BBA Study Material Corporate Social Responsibility (CSR)
BBA Study Material Corporate Social Responsibility (CSR)
Business depends on the society for the needed inputs like money, men and skills. Business also depends on the society for market where products may be sold to their buyers. Thus, business depends on society for existence, sustenance and encouragement. Dependence of business on society is so complete that as long as the latter wants the former, business reason to live. Being so much dependent, business has definite responsibility towards society. Popularly called the social responsibility of business, the subject has become an important topic for discussion in business and academic circles.
Social responsibility is understood as the obligation of decision makers to take actions which protect and improve the welfare of society as a whole along with their own interests.
Social responsibility of business is not new to our country. In the olden days, whenever there was a famine, the leading businessmen of the area would literally throw open their god owns and their treasure chests to provide food and other assistance to the needy. The history of every region of this country is replete with stories of the magnificent manner in which businessmen rose to the occasion in times of calamity. Even in ordinary times, it was the businessmen who looked after the welfare of the destitute, the goshalas, wells and ponds wherever water was difficult to get, the pathashalas and so on. So to accept social responsibility is no more than rededicating ourselves to the cherished values of our ancestors in the field of business. Gandhiji reminded us of these values when he propounded the theory of trusteeship.
There are two basic approaches to the concept of corporate social responsibility. Some theorists, focusing on the ‘micro’ level of analysis, try to show individual companies how they can be more socially responsive. Other researchers concern themselves with the ‘macro’ level of analysis, assuming that the government, not individual companies, should establish a country’s social goals. Needless to say that it is the micro level of analysis which is significant.
Corporate Social Responsibility (CSR) : Concept
It is a concept that organizations, especially (but not only) corporations, have an obligation to consider the interests of customers, employees, shareholders, community, and ecological considerations in all aspects of their operations. This obligation is seen to extend beyond their statutory obligation to comply with legislation
CSR is closely lined with the principles of Sustainable Development, which argues that enterprises should make decisions based not only on financial factors such as profits ar dividends, but also based on the immediate and long-term social and environmental consequences of their activities.
“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 workplace and their families as well as of the local community and society at large.”
It is important to distinguish CSR from charitable donations and “good works” (i… philanthropy, e.g., Habitat for Humanity or Ronald McDonald House). Corporations have often, in the past, spent money on community projects, the endowment of scholarships, and the establishment of foundations. They have also often encouraged their employees to volunteer to take part in community work and thereby create goodwill in the community, which will directly enhance the reputation of the company and strengthen its brand. CSR goes beyond charity and requires that a responsible company take into full account its impact on all stakeholders and on the environment when making decisions.
Key challenges to the idea of CSR include:
The rule of corporate law that a corporation’s directors are prohibited from any activity that would reduce profits.
Other mechanisms established to manage the principal-agent problem, such as accounting oversight, stock options, performance evaluations, deferred compensation and other mechanisms to increase accountability to shareholders.
This requires the company to balance the needs of all stakeholders with its need to make a profit and reward shareholders adequately.
This holistic approach to business regards organizations as (for example) being full partners in their communities, rather than seeing them more narrowly as being primarily in business to make profits and serve the needs of their shareholders.
“Corporate responsibility is the phrase used to describe businesses which have decided to behave in a deliberately socially responsible manner.
Obeying the strict letter of the law doesn’t always solve the problems, although it does keep the business out of trouble with the authorities. Laws are general, and don’t always act as a good guide to decisions in any one individual case. Laws have to interpret by courts, and it is not always obvious what is illegal until the case goes to court. Laws don’t cover all the areas that consider important in ethical behavior. For example, it may be perfectly legal to dump waste at sea, but many people would consider this to be unacceptable behavior.
Definitions of CSR
Social Responsibility of a business means responsibilities towards customers, workers, shareholders and the community.”
-International Seminar, New Delhi1965
“Social Responsibility of business is to follow those lines of actions which are desirable in terms of the objectives and values of our society.
-H. R. Bowen
” Social conscious enterprises can take wide range of initiative in social action areas such as adoption of villages, contribution to rural development, general health and education, sanitation, housing, combating environment pollution, reducing urban congestion, etc. But the basic social responsibility of the business is to run the business efficiently and profitably by discharging its obligation to shareholders, employees and workers .After discharging its basic obligation ably it should pursue public objects and maintain a balance between service to society and the financial viability.
Socially responsible business behaviors is reflected in several ways. While taking economic decisions, net social benefit should be the dominant criterion of choice. Enterprises should be concerned with the social consequences of their economic decisions.
Companies can best benefit their stakeholders by fulfilling their economic, legal ethical and discretionary responsibilities. The term corporate citizenship denotes the extent to which business meet the legal, ethical, economic and voluntary responsibilities placed on them by their stakeholders.
Social issues with which business corporations have been concerned since the 1960s may be divided into three categories:
- Social problems external to the corporation that were not caused by any direct business action like poverty, drug abuse decay of the cities and so on.
- The external impact of regular economic activities. For e.g., pollution caused by production, the quality, safety, reliability of goods and services, deception in marketing practices, the social impact of plant closers and plant location belong to this category.
- Issues within the firm and tied up with regular economic activities, like equal employment opportunity, occupational health and safety, quality of work life and industrial democracy.
The second and third categories is increasing importance and area tied up with the regular economic operations of business. Improved social performance demands changes in these operations.
Social Responsibility Of Business
Social responsibility of business refers to what the business does, over and above the statutory requirement, for the benefit of the society. The word responsibility connotes that the business has some moral obligations to the society.
The operations of business enterprises affect a wide spectrum. The resources they make use of are not limited to those of the proprietors and the impact of their operations is felt also by many a people who are in no way connected with the enterprises. The shareholders, the suppliers of resources, he consumers, the local community and society at large are affected by the way an enterprise functions. Hence, a business enterprise has to be socially very responsive so that a social balance may be struck between the opposing interests of these groups. Goyder argues: “Industry in the twentieth century can no longer be regarded as a private arrangement for enriching shareholders. It has become a joint enterprise in which workers, management consumers, the locality, Government and trade union officials all play a part. If the system which we know by the name private enterprise is to continue, some way must be found to embrace many interests which go to make up industry in a common purpose.” Later, in 1978 while delivering the C.C. Desai Memorial Lecture, the reiterated his plea that if the corporation has to function effectively, it has to be accountable to the public at large; and he sought to equate the suggestion of a responsible company with the trusteeship concept advocated by Gandhiji, the aim of which was to ensure that private property was used for the for the common good. The declaration issued by the international seminar on the social responsibility of business held in India in 1965 also co-related the Gandhian concept of trusteeship with the social responsibility of business as “responsibility to customers, workers shareholders and the community”.
There has been a growing acceptance of the plea that business should be socially responsible in the sense that the business enterprise, which makes use of the resources of society and depends on society for its functioning, should discharge its duties and responsibilities in enhancing the welfare of the society of which it is an integral part.
S. Singhania classifies the nature of the social responsibility of business into two categories.
The manner in which a business carries out its own business activity.
The welfare activity that it takes upon itself as an additional function.
The first involves the acceptance of the fact that business is not merely a profit-making occupation that a social functions which involves certain duties, and requires that appropriate ethics are followed. For example, a business must obey all the laws, even when they are disagreeable; it should produce the maximum goods of good quality, ensure smooth supplies at competitive prices, pay taxes, shun malpractices, pay a fair wage to employees and a reasonable dividend to shareholders. In addition to its commercial activity, business also plays a role in promoting social welfare activity, even directly.
Social Orientations Of Business
Social Responsibility Models
There are some models which endeavour to describe the evolution and extent of social orientation of companies. Notables ones include Carroll’s model and Ackerman’s model.
Archie B. Carroll, who defines corporate social responsibility as the entire range of obligations business has to society, has proposed a three-dimensional conceptual model of corporate performance. According to Carroll, a firm has the following four categories of obligations of corporate performance.
The firm being an economic entity, its primary responsibility is economic, i.e., efficient operations to satisfy economic needs of the society and generation of surplus for rewarding the investors and further development.
Legal responsibilities are also fundamental in nature because a company is bound to obey the law of the land.
Ethical responsibilities are certain norms which the society expects the business to observe though they are not mandated by law. For example, a company shall not resort to bribing or unethical practices, unfair competitive practices etc.
Discretionary responsibilities refer to the voluntary contribution of the business to the social cause, like involvement in community development or other social programmers.
Carroll points out that these four categories are not mutually exclusive, and the boundaries between them are difficult, if not impossible to define. Further, these terms are not value-free and they may be interpreted differently by different people.
Carroll later presented the different categories of responsibilities as a pyramid of corporate social responsibility. Economic responsibilities are at the base of the pyramid, succeeded by legal responsibilities, ethical responsibilities and finally, philanthropic responsibilities.
Ackerman’s Model: Micro-level theorist Robert Ackerman was among the earliest people to suggest that responsiveness (he prefers to use the term responsiveness) should be the goal of corporate social Endeavour Ackerman described three phases through which companies commonly tend to pass in developing a response to social issues.
In Phase 1, A corporation’s top managers learn of an existing social problem. At this stage, no one asks the company to deal with it. The chief executive officer merely acknowledges the problem by making a written or oral statement of the company’s policy towards it.
Benefits Of Corporate Social Responsibility
Companies recognize that a strategy for corporate responsibility can play a valuable role not only in meeting the challenges of globalization by mitigating risks domestically and internationally, but also in providing benefits beyond risk management. The benefits of “good corporate citizenship” include:
A stable socio-political legal environment for business : The prime benefits is that your business gains a stable environment as well as enhanced competitive advantage through better corporate reputation and brand image, improved employee, recruitment, retention and motivation, improved stakeholders relations and a more secure environment in which to operate.
Corporate social responsibility is the commitment of business to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for business, for a sustainable development agenda, and for a society at large. Social responsibility become an integral part of the wealth certain process which, if managed properly, should enhance the competitiveness of business and maximize the value of wealth creation to society.
There is a growing body of data quantitative and qualitative, that demonstrate the bottomline benefits of socially responsible corporate performance.
Improved financial performance : Business and investment communities have long debated whether there is real connect ion between socially responsible business practice and positive financial performance. In the recent past and increasing number of studies have been conduct to examine this link. A De paul University study in 2002 showed that overall financial performance of the 2001 business ethics Best citizen companies was significantly better than that of remaining companies in the standards and poor (S and P) 500 index, based on 2001 Business week ranking of total financial performance The ranking was based on 8th statistical criteria including total return, sales growth, and profit growth over one year and three years periods, as well as net profit and returns on equity,
Reduced operating costs : Some CSR initiative can reduce operating costs dramatically. Many recycling initiatives cuts waste-disposal costs and generate income by selling recycled material in the human recourses arena, flexible scheduling and other work-life programmers that result in reduces absenteeism and increased retention of employees often save companies money through increased productivity and reduction of hiring and training costs.
Enhanced brand image and reputation : Customers often are drawn to brands and companies with a good reputation in CSR relates area. A company considered socially responsible can benefit both from with enhanced reputation within the business community, increasing the company’s ability to attract capital and trading partners.
Social Responsibility Towards Suppliers, Creditors And Others
The functioning of a business enterprise is also affected by the supplier, creditors and other interest groups with whom the business has to interact. Hence, management owes a responsibility towards such interest groups. This can be performed in the following manner:
- Prompt payment to supplier .
- Proper liaison with all interested groups.
- Furnishing of accurate information to creditors, financial institution and suppliers.
- Prompt payment of interest to lenders.
Social Responsibility Towards The Society In General
The function of an enterprise exists and functions in the society. It is an integral part of our social system which facilitates its functioning. Hence, it owes a special responsibility towards the society in general which can be discharged in the following way:
- By extending general amenities to society.
- Be assisting in improving the standard of living of the people of the community.
- By avoiding pollution of the environment.
- By avoiding wasteful expenditure.
- By establishing socially desirable standards.
- By keeping in view the social norms, conventions, traditions and customs while forming its policies and programmers.
- By adopting some villages for its/their social and economic development.
Arguments For Social Responsibility
There are many arguments in support of socially responsive actions. More important of them are explained below:
Better Environment for Business : Another argument favouring social responsibility is hat it creates a better environment for business. This concept rationalises that a better society produces environmental conditions are favorable for business operations. The firm which is most responsive to the improvement of community quality of life will as a result have a better community in which to conduct its business.
Strategies For Implementing CSR
Some of the important strategies fro companies ti implement CSR policies and practices are:
- Vision, mission and values statements : In the company’s literature about se e company makes statements of its vision, mission and core values. These are the standards by which the company lives.
- Comparing plans and performance : CSR requires that a company perform what it plans and periodically review its performance. A company should mean what it says and say what it means.
- Suitably structuring the management : CSR management system is one which incorporates the corporate responsibility concerns into the company’s values, culture and operations at all levels.
- Farsighted strategic planning : A company has to incorporate CSR into its long-term planning by identifying its goals and measures of progress.
- Accountability in general : A company can also tackle its CSR by spelling out the job descriptions goals of as many mangers and employees as possible.
- Recognition and rewards : A company should show its policy of appreciating good work by publicity honoring good employees and in its promotion policies.
- Company’s role as leader : A socially responsible company can become a leader to inspire its business partners and competitors.
- Bmployee education and training : Employee should be informed as to what is responsible behavior so that he has a standard of behavior. A company should publicize the importance of CSR, included as a subject in management training programmers and enable manger and employee with tools for decision-making that ensure CSR.
Limitations Of Social Responsibility Of Business
The following are the constraints/limitations in the pursuit of the objectives of social responsibility:
- Be and make : As Swami Vivekananda has said, “Be something, first and then make others. It is pointed out that a n enterprise should first discharge its obligations towards itself by running efficiently and then assume social responsibilities. A socially responsible behaviour should not prove to be economically suicidal.
- Social responsibility in areas of competence : Corporate management should confine itself to its areas of competence while pursuing responsibility goals. if it operates in areas of social action programmers with which it is familiar and in which it cannot make use of its distinct competence, serious adverse and dysfunctional results will follow.”
- Lack of authority and legitimacy : There is the constraint of lack of authority and legitimacy of corporate management in some social areas. Corporate interference in social areas in which it has no authority amounts to usurpation of authority and corporate imperialism. An unlimited social responsibility may lead to unlimited corporate authority over society, which is unacceptable to society. Corporate management should not seek to substitute its authority for the authority of government and other appropriate institutions.
- Social responsibility should be balanced with the socio-economic power of business : A large enterprise or an enterprise supplying drugs, for example, has a great responsibility than a small enterprise or an enterprise supplying ball pens.
- The concept of social responsibility is reciprocal, just as business owes responsibility to various interest groups owe responsibility to support and assist business.
- Before undertaking any action programmer, management should conduct a social cost-benefit analysis. There is no use carrying out programmers’ whose social cost exceeds social benefits.
Corporate Social Responsibility In India
In India, business by and large does not enjoy a good public image. A few leading business houses have made significant contributions to the economic and social well-being of the country. But instances of adulteration, hoarding, and black-marketing .exploitation of workers, tax evasion, and other anti-social practices are very common. In order to ensure freedom of enterprises, businessmen need to be more responsible towards the society. The government industrial policy states that if industry acquires an increasing sense of social responsibility, government can concentrate more on social responsibilities rather than to control it. In a mixed economy like ours, social responsibilities of business assume special significance.
The main aspects of social responsibilities if Indian business is as follows:
- To make the best use of national resources so as to raise the level of national in command standard of living of the people.
- To create more and more employment opportunities for engineers, technicians and other s killed persons from educational
- To protect the national environment and ecological balance from all types of pollute
- To contribute to the economic development of backward regions weaker section
- To recognize and respect social values, business ethics and cultural heritage.
- To corporate with the government in solving problems like communalisms, illiberal over-population, concentration of income mad wealth, monopoly etc.
- To make the country economically self-reliant through export promotion and import
Some companies have introduced social audit in order to measure the effectiveness of their social performance. Social audit concept is gaining increasing attention. The use of an effective social audit is likely to encourage a careful cost-benefit analysis of corporate programmers for the benefit of society. It could also provide a means for measuring the result of social programmer. Both investors and social activists may then better evaluate the overall record of a firm’s social involvement. Developing an effective social audit is however difficult. No clear standards exist as to the activities to be included and there are no uniform standards for measuring results. Data collection about the effects of social problems may also be a problem. A few organizations have attempted to measure the costs and benefits of their social activities in formats similar to those used in financial reporting. The results of social involvement may be included in the company’s annual report as well as social reports.
Social report may include the organization’s performance in community relations consumer relations, investor relations, labor relations, pollution control, etc. According to the Sachet Committee, information about the following may be included in the social report.
- Amount spent on social development.
- Employment provided to public from scheduled castes and scheduled tribes handicapped, minority community and other weaker sections of society.
- Amount spent on pollution control.
- Contributions to national relief funds to be used during natural calamities.
- Amount spent on public health, adult literacy, population control, etc.
- Expenditure on cost reduction and product improvement measures
- contribution to import substitution and export promotion. Elaborate the classical and contemporary views of social responsibility,
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