Impact Of Csr Initiatives Taken By Insurance Companies Accounting Essay

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Corporate Social Responsibility is a kind of corporate self-regulation embedded into a business model. CSR policies function as a self-regulating and built-in mechanism whereby a business entity monitors and ensures its compliance with the spirit of the law, ethical and international norms. CSR is a process with an aim to embrace responsibilities for the company's action and encourages a positive impact via its activities on the consumer, employee, community, environment, stakeholder and all other members of society who may also be considered as stakeholder.

Basically, CSR means that the company's business model must be socially responsible and environmentally suitable and sustainable. By socially responsibility, it is meant that the company's activity should benefit the society. By environmentally sustainable it is meant that the company's activity should not have a bad and harmful effect on the environment.

I. Evolution and Latest trends

In the past twenty years, there has been a huge change in the nature of the triangular relationship between the society, the state and the company. The firms can no longer continue to exist as independent entities regardless of the interests of the common people. The evolution of the relationship between the society and the company has been a slow but a big metamorphosis from a philanthropic mere coexistence to the one where mutual interests of all the stakeholders are gaining importance. The companies are beginning to realize the fact that for gaining strategic initiative and for ensuring continued existence, business practices may have to be molded from the normal practice of solely focusing on the profits to factor in public goodwill and responsible business etiquettes.

In the western countries the governments have a very strong social security cover and therefore the companies there can afford on concentrating towards profit making and regular taxpaying. But the story in India is different as the country has not been able to reach that phase of economic development where the government is in a position to take responsibility for the basic needs of the public. In India, we do not have an adequate social security, healthcare and education services. So it becomes important that the corporate houses should take a plunge and deliver a response to the people in all the strata and section of the society and especially the ones who remain at the bottom of the pyramid.

Moreover it for nay organization to be successful, it needs public support. A business can't become successful without taking into consideration and addressing the problem of the poor around. It has been long observed that the corporations die out if they do not work and support the common masses. It is therefore seen that big companies like the TATA Group believe that what is earned from the people should be given back to them. Another example could be that of Mahindra Group where 1% of the profit after tax (PAT) is directed towards the CSR initiatives and activities. It benefits the socially backwards and economically disadvantaged sections of the society in the fields of healthcare, education and of course natural physical environment.

II. Regulations

The government of India pitched a bill to create a leaner and contemporary law in order to cover corporate companies. The bill recommends a 2% annual spend on Corporate Social Responsibility Activities.

The companies' bill 2011 will replace the existing Companies Act of 1956. The CSR spend clause has been incorporated and in the bill and is applicable to every company having a net worth of Rs. 500 crore or more or turnover of Rs. 1000 crore or more or a net profit of 5 crore or more during a financial year.

While not mandating the clause, the bill proposes that the company's board shall make every endeavor to ensure that it spends at least 2% of the average net profits that the company made during the immediate preceding years. The failure to do so shall require an explanation by the board stating the reasons .

III. Criticism

The proponents of any new idea or initiative have to face and deal with criticism and it is no different in the case CSR. Critics have always argued that CSR distracts the business from its primary role which is the economic role. They also argue that CSR is merely a tool of window-dressing at the advantage of companies and an attempt to pre-empt the government from the role of a watchdog over powerful multinational corporations.

However, it is observed that despite its criticism in past recent years the CSR has increasingly became a part of a large number of companies in the world as well as India. It is becoming an important activity for business entities throughout the world.

CHAPTER-II

Literature Review

I. Corporate Social Responsibility (CSR) is viewed as a comprehensive set of policies, practices and programs that are integrated into business operations, supply chains, and decision-making processes throughout the organization -- wherever the organization does business -- and includes responsibility for current and past actions as well as future impacts1. CSR involves addressing the legal, ethical, commercial and other expectations society has for business, and making decisions that fairly balance the claims of all key stakeholders. Effective CSR aims at "achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment." Simply put it means "what you do, how you do it, and when and what you say." Several terms have been used interchangeably with CSR. They include -- business ethics, corporate citizenship, corporate accountability, sustainability and corporate responsibility. The issues that represent an organization's CSR focus vary by size (small, medium and large), sector (for example, financial institutions, infrastructure providers, textile manufacturers, agri-producers, supermarket retailers, etc.) and even by geographic region. In its broadest categories, CSR typically includes issues related to business ethics, community investment, environment, governance, human rights, the marketplace and the workplace.

World Business Council for Sustainable Development defines Corporate Social Responsibility (CSR) as "The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large."

(STATUS OF CORPORATE SOCIAL RESPONSIBILITY: IN INDIAN CONTEXT MRS PARUL KHANNA & MRS GITIKA GUPTA Lecturer Rayat- Bahra Institute of Management, Hoshiarpur)

II. It is quite evident that such CSR initiatives have to rely on local innovations, commonly known in India as 'Jugaad". However, in today's context, these innovations should evolve sustainable enterprises, which have potential to scale up and in process lead to inclusive growth.

This paper therefore focuses on the CSR initiatives for the community-development and broaches a methodology to measure their scaling potential for inclusive, sustainable growth of the country. The scope of the paper can be summarized as follows:

It highlights the need of the innovations and enterprises in a company's CSR initiatives for inclusive and sustainable growth.

It analyses a few enterprises that have helped low income people to better their lives and livelihoods. The analysis is based on 'lenses" developed by the author of his own experience, interaction with officers of the planning commission, government of India and secondary research during his curriculum at the b-school.

It examines key challenged faced by the social enterprises to scale up their operations from local to national level.

(Raman Agarwal, SPJIMR, Mumbai: How should you measure CSR?)

CHAPTER-III

Scope of the study

The proposed study intends to study the impact of CSR initiatives take by insurance companies. The study would primarily encompass broadly all :

Life Insurance Companies

General Insurance Companies

And also it would include in its scope some other non-insurance corporate companies taking CSR initiatives for relative assessment.

CHAPTER-IV

Objective of the Study

The proposed study is to be centered around fulfilling the following objectives:

To find out the approach towards CSR of different insurance companies.

To find out whether CSR helps a company make better public relations.

To find out how company employees relate to CSR initiatives.

To find the impact of CSR initiatives of insurance companies vis-à-vis other corporate companies.

CHAPTER-V

Research Methodology

Hypothesis

Ho: The CSR initiative doesn't help a company make better public relation (no impact).

H1: The CSR initiative help a company make a better public relation (positive impact)

Ho: CSR is not beneficial to stake holders

H1: CSR is beneficial to stake holders.

Research design

Descriptive Research.

Sample size

The study proposes to have a sample size of 30.

Method of data collection

The collection of data would primarily be through survey method.

Tools of data Collection

The tool of data collection would primarily be questionnaire.

Period

The primary data is proposed to be collected through various means of communications, i.e., in person, by telephone, e-mail, and postal means between 03.01.2013 to 23.01.2013. However, period and mode of collecting data shall be reviewed suitably at the appropriate times so as to make it meaningful and closest possible to the objectives set for the research study.

CHAPTER-VI

Data Analysis and Interpretation

Ownership of the Company?

Interpretation

The companies Participant to the survey were both public listed companies and private companies. 70% of the companies part of the survey were public while the rest 30% were private companies.

Company identifies with the concept of corporate social responsibility (CSR)?

CSR initiatives taken by insurance companies promote insurance industry.

Interpretation

An overwhelming 47% of the companies strongly agreed that the CSR in one way or the other helps the industry in promoting the industry. The insurance companies specifically felt that CSR initiative would help make better public relations.

CSR is an integral part of your company.

Interpretation

With 47% and 30% strongly agreeing and agreeing respectively the companies thought that CSR were integral to their company as they in some way and at some level had involved themselves in CSR initiatives.

CSR, a tool of window dressing?

Interpretation

This reveals an interesting scenario that a good 37% of companies were neutral about the issue of window dressing which in other way also indicates that they found it hard to completely rule out the fact that CSR may not be used as a tool window dressing. Interestingly another 37% completely disagreed to accept it as a tool of window dressing. However 13% of them clearly agreed that CSR is often used for window dressing.

CSR helps a company connect and deliver to the society better.

Interpretation

The reaction to this question were pretty much clear with 37% in agreement, 27% in strongly agreeing. Rest 33% were neutral. Only 3% were in disagreement.

Chi-square symbolically written as, is a statistical measure used in the context of sampling analysis for comparing a variance to a theoretical variance. It is a non parametric test. It is used to make comparison between theoretical population and actual data hen categories are used. It is applied in statistics to know the goodness of fit.

The general formula for Chi-square test is:

\Chi^2 = \sum_{ij} {(O_{ij} - E_{ij})^2 \over E_{ij}} , Where o=Frequency Observed, E= Frequency Expected, Degree of freedom=(n-1)

χ²= 45.6

Degree of freedom= (n-1) = 6-1= 5

The table value of Chi-square at 95% confidence level, 5% significance level and 5 degrees of freedom is 11.07. The calculated value of χ² is 45.6 which is much higher than this table value and hence null hypothesis (Ho) cannot be accepted. We will accept the alternative hypothesis (H1). We thus conclude that the CSR helps in making a better public relation and thus has a positive impact.

CSR distracts from core business activity or economic activity.

Interpretation

The majority of the companies disagreed that CSR distracts from the core business activity which is a very positive sign.

The new amendment in the Company's Act to make 2% CSR is a constructive step.

Interpretation

Around 74% of the total respondents on the agreement side that it is a constructive step. 23% however remained neutral.

CSR initiatives should be around the location of the company.

Interpretation

Around 46% of the companies agreed while another 17% strongly agreed that the location of CSR activities should be around the company. 7% disagreed to this and another 10% remained indifferent with no response.

CSR is beneficial to stake holders.

Interpretation

Half of the companies remained neutral over the fact whether this would benefit the shareholders in any way or not but a good 37% agreed that it would benefit in some way as it establishes a good public image and goodwill.

The mandatory provision should be made applicable to other organizations as well.

Interpretation

50% of the companies were neutral on making the provisions mandatory to all rather than for the selective few. But another 43% disagreed over making any such moves.

CHAPTER-VII

Findings

The research study led to many findings about the CSR. Finding can be illustrated in the following points.

Majority of the companies that were part of the survey gave an affirmative that they identified the concept of CSR and could relate to it. .

Majority of them were of the view that CSR helped in making better public relations and gaining the goodwill of the public and they also considered CSR as integral part of their company as they had CSR involvement at some level. Thus the null hypothesis was rejected and the alternate hypothesis was accepted.

The Second hypothesis on whether CSR is beneficial to stake holders 37% disagreed while the majority of 50% remained neutral. However 14% were of view that is doesn't benefit the stake holders in anyway.

However a good portion were not so sure that CSR may benefit stake holders in a big way. .

A good majority of them that the new amendments like that making 2% compulsory contribution was a construction step. However the majority was not in favor of making it mandatory for all other organizations which are not currently in the purview of compulsory CSR contribution. .

A very positive observation was that the majority of the companies rejected the negative approach of considering CSR as a distraction to core business activity.

However skepticism and lack of surety was also observed amongst several respondents when it came to the use of CSR as a tool of window dressing.

Majority of insurance companies felt that CSR can help in promoting the industry as insurance products are unsorted products.

Suggestions

From the research study that was carried out it became quite evident that a great majority of the companies closely identified with the concept of CSR. However there still remains the room for completely evolving it, implementing it and adhering to it for the larger benefit of the society and raising the standard business practices. A few suggestions on the basis of the research study are:

It would not be advisable to make CSR mandatory for all the organization as in some way they already relate to the idea and concept of CSR and have some level of involvement in this direction which is a very positive thing. Pressuring them with legislation would make them reluctant. .

Since Insurance products are unsorted products CSR is a great way to make good public relation and goodwill for companies and promote the role of insurance and therefore insurance companies must come forward to take CSR initiatives. .

A collective CSR initiatives by all insurance companies, led by all public sector insurance companies, can prove to be a great step in projecting the industry as the industry providing risk coverages and social security to the people of the country and break the cliché image of the insurance industry of not keeping up with promise that it sells.

Conclusion

The study very successfully accomplished its defined objectives. With the completion of the study it turned out the insurance companies and insurance industry as whole is very sincere, active and eloquent on the issues CSR. This fact also becomes all the more important because the majority of the private insurance companies don't fall within the mandatory CSR contribution requirement like the public sector companies but they still have a very positive and participative approach towards the CSR. Almost all the insurance companies participating in the survey rejected the notions of CSR as futile and distraction from the core business activity. They identified the concept of CSR and related well to it. They don't consider CSR as an eye washer but looked upon it as a means to make public relations and promote the industry. Interestingly with respect to the insurance companies, the non-insurance private companies were indifferent and skeptical about the role and impact of CSR in promotion of their industry, making better public relation and contributing back to the society. However bigger public limited companies (non-insurance) remained equally committed to CSR initiatives and acknowledged it as an integral part of the business practices.

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