CHAPTER 2

CORPORATE SOCIAL RESPONSIBILITY

Table of Contents
 Corporate Social Responsibility: An Introduction

 Social Responsibility and Business Ethics

 Historical Evolution of Corporate Social

 Defining Corporate Social Responsibility

 Why Corporate Social Responsibility?

 Arguments against Corporate Social Responsibility

 Achieving Corporate Social Responsibility

 Identifying and defining Social Problems

 Preventing and Solving Social Problems

 Types of Corporate Social Responsibility

 Strategies for Social Responsiveness:

 How to Develop an Effective CSR Strategy?

 Triple Bottom Line and Environmental Sustainability

 Cause Related Marketing

 Corporate Social Responsibility Standardization

 Corporate Social Responsibility in Modern India

 Theological Ethics and Philanthropy

Corporate Social Responsibility: An Introduction

 The growth of Corporate Social Responsibility (CSR) can be traced back to early
1900's when Antitrust laws, banking regulations and consumer protection laws were
formulated in US to protect the interest of the consumers and curb the anti
competitive and anti social practices of some giant corporations.

 In order to improve the image of the corporations, Andrew Carnegie a Scottish-

American industrialist, and business magnate, popularized the concept of charity and
stewardship in 1899 in his well known article, The Gospel of Wealth, which outlines
how the personal fortunes should be used for the benefit of the society and rich people
can play positive role in it by donating their fortunes for the enrichment of the society.

 With the creation of Community Chests in the United States and Canada, the focus
shifted from making individual philanthropists contributions to charity corporation’s
 The first Community Chest Fund, was established by the Federation for Charity and
Philanthropy of Cleveland, Ohio in 1913.

 Thus, J.D. Rockefeller laid the foundation of Rockefeller Foundation in 1913 and Edsel
Ford and Henry Ford laid the foundation of Ford Foundation in 1936.

 However, charitable giving is not the only way of CSR. It can also be found in the
stewardship principle, when corporate managers see themselves as stewards or trustees who
act in the general public interest and "recognize that business and society are intertwined
and interdependent.“

 Ted Turner, the founder of CNN donated $ 1 billion to the United Nation's Children Fund.
Bill & Melinda Gates Foundation (BMGF), was established as one of the largest private
foundation in US in the year 2000 with the assets of $38 billion.

 Facebook founder Mr. Zuckerberg and his wife, Dr. Priscilla Chan, announced that he and
his wife would give 99 percent of their Facebook shares worth more than $ 45 billion
during their lives to charitable purposes through the Chan Zuckerberg Initiative, to manage
the money, through an unusual limited liability corporate structure.
Social Responsibility and Business Ethics

 Social responsibility and ethics are two different terms though often used
interchangeably by many. Ethics is the set of rules and regulations that guide
decision making in business but Social responsibility is seen as the obligation of
business towards the society.

 Friedman by focussing on profit maximization seems to be advocating the rights

of only shareholders, who are the owners of the business but R. Edward Freeman
believes that it is not only the shareholder whose interest needs to be safeguarded
by the business by maximizing profit but instead the managers of the business
need to protect the interest of all the stakeholders of the business. Stakeholders are
all those people who are having “stake” or claim in the business.
Historical Evolution of Corporate Social
Responsibility as a Separate Discipline
 CSR has a long history but the formal writing and literature on the subject is not
more than 70 years old.

 1950 to 1960: During this decade the focus was on exploring the social
responsibilities of the businessman. The formal writing over CSR can be traced
back to 1951 when Frank Abrams, chairman of the board for Standard Oil of New
Jersey, published an article in Harvard Business Review. In 1953, Howard Bowen,
heralded the debate about the responsibilities and issues of the business in his
popular book titled, “The Social Responsibilities of the Businessman”.
 1960 to 1970: This decade further saw the formalization of the concept of CSR.
Davis(1960) has defined CSR as the decisions and actions of a businessman made
beyond the firm’s direct economic interest.

 In the same decade, popular economist Milton Friedman came up with the
shareholder theory in his book ‘Capitalism and Freedom’ which opposed the idea
that business has any social responsibility and advocates that an organization’s
CSR is to increase the economic value of its shareholders by earning maximum
profit.

 In 1970, the US Committee for Economic Development published a report on

CSR which maintains that CSR would remain controversial until it could be
established that its practices are in the larger interest of the shareholders. This so
called ‘enlightened self interest’ is based on Golden Rules which believes that the
one who furthers the interests of others, ultimately serve his own self-interest.
 1970 to 1980: This decade was dominated by Archie Carroll. In 1979, Archie Carroll
emerged as an eminent figure in the field of CSR. He says that there are four
components of CSR namely economic, legal, ethical and philanthropic. Later on after a
decade, in 1991, Carrol further developed this into a Pyramidal Model.

 1980 to 1990s: In 1980s Freeman came up with his famous book, ‘Strategic
Management: A Stakeholder Approach’ in which he speaks about the Stakeholder theory
which holds that the obligation of business is not only towards the shareholder but also
towards all those who are having either direct or indirect claim or stake in the business.

 In 1984, Drucker emphasises that social responsibility should be the integral part of the
business strategy and not merely a statement of good intentions.

 1990 to 2000: In 1991, Carroll created the Pyramidal Model of Corporate Social
Responsibility which identifies the four components of CSR in hierarchical manner. The
four components are, economic responsibility (base component), legal responsibility,
ethical responsibility and philanthropic responsibility.
 2000 to 2010: This decade scholars argued that the strategic philanthropy could
open new markets and opportunities for the business and develop valuable
relationships. In 2010 a new legislations was introduced in US which paved way
for creation of Benefit Corporations. Benefit Corporations were meant for
creating benefit for society as well as shareholders. Through this legislation the
government officially acknowledged the notion that CSR is of paramount
importance.
Defining Corporate Social Responsibility

 CSR is a social responsibility of the organizations wherein it is expected that they

will deliver economics, social and environmental benefits to all its stakeholders and
achieve sustainable development.

 Thus it is a sort of social contract wherein the society benefits by receiving income,
employment, goods and services and organizations aim to achieve sustainable
development by delivering economic, social and environmental benefits for all
stakeholders.
Why Corporate Social Responsibility?

 Business is the part of the society and the society has given mandate to the business
through government to exist and operate and, the society has the right to revoke its
mandate if the business fails to live up to the expectations of the society.

 So, in order to keep operating the business must be responsive to the needs of the
society and serve it. Therefore, business being a part of the society has the ethical
responsibility to behave responsibly.

 An ethical and virtuous firm is more acceptable in the society than an unethical and
non-virtuous firm.

 A socially irresponsible business has the risk of losing business. Therefore business
must behave in a socially responsible and ethical manner.
 A socially responsible business saves the regulation cost of the Government.
Government regulation is costly and found to be curtailing the much needed
freedom in business decision making.

 Corporate Social Responsibility can help improve the reputation of the

organization which ensures long term future benefits to the organization.

 Corporate Social Responsibility strengthens the Brand Image of the organization

which positively impacts the profitability of the organization.

 CSR can also open new market opportunities for the business.

 Research further suggests that employees, working in a socially responsible

organization with strong ethical code of conduct, do not likely indulge in any sort
of potential misconduct towards stakeholders.
Arguments against Corporate Social
Responsibility
 The main objective of the business is to maximize profit and it is for the government
to take care of society. Business can best serve the society by doing its business well
and by earning profit.

 Secondly, it is seen that Corporate Social Responsibility involves cost, and the
businesses pass on that cost upon the society. Therefore, Corporate Social
Responsibility loses its purpose if the society has to ultimately bear its cost.

 Thirdly, it is very difficult to fix the accountability in case of failure in fulfilling

Corporate Social Responsibility. Managers are cut out for business and they have little
or no skill to solve the social problems.
 Fourthly, as per Indian laws businesses with annual revenues of more than 10bn
rupee must spend 2% of their net profit as Corporate Social Responsibility.

 Lastly, the involvement of business in some social cause may also occasionally
lead to some backlash by groups who oppose that cause. For example, Dayton-
Hudson used to donate $1800 to Planned Parenthood which educates parents for
planning parenthood and supports abortion.
Achieving Corporate Social
Responsibility
 The society needs corporations for income, employment and goods and services and
therefore it supports them by infusing life in them through state governments and by
purchasing their goods and services. These corporations are also indirectly regulated
and controlled by the society through the devices of federal, state and local
governments.

 In order to behave in a socially responsible manner a firm should focus on the following
factors:

 a. What is the best possible procedure which a firm should follow if it desires to become
socially responsible?

 b. How to identify and define a social problem?

 c. How to choose and attack one or more problems from the array of problems?
 Gordon Fitch has suggested following steps for addressing the above queries:

 a. The first step involves defining of problem in the abstract sense and considering
how problems are found.

 b. The second step involves making distinction between social and non social
problems.

 c. The third and final step involves devising effective methods for choosing the social
problems to be attacked and describing methods to attack those problems.
Identifying and defining Social
Problems
 The process of identifying and defining the problem comes before the problem
solving process. The process of finding the problem is very important, but
unfortunately not enough academic little literature is available on this topic.

 H. Gordon Fitch has identified two main elements of a social problem:

 a. There exists a gap between the existing situation and desired situation. This
element is also visible in the William Pound’s basic definition of problem.

 b. It involves behaviour in which the individuals prefer acts which are only
advantageous to them in short term perspective but harmful to the society in the long
term perspective. Garrett Hardin has described this element as the tragedy of
commons.
 Now, the question arises that what is a desired situation or desired state of affairs? Jessie
Bernard has identified three principles which define a desired situation or desired state of affairs:

 a. Humanist Principle

 b. Utilitarian principle

 c. Dysfunctionality Principle

 These principles provide an idea to the businessman about deciding on the desired state of
affairs.

 A corporation striving to achieve at least minimum level of CSR will follow the utilitarian
principle.

 Enlightened Self Interest is another criterion in which the corporation gives high priority to
address all those problems in which it acts as contributing factor.

 The Enlightened Self Interest criterion also suggests that the corporations search for ways to
increase profit by applying its expertise to the solution of social problems, regardless of whether
or not the corporation is a major contributing factor.
Preventing and Solving Social
Problems
 Once the social problem is identified and selected by the corporation, the next step
should be to take necessary steps to address those problems. Solving a social
problem is more difficult than solving an intricate technical problem.

 Deficiency of knowledge and deficiency of execution are two main reasons for the
failure of a corporation in addressing a social problem.
Types of Corporate Social
Responsibility

 Archie B. Carroll conceptualized a Pyramidal Model of Corporate Social

Responsibility which states that Corporate Social Responsibility has four components
in hierarchical order namely Economic, Legal, Ethical and Philanthropic and all these
four responsibilities must be satisfied simultaneously.
Pyramid by Carroll showing Steps of Corporate Social Responsibility
Strategies for Social Responsiveness

 As per Carroll’s there are four strategies for social responsiveness.

 i. Reactive Strategy: Under this strategy the organizations may deny their
responsibility for social issues.

 ii. Defensive Strategy: Under this strategy the organizations admit their social
responsibility but they do only bare minimum to fulfil their social responsibility.

 iii. Accommodative Strategy: Under this strategy the organization admits its social
responsibilities and it does what is demanded of it.

 iv. Proactive Strategy: Organizations go beyond the accepted industrial norms to fulfil
their social responsibilities.
How to Develop an Effective
CSR Strategy?
 An organization is required to assess the motivation of the stakeholders. This can be
done using Mendlow’s Matrix which has four quadrants and each quadrant proposes a
particular way to deal with a particular set of stakeholders (groups).
Triple Bottom Line and
Environmental Sustainability
 The term “Triple Bottom Line”, TBL or 3BL was coined by John Elkington in 1997 in his book
titled, “Cannibals with Forks: the Triple Bottom Line of 21st Century Business”. Thus Triple
Bottom Line is an accounting framework with three parts namely social, environmental (or
ecological) and financial (economical).

 The concept is popularly depicted in three overlapping spheres representing social, environmental
and financial (economical) dimensions. This three-sphere framework was initially proposed by the
economist René Passet in 1979.

 The term ‘sustainability’ is the place where all the three circles, showing three different dimensions
i.e. financial (economic), social and environmental dimensions, overlap. Triple Bottom Line
concept also mainstreams the idea of sustainability including 3Ps namely profit, people and planet.

 The term sustainable development is the “development that meets the needs of the present without
compromising the ability of future generations to meet their own needs.”
Cause Related Marketing
 The process of formulating and implementing marketing activities that are characterize by
an offer from the firm to contribute a specified amount to a designated cause when customers
engage in revenue producing exchange that satisfy organizational and individual objectives.

 Thus we see that Cause Related Marketing is becoming very popular among the present day
organizations in which they run a marketing and advertising campaign that promotes both the
corporation and the social cause or issue.

 For example; Bath tile maker, Johnson Tiles wanted to sensitize the Indian society towards
making public places disable-friendly. It launched the ‘Red Ramp Project’ wherein a ramp
was built on Kiri beach in Goa. Disabled people could now visit the beach via the tiled ramp
and feel the waters lapping at their feet.

 Another example of cause related marketing is of Vistara partnering with an NGO named
Salaam Baalak Trust – that provides support to street children of Delhi and Mumbai. Vistara
gave a fly to 12 kids of Salam Balak Trust on its first flight ever.
Corporate Social Responsibility
Standardization
 British Standard Institution (BSI) is the world’s first national standard body which has
approximately 1 lakh clients. BSI is credited for publishing the world’s first standard
for environmental management, BS 7750 in 1992. This paved way for the publication
of ISO 14000 and 14001. BSI is also credited for publishing the world’s first
sustainability standard BS 8900, in 2006.

 The International Organization for Standards (ISO) has laid down international
standards for determining the social responsibility of corporate (private) and public
sector.

 ISO 26000 was released in 2010 to provide important guidelines to the organizations
in relation to their social responsibility. It is also known as ISO SR. ISO 26000 is only
a set of guidelines and cannot be used for any type of certification.
 The Global Reporting Initiative Sustainability Reporting Standards (GRI Standards)
are global standards for sustainability reporting. It helps organizations and
governments worldwide to study the impact of their measures on sustainability issues
such as climate change, human rights, governance and social well-being.

 AA1000: AA1000 Series of Standards were created in 1999 by the Institute for Social
and Ethical Accountability of Britain. It is a set of principles for improving social
performance.

 Another important certification standard is Social Accountability (SA) 8000 or simply

SA 8000, developed by Social Accountability International (SAI). It encourages the
organizations in developing, maintaining and applying the socially acceptable
practices at work place. This certification can also be audited.
Corporate Social Responsibility in
Modern India
 The growth and development of Corporate Social Responsibility in India can be
categorized into various phases:

 Phase 1 (1858 to 1915): This phase started in 1858 when the system of Governance
was instituted in India. The power was transferred from East India Company to British
Crown in the person of Queen Victoria. The phase lasted till 1915 which marks the
advent of Gandhi in India.

 Phase 2 (1916 TO 1947): The second phase starts from 1915 and lasts till 1947. This
was the period when India was directly under the British rule. The period is also
known for the dominance of Gandhi over Indian politics and society.
 Phase 3(1947 to 1990): After Independence, India adopted mixed economy model
which was characterized by the growth of both private and public sector. Jawaharlal
Nehru was the chief architect of the mixed economy structure adopted by India after
independence in which both public and private sector coexist

 Phase 4 (1991 to till Date): The process of economic liberalization was initiated by
the Indian PM Narsimha Rao and his finance minister Manmohan Singh in 1991 with
the goal of making the Indian economy more market and service-oriented. This phase
is known for liberalization, privatization and globalization (LPG). It focuses more on
expanding the role of private and foreign investment in India and ending the licence
and permit raj.
Theological Ethics and
Philanthropy
 Hinduism and Philanthropy

A. Philosophy of Purusharth in Hinduism

 Buddhism and Philanthropy

A. Buddha and his teachings

 Islam and Philanthropy

A. Islamic Banking

 Christianity and Philanthropy

 Sikhism and Philanthropy

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