Business Ethics Assignment

Ethics in Corporate Social

Responsibility

Vivek Shinde
Reg. No. 0371/52
Section E

Contents
1

CSR and the Companies Act, 2013...............................................................................1

1.1

Quality of Corporate Governance, an Issue.............................................................1

1.2

The CSR Provisions: Clause 135 and Schedule VII...................................................1

1.3

Should Corporates have any Social Responsibility?..................................................2

1.4

The Concept of CSR........................................................................................... 2

1.4.1

Definition of CSR........................................................................................ 3

1.4.2

Different Types of CSR................................................................................. 4

1.4.3

Benefits of CSR........................................................................................... 4

1.4.4

Other Benefits............................................................................................. 5

The difference between motives and outcomes...............................................................6

The broader socio-political implications of Corporate Social Responsibility.........................7

Compulsory Corporate Social Responsibility.................................................................8

Proponents against Mandatory CSR............................................................................9

Recommendation................................................................................................... 10

Bibliography........................................................................................................... 1

Ethics in Corporate Social Responsibility

1 CSR and the Companies Act, 2013

1.1 Quality of Corporate Governance, an Issue
If the Rs 7000 crore Satyam fraud shook the country in 2009, it was a shenanigan of individual nature.
But then what started with the 2G spectrum and CWG game scams and the exposures of shoddy manner
of coal mine allotments suggest that what we have in India is crony capitalism. People at the top distribute
countrys resources among them; ordinary people have been reduced to level of deaf and dumb spectators.
It has badly eroded peoples confidence in the way economy and corporate affairs are managed in the
country. Lack of transparency coupled with series of scams without a strong response from the regulators
to address the fundamental issues relating to corporate mismanagement in India, are hampering the pace
of development apart from creating a negative impact on foreign investments into India. For example,
Norwegian Telenors joint venture partner Unitechs founding family member was sent to jail for his
shoddy role in purchase of telecom license. The USs Bain capital accused its investee company Lilliput,
maker of kids garments, of fudging accounts.
India ranks 134, out of 183 countries on the World Banks index of Ease of Doing Business.
Unattended corporate governance issues could take India back to the 90s when most global investors
avoided the country due to its poor governance standards.

1.2 The CSR Provisions: Clause 135 and Schedule VII

Clause 135 read with Schedule VII of the Bill deal with the concept of CSR. According to Section 135, of
this Bill:
Every company with a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or net
profit of Rs. 5 crore or more in a financial year will have to form a corporate social responsibility (CSR)
committee, consisting of three or more directors, of which at least one would be an independent director.
This committee will have to ensure that the company spends, in every financial year, at least two per cent
of the average net profits made during the three immediately preceding years, towards CSR activities. The
bill also makes it compulsory for the company to specify reasons if it fails to spend the amount.
The proposed CSR spending in the new Companies Act would be in addition to what is being prescribed
for companies in the mining or the coal sector. For instance, in case of Posco, the environment ministry
has asked the Korean company to spend 2% of its annual profit on CSR. The coal ministry is also toying
with the idea of mandating a CSR levy on miners who dig for the mineral in the so-called No-Go areas
that are environmentally sensitive.
Some other observations on this clause are:
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a) The Bill requires large companies (determined with reference to net worth, turnover or profit) to
constitute a Corporate Social Responsibility Committee (CSRC) consisting of at least one
independent director. The role of the committee will be to formulate and recommend to the board a
CSR policy for the company. Once the board approves the policy, it must be announced by placing it
on the companys website. The CSR activities are listed in Schedule VII.
b) Companies must make every endeavor to ensure that they spend a minimum amount (2% of the
average net profits for preceding 3 years) on activities pursuant to their CSR policy. Since a move to
impose a mandatory CSR requirement has come under severe criticism, the Ministry seems to have
adopted a half-way approach, short of making CSR mandatory. Ultimately, the nature of the
obligation, if any, will boil down to semantics and interpretation of the expression every endeavor,
and it is unlikely that such an obligation can be enforced in a straightforward manner.
c) In case companies do not spend the requisite amounts on CSR activities, they must specify reasons in
the boards report annually sent to shareholders. This incorporates the comply-or-explain approach
typically adopted for corporate governance (e.g. under the Corporate Governance Code in the UK and
the Voluntary Guidelines in India).

1.3 Should Corporates have any Social Responsibility?

Before considering the meaning of corporate social responsibility, lets first consider if companies really
should have responsibility towards society. The moot point is: Do businesses exist solely for the purpose
of maximizing profits?
Businesses needs people as well as natural resources. The manner of their operation affects peoples lives
and impact the environment. Thus, it is natural that they be accountable towards them.
Further, a company or corporation is considered a living organism, so is has rights and liable for duties.
The term social responsibility emphasizes the intimacy of the relationship between the corporation and
society. It is accepted company in response to demands of the society for an improved living.
Now, coming to todays corporate world. The history of B-world tells us that it has slowly reduced itself
to pure money making activity divorced of ethics, discipline and responsibilities towards society and
nature. At present it is only driven by greed for cash. The proof is in the all-round destruction of ecology
and nature at the global scale which resulted in the problems of global warming and climate change.
Therefore, some form of method needed to businesses to start doing something for the society beyond
their pure money-centric business activities.

1.4 The Concept of CSR

Essentially, CSR is the deliberate inclusion of public concern into corporate decisions. The principles of
social responsibility is around accountability, sustainability and transparency. The scope of CSR is quite
unlimited and can cover any number of activities related to environment preservation, labor protection,

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human rights, development of community, enterprise and economic development, healthcare promotion,
education, leadership, disaster relief, and so on. It is most effective when applied to solve community
problems using companys expertise.

1.4.1

Definition of CSR

At the heart of it CSR implies a corporate taking volunteer responsibility for its actions and their impacts
on its customers, suppliers, shareholders, communities, future generation, and the environment. CSR is
concerned with treating the internal and external stakeholders ethically and in a socially responsibility
manner while preserving the profitability of the company. Different organizations have different
approaches. However, companies need to focus on these two aspects of their operations:
a) The quality of their management - both in terms of people and processes (the inner circle), and
b) The nature and quantum of their impact on the society in various areas.
The World Business Council for Sustainable Development (WBCSD) 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.
In the United States, CSR has been traditionally defined much more in terms of a philanthropic model.
Companies make unhindered profits; the only thing they pay back is the taxes. Then they donate a certain
share of the profits to charitable causes. Although there are others who differ; for instance, the CSR
definition used by Business for Social Responsibility is:
Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public
expectations of the society.
On the other hand, the European Commission hedges its bets with two definitions wrapped into one:
CSR is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner
environment. It is a concept whereby companies integrate social and environmental concerns in their
business operations and in interaction with their stakeholders on a voluntary basis.
The European model is much more focused on operating the core business in a socially responsible way,
complemented by investment in communities for solid business related reasons. Many believe this model
to be more sustainable because:
a) Social responsibility becomes an integral part of the wealth creation process - which if managed
properly should create a better business atmosphere and maximize the value of wealth creation to
society.

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b) In hard times there is the incentive to practice CSR more and better manage the social realities
when it is only a philanthropic exercise peripheral to the main business, it will always be the first
thing to go when things get tough.
Different societies across the world naturally have different perceptions of what this should mean for
them. For instance, in Ghana CSR implies capacity building for sustainable livelihoods; this respects
cultural differences and finds the business opportunities in building the skills of employees, the
community and the government. In Philippines, it is about business giving back to society.
Broadly speaking, all above definitions focus on the impact of how the core business is managed.
However, societies in different countries will have different priorities and values that will affect business
operations differently.

1.4.2

Different Types of CSR

Philanthropy: donating money for good cause, usually through a charity partner. This is perhaps

the best known form of CSR in the traditional sense.

Environmental CSR: taking steps to be more environment and eco-friendly, beyond satisfying

legal requirements.
Community based CSR: engaging in activities, may be with other organizations, to improve the

quality of life of the people in the local community.

HR based CSR: policies and steps to improve the wellbeing of the staff.

1.4.3

Benefits of CSR

CSR leads to Good Business Governance

Some typical benefits of properly implementing the CSR strategy are listed here:
a) Higher Customer Satisfaction
Research shows that a strong record of CSR improves customers attitude towards the company.
If a customer likes the company, he or she will buy more products or services and will be less
willing to change to another brand. Studies tell that CSR activities give firms competitive
advantage, primarily due to favorable responses from consumers.
b) Satisfied Employees
Employees want to feel proud of the organization they work for. An employee with a positive
attitude towards the company is less likely to look for a job elsewhere. It is also likely that you
will receive more job applications because people want to work for you; it means a better
workforce. Because of the high positive impact of CSR on employee wellbeing and motivation,
the role of HR in managing CSR projects becomes significant.
c) Positive PR
When integrated with business strategy CSR provides regular opportunity to highlight positive
stories through online and traditional media. Companies no longer have to waste money on

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expensive advertising campaigns. Instead they generate free publicity and benefit from word of
mouth marketing.
d) More Business Opportunities
A CSR program is by design an open and outward oriented approach. The business must be in a
constant dialogue with customers, suppliers and other parties that affect the organization. This
presents new business opportunities at their very nascent stages.
e) Improving Operational Efficiency
Perhaps the strongest argument for engaging employees in environmental practices is the
connection between CSR involvement and increased operational efficiency. Front-line employees
are often in the best position to identify inefficiencies and propose improvements. Improvement
in profitability can happen by supporting greater efficiency through less waste, water and energy
usage. Educating employees on CSR can help to achieve this. CSR is not expenditure; if

f)

conducted properly it can save costs in several ways:

Better quality and efficient staff hire, and retention
Savings due to implementing energy saving programs
More effective management of potential risks and liabilities
Reduced need to invest in traditional advertising
Supply Chain Management
Educating employees on sustainability practices throughout the supply chain can lead to greater
efficiencies and help build collaboration to meet sustainability, quality and other goals. It can also

strengthen relationships between a company and its suppliers by aligning values and objectives.
g) Long Term Sustainability
All business ventures start with more or less long term perspective. But soon get drawn into the
lure of short term profit seeking. Having a CSR program counters the short-termism and injects
long term sustainability through constant interaction with various stakeholders.

1.4.4

Other Benefits

Some other benefits include differentiation of the company from competitors, boost to innovation and
learning, improve your business reputation and standing, improved access to investment and funding
opportunities, and favorable media publicity due to medias interest in ethical business activities.

2 The difference between motives and outcomes

Some people become very disheartened with CSR when they discover that the company has to give to
community, primarily to enhance its own image. But if the CSR proposed is, in fact, good for the
community for example, providing financial support like scholarships for needy students does the
tainted motive rob the gesture of all good effect? I dont think so.

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We need to distinguish between the ethical qualities of the company which may be entirely self-reliant
and the value addition, scholarship creation. It seems to me that creation of scholarships is nearly always
going to be a good thing.
As opposed to when CSR first came, companies now often speak of obtaining a social permission to
operate and would say that CSR is not for enhancement of company image but part of what they need to
do to obtain the necessary community support for their business working. It may be that the notion of
social permission is ethically more uplifted than pure public relations. But in getting its social
permission or community permission to operate, the company is still getting something it needs. Their
CSR is still self-serving, but as already noted, that doesnt mean the benefits they confer upon
communities are not of real help or value.
I think it is wise to keep in mind that, arguably, what companies are always for interests of their
shareholders, not of outsiders to the company, such as local communities. Companies are required to
abide by all applicable laws but otherwise, many would say, they need not cater to public which are not
integral part of business. On this view of the corporation, it is not unethical of companies to refuse to go
much beyond what the law and the mandate conferred on them by their shareholders require.
My main point here is just this: a companys motivation may be not particularly ethical it may only be
looking to smooth the path for its operations but its actions may still result in good financial support,
etc.
The distinction between motives and outcomes is one thing, but also important is what the recipient
community actually knows of the firms motives. There is a real danger where community members think
the firm is acting from altruism and only later find out that wasnt the driving force at all. It is always
disappointing to think for anothers benefit turns out to have been done for selfish reasons. This kind of
disappointment can easily turn into lose in trust, and mistrust always undermines efforts to achieve
ethically better relationships between firms and communities.
There are other ways in which things can go wrong when communities misunderstand companys
motivation. For example where the community receiving scholarships does not understand that firms
self-interest is the driving force, it may be misled into rewarding what its members think is corporate
generosity, by acquiescing to something, such as the drilling of a well, it would otherwise have rejected.
But if the community understands that the company is providing, for example, lunches to its schools to

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improve its image, and not merely to do good, then it may be better able to stick to the position it
initially thought best, that is, opposition to the well, pipeline or other proposed facility.
If companies are transparent regarding their offering to confer certain benefits upon the community for
example, that they want to have good relationships with the community and know they need a social
permission to operate then disillusionment will be less likely. Firms need something from the
community social permission to operate and in exchange they are ready to do certain activities for it.
With complete transparency, communities can understand that there is only so much they can demand or
expect from the company. If costs become too high then the project wont go ahead and no benefits will
flow, although it is sometimes true that the communitys interests are best served by the project not going
ahead.

3 The broader socio-political implications of Corporate Social

Responsibility
We have so far pointed to some of the approaches we can use to assess whether CSR is ethical, or good,
in specific cases. But there is a broader aspects on the ethics of CSR.
The growing CSR movement may endanger our understanding of what lies most apt in the public, versus
the private, realm. The issue arises when companies get involved in the offering of services that we would
always have thought belonged in the public arena. For example, why are school buses provided for a
school by a firm and not by the school board? Either the buses are needed for transportation of students,
or they are not. If they are, then they should be provided by public government, not by private capital.
If those governments dont have adequate funds and companies do, that might suggest the companies
arent paying high enough taxes, might it not?
Necessary public services should be provided by publicly funded agencies; provision of the frills can be
left to corporations as their need to build and maintain good community relations demand. It is worth
stressing that this concern goes much further than an analysis of how we view the ethics of the particular
action: it raises the question of where the line ought to be drawn between the private and public sectors,
and whether we seriously err when we concede too much of the public realm to firms operating in the
interests of their owners or shareholders as many would claim they are supposed to rather than in the
public interest, which is after all not their mandate.
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We risk very grave consequences indeed if we slip into thinking that adequate performance by public
governments is no longer necessary because we have corporations standing by, ready to fill in any gaps.
As Tony Judt put it in his book Ill Fares the Land:
If public goods public services, public spaces, public facilities are devalued, diminished in the eyes of
citizens and replaced by private services , then we lose the sense that common interests and common
needs ought to trump private preferences and individual advantage.
This failure to understand the importance of the public sphere could be catastrophic. Judt continues as
follows:
And once we cease to value the public over the private, surely we shall come in time to have difficulty
seeing just why we should value law (the public good par excellence) over force.
So, is CSR ethical?
Its complicated.

4 Compulsory Corporate Social Responsibility

So, should CSR be made compulsory? Or, it must be a matter of choice? Should this issue be politicized
killing all scope of healthy debate? Let us discuss these million dollar questions in more detail.
Ever since the inception of the ideals of capitalism, in the corporate world Corporate Social
Responsibility (CSR) has been a business theme. However, it has been only in the past decade that CSR
has been pushed forward by social scientists, corporate tycoons, state governments and the policy
architects as the dire need of the society. This has led to the adoption of CSR practices in several
corporate companies on a large scale. So, when we discuss the hullabaloo regarding CSR being made
a compulsory task for business units, we should keep in mind the fundamentals of economy and
ethics, in our profit-driven minds.
If we view the stance of the Indian government to make CSR a compulsory initiative for every corporate
firm in this light, we can justify that the decision is commendable. In fact, it is the need of the hour to
mobilize herculean efforts from corporate companies, both medium and large scale, in the field of CSR.
The corporates must not view CSR as a government intrusion in their profits or corporate affairs.
Donating a meagre 2% of the net profits of the company in the sustainable development of the
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society is definitely not a waste but an investment, which is bound to return its benefits in the form of
enhanced living.
Corporate companies must realize that today, CSR is more of a responsibility than an obligation. It is a
commitment, on the part of the company to the stakeholders and the community that the society is being
cared. Integrating sound CSR practices in the business model of a company gives it an edge over the
competitors because CSR initiatives act as a buffer, a self-regulating mechanism for the corporate
firm to review its policies and ensure that it is in tandem with the legal and ethical policies of the
government.
Compulsory CSR also acts as an impetus for the companies to incorporate CSR policies in their business
model leading to a sustainable planet, wherein the triplets of profit, people and the planet is kept in mind,
in planning every business model. CSR is truly the ideal standard to benchmark the socially
acceptable behaviour of corporate companies. It is integrating business ethics, commercial success
and well-being of the society.
While corporate bigwigs have been engaged in CSR for decades, still it requires a sea change in the
attitudes of several other companies in our country towards CSR practices.
Today, we need to redefine CSR to include it in a broader framework of business and corporate values.
Corporates must integrate CSR into the core values of their missions. The CSR department should not
be a dull team, isolated from the rest of the company. It should be a dynamic body and it must not
function merely like any other management wing. The principles of CSR must be integrated into the
values of the company and only then it is possible for the firm to truly create a successful CSR initiative.
The challenge in the current era is to apply sound CSR practices without compromising on the profit
part. So, if BMW is launching a luxury car, it makes sure that the technology is par-excellence to
meet the objectives of sustainability. If Nokia is selling a billion cell phones every year, it ensures that it
keeps the planet green by well-organized recycling plans and initiatives.
A bill by the government in this directive will surely be a legal and official announcement for creating
effective CSR plans. However, we must not forget that no paper or official order can be achieved without
the honesty and integrity of the people at the helm of power. So, even if government makes plans for
ensuring sustainability, it will be defeated if corporates try to find the loopholes in such policies and bend
them in their favour. The dreams of CSR go far beyond profits and money. If corporate companies and
commercial units can realize this, bills related to compulsory CSR activities will not be seen as threats but
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as an asset to make the economy stronger and value-driven. That will raise the overall health of the
society and even the economy. It depends on us what we really want to choose. It is high time that we
discard the ideals of Gucci capitalism and accept sustainable and responsible capitalism as the new
order of the world economy.

5 Proponents against Mandatory CSR

Mandatory CSR may impose disproportionate cost on smaller and younger companies for whom net
profit (internal source of capital) forms important source of investment. Forcing such companies to make
mandatory CSR expenditure would increase the opportunity cost of funds therefore many believe that
CSR spending should be voluntary ,the company would undertake if the perceived benefits outweigh
opportunity cost. Under the current provision there may be an issue of coordination of CSR projects
across companies in a particular region to prevent duplication of and overinvestment in similar types of
CSR projects which may also lead to regional inequality(as many projects may be cantered at particular
geographical location). Under the current Income Tax, the CSR spending is not treated as expenditure,
industrialist propose that it should be tax deductible as this spend is an integral cost of business
Mandatory CSR activities may not create an impact as businesses may just look at allocating money for
such activities rather than seeking optimal ways for addressing social issues, According to Michael E
Porter , Professor Harvard Business School Organizations just sprinkle money around, but there will be
no social impact and no solution arises from this approach.

6 Recommendation
Coordinating agency at the centre or may be at the state level must be constituted so that CSR spending of
companies harmonised and lead to successful implementation of CSR initiatives which may eventually
lead to balanced regional development. Also pooling of resources and building synergies to implement
best CSR practices to scale up projects and innovate new ones to reach out to more beneficiaries that will
increase the impact of their initiative. Activities mentioned under Schedule VII as recommended CSR
activities are restricted, the scope may be widened up by including other critical areas such as Human
Rights, Disability etc. Also contribution to the Prime Ministers National Relief Fund and other such
funds as established by the central or state government are included in the schedule, however Prime
Ministers National Fund itself is not a government body and is not even answerable to either houses of
the parliament (Verdict by CIC, A.K Goel vs PMO, 2009) therefore the PM Relief Fund should be
excluded from the list of funds. Activities providing Exclusive benefit to employees and families are
not considered as CSR some (even if occasional/ smaller) benefit to the local community, can also result
in the activity being listed as CSR activity. Industrialist propose amendment in the Income Tax Act, 1961
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and CSR expenditure be tax deductible, as this spend is an integral cost of business. The success of CSR
lies in practicing it as a core part of a companys development strategy. It is important for the corporate
sector to identify, promote and implement successful policies and practices that achieve triple bottom-line
results; profits, protection of environment and fight for social justice

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7 Bibliography
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https://corporatewatch.org/content/whats-wrong-corporate-social-responsibility-argumentsagainst-csr
Proposed Framework for Government of India to Effectively Monitor Mandatory CSR Initiatives
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7583
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http://www.indiacsr.in/en/?p=3546
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