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The past three decades have witnessed the emergence of Corporate Social Responsibility (hereafter CSR) as a field of study and a framework for the role of business corporations and financial institutions in society. It outlines the standard of behaviour to which a firm must subscribe to impact society in a positive and a productive manner at the same time as abiding by values which exclude profit seeking at any cost.
CSR is a form ofÂ corporateÂ self-regulationÂ integrated into aÂ business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its support to law, ethical standards, and internationalÂ norms. Consequently, business would embrace responsibility for the impact of its activities on the environment, consumers, employees, communities,Â stakeholdersÂ and all other members of theÂ public sphere.
Furthermore, CSR-focused businesses wouldÂ proactivelyÂ promote theÂ public interestÂ by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion ofÂ public interestÂ into corporateÂ decision-making, and the honoring of aÂ triple bottom line: People, Planet, Profit.
The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficialÂ window-dressing; others yet argue that it is an attempt to pre-empt the role of governments as a watchdog over powerfulmultinational corporations. Corporate Social Responsibility has been redefined throughout the years. However, it essentially is titled to aid to an organization's mission as well as a guide to what the company stands for and will uphold to its consumers.
THEORIES OF CORPORATE SOCIAL RESPONSIBILITY
CSR is an evolving concept that currently does not have a universally accepted definition.
CSR is closely linked with the principles of Sustainable Development which argue that enterprises should be obliged to make decisions based not only on financial/economic factors (e.g. Profits, Return On Investment, dividend payments etc.) but also on both the immediate and the long-term social, environmental and other consequences of their activities
The entirety of CSR can be discerned from the three words contained within its title phrase: 'corporate,' 'social,' and 'responsibility.' Therefore, in broad terms, CSR covers the responsibilities corporations (or other for-profit organizations) have to the societies within which they are based and operate. More specifically, CSR involves a business identifying its stakeholder groups and incorporating their needs and values within the strategic and day-to-day decision-making process.
Acoording to The Institute of Directors,UK,(2002), they defined CSR as businesses and other organizations going beyond the legal obligations to manage the impact they have on the environment and society. In particular, this could include how organizations interact with their employees, suppliers, customers and the communities in which they operate, as well as the extent they attempt to protect the environment.The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.
The World Business Council for Sustainable Development has described CSR as the business contribution to sustainable economic development.
EU definition of CSR is: A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis."
Futhermore, CSR is a means of analyzing the inter-dependent relationships that exist between businesses and economic systems, and the communities within which they are based. CSR is a means of discussing the extent of any obligations a business has to its immediate society; a way of proposing policy ideas on how those obligations can be met; as well as a tool by which the benefits to a business for meeting those obligations can be identified. In line with the globalization of the world economy and the increasingly rapid flow of information that simplifies the detection of unethical performance of companies, the interest in, and importance of, CSR are continuously increasing. During the latest decade, CSR has achieved its breakthrough among the wider international business community and taken its place in the general business discourse.
The concept of corporate social responsibility acknowledges the corporate sector's obligations towards society beyond short run profit maximization and that the group of stakeholders,whose interests are to be considered in corporate strategies and operations, are extended further than to the shareholders to include societal and environmental values. The WorldBusiness Council for Sustainable Development (WBCSD) defines CSR as: "the commitment of business to contribute to sustainable economic development, working with employees,their families, the local community and society at large to improve their quality of life."(www.wbcsd.org). This description of CSR reflects the general idea of the concept - to redefine the relationship between business and society and to emphasize the social and environmental responsibilities by corporations acting in the world economy.Recent literature recognizes that the concept of CSR lacks a precise definition, which makes it, to a certain extent, open for interpretation by the individual practician (Campbell; 2006). It is likely that its content will fluctuate according to cultures as well as to societal norms and trends (Snider, Martin and Hill; 2003, Garrega and Melé; 2004). Whitehouse (2006) argues that the only statement that can be made regarding the identification of CSR is that exists no universal definition of the concept. Blowfield and Frynas (2005) and Valor (2005) identify CSR as an umbrella concept, including a variety of theories and practices which recognize the social and environmental responsibilities of corporations, as well as that companies are responsible for the behaviour of others with whom they do business - for example with supply chains. This definition allows for a multitude of interpretations and also addresses the difficulties of establishing one single, universal definition and meaning of CSR. Companies and organizations often develop and adopt their individual understanding of the concept. Among the business community, the denotation of the "Triple Bottom Line" or "Triple p -people, planet and profit" constitutes a popular reference to the concept of CSR and recognizes the integration of the economic, societal and environmental responsibilities into the business strategy of modern companies (Painter-Morland; 2006, Garrega and Melé; 2004, Husted and de Jesus-Zalazar; 2006).
It can also be seen as a reference to CSR as an integral part of the business strategy of contemporary international corporations. CSR is often identified as the social and environmental care that constitutes an integral part of the business strategy and cooperation that goes beyond compliance with the existing legislation in the home location and the host country of operation. Löhman and Steinholtz (2004, p. 13) state that the focus on beyond compliance is emphasized in for example the European Union's definition of CSR. Jutterström (2006) quotes a statement by the International Chamber of Commerce (ICC) and the International Organization of Employers (IOE): "Compliance with the law is the minimum acceptable level of performance; [CSR], in our view, refers to the initiatives that go above and beyond legal compliance". Along with the definition of CSR as the actions beyond legal compliance goes the understanding that CSR must have a voluntary character, which is the current nature of the concept.
Since the stakeholders are supposed to constitute the beneficiaries, or recipients, of CSR strategies, a definition of the concept is appropriate. Blowfield (2005b) defines the notion stakeholder as "any entity that influences or is affected by a company", a definition of a rather general character. Corporations have their individual definitions of stakeholders, in line with the specific strategies and priorities of the company, and so do academics. Morimoto et al. (2005) include the following agents in their definition of stakeholders: "employees and contract staff, shareholders, clients and customers, local inhabitants, suppliers, and the general public that includes the government as well as environment." From this definition, it can be concluded that the interests of all stakeholders cannot easily be simultaneously adhered to without conflict, which constitutes a delicate problem for the many companies that are engaging in CSR. The above definition has a broad and all-embracing character. However, individual companies' interpretations of the concept tend to have a more confined nature.
The stakeholder groups form the basis of success and failure of the business. Stakeholders are individuals or groups that have interests, rights, or ownership in an organization and its activities. Customers, suppliers, employees, and shareholders are example of primary stakeholder groups. Each has interest in how an organization performs or interacts with them. These stakeholder groups can benefit from a company's success and can be harmed by its mistakes.
Secondary stakeholders are also important because they can take action that can damage or assist the organization. Secondary stakeholders include governments (especially through regulatory agencies), unions, nongovernmental organizations (NGOs), activities, political action groups, and the media.
In orders to serve their stakeholders in an ethical and social manner, more and more organizations are adapting the model of corporate social responsibility. The term Corporate Social Responsibility goes by many other terms such as corporate citizenship, responsible business or simply corporate responsibility.
Company stakeholder responsibility requires that companies be committed to a stakeholder approach to management on the following four levels.
Level 1 - Basic Value Proposition
At this most basic level, the entrepreneur or manager needs to understand how the firm can make the customer better off, and simultaneously offer an attractive value proposition to employees, suppliers, communities, and financiers.
â€¢ How do we make our stakeholders better off?
â€¢ What do we stand for?
Level 2 - Sustained stakeholder cooperation
The competitive, macro-economic, regulatory, and political environments are so dynamic they necessitate constant revision of the initial stakeholder arrangements. Each revision upsets the delicate balance struck in the basic value propositions to various stakeholders. Managers must have a deep understanding of how these trade-offs affect each stakeholder, the amount of sacrifice a given stakeholder will accept, and how these current sacrifices can be compensated.
â€¢ What are the principles or values on which we base our everyday engagement with stakeholders?
Level 3 - An understanding of broader societal issues
Today's managers must recognize and respond to a rising number of international issues, without the moral compass of the nation, state or religion as a guide. Managers may need to take positions on issues that apparently are not purely business related. A pro-active attitude is necessary towards all stakeholder groups, both primary, i.e., those that have direct business dealings with the company, and secondary, such as NGOs and political activists, who can affect the operations of the company.
â€¢ Do we understand how our basic value proposition and principles fit or contradict key trends and opinions in society?
Level 4 - Ethical leadership
Recent research points to a strong connection between ethical values and positive firm outcomes such as sustained profitability and high innovation.7 Proactive ethical leadership is possible only if there exists a deep understanding of the interests, priorities, and concerns of the stakeholders.
â€¢ What are the values and principles that inform my leadership?
â€¢ What is my sense of purpose? What do I stand for as a leader?
A compelling argument behind why firms are motivated to invest in CSR programs comes from the domain of stakeholder theory. Stakeholder theory suggests that organisational survival and success is contingent on satisfying both its economic (e.g. profit maximization) and non-economic (e.g.corporate social performance) objectives by meeting the needs of the company's various stakeholders. Early research in the area of stakeholder management defines a stakeholder in an organisation as''any group or individual who can affect or is affected by the achievement of the organisation's objectives''. Primary stakeholder groups consist of shareholders and investors, employees, customers, suppliers, public entities such as governments or other public organisations that set laws and govern economic commerce and trade associations and environmental groups (Donaldson and Preston, 1995).
According to Savage, Nix, Whitehead and Blair (1991), secondary stakeholders are diverse and include those who are not directly engaged in the organisation economic activities but are able to exert influence or are affected by the organisation.
Stakeholder theory suggests that firms are motivated to broaden their objectives to include other goals in addition to profit maximization. Based on this theory, many companies embrace a CSR program as a way to promote socially responsible actions and policies, and effectively respond to stakeholder demands (Maignan and Farrell, 2004).
Motivation for satisfying stakeholder demands stems from the fact that addressing stakeholder needs can be correlated with a firm's survival, economic well-being, competitive advantage, and the development of trust and loyalty among its targeted customers (Mitchell, Agle and Wood, 1997).
Corporate Social Audit
In reality, the concept of a social audit was formed much earlier in the 1940's when a depression era academic Theodore Kreps called on companies to acknowledge their responsibilities to citizens. The word 'audit' is derived from Latin, which means 'to hear'. In ancient times, emperors used to recruit persons designated as auditors to get feedback about the activities undertaken by the kings in their kingdoms. These auditors used to go to public places to listen to citizens' opinions on various matters, like behaviour of employees, incidence of tax, image of local officials etc. Charles Medawar pioneered the concept of Social Audit in 1972 with the application of the idea in medicine policy, drug safety issues and on matters of corporate, governmental and professional accountability. According to Medawar, the concept of Social Audit starts with the principle that in a democracy the decision makers should account for their use of the powers, which should be used as far as possible with the consent and understanding of all concerned. The concept of Social Audit then evolved among corporate groups as a tool for reporting their contribution to society and obtaining people's feedback on their activities to supplement their market and financial performance. In mid 1970s, in UK and Europe, the term Social Audit emerged to describe evaluations that focused on the likely impact on jobs, the community and the environment, if a particular enterprise or industry were to close or relocate. These evaluations used the term Social Audit to clearly make the point that they were concerned with the 'social' and not the 'economic' consequence of a particular action. Trade unions, local government authorities, industry and private companies carried them out. Social Audit has also been carried out by some NGOs as a means of understanding their impact on society and to see whether they are catering to people's needs. This work has been led and facilitated by Traidcraft PLC (a fair trade retail and wholesale company in UK) and the New Economics Foundation (NEF - a London based NGO).
Social Audit is a tool through which government departments can plan, manage and measure non-financial activities and monitor both internal and external consequences of the departments' social and commercial operations. Social Audit gives an understanding of the administrative system from the perspective of the vast majority of people in the society for whom the very institutional/administrative system is being promoted and legitimised. Social Audit of administration means understanding the administrative system and its internal dynamics from the angle of what they mean for the vast majority of the people, who are not essentially a part of the State or its machinery or the ruling class of the day, for whom they are meant to work.
It is an independent evaluation of the performance of an organisation as it relates to the attainment of its social goals. It is an instrument of social accountability of an organisation. In other words, Social Audit may be defined as an in-depth scrutiny and analysis of the working of any public utility vis-a-vis its social relevance. Social Auditing is a process that enables an organisation to assess and demonstrate its social, economic and environmental benefits. It is a way of measuring the extent to which an organisation lives up to the shared values and objectives it has committed itself to. It provides an assessment of the impact of an organisation's nonfinancial objectives through systematic and regular monitoring based on the views of its stakeholders. Stakeholders include employees, clients, volunteers, funders, contractors, suppliers and the general public affected by the organisation. Stakeholders are defined as those persons or organisations who have an interest in, or who have invested resources in the organisation.
Stakeholders and Social Audit
Social Audit uses participatory techniques to involve all stakeholders in measuring,
understanding, reporting and improving the social performance of an organisation or activity. Stakeholders are at the centre of the concept of Social Audit. The term "stakeholder" appeared for the first time in 1963 in an internal document of Stanford Research Institute, which defined stakeholders as the groups without whose support an organisation cannot exist. The term "stakeholder" includes "all those who have an interest in the activity of the organisation, even if the interest is not economic". Therefore, many stakeholders correspond to each organisation, and, according to the referenc organisation, they can be the shareholders, the employees, the customers, the community, the state, the local administration, the competitors, the banks, the investors etc. Thus, the connectivity between the organisation and stakeholders forms the core of the concept of Social Audit.
Principles of Social Audit
The foremost principle of Social Audit is to achieve continuously improving performances relative to the chosen social objectives. Eight specific key principles have been identified from Social Auditing practices around the world.
Multi-Perspective/Polyvocal: Aim to reflect the views (voices) of all those people
(stakeholders) involved with or affected by the organisation/department/ programme.
Comprehensive: Aims to (eventually) report on all aspects of the organisation's work and performance.
Participatory: Encourages participation of stakeholders and sharing of their values.
Multidirectional: Stakeholders share and give feedback on multiple aspects.
Regular: Aims to produce social accounts on a regular basis so that the concept and the practice become embedded in the culture of the organisation covering all the activities.
Comparative: Provides a means whereby the organisation can compare its own
performance each year and against appropriate external norms or benchmarks; and provide for comparisons to be made between organisations doing similar work and reporting in similar fashion.
Verified: Ensures that the social accounts are audited by a suitably experienced person or agency with no vested interest in the organisation.
Disclosed: Ensures that the audited accounts are disclosed to stakeholders and the wider community in the interests of accountability and transparency.
These are the pillars of Social Audit, where socio-cultural, administrative, legal and democratic settings form the foundation for operationalising Social Audit. The Social Audit process is intended as a means for social engagement, transparency and communication of information, leading to greater accountability of decision-makers, representatives, managers and officials. The underlying ideas are directly linked to concepts of democracy and participation. The application of Social Audit at the village level holds tremendous potential for contributing to good local governance and increased transparency and accountability of the local bodies.
Uses and Functions of Social Audit
Social Auditing can be used as a tool to provide critical inputs and to correctly assess the impact of government activities on the social well-being of the citizens, assess the social costs and measure the social benefits accrued as a result of any programme implementation. The performance of government departments is monitored through various mechanisms, in different states. However, these practices do not capture adequately the broader social, community and
environmental benefits. Therefore, to generate information on social relevance, costs, and benefits of a programme/activity, Social Audit can be used to provide specific inputs for the following:
To monitor social and ethical impact and performance of the organisation;
â€¢ To provide a basis for shaping management strategy in a socially responsible and accountable way and to design strategies;
â€¢ To facilitate organisational learning on how to improve social performance;
â€¢ To facilitate the strategic management of institutions (including concern for their influence and social impact on organisations and communities);
â€¢ To inform the community, public, other organisations and institutions about the allocation of their resources (time and money); this refers to issues of accountability, ethics (e.g.,ethical investment) etc.
Benefits of Social Auditing for Government Departments
The following are the benefits of Social Audit:
1. Enhances reputation: The information generated from a Social Audit can provide crucial knowledge about the departments'/institutions' ethical performance and how stakeholders perceive the services offered by the government. The social angle in the delivery of services, real or perceived, can be a major factor adding to the reputation of the department and its functionaries. In an era where all the services are benchmarked and
where citizens are becoming more aware about the services through citizens' charters, the government departments are also aiming towards building their reputations. Social Auditing helps the legislature and executive in identifying the problem areas and provides an opportunity to take a proactive stance and create solutions.
2. Alerts policymakers to stakeholder trends: Social Auditing is a tool that helps managers understand and anticipate stakeholder concerns. This tool provides essential information about the interests, perspectives and expectations of stakeholders facilitating the interdependency that exists between the government and the community.
3. Affects positive organisational change: Social Auditing identifies specific organisational improvement goals and highlights progress on their implementation and completeness. Also, by integrating Social Audit into existing management systems, employees responsible for day-to-day decision making can more effectively consider stakeholders' issues and concerns.
4. Increases accountability: Due to the strong emphasis on openness and accountability for government departments, the information disclosed needs to be fair and accurate.Social Auditing uses external verification to validate that the Social Audit is inclusive and complete. An externally verified audit can add credibility to the department's efforts.But the greatest demonstration of a Social Audit's authenticity must be seen in how the performance of the department improves over time in relation to its mission, values and objectives.
5. Assists in re-orienting and re-focusing priorities: Social Auditing could be a useful tool to help departments reshape their priorities in tune with people's expectations.
6. Provides increased confidence in social areas: Social Audit can enable departments/institutions to act with greater confidence in social areas that have been neglected in the past or have been given a lower priority.
Six Key Steps for Social Audit
The six steps of Social Auditing are:
1. Preparatory Activities
â€¢ Understand key principles of Social Audit.
â€¢ List core values of the department/programmes.
â€¢ List down social objectives the department is working towards or programmes it aims to contribute.
â€¢ Match activities with objectives.
â€¢ List current practices and delivery systems.
â€¢ Fix the responsibility for doing Social Audit in the department.
â€¢ Budget for Social Audit.
2. Defining Audit Boundaries and Identifying Stakeholders
â€¢ Elaborate key issues for Social Auditing based on the social objectives.
â€¢ Prepare a statement of purpose, objectives, key issues and activities for Social Auditing.
â€¢ Identify key stakeholders for consultation (Government and Civil Society).
â€¢ Forge consensus on audit boundaries; identify stakeholders and formalise commitments.
3. Social Accounting and Book-keeping
â€¢ Select performance indicators for social accounting.
â€¢ Identify which existing records can be used.
â€¢ Identify what additional data to be collected, who would collect this data, when and how.
â€¢ Identify when stakeholders would be consulted and for what.
â€¢ Prepare a social accounting plan and timeline.
â€¢ Plan for monitoring social accounting activities.
4. Preparing and Using Social Accounts
â€¢ Prepare social accounts using existing information, data collected and views of stakeholders.
â€¢ Identify key issues for action.
â€¢ Take stock of objectives, activities and core values.
â€¢ Set targets for future.
5. Social Audit and Dissemination
â€¢ Presenting social accounts to Social Auditor.
â€¢ Social Auditor verifies data used, assess the interpretation and comment on the quality of social accounting and reporting.
â€¢ Social accounts revised in accordance with Social Auditor's recommendations.
â€¢ Social Auditor has to collect information from the stakeholders regarding programme implementation and benefits accrued to them.
â€¢ Disseminate Social Auditor's consolidated report to the decision-making committee that includes stakeholders.
â€¢ Disseminate report to civil society.
â€¢ Begin next cycle of social accounting.
6. Feedback and Institutionalisation of Social Audit
â€¢ Feedback for fine-tuning policy, legislation,administrative functioning and programming towards social objectives.
â€¢ Follow-up action.
â€¢ Reviewing support to civil society for its participation
â€¢ Institutionalisation of the process.
â€¢ The first two steps are critical when a department decides to incorporate social accounting, social book-keeping and Social Auditing.The department needs to look at its vision, goals, current practices and activities to identify those that are amenable to Social Auditing purposes.
â€¢ Form small work groups (say, seven persons), which would spend about two days each to list down the social vision, core values, social objectives and map stakeholders and their involvement. Ensure involvement of various functionaries, with due representation to gender, while forming small groups. The small groups should have access to project documents, process documentation, department guidelines and policy notes.
â€¢ The next activity would be to assign the task of matching the activities with the
social objectives and identify gaps. This again could be carried out by a small group drawn from the managerial cadre and execution/implementation groups at the field level.
â€¢ All this information would be then looked into; to develop a plan for Social Auditing,including who would be responsible in the department, monitoring and identifying the resources required. This responsibility again could be given to a small group of three individuals.
â€¢ Stakeholder consultation, involving department functionaries and civil society, would be the forum for sharing the Social Audit plan. This consultation would clarify the issues important for Social Auditing, role of stakeholders, as well as commitments from them.
â€¢ The outcome of the consultation would feed into the process of detailing out: the
indicators to be monitored; which existing records to be used; and how additional
information would be collected. The next key step is to fix responsibilities for various activities. The activities include preparing the formats for social account-keeping,compilation of data and reporting the same on a monthly basis (internal use). Managers of the department/programmes can use this information for monitoring as well as providing feedback for improving performance and overcoming bottlenecks.
â€¢ Social Audit subscribes to good governance principles of participation, inclusiveness and consensus. To translate these into activities, a department can start the preparatory activities during any time in a financial year; form a small group, which would go through relevant documents and lists down core values and social objectives. The group would ideally spend about two days to complete this task. They would prepare a small note providing appropriate references to documents or based on the discussion among themselves and colleagues in the department.