Corporate Social Responsibility Reality or an Eye Wash

1Corporate Social Responsibility

Human Resource Management

Assignment-1

Corporate Social Responsibility: Reality or an eye wash?

Submitted to: Hema Harsha Ma’am

Submitted by:

Adil Pasha

Roll No: 01

Section A

MBA 2nd Sem


Table of contents

Index Page No.

Introduction 3

Definition 4

Concept of Social Responsibility 4

Reasons for corporate to be socially responsible 5

Responsibility towards Different Interest Groups 6

Responsible Companies in the age of globalization 10

Corporate Social Responsibility in reality 12

International Initiatives for Corporate Social Responsibility 13

Corporate Social Responsibility in India 13

Problems 15

Solutions 17

Challenges 19

Bibliography 20


Corporate Social Responsibility

Introduction

Corporate social responsibility is basically a concept whereby companies decide

voluntarily to contribute to a better society and a cleaner environment. Corporate social

responsibility is represented by the contributions undertaken by companies to society

through its business activities and its social investment. This is also to connect the Concept

of sustainable development to the company’s level.

Over the last years an increasing number of companies worldwide started promoting their

Corporate Social Responsibility strategies because the customers, the public and the

investors expect them to act sustainable as well as responsible. In most cases CSR is a

result of a variety of social, environmental and economic pressures.

The Term Corporate Social Responsibility is imprecise and its application differs. CSR

can not only refer to the compliance of human right standards, labour and social security

arrangements, but also to the fight against climate change, sustainable management of

natural resources and consumer protection.

The concept of Corporate Social Responsibility was first mentioned 1953 in the

publication ‘Social Responsibilities of the Businessman’ by William J. Bowen. However,

the term CSR became only popular in the 1990s, when the German Betapharm, a generic

pharmaceutical company decided to implement CSR. The generic market is characterized

by an interchange ability of products. In 1997 a halt in sales growth led the company to the

realization that in the generic drugs market companies could not differentiate on price or

quality. This was the prelude for the company to adopt CSR as an expression of the

company’s values and as a part of its corporate strategies. By using strategic and social

commitment for families with chronically ill children, Betapharm took a strategic

advantage.

Today, every company invests a considerable amount of money, energy and boardroom

time on developing or strengthening its CSR strategies and initiatives. More and more

companies across the world are integrating a social perspective in their operations in

addition to what is required by law.


Recently, the Government of India proposed in the Companies Bill 2011 that corporations

with a net worth of INR 5000 million or turnover of INR 10,000 million will be required

to constitute a ‘CSR Committee of the Board’ and allocate at least 2 per cent of their

average profits to corporate social responsibility initiatives. However, the bill which has

now been withdrawn raised several questions within the industry as well as outside it on

the feasibility and rationality of such a decision. While some argue that a government

cannot regulate CSR initiatives of a company considering CSR is still an ambiguous

concept; others believe that facilitating development in a democracy is purely the

prerogative of the government and that the corporations can only be expected to play a

collaborative role of their own free will.

Definition of 'Corporate Social Responsibility'

Corporate Social Responsibility is corporate initiative to assess and take responsibility for

the company's effects on the environment and impact on social welfare. The term

generally applies to company efforts that go beyond what may be required by regulators or

environmental protection groups.

Corporate social responsibility may also be referred to as "corporate citizenship" and can

involve incurring short-term costs that do not provide an immediate financial benefit to the

company, but instead promote positive social and environmental change.

Concept of Social Responsibility

Profit making is not the sole function of business. It performs a number of social

functions, as it is a part of the society. It takes care of those who are instrumental in

securing its existence and survival like- the owners, investors, employees, consumers and

government in particular and the society and community in general. So, every business

must contribute in some way or the other for their benefit. For example, every business

must ensure a satisfactory rate of return to investors, provide good salary, security and

proper working condition to its employees, make available quality products at reasonable

price to its consumers, maintain the environment properly etc.


However, while doing so two things need to be noted to view it as social responsibility of

business. First, any such activity is not charity. It means that if any business donates some

amount of money to any hospital or temple or school and college etc., it is not to be

considered as discharge of social responsibility because charity does not imply fulfilling

responsibility.

Secondly, any such activity should not be such that it is good for somebody and bad for

others. Suppose a businessman makes a lot of money by smuggling or by cheating

customers, and then runs a hospital to treat poor patients at low prices his actions cannot

be socially justified. Social responsibility implies that a businessman should not do

anything harmful to the society in course of his business activities.

Thus, the concept of social responsibility discourages businessmen from adopting unfair

means like black-marketing, hoarding, adulteration, tax evasion and cheating customers

etc. to earn profit. Instead, it encourages them to earn profit through judicious

management of the business, by providing better working and living conditions to its

employees, providing better products, after sales-service, etc. to its customers and

simultaneously to control pollution and conserve natural resources.

Reasons for corporate to be socially responsible

Social responsibility is a voluntary effort on the part of business to take various steps

to satisfy the expectation of the different interest groups. As you have already learnt, the

interest groups may be owners, investors, employees, consumers, government and society

or community. But the question arises, why the corporate should come forward and be

responsible towards these interest groups.

Let us consider the following points:

i. Public Image - The activities of business towards the welfare of the society earn

goodwill and reputation for the business. The earnings of business also depend upon the

public image of its activities. People prefer to buy products of a company that engages

itself in various social welfare programmes. Again, good public image also attracts honest

and competent employees to work with such employers.


ii. Government Regulation - To avoid government regulations businessmen should

discharge their duties voluntarily. For example, if any business firm pollutes the

environment it will naturally come under strict government regulation, which may

ultimately force the firm to close down its business. Instead, the business firm should

engage itself in maintaining a pollution free environment.

iii. Survival and Growth -Every business is a part of the society. So for its survival and

growth, support from the society is very much essential. Business utilizes the available

resources like power, water, land, roads, etc. of the society. So it should be the

responsibility of every business to spend a part of its profit for the welfare of the society.

iv. Employee satisfaction - Besides getting good salary and working in a healthy

atmosphere, employees also expect other facilities like proper accommodation,

transportation, education and training. The employers should try to fulfil all the

expectation of the employees because employee satisfaction is directly related to

productivity and it is also required for the long-term prosperity of the organisation. For

example, if business spends money on training of the employees, it will have more

efficient people to work and thus, earn more profit.

v. Consumer Awareness - Now-a-days consumers have become very conscious about

their rights. They protest against the supply of inferior and harmful products by forming

different groups. This has made it obligatory for the business to protect the interest of the

consumers by providing quality products at the most competitive price.

Responsibility towards Different Interest Groups

After getting some idea about the concept and reasons of social responsibility of

business let us look into the various responsibilities that a business has towards different

groups with whom it interacts. The business generally interacts with owners, investors,

employees, suppliers, customers, competitors, government and society. They are called as

interest groups because by each and every activity of business, the interest of these groups

is affected directly or indirectly.


i. Responsibility towards owners

Owners are the persons who own the business. They contribute capital and bear the

business risks. The primary responsibilities of business towards its owners are to:

a. Run the business efficiently.

b. Proper utilisation of capital and other resources.

c. Growth and appreciation of capital.

d. Regular and fair return on capital invested.

ii. Responsibility towards investors

Investors are those who provide finance by way of investment in debentures, bonds,

deposits etc. Banks, financial institutions, and investing public are all included in this

category. The responsibilities of business towards its investors are :

a. Ensuring safety of their investment,

b. Regular payment of interest,

c. Timely repayment of principal amount.

iii. Responsibility towards employees

Business needs employees or workers to work for it. These employees put their best effort

for the benefit of the business. So it is the prime responsibility of every business to take

care of the interest of their employees. If the employees are satisfied and efficient, then the

only business can be successful. The responsibilities of business towards its employees

include:

a. Timely and regular payment of wages and salaries.

b. Proper working conditions and welfare amenities.

d. Opportunity for better career prospects.

e. Job security as well as social security like facilities of provident fund, group insurance,

pension, retirement benefits, etc.

f. Better living conditions like housing, transport, canteen, crèches etc.

g. Timely training and development.

iv. Responsibility towards suppliers

Suppliers are businessmen who supply raw materials and other items required by

manufacturers and traders. Certain suppliers, called distributors, supply finished products

to the consumers. The responsibilities of business towards these suppliers are:


a. Giving regular orders for purchase of goods.

b. Dealing on fair terms and conditions.

c. Availing reasonable credit period.

d. Timely payment of dues.

v. Responsibility towards customers

No business can survive without the support of customers. As a part of the responsibility

of business towards them the business should provide the following facilities:

a. Products and services must be able to take care of the needs of the customers.

b. Products and services must be qualitative

c. There must be regularity in supply of goods and services

d. Price of the goods and services should be reasonable and affordable.

e. All the advantages and disadvantages of the product as well as procedure to use the

products must be informed do the customers.

f. There must be proper after-sales service.

g. Grievances of the consumers, if any, must be settled quickly.

h. Unfair means like under weighing the product, adulteration, etc. must be avoided.

vi. Responsibility towards competitors

Competitors are the other businessmen or organizations involved in a similar type of

business.

Existence of competition helps the business in becoming more dynamic and innovative so

as to make itself better than its competitors. It also sometimes encourages the business to

indulge in negative activities like resorting to unfair trade practices. The responsibilities of

business towards its competitors are

i. Not to offer exceptionally high sales commission to distributers, agents etc.

ii. Not to offer to customers heavy discounts and /or free products in every sale.

iii. Not to defame competitors through false or ambiguous advertisements.

vii. Responsibility towards government

Business activities are governed by the rules and regulations framed by the government.

The various responsibilities of business towards government are:

a. Setting up units as per guidelines of government

b. Payment of fees, duties and taxes regularly as well as honestly.


c. Not to indulge in monopolistic and restrictive trade practices.

d. Conforming to pollution control norms set up by government.

h. Not to indulge in corruption through bribing and other unlawful activities.

viii. Responsibility towards society

A society consists of individuals, groups, organizations, families etc. They all are the

members of the society. They interact with each other and are also dependent on each

other in almost all activities. There exists a relationship among them, which may be direct

or indirect. Business, being a part of the society, also maintains its relationship with all

other members of the society. Thus, it has certain responsibilities towards society, which

may be as follows:

a. to help the weaker and backward sections of the society

b. to preserve and promote social and cultural values

c. to generate employment

d. to protect the environment

e. to conserve natural resources and wildlife

f. to promote sports and culture

g. to provide assistance in the field of developmental research on education, medical

science, technology etc.

Following are the various responsibilities of business towards the different interest group

as discussed above.

i. Protection of environment.

ii. Better living conditions like housing, transport, canteen, crèches etc.

iii. Promotion of sports and culture.

iv. Opportunity for better career prospects

v. Regular supply of goods and services

vi. Proper working conditions and welfare amenities

vii. Goods and services at reasonable and affordable price.

viii. Prompt after sales services.


Responsible Companies in the age of globalization

How a company perceives its societal responsibility depends on various factors

such as the markets in which it operates, its business line and its size.

In recent years CSR has become a fundamental business practice and has gained much

attention from the management of large international companies. They understand that a

strong CSR program is an essential element in achieving good business practices and

effective leadership. Companies have explored that their impact on the economic, social

and environmental sector directly affects their relationships with investors, employees and

customers.

Whilst so far Corporate Social Responsibility was mainly promoted by a number of large

or multinational companies, it is now also becoming important to small national

companies.

»Teflon Companies«. Shell was one of first companies which made the experience, that

early responsible acting is better than later crisis management. Shell was taken by

complete surprise when the Greenpeace campaign against sinking the former drill platform

Brent Spar achieved its goals. There was a widespread boycott of Shell service stations.

The Brent Spar affair has brought quite some change of attitude to Shell.

As companies face themselves in the context of globalization, they are increasingly aware

that Corporate Social Responsibility can be of direct economic value. Although the prime

goal of a company is to generate profits, companies can at the same time contribute to

social and environmental objectives by integrating corporate social responsibility as a

strategic investment into their business strategy.

A number of companies with good social and environmental records indicate that CSR

activities can result in a better performance and can generate more profits and growth.

Research has shown that company CSR programs influence to an extensive degree

consumer purchasing decisions, with many investors and employees also being swayed in

their choice of companies.

A major challenge for companies today is attracting and retaining skilled workers. There is

not only an image gain for the companies using CSR, but it is also important for the


employees. Within the company, socially responsible practices primarily involve

employees and relate to issues such as investing in human capital, health and safety and

managing change.

In India there are an existent but small number of companies which practice CSR. This

engagement of the Indian economy concentrates mainly on a few old family owned

companies, and corporate giants such as the Tata and Birla group companies which have

led the way in making corporate social responsibility an intrinsic part of their business

plans. These companies have been deeply involved with social development initiatives in

the communities surrounding their facilities. Jamshedpur, one of the prominent cities in

the north-eastern state of Bihar in India, is also known as Tata Nagar and stands out at a

beacon for other companies to follow. Jamshedpur was carved out from the jungle a

century ago. TATA’s CSR activities in Jamshedpur include the provision of full health

and education expenses for all employees and the management of schools and hospitals.

In spite of having such life size successful examples, CSR in India is in a very nascent

stage.

In the informal sector of the Indian economy, which contributes to almost the half of the

GNP and where approximately 93% of the Indian workforce is employed, the application

of CSR is rare. On the contrary, the fight against poverty, the development of education, as

well as the conservation of the environment are not existent in most of the Indian

enterprises.

India has an advantage as far as labour is concerned. To some extent, business and capital

go to those places where costs are less or standards are lower like the ones in India. But

also in India, the demand for responsible and ethical goods is constantly increasing.

To guarantee the supply of responsible and ethical goods, it is especially important to

implement a nationwide system of CSR standards.


Corporate Social Responsibility in reality

Due to the lack of international CSR guidelines, the practical application of CSR

differs and CSR Strategies within most companies still show major deficiencies. There are

still complaints about multinational companies wasting the environment and NGOs still

denouncing human rights abuses in companies. Some critics believe that CSR programs

are undertaken by especially multinational companies to distract the public from ethical

questions posed by their core operations. That meanwhile even multinational companies

such as Microsoft or Pepsi confess to their social responsibility, is discussed quite

controversial.

While companies increasingly recognize their social responsibility, many of them have yet

to adopt management practices that reflect it: company employees and managers need

training in order to acquire the necessary skills and competence. Pioneering companies can

help to implement socially responsible practices by guiding the processes.

The Copenhagen Centre and CSR Europe have recently launched a program to bring the

business and academic community together with the aim to identify and address the

training needs of the business sector on Corporate Social Responsibility.

While corporate social responsibility can only be taken on by the companies themselves,

employees, consumers and investors can also play a decisive role in areas such as working

conditions, environment or human rights, in the purchasing of products from companies

which already adopted CSR or in prompting companies to adopt socially responsible

practices.

Critics suggest that better governmental and international regulation and enforcement,

rather than voluntary measures are necessary to ensure that companies behave in a socially

responsible manner.

Corporate social responsibility should therefore not be seen as a substitute to regulation

concerning social rights or environmental standards. In countries where such regulations

do not exist, efforts should focus on putting the proper regulatory framework in place on

the basis of which socially responsible practices can be developed.


International Initiatives for Corporate Social Responsibility

Why are governments interested in CSR?

Their task is to make sure that the process of global and economic and social change is

managed properly and fairly. Several guidelines or standards have been developed to serve

as frameworks for CSR:

The OECD Guidelines for multinational Enterprises and the ILO - International Labour

Standards form the principles for the societal responsibility of companies and will help to

implement CSR on the international level.

Corporate Social Responsibility in India

India is one of the fastest growing economies, socio-economic problems like poverty,

illiteracy, lack of healthcare etc. are still ubiquitous and the government has limited

resources to tackle these challenges. This scenario has opened up several areas for

businesses to contribute towards social development.

CSR is not a new concept in India. Corporates like the Tata Group, the Aditya Birla

Group, and Indian Oil Corporation, to name a few, have been involved in serving the

community ever since their inception. Many other organizations have been doing their part

for the society through donations and charity events.

Today, CSR in India has gone beyond merely charity and donations, and is approached in

a more organized fashion. It has become an integral part of the corporate strategy.

Companies have CSR teams that devise specific policies, strategies and goals for their

CSR programs and set aside budgets to support them.

These programs, in many cases, are based on a clearly defined social philosophy or are

closely aligned with the companies’ business expertise. Employees become the backbone

of these initiatives and volunteer their time and contribute their skills, to implement them.

CSR Programs could range from overall development of a community to supporting

specific causes like education, environment, healthcare etc.


For example, organizations like Bharath Petroleum Corporation Limited, Maruti Suzuki

India Limited, and Hindustan Unilever Limited, adopt villages where they focus on

holistic development. They provide better medical and sanitation facilities, build schools

and houses, and help the villagers become self-reliant by teaching them vocational and

business skills.

On the other hand GlaxoSmithKline Pharmaceuticals’ CSR programs primarily focus on

health and healthy living. They work in tribal villages where they provide medical check-

up and treatment, health camps and health awareness programs. They also provide money,

medicines and equipment to non-profit organizations that work towards improving health

and education in under-served communities.

Many CSR initiatives are executed by corporates in partnership with Non-governmental

organizations (NGOs) who are well versed in working with the local communities and are

experts in tackling specific social problems.

For example, SAP India in partnership with Hope Foundation, an NGO that works for the

betterment of the poor and the needy throughout India, has been working on short and

long-term rebuilding initiatives for the tsunami victims. Together, they also started The

SAP Labs Center of HOPE in Bangalore, a home for street children, where they provide

food, clothing, shelter, medical care and education.

CSR has come a long way in India. From responsive activities to sustainable initiatives,

corporates have clearly exhibited their ability to make a significant difference in the

society and improve the overall quality of life. In the current social situation in India, it is

difficult for one single entity to bring about change, as the scale is enormous. Corporates

have the expertise, strategic thinking, manpower and money to facilitate extensive social

change. Effective partnerships between corporates, NGOs and the government will place

India’s social development on a faster track.


Problems

The Corporate Social Responsibility Initiatives by a company is generally looked as an

'Eyewash Exercise'.

And one can frankly accept that It has been so, in the Majority of cases. Only few

Companies have shown seriousness in this regard.

The Top Management may come up with new conferences saying that they have adopted a

new Village,

They have invested in new public welfare schemes etc.

But the Questions are,

How effective are these schemes?

How Employees look at these CSR Initiatives?

The Truth is, Majority of the employees don't really care about the CSR Initiatives. And

these Schemes generally fail for some inherent reasons.

Why CSR is Important?

It improves the Economic & Social status of the Society.

It improves the Corporate Image & the Brand Value (especially when there is a Real

Progress)

To make Employees responsible for their actions, certain steps have to be taken. I believe

that linking their Salaries with the amount of Community Developmental Works that

he/she performs, is the solution.

Organizations are not isolated entities, but they are highly interconnected with the

Community. If the Community is strong, then there is a good chance that the organization

will thrive.

The following quote by the American Writer, Henry George highlights the irrefutable

Truth...

“So long as all the increased wealth which modern progress brings goes but to build up

great fortunes, to increase luxury and make sharper the contrast between the House of

Have and the House of Want, progress is not real and cannot be permanent."

The Corporate Social Responsibility Initiatives by a company is generally looked as an

'Eyewash Exercise'. And one can frankly accept that it has been so, in the majority of

cases. Only few Companies have shown seriousness in this regard. The Top Management

may come up with new conferences saying that they have adopted a new Village; they

have invested in new public welfare schemes etc.


But the Real Questions are,

How effective are these schemes?

How Employees look at these CSR Initiatives?

The Truth is majority of the employees don't really care about the CSR Initiatives. And

these Schemes generally fail for some inherent reasons.

Why CSR is Important?

It improves the Economic & Social status of the Society.

It improves the Corporate Image & the Brand Value (especially when there is a Real

Progress).

To make Employees responsible for their actions, certain steps have to be taken. I believe

that linking their Salaries with the amount of Community Developmental Works that

he/she performs, is the solution. Organizations are not isolated entities, but they are highly

interconnected with the Community. If the Community is strong, then there is a good

chance that the organization will thrive.

The following quote by the American Writer, Henry George highlights the irrefutable

Truth...

" So long as all the increased wealth which modern progress brings goes but to build up

great fortunes, to increase luxury and make sharper the contrast between the House of

Have and the House of Want, progress is not real and cannot be permanent."


Solutions

The Solution to the problem will be the Linking of Compensation System to the Amount

of Community

Developmental Work an Employee Performs.

I believe that this should implemented at all levels (that includes Top Management).

I would like to explain the System with some illustrations. Let us take Employee 'X',

whose monthly salary is Rs.10000. Let us assume that the Fixed Component be Rs.7000.

And the Variable component which is work performance related is Rs.3000. I would

suggest that, Out of this Rs.3000, at least half of it, that is Rs.1500 should be linked to his

Performance in Community Developmental Activities (CDA).

Let us see it in the form of an Equation.

Monthly Salary=Fixed Component (70%) + Variable Component 1 (15%) + Variable

Component 2 (15%)

Where,

Variable component 1 is related to Performance inside the Organisation

Variable Component 2 is related to the performance outside the organisation (Community

Developmental Works)

The Variable Component 2 can be measured in terms of Social Benefit Points (SBP).

There is an Upper Limit to this. The Limit is equal to 15% percent of Total Monthly

Salary. If one exceeds the Limit Continuously, he can be considered for Fast Track

Growth (Faster Promotions, Better Incentives etc.)

SBP can be measured by an Independent Agency. It can be related to Number of

Community hours one has spent, Quality of Work Performed, Number of beneficiaries etc.

How a company should go about in doing Community Developmental Works?

I would suggest 3 Ways by which this can be implemented ( according to the type of

Organisation.)

Number-1:

If it is a Service Based (Generally IT companies), Then Company can look at Adopting

Villages (or Socially- Economically Backward regions) per Project.

That is, if a company has 25 projects in its hand, then, It can adopt 25 villages. And people

working on those projects are responsible for the development of that particular Village.


Number-2:

If it is a Product based Industry, then Allocation can be done to Regional offices.

According to the size of the regional office, certain number of villages can be allotted to it.

Number-3:

If it is purely a manufacturing Industry, then Department-wise allocation can be done. In

other words, certain number of Villages per Department. It can be based on the strength of

the department.

The CDA can be organised based on free hours available. It can be a Compulsory

Weekend Program

(Example: 2 weekends every month) or A Day can be allotted each week to the project

team / department / regional office.

I think that the company can look at adopting Villages or other Socially-Economically

Backward regions.

I believe this Solution can produce great changes that would speed-up the process of

development of the society.


Challenges

Challenge 1:

The employees may view the system as an unproductive one. They may think that they are

being forced.

Suggestion:

An Orientation Program can be conducted to dispel all the apprehensions that the

employees may have got.

The Fact that “Sustaining the Society is the Key to the Growth of the Organisation” should

be made clear to all stakeholders. The Employees may feel that it is eating into their

personal space (time spent with family). This self-centred attitude should be changed.

Employees should open-up. For a good Corporate Citizen, There should be a shift in

thinking from ‘Materialistic life’ to ‘Meaningful Life’. Hence, This Message should be put

across, to make it a successful program.

Challenge 2:

Top management may view that the move could have an impact on the Bottom-line.

(Company have to spend some money on these projects)

Suggestion:

Long Term Profits are important. This move can make a minor dent in short term profits,

but in the long run, there will be a definite enhancement of Brand Image & thereby Profits

will increase substantially.

Challenge 3:

The Top Management may feel that they need not get involved directly.

Suggestion:

Top Management is the real face of the company. If they get involved in the project, It will

definitely be a good move. All other stakeholders (that includes employees) will get

motivated because of their direct involvement.


Bibliography

Website:

www.wikipedia.org

Search engines: Google.

Books Referred:

Corporate social responsibility- Philip Kotler, Nancy Lee.

Corporate social responsibility- Gower publishing limited.

Business Environment- Francis Cherunilam.

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Nancy+Lee%22

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Philip+Kotler%22

http://www.wikipedia.org/

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Corporate Social Responsibility Reality or an Eye Wash

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