16

00
CORPORATE SOCIAL RESPONSIBILITY:
AN INTRODUCTION
0
16.1 INTRODUCTION

Profit maximisation is the primary aim of a capitalist economy. The mantra of hardcore capitalism
is profit, more profit and only profit, but recently a new concept has emerged called co-operational
capitalism or co-op capitalism. This new capitalism, though focused on the profit motive, also
incorporates the essence of cooperation, accountability, and values in the social context. Such an
idea of modern capitalism is reflected in corporates, too. For the new generation of corporate
leaders, profit optimisation is more important than only profit maximisation. Hence there is a shift
in accountability from shareholders to stakeholders (including employees, consumers and affected
communities), and a growing realisation that long-term business success can be achieved only by
companies that recognise that the economy is an open subsystem of the earths ecosystem which is
finite, non-growing and materially closed. It is otherwise known as corporate social
responsibility or in short CSR.

CSR in India is in a very nascent stage. It is still one of the least understood initiatives in the Indian
development sector. It is followed by a handful of public companies as dictated by the very basis of
their existence, and by a few private companies, with international shareholding as this is the
practice followed by them in their respective foreign country. Thus the situation is far from perfect
as the emphasis is not on social good but rather on a policy that needs to be implemented. Under
this backdrop, the present chapter discusses strategic planning and corporate social responsibility;
Corporate Philanthropy, the concept of CSR, CSR and Corporate Sustainability, CSR and Business
Ethics, CSR and Corporate Governance, Environmental Aspect of CSR and others.

16.2 PHILANTHROPY AS A STRATEGIC CHOICE

Historically many businesses played a significant role in their local communities by providing
financial support to a variety of non-profit organizations and charitable causes. In recent years
several events and trends have contributed to companies changing the way they approach their
philanthropy (charity). Corporations can use their charitable efforts to improve their competitive
context, the quality of the business environment in the locations where they operate. Using
philanthropy to enhance competitive context means aligning social and economic goals and
improving companys long-term business prospects.
Corporate philanthropy is considered as a practice by companies of all sizes and sectors making
charitable contributions to address a variety of social, economic and other issues as part of their
overall corporate citizenship strategy. Historically many businesses played a significant role in their
local communities by providing financial support to a variety of nonprofit organizations and
charitable causes. In recent years several events and trends have contributed to companies
changing the way they approach their philanthropy.
Corporate philanthropy programs can create a powerful competitive advantage if they are planned
strategically with a meaningful focus on the organizations core business and target market and
carried out effectively. This advantage can even translate to profits very quickly. For example,
within months of distributing a supply of gift cards to their customers through the Donors Choose
campaign to benefit education, Crate and Barrel noted a 16% increase in sales among those who
received the cards. By developing their corporate philanthropy programs with the secondary
business goals in mind, CSR managers can achieve greater success with demonstrating the value of
giving back to the senior company leadership. Here are a few benefits to consider when developing
a philanthropy program:
Boosting branding and name recognition
Philanthropic/Charitable contributions and high profile volunteering efforts can increase brand
recognition in a competitive marketplace more effectively than advertising (which most consumers
tend to tune out). Even more importantly, the reputation built in the consumers mind is connected
to positive things that, in many cases, have a direct impact on the individual or someone they know
and care about. This makes the impact of the branding even more effective as it promotes goodwill.
Improving the quality of life
By getting involved in causes that directly impact members of the local community whether near
the corporate headquarters, or in all the various communities where a large organization does
business the company can actually improve the quality of life of those who make up the bulk of
their consumer base and their workforce, both current and future.
Improving relationships with government officials and community leaders
Donating to worthy causes in strategic geographic areas can help organizations build valuable
relationships with government officials and community leaders that can prove very helpful when
regulatory issues arises or complicated legislative landscapes need to be negotiated. The same
officials and community leaders who become positively disposed toward an organization due to
philanthropic efforts can assist with getting their constituents on board as well, lending their verbal
and moral support to company initiatives as appropriate.
Building an improved customer base
By improving the economic, social, or educational conditions in areas that could use help now, a
company with a long-term strategic outlook can build a customer base where none currently exists.
This is especially effective when the organization chooses a cause that aligns directly with their
core business. For example, a publisher may get involved in community efforts to reduce or
eliminate illiteracy among inner-city youth. By doing so, that company can bring thousands of
people who otherwise would never have become customers into a position where they can take
advantage of what the company has to offer and the desire to do something to support the company
that helped make it possible.
Driving recruitment and retention
A commitment to corporate philanthropy over the long term bolsters efforts to recruit and retain
and engage talented employees. In most cases, especially among Millennial, employees want to feel
like their company shares their own personal values. Giving back to the community through
company efforts motivates them just as much as (or even more than) the financial rewards of their
paychecks.
Building greater opportunities for innovation
Finally, corporate philanthropy can actually stimulate innovation. For example, by giving grants to
universities and other educational facilities and foundations, companies can gain access to new
ideas, technical expertise, and valuable research they may otherwise have never had access to. In
many cases, this kind of alignment with research institutions through charitable giving can assist
with recruiting the talented graduates of these programs to work for the company.
By building a strategic corporate philanthropy program around core business objectives,
companies can be more successful in proving the value of giving back.

16.3 HISTORY AND EVOLUTION OF INDIAN CSR

India has the worlds richest tradition of Corporate Social Responsibility (CSR). The term CSR may
be relatively new to India, but the concept dates back to Mauryan history, where philosophers like
Kautilya emphasized on ethical practices and principles while conducting business. CSR has been
informally practiced in ancient times in form of charity to the poor and disadvantaged. Indian
scriptures have at several places mentioned the importance of sharing ones earning with the
deprived section of society. We have a deep rooted culture of sharing and caring.
Religion also played a major role in promoting the concept of CSR. Islam had a law called Zakaat,
which rules that a portion of ones earning must be shared with the poor in form of donations.
Merchants belonging to Hindu religion gave alms, got temples and night shelters made for the
poorer class. Hindus followed Dharmada where the manufacturer or seller charged a specific
amount from the purchaser, which was used for charity. The amount was known as charity amount
or Dharmada. In the same fashion, Sikhs followed Daashaant.
Here, we can understand that the history of CSR in India runs parallel to the historical development
of India. CSR has evolved in phases like community engagement, socially responsible production,
and socially responsible employee relations. Therefore, the history of Corporate Social
responsibility in India can be broadly divided into four phases:
PHASE 1 (1850 to 1914)
The first phase of CSR is known for its charity and philanthropic nature. CSR was influenced by
family values, traditions, culture and religion, as also industrialisation. The wealth of businessmen
was spent on the welfare of society, by setting up temples and religious institutions. In times of
drought and famine these businessmen opened up their granaries for the poor and hungry. With
the start of the colonial era, this approach to CSR underwent a significant change. In pre-
Independence times, the pioneers of industrialisation, names like Tata, Birla, Godrej, Bajaj,
promoted the concept of CSR by setting up charitable foundations, educational and healthcare
institutions, and trusts for community development. During this period social benefits were driven
by political motives.
PHASE 2 (1910 to 1960)
The second phase was during the Independence movement. Mahatma Gandhi urged rich
industrialists to share their wealth and benefit the poor and marginalised in society. His concept of
trusteeship helped socio-economic growth. According to Gandhi, companies and industries were
the temples of modern India. He influenced industrialists to set up trusts for colleges, and research
and training institutions. These trusts were also involved in social reform, like rural development,
education and empowerment of women.
PHASE 3 (1950 to 1990)
This phase was characterised by the emergence of PSUs (Public Sector Undertakings) to ensure
better distribution of wealth in society. The policy on industrial licensing and taxes, and restrictions
on the private sector resulted in corporate malpractices which finally triggered suitable legislation
on corporate governance, labour and environmental issues. Since the success rate of PSUs was not
significant there was a natural shift in expectations from public to private sector, with the latter
getting actively involved in socio-economic development. In 1965, academicians, politicians and
businessmen conducted a nationwide workshop on CSR where major emphasis was given to social
accountability and transparency.
PHASE 4 (1980 ONWARDS)
In this last phase CSR became characterised as a sustainable business strategy. The wave of
liberalisation, privatisation and globalisation (LPG), together with a comparatively relaxed licensing
system, led to a boom in the countrys economic growth. This further led to an increased
momentum in industrial growth, making it possible for companies to contribute more towards
social responsibility. What started as charity is now understood and accepted as responsibility.

Phases of Evolution

Phase 1 Phase 2 Phase 3 Phase 4

(1850 - 1914) (1910 - 1960) (1950 - 1990) (1980 onwards)

Purely philanthropy CSR as social CSR in a globalised

CSR under the mixed
and charity during development during world is in a confused
economy paradigm;
industrialisation; the Independence state; corporation is
corporation is
corporation is only struggle; corporation responsible to owners,
responsible to owners,
responsible to is responsible to managers, other target
managers and other
owners and owners, managers and environments and the
target environments.
managers employees. public at large.

16.4 WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

Corporate Social Responsibility means responsibility towards the society. The totality of Corporate
Social Responsibility can be best understood by three words: corporate, social and
responsibility. In broad terms, Corporate Social Responsibility means responsibility towards the
society within which they are based and operate, not denying the fact that the purview of Corporate
Social Responsibility goes much beyond this. Different people have described corporate social
responsibility differently. Some of the more popular name of corporate social responsibility are
profit making only, going beyond profit making, voluntary activities, concern for the broader social
system, Economic, legal and voluntary activities, and Giving way to social responsiveness.
According to Phillip Kotler and Nancy Lee, CSR is a commitment to improve community well being
through discretionary business practices and contributions of corporate resources.
Mallen Baker defined CSR as way companies manage the business processes to produce an overall
positive impact on society.
According to Bowin H.R., Social responsibility is the obligation of businessman to pursue those
polices, to make those decisions, or to follow those lines of action which are desirable in terms of
objectives and values of society.
According to World Business Council for Sustainable Development in 2004 defined Corporate
Social Responsibility as Corporate Social Responsibility is the continuing commitment by business to
behave ethically and contribute to the economic development while improving the quality of life of
workforce and their families as well as of the local community and the society at large.
 According to N.R. Narayana Murthy, chairman and chief executive officer of Infosys technologies,
corporate fore most social responsibility is to create maximum share holder value working under the
circumstances where it is fair to all its stake holders workers, consumers, the community and
environment. He points out that by living in harmony with the community and environment around us
and not cheating our customers and worker are we might not gain anything in the short-run, but in
the long term it means greater profits and shareholder value.
Bertrand Collamb, chairman and chief executive officer, Lafarge, France, observes that a company
cant be successful in the long-run without a happy community around and a motivated and happy
workforce with would translate into greater labor productivity, lower wastage in manufacturing
process and product reject ion rate resulting to him international companion can exhibit a greater
social responsibility by bring in efficient manufacturing and business practices to the developing
countries and training and educating local people in new skill, and knowledge
The definition of Corporate Social responsibility is not a difficult concept and can be explained as:-
Corporate means organized business.
Social means everything dealing with people.
Responsibility means accountability between the two.
As a concept, corporate social responsibility has gained momentum recently in India, but as a way
of life, Indians have practiced corporate social responsibility since times immemorial to affect social
welfare and social well-being. Here is one such instance to quote from the first verse of Ishavashya
Upanishad that describes: All that exists in this Universe is the abode of the Almighty. Therefore,
enjoy the good things in life by sharing them with others. Do not covet the possessions of others.
This akin to the concept of Vasudhaiva Kutumbakam, in which the whole earth is to be treated as
ones family.
Without going into semantics of its definition, corporate social responsibility can simply be defined
as businessmans decisions and actions taken for reasons at least partially beyond the firms direct
economic or technical interest. The underlying justification behind corporate social responsibility is
that business organizations operate within the society and earn profits by taking inputs from the
society and then selling its outputs to the society itself. Therefore, just like a citizen, corporations
also like corporate citizens have to reciprocate to the society for what it receives from the society.
This implies that both business and society are interdependent. Both can survive only with
cooperation with each other.

16.5 FORMS OF CORPORATE SOCIAL RESPONSIBILITY (CSR)

Among the organizational researchers who have tried from time to time to identify and describe the
various forms of CSR, probably
the most established and
accepted model of CSR which
addresses the forms of CSR is the
one called Four-Part Model of
Corporate Social Responsibility
as proposed by Archie Carroll
and subsequently refined later
by Carroll and Buchholtz. This
model is depicted in the
following Figure
According to Carroll, CSR is a
multi-layer concept consisting of
four inter-related aspects of
responsibilities, namely, economic, legal, ethical, and philanthropic. He presents these different
responsibilities as consecutive layers within a pyramid.
Hence, he offers the definition of CSR in these words: Corporate social responsibility encompasses
the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a
given point in time.
Let us discuss, in brief, each of these four responsibilities in turn.
Economic Responsibility:
A corporation has to meet its economic responsibilities in terms of reasonable return to investors,
fair compensation to employees, goods at fair prices to customers, etc. Thus, meeting economic
responsibility is the first-layer of responsibility and also the basis for the subsequent
responsibilities. The fact remains that meeting economic responsibility is must for all corporations
to survive in the time.
Legal Responsibility:
The legal responsibility of business corporations demands that businesses abide by the law of land
and play by the rule of the game. Laws are the codification of dos and donts dos in the society.
Abiding by laws is the prerequisite for any corporation to be socially responsible. Corporate history
is replete with instances where violation of laws disallowed corporations to run any longer. Enron,
Union Carbide, Global Trust Bank, etc. are some of such illustrative corporate cases of social
rejection and boycott.
Ethical Responsibility:
These responsibilities refer to obligations which are right, just, and fair to be met by corporations.
Just abiding by law, procedure, and rule and regulations does not make business conduct always as
ethical or good. The conduct of corporations that go beyond law and contribute to social well being
is called ethical.
Hence, corporations have an ethical responsibility to do, even going beyond law and rule and
regulations, what proves good for the society. In other words, ethical responsibilities consist of
what is generally expected by society from corporations over and above economic and legal
expectations.
Philanthropic Responsibility:
The Greek word philanthropy means literally the love of the fellow human. The use of this idea in
business context incorporates activities that are, of course, within the corporations discretion to
improve the quality of life of employees, local communities, and ultimately society at large.
Making donations to charitable institutions, building of recreational facilities for employees and
their families, support for educational institutions, supporting art and support activities, etc. are the
examples of philanthropic responsibilities discharged by the corporations. It is important to note
that the philanthropic activities are desires of corporations, not expected by the society.

16.6 CORPORATE PHILANTHROPY AND CORPORATE SOCIAL RESPONSIBILITY (CSR)

Philanthropy means the act of donating money, goods, time or effort to support a charitable cause
in regard to a defined objective. Philanthropy can be equated with benevolence and charity for the
poor and needy.
Philanthropy can be any selfless giving towards any kind of social need that is not served,
underserved, or perceived as unserved or underserved. Philanthropy can be by an individual or by
a corporate.
It is the active effort to promote human welfare. Corporate Social Responsibility on the other hand
is about how a company aligns their values to social causes by including and collaborating with
their investors, suppliers, employees, regulators and the society as a whole. The investment in CSR
may be on people centric issues and/ or planet issues. A CSR initiative of a corporate is not a selfless
act of giving; companies derive long-term benefits from the CSR initiatives and it is this enlightened
self interest which is driving the CSR initiatives in companies.
16.7 CORPORATE SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
Although scholars and practitioners often interpret Corporate Sustainability and Corporate Social
Responsibility as being nearly synonymous, pointing to similarities and the common domain. The
two concepts have different backgrounds and different theoretical paths. According to management
science, the notion of Corporate Sustainability can be defined first as the capacity of a firm to create
value through the product and services it produces, and to continue operating over the years.
Sustainability, in this context, entails the creation of a sustainable competitive advantage.
Corporate Sustainability includes an attempt to assimilate the environmental and social dimensions
into business operations: processes, products and procedures. In practical terms, the Corporate
Sustainability approach leads to a very concrete and pragmatic problem; how to measure
performance based on the three dimensions outlined and how natural and social values can be
incorporated into corporate accounting.
The evolutionary part of the concept of Corporate Social Responsibility is different from that of the
Corporate Sustainability. The first recognized contribution in the literature dates back to Bowen,
who stressed the responsibilities of businesses, and wrote that social responsibility refers to the
obligations of the businessmen to pursue those policies, to make those decisions, or to follow those
lines of action which are desirable in terms of the objectives and values of our society.
Besides economic and legal responsibilities (that is, to be able to make profits as well as obey the
law), companies are expected to satisfy other requirements, relevant to the conformity to social
norms and voluntary contributions to the community in which they operate. Another important
Corporate Social Responsibility approach was developed during the 1980s in the light of the growth
of the stakeholder approach. According to it, firms have obligations to a larger group of
stakeholders than the simple shareholders, where a stakeholder is a group or an individual who can
affect or is affected by the achievement of the firms objectives. Business can be understood as a set
of relationships among groups which have a stake in the activities that make up the business.
Although Corporate Sustainability and Corporate Social Responsibility have different roots and
have developed along diverse theoretical paths, they have ultimately converged. This strong
convergence is evident in some recent definitions of the Corporate Social Responsibility provided
by international organizations, like the Prince of Wales International Business Leaders Forum :
Corporate Social Responsibility means open and transparent business practices that are based on
ethical values and have respect for their employees, communities and environment. It is designed
to deliver sustainable value to society at large, as well as to the shareholders.
The concept of sustainable development has been transposed from the macro to the corporate
dimensions. Companies, in fact, are a productive resource of our socio-economic system, and key to
the eventual implementation of sustainability. According to the management theory, the attempt to
include sustainability issues in the managerial framework can be divided into two separate issues:
Corporate Sustainability and Corporate Social Responsibility. The actualization of the theoretical
pillars of Sustainability Development within Corporate Sustainability/Corporate Social
Responsibility seems crucial to effectively respond to the challenges posed by sustainability.
16.8 CSR AND CORPORATE GOVERNANCE

The conceptualization of CSR was, initially, purely in terms of philanthropy or charity. However, the
post-liberalization phase has seen a fundamental shift from this philanthropy-based model of CSR
to a stakeholder- participation based model. Furthermore, CSR is gradually getting fused into
companies Corporate Governance practices. Both Corporate Governance and CSR focus on the
ethical practices in the business and the responsiveness of an organisation to its stakeholders and
the environment in which it operates. Corporate Governance and CSR results into better image of
an organisation and directly affects the performance of an organisation.
Both CSR and Corporate Governance (CG) by definition feature as an issue of companys
management practices and therefore sometimes get confused with each other. The question mainly
moves round the fact whether the CSR and CG go the same way of companys management or they
have their respective way of management. Question also arises whether CSR is part of CG or vice-
versa. It is already known that CSR is based on self-regulatory principles linked to internal and
external management of the company. On the other hand the term Corporate Governance
indicates to an idea of companys governance and management issue. So a clear understanding of
the concept of corporate governance and its nature is a crucial matter in order to point out the
relation between CSR and CG.
It is admittedly a hard task to distinguish between CSR and CG. Both corporate governance and
corporate social responsibility are extremely important to a company. But it is not a natural thing to
separate them. If we have a well formed corporate governance programme in place, which would
probably take care of most CSR issues.

However, it can be argued that CSR issues are of voluntary or softer nature and it is based on the
self regulatory corporate codes and the corporate governance is more often mandatory based on
statutory provisions applicable at national level. For example, the company law of a country defines
the composition of the board of directors, their rights and duties towards shareholders, duties of
the managers and other organisational activities. Security and Exchange law provides the principles
regarding the mandatory financial disclosures, auditing and so on. The duties of the managers and
directors may be of softer issues when they concern the promotion of ethical behaviour towards
the shareholders.

16.9 BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY

Business ethics can be defined as written and unwritten codes of principles and values that govern
decisions and actions within a company. In the business world, the organizations culture sets
standards for determining the difference between good and bad decision-making behaviour.
In the most basic terms, a definition for business ethics boils down to knowing the difference
between right and wrong and choosing to do what is right. The phrase business ethics can be used
to describe the actions of individuals within an organization, as well as the organization as a whole.
There are two schools of thought regarding how companies should approach a definition for
business ethics: the shareholder perspective and the stakeholder perspective.
Shareholder Perspective
Those who approach ethical decision making from a shareholder perspective focus on making
decisions that are in the owners best interest. Decisions are guided by a need to maximize return
on investment for the organizations shareholders. Individuals who approach ethics from this
perspective feel that ethical business practices are ones that make the most money.
Stakeholder Perspective
The phrase corporate social responsibility is often of all affected parties used in discussions of
business ethics. The idea behind this concept is the belief that companies should consider the needs
and interests of multiple stakeholder groups, not just those with a direct financial stake in the
organizations profits and losses. Stakeholders may include employees, suppliers, customers,
competitors, government agencies, the news media, community residents and others. The idea
behind stakeholder based ethical decision-making is to make sound business decisions that work
for the good.
There is a growing realisation all over the world that ethics is vitally important for any organisation
and for the progress of any society. Ethics and profit go together in the long run. If the organisation
wanted to achieve competitive advantage, it should take along the ethics into business. According to
John Donaldson Business ethics can be understood as a comprehensive study of corporate policies
and not the study of an isolated topic, and it will act within business or for non-business reasons.
Although corporations can encourage ethical behaviour in informal ways, much effort has been
directed toward implementing formal programs and policies for guiding ethical behaviour in
organizations. All organizational values that pertain to questions of right and wrong contribute to
the companys ethical climate and the shared perceptions of what is correct behaviour (i.e.,
attitude), and how ethical issues will be dealt with .
A business should not be solely for maximizing profits, but should also consider the interest of
customers, shareholders, employees, suppliers, trade, locality and the wider communities. The
substance of corporate social responsibility arises from the institutions ethical obligation to
evaluate the effects of its decisions and actions on the whole social system.
Corporate social responsibility arises from the organizations ethical obligation to evaluate the
effects of its decisions and actions on the whole social system. It is acknowledged that the strength
of the ethical behaviour of a firm can be traced to its organizational culture as well as the leadership
of the firm in the promotion of the core ethical ideals.
16.10 DIFFERENT DIMENSIONS OF CSR
The CSR has got different dimensions which are broadly classified as internal and external. The
internal dimensions pertain to the Management, Employees, Share-holders, Corporate Governance,
Business Ethics, Work-place issues like funding of statutory dues of employees/ pensioners etc. The
external dimensions pertain to human rights, environmental issues, community development,
customers & consumers, vendors and suppliers, child labour etc. These dimensions can be
illustrated with the help of the following diagram.
The above diagram shows that the concept of CSR revolves around the Societal Good. The next
question which comes to mind at this stage is as to why the Corporates should have the Societal
Good as a part of their agenda. To look for the answer to this question, it would be appropriate to
examine various dimensions of CSR more elaborately.

INTERNAL DIMENSIONS

Management
Management is of paramount importance in any organisation. The success or failure of the
organisation would largely depend on the capabilities of the management to manage conflicting
situations to the advantage of the organisation. The management needs to be competitive,
progressive, effective and visionary without prejudice. The management should command respect
of different stake holders and enjoy their confidence. The management should be accountable to its
stake holders. Why should a good management practice CSR? The answer lies in a maxim that the
society has given us many things and we should return a part of it to the society.
It is therefore important for those who are better placed in the society to contribute for the societal
good as a mark of gratitude towards the society. When it comes to CSR it becomes imperative for
the management of the corporate to make sincere and concerted efforts towards its responsibility
to the society in which it operates.
Employees
The employees are the backbone of any organisation. In last 23 decades, there have been attempt
to replace the employees by automated machines, robots, computers etc. But it still remains a fact
that all these attempted substitutes are programmed and guided by the human beings who are the
employees. It is therefore pertinent that even in highly mechanized organisations, the employee
welfare cannot be undermined. Taking good care of its employees is the responsibility of the
organisation and its management. It is important to ensure the welfare of the employees. The
employees are not only the employees but are also an integral part of the society and environment
in which the organisation operates. A corporate which cares for the welfare of its employees, fulfils
its responsibilities not only towards its internal class but also towards the external community. It
therefore assumes greater significance that the corporate should aim at ensuring utmost welfare of
its employees. The corporate will therefore be able to not only keep its work force satisfied and
motivated but also fulfill its social responsibility without incurring further additional cost. From
economic point of view, it becomes quite cost-effective to undertake CSR through employee
welfare. It is also relevant to understand that the employees are having long term interest in an
organisation as their life revolves around the said organisation.
Corporates volunteering is an important component of CSR as it allows the employees of the
organisation to give back to the society on a personal level too. The CSR should not be treated
merely as a donation to a chosen charity. It should rather be considered as an opportunity given by
the organisation to its employees to make invaluable contributions to help those who are living in
poverty. The concepts like employees pension schemes play an important role in creating an
eternal bond between the employees and the organisation. The employees also act as brand
ambassadors of the organisation. It therefore makes good sense to wisely invest in the employees.
Shareholders
Share holders are important stake-holders in any business organisation. They invest funds in the
business with twin objectives of getting annual returns on their investments and also the gradual
appreciation in the value of their investments. It is therefore the responsibility of the management
to enhance the value of the investments so as to benefit the share holders. While focusing on
enhancement of value by adopting cost-effective methods of operations, the organisation should
also use green technology as a socially responsible organisation.
The share holders should also in turn contribute towards the attainment of objectives of CSR. In the
Annual General Meetings (AGMs) of share holders, they should be encouraged to raise the issues of
CSR and demand allocation of budget for CSR activities. Like employees, share holders can also be
the beneficiaries and also the benefactors of CSR agenda of the organisation.
Corporate Governance
Corporate Governance, as a concept, has emerged on Indian corporate scene in recent years. It
plays a vital role in creation of healthy and transparent organisation. It is the duty of the
management to conduct the business of the organisation honestly, legally and with a high degree of
integrity. It calls for observance of rules and procedures in an honest manner. The mandatory
disclosure and reporting must be done without manipulation. The emphasis should be on
enhancing the organisational integrity by adopting ethical business practices and carrying out the
transactions in a transparent manner. The public disclosures are considered as one of the
important obligations of the organisation. There has been surging demand from various stake-
holders and civil society groups for enhanced level of disclosures. The corporate response to this
demand has not been up to the mark and there is still much to be done. It is imperative to observe
transparency in conducting business as a part of Corporate Governance and also to determine
accountability in a responsible manner. The concept of Corporate Governance has largely been
responsible for creating corporate conscience, corporate citizenship and achieve a sustainable
responsible business which can also be called social performance or CSR.
Business Ethics
It is difficult to prescribe standard ethics for each organisation as the nature of business would
warrant different kinds of ethical practices. Nonetheless it is important to understand that ethical
behaviour is a corner stone to long term business success of any organisation. There are companies
like Cognizant Technology Services (CTS) which devoted one lakh hours on imparting ethics
training to its employees. The objective of business should not be to maximize profit either way but
it should be ensured that organisations do great things the right way. The winning strategy should
have its root in fair labour practices, responsible sourcing, creating consumer awareness, up-
holding workers rights etc. Business ethics play a vital role in creating a work culture of mutual
trust and help enhance the brand value of the organisation. It therefore becomes vital for success of
the organisation.
Work-Place Issues
It is the responsibility of the organisation to provide safety, security and healthy working
conditions apart from professional enrichment at work place. These are considered essential for
creating a healthy work atmosphere in the organisation. There is also a growing need to re-invent
the work place to make it a desired destination for the new recruits to create attraction for their
retention while nurturing the talents to shape them into skilled professionals. Such initiatives
should be supplemented by creating awareness about the rights of the workers and the policies in
existence to protect the workers from abuse or unjust treatment at work place. It is the common
experience that the workers are seldom found aware of their rights and hence many work place
injustices pass off undetected.
It should be the responsibility of the organisation to make its employees aware of the laws, rules,
policies which are in place to protect the rights of the workers as a part of CSR. The workers should
also take equal interest in learning about their rights at work place so as to protect themselves and
also their co-workers. It will help create a safe and productive work place. The organisation can
also respond to rapidly changing business environment and introduce a system of shifting tracks
for its employees not only to ensure their rounded growth but also to avoid their employees being
pigeonholed in a single discipline. Such a work place shall provide a strong platform for the
organisation and its employees to undertake socially responsible projects.

EXTERNAL DIMENSIONS

Human rights
Human rights are very important from the point of view of societal cause. The business
organisations need to invest their resources to ensure that there is no violation of human rights on
account of the business activity pursued by them. We are an emerging economy and till few years
ago, the policies of the Nation were largely tilted towards earning foreign exchange to meet the cost
of imports and other payment obligations in foreign exchange. It looks strange that the export of
human bones, skulls and skeletons was a permissible business till little over two decades ago. It is
not difficult to guess as to how the human bones, skulls and skeletons were sourced by such
exporters.
Environmental Issues
The growing commercialization has been a cause of several environmental issues globally. The
issues like global warming, carbon emission etc have been engaging the attention of global leaders
in recent years. The developed nations have even shifted the hazardous businesses to less
developed countries in guise of creating employment opportunities and promoting industrialization
in such countries. The huge cost in the form of deterioration in the environment is incurred by the
poor people of the host country. The tragedies like Bhopal gas leak at Union Carbide Plant is a
glaring example of long term sufferings inflicted on the people of Bhopal. Such sufferings are not
restricted to one generation but were inherited by even their next generation. Responding to
environmental issues must be considered as a business imperative by every commercial
organisation. Many NGOs like M/s. EXNORA International are engaged in addressing the issues of
pollution, cleanliness, ecological balance, aforestation, paper-less office, waste reduction &
recycling etc. Information Technology giants like Cognizant Technology Solutions have achieved
remarkable results by reducing per employee energy consumption, paper consumption, carbon
emission etc. In todays context of globalization, it assumes greater significance for the corporates
to strike a fine balance between Corporate Economic Responsibility and Corporate Social
Responsibility.
Community Development
Our country continues to be a developing economy with more than one-thirds of the population
remaining below poverty line. While the major economies have shifted their focus of CSR to issues
like climate change, global warming, e-waste, carbon credit etc., the less developed countries still
need to focus on basic health issues, primary & secondary education, women empowerment,
poverty alleviation, drinking water etc., as a part of CSR. The community development would
encompass all these issues. In a country like India having large parts of its land as backward areas,
despite having valuable natural resources, the CSR assumes greater significance from the view
point of community development. There are innumerable cases of setting up of large & high value
industrial projects in many of the under-developed areas. The Corporate Houses are allotted land
for setting up an industry invariably at highly concessional rates. Even the tax concessions are
offered. As a part of CSR, it should be mandated by the government that such Corporate Houses
invest a minimum percentage of their revenue for the development of community in the
surrounding areas. Such development must include setting up of primary health centres, schools,
vocational training institutes, adult education centres, employability programmes, drinking water
facilities etc., to ensure holistic community development and capability building. All endeavours
should be made to involve the local communities not only in the community development projects
but also in the industrial development projects by giving them suitable employment in the
industrial projects being set up.
Customers and Consumers
Another important aspect of CSR is creating awareness amongst the customers and consumers
about the manufacturing processes followed by the corporate. There are many sectors including
apparel, footwear, carpets, beedi manufacturing, fireworks (crackers), hotels & restaurants etc.,
where there is large scale employment of minor children. The consumers should be made aware of
such practices and persuaded to boycott the products which are manufactured by children.
It will discourage and reduce the abuse of child labour. The provisions of Minimum Wages Act are
being flouted by many corporates small and big. The consumers must be made aware of such
violations by the social groups and NGOs through media advertisements & publicity to enable them
to take informed decisions with regard to purchase of the products manufactured by such
corporates. It should also be made mandatory that the Corporate Houses print on the packages that
they do not violate such provisions in their manufacturing process.
The organisations like FICCI, ASSOCHAM etc., must come forward to play a pro-active role in
ensuring that such abuse of child labour and exploitation of labour without paying minimum wages
is put an end to.
Vendors and Suppliers
Vendors & suppliers play a vital role in the supply chain management. It is therefore important for
the corporates to communicate basic principles and policies, business ethics and legal requirements
to the vendors & suppliers as a part of CSR so that exploitative practices are not followed by them.
They should also be encouraged to undertake social responsibility projects depending on the
volume of business, profitability etc. Such projects may be some times conceived by the corporates
and given to the vendors & suppliers for implementation. If need be, even the part-funding could be
provided by the large corporates. It would also be appropriate for the large corporates to instill
trust and confidence in the minds of vendors & suppliers about the desirability and success of such
socially-oriented projects. The large corporates may also explore the possibilities of evolving code
of conducts for their vendors & suppliers. It will also help the large corporates to spread the wings
of CSR to different parts of the country where their products have marketability.
Cheap and Child Labour
In terms of population, India is the second largest country in the world having 124 crore people.
The fact that we are still an emerging economy with large scale unemployment and even larger
disguised unemployment, especially in agricultural sector and cottage industry; there is a greater
need for creation of employment opportunities for workable human resources normally in the age
group of 18 to 60. The protracted unemployment creates an urge in the minds of unemployed to
accept the employment offer even for the minimum wages which are mandatory.
This has helped the corporates to exploit the abundance of labour available in the country. Even the
trans-national and multi-national companies have been attracted by availability of cheap labour
and other resources in our country and have therefore set up their manufacturing facilities in India
to take advantage of the same.
Apart from payment of minimum wages, there is a need for the TNCs and MNCs to follow fair labour
practices. The Trade Unions have an important role to play in prevention of exploitation of labour
by such Corporate Houses. But the irony of the situation is that formation of Trade Unions in such
companies has not been made mandatory by the government. Hence the violation and exploitation
continues unabated. Similarly the IT and ITeS companies have been exploiting the employees by
having longer working hours than mandated by the Law of the Land. These are inhuman practices
and work against the principles of CSR.
There is need to insist with such companies to follow fair and ethical labour practices as a part of
CSR. Merely indulging in charity and bringing about societal development cannot be called CSR
unless there is internal process of responsible management towards the rights of the employees
working within the organisation. It calls for urgent need to form Trade Unions in such sectors so
that they can act as watch dogs against the internal exploitative practices by the large corporates.
Similarly, there should be concerted efforts on the part of government to ensure due
implementation of the provisions of Protection of Child Rights Act. Right to Education is a welcome
move by the government as it provides for free compensatory education up to the age of 14 years. It
would be more appropriate if a free compensatory education is standard up to the age of 18 years.
The global corporates which have set up their establishments in India with an objective of
sustainability through profit maximization have been resorting to hire and fire practices when it
comes to their employees. Inasmuch as there is hardly an infrastructure in the country to support
the unemployed, the practice of hire and fire has been causing great hardships to the people on the
wrong side of their age. There is need to create appropriate infrastructure to deal with such malice.
It can be done by creating fund for the purpose of extending financial support while also setting up
the infrastructure for incubation to enable such fired people to get rehabilitated.

16.11 CSR THEORIES

Neo-classical theory
The neo-classical view is characterized by profit maximization. The only social responsibility of
corporations is to increase profits. This view is mostly reflected by the ideas of Friedman and can be
combined with the agency theory. Friedman summarizes his ideas in one sentence: There is one
and only one social responsibility of business to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of the game, which is to say,
engages in open and free competition without deception or fraud.
Friedman states that corporate executives are employees of the business. They are responsible to
their employers, in other words the owners of the business. The corporate executives are in charge
to maximize the profits of the firm. The executive is the agent and the owners are the principals.
The agent is serving the interests of his principal. If the executive is spending money for a social
purpose that does not lead to an increase in shareholder value, the executive would be wasting
someone elses money for the general society. This could be the money of the shareholders which
will lead to a decrease in their returns, or the money of customers which is reflected by a price
increase, or the money of employees which is reflected by a decrease in their wages.16 Thus, any
social investment made should increase shareholder value. If not, the investment only costs money
for the firm and the agent is not serving in the best interests of his principal. Therefore, these
investments should be rejected. Socially responsible investments should not be done by business
but are a task of the government.
Stakeholder theory
The stakeholder theory is based on the assumption that corporations are not only responsible to its
shareholders but also to its other stakeholders. Stakeholders are persons or groups that affect or
are affected by the corporation: they have a stake in the firm. The founder of this theory is
Freeman. He states that stakeholders are identified based on their interests in the firm, not on the
interests of the firm in them.
These stakeholders could be internal such as shareholders, customers, employees and suppliers,
and external such as governments, competitors, environmentalists and the media.The stakeholder
theory implies that a socially responsible firm does not only act in the interest of its owners but
responds to the needs of all identified stakeholders.
The pyramid of corporate social responsibility
The pyramid of CSR is created by Carroll who shaped CSR by four kinds of social responsibilities,
namely economic, legal, ethical and philanthropic responsibilities. These four categories are part of
his pyramid. The fundament of the pyramid is the economic responsibility of a firm. Maximizing
earnings per share is consistently profitable and operating efficiently are examples of economic
responsibilities. The next category in the pyramid is the firms legal responsibility. The firm is
expected to obey the law since the law represents societys acceptable and unacceptable actions.
Next is the ethical responsibility of business: going beyond obeying the law and behaving to moral
and ethical norms. The top of the pyramid entails philanthropic responsibilities. This could be, for
example, participation in voluntary and charitable activities. Each category of the pyramid can be
simultaneously implemented. The preceding category has not to be completed before moving to the
next one. Thus, the total corporate social responsibility of business consists of the implementation
of economic, legal, ethical and philanthropic responsibilities. A CSR company is profitable, ethical,
obeys the law and a good corporate citizen.
Integrative Social Contracts Theory
The Integrative Social Contracts Theory (ISCT) is a theory of business ethics originated by
Donaldson and Dunfee under the assumption that there is a social contract between business and
society. Under this contract, society expects business to operate in a responsible manner. ISCT has
three important building blocks. The first block the theory is based on Hypernorms. Hypernorms
refer to universal moral and ethical norms. They are the foundation of every social contract. These
principles make social contracting possible and set limits on social contracts. Donaldson and Dunfee
distinguish between a macro social and a micro social contract. The macro social contract is the
second building block. This contract provides general principles, the Hypernorms, to which rational
contractors would agree. Its main function is to determine the justifying conditions for the creation
of the micro social contract which is the third building block. Contractors do have a moral free
space in forming the macro social contract in order to create ethical norms for their own members
of the community. The micro social contract is an agreement between an identified community such
as an industry or company. This contract is used in business practice and is based on the norms and
values of the members of the identified community. The micro social contract is legitimate when it is in
line with the Hypernorms of the micro social contract.

16.12 TRIPLE BOTTOM LINE (TBL) APPROACH OF CSR

In 1999, Elkington developed the concept of the Triple Bottom Line (TBL) which proposed that
business goals are inseparable from the society and environment within which they operate. Whilst
a short-term economic gain could be chased, a failure to account for the social and environmental
impacts would make those business practices unsustainable. While each of the three pillars of
sustainability, i.e., economic, social and environment is independently crucial and urgent in the
short-run, but in order to reach the goal of sustainability in the long-run, the three pillars must be
satisfied simultaneously. These three dimensions are deeply inter-connected and they influence
and support each other.

The Triple Bottom Line is made up of "Social, Economic and Environmental" aspect and indicates
the "People, Planet, Profit" phrase.
"People" means Human Capital. It implies that fair and beneficial business practices towards
labour and the community and region in which a corporation conducts its business would create
long-term value. Wellbeing of a corporate, its labour and other stakeholder interests are
interdependent. For example, polices retraining use of child labor, fair pay to workforce, health and
safety at work place, tolerable working hours, etc., and would not otherwise exploit a community or
its labor force.
The second aspect of TBL is "Planet" - the Natural Capital. It refers to sustainable environmental
practices. A company which decides to follow TBL always keep in mind that it does no harm to
nature or creates negative environmental impact.
Reduction of ecological footprint by efficient energy consumption and use of non-renewable assets
as well as reductions of manufacturing waste are the core components of TBL. A TBL company, as a
corporate policy, debars itself from manufacturing harmful or destructive products, such as
weapons, and those toxic chemicals etc. that are injurious to society as well as nature. Even if they
are involved in such activities they ensure to protect nature as well as human society from its
hazardous process and the products. Simultaneously, a TBL company avoids ecologically
destructive practices, such as overfishing or other endangering depletions of resources.
The third aspect of triple bottom line is Profit. The concept of profit for TBL Company is somehow
wider in all perspective. It is the reflection of economic impact an organization has on its business
activities and that too after meeting all costs that would protect society and environment. It
somehow indicates real value addition a corporate makes through its various activities.
Worldwide many corporates are now adopting Triple Bottom Line under vision and mission and
practicing the same through aligning their corporate polices in that direction.
Many countries worldwide are now contemplating how to integrate this triple bottom line under
their legal system.
The need to apply the concept of TBL is caused due to
a) Increased consumer sensitivity to corporate social behaviour
b) Growing demands for transparency from shareholders/stakeholders
c) Increased environmental regulation
d) Legal costs of compliances and defaults
e) Concerns over global warming
f) Increased social awareness
g) Awareness about and willingness for respecting human rights
h) Medias attention to social issues
i) Growing corporate participation in social upliftment
While profitability is a pure economic bottom line, social and environmental bottom lines are semi
or noneconomic in nature so far as revenue generation is concerned but it has certainly a positive
impact on long term value that an enterprise commands. But discharge of social responsibilities by
corporates is a subjective matter as it cannot be measured with reasonable accuracy.
The current generation people are well aware of what goes on around them. People today know a
lot about environment, how it affects them, how things we do affects the environment in turn. For
the aware and conscientious consumers today, it is important that they buy products that do not
harm the environment. They only like to deal with companies that believe and do things for the
greater good of planet earth.

16.13 BUSINESS IMPORTANCE OF CSR

Corporations are motivated to involve stakeholders in their decision-making and to address

societal challenges because todays stakeholders are increasingly aware of the importance and
impact of corporate decisions upon society and the environment. The stakeholders can reward or
punish corporations. Corporations can be motivated to change their corporate behaviour in
response to the business case which a CSR approach potentially promises. This includes: 1)
stronger financial performance and profitability (e.g. through eco-efficiency), 2) improved
accountability to and assessments from the investment community, 3) enhanced employee
commitment, 4) decreased vulnerability through stronger relationships with communities, and 5)
improved reputation and branding.
CSR is about how companies manage the business processes to produce an overall positive impact
on society. The following Figure may help you understand the above.
Here we find that companies need to answer two aspects of their operations:
1) The quality of their management - both in terms of people and processes (the inner circle).
2) The nature and quantity of their impact on society in the various areas.
Outside, stakeholders are taking an increasing interest in the activity of the company.
Most look to the outer circle - what the company has actually done, good or bad, in terms of its
products and services, in terms of its impact on the environment and on local communities, or in
how it treats and develops its workforce. It is believed that this model may be more sustainable
because here social responsibility becomes an integral part of the wealth creation process, which if
managed properly should enhance the competitiveness of business and maximize the value of
wealth creation to society. When times get hard, there is the incentive to practice CSR more.
Since the early 1980s, a significant body of CSR research has centred around the debate over
whether there is a relationship between good Corporate Social Performance ( CSP) and strong
financial performance and what kind of relationships exist. Today businesses are becoming
increasingly interested in the idea of the Triple Bottom Line (TBL). This idea focuses not just on
the economic value of the businesses that they may gain from acting in certain way, but also on the
value that they may accrue to the companys bottom-line by engaging in environmentally and
socially beneficial practices. The three line represent the economy, the environment and the
society and are all dependent on each other. Whether companies do actually take each line into
account is difficult to measure as the arguments surrounding financial benefits of the company from
being socially responsive are not clear cut.
Although positive relationships have been found, there are several difficulties inherent in
measuring these linkages. One problem is that it is not clear whether social responsibility leads to
increased financial performance or whether better profits lead to more funds being available to
devote to CSR activities. The other issue is that profit is an incomplete measure of social
performance. Yet another is the difficulty of developing a consistent set of measures that define CSR
or CSP.
The following factors are taken into account for understanding the importance of CSR:
Globalization and the associated growth in competition
Increased size and influence of companies
War for talent, companies competing for expertise
 Increased importance of intangible assets
Improved Financial Performance:
While it remains difficult to determine a direct causal relationship between increased
accountability and financial performance, a variety of studies suggest that such a link exists. For
example, according to 2002 Global Investor Opinion Survey released by McKinsey & Company, a
majority of investors are prepared to pay a premium for companies exhibiting high governance
standards. Premiums averaged 12-14 percent in North America and Western Europe; 20-25
percent in Asia and Latin America; and over 30 percent in Eastern Europe and Africa. The study
also found that more than 60 percent of investors state that governance considerations might lead
them to avoid individual companies with poor governance.
Heightened Public Credibility:
Companies that demonstrate a willingness to provide information that is credible, verifiable, and
accessible can garner increased trust among stakeholders. Forthright and candid reporting about
company achievements as well as performance shortfalls helps companies create a public
reputation for honesty. At the same time, companies that make a public commitment to increase
accountability and transparency need to ensure that they have robust systems for implementation,
lest the company risk negative public backlash for failing to live up to its commitments.
Reduced Costs:
The enhanced communication that is often part of corporate accountability efforts can help build
trust between companies and stakeholders, which can reduce costly conflict and improve decision-
making. Companies that proactively and effectively engage shareholders and address their
concerns can reduce the costs associated with shareholder proposals. In addition, social and
environmental reporting efforts can help identify the effectiveness of various programmes and
policies, often improving operating efficiencies and reducing costs. Reporting information can also
help identify priorities to ensure that company is achieving the greatest possible impact with
available resources.
Increased Attractiveness to Investors:
Investors whether shareholders invested in socially responsible funds that screen companies for
social and environmental attributes, or large institutions welcome the increased disclosure that
comes with corporate accountability. A growing number of investors are including non-financial
metrics in their analysis of the quality of their investments. New metrics cover labour and
environmental practices; board diversity, independence, and other corporate governance issues;
and a wide variety of other social and environmental criteria.
Research suggests investors may be willing to pay higher prices for the stock of companies
considered to be accountable. For example, a 2000 survey of 200 large institutional investors
conducted by McKinsey & Co., the World Bank, and Institutional Investors regional institutes found
that three-quarters of stockholders consider board practices as important as financial performance
when evaluating companies for investment. The study also found that more than 80 percent of
investors would be willing to pay more for the shares of a well-governed company than for a poorly
governed company with comparable financial performance.
Improved Relationships with Stakeholders:
Companies that make an effort to be transparent and accountable for their actions and decisions
are better able to build trust among their stakeholders. This engagement helps companies
understand how community groups and other stakeholders perceive them, and educates them
about future issues and concerns that may affect their operations. The information gained can help
companies better define priorities and ensure business activities align with professed business
principles or ethical codes. Many government agencies and stakeholders look favourably at
companies that self-identify and publicly disclose accountability challenges and demonstrate that
they are working to solve them. Best practice solutions include the development of management
systems that reduce the likelihood of recurrence.
Early Identification of Potential Liabilities:
The strategic information that can come from efforts to develop a more accountable company
including social and environmental auditing and reporting and stakeholder dialogue can identify
practices or situations that could pose liabilities to a company. Early identification can provide
companies with the opportunity to resolve problems before they result in costly legal actions or
negative public exposure. Issues that might surface more quickly in an accountable company
include: environmental problems that could endanger public health, workplace discrimination or
harassment that could result in lawsuits, marketing practices that do not price products or services
equitably, or hiring practices that inadvertently give unfair advantage to certain populations. Social
and environmental auditing and reporting can also identify where company practices may be in
violation of government regulations or the standards or expectations of key stakeholder groups.
Marketplace Advantages:
Accountability can make entry and success in new markets easier by helping establish direct
relationships with key customers and business partners. These relationships can contribute to
innovation in product development or delivery, help mitigate potential negative media coverage,
and enhance market presence. Some companies have used dialogue with stakeholders to help make
decisions on overseas investments and operations, or to overcome the challenges of operating in
markets with different cultures, laws, and languages. For example, Unilevers Indian subsidiary,
Hindustan Lever, has worked with local stakeholders to develop a new delivery system for laundry
detergent in Indian villages. The company was experiencing difficulty in selling its product until it
was suggested by stakeholders that the company package its product in single-use quantities that
would be affordable to local residents with limited disposable incomes.
Improved Overall Management:
Many companies that have developed clear CSR performance and accountability systems inside
their organizations report experiencing an improvement in their management practices overall.
Increasingly, companies are finding that the impact of systems designed to increase accountability
for CSR performance is not limited to the CSR realm, but can also impact performance in other areas
as the culture of the organization undergoes change. An analysis of Fortune 500 companies
conducted at the Boston College, Carroll School of Management found that companies judged as
treating their stakeholders well are rated by peers as also having superior management.
Improved Organizational Effectiveness:
The process of self-assessment and evaluation, which is part of increasing accountability, can have
beneficial impact on company operations. For example, social and environmental auditing and
reporting give companies the opportunity to assemble and assess more comprehensive information
on operations and impacts. This information can help coordinate and maximize efficiencies and
collaborations across departments, facilities, and business units. Through this process, companies
compile examples of successful programmes from various parts of their organizations and share the
learning throughout the company, leading to more effective and efficient policies and practices.
Dialogue and partnerships with stakeholder groups can help companies build skills and
competencies, or align company operations with overarching mission and values.
Decreased Risk of Adverse Publicity:
Responsible companies may be better prepared to address the concerns of customers or other
stakeholders who might otherwise take negative action on social issues. For example, by engaging
in a dialogue with stakeholders about their interests and concerns, and addressing those concerns
in business implementation processes, companies may be able to head off or minimize the impacts
of boycotts organized by consumer groups. Similarly, companies that proactively address the
concerns of shareholders can reduce the risk of adverse publicity stemming from high-profile
shareholder disputes.

16.14 CORPORATE SOCIAL RESPONSIBILITY UNDER COMPANIES ACT 2013

Introduction
India, one of the largest growing economies in the world is facing innumerable Social,
environmental and economic challenges for getting itself enrolled in the list of developed countries.
To cope up with these challenges arising from globalization, the need for inclusive development and
the imperatives of climate change a number of initiatives has been undertaken by the Government
of India such as issuance of Corporate Social Responsibility Voluntary Guidelines in December
2009 by Ministry of Corporate Affairs (MCA) which has been revised and renamed as National
Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business( NVGs) in
July 2011.
One of the most applauded welcome steps taken by Government of India in this regard is the
introduction of mandatory spending requirement on Corporate Social Responsibility (CSR) by the
companies in the newly passed Companies act 2013. India is the only country in which CSR has a
legislation law. Indian companies have a crucial role to play in uprooting all the causes of social
unrest to bring a sea change in the social upliftment by means of needful contribution towards CSR
activities as per the societal expectations. Section 135 of the Companies Act 2013 has made it
mandatory for companies meeting certain criteria to spend two per cent of their net profit for the
specified CSR activities. The Ministry of Corporate Affairs (MCA) has also issued the Companies
(Corporate Social Responsibility Policy) Rule, 2014 through a notification G.S.R. 129(E) dated 27th
February, 2014 for ensuring the implementation of CSR initiatives effectively through appropriate
procedure and reporting and decided to be effective from 1st April, 2014.
CSR in India has traditionally been in practice since 1850s in terms of philanthropy. It has been
gaining its importance in India after 1990s. In the sixty year old Companies Act, 1956 there was no
provision for CSR; hence CSR activities were purely voluntary in nature. There are many big entities
who have been actively engaged in the CSR activities but unfortunately the number is relatively
less. In order to encourage more entities to participate in the process of development of the society
via- CSR, the Government of India has actually implemented the concept of CSR in the new
Companies Act 2013. Most of the companies fail to meet the required level of societal expectations
which became the root cause for the prevailing uneven social welfare gap in India. According to a
survey carried out by Forbes India, only 6 out of the top 100 companies of India (ranked on the
basis of net sales figures) contributed more than 2% of their profits after taxes towards CSR
initiatives. The matter of concern is that India is a country where one-third population is illiterate,
two-third population lacks access to proper sanitation, and 400 million people still live on less than
US$1.25 a day (World Bank, 2010). In order to bridge such social welfare gap the Companies Act,
2013 is promoting greater transparency and disclosure through its disclose-or-explain mandate.
Schedule VII of the Act makes the communities focal point of CSR projects. According to Indian
Institute of Corporate Affairs, a minimum of 6,000 Indian companies will be required to undertake
CSR projects in order to comply with the provisions of the Companies Act, 2013 with many
companies undertaking these initiatives for the first time. Thus CSR needs to go beyond the concept
of charity and philanthropy. Thus CSR under the said act seems to be a promising positive step
forward that ensures to bridge such social welfare gap in Indian context.
Section 135 on Corporate Social Responsibility under the Companies Act, 2013
In India, the subject of CSR is governed by section 135 of the Companies Act, 2013 according to
which every company having an annual turnover of 1000 crore INR or more, or a net worth of 500
crore INR or more, or a net profit of 5 crore or more is mandatorily required to spend, from the
fiscal year 2014-15 onwards, at least 2% of the average net profits of the company made during the
three immediately preceding financial years on CSR activities.
CSR committee
All such companies doing business in India in any form are also required to constitute a CSR
committee consisting of at least three directors, one of whom must be independent except
unlisted company or private company for which appointment of independent director is not
required under the new Companies Act, 2013. Such Flexibility in form of constructive
development is welcomed as removal of hindrance in the way of effective implementation of
law.
In case of a foreign company CSR committee consists of at least two persons, one of whom will
be nominated by the foreign company and the other must be the person resident in India.
Functions of CSR Committee:
Formulate and recommend to the Board, a Corporate Social Responsibility Policy which
shall indicate the activities to be undertaken by the company as specified in Schedule VII of
the Act.
Recommend the amount of expenditure to be incurred on the activities referred to in clause
(a); and iii. Monitor the Corporate Social Responsibility Policy of the company from time to
time.
Prepare a transparent monitoring mechanism for ensuring implementation of the projects /
programmes / activities proposed to be undertaken by the company.
Board of Directors
It is the board which must approve and adopt the CSR policy recommended by CSR committee
after due consideration and bring the same in public domain publishing on companys website.
It is the painful duty of the Board to ensure the successful execution of activities mentioned in
the CSR policy putting its best efforts to spend the allotted amount as applicable.
The Board will also be responsible to include a CSR report as a part of its annual Board report
containing the details of CSR committee, CSR policy, explanations for not complying with the
requirement of the law to spend on CSR activities, and the efforts made to implement its CSR
obligations as per the prescribed format in the CSR rules, 2014. CSR regulation under the said
Act actually makes the reporting mandatory of two per cent of the average net profit for the
specified CSR activities, not the spending.
In case company fails to explain reasons for non compliance of CSR law, the company will be
punishable by a fine not less than 50,000 rupees and may be extended up to 25 lakh rupees.
Even the officer responsible for making such default on reporting CSR provision could be
sentenced up to three years in prison or fine of not less than 50,000 rupees and may be
extended up to 5 lakh.
In case of foreign company, CSR report forms a part of its balance sheet to be filed with
Registrar of Company (Sec. 381 of Companies Act, 2013)
The Companies (Corporate Social Responsibility Policy) Rule, 2014
The issue of the Companies (Corporate Social Responsibility Policy) Rule, 2014 is an appreciated
initiative by Ministry of Corporate Affairs which has clarified many unclear points raised by several
representing authority of industry about CSR and has played a pivotal role in making amendments
to schedule VII of the Companies Act 2013 but also in making the Companies Act 2013 fully
operational. It guides the list of CSR Projects Company intend to undertake falling within the
purview of schedule VII along with the execution model within time bound framework for the
projects and reflects the outcomes. Undoubtedly compliance with the mandate CSR law will work as
a marketing tool in favor of the company. Strict adherence to the CSR rule, 2014 will work as a
miracle for the uplifting of the economically underprivileged society and thereby wiping out the
sufferings of the humanity and mankind in India. Point worth of mentioning is that the surplus
arising out of CSR projects will not be the part of business profit of the company instead such
surplus will have to be ploughed back into CSR activities
CSR Activities as per Schedule VII of the Companies Act, 2013
The CSR activities mentioned in schedule VII of the Companies Act 2013 are generic in nature with
an intention to cover a wide range of activities falling under the essence of the societal needs and
not at all strictly limited to only those stated in the schedule though they have covered almost all
needy areas of society. It means that there is open and liberal interpretation of CSR activities
mentioned in schedule VII. The companies are free to choose which CSR activity to spend on giving
preference to the local areas where it is established for the welfare of the weaker section of the
society. The point to be appreciated is that expenditure on any item not in conformity with schedule
VII will not be considered as CSR expenditure.
Activities considered as CSR activity
CSR activities aim at improving the lives of underprivileged in a environment friendly and
socially acceptable manner. Companies can build CSR capabilities of their own personnel as
well as those of their implementing agencies through institutions with a good track record of at
least of three years, provided that the expenditure for such activities does not exceed 5% of the
total CSR expenditure of the company in a single financial year.
As per the Ministry of Corporate Affairs notification dated 27th February, 2014 (effective from
1st April, 2014) these activities include:
Eradicating hunger, poverty and malnutrition, promoting preventive health care and
sanitation and making available safe drinking water;
Promoting education, including special education and employment enhancing vocational skills;
especially among children, women, elderly, and the differently abled and livelihood
enhancement projects;
Promoting gender equality, empowering women, setting up homes and hostels for women and
orphans; setting up old age homes, day care centres and such other facilities for senior citizens
and measures for reducing inequalities faced by socially and economically backward groups;
Ensuring environmental sustainability, ecological balance, protection of flora and fauna,
animal welfare, agro forestry, conservation of natural resources and maintaining quality of
soil, air and water;
Protection of national heritage, art and culture including restoration of buildings and sites of
historical importance and works of art, setting up public libraries, promotion and development
of traditional arts and handicrafts;
Measures for the benefit of armed forces veterans, war widows and their dependents;
Training to promote rural sports, nationally recognized sports, paralympic sports and Olympic
sports;
 Contribution to the Prime Ministers' National Relief Fund or any other fund set up by the
Central Government for socio-economic development and relief and welfare of the Scheduled
Castes, the Scheduled Tribes, other backward classes, minorities and women;
Contributions or funds provided to technology incubators located within academic institution
which are approved by the Central Government;
Rural development projects.
Activities not considered as CSR activity
Activities undertaken in pursuance of its normal course of business; a clear cut distinction has
to be drawn between activities undertaken in the normal course of business and activities
undertaken incrementally as a part of CSR activities.
Expenses on activities required for compliance of CSR law
Contribution made directly or indirectly to any political party,
Activities meant exclusively for employees and their families; One-off event such as
marathons, awards, charitable contribution, advertisement, sponsorships of TV programmes
etc.
Activities carried out outside the territory of the India or abroad
Way to implement CSR obligations
CSR activities (either new or ongoing) must be conducted in project or program mode only
in India.
CSR activities must be based on CSR policy and schedule VII of the Companies Act 2013
CSR activities must be preferably conducted in local region where the company operates.
CSR activities can be undertaken through a registered trust, registered society or charitable
company having a good track record of at least three years in undertaking similar programs
or through its own foundation operating within India.
Companies can jointly undertake CSR projects in collaboration in such a manner that each
company can report separately on such project. It will positively help companies to conduct
CSR project of a large scale.
CSR rules focuses to have a transparent monitoring and reporting mechanism for bringing
positive social and environmental changes to bridge the welfare gap in India in order to
attain the sustainable development.

16.15 ADVANTAGES OF CORPORATE SOCIAL RESPONSIBILITY

The organisations that value corporate social responsibility stand the chance of having the
following advantages:
1. Enhanced Brand and Reputation:
Firstly, socially responsible companies have enhanced brand image and reputation. Consumers are
often drawn to brands and companies with good reputations in CSR related issues. A company
regarded as socially responsible can also benefit from its reputation within the business community
by having increased ability to attract capital and trading partners. Reputation is hard to quantify
and measure; it is even harder to measure how much it increases a companys value, but since
companies have developed methods to measure the benefits of their advertisement campaigns,
similar methods can and should be able to be applied in the case of corporate reputation. Socially
responsible companies also have less risk of negative rare events. Followers of corporate social
responsibility argue that it improves the image of the organisation. When an organisation carries
out corporate social activities, it is telling the community members that it is a friend of the
community. This improves the impression people have about the corporate existence of the
organisation. To offset unfavourable image, many business leaders work hard to convince the
public that business creates much good for society.
2. Reduction in Operation Costs:
There are also other cases in which doing what is good and responsible converges with doing the
best for the particular business. Some CSR initiatives can dramatically reduce operating costs. For
example, reducing packaging material or planning the optimum route for delivery trucks not only
reduces the environmental impact of a companys operation, but it also reduces the cost. The
process of adopting the CSR principles motivates executives to reconsider their business practices
and to seek more efficient ways of operating.
3. Attracting new employees:
Companies perceived to have a strong CSR commitment often have an increased ability to attract
and to retain employees, which leads to reduced turnover, recruitment and training costs.
Employees, too, often evaluate their companies CSR performance to determine if their personal
values conflict with those of the businesses at which they work. There are many known cases in
which employees were asked, under pressure of their supervisors, to overlook written or moral
laws in order to achieve higher profits. These practices create a culture of fear in the workplace and
harm the employees trust, loyalty and commitment to the company.
4. It balances Power with Responsibility:
Organisations have power and this power should be accompanied with certain social responsibility.
Those who have power should use it judiciously. As noted by Fredrick (1998), modern business
corporation possesses power and influence and this should be accompanied with responsibility.
The foregoing therefore implies that organisations have power; they have great influence and they
need to balance it with responsibility. When they do this, they win the goodwill of the community
members, but when they fail to do this, they attract the wrath of the community members.
5. It Discourages Government Regulation:
When the government is fully aware that an organisation or all organisations are alive to their
responsibilities (social responsibilities), government becomes discouraged to regulate business.
Government regulations may affect the business negatively, but when organisations know that they
have a social responsibility to the community where they operate, there may be no need for
regulation. Frederick (1998, p. 39), cited in Asemah, et al (2013) claim that business by its own
socially possible behaviour can discourage new government restrictions; it is accomplishing a
public good, as well as, its own private good.
6. It Promotes Long Run Profit.
When an organisation carries out corporate social activities, it makes more profit. The socially
responsible businesses tend to have more and secure long run profits. This is the normal result of
the better community relations and improved business image that responsible. Many believe that a
company engaging itself in socially responsible behaviour when it thinks of profits only within the
constraints of law. They believe that because the society supports business by ensuring its
continuous existence, the only way business can repay society is to continue to ensure that it is
making profits. Thus, Freedman (1990), cited in Asada (2008) avers that there is one and only one
social responsibility of business - to use its resources and engage in activities designed to increase
its profits so long as it stays within the rules of the game, which is to say, engage in open and free
competition without deception or fraud.
7. Recognises Business Moral Obligations:
Organisations owe it a duty to provide amenities to environments where they operate. Thus, those
who argue in favour of corporate social responsibility note that it is the organisations moral
obligation to help society. Frederick (1998, p .38), cited in Asemah, et al (2013) notes that this
viewpoint considers a societys moral and ethical rules to have higher priority for corporate
managers than other considerations, including business profits and other economic goals.
8. Improved Relations with the Investment Community and Better Access to Capital:
The investment community has been exploring the links between corporate social responsibility
and financial performance of businesses. There is growing evidence that companies that embrace
the essential qualities of CSR generally outperform their counterparts that do not use features of
CSR. This information is being translated into action within the investment community. An
increasing number of mutual funds are now integrating CSR criteria into their selection processes
to screen in sounder companies and/or screen out businesses that do not meet certain
environmental or social standards. Thus, a CSR approach by a company can improve the stature of
the company in the perspective of the investment community, a companys stock market valuation
and its capacity to access capital from that community.
9. Enhanced Employee Relations, Productivity and Innovation:
A key potential benefit from CSR initiatives involves establishing the conditions that can contribute
to increasing the commitment and motivation of employees to become more innovative and
productive. Companies that employ CSR related perspectives and tools tend to be businesses that
provide the pre-conditions for increased loyalty and commitment from employees. These
conditions can serve to help to recruit employees, retain employees, motivate employees to develop
skills and encourage employees to pursue learning to find innovative ways to not only reduce costs,
but to also spot and take advantage of new opportunities for maximising benefits, reduce
absenteeism and may also translate into marginally less demands for higher wages.
10. Encourages both professional and personal development
Providing employees with the opportunity to be involved in a companys socially responsible
activities can have the benefit of teaching new skills to staff, which can in turn be applied in the
workplace. By undertaking activities outside of their usual work responsibilities, employees have
the chance to contribute to work and causes that they might feel passionate about, or learn
something entirely new which can help enrich their own perspectives. By supporting these
activities, organisations encourage growth and support for employees.
11. Enhances relationships with clients
A strong corporate social responsibility framework is essential to building and maintaining trust
between the company and clients. It can strengthen ties, build alliances and foster strong working
relationships with both existing and new clients. One way this can be achieved is by offering similar
services where a company can partner with not-for-profit organisations to support their public
value outcomes, where funds or resources may be limited. In turn, this helps deliver public value
outcomes that may not have been delivered otherwise.
12. Positive impact in the community
Keeping social responsibility front of mind encourages businesses to act ethically and to consider
the social and environmental impacts of their business. In doing so, organisations can avoid or
mitigate damaging impacts of their business on the community. In some cases, organisations will
find ways to make changes in their services or value chain that actually delivers benefits for the
community, where they once didnt.
16.16 DISADVANTAGES / LIMITATIONS OF CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility has not been specifically defined anywhere. Though in its general
meaning, it requires organizations to consider the companys impact on society and the
environment as they conduct business. Technically it is a good principle and is meant to benefit the
society and also to take care of nature, but when its practicability is considered, there are a lot of
problems which arise in its implementation, which the companies have to deal with.
Cost and Workload
The first and foremost point which goes against implementing the social responsibility is that the
cost which is required for its proper implementation is very high. Further, at the initial stage, it
requires a high labor workload. It requires for early planning and troubleshooting strategies, which
usually require massive time and cost, thus would lay a burden on the company. The company has
to make long-terms strategies which would have such impact on maximizing the benefit while
taking care of its social responsibilities. Risk awareness as a result of the implementation has to be
taken into consideration and monitored.
Business Objective
Unlike public services which function to serve the public needs, the main aim of most of the private
businesses is to maximize profit. Their main aim behind such incorporation thus makes it difficult
to implement the social responsibility accounting system, as it requires a substantial amount of
money. For example, it might happen that the policies and procedures, of a company, on disposal of
chemical waste, is in accordance to the rules and regulation in that regard. However, it may not be
sufficient to achieve the target of accommodating environmental and social needs.
Staff Morale
The implementation process requires heavy workload, and this may deteriorate the morale of the
staff working in a company. Logically thinking, if some employees have to work extra than their
scheduled hours without getting any extra pay for the same, they would prefer to quit their job and
would seek some other place to work. Thus, this will increase the labour cost of the company as
they would be left with no other option than to recruit new staff and equip them with the necessary
training, which would further be a burden on the capital of the company.
Shareholder Interests
Proper implementation of corporate social responsibility requires a lot of changes to be made to
many processes, which includes increased reporting. Companies usually hire some additional
personnel to manage CSR initiatives. These require money, and thus the rivals in the market point
out that the money spent on CSR comes directly from shareholders pockets, and that the company
is thus taking steps which could hamper the interests of the shareholders. Elaine Sternberg, one of
the most vocal opponents of the effects of CSR on shareholder profits, is of the opinion that CSR
initiatives incur a great cost with the little measurable return.
Corporate Reputation
While many companies carry out CSR initiatives with the purpose of bolstering their public images,
these initiatives can at times necessitate a company to release certain information which could have
an opposite effect to what is intended. The incident which happened in the year 2003 is a good
example of this. Coca-Cola, as part of CSR initiative, released a report which included information
about chemicals found in its products. However, the report resulted in lowering the reputation of
the company instead of increasing it because of the company suffered huge revenue loss.
Competitive Disadvantages
Proper implementation of corporate social responsibility initiatives might require a company to
makeshift in their working model, and this might turn out as an impediment to a business to
operate. For example suppose a Company X, which due to the CSR initiatives undertaken by them,
before supplying its products subjects it to strict regulations on product quality and also maintains
the employee working conditions, and incurs huge amount for all this, company Y on the other hand
concerns itself only with the rules and regulation which are mandatory and doesnt spend any
amount on these extra initiatives. Thus, Company Y which is a competitor of Company X can
operate at lower costs and turn out products more quickly.
Expenses
Another reason, which provides a possible explanation as to why companies object to participating
in CSR, is the associated costs which are attached to it. While implementing corporate social
responsibilities, the company need to pay for environmental programs; they have to provide their
employee more training and also to take steps for efficient waste management programs.
The problem, however, is that while investment usually pays off to the company, CSR, on the other
hand, doesnt usually play any role in increasing the capital strength of the company.
Shareholder Expectations
Another challenge which comes up is the possible negative perception of shareholders.
Traditionally, companies had a primary focus on maximizing shareholder value, but now they must
balance the financial expectations of the shareholders with the social and environmental
requirements of other stakeholder groups. The willingness of the shareholders to invest in such
companies may differ. Some shareholders might be willing to invest in companies which maintain
and follow their corporate social responsibilities while others may not approve of the
aforementioned expenses of operating under CSR guidelines.
Above all, the corporate social responsibility is a very good step but only if it is on the discretion of
the companies, as making it compulsory would do more harm than good to the industries. The large
companies and corporations can very well perform their responsibilities as they have sufficient
capital to do so. However, the small companies dont have such capital strength, and thus, they
would not be able to perform their obligations. This might also happen that if CSR is made
compulsory, the small scale companies might need to shut down their businesses because of the
heavy burden which they have to bear from their capital. So, in my view, the Corporate Social
Responsibilities should not be made compulsory and should be left to the option of the companies.

QUESTIONS
1) What do you understand by Corporate Social Responsibility and what significance does it have
for business?
2) What are the differences you find in the philanthropy centric view of CSR and business
integrated view of CSR?
3) What are the important benefits which companies foresee in adopting CSR? Throw some light on
the various initiatives of the companies in India?
4) Discuss briefly the measurement aspect of CSR and its performance benefits for companies.