TERM PAPER
ON
CORPORATE SOCIAL
RESPONSIBILITY
Submitted to:
(LOVELY INSTITUTE OF MANAGEMENT)
MBA Ist – B(Ist Sem.)
(Session 2009-2011)
Date- 05 Dec 2009
Submitted To: Submitted By:
Mr. Priyanka Chhibber Suman Tiwari
Roll No. A-22 Reg. No.10904478
Table of Contents
Introduction ...5
What Is Corporate Social Responsibility? ...6
Meaning and Definition...7
Need for Corporate Social Responsibility...10
Importance of CSR ...11
CSR in Today’s World ...12
Implementing CSR ...14
Arguments of CSR...15
Corporate Social responsibility in India ...19
Measure for applying Corporate Social
Responsibility ...20
Conclusion ...23
ACKNOWLEDGEMENT
I would like to confer my heartiest thanks to my coordinator of Management Practices and Organizational Behavior Miss Priyanka Chhibber for giving me the opportunity to expel and work in the field of Management and Organizational Practices, and especially its practical applications. While preparing my term paper I got to have an in depth knowledge of practical applications of the theoretical concepts and definitely the things which I have learned will undoubtedly help me in future, to analyze many processes going on in our economy.
I would also like to thank all those people who directly or indirectly helped me in accomplishing this project
.
Literature Review
Competitiveness of corporate sector is a very broad multi-dimensional concept that embraces numerous aspects such as price, quality, productivity, efficiency and macro-economic environment as well as the ethical behavior and the social responsiveness of a company. There are numerous studies on Corporate Social Responsibility in India, published by industry associations, consultancy
organizations, research bodies and peer-reviewed journals. In India too the businessman has been under incessant attack both by the government and the public. Many reports of the Indian government, such as the P. C. Mahalanobis Committee Report on the Distribution of Income and Levels of Living (1964); K. C. Dasgupta Report on Monopolies (1965), Prof. Hazari’s Report on the Industrial Licensing Sysem (1966), and the Dutta Committee Report on Industrial Licensing Policy (1969) are very critical of the unethical role of the Indian Businessman today. In this section, various studies on the Corporate Social Responsibility are reviewed, under different heads pertaining to ethical behavior, namely, importance and need for CSR, implementation of CSR, arguments related to CSR and other aspects.
Introduction
As the pace of industrialization quickened employers became more and more concerned with the loss of productivity
efficiency due to avoidable sickness or accidents or stoppage of work due to bad personal relationships. This gave rise to the idea of a welfare state, which was further strengthened by the growth of democracy and of respect to human dignity during the last 150 years. The frame work of a welfare state and with it the concept of social responsibility have thus come to stay in many countries of the world. The changing image of business in the recent years has lent further support to the idea of social responsibility. Some public opinion polls in the 1960’s and 1970’s in United States have left businessman disenchanted. These polls have revealed that the businessman is viewed as an individual who does not cares for others, who ignored social problems, who preys upon the population, who exploits labor, and who is a selfish money grabber. On the other hand, until these opinions were unveiled, the businessman in America believed that others viewed him as he viewed himself, as a practical, down-to-earth, hardworking, broadminded, progressive, interesting and a competitive free enterpriser. He believed that the society looked up at him as a self sacrificing community leader, pillar of society, generous to a fault, great supporter of education, patron of the arts, in short, the salt of the earth. Indeed, the businessman in the pre-poll days thought of himself as a happy mix of Plato, Gandhi, and Churchill.
Although the subject “Corporate Social Responsibility” in its present form and content has gained popular attention only in recent years, its origin can be traced back to the evolution of the concept of a welfare state.
What Is Corporate Social
Responsibility?
Corporate social responsibility (CSR) is a form of business self-regulation to incorporate social and environmental concerns. It
represents a business model that adheres to laws, ethical standards, and international norms.
As part of the business model, businesses have to take into account the impact of their activities on the environment, employees, communities, stakeholders, and other members of the public. In short, CSR represents the deliberate inclusion of the public’s interest in a business’ decision making to ensure a triple bottom line that considers the planet, people, and profits.
In general, CSR involves some kind of standardized reporting that allows the business to collect information on how it is making progress on various fronts. Businesses that engage in CSR typically focus on some or all of the following:
• Environment: This requires a look at the environmental impacts of products
and services, as well as what the business does outside the company to improve the environment.
• Employees: It’s important to ensure that all employees are cared for
adequately. Businesses usually focus on workplace conditions, benefits, living wages, and training.
• Communities: Engaging the surrounding communities is an important part
of not just creating good human capital that can serve the business, but also securing a reputation that can further establish the business.
• Regulations: Respecting regulations to the fullest and often exceeding them
is part of being socially responsible.
• Crisis Preparedness: Being ready to address business crises and ensure
safety for employees and surrounding communities is critical. Having plans ready and tried are important in ensuring minimal losses during times of crises.
Meaning and Definition
CSR is about how companies manage the business processes to produce an overall positive impact on society.
Take the following illustration:
Companies need to answer to 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. Out of the various stakeholders, it is financial analysts who are predominantly focused - as well as past financial performance - on quality of management as an indicator of likely future performance.
Other definitions
The World Business Council for Sustainable Development in its publication "Making Good Business Sense" by Lord Holme and Richard Watts, used the following definition. "Corporate Social Responsibility is the continuing
commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large"
The same report gave some evidence of the different perceptions of what this should mean from a number of different societies across the world. Definitions as different as "CSR is about capacity building for sustainable livelihoods. It
respects cultural differences and finds the business opportunities in building the skills of employees, the community and the government" from Ghana, through to "CSR is about business giving back to society" from the Phillipines.
On the other hand, the European Commission hedges its bets with two definitions wrapped into one: "A concept whereby companies decide voluntarily to
contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business
Need for Corporate Social
Responsibility
1. A societal approach to business is the contemporary business philosophy, which demands business organizations to be responsive to the social problems.
2. As a result of globalization of business, global companies and MNCs operate in a big way in their host countries. In order to establish a good corporate image, they include social responsibility as a corporate objective. Indigenous companies are forced to follow suit for maintaining their
corporate identity.
3. In the terms and conditions of collaborations agreements, very often, social
welfare terms are included which necessitates the collaborating company to take up social responsibility of business.
4. On the basis of legal provisions, companies have to concentrate on social problems. For example an industrial organization in India must obtain a certification from Pollution Control Board.
5. Corporate donations of social welfare projects of approved NGO’s are exempted from income tax in India.
6. An organizations commitment to social responsibility creates a good corporate image, and there by a better business environment.
There are many situations where social responsibility of a business becomes necessary. Few of these situations which show the need for Corporate Social Responsibility are discussed below.
7. Social responsibility of business enables the organization to improve its product positioning and thereby improve its market share.
8. Very often situations demand due to natural calamities, accidents and so on.
For example, gas leak at the Union Carbide plant in Bhopal, wherein the company had to monetarily compensate through medical treatment.
Importance of CSR
CSR is an important business strategy because, wherever possible, consumers want to buy products from companies they trust; suppliers want to form business
partnerships with companies they can rely on; employees want to work for companies they respect; and NGOs, increasingly, want to work together with
companies seeking feasible solutions and innovations in areas of common concern. Satisfying each of these stakeholder groups allows companies to maximize their commitment to another important stakeholder group—their investors, who benefit most when the needs of these other stakeholder groups are being met:
I honestly believe that the winning companies of this century will be those who prove with their actions that they can be profitable and increase social value—companies that both do well and do
good….Increasingly, shareowners, customers, partners and employees are going to vote with their feet—rewarding those companies that fuel social change through business. This is simply the new reality of business—one that we should and must embrace.
Carly Fiorina Chairman and Chief Executive Officer Hewlett Packard Company The businesses most likely to succeed in the globalizing world will be those best able to combine the often conflicting interests of its multiple stakeholders, and incorporate a wider spectrum of opinions and values within the decision-making process and objectives of the organization. Lifestyle brand firms, in particular, need to live the ideals they convey to their consumers:
CSR is increasingly crucial to maintaining success in business—by providing a corporate strategy around which the company can rally, but also by giving meaning and direction to day to day operations.
CSR in Today’s World
CSR as a strategy is becoming increasingly important for businesses today because of three identifiable trends:
• Changing social expectations
Consumers and society in general expect more from the companies whose products they buy. This sense has increased in the light of recent corporate scandals, which reduced public trust of corporations, and reduced public confidence in the ability of regulatory bodies and organizations to control corporate excess.
• Increasing affluence
This is true within developed nations, but also in comparison to developing nations. Affluent consumers can afford to pick and choose the products they buy. A society in need of work and inward investment is less likely to enforce strict regulations and penalize organizations that might take their business and money elsewhere.
• Globalization
The growing influence of the media sees any ‘mistakes’ by companies brought immediately to the attention of the public. In addition, the Internet fuels
communication among like-minded groups and consumers—empowering them to spread their message, while giving them the means to co-ordinate collective action (i.e. a product boycott).
These three trends combine with the growing importance of brands and brand value to corporate success (particularly lifestyle brands) to produce a shift in the
relationship between corporation and consumer, in particular, and between corporation and all stakeholder groups, in general.
The result of this mix is that consumers today are better informed and feel more empowered to put their beliefs into action. From the corporate point of view, the market parameters within which companies must operate are increasingly being shaped by bottom-up, grassroots campaigns. NGOs and consumer activists are feeding, and often driving, this changing relationship between consumer and company.
CSR is particularly important within a globalizing world because of the way
brands are built—on perceptions, ideals and concepts that usually appeal to higher values. CSR is a means of matching corporate operations with stakeholder values and demands, at a time when these values and demands are constantly evolving. CSR can therefore best be described as a total approach to business. CSR creeps into all aspects of operations. Like quality, it is something that you know when you see it. It is something that businesses today should be genuinely and
wholeheartedly committed to. The dangers of ignoring CSR are too dangerous when it is remembered how important brands are to overall company value; how difficult it is to build brand strength; yet how easy it can be to lose brand
dominance.
CSR is, therefore, also something that a company should try and get right in implementation.
Implementing CSR
CSR is about common sense policies that represent a means of integrating a complete ‘social perspective’ into all aspects of operations. The goal is to maximize true value and benefit for an organization, while protecting the huge investments corporations make today in their brands.
CSR asks companies to ensure their business operations are clean and equitable, and contribute positively to the society in which they are based. Otherwise, they leave themselves open to too much danger from a potential consumer backlash. CSR is good business sense, and a total approach to doing business, in a
globalizing world where companies are increasingly relying on brand strength (particularly global lifestyle brands) to add value and product differentiation, and where NGO-driven consumer activism is increasing.
Many believe the issue of how corporations integrate CSR into everyday
operations and long-term strategic planning will define the business marketplace in the near future. It will become a key point of brand differentiation, both in terms of corporate entities and the products that carry their brands.
Key steps on the road to integrating CSR within all aspects of operations include: • Ensure the commitment of top management, and particularly the CEO, is
communicated throughout the organization
• Appoint a CSR position at the strategic decision-making level to manage the development of policy and its implementation
• Develop relationships with all stakeholder groups and interests (particular relevant NGOs)
• Incorporate a Social or CSR Audit within the company’s annual report • Ensure the compensation system within the organization reinforces the
CSR policies that have been created, rather than merely the bottom-line • Any anonymous feedback/whistle-blower process, ideally overseen by an
external ombudsperson, will allow the CSR Officer to operate more effectively
Corporations today are best positioned when they reflect the values of the
constantly shifting and sensitive market environment in which they operate. It is vital that they are capable of meeting the needs of an increasingly demanding and socially-aware consumer market, especially as brands move front and center of a
firm’s total value. Global firms with global lifestyle brands have the most to lose if the public perception of the brand fails to live up to the image portrayed.
Integrating a complete ‘social perspective’ into all aspects of operations will maximize true value and benefit for an organization, while protecting the huge investments companies make in corporate brands.
Arguments of CSR
Arguments offered in favor of CSR can be broadly split into two camps—moral and economic.
1. A moral argument for CSR
While recognizing that profits are necessary for any business entity to exist, all groups in society should strive to add value and make life better. Businesses rely on the society within which they operate and could not exist or prosper in isolation. They need the infrastructure that society provides, its source of employees, not to mention its consumer base. CSR is recognition of that inter-dependence and a means of delivering on that obligation, to the mutual benefit of businesses and the societies within which they are based:
CSR broadly represents the relationship between a company and the wider
community within which the company operates. It is recognition on the part of the business that ‘for profit’ entities do not exist in a vacuum, and that a large part of any success they enjoy is as much due to the context in which they operate as factors internal to the company alone.
Charles Handy makes a convincing and logical argument for the purpose of a business laying beyond the goals of maximizing profit and satisfying shareholders above all other stakeholders in an organization:
The purpose of a business is not to make a profit, full stop. It is to make a profit so that the business can do something more or better. That “something” becomes the
real justification for the business….It is a moral issue. To mistake the means for the end is to be turned in on oneself, which Saint Augustine called one of the greatest sins….It is salutary to ask about any organization, “If it did not exist, would we invent it?” Only if it could do something better or more useful than anyone else” would have to be the answer, and profit would be the means to that larger end.
Advocates of CSR believe that, in general, the goal of any economic system should be to further the general social welfare. In advanced economies, the purpose of business should extend beyond the maximization of efficiency and profit. Increasingly, society expects businesses to have an obligation to the society in which they are located, to the people they employ, and their customers, beyond their traditional bottom-line and narrow shareholder concerns.
At a minimum, businesses operating in a community benefit from the
infrastructure of that community (tangible, practical elements such as the roads, other transport infrastructure, the police, firefighters, etc) as well as more
intangible benefits, such as a safe or clean environment.
But, in most cases, businesses also draw their most important resource, its employees, largely from the local community. Any business will be more
successful if it employs a well-educated workforce that can attend good hospitals if they become sick, and who have grown up in a positive environment. This is not to mention consumers, also often members of the local community, without whom no business could survive.
CSR advocates point out that no organization exists in isolation. They believe that businesses, without exception, have an obligation to contribute as well as draw from the community, on which they rely so heavily.
2. An economic argument for CSR
An economic argument in favor of CSR can also be made. It is an argument of economic self-interest that there are very real economic benefits to businesses pursuing a CSR strategy—and is designed to persuade those business managers
who are not persuaded by the moral case. Proponents of this argument believe that CSR represents an holistic approach to business.
Therefore, an effective CSR policy will infuse all aspects of operations. They believe the actions corporations take today to incorporate CSR throughout the organization represent a real point of differentiation and competitive market advantage on which future success can hinge:
CSR is an argument of economic self-interest for a business. In today’s brand-driven markets, CSR is a means of matching corporate operations with stakeholder values and demands, at a time when these parameters can change rapidly. One example is a company’s customers: CSR adds value because it allows companies to better reflect the values of this important constituent base that the company aims to serve.
CSR covers all aspects of a business’ day-to-day operations. Everything an organization does in some way interacts with one or more of its stakeholder groups, and companies today need to build a watertight brand with respect to all stakeholders. Whether as an employer, producer, buyer, supplier, or investment, the attractiveness and success of a company today is directly linked to the strength of its brand.
CSR affects all aspects of all operations within a corporation because of the need to consider the needs of all constituent groups. Each area builds on all the others to create a composite of the corporation (its brand) in the eyes of all stakeholder groups.
3. Arguments against corporate social responsibility
If the arguments for a socially responsible approach were widely accepted, nobody would even using the label "CSR" because everyone would be doing it. Those of
us who spend our time marshalling the case for would do well to spend a little time hearing the case against, and considering what should be the response.
Of course, one of the challenges in considering cases "for" and "against" CSR is the wide variety of definitions of CSR that people use. We assume here we are talking about responsibility in how the company carries out its core function - not simply about companies giving money away to charity.
Below are some of the key arguments most often used against CSR and some responses.
• Businesses are owned by their shareholders - money spent on CSR by
managers is theft of the rightful property of the owners
• The leading companies who report on their social responsibility are basket
cases - the most effective business leaders don't waste time with this stuff
• Our company is too busy surviving hard times to do this. We can't afford to
take our eye off the ball - we have to focus on core business
• It's the responsibility of the politicians to deal with all this stuff. It's not our
role to get involved
• I have no time for this. I've got to get out and sell more to make our profit
line.
• Corporations don't really care - they're just out to screw the poor and the
environment to make their obscene profits
Corporate Social responsibility in
India
• Most companies are not doing any CSR
• Many companies are only making token gestures towards CSR in tangential ways such as donations to charitable trusts or NGOs, sponsorship of events, etc.
• Most companies believe that charity and philanthropy equals to CSR; very few companies are using their core competence to benefit the community.
• Most companies use CSR as a marketing tool to further spread the word about their business. For instance, donation of a token amount to some cause on purchase of a particular product. The fact that companies are hiring advertising agencies for their CSR further highlights this.
• Only Few Indian companies (from this study) publish a Corporate
Sustainability Report to measure and assess the impact of their business on the environment .
• Very few companies openly state the processes followed by them, the damage caused by these processes, and the steps taken to minimize this damage.
• Very few companies state how much they spend on CSR. There is no mention of the amount spent in any of their balance sheets or annual reports. Most companies just list and describe their CSR activities and seem to be spending minimal amounts on CSR.
• Very few companies are engaged in CSR activities in the local communities where they are based.
• Very few companies have a clearly defined CSR philosophy. Most implement their CSR in an ad-hoc manner, unconnected with their business process. • Most companies spread their CSR funds thinly across many activities, thus
somewhere losing the purpose of undertaking that activity.
• Most companies appear reluctant to themselves fulfill their CSR unless it is mandatory by law.
• Generally speaking, most companies seem either unaware or don’t care about CSR. However, all companies can be considered to be an upward learning curve with respect to CSR and it is expected that the situation will improve.
Measure for applying Corporate
Social Responsibility
Sustainability reporting
It is recommended that every company should publish a separate Corporate Sustainability Report (as per the Global Reporting Initiative (GRI) framework) along with their Annual Report. At the very least, every company must include a Corporate Sustainability section in its Annual Report (similar to the mandatory section on Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo).
CSR philosophy to be defined and articulated
Every company must clearly define its own CSR philosophy and objectives, stating which issues it intends working on or contributing to. It is recommended that a company first takes up areas that directly concern its business processes, and thereafter any other related or unrelated issues. These can also yield strategic benefits to the company.
Minimum annual CSR expenditure
Every company must spend a minimum of 0.2% of its annual income on CSR activities. The CSR spending of a company should not be linked to the profit made by the company because this would vary from year to year and the CSR activities would thus not be consistently maintained.
The scale of operations of a company and its impact is connected with its sales, and not with its profits. The larger the company, the greater is the damage it is doing to the environment. Conversely, the greater is the company's ability to do good.
Protection and restoration of the environment
Every company must be engaged in CSR activities that minimise its harm to the environment, and which help restore damage done to the environment because of the company. For example, all companies should use energy-efficient technologies
for their factories and offices, and adopt rainwater harvesting irrespective of the production process they are engaged in.
Employment for marginalized groups
Every company should provide inclusive employment opportunities and include the physically-challenged and marginalized groups in their workforce. The number of employment opportunities offered to such groups should be stated in the Annual Reports as is done by Public Sector Undertakings.
Local community development
It is recommended that a company first undertakes projects in the places where it functions, and helps those local communities and environments that are affected by its work.
Use of core competence
Every company should use its core competence to benefit its stakeholders and society. For instance, banks can use their expertise to identify and counsel debtors who are likely to run into financial trouble
Extending profile and area of businesses
A company should attempt to stretch its business beyond its existing profile and into areas where it does not normally work so as to reach out to under-served groups and populations. While this may sometimes mean smaller profit margins or marginal losses for the company, it will invariably result in valuable business learning's as well as effective CSR for the company.
Developing internal CSR implementation systems
A company may choose to develop an in-house CSR team or division that undertakes the CSR activities for the company. This is desirable as it leads to greater sensitization and awareness within the company about it's processes, responsibilities, role, etc. and leads to the internalization of the company's CSR philosophy.
Instead of contributing to the trust of the CEO or the promoter family, a company should set up its own trust/foundation as a matter of proper business ethics.
It is recommended that a company set up a committee that includes an external Director, an NGO and local stakeholders for selecting, monitoring and evaluating its CSR activities.
Focused CSR activities for greater impact
It is recommended that a company identifies a few issues for it's CSR activities and works on these areas for a sustained period of time so that measurable results and improvements can be achieved, rather than undertaking or supporting several small initiatives across several areas thereby reducing effective impact.
Conclusion
Corporate Social Responsibility is a difficult and elusive topic for companies to deal with. It can often be very costly and yield benefits that are hard to quantify. Perhaps this is one reason why companies, according to the survey, have put so much focus on the internal improvements that can be made, such as improving corporate governance and transparency. This could also explain why the most important stakeholders, after customers, are the traditionally important employees and shareholders.
There’s also the issue of just what standard of corporate social responsibility should companies use and how far companies should go to perform their responsibilities beyond what the laws call for. The issue of what is the “responsibility” of a corporation is far from being settled, and there is an
unresolved argument over what corporate social responsibility means. Companies face a plethora of options among the various standards, guidelines, benchmarks and other proposed measures of corporate social responsibility.
One point that all can agree on is that corporate social responsibility is not a neutral topic. There is a persistent debate about whether the corporate social responsibility “movement” represents an unjustified intrusion into corporate affairs, and whether
projects or return the money to shareholders to let them invest as they see fit. But there is no denying that corporate social responsibility has become an important issue facing the global business community and one that promises to grow in importance in the coming years.
Reference
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kanishka.
4. Saeen, Sandeeep(2001). Ethics Management. New Delhi: Sarup. 5. Corporate Social Responsibility in India - An Empirical Research
By Bernadette Dsilva
6. 2. CSR could prove to be a valuable asset in an age of M&As, as it helps firms spread their brand name - Maitreyee Handique
7. 3. Corporate Social Responsibility is no longer just an addition, it is a key
