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The subject corporate social responsibility has gained popularity only in recent years. It has been started its origin from the concept of the welfare state. When the industrialization comes and there is a concern over productivity of the workers, their problems where start a welfare concept.
Let us look a definition on social responsibility.
The World Business Council for Sustainable Development in its publication "Making Good Business Sense" by Lord Holme and Richard Watts used the following definition. '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'.
Corporate Social Responsibility
CSR tells about how the companies are managing their business strategy to bring a positive impact on the economy.
Take the following illustration:
Every company need to answer two types of their operations. They are:
1. The quality of their management - both in terms of people and processes (the inner circle).
2. The nature and quantity of their impact on society in the various areas.
The diagrammatic representations of the CSR are the following
CSR standards on assessing social responsibility
CSR had some standard form for assessing the social responsibility. They are:
â€¢ Environment: In this case the CSR looks into the environment impact on products and services.
â€¢ Employees: Here the CSR looks into the employee's welfare, whether all employees are equally treated, or if any problems regarding their wages etc are comes under this category.
â€¢ Communities: The engagement with surroundings is also a part of CSR from this communication with surroundings they can keep good image and better selling of their products.
Need for Social Responsibility
There are many situations where a business has to keep some social responsibility. The major social responsibility of a business institutions are the following.
In every business sector the business philosophy is tells that a societal approach is needed. This approach will make to understand the social problems of the economy.
After the globalisation in the 1990's lots of business institutions are seeing cooperative social responsibility as the objective.
In the collaboration agreements there are provisions regarding the social security and welfare of the society.
There are certain legal provisions where companies have to concentrate and care on social problems. For example, suppose a factory is opening in an area the business organisation has to get permission from the pollution control organisation for opening an industry.
The donations for social responsibility issues from non-government organisations are exempted from the income tax.
The social responsibility will create a good image to the company whereby can create better business environment.
The social responsibility improves to bring more market share.
Importance of CSR
(Thilmany, J, 2007) The CSR is one of the important strategy for getting consumer trust and affection. The people's behaviour of consumption pattern is related to their attitudes. The people are interested to buy the products from the company they like, so CSR can make some trust to the public by applying more charity and other social work. From the case of suppliers also the same case is happening. The suppliers will deal with the company they trust, so we can see the importance of CSR in business strategy.
Let us look a literature put forward on CSR.
'I honestly believe that the winning companies of this century will be those who prove with their actions that they can be profitable and increase social value-companies that both do well and do goodâ€¦. Increasingly, shareowners, customers, partners and employees are going to vote with their feet-rewarding those companies that fuel social change through business. This is simply the new reality of business-one that we should and must embrace.'
Chairman and Chief Executive Officer
Hewlett Packard Company
Let us look on the advantages of CSR
CSR is becoming as one of the business strategy because of three trends. They are:
â€¢ The social expectations
There is a tendency among the people that when we buy a product, because they expect that they will get more from the company. This sense has increased the light of recent corporate and reduced public confidence to control corporate excess.
â€¢ Increasing affluence
This tendency is scene in the developed nations than in the developing nations. The affluent consumers can select and afford the products according to their choice.
The term globalisation means integrating the economy of a country with the rest of the world. The introduction of globalisation and new products and industry into the economy made the consumers more aware of the market. This globalisation in the economy made serious changes into the corporate strategy on CSR. When the globalisation is happened in the economy the market is competing with so much industries and products, so the people has so many options to buy a product. At that time the CSR policy can make some trust on the people regarding the selection of the products. If the company can make a social responsible attitude to the people, they will simply trust the company and will buy the products from that company itself.
CSR policies are aiming to provide a complete social obligation in all perspective. The goals of the CSR are to maximise the value and image of the corporation. Today the business organisations are competing for their brand image so the CSR can make the organisation to bring some branded image.
If the company is not aiming the CSR in their strategy it leads to a lack of consumers for their products.
Key steps on the road to integrating CSR within all aspects of operations include:
â€¢ We should ensure the commitment of the top management of the organisation, especially the CEO of the organisation,
â€¢ Appoint a CSR to manage and co ordinate the decision regarding the business strategy.
â€¢ Maintain a relationship with all consumers and suppliers, stakeholders and the people.
â€¢ The CSR should be added in the company's annual report.
â€¢ A compensation system is required within the organisation
â€¢ The CSR policy should be implemented.
There are certain arguments which support the CSR and also there are some other arguments which do not support the CSR. Let us go through in details.
Arguments for CSR
The major arguments which support the CSR policy of an organization are the following.
The arguments for CSR can be broadly split in to two: They are
â€¢ Moral Argument
â€¢ Economic Argument
Let us discuss the two in detail.
The profits are an essential thing for any business organization. In everywhere people will try for making profit and make their life into a better status. In any business organization, they can't survive without the support of society. The business needs infrastructure from the society, need laborers from the population, they want lots of consumers. So CSR is important in any business organization for getting support from the society.
The CSR is showing the relationship between the company and the people. The profit alone is not sufficient for running a business organization, but they should do some social obligations also for making growth of the company. If they are not socially obliged to the society, they will lose the trust of the public and it will make problems on the company.
The advocates of CSR say that in developed countries the role of any business organization is to make social welfare rather than maximizing profit. From the experience of the major developed nations it has been seen that without social welfare the society can't attain the development. The social welfare can make development to the economy as a whole. So every business organization needs to focus on the social welfare also. In every society if a business organization is there people will expect some obligation to the society also, the people has a feeling that when a business organization is there, it will benefit them also.
When a business sector is developed in the economy, then there will be some infrastructural developments is there it will benefit the people who lives in the surroundings. When infrastructure is there, the development will automatically come to the economy. When infrastructure development is there, there is a chance for more industries into the economy, when more industries coming into the economy it will increases the revenue of the economy. So when there is an industry all the things will comes automatically without any hurdles. The major points noted from the advocates of CSR say that no organization can exist with isolation.
The economic advocate of CSR says that there were real economic benefits when we apply CSR into the business strategy. The advocates of the CSR say a holistic approach to business.
They are saying that an effective CSR in business will bring a marketing advantage to the company and it will make future growth of the company also. In today's market CSR means matching corporate operations with stake holder's values and demands.
There are some arguments which are against the Corporate Social Responsibility. The important among them are the following. There were lots of companies doing social responsibility but not in the name of CSR. Here the major point is that how the company carry its social responsibility, whether some money is donating to the charity is not a better CSR.
Arguments against CSR
The major arguments put down against CSR are the following:
â€¢ Sometimes the money spent on CSR will not spend for right purpose.
â€¢ Sometimes the companies are saying about the corporate responsibility, but in actions it will not be there. It will be only basket cases always and also the big business organisations will not concentrate on the Corporate Responsibility more.
â€¢ In several companies it is too difficult to get a look into CSR.They has to concentrate on the core business.
â€¢ The person against CSR advocates that the CSR responsibility is the matter of political leaders not for us.
â€¢ Their aim is not to do social welfare but to make profit.
â€¢ The corporate are not interested to see the grievances of the poor.
Let us look on the economic costs and benefits of social responsibility.
Here for the purpose of study we have taken two banking industry where one is purely working on the basis of profit motive and doing little bit social responsibility also.
In the second one there is a priority to the social responsibility than the profit making. Their strategy is also make profit even though they are doing some social responsibility for getting corporate image and peoples trust, From this two studies we can analyse what will be the economic costs of these two phenomenon. Did it make any impact on economy? So we can make the study into a detailed manner. Let us illustrate the operations of two banks.
The cost and benefit status of two companies either one is socially responsible or the other is profit motive.
(Tullberg, S., J. Tullberg, 1996) The bank1 is purely a profit making agency. Here the banks accept deposits from the depositors and also gives loans to the borrowers with interest rates. By these business operations the banks gets lots of income from the public and expanding their business into diversified area. So the bank has more credit worthiness and also a person has no fear to deposit in this bank. This will result a positive impact on the banking sector.
This will result a positive impact to the economy also. If a banking sector is properly developed it automatically brings development to the nation. But the bank 1 also does some social responsibility when urgency comes, like natural calamities, a big catastrophe like...
(Tullberg, S., J. Tullberg, 1996) Here the banks are working for the profit motive .Even though the banks will do some social responsibility functions also. Here the banks are accepting deposits from the public and lending money for borrowing also. But it also focuses on the social responsibility also. For this purpose the banks are giving loans to the poor people with a low interest rate. The bank is doing a good thing to the society there is no doubt in that, but if the bank do such social responsibility matters it has to look into the credit worthiness of the bank also. Here the bank is trying to get more social responsibility image by giving loans to the borrowers and also doing some social works, but this behaviour from the banks will create a negative impact on the bank. When the bank is taking too much concern on people, the people will start misuse the opportunity. The people will not repay at correct time. In our society when we look in to the co-operative banks in villages we can see that the social responsibility is the main problem of deterioration in those banks.
From the study it has been found that the bank 1 has a better performance than the Bank2.There was lots of difference in the business operations of these two banks. From the study of two banks we can understand if the banks is concentrating on more social responsibility measures without looking on the credit worthiness of the company it will deteriorates its growth. From the study we have seen that the first bank is purely based on the profit but even though it looks on the profit it will do some social responsibility function also. From this study it has been found that by doing more social responsibility function in bank to there is a tendency of reduction in the credit worthiness of the banking sector. So there is a negative impact on the economy regarding the social responsibility. Here we can find that the major part of the income in the bank 2 has spending for social responsibility functions. So their assets will be less than the first one. When asset is low it will affect the entire business operations.
The economic costs and benefits
The social responsibility function is good when we look into the social problems of an economy. But when we look it on the economic point of view it will bring a negative impact to the economy. Usually the social responsibility function is vested with the government. The government is working for the welfare of the people, so if the non government agency is trying to do social responsibility function it will deteriorates the economy.