Corporate Social Responsibility

Big business have always been criticized. Beginning around the turn of the century, the crusading journalists shocked the nation with exposes of corrupt business practices, touching off a wave of Government regulations. This followed the

wake of the great depression (1930) and again in 1960s and 1970s. The issues of 2007 also brought forth the American

President coming strongly in favor of CSR

CSR – The New Paradigm

A growing body of evidence asserts that corporations can do well by doing good. Well-known companies have already proven that they can differentiate their brands and reputations, as well as their products and services, if they take responsibility for the well-being of the societies and environments in which they operate. These companies are practicing Corporate Social Responsibility (CSR) in a manner that generates significant returns to their businesses.

James Burke, Chairman of ‘Johnson & Johnson’ said, “I have long harbored the belief that the most successful corporations that have delivered outstanding results over long period of time, are the one that were driven by a simple moral imperative, namely, serving the public (society) in the broadest possible sense better than their competitors.

The History of CSR

• Andrew Carnegie (founder of the conglomerate US steel corporation) published ‘The Gospel of Wealth’ which tried for the first time to define CSR. Carnegie’s views were based on two principles:

• The Charity Principle : Doctrine of social responsibility requiring more fortunate individuals to assist less fortunate members of the society &

• The Stewardship Principle: Biblical doctrine that requires business and wealthy individuals to view themselves as stewards, or care takers, holding their property in trust for the benefit of the whole society

• Gradually the notion of CSR became a smoke screen for the personal values of few powerful individuals

The Two Opposing Views

• On one side there is the purely economic view (Milton Friedman) to maximize profits (thereby protecting the interests of the stake holders) while on the other stands the socio-economic position (Keith Davis – an iron law of responsibility which states that in the long run those who do not use power in a manner that the society considers responsible will tend to lose it) which holds management’s responsibility goes beyond making profits to include responsibilities towards the eco-system in which they operate.

• Supporters of the CSR contend that the managers should be concerned with maximizing the profits in the long run to do this they must accept some social costs that go with them.

CSR: how is it defined today?• The three key definitions that have

garnered wide acceptance and favor amongst business circles:

• Philip Kotler and Nancy Lee (2005) define CSR as “a commitment to improve community well being through discretionary business practices and contributions of corporate resources”.

• Mallen Baker refers to CSR as “a way companies manage the business processes to produce an overall positive impact on society.”

CSR: how is it defined today?

•Archie Carroll in 1991 describes CSR as a multi layered concept that can be differentiated into four interrelated aspects – economic, legal, ethical and philanthropic responsibilitiesCarroll presents these different responsibilities as consecutivelayers within a pyramid, such that “true” social responsibility requiresthe meeting of all four levels simultaneously. The modelprobably is the most accepted and established.

Arguments For And Against CSR

Arguments for:• Public expectation

• Improved financial performance

• Ethical obligations

• Enhanced brand image & reputation

• Better environment

• Reduce regulatory oversight & government control

• Increased ability to attract and retain employees

• Stockholder’s interest

• Easier access to capital / resources

• Risk management

Arguments against:• Violation of profit maximization

• Dilution of purpose

• Costs

• Too much power

• Lack of skills

• Lack of accountability

• Lack of broad public support

The Global Survey

IBM’s conducted global survey to gauge just how deeply the CSR issue has penetrated the core of the corporate governance, its strategies and operations. They interviewed more than 250 business executives worldwide. These were business leaders and strategists, not the executives responsible for charitable foundations or special corporate CSR initiatives. Their analysis led to three parameters that companies should understand and act upon in dealing with CSR.

They are:• Impact on business – From cost to growth• Information – From visibility to transparency• Relationships – From containment to engagement.

How do you develop a CSR strategy

• The approach is to view a company’s current activities and objectives against the CSR Value Curve, which captures the shift in thinking from CSR as a cost or risk mitigation effort to CSR as a strategic goal that brings in new revenue.

• When businesses do start to move beyond compliance they start their journey along a continuum described in the CSR Value Curve. The survey results showed that surprisingly few companies engaged in what appears to be a very fundamental area for reputation building – strategic philanthropy. Strategic philanthropy aligns charity with business strategy, company skills and market needs. These efforts reinforce a company’s social commitment with ongoing returns, often in the form of goodwill and typically indirectly from a financial perspective.

• Companies are finding that many CSR initiatives, including those that reduce energy consumption or benefit the environment, help reduce overall cost structures or increase productivity.

Obligation Responsibility Responsiveness

Social Obligation

SocialResponsibility

SocialResponsiveness

The obligation of a business to meet its economic and legal responsibilities

The capacity of a firm toAdopt to changing and Challenging societalconditions

Stage 1Owners and Management

Stage 2Employees

Stage 3ConstituentsIn specificenvironment

Stage 4Broader Society

Lesser Greater

Social Responsibility

To Whom Is Management Responsible

Normative Theories Of Business Ethics (as understood by business community)

Normative Theories Of Business Ethics

StockholderTheory

Stakeholder Theory

Social ContractTheory

More orLess obsolete

Primary and Secondary stakeholders

1.Benefit consumers to maximize their wants2.Benefit employee to maximize perks and remuneration3.Ensure least damage to the environment

1960 2010

Society’s expectation from business

Actual Business Practices

Social & Ethical Problems

Social Responsibility and Ethics Over Time

Conclusion

CEOs have long been accountable to a varied group of stakeholders – employees and communities, as well as investors. The nature of these relationships is now changing in ways that significantly affect corporate performance. In part due to the emergence of the Internet and continuing globalization, companies are becoming accountable for labor issues and working conditions in their partners’ operations as well as their own. In climbing the CSR Value Curve from compliance to growth, companies must:

CorporateCenter

Part owned

Wholly owned

Alliance

An economic network

The fallout of economic upheaval is that the evolving networks are transforming the relationshipswithin and between the companies. Managing all these relationships to keep everyone on board and avoid ethical conflicts has become increasingly important.

Conclusion -- Contd

• Align and incorporate CSR with business strategy and integrate it across all operational functions. Thus, making it easy to invest (not spend) the funds necessary to achieve its objectives.

• Implement an open information strategy for more transparent information-sharing with multiple stakeholders.

• Leverage transparency to increase the level of engagement of key constituents and customers.

• When these activities are done in combination, CSR can become a dimension of a company’s successful competitive strategy. Done right, it offers a company improved relationships with all of its key constituents, more loyal customers, lower costs, higher revenues and an overall improvement of the business’ standing in society.

Thoughts for NOW

The demands on business and the expectations of what is considered “proper conduct” have risen faster than the ability of business to raise standards. Since society’s expectations of its institutions are regularly changing, managers must continually monitor these expectations. What is ethically acceptable today may be a poor guide for the future