corporate social responsibility automobile, fmcg and it

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THE INDIAN JOURNAL OF SOCIAL WORK Volume 73, Issue 4 October 2012 IJSW, 73(4), 525–540, October 2012 Tata Institute of Social Sciences Corporate Social Responsibility Automobile, FMCG and IT Sectors in North West India ANUPAM SHARMA AND RAVI KIRAN The present study explores the driving forces of corporate social responsibility (CSR) and how firms across different sectors have shaped and institutionalised CSR strate- gies. The study aims to gain a better understanding on how corporate organisations deal with the key drivers of CSR practices and the difficulties in implementation. The results indicate that the FMCG sector is lagging behind in the implementation of CSR practices. Anupam Sharma is Lecturer; and Ravi Kiran is Professor and Head, School of Behavioural Sciences and Business Studies, Thapar University, Patiala. INTRODUCTION The era of globalisation has strengthened the concept of corporate social responsibility (CSR). Modern corporations are putting considerable focus on the economy, politics and the society of a nation (Baxi, 2006). The concept of social upliftment of society has been in existence either through philanthropic activities or economic development. Carroll (1991) proposed a three dimensional conceptual pyramid for CSR practices. An important question concerning the role of ethics in business is why businesses/ entrepreneurs should engage in ethical or socially responsible practices. Business ethics is the honest, respectful and fair conduct by business organisations and its representatives in all areas of transactions (Aras, 2006). Some authors, notably Milton Friedman (1962), strongly argue against any business owing responsibility to any group other than the firm’s shareholders. Now non-governmental organisations (NGO’s) are also

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Page 1: Corporate social Responsibility Automobile, FMCG and IT

THE INDIAN JOURNAL

OF SOCIAL WORK

Volume 73, Issue 4 October 2012

IJSW, 73(4), 525–540, October 2012

Tata Institute of

Social Sciences

Corporate social ResponsibilityAutomobile, FMCG and IT Sectors in North West India

anuPaM SharMa and ravi kiran

The present study explores the driving forces of corporate social responsibility (CSR) and how firms across different sectors have shaped and institutionalised CSR strate-gies. The study aims to gain a better understanding on how corporate organisations deal with the key drivers of CSR practices and the difficulties in implementation. The results indicate that the FMCG sector is lagging behind in the implementation of CSR practices.

Anupam Sharma is Lecturer; and Ravi Kiran is Professor and Head, School of Behavioural Sciences and Business Studies, Thapar University, Patiala.

INTROdUCTIONThe era of globalisation has strengthened the concept of corporate social responsibility (CSR). Modern corporations are putting considerable focus on the economy, politics and the society of a nation (Baxi, 2006). The concept of social upliftment of society has been in existence either through philanthropic activities or economic development. Carroll (1991) proposed a three dimensional conceptual pyramid for CSR practices.

An important question concerning the role of ethics in business is why businesses/ entrepreneurs should engage in ethical or socially responsible practices. Business ethics is the honest, respectful and fair conduct by business organisations and its representatives in all areas of transactions (Aras, 2006). Some authors, notably Milton Friedman (1962), strongly argue against any business owing responsibility to any group other than the firm’s shareholders. Now non-governmental organisations (NGO’s) are also

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IJSW, 73(4), 525–540, October 2012

using the power of the media and the Internet to draw attention towards corporate social behaviour. Corporate stakeholders need to exert pressure on corporations, both public and private, to act responsibly towards society.

Corporate social responsibility is essential and an obligatory feature of business in the current environment and permeates all aspects of business activity, which is increasingly global and inseparable from the concerns of society as a whole (Crowther and Davila Gomez, 2011).

The emergence of suitable definitions of CSR has been depicted in Figure 1.

Despite diverse definitions, theories and concepts, CSR is all about sustainable development, social and environmental accounting. Probably the most widely accepted conceptualisation of CSR found in business and management literature is that proposed by Archie B. Carroll (1979). Carroll has clubbed all available theories on CSR into a pyramid, which constitute four types of responsibilities: Economic responsibility, Legal responsibility, Ethical responsibility, and Philanthropic responsibility.• Economic Responsibility. Business firms have shareholders who

demand a reasonable return on their investments (profit sharing); staff/human resources of organisations want fairly well paid jobs and have customers who demand quality products at a reasonable price. All succeeding responsibilities are based on this first layer of CSR. According to Carroll, the fulfilment of economic responsibilities is thus ‘required’ of all business corporations.

• Legal Responsibility: Another important responsibility of business firms is to follow regulations laid down by law. Carroll (1979) suggests that the fulfilment of legal responsibilities is essential for all corporations seeking to be in the business and “play by the rules of the game”.

• Ethical Responsibility: This responsibility obliges business firms to do what is right and fair, even when they are not obliged to do so by the legal framework. Carroll argues that ethical responsibilities therefore consist of meeting the expectations of the society over and above economic and legal expectations.

• Philanthropic Responsibility: The philanthropic responsibilities of business firms include charitable donations, opening up of free schools for children of their work force, organising free medical camps, and so on. According to Carroll (1979), business firms are more favourably inclined to undertake philantrophic activities.

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Corporate Social Responsibility 527

IJSW, 73(4), 525–540, October 2012

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LITERATURE REvIEW

Corporate social responsibility as a concept has been around since the early 1970s, yet it only entered mainstream business about ten years or so ago (Deri, 2010). The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organisations at a given point in time (Carroll, 1979). Bowen conceptualised CSR as a social obligation—the obligation ‘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’ (Bowen cited in Maignan and Ferrell, 2004: 3-19). Carroll has described Bowen as the modern ‘Father of Corporate Social Responsibility’ and believes that his work marks the beginning of the modern period of literature on CSR (Carroll, 1999: 268-295).

Frederick (1960) was also a major contributor to the emerging definition. He stated ‘Social Responsibility means that businessmen should oversee the operation of an economic system that fulfills the expectations and needs of the people. And this means in turn that the economy’s means of production should be employed in such a way that production and distribution should enhance total socioeconomic welfare’ (Frederick, 1960). CSR goes beyond the occasional community service action, as it is a corporate philosophy that drives strategic decision-making, partner selection, hiring practices and, ultimately, brand development (Michel and McComb, 2002).

“Corporate philanthropy provides a mechanism whereby businesses and organisations can contribute to and help the communities which have made them successful, and can also provide a powerful mechanism for fostering social change” (Kurtzman, 2004). Strategically, CSR can become a basis of societal growth, as the business applies its significant resources, expertise and insight to the activities that benefit society (Porter and Kramer, 2006). CSR is a dominant way of making sustainable viable profits and achieving lasting value for the shareholders/ investors as well as for stakeholders. CSR and the reporting thereof is used as a win-win opportunity, not only by the companies and for financial investors of the company, but for society also. Thus, based on their corporate values, organisations must construct an organisational culture that is accessible to change, and can maintain a corporate social responsibility policy in the long run (Maon and others, 2009).

Managers often confuse CSR with corporate charity. Corporate charity involves the donation of money and the provision of opportunities to

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members of the community and stakeholders. Pederson (2009) developed a model of how managers perceive the responsibilities of business towards society/ social development. Being a good corporate citizen in the community, CSR is about the organisation’s obligations to all stakeholders and not just shareholders.

The literature review helped in identifying different drivers of CSR. The firms that are socially responsible can have a dominant position in the market. These firms can focus on customers and resources of the firms, and influence the performance of the firms in the market.

METHOdOLOGY ANd dIsCUssION

This section covers the drivers of CSR and difficulties faced by companies during implementation. The study focused on three perspectives: health, education and environment. Although a hundred large scale firms were approached in the north-west region of India, only sixty firms were selected for analysis. The other firms were unable to provide the required information. The study used random sampling to collect data. Both public and private sector firms were included in the sample. While the public sector comprised 13 percent (8), the private sector comprised 87 percent (52).

Out of the total 60 companies studied, efforts were made to include firms from all three sectors—Information Technology (IT), Fast-moving Consumer Goods (FMCG), and Automobile. The results suggest that majority of the firms are from the automobile sector (n1=32). The FMCG and IT sectors each comprise fourteen firms. Figure 2 provides a break-up of the sample for sector wise classification. Although an equal number of questionnaires were sent to each sector, the maximum responses were received from the automobile sector.

The drivers of CSR practices identified through literature review were: society values; reduced regulatory interventions; new business opportunities; enhanced customer satisfaction and increase in number of investors. The drivers identified for CSR practices are summarised in Figure 3.

CSR will help a firm to gain wide publicity among dominant stakeholders (Bansal and Roth, 2000). According to Lewis (2003), CSR is now established as a fundamental addition to stakeholder’s criteria for judging a company’s reputation and as a reappraisal of its brand management. By adopting a set of practices, whose predictable initial benefits are

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directed away from stakeholders, the firm is possibly positioned to take advantage of previously unforeseen business opportunities, and establish a presence in emerging ones (Jones, 1996). According to O’ Dwyer (2003), business managers charged with opertionalising CSR in their firms filter such initiatives through an economic lens. Adams (2002) also supports the argument that CSR initiatives are ancillary to the firm’s main goal of economic performance. Lichtentein and others (2004) suggest that a corporation’s socially responsible behaviour can positively influence consumers’ attitude towards the corporation. This means that positive CSR practices of a firm can lead to an increase in the market share of the company and more satisfied customers.

FIGURE 2: Sector-wise Classification

drivers of CsR strategies

i) Societal Values: CSR strategies are influenced by societal values. Companies are a part of society and therefore, must respect its norms, values and services. Going against these norms and values can lead to the loss of reputational capital of the firms. Literature depicts that companies developed ethical, environmental and social practices over time in order to align their company profile and profits with societal expectations.

ii) Increase in Number of Investors: Investors play a vital role as policy drivers for the companies.

54%

23%

23%

Auto IT FMGC

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iii) New Business Opportunities: The possibility of new business op-portunities encourages firms to invest in social initiatives to reduce poverty and social inequalities. Through these initiatives, companies expect to create an improved environment for business, a larger attrac-tive consumer market and better stakeholder relationships.

iv) Reduced Regulatory Interventions: Regulatory pressures could be considered as another important driver. Substantive legislations are required for sustainability reporting of all large organisations (Gray and Milne, 2002) and a benchmark of government responsiveness to CSR is yet to emerge (Haigh and Hazelton, 2004).

v) Firms Reputation: Consumer willingness to pay some form of pre-mium for CSR-affiliated products (brands or reputations) helps manu-facturing firms to gain competitive advantage, thus forcing non-CSR firms to migrate to similar positions (Haigh and Hazelton, 2004).

vi) Customer Satisfaction: Lichtentein and others (2004) suggest that a corporation’s socially responsible behaviour can positively affect con-sumer attitude towards the corporation.

vii) Better Stakeholder Relationship: CSR efforts will help respective fig-ures in respective firms gaining wide publicity among dominant stake-holders (Bansal and Roth, 2000). Better stakeholder relationships have made the organisation pursue CSR strategies with better vision. CSR and its linkage to stakeholder management has been explored earlier (Steurer and others, 2005).

viii) Cost Savings: Cost saving is also an important driving force. Adams (2002) opines that CSR initiatives enhance a firm’s economic performance.

Factor AnalysisIn order to understand the reasons why organisations initiate health care measures, the author applied the principle component factor analysis with varimax rotation and Kaiser Normalisation (Table 1 and Figure 3). The result highlighted two factors — i ) enhanced benefits, and ii) improved image. These two factors explain the 77.038 percent of total variance.

Results of factor analysis shows that CSR initiatives have been undertaken for two reasons explained below:

Enhanced benefits emerged as the most important factor with a total variance of 41.3674. The major elements include an increase in number of investors (.717); enhanced customer satisfaction (.913); cost savings (.853); and enhancned society values (.779).

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Improved image emerged as another important determinant with a total variance of 35.716. The major elements include enhancement of firm’s reputation (.883); better stakeholder relationship (.929); new business opportunities (.627); and reduced regulatory interventions (.726).

TABLE 1: Factor Analysis

Factor Name

Eigen Value

% of vari-ance

Item Name Item Load-

ing

Mean S.D

Enhanced Benefits

3.92 41.367 Increase in number of investors

0.717 3.21 0.415

Enhancing customer satisfaction

0.913 2.71 0.975

Helps in cost savings 0.853 2.41 1.01

Society values 0.779 2.66 1.00

Mean score of Enhanced Benefits 2.74

Improved Image

2.24 35.716 Helps in enhancing firms reputation

0 .883 3.55 1.08

Better stakeholder rela-tionship

0.929 3.26 0.971

New business opportunities

0.627 2.61 0.922

Reduced regulatory interventions

0.726 2.58 0.925

Mean score of Improved Image 3.00

The overall results highlight that the item loading for all variables is higher than 0.606. Hence, all the items have been included in the study. Results of the factor analysis explain that improved image of the firm had higher item loading from 0.627 to 0.929 and a higher mean score as compared to the overall mean score of enhanced benefits of 3.00 (Table 1).

It can thus be said that firms in the north-west region undertake health care measures as part of their CSR initiative to improve their image.

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FIGURE 3: Key Drivers pushing Business Organisations towards CSR Practices

CSR Drivers

Firm’s reputationStakholder relationBusiness opportunityRegulatory interventions

Increased Number of investorsSatisfied customersCost savingSociety values

Firms image Enhanced benefits

Sector-wise Classification of CSR DriversThe following table (Table 2) depicts the sector–wise preference of CSR drivers. This is based on the mean score vis-à-vis mean score of the total.

TABLE 2: Sector–wise Preference of CSR Drivers

Sect

or

Enh

anci

ng C

om-

pany

’s R

eput

atio

n

Bet

ter

Stak

ehol

der R

ela-

tions

Incr

ease

d N

o. o

f In

vest

ors

Enh

anci

ng C

us-

tom

er S

atis

fact

ion

New

Bus

ines

s Op-

port

uniti

es

Hel

ps in

Cos

t Sav

-in

gs

Red

uced

Reg

ulat

ory

Inte

rven

tions

Min

imis

es R

isk

IT 3.40 3.15 3.25 2.87 2.50 2.53 2.68 2.78

FMCG 3.80 3.18 3.09 2.54 2.90 2.54 2.72 2.90

Auto-mobile 3.87 3.52 3.23 2.52 2.64 2.11 2.29 2.29

Total 3.60 3.26 3.21 2.71 2.61 2.41 2.58 2.66

As depicted in Table 3, organisations in all the sectors have rated enhancement of the company’s reputation as the most influential driver. The next important driver is stakeholder relationship. The reason for this could be that maintaining good relations with stakeholders will add to market value and help in promoting the firm’s image. The next section covers the difficulties faced by organisations in implementating CSR practices.

Difficulties Faced in Implementation of CSRThe results are indicative of the fact that irrespective of industry there is a consensus on the following three drivers and they have been rated high in priority by firms from all three sectors. These are:

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i) Helps in enhancing company’s reputationii) Stakeholder relationshipiii) Increase in number of investors

Almost every business firm has ranked last or given least importance to cost savings.

A study by Crowther and Reis (2011), shows that the three aspects of sustainability—environmental, social and economic factors—are important issues for society and are equally important to business.

The results shown in Table 3 highlight that the non-responsive nature of top management had the highest average score of 3.38 followed by philanthropic attitude (average score of 3.35). This indicates that if the top management is willing to implement CSR practices and change their perception from philanthropy to social responsibility, it will be helpful for the company’s brand image and society.

TABLE 3: Difficulties faced by Organisations

Difficulties Faced Mean Std. Deviation

Rank

Lack of information 2.76 1.07 11

Lack of support 3.13 1.17 5

Unreasonable delay 3.11 1.15 7

Limited budget allocation 3.30 1.41 3

Multiple points of contact for one task 2.36 0.86 13

Non-responsive nature of top-management 3.38 1.42 1

Negative/ rough attitude of higher authorities 3.18 1.21 4

Philanthropic attitude towards CSR Services 3.35 1.00 2

No department deals with CSR practices 2.81 1.42 10

Lot of unwanted holidays 2.61 1.37 12

Business works only for profit earning 2.25 1.12 14

Difficult access to senior government functionaries 3.13 1.09 6

Lack of some specified frame work 2.95 1.28 8

Average 2.95 1.20

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Sector-wise DifficultiesTable 4 shows the various difficulties faced by the organisations with respect to the three sectors: IT, FMCG and Automobile.

TABLE 4: Sector wise difficulties

Difficulties SectorIT FMCG Automobile Total

Lack of information and guidance on the correct procedures of implementing CSR practices

2.750 3.090 2.588 2.766

Lack of support from the staff of the organisation

3.218 3.366 2.823 3.133

Unreasonable delay, even for small services

3.031 3.272 3.176 3.116

Limited budget allocation 3.343 4.181 3.000 3.400Need to visit many staff members for work

2.250 2.727 2.352 2.366

Non-responsive nature of top-management people

3.343 3.363 3.470 3.383

Non-cooperative behaviour and negative/ rough attitude of higher authorities

3.312 3.181 2.941 3.183

Philanthropic attitude towards CSR services

3.437 3.000 3.411 3.350

No department deals with CSR practices

3.062 2.909 2.294 2.816

Lot of unwanted holidays 2.937 2.727 1.941 2.616Myth regarding business, it works only for profit earning

2.281 2.363 2.117 2.250

Difficult access to senior government functionaries

3.093 3.363 3.058 3.133

Lack of specified frame work for implementing CSR practices

2.625 3.454 3.235 2.950

The results shown in Table 4 portray that the FMCG sector is encountering more difficulties in the implementation of CSR practices. Limited budget allocation for CSR practices has been rated high. Other difficulties faced are: lack of specified framework and difficulty in access to senior officials for the implementation of CSR practices. When managers were asked to rate the difficulties faced by them for marrying business strategies with social

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responsibility strategies, least priority was given to the statement ‘business works for profit only’. Although literature supports that business works only for profit, this perception has changed in the recent years. Crowther and Davila Gomez (2011) underscore that corporate social responsibility is an essential, even an obligatory feature of business in the current environment. It is increasingly global and increasingly inseparable from the concerns of society as a whole; it permeates all aspects of business activity.

The critical difficulties in implementation of CSR practices are: limited budget allocation, lack of some specified framework and difficult access to senior government officials. These results are shown in Table 5.

TABLE 5: Drivers and Difficulties faced by the Sectors

Important drivers Sector Difficulties Sector facing major difficulties

Enhancing firm’s reputation Automobile Limited budget allocation

FMCG

Better stakeholder relationships Automobile Lack of some specified framework

FMCG

Increase in no. of investors IT Difficult access to senior officials

FMCG

From the above table, it can be concluded that the IT and Automobile industries are more active in implementation of CSR practices as compared to the FMCG sector.

CONCLUsIONUnderstanding the inter-relationship between business organisations and societal problems is important for the development of new solutions. The present study contributes to this debate. The results of the present study indicate a significant relationship between drivers and CSR practices followed by companies. The study provides insights into an area of growing concern regarding CSR practices employed by corporate firms. The automobile sector is more active in the implementation of CSR practices as compared to the other sectors undertaken in the study. Limited budget allocation is impeding implementation of CSR in the FMCG sector.

The study also found that that there is a broad consensus across all sectors on the following three drivers that have been rated high: i) firm’s reputation, ii) stakeholder relationship and iii) increase in number of investors. Similarly, all sectors have given the least priority to cost saving.

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The factor analysis helped in classifying the eight CSR drivers into two categories: i) enhanced benefits, and ii) improved image. Limited budget allocation, lack of specified framework and difficult access to senior government functionaries were the main difficulties in the implementation of CSR.

Limitations of the studyOne of the primary limitations of the study is that the majority of factors identified were either from literature developed in the West or from the limited experience of implementation of CSR practices in India. Furthermore, limitations in terms of the time period for data collection limited the validity and reliability of the data. This study is limited to three sectors, namely, IT, FMCG and Automobile. The findings are limited to corporate organisations operating in north-west India and cannot be generalised.

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