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In the world of business, the paramount responsibility of the businessman has historically been to make profit and increase the shareholder value. In other words the motive of operating business has been the "corporate financial responsibility". However in today's competitive world every company is striving to achieve competitive edge in the global market which is not feasible by achieving corporate financial responsibility In this modern era, the drivers of competitive advantage is not restricted to corporate financial responsibility but it also includes other issues such as brand loyalty, staff morale and motivation, reputational risk, environmental sustainability and many other. By keeping this knowledge in mind, in the last decade a movement describing wider concept of corporate responsibilities- for local communities, for ethical responsibility, for the environment, and for working condition, has grown and taken grip. This new driving force is CSR (Corporate Social Responsibility)
What is Corporate Social Responsibility?
Particularly there is no universal definition of CSR , in general it means transparent business practices which are based on value of ethics along with fulfilling legal requirements and respect for the environment, community and people. Hence company is not responsible for profit only but also for the impact of their operation on people and the planet. Here the term people includes- company's stakeholders: its customers, employees, investors, business partners, vendors, and suppliers, the government and the community . In business world, CSR is alternatively referred to "corporate citizenship".
According to South China Morning Post, 2002:
The desire of companies looking beyond profits to their role in society is generally
termed as corporate social responsibility .This term refers to a company linking itself with building employee relations, ethical values, compliance with legal requirements transparency, and all together respect for the communities in which they run. It goes beyond the occasional community service action, however, as Corporate social responsibility is a corporate philosophy that draws strategic decision-making, hiring practices, partner selection, and, ultimately, development of brand.
History of CSR
The story of social and environment concern about business began with the story of business itself. There are many cases which indicate the presence of Corporate Social Responsibility in long time back. For example we can trace the Commercial logging operations and laws to protect forests around 5000 year back. In Ancient Mesopotamia in 1700 BC, under the rule of King Hammurabia there was a code which says builders, farmers, or innkeepers would put to death if their negligence cause any harm, inconvenience or death to local citizens. In 1622 disgruntled shareholders of Dutch East India Company used to issue pamphlets about the self enrichment and management secrecy.
By the 1920s the Corporate Social Responsibility became one of the important issues for discussion this gave the beginning to the "morden' Corporate Social Responsibility movement . Between 1900 and 1960 the corporate world slowly began to accept and adopt additional responsibilities towards society other than making a profit and obeying the law. Many believed that corporate world has the capability of avoiding social problems. Many legal mandates were designed for business related to product safety, equal employment opportunity, worker safety and the environment safety. In addition to this, society began to make expectation out of the corporate world that it would contribute towards the betterment of the society and will voluntarily participate in solving the problems related to the society. This expectation was based on the view that business should extend its responsibility beyond the economic and legal responsibility and should also cover responsibility towards the society.
In this way Corporate social Responsibility came into the world of corporate and became one of the major and vital strategy for achieving and maintaing sustainability in this global world .
Corporate Governance is not the same as Corporate Social Responsibility
There is a very fine line between Corporate Social Responsibility and corporate Governance. These two terms are extremely vital for the company. If the company has well designed Corporate governance programs then it would mostly cover all the issues related to Corporate Social Responsibility.
In simple words corporate Governance means the system by which the organizations are directed and controlled. It is the way in which the top management executes their responsibility by using their authority and how they are accountable for it. It is concerned about openness, accountability and integrity in the decision making process of the organization. No doubtable it is important for all the organization regardless of whether is is private or public sector .
Need of adopting Corporate Social Responsibility by the companies
Companies have start realizing that in order to be competitive, productive and relevant in a changing corporate world, they have to be responsible towards the society. In the world of globalization, how the company is maintaining its relationship with its employees, host communities, and the marketplace greatly affects the sustainability of the organization.
To understand the need of Corporate Social Responsibility there are two aspects:
moral aspect- business could not survive in isolation they rely on the society in which they exist. Society and business both are interconnected and inter dependent to each other. Business requires the infrastructure and source of employees that society provides. Corporate Social Responsibility is about recognizing the inter dependence between the corporate and society and a means of working on that obligation so as to giving mutual benefit to the business and to the society in which the business operates. It is analyzed on the part the business that for earning profit business do not exist in a vacuum and the success which it enjoy is mainly due to its healthy relationship with the society in which it operates.
The motive of a business is not to make a profit, full stop. But the main motive is to make a profit so that the business can contribute for something more or better. That "something" is only the real justification for the business. It is a moral issue. To mistake the means for the end is to be turned in on oneself, which Saint Augustine called one of the greatest sins. It is useful and important to ask about any organization, "If it did not exist, would we invent it?" "Only if it could do something good or more useful than anyone else" would have to be the answer, and profit would be the means to that larger end.
Advocate of Corporate Social Responsibility believe that in advance economies the objective of business should be beyond the maximization of profit and efficiency. Society has an expectation out of businesses to have a responsibility and an obligation towards the society in which they operates, their customers and employees. The business should change its attitude towards its objective and should look beyond the narrow concept of shareholder concerns and traditional-bottom line. Business draw benefits from the society in which it operates in some or the other way like infrastructure, safe environment, employees from the society.
In today's brand driven market Corporate Social Responsibility is a way of matching business operations with stakeholder's demands and values. It's an economic self interest, there are many real economic benefits to businesses which are working upon the Corporate Social Responsibility. The corporations which are pursuing a Corporate Social Responsibility strategy are making there future bright because this will give the competitive and differentiation market advantage to the corporation. Corporate Social Responsibility covers almost all the day to day operations of the corporation. Whatever corporation does is in some way or the other way interact with the interest of stakeholders, the corporation needs to maintain its relationship with all its stakeholders. Success of the company is directly related to its brand royalty. Involving the large amount of money, time, and effort companies put in their brands, a good Corporate Social Responsibility policy is an best means of utilizing that investment and maximizing its impact.
10 commandments of Corporate Social Responsibility
Many companies are applying CSR strategy and getting involved in activities which they consider to be the part of CSR. There is a lot of misunderstanding relating to this term, so it is important to have a clear idea about CSR.
To make a certain standards for the CSR, there are 10 commandments made for it:
make ensure that corrective action is taken before it is required. Every company sets its own standards which should not be against the interest of other communities. Compliance of self imposed standards is always recommended to compliance with those standards which are imposed by constitution.
The organization should work to establish industry-wide standards and self regulation.
To follow Corporate Social Responsibility the organization should work with affected constituents to solve common problems.
When ever if any mistake or some something against the interest of the society is conducted by the organization then it is recommended to publicly admit it because certain things are worse for organisation's image than being caught red hand while trying to hide social irresponsible behaviour.
Working for the society or doing anything for the society is not the rigt attitude for following Corporate Social Responsibility, what matters is that the organization should indulge itself into a approprita social programs.
The organization should contribute in correcting the environment problems.
In this global world the especially the developing coutries are changing their social environment, here comes the Corporate Social Responsibilty for the organization to monitor the changing social environment and shaping it in the better way.
Corporate Social Responsibilty seeks for the code of conduct, so the organization should establish and enforce proper and clear corporate code of conduct.
It is expected out of the organization that in case of social issues the organization should public stand.
The organization should not be lost in enforcing the Corporate Social Responsibilty and get distract from its main objective of earning profit. It should try hard to make profit because an organization can not provide social benefit such as employment, if it is not in a condition to make profit on an on going bases .
Companies following CSR:
Many companies are practicing CSR, they have made it as a integral part of the organization strategy many big companies are practicing the corporate and ethical practice. most of the companies are changing their product or innovating them in such a way that new product would be environmental friendly and make the sustainable development.
An example of the company which is following Corporate social Responsibility
Idea Cellular Ltd:
This company is in telecom service, its mission is to delight their customers while meeting their customers communication needs any time and any where. This company is very active in Corporate social Responsibility, its CSR activity is mainly based in the area of education and rural development. This company is a responsible corporate citizen and it try hard to give back to the society in which it operates. The activities which this company has undertaken for Corporate social Responsibility are :
Pocket Public Call Office project- this company along with International Finance Corporation has taken a step for making and implementing a Pocket PCO project in India. this will create a mobile phone which would have an additional feature of PCO software embedded in it. This device can be use for double purpose, for personal use and as a PCO for business opportunity. This company has made commitment to improve the lives of individuals by providing better quality access to telecommunication.
FICCI-Aditya Birla Corporate Social Responsibility Centre for Excellence- as per the mission and corporate value of the company, this company along with the Federation of Indian Chambers of Commerce and Industry , and other groups companies have launched a Corporate Social Responsibility centre. This purpose of doing this is to create the culture and concept of Corporate Social Responsibility among businesses, industries, institutions, which will benefit employees, their families in short to the whole society through training and welfare programs.
Recently this company came up with an idea of conducting Corporate Social Responsibility through advertisements. This new advertisement which mostly talks about democracy, rural development and education is a milestone in the journey of this brand.
By doing this Idea cellular Ltd. In India is successfully gaining market share. this company has adopted Corporate Social responsibility because they believe that business sustainability depends largely up on the high ethical standards of the company.
An example of the companies which are not to much serious about Corporate social Responsibility
Corporate Social responsibility is not mandatory for the organization to adopt and apply it in its day to day working. There are certain companies which are not much bother about the Corporate Social responsibility, they believe that they can survive in the market without it. The companies which are consider as socially irresponsible are bp, Hallibrton, Dow Chemical, Glaxo Smith Kline, MERCK and many others.
Kellogg's is consider as socially irresponsible company in its few products. The coco pops of Kellogg's contain 35% sugar which is too unhealthy for the children. The highly sugar concentrated Kellogs Coco pop cereal is unsuitable for the children. The advertisement of this product was done basiclly in front of school and bus stops, the target market were children. In the advertisement a monkey wearing school uniform which was aimed to encourage children to eat a high sugar cereal. Kellogs is a partner of Change 4life, a department of health initiative which help to reduce obesity. This Coco Pop cereal of Kellongs advertisement conflicts with this approach. This carelessness of Kellongs affected its image. But it did not affected to its profit much.
Benefits of Corporate Social Responsibility
Corporate Social Responsibility is one of the most important business strategies, consumers are interested in buying products of those companies on which they can trust, suppliers want to deal with those companies which are trust worthy and employees prefer to work for those companies for which they have respect. Satisfying these stakeholders of the company would maximize the commitment of the company towards its main stakeholders- investors, who get benefits the most when company meets the expectation of its other stakeholders. In the globalization era only those corporations can succeed who manages to handle conflicting interests of it stakeholders.
Avoiding unnecessary resource use and reducing waste does not just protect the environment but also saves the money of the organization. There are many benefits attached to Corporate Social Responsibility:
It builds the good reputed image of the organization, this make easy to recruit employees. Generally people want to work in that organization where they can have trust that they will get their pay and other benefits. This may hold back the employess in the organization which would further provide benefit to the organization by reducing the cost of recruitment and training.
Corporate Social Responsibility makes the organization active and involve it with other local communities in a positive way, this creates an opportunity to make positive press coverage.
Corporate social Responsibility encourage the invertors to invest in the organization, it provide assurity to the investors that the organization is favorite of the public so its save to invest in it.
It makes the organization more competitive and also sustain the organization in the market. This reduces the risk of sudden damage to the reputation of the organization .
In order to satisfy the wants of present generation without compromising the ability of satisfying the future generation wants and needs is what we call sustainable development. Corporate Social Responsibility contributes for sustainable development of the economy.
Cost of Corporate Social Responsibility
Sometimes corporate social responsibility is also taken in a negative way or as a costly strategy for the corporation. Taking social responsibility is not economically feasible. Social issues should be some other society's responsibility to handle. Implementing Corporate Social Responsibilty might be expensive. Resources such as people, time, and money need to be allocated and requires training and reporting activities will likely raise the cost of operation. It is kind of burden for the organization, it requires more report works other then financial report now to practice Corporate Social Responsibility the organization has to make non profit report
Corporate Social Responsibility is a pure voluntary action, which depends on the organization to whether adopt it and follow or do not care for its responsibility towards the society in which it operate. It has gained a lot a attention in last decade, many companies are making non financial report. It is believe that Corporate Social responsibility contribute for sustainable development of the economy. It may at first appear to be a cost burden for the organization but at the end it found to be supportive of brand, sales, investor popularity and employee loyalty Government and non government organization along with the businesses are indulge in constructing a number of frameworks and guidelines which the company can practice to measure their commitment towards Corporate Social Responsibility The bottom line is this the combination of corporate financial responsibility and Corporate Social Responsibility makes the organization to realize its goal and enable it to sustain in the market for the long period..