Corporate social Responsibility (CSR) is an evolving concept which is yet to command a standard definition or a fully recognised set of criterion. With the knowledge businesses have a key role of job and wealth creation in society, Corporate Social Responsibility is usually implied to be the way an organisation achieves a balance between economic, environmental and social imperatives whilst they address the expectations of the shareholders and the stake holders. Whilst businesses try to comply with the laws and regulations in the social, environmental and economic objectives set by the legislation and legal institutions, The understanding of CSR is frequently taken as involvement of the private sector commitments and activities, which continues beyond the compliance with laws. In fact, a key feature of the concept is the way businesses engage or involve the stakeholders, employees, customers, suppliers, international organisations, governments, non-governmental organisations, and others in the organisation.
CSR is usually viewed as the business contribution to maintainable development that has been defined as "development that meets the present needs without compromising the ability of future generations to meet their own needs", and is usually understood as emphasising on various ways to achieve the environmental and social imperatives and integration of economic,. CSR also overlaps and repeatedly is synonymous with various topography of other related concepts such as corporate responsibility, corporate stewardship, corporate sustainability, corporate citizenship, corporate accountability, etc.
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In present world it is usually accepted that business firms have social responsibility that spread well beyond, what formerly was normally referred to simply as the 'business economic function'. Previously managers in most cases had only to fear themselves with the economic results of their decisions. Whereas, now the managers should also weigh and consider the ethical, moral, social and legal impact and consequence of all their decisions.
Opinions differ in terms of the basis or scope of CSR and even the very definition of the term. As a consequence different aspects of a firm's operations can be seen to fulfilment of social obligations, achievement of a social equilibrium, etc, depending on the stance taken. World business council for Sustainable Development in its publication "Making Good Business Sense" (Lord Holme and Richard Watts, 2000) defines CSR as "Corporate Social Responsibility is 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."
History and CSR
Corporate Social Responsibility has its roots in the thinking of the twentieth century where the theologians and the religious thinkers suggested the application of religious principles to business activities. First was the principle of philanthropy in which the wealthy and generous individuals contributed to the resources for aiding the unfortunate. The Sharing of Wealth is also defined in the Bible in which, Jesus in some of his parables exemplifies the sharing of wealth (example: the Prodigal Son and the Good Samaritan). The next was the stewardship principle, a biblical doctrine, which requires business and wealthy individuals to see themselves as stewards or caretakers not just shareholders but also society's resources for the benefit of the society at large.
Many of the teachings of the Catholic Church support CSR. As mentioned above the principle of philanthropy was supported by the most recent popes (Benedict XVI and his predecessor, John Paul II) in the 20th and 21st century. "Liberation Theology" was developed by the Catholic Church in Latin America in the 1960s to address the social needs. The Catholic Church supported various concepts which were linked with CSR.
Although CSR came into prominence in the 1970's (Caroll, 1979; Wratick and Cochran, 1985), the first publication specifically in the field dates back to 1953, with Bowen's ' social responsibility of businessman'. In this work, Bowen argues that industry has an obligation 'to pursue those policies and to make decisions, or to follow those lines of action which are desirable in terms of the objective and values of society' (Bowen, 1953), which means;
Businesses exists at the pleasure of society and that their behaviour and methods of operation must fall within the guidelines set by society
Always on Time
Marked to Standard
Businesses act as moral agents within society.
Wood (1991) expanded these ideas encapsulating them into three dividing principles of social responsibility, which are:
Business is a social institution and thus obliged to use its power responsibly;
Businesses are responsible for the outcomes relating to their areas of involvement with society; and
Individual managers are moral agents who are obliged to exercise discretion in their decision making.
A growing number of scholars take the view that firms can no longer be seen purely as private institution but as social institution instead. The benefits flowing from firms need to be shared collectively. This thesis is similar to the stakeholder model and claims that firm is not responsible only to its shareholders but to all stakeholders whose contribution is necessary for a firm's success.
However, Friedman (1962) differed from these and felt that the corporation is an economic institution and thus should specialise in the economy sphere alone and the socially responsible behaviour will be rectified by the market through profits.
The view that a business may be obligated to go beyond the economic role is not new in various respect. Through whole of recorded history the specific function of organisation producing goods and services for market place were usually linked with and include social, political, and military roles. For example, during the early evolutionary stages (i.e. In 1622) of company development in England (where organisations such as East India Company and the Hudson Bay Company received broad mandates), there was a public policy stating that corporations were to help achieve societal goals such as providing transportation and financial services, developing bank, exploration of colonial territory, and setting up settlements, etc.
During the 19th century, the corporation as a business manifestation of organisation developed rapidly in the Unites States. It took a commercial form that signified the roles and responsibilities of the management and board of directors to shareholders. In this later evolutionary form, public policy usually addressed specific domains such as consumer and environmental protection, health and safety for workers, labour practices, etc. thus, corporations reacted to all social responsibilities because it was obligatory to be in compliance with the public policy and law. They also responded voluntarily to market demands that displayed consumer social tastes and moral. By the mid of the 20th century, CSR was being discussed in the United States by business management experts such as Peter Drucker and in business literatures CSR surfaced and continues to be a key marketing, accounting and business management concern in Europe, Canada, US and other nations.
Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. Companies made profits unhindered except by fulfilling their duty to pay taxes. They then donated a certain share of the profits to charitable causes, which is seen as a tainting the act of the company to receive any benefit from the giving's. The first generation f CSR this way showed how companies can be responsible in ways that do not detract from and may contribute to commercial success. Corporate philanthropy is the practice of companies of all sizes and sectors making charitable contributions to address a variety of social, economical and other issues as part of an overall corporate citizenship strategy.
In last decade, CSR and related concepts such as corporate citizenship and corporate sustainability have expanded. This has perhaps occurred in response to new challenges originating from increased globalisation on the agenda of business managers as well as for related stakeholder communities. The Second generation of CSR is now developing where companies and entire industries see CSR as an integral part of the long term business strategy. CSR usually involves focusing on first-hand opportunities as a way to react to inter-related economic, societal and environmental demands in the market place. In "Corporate Social Responsibility as Business Strategy", organisations don't seem to have a genuine intention of being socially responsible and the CSR programs are designed to prevent government from implementing any law or compulsory regulation of businesses with regards to their contribution to society (Rowe, 2005).
The Lupin Company is a good example of how CSR has been practiced by a modern company for over a forty years. The Lupin Human welfare and Research Foundation (LHWRF) was established in 1988 by the chairman who founded Lupin in 1968. Lupin has speared over 6 locations in India and has a joint venture in Thailand. It is represented through its sales offices in UK, USA, Hong Kong, Japan and CIS. The company's 2008 sales stood at almost $27 billion with a growth rate of 34% and it has been judged as the top 10 pharmaceutical companies in India. Its CSR activities have contributed to this success story, their model lies in the idea of convergence.
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The company believes in strengthening tie-ups, for example, building up long term supply arrangements, customer focus, centred around price, reach and delivery. Broad areas of the company's CSR activities include: Soil conversation, Organic farming, post-harvest measures, Animal husbandry, Rural Industry training & development, Education & Social welfare, Infrastructure and health outreach (more focusing in life saving drugs, TB camps and awareness by poster display in almost 95% of TB treating doctor clinics and hospitals). Thus Lupin has a robust CSR development program.
Now, a third generation CSR is needed in order to make a significant contribution to addressing poverty and environmental degradation. This will go beyond voluntary approaches by individual companies and will involve leadership companies and organisations influencing the marketing which they operate and how it is regulated to re-mould whole market towards sustainability.
Economic Cost and benefits in adopting CSR position
Corporations and Organisations are motivated to engross stakeholders in their decision-making and to address social challenges, the sole reason being: present time stakeholders are more and more aware of the importance and impact of corporate decisions upon environment and society. The stakeholder can recognise or punish corporations. Corporations can be motivated to change their corporate behaviour and the economic cost and benefits includes:
Improved financial performance: While it remains difficult to determine a direct casual relationship between increased accountability and financial performance, a variety of studies suggest that such a link exists. For example according to Global Investor Opinion Survey (2002) released by McKinsey & Company, the majority of investors are ready to pay a premium for companies displaying high governance norms. Premiums averaged 20-25% in Asia and Latin America; over 30% in Eastern Europe and Africa; and 12-14% in North America and Western Europe. The study also found that over 60% of investors mentioned that governance may direct them to avoid individual companies with inferior governance standard.
Heightened Public credibility: Companies that demonstrate a willingness to provide information that is credible, verifiable and accessible can garner increased trust among stakeholders. Forthright and candid reporting about company achievements as well as performance shortfalls helps companies create a public reputation of honesty. At the same time companies that make a public commitment to increase accountability and transparency need to ensure that they have robust systems for implementation, lest the company risk negative public backlash for failing to live up to its commitments.
Reduced costs: The enhanced communication that is usually part of corporate accountability efforts can help build trust between companies and stakeholders, which can reduce costly conflict and improve decision-making. Companies that proactively and effectively engage shareholders and address their concerns can reduce the cost with associated with shareholder proposal. In addition, social and environmental reporting efforts can help identify priorities to ensure that company is achieving the greatest possible impact with available resources.
Increased attractiveness to Investors: Investors - whether shareholders invested in socially responsible funds that screen companies for social and environmental attributes, or large institutions - welcome the increased disclosure that comes with corporate accountability. A growing number of investors are including non-financial metrics in their analysis of the quality of their investments. New metrics cover labour and environmental practices; board diversity; independence, and other corporate governance issues; and a wide variety of other social and environmental criteria. Research suggests investors may be willing to pay higher prices for the stock of companies considered to be accountable. For example, a 2000 survey of 200 large institutional investors conducted by McKinsey & company., the World Bank, and Institutional Investor's regional institutes found that three-quarter of stack holders considered board practices as important as financial performance when evaluating companies for investment. The study also found that more than 80% of investors are willing to pay excess for the shares of a well-governed company than for a poorly governed company with comparable financial performance.
Improved relationship with stakeholders: Companies that make an effort to be transparent and accountable for their actions and decisions are better able to build trust among their stakeholders. This engagement helps companies understand how community groups and other stakeholders perceive them, and educate them about further issues and concerns that may affect their operations. Many government agencies and stakeholders look favourably at companies that self-identify and publicly disclose accountability challenges and demonstrate that they are working to solve them.
Early identification of potential liabilities: The strategic information that can come efforts to develop a more accountable company - including social and environmental auditing and reporting and stakeholder dialogue - can identify practices or situations that could pose liabilities to a company. Early identification can provide companies with the opportunity to resolve problems before they result in costly legal actions or negative public exposure. Issues that might surface more quickly in an accountable company include: environmental problems that could endanger public health, workplace discrimination or harassment that could result in lawsuits, marketing practices that do not price products or service equitably or hiring practices that inadvertently give unfair advantage to certain populations.
Market advantages: Accountability can make entry and success in new markets easier by helping establish direct relationships with key customers and business partners. These relationships can contribute to innovation in product, development or delivery, help mitigate potential negative media coverage, and enhance market presence. For example John Lewis store is a well know business that is owned by its employees, the social responsibility of John Lewis is reflected through its customer service. John Lewis achieved a 100% range in market of domestic large electrical appliances. Some companies have used dialogue with stakeholders to help make decision on overseas investments and operations, or to overcome the challenges of operating in markets with different cultures, laws and languages. For example, Unilever's Indian subsidiary, Hindustan Lever, has worked with local stakeholders to develop a new delivery system for laundry detergent in Indian villages.
Improved overall Management: Many companies that have developed clear CSR performance and accountability systems inside their organisations report experiencing an improvement in their management practice overall. An analysis if fortune 500 companies conducted at the Boston College, Carroll School of Management found that companies judged as treating their stakeholders well are rated by peers as also having superior management.
Improved organisational effectiveness: The process of self-assessment and evaluation, which is part of increasing accountability can have beneficial impact on company operations. For example, social and environmental auditing and reporting gives companies the opportunity to assemble and assess more comprehensive information on operations and impacts. This information can help coordinate and maximise efficiencies and collaborations across departments, facilities, and business units. Dialogue and partnerships with stakeholder groups can help companies build skills and competencies, or align company operations with overarching mission and values.
Decreased risk of adverse publicity: Accountable companies may be better prepared to address the concerns of customers or other stakeholders who might otherwise take a negative action on social issue. For example, by engaging in a dialogue with stakeholders about their interest and concerns, and addressing those concerns in business implementation processes, companies may be able to head off or minimise the impact of boycotts organised by consumer groups. Similarly, companies that proactively address the concerns of shareholders can reduce the risk of adverse publicity stemming from high-profile shareholder dispute.
Corporate Social responsibility & Companies:
In India, most of the work done by companies is still in the nature of philanthropy considering the fact that, of the six short listed companies for the Business World FICCI CSR award for the year 2003, five (Lupin, Canara Bank, Indal, Gujarat Ambuja and Wipro) are involved in community development work. This means building roads, running schools and hospitals, creating income-generating schemes and similar projects.
Research in the west show that investors are increasingly questioning companies on corporate social practice and are allying with those that have high respect for CSR. In fact there is a whole eco-system being built around this concept - with outfits like Ethical Investment Research Services, a UK based independent researcher of ethical, social and environmental practices advising outfits like Goldman Sachs, J P Morgan , Redit Suisse, Merill Lynch and Standard Life on CSR practices of companies. Moreover the likes of FTSE and Dow Jones are coming up with indices such as the FTSE 4 Good and the DOW Jones Sustainability World Index. The FTSE 4 Good is an index comprising stocks of companies with good practices. To be a part of the FTSE 4 good family of indices one need to apply to the FTSE 4 Good applications committee.
The main reasons why a company would want to be socially responsible is to get on the FTSE4 Good index list to gain further below advantages as mentioned below:
To identify socially acceptable shares
To identify socially responsible companies
To track the performance of these companies
To form a standard of how socially responsible companies are behaving
The above four advantages can be classified as Investment, Research, Benchmarking and Reference respectively. The benefits to companies of being included in the FTSE4Good Index Series, and addressing environmental and social issues include:
FTSE4Good members come from across the world and as of February 2004, majority of the membership was found in the UK and the USA, with Japan running in at number three. The below table shows the position as on February 2004.
Source: FTSE4Good Index Series [PDF, 206 KB]
The other reasons why any organisation would want to be socially responsible, so that they will perform well because they can reduce the risk and attract quality workers from bad publicity and law suits. A more socially responsible company's product and services will be seen in a more positive sense, which the marketers call "the halo effect.". "Environmental and social performances are tangible business assets that complement conventional financial performance".
The analysis and discussion on Corporate social responsibility indicates that an organisations actions can lead to a responsible behaviour that benefit's the entire society at large with the organisation taking active participation. It is an very important aspect of business and is based on the recognition that interest of business and society are closely linked and interrelated. In-spite of the differences with regards to viewing of social impact and the degree of corporate commitment, the majority of the pessimist and optimist believe that 5 to 10 years from now CSR would be more and more in mainstream with business. CSR language, tools and resources - all will be more aligned with business systems, standards and norms.