CHAPTER – 8�CORPORATE SOCIAL RESPONSIBILTY�
INTRODUCTION
Globalization makes the world smaller, and business, worldwide, is expanding like never before. Companies are expanding their operations and crossing geographical boundaries.CSR is a very broad concept that addresses various topics such as human rights, corporate governance, health and safety, environmental effects, working conditions and contribution to economic development.
MEANING OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
Social responsibility means that individuals and companies have a duty to act in the best interests of their environments and society as a whole. Social responsibility as applied to business is known as corporate social responsibility (CSR).
DEFINITIONS
2. CSR may also be referred to as "corporate citizenship" and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.
FEATURES / NATURE OF CORPORATE SOCIAL RESPONSIBILITY
1. Made Compulsory – The concept of CSR has been made compulsory under the Companies Act 2013.
2. Multiple stakeholder orientation - The companies have responsibilities towards their stakeholders such as suppliers, employees, consumers and local communities in order to survive and prosper.
3. Alignment of social and economic responsibilities - This characteristic of CSR states that how firms can benefit economically from being socially responsible.
4. Practices and values - CSR implies a particular set of business practices and strategies that deal with social issues.
5. Pervasive activity – CSR is pervasive activity because it is the obligation of managers at all the levels of management to discharge their corporate social responsibility towards their stakeholders.
6. Continuous activity- The companies have to discharge their social obligations towards the society on continuous basis to be successful.
7. Profit maximization is essential for CSR – A company can discharge its social responsibilities only if it is economically sound and has sufficient profits.
COMPONENTS OF CSR
1. Business Ethics - Business ethics relate to value-based and ethical business practices adopted by the companies.
2. Good practices - CSR involves good practices like equal opportunity for all, diversity of workforce that includes people with disability, people from the local community, gender policy, code of conduct/guidelines , etc.
3. Community - A major stakeholder to the business is the community in which the company operates.
4. Corporate Governance - In corporate governance, major issues are - accountability, transparency and conduct in conformity with the laws.
5. Customers - The products and services of a company are ultimately aimed at the customers.
6. Workplace and labour relations - Good CSR practices relating to workplace and labour relations can help in improving the workplace in terms of health and safety and employee relations.
7. Supply Chain - The business processes of the company includes its own processes as well as operations done by the entire supply chain involved in the business.
8. Environment - CSR requires the company to engage in such a way that delivers environmental benefits.
SCOPE / LEVELS OF CORPORATE SOCIAL RESPONSIBILITY
The scope of CSR includes corporate social responsibility (CSR) as composed of four obligations:
1.Economic responsibility
1. To perform in a manner consistent with maximizing earnings per share.
2. To be committed to being as profitable as possible.
3. To maintain a high level of operating efficiency.
4. To maintain a strong competitive position in the market.
2. Legal responsibility
1. To perform in a manner consistent with expectations of government and law.
2. To comply with various federal, state and local regulations.
3. To be a law-enduring corporate citizen.
4. To provide goods and services which meet at least minimum legal requirements.
3. Ethical responsibility
1. To perform in a manner consistent with the expectations of morals and ethical norms of the society.
2. To recognize and respect new or evolving ethical moral norms adopted by the society.
3. To prevent ethical norms from being compromised in order to achieve corporate goals.
4. To recognize that corporate integrity and ethical behaviour go beyond mere compliance with laws and regulations.
4. Philanthropic responsibility
1. To perform in a manner consistent with the philanthropic and charitable expectations of the society.
2. The managers and employees of the business should participate in voluntary and charitable activities within their local communities.
4. To provide assistance to private and public educational institutions.
5. To voluntarily assist those projects which enhance a community's "quality of life".
NEED FOR CORPORATE SOCIAL RESPONSIBILITY
2. Demands for greater disclosure - There is a growing demand for corporate disclosure from stakeholders, including customers, suppliers, employees, communities, investors, and activist organizations.
3. Increased customer interest - Customers like to transact and buy goods from that company which discharges its social obligations towards the society as well as satisfy them.
4. Growing pressure from investors - Investors now assess companies' performance on the basis of the social responsibility practices undertaken by them and are making decisions based on the criteria that include ethical concerns.
5. Competitive labour markets - Employees like to work with the employers whose philosophies and operating practices match with their own principles.
6. Supplier relations - As the stakeholders are becoming increasingly interested in business affairs, many companies are taking steps to ensure that their partners conduct themselves in a socially responsible manner.
7.Avoiding Government Intervention - Failure of businessmen to assume social responsibilities leads the government to intervene and regulate or control their business activities.
8. Globalization -Adoption of 'Best Practice', Consumer & Legal Acceptance makes an easy way for the firm to operate globally and enjoy the benefits of globalization.
IMPORTANCE / BENEFITS OF CSR
1. Better Public Image and brand image - Acceptance of social responsibility goals helps to improve public image of the firm through monetary donations, volunteerism, in-kind donations of products and services and strong partnerships.
2. Long Term Business Interest - A firm which is sensitive and responsive to community needs will help in making community, a better place to live and conduct its business.
3. Attracts and retains employees - Employees like working in a company that has a good public image and is constantly in the media for positive reasons.
4. Attracts and retains investors - Investors are more likely to be attracted to and continue to support companies that show a commitment to its employees, customers, investors and the society.
5.Customer satisfaction and retention - CSR practices adopted by the companies improve customers’ attitude towards the company.
6. Brand differentiation - Some companies use CSR practices to gain competitive advantage by using their social contributions as another form of advertising.
7. Saves cost of traditional advertising - Companies do not have to waste money on expensive advertising campaigns.
8. Costs reductions - The company can reduce its costs through CSR if it is properly conducted.
9. Enhanced relationship with the stakeholders - If a business acts in a socially responsible manner, the various stakeholders see the business as a venture that needs their support, both morally and financially.
10. Government Relations - Companies that give emphasis on corporate social responsibility enjoy good relations with the government.
11. Building a Positive Workplace Environment - One of the greatest benefits of promoting social responsibility in the workplace is the positive environment build for the employees.
12. Encourages professional and personal development - Providing employees with the opportunity to be involved in the company’s socially responsible activities involves teaching of new skills to the staff.
13. Helps to face competition - Branding the business as ‘socially responsible’ differentiates it from its competitors.
14. More business opportunities - A CSR program requires an open and outside oriented approach. Because of continuous interaction with other parties, the business is able to know about the new business opportunities.
15. Winning new businesses - Every business owner wants to do business with that business manager or entrepreneur whose business is reputable and credible.
16. Positive impact in the community - public value outcomes - A sound corporate social responsibility framework can genuinely help the organizations to deliver public value outcomes by focusing on how their services can make a difference in the community.
APPROACHES TO SOCIAL RESPONSIBILITY
1. Community Approach
Many companies donate products, their time and even office space to local charities as a way of re-investing in their communities.
2. Philanthropy Approach
the business can serve the needs of the community by financially contributing to a group providing new winter coats to so many local children.
3. Shared Value Approach
Purchasing sustainable products from suppliers can be one way to create shared value in the initial stages so it can become a part of the company's overall strategy.
4. Sustainability Approach
An example of this philosophy could be makeup creams made from the ingredients that are imported from developing countries to help their country's growth.
THEORIES OF CSR
1. Classical View Theory
Under this theory managers are expected to focus only on profit maximisation because they are the agents of the shareholders and should strive towards maximisation of shareholders wealth through profit motive.
2. Instrumental theories
This theory emphasises on linking CSR practices with profit maximisation to benefit the different stakeholders.
3.Agency theory
This Theory express the relationship between the agents (managers) and the principals (Shareholders/Investors) of the organization. Managers are agents of the shareholders assuming responsibilities on their behalf.
4.Legitimacy theory
The legitimacy theory is based upon the notion that there is a “social contract” between an organization and the society in which it operates. The social contract as explained represents certain expectations that society has about how an organization should conduct its operations.
5. Institutional Theory
Institutional theory is identified as an external factor that influences the way an organisation act and perform its CSR practice because one of the drivers to CSR performance is the pressure exerted by stakeholders and competitors.
6. Stakeholder Theory
This theory focuses on the relationship between the business organisation and any single individual or group of people or functional bodies that are involved in the process of achvxxieving organisational objectives.
7.Ethical theories
Ethical theories focus on the ethical requirements based on principles that express the right thing to do or the necessity to achieve a good society that strengthen the relationship between business and society.
8. Moral theories
(1) Egoism- According to egoism, a company should do good or refrain from doing harm only if it is good for the company, normally meaning if it helps to maximize profit.
(2) Utilitarianism- The companies have a moral obligation to promote the best possible outcome, i.e. maximise happiness and prosperity.
(3) Libertarianism- According to this theory, it is believed that companies have no moral obligation to positively help anyone and they are only morally obligated not to violate anyone's rights.
(4) Common-sense morality- This theory believes that companies should have a common sense and moral obligation not to violate anyone's rights.
RESPONSIBILITY OF BUSINESS TOWARDS DIFFERENT GROUPS
A. Responsibility towards employees
1. Timely and regular payment of wages and salaries.
2. Proper working conditions and welfare amenities.
3. Better living conditions like housing, transport, canteen, crèches, etc.
4. Providing opportunity for better career prospects.
5. Providing opportunities for personal and professional development through training and development of the employees.
6. Job security as well as social security like facilities of provident fund group insurance, pension, retirement benefits, etc.
7. Eliminating discrimination.
8. Ensuring workers participation in management.
9. Mental, physical, economic and cultural satisfaction of employees.
10. Motivation and offering incentives for raising the performance of employees.
B. Responsibility towards suppliers
1.Giving regular orders for purchase of goods.
2. Dealing on fair terms and conditions.
3. Timely payment of dues.
4. Availing reasonable credit period.
C. Responsibility towards customers
1.Products and services must be according to the needs of the customers.
2. Product and services must be of good quality.
3. There must be regularity in supply of goods and services.
4. Price of the goods and services should be reasonable and affordable.
5. There must be proper after-sale services.
6. All the advantages and disadvantages of products as well as procedure to use the products must be informed do the customers.
7. Grievances of the consumers, if any, must be settled quickly.
8. Unfair means like under weighing the product, adulteration, etc. must be avoided.
D. Responsibility towards competitors
1.Not to offer to customers heavy discounts and, /or free products in every sale.
2. Not to offer exceptionally high sales commission to distributors, agents, etc.
3. Not to defame or criticize competitors through false or ambiguous advertisements.
E. Responsibility towards government
1. Setting up the units according to the guidelines of the government.
2. Payment of fees, duties and taxes regularly as well as honestly.
3. Not to indulge in monopolistic and restrictive trade practices.
4. Conforming to pollution control norms set up by the government.
5. Not to indulge in corruption through bribing and other unlawful activities.
F. Responsibility towards society
1. To help the weaker and backward sections of the society.
2. To preserve and promote social and cultural values.
3. To generate employment.
4. To protect the environment.
5. To conserve natural resources and wildlife.
6. To promote sports and culture.
7. To provide assistance in the field of developmental research on education, medical science, technology, etc.
8. Progressive economic stability.
9. Safeguarding Public Safety.
10. Rehabilitating the population i.e. setting up units at those places where sufficient space is available for housing colonies of workers.
11. The promotion of small scale industries that will help in building up a better society.
G. Responsibility towards environment
1. Production of safe items.
2. Using biodegradable packages.
3. Educating consumers on product use and disposal.
4. Preservation of Natural Resources by
(a) Using scarce natural resources very carefully.
(b) Finding out the alternative sources of natural resources like the use of coal can be reduced by alternative sources of energy.
5. Pollution Control by
H. Responsibility to Owners and shareholders
1.To run the business efficiently.
2. Proper utilization of capital and other resources.
3. Growth and appreciation of capital.
4. Regular and fair return on capital invested.
5. To provide the Shareholders with the correct information and true and fair position of the company in order to make decisions.
6. To provide a fair return on the investment made by the shareholders.
7. To strengthen the company share prices by its growth, innovation and diversification.
I. Responsibility towards investors
1.Ensuring safety of their investment.
2. Regular payment of interest.
3. Timely repayment of principal amount.
BARRIERS TO CSR / PROBLEMS IN IMPLEMENTING CSR
A. Firm-specific Barriers
1. Lack of Resources
2. Lack of Strategic Vision
3. The orientation towards short-term goals
4. Lack of Measurement Systems
5. The Objective of profit maximization
6. The Division
7. The Manager
B. Industry-specific Barriers
1. Low Willingness to Pay for CSR
2. High Regulatory Standards
3. Competition in the industry
ARGUMENTS FOR SOCIAL RESPONSIBILITY
1. Public Requirements
Business can exist only with public support and only if business fulfils the needs of the society.
2. Favourable For Business
People with healthy environment, good health and education will make them good customers and employees.
3. Moral Justification
Business which is using so many resources of our economy has responsibility to devote some of these resources in the overall development of the society.
4. Socio-Cultural Norms
A business working against traditional values will face criticism from the society.
5. Public Image
Only that firm can enjoy better reputation in public which supports social goals.
6. Government Regulations
If business does not respond positively to the needs of the society, then it may be compelled to do so through government laws and regulations.
7. Indebted to Society
Business units benefit from the society. In return it also has certain debts that it owes to the society. Business uses vast pool of resources in terms of men, talents, expertise and money.
ARGUMENTS AGAINST SOCIAL RESPONSIBILITY
1. Cost of social work
Business has already limited resources. So if it is used in social work then business activity may slow down and business's expenses will increase and it will affect the business inversely.
2. Businessman is not expert in social work
Businessman is not expert in social work.
3. Social responsibility is not a legal responsibility
Some businessman argue that social responsibility is not a legal responsibility, so no one can pressure on businessman to give donation under any law.
4. International competition
One of important argument given by the Indian businessman is that they have to face international competition.
5. Ignore Business Aim
It is the duty of the government to do the social activities.If a businessman ignores his business aim and start social activities, then after ignoring business aim businessman cannot succeed in the business.