Corporate Social Responsibility: Towards a Sustainable Future

The role of corporates by and large has been understood in terms of a commercial business
paradigm of thinking that focuses purely on economic parameters of success. As corporates have
been regarded as institutions that cater to the market demand by providing products and services,
and have the onus for creating wealth and jobs, their market position has traditionally been a
function of financial performance and profitability. However, over the past few years, as a
consequence of rising globalisation and pressing ecological issues, the perception of the role of
corporates in the broader societal context within which it operates, has been altered. Stakeholders
(employees, community, suppliers and shareholders) today are redefining the role of corporates
taking into account the corporates broader responsibility towards society and environment,
beyond economic performance, and are evaluating whether they are conducting their role in an
ethical and socially responsible manner. As a result of this shift (from purely economic to
economic with an added social dimension), many forums, institutions and corporates are
endorsing the term Corporate Social Responsibility (CSR). They use the term to define
organisations commitment to the society and the environment within which it operates. The
World Business Council on Sustainable Developments (WBCSD) report was titled Corporate
Social Responsibility: Making Good Business Sense and the OECD Guidelines for 1 MultiNational Enterprises which includes a discussion on how CSR is emerging as a global business
standard. Further, there is a global effort towards reinforcing CSR programmes and initiatives
through local and international schemes that try to identify best-in-class performers.

CSR: A Historical Perspective The concept of CSR in India is not new, the term may be. The
process though acclaimed recently, has been followed since ancient times albeit informally.
Philosophers like Kautilya from India and pre-Christian era philosophers in the West preached
and promoted ethical principles while doing business. The concept of helping the poor and
disadvantaged was cited in much of the ancient literature. The idea was also supported by several
religions where it has been intertwined with religious laws. Zakaat, followed by Muslims, is
donation from ones earnings which is specifically given to the poor and disadvantaged.
Similarly Hindus follow the principle of Dhramada and Sikhs the Daashaant. In the global
context, the recent history goes back to the seventeenth century when in 1790s, England

witnessed the first large scale consumer boycott over the issue of slave harvested sugar which
finally forced importer to have free-labor sourcing. In India, in the pre independence era, the
businesses which pioneered industrialisation along with fighting for independence also followed
the idea. They put the idea into action by setting up charitable foundations, educational and
healthcare institutions, and trusts for community development. The donations either monetary or
otherwise were sporadic activities of charity or philanthropy that were taken out of personal
savings which neither belonged to the shareholders nor did it constitute an integral part of
business. The term CSR itself came in to common use in the early 1970s although it was seldom
abbreviated. By late 1990s, the 3 oncept was fully recognised; people and institutions across all
sections of society started supporting it. This can be corroborated by the fact that while in 1977
less than half of the Fortune 500 firms even mentioned CSR in their annual reports, by the end of
1990, approximately 90 percent Fortune 500 firms embraced CSR as an essential element in their
organisational goals, and actively promoted their CSR activities in annual reports (Boli and
Hartsuiker, 2001).

CSR: Definition The totality of CSR can be best understood by three words: corporate, social,
and responsibility. In broad terms, CSR relates to responsibilities corporations have towards
society within which they are based and operate, not denying the fact that the purview of CSR
goes much beyond this. CSR is comprehended differently by different people. Some perceive it
to be a commitment of a company to manage its various roles in society, as producer, employer,
customer and citizen in a responsible manner while for others it is synonymous to Corporate
Responsibility (CR) or Corporate Citizenship or Social Action Programme (SAP). Of late, the
term has also been started to link up with Triple Bottom Line Reporting (TBL) which essentially
measures an enterprises performance against economic, social and environmental indicators.
Discourses on CSR suggest that many definitions of CSR exist within the business community,
and CSR continues to be an evolving concept, with no single definition that is universally
accepted. Given below are three key definitions that have garnered wide acceptance and favour
amongst business circles: Definition # 1: Philip Kotler and Nancy Lee (2005) define CSR as a
commitment to improve community well being through discretionary business practices and

contributions of corporate resources whereas Mallen Baker refers to CSR as a way companies
manage the business processes to produce an overall positive impact on society.
CSR: Definition The totality of CSR can be best understood by three words: corporate, social,
and responsibility. In broad terms, CSR relates to responsibilities corporations have towards
society within which they are based and operate, not denying the fact that the purview of CSR
goes much beyond this. CSR is comprehended differently by different people. Some perceive it
to be a commitment of a company to manage its various roles in society, as producer, employer,
customer and citizen in a responsible manner while for others it is synonymous to Corporate
Responsibility (CR) or Corporate Citizenship or Social Action Programme (SAP). Of late, the
term has also been started to link up with Triple Bottom Line Reporting (TBL) which essentially
measures an enterprises performance against economic, social and environmental indicators.
Discourses on CSR suggest that many definitions of CSR exist within the business community,
and CSR continues to be an evolving concept, with no single definition that is universally
accepted. Given below are three key definitions that have garnered wide acceptance and favour
amongst business circles:
Definition # 1: Philip Kotler and Nancy Lee (2005) define CSR as a commitment to improve
community well being through discretionary business practices and contributions of corporate
resources whereas Mallen Baker refers to CSR as a way companies manage the business
processes to produce an overall positive impact on society.
Definition # 2: According to World Business Council for Sustainable Development Corporate
Social Responsibility is the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the workforce and
their families as well as of the local community and society at large.
Definition # 3: Archie Carroll in 1991 describes CSR as a multi layered concept that can be
differentiated into four interrelated aspects economic, legal, ethical and philanthropic
responsibilities.
Carroll presents these different responsibilities as consecutive layers within a pyramid, such that
true social responsibility requires the meeting of all four levels consecutively. The model
probably is the most accepted and established. While the definitions of CSR may differ, there is

an emerging consensus on some common principles that underline CSR: CSR is a business
imperative: Whether pursued as a voluntary corporate initiative or for legal compliance reasons,
CSR will achieve its intended objectives only if businesses truly believe that CSR is beneficial to
them. CSR is a link to sustainable development: businesses feel that there is a need to integrate
social, economic and environmental impact in their operation; and CSR is a way to manage
business: CSR is not an optional add on to business, but it is about the way in which businesses
are managed.

Introduction
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting
the way a corporation (or company) is directed, administered or controlled. Corporate
governance also includes the relationships among the many stakeholders involved and the goals
for which the corporation is governed. The principal stakeholders are the shareholders, the board
of directors, employees, customers, creditors, suppliers, and the community at large. Good
corporate governance practices are a sine qua non for sustainable business that aims at generating
long term value to all its shareholders and other stakeholders. It promotes the development of
strong financial systems irrespective of whether they are largely bank-based or market-based
which, in turn, have an unmistakably positive effect on economic growth and poverty reduction.
It enhances access to external financing by firms, leading to greater investment, as well as higher
growth and employment. It also lowers the cost of capital by reducing risk and creates higher
firm value. Effective corporate governance mechanisms ensure better resource allocation and
management raising the return to capital. The return on assets (ROA) is about twice as high in
the countries with the highest level of equity rights protection as in countries with the lowest
protection. Corporate governance is a topic of hot debate in developed countries like U.K. &
U.S.A. for the last two decades. However, there has been renewed interest in the corporate
governance practices of modern corporations since 2001, particularly due to the high-profile
collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly
WorldCom). Enron, Texas based energy giant, and WorldCom, the telecom behemoth, shocked

the business world with both the scale and age of their unethical and illegal operations. With the
opening up of economies, it has also been a concern for developing country like India. This is
because opening up of economies has changed the scenario of Indian market i.e. on one hand, it
has made the world market accessible to the Indian corporates & on the other hand, it has
increased competition in the domestic market with the advent of the multinational companies. In
this changed scenario, the quality of governance has been an important factor not only for
survival of the companies but also for influencing the companys ability to raise money from
capital market. Again corporate governance is important in Indian context because of the scams
that occurred since liberalisation from 1991, for e.g. the UTI scam, Ketan Parekh scam , Harshad
Mehta scam, Satyam Fraud case. In this paper, an attempt has been made to know the status of
corporate governance in India in pre and post liberalization period. After that, Satyam fiasco has
been discussed. Then, it will be discussed that how the lessons learnt from Satyam saga will help
improve the level of corporate governance in India in the years to come. Corporate governance in
India in pre- liberalization period Corporate development in India was marked by the managing
agency system, which contributed to the birth of dispersed equity ownership & also gave rise to
the practice of management enjoying controlling rights disproportionately greater than their
stock ownership. The enactment of 1951 Industries (Development & Regulation) Act & the 1956
Industrial Policy Resolution marked the beginning of a regime & culture of protection, licensing
& red tape that encouraged corruption & stilted the growth of the Indian corporate sector. Soon,
corruption, nepotism & inefficiency became the hallmark of Indian corporate sector. The
corporate bankruptcy & reorganisation system was also not free from problems. In 1985, the
Sick Industrial Companies Act (SICA) and in 1987 the Board for Industrial & Financial
Reconstruction (BIFR) were set up. According to SICA, a company is declared sick only when
its entire net worth has been eroded & it has been referred to BIFR. The BIFR usually took over
2 years on average just to reach a decision with respect to the companies. Only a few companies
emerged successfully from the BIFR & the legal process on average took more than 10 years by
which the assets of the company were virtually worthless. Thus, protection of the creditors
rights existed only in paper & the bankruptcy process was featured among the worst in the World
Bank survey on business climate. Although the Companies Act 1956 provided clear instruction
for maintaining & updating share registers, but in reality minority shareholders often suffered
from irregularities in share transfers & registrations. There were cases where the rights of the

minority shareholders were compromised by the man-agements private deals in case of

corporate takeovers. Thus, in the pre-liberalization era the Indian equity markets were not
sophisticated enough to exert effective control over the companies. Listing requirements of
exchanges provided some transparency but non-compliance was not rare & was also not
punished. Corporate governance in India in post- liberalization period Liberalization of the
Indian economy began in 1991. Since then, there have been major changes in both laws &
regulations & in the corporate governance landscape. The most important development in the
field of corporate governance & investor protection has been the establishment of the Securities
& Exchange Board of India (SEBI) in 1992. It has played a crucial role in establishing the basic
minimum ground rules of corporate conduct in India. The next significant event was the
Confederation of Indian Industry (CII) Code for Desirable Corporate Governance developed by a
committee chaired by Rahul Bajaj. The committee was formed in1996 and it submitted its
recommendation on April 1998. Later two more committees were constituted by SEBI, one
chaired by Kumar Mangalam Birla & the other by Narayana Murthy. The Birla committee
submitted its report in early 2000 and the second committee submitted its report in 2003. The
recommendation of these two committees had been instrumental in bringing major changes in
the corporate governance through the formulation of Clause 49 of the Listing Agreement. Along
with SEBI, the Department of Company Affairs and the Ministry of Finance, Government of
India, also took some initiatives for improving corporate governance in India. For example, the
establishment of a study group to operationalize the Birla Committee recommendations in 2000,
the Naresh Chandra Committee on Corporate Audit and Governance in 2002 and the Expert
Committee on Corporate Law (J.J. Irani Committee) in late 2004. SEBI implemented the
recommendations of the Birla Committee through the enactment of Clause 49 of the Listing
agreement. It came into effect from 31 December 2005 It is similar to Sarbanes - Oxley Act
(SOX) in U.S. Clause 49 looks into the following matters; (i) composition of the board of the
directors, (ii) composition and functioning of the audit committee, (iii) governance and
disclosures regarding subsidiary companies, (iv) disclosures by the company, (v) CEO/CFO
certification of the financial results, (vi) reporting on corporate governance as part of the annual
report, (vii) certification of compliance of a company with the provisions of Clause 49. Clause
49 can be referred to as a milestone with respect to the changes in corporate governance in India.
With its introduction, compliance with its requirements is mandatory for listed companies. It has

been formulated for the improvement of corporate governance in all listed companies. But, the
whole corporate governance issue is popping its head up again after the Satyam episode. Satyam
fiasco Satyam scam had been the greatest scam in the history of corporate world of the India.
Satyam Computer Services Ltd, the fourth largest IT company in India, was founded in 1987 by
B. Ramalinga Raju. The company was offering information technology (IT) services spanning
various sectors, and was listed on the New York Stock Exchange and Euronext. Satyams
network covered 67 countries across six continents. The company employed 40,000 IT
professionals across development centers in India, the United States, the United Kingdom, the
United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and
Australia. It was serving over 654 global companies, 185 of which were Fortune 500
corporations. Satyam had strategic technology and marketing alliances with over 50 companies.
Apart from Hyderabad, it had development centers in India at Bangalore, Chennai, Pune,
Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam. In September 2008 the
World Council for Corporate Governance honored the Satyam with a Golden Peacock Award
for global excellence in corporate governance. On January 7, 2009, Satyam scandal was publicly
announced & Mr. Ramalingam confessed and notified SEBI of having falsified the account. Raju
confessed that Satyams balance sheet as on 30 September 2008 contained: 1. Inflated (nonexistent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the
books) on the balance sheet as on September 30, 2008 2. An accrued interest of Rs 376 crore
which is non-existent 3. An understated liability of Rs 1,230 crore on account of funds 4. An
overstated debtors position of Rs 490 crore (as against Rs 2,651 reflected in the books) 5. For the
September quarter, Satyam fraudently reported a revenue of Rs 2,700 crore and an operating
margin of Rs 649 crore (24% of revenues) as against the actual revenues of Rs 2,112 crore and
an actual operating margin of Rs 61 crore (3% of revenues). This has resulted in artificial cash
and bank balances going up by Rs 588 crore in Q2 alone. Raju acknowledged that the gap in the
balance sheet had arisen on account of inflated profits over a period of last several years. The
scandal came to light with a successful effort on the part of investors to prevent an attempt by
the minority shareholding promoters to use the firms cash reserves to buy two companies owned
by them i.e. Maytas Properties and Maytas Infra. Raju wanted to buy the entire stake in Matyas
Properties for $ 1.3 billion and 51% stake in Maytas Infra for $ 300 million to cover the scam he
was cooking. As a result, this aborted an attempt of expansion on Satyams part, which in turn

led to a collapse in price of companys stock following with a shocking confession by Raju, The
truth was its promoters had decided to inflate the revenue and profit figures of Satyam thereby
manipulating their balance sheet consisting non-existent assets, cash reserves and liabilities.
Lessons from Satyam episode Satyam fiasco has put spotlight on some of the corporate
governance practices and has exposed the weaknesses: Lax Regulatory systems; the imperious
and machiavellians promoters/ CEOs and their unbridled greed; connivance and collusion of
Auditors and poor auditing practices and timid and acquiescent independent directors. The silver
lining to this whole episode was the ascendancy of the Shareholders Activism. The institutional
shareholders and investment analyst vehemently reacted to information of buying Matyas by
Satyam Computers. Ramalinga Raju was left with no option but to abandon the plan of buying
Matyas. He also had to put in his papers, confessing cooking of the books for several years. The
good thing about the multi- crores scandal is that the lessons learnt from Satyam saga will help
improve the level of corporate governance in India in the years to come. Role of Satyams
independent directors is termed as unpardonable, it means acting against the interest of large
shareholders especially when the promoters themselves owned a little more than 8 per cent stake
in the company and institutional investors owned more than 45 per cent. Independent directors of
Satyam computers, who agreed to the companys proposal of buying out two promoter- related
companies, failed to be independent in spirit. Role of independent directors will be under close
scrutiny now. They need to be more active and need to maintain their independent spirit. They
need to be vigilant in protecting minority interest and be brave enough to take adequate steps.
Fingers are also pointed out at the possibility of the auditors Price Waterhouse Coopers (PWC)
being hand in glove with the conspirators in the multi- crores scam. It is highly unlikely that
auditors did not have any idea about the scam brewing for so many years. Credibility of audit
firms has come into question as the amount was too big for any audit firm not to notice.
Therefore, now the auditing firms will be very careful while auditing the accounts of companies.
Conclusion
In the present study, status of corporate governance in pre and post liberalization period in India
has been talked about. After that, Satyam fiasco has been discussed. The lessons learnt from
Satyam saga will help in improving the corporate governance in India in the years to come. Role
of independent directors will be under close scrutiny and the auditing firms will be very careful

while auditing the accounts of companies in future. From the Satyam episode, it is concluded
that more training of audit committee members is required. The challenge is to design and
sustain a system that imbibes the spirit of corporate governance and not merely the letter of the
law.1

1 http://theglobaljournals.com/paripex/file.php?
val=November_2013_1384850560_f4a34_08.pdf