corporate social responsibility in purview of general management (1)

7/29/2019 Corporate Social Responsibility in Purview of General Management (1)

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Corporate Social Responsibility: In Purview of General Management

Author 01

Diwakar Chakravorty

[email protected]

8750369661

Symbiosis Law School, NOIDA

Author 02

Shashank Dixit

[email protected]

8285530205

Symbiosis Law School, NOIDA


2/13

Abstract

Ther e a r e no un i ve r s a l l y accep t ed de f i n i t i ons o f Cor por a t e Soc i a l Res pons i b i l i t y . O

ex t r eme v i ew i s t ha t a company t ha t compl i e s w i t h t he l aws o f t he l and i n wh i ch

ope r a t e s i s be i ng s oc i a l l y r e s pons i b l e . The o t he r ex t r eme v i ew i s t ha t a s oc i a

r es pons i b l e company i s one t ha t i s pu r e l y ph i l an t h r op i c i n t ha t i t g i ves w i t hou t expec t i

a r e t u r n o r a bene f i t .

I nd i a ' s i ndus t r i a l economy, wh i ch has i nves t ed much i n advanced t echno l ogy i n i t i a t i v

s uch as d i g i t a l communi ca t i ons and s pace r e s ea r ch , con t r a s t s w i t h t he pover t y t h

pe r s i s t s , p a r t i c u l a r l y i n ru ra l a rea s . The coun t r y r ank s am ong t he t op d oz en in th e wo r

b y gr o s s n a t i on al p ro duc t .

I t i s a r e s pons i b i l i t y o f a co r por a t e t o come up i n f r on t and cover i t s r e s pons i b i l i t i

wh i ch i t owes t o t he s oc i e t y .

Now i f t h e Comp an y b i l l 20 11 i s p ass ed b y t h e p ar l i ame n t th en ac co rd i n g t o i t s c l au

135 . eve r y company wi t h a ne t wor t h o f Rs 500 c r o r e o r mor e , o r t u r nover o f Rs 1 ,0

c r o r e o r mor e , o r ne t p r o f i t o f Rs 5 c r o r e and above i n a f i s ca l w i l l have t o s pend 2%

t h r ee yea r s ave r age p r o f i t t owar ds CSR ac t i v i t i e s . I n cas e , a company f a i l s t o s pend t

2% pr es c r i bed , i t wou l d have t o ex p l a i n t o t he s ha r eho l de r s t he r eas on f o r s uch a f a i l u r


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INTRODUCTION

We need to think of CSR simply as ensuring that our business is aware of its impacts, is accountable for its actio

and that it undertakes these actions in a responsible manner. Furthermore, a well-run business is transparent in

decision-making and processes and this makes for good governance.

CSR can be described as an approach by which a company does the following:

Recognizes that its activities have a wider impact on the society in which it operates, and that developments

society in turn impact on its ability to pursue its business sustainably.

Actively manages the economic, social, environmental and human rights impact of its activities both locally a

across the world, basing these on principles which reflect both international values and the organizations own valu

(ethics), reaping benefits for both its own operations and reputation as well as the communities in which it operate

Seeks to achieve these benefits by working closely with other groups and organizations local communities, csociety groups, other businesses and home and host governments.

Review of Literature

Geoffrey Reel (2004) observed an economically coherent analysis of corporate social responsibility (CSR), a

suggested how it is reflected in financial markets. CSR is defined as a program of actions taken to red

externalized costs or to avoid distributional conflicts. It is an institution that has evolved in response to mar

failures, a Coasian solution to some problems associated with social costs. In some sectors of the economy priv

and social costs are roughly in line and distributional debates are unusual: here corporate social responsibility

little role to play. Such sectors are outnumbered by those where CSR can play a valuable role in ensuring that

invisible hand acts, as intended, to produce the social good. In addition, it seems clear that a CSR program can b

profitable element of corporate strategy, contributing to risk management and to the maintenance of relationsh

that are important to long-term profitability.

Catherine J Morrison, Donald Siegal (2006) presented that CSR activities may affect the productive impacts

efficiency, technical change and scale economies, as well as increase input costs and composition (potentia

increasing outsourcing and reducing investment and employment). The findings also indicated that these impa

were dependent on firm characteristics such as the motivations for socially responsible actions, tax laws, locati

and plant age and innovation activities. These results provided provocative insights, therefore, regarding how C

must be balanced by benefits or regulations (implied social benefits) to motivate firms to carry out such activities


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Michael Hopkins (2004) observed that Corporate Social Responsibility (CSR) has been an increasingly import

issue for private and non-government businesses to consider when investing in countries. Observations specifica

address about transnational corporations and how they can negatively affect the development of countries wh

socially irresponsible and notes the increasing consumer awareness of corporate irresponsibility. It argued that be

relationships between governments and corporations need to be established to reduce low living standar

exploitation, poverty, and unemployment, which would contribute to overall sustainable development.

Objectives of the study

To develop an understanding about Corporate Social Responsibility and linking with general managementOrigin of Corporate Social Responsibility

In the 1970s and 80s environmental concerns such as loss of the rainforest and the effects of pollution led t

recognition that something had to be done to change the way we were using the planet resources. As a result, he

of state came together at Rio, Brazil in 1992 for what was called the Earth Summit.

At Rio, governments pledged action to stop the unsustainable use of resources and to promote sustaina

development. Put simply, sustainable development is about society growing in such a way that future generati

are not compromised and have access to the same resources that we have.

For this to happen social, environmental and economic considerations should be assessed together and not

isolation. The Earth Summit produced various United Nation conventions including conventions on biologi

diversity and climate change. CSR is now sometimes considered as the business response to the challenge

sustainable development.

The 1990s saw social concerns come to the fore. Poverty and disease became global concerns, as did examples

poor business practice in dealing with social issues such as child labour, bribery and corruption that were exposed

the media. Society began to recognize that governments alone could not solve these problems.

Indeed the outcomes from the Earth Summit's successorthe World Summit for Sustainable Development in 20

focused on partnerships. There appeared to be a role for everyone governments to provide fair and socially j

laws, business to behave responsibly and consumers to think about their actions by reducing waste or ask

questions about how and where their goods came from.


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How corporate social responsibility is relevant and when it is so?

As CSR is all about values and accountability then it is also about the behavior of people and the behavior o

suppliers. In this sense virtually everything that is found within the HR remit - from training, recruitment, sta

retention, policies, procedures and strategy - involves CSR.

Traditionally HR and CSR have been led by the need for compliance and keeping up with new laws o

employment as well as environmental, ethical and social issues. Increasingly HR managers are crucial to th

delivery of training to deal with these issues in terms of organizational objectives and strategy.

Equally important is the importance CSR has to recruitment: 75% of UK professionals take social or ethic

considerations into account when changing employment. Whilst over half of graduates will not work fo

companies they believe to be unethical.

Corporate governance is a board level hot topic - you only have to look at how much publicity the Higgs report o

the role of non-executive directors receivedand it will continue to develop, as there is increased recognition th

how an organization is run is the key. This can cover many areas such as financial integrity, transparency an

accountability, leadership from the board and being employer of choice.

It is central to the implementation of policies and programmers. Having good corporate governance means th

these areas are embedded in the organization and deliver to the business and to stakeholder objectives, and are no

just nice-to-have. The HR manager has become central to this role in helping deliver culturally open an

transparent organizations where dialogue is celebrated not feared.

For a business being CSR compliant is also an exercise in future-proofing its business as risks and opportunitie

are identified. Quite often changes lead to performance improvements such as increased staff retention an

customer satisfaction. Adding this value is one of the main reasons why CSR is of increasing relevance to the H

manager.

CSR is a crosscutting topic under which numerous issues can be grouped including training and educatio

capacity building, leadership, health and safety, working conditions, human rights, stakeholder engagement an

corporate governance. Large multi-national companies were the first to identify CSR as a potential tool to improv

performance and now through their supply chain they are asking suppliers to comply with their standards.


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How Corporate Social Responsibility can help to manage risk?

Positive actions that reduce the negative impact of an organization on these issues can be seen as a way o

managing risk. An example of this could be a retailer constantly monitoring its employment policies to ensure thais adhered to throughout its supply chain, so avoiding any scandals on human rights abuse or potential litigatio

over working standards.

We need to understand that what are the main areas of risk to a business? Corporate reputation, governance an

ethics are headline issues associated with corporate social responsibility that have made the news headlines in th

last few years. Examples include the ethics of arms and defence deals, fat cat director salaries and sharehold

activism, illegal workers and supply chain issues, the financial scandal of Parmalat, and the famous collapses o

Enron and WorldCom and false accounting.

These are all topical issues that have demonstrated areas of risk to companies. All are important issues in their ow

right. By answering the following questions we hope to demonstrate the important role HR has within a business

identifying and addressing risk. What is risk? What do words like governance really mean? Why are the

headlining news? And what can HR do?

Managing and controlling risk is the key to running a successful organization. Risk can be defined as th

possibility of suffering harm or loss. Within the area of CSR there are four general areas of risk.

1. Supply chaincountry specific such as human rights abuses, or company specific risks such as pollution.

2. Operational risksthis covers compliance with regulation, employee satisfaction and dangerous operations

3. Productthis covers use of hazardous raw materials (e.g. nuclear energy) waste during production, and healt

and safety issues.

4. Societal expectationsthis covers what society demands of a business in the 21st Century

Good governance will ensure both current and future risks that affect all stakeholders are identified and that

appropriate internal controls (accountability mechanisms, systems and procedures) are used to mitigate, and in so

cases, turn risk into opportunities.


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Poor governance reflects a culture where employees are not involved in the way things are done, or even wors

one where corporate governance (the way a business operates and the role of the board) procedures do not exi

and whistle blowing becomes necessary.

An organisations reputation is built on its relationship with staff, customers, suppliers, investors and th

community they operate within. These stakeholders are the very same that CSR activities seek to involve. This

why CSR can help maintain and enhance reputations.

A change in reputation can lead to a number of negative impacts such as a drop in share value of the a business,

decrease in profitability as customer and staff loyalty drops, a decrease in business opportunities (as potentia

partners question the trust and integrity), a decrease in new investment as the business is seen as a greater risk, an

even increased insurance premiums.

How to manage risk is the main issue here First the risk needs to be identified. Having an organizational culture o

accountability, transparency and staff involvement (inclusiveness) is beneficial as staff and suppliers can act as ris

detectors and feedback on early warning signs. Here Human Resourses has a role to play ensuring the culture o

the organization is one where there is a planned process that captures this feedback. The pharmaceutical industry

a highly legislated and regulated environment with numerous industry standard operating procedures (SOPs

guidelines covering all aspects of good practice in clinical trials, and review processes through external ethic

committees. Through facilitated workshops the dilemmas experienced by Roche employees in everyday work th

were not covered in SOPs or in Roches own corporate principles were identified and their impacts analyzed.

The findings revealed that the organization could be at risk if staff did not have a planned way to deal wit

dilemmas e.g. an ethical concern became a full-blown issue if left unmanaged. The need for some type of intern

support for staff on ethical decisions and responsibilities became apparent. Staff did not want another policy but

process that enabled staff to engage with the issues and resolve them.

From this debate a process that dealt with four key themes: patients, colleagues, trust and integrity was develope

The approach was trialled and human resources staff and trainers have been key to integrating the approach in

training and induction sessions.


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Through trialling, measures of success have been developed so that its implementation can be monitored and th

approach improved. The strength of this work was the governance and buy-in generated by participation alongsid

the flexibility of bringing in facilitators and champions of issues in society.

This example demonstrates the emergent involve me culture reflected in the wider corporate social responsibili

agenda in which stakeholders, in this case employees, are working in partnership with their organization to deliv

an environment where risk, or indeed opportunity, is identified and managed.

Human Resourse has a crucial role in the development and implementation of Corporate Social Responsibilit

within an organization. The development and implementation of CSR policies acts as a mechanism to suppo

employees facing risks.

By first benchmarking your organizations performance on CSR activities you will identify areas of risk. Othetactics include:

Workshops to engage with staff and suppliers to explore areas of risk

Develop interactive intranet sites that show case examples of good practice, or build in opportunities for promot

of good practice at staff meetings

Review company policy and procedures to ensure values are consistent procurement, recruitment, traini

appraisals and exit interviews

Consult and involve staff more in the running of a business

Provide feedback questionnaires for employees, customers and suppliers to show the organization is living

values

Lessons from India: social profitability

There is a long time commitment from Indian businesses to serve others while also being financially profitabl

While corporate social responsibility creative capitalism and the triple bottom line are relatively new, trendy idea

in the West, many Indian businesses have long measured their success by how they care for their most importa

asset - their people.


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A recent study among the 100 leading businesses in India found that social mission trumped shareholder value fo

every executive surveyed - a result that would be unthinkable among their American counterparts. For exampl

ITC, a leading multi-business conglomerate involved in the study said, "Envisioning a larger societal purpose ha

always been a hallmark of ITC. The company sees no conflict between the twin goals of shareholder valu

enhancement and societal value creation."

Two-thirds of the profits of the mammoth Tata Group companies go back into society through charitabl

foundations. Another conglomerate, the Godrej Group, builds schools, medical clinics and housing for i

employees.

There are important debates about whether it's really the company's right to use profits this way or wheth

shareholders should simply be paid their dividends and allowed to personally decide how to use their profits t

make the world a better place (an argument largely rooted in an individualist versus a collectivist perspective). An

some argue that Bill Gates did more to help the world as profit-producing CEO of Microsoft (by giving millions o

people access to technology) than he ever will as a philanthropist.

Others are better qualified to debate these issues. I'm simply calling us to pay attention to the inspiring, exemplar

work of many Indian businesses that sheds new light on what it looks like to invest in human capital - bo

employees and society as whole. The researchers behind this recent study are careful to point out that not all India

businesses are characterized by what they found. And just as we can't simply take 10 principles of effectiv

organizations from the U.S. and transfer them elsewhere, so also we ought to beware of simply thinking we ca

replicate the Indian model in other cultural contexts. So much of their commitment to social mission flows from

the ebb and flow of Indian culture and society.

But let's not miss out on the lessons to be learned from India. It's fun to describe the way Google's wor

environment, complete with free massages and food contributes to their success. But let's also talk about ho

Indian companies have remained viable while also building complete communities for their employees an

families. We should remember that India's economy barely felt the recent "Great Recession" and Indian companie

have a track record of making the U.S. publicly-traded companies they acquire more profitable (financially an

socially).


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Corporate Social Responsibility and Business future

In a speech calling for a 21st century vision of business as both self-rewarding and socially vital, Sir John called o

companies to change their attitudes to both the community as a whole and to their own employees.

Repairing the reputation of business must become our over-riding cause, a prerequisite for achieving other goals

he said.

"Reputation matters. Reputation for reliable performance attracts investors. Reputation for fairness guarantee

good industrial relations. Reputation for quality and value for money wins customers.

"Without public trust we'll be vulnerable to even more heavy-handed regulation, to even greater politic

interference and to even higher taxation," he warned

I embrace the principles of corporate social responsibility because I've experienced their practical value. I'v

learned from experience that a stakeholder approach encourages loyalty from all the players who can influence

company's success, he said.

Without public trustwe'll find it difficult to get top quality young people - there's no point in the CB

campaigning for high quality education if the educated young turn their backs on business.

The toughest challenge the UK faced is productivity, he said. And a significant part of the answer is in busines

trusting its employees and working together: Its when we motivate our employees to contribute their ideas an

their experience as well as their energy that we perform at our best, he said.

Sir John attributed much of the blame for the lack of public trust in business to recent financial scandals in th

United States.

It may be unfair that US problems have damaged business everywhere, but they have. We cherish our relationsh

with US business but we also want to urge upon them more effective corporate governance."

He said that business should make clear that the CBI expects executives to be open and transparent, non-executiv

directors to challenge and auditors to audit in the cause of the shareholder, not the management.


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I know from practical experience that corporate social responsibility and attention to the concerns of a company

stakeholders really works for the company as well as society. That's why this cannot be seen as a passing trend.

The CSR movement is for us not a threat but an opportunity - it offers a course to follow that can help to establis

a new relationship between business and society based on trust and shared values, leading to greater freedom fo

business and a more enlightened public attitude to profit.

Bottom Line and Corporate Social Responsibility

The study, by the Kenexa High Performance Institute, surveyed some 30,000 employees in 21 countries for the

views on corporate responsibility and its impact on their organisations.

Globally, more than half of employees (56 per cent) said that their organisation contributed to the community an

displayed a genuine commitment to corporate responsibility efforts. These employees also believed the

companies properly balanced short-term business decisions with longer term investments in the community

Employees of organisations in which CSR is a cultural value and practiced with consistency also displaye

startling high levels of engagement (89 per cent) compared to just 21 per cent for employees of organisation

working in a 'low' CSR culture.

"Employees who work in organisations that have a greater sense of responsibility towards their communities an

environment, both ecological and social, have an engagement level that is four times higher than it is femployees who work in a low CSR culture. they also found that companies that prioritise CSR have

considerably higher rating for providing excellent customer service," In fact, the report found that 84 per cent o

employees working in 'high' CSR cultures rated their organisation's performance highly, and 91 per cent believe

that their customers were very satisfied.

In contrast, where corporate responsibility is not a cultural value, just 29 per cent of employees reported stron

organisational performance, and only 27 per cent believe their organisation provides better quality products tha

the competition.

An analysis of the financial metrics confirms this. The study examined the results of 175 companies and found th

those organisations that were most committed to CSR reported an average return on assets that was 19 times high

than the average of those least committed to CSR (a gain of 4.83 per cent, against a mere 0.25 per cent).


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When analysing the total shareholder returns of these companies over the three years from 2007 to 2009, th

researchers found that many of the organisations had reported a financial loss. However, low-scoring CS

organisations lost, on average, 11 percentage points more than high-scoring CSR companies.

"There is now a need to expand the body of research into CSR to further explore and understand the relationshi

between CSR and organisational success," For example, do CSR actions actually produce these tangible busine

benefits or do highly successful companies simply have more resources to devote to CSR, creating a positiv

cycle? Whether they do it to manage their public image or because it's the ethical and right thing to do, one thing

certain: organisations in every industry in all of the major economies around the world are now paying heed to th

notion of corporate responsibility."

Conclusion

Corporate social responsibility promotes a vision of business accountability to a wide range of stakeholder

besides shareholders and investors. Key areas of concern are environmental protection and the wellbeing

employees, the community and civil society in general, both now and in the future.

The concept of CSR is underpinned by the idea that corporations can no longer act as isolated economic entiti

operating in detachment from broader society. The concept of corporate social responsibility is now firmly rooteon the global business agenda. But in order to move from theory to concrete action, many obstacles need to b

overcome.

A key challenge facing business is the need for more reliable indicators of progress in the field of CSR, along wi

the dissemination of CSR strategies. Transparency and dialogue can help to make a business appear mo

trustworthy, and push up the standards of other organizations at the same time


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REFERENCES

Heal Geoffrey, Garret Paul (2004), Corporate Social Responsibility. An Economic and FinanciFramework, Columbia Business School

Morrison Catherine (2006) , Corporate Social Responsibility and Economic Performance, Department Agricultural and Resource Economics University of California

Hopkins Michael (2004), Corporate social responsibility: an issues paper,International Labour organizati P. Cappelli, H. Singh, J. Singh, & M. Useem, (2010) The India Way,Academy of Management Perspectiv Kumar P. (2003) Corporate Social Responsibility Assessment of Global and Indian Trends and Prospect

Paradigm: Journal of Institute of Management Technology.

McWilliams, A. and D. Siegel. 2001. Corporate Social Responsibility: A Theory of the Firm PerspectiAcademy of Management Review

corporate social responsibility in purview of general management (1)

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