Corporate Social Responsibility
| | |“RECENT DEVELOPMENTS IN CORPORATE SOCIAL RESPONSIBILTY” | [pic] TABLE OF CONTENTS CHAPTER NO. SUBJECT Chapter 1 Executive Summary Chapter 2 Introduction to CSR Chapter 3 Model of Social Responsibility Chapter 4 Social Responsibility and Business Ethics Chapter 5 Concept of Corporate Citizenship Chapter 6 CSR in India
Chapter 7 CSR of Idea Chapter 8 Conclusion BIBLIOGRAPHY CHAPTER: 1 EXECUTIVE SUMMARY By the entrance of MNC’s in Corporate, many a times we wonder if these companies are only here to benefit form our human and other resources, are these companies doing something for our community to prove that they are socially responsible? Do they follow ethical practices; do they indulge in any Community welfare initiatives? I was also always intrigued by these questions and then I decided let me find out for myself. Corporate social responsibility is becoming more and more popular these days among corporation. Corporate Social Responsibility means “Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business”. • Companies are being encouraged to develop socially and environmentally aware practices and policies. Companies set up social welfare foundations, charity trusts etc for (a) The satisfaction of giving back to the society (b) Increasing their visibility. The basic Aim of this study was: • To understand the essence of CSR and why its importance is increasing in today’s global business scenario.
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To study various CSR practices being followed at different companies and observes how it affects the growth of the company. After doing a thorough study my findings were that: • Every company has a social ethical and economical commitment to its host country. • Every organization has a social commitment to fulfill beyond their business. • Identification of the Degree of commitment which a company has towards the social growth can be done through the Social initiatives it takes. CHAPTER 2 : INTRODUCTION TO CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY is a concept that states that organizations, especially commercial businesses, have a duty of care to all of their stakeholders in all aspects of their operations. This duty of care is seen to go beyond their statutory obligation to comply with legislation. CSR is closely linked with the principles of Sustainable Development which argue that enterprises should be obliged to make decisions based not only on financial/economic factors (e. g. Profits, Return On Investment, dividend payments etc. ) but also on both the immediate and the long-term social, environmental and other consequences of their activities. The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organization at a given point in time”. -By Carroll (1979) “CSR is about how companies manage the business process to produce an overall positive impact on society” -By Baker (2003) 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 primary impetus for increased corporate social responsibility has come from increased consumer awareness. • Every organization has a social commitment to fulfill beyond their business. • Every company has a social ethical and economical commitment to its host country. | CSR FOCUS | | | | | |Sustainable livelihood, Education, Infrastructure Development, Social Causes. | |Employee welfare, human rights and adhering to anti-child laws | | | | | |Helping people live better lives | | |Fighting Corruption in Public Life. | | |Counter the growing threats of AIDS in India | | |Educational and charitable development projects. | |Targeting women’s empowerment and female infanticide | | |Employees donations to a social cause of their choice | | |Backward integration efforts to be self sufficient | | | | |Partnering NGOs for the upliftment of society | | | | | |Mother and childcare / HIV | | | | | |Donors to sponsor treatment for other underprivileged patients | | | | | |Building successful partnerships between NGOs and Corporate | | | | | |’Positive Action’ to generate awareness, care & support for people living with HIV/ AIDS. | | | | |International human rights and anti-child labor laws | | | | | |Senior citizens | | | | | |Specific micro-finance initiatives | | | | | |Health, Education, Social Welfare, Art and Culture, Sports | | | | | |Sponsor of children projects | | | | | |Elementary Education, Health at Birth, and Micro-Financial Services | | | | | |Children’s issues like education and health | | | | | |Improving the stand of living of the local host community near its operating units | | | | | |Protect, preserve and promote our ational heritage and culture | | | | | |Education, women’s projects, healthcare, community development, and preservation of art and culture | | | | | |Women empowerment and education | | | | | |Socially disadvantaged children | | | | | |Adoption of villages around their plants for development activities | | | | | |Hiked its budget for community development activities | | | | | |Provides services, free of cost, to the community | | | | | |Provided drinking water facilities | | | | | |HIV / AIDS | | | | | |Students; human & animal health; trees | | | | | |Invests in projects that provide quality education to underprivileged children | | | | | |Community projects in education, health and welfare and infrastructure | | | | | |International program of employee olunteering called ‘Helping Hands’ | | | | | |Free treatment to leprosy patients worldwide | | | | | |Environment Awareness with Schools and Colleges | | | | | |Providing Access to Medicines | | | | | |Rural healthcare | | | | | | | | |Areas of social responsibilities: | | | | | |Organizations that choose to exercise social responsibility have a number of areas in which to do so: | | |The Environment | | |Customers | | |Employees | | |Investors | | |General Social Welfare | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |Figure: Organizational Stakeholders | | |The Environment: One critical area of social responsibility is the natural environment.
In days gone by, many businesses indiscriminately dumped sewage, | | |waste products, and trash into streams and rivers, the air, vacant lots, and anywhere else they could think of. Now, laws regulate such activities, and | | |companies themselves, in many instances, have seen the error of their ways and have become more socially responsible. As a result, most forms of air and | | |water pollution have been reduced. Nevertheless, much remains to be done. Current concerns center on business contributions to the problems of acid rain,| | |depletion of the ozone layer, global warming, sewage disposal, ocean dumping, hazardous wastes, and the disposal of ordinary garbage. | | | | |Customers: Organizations can adopt a socially responsible stance toward their customers. The customers should have four basic consumer rights -the right | | |to safe products, the right to be informed about all relevant aspects of a product, the right to be heard in the event of a complaint, and the right of | | |consumers to choose what they buy. | | |Investors: Organizations need to take a socially responsible stance toward their investors. Managers should maintain proper accounting procedures, | | |provide appropriate information to shareholders about the current and projected financial performance of the firm, and manage the organization in such a | | |way as to protect shareholder rights and -investments.
Insider trading, illegal stock manipulation and the withholding of financial data are examples of | | |recent wrongdoings attributed to many different businesses. | | |General Social Welfare: Some people believe that organizations should be involved in promoting the general social welfare. Examples of such practices | | |include making contributions to charities, philanthropic organizations, and not-for-profit foundations and associations; supporting museums, symphonies, | | |and public radio and television; and being more involved in health and education. | | |Some people also believe that business should be taking a greater role in correcting some of the political wrongs that exist. A prominent illustration of| | |this feeling is the argument hat businesses should withdraw their operations from South Africa to protest that nation’s policies of apartheid. Kodak and| | |IBM have responded to these concerns by shutting down their operations in South Africa. | | | | | | | | WHY ARE COMPANIES ENGAGED IN CSR? Companies that are socially responsible in making profits also contribute to some, although obviously not all, aspects of social development. Every company should not be expected to Be involved in every aspect of social development. That would be ludicrous and unnecessarily restrictive.
But for a firm to be involved in some aspects, both within the firm and on the outside will make its products and services (for example financial services) more attractive to consumers as a whole, therefore making the company more profitable. There will be increased costs to implement CSR, but the benefits are likely to far outweigh the costs. Corporate social responsibility is not a new issue. The social responsibility of business was not widely considered to be a significant problem from Adam Smith’s time to the Great Depression. But since the 1930s, and increasingly since the 1960s, social responsibility has become an important issue not only for business but in the theory and practice of law, politics and economics.
Corporate Social Cost Benefit Analysis: A corporate should also keep its interest in mind while formulating a strategy for CSR. They are answerable to the stakeholders for all the actions and the consequences. Nowadays the companies are accountable on all fronts of business. These fronts may be the commercial or the social. When spending company funds to further the social cause, a company should also take into consideration as to what is this social cause cost going to give back to the business. It means what kind of a reward would these CSR schemes result into. Corporate now can work out the benefits that can be accrued from these activities. Social Cost Benefit Analysis (SCBA)
It is a framework for evaluating the social costs and benefits of any project. This involves identifying, measuring and comparing the private costs and negative externalities of a scheme with its private benefits and positive externalities, using money as a measure of value. These benefits can be arrived at by applying the following steps: Step 1: identify all costs and benefits using the principle of opportunity cost Step 2: measure the benefits and costs using money as a unit of account Step 3: consider the likelihood of the cost or benefit occurring (i. e. sensitivity analysis) Step 4: take account of the timing of the cost and benefit (i. e. discounting). A ? ,000 benefit now is worth more than ? 1,000 benefit in 10 years time a) Identify all costs and benefits A firm deciding on an investment project will only take account of its own private costs and benefits e. g. total cost and total revenue. Firms ignore externalities. CBA will take account of both private and external costs and benefits. b) Measure the benefits and costs Height can be measured using feet and inches. Benefits and costs can be valued using money. Private costs and benefits relatively easy to measure in monetary terms c) Likelihood of the cost or benefit If there is a 50% chance that a life will be saved then the benefit is ? 750,000 x 0. 5 = ? 25,000 d) The timing of the cost and benefit The major costs of the project occur straight away. The benefits occur over the life of the project. The bridge may cost ? 5m to build but consumers benefit by ? 1m a year. If the expected life of the bridge is 25 years then how do we value now ? 1m of benefit in 25 years time? Economists discount the future benefit to identify the present value. e) Is a Project worth Undertaking? Yes if discounted benefits outweigh discounted costs. If the government has to choose between competing projects then the ones with the highest positive net present value should be undertaken. Why is CSR is relevant today
CSR an an element of strategy is becoming increasingly relevant for business today because of four identifiable trends- trends that seems likely to continue and grow in importance throughout the 21st century: ? Increasing Affluence Affluent consumers can afford to choose the product they buy and are more likely to pay a premium for a brand they trust. A poorer society is a need of work and inward investment, is less likely to enforce strict regulations and penalize organizations that might otherwise take business and money elsewhere. Affluence matters. Increasing affluence on a global basis will make CSR matter more in future. ? Changing Social Expectations Consumers in developed societies expect more from the companies whose products they buy.
This sense they has increased in the wake of the corporate scandals at the turn of this century that reduced public trust in corporation and public confidence in ability of regulatory agencies to control corporate excess. ? Globalization and the free flow of information The growing influence of global media conglomerates make sure that any CSR lapses by companies are brought rapidly to the attention of the public- often instantaneously- worldwide. Scandal is news, and yesterday’s eyewitnesses are today armed with pocket-size video camera or pictures taken by mobile hones that provide all the evidence necessary to convict by TV. In addition, the internet fuels communication among activist groups and like-minded individuals, empowering them to spread their message while giving them the means to coordinate collective action. ? Ecological Sustainability
When the Alaskan pipeline was built in the 1970, crew could drive on the hardened permafrost 200 days a year. Today climate change leave the permafrost solid for only 100 days each year. Increasing raw material prices, rising mutation rates among amphibian populations, and other growing anecdotal evidence all suggest that that the earth has ecological limits. Whether these limits are fast approaching is a complicated issue on which the experts do not agree. However, the firms that are seen indifferent to their environmental responsibilities are likely to be criticized and penalized: by court imposed fines, negative publicity, or confrontation by activist groups. Some other important forms of CSR ? Cause-Related Marketing
Many firms blend corporate social responsibilities initiatives with marketing activities activities Cause Related Marketing links the firm’s contribution to a designated cause to customer’s engaging directly or indirectly in revenue-producing transaction with the firm. Cause marketing is part of Corporate Societal Marketing (CSM), which Drumwright and Murphy define as marketing efforts “that have an least one noneconomic objective related to social welfare and use the resources of the company and /or its partners”. Example: Tesco, a leading U. K. retailer, has created a “Computer for Schools” program: Customers receive voucher for every 10 pounds, which they can be donate to the school of their choice; the school exchanges the voucher for new computer equipment.
Dawn, the top dishwashing liquid in the United States, introduced a campaign highlighting the fact that the product grease-cleaning powder had an unusual side benefit- it could clean birds caught in oil spills. A website launched din 2006, www. DawnSavesWildlife. com, drews 130,000 people who formed virtual groups to encourage friend and others to stop gas and oil leaks from their cars into environment. Companies such as CRY, Hindustan Unilever Ltd and P&G have been pioneered in cause related marketing in India . ? Social Marketing Cause-related marketing supports a cause. Social marketing by nonprofit or government organizations furthers a cause, such as “say no to drug” or “exercise more and eat better”.
Social marketing is the evolved state of word-of-mouth marketing, using new, Internet-based social media. Social media includes a plethora of social site people can use to spread the word about their business or Website. Social marketing offers the advantage of being inexpensive, but at the same time, it provides a highly targeted audience. In the correct and experienced hands, social marketing can multiply the profits of any business by increasing the number of customers. Social marketing is best done through the various social media such as blogs, social networking websites, picture and video sharing sites, and targeting social bookmarking sites.
PROCESSES OF SOCIAL RESPONSIBILITY Corporate social responsiveness consists of the capacity of a business to respond to social pressures. This suggests the ability of a business organization to survive through adaptation to its business environment. To do so, it must know as much as possible about the business environment, be capable of analyzing the relevant data and must react to the results of this analysis. But the environment of a business is not static; it is a complex and ever changing set of circumstances. This environment can be unchanged for decades, if not centuries, and then it falls apart and is reformed like a kaleidoscope with increasing rapidity.
The ability to scan, interpret and react successfully to the business environment requires equally complex mechanisms. Three elements are identified as being basic to this level of the CSR model: • Business environment scanning indicates the informational gathering arm of the business and the transmission of the information gathered throughout the organization. • Stakeholder management. A stakeholder is defined as any group or individual which can affect or is affected by the achievement of the firm’s objectives, such as owners, suppliers, employees, customers, competitors, domestic and foreign governments, non-profit organizations and environmental and consumer protection groups.
Stakeholder management refers to mapping the relationships of stakeholders to the firm whilst finding, listening and meeting their expectations that legitimate concerns should be balanced and met as a prerequisite for any measurement process. • Issues management. Having identified the motivating principles of a firm and determined the identities, relationships and power of stakeholders, the researcher now turns to the main issues which concern stakeholder. New Views On Corporate Social Responsibility Two of management’s most renowned thinkers have turned their attention to corporate social responsibility, offering some unique perspectives that build on their past management research and thinking. Michael Porter
Harvard’s Michael Porter and Mark Kramer, managing director of FSG Social Impact Advisor, believe good corporate citizenship can be a source of opportunity, innovation and competitive advantage, as long as firm evaluate it using the same frameworks and concepts that guide their core business strategies. They feel corporate social responsibility results when firms (1) transform value chain activities to benefit society while reinforcing strategy and (2) engage in strategic philanthropy that leverages capabilities to improve salient areas of competitive text. Clayton Christensen Harvard’s Clayton Christensen, along with his research colleagues, advocates catalytic innovations to address social sector problems.
Like Christensen’s disruptive innovations- which challenge industry incumbents by offering simpler, good enough alternatives to an underserved group of customers- catalytic innovations good offer good enough solutions to inadequately addressed social problems. Catalytic innovations share five qualities: 1. They create systemic social change through scaling and replication. 2. They meet a need that is either over served (because the existing solution is more complex than many people require) or not served at all. 3. They offer simpler, less costly products and services that may have a lower level of performance, but that users consider to be good enough. 4. They generate resources, such as donation, grants, volunteer man power, or intellectual capital, in ways that are initially unattractive to competetors. 5.
They are often ignored, disparaged, or even encouraged by existing players foe whom the business model is unprofitable or otherwise unattractive and who therefore avoid or retreat from the market segment. The new understanding of CSR is known as the triple bottom line — Profit, People and Planet. That is that (1) business goals are always for profit, and that (2) business and corporations are supposed to take part in the efforts to fulfill people’s welfare and this (3) requires active participation in securing the planet’s sustainability. There has been much evidence to support this thought. Corporations now highlight social and environmental initiatives on their websites and annual reports.
Entire departments and executive positions are dedicated to these initiatives. The oil company Exxon Mobil, for example, is much bigger than the combined revenue of poor 180 countries. Of course, money does not automatically reflect power, but it is certainly parallel to power. About 85 percent of the world’s flour stock is controlled by only six TNCs. Five TNCs now control 90 percent of the music industry and seven companies own 95 percent of the world’s film industry, as disclosed in this year’s Global Inc. written by Gabel and Bruner. CHAPTER 3: MODEL OF SOCIAL RESPONSIBILITY [pic] Based on my understanding of the kind of Social Responsibility initiatives hich the companies take, I have developed a model which may be helpful in determining if a particular company is Socially Responsible or not. This model can be used as a standard tool to judge a company’s social responsibility. In today’s environment where every citizen is required to be socially responsible towards his/her country and to the community at large the role of Corporate cannot be ignored. Big MNC’s coming to India are not only generating loads of job opportunities for us, they also bring with them there rich work culture and awareness towards society. These MNC’s give back to our society what they are taking away from it. If a company is to be judged on Social responsibility based on the model, they can all be called Responsible. Let us see how: ) Accountability By management: This means that the companies make the shareholders aware of everything that is happening in the company. Directors and trustees are responsible for the stewardship of assets and the owners of those assets hold the board accountable. The main elements of being accountable are: • The annual general meeting • The annual report • Regular reports to funders • Other open meetings or consultations Board members must account to funders (whether they be shareholders, owners, or Government) that the money provided was used as agreed and that expenditure was appropriate and monitored. If companies are listed on the stock exchange, the rules and regulations for continuous disclosure of information must be followed very carefully.
It is a difficult balance to provide sufficient detail to keep owners/funders informed without revealing business information to competitors or giving details on projects before all options have been considered. This requires careful judgment from directors and trustees. The companies we discussed about in this report do take all these four measures and hence can safely be called socially responsible as far as management being accountable is concerned. 2) Transparency And Fair Disclosures The company must make fair, accurate and timely disclosures without advantage to any particular analyst or investor. The company should continue to provide current and potential shareholders access to key information reasonably required to make an informed decision on whether to invest in the company’s stock or not.
It is always in the company’s best interest to maintain an active and open dialogue with shareholders and potential investors regarding the company’s historical performance and future prospects. The companies which we discussed about do have journals and other information published timely to keep its shareholders and potential investors well aware of the company’s standing. 3) Business Ethics The higher you rise in the world of business, the stronger the temptation to exchange your principles for success, but the one’s who go long way are the one’s who do not take these short-cuts and run their business in an ethical manner. American Express has joined the project, and launched its new RED American Express card.
When consumers use the card to make purchases, 1% of the purchase price goes to the Global Fund to help in its fight against AIDS, TB and Malaria. GE’s commitment to perform with integrity is instilled in every employee as a non-negotiable expectation of behavior. This system is supported by a system of comprehensive processes, policies, communications and training that strives to enable transparency and provides a direction on how to make the shared commitment to integrity actionable. Fed-Ex has a full document on Code and conduct and Business ethics which every director and employee has to follow without exception. The Code of Business Conduct & Ethics sets forth policies with which every FedEx director, officer and employee is expected to comply.
FedEx contractors and Global Service Participants operating under the FedEx brand name are also expected to comply with those portions of the Code that apply to them. As a company, and as individuals, Microsoft value’s integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. They are committed to their customers and partners and have a passion for technology. They take on big challenges, and pride themselves on seeing them through. They hold themselves accountable to customers, shareholders, partners, and employees by honoring their commitments, providing results, and striving for the highest quality. 4) Social Philanthropy Mr. Gates demonstrates how much the reputation of a corporate leader can rub off on his company.
Formerly chief executive officer and now chairman of Microsoft, he contributed to a marked improvement in the company’s emotional appeal. GE as a company now realizes that in addition to making cash contributions to various projects, it can also play a central role in solving global problems through the direct use of its own capabilities. GE’s accomplishments depend in part on its willingness to engage local government and nonprofits as partners in its work. FedEx cares about the communities in which we live and work. They are dedicated to effective corporate citizenship, leading the way in charitable giving, corporate governance and a commitment to the environment. ) Communication Outside company The company should make sure that there adequate information being given to people who are interested in the company’s affaires. The parties involved in companies like Shareholders, customers, employees etc should be well-aware with all the news on the company’s front. 6) Health, safety and environment Companies must make sure that Health and safety of their employees and the public at large is not being adversely affected by its business. Safety measures should be taken when dealing with hazardous material so that accidents can be avoided. In addition to this companies must make sure that they are not doing anything bad to the environment. Creating fair value for our stakeholders in ways that are transparent and ethical while conducting our business with uncompromising integrity • Improving the economic conditions of the community in which we work through job creation, business engagement and philanthropy • Preserving and nurturing our heritage • Providing access to healthcare facilities to the under-privileged • Investing in education and e-inclusion programs enabling access to Information 7) Accountability By management: This means that the companies make the shareholders aware of everything that is happening in the company. Directors and trustees are responsible for the stewardship of assets and the owners of those assets hold the board accountable. The main elements of being accountable are: • The annual general meeting • The annual report • Regular reports to funders • Other open meetings or consultations
Board members must account to funders (whether they be shareholders, owners, or Government) that the money provided was used as agreed and that expenditure was appropriate and monitored. If companies are listed on the stock exchange, the rules and regulations for continuous disclosure of information must be followed very carefully. It is a difficult balance to provide sufficient detail to keep owners/funders informed without revealing business information to competitors or giving details on projects before all options have been considered. This requires careful judgment from directors and trustees. The companies we discussed about in this report do take all these four measures and hence can safely be called socially responsible as far as management being accountable is concerned. 8) Transparency And Fair Disclosures
The company must make fair, accurate and timely disclosures without advantage to any particular analyst or investor. The company should continue to provide current and potential shareholders access to key information reasonably required to make an informed decision on whether to invest in the company’s stock or not. It is always in the company’s best interest to maintain an active and open dialogue with shareholders and potential investors regarding the company’s historical performance and future prospects. The companies which we discussed about do have journals and other information published timely to keep its shareholders and potential investors well aware of the company’s standing. 9) Business Ethics
The higher you rise in the world of business, the stronger the temptation to exchange your principles for success, but the one’s who go long way are the one’s who do not take these short-cuts and run their business in an ethical manner. American Express has joined the project, and launched its new RED American Express card. When consumers use the card to make purchases, 1% of the purchase price goes to the Global Fund to help in its fight against AIDS, TB and Malaria. GE’s commitment to perform with integrity is instilled in every employee as a non-negotiable expectation of behavior. This system is supported by a system of comprehensive processes, policies, communications and training that strives to enable transparency and provides a direction on how to make the shared commitment to integrity actionable.
Fed-Ex has a full document on Code and conduct and Business ethics which every director and employee has to follow without exception. The Code of Business Conduct & Ethics sets forth policies with which every FedEx director, officer and employee is expected to comply. FedEx contractors and Global Service Participants operating under the FedEx brand name are also expected to comply with those portions of the Code that apply to them. As a company, and as individuals, Microsoft value’s integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. They are committed to their customers and partners and have a passion for technology. They take on big challenges, and pride themselves on seeing them through.
They hold themselves accountable to customers, shareholders, partners, and employees by honoring their commitments, providing results, and striving for the highest quality. 10) Social Philanthropy Mr. Gates demonstrates how much the reputation of a corporate leader can rub off on his company. Formerly chief executive officer and now chairman of Microsoft, he contributed to a marked improvement in the company’s emotional appeal. GE as a company now realizes that in addition to making cash contributions to various projects, it can also play a central role in solving global problems through the direct use of its own capabilities. GE’s accomplishments depend in part on its willingness to engage local government and nonprofits as partners in its work.
FedEx cares about the communities in which we live and work. They are dedicated to effective corporate citizenship, leading the way in charitable giving, corporate governance and a commitment to the environment. 11) Communication Outside company The company should make sure that there adequate information being given to people who are interested in the company’s affaires. The parties involved in companies like Shareholders, customers, employees etc should be well-aware with all the news on the company’s front. 12) Health, safety and environment Companies must make sure that Health and safety of their employees and the public at large is not being adversely affected by its business.
Safety measures should be taken when dealing with hazardous material so that accidents can be avoided. In addition to this companies must make sure that they are not doing anything bad to the environment. • Creating fair value for our stakeholders in ways that are transparent and ethical while conducting our business with uncompromising integrity • Improving the economic conditions of the community in which we work through job creation, business engagement and philanthropy • Preserving and nurturing our heritage • Providing access to healthcare facilities to the under-privileged • Investing in education and e-inclusion programs enabling access to Information
DO BUSINESSES ACTUALLY GAIN FROM TAKING CORPORATE SOCIAL RESPONSIBILITY INITIATIVES It is difficult, in either statistical or quantitative terms, to make a strong causal link Between CSR actions and such financial indicators as share prices, market value, return on assets invested and economic value added (EVA). This is because a correlation does not necessarily mean a causal link and a good correlation could simply occur by chance, although no correlation is obviously not a good sign! What most commentators have done up to now is to argue, qualitatively. There are at least six main issues: • First, equity created in a company’s reputation or brand can easily be harmed or even lost. This is particularly the case for companies whose brand equity depends on company reputation.
Reputation is built around intangibles such as trust, reliability, quality, consistency, credibility, relationships and transparency, and tangibles such as investment in people, diversity and the environment. • Second, access to financing is an issue since, as will be seen below, the market for socially responsible investment (SRI), though still relatively small, is growing. This increase is a result of the growing support for the business case for CSR, together with regulatory (for example, United Kingdom pension funds), market and societal pressure. • Third, CSR is an important factor for employee motivation and in attracting and retaining top quality employees. • Fourth, innovation, creativity, intellectual capital and learning are helped by a positive CSR strategy.
Given that 80 per cent of the value of many new economy companies is now their intellectual capital, its preservation through the positive treatment of internal stakeholders is becoming more and more necessary. • Fifth, better risk management can be achieved by in-depth analysis of relations with external stakeholders. Factors such as new technologies and changing societal, regulatory and market expectations are driving companies to adopt a broader perspective when analyzing the range of risks that they may encounter. Expensive and time-consuming lawsuits, as well as lost investments, are driving companies to take a more proactive stance to establishing the necessary guidelines and processes to minimize this kind of risk.
Given the increase in cross-border business relationships and the threat of cross-border litigation, boards have to consider the risk management standards of business partners, and even suppliers. CSR also helps in compliance with regulation and the avoidance of legal sanctions, while the building of relationships with host governments, communities and other stakeholders can enhance a company’s reputation and credibility and be of vital importance should it encounter difficulties I the future with regard to its investment decisions. • Sixth, there is a wider impact as public expectations grow of greater CSR as a result of the heightened public debate on the benefits and shortcomings of globalization and the perceived role of business in this process.
Good corporate citizenship and Corporate social Responsibility can provide business benefits in eight areas: • Reputation management; • Risk profile and risk management; • Employee recruitment, motivation and retention; • Investor relations and access to capital; • Learning and innovation; • Competitiveness and market positioning; • Operational efficiency; and • License to operate Some other Benefits Derived from Ethics and Social Responsibility • Positive impact on investment in the company • Continuing trust in the company for customers, suppliers • Avoid fines from illegal activities • Avoid negative publicity A VIRTUOUS CIRCLE
The relationship between social responsibility and profits [pic] CSR is more prevalent in advertising intensive (consumer-oriented) industries, and CSR is more positively related to profitability in these industries. Further, the effect of CSR on profits is stronger in competitive industries, especially when few other firms undertake such actions, suggesting that CSR may be used as a means of differentiation in otherwise competitive environments CHAPTER 4: SOCIAL RESPONSIBILITY AND BUSINESS ETHICS Changing Attitudes toward Social Responsibility and Business Ethics • To meet society’s expectations, managers will need to be more socially responsible. • Most of 500 largest U. S. orporations now have a code of ethics • Corporate Social responsibility is the implied, enforced, or felt obligation of managers, acting in their official capacity, to serve or protect the interests of groups other than themselves. • Organizations have obligations to society beyond their economic obligations to owners or stockholders. • Ethics: morality of an individual • Social responsibility relates to an organization’s impact on society “If there is a concept today which is embracing many of our current and future challenges – a concept we should all reflect upon – it should be the concept of social responsibility. Social and environmental responsibility is one of the key-concepts for the future of our world” – KOFI ANNAN A healthy society is based upon three interdependent sectors: the public sector of effective governance, the private sector of successful companies and economics, and the social sector of a caring community and of social organizations. All three sectors are responsible for a civil society – they have to be managed effectively, and they need to learn from each other”- PETER. F. DRUCKER THE SOCIAL CONTRACT • Social Contract Social Contract – set of written and unwritten rules and assumptions about acceptable interrelationships among various elements of society. The theory of the social contract is based on the assumption that all men live in a state of nature which is not ideal.
In order to move away from these conditions men enter into a contract with each other, allowing them to live in peace and unity. The theory of the social contract can be seen as a justification for the formation of the state. All members within a society are assumed to agree to the terms of the social contract by their choice to stay within the society without violating the contract; such a violation would signify a problematic attempt to return to the state of nature. BUSINESS ETHICS • Discipline of dealing with what is good and bad, or right and wrong, or with moral duty and obligation • Sources of Ethical Guidance – a number of sources to determine what is right or wrong, good or bad, moral or immoral
Business ethics is a form of the art of applied ethics that examines ethical rules and principles within a commercial context, the various moral or ethical problems that can arise in a business setting, and any special duties or obligations that apply to persons who are engaged in commerce. Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. WHY ARE ETHICS IMPORTANT? Customers and suppliers prefer to deal with ethical organizations • Ethical business/organizations build trust Inventory of Ethical Issues in Business • Employee-Employer Relations • Employer-Employee Relations • Company-Customer Relations • Company-Shareholder Relations • Company-Community/Public Interest Two Key Branches of Ethics • Descriptive ethics involves describing, characterizing and studying morality o “What is” • Normative ethics involves supplying and justifying moral systems o “What should be” SOURCES OF ETHICAL NORMS [pic] • Community: non-commercial activities that address social and cultural challenges from the very local to the global. Products and services: activities that address societal needs with marketplace solutions that return a profit to the company. • Operations: responsible business practices that integrate a commitment to corporate citizenship across all business units and corporate functions CHAPTER: 5 THE CONCEPT OF CORPORATE CITIZENSHIP Corporate citizenship may be a new term, but it is not a new concept. Nor is it alien to developing countries. In 1965, the then Prime Minister of India presided over a national meeting that issued the following declaration on the Social Responsibilities of Business: “Business has responsibility to itself, to its customers, workers, shareholders and the community … very enterprise, no matter how large or small, must, if it is to enjoy confidence and respect, seek actively to discharge its responsibilities in all directions … and not to one or two groups, such as shareholders or workers, at the expense of community and consumer. Business must be just and humane, as well as efficient and dynamic.. Business is facing challenging times world-wide. Increased competition and commercial pressure are combining with rising regulatory standards and consumer demand to create a whole new playing field for business. Traditional expectations of business are also changing. It is no longer enough to simply employ people, make a profit and pay taxes. Companies are now expected to act responsibly, be accountable and benefit society as a whole.
This is the new agenda of corporate social and environmental responsibility (CSER) or corporate citizenship. From a trickle, it has become a wave sweeping boardrooms across the world. Astute business leaders have been quick to embrace this new ethos spotting its potential for . triple bottom line. benefits: profit for the economic bottom line, the social bottom line and the environmental bottom. |Corporate Citizenship is recognition that a business, corporation or business-like organization, has social, cultural and environmental | |responsibilities to the community in which it seeks a license to operate, as well as economic and financial ones to its shareholders or | |immediate stakeholders.
Corporate citizenship involves an organization coming to terms with the need for, often, radical internal and | |external changes, in order to better meet its responsibilities to all of its stakeholders (direct or indirect), in order to establish, and | |maintain, sustainable success for the organization, and, as a result of that success, to achieve long term sustainable success for the | |community at large. | | | STANDARDS OF EXCELLENCE IN CORPORATE CITIZENSHIP AND COMMUNITY INVOLVEMENT [pic] Companies see themselves as, corporate citizens“- as part of a Civil Society Companies are not only responsible for economic success (shareholder value), but also for a healthy society (stakeholder value) _ Corporate Citizenship means Social responsibility together with community CSR: A BUSINESS NECESSITY In recent years, the ‘business case’ for CSR has been gaining ground, revolving around the idea that what is good for the environment, workers, and the community is also good for the financial performance of the business. A recent global survey by PricewaterhouseCoopers, in conjunction with the World Economic Forum, found that more than two-thirds of the 1100 CEOs polled believe that proper exercise of corporate social responsibility is important to profitability and can prevent the loss of customers, shareholders, and even employees.
Actively pursuing CSR strategies presents numerous opportunities for increasing competitiveness and profits. THE SUSTAINABILITY ASPECTS RELATE TO • governance and management, • stakeholder engagement, • environmental process improvement, • environmental products and services, • local economic development, • community development, and • Human resource management. THE BUSINESS SUCCESS FACTORS INCLUDE • revenue growth and market access, • cost savings and productivity, • access to capital, • risk management and license to operate, • human capital, and • Brand value and reputation Research in several developing countries indicates a strong link between many of the Sustainability and business success factors.
In particular, eight areas of opportunity are found to be most relevant to the developing countries. These relate to the following. 1) Cost savings from environmental improvements, eco-efficiency measures using less energy and materials, lower pollution costs and fines, reorganizing production processes, material Flows, and supplier relationships. 2) Cost savings from effective human resource management and increased labor Productivity. Provision of training, health, and education benefits for workers; a clean and safe working environment; and fair wages are all factors that result in an increased productivity and reduced costs. 3) Increasing revenues by innovating and developing new ‘environmental products’ and by- products from waste. ) Increasing revenue by building linkages with the local economy and employing local residents. A clear linkage exists between poverty reduction and business growth. 5) Reducing risk through engagement with stakeholders such as employees, customers, NGOs, politicians, and other business partners. Such engagement assists the company in better management of environmental and social expectations, thereby reducing the risk of civil action and improving access to financial capital. 6) Building reputation by increasing environmental efficiency and improving environmental responsibility. An enhanced reputation is often manifested in awards and recognition from governments, rating agencies, and public surveys. ) Developing human capital through better human resource management. A high quality work force is essential for competitiveness since it improves productivity, product quality, and innovation. A study in India covering 52 000 employees in 200 companies found a positive correlation between employment practices and financial returns. 8) Improving access to capital through high standards of corporate governance that reassure investors on issues relating to shareholder and stakeholder rights, transparency and disclosure, and proper governance structures. These range from reducing hiring and retention costs, improving productivity, decreasing Expenses, to increasing revenue and shareholder value.
Willard also provides a customizable spreadsheet into which company executives can insert their own data to see for themselves whether the case for sustainable initiatives will be a profitable one for their company. By integrating sustainability into their business model corporations can realize the following seven bottom line benefits. • Easier hiring of the best talent Researchers estimate that the most important corporate resource over the next 20 years will be talented employees, many of which pay attention to corporate social and environmental behavior. Willard shows how recruiting costs for SD Inc. could be reduced by 5% through a positive SD branding. Higher retention of top talent Studies show that talented employees tend to stay with a company when they have meaningful work. Willard shows how SD Inc. , in embracing a sustainable framework, could avoid 38 million dollars in costs. • Increasing employee productivity Willard discusses the connection between meaningful work and productivity, and shows that engaging the entire organization in sustainable development goals like zero emissions, self-sufficient energy production, zero waste, helping restore the planet’s health, ensures that the company gets more output from its employees. SD Inc. ’s productivity benefit translates into 756 million dollars, the equivalent of 12 600 extra employees. Reduced expenses in manufacturing Willard demonstrates savings opportunities through eliminating or recycling waste and redesigning processes to use less energy, water, and materials in manufacturing, which are the low hanging fruits of eco-efficiency. • Reduced expenses at commercial sites A lot of unnecessary waste takes place at non-manufacturing sites. Through more judicious waste handling, energy efficiency, water conservation, and naturalized landscaping, SD Inc. can add 26 million dollars of pure profit. • Increased revenue/market share By tapping into the trend of consumer preference for ‘green’ products, Willard shows how SD Inc. can increase its revenue by 5% a year (an extra 2. 2 billion dollars) and increased profits of 50 million dollars. • Reduced risk, easier financing Companies that show an environmental and social responsibility tend to be viewed as less risky and that can translate into cost avoidance, lower insurance premiums, reduced legal and regulatory costs, preferred rates on loans, greater investor appeal, and avoidance of lost revenue from consumer activist’s actions. CHAPTER 6: CORPORATE SOCIAL RESPONSIBILY IN INDIA India has one of the world’s richest traditions of CSR (corporate social responsibility). While much has been done in recent years to raise awareness on social responsibility as a business imperative, CSR in India has yet to achieve critical mass.
If this goal is to be realized then the CSR movement will have to become much more business-like—with companies starting to set clear objectives, making real investments, measuring actual returns, and reporting performance openly. To understand the current status of CSR. In India, it is important first to map out the landscape and identify the main families of corporate responsibility. For long-established industrial dynasties, such as the Birlas and the Tatas, concepts of nation-building and trusteeship have been alive in their operations decades long before CSR become a popular cause. Alongside these are the leading Indian companies with strong international shareholdings, such as Hero Honda, HLL (Hindustan Lever Ltd), ITC, and Maruti Udyog, where local dynamics fuse with the business standards of the parent or partner.
Another tradition emerges from the public sector enterprises, such as BHEL (BharatHeavy Electricals Ltd), HDFC (Housing Development Finance Corporation), NTPC (National Thermal Power Corporation), and ONGC (Oil and Natural Gas Corporation), where social obligations remain an integral part of their business despite the march of privatization. And then there is the new generation of enterprises that has surged on the back of knowledgebase globalization, such as Dr Reddy’s, Infosys, Ranbaxy, and Wipro, where less emphasis is on minimizing negative impacts and more on maximizing the positive spill-over effects of corporate development. The emerging model of CSR in India Mapping out these four families of CSR helps provide a context for understanding the emerging model of corporate responsibility in India.
Looking across the current practices of leading Indian corporations, a number of core elements emerge. Community development Most large companies either have their own foundations or contribute to other initiatives that directly support the community upliftment, notably in health, education, and agriculture. Environmental management Environmental policies and programmes are now standard, and many companies have implemented the ISO 14 001 system throughout their businesses. Workplace Growing out of long-standing commitments to training and safety is a more recent emphasis on knowledge and employee well-being. India Inc. : selected CSR innovations Issue |Company |Action | | | | | |Community development |Hindalco |Asian CSR Award for its Integrated Rural | | | |Poverty Alleviation Programme | | | | | |Corporate giving |Indian Oil Corporation |Dedicating 0. 75% of net profit to community | | | |development initiatives | | | | |Health |Larsen and Toubro |One of first corporates to launch an HIV/AIDS | | | |programme | | | | | |Gender equality |NTPC |One of the few organizations to have a policy | | | |for the grant of paternity leave | | | | | |Labour standards |ITC |First company in India to be certified to the | | | |SA8000 social | | | |accountability standard for its Chirala | | | |facility | | | | | |Human capital |Infosys |Pioneering evaluation of human capital using an| | | |education index for its employees | | | | | |Environmental management |BHEL |All BHEL units are certified to the ISO14 001 | | | |environmental | | | |management system | | | | |Energy conservation |Reliance |Energy conservation measures are saving the | | | |company 1150 million rupees per annum | | | | | |Water conservation |Hindustan Sanitary ware |Reduced flushing WCs is estimated to save 2 | |