Corporate social responsibility is an emerging concept, which is now adopted by most of the enterprises throughout the world. It refers to the obligation of an enterprise towards the society.

Nowadays, customers are demanding that an enterprise should understand its responsibility towards the society and people. CSR is also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business, or corporate social performance.

CSR is defined in a publication, Making Good Business Sense by Lord Holme and Richard Watts, as “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.”

Learn about:-

ADVERTISEMENTS:

1. Introduction to Corporate Social Responsibility 2. Meaning of Corporate Social Responsibility 3. Concept 4. Importance 5. Scope 6. Models 7. Drivers 8. Environmental Aspects 9. CSR In Small and Medium Enterprises

10. Forms 11. Promotion of CSR Practices 12. Problems Faced by Enterprises in Implementing CSR 13. Corporate Social Responsibility towards Stakeholders 14. Arguments for CSR 15. Arguments against Corporate Social Responsibility 16. Benefits 17. Challenges Faced by an Enterprise in CSR Implementation.

Corporate Social Responsibility: Meaning, Importance, Forms, Problems, Benefits, Challenges, Models, Scope and Promotion


Contents:

  1. Introduction to Corporate Social Responsibility
  2. Meaning of Corporate Social Responsibility
  3. Concept of Corporate Social Responsibility
  4. Importance of Corporate Social Responsibility
  5. Scope of Corporate Social Responsibility
  6. Models of Corporate Social Responsibility
  7. Drivers of Corporate Social Responsibility
  8. Environmental Aspects of Corporate Social Responsibility
  9. CSR In Small and Medium Enterprises
  10. Forms of Corporate Social Responsibility
  11. Promotion of CSR Practices
  12. Problems Faced by Enterprises in Implementing CSR
  13. Corporate Social Responsibility towards Stakeholders
  14. Argument for Corporate Social Responsibility
  15. Arguments against Corporate Social Responsibility
  16. Benefits of Corporate Social Responsibility
  17. Challenges Faced by an Enterprise in CSR Implementation

Corporate Social Responsibility – Introduction

The traditional view is that business must utilise its resources efficiently so as to provide goods service of the right quality at reasonable prices to consumers. For example, Milton Friedman said, “there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is no fraud.” Thus, any business firm that produced goods and services at a profit was considered as socially responsible.

ADVERTISEMENTS:

The modern view is that a business firm has many responsibilities in addition to producing and marketing goods and services at a profit. Business corporations are more than merely economic institutions. They are responsible not only to the shareholders but also to other stakeholders like customers, employees, suppliers, Government, community, etc.

The traditional perspective stressed corporate philanthropy which means charity for social, cultural, and religious purposes. On the other hand, the modern perspective focuses on long-term interests of stakeholders and sustainable development.

The term ‘Corporate Social Responsibility (CSR)’ is based on the idea that business has social obligations beyond earning profits. A corporation is responsible not only its shareholders but to all the stakeholders — customers, employees, suppliers, competitors, government, and the social community. As a corporate citizen, it must fulfil its economic, legal ethical, and discretionary responsibilities.

“CSR is an integrated combination of policies, programmes, education, practices which extend throughout a corporation’s operations and into the communities in which they operate.”


Corporate Social Responsibility – Meaning and Definitions Provided by Eminent Thinkers Like Howard R. Bawen, Peter F. Drucker and Kenneth R. Andrews

Some popular definitions of corporate social responsibility (CSR) are given below:

ADVERTISEMENTS:

“Obligations to pursue to 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.” — Howard R. Bawen

“Social responsibility requires managers to consider whether their action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength and harmony.” — Peter F. Drucker

“By social responsibility we means the intelligent and objective concern for the welfare of society that restraints individual and corporate behaviour from ultimately destructive activities, no matter how immediately profitable, and leads in the direction of positive contributions to human betterment, variously as the latter may be defined.” — Kenneth R. Andrews

ADVERTISEMENTS:

“In the real sense, the assumption of social responsibilities implies recognition and understanding of the aspirations of the society and determination to contribute to its achievement.” — George A. Steiner

“Corporate social responsibility encompasses the economic, legal, ethical, and discretionary expectations that the society has to organisations at a given point of time.” — Carrol

Industry in the twentieth century can no longer be regarded as private investment for enriching shareholders. It has become a joint enterprise, in which workers, management, customers, the locality, Government, and trade union officials all play a part. It the systems which we know by the name private enterprise, is to continue, some way must be found to embrace many interests which go to make up industry in a common purpose.

“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.”

ADVERTISEMENTS:

On the basis of the definitions given above, the main features of CSR are as under:

(i) Corporate social responsibility is an old idea though the perspectives on it have been changing over time.

(ii) Corporate social responsibility focuses on the idea that a business has social obligations above and beyond making a profit. It is companies responsibility to produce an overall positive impact on the society.

(iii) The concept of social responsibility is based on the premise that a business firms is more than an economic instructions. It is an organ of society and its activities exercise significant influence on the public. Therefore, business should work beyond the narrow gold of profit-making.

ADVERTISEMENTS:

(iv) Social responsibility does not mean mere philanthropy where Peter (the consumer) is robbed to pay Paul (the owner). A business can be socially responsible without charity.

(v) In the long run, social responsibility is consistent with profit motive. A business cannot service and grow without survive and grow without serving the society. By fulfilling its social obligations, business creates an environment which is conductive to its success. What is good for the society is ultimately good for business.

(vi) Social responsibility is a personal obligation. A business firm can discharge its social responsibility only through the persons who manage and control it.

(vii) Social responsibility is a reciprocal relationship. Just as business owes responsibility to society, society also is responsible to business.

ADVERTISEMENTS:

(viii) Social responsibility of business is commensurate with its social power. For example, a small firm has less responsibility towards society than a multinational firm.

(ix) Social responsibility is a continuing obligation. A business firm remains responsible to the society throughout its life.

(x) The concept of CSR is based on ethical conduct as it involves the application of moral values in business.

(xi) CSR is more than legal obligations. It involves voluntary efforts for the welfare of society.

Corporate social responsibility refers to the obligation of corporations to function in a manner that will best serve the interests of the society.


Corporate Social Responsibility – Concept

CSR is an emerging concept, which is now adopted by most of the enterprises throughout the world. It refers to the obligation of an enterprise towards the society. Nowadays, customers are demanding that an enterprise should understand its responsibility towards the society and people. CSR is also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business, or corporate social performance.

ADVERTISEMENTS:

CSR is defined in a publication, Making Good Business Sense by Lord Holme and Richard Watts, as “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 concept of CSR is based on the fact that an enterprise operates in the society and uses its resources; therefore, it has some moral responsibility towards the society. When an enterprise adopts the principles of CSR, it fulfills its responsibilities towards environment, employees, communities, stakeholders, consumers, and other members of the society.

The enterprise performs its responsibility by encouraging growth and development of the community and surroundings. Moreover, the enterprise works towards the elimination of unfair trade practices and other practices that negatively affect the society and public interest, regardless of legality.

Now-a-days, CSR is based on the concept of people, planet, and profit; which means that an enterprise should be focused on improving its performance in both financial and non-financial areas. Most of the enterprises include CSR in their decision-making process to ensure that their decisions do not affect the society in a negative way.


Corporate Social Responsibility – Importance

Society influences the growth of an enterprise to a large extent by providing raw materials and human resource and buying goods and services produced by the enterprise. An enterprise should take into consideration the relationship between strategic management and CSR practices if it wishes to survive in the long run.

The strategy of the enterprise should be formulated keeping the mind the interest of the society. Therefore, it has become imperative to know the reasons behind the growing concerns of enterprises about social responsibilities.

The CSR is gaining importance because of the following reasons:

i. Public Expectations from the Enterprise – It refers to the anticipations of the people associated either directly or indirectly with an enterprise. The enterprise can exist peacefully, if it fulfills the needs, wants, and demands of the society. However, if an enterprise fails to live up to the society’s expectations, its existence would become difficult. Therefore, an enterprise should respond to the society’s needs if it wishes to remain in the business in the long run.

ii. Better Environment for Business – It refers to providing a feasible environment for business operations of an enterprise. If the society is satisfied with the business activities of the enterprise, it creates a favorable environment for the enterprise.

iii. Good Public Image – It helps an enterprise to gain more customers and better employees. Therefore, building and maintaining public image helps in improving the performance of the enterprise.

iv. Responsibility with Power – It acts as an important area that should be balanced properly. An enterprise enjoys a social power as its decisions have an impact on the environment, consumers, employees, and many other areas of the society. Therefore, any imbalance in the decisions may lead to a negative effect to the welfare of the society.

Responsibilities of an Enterprise:

The responsibilities of an enterprise are mentioned in the following points:

i. Economic Responsibility – It refers to the responsibility of the enterprise to produce goods and services for the society. The enterprise should charge a reasonable and fair price for the goods so that it can pay salaries to employees, repay the creditors and stakeholders, and make normal profits.

ii. Legal Responsibility – It refers to the responsibility of an enterprise to adhere to the law. These legal responsibilities are established by the government and automatically formed as laws that an enterprise is required to follow. For example, environmental laws are laid down by the government to minimize the air, water, and noise pollution to preserve the environment. All the factories are required to obey these laws so as to maintain a smooth functioning of the business operations and avoid legal actions.

iii. Ethical Responsibility – It refers to the obligatory responsibility of an enterprise to maintain the ethical and moral standards of the society. The members of the society expect that an enterprise should take actions against the unethical practices and follow the ethics of the society.

iv. Discretionary Responsibility – It refers to the moral responsibility of the enterprise towards the society. It includes the responsibility of the enterprise to take part in the welfare of the society, such as training the unskilled labor and providing education to the underprivileged. Discretionary responsibility is completely voluntary in nature.


Corporate Social Responsibility – Scope in Different Areas: Human Resources, Risk Management and Brand Differentiation

In an enterprise, various functions are affected by its CSR initiatives. For example, human resource department focuses on the rights of the employees; whereas, financial department focuses on transparency in the disclosure of account information of the enterprise.

Now, let us discuss the vast scope of CSR in various functions of an enterprise:

i. CSR in Human Resources – It helps in retaining employees by improving the image of the enterprise among its staff. The staff of an enterprise can participate in the CSR activities by fundraising and helping various non-profit enterprises.

ii. CSR in Risk Management – It helps in preventing the goodwill of an enterprise from depletion. Many organizational strategies focus on managing various risks. In an enterprise, the generated goodwill can be ruined by various incidents, such as scandals, corruption, and environmental accidents. Such incidents gain undesirable attention from various legal and regulatory bodies, including courts and media. The role of CSR becomes very crucial at such times.

iii. CSR in Brand Differentiation – It builds a unique image of the enterprise in the minds of stakeholders. Integrity and the implementation of best practices can help an enterprise to gain a distinct image in the market and have an edge over its competitors.


Corporate Social Responsibility – 4 Main Models: Ethical Model, Statist Model, Liberal Model and Stakeholder Model

There are four main models of CSR.

These are given below:

1. The Ethical Model:

Mahatma Gandhi developed the concept of trusteeship. According to this concept, owners of wealth should voluntarily manage their wealth on behalf of and for the public. The charisma of Gandhiji promoted big business houses in India to play an active role in socio-economic development and nation building.

Their commitment towards society’ welfare is reflected in their investment in schools, colleges, hospitals, and other public sources. Many of them have created trusts and foundations and are making donations in cash and kind to non-government organisations (NGOs) engaged in social service. Thus, the ethical model suggests mainly corporate philanthropy.

2. The Statist Model:

This model was developed in India after independence. India adopted the mixed economy and socialistic pattern of society, consisting of a large and growing public sector. State ownership of basic and heavy industries (oil exploration, power generation mining, iron and steel, petrochemicals, etc.), and the legal framework of India reflect CSR.

Several public sector enterprises that have survived the wave of privatisation even today reflect the Government sponsored corporate philosophy. Thus, the statist model suggests state control over business to ensure that it is responsible to society.

3. The Liberal Model:

According to this model, a company is mainly responsible to its shareholders. A company discharges its CSR if it obeys the law and generates wealth for its shareholders. This model is based on the view point of Milton Friedman who argues that the only social responsibility of business to maximise profits.

4. The Stakeholder Model:

This model suggests that a company is responsible to all those groups who have a direct or indirect stake in it. These groups are known as stakeholders. They include shareholders, customers, employees’ suppliers, distributors, Government, media, and the community.

The survival and success of a company depends on loyalty and support of these stakeholders. In this era of liberalisation, privatisation and globalisation (LPG), a company must pay attention to social as well as economic issues. Stakeholders are becoming increasingly aware of their rights and strength. Companies which overlook the aspirations and interests of society are going to face public campaigns and actions. No company can create value in the long run through irresponsible behaviour.


Corporate Social Responsibility – Drivers

Some of the forces that are making corporations increasingly conscious of their social responsibilities are given below:

1. Globalisation:

Firms in local and foreign markets are facing increasing competition due to globalisation. In order to succeed in the face of global competition companies want to improve their image by meeting the expectations of various stakeholders.

2. Pressure from Investors:

Institutional investors both from home and abroad want to invest in socially responsible companies. They take into account social and environmental policies and level of ethics in different companies while buying and selling their shares and debentures. Companies which create wealth for investors have an easy access to capital market.

3. Good Employees Relations:

Socially responsible companies are able to attract and retain talent. People want to work in companies which offer a healthy, safe, and comfortable working environment. Socially responsible behaviour also helps to improve employee motivation and morale and to reduce employee absenteeism and employee turnover.

4. Image Building:

A company can build a good public image through CSR activities. These activities help to strengthen the company’s relationships with its suppliers, distributors, Government, and the community.

5. Increase in Market Share:

Customers prefer buying the products of ethically and socially responsible firms, CSR activities help to improve a company’s market position, and brand loyalty.

6. Legal Requirements:

The law now requires companies to disclose all the material information in its reports, listed companies must abide by all the stipulated requirements under Clause 49 of the listing agreement. Global firms have to meet international accounting and reporting standards.

7. Cost Saving:

Companies which follow sound waste management and pollution control policies can reduce costs. Environmental friendly practices also help to protect a company from penalties and other legal actions.

8. Risk Cover:

A company can protect itself from several risks by having a genuine care for the society. CSR activities reduce the risk of sudden damage to reputation and economic performance. Now financial institutions take into account social performance and environmental impact of companies, while evaluating the risk of lending.


Corporate Social Responsibility – Environmental Aspects of CSR

CSR involves the following aspects concerning the environment:

(i) A company is duty bound to consider the impact of its operations, products and facilities on the environment.

(ii) A company must eliminate/minimise waste and emission.

(iii) A company has the obligation to maximise the efficiency and productivity of its resources.

(iv) A company must minimise the adverse impact of its practices on the world’s resources, s that future generations can enjoy these resources.

Environment Issues:

Business corporations are powerful entities. They exercise tremendous influences (both positive and negative) on the environment. Environment has become a major concern across the globe because various kinds of pollutants are causing a severe damage to environment. Industrialisation and urbanisation have created several environmental problems.

Some of these problems relating to environment are given below:

(i) Global Warming:

Rise in the average temperature of the air near the earth’s surface and an ocean is known as global warming. During the last 100 years, the average temperature has increased by about 1°C. Global warming is causing storms, flood, droughts, hurricanes, and other disasters.

Excessive emission of manmade greenhouse gases (GHGs) is the main cause of global warming. The GHGs trap heat in the earth’s atmosphere leading to warming of earth’s surface and oceans. As the earth get hotter, natural disasters increase.

(ii) Green House Effect:

The greenhouse effect is a natural process. It helps to regulate the earth’s temperature and is essential for life. Therefore, the greenhouse effect by itself is not harmful. But when certain gases trap heat and re-radiate it the planet gets surrounded by a kind of warm-air blanket. Vehicles, factories, electricity generation plants, and deforestation emit gases.

Increasing concentration of gases cause melting of the sheets such as Antarctica and Green land. There is a significant rise in sea level leading to storms, droughts, and extreme weather. Living beings are unable to adapt to fast changing climate. It is essential to understand and control the harmful consequences of greenhouse gases.

(iii) Ozone Depletion:

Global warming is destroying ozone. Greenhouse gases warm the lower atmosphere by trapping heat. But the upper atmosphere remains cool as less heat reaches it. When the upper atmosphere (stratosphere) becomes colder, ozone is depleted faster.

(iv) Deforestation:

Trees collect the carbon dioxide breathed out by human beings and released by other sources. They produce oxygen needed by people and other living creatures. Deforestation means large scale cutting and burning of trees. It leads to concentration of carbon dioxide in the atmosphere and is a major cause of global warming.

Increasing urbanisation, industrialisation and timber requirement are the main reasons behind deforestation. More than 30 million acres of forest cover is destroyed every year and such deforestation accounts for one-fourth of all carbon dioxide accumulation in the atmosphere.

(v) Pollution:

Natural environment is being increasingly polluted by human beings. Rapidly increasing population is disturbing the balance in nature. Fast depletion of natural resources poses a danger for future generations. Agriculture, mining, industrialisation, and other human activities are responsible for such depletion. Ecology, plants, and animal life are being disrupted. Pollution has become a serious problem worldwide.

Major types of environmental problems are as follows:

(а) Land Pollution:

Pollution of land refers to contamination of the land’s surface and soil. Indiscriminate dumping of urban waste and industrial waste and mining are the main cause of land pollution. Soil pollution occurs due to harmful practices of agriculture. Chemicals in pesticides and fertilisers used in agriculture lead to soil pollution. In urban areas, waste matter is littered in streets, roads, and parks.

(b) Air Pollution:

Huge amount of carbon dioxide created by human activities is the chief cause of air pollution. The combustion of fossil fuel in automobiles, factories, power plants, and aeroplanes releases harmful gases with the air. Deforestation also results in air pollution.

(c) Water Pollution:

When harmful substances contaminate water, there is water pollution. Domestic waste, industrial waste, agricultural waste, radioactive waste, and global warming are the major sources of water pollution. Industrial effluents contain toxic chemicals that spoil water. There is considerable shortage of drinking water despite the fact that water bodies cover 71 per cent of the earth’s surface.

More than one billion people do not have access to safe drinking water. There is an urgent need to prevent water pollution and to conserve water to ensure that adequate and safe water is available for the rapidly increasing population.

(c) Acid Rain:

Harmful gases in combination with moisture in the air lead to formation of acidic clouds. Automobiles, factories, power plants burn fuels and generate harmful gases such as sulphur dioxide and nitrogen oxide. These gases increase acidity of lakes, streams, and soil. Aquatic organisms in sensitive ecosystems and high elevation forest also get damaged.

Pollution and other environmental problems given above suggest there is an urgent need to take care of the environment. Industrialisation and urbanisation are necessary for economic progress. But companies must not ignore their adverse impact on the environment. They have an obligation to develop and use eco-friendly policies and practices.

Proper waste disposal methods, regular inspection, and proper maintenance of vehicles, organic products, recyclable, and bio-degradable packaging, energy efficient machinery renewable sources of energy, recycling, and conservation of water, efficient, and non-polluting waste management fuel efficient automobiles, and non-polluting production systems are examples of eco-friendly business practices.

Business firms which adopt eco-friendly practices have a competitive advantage over polluting firms due to the following reasons:

(i) Eco-friendly policies help to increase productivity and market share.

(ii) Manufacturing costs can be reduced through cleaner technology.

(iii) Environmental initiatives can lead to innovations.

(iv) Commercial incentives are given by Government agencies for eco-friendly practices.

(v) Several global corporations (like ITC, Hindustan Unilever) engaged in environmental protection and social developments have created new opportunities for cost reduction and revenue growth.

Environmental Ethics:

The ethical relationship between human beings and environment is known as environmental ethics. It recognises the truth that all living creatures on the earth have a right to live. Human race may be the primary concern of the society. But animals, birds, and plants are also an integral part of the environment. Therefore, their welfare must also be taken care of. Moral values of a society and its guiding principles must respect their existence and growth.

These living creatures are deprived of their right to live when people destroy the natural environment. Environmental ethics involves setting ethical norms and moral values that guide human behaviour towards other living being in nature.


Corporate Social Responsibility – In Small and Medium Enterprises

The general misconception about CSR practices is that they are meant only for large enterprises. No business can operate in solitude or just run for profit maximization. An enterprise affects or is affected by customers, suppliers, and the community. Therefore, like large enterprises, CSR practices are also equally important for SMEs. An SME can implement CSR practices by associating it with the values, core ideology, and goals of the business.

The benefits enjoyed by SMEs that incorporate CSR in their business operations, are as follows:

i. Makes investors interested in investing in the business

ii. Helps enterprises to survive in the long-run

iii. Ensures environmental friendly premises in the enterprise

iv. Motivates employees to perform efficiently

v. Ensures health and safety of employees in the enterprise

vi. Acquires support from local community and get value as a great neighbor

vii. Attracts customers to purchase the products of the enterprise

viii. Encourages suppliers to work with enterprise.


Corporate Social Responsibility – Popular Forms of CSR

(1) Corporate Philanthropy – Charity must Begin at Home:

Companies discharge their social responsibility by making donations to charity—offering cash, goods, services through trusts and foundations set up by them. Tata, Escorts, Reliance, Birla and Singhania group of companies have set up charitable hospitals and educational institutions to offer education and healthcare to the poor and needy. Coco Cola Company, for example, contributes millions of dollars to environmental, educational and philanthropic organizations.

(2) Commercial Volunteering—Promoting Sense of Duty among People:

Some companies offer commercial volunteering under which their employees are paid for free services rendered by them to non-profit organizations.

(3) Socially Responsible Business Practices—Strict Quality Control and Fair Pricing:

A company that places extreme emphasis on production of quality goods and services at prices afford­able by customers also serves the cause of CSR. Several large companies in India and abroad satisfy this criterion. Products manufactured by Tata, Birla, Singhania, Ambani and Adani group of compa­nies fall under this category.

(4) Social Cause Promotion—Instilling Health Awareness, Prevention of Gender Injustice:

Companies that promote social awareness about evil practices also help the cause of CSR. Witness, for example, advertisements put up by Tata for introduction of sex education among school children, or against adulteration of food and other items of daily use by Patanjali Ayurveda. CSR obligation is dis­charged also where a company lobbies for reduction in the use or waste of natural resources or proper disposal of toxic substances and effluents.

(5) Cause-Related Marketing—Promise that a Part of Price is invested in Social Welfare:

Certain companies discharge their CSR through marketing of their goods. A company entices its cus­tomers by declaring that a certain percentage of the price of its products goes to promotion of educa­tion among poor and deprived children. Another company claims a part of the price of its products goes to finance medical treatment of poor patients.

(6) Inducing Behavioural Change among People:

A company discharges its CSR when it persuades smokers to reduce or give up smoking, drinking, or chewing tobacco. There are several advertisements by companies on print and electronic media of dangers caused by consumption of alcohol and tobacco. Ironically, even manufacturers of alcohol and tobacco products display bold and colourful graphics of the harm that these products might cause to human body – it is a different matter though that this has been done in response to strict government and judicial intervention.

(7) CSR as Regards Investors/Shareholders—Pay them Fair Return on Investment:

A business owes it to its investors/shareholders to pay them fair return on the capital invested by them. Also it must give them accurate and complete information on the working of the business. If it understates profits to deny dividend or to avoid or evade tax on earnings, it will fail in discharge of its social responsibility.

(8) CSR as Regards Employees of Business—Pay them Fair Wage and keep them Contended:

A business must ensure maximum employee satisfaction—it must assign them jobs that suit their skills and aptitude, it must pay them fair wage that satisfies their basic and secondary needs and it must offer them security of service and opportunities for career growth.

These, together with ideal working condi­tions, will earn it their loyalty and commitment. It is rightly said that if employees are kept financially invested, they will expect return on investment, but if they are emotionally invested, they will contribute to growth and prosperity of business. This will greatly reduce employee unrest and turnover.

(9) CSR as Regards Consumers—They are Indispensable to Business:

A business will fulfil its responsibility to consumers if it produces quality goods and services desired or needed by them. It should charge an affordable price and make the goods and services available at the time and place convenient to consumers.

(10) C5R as Regards Suppliers of Raw Materials—They Keep Business Wheels Moving:

A business will discharge its CSR if it promotes fair and healthy business relations with its suppliers. It must pay them the price of materials on time and maintain a steady buyer-supplier relationship with them, unless causes beyond control terminate it. It must not abuse its position as bulk buyer by demanding unfair discounts or making delayed payments.

(11) CSR as Regards Creditors—Pay them on Time:

As for creditors, it must stick to the dates on which payment of interest and the principal sum has been promised to them. It would be unfair to claim special treatment just because the business of creditors depends entirely or substantially on the bulk purchases made from them by the organization.

(12) CSR as Regards Competitors—No Under-Cutting or Overbidding:

To its competitors, the business owes a special obligation. It must not resort to any unfair trade practices like price cutting, underselling or outbidding, or advertising its goods and services as better than those of competitors.

(13) CSR as Regards Distributors—Treat them as Active Partners in Business Promotion:

A business should offer its sole and retail distributors all possible incentives to push up sales of its products and services. At the same time, it should guard against the unfair practice of using its dis­tributors to push out its competitors from the market.

(14) CSR as Regards Government—Pay Taxes Honestly and Comply with Relevant Laws:

Every business owes responsibility to the government, too. It must comply with the laws passed by government, whether local, State or the Central Government. Such compliance should not be under compulsion or due to fear of punishment. Indeed, it should be voluntary, cooperative and constructive.

It must actively co-operate with legislators by suggesting enactment or improvement in laws that have a bearing on business organizations. Similarly, it must cooperate with the executive wing of the Government in proper and effective implementation of the laws and policies.

The business should meet its tax obligations honestly and on time and never indulge in tax eva­sion, or encourage public corruption in life.

(15) CSR as Regards Community—Quality Goods/Services, Fair Price, and Pollution-Free Production Processes:

The business owes it to the community to conduct itself as a good and useful citizen. It must offer quality goods and services at fair price. Its production processes must not cause ground, water or air pollution that is detrimental to public health.

It should provide safe, congestion-free housing to employees, particularly the low-paid among them. The houses should be within reasonable distance from the workplace and if not, it should pro­vide them free transport facility.

It should contribute liberally to all causes that promote social uplift of the poor and needy. It may establish hospitals, educational institutions, sports clubs, cricketing associations, etc. Indian Pre­mier League cricket tournament, for example, is financed by business houses who also buy Indian and foreign cricketers at astronomical price.


Corporate Social Responsibility – Promotion of CSR Practices

An enterprise can promote its CSR practices by communicating them to the general public and its stakeholders. The promotion of CSR activities helps an enterprise to attract investors, motivate employees, and increase goodwill.

CSR can be promoted internally and externally, which is explained as follows:

i. Internal Promotion:

Internal promotion refers to the promotion that takes place within the enterprise. Internal promotions are done by –

a. Updating employees about CSR activities as employees are the best advertisers of the enterprise

b. Displaying and promoting CSR activities with the help of intranet, websites, notice boards, newsletters, meetings, and staff award schemes

ii. External Promotion:

External promotion refers to the promotion of CSR activities outside the premises of the enterprise.

External promotions are done by:

a. Using the various modes of communication, such as print media, the Internet, television, and radio to make people aware about CSR activities

b. Sending quarterly, half-yearly, and yearly newsletters to the stakeholders either by post or e-mail to update them about CSR activities performed by an enterprise in past few months

c. Establishing benchmarks for the industry by implementing effective CSR activities

d. Attending and speaking at public events to inform other people about CSR activities.


Corporate Social Responsibility – Problems Faced by Enterprises in Implementing CSR

Some global CSR issues and measures are as follows:

i. Toyota has committed to develop environment friendly technologies to reduce the level of pollution in the society. It aims to become a socially responsible and respected business in the global business environment. Therefore, it is engaged in various social welfare activities to serve local communities of the countries in which it operate. Toyota promotes various educational and environmental programs as a part of their CSR activity.

ii. In 1998, Nike mistreated its factory workers, which led to resistance of consumers towards Nike’s products. This also led to fall in its financial performance. This period was considered the darkest chapter in Nike’s history as Nike’s identity was lost with the slogans, such as Nike – Just Don’t. The brand had become identical with the slave wages, forced overtime, and arbitrary abuse. Therefore, Nike announced a CSR plan and formed a CSR department, under which it raises minimum working age requirements and set formal targets to improve the conditions of factory workers overseas.

iii. In Thailand, Bangkok-based hotels Grand Hyatt Erawan and Pan Pacific, integrated their business efforts to fight against HIV/AIDS. They provide free education and training programs for AIDS prevention. In addition, they provide treatment to their HIV positive staff members. Similarly, in Zimbabwe, David Whitehead Textiles discovered that its 21% of employees are tested HIV positive. This led to the development of an extensive HIV/AIDS program that involved various plays on AIDS prevention.

iv. Interface, one of the world’s largest commercial interior furnishing enterprise, has achieved a goal, of producing a zero-waste product by introducing commercially viable, biodegradable carpets. The carpets are manufactured from a renewable natural resource, known as polylactic acid, which is derived from corn. This acid does not have any adverse effect on the environment. It .has committed itself to use of efficient energy resources by reducing the usage of fossil fuels. It also plants one tree for every 4000 miles in an effort to preserve and protect environment.


Corporate Social Responsibility towards Stakeholders 

Stakeholders refer to individuals, who hold some interest, investment, and share in an enterprise. The stakeholders of an enterprise include shareholders, customers, employees, community, society, government, and others. These stakeholders directly affect or are affected by the business activities of an enterprise.

Today’s dynamic competitive, economic, and political environments require a continuous modification of facilities for stakeholders. An enterprise can be successful, if it strives to understand and fulfill the needs of its customers and value employees, community, and shareholders.

In other words, an enterprise needs to have a deep understanding of the interests, concerns, and priorities of its stakeholders. Therefore, it should engage in a dialog and proper communication with its stakeholders. An enterprise should address the issues and grievances of its stakeholders, which, in turn, increases the productivity and effectiveness of the enterprise.

The responsibilities of an enterprise towards its stakeholders are as follows:

i. Responsibility towards Shareholders:

It involves the concern of an enterprise towards the individuals, who invest in its business to earn profits in return.

An enterprise has various responsibilities towards its shareholders, which are as follows:

a. Providing accurate financial information of the enterprise to shareholders

b. Providing fair and adequate returns on the capital invested by them

c. Maintaining regular and effective communication with them

d. Preparing audited financial reports of the business

e. Informing shareholders about annual, general, and emergency meetings.

ii. Responsibility towards Customers:

It involves the accountability of an enterprise towards the individuals, who buy the products or services of the enterprise.

The responsibilities of an enterprise towards its customers are as follows:

a. Providing high quality products and services at reasonable prices to customers

b. Ensuring maximum satisfaction to customers by giving value for money

c. Restraining the selling of adulterated and low-quality products and services

d. Advertising products and services to make customers aware about them

e. Introducing customer care centers and consumer advisory councils to listen and solve customer’s grievances

f. Abiding by the rules and regulations under the Consumer Protection Act, 1986.

iii. Responsibility towards Employees:

It involves the responsibility of an enterprise towards the individuals, who are appointed to render services to the enterprise in exchange of a fixed amount of wages and salaries.

Some of the responsibilities of an enterprise towards its employees are as follows:

a. Providing fair and timely wages and bonus to employees

b. Appreciating and recognizing employees according to their performance

c. Motivating and encouraging employees to perform efficiently

d. Ensuring healthy, harmonious, and productive working conditions in the enterprise

e. Providing growth opportunities to employees

f. Facilitating effective communication with employees

g. Providing necessary training to employees, whenever required.

iv. Responsibility towards Community and Society:

Involves the responsibility of an enterprise toward the society in which the enterprise operates.

An enterprise has some responsibilities towards community and society, which are as follows:

a. Generating employment opportunities for people in the society

b. Avoiding the manufacturing processes that create environmental pollution

c. Providing education, health, and other basic amenities to the people

d. Working for the growth and development of the society

v. Responsibility towards Government:

It refers to a responsibility of an enterprise to adhere the industrial rules and regulations set by the government.

The responsibilities of an enterprise towards the government are as follows:

a. Abiding by the rules and regulations prepared by the government

b. Paying taxes on a regular basis

c. Abstaining from submitting misleading and false information or documents

vi. Responsibility towards other Stakeholders:

It includes suppliers, distributors, banks, and financial institutions.

The responsibilities of an enterprise towards these stakeholders are as follows:

a. Providing accurate and clear information, such as balance sheets, profits and loss statements, and ratio analysis, to banks and financial institutions

b. Providing fair margins to distributors

c. Providing correct and clear specifications to suppliers regarding raw materials

d. Ensuring timely payment to suppliers

e. Working in association with different Non-Governmental Organizations (NGOs) to develop the weaker section of the society.


Corporate Social Responsibility – Argument for CSR

The case for CSR is based on the following arguments:

1. The Iron Law of Responsibility:

Society gives business the charter to exist and the charter can be amended or revoked as and when business fails to live up to the expectations of society. In order to retain its social power, business must respond constructively to the needs of society. In the long run, those who do not use power in a socially responsible manner will lose it. This is the Iron Law of Responsibility.

Businesses have been delegated economic power and have access to productive resources of community. They are obliged to use these resources for the common good of society so that more wealth for its betterment may be generated. Technical and creative resources are also helpful to it. A business organisation sensitive to community needs would in its own self-interest like to have a better community within which the business may be conducted.

This way, the resulting benefits would be:

(a) Decrease in crime.

(b) Easier labour recruitment.

(c) Reduced employee absenteeism.

(d) Easier access to international capital, better conditions for loans on international money markets.

(e) Dependable and preferred as supplier, exporter, importer, and retailer of responsibility manufactured components, and products.

(f) This way a better society would produce a better environment in which the business may gain long-term profit maximisation.

2. Long-Term Self Interest:

Business firms can survive and grow in the long run only healthy and peaceful social environment. Business can create such an environment by discharging its social obligations. The people who have good health, education, and employment opportunities make better employees, customers, and investors for business. Therefore, CSR is ultimately in the self-interest of business firms.

3. Moral Justification:

Big business firms enjoy considerable social power. They must discharge their obligation commensurate with their power. It is ethically essential.

4. Freedom of Enterprise:

When business fails to behave in a socially responsible manner. Government intervenes and regulates their activities. Such regulation and control is very costly to business both in terms of money and time. It also restricts flexibility of business decision-making. Socially responsible behaviour can prevent Government intervention and control.

5. Better Public Image:

Good public image is necessary for business to serve more customers, better employees, and higher profits. Business can develop favourable public image by supporting the interests and goals of society. Consumers, workers, media, and other sections of society are now well-informed and more active. In such a scenario, it will be disastrous for corporates to overlook their social responsibility.

6. Proper Use of Resources:

Business firms command considerable power over the productive resources of the society. They are under an obligation to use these resources for the benefit of society. In case these resources are wasted for selfish interest, society will retaliate powerfully.

7. Environmental Protection:

In the course of their functioning, business firms damage the surrounding environment. It is their duty to repair this damage so as to maintain the ecological balance.

8. Business Opportunities:

With their innovative skills and resources big business firms can convert social problems into opportunities. For example, through its “project Shakti” initiative, Hindustan Unilever has not only helped rural people but increased its own revenues.


Corporate Social Responsibility – Arguments against Corporate Social Responsibility

The concept of corporate social responsibility has been criticised on the following grounds:

1. Vague Concept – The idea of corporate social responsibility is vague and there are no clear guidelines as to the extent of these responsibilities.

2. Loss of Incentive – Assumption of social responsibilities causes erosion of the profit motive. There is no substitute for self-interest and profit as the drive towards efficiency. The concept of social responsibility is fatal to the efficiency of the business system.

3. Conflicting Considerations – Business managers will be guided by two conflicting considerations, namely profits and social responsibilities. Decisions-making will become very difficult.

4. Disregard of Market Mechanism – The doctrine of social responsibility is based on the implied assumption that political mechanism is better than market mechanism as the basis for allocation of scarce resources. Distortion of market mechanism is likely to result in inefficient utilisation of the country resources.

5. Arbitrary Power – Involvement of businessmen in social affairs would provide them an arbitrary power. They may dominate social institutions and perpetuate their own value system to the detriment of wider society.

6. Burden on Consumers – Assumptions of social responsibilities involved additional costs. Business firms are likely to transfer such cost to consumers by increasing prices of products and services.

7. Responsibility of Government – To run schemes and programmes for the welfare of weaker sections of the society is solely the responsibility of the government. Business should not be involved in these activities.

These arguments against corporate social responsibility are not acceptable today. Business is an organ of society and makes use of the society’s resources. It can justify its existence by fulfilling its obligations to society. Today the question is not whether business owes responsibility to society or not. The relevant question is to whom and how much responsibility business should assume.


Corporate Social Responsibility – 5 Important Benefits: Attracting the Investors, Increasing Public Credibility, Utilizing the Resources Effectively and a Few Others

Most of the enterprises are following CSR practices in the modern business environment.

These practices provide various benefits to enterprises, which are as follows:

Benefit # 1. Improving Relationship with Stakeholders:

It refers to the fact that CSR activities help an enterprise to develop the relationship with stakeholders. The enterprises engaged in CSR activities are able to build trust and loyalty among stakeholders. If the enterprises are transparent about their activities conducted for the welfare of communities, they can better understand the perception of stakeholders and issues that may affect their operations. This information helps the enterprises in defining priorities and ensuring that the business practices are aligned with the ethical standards.

Benefit # 2. Attracting the Investors:

It refers to draw the attention of investors through CSR activities. According to a study conducted by Mckinsey & Co. and World Bank, three quarters of stakeholders consider non-financial performance as important as financial performance, while evaluating the most suitable enterprise for investment.

Benefit # 3. Improving Financial Performance:

It refers to enhance the financial performance of an enterprise through CSR activities. A study by Mckinsey & Co. shows that investors are avoiding enterprises with poor CSR records and ready to pay a premium for enterprises having a good record of CSR activities.

Benefit # 4. Increasing Public Credibility:

It refers to improving the credibility of an enterprise through CSR activities. Accountability and transparency of CSR activities help enterprises to build trust and credibility with public. In addition, enterprises should ensure that they have a strong dedication to implement the CSR plans as failure to meet commitments may lead to a negative public response.

Benefit # 5. Utilizing the Resources Effectively:

It refers to the optimum usage of scarce resources. CSR practices may help in using the resources of the society in an effective manner to minimize cost and wastage. For example, Unilever in Bangladesh has started a tree plantation program to raise environmental awareness about using the resources efficiently.


Corporate Social Responsibility – Challenges Faced by an Enterprise in CSR Implementation: Lack of Transparency, Lack of CSR Guidelines, Lack of Budget and a Few Others

An enterprise faces numerous challenges while practicing GSR activities. These challenges may pose a hindrance in the process of strategic management in an enterprise.

Some of these challenges are explained as follows:

i. Lack of Transparency:

Lack of transparency imposes a major hindrance in the authentic implementation of CSR programs when enterprises do not disclose the information regarding the GSR programs and funds allocated to implement these programs. The lack of transparency may negatively affect the trust between enterprises and communities.

Transparency is required in the following areas:

a. Codes of conduct – Include worker’s right and environment protection

b. Management standards – Include integrating social and environmental aspects of an enterprise

c. Evaluation – Involves internal reporting of CSR activities by an enterprise

ii. Lack of Community Participation:

It hinders the prospect of CSR activities. Many countries have less knowledge about CSR; thus, it leads to lack of interest by communities to participate with enterprises in the CSR activities. For example, in case of India, enterprises do not have adequate understanding of the CSR activities because they lack tools, resources, and commitment to carry these activities. This in turn results in lack of initiatives by Indian enterprises to undertake the CSR activities at an extensive level.

iii. Lack of Non-Governmental Organizations (NGOs):

Leads to a lack of CSR activities as these activities are largely implemented through NGOs. In other words, the presence of NGOs is important to accelerate the pace of implementing the CSR activities in a country because NGOs guide and work with the enterprises to attain the objectives of CSR activities. Therefore, the non-availability of NGOs slows down the spread of CSR practices in remote areas in various countries.

iv. Lack of CSR Guidelines:

It implies that many countries do not have clear guidelines related to CSR activities. As a result of this, the enterprises lack the proper direction to follow CSR practices. Enterprises do not measure and evaluate the CSR activities if no proper guidelines are defined.

v. Narrow View towards CSR Initiatives:

It refers to the limited perception of an enterprise towards CSR activities. However, what is required is the wider view or perception of CSR, which includes the willingness of the enterprises to take responsibility and being accountable for impacts created by their activities.

vi. Importance to Visibility Factor:

It implies that sometimes NGOs involve themselves in the CSR programs to gain the media attention but fail to achieve the goals at the grassroot levels.

vii. Lack of Budget:

It poses a major constraint for enterprises that wish to practice CSR activities. Sometimes, Small and Medium Enterprises (SMEs) do not have enough financial support to carry out CSR activities.