization culture
• Policies and procedures are designed with the
company, not its workforce, in mind; outdated
work policies.
• Unrealistic performance goals

• Leadership
• Inflexible Leadership, Passive Listening , Lack
of Authority
 Ethical Decision Making
• Five things that an international business and its managers
can do to make sure ethical issues are considered: 
• –  Favor hiring and promoting people with a well-grounded sense
of personal ethics
• –  Build an organizational culture that places a high value on
ethical behavior
• – Make sure that leaders within the business not only articulate
the rhetoric of ethical behavior, but also act in a manner that is
consistent with that rhetoric
• – Implement decision-making processes that require people to
consider the ethical dimension of business decisions
• –  Develop moral courage
 CSR
• Corporate Social Responsibility (CSR) is when
a company operates in an ethical and
sustainable way and deals with its
environmental and social impacts. This means
a careful consideration of human rights, the
community, environment, and society in which
it operates.
Benefits of Corporate Social Responsibility

• Improved public image. This is crucial, as consumers

assess your public image when deciding whether to buy
from you.

• Increased brand awareness and recognition. If you’re

committed to ethical practices, this news will spread.

• Cost savings. Many simple changes in favour of

sustainability, such as using less packaging, will help to
decrease your production costs.
• An advantage over competitors. By embracing CSR, you
stand out from competitors in your industry.

• Increased customer engagement. If you’re using sustainable

systems, you should give it some coverage. Customers will
follow this and engage with your brand and operations.

• Greater employee engagement. Similar to customer

engagement, you also need to ensure that your employees
know your CSR strategies. It’s proven that employees enjoy
working more for a company that has a good public image.
• More benefits for employees. There are also a
range of benefits for your employees when
you embrace CSR. Your workplace will be a
more positive and productive place to work.
Elements of CSR in International Business
• Economic Interests
• Part of being socially responsible is remaining
profitable.
• Businesses support a lot of people, including
shareholders and investors, employees and partners.
• It is socially responsible for the company to thrive and
meet its revenue goals.
•  Businesses maintain profitability and minimize
expenses by keeping the broader community in mind
and not taking any actions to harm it. 
• Legal Aspects
• From a legal perspective, it’s critical for businesses to
follow the letter of the law.
• In addition to being aware of local, federal and
international laws, companies also need to understand
the rules of regulatory bodies for their industries.
• All businesses have a legal responsibility to do so.
• For example, if a small business sells toys for children, it
needs to ensure that the products meet all safety
regulations specified by the regulatory bodies.
• Ethical Actions
• As one of the most important elements of social
responsibility, ethical actions define the core
values of a business.
• Instead of merely abiding by the law, a business
that focuses on corporate social responsibility
needs to go above and beyond that and make
choices based on what is right, not just what is
legal.
• For example, if a business pays its employees
minimum wage, that action follows a legal
directive.
• However, if an employer chooses to pay its
employees more than minimum wage in the
belief that the employees do important work
and deserve to be compensated accordingly,
that is making a socially responsible decision.
• Philanthropic Responsibilities
• One of the best-known aspects of social responsibility
is philanthropy.
• Companies take actions that improve the society
around them, such as donating money or products
and volunteering time. 
• For example, a bakery could send leftover bread at the
end of the day to a nearby food bank, or a hairdresser
can offer free haircuts to homeless people in the
community. 
TNC(Transnational Corporations) & CSR

• TNCs operate in multiple societies around the

world, responding to each country’s legal
requirements while adjusting to diverse social
and economic conditions.

• The main issues in the social responsibility of

TNCs are as follows:
• Beyond Complying with Law: Legal
Requirements with which a TNC must comply
constitute the minimum standards for
corporate conduct. CSR is over and above the
obligations under law. Socially responsible
conduct is particularly, necessary for meeting
social needs in developing countries where
legal mandate may be absent.
• Different from Corporate Philanthropy: A
corporation may offer gifts to the local
community in which its head quarters are
located. These charitable deeds are connected
with the corporate interests but they do not
constitute an essential business function. On
the other had, CSR is central to a company’s
business operations and has an impact on the
society.
• Theory of social contract: The concept of CSR
is based on social contract theory. According
to this theory there exists a social contract
between a corporation and the society. Under
this social contract corporation is expected to
fulfill obligations which are in addition to
responsibilities mandatory under law.
• Stake holder theory: Traditionally, a company
is expected to serve the interests of its
owners( share-holders). The modern
stakeholder approach defines CSR more
broadly. Under this approach, the company is
expected to serve the interest of all of its stake
holders.
• Varying Perceptions of CSR: Business firms, civil society
and govt agencies have different perceptions of CSR.

• The scope and content of social responsibility: The

scope and content of CSR have widened over time.
Corporations are being held liable for all negative
effects of their activities. Several developmental issues
such as technology transfer, training of the local
workforce and promotion of local entrepreneurship are
of great interest to developing countries.
• International dimensions of Social
Responsibility: A TNC has to meet the diverse
needs of all the countries in which it operates.
In such a scenario it becomes difficult to
define the nature and scope of social
responsibility of TNCs.
• Increasing need for social responsibility: CSR
of TNCs is becoming more significant because
the impact of their operations on people is
growing rapidly.
 Recent development in CSR and policy
implications
1. Increased Transparency
Demands for disclosure for companies to reveal
what's under the hood of their businesses
have become commonplace among
consumers.
This CSR trend is partly in response to heightened
regulatory oversight such as the European
Union's noteworthy General Data Protection
Regulation (GDPR).
• As part of a business model that embraces
corporate social responsibility, companies are
sharing more environmental, social, and
governance disclosures.
• 2. Green Technology
• Climate change continues to drive many
conversations in the corporate world, and
multiple trends in CSR intersect at this topic.
• As available natural resources are rapidly
depleted, socially responsible companies
are investing in green technologies, reducing their
reliance on non renewable resources, and looking
to more sustainable inputs to do business.
• 3. Global Companies Acting Locally
• Localization is in. Even companies that operate on a global
level are recognizing the value of local markets and supply
chains.
• This is not only to reduce carbon emissions that might be
associated with transportation or supply chain costs but to
tap into local talent and solutions.
• Corporate-sanctioned volunteer events, especially during
the holidays, are also an emerging CSR trend that allows
employees to volunteer their efforts and make positive
contributions with minimal time commitments.
• 4. Diversity and Inclusion
•  Recognition of inequalities in pay and the economic
burdens employees shoulder is an emerging CSR
trend.
• Pay equity between males and females, measuring
the difference in income between the highest-paid
and the lowest-paid worker at a company, and
making sure that there is a diverse staff base have
become key priorities of the best companies in the
world.
• CSR initiatives such as intentionally recruiting
candidates from different economic or
educational backgrounds ultimately empower
local talent, bring diverse voices to the table.