Thursday 8 September 2011

CORPORATE SOCIAL RESPONSIBILITY


CORPORATE SOCIAL RESPONSIBILITY (CSR)
THE SOCIETAL RESPONSIBILITY OF COMPANIES

Jayendra A Kasture
 LL.M (Business Laws)-Gold Medalist RTM Nagpur University, Nagpur Maharashtra, India
 Email id: jakasture@gmail.com

INTRODUCTION:
The voluntary compliance of social and ecological responsibility of companies is called Corporate Social Responsibility (CSR).  Corporate social responsibility is basically a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. The Term Corporate Social Responsibility is imprecise and its application differs. CSR can not only refer to the compliance of human right standards, labor and social security arrangements, but also to the fight against climate change, sustainable management of natural resources and consumer protection.
While there is no universal definition of corporate social responsibility, it generally refers to transparent business practices that are based on ethical values, compliances with legal requirements, and respect for people, communities, and the environment. Thus, beyond making profits, companies are responsible for the totality of their impact on people and the planet.
With businesses focusing on generating profits, sustainability was not a popular concern among companies up until recently. Now, in an era of globalization, multinational corporations (those that conduct business in more than one country) and local businesses are no longer able to conduct destructive and unethical practices, such as polluting the environment, without attracting negative feedback from the general public. With increased media attention, pressure from non-governmental organizations, and rapid global information sharing, there is a surging demand from civil society, consumers, governments, and others for corporations to conduct sustainable business practices. In addition, in order to attract and retain employees and customers, companies are beginning to realize the importance of being ethical
while running their daily operations. The corporate response has often meant an adoption of 'a new consciousness', and this has been known as Corporate Social Responsibility (CSR) since the 1970s.
While corporate social responsibility can only be taken on by the companies themselves, employees, consumers and investors can also play a decisive role in areas such as working conditions, environment or human rights, in the purchasing of products from companies which already adopted CSR or in prompting companies to adopt socially responsible practices
UNDERSTANDING CSR:
Corporate social responsibility (CSR), also called corporate consciencecorporate citizenshipsocial performance, or sustainable responsible business  is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, CSR-focused businesses would proactively promote the public interest (PI) by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. CSR is the deliberate inclusion of Public Interest  into corporate decision-making, that is the core business of the company or firm, and the honoring of a triple bottom line: people, planet, profit.
BACKGROUND:
The term "corporate social responsibility" came in to common use in the late 1960s and early 1970s. The term stakeholder, meaning those on whom an organization's activities have an impact, was used to describe corporate owners beyond shareholders as a result of an influential book by R. Edward FreemanStrategic management: a stakeholder approach in 1984.
Over the last years an increasing number of companies worldwide started promoting their Corporate Social Responsibility strategies because the customers, the public and the investors expect them to act sustainable as well as responsible. In most cases CSR is a result of a variety of social, environmental and economic pressures. Corporate social responsibility is represented by the contributions undertaken by companies to society through its business activities and its social investment. This is also to connect the Concept of sustainable development to the company’s level.
 Critics suggest that better governmental and international regulation and enforcement, rather than voluntary measures are necessary to ensure that companies behave in a socially responsible manner.
NEED:
We all have a personal responsibility to each other and the world around us. Everything we do has an effect on other people. It is the same for businesses, large and small, public or private, that their actions affect a large number of stakeholders. 
A strong CSR program is an essential element in achieving good business practices and effective leadership. Companies have explored that their impact on the economic, social and environmental sector directly affects their relationships with investors, employees and customers. As companies face themselves in the context of globalization, they are increasingly aware that Corporate Social Responsibility can be of direct economic value. Although the prime goal of a company is to generate profits, companies can at the same time contribute to social and environmental objectives by integrating corporate social responsibility as a strategic investment into their business strategy.
A number of companies with good social and environmental records indicate that CSR activities can result in a better performance and can generate more profits and growth. Research has shown that company CSR programs influence to an extensive degree consumer purchasing decisions, with many investors and employees also being swayed in their choice of companies.
 CSR represents "the integrity with which a company governs itself, fulfills its mission, lives by its values, engages with its stakeholders, measures its impact and reports on its activities". 
Companies are now expected to perform well in non-financial areas such as human rights, business ethics, environmental policies, corporate contributions, community development, corporate governance, and workplace issues. Some examples of CSR are safe working conditions for employees, environmental stewardship, and contributions to community groups and charities   
INDIAN SCENARIO:
In India there are an existent but small number of companies which practice CSR. This engagement of the Indian economy concentrates mainly on a few old family owned companies, and corporate giants  such as the Tata and Birla group companies which have led the way in making corporate social responsibility an intrinsic part of their business plans. These companies have been deeply involved with social development initiatives in the communities surrounding their facilities. Jamshedpur, one of the prominent cities in the northeastern state of Bihar in India, is also known as Tata Nagar and stands out at a beacon for other companies to follow. Jamshedpur was carved out from the jungle a century ago. TATA’s CSR activities in Jamshedpur include the provision of full health and education expenses for all employees and the management of schools and hospitals. The Tatas, through their various trusts in early nineteenth century, showed the way to the rest of the world in terms of working hours and social security measures, earning them goodwill for many future decades.
In spite of having such life size successful examples, CSR in India is in a very nascent stage. 
Post-1990, India adopted a policy of liberalization and many Multi and Trans National Corporations (MNCs/TNCs) made forays into the growing Indian market. Very few foreign companies had a robust CSR programme nor were they known for responsible practices – in fact the practice of double standards was rampant where companies took advantage of weak regularity environments to get away with shoddy goods and weak consumer services.

In 1984, the Union Carbide gas leak in Bhopal led to one of the most irresponsible industrial accidents and many lives were lost. This led to one of the longest litigations, resulting in the company paying inadequate compensation for the accident. Clothing group GAP was found with child labour in their outsourced supply chains leading to debates on the use of exploitative child labour in carpets, garments and sports goods. McDonald’s gave universal access the go by in their outlets in India and their use of beef tallow led to public uproar. Vedanta was found violating environmental laws with far-reaching adverse impacts for tribal communities settled in Niyamgiri and other examples of failure in corporate governance continued.
The Prime Minister’s “Social Charter” called for inclusive growth & affirmative action from the corporate sector. In December 2009 voluntary CSR guidelines were issued by the Ministry of Corporate Affairs .
India has 37.2% of its population as per the Planning Commission living below the poverty line, an agrarian and water crisis, income disparities and lack of access to basic necessities, therefore as country it requires calls for action from all stakeholders including the corporate sector which can respond with not just financial resources but also with strategies, tools & management techniques that can address development priorities in the country.
REGULATORY FRAMEWORK:
The Companies Bill 2009, which is likely to be tabled in the forthcoming budget session, has proposed that companies will have to earmark 2% of their average net profits during the preceding three years for corporate social responsibility spending or disclose to their shareholders if they fail to do so.
The government had earlier taken a similar stance before the Parliamentary Standing Committee on Finance. It had told the panel that it could ask companies having a minimum net worth of Rs 500 crore, or an annual turnover of Rs 1,000 crore, or a net profit of Rs 5 crore in a year to spend at least 2% of their average net profit during the three preceding fiscal years on CSR. However, later the ministry diluted the proposal following intense lobbying from the industry.
In an earlier presentation to the government, the Confederation of Indian Industry had demanded that the new law should not specify an amount to be spent on CSR, and that a decision on the actual spend be left to company boards. The industry body had suggested that CSR should be voluntary and backed by a system of state recognition and honour.
To check non-compliance, the parliamentary committee had recommended separate disclosures by companies in their annual reports through a CSR statement indicating the company policy as well as specific steps taken.


APPROACHES:     
 
Community-based development:
 An approach for CSR that is becoming more widely accepted is a community-based development approach. In this approach, corporations work with local communities to better themselves. For example, the Shell Foundation's involvement in the Flower Valley, South Africa. In Flower Valley they set up an Early Learning Centre to help educate the community's children as well as develop new skills for the adults. Marks and Spencer is also active in this community through the building of a trade network with the community - guaranteeing regular fair trade purchases. Often activities companies participate in are establishing education facilities for adults and HIV/AIDS education programmes.
Philanthropy:
A more common approach of CSR is philanthropy. This includes monetary donations and aid given to local organizations and impoverished communities in developing countries. Some organizations do not like this approach as it does not help build on the skills of the local people, whereas community-based development generally leads to more sustainable development.
Incorporate the CSR strategy directly into the business strategy of an organization
 Another approach to CSR is to incorporate the CSR strategy directly into the business strategy of an organization. For instance, procurement of Fair Trade tea and coffee has been adopted by various businesses including KPMG. Its CSR manager commented, "Fairtrade fits very strongly into our commitment to our communities.
 Another approach is garnering increasing corporate responsibility interest. This is called Creating Shared Value, or CSV. The shared value model is based on the idea that corporate success and social welfare are interdependent. A business needs a healthy, educated workforce, sustainable resources and adept government to compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues, and opportunities for philanthropy.

ARGUMENTS AGAINST CORPORATE SOCIAL RESPONSIBILITY:
Of course, one of the challenges in considering cases "for" and "against" CSR is the wide variety of definitions of CSR that people use. We assume here we are talking about responsibility in how the company carries out its core function - not simply about companies giving money away to charity.
Below are some of the key arguments most often used against CSR.
a)      Businesses are owned by their shareholders - money spent on CSR by managers is theft of the rightful property of the owners.
b)      Our company is too busy surviving hard times to do this. We can't afford to take our eye off the ball - we have to focus on core business.
c)      It's the responsibility of the politicians to deal with all this stuff. It's not our role to get involved
d)      I have no time for this. I've got to get out and sell more to make our profit line.
However valid these arguments may be, they have been silenced by the overwhelming majority of those in favor of CSR (NGOs, businessmen and academics), and the benefits it can provide to society.
CRITICISMS:
Critics of CSR as well as proponents debate a number of concerns related to it. These include CSR's relationship to the fundamental purpose and nature of business and questionable motives for engaging in CSR, including concerns about insincerity and hypocrisy.
It is argued that a corporation's purpose is to maximize returns to its shareholders, and that since only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Although they accept that corporations should obey the laws of the countries within which they work, they assert that corporations have no other obligation to society.

MAKING THE CASE FOR CORPORATE SOCIAL RESPONSIBILITY:

Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large to improve their lives in ways that are good for business and for development.
 However, there is no set definition of CSR to which all agents follow, and this has led to confusion regarding what, if anything should be expected of companies in the area of social responsibility. Whatever way it is defined, it assumes that a company is responsible for its wider impact on society, not merely the return to stockholders.

From a more objective viewpoint, there are several reasons why firms should practice CSR, such as:
a)       to balance corporate power with responsibility;
b)      discourage creation and imposition of government regulations;
c)      to help correct negative externalities, many of which are created by corporations and
d)      a sense of moral obligation of firms to help society deal with its problems and to contribute to its welfare.
In a world where 51 of the 100 largest economies in the world are corporations, it behooves these corporations to take on responsibilities that are similar to those of governments.
It is a tricky position for CEOs of companies to decide whether or not they should do CSR, and it is a difficult business decision to anticipate a consumer’s reaction to such practices. More and more, companies have to deal with the prevalence of CSR advocates, and to take their responsibility and role in society seriously. Perhaps this is the most conclusive argument that can be made in favor of CSR at this time. Today more and more companies are realizing that in order to stay productive, competitive and relevant in a rapidly changing business world, they have to become socially responsible.
Hence we all have a personal responsibility to each other and the world around us. Everything we do has an effect on other people. It is the same for businesses, large and small, public or private, that their actions affect a large number of stakeholders. Such stakeholders include customers, shareholders, employees, suppliers and society in general.

The content of this article is intended to provide general information to the subject matter.



                                                                         

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