Corporate Social Responsibility
Author : Co-author : Research Assistance : Editorial Assistance :
Dr. Meena Galliara Dr. Sujata Mukerjee, Faculty, Social Enterprise Cell, for Lesson 1 Ms. Sonam Chawla, for Lesson 1, 4 & part of Lesson 6 Dr. Ratna Huirem & Ms. Aditi Punekar, Research Associates, Social Enterprise Cell
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Page No. MODULE I Lesson 1 Lesson 2 Lesson 3 Lesson 4 Corporate Social Responsibility: The Global Context Business and its Stakeholders From Philanthropy to CSR: Historical and Theoretical Perspective The Business Case for CSR MODULE II Lesson 5 Lesson 6 Developing a CSR Strategy Implementing CSR Strategy MODULE III Lesson 7 Lesson 8 Lesson 9 CSR Monitoring and Measurement Reporting for CSR Role of Government and Voluntary Codes in CSR MODULE IV Lesson 10 Corporate Governance 127 99 108 115 59 71 7 16 30 48
CORPORATE SOCIAL RESPONSIBILITY SYLLABUS
Model I: Globalization and its Impact: Economic, Social; Sustainable Development; Role of Business in Sustainable Development; Millennium Development Goals; India and the MDGS Business and Society; Business Organizations as Systems; From Shareholder Theory to Stakeholder Theory; Stakeholder Concept; Typology of Stakeholders and their Influence; Stakeholder Engagement; Stakeholders versus Shareholders; Dynamic Environment of Business History of CSR in India: Pre-Independence Period, Post-Independence India; Liberalization and CSR; Emerging CSR Trends; Contemporary Scenario: Achievements; Theories of CSR: Friedman's Theory/Fundamentalist Theory, Social Contract Theory, Social Justice Theory, Rights Theory, Deontological Theory, Stakeholder Theory, Gandhiji's Trusteeship Theory; The Pyramid of Corporate Social Responsibility; Generations of CSR; Changing Trends: Philanthropy - Strategic Philanthropy - CSR Arguments against CSR; The Business Case for CSR; Importance of CSR for India: Current Business Scenario in India; Contemporary Drivers for CSR Model II: Steps in Designing CSR Strategy; Develop a Working Definition of CSR, Review Corporate Documents, Processes and Activities; Developing a CSR Strategy: Build Support with Senior Management and Employees, Research what others are doing, Prepare a Matrix of Proposed CSR Actions, Develop Options for Proceeding and Develop the Business Case for CSR Action, Decide on Direction, Approach and Focus Areas Implement CSR Commitments: Develop an Integrated CSR Decision-making Structure, Prepare and Implement CSR Business Plan, Set Measurable Targets and Identify Performance Measures, Engage Employees and Others to Whom CSR Commitments Apply, Design and Conduct CSR Training, Establish Mechanisms for Addressing Problematic Behaviour, Create Internal and External Communication Plan; Areas of CSR Implementation; CSR at Market Place: Benefits of Marketplace CSR, Designing Market Place CSR Activities; CSR at Workplace: Benefits of CSR at Workplace, Designing Work Place CSR Activities; Environmental CSR: Benefits of Environmental CSR, Designing Environmental CSR; CSR with Communities; Types of Interventions: Benefits of Community Interventions, Steps to Design CSR Intervention; Strategic Partnerships: Reasons for Corporate NGO Partnership, Criteria for Selecting NGO Partner, NGO Strategies to Influence CSR Model III: Focus of Measurement: Measure Fewer Things Better, Measure What Matters, Communicate Fewer Metrics in Multiple Ways; What is Monitoring?: Internal Compliance Monitoring, External Monitoring and Measurement Importance and Benefits of Reporting: Whom to Report, How to Report, Contents of CSR Report; Formats of CSR Communication and Reporting; The Reporting Team; Additional References for CSR Reporting Model IV: Role of Government; Government Support at International Level; Voluntary Codes in CSR: OECD Guidelines for Multi-national Corporations, ILO Conventions, ISO 9000 & ISO 14000, SA8000, UN Draft Principles for Behaviour of Trans-national Corporations, LEED, GRI, DOW Jones Sustainability Index, FTSE4GOOD, Smart Growth Network, Equator Principles, UN Global Compact, Coalition of Environmentally Responsible Economies (CERES) What is Corporate Governance; Constituents of Corporate Governance; The Corporate Governance Debate; Theories and Responsibilities of Corporate Governance; Global Growth of Corporate Governance; History of Corporate Governance in India; The Current State of Corporate Governance in India; Board Composition in India; Corporate Governance: Need to Strengthen: How to Improve Corporate Governance, Benefits of Corporate Governance; Efforts to Improve Corporate Governance; Corporate Governance and CSR.
5 Corporate Social Responsibility: The Global Context
6 Corporate Social Responsibility
and physical human wellbeing in societies around the world.10 1.11 Economic Impacts Social Impacts
Sustainable Development Role of Business in Sustainable Development Millennium Development Goals India and the MDGs Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
1.2 1. p. and facilitating movement of labour and capital across the globe (ILO. This process affects the environment. 24). The revolution in technological development has transformed the global economic scenario by reducing the costs of communication.1).4 1.1 INTRODUCTION
Globalization has increased the volume of world trade and foreign investments. providing easier access to information.1 1.6 1.9 1. political systems.d. n.7 1. culture. The Carnegie Endowment for International Peace defines globalization as. a process driven by international trade and investment and aided by information technology..8 1.
. it is blamed as a source of all contemporary ills” (ILO. “Globalization on one hand is seen as an irresistible and benign force for delivering economic prosperity to people throughout the world and on the other end.2.” In the present context. economic development and prosperity.1 1.0 1. and governments of different countries.5 1.0 AIMS AND OBJECTIVES
After studying this lesson.3 1.2.LESSON
7 Corporate Social Responsibility: The Global Context
CORPORATE SOCIAL RESPONSIBILITY: THE GLOBAL CONTEXT
CONTENTS 1.d. “A process of interaction and integration among the people. you should be able to: Understand about globalization and it’s varying economic and social impacts Know the need for integrating the goal of sustainable development into business
1.). n. companies.2 Aims and Objectives Introduction Globalization and Its Impact 1. The impact of globalization has been varied across regions of the globe (Refer Table 1.
6%. it resulted in severe restraints on the finance of the welfare state. but consequently it also increased income disparities. capital flows and international competition. Venezuela: 1. In fact. In Philippines much of the globalization impact was superficial. Brazil: 8. In Russia.1 Economic Impacts
Liberalization and expansion of international trade has led to increase in FDI investments which are currently concentrated 1 in about ten developing countries 1
China. social security systems and resulted in increased rural-urban intra -regional inequalities. Republic of Korea: 2.0%. Remaining 176 developing countries & territories: 25. it brought about public awareness on issues such as gender inequality. which lead to squeezing wages and corporate mergers.2%. Chile: 2. greater employment generation. foreign debts. China. In India and China globalization resulted in poverty reduction. Hong Kong SAR: 7.On a positive note. Mexico: 8. Poland
1. It also led to the formation of the European Union as a response to the pressures of globalization. there were increased investment flows. decrease in unemployment.7%. Bermuda: 2.
Source: ILO Report (n. and loss of low skilled jobs to other countries. sustainable development and acceptance of other universal values and ethics.)
Arab & Israeli
Latin America & the Caribbean
Russia .7%. the impact of globalization was more or less positive.2.1%.1%. Overshadowed by war & continuing Arab-Israeli conflict. spurred economic growth and industrial productivity. poverty & migration have aggravated due to poor governance and inability to attract foreign investments to tackle the problems. Volatile global financial markets badly hit the ‘middle class’ because of inadequate government policies and poor understanding of local conditions by the IMF and foreign banks. it resulted in increased conflict among communities due to liberalization of investments and the capital flows were badly affected by the Asian crises. Malaysia: 4. There was thus increased need for enforcement of labour legislations. Due to export of jobs to lower-cost countries and higher international tax competition. reform f the educational system and control of migration. In North America. Thailand: 2.5%. except for new pressures on companies to be more competitive.3%.1: Perceived Impact of Globalization
Regions of the World Africa Perceived Impact Badly hit by globalization because of unfair rules. 23. Singapore: 6.7%. Although not for all more than one billion people (approximately) have seen no reward. liberalization increased trade.3%
. Legal and illegal migration also increased to a large extent .d.7%. Western Europe & North America In Western Europe.
1. In fact globalisation has undermined their traditional livelihoods. but there was large unemployment due to restructuring of industries and the farm sector.0%.2 GLOBALIZATION AND ITS IMPACT
The ILO Report identifies economic and social impacts of globalization. Dominated by oil exports & migration and the fears for the impact on cultural identity and local traditions. human rights. HIV/AIDS. expanded export markets and newer opportunities for higher growth. Argentina: 5.8 Corporate Social Responsibility
Table 1. Poland became a part of the European Union to reap the benefits of globalization.
(ii) removal of controls over the allocation of credit in the domestic market.d. e-mail. The integration of the financial markets resulted in private financial flows and investments from North to South in “emerging markets”. p. small enterprises have been impacted because of their inability to access capital. The process of globalization has resulted not only in increased global competition and efficiency but also in building convenient sources of transportation. and (vi) emergence of new financial instrument: derivatives.000 Multi National Corporations (MNCs) with around 8. With regard to rural and informal economies. information and extension services thereby aggravating the problem of unemployment. Technology has not only enabled economic globalization but has also helped in increasing connectivity 5 among civil societies. leading to an increase in the levels of unemployment (Lee et al..d. 27). The global production system is also pronounced in the service sector where technological advancement has made it possible for services such as software development.). n. illiterate and asset-less labour remain on the margins. n. the social impacts of globalization across the globe has varied negative impacts.5 in 2000.
. p. (v) development of new financial transactions. Approximately today there are 65. which are technically and economically feasible. unskilled. hedge funds. financial services and call centers accessible from different countries around the globe. ibid. 2006). better communication facilities etc. The key economic characteristics of globalization clearly indicate that though development in global systems have got us closer together economically. Production processes are unbundled and located across the globe to “exploit economic advantages arising from differences in costs. This resulted in loss of jobs as well exploitation of workers rights by various MNCs leading to a reduction in the cost of goods.50.2 Social Impacts
Due to globalization.. low cost telephone services. machinery to churn out goods faster.and has also brought changes in the nature of financial flows by integrating the financial markets 2 .). equity funds and rating agencies 3 . Globalization has also brought a change in the governance structure of the global financial system with an increase in influence of private actors such as banks. resulting in persistent poverty. credit. this has resulted in widening of income gaps between the rich and the poor leading to large scale income inequality 6 within and amongst countries. (iv) revolution in technology improving the speed of knowledge of foreign markets. 34 ILO Report (n. (iii) opening up of capital accounts.
3 4 5 6
The integration of financial markets after the fall of Bretton Woods system lead to (i) unification of exchange rates. electronic conferencing The UN Human Development Report 2006 estimated the Gini Index – an indicator of income inequality – for India to be 32. Revolution in information and communications technology and declining transportation costs have resulted in multi country based production of goods and services. Industrial restructuring in the face of competitive global markets and lack of imports have displaced previously protected domestic firms. governments and individuals. Consequently.2. mobile phones.
9 Corporate Social Responsibility: The Global Context
1. factor availabilities and the congeniality of the investment climate” (ILO.000 foreign affiliates coordinating the global supply chains linking the decentralized production system outside the formal factory system 4 .d. 33 Spread of internet. p. at the expense of basic access to humane conditions of work (ILO.
manipulations. was convened by the United Nations in 1983. The problem has further aggravated due to lack of regulations and implementation mechanisms at the national and global levels." In establishing the commission. it has increased in Sub-Saharan Africa. There has been an increase in illicit cross-border activities like tax evasion. thus giving rise to unprecedented ecological challenges to the world in the 21st century. known by the name of its Chair. Due to this. Latin America (14 million) and the Caribbean (8 million). 1987). Gro Harlem Brundtland. Europe and Central Asia (82 million).4 ROLE OF BUSINESS IN SUSTAINABLE DEVELOPMENT
Responsible business has always contributed for societal development. formally the World Commission on Environment and Development (WCED). 8). it has also led to corporate scandals. Sustainable development being one of the greatest global challenges in this era has not escaped worldwide notice. the UN General Assembly recognized that environmental problems were global in nature and determined that it was in the common interest of all nations to establish policies for sustainable development. and over extension of credits to unstable local banks and firms resulting in financial crises of increasing frequency and severity. Private financial institutions are exerting power over emerging markets in designing their economic policies. The commission was created to address growing concern "about the accelerating deterioration of the human environment and natural resources and the consequences of that deterioration for economic and social development. Sustainable development is defined by the Brundtland Commission 8 as “Development that meets the need of the present without compromising the ability of future generations to meet their own needs” (WCED. sex and drug trades. 1987. The Brundtland Commission. Political and business leaders at the international and national levels are stressing the need for global sustainable development. Statistics reveals that FDI from the private sector into developing countries collectively has
Relative Poverty is defined in relation to the overall distribution of income or consumption in country.10 Corporate Social Responsibility
It is difficult to assess the impact of globalization on poverty. migration (both in-migration & outmigration) has increased across the globe. Relative poverty 7 has increased in majority of the countries as an effect of globalization. Migrants from all regions particularly women are driven into an illegal economy in countries of destination leaving them vulnerable to exploitation and trafficking. The fall in transportation costs and growth of mass tourism has made smuggling of people and drugs difficult to detect and punish. The primary objective of sustainable development is to reduce absolute poverty of the world's poor by providing lasting and secure livelihoods that minimize resource depletion.
. money laundering. p. Globalization has disrupted the ecological balance. Though people living in poverty have decreased in China. Though the increased influence of private institutions has led to better financial resource allocation. environmental degradation.
1.3 SUSTAINABLE DEVELOPMENT
The challenges of globalization facing humanity are closely intertwined and tend to complicate the solutions for attaining sustainable development. The global natural environment has also been affected by globalization because of the following reasons: (i) increase in travel (ii) larger corporations with centralized distribution (iii) poor pollution control mechanisms of MNCs in foreign markets and (iv) extractive industries using natural resources non-judiciously. This has further created issues relating to sustainable development and poverty. cultural disruption and social instability (WCED. thereby creating a (i) carbonconstrained and water-constrained world.
time-bound targets called the Millennium Development Goals (MDGs) to address issues of inadequate incomes. and gender equality. between 1990 and 2015. As per the United Nations. Collaborative partnership amongst governments. the private sector has already contributed to the reduction of poverty at the global level during the past decade. will be able to complete a full course of primary schooling Contd…. Looking from this macro perspective. and society to collaborate and work to strengthen each sector and create a qualitatively better world to live in. Secretary General of the World Summit. The Millennium Declaration of MDGs emphasizes the efforts to be taken by developing countries. lack of education. maternal health.
In 2004. between 1990 and 2015. Table 1. In September 2000. Social upheavals impact the entire society in general and business in particular because to a large extent business is dependent on society for its growth and prosperity. Business cannot flourish in any country if the environment required by business is not conducive. business spent more than 100 billion on building factories..2 provides a list of the MDGs. It is therefore essential to take the agenda of developing collaborations to address the issues of sustainable development and poverty in the new millennium. 2005). the proportion of people whose income is less than $1 a day.exceeded the amount of financial aid granted by governments 9 (World Bank Institute. 212). Thus. companies CSR policies have been framed. world leaders belonging to the government. the proportion of people who suffer from hunger Achieve universal primary education Ensure that. children everywhere. measurable.189 United Nations member states and at least 23 international organizations have agreed to achieve MDGs by the year 2015.5 MILLENNIUM DEVELOPMENT GOALS
The MDGs promote poverty reduction. Halve. AIDS and other diseases. By signing the Millennium Declaration. healthcare and clean water( UNDP. boys and girls alike. businesses and civil societies is the call of the day. To quote Maurice Strong. the World Bank and other international organizations FDI investments by private companies should enhance a process of sustainable growth that minimizes the damaging effects on the environment. debt relief. and also aims at combating child mortality. unemployment. that of managing our own future as species” (Lawrence et al.2: Millennium Development Goals
Goal 1: Target 1: Target 2: Goal 2: Target 3: Eradicate extreme poverty and hunger Halve. access to essential medicines and technology transfer. The Government alone cannot deal with the issues of sustainable development. 2006). businesses and NGOs in the gathering at the United Nations adopted eight specific. inequality. companies are committing to take action through their core business in enhancing growth and help to meet the MDGs.
11 Corporate Social Responsibility: The Global Context
1. “We now face the ultimate management challenge. by 2015. which have been accepted at the global level. society needs to be developed. p.
. development assistance. gender inequality. If business has to develop. widespread hunger. 2005. Today’s world is interdependent where problems of poverty. based on these MDGs. environmental deterioration. education. and the contribution that developed countries should make through trade. shops and acquiring shares of foreign companies based in developing countries. However the challenges of sustainable development in the new millennium are a new imperative for governments.. offices. nation states invested 50 billion dollars. businesses. environmental degradation and social integration are causes of concern because they have an impact on society thereby impacting businesses worldwide.
1.3). malaria. nutrition. and other diseases Have halted by 2015 and begun to reverse the spread of HIV/AIDS. non-discriminatory trading and financial system (includes a commitment to good governance. by 2020. HDI Rank of India : 128 India’s Tenth Five-Year Plan (2003-2007) included targets of human development that can be monitored. Some of the indicators listed below will be monitored separately for the least developed countries. Ensure environmental sustainability Integrate the principles of sustainable development into country policies and program and reverse the loss of environmental resources. the maternal mortality ratio Combat HIV/AIDS. but more ambitious than the Millennium Development Goals (MDGs). health and social services. and more generous ODA for countries committed to poverty reduction) Address the special needs of landlocked countries and small island developing states (through the Program of Action for the Sustainable Development of Small Island Developing States and 22nd General Assembly provisions) Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. landlocked countries. the proportion of people without sustainable access to safe drinking water and basic sanitation Have achieved. and poverty reduction—both nationally and internationally). by 2015.
. the well-being of the average citizen is a measure of development. maternal mortality and child mortality. The Human Development Index 10 (2008) puts India 11 at the bottom 50 of the 177 nations because a large part of the population lacks access to education. Address the special needs of the least developed countries (includes tariff-and quotafree access for exports enhanced program of debt relief for HIPC and cancellation of official bilateral debt. The Government of India being a member state of the United Nations set up targets in the Tenth 12 as well as the Eleventh Five Year Plan to achieve the MDGs.
Source: World Bank Group. between 1990 and 2015.6 INDIA AND THE MDGS
In the present context. consistent with. and to have a decent standard of living. ( n. a significant improvement in the lives of at least 100 million slum dwellers Develop a global partnership for development Develop further an open. The areas that require redoubled efforts include literacy. between 1990 and 2015.12 Corporate Social Responsibility
Goal 3: Target 4: Goal 4: Target 5: Goal 5: Target 6: Goal 6: Target 7: Target 8: Goal 7: Target 9: Target 10: Target 11: Goal 8: Target 12:
Promote gender equality and empower women Eliminate gender disparity in primary and secondary education preferably by 2005 and in all levels of education no later than 2015 Reduce child mortality Reduce by two-thirds.d. The Government has launched several large programmes with regard to the MDGs. to acquire knowledge. and small island developing states. predictable. rule-based. the under-five mortality rate Improve maternal health Reduce by three-quarters. Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases. development.
The Human Development Index (HDI) takes into account three basic dimensions of human development: the right to live a long & healthy life. Halve. The Eleventh Five-Year Plan (2008-2012) proposes specific targets to achieve MDGs (Refer Table 1.
c) Increase literacy rates for persons of age 7 years or more to 85% by 2012.
Malaria and other diseases
a) 25% reduction in morbidity and mortality due to malaria by 2007 b) All villages to have sustained access to potable drinking water a) Increase in forest and tree cover to 25 per cent by 2007 b) Cleaning of all major polluted rivers by 2007
5. Focus Areas Poverty Employment Tenth Five Year Plan (2002-2007) Reduction of poverty ratio 5 percentage points Providing gainful and highquality employment at least to the additional labour force over the Tenth Plan period Eleventh Five Year Plan (2007-2012) Reduction of poverty 10 percentage points ratio by
13 Corporate Social Responsibility: The Global Context
a) Generation of 58 million new work opportunities b) Reduction of unemployment among the educated to less than 5% c) 20% rise in the real wage rate of unskilled workers
3. 6. 1.
a) All children in school by 2003 b) All children to complete 5 years of schooling by 2007 c) Increase in literacy rates to 75 percent within the Tenth Plan period
a) Universal enrolment of children in the age group 6–14 including the hard to reach segment by 2015 b) Dropout at primary level to be eliminated and elementary level to be reduced to 20%.9 per cent a) Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007 b) Reduction of Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007 Achieving zero level increase of HIV /AIDS prevalence by 2007 a) Reduction of Infant Mortality Rate (IMR) 28 per 1000 births by 2012 b) Reduction of Maternal Mortality Ratio (MMR) to 1 per 1000 live births by 2012 Reduce new infections by 60% in high prevalence States so as to obtain reversal of the epidemic and by 40% in the vulnerable States so as to stabilize the epidemic a) Eliminate Malaria and other water borne diseases b) Provide clean drinking water for all and 100% sanitation coverage
Reduction in gender gaps in literacy and wage rates by at least 50 per cent
a) Reduction in gender literacy by 10 %
b) Sex ratio for the age group 0–6 to be raised to 935 by 2011–12 c) Ensuring that at least 33% of the direct and indirect beneficiaries of all government schemes are women and girl children.
a) To increase forest and tree cover by 5 percentage points b) To attain WHO standards of air quality in all major cities by 2012 c) To treat all urban waste water by 2012 and to clean river waters d) To increase energy efficiency by an additional 20% by 2016–17
Source: Planning Commission of India. No. 2008.3: Targets of the Eleventh Five Year Plan
Monitorable targets for Tenth and Eleventh Five Year Plan Sr. 2.
Population Infant and Maternal Mortality Rate
Reduction in the decadal rate of population growth between 2001 and 2011 to 15.
State whether the following statements are true or false: (a) Globalization has led to easier access of information and labour from around the globe.
1. Corporate Social Responsibility: A form of self regulation integrated into business
1. environmental degradation and social disintegration are concerned.14 Corporate Social Responsibility
1. companies and governments of different countries Sustainable Development: Balancing the present needs and future needs Millennium Development Goals: Eight internal goals that members of UN and other organizations have agreed to achieve till 2015. (d) The aim of sustainable development is to reduce relative poverty. 2.7 LET US SUM UP
The impact of globalization on society is largely from technological and social change.9 SELF ASSESSMENT
1. businesses and non-government initiatives. The world faces unprecedented ecological and social challenges in the 21st century which cannot be tackled by yesteryear’s rule of governance anymore. Choose the appropriate answer: (a) Globalization integrates: (i) People (ii) Companies (iii) Governments (iv) All of the above (b) Globalization impacts: (i) Cultures (ii) Environment (iii) Political systems (iv) All of the above (c) Which one of these is one of the economic impacts of globalization? (i) Increase in FDI (ii) Expansion of production facilities (iii) Increased global competition (iv) Decrease in local competition
. inequality. Today’s world is interdependent where problems of poverty. (e) It is the government of the country who can lead sustainable development. (c) Globalization has facilitated illegal trade practices and illegal migration.8 KEYWORDS
Globalization: Integration and interaction between people. unemployment. The trend worldwide is to tackle the problems by adopting collaborative and consultative models through a judicious mix of government. (b) Globalization has brought the economies closer.
Weber.). What are the Millennium Development Goals? How can business contribute towards achieving these goals?
Answers: Self Assessment
. Eleventh Five year Plan 2007-2012.undp.nic..org/public/english/wcsdg/docs/rep2.in/plans/planrel/fiveyr/11th/11_v1/11th_vol1. Business and Society.). Washington. About the MDGs: Basics. (2008).10 REVIEW QUESTIONS
1. Planning Commission Government of India.in/plans/planrel/fiveyr/11th/11_v2/11th_vol2. Volume I –Inclusive Growth. J. (a) True 2. (2005). The Social Impact of Globalization in the Developing Countries. How do you think globalization has impacted trade and finance around the world? 2. E. Available at http://www. Eleventh Five year Plan 2007-2012.shtml United Nations Documents. Globalization and its Impact.(d) Sustainable development calls for minimizing: (i) Resource depletion (ii) Environmental degradation (iii) Current demands (iv) Social instability (e) Which of these is not a MDG? (i) Promote education (ii) Reduce gender inequality (iii) Reduce child labour (iv) Reduce infant mortality
15 Corporate Social Responsibility: The Global Context
1. Available at http://planningcommission. Planning Commission Government of India. (n.un-documents.pdf. DC: The World Bank and Oxford University Press.org/dp1925. Available at www. Lee.iza. (2005). (2008).htm. J. World Development Report: A Better Investment Climate for Everyone. United Nations Development Programme.ilo.11 SUGGESTED READINGS
International Labour Organisation. Available at http://ftp.org/INTWDR2005/Resources/complete_report.pdf. Available at http://siteresources. Millennium Development Goals. Report of the World Commission on Environment and Development: Our Common Future. A.d.pdf.d. What is sustainable development? How can business contribute towards promoting sustainable development? 4. M. Volume II – Social Sector. The Planning Commission. (n. (2006).pdf Lawrence. & Post.org/mdg/basics. New Delhi: Oxford University Press. & Vivarelli.pdf. Singapore : McGraw-Hill. Oxford: Oxford University Press.worldbank. Available at http://planningcommission. The World Bank. What in your opinion can be done to mitigate the negative social impacts of globalization? 3. Institute for the Study of Labor. (1987). The Planning Commission. Available at http://www.net/wced-ocf.. New Delhi: Oxford University Press. (a) iv (b) True (b) iv (c) True (c) iv (d) False (d) iii (e) False (e) iii
Business has a very important role to play in development of society. A business can’t be run alone. you should be able to: Clarity about a meaningful coexistence of business and society Understand the need and responsibility to create a conducive environment for business Understand stakeholder typologies and their significance in business Underline the role of communication in Stakeholder Management Appreciate the need for stakeholder contribution in decision making Recognize the need for effective communication in CSR initiatives
2.11 2.5 2. are the stakeholders of a business.2 2.
. creditors. All these elements which belong to a larger unit.7 2. debtors.6 2.14 Aims and Objectives Introduction Business and Society Business Organizations as Systems From Shareholder Theory to Stakeholder Theory Stakeholder Concept Typology of Stakeholders and their Influence Stakeholder Engagement Stakeholders versus Shareholders Dynamic Environment of Business Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
2.13 2.1 2.9 2. society.0 2.3 2. society and government to run smoothly. customers.16 Corporate Social Responsibility
BUSINESS AND ITS STAKEHOLDERS
CONTENTS 2.8 2.1 INTRODUCTION
A business entity is a unit made up of several units.0 AIMS AND OBJECTIVES
After studying this lesson.4 2.10 2.12 2. It requires the support and integration of elements like employees.
a society is defined as a network of relationships between social entities. Systems range from very simple to very complex. Specifically the term society is used to refer to segments of humankind such as members of a specific caste. etc. such as social systems comprise of numerous subsystems as well. the nature of the system is changed. In this organizations could have wonderful departments that operated well by themselves but did not integrate well together. mechanical systems (e. Systems have input. In the past. Bombay Stock Exchange is the second largest after the New York Stock Exchange (NYSE). Business forms one of the major subsystems of the society. outputs and outcomes geared to accomplish an overall goal for the subsystem. friendship.). It is significant that India has the third largest investor base in the world. Each subsystem has its own boundaries of sorts and includes various inputs. It also needs the larger society to facilitate the exchange of its finished products and services. The theory emphasizes the ways in which organized systems (human and non-human) respond in an adaptive way to cope with significant changes in their external environments so as
A system is a collection of parts (or subsystems) integrated to accomplish an overall goal (a system of people is an organization). Consequently. education system and so on. These subsystems are arranged in hierarchies. This theory highlights that all organizations are open to and interact with their external environment. which is dependent on the society for sustaining itself. in which most interactions are with other individuals belonging to the group. It has brought a new perspective for managers to interpret patterns and events in their organizations. processes. In economics. Therefore an understanding of the organizations key relationships with its environment and assessment of the impact of managerial decisions on the larger society will assist managers to manage these interdependencies. and the actions by governments and other subsystems in society continuously affect businesses. In return businesses help in contributing to the GDP of the nation. More abstractly.g. Businesses vary in size and impact. predator/prey).
17 Business and its Stakeholders
2. riding a bicycle. and social systems (groups. and integrated to accomplish the overall goal of the overall system. If one part of the system is removed.2 BUSINESS AND SOCIETY
Business is one of the most dominant institutions in society. heart.) Complex systems. For instance it gets manpower. Sociological studies on society view society a systems perspective 1 . India also has a vibrant capital market comprising of 23 stock exchanges with over 9000 listed companies.). For example.3 BUSINESS ORGANIZATIONS AS SYSTEMS
The systems theory helps managers to look at organizations from a broader perspective. police system.000 people. In 1940 the General Systems Theory was introduced. The above point illustrates that business and society are highly interdependent. There are numerous types of systems. human/mechanical systems (e. They range from a small enterprise to huge Corporations like BPCL. ecological systems (e. aid in infrastructure development and improve the quality of life of the people. community. supply and demand.g. The term society refers to a group of people that form a semi-closed social system.g. managers typically took one part of the organization and focused their attention on that and subsequently moved their attention to another part. thermostat). with ongoing feedback among these various parts. provide employment. there are biological systems (e. raw materials. financial and other resources from the society.2. outputs and outcomes. business refers to organizing and maintaining collective productivity toward accomplishing a set of creative and productive goals. group. which employs more than 20.g. Human society consists of various subsystems which has distinct roles and functions like the judiciary system. the organization suffered as a whole. Positive and negative business activities impact society. processes.
. nation and so on.
Most economists focused on the economic benefits of these enterprises. the interrelations of the parts.. Maximizing their returns should provide the most efficient outcome for the firm and society.
. The society at large emphasized that the benefits of legally sanctioned business organizations—limited liability and perpetual existence—come at some cost. The growth of industries from technological age to information age has produced large business enterprises. but it has also spawned the social problems that are associated with industrial firms. but they could not explain why they caused such social upheaval. these social dislocations were simply the price of progress. and customers.4 FROM SHAREHOLDER THEORY TO STAKEHOLDER THEORY
Every organization attempting to accomplish something has to ask what is their purpose? And to whom are they responsible? According to the Ownership Theory of the Firm. According to shareholder theorists such as Nobel laureate economist. Businesses are basically outcomes of social creation and hence they must be responsible to their stakeholders 3 including the
Other constituencies of the firm. A stakeholder is any individual or organisation that is affected by the activities of a business. at least not in rational economic terms. and in particular. managers ought to serve the interests of the firm's owners. For many. suppliers. The corporate law commits managers solely to the maximization of profits for the benefit of the firm’s owner/shareholders. sweatshops. to maximize profits. The price of these benefits is a responsibility to the public that goes beyond simply maximizing the wealth of investors.18 Corporate Social Responsibility
to maintain their basic structures intact. They diagnose problems. but by recognizing larger patterns of interactions. and may be in contact with the business on a daily basis. As applied to business management discipline. engineering with manufacturing. The manifestations of the above events put the relationship between managers and other firms and constituencies 2 .
2. the primary duty of those who manage a firm is to maximize the interests of the firm’s shareholders. Managers now a days focus more attention on ongoing matters of the organization and feedback. Systems theory models of decision-making in human groups and organizations emphasize their interaction with "outside" actors and organizations and concentrate on identifying the particular elements in the environment of the group or organization that significantly affect the outcomes of its decision-making. supervisors with workers. etc. They have a direct or indirect interest in the business. migration. for e. They focus on structures that provoke behaviors that determine events – rather than reacting to events as was the practice in the past. Managers maintain perspective by focusing on the outcomes they want from their organizations. including the public. not by examining what appear to be separate pieces of the organization. that is. and child labor. try to find out what threat or opportunity it was responding to and how its pre-existing response mechanisms worked to do this. such as deforestation. In contemporary society more managers are beginning to recognize the existence of the various parts of the organization. the shareholders. obeying the law. in particular focus. Social obligations of the firm are limited establishing contractual relations.g. Milton Friedman. or just occasionally. Shareholders are the “residual” owners of the firm’s assets. the coordination of central offices with other departments. include employees. unemployment. the system’s concept implies that business firms are embedded in a broader social structure (external environment) with which they constantly interact. urban blight. To understand what an organization did. environmental degradation. and adhering to ordinary moral expectations.
Government: Their special concerns are revenue.6 TYPOLOGY OF STAKEHOLDERS AND THEIR INFLUENCE
A business firm’s relationship with its stakeholders depends upon its interface. affect or are affected by) the firm. especially in affecting reputation and public standing. Local Community: They are interested in jobs and minimum disruption in their daily lives. suppliers. This understanding of the firm's purpose and its management's obligations diverges sharply from the understanding advanced in the Shareholder Theory of the firm. government and regulators. customers. Primary social stakeholders have a direct stake in the organization and its success. In this context R. For example. customs and excise. The main stakeholders in businesses are: Shareholders: They will be interested in their dividends and capital growth of their shares. as they will be collecting taxes from businesses. They sound the same – but the difference is crucial Shareholders hold shares in the company – that is they own part of it. employees. customers. For instance. is to serve and coordinate the interests of its various stakeholders. or may just occasionally. Each relationship is based on a specific transaction between the firm and the stakeholder. There are two types of stakeholders. Secondary social stakeholders may be extremely influential.e. local communities. shareholders and investors. Primary and Secondary Stakeholders. This theory treats the firm as a social creation that must operate for the benefit of society. Customers: They are interested in fair price and safe products. suppliers and other business partners. employees and managers. Banks and other financial organizations: They lend money to the business. The theory holds that managers ought to serve the interests of all those who have a ‘stake’ in (that is. They may have a direct or indirect interest in the business.5 STAKEHOLDER CONCEPT
It is important to distinguish between a stakeholder and a shareholder. and the communities in which the firm operates—a collection that Freeman terms the ‘Big Five. prospects and pay. and may be in contact with the business on a daily basis. Suppliers: Their interests are regular business and prompt payments. civic
.society at large. Stakeholders have an interest in the company but do not own it (unless they are shareholders). and therefore are influential.. Management and employees: They may also be shareholders. but their stake in the organization is more representational than direct.’ The very purpose of the firm.
2. Edward Freeman propagated the Stakeholder Theory. Pressure Groups: Their interests are whether the business is acting appropriately towards their area of interest. according to this view. A stakeholder is any individual or organization that is affected by the activities of a business. Trade Unions: They will represent the interests of the workers. i. They will be interested in their job security. It is the moral obligation of the firm's managers to strike an appropriate balance among the ‘Big Five’ interests in directing the activities of the firm.
19 Business and its Stakeholders
2. Stakeholders include shareholders.
and definition that is based on the individual. social pressure groups. and Wood (1997) developed a theory of stakeholder identification and salience based upon stakeholder possession of one or more of the three attributes: power 4 .1 below. to do something that B would not otherwise do. The authors group the stakeholders into the following classes: (a) latent or low salience (Areas 1. managers do not ignore dormant stakeholders. These stakeholders possess legitimacy but not power or urgency. A. Managers may not recognize their existence or may do nothing about these stakeholders. These stakeholders have little or no interaction with the firm but may become more salient if they acquire one or both of the other two attributes. and that managers' perceptions dictate stakeholder salience. Dangerous Stakeholder 3. and urgency 6 . Thus. proper or appropriate within some socially constructed system of norms. their power is not exercised. B. and 6). competitors. Each stakeholder group has unique concerns. 2.20 Corporate Social Responsibility
institutions. or all the three attributes of power. incentives. In addition. 289-293). media and academic commentators. (b) expectant or moderately salient (Areas 4. Dependent Stakeholder
4.1: Types of Stakeholder
1. legitimacy 5 . Legitimacy .
Figure 2. and (c) definitive or highly salient (Area 7). Three types of latent stakeholders exist.A generalized perception or assumption that the actions of an entity are desirable. dormant. Discretionary Stakeholder
Source: Mitchell et al. and urgency. Dormant stakeholders possess the power to impose their will on the firm but as they lack a legitimate or an urgent claim. values. It is assumed that managers who wish to achieve particular end will pay attention to the various classes of stakeholders. Dominant Stakeholders
2.A relationship among social actors in which one social actor. The authors define salience as the degree to which managers give priority to competing stakeholder claims. and demanding. Dominant Stakeholder
5. 5. influence and relationship with the organization.. two.The degree to which the stake holder’s claim or relationship call for immediate attention. the various classes of stakeholders might be identified based upon the possession of one. legitimacy. Individuals or entities possessing none of the attributes are non stakeholders (Area 8). or society. Agle. Latent stakeholders are not likely to give any attention to the firm. discretionary. p. A second type of latent stakeholder is discretionary (Area 2). (1997). Urgency . can get another social actor. 874. namely. and 3). Mitchell. the organization. Definitive Stakeholders 6. trade bodies. beliefs. Demanding Stakeholder
7. The stakeholder classes resulting from possessing the attributes is illustrated in the Figure 2. Power can be based upon force or threat.
Latent stakeholders are those that possess only one of the attributes and thus have low salience. and it exists when a claim or relationship is of a time sensitive nature and when that claim or relationship is important or critical to the stakeholder (1997. or symbolic influences. Because of the absence of power and
measures for employee welfare.
Box 2. loss of trade for Mumbai -based suppliers Government agencies: regional development agencies. families of employees. number of employees. Dangerous . Discretionary .urgency. The third type of latent stakeholder is demanding (Area 3) and possesses the urgency attribute. Expectant Stakeholders Dominant .
Box 2. Businesses come into regular contact with customers. a wider variety of goals have been suggested for a business.Recipients of discretionary corporate social responsibility.Employees who are involved in wildcat strikes or sabotage. housing. they also include goals relating to earnings per share. Definitive Definitive . and special interest groups.g. However. Suppliers: impact on supply costs.Shareholders and creditors who expect to receive management’s attention. training Customers: impact on supply of product or service.when making decisions. managers are not under any pressure to engage in a relationship with the stakeholder although they may choose to do so. Demanding . These include the traditional objective of profit maximisation (in other words. concerns about family. Some examples are given in Box 2. the shareholder concept has not been abandoned). As these stakeholders lack power and legitimacy.. or interest group terrorism or blockages.Lone picketer opposing actions of firm. Decisions made by a business are likely to affect one or more of these "stakeholder groups".Individuals or entities processing none of the attributes
21 Business and its Stakeholders
In recent years.A fired or laid off employee speaking out against the firm or filing wrongful dismissal suit.2: Impact of Decisions on Stakeholder Groups
Business Decision Relocation of Head Office from Mumbai to Bhavnagar Stakeholders Affected Employees in Mumbai: potential redundancies. often the government. suppliers. A major reason for increasing adoption of a Stakeholder concept in setting business objectives is the recognition that businesses are affected by the "environment" in which they operate. Non-stakeholder Non or Potential .2 below. change in "living standards" New employees in Bhavnagar: job opportunities. manager satisfaction. agencies providing other grants. they are merely troublesome but not dangerous. employment training agencies Other groups: environmental impact in Bhavnagar (e. government agencies.Shareholders voting to replace management. 1997). environmental protection and many others. and warrant only passing management attention (Mitchell et al. The concept suggests that businesses can benefit significantly from
.1: Stakeholders Acceptance of Stakeholder Concept
Latent Stakeholders Dormant . Dependent . traffic)
The stakeholder concept suggests that the managers of a business should take into account their responsibilities to other groups – not just the shareholder group .Local residents or the environment who depend on a dominant stakeholder. total sales.
When deciding future strategy for the short and long term. employees. (See Box 2. a sustainable retail business needs the support of healthy communities and a high quality environment. suppliers. and the public are focused on corporate governance and business ethics. mode of engagement. We've always known that besides providing the right products. irrespective of nationality. Marks & Spencer has been actively involved in improving the quality of life for a wide range of communities. In practical terms. creed or education. GSK's strategic intent is to become the indisputable leader in its industry . workplace health and safety. class. investors. (See Box 2. but in how it uses that size to achieve its mission. it means we are committed to doing business in a way that: Maximizes the benefits of ICT for individuals Contributes to the communities in which we operate Minimizes any adverse impact that we might have on the environment It means doing business in a way that will persuade customers to buy from us. corporations are facing demands from their stakeholders. Its global quest is to improve the quality of human life by enabling people to do more. environmental performance. Glaxo SmithKline GlaxoSmithKline is one of the world's leading pharmaceutical companies. employees. Stakeholders must be engaged in a dialogue.
2. whether as customers. society more diverse and our environment is under greater threat than at any time before.not simply in terms of size. human rights. ethnicity. customers. partners or neighbours. impact on communities and reporting transparency.7 STAKEHOLDER ENGAGEMENT
With increasing frequency.3)
Box 2.5 for summary of various key stakeholders. it would be this: ‘Better communications help create a better world’. If we had to say what we believe in a single sentence. We've always tried to make an active contribution to the needs of our stakeholders. culture. Business is becoming global. the best people to work for us. We aim to be the most trusted retailer wherever we trade by demonstrating a clear sense of social responsibility and consistency in our decision-making and behaviour. key sustainability concerns and the initiatives taken by ITC). regulators. Since the 1930s.
. but the world is changing. Marks & Spencer Our commitment to society is nothing new.4 for ITC’s stakeholder engagement statement and Box 2. incorporating their needs in the decision-making process.22 Corporate Social Responsibility
cooperating with stakeholder groups. Investors. Entering the 21st century our commitment remains as strong as ever.3: Examples of Stated Business Objectives that Incorporate the Stakeholder Concept
Company British Telecom Stakeholder Statement We aim to be at the heart of the information society – a communications-rich world in which everyone. GSK partners with and supports organisations whose goals and objectives reflect its mission of improving the quality of human life. has access to the benefits of information and communications technology (ICT). Through its Global Community Partnerships function and Corporate Donations Committee. which will facilitate the functioning of the firm. suppliers. feel better and live longer. stakeholder views must be considered. investors to back us. and communities to have us around. Companies have to consider how their actions impact on an increasingly connected set of issues.
com/sustainablity_report/page_08. including presentations. is also posted on SEBI’s EDIFAR website The Company’s corporate website ‘www. local communities and the society at large. are posted on the Company’s website. Already a benchmark in-house Registrar. employees. Audited Annual results are declared within two months of the end of the financial year.4: ITC’s Stakeholder Engagement Statement
As a large Corporation. The ‘Newsroom’ section includes all major Press Releases from the Company and relevant press clippings. including the entire Report and Accounts. shareholders. All these results. Two exclusive sections on ‘Shareholder Value’ and ‘Investor Relations’ serve to inform and service shareholder needs.com’ is a comprehensive source of information on ITC’s portfolio of businesses.itcportal. The Company’s various businesses have evolved and institutionalised structured systems to formally review and update their understanding of stakeholder expectations. customers.5: Summary of Various Key Stakeholders. Contd…. Mode of Engagement. made to them.
Source: http://www. contractors. are posted on SEBI’s EDIFAR website. social responsibility activities and EHS performance. (Occupational) Health and Safety (EHS). its entire gamut of activities relating to Environment.
23 Business and its Stakeholders
Box 2. ITC believes that the disclosure of all appropriate and useful information with regard to all Company activities that can impact stakeholders is at the heart of good governance. Such services are provided by a dedicated and trained team of professionals backed by stateof-the-art infrastructure. ITC’s Investor Service Centre (ISC) provides share registration and other related services. The entire Report and Accounts as well as quarterly and half-yearly financial results are now available in downloadable formats under the section ‘Shareholder Value’ on the Company’s website to facilitate easy access to all information. suppliers. who are impacted by the Company’s operations. compliance with corporate governance norms. ITC has a large number of stakeholders comprising of Government and statutory bodies.itcportal. Key Sustainability Concerns and the Initiatives Taken by ITC
Stakeholder & Mode of Engagement 1. etc. Shareholders: Annual General Meeting Written Communication Investor Service Centre Key Sustainability Concerns Profitability & Growth Initiatives by the Company
The quarterly results of the Company are announced and published within a month of completion of the quarter. with a diverse business portfolio and Units spread over 60 locations.Box 2.. Information related to shareholding pattern. ITC and all its units consistently strive to anticipate emerging stakeholder expectations. if any. ITC is committed to the timely disclosure of relevant and reliable information about its financial performance. the Investor Service Centre endeavours to keep investor servicing contemporary and efficient. and its social initiatives. Clarifications as and when provided to institutional investors and analysts.
Representation of employees in EHS and Social Committees Participation of employees in EHS and Social Initiatives
Health & Safety Growth prospects Employee satisfaction and commitment Ethical standards in business Attracting and retaining talent Career development opportunities Air & Water quality Environment quality: Disposal of fly ash
Organisation of EHS Training Programmes Conduct of Public Awareness Programmes Systematic encouragement of Innovation Programmes to discover and promote leadership talent Conceptualisation and implementation of knowledge management tools The creation of an organisational culture that combines a warm and caring ambience with a high performance ethos
4. innovation. sewerage and community waste management Improving the quality of life in the community
5. surveys through NGOs. online instrumentation to ensure product quality and consistency Improved designs and processes through R&D and product development
Communities: Neighbourhood societies. engage and manage stakeholder support is crucial for an organization’s survival.24 Corporate Social Responsibility
2. EHS & social issues and regulatory trends
Regulatory Issues & Community Interests
Proactive periodic fulfilment of all formalities and procedures
Organizations face various challenges in the stakeholder engagement process.
Customers: Customer and market surveys.
Government: Regular meetings and structured communication on key economic.
Quality.itcportal. regular visits by Managers. Direct Interaction at the workplace. Customer complaint records. services.
Employees: Regular interaction through elected unions and delegates. flexibility
Use of IT to improve supply chain management Adoption of ISO 9000. (Refer Box 2. costs. Failure to fully monitor. need-based discussions/written communication
The organisation of water supply to nearby colonies and for irrigation The conduct of Public Awareness Programmes on EHS The organisation of medical facilities like pulse polio and eye camps Provision of infrastructural support through road building and effecting improvements in school buildings and public toilets Active support to local NGO initiatives in public health. delivery. redressal systems etc. Implementation of Suggestion Schemes. public hearings for new projects.6 for details). IQRS (International Quality Rating System) certification.com/sustainablity_report_2006/html/stakeholder enagement. CANDO (5S).
The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e. which are global. the viscosity of institutional change. child labour. The conflict often arises because while shareholders want short-term profits. Finding a cost effective approach to monitor and report performance. which is already impacted on the State and on political institutions and this new individualism impacts on firms and their market environment in a series of ways. They are increasingly facing a rise in public expectations partly because of the decline of the State and partly because of the erosion of a common framework for dialogue between businesses. Providing information on the real performance of your organization rather than on the perception people might have.9 DYNAMIC ENVIRONMENT OF BUSINESS
The end of the last century has taught us many lessons about the relationship between business and society. Capital markets also get affected through investor preferences and new types of performance rating and accounting and how can business strategies and profit considerations be reconciled with these changing and growing social demands. Ensuring data sources are reliable and information provided to stakeholders is consistent and accurate.8 STAKEHOLDERS VERSUS SHAREHOLDERS
Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict. employee concerns for participation. Developing and communicating the organization’s values through the engagement process. the workers may go on strike or the customers refuse to buy the company’s products). the other stakeholders’ desires tend to cost money and reduce profits. then deciding how to measure and communicate performance. These incidences have brought home the truth that expanding markets can go hand in hand with shrinking social space. Designing an effective engagement programme on strategy and operations.
. as well as their needs and concerns. Businesses today face several major challenges. technological and market change.6: The Key Challenges in Stakeholder Engagement
Assessing who the key stakeholders are. as these are important powerful dynamic elements within the organizations. Having a mechanism to properly collect and respond to stakeholder views. and by growing consumer power. We have understood the impact of lack of synchronicity between political and economic cycles. and communities that remain local. This affects product markets because it impacts on consumer demand as individual values and ethical considerations are given market expression. This question has been sharpened by the inexorable drive towards greater shareholder value and hyper competition. environment. Moreover.Box 2. It also affects business reputations in terms of boycotts or media disasters or corruption scandals.
25 Business and its Stakeholders
2. which force them to change. Developing a relationship with the strategic stakeholders based on commitment and accountability. They also face a challenge through the new individualism. all of which affect consumer choice. We have examples of human rights. and other related factors. which perhaps was not perceived so clearly at the beginning of the 90s. firms and corporations today are defined by their social cultural environment as much as they define that environment themselves.g. Deciding how to get assurance for the data used. greater transparencies and ethical behaviour affects the internal labour markets of companies. Restoring and enhancing reputation/trust when it has been damaged. Above all.
The world today is moving towards ethical business strategies. and secondary stakeholders – who don’t have direct stake like media.
Source: http://www. hence honesty is not only the best policy but it is the best business policy. Stakeholders can be divided into two: primary stakeholders – who have direct stake in a company like employees. The term society refers to a semi-closed in which most of the interactions are with the other members belonging to the group. Wipro’s business transaction policies clearly outline procedures to be followed by the employees strictly while dealing with the company’s customers like committing to obtaining and conducting business legally and ethically. local communities. Business activities impact the social environment. corporate integrity is at the foundation of our business conduct code. any fund or other assets belonging to Wipro for political purposes in any territory or country are prohibited.
Box 2. employees or any other stakeholders. whether it’s our Customers. While deciding future strategies-whether short term or long term-stakeholders views must be taken into consideration.11 KEYWORDS
Business: Legally recognized organizations that provide goods and services to customers Society: Network of relationships between social entities. Accepting or receiving bribes or gifts that could compromise the company’s interests. investors. Staying aloof is no longer a choice we can afford.26 Corporate Social Responsibility
As markets and businesses have gone global. So. therefore the managers need to understand this relationship and assess the impact of business decisions on society. Employees dealing with Wipro customers.wiprocorporate. everyone is looking for dependability and protection of their interests in these turbulent times. civic bodies etc. On other hand the Stakeholder Theory states that the firm should act in the interest of all its stakeholders. suppliers.
. See Box 2.7: Integrity in Business Relationships – Wipro Ltd
As an international business. ensuring against Sham Transactions. Comply with all legal and contractual obligations in dealing with governments. are required to understand and abide by Wipro contracting policies and guidelines including proper Authorization.com/ombuds/integrity_business_relationships. When entering into any business commitment. Contributions without the prior approval of the management of Wipro. we are required to interact and transact with a variety of business organizations and even governments and international organizations in different jurisdictions. social groups. suppliers. business partners etc. it is important to define the rights and obligations of each party in appropriate written contracts.7 to understand how Wipro has developed integrity in business relationship.asp
2. Building a culture of responsibility and becoming more actively engaged in finding solutions to broader societal challenges is one way forward. Systems Theory helps managers to look at organizations from a broader perspective.
2. Ownership Theory of the Firm stresses that the primary duty of a firm is to maximize shareholder’s profits. This theory states that open to (interact) with the external environment. so has the recognition that viable and long-term business growth can no longer be separated from the well-being of societies abroad and from the way in which we deal with problems and challenges that transcend national boundaries.10 LET US SUM UP
Business is to organize and maintain collective productivity to achieve a set of productive and creative goals. Shareholders own shares in the company so they own a part of the company but stakeholders (except shareholders) have interest in the company but do not own it.
Shareholders: Owners of a firm.
27 Business and its Stakeholders
2. (f) Discretionary stakeholders have legitimacy but no power. (e) Shareholders have vested interest in the company but do not own it. Choose the appropriate answer: (a) Which of these theories emphasizes on interaction with outside factor? (i) Stakeholder Theory (ii) System Theory (iii) Ownership Theory (iv) Societal Theory (b) Which theory believes that the firm is a social creation and it works for the benefit of society? (i) Stakeholder Theory (ii) System Theory (iii) Ownership Theory (iv) Societal Theory (c) Which of these are not primary stakeholders? (i) Debtors (ii) Community (iii) Rivals (iv) Creditors (d) According to Mitchell. who owns shares in a firm. Definitive Stakeholders: Shareholders who can vote and replace the management. (c) System concept states that businesses have broader perspective and they constantly interact with the external environment. State whether the following statements are true or false: (a) Business is one of the major sub-systems of the society.12 SELF ASSESSMENT
1. legitimacy and Urgency
. recognition and interest (iii) Value. Latent Stakeholders: Have low salience and give low attention to the firm. Salience: Degree to which managers give priority to competing stakeholders claim. recognition and legitimacy (iv) Power. stakeholders should posses these 3 attributes: (i) Power. Agle and Wood. (g) The objectives of shareholders and other stakeholders are conflicting. legitimacy and interest (ii) Power. Stakeholders: Have vested interest in the firm but do not own it. (b) Only negative activities of a business impact the society. (d) Stakeholders Theory states that shareholder’s profit maximization is the prime motive of the business. 2.
. Distinguish between stakeholders and shareholders. 61.28 Corporate Social Responsibility
(e) Stakeholders that expect to receive management’s attention are: (i) Demanding stakeholders (ii) Dominant stakeholders (iii) Dangerous stakeholders (iv) Dependent stakeholders (f) Which of these is less likely to affect consumer’s choice? (i) Human rights (ii) Environmental issues (iii) Child labour (iv) Firm’s profits
2. http://www. Strategic Management: A Stakeholder Approach. (2006). Integrity in Business Relationships. Available at http://www. R.itcportal. which is better from a firm’s point of view. T. (n.14 SUGGESTED READINGS
Freeman.). Strategies for assessing and managing organizational stakeholders. Include facts related to major contributions that benefited the stakeholders like society. Compare Ownership Theory and Stakeholder Theory.com/ombuds/integrity_business_relationships. (a) True (e) False 2.asp Available at at
Savage. ITC Limited. Discuss the various typologies of stakeholders and the influences that they have on business.edu/5374/Week11/StakeholderArticleAME. Take an example of a company and show how they have changed over the years to adapt to the new business environment. What factors comprise a business environment and how do they impact business? 4. Sustainability Report 2006.ba.d. (a) ii (e) ii (b) False (f) True (b) i (f) iv (c) True (g) False (c) iii (d) iv (d) False
2. J. Available at http://jblair. & Blair. According to you. Sustainability Report 2004.html ITC Limited.wiprocorporate. employees and government. 3.com/sustainability_report_2006/html/stakeholder-engagement. (2004). C. (1991). 5 (2). Boston: Pitman. Nix. Available http://www. Why do you think that the interests of shareholders and stakeholders come into conflict? 6. 2. Whitehead..
Answers: Self Assessment
1.htm Wipro Limited. T.com/ sustainablity_report/default. Academy of Management Executive.ttu. (1984)..13 REVIEW QUESTIONS
29 Business and its Stakeholders
. 22 (4). R.Mitchell. D.. & Wood. Academy of Management Review. Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts. (1997). B. Agle.
5 3.10 3.1 3.6.2 3.1 3.2 3.1 3.8
The Pyramid of Corporate Social Responsibility Generations of CSR 18.104.22.168 3.0 AIMS AND OBJECTIVES
After studying this lesson.1 3.6 Pre-Independence Period Post-Independence India
Liberalization and CSR Emerging CSR Trends Contemporary Scenario: Achievements Theories of CSR 3.3 First Generation Second Generation Third Generation
3.8.9 3.3 22.214.171.124.2.8.4 3.0 3.2 Aims and Objectives Introduction History of CSR in India 3.7 3.11 3.6. you should be able to: Understand the origin and growth of CSR in India
.7 Friedman’s Theory/ Fundamentalist Theory Social Contract Theory Social Justice Theory Rights Theory Deontological Theory Stakeholder Theory Gandhiji’s Trusteeship Theory
3.3 3.2 3.12 3.14
Changing Trends: Philanthropy – Strategic Philanthropy – CSR Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
126.96.36.199 3.6 3.30 Corporate Social Responsibility
FROM PHILANTHROPY TO CSR: HISTORICAL AND THEORETICAL PERSPECTIVE
CONTENTS 3.4 3.
International Tobacco Company (ITC) and others where local dynamics have fused with the business standards of the parent or partner organizations. the Philanthropy of Indian businessmen is deeply rooted in religious belief. p. Merchants contributed towards charity both individually as well as collectively through their business and social organizations.Get oriented to the theoretical framework and generations of CSR Understand the contemporary CSR approach adopted by businesses Understand the drivers of CSR in the present scenario
31 From Philanthropy to CSR: Historical and Theoretical Perspective
3. ponds. it is important to map out the CSR format institutionalized by old and new public and private sector undertakings. arranged for their feeding. building temples. set up traditional schools (pathshalas). At an individual level they gave alms to the poor and needy. Longestablished old private sector industrial dynasties.2 HISTORY OF CSR IN INDIA
Historically. 1970. The preindustrial era expected mercantile traders to care for not only themselves. such as Bharat Heavy Electricals Ltd (BHEL). 1938). With the advent of industrialisation. provision of drinking water. the global trade scene witnessed the emergence of corporations as distinct legal entities that functioned solely on a profit maximisation motive and rejected the proposition that business was responsible for the state’s social welfare. the poor and other needy communities. such as the Birlas and the Tatas. (HUL). India has one of the world’s richest traditions of business involvement in social causes for national development. the modern era of CSR is generally traced to the publication of Bowen (1953). constructed night shelters for the poor and travellers.1 INTRODUCTION
Social responsibility of corporations has been a question for academics and business executives since the beginning of the 1950s. but also for members of their guild. National Thermal Power Corporation (NTPC) and Oil and Natural Gas Corporation (ONGC) have also incorporated social obligations as an integral part of their business. made provision for drinking water during summer. Merchants’ charity in the ancient India took various forms. The importance of socially responsible behaviour in the 20th century was reported as early as 1938 (Barnard. supporting schools and so on. built water tanks and bathing areas (ghats). that of an implied social contract between business and society. such as Hindustan UniLever Ltd.8). commissioned artists to prepare
. wells. lay greater emphasis on minimizing the negative impacts and maximizing the positive spillover effects of corporate development. Housing Development Finance Corporation (HDFC). but it actually has a much older history. such as treasury chests for the needy. The underlying concept of CSR. In India the concept of a corporation or an entrepreneur having a social responsibility towards his community has come a long way since the rise of mercantilism. Ranbaxy. have integrated the concepts of nation building and trusteeship long before CSR become a popular cause. Alongside these are the leading multinational companies with strong international shareholdings. water tanks. dates back to the writings of the Greek philosopher Epictetus in the first half of the seventeenth century” (Anshen. To understand the current status of Corporate Social Responsibility (CSR) in India. however. and Wipro technologies. providing relief in times of famine or floods. New generation enterprises like Dr Reddy’s Lab. gave access to their private granaries in times of famine. The post liberalisation period expects businesses to adopt the triple bottom line approach as an inseparable part of their strategy to attain both shareholder as well as societal value. Public sector enterprises. Infosys.
such as health. The tradition of merchant’s charity has continued down the ages. (1972).
Haynes. Herdeck & Piramal (1985)
. Industries were termed as “Temples of Modern India.32 Corporate Social Responsibility
religious texts and other works of art for temples. Gupta. Mehta (1981. Studies conducted by European and Indian researchers 1 have pointed to the use of Philanthropy by merchants to gain political power. economic gain. a group of families or all the inhabitants of the town would collect voluntary offerings and present them according to different needs of the community. where it is still visible among individual businessmen and the unorganized sector. ameliorative in nature and confined to members of their own community. the initial trade and business interest of the East India Company changed to the social and political management of the country by the company executives until 1885.
3. The single most important factor influencing business Philanthropy in the preindependence period was the emergence of Mahatma Gandhi as a political and social leader. and honour. merchant charity began to change from being largely religious. creed and community and more oriented towards bringing progress to society through western style modern institutions. the need for rapid progress on the part of the government. India struggled to stand on her own feet through indigenous manufacturing and creation of jobs. public health. Singer (1972). colleges. which he held up as an ideal to be approximated by business. Founders of business families supported schools. when India came under the British crown. Though the more enlightened merchants began to diversify their charitable giving in content and intent. education and other like aspects of general welfare. The credit for integrating social responsibility with the conscience of business goes principally to business leaders like JRD Tata. more inclusive in terms of caste.2.” Industrialists participated in nation-building programmes by setting up institutes of scientific and technical learning. Appadurai (1981). hospitals. Gordon (1978). caste or religion towards being more secular. 1991).1 Pre-Independence Period
The arrival of the East India Company in 1620 AD was a milestone in the history of trade and socio-political environment of India. After independence. They felt that the business community is an essential ingredient of the democratic society and it has a duty not only to create wealth but also to promote the ethical and social goals of the community. it will not be able to ensure its own survival. personal status.2 Post-Independence India
Post-independence. power and water supply and the Gandhian social reform movements. Gandhiji reinterpreted the traditional concept of "charity” (dana) in his theory of trusteeship. Arvind Mafatlal and Kasturbhai Lalbhai. Unless it fulfils both these functions. orphanages and the promotion of art and culture. The period between 1850 to early 1900 witnessed businesses setting up trusts and endowment funds. Ramakrishna Bajaj.2. sanitation. Over the next 200 years. Dobbin. The emphasis was on vocational and technical training. and so on. (1979). As champions of free enterprise. The business leaders of the emerging indigenous industry remained rooted in the tradition of Philanthropy. Business leaders increasingly engaged themselves and their businesses in social welfare and reform. provided for dowries and marriage expenses of poor girls. Tripathi (1984). (1987). they feared that irresponsible behaviour by the business community would lead the government to encroach on their freedom. people and the business community propelled businesses to contribute more towards social development.
3. As part of collective charity. which gradually metamorphosed into businesses consciously contributing to social development to liberate India. Bayly (1973). they continued the older forms of gifting as well. even to present times. There was a strong tradition of charity in almost all the business communities of India. By the third decade of the nineteenth century.
education.” The last decades of the twentieth century witnessed a swing away from mere charity and traditional Philanthropy towards designing interventions in the areas of ecology. which referred to the integration of environmental. safe drinking water and the likes continue to remain crucial challenges for India. The cumulative result of all these influences was that the industry accepted social responsibility as an inherent part of management of the enterprise itself.43. 2003). and other sexually transmitted diseases (ADB. India’s performance in attaining the Millennium Development Goals (MDGs) is mixed. (d) responsibility towards shareholders and other businesses and (e) responsibility towards the State.
33 From Philanthropy to CSR: Historical and Theoretical Perspective
3. The deprivation also contributes to the increasing incidence of trafficking in women and children and the increased spate of HIV/AIDS. High unemployment with inequity in distribution of wealth and opportunity. 4. as decline in incomes and employment continues unabated. Corporate India under the influence of increased FDI from western countries expected itself as heading towards a “social market economy with a human face” by incorporating CSR as its main business strategy for creating both shareholder as well as societal value. 2001:8). on enrolment for girls in primary school and elimination of gender disparity in secondary education. Many of the old multinationals such as ICI. in 2008. among others. Despite all its growth. consumer education. It specified that business social responsibilities comprised of (a) responsibility towards consumers. 2 India has been extremely successful in achieving a yearly growth rate of four to eight percent as part of its reform policies in the market economy. lower access to and standards of health. analysts of economic reforms in India argue that the expectations from economic reforms have not had much success.In 1965. developing rural markets and so on and direct engagement of business in mainstream development. (c) responsibility towards employees. social and governance factors into business strategies and operations for attaining business and societal sustainability. The community development and social welfare program of the premier Tata Company. Tata Iron and Steel Company commenced with the integration of the concept of “Social Responsibility. as for any other developing country. India ranked 128 out of the 173 countries on the human development index.623 crores) Japanese FDI in India tripled to $5. with increased foreign direct investments.
Cumulative amount of FDI inflows (from August 1991 to February 2009) amounted to US$ 104. nutrition. Central to this goal was the rapid growth in incomes and productive employment (Chaudhuri. sanitation.3 LIBERALIZATION AND CSR
Since 1991. Hindustan UniLever Ltd. The fundamental objective of the economic reforms was to bring about rapid and sustained improvement in the quality of life of the people of India. the Seminar on Social Responsibilities of Business highlighted that the concept of social responsibility was broader than charity.4 billion in 2008. The definition implied that business should exhibits the ethical behavior towards its internal and external stakeholders (customers as well as employees) as well execute its responsibility towards the environment and society in which it operates.567million (Rs. and ITC became Indianised and began to feel the same responsibility as the indigenous businesses. The ‘World Business Council for Sustained Development’ has coined the definition of CSR as “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to the 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”. with the country lagging behind the MDG targets.
. The western driven CSR approach clearly differentiated between corporate Philanthropy and CSR. (b) responsibility towards the community. However.
‘Altered Images: the 2001 State of Corporate Responsibility in India Poll’ by Tata Energy Research Institute (TERI). some surveys 3 have been conducted in India by different organizations to understand the perception of CSR among companies and their different stakeholders. Ranbaxy. the urgency for the business community to take up wider social responsibilities towards society is growing. the constant exhaustion of natural resources etc is urging the corporate world to take social initiative with a new perspective. UNDP. Prominent examples are – Tata Group. community welfare. micro-credit and women empowerment. preserving art. but largely such trusts and foundations work at an arm’s length from the company preventing the mainstreaming of CSR into the core business processes and limiting CSR to community development only. sanitation. relief and emergency assistance. Mahindra and Mahindra. Dr Reddy’s Foundation. where companies voluntarily commit to public welfare 4 and participate in nation building.34 Corporate Social Responsibility
With India facing a plethora of developmental challenges and particularly with the State retreating from economic activity. four models of CSR co-exist in India: (a) The ‘ethical model’ as suggested by Mahatma Gandhi. arts. and to define the drivers and barriers of CSR in India. followed by image building (42 per cent). 2002 ‘India’ presented jointly by the British Council. healthcare services. Confederation of Indian Industries and PriceWaterhouse Coopers.
Some of the prominent surveys include ‘Corporate Involvement in Social Development in India’ by Partners in Change (PiC). culture. development. given the economic progress and increase in corporate profits on the one hand. rural infrastructure. and ‘Corporate Social Responsibility Survey. Individual companies define CSR in their own limited ways and contexts. rural development. Creating trusts and foundations seem to be a favorite route of CSR practice by Indian companies. The 2001 survey of 536 companies across India. According to the survey. The end result being that all activities undertaken in the name of CSR are merely Philanthropy. However. or an extension of Philanthropy. conducted by Partners in Change (PiC) reveals that Philanthropy is the most significant driver (64 per cent) of CSR. Birla Group. etc. Corporate social responsibility emphasises the responsibility of companies towards the stakeholders as against their earlier focus on profit-making alone. which calls for companies to respond to all stakeholder needs. market place and environmental practices to develop sustainable business also has started gaining its due attention. Number of corporate houses and companies in India are doing tremendous work in CSR. and reality of human-poverty and development indicators in India on the other. Shriram. Fears of global warming. and so on. including corporate Philanthropy. employee morale (30 per cent) and ethics (30 per cent) respectively. Alongside issues related to developing ethical and responsible work place. appreciably. education. ‘Corporate Social Responsibility: Perceptions of Indian Business’ by Centre for Social Markets (CSM). Activities include in the area Large of education. Singhania. Hero Honda. Bajaj. environment protection. Kanoria.4 EMERGING CSR TRENDS
In the past few years.
. The survey showed that there are. (c) The ‘liberal model’ by Milton Friedman which discusses CSR being limited to private owners or shareholders and d) The ‘stakeholder model’ championed by R Edward Freeman.
3. heritage. CSR seems to be in a confused state. Modi. heritage. Nearly all companies with CSR embedded in the core corporate activity do so because of company tradition rather than a company strategy leading to ad hoc and largely CEOdriven CSR policy. Lupin. culture. ITC. religious and a host of other issues. Infosys. (b) The ‘statist model’ propounded by Jawaharlal Nehru which calls for adopting responsible practices by State interventions in economic activities and protecting stakeholders through legislation. analysis of the surveys quoted suggest that though many companies in India have taken on board the universal language of CSR. and conservation of wildlife and nature. several cases of companies in India involved in diverse issues such as healthcare. Godrej.
2002). and b) positive steps a company takes using its resources and core competence for the benefit of society. The survey. particularly.. A comprehensive picture of the state of CSR in India based on the Karmayog 5 2008 CSR Ratings highlights that 49% of the 1000 companies studied across 35 sectors have not undertaken any CSR activity. The Construction sector is one of the sectors with very low CSR activity.5 CONTEMPORARY SCENARIO: ACHIEVEMENTS
In 2007. The survey conducted by Center for Social Markets (2004) highlighted that the primary reason for changing attitudes of businesses towards social and environmental issues was the pressure exerted by the international business code of conduct. and highlighted growing recognition among companies that passive Philanthropy is no longer sufficient in the realm of CSR (British Council et al. The study highlights that banking sector is one of the best performing sectors and CSR initiatives. Moser Baer. This may be attributed to an enabling corporate environment that is more conscious of the implications of involvement of business in CSR activities with specific reference to the Indian context. The Ministry of Corporate Affairs. sector and geographical location (CSM. The private sector today accounts for 80 per cent investment in the Indian economy. also revealed that Indians are not yet judging companies according to these criteria. revealed that many companies are still steeped in an amalgamation of transition from trusteeship/ethical model to the statist model. poor monitoring record. and poor infrastructure was the key barrier to CSR in India (PrakashMani. that the demand for CSR is low in India (Kumar et al. 2001). The Centre for Social Markets (CSM) survey. and Titan Industries. Only ten companies 6 have got a Level 4 rating. The survey thus confirms a prior finding by Environics International in 2001.The 2004 PiC survey findings present a marked increase in the number of companies developing and adopting CSR policy as against the earlier survey findings. help bridge the gap between the rich and the poor. ineffective bureaucracy. however. protect the environment. The survey further highlighted that belief in the company’s role in CSR activities was directly co-related with its age and turnover. as older companies with greater turnover were more likely to believe in their role in CSR activities. 2001). Infosys Technologies. as per the World Investment Report of the United Nations Conference on Trade and Development (UNCTAD). and the public opinion is still focused on brand-quality and reputation of companies. Tata Steel. given that the fundamental expectation of the public from companies was that they should provide good quality products at low prices. are largely undertaken due to the mandatory regulations on social sector expenditure for PSUs..
35 From Philanthropy to CSR: Historical and Theoretical Perspective
. which emphasises the role of corporates in pushing up the Indian economy. TCS. The survey report claimed that the government with unclear policies. The CSR survey conducted in 2002 by British Council et al. 2002). Kansai Nerolac.
A leading NGO information Portal. and protecting reputations. and help in social and economic development. HDFC. The CSR ratings from level ‘0’ (lowest) to level ‘5’ (highest) were measured on two aspects: a) steps taken by the company to reduce the negative effects caused by its products and processes on the environment. of July 2001. explored perceptions of and attitudes towards corporate social and environmental responsibility of modern Indian business covering a wide range of businesses in terms of size. ACC Ltd. treat employees well without discrimination. Ballarpur Industries. Jubilant Organosys. complicated tax systems. India has emerged as the second most-attractive location for Foreign Direct Investment (FDI) after China.
cost advantaged-focused strategies to longer-term. 2005. Many large corporate houses are taking up projects— along with the help of the government—. the performance and behavior of Indian companies is under greater scrutiny than ever before. which are 'green' to promote the cause of sustainable development. Some consider CSR merely as compliance or legal responsibility. Bowen (1953) authored wrote the seminal book.
3. with India's contribution at around $1 billion. which was formulated in 2006. As a result. p. CII's 'Mission on Sustainable Growth' has set up a code. The theories of CSR are developed on the basis of the extent of interaction between business and society. It was reported that 12 Indian companies have disclosed their sustainability performance at a global level in 2007.’ Since then there has been a shift in terminology from the social responsibility of business to CSR. In the absence of global benchmarks it is difficult to comparing the CSR progress of India Inc. In 1953.
. many simply equate it with a charitable contribution. 25). p. Indian companies investing overseas. the India chapter has membership of 206 members that has backed the Global Compact. Similarly global carbon credit trading in 2007 was estimated at $5 billion. some take it to mean socially conscious. with the other emerging economies. However Indian private sector is now being managed by executives who have a global understanding and have recognized that the competitive international marketplace increasingly rewards those that go beyond the legal requirements in terms of managing their economic. the meaning transmitted is that of ‘responsible for’ in a causal mode.6 THEORIES OF CSR
Since the second half of the 20th century a long debate on corporate social responsibility (CSR) has been taking place. by September 2008. increasingly practice a sustainable approach to business and undertake sustainability reporting in response to this peer pressure and the competitive international environment. has recommended that corporates ought to work in cohesion with the government for the promotion of inclusive growth in the country. to still others. In order to contribute to a clarification of the field of business and society. However. Kofi Annan. 1972.36 Corporate Social Responsibility
Government of India.. business development initiatives” (Balasubramanian et al. export-oriented. environmental and social impacts. India is one of the countries that have 'credits' for emitting less carbon. It provides consultancy services and technical assistance on social development and CSR. Another broader measure of corporate commitment to social responsibility is the UN Global Compact 7 . many of those who embrace it most fervently see it as a mere synonym for legitimacy in the context of belonging or being proper or valid. Indian CSR is now considered as an important part of the movement away from “rapid-growth. For instance 1250 businesses in India received ISO 14001 certifications. it means socially responsible behavior in the ethical sense. a few see a sort of fiduciary duty imposing higher standards of behavior on businessmen than on citizens at large” (Votaw. The code had started with 23 new signatories and the total number of code signatories had gone up to 102. 82). The mission's aims are to promote the reduction of excessive consumption of natural resources and emission of greenhouse gases. ‘Social Responsibilities of the Businessman. currently. some proxy indicators suggest that companies in India are taking proactive stands in the areas of environmental responsibilities. it is important to map the territory in which most relevant CSR theories and related approaches are situated. to others.
A set of 10 principles launched in by the former UN Secretary-General. Given the increasing overseas presence of Indian companies and the expectation that India will become the second largest global economy by 2050.
Hence the concept of ‘Corporate Citizenship’ was propagated. He held that business is a social institution and it must use power responsibly. which is to say. as organizations. p. 1983). It is not a creation of society" (DeGeorge. The social power equation principle states that “social responsibilities of businessmen arise from the amount of social power that they have” (Davis.. and societal approval to operate in exchange for good behaviour. corporations. engages in open and free competition. it will lose its position in society because other groups will occupy it.. These contracts evolved so that exchanges could be made between parties in an environment of trust and harmony. from the economic to the social forum and from there to the political forum and vice versa. Friedman's reference to the "rules of the game" suggests that social responsibility is derived from the general economic environment or context in which business operates. goods. exploitation of labour and so on. To amend these externalities we need government policies or other market-correcting interventions to restore the socially optimal equilibrium. owned and run by a freely constituted group.
. According to social contract theory. Additionally. but also a social one. In doing so. organizations. 48). 1967. Friedman's position on CSR has been characterized as "fundamentalism" and gathered under what has been called the "legal recognition" view.to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game. he introduces business power as a new element in the debate of CSR. Their locus is unstable and constantly shifting. without deception or fraud" (Friedman. and institutions.. waste management. especially when society demands responsibility from business.1 Friedman’s Theory/Fundamentalist Theory
Friedman's position is captured in his pronouncement that "there is one and only one social responsibility of business . enter into these contracts with other members of society.6. installing environmental systems and so on. So if a firm does not use its social power.
37 From Philanthropy to CSR: Historical and Theoretical Perspective
3. the corporation is an autonomous entity." Believers in Friedman’s view consider investing marginal costs with regard to decisions regarding labour.3.2 Social Contract Theory
The central tenet of social contract theory is that society consists of a series of explicit and implicit contracts between individuals. According to Friedman. The iron law of responsibility refers to the negative consequences of the absence of use of power. "According to the legal recognition view. Davis formulated two principles that express how social power has to be managed: “the social power equation” and “the iron law of responsibility”.. Corporations are fully private. economic institutions designed only to make money. Davis (1960) was one of the first to explore the role of power that business has in society and the social impact of this power. In the long run those who do not use power in a manner which society considers responsible will tend to lose it because other groups eventually will step in to assume those responsibilities” (1960. 63).. 1990). In his own words: “whoever does not use his social power responsibly will lose it. Donaldson (1982) further extended on the work of Davis and assumed that some sort of implicit social contract between business and society exists and business will have to honour the contract as business is not just an economic institution. and receive resources.6. it is likely that in order to minimize the expenses of the firm. Thus the corporation has no special moral or social obligations. Hence.. Davis noted that the causes that generate the social power of the firm are not solely internal of the firm but also external. p. they may take decisions that can normally create negative externalities on the larger society like creating environmental hazards. the "business of business is business.
In concrete form. It does not exclude legislation of the ownership and use of wealth. The goal of stakeholder theory is to help corporations strengthen relationships with external groups in order to develop a competitive advantage. a strategic management concept.38 Corporate Social Responsibility
3.7 Gandhiji’s Trusteeship Theory
Gandhi’s efforts towards “spiritualizing economics” are reflected in his concept of Trusteeship.6. and other intangibles) are distributed amongst the members of society.6.6.6 Stakeholder Theory
Stakeholder theory was originally.” CSR contributes to corporate sustainability by providing ethical arguments as to why corporate managers should work toward sustainable development: If society in general believes that sustainable development is a worthwhile goal. corporations have an ethical obligation to help society move in that direction.6. not just those with power and wealth. If people could imbibe this principle in general. local community members. Basically. and according to what principles. has a moral duty to treat everyone else with respect. corporate managers need to consider how these goods can be most appropriately distributed in society. It was founded on his religious belief that everything belonged to God and was from God. except so far as it may be permitted by society for its own welfare.6. the Trusteeship formula reads as follows: Trusteeship provides a means of transforming the present capitalist order into an egalitarian one.4 Rights Theory
Rights theory. Gandhi’s idea of Trusteeship arose from his faith in the law of non-possession. society’s goods (here meaning wealth. According to Gandhi. including corporate managers. including basic human rights and property rights. Proponents of social justice theory argue that a fair society is one in which the needs of all members of society are considered. As a result.
3. power. Gandhi suggested this concept as an answer to the economic inequalities of ownership and income. Trusteeship would become a legalized institution.
3. Stakeholder theory suggests that it is in the company’s own best economic interest to work in this direction because doing so will strengthen its relationship with stakeholders. and other stakeholders.
. This is sometimes referred to as the “Golden Rule. when an individual had more than his respective portion.3 Social Justice Theory
Social justice theory focuses on fairness and distributive justice – how. The contribution of stakeholder theory to the corporate sustainability is the addition of business arguments as to why companies should work toward sustainable development. he became a trustee of that portion for God’s people. It does not recognize any right of private ownership of property. including listening and considering their needs. is concerned with the meaning of rights. This means that while shareholders of a corporation have certain property rights.
3. which in turn will help the company meet its business objectives. One argument in rights theory is that property rights should not override human rights.
3. and is still primarily.5 Deontological Theory
Deontological theory deals with the belief that everyone. this does not give them license to override the basic human rights of employees. a kind of non-violent way of resolving all social and economic conflicts prevalent in the world.
being ethical. but ethical and philanthropic responsibilities have only become significant in recent years. The difference between such minimum and maximum incomes should be reasonable and equitable and variable from time to time. a limit should be fixed for the maximum income that would be allowed to any person in society. so much so that the tendency should be towards the obliteration of the difference. and philanthropic that can be depicted in a pyramid. Under such an economic order. as presented in Figure 3. There is no place for violence. but to reform it. maintain a strong competitive position. Carroll contends that all of these responsibilities have always existed to some degree. Corporations are expected to pursue profits within the framework of the law. There are four kinds of social responsibility: economic. which establishes what are considered fair operations. although the components are not mutually exclusive. whereas the Gandhian approach is not to destroy the institution. ethical.7 THE PYRAMID OF CORPORATE SOCIAL RESPONSIBILITY
One way to view corporate social responsibility is through Carroll's Pyramid (1991). The Gandhian concept of Trusteeship departs significantly from Marxian economic philosophy too. as he is fully aware of the ills of capitalism that widen the gap between the rich and the poor. Gandhian socialism. If it is possessed for any other objective. Society expects business to conform to laws and regulations. The whole idea of possessing wealth only to guard it from being misused and to distribute it equitably.1. Marxian socialism aims at the destruction of the class called capitalists. Profits result from this activity and are necessary for any other responsibilities to be carried out. is an ethical being first and a social being later. Just as in the case of a decent minimum living wage. As man advances from a narrow sphere of personal satisfaction to the nobler concept of the welfare of all. but only trust. in disregard of the interests of society. aims at protecting human dignity. is different from Marxian socialism. Whereas Marxian socialism harps on violence. he marches closer towards self-realization. If Marxism is the child of the Industrial Revolution. the character of production will be determined by social necessity and not by personal greed. Man to Gandhi. Gandhi enjoins this moral obligation on the part of the trustees. Though this kind of socialism is difficult to achieve.
39 From Philanthropy to CSR: Historical and Theoretical Perspective
3.Under State-regulated Trusteeship. it “helps the manager to see that the different types of obligations are in a constant tension with one another”. Gandhian theory can be understood only in the context of certain basic spiritual values of the Indian tradition. It was suggested that. Ethical responsibilities include those activities that are not expected or
. It is assumed that corporations will be as profitable as possible. The common man trusts his trustee and the latter plays the role of a custodian. it is objectionable on moral grounds. which he claims presents the concept such that social responsibility will be accepted by a conscientious businessperson. and maintain a high level of operating efficiency. The most significant difference between Marxian socialism and Gandhian socialism lies in the method they recommend to achieve it. Gandhi advocated it as he believed in the basic strength of the goodness of man and the value of morals. formulated by governments that act as the ground rules under which business must operate. legal. Economic responsibilities relate to Business's provision of goods and services in society. Gandhian socialism aims at a change of heart on the part of the rich. an individual will not be free to hold or use his wealth for selfish satisfaction. Society expects that all goods and services and relationships with stakeholders will meet at least minimal legal requirements.
40 Corporate Social Responsibility
prohibited by society as economic or legal responsibilities. The most prominent changes include: Adoption of a strategic approach to Philanthropy. and be a good corporate citizen (1991. be ethical. Standards. or in keeping with their moral rights. just. Expansion of the geographic focus of corporate giving to reflect the needs and expectations of a global workforce and customer base. charities. In recent years. Examples are contributions to the arts.
3. Philanthropic responsibilities involve being a good corporate citizen and include active participation in acts or programs to promote human welfare or goodwill. 39-43). and education. several events and trends have contributed to companies changing the way they approach their Philanthropy.
3. Economic responsibility contains to “do what is required by global capitalism”. Simon Zadek (2001) describes the development of CSR broadly in terms of three generations. obey the law. pp. which stated in pragmatic terms means that the corporation should strive to make a profit. legal responsibility holds that companies “do what is required by global stakeholders”.1 First Generation
The first generation of CSR showed companies can be responsible in ways that do not detract from. norms. Carroll views the total social responsibility of business as involving the simultaneous fulfillment of the four responsibilities.
Figure 3. Companies out of their own free will contributed towards charity or corporate Philanthropy to address a variety of social.1: Pyramid of Responsibility
Source: Carroll’s CSR Pyramid available at http://www. economic and other issues. ethical responsibility means to “do what is expected by global stakeholders”.csrquest. or expectations that reflect concern for select stakeholder input is fair. Ethics or values may be reflected in laws or regulations.8.aspx?articleID=12770&heading
In summary. and may contribute to commercial success.net/default. More recently Carroll (2004) attempted to incorporate the notion of stakeholders.8 GENERATIONS OF CSR
Based on the changing relationship between business and society. in which companies align charitable giving with the company’s core business interests. but ethical responsibilities are seen as embracing the emerging values and norms that society expects of business even if not required by law presently. and philanthropic responsibility means to “do what is desired by global stakeholders”. Such contributions were part of the overall corporate citizenship strategy.
to achieving social and economic stability in areas of operation while growing new and viable consumer markets. Contemporary businesses evoke greater stakeholder participation in philanthropic activities. see CSR as an integral part of long-term business strategy. employee volunteerism. Such an initiative in turn helps Microsoft to fortify its image in the consumer market. For creating social cohesion and business competition. such strategic innovations have resulted in creating business and social value and reputation enhancement for the business.Development of measurement tools for evaluating the impact of charitable contribution. Currently many companies because of the intellectual capital undergoing change within the organizations are taking CSR seriously and are moving companies towards second generation CSR. stay better connected with stakeholders and enhance corporate reputation
3. public-private sector partnerships and pro bono services with their core business competencies to deliver greater benefit to society.9 CHANGING TRENDS: PHILANTHROPY – STRATEGIC PHILANTHROPY – CSR
From the above theoretical discussion it can be inferred that the Indian model of CSR commenced with Philanthropy addressing social development issues which primarily were driven with religious sentiments.1)
Box 3.8.3 Third Generation
The Third Generation of CSR makes significant contribution to addressing poverty. While generating a response for this foundation he has travelled to different nations. and organize their philanthropic programmes. and entire industries. (See Box 3. In a similar way. Consequently. create long-term relationships with non-profit organizations and communities. exclusion and environmental degradation. the organization tries to align business goals and social goals to maintain its profitability.8.Microsoft.
3. This involves both partnerships with civil society and bringing changes in public policy 8 .
.1: Strategic Philanthropy
Bill Gates has donated millions of dollars for the Bill and Melinda Gates foundation. which reward CSR and penalize poor performance. This generation goes beyond voluntary approaches by individual companies and involves leadership companies and organisations influencing the market in which they operate and how it is regulated to remould entire markets toward sustainability. For example. With change in the business environment and increase in FDI’s in the liberalization period the ‘giving’ /Philanthropy started getting integrated
This includes changes to the corporate tax regime. industry leaders are strategically aligning their corporate donations. mandatory social and environmental reporting and support for consumer education. Certain organisations carry out the activities of Philanthropy in such a way that it helps them to sell or advertise their products.
41 From Philanthropy to CSR: Historical and Theoretical Perspective
Successful companies recognize that corporate strategic Philanthropy and community investment bring tangible returns on investment and reputation – from fostering workforce pride and ensuring a healthy pool of potential employees. family traditions and voluntary contributions driven by personal motives.
3. companies like TCS and Wipro distribute their special softwares to help teachers impart computer education to rural students. ITC and Unilever in their initiative to uplift the rural sector have entered the rural consumer market by providing products at subsidised costs.2 Second Generation
The Second Generation of CSR is where companies. thus generating awareness among people about his campaign and indirectly about his organisation .
customer loyalty. Over a period of time with changes in business environment it was felt that complying with tax obligations is not apparently a sufficient condition to convey the level of corporate social responsibilities of firms (Bowie. shareholders. governance. environmental policies. and financial performance. Despite the development of Indian CSR from its initial philanthropic focus. ethical and environmental) bottom line evaluates a corporation’s performance according to a summary of the economic. corporate contributions. The triple e (economic. public policy makers expect greater social involvement from corporations. employees and other stakeholders.10 LET US SUM UP
According to neo-classical view of firm. Recently a boarder meaning as been attributed to the term in that the concept is used to capture a whole set of values. In the new millennium because of increased globalization and competitiveness there is consistent transformation in the CSR practices for developing corporate sustainability 9 through balancing stakeholders’ interest. 1995). social and environmental indicators. Corporate sustainability leaders achieve long-term shareholder value creation by gearing their strategies and management to harness the market's potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks. which will be beneficial for the company but also for the local society.42 Corporate Social Responsibility
into strategic thinking.
3. there are still cultural influences to modern CSR. the only social responsibility of a firm is to provide employment and pay taxes. Such views are in harmony with profit-only idea of Friedman. In an open market economy as a result of significant reductions in government spending on social welfare. develop rural markets and so on. This includes clarifying the corporation’s purpose and taking into consideration all stakeholders. The underlying philosophy is that CSR is responsibility of business to society at large. innovation. and shareholders will quickly lose interest if their money does not give them tangible results. Societal expectations in India are that businesses should be involved in wider issues of societal and national concern while continuing to conduct their business responsibly. The company board is required to focus on the companies’ obligation and duties towards its stakeholders. CSR today is basically linked to the broader issue of corporate governance. co-operation with local suppliers. Companies realized that corporate success depends not on altruistic CSR but development of the local environment through developing appropriate infrastructure. The quality of a company's strategy and management and its performance in dealing with opportunities and risks deriving from economic. Both domestic and global forces encourage a broader understanding of corporate
Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic. community development. They are now looking at performance in non-financial areas such as human rights. environmental. and so on. Leadership companies which align business and social goals evaluate their company’s performance by incorporating ‘triple bottom line 10 performance that includes social. Leading sustainability companies lead their industries and set industry-wide best practices in the following areas: strategy. social and environmental value the corporation adds. corporate governance and workplace issues. These types of initiatives developed with NGO and government partnership can have great impact. designing the right types and quality of education to future employees. Companies realized that merely by just being good and donating a lot of money to social initiatives implies wastage of shareholders' money. development of quality institutions. environmental and social developments. business ethics.
. environmental and social developments can be quantified and used to identify and select leading companies for investment purposes. issues and processes that corporations must address in order to minimize any harm resulting from their value adding or destroying activities. Few corporate leaders wanted to make it sure that they get tangible and intangible results from the investments they made for social developments in the form of tax returns. In the new market economy this arrangement is not sustainable in the long-run. or destroys. The narrowest meaning of the term is a framework for measuring and reporting corporate performance against economic.
reduce human rights abuses and mitigate poverty. (c) Creation of trusts limits CSR to community development only. the mostly widely accepted definition of CSR has been coined by the ‘World Business Council for Sustained Development’ which states.11 KEYWORDS
Merchant Charity: Contributions of merchants towards societal development. In addition to providing good quality products at reasonable prices. State whether the following statements are true or false: (a) Merchant charity is still prevalent in unorganized sector. 2. and economic. in ancient India. Choose the appropriate answer: (a) CSR includes responsibilities of a business towards: (i) Employees (ii) Customers
. Indians by and large feel that the business sector must play a wider and more expansive societal role.12 SELF ASSESSMENT
1. The public’s expectations from business are growing. (e) Friedman’s theory says that business is responsible for making profits and serving the community. The aims of corporate social responsibility in a country like India is to use the market economy to address gaps in income distribution and help pull people out of poverty.
3. adhere to high labour standards. make their operations environmentally sound. Spill Over Effect: Externalities of business activities on those who are not directly involved Corporate Sustainability: Creating long term shareholder value Fundamentalism: Basic rule of using society’s resources and making profits Deontology: Doing things which are inherently good Triple Bottom Line: Includes economic. ecological criteria for evaluating a firm. companies should strive to govern their companies by adopting ethical practices. as well as to ensure the sustainability of natural resources.responsibility to develop in India. social. CSR certainly has a potential for becoming a real tool for development— human. (f) Social Contract theory emphasizes on fairness and distributive justice. Social responsibility is now more about how companies align their values and move towards creating a business strategy that aims at developing sustainable business and communities. “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to the 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”. Though there is no universal definition of CSR. social. Strategic Philanthropy: Aligning firm’s goals with social welfare. (d) CSR is a compulsion for every company.
43 From Philanthropy to CSR: Historical and Theoretical Perspective
3. (b) The main objective of the economic reforms was developing competitive industries.
(i) Shareholders (ii) Society (iii) Government (iv) Stakeholders (d) Who argued that business is a social institution and it must use its power responsibly? (i) Davis (ii) Friedman (iii) Mahatma Gandhi (iv) Votaw (e) Donaldson propagated: (i) Social Rights (ii) Corporate Citizenship (iii) Distributive Justice (iv) Deontology (f) ……………………. companies see it as an integral part of long-term strategy. (i) Fundamental Theory (ii) Rights Theory (iii) Deontological Theory (iv) Trusteeship Theory (g) In……………………. is sometimes referred as Golden Rule.generation of CSR.44 Corporate Social Responsibility
(iii) Environment (iv) All of the above (b) Which of these is not a model enumerated by PiC survey that exists in India? (i) Ethical model (ii) Statist model (iii) Shareholder model (iv) Liberal model (c) The theories of CSR are based on the basis of interaction of business and………. (i) First (ii) Second (iii) Third (iv) Fourth
Available at http://www. C.3. & Poer. Amsterdam: CREM. & Puranik. S. M. New York: Harper & Row. (a) iv (g) ii (b) False (b) iii (c) True (c) ii (d) False (d) i (e) False (e) ii (f) False (f) iii
3. Colombia Journal of World Business. Discuss what type of shift in CSR approach took place after liberalization in India.The Moral Manager: Communicative ethics and Exxon Valdez disaster. R. Policy and Practices of Dutch Companies. 6. pp. 6. 2. 47 (3).14 SUGGESTED READINGS
Asian Development Bank. (1938). pp.com. UNDP. Business for Social Responsibility. Emerging opportunities or traditions reinforced? An analysis of the attitudes towards CSR. 97-115.
45 From Philanthropy to CSR: Historical and Theoretical Perspective
1. Corporate Social Responsibility Survey. Academy of Management Review. Invigoration through Innovation.nl/CSRIndia_CREMfinal. Available http://www. T. business and accounting literature.). (a) True 2. at
Consultancy and Research for Environmental Management.bsr. (2007). (1995. Bebbington. F. Kolkata: Centre for Social Markets. Discuss Gandhiji’s Trusteeship theory and its relevance to contemporary India.13 REVIEW QUESTIONS
1. (2003). 6-14. 25 (2). Accounting Forum. Arora. Discuss the generations of CSR with examples. British Council. H. 3(2). (1991). (1953). B.org/resourcecenter/topic. Cambridge: Harvard University Press. (2005). evidence and implications. CII and Pricewaterhouse Coopers. (1993).4-5. Review of CSR in India. 3. Corporate Social Responsibility in India. Tripathi. Siemensma. Anshen. 93-100. (2001). New Delhi: Manohar Publishers. Discuss any three theories of CSR.org/Documents/CSPs/IND/2003/default. (2002). India. Changing the Social Contract: A Role for Business. Centre for Social Markets. Ambi Rajan.asp. The Functions of the Executive. L. Palgrave McMillan Journal. Journal of Corporate Citizenship. Corporate Social Responsibility: Perceptions of Indian Business. Discuss the changing trend of CSR in India. J. Ed.. 5. Sustainable Development: A review of the international development. in India. Social Responsibilities of the Businessman. (2004). Available at http://www.adb. M. and Trends of Thinking about CSR. pp. Available at http://www. The Stakeholder Theory of the Corporation: Concepts.accountability-central.com/single-view-default/article/article-13-invigorationthrough-innovation. (2001). Business Ethics Quarterly. Accountability-Central.
. (2004). India: British Council. Bowen. (1970).pdf.indianet. (2001). Country Strategy and Program 2003-2006. & Preston. Introduction to Corporate Social Responsibility. January 1). Donaldson. Barnard. Bowen. 4. Changing Attitudes towards Business in India (D. Discuss how did business contribute to society in the pre-independence and Independence period. 128-157. F.
S. Boston: Pitman Publishing. London: The Energy & Resource Institute. The Case For and Against Business Assumption of Social Responsibilities. McWilliams. Available at http://www. April). Freeman.. & Walsh. The New York Times Magazine.colorado. Administrative Science Quarterly. Pachauri.. 331–349. (2004. Strategic Management: A Stakeholder Approach. 107-117. India: Partners in Change. R. webedition. Prakash-Mani.pdf Kumar. Corporate Citizenship: Perspectives from India. 26(1).edu/~rgay/ Fall07/AirMidwest/politics_stakeholder. R.edu/~ek10/socialresponsibility. Mohan. Available at http://www. (1990). (2004).
. G. Corporate Social Responsibility: A Theory of the Firm Perspective. Available at http://www. Social Responsibilities of Business.pdf Freeman. (2004).org. (1973).terieurope. Available at http://isid. Business Ethics Quarterly. Murphy. New Delhi: India: India International Centre..org/docs/CSR-India.pdf. M. (Eds.india-seminar. W.com/fline/fl2018/stories/20030912005211600. J. & Evan.hu. The Planetary Bargain: Corporate social responsibility comes of age. (1970. K. Business Unusual: Championing corporate social responsibility. National Seminar on Corporate Social Responsibility. M. Available at http://www. Available at http://uweb. New Delhi: Tata Energy Research Institute.. (1994). Excerpts from CEO Forum. R.terieurope. Corporate Governance: A Stakeholder Interpretation. Business Ethics Quarterly. Journal of Behavioral Economics. Report http://www. V. 117–127. Academy of Management Journal. Friedman. Karmayog. (2008). New Delhi: Tata Energy Research Institute. Prioritizing Action. Political Economy of India’s Economic Reforms.hinduonnet. A.. Misery loves Companies: Rethinking social initiatives by business. (2003). & Balsari. A. 48 (2). R. Development Journal from India.edu/studentgroups /libertarians/issues/friedman-soc-resp-business.htm. The Politics of Stakeholder Theory: Some Future Directions.PDF Hopkins. (2001). Corporate Sustainability Reporting: How Indian Companies Measure Up. http://www.in/pdf/norway. on Karmayog CSR Ratings. India International Centre. 409–429. (2003). 20(18). R. 5 (2). 337–359. (1966). Roy. D. ICFAI Journal of Environmental Economics.) (2004). Piramal. (1997). & Siegel. 16 (2).org/docs/csr_state. (2001. K. (2007). 49-68. (1996). September 13). S. 19(4). Delhi: Penguin Books India.html Ghosh. Journal of Corporate Citizenship. The State of CSR in India 2004-Acknowledging Progress. Academy of Management Review.mtu. Strategy for Development. 4(4). Altered Images: The 2001state of corporate social responsibility in India poll. (1984). (2002). R. Frontline.pdf Freeman. Freeman. R.com. (2004). J. (2002). 312–322. Seminar. 12(3). November 10). 537. UK: Sustainability Radar. Partners in Change. D. Business Maharaja. Available at http://www.46 Corporate Social Responsibility
Davis. J.txstate. London: Macmillan Press. Working Paper of the Institute for Studies in Industrial Development (ISID). Margolis. Third Report on Corporate Involvement in Social development in India.karmayog. Stakeholder Theory: A Libertarian Defence. Corporate Social Responsibility in the Indian Context. & Philips. R. The Social Responsibility of Business is to Increase its Profits.com. Available at
Kumar. 2. Available at
Available at http://www. Washington. Reintegrating India with the World Economy. Promoting Development through Corporate Social Responsibility .). Part III. (2003). S. What and How of Corporate Social Responsibility in India..: Institute for International Economics. (2003).indianexpress. A.. Andriof and M. Mumbai: Confederation of Indian Industry. Bangalore: Books for Change. (2004. 200–212). Partnership Alchemy: Engagement. (2000). P.Does it Work? Global Future. P. Corporate Citizenship. Utting.com/oldStory/44349/. T. Indian Express Newspaper Article Series . Business of Social Responsibility . & Venkateswaran. Perspectives on Corporate Citizenship (pp. McIntosh (Eds. S.C. Required: A new form of governance for a new economy. D. Srinivasan. & Tendulkar. and Governance. P.
47 From Philanthropy to CSR: Historical and Theoretical Perspective
. (2000). In J.Our Brave New Industry. Sunder. Innovation. H. (2001). (1999). Sheffield: Greenleaf. London: World Vision International.The Why. S.Shourie. April 4). Shrivastava. Zadek. New Delhi: Tata McGraw Hill. Sunder. Beyond Business.
As a growing movement.6 4. you should be able to: Examine arguments for and against CSR Understand the business case for CSR Examine the importance of CSR in India Identify the current drivers of CSR
4. the concept of CSR is interpreted differently by different cultures and different businesses.4 Aims and Objectives Introduction Arguments against CSR The Business Case for CSR Importance of CSR for India 4.1 4.1 4. a rapidly growing. The sole legitimate purpose of business is to create shareholder value.5 4.7 4. In the light of this." This implies that social issues are peripheral to the challenges of corporate management. to borrow Milton Friedman's phrase.9 4. "the business of business is business.2 4.0 4.10 Current Business Scenario in India
Contemporary Drivers for CSR Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
The great.48 Corporate Social Responsibility
THE BUSINESS CASE FOR CSR
CONTENTS 4.3 4. On the other side are the proponents of corporate social responsibility.8 4. On one side of the current debate are those who argue that. long-running debate about business's role in society is currently caught between two contrasting ideological positions.0 AIMS AND OBJECTIVES
After studying this lesson. it is meaningful to consider some of the rising arguments and rebuttal cases
.4. There is no universal definition of CSR and hence there is significant room for arguments and criticisms against the concept. The debate between these points of view has increasingly taken on global significance. rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact.
about managing risk. which can range far and wide – from international treaties on climate change. lesser employee turnover 2 .
49 The Business Case for CSR
4. donate to charitable causes or have business standards which are convenient to them.) Baker M (n. about attracting and retaining talented staff.2008) 11-year Harvard University study found that "stakeholder-balanced" companies showed four times the growth rate and eight times the employment growth when compared to companies that are only focused on shareholders” (CSR Network. C. CSR does not mean that a company should give away their money that rightfully belongs to the shareholders to charity just for the sake of it. Explanation: This is the most commonly voiced argument of those questioning the viability of CSR today. “Management has to concentrate on a company’s core business and cannot spend resources on CSR. Explanation: Due to the on-going globalization. The lobbying activities of companies show that both business and social goals are at times interdependent.mallenbaker. Businesses rely on societies within which they operate and cannot exist in isolation. n. employees and secondary stakeholders are local communities. For instance. shareholders. businesses today have greater power and leverage to induce changes in public policies and achieve better results than the government institutions. suppliers want to form business partnerships with companies they can rely on.d.). The paragraphs below discuss a few arguments challenging the concept of CSR. suppliers. after all. CSR is about building relationships with customers. companies often spend a considerable amount of time and money to influence policies affecting them or their area of interest. decide for themselves if they want to do things beyond mere compliance. available at http://www. Hence there is a need to balance stakeholder responsibility to ensure higher and consistent returns to the stockholders” 3 . consumers today want to buy products from companies they trust. social activist groups. business support groups. In order to further the profits. Each stakeholder demands organizations to fulfill their demands. Arguments against Social Responsibility. Viewed from this context CSR is all about a strategy which helps businesses to manage the risks and reputation in the market. “Businesses are owned by their shareholders – thus any money they spend on social responsibility is effectively theft from those shareholders who can. “It is the responsibility of the politicians to deal with social issues. employees want to work for companies they respect and investors want to invest in responsible companies.
Primary Stakeholders are customers.php#shareholdertheft ibid
. as stakeholder management results in higher profits.d. general public(Galliara. to domestic policies on health (such as that relating to smoking) or transport. the business case becomes immediately apparent. They need infrastructure. Every business today has to manage its primary and secondary stakeholders 1 . creditors. If CSR is seen as a process by which the business manages its relationships with a variety of influential stakeholders who can have a real influence on its license to operate. It is not the role of a corporation to get involved in social issues. which are essential for an organization to sustain.which were often ignored in the hustle of the growing attention to the concept in order to find a possible agreement. Media.2 ARGUMENTS AGAINST CSR
A.net / csr/against. B. Investing in societal development is indeed creating markets for the future and ensures long term sustainability” 4 . better supplier and government relationships. and about assuring good reputation. Governments. employees and consumer base all of which comes from the society. wholesalers.
helping to protect it from instability and share price volatility. CSR can help to increase efficiency through environment conservation and recycling initiatives. For instance.3 THE BUSINESS CASE FOR CSR
The “business case” refers to the commercial business benefits of CSR in quantifiable terms which convince ‘non-believers’ of the business benefits of CSR. The following points discuss how responsible business helps to enhance business operations and achieve sustainable outcomes: 1. Increased Revenue Base: CSR can boost factors that drive revenue in important ways. Create Shareholder Value: Investors are becoming more concerned to invest in companies that act with good corporate governance and social responsibility. Many organizations have developed clear CSR efforts as strategic branding and management approach in achieving a win-win outcome. Global consumers today are more selective and sensitive about buying eco friendly products and care to consider company’s image and CSR efforts. water
. governments and even employees have become more sophisticated and more aware of good corporate behavior. Driven by this understanding. CSR initiatives and cause-related marketing could build reputation and goodwill among suppliers and customers. a win-win situation for the company and its stakeholders can evolve” 5 .
4. A distinctive CSR profile serves as a strategic branding tool in differentiating from competitors. investors. Positive CSR experiences build confidence and goodwill with stakeholders. In this new business environment. Hotel Orchid. 3. Increasingly. because of its wide negative publicity. Strategic Branding: A company’s reputation is fundamental in maintaining and attracting new customer base. water and other resources which will contribute to the generation of future profits just like any other investments. waste management systems. as part of eco-efficiency strategy. energy efficiency. and CSR has become one of the key components of corporate reputation. 2. committed. While CSR is not a de jure obligation of companies doing business according to applying laws. Sony. Today consumers. Positive management-employee relations are also crucial in bringing about good customer service. For instance. or lack thereof. and more prepared to make sacrifices as a team member. a company's reputation has become one of its most valuable assets. while in contrast is Primark. 4.50 Corporate Social Responsibility
CSR might make sense if perceived not as extra work but to integrate it with core business like designing environmental systems. Toyota and ITC have adopted environmental sustainable methods in the areas of solid waste management. another UK retailer. Marks and Spencer’s has effectively positioned itself as the most environmentally sound and socially responsible UK retailer. which has faced reduction in the number of consumer footfalls. Employees who identify with the social mission are likely to be motivated. productivity and product innovation. Operations Efficiency: The efficiency of a business is about productivity and effective use of resources. it is nevertheless a de facto obligation because of its long term significance for corporate success and as a tool of differentiation in the competitive game. recycling paper. Most of the arguments above mainly stem from a misinterpretation of CSR. a company’s performance as a responsible business is key to its financial and stock market standing.
their sales declined by up to fifteen per cent across the country. 7. 5. sharing and team spirit in the workplace as well. greater survival prospects for mothers and their infants. in preempting and minimizing the repercussions. 2006). 2006). For instance companies that improve their supply chain practices.d. 2005. Companies with good CSR standing are likely to be able to secure equity and debt capital with utmost ease. these global aspirations remain far from being met. better educated children. Mitsubishi. and others. Levi’s.conservation and preservation. and so on. For instance. p5). In that period. (WRI. and Wipro find the organizations to be more employee sensitive and friendly. Unfortunately. right from the consumers to the investors of Cocacola. Lower Business Risk: Companies are being held increasingly accountable for their actions today. hunger and disease. For instance. the employees in the Tata Group. 6. If Coco. Increased Productivity and Quality: CSR facilitates increased productivity within the organization.cola had fulfilled its CSR. L&T. This enhances the company’s brand image and reputation and enjoys greater credibility with the government as well as political organizations.com/services. 2. For example. and hence the most lucrative growth markets for business (IMF. environment and economic risk exposure to a large extent. and facilitate increased employee involvement. and a healthier environment’ (UN. 8. affected the trust of all its stakeholders. The rationale for focusing on CSR in India as well as other developing countries as distinct from CSR in the developed world is fourfold: 1. Access to New Markets: CSR also provides business organizations with access to new markets. India represents the most rapidly expanding economies.4 IMPORTANCE OF CSR FOR INDIA
The challenge for corporate social responsibility (CSR) in India is framed by a vision that was distilled in 2000 into the Millennium Development Goals—‘a world with less poverty. These have reduced their operational cost to a large extent and have also provided unique positioning in the minds of the consumer.csrnetwork. access to capital and even long-term viability in some instance. Human & Intellectual Capital: A company’s human and intellectual capital is one of its most valuable assets. UNDP.
. Good workplace conditions and relations can help a company to attract. equal opportunities for women. 2006: 3).. Such business risk could affect reputation. improves the competitiveness and market positioning. ISO 9000. (Galliara. keeping operations and staff morale high. UN Global Compact Principles and others. 9. The growth emphasis in Socially Responsible Investment (SRI) is a clear indication of likely future trends.
CSR Network available at http://www. et al.asp ISO 14000. encouraging participation. the Coca-Cola Pesticide case in India.
51 The Business Case for CSR
4. Infosys. it wouldn’t have undergone this crisis and would have certainly reduced its social. keep and develop human capital. n. Proactive dialogue with external stakeholders can help to foster understanding. Better Access to Capital: Access to capital enables a company to grow and make timely investment. India is one of the developing nations where social and environmental crises are usually most acutely felt. labour conditions. a small firm that is certified to have environmental and social standards 7 can be a supplier to international retailers like Marks and Spencer’s. results in reduction in errors and defective pieces in their work producing higher quality of products and services 6 . Community involvement can play a complementary role in developing new skills set. SAI 8000.
market place and environmental practices which are not sufficiently accounted for by state domestic laws or international legal systems. This is a clear indication of the internal business environment. 55% of Indian companies in the past two years had reported incidents of fraud and a PricewaterhouseCoopers (PwC) study (2007) indicates the average direct loss from fraud per company at the global level is $2. The PWC report (2007) reveals that as many as 34% of companies which are believed to be paying bribes and exercising undue influence.
4.1 Current Business Scenario in India
The 20th century business environment in India was driven by the government. employees. Delhi. Corruption Perception Index Study ( 2008) retrieved from http://www.
Transparency International India: The Coalition against Corruption. The explosive growth and concomitant deregulation of the global economy has produced a myriad of issues in India in the areas of work place. In India. as well as low costs of operation and wide availability of target participants. and 4. India like other developing countries presents a distinctive set of CSR agenda challenges. researchers and institutions are increasingly basing their illegal clinical trials in India owing to lack of regulation and accountability. mining. Registered under the Societies Registration Act 1860. India is one of the developing countries where globalization. Similarly. Discrimination against women and vulnerable groups like the handicapped and socially backward groups is evident at workplaces in varied aspects and degrees. economic growth. insider trading in the stock market. have given their competitors an unfair advantage. suggesting that business relationships and success may not be determined only on the basis of a product or service quality. 34% of companies in India reported loss of a business opportunity due to the likely payment of bribe by a competitor.4 million and for India it is $1. which are collectively quite different to those. India was being ranked low (85) on transparency meaning high on corruption. Ernst & Young (2008) reports the incidence of fraud becoming an increasing menace. In 2008. Consequently. Amongst the growing unethical business practices in India. is governed by the free market economy.org/news_room/in_focus/2008/cpi2008/cpi_2008_table
. is seldom reported. economic crime is emerging as a bigger threat than before. are only compliance oriented.transparency. and business activity is likely to have the most dramatic social and environmental impacts (both positive and negative) (World Bank. but the 21st century business across the world. Bribery and corruption (considered by foreign companies as the biggest threats to doing business in India). business associates and shareholders are worst affected in the process. being contractual in nature. Among the more abhorrent social problems created and proliferated by the existence of a global economy lacking global regulation is the insidious practice of exploiting child labour because it helps in cutting labour costs. Irresponsible and delinquent work practices of employees are major reasons for financial frauds. At another level. construction.52 Corporate Social Responsibility
3. including India. multinational drug companies. Instances like these create a bad environment and impact the reputation of companies.5 million. faced in the developed world. falsifying export/import documents and evading income-tax. by Transparency International 8 . 2006). have all been a regular feature of the Indian black economy. they raise significant issues on governance for stakeholders.4. efficacy and price. Sexual harassment at workplace though observed. textile and manufacturing industries to a large extent. investment. Working conditions of staff specifically in IT industry. BPOs.
While being quality conscious in manufacturing products or delivering services businesses should develop systems and processes which contribute towards preserving environment. national and local governments have taken a more hands-off approach to regulating business. and even "denial of service" attacks on company websites. Meeting Changing Expectations of Stakeholders: Various stakeholders are increasingly looking to the private sector to help them with myriad complex and pressing social and economic issues. poor rural residents are driven from their lands into the slums. avoiding corrupt practices. More Competitive Labor Markets: In a tight labor market. through actions such as public demonstrations. Under the garb of "development". Increased Customer Interest: The growing interest in CSR comes from both business-to-business customers and consumers. and instead. Shrinking Role of Government: In many countries. adopting their own policies to govern such matters as environmental performance. universities and other institutions to align their purchasing decisions with social criteria.5 CONTEMPORARY DRIVERS FOR CSR
If India wants to address the above issues and attract more FDI for developing business. protecting human rights. it is essential that it should review its business practices and see that it does not create externalities. companies are finding that they need to turn to nontraditional labor pools – including economically disadvantaged. Many international brands are marketing new material such as plastics. particularly those related to companies' environmental and human rights performance. packaging or electronics but do not bring along systems of waste minimization or management. Forcibly evicting peasants and grabbing their agricultural lands for developing special economic zones amounts to violation of the Constitutional and human rights of farmers. which they readily incorporate into their western operations. corporates like Tata’s and L&T have developed a policy to purchase recycled paper. technical or highly skilled employees are looking beyond paychecks and benefits to seek employers whose philosophies and operating practices align with their own beliefs. and promoting transparency & accountability for developing sustainability.Unethical market practice also includes cases of land grabbing. For instance. non-English-speaking. shareholder resolutions. At the same time. For example. 2. some companies have found that having "family friendly" policies or being identified as an employer of choice have given them a competitive advantage in attracting and retaining employees. In the former. working conditions and ethical marketing practices (BSR 2001). governments. Starbucks Coffee sources coffee beans from fair trade labeled suppliers. These efforts emphasize the issue of accountability to stakeholders when doing business (BSR 2001). There is a growing ability and sophistication of activist groups to target corporations they perceive as not being socially responsible. Business leaders identify the following major drivers which have compelled them to integrate CSR as a business strategy: 1. due to the globalization of commerce and shrinking resources. 3.
53 The Business Case for CSR
4. many workers especially professional. there is a significant move by many companies. and physically or mentally challenged individuals – to meet current and future demands for both skilled and entry-level employees (BSR 2001). companies and multinational companies in particular are relying less on government for guidance. 4.
. food products. As a result.
but for that of the companies "upstream" and "downstream" – that is. Many of these investors are using the shareholder resolution process to pressurize companies to change policies and increase disclosure on a wide range of CSR issues. Activist groups are also buying shares in targeted companies to give them access to annual meetings and the shareholder resolution process (BSR 2001).
4. companies that commit to developing a comprehensive CSR strategy attribute this as requirements of the global marketplace and their supply chains. workplace policies. Despite criticisms against CSR. social and environmental impacts of their operations to maximise the benefits and minimise the downsides. both for consumers and employees. facilitating business in sensitive environments. deregulation and privatization. 7.even when it may be negative . Included among these are corporate governance issues. The result is that some companies are imposing codes of conduct on both their suppliers and customers to ensure that other companies' policies or practices do not reflect unfavorably on them. Increasing Supply Chain Responsibility: As stakeholders take a growing interest in companies' corporate social responsibility. human rights practices. including: (a) Enhanced brand value and corporate image. Demands for Increased Disclosure: Customers. environmental management. 6. (d) Gaining an informal social license. such as how boards of directors are chosen and compensated. CSR strategy aims at managing the economic. Growing Investor Pressure: The growth of socially responsible investing has accelerated in recent years. (b) Improved customer loyalty. (c) Reduction of risk as a result of clearer grasp of positions taken by stakeholders. consumer concern over the use of genetically modified organisms in agriculture. employee and community relations. This has a cascading effect along the entire supply chain. trading partners and others are asking companies for more and more detailed information about their social performance. In response. For instance. with investor groups increasingly pressurizing companies on social issues. encouraging suppliers to adopt socially responsible business practices (BSR 2001). and the new demands brought about by the increased interest in environmental sustainability (BSR 2001). New and Emerging Issues: Recent years have seen a growth in the breadth of topics considered under the "corporate social responsibility" umbrella. religious freedom in the workplace.6 LET US SUM UP
CSR is a process driven by globalization. responsible sourcing and human rights. labour standards. changing stakeholder expectations and risk management strategies of the corporates. stakeholder engagement. social equity. "cyber ethics" issues of access to and privacy linked to information technology. many companies are putting increasingly detailed information about their social and environmental performance . including environmental responsibility. community involvement. ethical decision-making and corporate governance.54 Corporate Social Responsibility
5. many companies are finding that they are responsible not only for their own CSR performance. which they are supposed to adhere to. leadership companies are responding with a variety of reports and/or social audits that describe and disclose their social performance on one or several fronts.
.onto their publicly accessible websites (BSR 2001). Established global protocols also have influenced CSR practices of businesses. 8. Key CSR issues include governance. regulators. investors. a company's suppliers as well as its customers. It has been reported that consistent CSR practices brings out a number of possible positive outcomes. environmental activists. community groups. Toyota has designed a manual of CSR for its suppliers. As part of this move toward greater disclosure.
international companies should bring in ………………… to India. (c) Companies can do strategic branding to improve their image. (i) Experienced staff (ii) Technology
. by undertaking various programs to strengthen brand equity is: (i) Brand positioning (ii) Brand differentiation (iii) Strategic branding (iv) Product branding (c) …………………is important for increasing operating efficiency.4. as a part of CSR. (i) Positioning (ii) Differentiation (iii) Branding (iv) All of the above (b) Using CSR to maintain large customer base. Choose the appropriate answer: (a) CSR can act as an effective tool of…………………for companies. State whether the following statements are true or false: (a) It is only the role of government and politicians to deal with social issues. (e) In India. 2.7 KEYWORDS
Lobbying: Influencing decisions made by government Business Case: Commercial business benefits of CSR Strategic Branding: Activities and programs to manage and build brand equity Market positioning: Create an image of your company in the market Supply Chain: System for moving products from one end to another
55 The Business Case for CSR
4. (d) CSR initiatives are not linked with productivity. (b) CSR should not be viewed as an extra compulsion but should be integrated with other activities. (f) Increased knowledge and expertise of the workforce has led to an increasing demand for CSR.8 SELF ASSESSMENT
1. impact of social and environmental crisis is not that visible. (i) Good employee-management relations (ii) CSR (iii) both a and b (iv) none of the above (d) Along with all other things.
9 REVIEW QUESTIONS
1. Comment.org/about/bsr-report. (2008). CSR Network. Are the arguments against CSR justified? Give your viewpoints. Arguments against Corporate Social Responsibility. Meeting the Challenge of a Reset World.d. Mumbai: NMIMS University Transparency International. Give examples in each case. What is CSR? Available at http://www.).net.mallenbaker. Discuss the business case for CSR. (a) iv (b) True (b) iii (c) True (c) iii (d) False (d) iii (e) False (e) i (f) False
4. (a) False 2. Critically analyze the contemporary drivers for CSR.asp Galliara. 2. B.10 SUGGESTED READINGS
Mallen. ‘The business of business is to do business”.
.).bsr. M.php.d. Mallenbaker. 4. 3. 5. Available at http://www. Available at http://www. (n. Discussion Paper on Corporate Social Responsibility.com/csr.transparency.net/csr/against. (2008). Corporate Social Responsibility. Available at http://www. (2005). Corruption Perception Index Study – 2008. (n.org/news_room/in_focus/2008/cpi2008/cpi_2008_table.56 Corporate Social Responsibility
(iii) Waste Management System (iv) Risk Management System (e) Companies supply chain extends from: (i) Suppliers to customers (ii) Suppliers to retailers (iii) Company to customers (iv) Supplier to company
4. Business for Social Responsibility. Why is CSR important for a country like India? Give Examples. Social Enterprise Cell.cfm.csrnetwork.
57 Developing a CSR Strategy
58 Corporate Social Responsibility
4 5.1 INTRODUCTION
CSR strategy is a road map for moving ahead on CSR issues.4.2 5. allowing the organization to be successful by using its resources within its unique environment to meet stakeholder expectations. Approach and Focus Areas
5.4 Assemble a CSR Leadership Team Develop a Working Definition of CSR Review Corporate Documents.3.1 5.3. It sets the organization's direction and scope over the long term with regard to CSR.3 5.5 5.4.1 5.6 5.1 5.5 Build Support with Senior Management and Employees Research what others are Doing Prepare a Matrix of Proposed CSR Actions Develop Options for Proceeding and Develop the Business Case for CSR Action Decide on Direction.4.2 5.0 5. you should be able to: Understand the importance of assessing CSR for developing strategy Know the steps involved in understanding CSR
5.3 5. Processes and Activities
Developing a CSR Strategy 5.3 Aims and Objectives Introduction Steps in Designing CSR Strategy How to do an Assessment 5.LESSON
59 Developing a CSR Strategy
DEVELOPING A CSR STRATEGY
CONTENTS 5.7 188.8.131.52 AIMS AND OBJECTIVES
After studying this lesson. A good CSR strategy identifies the following: Overall direction about where the organization wishes to go in its CSR work.8 5. A basic approach for integrating CSR as a business strategy.9
Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
2 STEPS IN DESIGNING CSR STRATEGY
The first step for designing CSR strategy starts with ‘Assessment of the Organization or Business Organization’ It is important to gather and examine relevant information about the products. Develop a working definition of CSR. Immediate next steps.
5. The current corporate decision-making structure and its strengths and inadequacies in terms of implementing a more integrated CSR approach. Identify and engage key stakeholders.1 for examples.3. the board. This will assure that CSR is supported by the top management. 3. See Box 5. Identifying a key senior manager as the CSR champion sends a clear signal that the organization considers corporate social responsibility to be important. and culminate in a thorough gap analysis of analyzing strengths and weaknesses of the organization from stakeholder perspective. This is essential information for identifying CSR priorities and seeking support for CSR from stakeholders. Existing CSR-related initiatives. Key stakeholders who are. Other representatives could be selected as per the requirement of the organization.1 Assemble a CSR Leadership Team
A CSR leadership team would include representatives from the board of directors and top management or owners. or who need to be. Assemble a CSR leadership team.
5.60 Corporate Social Responsibility
Specific priority areas. processes and activities.2 Develop a Working Definition of CSR
The first task of the leadership team is to develop a working definition of CSR for the organization. engaged. Keen employees should be encouraged to volunteer their time. and to locate its "pressure points" for CSR action. The human resource and budgetary implications of such an approach.3 HOW TO DO AN ASSESSMENT
A four-stage CSR assessment process requires the following: 1. A proper CSR assessment should provide an understanding of the following: The organization's values and ethics. it is vitally important that the team be directly accountable to senior management and. The key CSR issues that are affecting or could affect the organization. The assessment should identify the main risks and opportunities. energy and ideas. Review corporate documents. Even when there are no members of the board of directors on the team.3.
. 2. as well as key employee volunteers from various units within the organization that need to be involved in CSR issues. ultimately. decision-making processes and activities to determine accurately where the organization is now with respect to CSR activity. 4.
5. The internal and external drivers motivating the organization to undertake a more systematic approach to CSR. This will become the foundation for the rest of the assessment.
community relations. It is imperative for the CSR team to review these types of decisions. In many organizations. may consider the legal and social implications of developing environmental CSR.. paying taxes and making a profit. processes and activities for actual and potential CSR implications. It may be that they were past responses to CSR pressure points. bribery and corruption. stewardship and integrity. CSR is the responsibility the organization has to its stakeholders. Organizations typically have specific decision processes and associated decisionmaking bodies in place to address particular aspects of operations. It means minimizing the environmental impact of its facilities and products.
61 Developing a CSR Strategy
The team may also wish to identify key values that motivate the organization. It means treating employees with respect and being a good neighbour to the immediate localities and the society at large. codes of conduct. It is also important to determine whether there is a unit or process in place to coordinate decisions about issues with a societal dimension. It means that the organization's products and services create value for customers and contributes to the wellbeing of society.3. and these may bear on the CSR approach. training and implementation of worker health and safety programs.3 Review Corporate Documents. It is useful for the CSR team to explore why these items were developed and to learn from them (or at least acknowledge that they are CSR-related). an absence of any reference to societal impacts or commitments in these documents may indicate that a cultural shift may be required to effectively integrate CSR into decision making and business activities. a health and safety committee may take the lead in determining the resources. including appointment of labour. It may also be that various parts of the organization are treated quite differently from one another. principles. wages. and health and safety protection.
. training. For instance an organization which has not taken any steps in the area of environmental conservation. guidelines and other operating documents should be reviewed. the team should then review key corporate documents. human rights.1: Relevance of Reviewing Documents
Documents Existing mission statements. for example. in conjunction with senior engineers and other staff. and particular concerns it has and members of its supply chain have. who makes them. Engaging people at all levels of the organization – from employees to managers and members of the board of directors – from the very beginning in developing the definition will ensure support and acceptance of the idea of integrating CSR as a business strategy. environmental and social objectives while at the same time. It means the organization operates using ethical business practices and expects the same from its suppliers and partners.1 below highlights the benefits of reviewing corporate documents which can have relevance in assessing CSR. workplace. such as inclusivity.
5. government relations.Box 5. decision making concerning suppliers is an area that touches on CSR in many regards. For example. It means providing jobs. to the environment. policies. customers. Senior managers may play a key role in decisions about environmental protection activities. These could be related. Contd…. and how they are made. as well as supporting philanthropy and community involvement. Processes and Activities
With a working CSR definition and an initial understanding of the motivations behind the organization's interest in CSR.1: Working Definitions of CSR
CSR is the way the company integrates economic. By the same token. Table 5. or corporate governance. addressing stakeholder expectations and sustaining or enhancing shareholder value.
In addition to thoroughly examining internal operations for CSR-related challenges and opportunities.
Confederation of Indian Industries. new CSR-related product lines or approaches. It is important to take advantage of the ideas of various stakeholders in developing the CSR strategy and approach CSR issues systematically. and any initiatives or programs in which they participate. Engagement implies understanding their views and taking them into consideration.
. to develop a CSR approach entirely on its own. Examining the vision.4. Mapping the interests and concerns of stakeholders against those of the organization can reveal opportunities and potential problem areas. On this basis. Associated Chambers of Commerce and CSR specialist organizations like Center for Social Markets. there is considerable value in drawing on the experience and expertise of others. The Federation of Indian Chambers of Commerce and Industry. FICCI 2 . the board of directors) about the key findings of the CSR assessment and gauge their interest and support in moving ahead.2 Research What others are Doing
Although it is possible for the CSR team working with other members of the organization.
5. The CSR team should hold discussions with key internal and external stakeholders about CSR.
5. it could examine the similarities and differences between the company and these organizations. Decide on direction. The strategy has to be built on the strengths of stakeholders. values and policy statements of leading competitors.62 Corporate Social Responsibility
The organization's activities that relate directly to providing its products or services to users can be closely connected to CSR. and using the information acquired from them to drive innovation. the following steps are recommended to develop a CSR strategy. The team should also consider activities of business partners (particularly supply-chain partners) since these may significantly affect the organization. being accountable to them when accountability is called for. Three useful sources of information to assist the organization in this regard are contacting industry associations like CII 1 . Build support with senior management and employees 2.4. Women employees can be involved in developing women friendly workplaces. Develop options for proceeding and the business case for them 5. it may be useful for the CSR team to examine the CSR activities of their competitors and other organizations in allied sectors. ultimately. along with their codes.1 Build Support with Senior Management and Employees
The CSR team should report to senior management (and. Stakeholder engagement comprises the formal and informal ways of staying connected to the parties who have an actual or potential interest in or effect on the business. organizations marketing seeds & fertilizers should analyze the impact of the same on agricultural productivity.
Identify and engage key stakeholders
5. environmental NGOs can be involved in understanding their expectations from the business organization. approach and focus areas CSR strategy is likely to succeed only when it is based on a clear understanding of the organization's values. Prepare a matrix of proposed CSR actions 4. Research what other businesses are doing 3. the team can assess the benefits. For instance. CSR Wire and so on. For instance. can be very useful. If the team finds that companies (in India or elsewhere in the same sector and related sectors) are emphasizing different CSR activities. 1.4 DEVELOPING A CSR STRATEGY
After completing the CSR assessment.
g. it should be possible to create a matrix of proposed CSR actions. The working group makes recommendations to the senior executive level CSR advisory board. and being a positive influence in the communities where it operates.in/download/csr. (There may be some overlap.costs. processes. leading in overall customer satisfaction. To this end.2 below. One of these recommendations resulted in REC deciding to have dedicated CSR managers and staff.
Source: http://recindia.4.2: CSR Strategy Planning Process (REC)
REC launched a six-month research in CSR issues to be addressed and came up with a set of recommendations for how REC should define CSR and further integrate it into its operations. Quality/Customer Satisfaction
. customer satisfaction) Current Registered to ISI9001* Proposed Integrated managment systems (IMS)?
Current Processes Registered to ISO 14001*
Proposed Kyoto emission reductions?
Some products use Environmental Choice logo Internal impact assessment undertaken
Could all products be certified by Energy Star?
Possible SA 8000 or FLA product certification
Use of ISO 9001 logo on company letterhead
Keep abreast of ISO work on IMS?
Supply chain /community impacts?
Internal impact assessment undertaken
Supply chain/ community impacts?
Internal impact assessment undertaken
Supply chain/ community impacts?
Environmental Affairs Deptartment
Human Resources Department
Manager. REC Ltd. and deciding to develop a CSR strategic plan. For instance see Table 5. products and impacts on the matrix. social and economic aspects. In parallel. resource implications and changes to current practices. maintaining leading corporate governance practices. possibly spelling out environmental.pdf
63 Developing a CSR Strategy
5.3 Prepare a Matrix of Proposed CSR Actions
In the context of the data collected. to set well-defined goals and accountabilities. immediate outcomes.
Table 5. cross-reference them against the organization's current activities and structure to see how well they fit. workers.2: Matrix of Proposed CSR Actions
Environmental activity Social activity (e.
Box 5. and to implement mechanisms to measure progress. Taking a strategic approach has allowed REC Ltd to dedicate specific resources to CSR. A key feature of the plan was to set up a mechanism so that the CSR agenda could be discussed and moved forward throughout the organization.2 below for how Rural Electrification Corporation (REC) developed its CSR strategy.) The CSR team can plot current and possible CSR activities. including being an employer of choice. communities) Current Started Workers Education Programme and adopted four local schools None at present Proposed SA8000* or Fair Labor Association (FLA) Economic activity (e. has incorporated CSR into its overall corporate strategy. quality assurance. continually building shareholder value.nic.g. a CSR working group has been set up with membership from the various business areas that are directly linked to the key CSR issues for REC Ltd. The plan lays out the key CSR issues REC would take up and sets out an incremental process for addressing them. See Box 5.
Practices to emphasise the importance of farmer equity in relations to Starbucks coffee.E. key business partners and other stakeholders. Farmers and suppliers who demonstrate the use of best practices according to the guidelines.F. See Box 5. sustainability experts. The CSR leadership team can draw on the material generated by the assessment.64 Corporate Social Responsibility
5. Practices are founded on socially.3 for business case in CSR.F.A. In addition to stimulating new ideas.
Box 5.4 Develop Options for Proceeding and Develop the Business Case for CSR Action
Two options for proceeding at this point are either to take an incremental approach to CSR or to decide on a more comprehensive change in direction. its research into what others are doing. environmental leadership in coffee growing and environmental leadership in coffee processing.E.3: Business Case for CSR
Starbucks has embodied its solution in its green coffee purchase programme. and Conservation International (CI). Each indicator is assigned a maximum number of points that can be earned. social responsibility. Starbucks hopes to this expand its preferred supplier list by Contd…. Informal networking can also be a useful way to see whether the organization is on the right track. 'Coffee and Farmer Equity (C. processed and traded in a sustainable manner. methods and core competencies and other aspects as listed below: Possible leverage points (on which particularly large CSR gains can be made) Areas in which the organization could potentially gain a competitive advantage Areas in which stakeholders might have particular influence Short.
. employees.A. The business case for CSR ensures that investment in CSR will enhance the profitability of business. C. Following a multi-year pilot project it applied its own experience and stakeholder feedback to pioneer a coffee buying programme that strives to improve the lives of farmers and increase the amount of high-quality coffee that is grown.A. Brainstorming sessions on the CSR matrix developed could be held with senior managers. environmentally and economically responsible coffee buying guidelines that have evolved to reflect more than three years work and the contributions of coffee farmers. such brainstorming sessions can also generate excitement and build awareness about CSR activity within the organization. Whatever approach is adopted. economic accountability (transparency). except for Starbuck's prerequisites of product quality and economic accountability. The guidelines contain 28 specific indicators that fall under five focus areas: product quality. The business case should focus on a number of elements. in the light of the organization's business objectives. “The business case” refers to the commercial business benefits of CSR in quantifiable terms.) Practices'.4. and obtain independent verification of their performance may become Starbucks’ preferred and strategic suppliers. methods and core competencies.and long-term goals Estimated costs of implementing each option (including that of not spending more on CSR) Anticipated benefits Opportunities for cost reductions Broader changes the organization would need to make Any risks or threats each option poses Implications of each option for new developments. The tabulated total score determines preferred supplier status.F.E. It chose the name C. Participants must be clear on the need to align any CSR approach with the organization's core business objectives. and the brainstorming sessions to devise a business case for the potential initiatives that could be undertaken. the first step is to come up with ways for the organization to integrate CSR into operations.
Clarity about direct strategic fit and benefits to business can go a long way in integrating CSR philosophy in business. leading MNCs like Hitachi Chemical Group. Practices’ verified. environmental.A. An automobile industry like Maruti Suzuki has decided to work on Traffic safety by introducing training in safe driving methods. and values and ethics statements.5 Decide on Direction.org/solutions. vision.
Source: http://www.3 describes a basic template which aims to provide a basic framework to companies to develop CSR assessment. a food retailer might decide to focus on combating obesity as an immediate objective.
.E. CSR decisions will necessitate setting priorities. Toshiba. A mining company operating could choose improving relations with surrounding communities as its chief concern. As CSR initiatives have resource implications. Focus areas: These should align most clearly with the business objectives of the organization and. put a new code of conduct in place.php?action=show_solution&solution_id=348
65 Developing a CSR Strategy
5. an apparel company could decide to emphasize worker health and safety. Starbucks believes its guidelines define the critical social. hence. processors and suppliers must meet minimum requirements and demonstrate best practices that are subject to independent verification under its guidelines.A. The size of the problem and its seriousness. and the benefits associated with it. High scoring suppliers receive preferential buying status.csreurope.F. processing and trading coffee.4. legal and customer requirements. CSR strategy. an organization might decide to first revise its mission. similar to how normal financial and investment decisions are reviewed.E. approach and focus areas with regard to CSR. Sumitomo Corporation and a few others have designed guide books in CSR for their contractors. finally design CSR inputs for contractors in the supply chain. Approach: This refers to how an organization plans to move in the direction identified. A paper company might decide that environmental issues associated with forestry would be the nucleus of its activities.encouraging others to use these guidelines and hopes that C. are immediate priorities.5 LET US SUM UP
For developing long term corporate sustainability. A casual approach could jeopardize the credibility of the CSR strategy as well as its implementation. A high technology company might decide intervention in anti-bribery measures as a target area. coffee farmers. It is important to follow sequential steps and solicit top management support as well as other stakeholders in designing CSR strategies. preferred or strategic supplier. communicate with and train employees and. The focus areas may be identified gaps in the organization's processes which may attempt to capitalize on a new opportunity or may address needs of certain key stakeholders. higher prices and better contract terms. To become a Starbucks C. Approach and Focus Areas
The CSR team in consensus with the senior management should take an informed decision on how the organization should proceed. It is important to determine the organization's general direction. For example. Table 5. as described below: Direction: This is the overall course the organization can pursue or the main area it aims to address. it is essential that the company designs a thorough CSR policy and strategy. economic and quality aspects of growing. and the speed with which decisions can be implemented. For example. For example.
5. the estimated effectiveness of possible solutions and the ease of implementation are key factors to take into account when prioritizing. For example. design a CSR policy. they should be reviewed with rigour and substance. Other important factors are the financial and human resources needed to implement the changes. Practices will become a model for other coffee buying companies to integrate into their own business.F.
3: Basic Framework for Designing CSR Policy & Strategy
Headings Sub Headings General information Initiatives/ Content (examples) • Geographic information • Size of company • Who owns the company. forums) • Pay & benefits – remuneration. pensions. shareholders of the company Economic impact • Turnover – sales • Number of employees • Market share • Profit Mission statement • Company objectives linked to CSR • MD/CEO CSR Values Stakeholder consultation statement on Stakeholders can relate to the mission statement and company values – this may be potential employees. disability) – workforce profile • Health and Safety – policies and training • Training/personal development • Communication with employees (newsletters. new customers or suppliers who share these values Shows that the CSR policy. intranet. other benefits • Workplace climate – employee handbook • Industrial relations • HR management • Child labour/forced labour • Other (specific company issues)
Staff retention Motivated staff Employer of choice Promotion of good working conditions and practices Reduced accidents
Contd…. age. gender. strategy and CSR report will truly reflect the impact on stakeholders • Benefits to business
Stakeholders welcome transparency. this also develops trust
• List company values • List who the main stakeholders are on whom the company has an impact • Relationships with nongovernmental organizations
• Equal opportunities (race.
.66 Corporate Social Responsibility
Regeneration – economic impact.
Measure value of support – cash and in-kind Focus on key partners and form long-term relationships (2-way benefit) Support with planning applications and developments Local government recognition
• In-kind support – time. resources.Marketplace
• Customer satisfaction • Customer retention • Safety and quality • After sales • Consumer education
Better understanding customer views Meet procurement criteria
67 Developing a CSR Strategy
Processes for accepting and measuring complaints Loyalty schemes to retain customers ISO standards to encourage customers Helping customer after sales. donations
sponsorship. number of jobs
Employee involvement Impact on society
Good PR New skills for employees Recruitment (awareness) Reputation as a good employer
• • • •
Recycling Waste generated (tonnes or kilos) Hazardous waste Policies Water used (joules) Control Programmes
Reduced landfill costs Compliance for suppliers/customers
Reduce costs Reduce impact on environment and natural resources Contd…
. Encourage customers to repeat purchase Become preferred supplier – link to customer values = brand loyalty
Suppliers/ supply chain
• Code of conduct • Selection criteria (linked to CSR) • Support local suppliers • Payment of bills on time • Bribes & corruption • Creating CSR awareness of
Support CSR through the supply chain Build relationships Seen as credible and reputable business Helping local suppliers and build community support Better value on contracts due to honouring payment terms Train partners on CSR practice and transparency
(d) Top management executives need not be in CSR team.7 SELF ASSESSMENT
CSR Strategy: Roadmap for moving ahead on CSR issues. (c) Assessment of business aspects should not ignore organizational values abd culture. (b) Assessment of business assessment should succeed strategy designing.pdf
5. State whether the following statements are true or false: (a) A good CSR strategy identifies priority areas and steps to be taken.go.dft.68 Corporate Social Responsibility
Energy used (Kw) Control programmes
Reduce costs Reduce impact on environment and natural resources Analyze usage patterns Information for customers & suppliers
• • • •
Types used Activities Recycled materials consumed Materials recycled ISO EMAS Training Communication to staff Green transport plans Fuel reduction policy Car fleet
Health & Safety
• • • •
Compliance Reduce accidents at the workplace
• • •
Monitor carbon footprint Produce statistics for suppliers/customers Pre-empt legislation
Source: Simply CSR Toolkit. (e) Companies can either adopt incremental approach or a comprehensive approach to CSR. Choose the appropriate answer: (a) A good CSR strategy identifies: (i) Overall direction of CSR initiatives (ii) Ideas for integrating business and CSR (iii) Priority areas (iv) All of the above
. 2. Downloaded from http://www. CSR Assessment: Gather and examine business information from CSR point of view Corporate Documents: Documents containing business information Incremental Approach: Step by step approach Brainstorming: Group of people are given a problem and suggestions are sought Core Competencies: Capabilities that are critical in gaining competitive advantage
. Design a basic framework for CSR for your organization. & Siegel.). A.F. Matten. Discuss why and how CSR Assessment should be carried out. (a) True 2.. D. (i) Qualitative (ii) Quantitative (iii) Comprehensive (iv) Ethical
69 Developing a CSR Strategy
5. The European Business Network for CSR.(b) CSR assessment should identify risks and opportunities from…………. 2..ca/eic/site/csr-rse.ic. (2008).gc. Moon. Discuss the steps involved in designing CSR strategy.nsf/eng/rs00143.A. What is the importance of engaging stakeholders in developing a CSR strategy? 4. 3. (2009). D. Oxford University Press..point of view. 5. Crane.csreurope. (2003). Key International CSR Instruments. Industry Canada. Suppose you are a top management executive of a banking firm. Practices.html.phpactionshow_solution&solution_id348 Corporate Social Responsibility. Available at http://www.9 SUGGESTED READINGS
Coffee Buying Guidelines . What is the Business Case for CSR?
1.terms. (i) Business (ii) Shareholders (iii) Stakeholders (iv) Environment (c) The members of the CSR team should be directly accountable to: (i) Stakeholders (ii) Top management (iii) Society (iv) Government (d) Which of these is a CSR specialist organization? (i) FICCI (ii) CII (iii) Center for Social Markets (iv) Associated Chambers of Commerce (e) Business Case refers to commercial benefits of business of CSR in………………. (Eds. J.org/solutions.C. (a) iv (b) False (b) iii (c) True (c) ii (d) True (d) iii (e) True (e) ii
5.8 REVIEW QUESTIONS
. The Oxford Handbook of Corporate Social Responsibility. Available at http://www. A.E.
Simply CSR Toolkit.dft.).go.th/the_files/11/level4/00003646_Lorraine toolkit. (2009). Physica-verlag Heidelberg.pdf Schreck.d.70 Corporate Social Responsibility
Simply CSR: Responsible Business Planning. P. The Business Case for Corporate Social Responsibility: Understanding and Measuring Economic Impacts of Corporate Social Performance. (n. Available at http://www.
3 6.2.1 184.108.40.206 6.0 6.6 6.12 6.7 6.14
Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
.4 Develop an Integrated CSR Decision-making Structure Prepare and Implement CSR Business Plan Set Measurable Targets and Identify Performance Measures Engage Employees and others to whom CSR Commitments Apply Design and Conduct CSR Training Establish Mechanisms for Addressing Problematic Behaviour Create Internal and External Communication Plan
Areas of CSR Implementation CSR at Market Place 6.8
CSR with Communities Types of Interventions 6.5.2 6.2 6.3
Environmental CSR 6.1 6.13 220.127.116.11
Strategic Partnerships 18.104.22.168 6.2.1 6.2
6.4.1 6.9.2 Benefits of Marketplace CSR Designing Market Place CSR Activities Benefits of CSR at Workplace Designing Work Place CSR Activities Benefits of Environmental CSR Designing Environmental CSR
CSR at Workplace 6.2 Benefits of Community Interventions Steps to Design CSR Intervention Reasons for Corporate NGO Partnership Criteria for Selecting NGO Partner NGO Strategies to Influence CSR
71 Implementing CSR Strategy
IMPLEMENTING CSR STRATEGY
CONTENTS 6.4.4 6.1 6.2
6.5 22.214.171.124 6.7 6.10 6.5.2 Aims and Objectives Introduction Implement CSR Commitments 6.9.
Develop an integrated CSR decision-making structure. HDFC. Engage employees and others to whom CSR commitments apply.2 IMPLEMENT CSR COMMITMENTS
Every organization is different and will approach CSR implementation in different ways. 2. each has a decision-making structure in place to ensure that it can meet its commitments and customer needs. Tata’s. operations and risk areas – and given its CSR strategy and commitments – what is the most effective and efficient CSR decisionmaking structure to put in place?” It is essential that the organization aligns its CSR goals and decision making with its overall goals and strategies.0 AIMS AND OBJECTIVES
After studying this lesson.
6. 1. 6. Infosys and others who integrate CSR for developing long term sustainability follow the following steps for implementing CSR. “Given the organization's existing mission. practices and activities which ensure that the organization meets its CSR commitments. size. Establish mechanisms for addressing problematic behaviour. 3. culture. you should be able to understand: Steps involved in implementing CSR The importance of developing appropriate decision making structure. Set measurable targets and identify performance measures. Design and conduct CSR training. sector. Create internal and external communications plans.2. stakeholder engagement in implementing CSR The CSR issues at market place.1 Develop an Integrated CSR Decision-making Structure
Although every organization is different. The key question to ask here is. Leading companies like ABN Amro. An organization that effectively implements its commitments is less likely to run into problems and be more favourably rewarded in the long run. 4. There is no single way of organizing an organization's CSR decision making structure. 5.
Implementation refers to the day-to-day decisions.
Tata Council For Community Initiatives
.72 Corporate Social Responsibility
6. way of organizing its affairs. others a de-centralized one (ABN AMRO). while still others will want a hybrid. Prepare and implement a CSR business plan. Some organizations will prefer a centralized CSR decision-making structure (TCCI) 1 . workplace and with local communities and societies at large and strategies to deal with them The importance of environmental CSR and strategies to improve environmental CSR The role of NGOs in influencing CSR policies of business organization
6. depending on their operating features and management style (Sumitomo Corporation). processes. so that incorporating CSR considerations in corporate decision making becomes as natural as taking customer perspectives into account. 7.
customer relations) should report to the senior official or committee. CSR responsibilities should be built into employees' job descriptions and performance evaluations. For instance.
. Assigning CSR responsibilities to board members ensures that CSR issues will receive the attention they deserve. the organization needs to set measurable targets for the commitments. commissions) and to ensure it does not indirectly encourage improper behaviour.g. Regardless of the exact approach taken. supplier relations. There are several options for board participation’s participation in CSR activities.
73 Implementing CSR Strategy
6.3 Set Measurable Targets and Identify Performance Measures
To ensure effective implementation. work out the measurement method and then measure the results. a new member who has specific CSR expertise could be appointed. and as a result form a strong and effective chain of developing ethical business within the organization. accountability and performance. health and safety protection. these targets are guideposts to reach the ultimate goal of developing sustainability. a CSR commitment may be that the organization will not offer improper payments to officials. The first step to implement this commitment might be to create a training course on the distinction between proper and improper payments. In essence. It is important to develop the CSR decisionmaking structure to facilitate internal and external verification.2. commitments. CSR responsibilities could be added to the work of existing board committees. A third step might be to involve setting up a hotline. A widely used approach to measuring success is to identify the objectives underlying a CSR commitment. Measurable. financial and other resources and activities will be required to carry out the CSR strategy and commitments.
6. it is important for the CSR decision-making structure to be an integral component of the organization's governance activities and be visible. Particular departments having CSR responsibilities (e. The team should be supported by cross-functional teams. with time lines and resource requirements for each. they can help build CSR momentum in the organization. human resource management.g. executive and senior management. environmental. A senior official or committee responsible for overall CSR implementation within the organization should be identified and given the resources to do the job. targets may also be a source of celebration in their own right. Achievable. For example. a board member could be tasked with broad responsibility for CSR activities. a new CSR board committee could be formed. In the CSR business plan. each of these tasks could be further broken down into smaller components. the CSR business plan helps to ensure that the words are transformed into effective action. An excellent way of doing this is to determine what human. and decision-making structures in place. When achieved. With the strategy. while a fourth one could be creating whistle-blower protection measures.2. with an online version that includes frequently asked questions. develop key performance indicators. In this sense. These obligations should be built into the job description and performance objectives of each lead person. A second step might be to review the organization's incentive and disincentive structure (e. it should follow the SMART guidelines for developing its objectives: Simple. Reliable and Time-bound.2 Prepare and Implement CSR Business Plan
The CSR business plan may be separately described or included as part of the company's existing overall business plan.As CSR is fundamentally concerned with transparency. The CSR team should be accountable to board. or the entire board could be involved in CSR decisions. community relations.
through strategy development and articulation of commitments. As a result. but suppliers may be less so). changing behaviours. Engaging employees. since underlying problems were not resolved. objectives. a commitment to improve relations with the community might be translated into objectives to double the number of community meetings the company holds and reduce the number of community complaints by half. a better objective might be increasing the number of resolved complaints.000 tonnes in 2009 through their divestment of AutoWindscreens and AGS – 10.
Aviva CR Report ( 2009) available at http://www.74 Corporate Social Responsibility
For instance. Aviva anticipates that their carbon footprint will further reduce to 108. if not properly engaged. all parties must be enthusiastic about implementing the organization's CSR commitments. To create an environment which is conducive. these parties are often the organization's human face capable of acting as ambassadors.000 tonnes – and by reducing business travel” 2 . and other implications. suppliers. advocates and sources of new ideas and information on CSR. The key performance indicator would be the amount of waste sent to the landfill. which needs to be recorded. why the approach was adopted. ultimately. The measurement method might be quarterly tallying of meetings and complaints.
6. there might be an objective to reduce solid waste by 25 percent by the end of the calendar year. To take another example. strategies and commitments from earlier activities. CSR implementation largely rests in the hands of employees and. The measurement method might be the kilograms of garbage produced each month. In the above examples/cases. regular review of the commitments. employee representatives and suppliers in implementation means focusing on awareness (employees will be well aware of CSR directions. Employees and suppliers should receive context for and background on the organization's approach to CSR.aviva. in some cases. The key performance indicators underlying this commitment and objectives could be the number of community meetings organized and the number of complaints registered at the end of the year. While overall CSR success depends first on senior leadership. In a sense. This will happen only when employees and suppliers believe that senior management is serious about CSR and acts in a manner that reflects the spirit of the commitments. On the other hand. how it fits with existing organization objectives. the organization might conclude that increasing the number of community meetings did not improve community relations. For instance. employee representatives and suppliers about CSR strategy. it is important to facilitate good communication between top management and employees. In the second example above. including the motivation for engaging in it. They have achieved this by using technologies. Therefore. its relevance to the organization.com/corporate-responsibility/
. commitment and implementation. from preliminary assessment. Employees play a central role in CSR implementation. “Aviva in its 2009 CSR Report highlights that in 2008. how it changes current approaches. which needs to be recorded. their total CO2 emissions decreased with all businesses reporting consistently on their footprint and applying practices to reduce their emissions.4 Engage Employees and others to whom CSR Commitments Apply
The input of employees and other key stakeholders has been solicited at every stage. if an organization has an underlying commitment to decrease the amount of waste a facility generates. and by purchasing zero emission and renewable electricity. employees and suppliers could be a source of problems.2. indicators and measurement methods would lead the organization to modify its objectives.
2. Information about CSR commitments. launched in 1992. organizations could consider designing hotlines. top-management support. reporting and resolution of problematic CSR activity. As CSR is an ongoing commitment. training needs will change over a period of time. CO2 emissions. accessories & bathroom & kitchen items in their retail stores around the world.5 Design and Conduct CSR Training
Organizations need to train employees directly involved in CSR activities. training or informal mechanisms.7 Create Internal and External Communication Plan
Employees must know that CSR is a company priority. The program is implemented in each business unit by the organization's human resources department and the unit's environmental coordinator.2. meetings. will ensure employees have information on the organization's CSR commitments. activities and performance reporting must be communicated visibly and frequently to all employees. interactive training is offered in seven languages and is available in classroom and online formats. employee representatives and suppliers in discussions of how CSR commitments are implemented is a way for these stakeholders to develop a sense of ownership and pride in the organization's CSR activities. IKEA's Co-worker Environment and Social Responsibility Training program was created in response to the company's first environmental action plan.
Source: Andersen. Employee support for CSR implementation can be maintained in a number of ways: Incorporating CSR performance elements into job descriptions and performance evaluations. annual reports. Organizations should devise approaches that are sensitive to the vulnerable position of employees who see wrongdoing or the potential for non-compliance. Skjoett-Larsen (2009). The program has been well received by employees and has received consistent.
6. suggestion boxes and appointing ombudspersons. The acronym stand for Ingvar Kamprad Elmtaryd Agunnaryd. transportation waste management. The programme is also designed to show employees how they can help the company achieve its goals in these areas.
6. such as the one taken by IKEA 3 . goals and performance. Corporate Social Responsibility in Global Supply Chains. (See Box 6. A senior manager should be assigned responsibility for investigating and reporting compliance on these issues. programs.
IKEA is a privately held international home products retailer that sells furniture. Information can be percolated through newsletters. To the extent possible. A comprehensive approach to training. Tage. &.1: Comprehensive CSR training at IKEA
IKEA has developed effective strategies for operationalizing CSR. M. intranet communication. programs and implementation. In addition to clear communications on the consequences of reporting breaches of CSR commitments.1) When the organization's employees speak various languages. Providing regular updates on progress (in meetings or the company newsletter) Developing incentives (such as rewards for best suggestions)
75 Implementing CSR Strategy
6.2. training modules must be offered in those languages and must consider the employees' cultural orientation. allowing it to be easily updated. and all aspects of business operations. Literacy levels may also need to be assessed.
. To facilitate implementation. This is particularly essential while training employees in various parts of the world. bringing in a CSR champion for senior management or from the board of directors will help in conveying the importance with which the organization treats the issue.6 Establish Mechanisms for Addressing Problematic Behaviour
It is important for organizations to put in place mechanisms and processes that will allow for early detection. product design and packaging. The training covers IKEA's worldwide environmental and social policies.Involving employees. Care must be taken to ensure that the mechanisms for dealing with the problems are designed well. such as suppliers.
1: Areas of CSR Implementation
Most of the above CSR functional interventions are not industry-specific. Figure 6. communications to investors are likely to be quite different from those addressed to communities).4 onwards. Table 6.76 Corporate Social Responsibility
Updates on CSR should also be put on the agenda of meetings at all levels of the company. a good communication plan is important. and also for communities.1 contains a summary of functional CSR interventions that can be implemented by any company.1 below presents the variety of activities that can be conducted to implement CSR in an organization.
Figure 6. These are further discussed from section 6. It should identify the individuals and groups that need to be aware of a particular CSR initiative and those who should receive hard copies of CSR documents.g. vision and values Evaluation and monitoring of ethics in the company Ethics training and hotlines for employees Cyber ethics Consideration of ethical dimensions of strategic decisions Corporate Structure and Governance Stakeholder engagement Executive and Board selection Executive and Board compensation Education and training for employees Contd…
Table 6.3 AREAS OF CSR IMPLEMENTATION
CSR can be implemented at the workplace.1: Functional Intervention
Categories Business Ethics Types Corporate mission. For external audiences. at the marketplace for environmental protection. It is quite possible that communications will have to be tailored for various audiences (e. Website design can help to ensure that parties can easily access CSR information of interest to them.
healthcare and housing programs for employees and communities Legal and regulatory compliance
Adherence to Code of Conduct and other standards. privacy and technology issues. marketing and promotion. market place social responsibility issues include integrity in governing the life cycle of the product which includes sourcing and producing (supply chain practices). diversity training. each business organization should ask: Does my product/ services create or add value to the society? Is the selling process designed with integrity and honesty? Are we buying from suppliers fairly and with due diligence? Are the advertisements projecting the correct message? What are the short term and long term costs the business is imposing on society for manufacturing a product or rendering a service? How is the organization shouldering responsibility for the integrity. The scope of marketplace practices also includes
. and religious freedom Work/life balance and wellness programs Employee compensation for downsizing. use and consequences of its products/ services on the larger society? Predominantly.4 CSR AT MARKET PLACE
To understand market place CSR responsibilities. drug pricing for the poor and the elderly. plant closing and reengineering measures Volunteering in local communities Health and safety on the job
77 Implementing CSR Strategy
Labour and Human Rights
Engagement with unions and adherence to union standards Codes of conduct that set standards for a company or the entire industry on labour treatment Responsible supply chain management: ensuring that suppliers adhere to the company's code of conduct Product design and development
Environmental supply chain management Consumption reduction Natural resource stewardship Alternative energy Clean technology innovation Green real estate development and ecological building design Product and packaging design End-of-life-cycle product stewardship Philanthropy and sponsorships
Involvement and Economic Development
Operation in underserved communities Use of local supplier’s community Education. disposing.Human Resources
Health and other insurance benefits Employee recognition and rewards Equal opportunity. including inspections. training inspectors or hiring of third-party inspectors Social and environmental auditing and reporting Certification of raw materials
For instance.3). Nestle infant formula product distribution included nurses on commission to promote their baby milk products. These activities are grouped into the following categories: (a) integrity of product manufacturing and quality. It has to be acknowledged that in the changing business environment both market 4 and non-market 5 stakeholders are scrutinizing business practices in the market and hence businesses are compelled to rework their business strategies to gain short term as well as long-term sustainability. n. For instance.2: Broad Issues of CSR at Market Place
Issue Disclosure of labeling & packaging Responsibility Provide complete and accurate information of ingredients/components of a product. 2000) For instance. (d) selling practices (e) pricing. (ICFAI. AIDS: drug wars: downloaded from The Hindu Website www.1 Benefits of Marketplace CSR
CSR at marketplace offers long-term sustainability for business. (2008). July. 2000). governments. Larger. Similarly enterprises must extend absolute product responsibility with reference to product safety and usage.78 Corporate Social Responsibility
environmental responsibility.4. which relate to corporate social responsibility which extend across a wide range of business activities that define a company's relationship with its customers. Parle Industries marketed packaged drinking water as mineral water.2)
Table 6. SVKM’s NMIMS School of Business Management Doshi T. retailers. 2004). general public. labeling and packaging. Jain V. suppliers. customers. an organization's responsibility (or lack thereof) to pay "fair trade" prices that will sustain poor suppliers and to pay compensation for past harms. Assignment submitted . (b) disclosure. creditors and stockholders.. ‘CSR at Market Place’.
Marketing & advertising
Integrity of product manufacturing & Quality Distribution & Selling Practices
6. Chawla S. 2000). Its varied benefits range from providing risk management to increasing the credibility of the organization in the minds of the stakeholders. activist groups and media. Coca-cola’s lapse in manufacturing standards resulted in pesticides in their soft drinks and contaminating the groundwater of the communities (Galliara. (2004. shampoos and so on mislead the customer about benefits of the product or Thumps up/ Sprite commercials displaying stunts without any consumer warnings promote risky activities amongst children and adolescents. Non-market stakeholders: Communities.11). Includes distributing and selling the products through ethical means and avoid high pressure selling (Serpell. Cadbury reviewed its safe packaging practices to ensure complete safety. Avoid deceptive and anti-competitive pricing or high pricing of products especially in case of life support products like drugs and other necessities (Serpell & Garner. For instance advertisements related to cosmetic products like creams. Garner. Business Social Responsibility Group (2003) defines market place issues as. wholesalers. Avoid circumventing or deceiving the customer or promoting offensive advertising (Serpell & Garner. For instance.htm
. high prices of life saving drugs for AIDs makes it unaffordable for the poor and results in increasing infections 7 .com /thehindu/mag/2004/07/11/stories/2004071100160200. an organization's relationship with its competitors.” (See Table 6. (See Table 6. more philosophical questions about the sustainable nature of consumption itself are emerging as well.hinduonnet.
Market stakeholders: Employees..d). (f) distribution and access. business support groups. Includes responsibility of the company to produce high quality products with essential manufacturing standards. (c) marketing and advertising. distributors. “Issues. For instance: McDonald’s Corporation misled the Indian consumer by labeling their beef flavoring as ‘natural flavor’ which hurt the sentiments of the pure Hindu vegetarians 6 ..
For instance M&S conducts constant researches to know more about their customers’ evolving needs.
79 Implementing CSR Strategy
Product Differentiation/ Product Recalls
Increase in Public Credibility
Global Marketplace Advantages
Improved Financial Performance
Guy. companies like Marks & Spencer’s. 2004). Mehra. When companies misrepresent their products or use unethical selling practices it affects their sales and brand credibility (Serpell & Garner.livemint. 2008). USA website: http://www. Companies that demonstrate a willingness to provide information that is credible. 2004). beverage bottles. Many companies are investing in research and development to build systems and processes that will reduce/minimize pollution and liabilities which consequently reduce their operational and environmental costs (Radley. and enhances market presence. 2007) Similarly ITC has supported rainwater harvesting. their own. Hindustan Unilever Limited’s (HUL’s) Ponds cream has promoted education through scholarships and presented women’s empowerment through a collaboration with the United Nations Development Fund for Women 10 . For instance. declined the environmental impact of M&S products (M&S CSR report.Y.org/media/press/mcds/chicagosuntimes100103. 2008).Similarly Kansai Nerolac Paints Ltd (KNPL) has developed technology to reduce the usage of hazardous material in their paints (Kansai Nerolac Paints Ltd Environmental Report.html?d=1
.S (2003. 2004). For instance. published in their M&S CSR Report. and accessible can garner increased trust among stakeholders (Radley.Y. The effect of integrating market place accountability and responsibility directly contributes to the increased public image. For instance. 2004). they are looking towards brand values. 2008. Kansai Nerolac and TATA companies have increased the trust of their stakeholders on the enterprise by adopting socially responsible practices. This can be seen in the law suits being filed on companies due to lapse in fulfilling their social responsibility at the market place. Entry and success in new markets becomes easier because of three major reasons: a) higher accountability of the company helps in establishing direct relationships with key customers and business partners across the globe. Jan 10). Likewise. Customers are becoming increasingly demanding. McDonald's/Vegetarian Lawsuit 'Settlement' Controversy Continues’ downloaded from Chicago Sun Times .R. afforestation and rural education through their cause related marketing strategies. b) It contributes to innovation in product development and delivery thus providing an edge in the market. each of them have had large impacts on their sales.html ‘Look behind the Label Campaign’ contained details of washing cotton t-shirts at less than 30oc which would be saving tons of energy when practiced by all customers.(2008. Nestle and Coca-cola. One of their most recent researches. which match. ‘CSR Advertising | Doing good to look good’. Sharma.Y. states that 76 % of their customers are passionate and expect business to take lead in adopting CSR practices. HUL. all of which facilitates expansion into new markets (Radley. M&S’s the ‘Look behind the Label Campaign’ 9 facilitated M&S in differentiating its cotton T-shirts from other competitors and created a different brand position in the mind of the consumer (M&S CSR report. verifiable.com/2008/01/13231138/CSR-Advertising----Doinggood. M&S recycles plastic and uses it in the packaging of its salad bowls. All of these initiatives have helped in differentiating their products from the competitors and created unique brand associations (Radley. downloaded from The Livemint Website: http://www.3: Benefits of CSR at Market Place
Risk Management Companies can safeguard themselves from lasting damages by implementing their market place social responsibility.Y. which has reduced the annual cost of the raw material as well as. 2004).Table 6. Investors increasingly wish to invest in companies which are sustainability oriented and have developed a triple bottom line approach (Radley. 2000). and companies whose activities they can respect.Y. Embracing socially responsible practices is a unique strategy for product differentiation and higher product recall. As price and quality become more equal. credibility and reputation by making CSR at market place an essential risk management strategy.P.Jan13). For instance. ITC. recipe pots and trays.mcspotlight. in the case of Mc Donald’s Corporation. with Cadbury. c) It helps in mitigating potential negative media coverage. it had to pay $ 10 million to vegetarians and religious groups in a proposed settlement in March 2002 8 .
Formulate teams and train them to implement. but increasingly address the needs of single or childless employees. Only if they work up to 10. work style and experience. In many developing countries.
Table 6. suppliers and business development agencies to identify their expectations from your organization. Includes appropriate working hours. work-life issues no longer are focused exclusively on parents with children. the definition of “workplace” has expanded to include the home-based offices of telecommuters.30 am to 1. intervals within working hours.4. These expanded types of workplaces are challenging companies to create new policies and practices related to such issues as telecommuting and privacy.
6. And diversity increasingly extends beyond issues of race and gender to include such factors as culture. employees were curtailed from tea breaks. 2007).30 pm they are paid Rs 50.30 to 6. Contd…. age. CSR at workplace includes responsibility of a business operation to go beyond compliance addressing the needs of the employees strategically. For instance.30 pm & 2.80 Corporate Social Responsibility
6.4. Conduct surveys to identify the needs. 4. The broad issues of CSR at workplace are discussed in Table 6. IKEA has an official eight-hour day from 9. Similarly in Wal-Mart.4: Broad Issues of CSR at Workplace Issues Remuneration Responsibility Includes fair wages as per legal compliance as well as beyond legal compliance. Conduct review to identify the current market place polices within the organization and identify strengths and weaknesses of your policies. Design procedures and targets to implement the new policy. feedback and satisfaction levels of customers. diversity of work styles also has led to willingness on the part of many companies to go beyond a “benefits and policies orientation” and look more expansively and creatively at issues in the workplace” (BSR. 5. monitor and report CSR activities at market place. For instance. 3. 2. or those caring for elderly family members.5 CSR AT WORKPLACE
Today. IKEA has factories in developing countries like India where wages are kept particularly low at about Rs 2. holidays and other requirements essential for the wellbeing of the employees. In addition. Design new policies based on the findings of step (i) & (ii) by engaging relevant stakeholders. When these employees raise a voice or demand for rights they face the threat of losing their jobs (Bailly. wages for overtime. 2003). automobile-based offices of salespeople and service technicians. et al 2006).2 Designing Market Place CSR Activities
To design market place CSR activities the following steps need to be followed: 1. the minimum wages are not sufficient for basic living. but is clearly a step to bonded labour (Dale.30 pm but a research indicated that if employees work till 8. hotel rooms of business travellers and temporary offices of itinerant workers. with a significant number of employees working outside traditional office environments. et al 2006).300 rupees a month when it costs an employee 500 Rupees to take the bus to work and has to manage their entire family within the remaining Rs 1800 (Bailly.00 pm there is no over time paid.
Ethical human resource policies
. They had paid break times which was disguised under the term ‘discipline’. For example.
S based retailer. 2003). while around 17.d. But likewise. For instance: “Atlanta . counseling. work an average of ten to thirteen hours a day for HUL. time and stress management skills.
81 Implementing CSR Strategy
Work Life balance
Age of employees
Diversity in work culture
Former and Current Employees of Intel (FACE).).Health and Safety
Includes providing healthy and safe work environment for all employees. death. It allows its employees to work part-time or for flexible hours. especially to older workers (Serres. n. For instance: an Intel Employee from Arizona reported that Robert Petriello who was exposed to a lot of job related stress. 2003). and avoiding placing artificial barriers or distinctions based on color. Similarly IBM paid an undisclosed amount to settle lawsuits brought by about 50 current and former workers who were suffering from cancer that they attributed to workplace exposure. Includes avoiding child labour and better treatment of older workers. diseases and others. ”(Baker. Many companies across the globe have failed to provide basic safety to their employees resulting in severe injuries. where employees come to the office only for half a day and work from home for the rest of the day. “Includes respect to all current and potential employees by valuing them for themselves.Imperial Sugar. This is just one of the many unreported cases of high stress in corporate work life. Others believe that such an open lack of trust fundamentally damages the relationship. M&S work force diversity as on March 2008 includes 76 % women employees. better treatment of employees and others. “Many companies do resort to routinely monitor employee use of email and the internet. For instance cotton seed companies in India like HUL.000 children work for Monsanto at lower wages as well as hazardous conditions of work (Galleria. Employees are also allowed to return to the normal schedule after working as per any of the flexibility options for a specified time period thus improving the work life balance of employees (ICMR. especially young mothers. In this context. gender. 2003) Contd…. “Some companies have undertaken such exercises with active employee placement services. 2008) Employees are not slaves and it is important to protect and respect their privacy. (Matters.faceintel. caste and others”(Baker. Teflon. For instance Hewlett Packard (HP) India “offers its employees almost all forms of flexible work options (FWO). which required a triple bypass surgery 11 . the owner of a refinery near Savannah failed to implement safety measures even after being aware of them since 2002. 15% from minority backgrounds and 22% of employees over 50 years of age (M&S CSR report . retraining and generous redundancy terms. mostly girls. 2002). resulting in the death of 13 workers in a sugar dust explosion in February. suffered from a massive heat attack in July of 97.htm
. 2005). Downloaded from http://www. employees are treated inhumanely in case they cannot meet a days target which is insulting. it is important to engage employees to devise a strategy to maintain the confidentiality standards pertaining to customer information and maintain a balance between due diligence and workers personal privacy. It also allows telecommuting. it can be a sound part of due diligence by a company that deals with sensitive matters seeking to reduce risk for its customers to have a check on employee behaviour.2008”(Dewan. telecommuting.com/suicides.000 children. Monsanto and others are making use of hazardous forms of child labor in cotton seed production An estimated number of 25. 2008). Similarly in case of a U. This has become extremely important today with numerous companies across the globe from Lehman Brothers to Jet Airways and many others laying off employees on a large scale. On the other hand companies providing high stress results in employees having heart attacks and also suicides in certain cases. Includes concerns of employees who are being downsized. ‘An Intel Employee from Arizona Reported Suicides and Heart Attacks’. age or class. 2006) Includes providing employees balance in their work life with the help of flexible work options. Companies need to take steps to increase the morale of employees who are left behind as the work load is increased and morale is low (Baker. For instance.
freedom of association and the right to collective bargaining. Companies adopting CSR at workplace have greater credibility and recognition in the market through various employee survey awards.2004). Teflon and others. 2003). One of the most high profile instances being HIV/AIDS (Baker. This is recognized by the ILO report of 2004 on Rights of Workers. (See Table 6. Although implementing CSR practices for employees is an additional cost for the organization. freely chosen employment. an ever-wider sphere of business operations is being touched by the disease. 2003). IKEA. Includes providing employees with a fair and equal right of collective bargaining which is usually suppressed in case of large companies like WalMart. businesses with operations or suppliers in countries hard hit by HIV/AIDS are looking for more aggressive ways to address the disease’ impact on their workforce and operations. These companies have viewed workplace initiatives benefits as a strategic competitive advantage. reduces the stress on work life.000 employees for more than 30 days (Dale. it would definitely impact their behavior during customer interaction affecting the brand image and the experience of the customer with the company (Baker.5: Benefits of CSR at Workplace
Increase in employee productivity and higher retention Customers The implementation of CSR at workplace results in increasing employee productivity. Developing ethical human resource policies and appropriate work life balance boosts employee morale. Global Sourcing Principles. the cost of failing to implement socially responsible practices is much more. L& T was the first company in India which designed work place intervention policy for HIV-AIDS in 1986. received ‘Best Employer’ of 2008 and in 2009 Intelenet was ranked amongst the top 25 companies as Best Employers in India. No one was "aware" of IKEA's code of conduct (Bailly.3 million $ for withholding payment of 125. companies have shown an increasing interest in being known as a company where workplace policies and practices are viewed favorably by current and prospective employees. 2005). which highlights that. “as the pandemic progresses. no discrimination. retain and attract talented human resources.
Credibility and recognition
Costs and Returns
. SAP Labs India. For all of these reasons. For instance M&S has 1900 suppliers across the globe. For instance in case of IKEA the research conducted revealed that ten of their suppliers who employed 2000 employees did not permit freedom of association and collective bargaining for wages and overtime. who are major contributors to the workforce.82 Corporate Social Responsibility
High profile instances
Includes how companies respond to extraordinary circumstances. Although Africa and Asia have been the hardest hit. Wal-Mart had to pay 62. (Hutchinson. newspaper articles and others. every continent has seen significant consequences due to HIV/AIDS. Such recognitions aid in building the organization’s credibility. Forward-thinking companies in many countries are taking proactive steps to address HIV/AIDS issues before the impact to their workforce becomes greater (ILO 2003). The relationship between a company and its employees can have a key impact on customers as the employees are the human face of the company. This includes minimum age of employment.5. For instance.
Concerns for freedom
Consistency across different working environments
6. Includes implementation of ethical workplace practices across all their branches/factories across the globe. et al 2006). Contd…. To implement consistency of working environments has created a list of Global Sourcing Principles to be adopted by all suppliers. Companies failing to implement CSR at workplace have faced various risks and large financial damages due this lapse: For instance. Adoption of CSR practices helps in higher retention and productivity as stated above in this table thus reducing the cost of high attrition.1 Benefits of CSR at Workplace
In recent years. If the employees are discontented. working hours and rates of pay (M&S.5)
Table 6. Data shows that the rates of HIV infection worldwide are highest for the young and for women. health and safety. 2007). increases job satisfaction and loyalty of employees towards the company.
(Hutchinson. Then the company must formally announce the new polices within the organization and provide information to all staff members across all levels in the
. 3. Once the needs of the employees are identified the human resource department needs to analyze the strengths and weaknesses of each of the CSR policies with reference to the benefits and costs to the company. and enforcing basic health and safety rules” (Baker. supporting a solid management framework to achieve organisational objectives. approval from the senior management and board is essential for smooth implementation (Hutchinson. (c) A clear set of processes facilitating good communication and training. 6.6: Strengths & Weaknesses of Work Place Initiatives
Human Resource Policy Working from Home for single mothers (Hutchinson.
Table 6. Secondly a survey within the organization to identify the needs of employees with reference to work life balance. p64) Potential Benefit to the employee Less travel required to place of work Equipment could be ready at home each day to start work Work can be done at most effective or Appropriate time.6 below. 2004. 2004). To design work place CSR activities the following steps need to be followed: 1.2 Designing Work Place CSR Activities
An effective workplace strategy must simultaneously address the social. This can be done with the help of standard guidelines and procedures to be adopted by the managers for the implementation of the new policies. greater choice Social interaction may be missed. 2. physical. technical and financial components of the work environment as each factor impacts the others. it is essential to develop a training strategy to ensure managers understand the methods of implementation.5. Post approval. 2004.p 85). 5. Once an analysis is completed. This should include: “(a) A statement of values giving clear direction on how employees are expected to behave. particularly when doing routine work full-time at home Potential problem in implementation Can blur the line between home and work Need to have self discipline and self Motivation Higher job satisfaction Higher retention due to flexibility Office space for one more individual Lower attrition thus reduced cost of training and orientation Absenteeism cost is also reduced Potential Benefit to company Boost in employee morale Better productivity Potential costs benefit analysis Cost in monetary terms (nil) Benefit in monetary terms
4. working environment and other states above on the broad areas of CSR at workplace should be carried out. 2003). such as reducing or recycling the amount of workplace waste.Lesser Government Intervention
Implementing CSR practices at workplace provides for services beyond legal compliance thus reducing government interference in achieving organization goals and objectives. working hours.
83 Implementing CSR Strategy
6. See Table 6. 2004). At first a review needs to be conducted to identify the current human resource polices in place within the organization. employees and employers (Hutchinson. (b) A code of conduct explicitly giving direction on avoiding situations contrary to the company's values and. remuneration.
which is a textile hub of India. reproductive disorder. Soil pollution is caused due to pesticides and fertilizers sprayed on crops resulting in bio accumulation 14 which contaminate the food chain with carcinogenic chemicals resulting in harmful diseases like cancer and others.84 Corporate Social Responsibility
Table 6. water and land resources. this being the main source of such emissions. Most carbon dioxide emissions derive from industrial processes 12 . 3m Solutions. Fossil fuel combustion for energy generation causes about 70-75% of the carbon dioxide emissions.htm. Product Stewardship downloaded from http://solutions.lenntech. 2007). For instance. manufacturing.com/wps/portal/3M/en_US/global/sustainability/policies-standards/life-cyclemanagement/ Bio accumulation and bio magnification Bio-Accumulation refers to the process by which persistent organic pollutants (POPs) (like pesticides and others) accumulate in higher levels as they are passed from one trophic level to another through food chain magnifying their impact on all living species. with clearly defined role and steps to be taken by each staff member in the implementation of the new policies’ (Hutchinson.Thus making it essential for companies to take corrective actions to reduce their environmental impact. Companies often contaminate water bodies affecting the ecosystem as a whole. in the Tirpur Case companies need to adopt cleaner production systems. p 85). 2003) into local rivers which have become the natural drainage courses that stagnate in the riverbeds and percolate into the groundwater contaminating the water bodies and aquifers (Dwivedi.’ A case in point is Punjab’s cotton belt which is engulfed by lethal pesticides causing major health problems. downloaded from http://www. uses 90 million liters of water and discharges 87 million liters of waste effluent water (Ninan. Life Cycle Management. Carbon dioxide (CO2) emissions are one of the major causes for climate change and global warming. (Wiki)
. The remaining 20-25% of the emissions is caused by land clearing & burning and by emission from motor vehicle exhausts. construct individual or common treatment plants to treat and recycle water to fulfill their environmental responsibility.
6. use and disposal of the products 13 .’(Post Graduate Institute of Medical Research (PGIMR. The situation is so grim that villagers in the vicinity have been found to have various health related issues like cancer.com/carbon-dioxide. Table 6. birth of mentally challenged children and other pesticide related diseases. 2004. Companies therefore need to take steps to reduce air pollution for sustainable development. For instance. waste minimization. Effective resource management and energy efficiency are major environmental CSR goals which any company has to attain.7 below shows the key issues to be addressed by companies to fulfill their environmental responsibility. For instance 3M Ltd.7: Key Issues: Environmental CSR
Issues Air Pollution Responsibility Various emissions from the industrial processes contaminate air. and pollution prevention. USA in its global operations adopts a life cycle management approach for their product development process where it identifies the impact on environment during the procurement of raw material.
Lenntech. Lastly the organization should conduct quarterly monitoring to know the effectiveness and impact across the expected benefits and costs of the new policies. 7. For instance. What is carbon dioxide and how is it discovered?. Tirpur. 2002). Contd….6 ENVIRONMENTAL CSR
Corporate environmental responsibility today has expanded to cover substantially more than legal compliance.3m.
85 Implementing CSR Strategy
Destruction of Livelihoods
Industrial Material Disposal
6. they tend to rapidly become obsolete. and can even influence overall brand strength through positive environmental reputation. Many had to change their professions to low-paid physical labour like rickshaw driving. pay punitive damages and monitor 8000 residents in the area for signs of cancer due to dumping toxic arsenic. Humanity's ecological footprint is over 23% larger than what the planet can regenerate. As electronic products become cheaper gradually. cadmium and lead at the plant endangering their health (Urbina.000 fishermen and the 32. Contd….oecd. A severe drought worsened conditions and the Indramayu community were left in dire economic and social conditions. The sourcing. 2005).
It discovered a disposal pipeline that was leaking oil into the ocean. Disposal of these materials create health hazards.3343. 2008). The depletion of natural resources caused by companies as stated above in this table affects the livelihoods of the communities that are dependent on the environmental resources. The ground water is largely contaminated and has varied effects on plants. Industrial accidents have long term effects on the environment and health of the communities. forming crude oil sludge along a huge stretch of coastline. http://www.000 shrimp farmers of Indramayu. The manufacturing of these products consist of hazardous materials. Table 6.org/document/62/0. U.8 below highlights various benefits to the company. 2008). For instance the Bhopal gas tragedy even after 20 years of the aftermath finds children in that community are victims of mental retardation and various physical disabilities. OECD countries are demonstrating a growing interest in considering wastes as potential resources that can be used as inputs for new products. water use.1 Benefits of Environmental CSR
Environmental CSR initiatives impacts climate change. For instance Dupont. Ecuadorian Amazon was declared as a biosphere reserve in 1989 after biologists found that a mere 2.5 acres of this forest contained as many tree species as that in the United States and Canada combined.S. (Ashymah. had to pay the largest civil penalty ever levied of $382 million by the court to clean up a site. footprint and energy use effectiveness by improving their operational efficiency. For instance. This leads to opportunities for cost savings.Bio Diversity
Biodiversity is largely damaged due to the harmful processes of the industries. states that India annually generates $1.5 billion worth of e-waste (Vinutha. Toxic Link a Delhi-based Non-governmental Organisation (NGO).6. 2004). animals and humans (Sengupta. Fishes caught in the sea were often contaminated with crude oil and had no market. less disposal and often less processing of waste 16 . found that the Indramayu Petroleum Plant polluted the sea by spreading crude oil to as far as 25 kilometers. For instance: The Environment Ministry of Indonesia. Thus it is essential for companies to take steps to mitigate potential environmental accidents. For instance. revenue generation. Such use of wastes can result in less virgin material extraction with related reduction of negative environmental impacts. 2008).html
. use and disposal of materials accounts for significant quantities of energy and resources Companies being a large stakeholder need to acquire sustainable raw materials by regenerating waste for their production. while others had to take their children out of school due to lack of finances.fr_2649_34395_37895358_1_1_1_1.A. developing eco friendly product designs. 15 The pollution had a direct and terrible impact on the lives of the 17. However today after the oil exploration in the Amazon. production.
Table 6. and innovative technologies. Companies like Wipro have developed polices to buy back computers to recycle electronic waste.8: Benefits: Environmental CSR
Reduction of Risks & Financial Penalties Companies failing to implement CSR at environment have faced various risks and large financial damages. the species are on the brink of extinction (Enström.
For instance.2008). ‘Carbon credits are generated by enterprises in the developing world that shift to cleaner technologies and thereby save on energy consumption. For each tonne of carbon dioxide (the major GHG) emission avoided. For instance.com/news/Sustainability-norms-follow-or-perish/
. businesses and local authorities to reduce waste and recycle more. Bayer require their suppliers to adhere to environmental standards like ISO 14000 and others 19 in order to be a regular supplier to them. Environmental CSR provides for services beyond legal compliance thus reducing government interference in achieving organizational goals and objectives.financialexpress. 2004). Similarly Kansai Nerolac Paints Ltd (KNPL) has developed technology to reduce the usage of hazardous material in their paints (Kansai Nerolac Paints Ltd Environmental Report. as it is a trading market. Marks & Spencer has created WRAP 17 symbols 18 across 80% of their food packaging.
Access to a New Market -Carbon Credit
Lesser Government Intervention
Product Recall and Differentiation
Credibility and recognition
Global Marketplace Advantages
WRAP is a UK based company that helps individuals. 2008).86 Corporate Social Responsibility
Costs and Returns
Although implementing CSR practices for environmental sustainability is an additional cost in the initial stage. Kansai Nerolac Paintings Ltd. Companies adopting Environmental CSR approaches have greater credibility and recognition in the market through various awards. Embracing environmental socially responsible practices is a unique strategy for product differentiation and higher product recall.19 lakhs in the year 2008 alone (KNPL Environmental report. recipe pots and trays. it results in large cost savings due to the innovative technologies. with each credit currently selling for 10-17euros’ (Sethi. consequently reducing their greenhouse gas emissions. Sustainability norms: follow or perish! (2005. (WALHI-Indonesian Forum for Environment. which has reduced the annual cost of the raw material as well as. beverage bottles. in the long run. Indonesia. Such recognitions provide public credibility. The WRAP symbol informs the customer that this material can be composted at home in the right conditions. 2008). newspaper articles and others. India has received Association Business Communicators of India (ABCI) Award for its Environmental Report 2006 and Greentech Environmental Excellence Award for Bawal plant. 2007). KNPL. Dupont. For instance. For instance. August 6). Freeport McMoran. Companies require environmental standards / compliances to have a market place advantages as well as credibility of being an environmentally sustainable company. the entity can get a carbon emission certificate which they can sell either immediately or through a futures market. declined the environmental impact of M&S products (M&S CSR Report. less energy consumption and so on. and even lending from international sources. reuse and recycle resources which has provided them a cost reduction of Rs 39. (KNPL) adopts a sound environmental practices to reduce. This is a new source of income. vigilance from external authorities. M&S recycles plastic and uses it in the packaging of its salad bowls. using a compost heap in the garden or a home composter (M&S CSR Report. has been facing large government and NGO interventions which has affected its regular operations. Similarly companies promote their products having eco friendly features like use of recycled paper. Downloaded from Financial Express Website: www. The symbols clearly indicate the process of disposal proving a differentiator. one of the largest mining organizations across the globe. making better use of resources and helping to tackle climate change. For instance. just like any other commodity. India is the global market leader having already generated 29 million carbon credits and has another 139 million in the pipeline for sale. 2006). For instance companies like Marks & Spencer’s. 2008).Y. Many companies are investing in research and development to build systems and processes that will reduce/minimize pollution and liabilities which consequently reduce their operational and environmental costs (Radley. has taken very limited steps to reduce their large environmental impact at Grasberg and hence.
community reputation. pro bono work. For further discussion see Table 6. For example: India plans to cultivate Jatropha in 11 million hectares.6. Due to corporate establishments.
Table 6.org/news/5dec07.. The resources that good companies invest in operations. Tata Motors. communities face a number of challenges which impact their quality of life and hence need the company’s intervention. (b) Formulate an environmental department and formulate an Environment Safety and Health (EHS) policy.. (d) Design processes and systems to increase compliance and environment conservation standards in the company.. Biohealthcare Pvt.7 CSR WITH COMMUNITIES
When any company enters a community. (f) Develop regularly monitoring processes of EHS activities. Natural Bioenergy Ltd.. (c) Set goals and targets to protect environment. Develop an internal audit system. Contd….9: Key Issues of CSR at Community
Issues Destruction of Livelihoods Responsibility The depletion of natural resources caused by companies as stated in CSR at environment module. http://www. (e) Conduct environmental health and safety awareness events for the employees on a monthly basis to develop capacities of the staff. affects the livelihoods of the communities that are dependent on the environmental resources.
Social development organization assisting in empowerment of people. Increasing NGO 20 pressure. investor & customer demands. (g) Report EHS activities to all stakeholders so as to increase transparency. In a land starved country. workforce development. this diversion of land has serious consequences for rural livelihoods and rural eco systems.2 Designing Environmental CSR
(a) Review current environmental compliance status in the company. Indian Oil Corporation. standard of living and the potential for economic development are important considerations for any company. it creates jobs and pays taxes. legal compliances on corporates are pressurizing companies to engage themselves in developing community development activities.
87 Implementing CSR Strategy
6.9.. The southern online Biotechnologies Ltd. Kochi Refineries Ltd. Community factors such as quality of life.navdanya. and Reliance Energy Ltd 21 .htm
. accountability and credibility. Godrej Agrovet Ltd. The Companies involved in the gold rush of Jatropha in India are D1 Oil.6. partnerships with local organizations and philanthropy have the potential to improve quality of life and build capacities of the community. Jain irrigation System Ltd. If corporates do not engage in mitigating the risks they create for communities they are likely to face more negative business impacts.
Ituri. Companies that employ the local community. Similarly Coca-Cola. and disposal.1 Benefits of Community Interventions
The details of the possible benefits to companies adopting CSR at communities are displayed in Table 6. When these threats exceed human coping accidents capabilities or the absorptive capacities of environmental systems they give rise to industrial disasters. For instance Anglo Gold Ashanti Violation Kilo (ASK) one of the largest mining companies in the world. dumps Waste accumulation trucks of silicon tetrachloride (highly toxic substance) between the cornfields and the primary school playground of the nearby village. which can provide benefits to both companies and communities. companies can bring a range of resources to bear on communities’ economic and social development. As stated by one of the 70.
6. cross sector partnerships with NGOs and public sector organizations that bring specialized expertise to address issues of community development.10.S.”(Deibert.A during its 58 productive years. Industrial hazards are threats to people and life-support systems that arise from the Industrial mass production of goods and services.unu. U. Africa. storage. and gave it away by the truckload to private citizens and to the town for public works projects. To develop capacities of communities it is important for companies to share their management knowledge and other resources for empowering communities by developing livelihood support activities through developing partnerships with NGOs and promoting employee volunteer programs. 2008). Oklahoma. use. stored chemically hazardous waste sand in heaps around the facility. effectively making the waste toxic. but are actually harmful to the health of the community in the long run. which has now made the land infertile and the vicinity is not suitable for people to live "(Eunjung Cha . chemicals. time.
http://www. products and services. Coca-Cola stopped the practice of distributing its toxic waste only when ordered to do so by the state government. 2008). This can be attained by formally encouraging community-company dialogue. extracts large tons of gold found in. Corporate community interventions for community development refer to a wide range of actions companies can take by donating money.” (Stickland. fires. and we are not paid. was distributing as part of its community initiatives its solid waste to farmers in the area as "fertilizer". manufacture. Such partnerships have large benefits to the company and assist them in managing their organizations more effectively and efficiently. It also lies underneath the high school track and the parking lot of the First Baptist Church. we work until we hit the vein of gold and hope that they will pay us. Tests conducted by the BBC found cadmium and lead in the waste. To create sustainable communities.edu/unupress/unupbooks/uu21le/uu21le03. Plachimada and Mehdiganj. transportation.htm#the nature of industrial disaster
. including extraction. For instance. India in two communities. “a mining company in Blackwell.8 TYPES OF INTERVENTIONS
Since a company’s workforce and operational strength depends upon the economic and social health of its communities. punishing work. “In China Luoyang Zhonggui High-Technology Co. Industrial hazards can occur at any stage in the production process.Inc. genetic materials) or damaging levels of energy from industrial facilities or equipment into surrounding environments. spills. where the miners of the community are suffering for their basic needs and amenities. Losses generally involve the release of damaging substances (e.g. this relationship is mutually reinforcing. or wastes and impact local communities 22 . For instance Amax. radioactivity. “It is very difficult. 2008) Unsafe Practices
6. ill treated by the Rights employers and provided with no social benefit.8. processing. This sand has ended up in driveways and roadsides all over town. albeit in many cases there is a Human violation of human rights where employees are not paid enough.88 Corporate Social Responsibility
Includes industrial practices that are disguised as a benefit. This usually occurs in the form of explosions. First and foremost it is important that corporates minimize their negative impacts on communities by preserving environment. leaks.000 artisinal miners. and has continued to do so for nine months. Pollution and Includes companies that treat the local village areas as dump yards of the industrial waste.
This initiative has helped HUL to have access to a new supply chain at low cost and high community support (Stiftung. "undue adverse impact" on more than one of those fronts and is expected to have a harmful effect on the community overall.000 residents in the area for signs of cancer due to dumping toxic arsenic. For instance Dupont. For instance in U.2 Steps to Design CSR Intervention
Step 1: Step 2: Develop a clear understanding and recognition of ‘community’ as an important stakeholder of the business and its sustainability.A. U.”(Hudson. For instance Daimler Chrysler (DC) energy project. mining. cement and other high impact industries that have failed to fulfill their community and environment responsibility resulting in various risks and financial damages. and biscuits & all these are available via the fair trade market. 700-800 per month. This aids in differentiating Starbucks coffee from others. sugar.10: Benefits of CSR at Community
Sustainability of the Project Implementing CSR practices for community can definitely result in producing win-win solution for the company and community. pay punitive damages and monitor 8.
89 Implementing CSR Strategy
Access to a New Market
Lesser Government Intervention
Support for Fair Trade & Product Differentiation
Credibility and Recognition
Global Market Place Advantages
6.Table 6.000 square feet to conduct studies gauging the project's impact on Municipal services. Match the corporate drivers and community needs. had to pay the largest civil penalty ever levied of $382 million by the court to clean up a site.2008). Companies supporting fair trade products assist in supporting livelihoods of the poor Most organisations buy tea. On implementing CSR at community an organization provides for services beyond legal compliance thus reducing government interference in achieving organization goals and objectives. For instance.For instance. double their previous income. Tata Steel has developed Jamshedpur to be the only city in the world that has been accredited with the UN Global Compact.e. which makes the project sustainable in the long run. coffee. which grows from eroded soil and requires limited water. which definitely distinguishes Tata’s level of community development from other organizations. cadmium and lead at the plant endangering their health. increase rural incomes as well as increase availability of fuel with reduced emissions (Stiftung. the environment and local businesses. 2007). They earn Rs. under the Hindustan Unilever Ltd (HUL).S. Maine Government has signed a law which requires developers of retail stores exceeding 75. Companies failing to implement CSR at communities have to face various risks and large financial damages. “The process adopted is plantation of Jatropha. For instance the credibility developed by Tata Group through their contribution to the community has rewarded them with global recognition. Buying these products is one way of showing that your organisation can help make a difference. rural women are trained to be independent direct-to-consumer sales distributors for HUL’s soaps and shampoos. (Urbina. India is developed through a unique scientific process to benefit the company. The proposed store cannot be approved if the studies find it is likely to cause a quantifiable. Strategic CSR at the community level provides access to new markets. Similar laws across different sectors are now in consideration increasing the need for CSR at Community. i. Companies having positive community support and renowned credibility of developing communities. a vegetable plant.. Shakti Entrepreneur project. 2007). Starbucks Coffee purchases coffee beans only from fair trade organizations. environment and the community. Some companies may be motivated more by
.S. provides them with an edge in the global market place.A . Companies developing community infrastructure and quality of life have greater credibility and recognition in the market . There have been many instances across the globe by oil companies. It produces a fruit which can be used to make oil and be converted via a simple process to low-emission bio diesel (particulate matter emissions are 70 percent less than traditional fuel)” This cultivation thus has the potential to contribute to wasteland rehabilitation which is the major issue of the local farmer. 2007).8. Motivations for companies to develop CSR policies and invest in local communities vary from one organization to other.
marketing. legal compliance. Focus on key activities. local public sector organizations.
Figure 6. Step 3: Identify the type and extent of support in which the company would like to develop partnership with communities. See Figure 6.2 below. It is important to match the community needs and motivations of the company to facilitate strategic alliance. Community development activities can be implemented by adopting various models through direct or indirect investment. For example: A bank offering micro finance product may like to develop financial education programme for local youth and women. A community survey and engagement with local NGOs can be of great assistance in this process. It is essential to develop a memorandum of understanding. which you want to initiate. mitigation of negative impacts. monitoring and measurement process between the partnering agency and the company to attain the goals of sustainability. academic or research institutions or any other company. The benefits and risks of the models are displayed in Table 6. Assessing the development needs of the community by engaging them in a dialogue is very essential.
.90 Corporate Social Responsibility
reputation assurance needs or concerns around social licenses to operate.11. distribution issues. supply chain linkages.2: Type of Company Support
Identify the method and mode in which the organization would like to implement the activities. while others may be motivated by production. creating new market opportunities or building good will/managing reputational risk (Owen 2007). Based on the model chosen the organization has to take a decision to partner with NGOs.
No single actor or sector can be expected to provide for the fulfillment of all human rights. secular.11: Potential Implementation Models
91 Implementing CSR Strategy
Source: Owen. non-profit people's organization working for and/or assisting in the empowerment of economically and socially. D. or the solution to all social problems.
. democratic. business. marginalized groups. 37379-GLB :http://siteresources. Traditionally NGOs have covered the fields of environmental protection. and civil society in the protection of human rights and the promotion of sustainable development. a few NGOs sought to go beyond this attitude of criticism alone and to bring influence to bear fruits in a different way.org/EXTSOCIALDEVELOPMENT/Resources.Table 6. or even hostile.9 STRATEGIC PARTNERSHIPS
The emerging global system is redefining roles of state.3: Typology of NGOs
Relationships between NGOs and businesses were traditionally seen as rather argumentative.Beyond Corporate Social Responsibility: The Scope for Corporate Investment in Community Driven Development. and so on. flexible.worldbank. human rights. Multistakeholder dialogue involving NGOs and government is seen as the key to make globalisation work for all.pdf
6. NGOs 23 and businesses are extremely important. However. the fight against poverty. Companies today have realized that ignoring arguments of the NGOs can be
An NGO is an independent.(2007).
Figure 6. development aid. Strategic partnerships involving governments.. the protection of consumers. but if businesses. from the World Bank Website Report No. government and civil society organisations work together to address these problems progress is possible. health and education.
societal and/or environmental contexts. To be involved in determining community development strategy as well as in its monitoring. (See Figure 6. Table 6. Because NGOs have an understanding of civil society and related issues.3)
6. national and international levels.12: Reasons for Partnerships The NGOs’ aims in dealing with companies To be able to move their ideas forward.9. It must hold a predominant position in its sector. To gather financial.
. such as governments or local authorities.12 below lists reasons for Corporate & NGO partnerships. To encourage companies to adopt a vision of sustainable development rather than managing crises alone.
Table 6.9. The companies’ aims in dealing with NGOs To be able to open up to civil society.
6. as well as in terms of extent and impact). the latter must satisfy a number of basic conditions: It must demonstrate competence and good results over time. they can provide guidance and pathways for companies in respect of other parties involved.1 Reasons for Corporate NGO Partnership
Companies want to move away from mere crisis management towards socially responsible commitments. It must be capable of forming multilateral partnerships. It must enjoy complete independence from the company or the authorities. Its structure must be professionally managed.92 Corporate Social Responsibility
dangerous as businesses today work with contemporary service oriented and advocacy oriented NGOs at local. To encourage companies to improve the way they act in social. To improve the internal management practices of NGOs and develop their capacities in addressing social issues. image and credibility while adopting those of civil society together with the issues of sustainable development. It must have a stable and reliable reputation. human and technical resources for carrying out a specific project.2 Criteria for Selecting NGO Partner
When a company wishes to start a partnership with an NGO. In addition. To improve their image within the company and outside. They want to promote their own values.
To signal their willingness to become involved in socially responsible practices and/or those that are environmentally more satisfactory.
To get more people involved in its social cause as they become better known. To avoid or escape from crisis situations. companies are mounting an overall search for expertise and skills that they are not accustomed to applying. It must have a development capability in order to be able to advance the project to a bigger scale (geographically. To benefit from expertise on the issues of sustainable development from NGOs and design mutually beneficial strategies. To develop companies relationships with other
To become a stakeholder in the community and civil society as a result of the NGOs' special understanding.
By working through each step of the value chain. Most NGOs try to tailor the tactics to the target based upon the specific characteristics of the company’s position on corporate social responsibility issues.3 NGO Strategies to Influence CSR
NGOs adopt different strategies in their attempt to influence the corporates to execute their social responsibilities.9. “In practice. nor do any act purely in a confrontational mode.imposed standards. Advocacy of government . marketplace.com/file/view/NGO+Strategies+for+Promoting+Corporate+Social+Responsibil ity. File shareholder resolutions. There are at least eight different tactics that various NGOs have employed with respect to different companies in order to encourage them to accept social responsibilities. but there are clear philosophical differences between those that favor dialogue and those on the confrontational side of the spectrum. Litigation seeking punitive damages.wikispaces. This includes identifying and acknowledging evolving or future social effects. CSR should be viewed as an opportunity rather than a cost because there are points of intersection between a company and its stakeholders. Advocacy of selective purchasing laws. a value proposition that is unique to its stakeholders can be worked out. Advocacy of social accounting and independent verification schemes. and their attempts to influence corporate behavior by means of any combination of strategies and tactics are unlikely to be successful in the long run unless they are able to mobilize two other important constituencies: consumers and governments. Arranged in order from the least to the most confrontational. Documentation of abuses and moral shaming.” 24 NGOs cannot really force corporations to do anything. no NGO acts solely as an engager. NGO Strategies for Promoting Corporate Social Responsibility available at http://ycri. Based on this analysis. Companies engaged in developing strategic CSR practices recommend the following steps for CSR implementation: (a) Develop an integrated CSR decision-making structure (b) Prepare and implement a CSR business plan (c) Set measurable targets and identify performance measures (d) Engage employees and others to whom CSR commitments apply (e) Design and conduct CSR training (f) Establish mechanisms for addressing problematic behaviour (g) Create internal and external communications plans. the company can work out positive and negative consequences of its actions.6. asbestos was
Winston M ( 2002). To develop business sustainability CSR intersection points at workplace. they are: Dialogue aimed at promoting the adoption of voluntary codes of conduct—the pure CSR approach (Refer chapter IX).
93 Implementing CSR Strategy
6. Calls for boycotts of company products or divestment of stock.10 LET US SUM UP
Business leaders are increasingly concerned about how their organizations can implement CSR in a consistent manner without compromising on its profitability. For instance. all utilize strategies that fall along an engagement and confrontation spectrum.pdf
. for environmental protection and the communities need to be identified.
(c) Overall CSR initiatives lie largely in the hands of employees. From here. Toyota designed. For instance. and many have still to be convinced of the sincerity and effectiveness of companies' efforts. (g) NGOs can compel the corporations to alter their behavior towards their employees.
6. In this context. the increasingly popular hybrid car which is an intersection between Toyota’s business and environmental benefits (less emissions. External social conditions affect an organisation in many ways. NGOs have high expectations of corporate conduct. (d) An ombudsperson can be appointed to communicate the results of breach of CSR commitments.
6. The company needs to work out what it can and cannot influence. availability of talent.
. majority of them accept that even companies in controversial industry sectors can be converted into responsible businesses if they address the social and environmental issues particular to their sector. (b) CSR activities should not be considered while performance evaluations of employees. For instance. (e) Marketplace CSR addresses issues like ethical promotion and advertising.12 SELF ASSESSMENT
1. it must then prioritize which issues to address. Although tensions in working with companies are recognized. ‘Prius’.11 KEYWORDS
Whistle-Blowing: Publicly alleging misconduct in an organization Non-Compliance: Failure to comply with policies Market Place Issues: Issues that relate to CSR that effect firm’s relations with customers Biodiversity: Variety of different species within a region Reputational Risk: Risk involving the image and goodwill of a company NGO: Non Government Organizations that work for the community Ombudsperson: An employee who mediates disputes between employees and top management. but we now know the horrifying impact of asbestos on humans and the subsequent compliances that need to be observed. intellectual property protection. cleaner roads. air etc). Contemporary NGOs play an important role in influencing CSR commitments of companies as they wish to see business develop sustainable business practices for protecting mankind's future. While dealing with communities it is important to examine which social issue intersects with its business where shared value can be created. State whether the following statements are true or false: (a) It is important for CSR activities to be an integral component of governance activities. happy customers.94 Corporate Social Responsibility
considered safe in the early 20th century. rule of law and so on. NGOs and CSR experts desire more collaborative and pragmatic relations with companies and hence develop strategic alliance to promote development of sustainable communities and business. Nevertheless. (f) Environmental CSR can save costs but doesn’t help in brand promotion.
Achievable. Why should an organization develop an integrated decision making structure for CSR? 2.
. Reliable and Time bound (iii) Simple. Realistic and Time bound (ii) Simple. Accessible. What are the types of workplace issues that need to be considered by an organization and what is its impact? 6. Maintainable. breaks and intervals and holidays deal with………issues. What are the market place issues in CSR and how can they be resolved? 5. Achievable. What are the potential areas in which CSR plans can be implemented? 4. How do companies impact environment? Discuss the importance and strategies to develop environmental CSR initiatives. the companies can go for: (i) Social Campaigns (ii) Strategic Partnerships (iii) FDI (iv) Marketplace CSR
95 Implementing CSR Strategy
6. Why should employees be engaged in implementing CSR commitments? 3. Maintainable.13 REVIEW QUESTIONS
1. Measurable. wage plan. Realistic and Time bound (iv) Simple.2. Choose the appropriate answer: (a) SMART guidelines says that objectives should be: (i) Simple. Achievable. (i) Ethical Human Resource policies (ii) Remuneration (iii) Work life balance (iv) Health and Safety (e) To adopt more responsible commitments towards society. Reliable and Time bound (b) Employees can be kept engaged in CSR initiatives by: (i) Developing Incentives (ii) Providing them with updates (iii) Including CSR performance in performance evaluation (iv) All of the above (c) Which of these doesn’t influence company’s relations with customers? (i) Marketing and promotion (ii) Distribution and Access (iii) Company culture (iv) Labeling and Packaging of products (d) Issues like defined work hours. Measurable.
Htm Mitchell. & Skjoett-Larsen.14 SUGGESTED READINGS
Andersen. (2008). What are the reasons for NGO partnerships with corporates? 9. Ethics & International Affairs. 16 (2). (2009). (n. How do companies impact local communities and what are the strategies companies can adopt to strengthen its relationship with communities? 8.3343. (2002). (2009). Available at http://recindia.).
Answers: Self Assessment
1.html Rural Electrification Corporation Ltd. J.nic. Aviva Corporate Social Responsibility Report.oecd. 75-86.unu. (a) ii (b) False (b) iv (c) True (d) True (e) True (f) False (g) False (c) iii (d) i (e) ii
6. Supply Chain Management: An International Journal. Improving Community Responses to Industrial Disasters. Corporate Social Responsibility in Global Supply Chains. M. 14 (2).edu/unupress/unupboks/uu211e/uu211e03.org/document/62/0. Available at http://ycri. Available at http://www. NGO Strategies for Promoting Corporate Social Responsibility.Org/News/5dec07.in/download/csr. Sustainable Materials Management.com/file/view/ NGOStrategiesforPromotingCorporateSocialResponsibility. Available at http://www. M. Navdanya.pdf.
. Taking the Right Steps Forward.. T.00. Corporate Social Responsibility Policy.com/corporate-responsibility Biofuel Hoax: Jatropha and Land Grab.96 Corporate Social Responsibility
7.pdf. Available at http://www. REC Ltd. Winston.htm.wikispaces.d).aviva. (2007. Available at http://www.Navdanya. (n. December 5). Discuss the strategies NGOs use in influencing corporates to execute their social responsibilities.fr264934395378953581111. Organization for Economic Co-operation and Development. (a) True 2.d. 71-87.
97 CSR Monitoring and Measurement
98 Corporate Social Responsibility
99 CSR Monitoring and Measurement
CSR MONITORING AND MEASUREMENT
CONTENTS 7.0 7.1 7.2 Aims and Objectives Introduction Focus of Measurement 7.2.1 7.2.2 7.2.3 7.3 Measure Fewer Things Better Measure What Matters Communicate Fewer Metrics in Multiple Ways
What is Monitoring? 7.3.1 7.3.2 Internal Compliance Monitoring External Monitoring and Measurement
7.4 7.5 7.6 7.7 7.8
Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
7.0 AIMS AND OBJECTIVES
After studying this lesson, you should be able to: Understand the importance of monitoring and measuring CSR Understand various techniques and processes of CSR monitoring Develop preliminary skills in designing CSR measurement index
Corporate social responsibility increasingly involves considerable resources, not just in terms of money, but also scarce senior management time. So questions about what is being achieved becomes even more pressing. A business cannot just say it is engaged in CSR; it must prove itself through its actions. Investors require companies to explain to them the returns on investment for corporate social responsibility (CSR). It is in this context that monitoring and measurement of CSR becomes very important. While the implementation of CSR is quite well understood as giving effect to and putting into action various activities, the meaning and scope of monitoring of CSR is less clear. Measuring CSR becomes a complex task largely because it is a very wideranging concept with innumerable qualitative and quantitative dimensions. The impact of CSR at times is intangible; it is difficult to measure it accurately in either length or width, or in weight or distance. Hence, the impact of CSR to the organisation has to be studied in terms of employee loyalty, zero-day or reduced strikes in the production
100 Corporate Social Responsibility
line, increased employee performance, increased productivity, and many other parameters which are an outcome of practicing CSR in the organisation/industry. The measurement of CSR will undoubtedly be useful for the CEOs and all the employees who devote precious time and resources in developing the strategic fit. See Box 7.1 for reasons to measure CSR.
Box 7.1: Reasons to Measure CSR
Improves accountability. Helps in avoiding action from pressure groups and local communities. Avoids reputation (and hence business) risk. Improves brand image (targeted at customers, employees, investors and suppliers). Links social performance with financial performance. Satisfies regulators.
7.2 FOCUS OF MEASUREMENT
To determine if CSR makes a difference to stakeholders, an unbiased assessment has to be undertaken on the following categories: Internal Stakeholder Effects: concerns with how various activities of the company affects the stakeholders inside the firm. External Stakeholders Effects: concerns the impact of corporate actions on persons outside the firm. External Institutional Effects: refers to the effects business has on the larger institution of the State, Nation and international level rather than any particular stakeholder group.
7.2.1 Measure Fewer Things Better
To start with, it is important to focus on measuring a few specific things that are relevant to the organization’s CSR strategy, such as brand reputation, energy efficiency, employee loyalty, waste reduction and positive changes in leadership skills among employees. Few more metrics can be added when the organization gains confidence and is convinced that the CSR strategy is functional.
7.2.2 Measure What Matters
Companies adopt different indicators of measuring the impact of CSR initiatives which depend on their projects and objectives for developing sustainability practices and secure a just and equitable process of socio-economic development. For example, Hewlett-Packard’s (HP) core business objectives are growth, efficiency and capital. So when HP sets out to measure progress on its chosen CSR strategies, the company started by measuring CSR impact on its growth. For instance, it measured if the company’s energy optimization strategy penetrated new markets or gained new customer segments or won big government contracts. When thinking about what to measure, start by thinking about how the CSR strategy can support your overall corporate strategy. For instance, for an organization like Big Bazaar, if the focus areas are minimizing waste, energy usage, and increasing sustainability, the company should be looking at developing two or three good metrics in each of these areas, such as energy and money saved from removing high electric consumption light bulbs from the retail outlets. If the company is focused on marketing fair trade label products — it should measure the increase in sales for those products or product lines, and through them measure how many farmers were benefitted and how the organization’s profitability was impacted.
Sona Group of Industries evaluates the effectiveness of its CSR programme on the community in terms of benefits to society it provides in the process. For instance, it measures the number of patients treated per day in their “Sona Swasthya Kendra” (Sona Health Center) or number of girls benefitting from the schools that they have improved.”
101 CSR Monitoring and Measurement
7.2.3 Communicate Fewer Metrics in Multiple Ways
It is important that rather than aiming to measure as many metrics as possible, one should think about measuring the same thing and articulating its value in several different ways. For instance, measure your CSR strategy on the dimensions of value: Monetary: Accounting-based value of inflow & outflow of cash. Financial: Translation of in-kind contributions of employee time and/or product into rupee or dollar value. Quantitative: Number of new energy-efficient or sustainable products added to a product line. Qualitative: Types and descriptions of new energy-efficient or sustainable products; storytelling (narration) or marketing value through media mentions or changes in consumer attitudes. Measuring value through such ways can be difficult for companies that train employees to articulate all value in terms of money. But by employing these measurements, it is possible to paint a better picture of the value of a company’s CSR strategy. For instance, “Dow Chemicals shipped two tons of water purification filters to Africa. After calculating the monetary value for the company, there are other benefits that can be measured, such as employee pride and satisfaction, enhanced brand reputation, and access to new markets of potential customers and employees. Let us look at Dow Chemicals’ experience with its human element campaign, an advertising campaign based on CSR strategy. The campaign announces Dow’s vision of addressing some of the most pressing economic, social and environmental concerns facing the global community in the coming decade. It showcases human stories of Dow’s commitment to technology, innovation and sustainability to communicate the power of “the human element” to solve global problems such as poverty and access to clean water. To measure the effectiveness of this campaign, Dow looked at the impact of its storytelling on consumers. It found that after some exposure to the campaign through TV advertisements, the web, and print media, consumers were much more likely to support Dow as a business in their communities, recommend Dow’s stock to a friend, and defend Dow’s reputation to a friend. This campaign has helped edge Dow Chemicals closer to the reputational scores of its peers, which historically have been significantly higher.” 1 It is important to note that reputation accounts for a significant component of a firm’s intangible assets, which in today’s valuations can account for up to 80 percent of a firm’s value.
7.3 WHAT IS MONITORING?
A useful definition of monitoring is provided by Hellawell (1991) 2 as, “Monitoring is an intermittent (regular or irregular) series of observations in time, carried out to show the extent of compliance with a formulated standard (target) or degree of deviation from an expected norm/target.” In line with this definition, one needs to define the
Mcelhaney, K. (n.d). Measuring What Matters in Evaluating CSR’s Return On Investment. University of California, Berkeley, Haas School of Business. Available on http://dimbulb.typepad.com/files/what-matters.pdf Hellawell, J. (1991). Development of a Rationale for Monitoring, in: Monitoring for Conservation and Ecology, Goldsmith, FB (ed.), NY: Chapman and Hall, pp.1-14.
Sustainability Report Guidelines. If CSR team is formulated in the organization. 2. which then can be linked to the overall profitability of the company.3. The team has to diligently engage itself in monitoring the processes involved in implementing CSR activities both within the organization. (2009. Amnesty International’s Human Rights Guidelines for Companies.1 Internal Compliance Monitoring
For monitoring and measuring CSR. economic and environment) objectively the team will have to develop performance indicators.com. The EU Eco-label criterion measures the eco-friendliness of the products. There are several instruments. junior management as well as the shop-floor level 3 . which can measure various aspects of a company’s economic. and then undertake monitoring to assess whether these objectives are being met. middle. Some instruments generally concentrate on a single issue or a stakeholder and thus fail to capture the full impact of a company’s activities. Internal compliance monitoring and measurement. Accreditations/certifications for verifications of measurements. U. senior.in/index. the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises Social Policy and Core Labour Standards and the Social Accountability International (SA 8000) which measures the labour standards.timesascent. leadership companies normally follow Global Reporting Initiatives guidelines to develop their own indexes for monitoring and measuring CSR. In order to monitor and measure triple bottom line CSR (social. When looking at CSR monitoring and measurements. April 13).
Narang. it is essential to form a monitoring team consisting of subject experts and executives who have business as well as social orientation. across the supply chain and in the community. Other existing instruments may support the companies in specific aspects of CSR.aspx?page=article§id=75&contentid=200904132009041312165 4552c0862e32
7.102 Corporate Social Responsibility
standard in terms of objectives or targets. then the same team can continue with the monitoring task. the indexes can be regularly reviewed and revised. social and environmental performance. Measuring CSR. For instance. A few of these standards or voluntary codes for CSR are discussed briefly in Chapter IX. Available at http://www. has constituted a special committee called ‘CSR Council’ that comprises members from the top. the UN Global Compact Principles and Accountability 1000 series provide guidance in the planning & implementation of CSR initiatives. Education Times. Instruments like Global Reporting Initiative (GRI). Though there is no standard format for developing indicators. Sona Group of Companies. roughly three types of monitoring methods can be identified: 1. For the purposes of explanation. a template for monitoring and measuring format is given at the end of this chapter. For example. and discuss key performance indicators (KPIs). the OECD Guidelines for Multinational Enterprises stresses on corporate governance matters. External monitoring and measurements. Depending on the nature of business and CSR activity initiated.
Box 7.4 LET US SUM UP
Although corporate social responsibility is often portrayed as a voluntary initiative of businesses acting to be good corporate citizens. There are several instruments or voluntary codes. Qualitative Tools Positive and negative media coverage. Employee health and safety. the reality is that the private businesses that choose to adopt and implement CSR codes are in the centre of a system of pressures. KPI and environmental audit systems. reduction of wastes. it is imperative for companies to give a testimony of commitments by developing appropriate monitoring and measurement tools for developing sustainable business and societies. Public attitude and trust surveys. Shareholder feedbacks. Hence. and advocacy that involves many other actors. efficiency in resource usage and productivity surveys.5 KEYWORDS
Monitoring: Observations to show compliance or deviations form target Measurement: Studying qualitative and quantitative impact of CSR initiatives Qualitative Metrics: Measures the progression of an activity from non-numeric aspect Quantitative Metrics: Measures the progression form numeric aspect Internal Monitoring: Monitoring by internal experts chosen from within the company External Monitoring: Monitoring by outside agencies like NGOs
. Image among regulators.2: CSR Measurement & Monitoring Tools
Quantitative Tools Employee and customer surveys. dialogue and informal
103 CSR Monitoring and Measurement
Perception about stakeholders. It depends upon the company which type of monitoring and measurement systems it intends to design for gaining further insights into its CSR strategy. Reporting tools such as GRI. SRI rankings. which can measure aspects of a company’s economic.2 below. Some of the tools used for monitoring and measuring CSR both by internal and external stakeholders are listed in Box 7. social and environmental performance to build its competitive advantage. incentives. Peer and expert evaluation. Listings and rankings in Dow Jones sustainability index.2 External Monitoring and Measurement
Businesses are reluctant to allow outside agencies for monitoring and measuring CSR activities of their organizations. However some companies are outsourcing monitoring of CSR activities to NGOs and research agencies.3. These agencies also depend upon the monitoring and measurement instruments developed by international agencies mentioned in the above paragraphs and customize the same to the organizations requirements. FTSE4Good & other sustainability indexes.7.
3. State whether the following statements are true or false: (a) Impact of CSR on organizations has to be studied form point of view of employee productivity. Discuss how your company can develop a CSR measurement indicator/index. 2. (b) Measurement of impact of CSR activities should only be done for internal stakeholders. employee loyalty and improved performance.
. the standards should be defined in terms of: (i) Productivity (ii) Brand reputation (iii) Employee loyalty (iv) All the objectives and targets
7. 2. (c) Measurement of all the CSR initiatives pertaining to all regions must be measured. Discuss various ways in which CSR can be monitored. Choose the appropriate answer: (a) Which of these are important for a firm to measure? (i) Brand Image (ii) Employee productivity (iii) Employee loyalty (iv) All of the above (b) Which of these is not a method generally used for monitoring? (i) Management monitoring and measurement (ii) Internal Compliance monitoring and measurement (iii) External monitoring and measurement (iv) Accreditations/ Certifications (c) Work that companies like Standard and Poor’s and Ernst and Young do are: (i) External monitoring (ii) Internal monitoring (iii) Management monitoring (iv) Expert monitoring (d) While monitoring. (d) Financial metrics measure inflow and outflow of cash. What is monitoring & measurement of CSR? Discuss the importance of the same.104 Corporate Social Responsibility
7.7 REVIEW QUESTIONS
1. (e) External monitoring is monitoring by people outside the company. What are various tools used in monitoring and measuring CSR? 4.6 SELF ASSESSMENT
html. (2000). Berkeley: Haas School of Business.nsf. Available in http://www.com. Ascent. P. Green. oxford-ipc. Knowledge Management: A Strategic Agenda. Lefrere.).com/csr/CSRWebAssist. Available at http://www. del Rosario Sr.8 SUGGESTED READINGS
Asian Institute of Management..1-14. (a) True 2. Mcelhaney.mhcinternational. Burson-Marstellers’ Corporate Social Responsibility Unit. (2000. K.a1. (1997).aspxpagearticle§id75&contentid20090413200904131216 54552c0862e32 Oxford IPC Worldwide Limited.1: Work Place Indicators
S. Available at http://www. Evaluating CSR’s Return on Investment.emeraldlibrary. June).com/ brev/11906cal.com/files/what-matters.nsf/content. Top Business Leaders ‘need to do’ Corporate Social Responsibility. http://www. Management Toolkit. (1997). (a) iv (b) False (b) i (c) False (c) i (d) False (d) iv (e) True
105 CSR Monitoring and Measurement
7.com/csr. Journal of Long Range Planning.com/publications. Canadian Business for Social Responsibility. Available at http://www. & Jones. An Introduction To Base Level Guidelines For Corporate Social Performance.com/ csr/CSRWebAssist. Makati City: Ramon V. P. Available at http://dimbulb. Luz. (2000). Available at http://www. University of California.html. Quintas. F.timesascent. No. Measuring CSR. csrforum. AIM Center for Corporate Responsibility.a1. (ed..typepad.in/index.Answers: Self Assessment
1. (2001).bm.. April 13). (2009. Development of a Rationale for Monitoring.net/~mikegree/career/social.ziplink.
Total People Employed a) Men b) Women Contd…
.com. (2008). (2000). Human Resource Indicators Target for the year Status in Status in April Sept (current (current year) Year) Status in March Year End (Total Achieved) Difference between Target Set & Achieved Last Year’s Figures
1. New York: Chapman and Hall. J. Available at http://www. Times of India. 385-391. Available at
Corporate Social Responsibility Forum. G.csrforum.html. (1991).html. pp. CSR Roadmap. M. 30 (3). Makati City: Asian Institute of Management. Goldsmith. in: Monitoring for Conservation and Ecology. Corporate Social Responsibility around the World.htm. Corporate Social Responsibility: Balancing Bottom Line Concerns with Social Responsibility.uk. U. Narang. (1998).nsf/content. (2001). A Dialogue On CSR: Asking The Hard Questions Rather Than Trying To Summarize All Points. Measuring What Matters.pdf MHC International Limited. Available at http://www. Notes on Case-Writing Project on Corporate Responsibility. Corporate Social Responsibility Forum (2000).ethicsinaction. Corporate Social Responsibility. Available in http://www.
Template for Developing CSR Monitoring & Measurement
7. 2. 3.
No. of Employees Left a) Men b) Women
4.106 Corporate Social Responsibility
S. of Man days lost due to Absenteeism No.
Table 7. 5. 12. 11.
Type of Employment a) Men b) Women
3. 8. 6. Environment Indicators Target for the Year Status in April (current year) Status in Sept (current year) Status in March Year End (Total Achieved) Difference between Target Set & Achieved Last Year’s Figures
Training Provided a) Men b) Women
Total Paper Usage Paper Usage Per Unit/ Division Recycled Paper Recycled Waste Total Water Usage Water Usage Per Unit/Division Total Electricity Use Electricity Use per Division Carbon Emissions Business Travel by Plane Business Travel by Car Initiatives taken to Mitigate Environmental Risks
. of Employees deputed for higher education a) Men b) Women
7. 4. 6. of In-house Training Conducted No. 10.
3: Market Place
S. 4. 6. Community Target for the Year Status in April (current year) Status in Sept (current year) Status in March Year End (Total Achieved) Difference between Target Set & Achieved Last Year’s Figures
1. 3. No. 2. 4. 2.
Financial donation Employee Volunteers Donation in kind Sponsorship to children Plantations undertaken Training undertaken
.No. Market Place Target for the Year Status in April (current year) Status in Sept (current year) Status in March Year End (Total Achieved) Difference Last between Year’s Target Set Figures & Achieved
107 CSR Monitoring and Measurement
1.Table 7.4: Community
S. 5. 6.
Advertising complaints upheld Number of complaints regarding products and services Complaints about late payment of bills Upheld cases of anticorruptive behavior Customer satisfaction levels Customer retention Sales gained due to cause related marketing
3. 5. 7.
6 8.1 INTRODUCTION
The company’s impact through its CSR strategy and initiatives on the triple bottom line (social. non financial reports.
.108 Corporate Social Responsibility
REPORTING FOR CSR
CONTENTS 8. environmental and financial) are communicated to the external as well as internal stakeholders by generating CSR reports also known as sustainability reports. economic and social goals/ metrics. Many companies also generate their annual reports and CSR reports in conjunction.
8.2 8.0 8.2 IMPORTANCE AND BENEFITS OF REPORTING
In the context of the pressurizing demands for transparency and corporate action on global social issues like climate change.1 8.0 AIMS AND OBJECTIVES
After studying this lesson.2.3 8. anti corruption. you should be able to: Understand the need and relevance of CSR reporting Gain clarity about contents and formats of CSR reporting
8.4 8.2.10 Whom to Report How to Report Contents of CSR Report
Formats of CSR Communication and Reporting The Reporting Team Additional References for CSR Reporting Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
8.5 8. environmental conservation.2 Aims and Objectives Introduction Importance and Benefits of Reporting 8. or corporate citizenship reports. a CSR report details the company’s performance against specific environmental. While the annual report covers operating and financial performance.8 8. The report also covers the role sustainability plays in the overall strategic direction.2.9 8.7 8.3 8.1 8.
Strong reports are tools for improvement of social and environmental performance. Companies produce a corporate sustainability report (CSR) for multiple reasons. government.). An internal commitment to environmental and social responsibility. Available at http://www.2.org/business/report/issues. Producing a CSR report ingrains sustainability into a company’s corporate culture through its operating and governance structures. The process provides the hindsight. suppliers. candor and effective design. It can also be an important tool to engage employees and external stakeholders in the company’s CSR activities.
Source: Corporate Sustainability Reporting 1
109 Reporting for CSR
8. and a commitment to remaining competitive while becoming a world leader in sustainability.
Box 8. to assess a company’s CSR strategy and their current and future performance. Corporate Sustainability Reporting. M. (See Box 8. (n. TBLR integrates information throughout all business processes and
MacDonald. Tracking progress on integration of sustainability principles into company planning and programs. Good CSR reports explain how the tenets of CSR and sustainability manifest themselves through the company’s codes and policies to create sustainability.2. employees. and marshal their resources effectively to help meet evolving global challenges. As a marketing tool.
8.1 Whom to Report
CSR should be reported to both internal (employees. the public and other stakeholders. current and potential customers. CSR reporting is one of the anchors that enable a company to succeed as a high performance organization.human rights and so on. A successful pilot project persuaded decision-makers to take the initiative company-wide. including investors. Taking first steps towards doing things in a more sustainable way.html
. For formulating such reports. & Peters. Board) and external stakeholders comprising of local and global investors. public and private organizations. Increasing global companies are using Triple Bottom Line Reporting (TBLR). make decisions that position the company to meet their needs. companies use Global Reporting Initiative (GRI) indexes/formats.1: Reasons for CSR Reporting
Providing information about challenges and achievements to shareholders. associating the company with sound environmental management and sustainable activities. NGOs. To be truly meaningful. media and so on of the company. it becomes important for companies to provide information about how they have integrated CSR as an integral part of their functioning. K.1) A good CSR report provides valuable and impartial information to allow stakeholders. insight and foresight to understand stakeholder expectations.sustreport.2 How to Report
It is critical to “sell” CSR readership to both internal as well as external stakeholders and hence a strong cover theme and design can set the tone for the report and/or convey a key message and encourage potential readers to open the report and learn more about the company.d. reporting on corporate responsibility/sustainability performance must be done with clarity.
current operations. stakeholders have been engaged and how the same is incorporated into CSR decisions and activities. expert commentary and case studies can improve credibility and foster an honest. surveys. Therefore. as well as those factors. This framework should report information on: Codes of conduct for employees. illustrations. 2. Testimonials. such as workshops.110 Corporate Social Responsibility
encourages the measurement. Information about the company would include an overview of its history. This allows stakeholders to understand the context in which the CSR policies and strategies have been developed as well as how CSR impacts operating and financial strategies. It can also provide balance in the testimonials by including comments on weaknesses or setbacks as well as accomplishments. An effective message to stakeholders should convince all those affected by the company’s operations that their concerns are understood and being addressed. focus groups. will set the tone for the context.3 Contents of CSR Report
1. which are likely to affect future performance. operating performance.
. management. Ultimately whatever pattern of reporting is adopted. review panels and feedback formats. principles or guidelines to which the company subscribes Governance structure and responsibilities Corporate and community committees Processes for identifying and mitigating risks Environmental and social management systems Integration of triple bottom line into decision-making. with whom and through what activities. What are the benefits of CSR to the company. management and communication of environmental. financial strength and corporate goals.2. systems and structures that ensure those standards are met. beneficial dialogue with stakeholders. Stakeholder Engagement CSR reporting is a dialogue between a company and its stakeholders. geographic locations and other matters. procedures. the report should identify the company’s stakeholders and explain how it approaches and manages stakeholder engagement. social and economic results on an equal basis.
8. A brief review and explanation of main trends and factors contributing to the development and performance of the business during the financial year. Corporate Context Effective CSR practices and reporting must be placed within the context of a company’s business activities. This should include how often. major products or services. and what challenges has the company been facing? The following paragraphs briefly describe what should be the contents of the CSR report. Performance is demonstrated by key performance indicators (KPIs) and information on performance should include both achievement and under-achievements. directors and suppliers External economic. Good graphic elements such as photographs. past performance. where does CSR fit with the overall corporate strategy. geographic footprint. environmental and social charters. 3. Performance Committing to sustainability and corporate social responsibility means adherence to a set of external and self-imposed standards of performance as well as the policies. readers want to see an honest and forthright discussion of how strongly CSR is embedded.
Table 8. The report should include a discussion of risks as well as opportunities. and against targets worked out by the company as a basis for reviewing overall performance. 4.1: Format of CSR Reporting Stakeholders Internal Format Team briefings Procedural notes Training sessions Internal magazines Internal compliance or audit reports Intranet Notice boards Site locations Specific reports Annual reports Websites Stand alone reports External magazines AGMs Media outlets Corporate videos Speaking platforms for senior managers
. KPIs should cover critical performance information on both management processes adopted and its impact. Table 8. Stakeholder review panels can be used to provide a more informal review of the report. It should be linked to business goals & objectives. and stand alone CSR reports can be designed to communicate with various audience. For instance. There is value in looking at different ways of communicating CSR information. b) honesty in reporting. short format. Assurance and Validation Assurance adds another level of credibility by providing an opinion of the company’s CSR report. c) admitting limitations. Monsanto’s report is presented exclusively as an electronic document. management processes and strategy against available guidelines such as Accountability’s AA1000 Assurance Standard. SA 8000 or GRI guidelines. historical performance along with expectations for the future. graphs or maps can improve a report’s ability to effectively communicate key messages. Companies should tailor their approach to establish the credibility of its reports through external verifications. The CSR communication and report can be made interesting by using a variety of communication devices and tactics to keep the stakeholder informed and engaged. and d) maintaining consistency in providing information. External or independent auditors examine a variety of performance measures. The assurance statement of the report should explain the scope of the review as well as the assurance methodology.1 below lists various formats of CSR communication and reporting patterns adopted by various companies with their internal and external stakeholders. Web-based. It is essential to back up the discussions with hard numbers that should have been collected using a consistent methodology over time. either alone or in conjunction with a formal auditor. Factors that influence credibility in CSR reporting are: a) stakeholder participation.
111 Reporting for CSR
8.3 FORMATS OF CSR COMMUNICATION & REPORTING
Being strategic and targeted will improve CSR communication as well as the readership of CSR reports.diagrams.
progress against last year’s commitments and more.eu/index. (www.ethicalcorp. (www.asp?id=1486)
. why and how it does is a fundamental principle of responsible business. Accountability AA1000: Presents standards to promote accountability. their values. CSR reports in addition to environmental performance of the organisation also report on the most important organisational social issues and non-financial key performance indicators.html) 6.5 ADDITIONAL REFERENCES FOR CSR REPORTING
The following websites can be referred by the CSR team to learn more about CSR standards and sustainability reporting. stakeholder engagement.accountability21. news and research on latest trends from reporting consultancy. the extent to which each element has been implemented. Geographical representation as well as representation from different divisions greatly increases the probability of the report having internal and external value.com/researchandadvocacy/globalreporters.jsp) 5. vision.sustainability.org/home/) 4. Ethical Corporation: Provides information about conferences exploring best practices in CSR and business ethics.com/corporate/work/work.globalreporting. These activities can include issues such as community involvement. creation of social dimensions at workplace and marketplace. (www.bitc. social investments. The CSR team as discussed in the earlier chapter must include representatives from both the corporate policy and operational divisions.net/aa1000series) 3.htm) Presents trends and
7.com/publicinterest/activities/subjects /sustainability/awards) 2. (www. protection of human rights.blacksunplc. responsibility and sustainability.6 LET US SUM UP
It is important for companies to be communicating with their stakeholders to demonstrate leadership.org/Home) 9.4 THE REPORTING TEAM
CSR reports must be documented by the CSR team headed by a senior executive (Senior VP. (www. recent changes made and anticipated improvements.org. credibility and communication (www. successes & failures in CSR. European Sustainability Reporting Association: developments in sustainability reporting.com/conferences/) 8.
8. ACCA: Provides information on annual sustainability reporting awards and criteria on completeness. Global Reporting Initiative: Presents information about global sustainability reporting guidelines. Sustainability: Explains global reporters programme from strategy consultancy and think-tank (www.uk/cr_strategy_and_integration/cr_index/index.112 Corporate Social Responsibility
8.sustainabilityreporting. Transparency about what the company does. 1.accountingforsustainability. Black Sun: Presents best practice case studies. BITC CR Index: Highlights voluntary benchmark of corporate responsibility governance and management. CEO. (www. A thorough CSR report will describe every element of a company’s CSR framework. Accounting for Sustainability: Discusses campaign and guidance for better integration of sustainability and financial performance reporting. and Company Director).accaglobal. (www.
(c) The CSR should explain level and management of stakeholder engagement. State whether the following statements are true or false: (a) A good CSR report provides valuable and partial information about the CSR activities. (b) CSR should be reported to both external and internal stakeholders.8 SELF ASSESSMENT
1. to assess a company’s CSR strategy and their current and future performance.
113 Reporting for CSR
8. The most popular formats of CSR reporting are based on TBLR and GRI guidelines. Choose the appropriate answer: (a) CSR report should cover company’s performance related to: (i) Environment (ii) Society (iii) Bio diversity (iv) All of the above (b) CSR performance should be reported to: (i) Potential customers (ii) Current customers (iii) NGOs (iv) All of the above (c) Measures of firm’s performance are: (i) CSR reports (ii) Key performance indicators (iii) Performance graph (iv) Performance chart (d) Which of these is not a format to report to external stakeholders? (i) Websites (ii) AGMs (iii) Corporate Videos (iv) Audit report
Triple Bottom Line Reporting: Taking into account ecological and social performance of firm Global Reporting Guideline: Provides guidelines about global sustainability reporting Key Performance Indicator: Measures performance of relevant areas in a firm
8. (d) CSR report includes company’s financial and operating performance also. including investors. in all aspects of a company’s CSR activities therefore have very strong impacts. Ultimately.The report provides valuable and impartial information to allow stakeholders. 2. CSR Reports showing concrete actions taken and improvements made. the report is only as good as the operational performance it highlights.
Available at http://www. & Peters. The Sustainability Report. Global Reporting Initiative. (n. Available at http://www. SustainabilityBlog.globalreporting. (November 26.Org. What are the formats of CSR Reporting?
Answers: Self Assessment
1.sustreport.).d.. What should be the contents of CSR Report? 3. (a) iv (b) True (b) iv (c) True (c) ii (d) False (d) iv
8. write the perfect CSR report. K.10 SUGGESTED READINGS
Ballantine. Why is reporting of CSR important? 2. March 11). (n.org/Reporting Framework.org/business/report/issues. Available at http://www. How to. A Review of Corporate Sustainability Reporting.businessgreen.9 REVIEW QUESTIONS
1. Available at http://www. (a) False 2.html Reporting Framework. M. J. Corporate Social Responsibility Reporting.
..org/2007/11/26/corporatesocial-responsibility-reporting/ MacDonald.sustainabilityblog. Fabian.114 Corporate Social Responsibility
8.).d. 2007). (2009.com/business-green/analysis/2238240/write-csr-report.
115 Role of Government and Voluntary Codes in CSR
ROLE OF GOVERNMENT AND VOLUNTARY CODES IN CSR
CONTENTS 9.0 9.4.13 9.2 9.3 9.8 9.4 Aims and Objectives Introduction Role of Government Government Support at International Level Voluntary Codes in CSR 126.96.36.199 9.4.6 188.8.131.52 OECD Guidelines for Multi-national Corporations ILO Conventions ISO 9000 & ISO 14000 SA8000 UN Draft Principles for Behaviour of Trans-national Corporations LEED GRI DOW Jones Sustainability Index FTSE4GOOD Smart Growth Network Equator Principles UN Global Compact Coalition of Environmentally Responsible Economies (CERES)
Let us Sum up Keywords Self Assessment Review Questions Suggested Readings
9.1 9.5 9.4.1 9.4.7 184.108.40.206 9. you should be able to: Understand the role of government in shaping business behavior Know the various types of voluntary codes/standards available for corporates to work towards sustainability
.220.127.116.11 AIMS AND OBJECTIVES
After studying this lesson.4 9.9 9.2 9.5 9.12 9.8 9.10 9.6 9.
In the absence of government regulation. Governments should formulate and implement laws/ regulations to monitor the conduct and operate businesses in an ethical manner. with many business organisations advocating voluntary codes arguing that they allow companies to be innovative in Corporate Social Responsibility. government itself is largely responsible for the emergence of the CSR concept. despite increased privatisation. society will be misled. Proponents of CSR in India advocate the following ways for government to activate CSR: 1. the Government of the United Kingdom appointed a Minister of Corporate Social Responsibility. France became the first country to mandate a triple balance sheet (financial. contractor and purchaser of goods and services. Governments have a huge potential to influence corporate behaviour especially in under developed markets like India.116 Corporate Social Responsibility
9. There are a wide variety of opinions about what the ideal regulatory framework for business behaviour should be. manipulated and exploited. government policies. environmental and social) for firms with shares traded on the stock market. In the 1992 Earth Summit. At the UN World Summit on Sustainable Development in 2002. public investment and public/private partnerships should be based on developing sustainable practices embracing the full range of corporate responsibility. governments encouraged business to "improve social and environmental performance through voluntary initiatives.
9. codes of conduct. including environmental management systems.2 ROLE OF GOVERNMENT
Ironically. In addition to the above. In such markets. certification and public reporting on environmental and social issues". for example. and more importantly provide a level playing field for all businesses to operate and grow.1 INTRODUCTION
To create responsible business behaviour government should ensure that businesses should not hurt or harm society and the environment. when it enacted the law on new economic regulation. government remains a huge investor. Governmental policies should be designed to facilitate ethical and sustainable business practices. the Belgian Parliament approved a law to promote socially responsible production through the establishment of a voluntary social responsibility label. rules and laws shape the regulation of businesses. in 2000. they are the slowest to respond to a changed world.
. In 2001. Though governments see CSR as a tool to move towards internationally agreed goals through non-mandated action. governments are required to regulate businesses to protect the interests of stakeholders and shareholders. For example. in operationalising environmental CSR. governments have both identified the issue and in principle are committed to play an active role. governments defined and endorsed "responsible entrepreneurship". It is therefore the responsibility of the government to regulate business. In short. The absence of business regulation is not good for organizations as well as the society. Governments should see that public purchasing. Such initiatives and the basic conditions necessary for CSR to prosper and develop linkages with an active civil society and government for developing good business environment are still scarce in many parts of the world. In India. In 2002. Generally. Today governments all over the world are enacting laws to safeguard the interest of consumers and to protect the environment from greedy and unethical corporations. A few governments in the west have actively promoted CSR. While the expectation from government is to create a good environment for business to flourish. The voluntary codes of CSR – outside the realm of government regulation aims at improving sustainable practices of business.
governments should regularly amend the provisions in the regulations to punish violators of the policy. 2. Governments can assume a key role in the promotion of CSR, by creating a climate favourable to business (that ensures respect and defence of property rights and the rule of the law) and establishing good governance standards (for example, promoting transparency and eliminating corruption). This promotion does not imply managing CSR initiatives or making them mandatory; rather it seeks to foster a climate conducive to sustainable development and responsible behaviour on the part of business enterprises. 3. Governments can shape the regulation of businesses by giving incentives and grants to businesses that comply with government regulations. Governments can also provide direct incentives for promoting certain aspects of CSR through “green” fiscal instruments. For example, by ensuring that their procurement policies include safeguards to ensure compliance along with codes of conduct. Through these types of instruments, governments can promote decent work while also supporting the use of ecologically sustainable materials, processes and production technologies (for example, the use of recycled materials, the adoption of renewable energy, the efficient use of non-renewable resources and the reduction of environmental contaminants and waste products). They can also promote “green” products and services (for example, low-emission vehicles and ecotourism services). 4. Governments can consider introducing provisions of incentives such as tax cuts, subsidies and low-interest loans for enterprises that abide by labour laws, international labour standards and sustainable practices which can go a long way in motivating corporates to be socially responsible.
117 Role of Government and Voluntary Codes in CSR
9.3 GOVERNMENT SUPPORT AT INTERNATIONAL LEVEL
At the international level, governmental support is required for broadening the criteria on which the International Monetary Fund (IMF) and the World Trade Organization (WTO) operates, so that balancing the interests of investors and of the societies in which they invest is facilitated. Governments are party to these various international instruments like the United Nations Universal Declaration of Human Rights, the Convention on the Rights of the Child, and the core conventions of the International Labour Organization, now encapsulated in the UN Human Rights Sub-Commission's draft norms on the Responsibilities of Transnational Corporations and other Business Enterprises in regard to observing and respecting human rights. All of these have direct relevance to the behaviour of companies, but governments fail to interpret them into practice by amending national legislations. Till the time our laws are not in place or are amended, governments at the international level should exert moral pressure on businesses to voluntarily develop ethical business standards privately, company officials regularly hint that if voluntary instruments do not work, mandatory approaches will become necessary.
9.4 VOLUNTARY CODES IN CSR
Apart from government regulations, to develop sustainable business practices, which create both shareholder and societal value, there are various voluntary codes, which are formulated by international NGOs, business associations and UN agencies to guide businesses towards developing responsible practices. “A voluntary code of conduct is an important element of corporate social responsibility (CSR) commitments on the part of businesses. The objective of the creation of voluntary codes of conduct for companies is to establish public trust in
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their business practices by demonstrating commitment and efforts to meet the type of behavior that corresponds to societal expectations.” 1 The following paragraphs give a brief description about the major codes which are normally used by businesses:
9.4.1 OECD Guidelines for Multi-national Corporations 2
The OECD Guidelines for Multinational Enterprises (MNEs) are recommendations to enterprises made by the Governments of OECD member countries. Their aim is to ensure that MNEs operate in harmony with the policies of the countries where they operate. These voluntary standards cover the full range of MNEs' operations. The Guidelines cover the range of MNE activities. The guidelines aim at good corporate practice and increasing MNEs social accountability. They guide MNEs for designing general operational policies, formulating appropriate information disclosure and systems for finance, taxation, employment and environmental regulation.
9.4.2 ILO Conventions 3
The Core Labour Standards enshrined in the ILO Declaration on Fundamental Principles and Rights at Work (1998) are the basic minimum human rights enshrined within the ILO’s eight specialized conventions. The eight core Conventions are: Forced Labour (1930) Freedom of Association and Protection of the Right to Organize (1948) Right to Organize and Collective Bargaining & Equal Remuneration (1951) Equal Remuneration Convention, 1951 Abolition of Forced Labour (1957) Discrimination (Employment and Occupation)(1958) Minimum Age Convention (1973) Elimination of the Worst Forms of Child Labour (1999) ILO Conventions and recommendations cover a broad range of subjects concerning work, employment, social security, social policy and related human rights. In today's globalized economy, international labour standards are essential components in the international framework for ensuring that the growth of the global economy provides benefits to all.
9.4.3 ISO 9000 & ISO 14000 4
The ISO issues guidelines for voluntary standardization for an extremely wide variety of areas, primarily for technical aspects. ISO guidelines are accredited with these standard. More recently, they have developed environmental management standards ISO 14000 series. In addition, the ISO 9000 is a quality management system. ISO is currently in the process of developing an ISO standard for CSR. The guidance standard will be published in 2010 as ISO 26000 and is meant for voluntary use.
9.4.4 SA8000 5
Launched by Social Accountability International in 1997, SA 8000 is a standard addressing labour and workplace conditions. SA8000 builds on ISO 9000 auditing techniques, specifying corrective and preventive actions; encouraging continuous
2 3 4 5
Voluntary Codes of Conduct for Multinational Corporations Conference (May 12-15, 2004) available at http://info.worldbank.org/etools/bSPAN/EventView.asp?EID=625ble http://www.oecd.org/department/0,2688,en_2649_34889_1_1_1_1_1,00.html www.ilo.org http://www.iso.org/iso/home.htm www.sa-intl.org
improvement; and focusing on management systems and documentation proving these systems. SA8000 certification is done by independent, external auditors and relates to the company’s actual performance in regard to labour conditions rather than published performance.
119 Role of Government and Voluntary Codes in CSR
9.4.5 UN Draft Principles for Behaviour of Trans-national Corporations 6
These draft principles drawn up by a working group of the UN Subcommittee on Human Rights would provide an internationally binding set of principles by which TNCs should operate. The principles are broad in that they include aspects of nondiscrimination, war crimes, workers’ rights, environmental protection, and consumer protection as well as interpreting TNCs’ responsibilities with regard to international law. However, it remains to be seen whether the UN Human Rights Committee and eventually national governments will ever ratify these draft principles and thus make them binding under international law. It is also unclear what, if any, enforcement mechanism would be included in this mechanism.
9.4.6 LEED 7
The LEED (Leadership in Energy and Environmental Design) Green Building Rating System® is a voluntary, consensus-based national standard for developing highperformance, sustainable buildings. LEED provides a complete framework for assessing building performance and meeting sustainability goals. It emphasizes state of the art strategies for sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. LEED recognizes achievements and promotes expertise in green building through a comprehensive system offering project certification, professional accreditation, training and practical resources.
9.4.7 GRI 8
Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines set a globally applicable framework for reporting the economic, environmental, and social dimensions of an organization's activities, products, and services. It is the most widely used and internationally recognized standard for corporate sustainability measurement and reporting.
9.4.8 DOW Jones Sustainability Index 9
Dow Jones Sustainability Index (DJSI) is described as the first global index tracking the financial performance of the leading sustainability-driven companies worldwide. Company questionnaire is designed to assess opportunities and risks deriving from economic, environmental and social activities of companies. Inclusion in the Index is a competitive process; selection is considered a mark of distinction for companies that want investors to see them as sustainability leaders.
9.4.9 FTSE4GOOD 10
The FTSE4Good Index Series was created by FTSE, a respected global financial index company based in Britain, in response to the increasing interest in socially responsible investment (SRI). Its inclusion criteria measures the performance of companies that meet globally recognized corporate responsibility standards. The visibility and reputation of FTSE4Good provides companies with a powerful vehicle to communicate their CSR achievements. FTSE indices are used extensively by a range of investors such as consultants, asset owners, fund managers, investment
6 7 8 9 10
www.ohchr.org/english/issues/globalization/business/docs/lawhouse2.doc www.usgbc.org/LEED/ http://www.globalreporting.org http://www.sustainability-index.com http://www.ftse.com/ftse4good/index.jsp
The Principles were developed and adopted by IFC and 20 of the world's leading banks.aspx?pid=705
. Its focus is on community engagement and development. business. employment and environment. internal. environmental and social procedures and standards for project financing activities across all industry sectors globally. The Global Compact is a leadership platform. Smart Growth is gaining attention in recent years because it provides alternative to single-issue focus. The indices are used for purposes of: investment analysis. portfolio hedging and creation of index tracking funds. Though government has a fundamental role in setting up the parameters for the private sector.4.org http://www. institutional investors and environmental organizations. and helps companies quantify their environmental performance. and offering a unique strategic platform for participants to advance their commitments to sustainability and corporate citizenship. asset allocation. endorsed by Chief Executive Officers. stock exchanges and brokers.smartgrowth. protecting the environment.120 Corporate Social Responsibility
banks. environment and anti-corruption. such as traffic. Globalization of the supply chain has pressurized countries to review its own laws for regulating business behaviour with its stakeholders.11 Equator Principles 12
The Equator Principles is a framework for financial institutions to manage environmental and social issues in project financing.
9. The Principles are intended to serve as a common baseline for the implementation of individual. technology and finance advance in ways that benefit economies and societies everywhere. By doing so.equator-principles.4.4. It is widely used by companies that seek to build strong community bonds.
9.4.5 LET US SUM UP
Globalization has changed the role of the state in the market and consequently the basis on which private enterprise operates. engages companies and stakeholders in productive problem solving.10 Smart Growth Network 11
The Smart Growth Network (SGN) was formed in response to increasing community concerns about the need for new ways to grow local communities while boosting the economy. housing.12 UN Global Compact 13
The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies in the areas of labour.org/page. suggests methods of measurement. The CERES report establishes the environmental performance data that should be disclosed. with emphasis on integrative solutions to a mix of community issues. performance measurement. The reports undergo a joint pre-publication review to ensure conformity to the standard.unglobalcompact. as a primary agent driving globalization can help ensure that markets.
11 12 13 14
9.org/AboutTheGC/ http://www. CSR voluntary standards developed at the international level today are influencing the way in which industries operate around the globe. commerce.com http://www.
9. and quickly became a global market standard for availing project finance. and enhancing community vitality.13 Coalition of Environmentally Responsible Economies 14 (CERES)
The CERES report is a standardised format for corporate environmental reporting developed through collaboration by companies.
(d) ILO conventions include system of quality maintenance. chemicals and textiles and apparel) as well as voluntary codes made by national governments or by international organizations such as the UN or the OECD. sector-based codes (for sectors such as energy. (g) CERES report provides financial performance data.7 SELF ASSESSMENT
Voluntary Codes: Govern social and environmental impact of business without enforcement of law Global Reporting Initiatives: Gives global guidelines for sustainability reporting UN Global Compact: Initiative for businesses that align their operations and strategies in areas of labour.
121 Role of Government and Voluntary Codes in CSR
9.000: Guidelines for quality and environment management respectively
9. (e) Dow Jones study social performance of the firm. anticorruption and environment Dow’s Sustainability Index: Tracks financial performance of sustainability driven companies CERES: Establishes environmental performance data for measurement and corrections SMART GROWTH Network: Focuses on community engagement and development FTSE4Good Index: This is a measure of socially responsible investments. CSR is not just a management tool for business. It can be a powerful ally of public policy in the social and environmental field. (f) Equator Principles were developed by IFC. both within our borders and beyond. forestry. To accelerate the process of developing sustainability the task for the government is to make sure that the process of global economic and social change activated by business is managed properly and fairly. (c) OECD guidelines deal with environmental and labour issues. SA 8000: Addresses labour and workplace conditions LEED: Framework for assessing building performance and meeting sustainability goals OECD Guidelines: Ensures that MNEs work in consonance with host country’s policies ISO 9000 & 14.This is certainly true in India given its dependence on export-led economic growth. CSR codes may take the form of individual company codes. The voluntary code of conduct requires firms to adopt policies that sometimes exceed national legal requirements. Voluntary codes of conduct that govern social and environmental impacts of companies without state enforcement constitute a relatively new approach to solving societal problems. State whether the following statements are true or false: (a) Government influences corporate behavior to a large extent in India. (b) Voluntary codes govern the social and environment impact of businesses and are backed by law.
Choose the appropriate answer: (a) To save society from being exploited and misled.8 REVIEW QUESTIONS
1. What is the role of the government in shaping business behaviour? 2. (a) True (g) False 2.122 Corporate Social Responsibility
2. Explain ISO 9000 and ISO 14000. In your opinion should governments regulate business behaviour? Justify your answer with suitable examples. ……………… are important. Write a note on ISO standards. (a) ii (b) iv (c) iii (d) iv (e) i (b) False (c) True (d) False (e) False (f) True
. 4. What are voluntary codes? Discuss any two voluntary codes and its importance in developing sustainable business.
Answers: Self Assessment
1. TNCs should not: (i) Discriminate (ii) Exploit consumers (iii) Exploit labour rights (iv) All of the above (e) LEED is: (i) Leadership in Energy and Environmental Design (ii) Leadership in Efficiency and Environmental Design (iii) Leadership in Energy and Ethics Design (iv) Leadership in Ethics and Environmental Design
9. (i) CSR initiatives (ii) Government regulations (iii) Social Laws (iv) Enforced rules (b) Issue of forced labour is addressed by: (i) LEED (ii) OECD (iii) CERES (iv) ILO (c) Smart Growth Network deals with: (i) Financial development of firms (ii) Labour issues (iii) Community development (iv) Sustainable Reporting (d) As per UN Draft principles. 3.
www.2688. L. http://www. The World Bank Group.org/page.html Dow Jones Sustainability Index. C. Available at http://www.htm Leadership in Energy and Environmental Design.en_2649_34889_1_1_1_1_1.ohchr.uk/Website/IC.org) Social Accountability International.asp?EID=625ble Wilson.org International Labour Organization.unglobalcompact. (n. http://www.com/ftse4good/index.aspx?pid=705 5. http://www.org/etools/bSPAN/EventView.com FTSE4 GOOD. A.org/iso/home.ceres.www. Government and Corporate Social Responsibility – the democratic deficit.ftse.org/department/0.sustainability-index. http://www.9.d.usgbc.ashridge.smartgrowth. Ethical Corporation Institute.com/content.net/csrpdf/Europe/TheroleofpublicpolicyinpromotingCSR.pdf Voluntary Codes of Conduct for Multinational Corporations Conference. Diamantopoulou. http://www. Available at http://www.com Equator Principles.worldbank. The Role of Public Policy in Promoting CSR. www. May 12-15).oecd.org/AboutTheGC/ Corporations
123 Role of Government and Voluntary Codes in CSR
.org.org UN Draft Principles for Behaviour of Trans-National www2.iccuk.equator-principles.iso.doc UN Global Compact. http://www. (2004.).org International Organization for Standardization.ilo. & Olsen.http://www.asp?ContentID=276.pdf CERES.9 SUGGESTED READINGS
Chandler. http://www.ethicalcorp.globalreporting.org/LEED/ SMART GROWTH Network. A.org/english/issues/globalization/business/docs/lawhouse2. (2003).jsp Global Reporting Initiatives. Available at http://www. (2002). Available at http://info.nsf/wFARATT/ CorporateResponsibility–WhoisResponsible/file/corporateres. Corporate Responsibility – Who is Responsible? The Ashridge Journal.00.sa-intl. Directorate of Financial Enterprise Affairs http://www.
2 Applied Operations Research for Management
125 Corporate Governance
126 Corporate Social Responsibility
11 Corporate Governance: Need to Strengthen 10.15 Keywords 10.2 10.3 10.7 10.8 10.4 10.0 AIMS AND OBJECTIVES
After studying this lesson.1 How to Improve Corporate Governance 10.14 Let us Sum up 10.0 10.13 Corporate Governance and CSR 10.6 10.12 Efforts to Improve Corporate Governance 10.1 10. you should be able to: Understand the concept and need for corporate governance Understand the role of main constituents of corporate governance Discuss the growth of corporate governance at local and global level Know the role and functions of independent directors and the Board Examine the theories of corporate governance Discuss the need to strengthen good corporate governance in India
.16 Self-Assessment 10.11.LESSON
127 Corporate Governance
CONTENTS 10.2 Benefits of Corporate Governance 10.5 10.11.10 Board Composition in India 10.17 Review Questions 10.18 Suggested Readings
10.9 Aims and Objectives Introduction What is Corporate Governance? Constituents of Corporate Governance The Corporate Governance Debate Theories of Corporate Governance Responsibilities of Corporate Governance Global Growth of Corporate Governance History of Corporate Governance in India The Current State of Corporate Governance in India
and when they are to meet. duties. lenders.).128 Corporate Social Responsibility
10. Lehman Brothers and the dramatic decline of stock markets have fuelled an age-old debate on the fundamental issues of corporate governance: for what purpose the corporation exists and whose interests it serves. “Corporate governance is traditionally defined as the ways in which a firm safeguards the interests of its financiers (investors. "Corporate governance is maximizing the shareholder value in a corporation while ensuring fairness to all stakeholders.html Available at http://www. and information-flows to serve as a system of checks-and-balances. (2) procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties. The byelaws commonly also specify the number of members of the board. Corporate governance is about transparency and raising the trust and confidence of stakeholders in the way the company is run.” 1 In the words of Narayan Murthy. employees.1 INTRODUCTION
Corporations around the world are increasing recognizing that sustained growth of their organization requires cooperation of all stakeholders. The issues of governance. (n. The board's activities are determined by the powers. especially between the owner-managers and the rest of the shareholders. A brief description about the same is given below. as well as about the rights of shareholders and the role of Board of Directors have never been as prominent as they are today. Available at http://www. control. customers.
10.org/aboutus.businessdictionary. and responsibilities delegated to it or conferred on it by an authority outside itself.2 WHAT IS CORPORATE GOVERNANCE?
There is no single definition of Corporate Governance. Corporate governance malpractices such as the scandals of Enron. Infosys. and (3) procedures for proper supervision. In this regard. customers.nfcgindia. fairness. This framework consists of (1) explicit and implicit contracts between the firm and the stakeholders for distribution of responsibilities.
Cororate Governance. Board of Directors A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. which requires adherence to the best corporate governance practices. employees. and creditors). privileges. It is about owners and the managers operating as the trustees on behalf of every shareholder .large or small. and roles.3 CONSTITUENTS OF CORPORATE GOVERNANCE
The three key constituents of corporate governance are (a) the Board of Directors. accountability and transparency in the affairs of the company. WorldCom.com/definition/corporategovernance. the government and the society-at-large. government. The modern definition calls it the framework of rules and practices by which a board of directors ensures accountability. and rewards. (b) the Shareholders and (c) the Management. management. These matters are typically detailed in the organization's byelaws. rights. vendors.d. and transparency in the firm's relationship with its all stakeholders (financiers." 2
10. how they are to be chosen. and the community). investors. the management needs to act as trustees of the shareholders at large and prevent asymmetry of benefits between various sections of shareholders.htm
. Chief Mentor.
1: Role of Constituents Constituents Board of Directors Role The pivotal role in any system of corporate governance is performed by the board of directors. sets its strategic aim and financial goals and oversees their implementation. For achieving the goals of the company it is necessary to put in place adequate internal controls. enhance the practice of good corporate governance. 1996). Normally. this would comprise all members of management one level below the executive directors. but that comes with the potential to lose if the company does poorly. The shareholders' role in corporate governance is to appoint the directors and the auditors. shareholders can encourage openness. and periodically report the activities and progress of the company in a transparent manner to all the stakeholders.
Table 10. It cannot be regulated by legislation alone. Legislation can only lay down a common framework – the "form" to ensure standards.in a firm). As owners of companies. Hence. Management The term management means “senior management. Table 10. including all functional heads. to put in place adequate control systems and to ensure their operation. The focus here is on stakeholders (people or organizations with an interest or concern . supervision.
129 Corporate Governance
10. Shareholders are the owners of a company. or other institution that owns at least one share in a company.which may or may not be financial .4 THE CORPORATE GOVERNANCE DEBATE
Corporate governance is concerned with the regulation. A shareholder may also be referred to as a "stockholder". The responsibility of the management is to undertake the management of the company in terms of the direction provided by the board.Shareholders Any person. accountability of the board and in so doing. companies should add value to as many organizational stakeholders as is practicable (Bain & Band. steers the company. Substance is inexorably linked to the mindset and ethical standards of management.
. They can bring the company directors to task if they believe that the business is not being run in the best interest of the company. company. The debate between the continuum of stockholder versus stakeholders has taken a centre stage and is a matter of debate both at local as well as global level. integrity and above all. shareholders are required to play an active role in exercising their rights.1 below describes the roles of the constituents in Corporate Governance. The orthodox view is that the aim of corporate governance is to ensure that suppliers of capital (stockholders) get a return on their investment by increasing the profits of the business. The "substance" will ultimately determine the credibility and integrity of the process. The management provides information to the board on a timely basis and in a transparent manner to enable the board to monitor the accountability of the management.” It means personnel of the company who are members of its core management team excluding Board of Directors. The modern view of corporate governance is beyond the realm of law. It holds the board accountable for the proper governance of the company. The board is accountable to the stakeholders. They have the potential to profit if the company does well. By participating actively. or performance and conduct oversight of the corporation. This reflects a movement that requires firms to take a more responsible and ethical role in their societal context focused upon the notion of "corporate citizenship".
The first is that because it is difficult or expensive for the principal to verify what the agent is actually doing. a stakeholder is defined as "any group or individual who can affect or is affected by the achievement of the firm's objectives" (Freeman.
. that is society in general. To these the corporation adds secondary stakeholders. In both countries. The second problem is that the principal and the agent may prefer different actions because of the different attitudes toward risk (Eisenhardt. customers. including shareholders. the separation of ownership and control increases the power of professional managers and leaves them free to pursue their own aims and serve their own interests at the expense of shareholders (Berle & Means. 31). The principal-agent model agrees upon the failure of corporate internal control.oriented model. These definitions were formulated from the base that modern corporation is affected by a large set of interest groups. and typically. 25). 1970). This is because ethical behaviour reduces the costs of social association. who have a long-term association with the firm and therefore a "stake" in its long-term success. which support profitable investments and mutually beneficial exchanges. Agents are the managers of the company. and this is "meant to generalise the notion of stockholder as the only group to whom management needs to be responsive" (Freeman. 1995). p. the courts. 8-9). is recognised. There are two problems in this model. Perhaps the most fundamental challenge to the orthodoxy is the ‘Stakeholder model’. insisting that markets are the most effective regulators of managerial discretion. the media. who are vital to the survival and success of the corporation. International Monetary Fund. 1984. customers and employees are able to build up trust relations. p.130 Corporate Social Responsibility
10. The well-being of other groups such as employees. suppliers and management. there are two main theories: a) Shareholder-oriented governance: the Principal-Agent or finance model and b) Stakeholder. it denies the inherent failure of market mechanisms. they are better able to pursue competitive advantage through both internal and external relationships (Jones. If firms build a reputation for ethical collaborations over a long period. The goal of corporate governance is to maximise the wealth creation of the corporation as a whole. Organization for Economic Cooperation and Development and the World Bank reveal that there is no single model of good corporate governance.5 THEORIES OF CORPORATE GOVERNANCE
Studies of corporate governance practices across several countries conducted by the Asian Development Bank. 1989. the
Principals. 1984. the government. Friedman. The principal-agent model regards the central problem of corporate governance as self-interested managerial behaviour in a universal principal-agent relationship. The first shows that firms developing a reputation for the ethical treatment of suppliers. they are able to substitute co-operative outcomes for unsatisfactory and unethical ones. p. corporate goals are defined more widely than shareholders' profits. suppliers. which are often referred to as the primary stakeholders. Agency problems arise when the agent does not share the principal's objectives. 1997. special interest groups and the general public.Owners of the company. employees. such as the local community. with its central proposition that a wider objective function of the firm is to be more equitable and more socially efficient than one confined to shareholder wealth ( Keasey et al. 58). Proponents of the stakeholder model hold that its efficiency is demonstrable in two principal ways (Keasey et al. Specifically. the principal cannot verify that the agent has behaved appropriately. 2003. 1932). Furthermore. customers and managers. pp. . The second argument for the efficiency of this approach draws on Japan and Germany as examples of successful industrial societies in which extensive stakeholder involvement with the firm is pervasive. Amongst a couple of theories of corporate governance. lenders.. 1997). The Principal-Agent model 3 starts from an assumption that the social purpose of corporations is to maximise shareholders' wealth (Coelho et al. Hence.
the interests of a wide range of stakeholder groups. legislation. culture. They seek to establish the accountability standards of Directors and CEOs as well as define the roles and responsibilities of the Board of Directors and stakeholders in the company.
131 Corporate Governance
10. Economic Responsibilities: acting in accordance with the logic of competitive markets to earn profits on the basis of innovation and respect for the rights/democracy of the shareholders which can be expressed in terms of managements' obligation as 'maximizing shareholders value'. for promoting good corporate governance standards..
10. Box 10. They were introduced in order to restore investors' confidence as well as to enhance corporate transparency and accountability. Social Responsibilities: the corporate ethical responsibilities. Over the years. Growth of Corporate governance globally and locally is an indication that corporate governance is constantly changing and is always driven by both internal processual impetuses and external environmental dynamics. Corporate governance is a social rather than purely economic reality. and with public responsibilities (Kay & Silberston. 1995). it has become necessary to bring in effective governance practices in the corporate sector. guidelines and principles have been made and implemented covering varied aspects of corporate governance. 1997. Various important and valuable lessons have been learnt from the series of corporate collapses that occurred in different parts of the world over time. with a proper public interest . the issue of corporate governance has received a high level of attention. As a business process. social relations and institutional contexts. which the company understands and promotes either as a community with shared values or as a part of a larger community with shared values.6 RESPONSIBILITIES OF CORPORATE GOVERNANCE
Modern corporate governance standards expect companies to fulfill three different forms of corporate responsibilities: Political Responsibilities: the basic political obligations are: abiding by legitimate law. The interests of labour receive particular safeguards in decision-making. (Keasey et al. suppliers and major customers are linked to the corporation through interlocking shareholdings and cross-directorships. In both countries. character and aspirations of its own.corporation is viewed as an enduring social institution. 9-10). codes and practices to be followed globally. which include the German co-determination system. Accordingly.7 GLOBAL GROWTH OF CORPORATE GOVERNANCE
In the changing global scenario.
. and the Japanese lifetime employment guarantee and consumers-based decision-making to name a few. pp. several codes. respect for the system of rights and the principles of constitutional state.1 below lists the main reports submitted by various committees to improve and develop appropriate framework. corporate governance cannot be isolated from social and other non-economic conditions and factors such as power. with personality.
10.132 Corporate Social Responsibility
Box 10. and India steadily moved toward a culture of "corruption. Company's management and administration. However. "that all industrial units obtain licenses from the central government. financial and nonfinancial disclosures.8 HISTORY OF CORPORATE GOVERNANCE IN INDIA
Pre-Liberalization When India attained independence from British rule in 1947. the country was poor. Subsequent laws. In the decades following India's independence from Great Britain. All these efforts have helped to bring favourable changes in the operating systems of Board of Directors. even for nonconformity with basic governance laws. it essentially "converted private bankruptcy to high-cost public debt.1: Important Committee Reports on Corporate Governance
Cadbury Committee Report. and the few private companies that remained on India's business landscape enjoyed free reign with respect to most laws. the Indian government created enormous state-owned enterprises.” The 1956 Industrial Policy Resolution stipulated that the public sector would dominate the economy. such as the 1956 Companies Act. financial reporting and internal controls. Until recently. trading. Government accountability was minimal." As the government took over floundering private enterprises and rejuvenated them. The 1951 Industries Act was a step in this direction. compliance with codes of corporate governance. hostile takeovers were almost entirely
. requiring. the country turned away from its capitalist past and embraced socialism. competitive remuneration policy. and settlements. Boards of directors invariably were staffed by friends or relatives of management." The absence of a corporate-governance framework exacerbated the situation. and abuses by dominant shareholders and management were commonplace. To put this plan into effect. the government rarely initiated punitive action. shareholders rights and responsibilities.The Financial Aspects of Corporate Governance (1992) Greenbury Committee Report on Directors' Remuneration (1995) Hampel Committee Report on Corporate Governance (1998) The Combined Code. further solidified the rights of investors. Principles of Good Governance and Code of Best Practice. nepotism and inefficiency. as well as improve the face of relationship between supervisory and executive bodies. India's equity markets "were not liquid or sophisticated enough" to punish these abuses." It even had four fully operational stock exchanges. etc. London Stock Exchange (1998) CalPERS' Global Principles of Accountable Corporate Governance (1999) Blue Ribbon Report (1999) King’s Committee On Corporate Governance (2002) Sarbanes Oxley Act (2002) Higgs Report: Review of the role and effectiveness of non-executive directors (2003) The Combined Code on Corporate Governance (2003) ASX Corporate Governance Council Report (2003) OECD Principles of Corporate Governance (2004) The Combined Code on Corporate Governance (2006) UNCTAD Guidance on Good Practices in Corporate Governance Disclosure (2006) The Combined Code on Corporate Governance (2008)
The recommendations and principles made by various committees on corporate governance have been mainly focused on structure of the company. it still possessed sophisticated laws regarding "listing.
the poorly governed Indian firms had little to worry about in terms of following corporate laws once they had raised capital through their initial public offering. SEBI instituted the Murthy Committee to scrutinize India's corporate-governance framework further and to make additional recommendations to enhance its effectiveness. Their duty is to provide an unbiased. the Indian Parliament created the Securities and Exchange Board of India ("SEBI") to "protect the interests of investors in securities and to promote the development of. are based in part on the Murthy Committee's recommendations and represent a substantial improvement over the laws that previously were in effect. For example. few firms embraced it. and the latest revisions to Clause 49 became law on January 1.
. as Indian enterprises turned to the stock market for capital. and the Murthy Committee recommendations from 2003) has advanced a more nuanced and sophisticated understanding of corporate governance in this respect." In the years leading up to 2000.9 THE CURRENT STATE OF CORPORATE GOVERNANCE IN INDIA
Corporate governance reforms in India has focused primarily on the "role and composition of the board of directors. SEBI has since incorporated the recommendations of the Murthy Committee. the Confederation of Indian Industry (CII). independent. varied and experienced perspective to the board. Post-Liberalization In 1999. Thus. required only that the "majority and chair" of the audit committee be independent and that at least one director be well-versed in finance. Clause 49 outlines requirements vis-a-vis corporate governance in exchange-traded companies. at least one-third of the Board should be comprised of independent directors." The Birla Committee. The SEBI laws that took effect on January 1." Another notable recommendation of the Murthy Committee was that the Audit Committee be comprised entirely of "financially literate non-executive members with at least one member having accounting or related financial management expertise. the Murthy Committee recommended that companies train their "Board members . since the Code's adoption was voluntary. However. and to regulate the securities market. 2006. where appropriate. and therefore. a plethora of scams rocked the Indian business scene.non-existent in India. The presence of sizeable independent representatives on the board. at least half of the Board should be comprised of independent directors. In 2003.
133 Corporate Governance
10. it became important to ensure good corporate governance industry-wide. scrutinizing the decisions of the management. unveiled India's first code of corporate governance. In 1998. 2006. and corporate governance emerged as a solution to the problem of unscrupulous corporate behavior. is widely considered as a means of protecting the interests of shareholders and." and when "the chairman is an executive director. in the business model of the company as well as the risk profile of the business parameters of the company." Each of the three sets of recommendations (the CII Code recommendations from 1997. Soon after. other stakeholders." The definition of independent directors is sufficiently strict. corporate governance in India was in a dismal condition by the early 1990s. the Kumar Mangalam Birla Committee recommendations from 2000.2 below for explanation of Independent Directors). In 2000. (See Box 10. while the CII Code was silent on the financial-literacy levels expected of directors. SEBI accepted the recommendations of the Birla Committee and introduced Clause 49 into the Listing Agreement of Stock Exchanges. Additionally.. The new laws require that when the "Chairman of the Board is a non-executive director. in contrast. SEBI appointed the Birla Committee to develop a code of corporate governance..
The new law that has taken effect on January 1. In India as per Clause 49 of the listing agreement. 2006. If the Chairman of the Board is a non-executive director. an independent director is one who: a. Is not a material supplier. and f.
. i. and it does not necessitate director retraining.10 BOARD COMPOSITION IN INDIA
In various countries as per their legal framework the board comprises of executive.. to name just a few shortcomings.e."
Box 10.2: Independent Directors
According to the latest SEBI rules. Alternate Directors are officiating Directors. Executive directors: are the directors of the company who are involved in the day to day management of the company. the Board of Directors (BOD) of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of nonexecutive directors.com/clause49. b. Has not been an executive of the company in the immediately preceding three financial years. at least half of the Board should comprise of independent directors. its directors. If any Director is absent for a period of three months or more from the State in which the meetings of the board are ordinarily held the Board has the powers to appoint ‘Alternate Directors’.3: Types of Directors in the Board
a. the law mandates that "two-thirds of the members of the audit committee shall be independent directors. nominee directors. Is not a partner or an executive or was not partner or an executive during the preceding three years. associate directors and a couple of other directors. e.. Apart from receiving the director's remuneration. as they are not involved in the day to day management of the company. etc." Finally. falls short on a number of key criteria. it does not address the problem of institutional-investor apathy in India. non executive/ independent. they can bring an independent voice and perspective to the board. holding companies and financial institutions or other lenders. its senior management or its holding company. its subsidiaries and associates which may affect the independence of the director.
Box 10. d.
10. which already exists and. The rationale behind appointing nonexecutive directors is that. and ii) the legal firm(s) and consulting firm(s) that have a material association with the company. Is not related to promoters or persons occupying management positions at the board level or at one level below the board. no new office of Director is created by his appointment. b. owning two percent or more of the block of voting shares
Source:http://www. It creates no official requirement for whistleblower protection. d. These directors are nominated to represent their interest on the Board. service provider or customer or a lessor or lessee of the company. which may affect independence of the director.3 below briefly describes types of directors a board can appoint. Is not a substantial shareholder of the company.clause49. every firm must "submit a quarterly corporate-governance compliance report to the stock exchanges. Box 10. Independent /Non-Executive directors are not involved in the day to day management of the company and are appointed from outside the company. does not have any material pecuniary relationships or transactions with the company. at least one third of the Board should comprise of independent directors and in case he is an executive director. foreign collaborators.134 Corporate Social Responsibility
Further. c. c. The Alternate Director merely fills a temporary vacancy in the office of a Director. its promoters. of any of the following: i) the statutory audit firm or the internal audit firm that is associated with the company. Nominee Directors are those who represent third parties in the Board like government officials.
11 CORPORATE GOVERNANCE: NEED TO STRENGTHEN
As India Inc. commitment level of individual Board members. 34% of companies in India reported loss of a business opportunity due to the likely payment of bribe by a competitor. Industry insiders point to several acquisition deals that have turned sour and resulted in litigations after the acquired company managements failed to meet key conditions. 55% of Indian companies in the past two years had reported incidents of fraud and a PricewaterhouseCoopers (PwC) study (2007) indicates the average direct loss from fraud per company at the global level is $2. skills. namely: integrity of the management. Board Independence: An independent board is essential for sound corporate governance. Legislation: Understanding the legislative and regulatory framework is fundamental to effective corporate governance. According to KPMG survey (2008) on the state of corporate governance in India. It means that the board is capable of assessing the performance of managers with an objective perspective.1 How to Improve Corporate Governance
Quality of corporate governance primarily depends on the following factors. ability of the Board.
135 Corporate Governance
10.11. Role and Powers of the Board: The foremost requirement of good corporate governance is the clear identification of powers. they are exposed to not just ‘home-grown’ frauds. Amongst the growing unethical business practices in India. When companies in India expand their reach to other countries. economic crime is emerging as a bigger threat than before. suggesting that business relationships and success may not be determined only on the basis of a product or service quality. the majority of board members should be independent of both the management team and any commercial dealings with the company. goes global. Since. adequacy of the processes. employees. Consequently. participation of stakeholders in the management. the board must possess the necessary blend of qualities. roles.5 million. Board Skills: In order to be able to undertake its functions effectively. etc. Code of Conduct: It is essential that an organization's explicitly prescribed code of conduct are communicated to all stakeholders and are clearly understood by them. Such independence ensures the effectiveness of the board in supervising the activities of management as well as making sure that there are no actual or perceived conflicts of interests. good governance framework also calls for effective legal and institutional environment. responsibilities and accountability of the Board. but also frauds prevalent in other markets. Ernst & Young (2008) reports that the incidence of fraud is becoming an increasing menace. CEO and the Chairman of the Board. efficacy and price. there is a need for stronger regulatory review and exemplary enforcement. quality of corporate reporting. The report claims only 34% of Indian companies have insurance covers for losses due to fraud against 45% globally. The main constituents of good corporate governance listed below have to be incorporated by each company to improve its credibility in the market.10. business ethics and awareness of the environmental and societal interests.4 million and for India it is $1. business associates and shareholders are worst affected in the process. knowledge and experience so
. majority of respondents believe that while corporate governance should be practiced through principle-based standards and moderate regulations. Hence. this is an important element affecting the long-term financial health of companies. There should be some system in place to periodically measure and evaluate the adherence to such code of conduct by each member of the organization.
Such meetings enable directors to discharge their responsibilities.136 Corporate Social Responsibility
as to make quality contribution. and ensuring that senior management takes steps to detect. encouraging business risk assessment. reliable. monitor. internal and statutory auditors. establishing performance evaluation measures and evaluating performance and sufficiently recognizing individual and group contribution. implementing sound business planning. may impact corporate governance and other related issues. reporting to the board on key issues. reviewing the adequacy of internal control and compliance with significant policies and procedures. Monitoring the Board Performance: The board must monitor and evaluate its combined performance and also that of individual directors at periodic intervals. financial skills. providing for transparency and clear enunciation of responsibility and accountability. which could prevent the company from effectively achieving its objectives. legal skills as well as knowledge of government and regulatory requirements. using key performance indicators besides peer review. The stakeholders must be informed about the approval by the proposed and on going initiatives taken to meet the community obligations. Board Meetings: These are the forums for board decision making. setting acceptable levels of risks. establishing due processes. Board Induction and Training: It is essential to ensure that directors remain abreast of all development. and control these risks. There should be a clearly established process of identifying. This includes operational or technical expertise. Board Appointments: To ensure that the most competent people are appointed on the board. the board positions must be filled through the process of extensive search. Financial and Operational Reporting: The board requires comprehensive. A well defined and open procedure must be in place for reappointments as well as for appointment of new directors. timely. correct and relevant information in a proper format and of a quality that is appropriate to discharge its function of monitoring corporate performance. The board has the ultimate responsibility for identifying major risks to the organization. The mandatory and non mandatory requirements of Clause 49 to be complied with for improving corporate governance are listed at the end of the chapter in the Annexure. Strategy Setting: The objective of the company must be clearly documented with a long term corporate strategy including an annual business plan together with achievable and measurable performance targets and milestones. Audit Committee: It is inter alia responsible for liaison with management. Risk Management: Risk is an important element of corporate functioning and governance. establishing clear boundaries for acceptable behaviour. which impact or.
. The effectiveness of board meetings is dependent on carefully planned agendas and provision of relevant papers and materials to directors sufficiently prior to board meetings. yet it must also take care of the community's obligations. Business and Community Obligations: Though the basic activity of a business entity is inherently commercial. analyzing and treating risks. regular. Management Environment: This includes setting up of clear objectives and appropriate ethical framework. having right people and right skill for jobs.
Limiting the liability of top management and directors by carefully articulating the decision making process. Several studies in India and abroad have indicated that markets and investors take notice of the credibility offered by good corporate governance procedures designed by the company and helps them to take long term investment decisions. Improving strategic thinking in the Board through induction of independent directors who bring in experience and new ideas. Instances of financial crisis like Subprime crisis. lenders.12 EFFORTS TO IMPROVE CORPORATE GOVERNANCE
A National Foundation for Corporate Governance (NFCG) is set up in association with the CII 4 . Under such a scenario.1. government. policy makers. it will not be able to succeed. The underlying principles of corporate governance revolve around certain basic inter-related segments displayed in Figure 10. Investors are willing to pay higher prices to the corporates demonstrating strict adherence to internally accepted norms of corporate governance. Gain long term reputational effects and strengthening of stakeholders’ relationship amongst key internal and external stakeholders. corporations need to access global pools of capital as well as attract and retain the best human capital from various parts of the world. 4. ICAI 5 and ICSI 6 to provide a platform to deliberate on issues relating to good corporate governance. Effective governance reduces perceived risks. 6. Box 10. rather than form. This is because financial and non-financial disclosures made by any firm are only as good and honest as the people behind them. to sensitize corporate leaders on the importance of good corporate governance practices as well as to facilitate exchange of experiences and ideas amongst corporate leaders.
4 5 6
Confederation of Indian Industries Institute of Chartered Accountants of India Institute of Company’s Secretaries of India
Box 10. Good corporate governance recognizes the diverse interests of shareholders. neither can any system of corporate governance be static. Madoff Investment Securities scam.government organizations. Effectiveness of corporate governance system cannot merely be legislated by law.4 below summarizes the benefits of corporate governance. As competition increases. etc. regulators. there is a need to shift the emphasis on compliance of corporate governance with substance. consequently reduces cost of capital and enables board of directors to take quick and better decisions which ultimately improves bottom line of the corporates.
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10.11. and develop intellectual honesty and integrity. Assuring the integrity of financial reports and other communication. its growth is directly dependent on the cooperation rendered by all the stakeholders.2 Benefits of Corporate Governance
In today's globalized world. Rationalizing the management and constant monitoring of risk that a firm faces globally. Satyam scam. have brought the subject of corporate governance to the surface. Companies like Infosys and Wipro have demonstrated that adoption of good corporate governance practices provides stability and growth to the enterprise. law enforcing agencies and non. Hence. 2. The corporation being a congregation of various stakeholders. Builds confidence amongst stakeholders as well as prospective stakeholders. 5. unless a corporation embraces and demonstrates ethical conduct.10. the environment in which firms operate changes and in such a dynamic environment the systems of corporate governance also need to evolve. 3.4: Benefits of Corporate Governance
138 Corporate Social Responsibility
. CSR is a risk management strategy for business. It is also important to understand that diversity and independence are important because the best collective decisions are the product of disagreement and contest. All board members need to have knowledge and experience that allows them to demonstrate results orientation. Systemic organizational failures and negative social consequences are created by corporate governance structures and processes. they must also be supported by the "right" attitudes on the part of management. diverse. or environmental frame-works can impact the profitability of business and reputation.13 CORPORATE GOVERNANCE AND CSR
Good corporate governance is the foundation of CSR. For instance. Wipro values its policies above everything else. a senior employee. be both independent and collaborative. businesses need risk management strategy which can be designed by formulating and implementing CSR strategy and preparing triple bottom line reports. the external auditor and other advisors. The penalty is the same across the company and penal policies are the same. Wipro has developed a code of business conduct that defines do’s and don’ts and tolerance levels in the company. they have developed a "no tolerance" policy towards any kind of fraud. Boards of directors cannot function effectively if they do not have the "right people" as members and the "right chairman" as leader. Reddy’s Lab and Infosys who have a large global workforce. strategic orientation and at the same time. not consensus or compromise. To overcome these risks. work place. violation of market place. effective corporate governance must include a Board of Directors independent from management but accountable to the company and its shareholders.
10. With ethical intellectual capital governing new companies like Wipro. Sound. Similarly. which impact stakeholder relationships and are risks for business. Moreover. Dr. ethical and socially oriented executives. Recently Wipro terminated 100 employees after it was discovered that these employees had furnished fake resumes in connivance with the external hiring agency.1: Interrelated Segments of Corporate Governance
Ethical Business Transparency
Corporate Governance Management ownership of Corporate Actions
Independence of Board & Auditors
For effective corporate governance there is a need of selecting meritorious. who had wrongfully claimed medical reimbursement for a corrective eye surgery. too was forced to resign. Even proxy bribing by vendors or partners is not permitted. Viewed from this context.
As CSR is fundamentally concerned with transparency, accountability and performance, it is important for the CSR decision-making structure to be an integral component of the corporate governance system. For developing ethical business standards within the organization there are several options for board participation in CSR activities. For instance a board member could be tasked with a broad responsibility for CSR activities; a new member who has specific CSR expertise could be appointed; CSR responsibilities could be added to the work of existing board committees; a new CSR board committee could be formed; or the entire board could be involved in CSR decisions. Recognizing the fact that businesses are vital partners in development, the governance standards and the stakeholder social responsibility practices adopted by the companies need to be strategically aligned to achieve both business and social goals. Corporate Governance & CSR are crucial elements to foster sustainability of businesses and society.
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10.14 LET US SUM UP
It is true that 'corporate governance' has no unique structure or design and is largely considered ambiguous. There is still lack of awareness about its various issues like, quality and frequency of financial and managerial disclosure, compliance with the code of best practice, roles and responsibilities of Board of Directories, shareholders rights, etc. There have been many instances of failure and scams in the corporate sector, like collusion between companies and their accounting firms, presence of weak or ineffective internal audits, lack of required skills by managers, lack of proper disclosures, non-compliance with standards, etc. As a result, both management and auditors have come under greater scrutiny. Industry bodies like CII, NASSCOM 7 and regulators like SEBI should look at a more unified approach towards handling corporate misgovernance and at developing benchmarks in good governance practices. The degree to which corporations observe basic principles of good corporate governance is an increasingly important factor for taking key investment decisions. If companies are to reap the full benefits of the global capital market, capture efficiency gains, benefit from economies of scale and attract long term capital, adoption of corporate governance standards must be credible, consistent, coherent and inspiring. Hence, in the years to come, corporate governance will become more relevant and a more acceptable practice worldwide. Good corporate-governance practices can help increase investment, decrease corruption, and reduce wasting of scarce resources. Ultimately, India's corporategovernance destiny will be shaped by how effectively its legislature, judiciary, and SEBI implement transparent and effective corporate-governance laws and to what extent company is committed to improve its long-term sustainability.
Corporate Governance: How firm safeguards interest of its stakeholders. Independent Directors: Not involved in company day to day operations and are appointed form outside. Clause 49: Outlines requirement of corporate governance in companies Principle Agent Model: Believes that firm’s prime motive is shareholders’ wealth maximization.
The National Association of Software and Services Companies
140 Corporate Social Responsibility
Stakeholder Model: Holds that firm should take care of all its stakeholders Alternate Director: Temporarily fills in office of an existing director
10.16 SELF ASSESSMENT
1. State whether the following statements are true or false: (a) Corporate governance deals with maximizing shareholders returns while ensuring fairness to all the stakeholders. (b) Society forms a key constituent of corporate governance framework. (c) Business should also consider secondary stakeholders while designing a corporate governance framework. (d) Corporate governance deals with economies of business. (e) SEBI Committee makes it mandatory that at least one-third of the members of the audit committee should be independent directors. (f) Executive directors are elected form outside the company. (g) Monitoring of board performance is must to ensure smooth governance. (h) CSR is an integral part of company’s corporate governance system. 2. Choose the appropriate answer: (a) When agents’ and principles’ interest are conflicting, it gives rise to: (i) Principle problems (ii) Agency problems (iii) Governance problems (iv) System problems (b) As per the principle-agent model, the principle and agent may choose separate actions due to their different approach towards: (i) Governance (ii) Growth (iii) Risk (iv) Goals (c) To give due consideration to shareholders’ wealth is…………….responsibility of corporate governance. (i) Moral (ii) Social (iii) Economic (iv) Political (d) Which of these relate to Indian scenario before 1991? (i) SEBI Committee reports (ii) Investors interest were protected by guidelines given by government (iii) Introduction of first code of corporate governance by CII (iv) No solid equity markets in India maximization
(e) As per SEBI guidelines independent directors should not be: (i) Customer or supplier of the firm (ii) Major shareholder (iii) In relation to members of management (iv) All of the above (f) In case of failure of corporate governance system, CSR can also act as: (i) Risk management system (ii) Negative publicity (iii) Legal support (iv) Monetary support
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10.17 REVIEW QUESTIONS
1. What is Corporate Governance? 2. Discuss the functions of the main constituents of Corporate Governance. 3. Discuss the growth of corporate governance in India. 4. Discuss why and how should India strengthen its corporate governance. 5. Examine Clause 49 and discuss what does the clause highlight. 6. What is the relationship between CSR and corporate governance?
Answers: Self Assessment
1. (a) True (g) True 2. (a) ii (b) False (h) True (b) iii (c) iii (d) iv (e) iv (f) i (c) True (d) False (e) False (f) False
10.18 SUGGESTED READINGS
Ahooja, B., & Gupta, A. (2005). Corporate India: Whistleblower and Clause 49. Available at http://www.indlaw.com/publicdata/articles/article78.pdf. Bain, N., & Band, D. (1996). Winning Ways through Corporate Governance. London: Macmilllan Business. Blair, M. (1995). Ownership and Control: Rethinking Corporate Governance for the Twentyfirst Century. Washington, DC: Brookings Institution Press. Berle, A., & Means, G. (1932). The Modern Corporation and Private Property. New York: Macmillan. Clause 49. (n.d.). About Clause49. Available at http://www.clause49.com/clause49.htm Coelho, P., McClure, J., and Spry, J. (2003). The social responsibility of corporate management: a classical critique. Mid-American Journal of Business, 18 (1), 15-24. Confederation of Indian Industry. http://cii.in/menu_content.phpmenu_id=3. (n.d.). About Us. Available at
Confederation of Indian Industry. (1998, April). Desirable Corporate Governance: A Code. Available at http://www.nfcgindia.org/desirable_corporate_governance_cii.pdf. Eisenhardt, K. (1989). Agency Theory: An assessment and review. Academy of Management Review, 14 (1), 57-74.
Corporate Governance Country Assessment. (2003). Developing Countries.people. Private Equity in http://www.pwc. (2005. Report of the Kumar Mangalam Birla Committee on Corporate Governance. P. 84-97. Thompson. (1997). (2001).org/news_room/in_focus/2008/cpi2008/cpi_2008_table Varma. Available at http://classshares.sebi.usp. The Tenth Global Fraud Survey. (2000).Economic Crime: People.). OECD Publishing. Corporate Governance in India: Disciplining the Dominant Shareholder. (Eds). Corporate Governance in India. 153. (n. 56 . K. Murthy. Corporate Governance. 1956. Academy of Management Review.in/commreport/corpgov.org/home.142 Corporate Social Responsibility
Ernst & Young. (2009). Available at http://www.com/Publication/vwLUAssets/FIDS_Corruption_or_compliance_weighing_the _costs/$FILE/Corruption_or_compliance_weighing_the_costs. 9 (4). Bangalore. Introduction: the corporate governance problem-competing diagnoses and solutions. http://indiacode.ernet. T. Securities and Exchange Board of India.asp?tfnm=195601. Strategic Management: A Stakeholder Approach.Weighing the Costs. Thompson.com/extweb/pwcpublications. No. 5-18.in/commreport/corpgov. 404-437.org/ifa/rosc_cg_ind.nfcgindia.html. Available at http://web.ac. National Institute Economic Review. J. (1995). (2004. 249273. 20. In Corporate Governance In Asia: A Comparative Perspective Organisation for Economic Co-operation and Development. S.77. Available at http://www.html The Companies Act.ey. April). Acts of Parliament. About NFCG. (1997). J. M. (1997).transparency.pdf. 1.kpmg. Available at http://www. Extension of Date of Ensuring Compliance with Revised Clause 49 of the Listing Agreement.in/fullact1.html Pacanins. Available at http://www. N. International Journal of Business Governance and Ethics 1(1).edu/jlerner/develop. R.gov.in. Corporate Governance: Economic and Financial Issues. Available at http://www.com/TL_Files/Pictures/CGSurveyReport. S.iimahd. National Foundation or Corporate Governance.in/press/2005/200566. Corruption or Compliance. Kar.pdf Securities and Exchange Board of India. London: Pitman Publishing. & Vasudevan.pdf Machold. (2007).d. A.worldbank.html.in/~jrvarma/papers/iimbr9-4. (2008).gov. Report on The Observance of Standards And Codes (Rosc).A poll. The 4th Biennial Global Economic Crime Survey. Available at
Transparency International. Available at http://www. G. & Wright. Instrumental Stakeholder Theory: A synthesis of ethics and economics. (2004).pdf Freeman. Investigations and Forensic Services. S..pdf Kay.
. In Keasey.fj/AF411/Jones. Indian Institute Management. and Wright. (1995).sebi. & Silberston.nsf/docid/45B0CF98377B0945CA25739200379 D15/$file/GECS_India_report_2007.nic. Available at http://www.. 66/2005. Management Review.gov. A State of Corporate Governance in India . A. (2008).pdf Jones. K. Available at
Press Release No. culture & controls (India). March 29).Acadamymanagementreview. KPMG in India. Report of the SEBI Committee on Corporate Governance. Corruption Perception Index Study -2008. Oxford: Oxford University Press. Corporate Governance Models in Emerging Markets: The Case of India. Keasey.hbs. 1956.student. (1984).pdf. Available at http://www..sebi. M. Available at http://www.
its subsidiaries and associates which may affect independence of the director. e. The shareholders’ resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors. shall be fixed by the Board of Directors and shall require previous approval of shareholders in the general meeting. if any.
3. Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place. which may affect independence of the director.org/clause49%20_2004.Corporate Governance The company agrees to comply with the following provisions: BOARD OF DIRECTORS Composition of Board 1. has not been an executive of the company in the immediately preceding three financial years. and
143 Corporate Governance
2. is not a material supplier.
Downloaded from http://www. is not related to promoters or persons occupying management positions at the board level or at one level below the board. owning two percent or more of the block of voting shares.
ii) the legal firm(s) and consulting firm(s) that have a material association with the company. its promoters. A director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director. of any of the following: i) the statutory audit firm or the internal audit firm that is associated with the company.
Non-executive Directors’ Compensation and Disclosures All fees/compensation. at least one-third of the Board should comprise of independent directors and in case he is an executive director.pdf
. the expression ‘independent director’ shall mean a non-executive director of the company who: a. The board shall meet at least four times a year. f.. including independent directors. Where the Chairman of the Board is a non-executive director.nfcgindia.
b. its directors.e. Other Provisions for the Board and Committees 1.
Contd. in any financial year and in aggregate.Annexure I 8
Clause 49 . The Board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors. its senior management or its holding company. and is not a substantial shareholder of the company. service provider or customer or a Lessor or lessee of the company. apart from receiving director’s remuneration. is not a partner or an executive or was not a partner or an executive during the preceding three years. For the purpose of the sub-clause (ii).. paid to non-executive directors.
2. d. i. including independent directors. with a maximum time gap of three months between any two meetings. The minimum information to be made available to the board is given in Annexure– I A. at least half of the Board should comprise of independent directors.. does not have any material pecuniary relationships or transactions with the company. c.
if required. The Annual Report of the company shall contain a declaration to this effect signed by the CEO. giving the terms of reference subject to the following: 1. 4. if any. in accounting policies and practices and reasons for the same Major accounting entries involving estimates based on the exercise of judgment by management Significant adjustments made in the financial statements arising out of audit findings Compliance with listing and other legal requirements relating to financial statements
Contd. 3. if it considers necessary. Recommending to the Board. re-appointment and.
b. but there should be a minimum of two independent members present. Powers of Audit Committee The audit committee shall have powers. the replacement or removal of the statutory auditor and the fixation of audit fees. sufficient and credible. 2. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. 4. To secure attendance of outsiders with relevant expertise. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. the annual financial statements before submission to the board for approval. The quorum shall be either two members or one third of the members of the audit committee whichever is greater. The audit committee shall have minimum three directors as members. To investigate any activity within its terms of reference. with particular reference to: a. The Board shall lay down a code of conduct for all Board members and senior management of the company. d. 2.
AUDIT COMMITTEE Qualified and Independent Audit Committee A qualified and independent audit committee shall be set up. The code of conduct shall be posted on the website of the company. To seek information from any employee. which should include the following: 1.. Reviewing. with the management. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct. 1956 Changes. the appointment.
Role of Audit Committee The role of the audit committee shall include the following: 1.. 3.
2.144 Corporate Social Responsibility
Code of Conduct 1. Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (2AA) of section 217 of the Companies Act.
2. e. To obtain outside legal or other professional advice. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. c. Two-thirds of the members of audit committee shall be independent directors.
Meeting of Audit Committee The audit committee should meet at least four times in a year and not more than four months shall lapse between two meetings.
. To look into the reasons for substantial defaults in the payment to the depositors.
Contd. shareholders (in case of non payment of declared dividends) and creditors. in case the same is existing. adequacy of the internal control systems. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. To review the functioning of the Whistle Blower mechanism.
2. submitted by management. the investments made by the unlisted subsidiary company. with the management. Statement of significant related party transactions (as defined by the audit committee). debenture holders.
8. performance of statutory and internal auditors. 5. reporting structure coverage and frequency of internal audit.
10. Internal audit reports relating to internal control weaknesses. 2. 11. The management should periodically bring to the attention of the Board of Directors of the listed holding company. the quarterly financial statements before submission to the board for approval Reviewing. with the management. 12. At least one independent director on the Board of Directors of the holding company shall be a Director on the Board of Directors of a material non listed Indian subsidiary company. Review of Information by Audit Committee The Audit Committee shall mandatorily review the following information: 1. Management letters / letters of internal control weaknesses issued by the statutory auditors. staffing and seniority of the official heading the department. Discussion with statutory auditors before the audit commences. 9. Reviewing the adequacy of internal audit function. 13. if any. 7. including the structure of the internal audit department. The Audit Committee of the listed holding company shall also review the financial statements. 3. and The appointment. removal and terms of remuneration of the Chief Internal Auditor shall be subject to review by the Audit Committee
SUBSIDIARY COMPANIES 1. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. Management discussion and analysis of financial condition and results of operations. a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.. 6. 4.
Disclosure of any related party transactions Qualifications in the draft audit report. Discussion with internal auditors any significant findings and follow up there on. g.
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Reviewing. about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 5.
These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework. together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report. The company shall publish its criteria of making payments to non-executive directors in its annual report.. This statement shall be certified by the statutory auditors of the company. the usage / applications of funds by major category (capital expenditure. All pecuniary relationship or transactions of the non-executive directors vis-à-vis the company shall be disclosed in the Annual Report. along with the performance criteria.
. etc). stock options. severance fees. preferential issues etc.. Details of material individual transactions with related parties or others. 3. Remuneration of Directors 1. together with Management’s justification for the same. Preferential Issues etc.). Alternatively. (d) Stock option details. Board Disclosures – Risk Management The company shall lay down procedures to inform Board members about the risk assessment and minimization procedures.
Contd. Proceeds from Public Issues. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee. the fact shall be disclosed in the financial statements. a treatment different from that prescribed in an Accounting Standard has been followed. Further. this may be put up on the company’s website and reference drawn thereto in the annual report. benefits.146 Corporate Social Responsibility
DISCLOSURES Basis of Related Party Transactions 1. on an annual basis. sales and marketing. A statement in summary form of transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee. When money is raised through an issue (public issues. working capital.
Disclosure of Accounting Treatment Where in the preparation of financial statements. 2. 3. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report. it shall disclose to the Audit Committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. (c) Service contracts. bonuses. rights issues. such as salary. Rights Issues. if any – and whether issued at a discount as well as the period over which accrued and over which exercisable. 2. notice period. (b) Details of fixed component and performance linked incentives. on a quarterly basis as a part of their quarterly declaration of financial results. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter. the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and place it before the audit committee. pension etc. Further the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the Annual Report: (a) All elements of remuneration package of individual directors summarized under major groups. which are not at an arm’s length basis should be placed before the audit committee.
Risks and concerns. the Board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents.. commercial dealings with bodies. To expedite the process of share transfers. Opportunities and Threats. where they have personal interest. Segment–wise or product-wise performance. Internal control systems and their adequacy. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the company’s competitive position: i. that may have a potential conflict with the interest of the company at large (for example..
Non-executive directors shall be required to disclose their shareholding (both own or held by / for other persons on a beneficial basis) in the listed company in which they are proposed to be appointed as directors. (c) Names of companies in which the person also holds the directorship and the membership of Committees of the Board. Discussion on financial performance with respect to operational performance. (b) Nature of his expertise in specific functional areas. iv.5. iii. A board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressal of shareholder and investors complaints like transfer of shares. which have shareholding of management and their relatives etc.
Shareholders 1. dealing in company shares. and (d) Shareholding of non-executive directors as stated in Clause 49 (IV) (E) (v) above 2. a Management Discussion and Analysis Report should form part of the Annual Report to the shareholders. non-receipt of declared dividends etc. As part of the directors’ report or as an addition thereto. vii. In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information: (a) A brief resume of the director. including number of people employed. Outlook v. prior to their appointment. This Committee shall be designated as ‘Shareholders/Investors Grievance Committee’. or shall be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site. 2.
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These details should be disclosed in the notice to the general meeting called for appointment of such director Management 1.
Contd. Senior management shall make disclosures to the board relating to all material financial and commercial transactions.
. The delegated authority shall attend to share transfer formalities at least once in a fortnight. Industry structure and developments. non-receipt of balance sheet. Quarterly results and presentations made by the company to analysts shall be put on company’s web-site.
vi. viii Material developments in Human Resources / Industrial Relations front.
the Managing Director or Manager appointed in terms of the Companies Act. The company shall obtain a certificate from either the auditors or practicing company and annex the certificate with the directors’ report.
4. They accept responsibility for establishing and maintaining internal controls and that they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the Audit Committee. The report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company. There shall be a separate section on Corporate Governance in the Annual Reports of the company. 1956 and the CFO i. and (iii) instances of significant fraud of which they have become aware and the involvement therein. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief: (i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading. the disclosures of the compliance with mandatory requirements and adoption (and compliance) / non-adoption of the non-mandatory requirements shall be made in the section on corporate governance of the Annual Report. (ii) these statements together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards.
. The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the company. (ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements. i. the whole-time Finance Director or any other person heading the finance function discharging that function shall certify to the Board that: 1.e. deficiencies in the design or operation of internal controls. 2. of the management or an employee having a significant role in the company’s internal control system REPORT ON CORPORATE GOVERNANCE 1.
2. with a detailed compliance report on Corporate Governance. no transactions entered into by the company during the year which are fraudulent. However. They have indicated to the auditors and the Audit committee (i) significant changes in internal control during the year. applicable laws and regulations. if any. which is sent annually to all the shareholders of the company. There are. of which they are aware and the steps they have taken or propose to take to rectify these deficiencies. to the best of their knowledge and belief.
2. illegal or violative of the company’s code of conduct.e. The companies shall submit a quarterly compliance report to the stock exchanges within 15 days from the close of the quarter as per the format given in Annexure I B. The suggested list of items to be included in this report is given in Annexure. Non-compliance of any mandatory requirement of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted.I C and list of non-mandatory requirements is given in Annexure – I D. The non-mandatory requirements given in Annexure – I D may be implemented as per the discretion of the company.
COMPLIANCE 1. if any.148 Corporate Social Responsibility
CEO/CFO CERTIFICATION The CEO.
The information on recruitment and remuneration of senior officers just below the board level. Any issue. any material effluent or pollution problems. prosecution notices and penalty notices which are materially important. including appointment or removal of Chief Financial Officer and the Company Secretary. 11. brand equity. or substantial nonpayment for goods sold by the company. 4. Fatal or serious accidents. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement. implementation of Voluntary Retirement Scheme etc. nature of investments. 7. or intellectual property.pdf
10. 9. Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement. 5. 14. Significant labour problems and their proposed solutions. Capital budgets and any updates. may have passed strictures on the conduct of the company or taken an adverse view regarding another enterprise that can have negative implications on the company.
149 Corporate Governance
6. Non-compliance of any regulatory. 15. which is not in the normal course of business. Annual operating plans and budgets and any updates. Show cause. Minutes of meetings of audit committee and other committees of the board.nfcgindia.org/clause49%20_2004. Sale of material.
Downloaded from http://www. Any material default in financial obligations to and by the company. if material. Details of any joint venture or collaboration agreement.ANNEXURE IA 9 Information to be placed before Board of Directors 1. dangerous occurrences. Transactions that involve substantial payment towards goodwill. 13. 3. demand. statutory or listing requirements and shareholders service such as non-payment of dividends delay in share transfers etc. 8. which involves possible public or product liability claims of substantial nature. including any judgement or order which. subsidiaries or assets. 2. Quarterly results for the company and its operating divisions or business segments.
compliance or non-compliance may be indicated by Yes/No/N.. Report on Corporate Governance VII. reasons for non-compliance may be indicated. Basis of related party transactions Board Disclosures Proceeds from public issues. "Report on Corporate Governance" is to be a part of Annual Report only.org/clause49%20_2004. rights issues.A.3. in respect of matters which can be complied with only where the situation arises. For example.nfcgindia. Subsidiary Companies IV. 3.” may be indicated against 49 (IV A). preferential issues etc. Remuneration of Directors Management Shareholders
VI. Similarly. Disclosures (A) (B) (C) (D) (E) (F) V. the words “N. Audit Committee
1. in case of requirement related to circulation of information to the shareholders.150 Corporate Social Responsibility
ANNEXURE IB 10 Format of Quarterly Compliance Report on Corporate Governance Name of the Company: Quarter ending on:
Particulars Clause of Listing agreement 49 I 49(IA) 49 (IB) 49 (IC) 49 (ID) 49 (II) 49 (IIA) 49 (IIB) 49 (IIC) 49 II(D) 49 (IIE) 49 (III) 49 (IV) 49 (IV A) 49 (IV B) 49 (IV C) 49 (IV D) 49 (IV E) 49 (IV F) 49 (V) 49 (VI) 49 (VII) Compliance Status Yes/No Remarks
I. if the Board has been composed in accordance with the Clause 49 I of the Listing Agreement. it might be indicated in the "Remarks" column as – “will be complied with at the AGM”. for example. "Yes" may be indicated. the words "will be complied in the next Annual Report" may be indicated. Similarly. In the column No.
Board of Directors (A) (B) (C) (D) (A) (B) (C) (D) (E) Composition of Board Non-executive Directors' compensation & disclosures Other provisions as to Board and Committees Code of Conduct Qualified & Independent Audit Committee Meeting of Audit Committee Powers of Audit Committee Role of Audit Committee Review of Information by Audit Committee
II. The details under each head shall be provided to incorporate all the information required as per the provisions of the Clause 49 of the Listing Agreement.
Downloaded from http://www. In the remarks column. which would be done only in the AGM/EGM.pdf
. for example. 2.A. in case the company has no related party transactions.
Number of Board meetings held. 6. 2. Brief description of terms of reference
ii. 3. Whether any special resolution is proposed to be conducted through postal ballot
vi. Remuneration policy v. Attendance of each director at the Board meetings and the last AGM. Name of non-executive director heading the committee
ii. independent non-executive. Audit Committee: i.
Contd. Composition. name of members and Chairperson iii. A brief statement on company’s philosophy on code of governance. penalties. iii.ANNEXURE IC Suggested List of Items to be Included In the Report on Corporate Governance in the Annual Report of Companies 1. executive.executive.
ii. Number of pending complaints
General Body meetings: i. Number of shareholders’ complaints received so far iv. promoter.. Composition. non. during the last three years. Details of non-compliance by the company.
151 Corporate Governance
ii. Brief description of terms of reference
ii. dates on which held. 5. Meetings and attendance during the year 4. Disclosures on materially significant related party transactions that may have potential conflict with the interests of company at large. where last three AGMs held. for example. nominee director. Procedure for postal ballot 7. name of members and Chairperson iii. Number of other Boards or Board Committees in which he/she is a member or Chairperson iv. Whether any special resolution passed last year through postal ballot details of voting pattern iv. Details of remuneration to all the directors.
ii. Whether any special resolutions passed in the previous 3 AGMs iii. as per format in main report. Disclosures: i.. Board of Directors: i. which institution represented as lender or as equity investor. Remuneration Committee: i. on any matter related to capital markets. Name and designation of compliance officer iii. Location and time.
Shareholders Committee: i. Number not solved to the satisfaction of shareholders v. strictures imposed on the company by Stock Exchange or SEBI or any statutory authority. Attendance during the year iv. Person who conducted the postal ballot exercise v. Composition and category of directors.
Dividend Payment Date v. Distribution of shareholding xii. Date of Book closure iv. 9. Any website. Market Price Data: High. Newspapers wherein results normally published iii. The presentations made to institutional investors or to the analysts. Whistle Blower policy and affirmation that no personnel has been denied access to the audit committee. Dematerialization of shares and liquidity xiii. ix.
. AGM: Date. time and venue ii.152 Corporate Social Responsibility
iii. Share Transfer System xi. Details of compliance with mandatory requirements and adoption of the non-mandatory requirements of this clause 8. Whether it also displays official news releases.Outstanding GDRs/ADRs/Warrants or any conversion date and likely impact on equity xiv. Quarterly results
ii. Means of communication. CRISIL index etc. Financial year iii. i. iv. Registrar and Transfer Agents x. Address for correspondence Convertible instruments. Plant Locations xv. Stock Code vii.Performance in comparison to broad-based indices such as BSE Sensex. Listing on Stock Exchanges vi.. and v. where displayed iv.
General Shareholder information: i. Low during each month in last financial year viii.
the Chairman of committee being an independent director. The Chairman of the remuneration committee could be present at the Annual General Meeting. the company’s policy on specific remuneration packages for executive directors including pension rights and any compensation payment.ANNEXURE ID Non-Mandatory Requirements 1. Once established. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit committee in exceptional cases. all of whom should be non-executive directors. Independent Directors may have a tenure not exceeding. Mechanism for evaluating non-executive Board Members The performance evaluation of non-executive directors could be done by a peer group comprising the entire Board of Directors. it would be up to the Chairman to decide who should answer the queries. on the Board of a company. 3 Shareholder Rights A half-yearly declaration of financial performance including summary of the significant events in last six-months. 6. 7. The board may set up a remuneration committee to determine on their behalf and on behalf of the shareholders with agreed terms of reference. and the best ways to discharge them. their responsibilities as directors. a period of nine years. Whistle Blower Policy The company may establish a mechanism for employees to report to the management concerns about unethical behaviour. 2. actual or suspected fraud or violation of the company’s code of conduct or ethics policy. iv. the existence of the mechanism may be appropriately communicated within the organization. may be sent to each household of shareholders. Audit qualifications Company may move towards a regime of unqualified financial statements. in the aggregate. 5. and Peer Group evaluation could be the mechanism to determine whether to extend / continue the terms of appointment of non-executive directors.
153 Corporate Governance
ii. which would determine the remuneration packages of the executive directors may comprise of at least three directors. the remuneration committee. However. The Board A non-executive Chairman may be entitled to maintain a Chairman’s office at the company’s expense and also allowed reimbursement of expenses incurred in performance of his duties. To avoid conflicts of interest. Training of Board Members A company may train its Board members in the business model of the company as well as the risk profile of the business parameters of the company. to answer the shareholder queries. All the members of the remuneration committee could be present at the meeting. Remuneration Committee i. iii. 4. excluding the director being evaluated.