Corporate social responsibility: the anchor sheet for sustenance in competitive era of India Inc. D.

Sai Kumar, Lecturer (Finance), Email: desraj81@gmail.com,Trident Academy of Creative Technology, Bhubaneswar Saroj Kumar Acharya, Senior Lecturer (Finance), Email:asarojkumar@gmail.com, Trident Academy of Technology, Bhubaneswar
Abstract

While wealth maximization as a principle aims at maximization of the wealth of the shareholders of the company which they have invested in, it has been seen that the wealth of the society, in which the company so incorporated, is maximized via contributions from the company so set up. In today’s competitive era where in the companies are baying not only for better rankings but also for acceptability in the surroundings in which they are either incorporated or want to establish their business, it is necessary that they incorporate social and philanthropic services which will enable them to get connected to the society and the people therein. Corporate social responsibility, hence, is the way the companies manage their business to produce an overall positive impact on society through economic, environmental and social actions.1 It is seen that the implementation of programs directed towards the welfare of the society yield positive resultsbe it the ITC’s e-choupal initiative2-a market led business model, to improve the living standards of the farmers by raising the productivity and earning capacity of the farmers or Canon India’ “icare project” which focuses on eye care prevention and rehabilitation of the visually handicapped3 in the rural parts of the country and for the underprivileged who cannot afford treatments for ailments like glaucoma and cataract. The aim of this paper would be to focus on CSR as a sustainable measure and its impact on the performance of the firms in such competitive atmosphere and find if it is the anchor sheet for India Inc?
1

“attaining sustainable growth through corporate social responsibility”,Pohle,Hittner, http://www-935.ibm.com/services/au/gbs/pdf/csr_re.pdf accessed 16th March 16, 2010 2 http://www.itcportal.com/sets/echoupal_frameset.htm ,accessed 16th March 16, 2010 3 “Corporate social responsibility” http://www.canon.co.in/section/CSR/#, accessed 16th March 16, 2010.

Introduction: Of late, corporate social responsibility has assumed greater significance. From being considered as a charitable function of an organization it has come a long way to be a part of the board room meetings. It signifies that the organizations which have set up their operations in the social ambit understand the importance of the society to which they are indebted. While wealth maximization may be the goal of the organization, social welfare too has become a part and parcel of their survival. Corporate social responsibility is referred to as the social, environmental and economic activity (-ies) which benefits the society in some way or the other. It is a very visible way in which the firms can demonstrate its commitments to the community within which it is based and operates4. With increased visibility of the corporate actions customer’s perception of the companies and their purchasing behavior are fundamentally changing. This change in attitude means that the CSR is no more a regulatory cost but is an investment that brings financial returns.5 While it is heard that many blue chip companies adopt CSR as a means to bridge the gap between them and the society in which they operate it has also been seen that the small and medium scale enterprises which run with 10-15 employees also are adopting the fair values of Corporate Social Responsibility with the same attitude as the giants in the industry. Even a small sole proprietary business like that of a tent house adheres to the principles of CSR as has been seen in case of a tent house which caters to the need of water for the commuters on a busy road in Bhubaneshwar,Odisha, in summers. This may be a small gesture but, in the long run it establishes the relationship of the business that the tent house provides with the society in which it has been established. If measured in economic terms it can be structured as a responsiveness of the company to the needs of the society it is established in
4

E-book “Strategic corporate social responsibility: Stakeholders in a global environment”Werther,chandler,http://books.google.co.in/books?

id=etEOEKUxJV0C&pg=PA196&lpg=PA196&dq=from+charity+and+philanthrophy+to+CSR&source=bl&ots=6 hoFqR3Z8T&sig=VHxaRR9lVr9xL715v_VWbGKyjAc&hl=en&ei=_lKcS-rWNom rAeN1pmPAw&sa=X&oi=book_result&ct=result&resnum=9&ved=0CBsQ6AEwCDgK#v=onepage&q=&f=false , accessed 16th March 20, 2010
5

“Attaining sustainable growth through corporate social responsibility”,Pohle,Hittner, http://www935.ibm.com/services/au/gbs/pdf/csr_re.pdf accessed 16th March 16, 2010

CSR thus, is a beneficial investment option rather than a philanthropic and benign thought, but what are the challenges that CSR generally addresses? It addresses the following challenges6:
a. Health related challenges b. Environmental challenges c. The climatic change challenges d. Human rights challenges e. Global partnership for sustainable development f. The role of the government

Hence, CSR is a much wider term which takes into its embrace a spectrum of issues than being confined to some and it includes employees, customers, suppliers, community organizations, subsidiaries and affiliates, joint venture partners, local neighborhoods, investors, and shareholders or even a sole owner of a business.7

6

corporate responsibility concepts and principles, http://www.csrquest.net/default.aspx?articleID=12061&heading=The%204CR %20Framework, accessed 18th March 21, 2010
7

“corporate social responsibility”, http://partnershipsforchange.com/csr.html, accessed 20th March 22, 2010

Literature Survey: Corporate social responsibility fails to win the confidence of the investors and the customers if the corporate governance of the company is either weak or flawed as it has been seen in the past. Enron did it and so did Satyam-they played with the trust of the people and the confidence of the economy as well which not only plunged the respective sectors into the dark for sometime but even pushed the economy into gloom every time a company so trusted deceived the shareholders and the public at large. Such scandals not only rock the companies which are involved in siphoning of funds or inflating the figures behind the corporate veil, they even put a question mark on the transparency and integrity of the other firms in that sector for a while. This calls for the strengthening of the corporate governance regulations as well as revision of the existing norms which are being exploited for the personal benefits as has been done by Ramalinga Raju of Satyam computers a couple of years ago. In such a situation the question of sustenance by doing something good for the society is lost and the goodwill so gained gets eroded. Hence, while for some, corporate governance and corporate social responsibility converge at the level of values which include moral and ethical ways of doing business, for some it does not mean convergence, but a realization that CSR is a package of social and environmental risk which can have a direct impact on the financial statements of the company8 and hence need to be managed. Whatever the perception be, Corporate Social Responsibility is a term used to describe the relationship between the society and the environment in which the company establishes itself where in there is a combination of values and the risks as has been seen in case of the coco-cola which was found to be violating the environment protection norms and was alleged to have been exploiting the water resources in excess of the authorized quantity and also was said to have been polluting the water resources by discharging the wastes from the factory. However, undeterred by the moves Coca cola tried to reach to the common man by different CSR measures it adopted to protect the environment and the society where it established itself.

8

“the convergence of corporate governance and corporate social responsibility-thoughtleaders study.”, strandberg,strandberg consulting, www.corostrandberg.com/pdfs/Corporate_Governance.pdf, accessed March 24, 2010

While the giants in the Indian industry like the Tata’s and the Birla’s have been a success with the CSR initiative and have been able to set examples to be followed by the juniors in the industry, it has been seen that many of the companies-Indian as well as Foreign, have been successfully embracing the CSR as mantra of sustenance and success in the highly competitive Indian markets today. Canon India’s “i-care” is a project in association with Venu Eye Institute and Research Centre, which professes in eye care in the rural and the underprivileged areas, a hope to see again. With its objective to provide “eye care protection and rehabilitation of the visually challenged”9 canon India has been able to bridge the gap between them and the society they are established. Apart from the i-care project, Canon India has even contributions made always when it mattered the most to the nation- the company employees contributed a day’s salary for a humanitarian cause when the super cyclone struck Odisha in 2000 and also when the floods swept Bihar in 2008 ( for details please refer to the information in the appendix.) ITC has set up “e-choupal” which focuses on over-all development of the farmers- from educating them about their rights to helping them increase their cash flows; it has been successful in reaching out to 4 million farmers in over 40,000 villages across ten states10.

9

“Corporate social responsibility” http://www.canon.co.in/section/CSR/#, accessed March 16, 2010. 10 “ITC e-choupal” http://www.itcportal.com/sets/echoupal_frameset.htm accessed March 24, 2010

Challenges addressed by CSR- an over view As has been pointed out somewhere in the beginning of the paper there are 6 issues which are addressed by the corporate social responsibility: a. Health related challenges b. Environmental challenges c. The climatic change challenges d. Human rights challenges Let us look into each of them in terms of theory and practice:
a. Health related challenges: What are the basic health issues faced by a country like India

where approximately 70% of the population lives in rural areas and wherein a greater percentage of them live in conditions not so conducive for the survival of humans. Be it Dharavi in Mumbai or the Tsunami affected regions in Odisha and Tamil nadu, there are many people who are still fighting it hard to earn for a day’s meal and for the survival.
• • • •
Three million children die every year due to lack of clean water 12 million children die every year due to disease 18 million people worldwide have been infected with HIV and 2.5 million have died of AIDS. 90% of new infections are in developing countries AIDS is now the leading cause of death for adults under the age of 45 in Europe and North America.

Table 1. Health challenges (www.csrquest.com) While there's a double-digit annual increase in health outlays, as many as 3.1 million people are infected with HIV and roughly 800 000 contract an infectious form of tuberculosis each year11. It is a surprise that while around 27 000 graduate doctors from Indian medical colleges of which more than 75% of Indian doctors are based in cities, whereas about 70% of patients in this country are village-based!
11

“Growth generates health care challenges in booming India”,Sanjit Bagchi MBBS

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2276551/, accessed March 25, 2010

While it is seen that there are a startling number of cases left unattended to in the rural areas there also is a vacuum created by the unavailability of the doctors thereat which means that there is a greater scope for the initiatives to be taken and contribute towards the development and upliftment of these masses.
b. Environment and climate change related challenges:

Environmentalists often describe the challenges in terms of threats to natural cycles such as the carbon cycle, the nitrogen cycle and the hydrologic cycle; (Chapin, Matson and Mooney, 2002).The carbon cycle is the one that has been mostly addressed in terms of green house gases and climate changes. The evidence of the carbon imbalance is manifested in global warming and related events such as the accelerated rates of the melting of glaziers etc12.

Global warming impacts on India-an overview:

12

“meeting the environmental challenges of china and india:towards innovative policy formulation, http://www.joaag.com/uploads/Thampapillai.pdf, accessed March 25, 2010

Environmental impact: increased landslides and flooding, ecological imbalances like the coral reef disaster in 1998 which wiped out 70% of the coral reefs population in the Lakshadweep islands, due to increased ocean temperatures tied to global warming. Social impact: disproportionate impact on more than 700 million people living in the rural areas and around 400 million people who constitute the rural poor living in conditions of poverty due to the depletion of the natural reserves like the cutting of the trees for the widening of the roads and the infrastructural developments because these people largely depend on these natural resources to meet their basic needs of food, shelter and clothing. Pollution: India’s development may be a good sign for the inflow of investments and may increase the GDP but that is also equally responsible for the increase in the pollution levels as we see every year during winters that a thick blanket of fog hangs over for hours together making it impossible for commutation by any means- air, rail or road which can be attributed to the increase in industries and emission of the smoke and discharge of factory wastes into the water resources. The main objective to be stressed upon is that the excessive emissions need to be reduced and hence the innovative ways are the need of the hour to deal with this lingering problem of global warming and climate change. There is growing interest among the consumers all over the world regarding protection of environment. Worldwide evidence indicates people are concerned about the environment and are changing their behavior. As a result of this, green marketing has emerged which speaks for growing, market for sustainable and socially responsible products and services. Green marketing is a new concept which focuses on being environment friendly and has been developed as a concept to sustain the global warming and the climate changes which impact the sales of products or the provision of services. It refers to the process of selling products and/or services based on their environmental benefits. Such a product or service may be environmentally friendly in itself or produced and/or packaged in an environmentally friendly way13. In India, around 25% of the consumers prefer environmental-friendly products, and around 28% may be considered healthy conscious. Therefore, green marketers have diverse and fairly sizeable segments to cater to. The Surf Excel detergent which saves water (advertised with the message—"do bucket paani roz bachana") and the energysaving LG consumers durables are examples of green marketing. The green building movement, spearheaded by the Confederation of Indian industry (CII) - Godrej Green business Center, has gained tremendous impetus over the last few years in our country. From 20,000 sq ft in 2003, India's green building footprint is now over 25 million sq ft14.
13

“ green marketing”,susan ward, http://sbinfocanada.about.com/od/marketing/g/greenmarketing.htm accessed March 25, 2010

c. Human Rights Challenges: Human rights are rights inherent to all human beings,

whatever our nationality, place of residence, sex, national or ethnic origin, color, religion, language, or any other status. We are all equally entitled to our human rights without discrimination. These rights are all interrelated, interdependent and indivisible 15. Such challenges are prevalent in a country like India where in the people are looked at on the basis of color and caste rather than the abilty which they possess. Work place harassments,homicides,domestic violence, child marriages and child labor are some of the prevalent human right problems in our country which need to be addressed by the business firms by the way of creating awareness campaigns and tying up with NGO’s. According to a 1996 report (quoting UNICEF and ILO as sources), the number of child laborers in India can be anywhere between 14 to 100 million children! Most of these children work in homes as domestic help. There are many sectors in India which are employing child labor like the beedi manufacturing, fireworks manufacturing, diamond industry, silk manufacture, bangles industry, construction and the more visible domestic labor which account for a major portion of the child labor employed (see box). While on one hand we talk of the social responsibility of the sectors and the companies it is seen that these sectors not only violate the human rights but also have been largely responsible for degrading health of the children working therein. While there are legislations in place to check child labor it has been seen that despite the efforts from the government and the non government organizations like CRY and Pratham, there still exists a greater portion of the clutter to be cleared.

Observations and conclusion In the paper it has been observed that while corporate social responsibility proves to be an effective weapon to win the trust and confidence of the customers, stakeholders and
14

“Green marketing, new hopes and challenges” http://www.123eng.com/forum/viewtopic.php?p=56597, accessed March 25,2010. 15 “ what are human rights?” http://www.ohchr.org/EN/Issues/Pages/WhatareHumanRights.aspx accessed March 25, 2010

the society and help a business leverage its value thereby increasing its profits ,it has to be understood that the Corporate social responsibility of the business is not of the business but of the corporate executives and the people who run the business to meet their goals of wealth maximization as has been pointed out by Milton Friedman in his article “the social responsibility of the business is to increase profits”16 it is said that the businesses are indebted to the society as they take away the resources and the opportunity cost of utilizing that space for some other productive or profitable purpose is lost for the people living therein and hence are required to pay back to the society in the form of the services to the society either by helping them economically, socially or even by protecting the environment where they operate. This service rendering of late has come to be viewed as a profitable investment venture by the companies which look at CSR as a tool to push up their profits and has assumed a very important role in the board meetings and sales meets. While for many of the organizations like the TATA and the Birla’s who have been pioneers in corporate social responsibility may be a service aimed at improving the livelihoods of the people around them, for many it is a way to avoid taxes. So, what ever be the motive, CSR initiatives by the organizations have helped them increase the goodwill amongst the members in the society. Be it coca cola’s initiative to protect the environment, the Idea cellular’s move to save trees or “the save tiger campaign” by Aircel, the motive is one and the same- come close to the society where they are located and make their presence felt. In fact this is a way in which the organizations can exhibit their responsibility towards the society in which they are operating. However when it comes to implementation of the CSR it has been seen that some sectors like the diamond industry, silk industry and the fireworks industry do violate the norms of the society and the legislations binding them and still are blossoming. So this raises a question – is CSR a necessity or is it a luxury at the expense of the profits of the firm? If CSR is to be used as a tool to leverage the profits of the sector or the firm where it is employed then, it would also increase the financial and operating risks as well at a social level, in that case how would that help in sustenance?

16

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html