CIS Final Draft

8/8/2019 CIS Final Draft

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Introduction


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Corporate Social Responsibility (CSR) is an elusive topic for companies to deal with. Today on

the set of globalization and increasing competition there is an increasing importance on

complying with social, economical, ethical and environmental values as a part of CSR

programme. Shift in economies and blurring differences among companies has made it critical to

examine CSR. According to many CSR experts, the fundamental principle of CSR is that a

company is responsible for providing more benefits than just profits for shareholders and

stakeholders. It has a role to play in treating its employees well, preserving the environment,

developing a sound corporate governance, supporting philanthropy, fostering human rights,

respecting cultural differences and helping to promote fair trade, among others. These activities

are meant to have a positive impact on the communities, cultures, societies and environments in

which companies operate. Thus the growing emphasis on CSR is in turn affecting the

relationship between companies and their various stakeholders such as investors, customers,

vendors, suppliers, employees, communities and government.

Objective of the Study:-

The objective of the paper is to understand what CSR is about. Study in depth the business perspective of CSR, its importance in the business

environment and examine why companies are undertaking CSR activities.

To study in detail whether in the current business environment CSR is acting as a sourceof competitive advantage to the company. If so, how is it offering the competitive

advantage and to what extent.


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Scope of the Study:-The scope of the study is limited to understanding whether CSR is a source of competitive

advantage to companies. And mainly concentrate on what do we understand by CSR, importance

of CSR in business and how is it offering competitive advantage to companies. Also the scope of

the study is limited to secondary data.

Limitations:-

Most of the data in the study is collected from the secondary sources. So the reliabilitymay be less when compared to the data collected from the primary sources.

As corporate level reach is not there, the study could not be a complete research on theCSR as a source of competitive advantage.

The subject taken for study is broad. It is not a very narrow subject concentrating aparticular aspect.

Unavailability of proper contacts to conduct a primary research is a major constrain.


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Methodology


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Methodology:-

Exploratory research is carried out for the study. Data is collected from secondary resources andis used for the purpose. Various research articles, surveys conducted and statistical data were

obtained from secondary sources and is used to carry out the study.

Sample design:-

No sample is taken as it is an exploratory and qualitative research.


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Corporate Social Responsibility(CSR):-

There is no universally accepted definition for CSR. There are varied views on what CSR is and

what it is not. Having become a buzzword in boardrooms and the media, CSR is more often

misunderstood as giving back to the society and considered to be synonymous with philanthropy.

The other school of thought is that CSR is not a philanthropic activity and a business must earn

for what it invests, therefore CSR is a long term investment with assured returns. It advocates

that CSR constitutes a series of initiatives taken by a company in its enlightened self-interest.

The definition of CSR, although varies from one organization to other but has one thing in

common that corporations seek sustainable growth of the society to which they belong. The

definition given by the World Bank, CSR is commitment a company makes to improve

relationships with stakeholders and contribute to growth of the national economy and social

groups within it, as well as of the company itself, all based on sound business ethics where as

EU defines CSR as, It is an effort to integrate social and environmental causes into corporate

management based on available resources to create a wider network of stakeholders.

The concept of corporate social responsibility means that organizations have moral, ethical, and

philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors

and comply with the law. A traditional view of the corporation suggests that its primary, if not

sole responsibility of the owners or stockholders. However, CSR requires organizations to adopta broader view of its responsibilities that includes not only stockholders, but many other

constituencies as well, including employees, suppliers, customers, the local community, local,

state, and federal governments, environmental groups, and other special interest groups. This

collective group which is affected by the act ions of an organization is called "stakeholders."

Corporate social responsibility is related to, but not identical with, business ethics. While CSR

encompasses the economic, legal, ethical, and discretionary responsibilities of organizations,

business ethics usually focuses on the moral judgments and behavior of individuals and groups

within organizations. Thus, the study of business ethics may be regarded as a component of the

larger study of corporate social responsibility. The economic responsibilities cited in the

definition refer to society's expectation that organizations will produce good and services that are

needed and desired by customers and sell those goods and services at a reasonable price.


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Organizations are expected to be efficient, profitable, and to keep shareholder interests in mind.

The legal responsibilities relate to the expectation that organizations will comply with the laws

set down by society to govern competition in the marketplace. Organizations have thousands of

legal responsibilities governing almost every aspect of their operations, including consumer and

product laws, environmental laws, and employment laws. The ethical responsibilities concern

societal expectations that go beyond the law, such as the expectation that organizations will

conduct their affairs in a fair and just way. This means that organizations are expected to do

more than just comply with the law, but also make proactive efforts to anticipate and meet the

norms of society even if those norms are not formally enacted in law. Finally, the discretionary

responsibilities of corporations refer to society's expectation that organizations be good citizens.

This may involve such things as philanthropic support of programs benefiting a community or

the nation. It may also involve donating employee expertise and time to worthy causes.

History:-

The nature and scope of corporate social responsibility has changed over time. The concept of

CSR is a relatively new onethe phrase has only been in wide use since the 1960s. But, while

the economic, legal, ethical, and discretionary expectations placed on organizations may differ, it

is probably accurate to say that all societies at all points in time have had some degree of

expectation that organizations would act responsibly, by some definition.

In the eighteenth century the great economist and philosopher Adam Smith expressed the

traditional or classical economic model of business. In essence, this model suggested that the

needs and desires of society could best be met by the unfettered interaction of individuals and

organizations in the marketplace. By acting in a self-interested manner, individuals would

produce and deliver the goods and services that would earn them a profit, but also meet the needs

of others. The viewpoint expressed by Adam Smith over 200 years ago still forms the basis for

free-market economies in the twenty-first century. However, even Smith recognized that the free

market did not always perform perfectly and he stated that marketplace participants must act

honestly and justly toward each other if the ideals of the free market are to be achieved.


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In the century after Adam Smith, the Industrial Revolution contributed to radical change,

especially in Europe and the United States. Many of the principles espoused by Smith were

borne out as the introduction of new technologies allowed for more efficient production of goods

and services. Millions of people obtained jobs that paid more than they had ever made before and

the standard of living greatly improved. Large organizations developed and acquired great

power, and their founders and owners became some of the richest and most powerful men in the

world. In the late nineteenth century many of these individuals believed in and practiced a

philosophy that came to be called "Social Darwinism," which, in simple form, is the idea that the

principles of natural selection and survival of the fittest are applicable to business and social

policy. This type of philosophy justified cutthroat, even brutal, competitive strategies and did not

allow for much concern about the impact of the successful corporation on employees, the

community, or the larger society. Thus, although many of the great tycoons of the late nineteenth

century were among the greatest philanthropists of all time, their giving was done as individuals,

not as representatives of their companies. Indeed, at the same time that many of them were

giving away millions of dollars of their own money, the companies that made them rich were

practicing business methods that, by today's standards at least, were exploitative of workers.

Around the beginning of the twentieth century a backlash against the large corporations began to

gain momentum. Big business was criticized as being too powerful and for practicing antisocial

and anticompetitive practices. Laws and regulations, such as the Sherman Antitrust Act, were

enacted to rein in the large corporations and to protect employees, consumers, and society at

large. An associated movement, sometimes called the " social gospel," advocated greater

attention to the working class and the poor. The labor movement also called for greater social

responsiveness on the part of business. Between 1900 and 1960 the business world gradually

began to accept additional responsibilities other than making a profit and obeying the law.

In the 1960s and 1970s the civil rights movement, consumerism, and environmentalism affected

society's expectations of business. Based on the general idea that those with great power have

great responsibility, many called for the business world to be more proactive in (1) ceasing to

cause societal problems and (2) starting to participate insolvingsocietal problems. Many legal

mandates were placed on business related to equal employment opportunity, product safety,

worker safety, and the environment. Furthermore, society began to expect business to voluntarily


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participate in solving societal problems whether they had caused the problems or not. This was

based on the view that corporations should go beyond their economic and legal responsibilities

and accept responsibilities related to the betterment of society. This view of corporate social

responsibility is the prevailing view in much of the world today.

CSR: THE TYPOLOGY:-

Corporate social responsibility can be broadly classified into three areas, they are

a) Traditional corporate philanthropyb) Corporate social responsibility, with a focus on sustainable development and attending to

stakeholder priorities

c) Ethical businessa) Traditional corporate philanthropy dates back to the 19th century and emerged out of a

variety of factors, such as:

Concern for the welfare of the immediate members of the corporate body: the staffand employees, and their families.

Innovative contributions by visionary business leaders in quest of personalsatisfaction, who built up philanthropic institutions out of their individual shares,

The desire to establish a strategic relationship with the State or society led somecorporate bodies to invest in the establishment of institutions that fulfil the specific

requirements of the community,

The establishment of trusts and foundations for tax benefits, which also supportsocially beneficial activities.

b) Corporate social responsibility is qualitatively different from the traditional concept ofcorporate philanthropy. It acknowledges the debt that the corporation owes to the community

within which it operates, as a stakeholder in corporate activity. It also defines the business

corporation's partnership with social action groups in providing financial and other resources

to support development plans, especially among disadvantaged communities.


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The emerging perspective on corporate social responsibility focuses on responsibility towards

stakeholders (shareholders, employees, management, consumers and community) rather than on

maximization of profit for shareholders. There is also more stress on long-term sustainability of

business and environment and the distribution of well-being.

According to the corporate social responsibility concept there is an increasing recognition of the

triple-bottom line:People, Planet and Profit. The triple-bottom line stresses the following :

The stakeholders in a business are not just the company's shareholders Sustainable development and economic sustainability Corporate profits to be analyzed in conjunction with social prosperity.

c) E

thical business is the more fundamental, emerging trend on the international scene. Itfocuses on specifics:

how a business is conceptualized, how a business is operated, the notion of fair profit.

In an ethical business the essential thrust is on social values and business is conducted in

consonance with broader social values and the stakeholders' long-term interests.

Theories ofCSR:-

Shareholder Concept:- According to Post, Lawrence, and Weber, stakeholders are individuals

and groups that are affected by an organization's policies, procedures, and actions. A "stake"

implies that one has an interest or share in the organization and its operations, per Carroll and

Buchholtz. The primary stakeholders are those whose have some direct interest or stake in theorganization like shareholder, employees, customers, business partners and community. The

secondary stakeholders are public or special interest groups that do not have a direct stake in the

organization but are still affected by its operations like government, regulatory bodies, media,

competitors and industry. Some stakeholders, such as employees and owners, may have specific

legal rights and expectations in regard to the organization's operations. Other stakeholders may


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There are two schools of thought on CSR:

a) Free market view the job of the business is to create wealth with the interest of theshareholders as the guiding principle.

b) Corporate social responsibility view the business organizations should be concernedwith social issues.

a) Free market view:- According to this school of thought, The role of business is to create wealth by providing goods and services. There is one and only one social responsibility of business- to use its resources

and engage in activities designed to increase its profit so long as it stays within

the rules of the game, which is to say, engages in open an free competition,without deception or fraud [ Milton Friedman, American economist]

Giving money away is like a self imposed tax Managers who have been put in charge of a business have no right to give away

the money of owners.

Managers are employed to generate wealth for the shareholders- not give it away. Free markets and capitalism have been at the centre of economic and social

development.

Improvement in health and longevity has been made possible by economiesdriven by the free market.

To attract quality workers it is necessary to offer better pay and conditions andleads to rise in standards of living and wealth creation.

Free markets contribute to effective management of scarce resources. It is true that at times the market fails and therefore some regulation is necessary

to redress the balance.

But the correcting of market failure is a matter for government not business. Regulation should be kept to a minimum since regulation stifles initiative and

creates barrier to market entry.


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The free market case against CSR:-

The only social responsibility of business is to create shareholder wealth. The efficient use of resources will e reduced if businesses are restricted in how

they can produce.

The pursuit of social goals dilutes businesses primary purpose. Corporate management cannot decide what is in the social interest. Cost will be passes on to consumers It reduces economic efficiency and profit Directors have a legal obligation to manage the company in the interest of the

shareholder and not for the other stakeholders.

CSR behavior imposes additional costs which reduce competitiveness

CSR places unwelcome responsibilities on businesses rather than on governmentor individuals.

b) The Corporate Responsibility View:- According to this school of thought Businesses do not have unquestioned right to operate in society Those managing business should recognize that they depend on society Business relies on inputs from society and on socially created institutions There is a social contract between business and society involving mutual

obligations that society and business recognize that they have to each other

CSR behavior can benefit the firm in several ways

It aids in attraction and retention of staff. It attracts ethically conscious customers. It attracts green and ethical investments. It can lead to a reduction in costs through recycling. It differentiates the firm form its competitors and can be a source of competitive

advantage.

It can lead to increased profitability in the long run.


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CSR Indian context:-

Perception and practices of CSR in India:-

Indian CSR has traditionally been a matter of classical paternalistic philanthropy, financiallysupporting schools, hospitals and culture institutions. However, far from being an add-on

motivated by altruism and personal glory, the philanthropic drive has been driven by business

necessity. With minimal state welfare and infrastructure provision in many areas, companies had

to ensure that their workforce had adequate housing, healthcare and education and

simultaneously the country grows at a fast pace.

The CSR should not be merely a statement of intent. It should be made compulsory for the

corporate operating in India. This will definitely help in upholding human rights. In this context,

the following measures may be made mandatory to ensure participation of the corporate in social

development: Incorporation of a section on social actions in annual reports of companies

Appointment of an independent social accounting committee to measure, monitor, evaluate and

report impact of CSR in annual reports Separate department to look after the CSR Periodic

training programmes and awareness camps to train personnel on CSR Linkage between CSR

and financial success should be established A certain percentage of profit should be earmarked

for social development that should reflect in the annual balance sheets of companies.

Top Ten Most Respected Companies in India, 2003

1. Infosys technology2. Hindustan Lever3. Reliance Industries4. Wipro5. ICICI Bank6. Gujarat Co-operativeMilkMarketing Federation7. Dr. Reddys Laboratories8. HDFC9. ITC10.Hero Honda


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Source: Businessworld, January 2003 [Indias most respected companies]

The first name that comes to any Indian on the subject of CSR is that of the Tata Group. There

has been a long history of CSR in India and the Tatas have been the role models on this path,

explains the chairman of the Tata Group, Ratan N. Tata, We do not do it for propaganda. We do

not do it for publicity. We do it for the satisfaction of having really achieved something

worthwhile. The Tata Business Excellence Model integrates social responsibility into the

framework of corporate management wherein social responsibility is encapsulated as Key

Business Process. In fact all social service departments in Tata companies have annual

programmes and budgets and all this is aligned to the MDs Balanced Score Card.

Corporate Social Responsibility programmes at the Tata group of companies extend across a

wide spectrum including rural development, community development and social welfare, family

initiatives, tribal development and water management.

About 7000 villages around Jamshedpur and Orissa benefit from development programmes run

by the Tata Steel Rural Development Society (TSRDS). programmes of TSRDS cover issues like

education, irrigation, afforestation, adult literacy, vocational training, handicrafts and

rehabilitation of the handicapped persons. The Community Development and Social Welfare

Department (CDSW) at Tata steel carries out medical and health programmes, blood donation

drives, mass screening of Tuberculosis patients immunization camps and drug de-addiction. In

1999, Tata Steel embarked on an AIDS awareness programme, which has now become an

integral part of all training programmes. Routine activities like immunization programmes,

sterilization operations and mother and child health care programmes are conducted through 9

family welfare centres, 9 child clinics and 6 community- based clinics. In fact, Tata Steels

Centre for Family Initiatives (CFI) was successful in influencing 59 per cent of Jamshedpurs

eligible couples practicing family planning, compared to the national figure of 35 per cent. A

commitment to the welfare of the community has long been central to the value system of

companies in the Tata Group. To build upon this heritage the Tata Council for Community

Initiatives (TCCI) has created the Tata Guidelines on Community Development, an effort of over

three years from the field evolved into a framework of best practices.

The Birla group of companies are also among the pioneers in the field of corporate social

responsibility in India. As part of the Aditya Vikram Birla Groups Social Reach, the Birla group


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runs as many as 15 hospitals in India; includes Adult education and schools conducting as many

as 78 schools all over India; rehabilitates Handicapped persons having touched more than 5000

physically challenged individuals. More than 1,00,000 patients have been examined under the

Groups medical programmes. Over 15,000 children along with 2000 pregnant women have been

immunized, over 500 cataract patients operated, 2000 TB patients provided medical care, 100

leprosy-afflicted attended to, free of cost.

It also provides Vocational Training, having provided training to over 3000 women and having

distributed over 1400 tool kits in a variety of areas like electrical, auto repair, electronic

equipment maintenance and repair and tailoring. It has adopted several villages under its Village

Infrastructure Development programme and has provided extensive training to over 10,000

villagers in its Carpet Weaving Center.

Among corporates who have displayed deep commitment to Corporate Social responsibility over

long years is Mahindra & Mahindra. The late Mr. K. C. Mahindra for promoting education

among Indians at all levels established the K. C. Mahindra Education Trust in 1953. Every year

the Trust offers up to 30-40 interest-free loan scholarships to post-graduate students going

abroad for higher studies. The Mahindra Search for Talent Scholarships is a scheme established

in 34 schools in India to enthuse and reward students who have achieved excellence in their

academic pursuits. The Mahindra All India Talent Scholarships are awarded every year from all

over India to over 300 students from lower income group families with good scholastic record

pursuing job-oriented diploma courses in various polytechnics.

Similar commitment to CSR has been displayed by several corporates in India. The list, which at

best can be far from complete, includes Arvind Mills, Escorts, Dabur, Bajaj, Godrej, Hero

Honda, DCM Sriram, Ashok Leyland, Ballarpur Industries, Eicher, Kinetic Group, Kirloskar,

Infosys, Reliance, Ranbaxy, Wipro, each of which has been deeply committed to their

communities engaging in programmes encompassing education, health, education, integrated

rural development.

Beyond the private sector, corporate players in Indias public sector too have been actively

involved in corporate social responsibility initiatives.


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Most public sector units in the heavy engineering industry have not only set up a township

around the plant, but also established a school, a hospital and several other civic facilities for its

employees and those that live in that area.

Private sector companies have been encouraged to undertake rural development programmes

down the years through fiscal incentives by the government. For instance, special benefits are

offered in the industrial policy to companies that set up industries in backward areas and tax

incentives are also offered to companies that set up water purification projects.

In India, it has also been noticed that when it comes to individual CSR activities, the

anonymous donor mentality prevails. That most people tend to keep a low profile was

confirmed by The Economic Times, a leading business daily in India. It conducted a straw poll

and talked to several professionals involved in the field and NGO circuit to get an idea about the

leading lights.

Of course, with the intense spotlight on the subject, the interest in corporate social responsibility

is spreading in India as well. The Corporate Social Responsibility Survey 2002India, jointly

conducted by the United Nations Development Programme, British Council, Confederation of

Indian Industry and PricewaterhouseCoopers, covering 19 industry sectors reveals that this

interest is growing as more and more companies in India are keen to project themselves as good

corporate citizens. This was the most important factor driving CSR in India, according to the

survey. Good corporate citizenship and CSR initiatives are inextricably linked with improved

brand reputation, which is one of the most important drivers of CSR identified by the respondent

companies. The other key drivers of Corporate Social Responsibility in India were diverse

ranging from stated philosophy of founding fathers to improving relationship with local

communities to enhanced shareholder value.

W

hy organizations need to go forC

SR activities?:-

The survey confirms that shareholders constitute one of the drivers behind the growing emphasis

on CSR. Executives around the world chose three main factors that are causing firms to pay

more attention to CSR: greater focus on CSR by shareholders, recent corporate scandals and

greater pressure from governments and regulators. According to the survey done by Mckinsey,


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executives said that the strongest drivers of the increase in importance of CSR were

shareholders, recent corporate scandals and greater pressure from regulators (all 29%).There are

several other motives for companies to adopt CSR measures which includes,

Erosion of trust: Public trust in corporate management has declined, following a spate of

financial scandals, such as those that enveloped Enron in the US and Parmalat in Italy.

Globalisation: The growing influence of the media sees any mistakes by companies brought

immediately to the attention of the public. In addition, the Internet fuels communication among

like-minded groups and consumersempowering them to spread their message, while giving

them the means to co-ordinate collective action (i.e. a product boycott). These three trends

combine with the growing importance of brands and brand value to corporate success

(particularly lifestyle brands) to produce a shift in the relationship between corporation and

consumer, in particular, and between corporation and all stakeholder groups, in general. The

result of this mix is that consumers today are better informed and feel more empowered to put

their beliefs into action. From the corporate point of view, the market parameters within which

companies must operate are increasingly being shaped by bottom-up, grassroots campaigns.

NGOs and consumer activists are feeding, and often driving, this changing relationship between

consumer and company. CSR is particularly important within a globalizing world because of the

way brands are builton perceptions, ideals and concepts that usually appeal to higher values.

CSR is a means of matching corporate operations with stakeholder values and demands, at a time

when these values and demands are constantly evolving. CSR can therefore best be described as

a total approach to business. CSR creeps into all aspects of operations. Like quality, it is

something that you know when you see it. It is something that businesses today should be

genuinely and wholeheartedly committed to. The dangers of ignoring CSR are too dangerous

when it is remembered how important brands are to overall company value; how difficult it is to

build brand strength; yet how easy it can be to lose brand dominance. CSR is, therefore, also

something that a company should try and get right in implementation.

Competitive pressure: As more companies in an industry adopt CSR practices, the laggards come

under increasing pressure to follow suit. A typical example is the oil industry, where almost all

companies now engage in some form of CSR programme. Competitive advantage: Many

companies regard the intangible benefits of a CSR programme, such as a better brand image, as a

way of gaining the upper hand over their rivals.


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Changing social expectations: Consumers and society in general expect more from the

companies whose products they buy. This sense has increased in the light of recent corporate

scandals, which reducedpublic trust of corporations, and reduced public confidence in the ability

of regulatorybodies and organizations to control corporate excess.

Increasing affluence: This is true within developed nations, but also in comparison to

developing nations.Affluent consumers can afford to pick and choose the products they buy. A

society in need of work and inward investment is less likely to enforce strict regulations and

penalize organizations that might take their business and money elsewhere.

Drivers for CSR:-

Greater focus by shareholders on issue of corporate responsibility. Recent Corporate scandals Greater pressure from government and regulators Greater focus by media on issues of corporate responsibility Evidence that it offers competitive advantage Globalization and offshoring Increase in customer power Increasing NGOs activism Offering sustainable growth Longterm profitability Main criteria for investment for investors Reduction in cost

"A recent study survey provides the evidence indicating when and how corporate social

responsibility created benefits for corporations. The study also mentions some examples of

benefits cited in the areas of marketing, shareholder value, human resources and innovation."

(John Weiser-S ZadekIn ,'Conversations with Disbelievers', USA)

1. London- based Diageo plc reported that between 1994 and 1998, 22 cause-relatedmarketing projects helped it raise $600,000 for causes while increasing sales of tracked

brands by 17 per cent.


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2. A recent study by Interbrand concluded that a full one-quarter of the world's totalfinancial wealth is tied up in intangible assets such as reputation, brand equity, strategic

positioning, alliances, knowledge and the like.

3. Monsanto's experience in introducing genetically modified seeds dramatically illustratesthe tremendous negative impact on stockholder value, brand equity, and reputation that

can be caused when a company is perceived to be behaving in ways that are socially

irresponsible.

4. The National Leadership Council (Washington DC) analysed company-sponsored school-to-work programmes and found a positive return on investment in most of the companies

studied. Programmes resulted in reduced recruitment costs, reduced training and

supervision costs, reduced turnover, and higher productivity and promotion rates of

school-to-work programme graduates.

Due the benefits that CSR is offering and as it offers sustainable growth, it has become essential

for companies to practice CSR activities.

CSR As a Source ofCompetitive Advantage:-

Many companies have done a lot in terms of CSR activities but are unable to be able to be

productive enough because of two reasons. First, they pit business against society when clearlythe two are interdependent. Second, they pressure companies to think of CSR in generic ways

instead of in the way most appropriate to each firms strategy. Because the current strategies are

so fragmented and disconnected from business and strategy, the companies are unable to tap the

opportunities to benefit society and thereby the company itself. Rather if companies analyze and

use their core competencies and framework i.e identify a way they could involve in CSR as a

part of the business process and strategy. They could discover that CSR can be much more than

cost, constraint or a charitable deed rather it can be source of competitive advantage.

One important aspect of CSR is to abide by environmental, social and ethical issues which are

important for developing a healthy society. A healthy society can be defined in term of proper

education, healthcare and equal opportunity which can produce a productive workforce. Safe

product and working conditions attract customers, helps in retaining and acquiring a talented

workforce and also reduce cost. Efficient utilization of land, water, energy and other natural


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resources make business more productive and reduces the fixed cost, thereby offering an

advantage over competitors. Any business that pursues its goals at the expense of the society in

which it operates will find its success to be illusory and temporary.

Competitive advantage through CSR can be achieved by integrating the social perspective into

core framework it already uses to understand competition and guides its business strategy. In

current competitive business environmentfour areas drive competitive advantage for a company,

they

i. The quantity and quality of available business inputs human resource or transportationinfrastructure.

ii. The rules and incentives that govern competition such as policies that protectintellectual property, ensure transparency, safeguard against corruption and encourage

investment.

iii. Demand influenced by the standard of product quality and safety, consumer rightsfairness in government purchasing.

iv. Availability of supporting industries such as service providers and machinery producersor suppliers. Any or all these aspects can influence and provide competitive advantage.

According to Michael Porter CSR activities can be classified into three categories based on

impact on the competitiveness of the company.

Generic social issues:- social issues that are not significantly affected by a companysoperations nor materially affect its long term competitiveness.

Value chain social impact:- social issues that are significantly affected by a companysactivities in the ordinary course of business.

Social dimensions of competitive context:- are factors in the external environment thatsignificantly affect the underlying drivers of competitiveness in those places where the

company operates


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The following are theexamples for CSR activities providing competitive advantage to the

company

Microsofts partnership with the American Association of Community Colleges (AACC) is a

good example of a sharevalue opportunity arising from investments in context. The shortage of

information technology workers is a significant constraint on Microsofts growth; currently,

there are more than 450,000 unfilled IT positions in the United States alone. Community

colleges, with an enrollment of 11.6 million students, representing 45% of all U.S.

undergraduates, could be a major solution. Microsoft recognizes, however, that community

colleges face special challenges: IT curricula are not standardized, technology used in

classrooms is often outdated, and there are no systematic professional development programs to

keep faculty up to date. Microsofts $50 million five year initiative was aimed at all three

problems. In addition to contributing money and products, Microsoft sent employee volunteers to

colleges to assess needs, contribute to curriculum development, and create faculty development

institutes. Note that in this case, volunteers and assigned staff were able to use their core

professional skills to address a social need, a far cry from typical volunteer programs. The above

initiative helped Microsoft to achieve positive results like, enhancement of workforce

productivity, change in attitude of the community as a stakeholder towards the company,

increased brand value and awareness and also increased motivation among the employees.

Nestl, for example, works directly with small farmers in developing countries to source the

basic commodities, such as milk, coffee, and cocoa, on which much of its global business

depends. The companys investment in local infrastructure and its transfer of world class

knowledge and technology over decades has produced enormous social benefits through

improved health care, better education, and economic development, while giving Nestl direct

and reliable access to the commodities it needs to maintain a profitable global business. Nestls

distinctive strategy is inseparable from its social impact

Whole Foods Market, whose value proposition is to sell organic, natural, and healthy food

products to customers who are passionate about food and the environment. Social issues are

fundamental to what makes Whole Foods unique in food retailing and to its ability to command

premium prices. The companys sourcing emphasizes purchases from local farmers through each


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stores procurement process. Buyers screen out foods containing any of nearly 100 common

ingredients that the company considers unhealthy or environmentally damaging. The same

standards apply to products made internally. Whole Foods baked goods, for example, use only

unbleached and unbromated flour. Whole Foods commitment to natural and environmentally

friendly operating practices extends well beyond sourcing. Stores are constructed using a

minimum of virgin raw materials. Recently, the company purchased renewable wind energy

credits equal to 100% of its electricity use in all of its stores and facilities, the only Fortune 500

company to offset its electricity consumption entirely. Spoiled produce and biodegradable waste

are trucked to regional centers for composting. Whole Foods vehicles are being converted to run

on biofuels. Even the cleaning products used in its stores are environmentally friendly. And

through its philanthropy, the company has created the Animal Compassion Foundation to

develop more natural and humane ways of raising farm animals. In short, nearly every aspect of

the companys value chain reinforces the social dimensions of its value proposition,

distinguishing Whole Foods from its competitors.

Toyota has built a competitive advantage from the environmental benefits of its hybrid

technology. Toyota Prius is good example. Toyota Prius are sold very well and still now. This

success is very important to think CSR activities, because this success factors are not only its

fuel-efficient engine (hybrid engine system; using electric power and gas), not also this car

stimulates the customer who has interested in environmental and/or has environmental

consciousness. It is supported by many people and is still continuing selling. We can see this

phenomenon as a proof that many people are conscious of environmental consciousness. That is,

environment is directly connected with core competence of a firm, and it is working as a success

factor of a firm. This was possible by efficient use and integrating Toyotas core competencies to

CSR practices, which had a considerable impact on the economic and environmental areas of the

triple bottom line.

Nearly every major corporation in the US practices CSR through philanthropy, some making

cash donations exceeding 2% of gross income (Target) or approaching $200 million (Wal-Mart)

while others donate products as well (Pfizer annually donates the equivalent of 21% of its annual

income to charity, or about $1.26 billion, according to Forbes).


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Regardless of the extent to which such practice may benefit society and thereby the company,

critics argue,one cannot really classify CSR as socially responsible because managers are giving

away income that belongs to shareholders. Companies some times use CSR activities in directly

promoting the firms profitability and security, whereas promoting the firms reputation indirectly.

Ford Motor Co. is a great example of a firm that uses CSR to improve its reputation. Ironically,

Ford, which is in deep financial trouble, touts its financial commitment to environmentalism and

has launched a new marketing campaign this year promoting the Escape hybrid, featuring Kermit

the frog singing its not easy being green The company, which proudly hypes itself as

Responsible. Sustained. Involved. could probably have saved many workers from the layoffs

mentioned in the above section if it focused less attention on the green and more attention on the

black. In fact, the cost of Fords donation to the construction of the environmentally-friendly

Ford Field by itself might have saved the Midwest plants that will shut down this year,

preserving the stock price for shareholders as well as the welfare of Fords families.

Based on the above qualitative data we can infer that CSR practices do provide companies a

source of competitive advantage, but can sometimes become ineffective due misuse or

mismanagement and can become pernicious to the company. CSR as a competitive advantage is

further explained using quantitative data from different surveys conducted further in the paper.


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26

Analysis and Interpretations


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27

The fundamental principle of Corporate Social Responsibility (CSR) is that a company is

responsible for providing more benefits than just profits for shareholders. It has a role to play in

treating its employees well, preserving the environment, developing a sound corporate

governance, supporting philanthropy, fostering human rights, respecting cultural differences and

helping to promote fair trade, among others. All are meant to have a positive impact on the

communities, cultures, societies and environments in which companies operate. The growing

emphasis on CSR is affecting the relationship between companies and their various stakeholders

such as investors, customers, vendors, suppliers, employees, communities and government.

Based on an online survey was conducted by Economist Intelligence Unit in corporation with

Oracle Corporation on corporate executives and institutional investors and McKinsey in

conjunction with Bostons college Centre for Corporate Responsibility, the following analysis is

done to understand how CSR adds value to the organization and whether it offers competitive

advantage to the companies following CSR activities.


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1) Does CSR add value to company? (Source:McKinsey Global Survey Results ValuingCorporate Social Responsibility)

Table 1:- Does CSR add value to company.

Variables CFOs Investment Professionals CSR Professionals

Reduce value 6 7 0

No effect 21 10 9

Dont know 22 27 53

Interpretation:-

It can be observed that two-thirds of the CFOs and three quarters of investment professionals

agree that CSR adds value to the organization. But CSR professional are not sure whether the

CSR would help in value creation.

0

10

20

30

40

50

60

CFO's Investment

professionals

CSR

professionals

Does CSR add value

Reduce value

No effect

Dont know


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2) Where does the value come from? (Source:McKinsey Global Survey Results ValuingCorporate Social Responsibility)

Table 2:- Source of value

Variables CFO's Investment

professionals

CSR

professionals

Maintaining a good corporate reputation and/or

brand equity

79 75 79

Attracting, motivating, and retaining talented

employees

52 55 61

Meeting societys expectations for good corporate

behavior

43 30 39

Improving operational efficiency and/or decreasing

costs

39 29 42

O pening new growth opportunities 35 36 24

Improving risk management 24 24 18

Strengthening competitive position 14 27 24

Improving access to capital 3 2 9

0102030405060708090

Source of value

CFO's

Investment professionals

CSR professionals


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30

Interpretations:-

CFOs, investment professionals, and corporate social responsibility professionals agree that

maintaining a good corporate reputation or brand equity is the most important way CSR

activities create value, followed by attracting and retaining talented employees.


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3) What is the impact of CSR on different stakeholders? (Source: Economist Intelligent UnitSurvey: Importance of CSR)

Table 3 :- Impact on Stakeholders

Stakeholders Impact

Customers 65

employees 61

investors and shareholders 46

Board of directors 43

institutonal investors 34

Government and regulators 19

Vendors 7

Community 5

NGO's 1

others 3

Figure 3:-Impact on stakeolders

Interpretation:-

The impact of CSR activities is more on the customers followed by employees and investors.

0

10

20

30

40

50

60

70

impact of stakeholders

impact


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32

4) Which the most preferred company for investment? (Source: Economist Intelligent UnitSurvey: Importance of CSR)

Table 4:- Type of company prefered

Interpretation:-

Most of the investors prefer a company with moderate performance and modest CSR showing

that they are more inclined towards a company which has a balance between its profits and CSR

activities.

0

10

20

30

40

50

60

70

Good performance

no CSR

Moderate

performance modest

CSR

Lower performance

good CSR

Type of companypreferred

Preferrence

Type of company Preferrence

Good performance no CSR 16

Moderate performance modest CSR 63

Lower performance good CSR 21


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5) How important is corporate responsibility to your investment decisions? (Source:Economist Intelligent Unit Survey: Importance of CSR)

Table 5:- Importance of CSR

Figure 5:- Importance of CSR

Interpretation:-

CSR is an important consideration for investment but not the only one variable for investment

decisions.

01020

3040506070

Importance of CSR

Response

Response

Central consideration 20

Important consideration 61

A consideration 14

Consideration on rare occasions 5

Not a consideration 0


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6) Does CSR help a companys bottom line? (Source: Economist Intelligent Unit Survey:Importance of CSR)

Table 6:- Effect on bottom line

Figure 6 :- Effect on bottom line

Interpretation:-

Eighty-four percent of executives and investors surveyed felt CSR practices could help a

companys bottom line

0

10

20

30

40

50

60

70

80

90

100

yes no not sure

Effect on bottom line

Response

Response

yes 87

no 10

not sure 3


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7) What are the drivers of CSR practices? (Source: Economist Intelligent Unit Survey:Importance of CSR)

Table 7:- Drivers of CSR

Drivers Response

Recent corporate scandals 49

Offers competitive advantage 34

Greater focus by media on CSR 32

Greater focus by shareholders on CSR 32

Pressure from government and regulators 22

Globalization 20

Increasing customer power 15

NGO's activities 3

Others 5

Figure 7:- Drivers of CSR

Interpretation:-

Companies are following CSR practices mainly due recent scandals and it offers competitive

advantage to them.

0

10

20

3040

50

60

Drivers of CSR

response


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36

8) What is effect of CSR on short term and long term shareholder value? (Source:McKinsey Global Survey Results Valuing Corporate Social Responsibility)

Table 8:- Effect on Shareholder value

Figure 8:- Effect on share holder value

Interpretation:-

There is no significant contribution of CSR practices on short term share holder value whereas

has a major impact on the long term shareholder value.

84%

12%4%

Long term

yes

no

not s

re

contribution to share holder

value

Short term Longterm

yes 29 84

no 49 12

not sure 22 4

29%

49%

22%

short term

yes

no

not sure


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Findings and Suggestions


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Findings:-

The three most important aspects of CSR are ethical behavior of staff, good corporategovernance and transparency of corporate dealings.

It can be observed that two-thirds of the CFOs and three quarters of investmentprofessionals agree that CSR adds value to the organization. But CSR professional are

not sure whether the CSR would help in value creation.

CFOs, investment professionals, and corporate social responsibility professionals agreethat maintaining a good corporate reputation or brand equity is the most important way

CSR activities create value, followed by attracting and retaining talented employees.

The most important stakeholder of companies is customers, employees and investors. 63% of investors prefer companies with moderate performance and modest CSR, rather

than companies with good performance and no CSR and low performance and good CSR.

For 61% of the investors CSR practices are important consideration during investmentdecision.

49% of shareholders believe that CSR does not produce any shorter shareholder value onaccount of CSR practices.

84% of the shareholders believe that CSR practices increases the shareholder value inlong term.

87% percent of executives and investors surveyed felt CSR practices could help acompanys bottom line.

Brand enhancement and better staff morale were picked by both groups as the mostimportant business benefits of CSR.

But both groups also cited cost implications and unproven benefits as the two biggestobstacles to implementing CSR programs.


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Suggestions:-

Should follow CSR activities to obtain sustainable growth and profitability. CSR programmes implemented by the company should be in accordance with companies

core competencies, vision and mission strategy.

Care should be taken that the main activities for which a business is established shouldnot be overlooked while trying to implement CSR practices.

The CSR activities implemented by a company should be such a way that it utilizes thecompetencies of the company. Otherwise if go out of the way to perform may incur huge

cost.

Also develop proper metric to measure the impact of the CSR activities on the value ofthe company.

Integrating the companies strategy with CSR is more beneficial.


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Conclusion


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CSR is a difficult and elusive topic for companies to deal with. It is often very costly and the

benefits that are obtained are hard to measure and quantify. But in the currents era of

globalization with increasing importance of corporate governance and transparency as a part of

CSR activity has become crucial. It can be concluded that in the present scenario CSR activities

do provide competitive advantage when viewed from customer, employer and investor

perspective to the company. But there is also a notion about what standards of CSR should

companies follow and how far companies should go to perform their responsibility.


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Bibliography


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Articles:-

Lew Jan Olowski , Corporate Social Responsibility: Its History, Ethical Justification,AndAbuses in the Business World The Wall Street Journal, December 26, 2005.

Brigitte Planken, Subrat Sahu, Catherine Nickerson, Corporate social responsibilitycommunication in the Indian context, Journal of Indian Business research, Vol. 2, No.1

2010.

Michael E. Porter and Mark R. Kramer, Strategy & Society: The Link BetweenCompetitive Advantage and Corporate Social Responsibility, Harvard Business Review,

Vol. 2, 2006.

Kirti Dutta,

M

. Durgamohan, Corporate Social Strategy: Relevance and pertinence inthe Indian context, Journal of Bussiness Ethics, Vol 74.

Corporate Social Responsibility And a Modern Firm; CSR Leads To CompetitiveAdvantage And Sustainable Development

McKinsey global survey: Valuing Corporate Social Responsibility. The importance of corporate responsibility: A white paper from the Economist

Intelligence Unit sponsored by Oracle.

Websites:-

http://www.tatachemicals.com/

http://www.hll.com/citizen_lever/index.asp

http://www.pg-india.com/hp/socialres.htm

http://www.forbes.com

http://www.toyota.com

http://www.microsoft.com

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