TABLE OF CONTENTS Name Aims & Objectives 3.1. Introduction 3.1.1. What is Corporate Governance? 3.2.

What is CSR and the origin of CSR 3.3. Principles of CSR 3.4. Importance of CSR Executive Summary Literature Review

1.

EXECUTIVE SUMMARY

Corporate Social Responsibility has been a much debated and contested subject in business. This paper tries to address the ways in which current emphasis on corporate social responsibility has driven and still drives different organizations to adopt corporate social responsibility practices worldwide. The debate has however always been whether organizations follow CSR because they have a certain responsibility towards the environment theyre working for, or the motive behind their doing good to the society is essentially something else. For getting an in depth understanding of CSR, thorough research has been conducted through the literature till date. Thus this report explores an academic study and a robust understanding of CSR like what CSR means in different countries i.e. national and international as well as organizational contexts, what its underlying principles are, what are the drivers of CSR and how CSR is adopted in various organizations and eventually how CSR affects them. The aim of the report is to explore the different facets and perspectives of CSR rather than fathoming if CSR is right or wrong. This study would finally be able to give a clear understanding of the area and help anyone interested in CSR to make their minds as to what is good or bad about a particular approach. To achieve this, a number of organizations and their key personnels who have put efforts into developing and implementing CSR policies in their businesses are enlisted.

2.

AIMS and OBJECTIVES

The aim of this report is to gain insight on the issue of Corporate Social Responsibility in the world of business today. The main objective of writing this report is to take the readers to a new platform where they are able to differentiate whether it is good or bad to incorporate and adopt corporate social responsibility and corporate sustainability as one of the key strategies in their business agenda. I am a qualified accountant in business and an expert in Finance and business management and have been approached to throw light on the research question posed. Corporate Social Responsibility is a subject of discussion throughout the globe as the world is run by different governments, big businesses and it is the responsibility of these entities to keep in mind the impact of their activities to

their environment and the society. Many books, articles, journals have been written and conferences and debates held over the issue of corporate social responsibility. This paper examines the benefits and disadvantages of corporate social responsibility by taking live examples from the corporate world. The other main objective of writing this paper is to make recommendations to new companies looking at adopting CSR according to their needs and requirements. The idea is to gain insight on the merits and demerits of CSR activities. In this report we highlight: Principles of Corporate Social Responsibility and its Reporting The development of CSR- How CSR has evolved over decades Live examples from the business world The future of CSR The report is based on: A detailed brief on the existing literature through books, journal articles, World Wide Web, articles, newspapers, reports and conference proceedings. We would discuss the role of government for helping improvising an environment for corporate social responsibility Internet-based research to identify concrete examples of initiatives by the government, entrepreneurs, Non-governmental organizations (NGOs), public sector officials and Institutions that set standards for corporate social responsibility and its reporting. The kind of approach taken towards this study is qualitative and descriptive through the secondary data that has been sought and analyzed pertaining to the research question. A lot of publications had to be gone through from books to journals to newspapers to articles for the research as CSR is an enormous topic. This paper is a product and output of this research though a lot more could have been discussed and have written about but the word limit still remains deficient of the scope of the subject matter and also due to the constraint of time, I attempt to produce to you this paper in my own best possible way.

3.

LITERATURE REVIEW

3.1.

INTRODUCTION:

As the time is passing many companies are realizing the importance of maintaining ethical practice and following the accounting standards. In the recent past many companies have already come under the scanner and have been exposed for their unethical practices and lack of transparency in their accounting standards. One of the recent examples of a company coming under the ethical scandal is the case of Enron. According to Luo (2005), Epstein and Hanson, (2006) there have been an increased focus on the following the corporate governance practices due to these disclosures. The policy enforcing bodies have also become stricter and set more stringent rules for the policies that are being set henceforth. These standards are now enforced keeping in mind the demands for disclosure from all the stakeholders, government, shareholders, and other regulatory bodies. Efforts are being made to strengthen the corporate governance by focusing on the reporting mechanism, audits being a new phenomenon, it has been under much retrospection over the last decade. Much has been talked about and written about CSR. We would be now taking a look at how the

Governments Role in CSR: (Visser, Matten, Pohl, & Tolhurst, 2007) CSR now-a-days is not only a topic for the business community, but the governments too are progressively getting involved in promoting and fostering CSR, like most notable UK government with its CSR Minister Nigel Griffiths, and the European Union with its White Papers and the recent European alliance for CSR. As already earlier stated that CSR is fundamentally about good business, to achieve this bottom line it is the government that comes into the picture. (Hancock, 2005)In the view of John Hancock, the role of the government is essentially to provide the right conditions and policy frameworks so that the contribution of business is maximized. This regulatory framework devised by the government forms the baseline for corporate behavior, while CSR is what companies adopt voluntarily to raise their performance beyond minimum legal standards. Therefore governments are those entities that set decent standards or codes of conduct while stimulating companies to raise their performance beyond those levels. (2008, p. 11)For example, in issuing the US Apparel Code of Conduct, the US government provided a regulatory basis for CSR in overseas supply chains. (Crane, Matten, & Spence, 2008, pp. 10,11) The other role of Governments or the public sector is itself being socially responsible in their undertakings. In most industrialized or developed countries, it is seen that governments are responsible for 40 to 50 per cent of the Gross Domestic Product (GDP) as governments in these countries still supply a large number of goods and services themselves. Furthermore, given the size of public bodies and their agencies, it is believed that the demands for CSR are more pronounced and are likely to have an impact on the society which is far greater than the impact of a large corporation. Thus accordingly governments are also expected to operate in a socially responsible manner as the corporations. More and more theyre also facing similar environmental as well as social demands for more responsible, accountable and transparent behavior. And hence many of CSR ideas have been developed and implemented by governments across the world. Thus there has been a steady rise in social reporting and auditing, by these public bodies. An example is of a publicly funded UK media organization, the BBC that now publishes an annual CSR report. (2008, p. 11)Another role that governments are playing is that of multipartite initiatives to expand and extend CSR, such as the UN Global Compact, which is a set of principles issued by the United Nations for voluntary adoption by corporations globally. We would discuss about the role of UN Global Compact in detail later in this paper.

3.3.

Principles of Corporate Social Responsibilities:

Many companies are adapting to the CSR idea and are involved in some activities that they consider to be CSR. However there has been a lot of uncertainty the has surrounded this term and its necessary to have a clear idea to be able to measure it later on. According to David Crowther & Guler Aras, there are three main principles of CSR. They are Sustainability, Accounting and Transparency. Sustainability As the word sustainability suggests, sustainability is all about the decisions taken at present in a company and its impact on the future. Sustainable development is both possible and desirable by most of the companies. So, firms should make a conscious effort to invest in technology and in development towards the society. As per the study by Zwetsloot (2003) every company needs to

continuously invest in technology and be actively involved in continuous improvements and innovations to be able to have sustainable development. A detailed study is done on sustainability and published in the Brundtland Report published in 1987. As per the Brundtland Report the sustainable development has been defined as Development which meets the needs of the present without compromising the ability of the future generations to meet their own needs. As per the Brundtland Report there have been other report formats also that have been developed and the concept of Triple Bottom Line has evolved from this report. Most of the companies now consider that focusing on the economic, social and environmental aspects is sufficient for the companies to sustain themselves. However, in the present scenario these three parameters under Triple Bottom Line are considered to be insufficient and are not accepted to be the only aspects to sustainable development. The study by David Crowther & Guler Aras has redefined the components of sustainability. First parameter is societal influence, which is defined as the measure of societal impact on the companies, stakeholders influence and their future actions. Second, is the environmental impact, which considers the influence of the companys decisions and actions, taken at present on the surrounding environment. Third, is the Organizational culture, which is defined as the relationship of the company with its employees and other internal stakeholders. The fourth and final parameter that is used to ensure sustainability of the organization is the financial parameter. This is defined as the amount of return that the company generates for the investment that they have done and the risk taken by the company. All these parameters ensure a fine balance between sustainability and sustainable development of the company. Accounting & Transparency There is a great emphasis on the ethical aspects of the company and this in turn demands the company to be accountable to its internal customers i.e. employees, its external employees and the stakeholders. Businesses attempts to maximize profits as their first and foremost goal, however now days companies cannot just stop at that. They have to focus on the ethical and the social factors also equally and ensure the they maintain transparency in their accounting systems and the policies that they follow in the companies. According to the study by Crowther, David (2005) ethics is a natural and structured process of acting in line with the moral judgments, standards and rules. As ethics is a very subjective topic is it difficult to define it accurately and its implication for each and every company could be different. Companies need to follow business ethics and need to maintain a certain standard, as the companies who dont follow ethics and dont maintain honesty would be far away from achieving their goal and keeping their stakeholders satisfied (Aras, 2006). Most of the consumers believe that the companies which maintain the ethical standards are having more open accounting standards and are transparent in their processes. Accountability of such companies is considered to be much higher than the other companies. There are four main imperatives that the companies need to pursue while practicing the CSR. They are maintaining the minimum legal, economic, ethical and philanthropic aspects that are expected by the customers and stakeholder. 3.4. Importance of CSR There has been extensive research on Corporate Social Responsibility and the all the aspects and roles where the organizations could be benefited. Many great scholars and researchers have quoted

CSR to be one of the firms strategies to derive benefit from its customers, ultimately resulting into the gains or profits for the companies. In the opinion on Michael Porter (Michael E. Porter & Mark R. Kramer ,2002) CSR and related philanthropy is a major source of deriving competitive advantage from the consumers and finally helps the firms bottom line. Most of the researchers have felt that this link, could be helpful for the companies to make a positive impact on the customers, employees and suppliers to a certain extent. As per the study conducted by Daniel W. Greening & Daniel B. Turban, (2000), CSR could also help the companies to attract better and high quality talent as their future employees. According to Peter Navarro (1988), corporate indulge into CSR as a part of their brand building exercise, to increase its visibility in the eyes of the investors and other stakeholders, to appeal to a wider set of customers, to spread good will of their brand name in the market, etc. As the times have changed where all the stakeholders demand a greater amount of transparency and visibility in the system, most of the corporate have started becoming open about the CSR activities that they indulge in and advertise them too. This has helped the firms in gaining public attention and subsequently gains. The firm is undoubtedly benefited in one way or the other; however this is not the focus and the main reason why they should indulge in CSR. The firms should have strong faith in the act of doing well, not just for themselves and their immediate intermediaries but all the stakeholders of the firm. Evaluators should also consider the good that these firms are doing towards and society and not just focus on the profits incurred by the firms. Over the period of years all the organizations have realized the necessity of CSR being an integral part of their corporate philosophy. Many studies have supported and emphasized the role of CSR benefiting the company also though the focus of the company may just be to help the society at large.

4.

ANALYSIS & DISCUSSION

Now that we are aware of the basic principles of CSR and its basis let us try to understand the basic drivers of CSR, for companies to adopt CSR practices.

4.1. Drivers of CSR: The catalytic forces of the Exxon Valdez oil spill, Shells Brent Spar oil spill and (Reis, Dayr; Betton, John; Pena, Leticia, 2004, p. 5) the hanging of Ken Saro-Wiwa, the writer and champion of Ogoni rights in the Niger Delta were the main causes that ignited the Corporate Social Responsibility movement. The forces that are driving CSR today are essentially due to the overwhelming shift in the interaction of the state, the individuals, and the market. The core drivers of CSR are the growth in stakeholder expectations, the responsibility for the supply chains, the diminishing role of the state and the increasing pressure from the shareholders. (2004, p. 1) An article by Reis, Betton and Pena indicates that stakeholders of businesses that are affected by the managements decisions have come into the mainstream by voicing their ever growing interest in the workings of the corporations and is forming different stakeholder groups which include employees, consumers, activists, community members, shareholders. Also chief executives and politicians both are recognizing that their good relations with their own as well as other countries would determine their future s trying to help these producers. Starbucks would not need to invest any additional amount in setting up a distribution channel as they already have a very efficient distribution model in place. However

some part of the premium that is collected by the government or other non-profit organizations would be needed for investing in the distribution channel. The premium that Starbucks are able to charge for such products is more than double that of their competitors. This benefit is directly passed on to the producers. This is one of the ways to motivate the farmers to work hard and produce better quality products with an incentive to receive welfare for themselves and the society around them in terms of better education, medical facilities, infrastructure, better quality raw materials and equipments to enrich their experience and improve their quality of life. Starbucks may or may not be earning any monetary profit by offering such products under their product range, but the good-will that they create thru such CSR activities in minds of the consumers and the feel-good factor that they are able to generate in the minds of consumers, shareholders, employees and others by offering such products is immense. Its only due to the economies of scale that they are able to facilitate the producers with an aid of such magnitude. Bundling

Most of the corporate have the advantage of already having an established product line. The corporate can bundle two products or can offer two different services by combining both of them and this would result in benefiting the consumers as well as the producers. The corporate bundle the products in such a way that they would be offering higher product values to the consumers at a lower price. If any consumer would have to buy the product individually they would have to pay much more than the amount that they pay as in the case of the bundled product. The bundling effect enables the consumers to indulge in some charity activity along with having their regular product and this combination turns out to be inexpensive for the consumers. Most of the companies follow one of the two strategies for bundling the product. They either bundle the products with low value to the products with higher value or bundle a subsidiary product to enhance the value of the main product. Companies generally bundle products with a very high demand and that with less demand together. This ensures that the products with low demand are also sold due to the demand for the other product. Consumers would opt for these bundled products as the overall cost to the consumers for a bundled product is much less than the individual prices of the products. Continuing with the Starbucks case, they offer a product complying with the Fair Trade standards. This product, offered at a premium to the consumers, apart from providing coffee of a different style also combines an opportunity for the consumers to donate towards the development of the underdeveloped. If any consumer would have tried to have both the products individually, it would have cost him much more. As suggested by Geo. L.J. (2005), the bundling effect enjoys the benefits that the companies derive due to economies of scope. Thus the consumers enjoy more of the services or products keeping the price as constant. From this it can also be inferred that bundling changes the relative price of the individual product. Studies conducted by Henderson, M. T, et.al. (2009) indicates that its due to the economies of scope that the companies benefit so much and are able to pass on the benefits to the consumers. This is overall helping to reduce the free riding on other consumers contribution to the public good. Diversification: The corporate are generally have the tendency to follow consumer the consumer centric approach and make sure that the product is accepted by the consumers, if required by modifying the product and customizing it to suit their needs. This enables the companies to generate the required profits and

sustain themselves amidst competition. The same policy is adopted by the companies in case of the CSR activities also. The non-profit organizations and government when indulging in CSR activities only focus on the good for the society and let go the profit that they could derive from their activities. Government and non-profit organizations, beyond a point cannot customize their products or diversify into other related products to serve the customer needs as they lack the experience that corporate would have. This would also ensure that the companies have a competitive advantage for these products over their counterparts. Also taking an early initiative for a certain product category would also ensure the company of the first movers advantage. Most of the companies can also choose from the cause that they would like to support and which would be closely related to the existing business line of the companies. There is a plethora of causes that could be supported. The researchers have indicated that most of the companies that indulge in CSR have taken up to support the causes like providing the basic facilities to the developing nations, basic infrastructure, medical aid, ensuring sufficient nutrition by providing quality food etc. The consumers also would get a larger choice of products to choose from as different companies are involved in different CSR activities. The companys focus on these products just as they focus on any other product of their company. This focused approach ensures that the quality of the product offered does not suffer in any respect. The competition in these products among companies is also very healthy, ensuring that the consumers get the best of the products at competitive rates. As there are and more companies are entering into the CSR the companies would need to not just keep track of what they are offering the customers, but also of what they are unable to offer these customers. These products also compete among themselves for the market share and profitability of the company. If every firm decides to contribute in one way or the other by diversifying their product range a large number of products would be available to the customers to choose from and would do a lot of good to the overall society.

Agency Costs : Most of the non-profit organizations and the charitable trust collect the donation amount from most of the donors and allocate a certain percentage of these funds for the general administration of the organization and the expenses of the employees. As these organizations are not oriented towards making profits from the services that they offer, these organizations are not self sustaining. So a part of the donations is naturally devoted towards their requirements. However in the case of profit making companies, they are already self sustaining and are not dependent on the sale and profits of the CSR activities to cover their daily expenses. Also as they are focusing on the profits that these activities generate, they are better equipped in sustaining themselves. Most of the customers and other stakeholders who invest in the development of the society would like the amount to be best utilized and be assured of it reaching the right hands. In case of the companies, they are already being scrutinized by different organizations and institutions for each and every activity they do. So, the CSR activities details would also be scrutinized and they would ensure that there is no lapse in the funds being utilized judiciously. The stakeholders and consumers can demand a number of requests for disclosures increase the transparency of the accounting system followed in the company. Such restrictions and demands cannot be made in the case of non profit organizations and government organizations. In case the companies do not follow the set standards, the company could get into many legal hassles. To avoid this most of the companies follow the accounting and reporting standards and maintain a high level of transparency in their records by having regular reporting and

audits of their processes. As per the study by Theodor Baums et al. (1994) there are many reasons to choose the corporate. Most of the nonprofit organization work with the objective of doing good to the public, but have been on the receiving end of a lot of criticism from all the direction due to lack of standard rules and regulations that are followed by them. Also according Ron, Nixon (2008) most of these charitable organizations lack accountability. Greenlee, Janet suggests that these organizations are not governed properly, which ultimately would be the reason for a lower amount of utilization of the funds towards the cause and more of it being wasted towards administrative and other expenses. As these intermediaries are reducing the benefit being transferred to the needy, the corporate channel is a much more efficient way of transferring the same in all respects. Thus, the corporate are a better choice to directly provide the benefits to the society than the charitable organizations. Network Effect Most of the corporate are already having a well established network and channel and could easily continue this CSR activity through the same channel. This would considerably reduce the investment that these companies would require for the distribution and to provide the necessary reach to the products. Companies can also take advantage of the scale of economies that they have and the wider access to the market that they could provide as compare to the charitable organizations. The companies could focus on improving their efficiency and profitability as they are disclosing their investments and returns and profitability of the activities in the reports that they generate periodically. This is one of the major incentives for the corporate to improve their existing processes, as the results are visible one and all.

4.2. Brands following CSR in practice Many companies realizing the importance of CSR activities are indulging in CSR activities, not just as a side function, but have tried to make it an integral part of their business strategy and marketing campaigns. The companies have already taken up CSR initiatives on a large scale and have scaled substantial heights. Many big brands are following the corporate and ethical practices. Lets take an example of some of the famous brand names known all over the world, and understand the CSR practices that they follow. A cause supported by one of the MNCs is the monitoring of working conditions in factories in developing countries by clothing and footwear manufacturers. After negative press coverage exposed Nikes use of factories with unsafe conditions and employment of children, consumers demanded better working conditions for workers in developing countries. 81 The government or nonprofits could have been used to satisfy this altruistic demand, but the most efficient mechanism for delivering this public good was through a for-profit corporation. Many companies have altered their product offerings or innovated in such a way that the new product that is offered is more focused towards a sustainable environment. The hybrid car that is developed is an example of such innovation in the automobile industry. The hybrid cars enjoy the benefits of economies of scope that the companies already have. As per the changing demand of the consumers with respect to the environment and the other social or cultural aspects, the company is customizing their products and is producing new and innovative designs that is more environment friendly and are more acceptable to the changing taste of the

consumers.85 Hybrid car is a unique combination of bundling a fuel efficient car with appropriate investment by the company in technology and research work. Here the company uses the bundling of two services or products to maximize the benefit to the consumers and the company. The consumers can consider buying such products and donating a part of the amount towards the research and development activities. They benefit that the customer would get would be much more as the combined price of a hybrid car with fuel efficiency and donation towards the cause would be much more than the amount the consumer has paid for the bundled product. The premium that is charged for the hybrid car can be used for any cause, in this case being for research. This additional cost can be best utilized by the companies that are already into the field of manufacturing the cars, than the government or the charitable organizations, who would have to set up the facilities and make a lot of investments before being able to pass on the benefits to the producers. 89

CSR Initiatives by McDonalds

Many big brands have realized its responsibilities and have supported different causes under its CSR initiatives. Lets see some of the brands and the CSR initiative taken by them. McDonalds is a very famous and well known brand name across the world and has taken several CSR initiatives. These initiatives have helped different causes in different ways.

Cause Promotion Cause Related Marketing Social Marketing Corporate Philosophy Community Volunteering Socially Responsible Business Practices Description Supporting social cause through promotions, to raise funds increase awareness, volunteering Donating a percentage of revenues to a specific cause, based on product sales

Supporting behavior change campaigns Making direct contribution to a charity or cause Providing voluntary services in the community Adapting and conduction discretionary business practices and investments that supports social causes

Example

McDonalds sponsored the Olympic Youth Camp program held in 2000 in Sydney, Australia

McDonalds earmarked 1$ for childrens causes from sale of Big Macs and other items on World Childrens Day, November 20, 2002

McDonalds promoted timely childhood immunization

Ronald McDonald House offers places to stay for families with seriously ill children

McDonalds provided means for professionals and volunteers on September 11 disaster site

McDonalds changed to recycled- content packaging and reduced packaging material * Source: Kotler, P., & Lee, N. (2005), Corporate Social Responsibility-Doing the Most Good for Your Company and Your Cause.

4.3. CSR Reporting and its Standards The essence of responsibility is accountability or reporting. CSR reporting practices are more prevalent in countries like Japan and UK As we have already discussed the nature of CSR and how it can prove to be profitable for businesses, we would now be discussing the most important part of forming an effective CSR strategy. Though companies today are aware of the fact that they should start acting on their CSR agenda, still a number of questions like what should companies decide to do and what approach to take for the development of an effective social responsibility strategy, leaves them perplexed. CSR has been developing at a fast pace and along with it are the increasing number of frameworks and codes that surround it. These frameworks and codes have delivered a variety of guidelines and approaches that are different for the diverse businesses operating in the globalized world. On one level, there is a proliferation of individual company codes of conduct and company value statements which outline the standards of functioning for their employees as well as suppliers, while on a broader level, there is an assortment of external auditable standards which allows companies to counter and gauge their commitment to social and environmental responsibilities. There is a rise in the various governmental as well as non-governmental organizations (NGOs) along with businesses that have constructed a series of frameworks or guidelines that companies can follow to seek, and measure their commitment to socially responsible business practices. This section focuses on the different types of codes and guidelines for developing CSR strategies. (Leipziger, 2003, p. 36)In his book, The Corporate Responsibility Code Book, Leipziger has identified

a scale within the CSR field that runs from values and principles to codes of conduct and norms to standards. Values and principles are the internal character of an organization that determines and gauges its workings while codes of conduct provide a set of rules of the action and behavior which are scrutinized internally in an organization. (Burchell, 2008, p. 120) In contrast to both values and principles and codes of conduct, standards have a far more expansive purpose applying broadly across geographic regions and industry sectors. In this way they are not solely the realm of an individual company or indeed the business sector itself, but become a more broad-ranging, consensual multi-stakeholder process. We would first be looking at what Codes of Conduct are and what their main purpose is. Codes of Conduct are essentially guidelines to the internal stakeholders of a firm which clearly define what the