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MANAGEMENT PRACTICES AND ORGANIZTIONAL BEHAVIOR

TERM PAPER
ON
CORPORATE SOCIAL
RESPONSIBILITY
Submitted to:
(LOVELY INSTITUTE OF MANAGEMENT)
MBA Ist – B(Ist Sem.)
(Session 2009-2011)
Date- 05 Dec 2009

Submitted To: Submitted By:

Mr. Priyanka Chhibber Suman Tiwari

Roll No. A-22

Reg. No.10904478

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Table of Contents

Introduction ..........................................................5
What Is Corporate Social Responsibility? ...............6
Meaning and Definition...........................................7
Need for Corporate Social Responsibility..............10
Importance of CSR ...............................................11
CSR in Today’s World ...........................................12
Implementing CSR ...............................................14
Arguments of CSR.................................................15
Corporate Social responsibility in India ................19
Measure for applying Corporate Social
Responsibility .......................................................20
Conclusion ...........................................................23
References ...........................................................24

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ACKNOWLEDGEMENT

I would like to confer my heartiest thanks to my coordinator of

Management Practices and Organizational Behavior Miss Priyanka

Chhibber for giving me the opportunity to expel and work in the field of

Management and Organizational Practices, and especially its practical

applications. While preparing my term paper I got to have an in depth

knowledge of practical applications of the theoretical concepts and

definitely the things which I have learned will undoubtedly help me in

future, to analyze many processes going on in our economy.

I would also like to thank all those people who directly or indirectly

helped me in accomplishing this project.

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Literature Review

Competitiveness of corporate sector is a very broad multi-dimensional concept that


embraces numerous aspects such as price, quality, productivity, efficiency and
macro-economic environment as well as the ethical behavior and the social
responsiveness of a company. There are numerous studies on Corporate Social
Responsibility in India, published by industry associations, consultancy
organizations, research bodies and peer-reviewed journals. In India too the
businessman has been under incessant attack both by the government and the
public. Many reports of the Indian government, such as the P. C. Mahalanobis
Committee Report on the Distribution of Income and Levels of Living (1964); K.
C. Dasgupta Report on Monopolies (1965), Prof. Hazari’s Report on the Industrial
Licensing Sysem (1966), and the Dutta Committee Report on Industrial Licensing
Policy (1969) are very critical of the unethical role of the Indian Businessman
today. In this section, various studies on the Corporate Social Responsibility are
reviewed, under different heads pertaining to ethical behavior, namely, importance
and need for CSR, implementation of CSR, arguments related to CSR and other
aspects.

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Introduction
Although the subject “Corporate Social
Responsibility” in its present form and
content has gained popular attention only
in recent years, its origin can be traced
back to the evolution of the concept of a
welfare state.

As the pace of industrialization quickened


employers became more and more concerned with the loss of productivity
efficiency due to avoidable sickness or accidents or stoppage of work due to bad
personal relationships. This gave rise to the idea of a welfare state, which was
further strengthened by the growth of democracy and of respect to human dignity
during the last 150 years. The frame work of a welfare state and with it the concept
of social responsibility have thus come to stay in many countries of the world.

The changing image of business in the recent years has lent further support to the
idea of social responsibility. Some public opinion polls in the 1960’s and 1970’s in
United States have left businessman disenchanted. These polls have revealed that
the businessman is viewed as an individual who does not cares for others, who
ignored social problems, who preys upon the population, who exploits labor, and
who is a selfish money grabber. On the other hand, until these opinions were
unveiled, the businessman in America believed that others viewed him as he
viewed himself, as a practical, down-to-earth, hardworking, broadminded,
progressive, interesting and a competitive free enterpriser. He believed that the
society looked up at him as a self sacrificing community leader, pillar of society,
generous to a fault, great supporter of education, patron of the arts, in short, the salt
of the earth. Indeed, the businessman in the pre-poll days thought of himself as a
happy mix of Plato, Gandhi, and Churchill.

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What Is Corporate Social


Responsibility?

Corporate social responsibility (CSR) is a form of


business self-regulation to incorporate social and environmental concerns. It
represents a business model that adheres to laws, ethical standards, and
international norms.

As part of the business model, businesses have to take into account the impact of
their activities on the environment, employees, communities, stakeholders, and
other members of the public. In short, CSR represents the deliberate inclusion of
the public’s interest in a business’ decision making to ensure a triple bottom line
that considers the planet, people, and profits.

In general, CSR involves some kind of standardized reporting that allows the
business to collect information on how it is making progress on various fronts.
Businesses that engage in CSR typically focus on some or all of the following:

• Environment: This requires a look at the environmental impacts of products


and services, as well as what the business does outside the company to
improve the environment.

• Employees: It’s important to ensure that all employees are cared for
adequately. Businesses usually focus on workplace conditions, benefits,
living wages, and training.

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• Communities: Engaging the surrounding communities is an important part


of not just creating good human capital that can serve the business, but also
securing a reputation that can further establish the business.

• Regulations: Respecting regulations to the fullest and often exceeding them


is part of being socially responsible.

• Crisis Preparedness: Being ready to address business crises and ensure


safety for employees and surrounding communities is critical. Having plans
ready and tried are important in ensuring minimal losses during times of
crises.

Meaning and Definition


CSR is about how companies manage the business processes to produce an
overall positive impact on society.

Take the following illustration:

Companies need to answer to two aspects of their operations.

1. The quality of their management - both in terms of people and processes (the
inner circle).

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2. The nature and quantity of their impact on society in the various areas.

Outside stakeholders are taking an increasing interest in the activity of the


company. Most look to the outer circle - what the company has actually done, good
or bad, in terms of its products and services, in terms of its impact on the
environment and on local communities, or in how it treats and develops its
workforce. Out of the various stakeholders, it is financial analysts who are
predominantly focused - as well as past financial performance - on quality of
management as an indicator of likely future performance.

Other definitions

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"

The same report gave some evidence of the different perceptions of what this
should mean from a number of different societies across the world. Definitions as
different as "CSR is about capacity building for sustainable livelihoods. It
respects cultural differences and finds the business opportunities in building the
skills of employees, the community and the government" from Ghana, through to
"CSR is about business giving back to society" from the Phillipines.

On the other hand, the European Commission hedges its bets with two definitions
wrapped into one: "A concept whereby companies decide voluntarily to
contribute to a better society and a cleaner environment. A concept whereby
companies integrate social and environmental concerns in their business
operations and in their interaction with their stakeholders on a voluntary basis".

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Need for Corporate Social


Responsibility
There are many situations where social
responsibility of a business becomes
necessary. Few of these situations which
show the need for Corporate Social
Responsibility are discussed below.

1. A societal approach to business is the contemporary business philosophy,


which demands business organizations to be responsive to the social
problems.

2. As a result of globalization of business, global companies and MNCs


operate in a big way in their host countries. In order to establish a good
corporate image, they include social responsibility as a corporate objective.
Indigenous companies are forced to follow suit for maintaining their
corporate identity.

3. In the terms and conditions of collaborations agreements, very often, social


welfare terms are included which necessitates the collaborating company to
take up social responsibility of business.

4. On the basis of legal provisions, companies have to concentrate on social


problems. For example an industrial organization in India must obtain a
certification from Pollution Control Board.

5. Corporate donations of social welfare projects of approved NGO’s are


exempted from income tax in India.

6. An organizations commitment to social responsibility creates a good


corporate image, and there by a better business environment.

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7. Social responsibility of business enables the organization to improve its


product positioning and thereby improve its market share.

8. Very often situations demand due to natural calamities, accidents and so on.
For example, gas leak at the Union Carbide plant in Bhopal, wherein the
company had to monetarily compensate through medical treatment.

Importance of CSR
CSR is an important business strategy because, wherever possible, consumers want
to buy products from companies they trust; suppliers want to form business
partnerships with companies they can rely on; employees want to work for
companies they respect; and NGOs, increasingly, want to work together with
companies seeking feasible solutions and innovations in areas of common concern.
Satisfying each of these stakeholder groups allows companies to maximize their
commitment to another important stakeholder group—their investors, who benefit
most when the needs of these other stakeholder groups are being met:

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
good….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.

Carly Fiorina

Chairman and Chief Executive Officer

Hewlett Packard Company

The businesses most likely to succeed in the globalizing world will be those best
able to combine the often conflicting interests of its multiple stakeholders, and
incorporate a wider spectrum of opinions and values within the decision-making
process and objectives of the organization. Lifestyle brand firms, in particular,
need to live the ideals they convey to their consumers:

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CSR is increasingly crucial to maintaining success in business—by providing a


corporate strategy around which the company can rally, but also by giving meaning
and direction to day to day operations.

CSR in Today’s World


CSR as a strategy is becoming increasingly important for businesses today because
of three identifiable trends:

• Changing social expectations

Consumers and society in general expect more from the companies whose products
they buy. This sense has increased in the light of recent corporate scandals, which
reduced public trust of corporations, and reduced public confidence in the ability of
regulatory bodies and organizations to control corporate excess.

• Increasing affluence

This is true within developed nations, but also in comparison to developing


nations. Affluent consumers can afford to pick and choose the products they buy.
A society in need of work and inward investment is less likely to enforce strict
regulations and penalize organizations that might take their business and money
elsewhere.

• Globalization

The growing influence of the media sees any ‘mistakes’ by companies brought
immediately to the attention of the public. In addition, the Internet fuels
communication among like-minded groups and consumers—empowering them to
spread their message, while giving them the means to co-ordinate collective action
(i.e. a product boycott).

These three trends combine with the growing importance of brands and brand
value to corporate success (particularly lifestyle brands) to produce a shift in the

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relationship between corporation and consumer, in particular, and between


corporation and all stakeholder groups, in general.

The result of this mix is that consumers today are better informed and feel more
empowered to put their beliefs into action. From the corporate point of view, the
market parameters within which companies must operate are increasingly being
shaped by bottom-up, grassroots campaigns. NGOs and consumer activists are
feeding, and often driving, this changing relationship between consumer and
company.

CSR is particularly important within a globalizing world because of the way


brands are built—on perceptions, ideals and concepts that usually appeal to higher
values. CSR is a means of matching corporate operations with stakeholder values
and demands, at a time when these values and demands are constantly evolving.

CSR can therefore best be described as a total approach to business. CSR creeps
into all aspects of operations. Like quality, it is something that you know when you
see it. It is something that businesses today should be genuinely and
wholeheartedly committed to. The dangers of ignoring CSR are too dangerous
when it is remembered how important brands are to overall company value; how
difficult it is to build brand strength; yet how easy it can be to lose brand
dominance.

CSR is, therefore, also something that a company should try and get right in
implementation.

Implementing CSR
CSR is about common sense policies that represent a means of integrating a
complete ‘social perspective’ into all aspects of operations. The goal is to
maximize true value and benefit for an organization, while protecting the huge
investments corporations make today in their brands.

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CSR asks companies to ensure their business operations are clean and equitable,
and contribute positively to the society in which they are based. Otherwise, they
leave themselves open to too much danger from a potential consumer backlash.

CSR is good business sense, and a total approach to doing business, in a


globalizing world where companies are increasingly relying on brand strength
(particularly global lifestyle brands) to add value and product differentiation, and
where NGO-driven consumer activism is increasing.

Many believe the issue of how corporations integrate CSR into everyday
operations and long-term strategic planning will define the business marketplace in
the near future. It will become a key point of brand differentiation, both in terms of
corporate entities and the products that carry their brands.

Key steps on the road to integrating CSR within all aspects of operations include:

• Ensure the commitment of top management, and particularly the CEO, is


communicated throughout the organization

• Appoint a CSR position at the strategic decision-making level to manage


the development of policy and its implementation

• Develop relationships with all stakeholder groups and interests (particular


relevant NGOs)

• Incorporate a Social or CSR Audit within the company’s annual report

• Ensure the compensation system within the organization reinforces the


CSR policies that have been created, rather than merely the bottom-line

• Any anonymous feedback/whistle-blower process, ideally overseen by an


external ombudsperson, will allow the CSR Officer to operate more
effectively

Corporations today are best positioned when they reflect the values of the
constantly shifting and sensitive market environment in which they operate. It is
vital that they are capable of meeting the needs of an increasingly demanding and
socially-aware consumer market, especially as brands move front and center of a

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firm’s total value. Global firms with global lifestyle brands have the most to lose if
the public perception of the brand fails to live up to the image portrayed.

Integrating a complete ‘social perspective’ into all aspects of operations will


maximize true value and benefit for an organization, while protecting the huge
investments companies make in corporate brands.

Arguments of CSR
Arguments offered in favor of CSR can be broadly split into two camps—moral
and economic.

1. A moral argument for CSR


While recognizing that profits are necessary for any business entity to exist, all
groups in society should strive to add value and make life better. Businesses rely
on the society within which they operate and could not exist or prosper in isolation.
They need the infrastructure that society provides, its source of employees, not to
mention its consumer base. CSR is recognition of that inter-dependence and a
means of delivering on that obligation, to the mutual benefit of businesses and the
societies within which they are based:

CSR broadly represents the relationship between a company and the wider
community within which the company operates. It is recognition on the part of the
business that ‘for profit’ entities do not exist in a vacuum, and that a large part of
any success they enjoy is as much due to the context in which they operate as
factors internal to the company alone.

Charles Handy makes a convincing and logical argument for the purpose of a
business laying beyond the goals of maximizing profit and satisfying shareholders
above all other stakeholders in an organization:

The purpose of a business is not to make a profit, full stop. It is to make a profit so
that the business can do something more or better. That “something” becomes the

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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 salutary to ask about any organization, “If it did not exist,
would we invent it?” Only if it could do something better or more useful than
anyone else” would have to be the answer, and profit would be the means to that
larger end.

Advocates of CSR believe that, in general, the goal of any economic system should
be to further the general social welfare. In advanced economies, the purpose of
business should extend beyond the maximization of efficiency and profit.
Increasingly, society expects businesses to have an obligation to the society in
which they are located, to the people they employ, and their customers, beyond
their traditional bottom-line and narrow shareholder concerns.

At a minimum, businesses operating in a community benefit from the


infrastructure of that community (tangible, practical elements such as the roads,
other transport infrastructure, the police, firefighters, etc) as well as more
intangible benefits, such as a safe or clean environment.

But, in most cases, businesses also draw their most important resource, its
employees, largely from the local community. Any business will be more
successful if it employs a well-educated workforce that can attend good hospitals if
they become sick, and who have grown up in a positive environment. This is not to
mention consumers, also often members of the local community, without whom no
business could survive.

CSR advocates point out that no organization exists in isolation. They believe that
businesses, without exception, have an obligation to contribute as well as draw
from the community, on which they rely so heavily.

2. An economic argument for CSR


An economic argument in favor of CSR can also be made. It is an argument of
economic self-interest that there are very real economic benefits to businesses
pursuing a CSR strategy—and is designed to persuade those business managers

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who are not persuaded by the moral case. Proponents of this argument believe that
CSR represents an holistic approach to business.

Therefore, an effective CSR policy will infuse all aspects of operations. They
believe the actions corporations take today to incorporate CSR throughout the
organization represent a real point of differentiation and competitive market
advantage on which future success can hinge:

CSR is an argument of economic self-interest for a business. In today’s brand-


driven markets, CSR is a means of matching corporate operations with stakeholder
values and demands, at a time when these parameters can change rapidly. One
example is a company’s customers: CSR adds value because it allows companies
to better reflect the values of this important constituent base that the company aims
to serve.

CSR covers all aspects of a business’ day-to-day operations. Everything an


organization does in some way interacts with one or more of its stakeholder
groups, and companies today need to build a watertight brand with respect to all
stakeholders. Whether as an employer, producer, buyer, supplier, or investment,
the attractiveness and success of a company today is directly linked to the strength
of its brand.

CSR affects all aspects of all operations within a corporation because of the need
to consider the needs of all constituent groups. Each area builds on all the others to
create a composite of the corporation (its brand) in the eyes of all stakeholder
groups.

3. Arguments against corporate social responsibility


If the arguments for a socially responsible approach were widely accepted, nobody
would even using the label "CSR" because everyone would be doing it. Those of

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us who spend our time marshalling the case for would do well to spend a little time
hearing the case against, and considering what should be the response.

Of course, one of the challenges in considering cases "for" and "against" CSR is
the wide variety of definitions of CSR that people use. We assume here we are
talking about responsibility in how the company carries out its core function - not
simply about companies giving money away to charity.

Below are some of the key arguments most often used against CSR and some
responses.

• Businesses are owned by their shareholders - money spent on CSR by


managers is theft of the rightful property of the owners

• The leading companies who report on their social responsibility are basket
cases - the most effective business leaders don't waste time with this stuff

• Our company is too busy surviving hard times to do this. We can't afford to
take our eye off the ball - we have to focus on core business

• It's the responsibility of the politicians to deal with all this stuff. It's not our
role to get involved

• I have no time for this. I've got to get out and sell more to make our profit
line.

• Corporations don't really care - they're just out to screw the poor and the
environment to make their obscene profits

Corporate Social responsibility in


India
• Most companies are not doing any CSR

• Many companies are only making token gestures towards CSR in tangential
ways such as donations to charitable trusts or NGOs, sponsorship of events, etc.

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• Most companies believe that charity and philanthropy equals to CSR; very few
companies are using their core competence to benefit the community.

• Most companies use CSR as a marketing tool to further spread the word about
their business. For instance, donation of a token amount to some cause on
purchase of a particular product. The fact that companies are hiring advertising
agencies for their CSR further highlights this.

• Only Few Indian companies (from this study) publish a Corporate


Sustainability Report to measure and assess the impact of their business on the
environment .

• Very few companies openly state the processes followed by them, the damage
caused by these processes, and the steps taken to minimize this damage.

• Very few companies state how much they spend on CSR. There is no mention
of the amount spent in any of their balance sheets or annual reports. Most
companies just list and describe their CSR activities and seem to be spending
minimal amounts on CSR.

• Very few companies are engaged in CSR activities in the local communities
where they are based.

• Very few companies have a clearly defined CSR philosophy. Most implement
their CSR in an ad-hoc manner, unconnected with their business process.

• Most companies spread their CSR funds thinly across many activities, thus
somewhere losing the purpose of undertaking that activity.

• Most companies appear reluctant to themselves fulfill their CSR unless it is


mandatory by law.

• Generally speaking, most companies seem either unaware or don’t care about
CSR. However, all companies can be considered to be an upward learning
curve with respect to CSR and it is expected that the situation will improve.

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Measure for applying Corporate


Social Responsibility

Sustainability reporting
It is recommended that every company should publish a separate Corporate
Sustainability Report (as per the Global Reporting Initiative (GRI) framework)
along with their Annual Report. At the very least, every company must include a
Corporate Sustainability section in its Annual Report (similar to the mandatory
section on Conservation of Energy, Technology Absorption and Foreign Exchange
Earnings and Outgo).
CSR philosophy to be defined and articulated
Every company must clearly define its own CSR philosophy and objectives, stating
which issues it intends working on or contributing to. It is recommended that a
company first takes up areas that directly concern its business processes, and
thereafter any other related or unrelated issues. These can also yield strategic
benefits to the company.

Minimum annual CSR expenditure


Every company must spend a minimum of 0.2% of its annual income on CSR
activities. The CSR spending of a company should not be linked to the profit made
by the company because this would vary from year to year and the CSR activities
would thus not be consistently maintained.

The scale of operations of a company and its impact is connected with its sales,
and not with its profits. The larger the company, the greater is the damage it is
doing to the environment. Conversely, the greater is the company's ability to do
good.

Protection and restoration of the environment


Every company must be engaged in CSR activities that minimise its harm to the
environment, and which help restore damage done to the environment because of
the company. For example, all companies should use energy-efficient technologies

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for their factories and offices, and adopt rainwater harvesting irrespective of the
production process they are engaged in.

Employment for marginalized groups


Every company should provide inclusive employment opportunities and include
the physically-challenged and marginalized groups in their workforce. The number
of employment opportunities offered to such groups should be stated in the Annual
Reports as is done by Public Sector Undertakings.

Local community development


It is recommended that a company first undertakes projects in the places where it
functions, and helps those local communities and environments that are affected by
its work.

Use of core competence


Every company should use its core competence to benefit its stakeholders and
society. For instance, banks can use their expertise to identify and counsel debtors
who are likely to run into financial trouble

Extending profile and area of businesses


A company should attempt to stretch its business beyond its existing profile and
into areas where it does not normally work so as to reach out to under-served
groups and populations. While this may sometimes mean smaller profit margins or
marginal losses for the company, it will invariably result in valuable business
learning's as well as effective CSR for the company.

Developing internal CSR implementation systems


A company may choose to develop an in-house CSR team or division that
undertakes the CSR activities for the company. This is desirable as it leads to
greater sensitization and awareness within the company about it's processes,
responsibilities, role, etc. and leads to the internalization of the company's CSR
philosophy.

Instead of contributing to the trust of the CEO or the promoter family, a company
should set up its own trust/foundation as a matter of proper business ethics.
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It is recommended that a company set up a committee that includes an external


Director, an NGO and local stakeholders for selecting, monitoring and evaluating
its CSR activities.

Focused CSR activities for greater impact


It is recommended that a company identifies a few issues for it's CSR activities and
works on these areas for a sustained period of time so that measurable results and
improvements can be achieved, rather than undertaking or supporting several small
initiatives across several areas thereby reducing effective impact.

Conclusion
Corporate Social Responsibility is a difficult and elusive topic for companies to
deal with. It can often be very costly and yield benefits that are hard to quantify.
Perhaps this is one reason why companies, according to the survey, have put so
much focus on the internal improvements that can be made, such as improving
corporate governance and transparency. This could also explain why the most
important stakeholders, after customers, are the traditionally important employees
and shareholders.

There’s also the issue of just what standard of corporate social responsibility
should companies use and how far companies should go to perform their
responsibilities beyond what the laws call for. The issue of what is the
“responsibility” of a corporation is far from being settled, and there is an
unresolved argument over what corporate social responsibility means. Companies
face a plethora of options among the various standards, guidelines, benchmarks
and other proposed measures of corporate social responsibility.

One point that all can agree on is that corporate social responsibility is not a neutral
topic. There is a persistent debate about whether the corporate social responsibility
“movement” represents an unjustified intrusion into corporate affairs, and whether
companies should invest profits in their own corporate social responsibility
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projects or return the money to shareholders to let them invest as they see fit. But
there is no denying that corporate social responsibility has become an important
issue facing the global business community and one that promises to grow in
importance in the coming years.

Reference
1. Sen Gupta, Sunita Singh (2004). Business Social Partnership : An
International Perspective. Jaipur: Aalekh publications.

2. Jagdish (2004). Social Welfare in the Twenty-First Century : Issues ,


Critique and Relevance. New Delhi: Akansha.

3. Sharma, Shashi Prabha (2004). Basic Principles of Education. New Delhi:


kanishka.

4. Saeen, Sandeeep(2001). Ethics Management. New Delhi: Sarup.

5. Corporate Social Responsibility in India - An Empirical Research


By Bernadette Dsilva
6. 2. CSR could prove to be a valuable asset in an age of M&As, as it helps
firms spread their brand name - Maitreyee Handique
7. 3. Corporate Social Responsibility is no longer just an addition, it is a key
differentiator." Prasad Chandra, CMD, BASF South Asia

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