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Thesis submitted to the Padmashree Dr. D.Y. Patil University,
Department of Business Management
In partial fulfilment of the requirements for the award of the
Degree of

Submitted by





I hereby declare that the thesis titled ‘Impact of Corporate Social

Responsibility on the financial and non-financial performance of select BSE

listed companies’ submitted for the Award of Doctor of Philosophy in

Business Management at Padmashree Dr. D.Y. Patil University, Department

of Business Management is my original work and the Dissertation has not

formed the basis for the award of any degree, associateship, fellowship or

any other similar titles.

Place : Navi Mumbai


Signature of Guide Signature of Head of Department Signature of Student


This is to certify that the thesis titled ‘Impact of Corporate Social

Responsibility on the financial and non-financial performance of select BSE

listed companies’ is the bona fide research work carried out by Mrs. Nalini

Krishnan, student of Dr. D.Y. Patil University, Department of Business

Management, in partial fulfilment of the requirements for the award of the

Degree of ‘ Doctor of Philosophy in Business Management’ and that thesis

has not formed the basis for the award of any degree , associateship,

fellowship or any other similar titles of any University or Institution. Also

certified that the thesis represents an independent work on the part of the


Place: Navi Mumbai


Signature of Head Of Department Signature of Guide


I would like to thank all the people who have helped and inspired me during

my doctoral study. First and foremost, I would like thank Padmashree Dr.

D.Y. Patil University for accepting me as a student of the PhD program. A

special thanks to my guide Dr. R. Gopal, Director, Dean and Head of

Department, Department of Business Management, Padmashree Dr. D.Y.

Patil University for his expert advice, guidance and unending patience.

I would like to thank Dr. C. Babu, Director, YMT College of Management

who has been a constant source of encouragement during the period of my

study. My sincere thanks to the executives and officers of the companies for

participating in the survey.

Thanks are due to my family, my husband, Murali and my daughters Shweta

and Shruti, who have been extremely patient with me during this difficult

task and a very special thanks to my parents without whose unstinted

support, this thesis would not have been completed.

Finally, I would like to dedicate this work to my late mother-in-law whose

dearest desire was to see me acquire a PhD degree.

Place: Navi Mumbai

Date: Signature of the Student



Cover Page i
Title ii
Declaration iii
Certificate iv
Acknowledgment v
List of Tables xi
List of Figures xiii
List of Abbreviations xiv
1.1 Introduction 2
1.2 Historical perspective of Corporate Social
1.2.1 Industrial Revolution 4
1.2.2 The Mid-twentieth welfare state 5
1.2.3 Globalization 5
1.3 Defining CSR 6
1.3.1 Early definitions of CSR 9
1.3.2 Recent definitions of CSR 11
1.4 CSR Pyramid 12
1.4.1 Economic Responsibilities 13
1.4.2 Legal Responsibilities 14
1.4.3 Ethical Responsibilities 15
1.4.4 Discretionary Responsibilities 15
1.5 Approaches to CSR 18
1.5.1 The Traditional Approach 18
1.5.2 The New Approach 19
1.6 Managerial perceptions of CSR 20
1.7 Benefits and Implications of CSR 20
1.7.1 Benefits of CSR 20
1.7.2 Implications of CSR 24
1.8 Background of the Study 29
1.9 Significance of the Study 30
2.1 Studies on Corporate Social Responsibility 33
2.2 Studies on theoretical perspectives of CSR 34
2.2.1 Institutional level 35
2.2.2 Individual level 35
2.2.3 Global level 36
2.3 Studies on stakeholder approach to CSR 36
2.4 Empirical studies on CSR 45
2.5 Studies on measurement of financial performance 48
2.6 Studies on CSR in India 50
2.7 Studies on CSR and firm performance 51
2.8 Studies on motivations for CSR 61
2.9 Studies on CSR and financial performance in India 64

2.10 Studies on managerial perceptions of CSR 65

2. 11 Research Gap 66


3.1 Statement of the problem 68
3.2 Purpose and objectives of the study 68
3.3 Hypotheses 69
4.1 Introduction 72
4.2 Primary and Secondary data 72

4.3 Population and Sample 73
4.4 Questionnaire 75
4.4.1 Questionnaire – Design and content 75
4.4.2 Questionnaire distribution 78
4.4.3 Response rate 79
4.5 Pilot Study 80
4.6 Description of methodology 80
4.6.1 Research design 82
4.6.2 Sampling method 84
4.6.3 Data Collection 84
4.7 Method of data analysis 85
5.1 Introduction 87
5.2 Instrumental theories 87
5.3 Political theories 92
5.4 Integrative theories 95
5.5 Ethical theories 98
5.6 The Business case for CSR 111
5.7 Motivations/Drivers of CSR 114
5.7.1 Extrinsic factors 115
5.7.2 Instrumental, Normative or hedonic motivations 115
5.7.3 Global market pressures 117
5.7.4 Internal and competitive pressures of CSR 118
5.7.5 External pressures from investors and consumers 119
5.7.6 Regulatory pressures 120
5.7.7 Pressures from popular mobilizations 120
5.7.8 Access to markets 121
5.8 Managerial perceptions of CSR 121

6.1 Introduction 125
6.2 Phases of CSR 126
6.3 Role of business 127
6.4 Philanthropy vs CSR 129
6.5 CSR and the regulatory framework 132
6.6 Nature of Activities undertaken by Indian
6.7 CSR Reporting in India 141
6.8 CSR Initiatives – Some exemplary cases 143
6.9 Conclusion 153
7.1 Introduction 159
7.2 Corporate Social Irresponsibility and financial
7.3 Socially responsible investing 160
7.4 Legitimacy of corporate response to CSR concerns 161
7.5 Causality 162
7.6 Relationship between CSR and firm performance 163
7.6.1 Increased reputation 163
7.6.2 Customer attraction and loyalty 164
7.6.3 Employee motivation and retention 165
7.6.4 Cost Saving 167
7.7 Conclusion 167
8.1 Validity of the research 169
8.1.1 Content validity of the questionnaire 169
8.1.2 Criterion related validity 169
8.2 Reliability of the research 171

8.3 Data Analysis 172
8.4 Major Findings 204
9.1 Concluding comments 211
9.2 Limitations of the study and scope for future 212
Appendix I - Bibliography
Appendix II – Questionnaire used for the survey
Appendix III- SPSS Output
Appendix IV- List of companies surveyed

1. 4.1 Population and sample of the companies 74
2. 4.2 Measures of CSR 76
3. 4.3 Rationalization of variables 84
Correlation coefficient between each of the
4. 8.1 170
CSR variables
5. 8.2 Cronbach’s coefficient alpha 171
Sample distribution according to number of
6. 8.3 172
7. 8.4 Aggregate level of CSR 176
8. 8.5 Summary of Employee CSR 179
9. 8.6 Employee CSR – validity construct 180
Measures of Goodness of fit – Employee
10 8.7 180
11. 8.8 Employee CSR – T test 181
Summary of responses- customer and
12. 8.9 182
supplier CSR
13. 8.10 Customer and Supplier CSR- T test 183
Measures of Goodness of fit – Customer and
14. 8.11 183
Supplier CSR
15. 8.12 Measurement of Community CSR 185
16. 8.13 Factor Matrix – Environment CSR 186
17. 8.14 Environment CSR Performance Results 186
Distribution of Responses to Environment
18. 8.15 187
19. 8.16 Environment CSR – T-Test 187
20. 8.17 Correlation Matrix between Aggregate CSR
and FP and NFP
21. 8.18 Correlations among employee CSR, Industry 189

adjusted ROA and NFP
Correlation Matrix between customer and
22. 8.19 190
supplier CSR and FP and NFP
Correlation Matrix between community CSR
23. 8.20 191
and FP and NFP
Correlation Matrix between Environment CSR
24. 8.21 192
and FP and NFP
Regression Analysis of CSR variables and
25. 8.22 194
Financial Performance
Regression Analysis of CSR variables and
26. 8.23 195
Correlation Matrix between Aggregate CSR
27. 8.24 197
and CSR towards various stakeholders
Correlation Matrix between Aggregate CSR
28. 8.25 198
and Size and Shareholding Pattern
29. 8.25a Employees Distribution Industry-wise 264
30. 8.25b Correlations among employee CSR variables 265
31. 8.25c Correlations among customer CSR variables 266
Correlations among community CSR
32. 8.25d 267
Correlations among environment CSR
33. 8.25e 268
34. 8.25f Correlations among all CSR variables 269
35. 8.25g Ownership of companies 270
36. 8.25h Factor Analysis - Communalities 271
37. 8.25i Principal Component Analysis 272
38. 8.25j Component Matrix - Unrotated 272
39. 8.25k Component Matrix - Rotated 273
40. 8.25l Component Matrix – Unrotated <0.4 273
Principal Component Analysis – Extraction
41. 8.25m 274



1. 1.1 Timeline of Corporate responsibility 6
2. 1.2 Economic and Legal components of CSR 13
Ethical and Philanthropic components of
3. 1.3 14
4. 1.4 Carroll’s CSR Pyramid 16
5. 1.5 Three domain model of CSR 17
Identifying key stakeholders based on
6. 5.1 99
perceived influence and interest
7. 5.2 Classification of stakeholders 100
8. 5.3 The Business in Society 102
Factors influencing managerial decisions
9. 5.4 123
on CSR issues


Abbreviation Explanation

CCI Corporate Community Involvement

CII Confederation of Indian Industry

CRM Cause Related Marketing

CSR Corporate Social Responsibility

CSP Corporate Social Performance

EVA Economic Value Added

FP Financial Performance

GRI Global Reporting Initiatives

HBR Harvard Business Review

KLD Kinder Lynndenberg& Domini

MVA Market Value Added

NGO Non-Governmental organization

NFP Non-Financial performance

ROA Return on Assets

ROE Return on Equity

ROI Return on Investment

ROS Return on sales

SRI Socially Responsible Investing

TBL Triple Bottom Line

UN United Nations

WBCSD World Business Council for Sustainable Development


The social context of business is being redefined. In an increasingly

complex world, businesses have long lasting and significant impact on

people, our planet and our ability to sustain the holistic development that

we aspire to. A globalized market without boundaries has emerged,

stimulating unparalleled growth. At the same time, this has also resulted in

the lopsided development where the divide between the rich and the poor

is increasing, leading to social conflicts. We live in a world in which the

richest 20% of the people possess 86% of the gross national product, in

which one country accounts for 23% of worldwide energy consumption. We

live in a world where prosperity is measured in terms of economic growth,

made possible through greater productivity and production.

In the midst of this world, business is being ascribed roles and a

significance that has never previously been imagined. Business is not

divorced from the rest of the society. Business and society are

interdependent and the role of business in building a better future is

recognized and encouraged.

In today’s world it is no longer just acceptable that a corporation does well

by doing good. It is expected. Companies are subjected to new levels of

transparency, whether in terms of demands for greater disclosure and

corporate governance or in terms of public outcry on issues as diverse as

environmental pollution, child labour and corruption. With increasing

pressures to improve the bottom line as well as to be good corporate

citizens, business leaders face tough decisions. They are challenged and

pulled by the demands and expectations surrounding the buzz for

corporate social responsibility. It may be as fundamental as deciding what

social issues and causes to support and which ones to reject.

Corporate Social Responsibility is defined as the proposition that

companies are responsible not only for maximizing profits but also for

recognizing the needs of such stakeholders such as employees,

customers, suppliers and the regions that they serve (Pricewaterhouse

Coopers). This definition sets out the kinds of stakeholder groups to whom

companies are responsible. It also stresses that responsibility involves

balancing profit maximization and stakeholders’ needs.

Business involvement in social welfare and development has been a

tradition in India and its evolution from individuals’ charity or philanthropy to

Corporate Social Responsibility, Corporate Citizenship and Responsible

Business can be seen in the business sector over the years. The Indian

corporate sector is struggling with a new role, which is to meet the needs of

the present generation without compromising the ability of the next

generation. There is a growing awareness that in an increasingly complex

world, businesses have significant and long-lasting impacts on people, our

planet and our ability to sustain the levels of holistic development that we

all aspire to. Specifically, this calls for businesses being thoroughly aware

of their social, environmental and economic responsibilities, and balance

these different considerations in an ethical manner.

CSR is viewed, then, as a comprehensive set of policies, practices, and

programs that are integrated into business operations, supply chains and

decision making processes throughout the company and usually includes

issues related to business ethics, community investment, environmental

concerns, governance, human rights, the marketplace as well as the


Each company differs in how it implements CSR , if at all. The differences

depends on factors such as the company size, the industry in which the

company operates, the firm’s business culture, the stakeholders’ demands

and the history of CSR of the company. For successful implementation it is

important that the CSR principles are part of the corporation’s values and

strategic planning and both the management and employees are

committed to them. It is also crucial that the CSR strategy is aligned with

the company’s specific corporate objectives and core competencies.

There has been some debate about the legitimacy of the use of corporate

sources to address society concerns. As CSR comes into contact with

many issues traditionally addressed by government like human rights there

is a strong criticism that societal problems are best solved by freely elected

governments. On the other hand, there are many arguments that state that

although the government is mainly responsible for addressing these

issues, the contribution of private firms can be substantial. With increasing

globalization, the economic powers of corporations are also on the rise and

therefore they should have an increasing role in and responsibility for

addressing social problems. Therefore, even though the government sets

the regulations and minimum standards for the workplace, but a company

can further improve the work environment and the quality of living of its


Adopting CSR principles involves costs and these costs might be short

term in nature or continuous outflows. The costs might involve the

purchase of pollution reducing equipment, implementation of stricter quality

controls or contribution to a community cause. Since being socially

responsible involves costs, it should generate benefits as well in order to

be a sustainable business practice. A corporation cannot continue a policy

that constantly generates negative cash flows. The shareholders invest

their money in a corporation, expecting the highest possible risk adjusted

return. Therefore, being socially responsible should have bottom-line

benefits in order to be sustainable.

Socially responsible corporate performance can be associated with certain

benefits. But the time frame of costs and benefits can be out of alignment –

the costs are immediate, the benefits are often seen after some time lag.

Some of the benefits include – socially responsible companies have

enhanced brand image and reputation. Consumers are often drawn to

brands and companies with good reputations in CSR related issues. A

company regarded as socially responsible is also able to attract capital and

trading partners. Socially responsible companies have less risk of negative

events which may damage their reputation and cost large amounts in

information and advertising campaigns. Thus socially responsible

companies should have more stable earnings and less downside volatility.

CSR initiatives can also dramatically reduce operating costs. Companies

perceived to have a strong CSR commitment often have been able to

attract and retain employees (Turban and Greening, 1997) which leads to

reduced turnover, recruitment and training costs. Employees, too, often

evaluate their companies CSR performance to determine if their personal

values conflict with those of the businesses at which they work.

Although it is quite straightforward to identify the above benefits accruing to

socially responsible businesses, it is an arduous task to quantify and

measure them. Since CSR is integrated into the business practices, it is by

definition complicated to try to measure its effects separately. Ideally, it

should be possible to keep all the factors constant and measure a

company’s financial performance before and after adopting CSR practices.

As this is not possible, empirical methods are used to identify the

relationship between a company’s socially responsible conduct and

financial performance.

This research represents a study of Corporate Social Responsibility (CSR)

of select listed firms in India and an examination of the relationship

between CSR and financial performance. This research aims to contribute

to three research gaps in the literature. Firstly, as this research is one of

the few concerning CSR and financial performance in the Indian context , it

will contribute to the understanding concerning this relationship. The

findings of the research shall provide insights into the nature and type of

activities undertaken by Indian companies.

Secondly, it has been noted that research on CSR in India is based mainly

on secondary data or content analysis of Annual Reports. The research

specifically uses primary and secondary data to arrive at a conclusion.

Finally, the relationship between CSR and financial performance

represents the most questioned area of CSR (Angelidis et al, 2008). This

research uses a detailed method of analysis to assess the relationship

between CSR and financial performance. The study not only looks at CSR

and financial performance but also the non-financial parameters.

The study relies mainly on the stakeholder theory and basically focuses on

stakeholder CSR namely, employee CSR, customer and supplier CSR,

community CSR and environment CSR. The relationship among the

internal and external CSR variables is examined. The relationship of each

of these variables with firm performance has also been thoroughly

examined. Though there have been many studies on CSR and financial

performance but considerably less research has addressed the impact of

different stakeholder CSR and financial performance.

This research has been conducted to study the CSR practices of listed

companies in India. The focus of this research was to see if there is any

correlation and financial performance within select listed companies in

India. The research was conducted with a sample of 104 companies drawn

over 19 industry sectors. The selected companies included government

owned companies and privately owned companies. Statistical tools like

correlation and regression analysis were used to analyze the empirical

data in order to meet the defined objectives and examine the hypotheses

of this research. An important aspect of the research was to study the

relationships among CSR activities towards various stakeholders’ viz.,

employees, customers and suppliers, community and environment. The

research also examined the primary motivators or drivers of CSR in Indian

companies. Another objective of the study was to also understand the

impact of size and shareholding pattern of companies on CSR. The study

also examined the managerial perceptions towards CSR.

Companies in today’s competitive world are faced with ethical dilemmas

that require them to weigh profitable options viz. a viz. their social and

environmental impact. The ethical issues faced by companies range from

insider trading to environmental disasters..

Objective One: Study the relationship between CSR and financial and

non-financial firm performance. The purpose of this study was to

empirically examine the significant influences of CSR towards primary

stakeholders on the financial and non-financial performance of the firm.

The first objective of the study was examined by initially defining the

various stakeholders’ interests. These interests are broadly classified into

internal and external interests. The internal aspects relate to employee

relations, labour welfare, worker health and safety and working conditions

of the company. The external aspects relate to the marketing of the

products, consumer awareness, environmental impact, and supplier

behaviour and community issues. This research is basically trying to study

the extent to which the Indian companies have been successful in

integrating the CSR practices in their business policies and strategies. By

using statistical methods, this research identified the relationships among

CSR activities and financial and non-financial performance of companies.

This research has addressed the impact of CSR on different stakeholder

groups and firm performance. The study uses the following stakeholder

approach to CSR and firm performance model developed by Mishra &


Employee CSR Customer & Community CSR Environment

Supplier CSR CSR

Aggregate CSR
Non- Financial Financial
Performance Performance

Figure : Stakeholder model of CSR and firm performance

Source: Adapted from model developed by Mishra and Suar, 2010

Employees are the backbone of any organization and it is important to

have a satisfied workforce which would contribute to the productivity of the

company. Employers are becoming conscious of the growing number of

employees who opt for careers in firms that exhibit socially responsible

behaviours such as excellent workplace conditions, workers’ rights and

conditions, workplace health and safety.

Corporate Social Responsibility activities have the potential to create

several distinct forms of value for customers. CSR also leads to positive

business outcomes such as increased customer loyalty, willingness to pay

premium prices and lower reputational risks in times of crises. With the

growth of global supply chain partnerships, many enterprises, impose

social and environmental requirements on their suppliers. The study

therefore looks at the Customer and Supplier CSR activities undertaken by

the companies.

Businesses have to focus on ensuring inclusive growth for all its

stakeholders, specially the community in which they operate. Community

development initiatives are important to get the ‘license to operate’ for the

businesses. Corporate world has also realized that the society is not just

another stakeholder, but the prime purpose of its business and that good

corporate citizenship and good business performance go hand in hand and

nurture each other through good times and bad. This research studied the

extent of various aspects of Community CSR undertaken by companies.

Climate change and global warming are the new challenges being faced by

companies worldwide and there is a need for businesses to take a lead in

being a part of the solution. This involves adoption of clean technologies,

replacement of hazardous material and installation of pollution prevention

equipment, reduction and recycling of waste. The research has focused on

studying the extent of implementation of policies with respect to

environment protection.

The questionnaire survey method was adopted as a form of exploratory

research to elicit responses from managers of companies listed under the

BSE Index. For the purposes of this study, all companies listed under the

BSE 500 index were considered.

Objective Two: To identify and empirically analyze the existence of

correlations among CSR towards various primary stakeholders. This

research has assumed that there is a possibility of having similar or

contradictory interests among various stakeholders.

Objective Three: To examine the impact of size of the company on the

CSR activities. The assumption was that larger companies have more

resources to spare and therefore can afford to take up CSR activities.

Objective Four: To study the impact of the shareholding pattern of the

company on the CSR activities. It was assumed that companies with a

higher percentage of promoters holding would be able to largely influence

the extent of CSR activities rather than widely held companies.

Objective Five: To understand the primary motivators/drivers of CSR

activities among listed Indian companies. The forces driving CSR today are

propelled by shifts in the interaction of the state, the individual and the

market. The core drivers of CSR are the growth in stakeholder

expectations, the shrinking role of the state, responsibility for the supply

chain and increasing pressure from shareholders. There are various

reasons for companies to undertake CSR activities. With increasing

globalization and Companies looking to explore the world markets,

pressure from potential customers or suppliers is huge. Companies want to

portray themselves as responsible business and are therefore willing to

take up CSR activities. An attempt was made to understand the prime

drivers of CSR activities by Indian companies.

Objective Six: To examine the perceptions of managers towards CSR. In

large corporations, even though the owners/promoters decide on the CSR

policies, it is imperative that it gets the full-hearted support of the managers

who are responsible for the implementation of the CSR agenda of the

company. It is also important to understand the perceptions of these

managers towards CSR as it is through them the sentiments of the owners

and the employees are reflected.

The research used a sample of 104 companies listed on the Bombay Stock

Exchange (BSE) as these companies represent the large and profitable

companies of the Indian economy. The research used random sampling

method. Banking and finance companies were excluded from the scope of

the study as their profitability measures are different. The sample ensured

a representation of all the sectors of the industry. A questionnaire was

used to elicit responses from companies on their CSR activities,

perceptions of CSR and the non-financial performance of the companies.

Secondary sources such as Annual Reports were used to extract financial

information of the Companies.The questionnaire responses were analyzed

using the SPSS version 17 package.

The results of the study show that CSR in India has still not developed

fully. Barring a few companies which are doing phenomenal work in the

areas of community development and environment, the majority of the

companies are yet to have a CSR policy in place and the CSR activities

undertaken are in a fractured manner. The findings suggest that

responsible business practices towards primary stakeholders can be

profitable and beneficial to the firms.

It was also seen that Indian companies have changed from traditional

philanthropy to corporate sustainability or its equivalent. The firm as a unit

of the economy has become more inclusive by adopting affirmative action.

Listed companies who are under public scrutiny are keen to project a

positive image; however, a small percentage of the companies under this

study had a dedicated CSR foundation or a CSR department. The size of

the company or the shareholding pattern did not have a significant impact

on the CSR activities undertaken by the company. The study also revealed

a complimentary relationship among the different variables of CSR namely,

Aggregate CSR, Employee CSR, Customer and Supplier CSR, Community

CSR and Environment CSR. The CSR towards each of the stakeholders

was positive thus ensuring that the aggregate CSR was also favourable.

The study also revealed a positive relationship between all CSR variables

and the firm performance except in case of Environment CSR where there

was no significant relationship between the variables.

This research would contribute to the extant literature on CSR. It presents

the business advantages to companies if it is ‘strategic’ in nature. This

study presents the stakeholder sense of CSR in addition to the business

sense. The research has also focused on the ethical aspects of CSR.

Ethical CSR refers to behaviours and activities that are permitted or

prohibited by organization members, community, society, even if they are

not codified by law. Socially Responsibility cannot be just a response to

problems when they arise. Only if companies include ethical concerns

since its foundation and includes ethics in business strategy and social

responsibility, as a concept is integrated into daily decision making.

In a country like India, demand for sustainable products and services are

on the rise. Innovative products must be correlated with the price level

which must be acceptable, as a response to issues of poverty and

improving living standards. CSR integrated in business strategy and

operation may be an answer to this problem.

This research hopes to contribute in a small way in knowledge

dissemination and provides and ‘economic rationale’ to encourage the

adoption of socially responsible practices by enterprises. The study would

throw more light on the insufficient knowledge about the relationship

between socially responsible practices and the economic performance of

firms. It would also reiterate the fact that recognition, acceptance and

consensus among various ‘stakeholders’ of socially responsible behaviour

is crucial to the economic performance of companies.

The argument that the primary goal of business is to make profits and pay

taxes, and it is the responsibility of the governments – local, state and

central to create necessary social infrastructure, continues to remain valid.

But, a business needs a healthy, educated workforce, sustainable

resources to compete effectively. For society to thrive, profitable and

competitive businesses must be developed and supported to create

income and opportunities. This is called ‘Creating Shared Values’ and it is

here that the interests of the companies and the society converge. This has

led to the ‘business case’ for CSR gaining ground and many corporate

houses are realizing that ‘what is good for workers – their community,

health, and environment is also good for the business’.

The proof of the business case for CSR in the Indian context has been

reiterated in the study. The financial benefits outweigh the costs- in the

long run at least, to ensure that CSR engagement is financially sustainable.


Introduction- Historical perspective and Approaches

to Corporate Social Responsibility

1.1 Introduction

1.2 Historical perspective of Corporate Social


1.3 Defining CSR

1.4 CSR Pyramid

1.5 Approaches to CSR

1.6 Managerial perceptions of CSR

1.7 Benefits and Implications of CSR

1.8 Background of the Study

1.9 Significance of the Study


1.1 Introduction

The corporate sector across the globe is coming to terms with its new role,

which is to meet the needs of the present generation without compromising

the ability of the next generation. Businesses are slowly but surely

assuming responsibilities for the ways their operations impact society and

the natural environment. The aim of all business is to improve the quality of

life and build leadership that will generate a sense of trust among people.

CSR represents the human face of the highly competitive world of

commerce. Perception of this human face is a vital and necessary part of

society’s willingness to accept the significant and sometimes (at least in the

short-term) difficult changes brought about by elements of globalization. If

international companies set policies, however well intentioned, from remote

corporate headquarters without also fostering partnerships and local

involvement in the communities in which they do business, they are likely

to fuel feelings of alienation and suspicion. Business today simply cannot

afford such alienation since those very communities are vital to a

company’s continued commercial success. Business needs a stable social

environment that provides a predictable climate for investment and trade.

CSR is the means by which business contributes to that stability rather

than detracting from it. By establishing and maintaining a corporate agenda

which recognizes social priorities and is tailored to meet them, business

displays its human face to consumers, communities and opinion leaders.

Training, the transfer of skills and expertise, new technological solutions,

contracting of services, helpful infrastructure development, as well as

community social and health programs and a clear commitment to human

rights can all demonstrate the will to be a good local citizen and to help

create sustainable livelihoods. By their social contribution, companies show

the human face of globalization and reduce fears about the negative

impacts of international business on local life. For any company, giving a

high priority to CSR is no longer seen to represent an unproductive cost or

resource burden, but, increasingly, as a means of enhancing reputation

and credibility among stakeholders – something on which success or even

survival may depend. Understanding and taking account of society’s

expectations is quite simply enlightened self-interest for business in today’s

interdependent world. Identifying the enterprise as the focus of corporate

responsibility begs the question as to how the companies should exhibit

responsibility. Manne and Wallich (1972) said that corporate responsibility

refers to actions for which the company is under no legal compulsion.

Corporate responsibility expenditure therefore is voluntary and which

generates marginal returns less than those available from alternative

courses of action; is an actual corporate expenditure, not a conduit for

individual largesse. The Committee for Economic Development, identified

three areas of responsibilities namely, creating products, jobs and

economic growth; sensitivity to changing values; emerging responsibilities

such as poverty. The idea that business is responsible to a variety of

stakeholders has been an important element of corporate responsibility

theory. It is based on the notion that many people (groups of people) have

a stake in the corporation and that in order for the company to achieve its

objectives effectively, it must consider them all and not only the


1.2 Historical perspective of CSR

Society has consistently held expectations of business that go beyond the

narrow sphere of wealth creation. What we mean by corporate

responsibility today has been influenced enormously by our economic

systems, the evolution of modern corporation and the emergence of

theories of corporate responsibility itself.

1.2.1 The Industrial Revolution

Throughout much of Europe, the biggest change in human demographics

and human working life came with the Industrial Revolution, as the poor

from the countryside headed towards the cities in search of work. This

migration to urban areas brought with it problems of overcrowding and

disease. Factories and mines were responsible for large number of injuries

and fatalities. In some industries, women became important components of

the workforce not out of choice, but due to poverty. Industrialization

provoked civil unrest. During the late 18th century, there were protests

aimed at resisting industrialization or improving the lives of those affected

by it. The social and environmental consequences of early industrialization

is relevant in today’s context in a country like India which is now witnessing

a massive influx of rural people into urban areas and where economic

growth can appear to be at the expense of human and environmental well-


1.2.2 The Mid-twentieth century welfare state

In the USA the nature of corporation underwent major reforms that

removed limits on company size, for how long they could exist and what

they could own. In 1943, US President Franklin Roosevelt initiated the New

Deal – a series of measures that were, in part, designed to limit the power

of corporations. After World War II, the principles of the New Deal

influenced the type of welfare state that was to define Western European

public policy. Post war prosperity also brought with it environmental

concerns of man-made pesticides, water pollution, chemical sewage. Non-

Governmental environmental groups began advocating for change outside

the mainstream political process.

1.2.3 Globalization

Globalization is often portrayed as a new era, bringing changes that are as

momentous as those of the Industrial Revolution There has been a marked

shift in the nature of CSR with the advent of globalization. Writers such as

Wood et al (1991), Crane and Matten (2004) tie corporate social

responsibility to the social, political and environmental challenges of

globalization. This is because globalization is associated, on the one hand

with a limited set of global governance mechanisms and weakened

national governments, and on the other, with unprecedented private sector,

wealth, power and impact.








First corporate
New Deal and
Welfare state
Post-war consensus
Return of business and
society debate
Shift from responsibility
of leaders to
responsibility of
Debate about nature of
Introduction of
stakeholder theory
Corporate responsibility
as a management
Corporate Social
Stakeholder partnerships
Business and poverty
Figure 1.1 : Timeline of corporate responsibility
Source: Blowfield and Murray

CSR has thus become an important means of addressing what Stiglitz

(1984) sees as the fundamental problem with contemporary globalization –

a system of global governance without global government.

1.3 Defining CSR

Despite numerous efforts to bring about a clear and unbiased definition of

CSR, there is still some confusion as to how CSR should be defined. The

definitions of CSR have evolved over the years. Earlier it was referred to

the responsibilities of businesses over and above the economic and legal

obligations (Carroll, 1979; Waddock ,1997). CSR was associated with

voluntary and philanthropic acts undertaken by business organizations in

order to alleviate social ills. CSR is now increasingly been seen as

achieving commercial success in a way that honours ethical values and

respect people, communities and the natural environment. This implies that

businesses minimize any negative social and environmental impact and

maximize the positive ones.

One of the factors responsible for the limited conceptual understanding of

CSR is the complexity and absence of consensus on the definition of the

concept (Perrini, 2006; Idemudia, 2008; Gulyas, 2009). Though the

concept of CSR is discussed both in theory and practice, yet there is no

universal definition that has emerged which is acceptable to all. The efforts

of academicians and practitioners to arrive at a consensus definition have

failed and there are no agreed upon definition. According to van Marrewijk

(2003), a ‘one solution fits all’ definition of CSR is impossible as CSR will

take on a different meaning for each individual company depending upon

the development, awareness and ambition levels of the organization.

Some of the prominent definitions of CSR which focus on the dimensions

of voluntariness, stakeholder, social, environmental and economic aspects


CSR is a concept whereby companies integrate social and environmental

concerns in their business operations and in their interaction Social with

their stakeholders on a voluntary basis (Commission of the European

Communities, 2001).

The World Business Council for Sustainable Development reflects the

council’s focus on economic development in describing CSR as “business

commitment to contribute to sustainable economic development, working

with employees, their families, the local communities and the society at

large to improve their quality of life”.

Corporate Social Responsibility is a commitment to improve community

well-being through discretionary business practices and contributions of

corporate resources – Kotler and Lee(2005)

The term Corporate Social Responsibility (CSR) defines how a company

conducts its business in a socially acceptable way and that it is

accountable for its effects on all of its stakeholders, including the


A key element of this definition is the word is discretionary. It does not

include those activities that are mandated by law or that which are ethical

or moral in nature and therefore expected. Rather it refers to a voluntary

commitment a business makes in choosing and implementing these

practices and making these contributions. Such a commitment must be

demonstrated in order for a company to be described as socially

responsible and it will be fulfilled through the adoption of new business

practices and/or contributions either monetary or non monetary. The term

community well-being in this definition includes human conditions as well

as environmental issues.

The organization Business for Social Responsibility defines CSR as

“operating a business in a manner that meets or exceeds the ethical, legal,

commercial and public expectations that society has of business”. This

definition is broader as it encompasses business decision making related

to “ethical values, legal requirements as well as respect for people,

communities and the environment”.

Thus, CSR is a measure of the total impact of a business’ activities on the

lives of individuals within and outside the company (European Commission


1.3.1 Early definitions of CSR

The concept of Corporate Social Responsibility was first mentioned 1953 in

the publication ‘Social Responsibilities of the Businessman’ by William J.

Bowen. But, the term CSR became popular only in the 1990s. The term is

still imprecise and its application differs widely. Despite voluminous

literature on the subject, CSR remains a broad, complex and continually

evolving concept that encompasses a variety of ideas and practices.

The beliefs and attitudes towards CSR have changed over time. Some

scholars think that it is Oliver Sheldon of the US who put the concept forth

for the first time. In 1924, he proposed that a company’s business

operation should be combined with responsibilities of all human necessities

inside and outside the industry. The interests of a community should be

placed prior to the profits of a company. This idea has greatly impacted the

traditional social concept in which “the responsibility of a company is simply

to make money for stockholders. Since the second half of the twentieth

century, a long debate on CSR has been taking place. In 1953, Bowen

wrote the book Social Responsibilities of the Businessman. Since then

there has been a shift in terminology from social responsibility of business

to CSR.

McGuire (1963), was of the view that “ the idea of social responsibility

supposes that the company has not only economic and legal obligations

but also some social obligations towards society which extend beyond

these obligations. Davis (1960) described CSR as ‘businessmen’s

decisions and actions taken for reasons at least partly beyond the firm’s

direct economic or technical interest’. Eells and Walton (1967) argued that

CSR refers to the ‘problems that arise when corporate enterprise casts its

shadow on the social scene, and the ethical principles that ought to govern

the relationship between the corporation and society’. Sethi (1975)

suggested that these extra responsibilities involved ‘bringing behaviour up

to a level where it is contingent upon the prevailing social norms, values

and expectations’.

The term Corporate Social Responsibility (CSR) came into vogue in the

Western countries in the late 1960s and early 1970s, after many

multinational corporations coined the term ‘stakeholder’, meaning those on

whom an organization’s activities have an impact.

1.3.2 Recent definitions of CSR

Recent definitions of CSR focus on the firm’s responsibility towards its

stakeholders. The European Commission’s definition of CSR as “ a

concept whereby companies integrate social and environmental concerns

in their business operations and in their interaction with shareholders on a

voluntary basis’ is one of the most accepted definitions of CSR which is

consistent with current academic literature. In order to put CSR in context,

it is essential to delve briefly in the management theory. The profit

maximization theory assumes that the sole purpose of business is to

maximize profits. This is achieved despite the separation of ownership and

control. Shareholders can ensure that their interests are taken care of by

giving senior managers a quantity of shares that is small as compared to

the total number of shares issued, but is larger relative to managerial

salaries. (Begg, Fischer , & Dornbusch, 1997). The agency theory

(McWilliams & Siegel 2000) and supported by Freidman, states that

stakeholders are those who voluntarily enter into exchange agreements

with the business. The responsibility of these stakeholders is to live up to

the terms agreed upon. As Freidman put it,

“There is one and only one social responsibility of business – to use its

resources and engage in activities designed to increase its profits so long

as it stays within the rules of the game, which is to say, engages in open

and free competition, without deception or fraud”

The idea that corporations have stakeholders has now become

commonplace in the management literature, both academic and


This field has now grown considerably and contains a great proliferation of

theories and approaches. Recently renewed interest for corporate social

responsibilities and new alternative concepts has been proposed including

corporate citizenship and corporate sustainability. These new concepts are

being compared with the classic notion of CSR. Also, some of the theories

combine different approaches and use the same terminology with different

meanings. It has been said that CSR means something, but not always the

same thing to everybody. “To some it conveys the idea of legal

responsibility or liability; to others, it means socially responsible behaviour,

many equate it with charitable contribution, some take it to mean socially

conscious; many of those who embrace it more fervently see it as a mere

synonym for legitimacy in the context of being proper or valid ; a few see it

as a fiduciary duty imposing higher standard of behaviour on businessmen

than on the citizens at large” ( Votaw, 1972). The situation now is no better.

1.4 CSR Pyramid

Caroll (1979) , one of the most prestigious scholars in this discipline

describes CSR as “ an eclectic field with loose boundaries, multiple

memberships and different training/ perspectives; broad rather than

focused; multidisciplinary and interdisciplinary”. For CSR to be accepted by

a conscientious business person, it should be framed in such a way that

the entire range of business responsibilities are embraced. It is suggested

here that four kinds of social responsibilities constitute total CSR:

economic, legal, ethical and philanthropic.

Economic Responsibilities Legal Responsibilities

It is important to perform in a It is important to perform in a

manner consistent with maximizing manner consistent with expectations
earnings per share of government and law

It is important to be committed to It is important to comply with various

being as profitable as possible local, state and central legislations

It is important to maintain a It is important to be a law-abiding

competitive position citizen.

It is important to maintain a high It is important that a successful firm

level of efficiency be defined as one that fulfils its legal

It is important that a successful firm It is important to provide goods and

be defined as one that is services that at least meet minimal
consistently profitable legal requirements

Figure 1.2 : Economic and Legal Components of Social Responsibility

Source: Carroll’s Pyramid of CSR (1991)

1.4.1 Economic Responsibilities

Business organizations are entities designed to provide goods and

services to society. The profit motive is central to entrepreneurship. As its

principal role, businesses were required to produce goods and services

and make an acceptable profit in the process. At some point in time the

idea of profit motive got transformed into a notion of maximum profits and

this has been an enduring value ever since.

1.4.2 Legal Responsibilities

Society has not only sanctioned business to operate according to the profit

motive; at the same time business is expected to comply with laws and

regulations promulgated by federal, state and local governments as the

ground rules under which businesses must operate. Businesses are

expected to pursue their economic pursuits within the framework of law.

Ethical Responsibilities Philanthropic Responsibilities

It is important to perform in a It is important to perform in a

manner consistent with expectations manner consistent with the
of societal mores and ethical norms. philanthropic and charitable
expectations of society.
It is important to recognize and It is important to assist the fine and
respect new or evolving ethical performing arts.
moral norms adopted by society.
It is important to prevent ethical It is important that managers and
norms from being compromised in employees participate in voluntary
order to achieve corporate goals. and charitable activities within their
local communities.
It is important that good corporate It is important to provide assistance
citizenship be defined as doing what to private and public educational
is expected morally or ethically. institutions.
It is important to recognize that It is important to assist voluntarily
corporate integrity and ethical those projects that enhance a
behavior go beyond mere community’s "quality of life."
compliance with laws and
Figure 1.3 : Ethical and Philanthropic Components of Social

Source: Carroll’s Pyramid of CSR (1991)

1.4.3 Ethical Responsibilities

Although economic and legal responsibilities embody ethical norms about

fairness and justice, ethical responsibilities embrace those activities and

practices that are expected by societal members even though they are not

codified into law. Ethical responsibilities embody those norms, practices or

expectations that show concern for what consumers, employees,

shareholders and the community regard as fair, just or in keeping with the

respect or protection of stakeholders’ moral rights. Ethical responsibilities

in the sense are often ill-defined or continually under public debate as to

their legitimacy.

1.4.4 Discretionary Responsibilities

Philanthropy encompasses those corporate actions that are in response to

society’s expectation that businesses must be good corporate citizens.

This includes actively engaging in activities that promote human welfare or


The distinguishing feature between philanthropic and ethical

responsibilities is that the former is not expected by the community. Society

desires that businesses contribute time, money and resources for the

welfare of the community but they do not regard the firms unethical if they

do not provide the desired level. Therefore, philanthropy is more

discretionary in nature. These activities are purely voluntary, guided by

business’ desire to engage in social activities that are not mandated by law

and not generally expected out of business.

The pyramid of CSR depicted below portrays the four components of CSR,

beginning with the basic block of economic responsibilities since survival

and success of the company is imperative.

Be a good corporate
citizen Discretionary

Be Ethical
Ethical Responsibilities

Obey the law

Legal Responsibilities

Economic Responsibilities

Figure: 1.4 CSR Pyramid

Source: Adapted from Carroll (1991)

At the same time business is expected to obey the law because the law is

the society’s codification of what constitutes ethical or unethical behaviour.

However Carroll (1991) has stated that the four categories are not mutually

exclusive. Also, there is no hierarchical order nor is there a continuum with

economic concerns on one end and the social concerns on the other.

Later, Carroll and Schwartz developed a venn diagram which clearly shows

that there is an overlap among the CSR categories.

The figure below has an interesting difference from the CSR pyramid

proposed earlier. In this figure the discretionary/philanthropy category is

missing. Carroll and Schwartz argue that it is possibly quite incorrect to

label these as ‘responsibilities’ because they are primarily guided by

business requirements. This is different from the obligatory conformance

with legal, economic and ethical dimensions of CSR ( Godfrey, 2004).

Economic /Ethical
Purely Ethical/Legal

Purely Purely
Economic Legal
Economic/Ethical /

Economic / Legal

Figure 1.5 : The three domain Model of Corporate Social Responsibility

Source : Schwartz and Carroll (2003)
This argument was further extended by Lantos (2001) who believed that

philanthropy is not a legitimate concern of the business. Peter Drucker

(1989) shares a similar sentiment when he says that an organization acts

irresponsibly if it goes beyond what is necessary to do its job. Friedman

(1970), corporate spending on social and philanthropic activities is not only

illegal but can be construed as a theft of shareholder funds.

1.5 Approaches to CSR

1.5.1 The Traditional Approach: Fulfilling an Obligation

Prior to the 1990s, decisions regarding the selection of social issues to

support tended to be made on themes reflecting emerging pressures for

“doing good to look good”. Corporations would normally establish, follow,

and report on a fixed annual budget for giving, sometimes tied to revenues

or pre-tax earnings. Funds were allocated to as many organizations as

possible, reflecting a perception that this would satisfy the most constituent

groups and create the most visibility for philanthropic efforts. Commitments

were more short-term, allowing the organization to spend the wealth over a

variety of organizations and issues through the years. There was a

tendency to avoid issues that might be associated with core business


In the Indian context, though India has a tradition of corporate philanthropy,

yet the lines between giving and CSR have become hazier. Corporate

philanthropy and CSR are two different things, yet the difference is blurred,

particularly in India. Until the 1990s CSR was dominated by the idea of

philanthropy and business efforts were often limited to one time grants.

Few attempts were made to integrate and coordinate giving programs with

other corporate strategies. Decisions regarding issues to support and

organizations to sponsor were also heavily influenced by preferences and

wishes of directors of boards than by needs to support strategic business

goals and objectives. In terms of evaluation too, there was no attempt to

establish quantifiable outcomes for the business or the social cause.

(Kotler and Lee, 2005)

1.5.2 The New Approach: Support Corporate Objectives as well

Decision making now reflects an increased desire for “doing well and doing

good”. Corporations now pick up a few strategic areas of focus that fit with

corporate values; selecting initiatives that support business goals; choosing

issues that provide opportunities to meet marketing objectives, such as

increased market share, market penetration or building a desired brand

identity; evaluating issues based on their potential for positive support in

times of corporate crisis or national policy making; involving more than one

department in the selection process, so as to lay a foundation of support

for implementation of programs; and taking on issues the community,

customers and employees care most about.

Long term commitment, in-kind contributions such as corporate expertise,

technological support, access to services and donation of retired

equipment, volunteer employee time, integrating the issue in marketing,

corporate communications, human resources, community relations and

operations; to form strategic alliances with one or more external partners.

Evaluation now has increased importance and methodologies are being

designed to make this happen.

1.6. Managerial perceptions of CSR

In management literature there has been growing interest in investigating

managers’ perceptions towards CSR and the actions they may take

regarding socially responsible issues. Keith Davis (1973) has laid the

foundation and benchmark for researchers to assess the attitudes of

managers towards CSR. He asserts the important arguments relating to

the case for and against business social responsibility. Wood (1991)

underscores managerial intentions as the motivators of socially responsible

behaviour, and stresses the management of stakeholder expectations as

an integral part of the process. An assessment of a manager’s attitude

towards CSR, then, may provide an indication of the managers’ inclination

to respond to CSR in a particular way.

1.7 Benefits and Implications of CSR

1.7.1 Benefits of CSR

Companies that commit to developing a comprehensive CSR strategy can

expect benefits from a number of possible positive outcomes, including:

a) Improved financial performance and reduced operating costs:

If CSR pervades through the organization, it brings with it a sense of

responsibility, which ultimately becomes a habit among the employees of

the organization. This is highly visible in the growing concern among

organizations about the fast depleting water and energy reserves.

Companies are taking up measures such as conserving paper, non-use of

plastic throwaway cups in the staff canteens etc., This consciousness has

come from a sense of social and environmental responsibility, which in

turn, has helped reduce operating costs. The adoption of a sensitive

attitude towards the community forces businesses to strive for

environmental improvements, for adopting eco-friendly measures, using

less energy and material and for re-organizing production processes,

material flows and supplier relationships.

b) Enhanced brand value and corporate image

In an online poll conducted by the Economic Times in January 2007, 75%

of the respondents opined that CSR activities increase the brand equity of

the company. Branding of products , more particularly of consumer

products, gets an immense boost through social messages. With

increasing competition and little differentiation in product features, creating

and sustaining brand image is a challenge. Spending on visible CSR

activities is a cost-effective means of achieving and sustaining a brand

image. Good brand image leads to customer loyalty. The issue of

environment protection has brought the customers, the industry and the

government on a common platform wherein each stakeholder has a role to

play. On the consumer’s part, there is a growing market for environment-

friendly products. Products that are eco-friendly labels are demonstrating

their edge over unlabelled products.

c) Improved customer loyalty

Consumers not only want good and safe products, but would also like to

know that what they buy was produced in a socially and environmentally

friendly way, and are sometimes willing to pay more for products that are

produced in a socially and environmentally friendly manner. Loyalty is a

combination of product or service quality, price and intellectual or

emotional bonding. More and more customers are considering the

environmental and social impacts of companies’ activities when they are

making purchasing decisions. Customer loyalty can be created through

cause promotions, cause related marketing. The companies need to

identify and implement the initiative. Brand visibility, recognition and

awareness among the stakeholders can be achieved by putting a good

CSR plan in place. Cause branding is intended to reinforce or improve a

company’s image by demonstrating the company’s support for a particular


d) Development of a better work culture within the organisation

and increased employee satisfaction.

The extent of publicity and goodwill generated by CSR activities help in

talent management as the average employee feels pride in being

associated with good corporate citizens. Employers with good CSR records

are better positioned to attract and retain talent. Studies have shown that

employees would rather work for an ethical and reputable company than

receive a higher salary from a company which has a reputation of doing

business using unethical means. CSR also creates a dedicated workforce

with high levels of self-accomplishment – people who take pride in

themselves and their company. It encourages a spirit of volunteerism

among colleagues, and boosts morale, builds self-worth and fosters team


e) Reduction of risk as a result of clearer grasp of positions taken

by stakeholders

Businesses that show an environmental and social responsibility tend to be

viewed as being less risky than those that do not, as that can translate into

cost prevention, lower insurance premiums, reduced interest rates,

reduced legal and regulatory costs and so on. Some studies carried out in

the Western countries have shown that incorporating social responsibility

can reduce portfolio volatility and increase returns. The banking and

finance sector have also incorporated principles and standards in credit

evaluation. Financial institutions are including performance on sustainable

development and corporate governance on equity valuation.

f) Gaining an informal social license, facilitating business in

sensitive environments

Businesses caring for their community get more cooperation and less

queries from regulators and social and environmental activists. Such

businesses also receive cooperation from the local community while they

set up their factories. Obtaining permits or licenses are also easier for such

companies. In India, the Ministry of Labour announced its decision to

exempt businesses having SA8000 certificate from several inspections till

such time the certificate is in force.

1.7.2 Implications of CSR

Corporate social responsibility has much broader implications for the nation

as a whole. It reduces dependency on the government for social change.

Most governmental programmes quickly become embroiled in political

manipulation, corruption, communal overtones, and bitter infighting. There

is a need for public-private partnership with well-defined controls and

processes for the best use of resources for social change. Social reforms

driven by the community will bring people together, turn the attention of the

masses to tasks that benefit society, and reinforce peace and harmony.

In recent times, a number of foundations set up by leading Indian firms,

including Infosys, Wipro, Tatas, TVS, and Dr. Reddy's Laboratory, have

taken a keen interest in corporate activism to improve healthcare,

education, and living conditions, and reduce poverty. These foundations

support numerous government primary schools and have developed

processes and methodologies for effective change. They support hundreds

of non-governmental organisations and have built orphanages, hospitals,

and schools.

However, the challenges in India are enormous. Social responsibility

should not be limited to large successful corporations; there should be

greater participation from most small, medium, and large businesses. The

goodwill firms can generate from acts of social responsibility may, in fact,

be worth far more to the businesses than the amounts they give.

Corporations collectively can make India a better place for every citizen.

Corporate social responsibility is about tradition and culture. Firms can

institutionalise voluntarism among employees through appropriate

incentives and recognition. Internal performance evaluation of employees

could recognise community work. Community work can take many forms:

teaching in government schools, supporting NGOs financially, empowering

women, cleaning parks, planting trees, volunteering in orphanages,

protecting the abused. Many corporations in the U.S. allow employees to

write about their community service as part of their annual evaluation

report. Even if companies do not reward community activities, at least, the

idea that the company cares will have a positive impact.

Creating shared value (CSV) and CSR

CSV are policies and practices that strengthen a community at the same

time that they advance the economic objectives of a company (Porter &

Kramer, 2005). This concept shows how important social factors were to

the competitive success of companies, and how corporate strategy really is

intertwined with social issues. There are opportunities for companies to

make money by solving social problems. It is not philanthropy because

shared value is not merely a contribution or a donation. It is instead

initiatives that create profit for the company. It is also not the same as CSR

and sustainability, even though it overlaps with them. If, for example, a

company reduces its energy consumption—that may be sustainability, but

there are certainly many sustainability initiatives that do not have an

economic benefit to the company and would not be considered shared

value. And when companies create new products and new services that

solve social problems that are not problems that they themselves caused,

that are shared value, but are not what is typically seen as sustainability.

Businesses can develop initiatives that help address social problems – it

doesn’t have to be through philanthropy. There is a mandate that

companies donate a certain percentage of profits to CSR, and instead of

philanthropy companies can invest this amount in shared value initiatives

that really deliver measurable benefits to addressing social problems or

helping populations in need. The following steps need to be taken for

creating shared value from CSR:

 Calculating benefits and costs to make the business case;

 Identifying and managing positive as well as negative impacts;

 Integrating CSR best practices into key business areas;

 Recognising outstanding efforts towards this end.

Corporations and Civil Society as Good Neighbours

 Recognising the links between the welfare of society and that of the


 Proactively examining opportunities designed to benefit the

organization and the community in terms of the environment,

diversity, human rights, social impact, and the economy;

 Facilitating relationship building between NGOs and Corporations as

co-actors of development

 one of the key drivers of Indian corporate social responsibility is

found in the country’s cultural heritage. The concept of “trusteeship’

asserts the right of the capitalist to accumulate and maintain wealth

to use it to benefit society. Researchers have established

connections between CSR and trusteeship, (Renold 1994; Masani,

1956; Pachauri, 2004). Gandhi’s view of the ownership of capital

was that of trusteeship, motivated by the belief that essentially

society was providing capitalists with an opportunity to manage

resources which need to be managed on behalf of the society in


 Although researchers have generally accepted the notion that

Corporate Social Performance (CSP) is multidimensional (Carroll 1991;

Griffin& Mahon 1997) most CSR ratings have combined the various

dimensions used to measure the construct into one aggregate measure

(Griffin &Mahon 1997). However, as Griffin and Mahon noted, "Collapsing

the KLD's multiple dimensions into a uni-dimensional index may mask the

individual dimensions that are equally important and relevant Johnson and

Greening (1999) suggest two, conceptually distinct, dimensions; (1) the

people dimension, including community, women, minorities, and employee

relations and (2) the product quality dimension, a product quality and

environment dimensions. In addition, another dimension can be adopted:

(3) CSR activities influencing institutions directed at the state such as

advocacy and campaigning work. Applying this typology to the case of

India, content analysis based on CSR reports reveals that most existing

CSR programs in India have tended to focus on the people centric

dimension with active community participation at all levels. According to a

survey (UN 2004), 84 percent of the respondents said what CSR

means to the company and what it focuses on is ‘Corporate Community

Involvement (CCI).’ If numbers and statistics are any indication, India

currently is home to approximately 2 million NGOs, employing

approximately 25 million people (if volunteers are also counted) with deep

grassroots penetration. These NGOs work in diversified areas and engage

with different stakeholders to promote, protect and advance a people-

centric agenda (CII 2002). Further, the corporations themselves have

moved away from charitable initiatives like financial grants or sponsorships

to providing products and services in a manner that would make a real

difference in the target communities.

CSR – New challenges and opportunities

Although community development and social initiatives have been the

focus of CSR activities of Indian companies, there has been a shift in the

focus of CSR in some industries such as the IT and ITES industries which

have emerged from globalization. These industries have a separate

corporate rationality different from the older brick and mortar industries and

therefore have different approaches to CSR. Since the information

technology companies are knowledge driven, people are the key

differentiator. In addition as Indian companies have begun to play the

global market they are also under great pressure to improve environment

sustainability. Such evolving demands for Indian companies have led to a

shift in CSR in the new industries and some have already begun efforts to

turn such challenges into opportunities. Ansoff (1980) argues that social

demands could present potential opportunities for the firms like the way

that they convert external threats into opportunities by aggressive

entrepreneurial management.

1.8 Background of the Study

The growing interest in ‘CSR’ and ‘sustainable development’ can be

attributed to the growing size of businesses and the corresponding

shrinking role of governments. With the advent of scientific inventions and

the dominance of democratic forms of governance in most parts of the

world, and the exponential growth of the middle class all over the world ,

the expectations from corporate houses have increased manifold.

The concept of CSR emerged from the sense of responsibility among

polluting industries such as oil, chemicals, tobacco and mining. CSR today

is thriving, with full time managers, websites, newsletters and professional

associations. The annual report of almost every major company has

several pages devoted to the social goals and community activities

undertaken by it. Although economic considerations constitute the main

driving factor in any business activity, there is a growing resistance against

the conventional view that business is chiefly meant for improving the

economic condition of an individual or a group of individuals. The concept

of CSR is qualitatively different from the traditional concept of philanthropy.

As Indian companies grow global, in many corporate houses, ownership is

becoming distinct from management. This coupled with other socio-

economic pressures has resulted in a shift from corporate philanthropy to

corporate social investment.

The desire and urge in business to be sensitive about social responsibility

has a significant and far-reaching impact on financial performance,

resulting in increased revenues and reduced operating costs. CSR is a

business process, wherein the institution and the individuals are sensitive

and careful about the direct and indirect effect of their work on internal and

external communities, environment and the outside world.

In this context, there is a need to understand the business case for CSR as

in the years to come, displacement of people for accommodating

industries, large scale migration of people from rural to urban areas and

the impact of industries on the communities and the environment are set to

take centre stage.

1.9 Significance of the Study

This study gains its importance from the increasingly strategic business

weight and attention paid to Corporate Social Responsibility, which allows

business to be more sustainable, and enables it to give something back to

societies they are placed in, and make efforts to create social, economical

and environmental innovation. Also, this study is one of the few studies on

CSR and financial performance in the Indian context. It may provide a

framework for companies to evaluate their CSR activities. The companies

included in the study represent the top 500 companies of the Indian

economy and the role of these companies in shaping the economic, social

and environmental future of the country is very significant. The

mainstreaming of CSR activities is catching up in India too now. It is no

more simply Western jargon. Businesses have realized that consumers are

willing to pay more to a company that acts on ideals. Increasingly, it is not

enough to be just perceived as a company that does no harm. Today,

companies need to be seen as institutions that also does good.



2.1 Studies on Corporate Social Responsibility

2.2 Studies on theoretical perspectives of CSR

2.3 Studies on stakeholder approach to CSR

2.4 Empirical Studies on CSR

2.5 Studies on measurement of financial performance

2.6 Studies on CSR in India

2.7 Studies on CSR and firm performance

2.8 Studies on motivations for CSR

2.9 Studies on CSR and financial performance in India

2.10 Studies on managerial perceptions of CSR

2.11 Research Gap


2.1 Studies on Corporate Social Responsibility

Corporate Social Responsibility (CSR) is created due to the conflict

between the organizations’ objectives of maximizing benefits with their

consequent actions and the need of being responsible to society and

environment. Although CSR has been and is a very subjective concept, it

has been a subject of extensive research and arguments over the last few

decades (Jamali, 2008).

The World Business Council for Sustainable Development (WBCSD)

defined CSR as “the commitment of business to contribute to sustainable,

economic development, working with employees, their families and the

local communities and society at large to improve their quality of life”.

(WBCSD 2002).

The European Commission named CSR as the voluntary integration of

social and environmental concerns in the enterprises’ daily business

operations and in the interactions with their stakeholders: employees,

shareholders, business partners, suppliers, customers, public authorities,

NGOs and the environment (Green Paper, 2001).

Corporate Social responsibility has been a topic of intense academic

research, especially in the Western countries. The evolution of the CSR

construct began in the 1950s which marks the modern era of CSR. The

nature of the CSR definitions has expanded during the 1960s and

proliferated during the 1970s. The alternative themes included are

corporate social performance (CSP) and business ethics theory

(Patton,1994). Many of the studies have used the exploratory comparative

case study method to understand how companies make sense of CSR

(Cramer et al, 2006). Theodore Levitt (1958) could be credited with setting

the agenda for the debate about the social responsibility of business in his

Harvard Business Review (HBR) article, “ The Dangers of Social

Responsibility” in which he cautions that “government’s job is not business,

business’s job is not government”. Milton Freidman (1970) expressed the

same sentiment and added that the mere existence of CSR was a signal of

an agency problem within the firm. He suggests that CSR is an executive

perk, in the sense that managers use CSR to advance their careers or

other personal agendas.

2.2 Studies on theoretical perspectives on CSR

Research into the relationship between CSR and financial performance

has been based on several theoretical arguments. Those who have

suggested a negative relation between social responsibility and financial

performance have argued that social responsibility results in higher

additional costs, that puts a firm at an economic disadvantage compared to

other less socially responsible firms (Bragdon & Marlin, 1985; Vance,

1975). These added costs result from make extensive charitable

contributions, promoting community development plans, developing

factories in backward locations and establishing environmental protection

procedures. Additionally, concern for social responsibility may restrict the

strategic alternatives of companies, such as foregoing profitable product

lines , pesticides vs weapons. On the other hand, authors investigating the

CSR and firm performance relationship have argued that a positive

relationship exists between the two. The benefits arising from CSR include

improved employee and customer goodwill (Davis, 1975; Solomon &

Hansen, 1985). This is because a responsible firm may be subject to less

litigation, and their responsible behaviour leads to better investor and

government relations. Improved relationships with these constituencies

may bring economic benefits (Moussavi & Evans , 1986). Banks and other

institutional investors have reported social considerations to be a factor in

their investment decisions (Spicer, 1978). High level of CSR may lead to

increased access to firm’s sources of capital.

2.2.1 Institutional level : CSR as organizational legitimacy

Davis (1973) describes the iron law of responsibility , as the fact that firms

exercising power will eventually be held accountable by the society. Firms

are under the obligation of not abusing the power invested on them by the

society or they risk losing the society’s implicit endorsement. This is now

being termed as the ‘license to operate’ (Post et al, 20i02)

2.2.2 Individual level : CSR as moral choices of managers.

At the individual level, CSR has been constructed by Ackermann (1975) as

managerial discretion. According to this view, managerial actions are not

fully defined by corporate policies and procedures. So although managers

are constrained by their work environment they nevertheless have to weigh

the moral consequences of the choices they make (Jones, 1991;

Donaldson & Dunfee, 1994; Crane & Matten, 2003).

2.2.3 Global Level: CSR as Sustainable Development

The latest literature tradition to have impacted our understanding of

corporate social responsibility is that of sustainable development. It was

the Brundtland Commission (1987) that for the first time systematically

emphasized the link between poverty, environmental degradation, and

economic development. Its definition of sustainable development, as

meeting the needs of the present, without compromising the ability of future

generations to meet theirs, extends the responsibility of firms both inter-

and intra-generationally. Thus firms are expected to also consider

traditionally unrepresented stakeholders such as the environment and as

well as future generations. Although many CSR authors have taken up the

notion of a “triple bottom line” (Elkington, 1997) there remain important

tensions between the CSR and the sustainable development debate (i.e.

Dyllick & Hockerts, 2002)

2.3 Studies on stakeholder approaches to Corporate Social


The theory originated from Freeman’s Strategic Management: A

stakeholder approach in 1984, exhorted leaders to serve their stakeholders

because these stakeholders hold the key to the firm’s survival. The

rationale behind this was put forth in the following arguments:

a. We must not leave out any group or individual who can affect or is

affected by the organization’s purpose, because the group may

prevent our accomplishments.

b. The more we begin to think in terms of how better to serve

stakeholders, the more likely we will to be to survive and prosper

over time.

c. We need to worry about the enterprise level strategy for the simple

reason that corporate survival depends, in part, on there being some

fit between the value of the corporation and its managers, the

expectation of stakeholders in the firm, and the societal issues

which will determine the ability of the firm to sell its products.

d. Regardless of the underlying reasons, organizations which ignore

their stakeholders are in for big trouble.

Carroll and Buchholtz divide stakeholders in business into the following


1) Primary Stakeholders : Shareholders, employees, customers,

business partners, communities, future generations, the natural

environment, bankers, lenders and insurers.

2) Secondary Stakeholders: Local, state and national governments,

regulatory bodies, civic institutions and groups, special interest

groups, trade and industry groups, media and competitors.

According to Waddock and Graves (1997b), the stakeholder theory

represents a theoretical framework for CSR research. They argue that if

CSR is to be equated with the quality of stakeholder relations then, it

makes sense to focus on a relevant set of primary stakeholders in

researching the CSR construct which are identified as employees,

customers and suppliers, community and the environment.

Davenport (2000) found in her research that CSR is defined by reference

to key shareholders; employees, suppliers, investors, the wider community

and the environment. Carroll (2000) also identifies these as the main

stakeholder groups. Cooper et al (2001) found that a study of firms

described as having a stakeholder approach reported that their main

stakeholders were shareholders, customers, employees and environment.

Employee CSR

There are many aspects where company must pay attention to the

employees as a part of its business. From the view of the company

responsibilities towards employees’ interests, first of all, the company must

provide facilities and efforts to enhance the quality of life and working

conditions (Smith and Johnson, 1995). If employees’ values resonate with

their company’s values, and if they trust that their company genuinely

cares about the same things they care about, then they are more

energized and productive. A company’s corporate social responsibility

(CSR) efforts signal what it cares about. Their co-benefit is that they seem

to increase employee engagement. Companies that improve working

conditions and labor practices also experience increased productivity and

reduced error rates. Regular controls in the production facilities throughout

the world ensure that all the employees work under good conditions and

earn wages. These practices might be costly but the increased productivity

of the workers and improved quality of the products generates positive

cash flows that cover the associated costs. Thus, firms may actually benefit

from socially responsible actions in terms of employee morale and

productivity (Moskowitz, 1972; Solomon and Hansen, 1985). Social

responsibilities of the firms towards their employees extend beyond the

terms and conditions of the contract to include: justice in treatment;

democratic functioning of the organisation; training in new skills and

technologies; effective personnel and employment relations policies and

practices; and provision of social and leisure facilitates (Mullins, 2005).

Employee rights should include the rights to enhance skills and capacity

and that, companies had an obligation to provide training to help ensure

future employment be it with that company or with another. The importance

of respecting cultural issues in the workplace cannot be undermined. The

choice of how to be represented, including representation through unions is

also critical, as are issues of pay equity and fair compensation. Good

working conditions can also help attract and motivate more qualified and

motivated staff in the competition for skilled employees. Today, in

increasing competitive markets, customers take into consideration the

ethics of the employment practices exercised by a firm when evaluating

alternative products (Palmer and Hartley, 2002).

Customer CSR

Corporate social responsibility (CSR) activities have the potential to create

several distinct forms of value for customers. It is the customer perception

of this value that mediates the relationship between CSR activities and

subsequent financial performance. The most immediate, influential and

targeted stakeholder for any organisation is the customer or the consumer

of its goods or services. There is an obvious controversy as to whether the

customer is right in the goods and services they choose to buy from a

company. It is true that sometimes customers do not recognise the long-

term harmful effects of their choices such as in the case of tobacco, milk

products for babies and expensive stereo equipment in the cars when

safety equipment are relegated to optional extras (Palmer and Hartley,

2002). However, it is equally true that there is no ethical basis to judge

whether provision of such goods and services is right or wrong. Galbraith

(1977) says the ‘customer is the king’ is no more than a myth. He

maintains that the modern organisation exercises power to the extent of

shaping tastes of consumers to its products. But this power is often buried

down to leave nobler causes to surface.

Mullins (2005) argues that the responsibilities to consumers may be seen

as no more than a natural outcome of good business. However, there are

broader social responsibilities including:

a) providing good value for money;

b) the safety and durability of products/services;

c) standard of after-sale service;

d) Long-term satisfaction – serviceability, adequate supply of

products/services, and spare parts and replacement parts.

e) Fair standards of advertising and trading; and

f) Full and unambiguous information to potential consumers.

The role of business in educating consumers about what products contain,

about their proper use and disposal and about the environmental impacts

of the complete product lifecycle has to be emphasized.

Corporate responsibility management is often depicted as managing what

companies voluntarily accept as their responsibilities to society, on the

other hand, to have credibility, there is an expectation that those

responsibilities be well defined, consistent and something for which the

company is accountable. Stakeholder engagement is one of the key

components in defining and legitimizing the scope of corporate

responsibility management. According to Andriof et al (2002), today’s

shareholder thinking concerns the interactive, mutually engaged and

responsive relationships that ‘establish the very context of doing business

and create the groundwork for transparency and accountability’.

Freeman (1984) presented a more positive view of managers’ support of

CSR. Freeman’s stakeholder theory asserts that managers must satisfy a

variety of constituents (eg., employees, customers, suppliers and local

community) who can influence the firm outcomes. With Freeman’s (1984)

seminal book the focus moved from legitimacy and morals towards a new

theory of the firm. Social considerations are thus no longer outside an

organization but are part of its purpose of being. CSR thus becomes a

question of stakeholder identification, involvement, and communication

(Mitchell, Agle, & Wood, 1997; Morsing & Beckmann, 2006; Morsing &

Schultz, 2006).

“The purpose of stakeholder management was to devise a framework to

manage strategically the myriad groups that influenced, directly and

indirectly, the ability of a firm to achieve its objectives.” (Freeman &

Velamuri, 2006) Stakeholder theory implies that it can be beneficial for the

firm to engage in certain CSR activities that non-financial stakeholders

perceive to be important, because in the absence of these activities, these

groups might withdraw their support for the firm. Stakeholder theory was

expanded by Donaldson and Preston (1995) who stressed the moral and

ethical dimensions of CSR, as well as the business case for engaging in

such activity.

Another perspective, the stewardship theory (Donaldson, 1990) is based

on the idea that there is a moral imperative for managers “to do the right

thing”, without regard to how such decisions affect the financial

performance of the firm. Institutional theory and classical economic theory

have also been applied to CSR in a paper by Jones (1995). The author

suggests that companies that are involved in repeated transactions with

stakeholders on the basis of trust and cooperation are motivated to be

honest, ethical and trustworthy because the returns to such behaviours are

high. Institutional approaches have also been used to analyze

environmental and social responsibility.

Modern corporate stakeholder theory (Cornell & Shapiro, 1987) contends

that the value of a firm depends on the cost not only of explicit claims but

also of implicit claims. From this viewpoint, it is not sufficient for managers

to focus exclusively on only shareholders’ needs, but to include

stakeholders like employees who have explicit claims on the firm like wage

contracts and others, with whom the firm has implicit contracts, involving,

for instance, quality service and social responsibility. If the firm fails to act

in a socially responsible manner, it is possible that parties to implicit

contracts may attempt to transform those implicit agreements into explicit

agreements that would be more costly. For ex, if a firm fails to treat its

effluents, it is possible that the government may impose stiff penalties or

restrictions on the firm. Also, it is quite likely that irresponsible actions of a

firm might spill over to other implicit stakeholders who may doubt whether

the firms would honour their claims. Thus, firms with high social

responsibility may find that they have more low cost implicit claims than

other firms and thus have higher financial performance (Cornell & Shapiro,


Waldman, Siegel and Javidan (2005) applies strategic leadership theory to

CSR. These authors aver that certain aspects of transformational

leadership will be positively correlated with the propensity of firms to

engage in CSR and that these leaders will employ CSR activities


McWilliams and Siegel (2001) posited a profit maximizing model of CSR

wherein they outlined a simple model in which two companies produce

identical products, except that one firm adds an additional “social” attribute

or feature to the product, which is valued by some consumers or

potentially, by other stakeholders. In this model, managers carry a cost-

benefit analysis to determine the level of resources to devote to CSR

activities, ie., they assess the demand for CSR and also evaluate the cost

of satisfying this demand.

McWilliams, Van Fleet and Cory (2002) developed the Resource based

view where they argued that CSR strategies when supported by political

strategies can be used to create sustainable competitive advantage.

CSR is primarily considered as a trend that is expected to bring ‘something

good for everyone’, corporations and societal stakeholders alike. The

purpose and role of business in society has been a focus of debate over

the years. Much of the debate has revolved around two hierarchical

positions; namely shareholder theory and stakeholder theory (Rugimbana

et al, 2008). The shareholder theory represents the classical view that the

firm’s responsibility lies solely towards its shareholders (Cochran, 1994),

ie., the business must take such decisions as would increase shareholder

value. On the other hand the stakeholder theory argues that organizations

are not only accountable to their shareholders but also balance the

interests of other stakeholders namely, employees, investors, community,

suppliers and the environment (Van Marrewijk, 2003). Post et al (2002)

believe that effective stakeholder management is an important requirement

for wealth creation in business organizations. Stakeholder management

helps in creating competitive advantage for the companies. Identification of

stakeholders is primarily done on the basis of urgency, legitimacy and

power. The various combinations of these attributes are indicators of the

amount of management attention awarded to a given stakeholder. When

stakeholders lose confidence in a firm’s performance, the firm loses its

critical support structure and customer base (Lee, 2008).

A firm’s survival and success depends on the ability of managers to create

sufficient wealth and satisfaction for its primary stakeholders. If any of the

stakeholders withdraws its support to the firm, the firm’s operation is

adversely affected. (Clarkson, 1995). Effective stakeholder management

acts as a value driver by leveraging performance and reducing

stakeholder-inflicted costs. In order to carry on a sustainable business

firms must identify key stakeholders, identify their needs, and design

organizational policies and practices to cater to them. ( Mishra et al, 2010).

The rationale for an integrated stakeholder approach to CSR has been

reinforced through case studies. (Dima Jamali, 2008). A comparative study

of the Indian and multinational companies’ CSR communication through

Annual Reports found that both of them target the human resource and the

customer as their audience for CSR communication but the focus differs

and MNCs are more inclined towards communicating the softer and quality

driven aspects of HR and customers respectively whereas Indian

companies offer more details about monetary benefits and price

advantages they offer to the HR and the customers (Tewary 2009).

2.4 Empirical Studies on CSR

The empirical studies can be mainly categories into two types: event

studies and regression analysis. Abowd, Milkovich and Hannon(1990)

conducted an event study based on human resource decisions and found

that there was no consistent pattern of increased or decreased stock price.

Worrel, Davidson and Sharma (1991) studied the layoff programs and

found that investors react negatively to layoff announcements especially

when they are due to financial distress. Clinebell and Clinebell (1994)

studied the effect of plan closures and found that longer periods of

advance notice of plant closings result in greater losses in shareholder

wealth. Posnikoff (1997), studied the disinvestment of holdings in South

Africa and found that divestment resulted in the enhancement of

shareholder value. But on the other hand, Teoh,Welch and Wazzan (1999),

in a similar study found that divestment had a neutral effect on shareholder

value. Aupperle, Carroll and Hatfield(1985) performed a regression

analysis to understand the relationship between CSR and financial

performance. They created a firm level index of CSR and the results

proved that there is a neutral relation between CSR and profitability.

Mcguire, Sundgren and Schneeweis (1988) in a similar study found that

prior profitability was more closely related to CSR than was subsequent

performance. Russo and Fouts (1997) found a positive relation between

environmental performance and financial performance. Waddock and

Graves (1997) used the KLD data and measured the relation between CSR

and financial performance. Their study proved that CSR resulted in an

improvement in firm performance. McWilliams and Siegel (2000) using

similar KLD data found that there was a neutral relation between CSR and

profitability. Hillman and Keim (2001) studied the “Social Issues CSR” and

“Stakeholder management CSR” in conjunction with KLD data and found

that “Stakeholder management CSR” is positively correlated with

shareholder wealth creation. “Social Issues CSR” is not positively

correlated with shareholder wealth creation.

Determining how social and financial performances are connected is

further complicated by the lack of consensus of measurement methodology

as it relates to Corporate Social performance. In many cases, subjective

indicators are used, such as a survey of business students (Heinze, 1976)

or business faculty members (Moskowitz, 1972), or even the Fortune

rankings (McGuire, Sundgren, 1988; Akathaporn and McInnes, 1993;

Preston and O’Bannon, 1997). In other cases, researchers have used

corporate disclosure documents – Annual reports to shareholders, CSR or

sustainability reports, or the like. Despite the popularity of these sources, it

is very difficult to determine empirically whether the social performance

data revealed by these companies are over-reported or under-reported.

Few companies have their CSR reports externally verified. Thus corporate

social performance is open to questions about impression management

and subjective bias. Still other use survey instruments (Aupperle, 1991) or

behavioural or perceptive measures (Wokutch and McKinney, 1991), the

KLD (Kinder, Lydenberg, Domini) Index and the AReSE method (Charles-

Henri and Stephane, 2002). The KLD rating classifies eight CSP

assessment indicators with special attention to the five that provide multi-

aspect assessments of stakeholder relationships which may produce an

impact on corporate strategy (Prahalad and Hamel, 1994). In particular,

community relationships, employee relationships, emphasis on

environmental performance, product features and treatment of women and

disadvantaged groups (Waddock and Graves, 1997). Although AReSE

rating uses a different assessment mode, it also lists five characteristics of

CSR in its assessment rules, including employee relationships,

environment, shareholder relationships, product quality relationships with

suppliers and customers and community.

Previous studies have also employed various measures of corporate social

responsibility. Three methods that have been most commonly used are :

i) expert valuations of corporate policies; ii) content analysis of annual

reports and iii) performance in controlling pollution.

The evaluation of corporate policies with respect to CSR depends on the

skills and knowledge of the assessors (Abbott & Monsen, 1979). Previous

studies have used the KLD ratings or the Dow Jones Sustainability

Indexes. The content analysis of Annual reports or other corporate

documents (Abbott and Monsen, 1979; Anderson and Frankel, 1980;

Preston, 1978) tend to confuse social orientation with corporate actions.

Moreover, such documents are more of a public relations value than

information value. The relationship between such public statements and

actual corporate actions is still uncertain. The use of pollution control

measure reflects only one aspect of social responsibility and is valid for

only certain industries (Bragdon and Marlin, 1972).

2.5 Studies on measurement of financial performance

Hillman and Keim (2001) argue that a detailed approach to studying the

relationship between CSR and financial performance is necessary and

focus on the relationship between stakeholder management and financial

performance, which according to Berman and Wicks (1999) and Preston

and Sapienza (1990) represents a neglected area of research. This is

supported by many recent theorists that define CSR through the lens of the

stakeholder theory (Smith, 2003).Although measuring financial

performance is a simpler task, it also has specific complications. Many

researchers use market measures (Alexander and Buchholz, 1978; Vance,

1975), others put forth accounting measures (Waddock and Graves 1997;

Cochran and Wood, 1984) and some adopt both of these (Mcguire et al.,

1988). The two measures, which represent different perspectives of how to

evaluate a firm’s financial performance have different theoretical

implications (Hillman and Keim , 2001) and each is subject to particular

biases (McGuire et al, 1986).

The accounting measures capture the historical aspects of a firm’s

performance and are subject to managerial perceptions and differences in

accounting procedures. (Branch, 1983; Brilloff, 1972). Market measures

are forward looking and focus on market performance. They are less

susceptible to accounting procedures and represent the investor’s

perception and evaluation of the firm’s ability to generate future earnings

(Mcguire et al, 1988). But the use of market measures of performance is

also not without its drawbacks. Depending on the market performance

suggests that an investor’s perception of firm performance is the right

measure of firm performance (Ullmann, 1985). Since firms face multiple

constituencies (Pfeffer & Salancik, 1978), sole concentration on investors’

evaluations may not be sufficient.

2.6 Studies on CSR in India

A KPMG, 2005 report has found that Asian firms often lag behind their

Western counterparts on CSR practices. However with the advent of

liberalization and globalization and entry of MNCs in Asian markets and

with rising consumer expectations towards businesses and their role in the

society, the case for CSR has become much stronger in Asian countries,

including India. But, Indian companies mostly focus their CSR activities on

community development. Indian companies, traditionally owned by Parsi

and Gujarati business communities provided funds for building hospitals,

schools, rest houses and places of worship. A lack of provable link

between CSR and financial performance often discourages firms from

engaging in CSR. Some of the obstacles to CSR include an ad hoc

approach followed by the top management, lack of consensus on priorities

within the firm and problems related to measurement and evaluation of

CSR activities (Krishna, 1992). However there is a growing view that

businesses should be more responsible and must play a major role in the

society by providing quality products at reasonable prices in an

environment friendly manner while at the same time adhering to high labor

standards. ( Kumar et al, 2001). Consequently companies have started

considering taking up CSR for improving their brand image and better ties

with the local communities. The stakeholder approach is the most favoured

approach to CSR by top level managers in Indian companies (Jorge A.

Arevalo, Deepa Aravind, 2010).

A review of the empirical studies of CSR in India revealed that CSR

activities have been restricted to a limited set of practices, namely

community development (education, health, social issues) and human

resource development (British Council 2002; Kumar 2003; Business India

2004; Business Indiab 2004; Gite 2006; Mathew and Gupta 2006;

Sambrani 2007; Thirumal and Aravanan 2007). In regard to these CSR

practices, one cannot overlook the importance ascribed to community

development practices, which dominate the field. This is very much unlike

the CSR practices reported in Asian and Western countries where major

emphasis is given to environmental aspects. This fact raises doubts about

the extent to which the CSR concept has become part of corporate

strategy in India. Even a cursory look at the available certifications (ISO

14000, ISO 14001, environment accounting and audit, social accounting

and audit, safety audit, social accountability 8000 standards) and awards

(FICCI Award for Rural Development, Asian CSR Awards in the areas of

Education and Environment) that are used as proxies for assessing the

CSR practices and activities of a firm reflect this skewed pattern (Gite

2006; Shrimal and Verma 2000; Goswami 2006).

2.7 Studies on CSR and firm performance

The relations between CSR and firm performance have been studied

extensively, but the results have proved inconclusive. While some studies

have reported a positive relationship (Margolis and Walsh, 2003),

suggesting an instrumental orientation of CSR. The instrumental

orientation towards CSR suggests an alignment of the social goals with the

business goals and where CSR is considered as a strategic tool to promote

the economic objective of the firm. Concern for profits does not exclude

taking into account the interests of all who have a stake in the firm, namely

stakeholders. It has been argued that in certain conditions the satisfaction

of these interests can contribute to maximizing the shareholder value

(Mitchell et al., 1997; Odgen and Watson, 1999). An adequate level of

investment in philanthropy and social activities is also acceptable for the

sake of profits. (McWilliams and Siegel, 2001). The ethical theories focus

on the approach that cements the relationships between business and

society. Managers have a fiduciary relationship to stakeholders (Freeman,

1984) instead of having exclusive fiduciary responsibilities towards the

shareholders. Management theorists argue that by improving CSR towards

stakeholders, firm performance is augmented (Waddock and Graves,


There is no water tight evidence to demonstrate that there is a link between

CSR commitment and practice and shareholder value. The problem is the

classic challenge of causality : of isolating cause and effect in a dynamic

environment. The business case for CSR has been further strengthened by

the research conducted by PwC. 70% of the respondents in PwC’s fifth

global survey of CEOs, drawn from 33 countries said that CSR is critical to

profitability. There is a growing body of evidence to show that the market

values of those companies that have appropriate measures in place to

manage material CSR risks fare better than those companies that do not.

The Dow Jones Sustainability Index has outperformed the FTSE World

Index by 17% since its launch in 1994 ( J. Fuller, 2003) . Those sectors

that are less likely to traditionally face CSR risks like the telecom and the

media sector, have higher price to earnings ratio, suggesting according to

the Financial Times, that investors are already pricing in social,

environmental and ethical factors. Innovest – strategic value advisors –

studies point to a correlation between environmental sustainability ratings

and corporate financial performance. A survey of the transparency and

disclosure practices of over 1500 companies found a direct correlation

between disclosure and market risk and market valuation (Patel and

Dallas, 2002). A 2003 report by the Institute for Business Ethics in the

United Kingdom found that in a sample of FTSE350 firms ‘ethical’

companies outperformed those which made no claims on three out of four

financial measures (Market value Added, Economic value Added, and

price/earnings ratio) between 1997 and 2001. The study concludes that

there is a ‘strong indicative evidence that large UK companies with codes

of business ethics/ conduct produced an above average performance when

measured against a similar group without codes.

Studies have also revealed that it is not only the financial measures but

when the nature of performance and value assessment has been

broadened to include non-financial measures, the results have been

similar. The market value of businesses is no longer determined solely by

traditional financial data, but also by intangible factors such as brand

reputation, intellectual capital risk management, codes of conduct,

inclusion of stakeholders and customer loyalty.

Further evidence comes from the Work and Enterprise panel of Inquiry, an

extensive study into high performance working and productivity. The Panel

found that businesses that are regarded as high performing do on an

average 42% better financially than do businesses that are regarded as

low-performing. Further, the panel found that such high performance

appeared to be linked to the management of five key areas and, critically,

the trade-offs between them. (The Work and Enterprise Panel of Enquiry,

2003). The key areas concerned are:

 Customers and Markets;

 Shareholders;

 Stakeholders (including suppliers, customers and communities);

 Human resources practices;

 Creativity and innovation management.

Previous research has yielded mixed results regarding the relationships

between CSR and measures of firm performance. Reviews by Aupperle et

al (1985), Cochran and Wood (1984) and Ullmann (1985) have found

mixed results concerning the concurrent relationships between social

responsibility and firm performance. This may because of the differences in

research methodologies and measures of financial performance.

Studies using stock market based measures of return have reported mixed

results regarding the relationship between social responsibility and firm

performance. Moskowitz (1972) ranked 67 selected firms in terms of his

evaluation of their social responsibility and found that higher ranked firms

showed higher stock market returns. Vance (1975) however found that a

subset of the firms taken from Moskowitz’s sample had lower stock market

returns than a sample of firms listed in the Dow Jones and Standard &

Poor’s Index. Studies that have used risk-adjusted returns stock market

performance have found little relationship between social responsibility and

stock market performance of companies. Alexander and Bucholtz (1978)

using Moskowitz’s sample of firms found little association between social

responsibility and risk-adjusted return on securities.

Studies examining the relationship between CSR and accounting based

measures have shown positive results. This has been seen in various

studies (Bragdon and Marlin, (1972); Bowman and Haire (1975); and

Parket and Eibert(1975). However these studies did not control for possible

effects of other variables. Later studies that have attempted to control for

differences in risk have offered more cautious support for the relationship

between CSR and accounting-based performances. Studies made by

Cochran and Wood (1984) showed a positive correlation between CSR

and accounting performance after controlling for the age of the assets.

Aupperle et al (1985) , however found no significant relationship between

CSR and a firm’s adjusted ROA by its ranking in the Value Line Safety

Index. Sturvidant and Ginter (1977) compared accounting based measures

of firms for a subsample of firms rated by Moskowitz to industry averages.

They rated the firms on the basis of their social responsibility and they

found that higher rated firms had higher accounting based measures than

other firms.

Empirical studies of the relationship between CSR and financial

performance comprise essentially of two types. The first uses the event

study methodology to assess the short-run financial impact (abnormal

returns) when firms engage in either socially responsible or irresponsible

acts. The results of these studies have been mixed. Wright and Ferris

(1997) discovered a negative relationship; Posnikoff (1997) reported a

positive relationship, while Welch and Wazzan (1999) found no relationship

between CSR and financial performance. Studies conducted by

McWilliams and Siegel (1997) also show similar inconsistent results

concerning the relationship between CSR and financial performance. The

second type of study examines the relationship between some measure of

Corporate Social Performance and long term financial performance, by

using accounting or financial measures of profitability. The studies that

examined the relationship between CSR and accounting based measures

have also yielded mixed results. Cochran and Wood (1984) located a

positive correlation between social responsibility and accounting

performance after controlling for the age of the assets. Aupperle, Carroll

and Hatfield (1985) detected no significant relation between corporate

social performance and a firm’s risk adjusted return on assets. Waddock

and Graves (1997) found significant positive relationships between an

index of CSP and financial measures such as ROA in the following year.

Studies that have also used the market based measures have also

reported mixed results of the relationship between CSP and financial

performance. Moskowitz had examined the relationship over a period of six

months and the results indicated that there existed a negative relationship

between CSP and financial performance. However, Vance (1975)

extended the period of study from six months to three years and found a

positive relationship among the two variables. However, Alexander and

Buchholz (1978) improved on Vance’s analysis by evaluating stock market

performance of an identical group of stocks on a risk-adjusted basis,

yielding an inconclusive result.

A number of studies conducted on the CSR and firm performance have

been mostly inconclusive, but positive relationship has been reported in

most of the studies (Margolis and Walsh, 2003) suggesting an instrumental

orientation of CSR initiatives. An instrumental orientation towards CSR

suggests that an alignment of the social goal with the business goal where

CSR is considered as a strategic tool to promote the economic objective of

the firm. There are perceived value additions in firm performance due to

strengthened stakeholder relations. Previous studies have concluded that

favorable CSR towards stakeholders has resulted in increased economic

performance (Waddock and Graves, 1997). The stakeholder centered CSR

has been influenced by three theories: a) consumer inference making b)

signalling theory c) social identity theory. The consumer inference theory

postulates that if a consumer knows that the manufacturer is a responsible

firm, there is a positive reaction generated towards the product. (Brown

and Dacin, 1997). The signalling theory (Boulding and Kirmani , 1993)

suggests that in a situation where there is information asymmetry between

buyers and sellers, any signals originating from the company is keenly

watched by consumers to distinguish it from other companies. Social

identity theory emphasizes that one’s self-concept is influenced by

membership in different social organizations, including the company for

which an individual works (Ashforth and Mael, 1989, Dutton et al, 1994).

Companies spend a lot of time and resources in practicing CSR. Many

studies related to CSR motivations behind CSR activities have been done

in the past few years (e.g. Gaafland, 2002). Some argue that companies

undertake CSR because it increases profitability in the long run. It could

also be that since companies want to explore business opportunities

abroad, there is pressure from buyers/suppliers to comply with certain CSR


Previous studies on the relationship between social responsibility and risk

have also produced mixed results. Spicer (1978) found that firms rated

high on social performance, as measured by pollution control activities had

lower total and systematic risk than less socially responsible firms.

The stakeholder influence capacity and the variability of financial returns to

corporate social responsibility, shows that though all CSR activities are not

profit maximizing, some may be , and so the careful use of CSR can fulfil

management’s fiduciary responsibilities Barnett (2005). The shift from

maximization of shareholder wealth to a multi stakeholder target is evident

among US listed companies, albeit partially. (Becchetti, Giacomo and

Pinnacchio 2005). This means that on the one hand CSR decisions may

result in immediate higher cost of labour, it would also on the other hand

enhance involvement, motivation and identification of the workforce with

company goals with positive effects on productivity. Studies to test the

relationship between CSR and financial performance have been carried out

in various countries such as Australia (Brine et al 2007), Brazil (Crisóstomo

et al, 2010) , Taiwan (Fu-Ju Yang, Ching-Wen Lin, and Yung –Ning

Chang), New Zealand (Lyon, David 2007) , Malaysia (Yam Lee Hong) and

Nigeria (Olayinka Marte Uadiale, 2011). Studies have been conducted

using new methodology, improved techniques, and industry-specific control

groups (Cochran and Wood , 1984). Studies have been also conducted

using various financial parameters such as firm size, Return on Assets

(ROA), return on equity (ROE), assets size, return on sales (Griffin and

Mahon ,1997), average age of assets (Cochran and Wood , 1984). Some

of the studies have used a mental model approach by developing mental

maps of senior executives and institutional investors for specific activities

and outcomes resulting from social responsibility and associated to

financial performance. Studies relating to CSR and socially responsible

investing has also been conducted in recent years ( Ioannis Ioannau &

George Serafeim 2010). Different CSR ranking data such as Fortune

magazine’s ratings of corporate reputations (McGuire 1988), criteria used

by research agencies that publish ratings of business organisations in

respect of their CSR performance (Timperley 2008) have been used to test

the relationship with financial performance of the firms. The techniques

used for testing the relationship have also been varied ranging from a

meta- analysis (Marc Orlitzky) to Structured Equation Modelling method (

Sweeney , Lorraine). Studies have been based on listed companies such

as the S&P 500 firms (Tsoutsoura, Margarita). Abagail McWilliams and

Donald Siegel (2001), in their study, examined whether a firm’s level of

CSR would depend on its size, level of diversification, research and

development, advertising, consumer income, labour market conditions, etc.

Studies have also examined the relationship between social responsibility

and measures of financial risk such as variance in earnings and in stock

returns (Spicer, 1978; Ullmann, 1985). First, low levels of social

responsibility may increase a firm’s financial risk. Investors may anticipate

an increase in costs such as imposition of fines by the government and file

lawsuits which may threaten the very existence of the companies. On the

other hand, a firm with high social responsibility may have a relatively low

financial risk as the result of more stable relations with the government and

the financial community. In addition, a firm with high level of social

responsibility may also have a low debt-equity ratio, which would lead to

lower risks of insolvency.

The fact that CSR is influenced by the size of the firm has been found true

for India (Krishna Udayasankar 2007), Malaysia (Nazli A. Mohd Ghazali,

2007) Europe (Lammertjan Dam et al, (2012) and Nigeria (Uwalomwa

Uwuigbe 2011)

2.8 Studies on motivations for CSR

Previous studies of CSR engagement have proposed several competing

hypotheses. Those include: (i) the over-investment explanation – top

management tends to over-invest in CSR activities to build their reputation

as good social citizens (Barnea and Rubin, 2006); (ii) the strategic-choice

explanation – incumbent CEOs strategically choose CSR activities to

generate support from social and environmental activists in order to reduce

the probability of CEO turnover in future period (Cespa and Cestone,

2007); (iii) the product signalling hypothesis – firms use CSR activities to

signal their product quality (Fisman, Heal and Nair, 2005); and (iv) the

conflict-resolution hypothesis – firms use CSR activities to reduce conflict

of interest between managers and non-investing stakeholders (Jensen,

2001; Calton and Payne, 2003; Scherer, Palazzo and Baumann, 2006).

The notion of corporate social responsibility in the academic field of

business and society is a vague term which can mean anything to

anybody. The term motivation to undertake CSR efforts refers to “the

reason why a firm engages in CSR”. Husted and Salazar (2006)

distinguish three CSR types based on the motivation of the firm. They

differentiate between altruism, enforced egoism, and strategic intent.

Windsor(2006) believes that a company’s CSR activities is primarily driven

by economical concerns ie., motivated by competitive and market gains. In

contrast, ethical concerns correspond to altruistic motives. Corporate

citizenship refers to the strategic use of philanthropy as a motivational

lever. Motivations for CSR have also been studied on qualitative empirical

studies in the form of case study analysis.

Some authors approach CSR using the normative responsibility typologies

which scrutinize the responsibilities a firm is expected to accomplish.

Amongst the well known typologies are Carroll’s pyramids of

responsibilities (1991 and 1996). The bottom two stages of the pyramid

looks at the economic and legal responsibilities of the organization. Failure

to fulfil these responsibilities lead to some sanctions either a legislative one

or extinction from operation because of operation failure. Beyond the

economic and legal responsibilities are the ethical responsibilities. These

refer to activities that are prohibited by norms, standards and expectations

of society. Finally, the fourth part of Carroll’s responsibilities comprise of

philanthropic or discretionary responsibilities which are purely voluntary

from the business point of view.

The CSR concept literature studies not only seek to define CSR in these

vague terms but also stretch to develop the framework to understand more

systematically, the complex network of factors that lead companies to

engage in CSR initiatives. For instance there is an increasing public

demand on business leaders to include social issues as part of their

strategies in the present day social and political business climate (Lantos

2001). Managers continually meet demands from various stakeholder

groups to devote resources to CSR. Such pressures emanates from

constituencies as employees, consumers, communities and environment(

McWilliams and Siegel 2001). Employees pressures includes the

increasing public recognition of certain employee rights in the workplace ,

including non-discrimination in hiring, firing and promotion. Similarly

consumer pressure includes production of safe products and greater

amount of consumers information. While community and environmental

pressure encompass investing in pollution abatement equipment and

ensuring that the business operations do not threaten the safety of local

community etc. With reference to the above highlighted stakeholder

groups, the pressures from internal actors as employees was highlighted in

the works of Aguilera, Rupp et al (2005) analysis on examining how

employees might push corporations to engage in CSR initiatives. Their

findings suggest that CSR perception shapes employees attitudes and

behaviours towards their firms. In fact the perceived fairness of any

working environment do impact employee well being (i.e job satisfaction ,

stress and emotion) as well as other internal organisational considerations

as absenteeism, and employee commitment (Collquit 2001). In effect

where fairness is perceived, employees are happy and hardworking.

Equally, pressures from external factors as consumers and community

usually exercise their CSR demands using voice and social movement

strategies, such as impose sanctions and demonstration as in the case of

the anti-genetically engineered food and crops campaigns in the E.U, the

anti-Nike activist demonstration in the US or the anti-Shell activist

demonstration in Ogoni, Nigeria (Paine and Moidoveanu 1999).

Smith(2002) observed that these organisations are sceptical on the

possibility that product boycott announcements is associated with

significant negative stock market reaction, and this affect investors belief

on sales both directly and indirectly, through harm to the firm and brands


In addition to the above aforementioned ethical conditions, an organization

may adopt a CSR programme when powerful stakeholders like financiers

threaten to discontinue their support to the organization of it would not do

so (Frooman, 1999). Another driver could be the threat of government

action or the exemplary behaviour of peer companies.

2.9 CSR and financial performance studies in India

Empirical studies fall into two groups. The first group uses event study

methodology to investigate the short run share price returns of socially

responsible or irresponsible acts and illegalities by companies. The second

and most common group of studies looks at the longer run relationship

between CSR proxy measurements and financial and/or accounting

performance by the company. Bedi (2009), in the study on financial

performance and social responsibility in the Indian scenario, examines the

relationship between social and financial performance for 37 firms. Most of

the studies in India use content analysis, ie., analyzing data from published

sources such as Annual reports and CSR reports (Kapoor and Sandhu ,

2010; Richa Gautam, Anju Singh (2010). One distinctive study was carried

out using perceptual data on CSR and NFP were collected from 150

senior-level Indian managers including CEOs through questionnaire survey

(Mishra and Suar 2010).

2.10 Studies on managerial perceptions of CSR

The most influential individuals in determining organizational policies,

strategies and actions are its top managers (Sims & Brinkmann 2003).

According to Drucker (1993), managers possess both the competency and

command of resources to assume leading roles and responsibility for major

social issues including appropriate CSR. Previous studies have found a

number of factors that have influenced CSR perceptions. Some of the

factors include demographic and personal attributes of managers (Thomas

and Simerley, 1994), individual and organizational variables and the

characteristics of the moral issue (Fang, 2006), organizational and

institutional factors (McKinney and Moore, 2004).

Other studies have posited that managerial decisions on CSR issues are

influenced by individual, organizational and institutional factors (McKinney

and Moore, 2004). Organizational characteristics also exert significant

influence on organizational ethical behaviour (Soutar, McNeil and Molster,

1994). The organizational characteristics that most affect managerial

discretion on CSR issues are size of the company, technology acquired,

level of competition, company objective, organizational age and company

structure. (Christie et al, 2003; Hunt, 1999). Organizational culture is “the

set of shared, taken for granted, implicit assumptions that a group holds

and determines how it perceives, thinks about and reacts to its various


2.11 Research Gap

While there have been numerous studies in the west on the relationship

between CSR and financial performance, there have been few studies in

the Indian context. The existing studies in India are mostly limited to self-

reported questionnaires on CSR, nature and characteristics of CSR, CSR

policies of multi-nationals without any linkages with firm performance.

Many studies have mainly relied on secondary data using content analysis.

Most of the studies that have examined the relationship between CSR and

financial performance have not considered the non-financial parameters

which are also important for the growth of a company. Certain studies have

examined the CSR and Firm performance using primary data, but the

scope of the study has been limited.


Statement of the problem and Objectives of the Study

3.1 Statement of the problem

3.2 Purpose and Objectives of the study

3.3 Hypotheses


3.1 Statement of the problem

The problem of this study is the relationship between stakeholder interests,

corporate social responsibility and financial and non-financial performance.

Specifically, the study sought to understand the inter-linkages among

corporate social responsibility towards various stakeholders, the impact of

CSR on firm performance, the impact of size of the firm, shareholding

pattern and number of employees on CSR, the motivations for companies

to engage in CSR and the impact of CSR on various business operations.

The BSE 500 Index constitutes the top 500 companies in India in terms of

market capitalization, which are listed in the stock exchange. Therefore,

there exists a need for a study on understanding the relationship between

CSR and firm performance using both financial and non-financial

parameters that focuses mainly on listed companies.

3.2 Purpose and Objectives of the Study

The purpose of the study is to examine the significant influences of

stakeholders’ corporate social responsibility on the firm performance. This

study looks at CSR activities towards some of the primary stakeholders

namely, employees, customers and suppliers, community and


The objectives of the study are:

1. To study the impact of Corporate Social Responsibility on firm

performance as measured by financial and non- financial


2. To study the relationships among Aggregate CSR and CSR towards

primary stakeholders.

3. To study the impact of size of the firm on CSR.

4. To study the impact of shareholding pattern on Aggregate CSR.

5. To identify the factors that motivates companies to engage in CSR

6. To examine the perceptions of managers towards CSR.


Based on the above objectives the following hypotheses were formulated:

HO1 : Favorable CSR towards stakeholders will not

have any impact on the firm’s financial

H11 : Favorable CSR towards stakeholders will

positively impact the firm’s financial and non
financial performance

HO2 : Favorable CSR towards employees will not

have any impact on the firm’s financial and
non-financial performance

H12 : The favorable CSR towards employees will

positively impact the firm’s financial and non-
financial performance

HO3 : Favorable CSR towards customers and
suppliers will not have any impact on the firm’s
financial and non-financial performance

H13 : The favorable CSR towards customers and

suppliers will positively impact the firm’s
financial and non-financial performance

HO4 : Favorable CSR towards community will not

have any impact on the firm’s financial and
non-financial performance

H14 : The favorable CSR towards community will

positively impact the firm’s financial and non-
financial performance

HO5 : Favorable CSR towards environment will not

have any impact on the firm’s financial and
non-financial performance

H15 : The favorable CSR towards environment will

positively impact the firm’s financial and non-
financial performance

HO6 : There is no relationship among CSR towards

various stakeholders and Aggregate CSR of the

H16 : There is a positive relationship among CSR

towards various stakeholders and aggregate
CSR of the company

HO7 : There is no relationship between size of the firm

and Aggregate CSR

H17 : There is a positive relationship between size of

the firm and Aggregate CSR

HO8 : There is no relationship between shareholding

pattern and Aggregate CSR

H18 : There is a positive relationship between

shareholding pattern and Aggregate CSR



4.1 Introduction

4.2 Primary and Secondary data

4.3 Population and Sample

4.4 Questionnaire

4.5 Pilot Study

4.6 Description of methodology

4.7 Method of data analysis

4.1 Introduction

This section describes the method used in this research. It includes

population and sampling, questionnaire design and content, questionnaire

distribution, response rate, pilot study and the validity and reliability of the

questionnaire. Research Methodology lists the basic plan of the study and

includes steps of data collection, sample collection, type of questionnaire

and process of data and finally the interpretation of data. The research had

to be started with the understanding of the concepts of CSR, its various

definitions, theories, CSR indices and metrics of firm performance.

4. 2 Primary and Secondary data

The primary data are information collected through questionnaire survey

especially for the study. Any data source other than the survey returned

data will be treated as secondary data which may include: previous

studies, books and journals, Annual Reports, CSR reports and published

articles related to the subject. The secondary data used in this study

pertains to the financial and shareholding information which was obtained

from the Prowess CMIE database. Also, CSR reports obtained from the

companies were used to supplement the data obtained from the survey.

Financial data used in this study was mainly from published data available

in the CMIE Prowess database

4.3 Population and Sample

The subjects of this study were companies operating in India and were

listed in the BSE. The BSE (formerly known as Bombay Stock Exchange

Ltd.) is Asia’s first stock exchange and one of India’s leading exchange

groups. Around 5000 companies are listed on BSE making it world’s No. 1

exchange in terms of listed members. BSE’s popular equity index – the

SENSEX- is India’s most widely tracked stock market benchmark index.

The population for this study comprises of the top 500 companies listed in

the BSE. The listed companies comprise of companies where the majority

shareholder is the government and companies where private owners were

majority shareholders. The BSE 500 index was chosen as this comprised

of all the major companies of the Indian industry and a representation of

the major industrial sectors of the economy. These companies have

contributed immensely to the India growth story since they have been

making major contributions to the economic and social development of the

Indian economy.

The study was focused on the top 500 companies listed in the Bombay

Stock Exchange (BSE), the total population was 500. Since banking and

finance companies were excluded from the study, 78 companies were

excluded from the population, implying that 422 companies constituted the

population. These companies formed part of 19 major industry sector

groups. Table 4.1 below gives the sample size from each industry/sector.

The sample size was calculated with a level of significance of 0.05.

Calculation of the defined sample showed that the minimum sample size to

be 96.

S. Sample
Industry/Sector Population
No. Selected

1. Agriculture 20 2

2. Capital Goods 53 19

3. Chemicals and Petrochemicals 14 11

4. Consumer durables 11 4

5. Diversified 6 2

6. FMCG 29 2

7. Healthcare 35 12

8 Housing related 42 4

9. Information Technology 33 9

10. Media and Publishing 15 1

11. Metal, metal products and mining 27 6

12. Miscellaneous 25 5

13. Oil and Gas 21 4

14 Power 21 4

15. Telecom 11 3

16. Textile 11 2

17. Transport equipment 25 10

18. Transport services 13 3

19. Tourism 6 1

20. Others 4 -

Total 422 104

Table 4.1 : Population and the sample of the companies to be


Source: BSE 500 Index

4.4 Questionnaire

4.4.1 Design and content

A major objective of this study was to study the relationships between CSR

and financial performance. The CSR was related to internal and external

CSR towards various stakeholders. According to the review of literature

and after consultation with experts, a questionnaire was designed. The

questionnaire was prepared with a covering letter explaining the purpose of

the study, the method of responding , the aim of the research and the

security of information.

The questionnaire was divided into six major parts. The first part related to

firm related questions such as the industry/sector that the firm belongs to,

the age of the company and the number of employees. The second part

related to the CSR policies and practices with respect to the various

stakeholders namely, employees, customers and suppliers, community and

the environment.

The following table shows in details the items used to measure CSR

CSR Items

1. Extent of training and development in the organization
2. Extent of consultation/ workers’ participation in decision making
3. Extent of commitment to health and safety of the workers

4. Extent of employee benefit policies

5. Extent of women representation in the Board of Directors

Customers and Suppliers:

1. Extent of clear and accurate information about product labelling.

2. Extent of resolving customer complaints
3. Suppliers workplace conditions
4. Tenders and lowest prices
5. Voluntary codes for advertising

1. Donate to charity
2. Projects with local community (sports, education, health)
3. Employee volunteering

1. To what extent is your firm involved in the following?

Waste reduction
Energy consumption
Reduction of air pollution
2. To what extent does your organization /replace hazardous

Table 4.2 : Measures of CSR

The third part had questions relating to the motivations/drivers of CSR in

various companies. The fourth part included questions on the managerial

perceptions of CSR. The fifth part had questions pertaining to the impact of

CSR on the operational efficiency and marketing effectiveness of the firms

and the sixth part had questions relating to the non-financial performance

parameters of the firms.

5 items of Customer and Supplier CSR was measured through questions

such as voluntary codes of advertising, employment of child labour etc,

Community CSR initiatives were measured through questions such as

nature of contributions to community welfare, namely the thematic areas

such as education, health, sports etc.., and extent of community

partnerships with NGOs , Environment CSR was evaluated through a set

of 8 questions including measurement of environmental performance,

existence of environmental control systems . Each respondent was asked

to endorse the degree of compliance with respect to the issues mentioned

in the questionnaire. Response descriptions against each item were given

on a five point scale – ‘ No policy exists’ (=1); policy exists but not

implemented (=2); policy exits and partially implemented (=3); policy exists

and substantially implemented (=4) and policy exists and fully implemented

(=5). 17 questions were asked to understand the managerial perceptions of

CSR, 8 questions were asked to understand the factors that motivated

companies to undertake CSR, 9 questions were asked to understand the

impact of CSR. Respondents were asked to give their responses on a

scale of 1 to 5 – ‘Strongly disagree’(=1); ‘Disagree’ (=2); ‘Neither agree nor

disagree’ (=3); ‘Agree’ (=4); and ‘Strongly Agree’ (=5). For the responses

regarding the non financial measures, respondents were asked to rate their

company in relation to the industry norms for the years 2006-07 to 2010-11

where ‘well below average’ (=1); ‘below average’ (=2); ‘Average’(=3);

‘Above average’ (=4); ‘Well above average’ (=5). The 12 item scale

developed by Govindrajan (1984) and modified by Hoque (2004) was

considered to assess the non-financial parameters. The 12 items which

were tested were: (1) sales growth rate, (2) market share, (3) operating

profits, (4) workplace relations, (5) cash flow from operations, (6) return on

investment, (7) new product development .

There has been very little research done in India in exploring the

connections between managers’ attitudes and behaviour and whether their

firm’s ownership, industrial sector, scale of firms would be correlated to

their attitudes towards CSR. This study is built on attitudes-behaviour

theory, presents an empirical study of how managers perceive CSR in the

Indian context. It examines what factors influence managers’ attitudes

towards CSR.

Managers were asked to respond to seventeen statements : some of them

were business oriented, others were more ethically –natured. The

statements were mixed up in order to find out how managers interpret CSR

and the nature of their perceptions in terms of interpreting CSR behaviours.

The questionnaire is attached in Appendix .

4.4.2 Questionnaire distribution

The questionnaire was administered on CSR managers/HR managers of

104 listed companies from the BSE 500 index

The primary data was collected through a structured questionnaire and

supplemented with interviews with personnel responsible for CSR activities

in their respective companies. Data was collected from companies whose

corporate offices were based across the country. Primary data was used in

the study with respect to CSR policies and practices. Data was directly

collected from respondents for each company.

Out of total 500 companies listed in the BSE, 78 companies which were

banking and finance companies were excluded from the study as the

financial measures of performance differ significantly. Further, 133

companies were excluded as they did not have any CSR activity. 27

companies were unwilling to be part of the study. This meant that out of the

total 500 companies in the BSE 500 Index, only 262 companies were

eligible /willing for the study. Questionnaires were sent to 245 companies

and responses were obtained from 104 companies.

4.4.3 Response rate

Questionnaires were sent to 200 companies by mail where the person(s)

responsible for CSR activities could be identified. Further 45

questionnaires were given in person. Prior communication was made to

companies through email or telephone and appointments were fixed with

the concerned executives. In some cases, the researcher left the

questionnaire with them after explaining the objective of the study. Since

the questionnaire covered a wide range of issues concerning different

departments, the executives took their time to fill up the data in

consultation with other departments. Out of the total 245 questionnaires

that were sent out a total of 104 responses were received.

4.5 Pilot Study

Evaluating a questionnaire before affecting a full-fledged survey is called

pilot testing or pre-testing. A pilot study is basically a small replica of the

actual survey and it is carried out before the actual survey. In order to

develop and test the adequacy of the research instruments, a pilot study

was undertaken. The number of respondents in the pilot study should be

sufficient to include any major variations in the population that are likely to

affect responses.

The current pilot study was undertaken and the questionnaire was

administered to 48 companies. The initial pool of 74 questions was

reduced to 67 questions after pilot testing of the questionnaire.

4.6 Description of Methodology

The purpose of the study was to examine empirically the relationship

between stakeholder interests, corporate social responsibility and financial

and non-financial performance. Specifically, the study sought to

understand the inter-linkages among corporate social responsibility

towards various stakeholders, the impact of CSR on firm performance, the

motivations for companies to undertake CSR and the impact of CSR on

various business operations.

The study looked at the elements of business community, known as

stakeholders who are directly related to the development of company

strategies and policies. In this study 104 listed companies were included to

be representative of the major companies in India. The ownership of the

companies include companies with the government as the majority

stakeholder and private majority shareholding. (see Appendix II)

The methods of the study are non-experimental and explanatory survey

using multivariate correlations and cross sectional methods. Non-

experimental survey is associated with the data collection by using a

survey method (distribution of questionnaires). An explanatory survey is

one where the definitions of a sample survey are limited in order to test

prescribed hypotheses . Multivariate correlations (Gall et al, 1996) describe

the relationships of three or more variables (called theoretical constructs).

Variables involved in this study are the social responsibility towards

stakeholders (four independent variables), financial performance (one

dependent variable) and non-financial performance (one dependent

variable). Cross-sectional refers to the time frame of collecting data of

stakeholders’ CSR based on the current condition at one time (snap shot).

Financial performance data is calculated on the average performance for

three consecutive years (2008-11) and it is not for future prediction.

The results of the study are intended to describe empirically the CSR

practices among Indian companies based on the CSR practices towards

various stakeholders and their associations between them. To test the

prescribed hypotheses, data analysis using SPSS software (version 20)

was used. The model developed covered three activities a) finding the

correlations among the four stakeholders’ CSR; b) finding the association

between Aggregate CSR and financial performance; c) finding the

association between aggregate CSR and non-financial performance.

4.6.1 Research design

The term stakeholders of business in this research refer to employees,

customers and suppliers, community and environment. The study focuses

on the companies policies and strategies with respect to the CSR towards

stakeholders in order to achieve long term financial performance and


The main independent variables of the study are the CSR towards various

stakeholders namely, employees, customers and suppliers, community and

environment. This study was conducted to mainly study for a) a correlation

amongst stakeholders’ interests and b) correlation between stakeholders’

interests and financial performance.

The rationalization of observed variables is defined in Table . The data

regarding CSR policies were obtained directly from respondents as primary

data, whereas the financial data were obtained from secondary sources,

namely the published Annual reports of the company and the CMIE-

Prowess database.

Variable Observed variable Measure

B B1: Health and safety Quality of work

B2: Lunch and refreshments employee-
friendly policies,
B3: Credit for housing/education
gender diversity,
training and
B4: Bonus/ rewards to employees development
B5: Sponsor/finance higher education
B6: Training and development
B7: Recreational facilities
B8: Freedom of association and collective
B9: Work-life balance
B10: Formal representation of workers in
decision making

B11: Women representation in the Board of


C C1: Consumer awareness Product

C2: Restrictions on suppliers’ consumer
C3: Suppliers’ empanelment
C4: Customer grievance handling redressal
C5: Codes for advertising supplier

D D1: Contribution to religious charities Contribution to

D2: Partnership with NGOs health,
education and
D3: Sponsorship of sports tournaments
social initiatives.
D4: Employee volunteering Types of
D5: Contribution to education initiatives initiatives

D6: Contribution to disaster relief

D7: Contribution to community health


D8: Contribution to promotion of art/culture

D9: Contribution to rural development

E E1: Explicit environment policy Environmental

E2: Use renewable sources of energy existence of

E3: Policy of recycling/treatment of waste pollution control
E4: Provision of environment pollution

E5: Environmental awareness

E6:Substitution of polluting/hazardous

E7: Voluntary information to consumers

E8: Environmental emergency plan

Table 4.3 : Rationalization of variables

4.6.2 Sampling Method

The companies represent 19 sectors of the Indian industry. The sampling

method used in this study is random sampling. List of companies surveyed

is given in Appendix.

4.6.3 Data Collection

Every respondent answered questions related to their respective

companies’ policies and practices related to CSR. In the questions related

to the perceptions of CSR and the non-financial parameters affecting CSR,

every respondent answered questions based on his/her knowledge,

interpretations, opinions and judgment.

The survey was administered to personnel responsible for the

implementation of the CSR policies of their organizations. In some

companies, there was a CSR manager or an executive who responded to

the questionnaire and in companies where there was no specific CSR

department and a HR executive in charge of CSR activities responded to

the questionnaire. Data with respect to the non-financial parameters of firm

performance was also obtained from the HR/CSR personnel who consulted

the respective departments before filling in the responses. In some cases,

the questionnaire was filled in by more than one person.

4.7 Method of data analysis

The first step of data analysis is to check the validity and reliability of the

data. The reliability and validity tests were conducted using SPSS 20.0.

The validity of the constructs was tested using Confirmatory Factor

Analysis (CFA). Along with descriptive statistics, standardized and

unstandardized regression weights, various fit measures of goodness of fit

index (GFI), comparative fit index (CFI) and root mean square of

approximation (RMSEA) of the scales was obtained. Because the items

were causal indicators and not affect indicators (Bollen and Lennox, 1991)

few items had non-significant loadings. Despite this, these questions were

retained as because they represented issues directly relevant to the

stakeholder groups and each construct had a high inter-item consistency

(>0.70). Statistical methods include frequencies and percentile, Pearson

coefficient correlation, one sample T test, independent sample t-test.




5.1 Introduction

5.2 Instrumental theories

5.3 Political theories

5.4 Integrative theories

5.5 Ethical theories

5.6 The Business case for CSR

5.7 Motivations/Drivers of CSR

5.8 Managerial perceptions of CSR


5.1 Introduction

There are several theories that explain why CSR occurs in a firm and a

close scrutiny of these reveals the similarities and differences between the

theories that explain the existence of CSR. The most relevant theories and

approaches to CSR are focused on economics, politics, social integration

and ethics. Based on this, the CSR theories can be broadly classified into

four categories:

5.2 Instrumental theories

The first category where it is assumed that the corporation is the

instrument for wealth creation and that its sole responsibility is to increase

the shareholders wealth. Only the economic relationship between the

business and the society is considered. Any social activity would be

accepted as long as it was consistent with the goal of wealth creation.

These group of theories are called instrumental theories as they consider

CSR to be a mere means to the ends ie., profits. CSR is thus seen only as

a strategic tool to achieve economic objectives and ultimately creation of

wealth. A prominent representative of this approach was Freidman who felt

that ,” the only responsibility of business towards society is the

maximization of profits to the shareholders within the legal framework and

the ethical custom of the country” (1970). But concern for profits does not

mean excluding the interests of all who have a stake in the firm. Among

the instrumental theories, three main groups can be identified depending

on the economic objective proposed. In the first group the maximization of

shareholders’ wealth is measured by share price. The second group

focuses on achieving competitive advantage which would be useful in the

long run. In both the cases, CSR is a mere instrument of profits. The third

is related to cause related marketing.

Maximising shareholder value

A well known approach is that any corporate action taken which results in

the maximization of shareholder value should be the sole criterion for

evaluating any corporate activity/decision. Therefore, any corporate action

which would involve a social investment must result in an increase in

shareholder value. Freidman (1970) is clear when he mentions about an

investment in the local community: “It will be in the long run interest of a

corporation that is a major employer in the local community to devote

resources to providing amenities to that community or to improving its

government. That makes it easier to attract desirable employees, it may

reduce the wage bill or lessen losses from pilferage and sabotage or have

other worthwhile effects”. This approach is evidenced by the maximization

of shareholder value approach to corporate decision making. The Agency

theory (Jensen and Meckling, 1976; Ross, 1973) is the most popular way

to articulate this reference. However in today’s world this approach is not

incompatible with satisfying certain interests of people with a stake in the

firm (stakeholders).

Competitive advantage strategies

The second group of theories are focused on the decision of allocating

resources in order to achieve long-term social objectives and create a

competitive advantage (Husted and Allen, 2000). There are three

prominent approaches which are included in this context: a) social

investments in the competitive context b) natural resource -based view of

the firm and its dynamic capabilities and c) strategies for the bottom of the


a) Social investments in the competitive context : Porter and Kramer

(2002) have applied the Porter’s model on competitive advantage to

consider investments in areas of what they call as competitive context.

They argue that investing in philanthropic activities may be the only way to

improve the context of competitive advantage of a firm and usually creates

a greater social value than individual donors or government. The rationale

behind this approach is that the firm has both the knowledge and the

resources for a better understanding of how to solve some of the problems

related to its mission. As Burke and Lodgson (1996) pointed out, when

philanthropic activities are closer to the company’s mission, they create

greater wealth than other kinds of donations. For example, when a

telecommunications company provides network administration training to

the youth in the local community. Porter and Kramer conclude, “

philanthropic investments by members of cluster, either individually or

collectively, can have a powerful effect on the cluster competitiveness and

the performance of all its constituent companies”.

b) Strategies for the bottom of the pyramid : Traditionally most

business strategies are targeted at the upper and middle class of society.

But most of the world’s population is poor or lower middle class. Prahlad

(2002), analyzing the India experience has suggested some mind set

changes for converting poor into active consumers. The first step towards it

is seeing the poor as an opportunity to innovate rather than as a problem.

A specific means for attending the bottom of the economic pyramid is

disruptive innovation. Disruptive innovations (Christensen et al, 2001) are

products or services that do not have the same capabilities and conditions

as those being used by customers in the mainstream markets; as a result

they can be introduced in the non-traditional markets with less demanding

applications. For example, a telecommunications company inventing a

cellular system with lower cost but also less service features. Therefore,

disruptive innovations not only bring in new innovative products but also

help in improving the social and economic conditions of the people at the

“bottom of the pyramid”.

Cause related marketing

Cause related marketing has been defined as “ the process of formulating

and implementing marketing activities that are characterized by an offer

from the firm to contribute a specified amount to a designated cause when

customers engage in revenue providing exchanges that satisfy individual

and organizational objectives” (Varadarajan and Menon, 1988). Cause

Related Marketing (CRM) was believed to have started in 1983 with

American Express’ initiative to link card sales and card related spending to
support the restoration of the Statue of Liberty. In CRM, the goal of the

company is to enhance the company’s revenues and sales or customer

relationship by building the brand through the acquisition or association

with ethical or social responsibility dimensions ( Murray and Montanari,

1986). The support of cause related marketing creates a reputation that the

firm is reliable and honest. Consumers believe that the products of a

honest and reliable company would be of the highest quality (McWilliams

and Siegel, 2001). Some of the activities that typically exploit cause

related marketing are music concerts, art exhibitions, sports tournaments

and literacy campaigns. All these are a form of enlightened self-interest

and a win-win situation for both the company and the charitable cause.

“The brand manager uses consumer concern for business responsibility as

a means of securing competitive advantage and at the same time a

charitable cause receives substantial benefits” (Smith and Higgins, 2000).

In cause related marketing campaigns, a corporation commits to making a

contribution or donating a percentage of revenues to a specific cause

based on product sales. This is often for a specific product and a specific

period of time. This link to product sales or transactions most distinguishes

this initiative which contains a mutually beneficial understanding and the

goal that the program will raise funds for the charity and has the potential

to increase sales for the corporation. One of the most important features of

this initiative is that the corporate contribution levels depend on some

consumer action. The corporate makes an additional contribution based on

consumer response. Secondly, cause related marketing initiatives often

require more formal agreements and coordination with the charity;

important activities include establishing specific promotional offers,

developing co-branding advertisements and tracking consumer purchases

and activities. This initiative typically involves more promotion, especially

paid advertising. Some of the recent CRM initiatives include contribution of

50% of Forbes India’s magazine subscription amount towards the

development of the girl child.

5.3 Political theories

Some of the CSR theories and approaches focus on interactions and

connections between business and society and on the power of business

and its inherent social responsibility. Two major theories which use this

approach are Corporate Constitutionalism and Corporate Citizenship.

Corporate Constitutionalism

Davis (1960) was one of the first to explore the role of power that the

business has in the society and the social impact of this power. According

to him business is a social institution and must use its power responsibly.

He held that the business derives its social power both from internal and

external sources. Their locus is instable and constantly shifting, from the

economic to the social forum and from there to the political forum and vice

versa. Davis formulated two principles that explain how social power has to

be managed: “the social power equation” and “the iron law of

responsibility”. The social power equation states that the social

responsibilities of businesses arise from the amount of power that they

have. The iron law of responsibility refers to the negative consequences of

the absence of use of power. In his own words: ‘‘Whoever does not use his

social power responsibly will lose it. 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). So if a firm does not use its social power, it will

lose its position in society because other groups will occupy it, especially

when society demands responsibility from business (Davis, 1960).

Integrative social contract theory

Donaldson (1982) considered that the business and society had an implicit

contract . This contract imposes certain obligations on the business

towards society. Donaldson and Dunfee (1994, 1999) proposed the

‘‘Integrative Social Contract Theory’’ (ISCT) in which the socio-cultural

context is taken into account and also to integrate empirical and normative

aspects of management. Social responsibilities come from consent. These

scholars assumed two levels of consent. Firstly a theoretical macro social

contract appealing to all rational contractors, and secondly, a real micro

social contract by members of numerous localized communities. According

to these authors, this theory offers a process in which the contracts among

industries, departments and economic systems can be legitimate. In this

process the participants will agree upon the ground rules defining the

foundation of economics that will be acceptable to them.

Corporate citizenship

Although the idea of the firm as citizen is not new (Davis, 1973) a renewed

interest in this concept among practitioners has appeared recently due to

certain factors that have had an impact on the business and society

relationship. Among these factors, especially worthy of note are the crisis

of the Welfare State and the globalization phenomenon. These, together

with the deregulation process and decreasing costs and greater

technological accomplishments mean that some large multinational

companies have greater economic and social power than some

governments. Altman and Cohen (2000) were the first to introduce the term

“Corporate Citizenship” in the early 1980s. Since the late 1990s and the

early 21st century, this term has become more popular in business and

increasing academic work has been carried out in this area. The idea of

corporate citizenship connotes a sense of belonging to the community and

this could be the reason that it is popular among both managers and

businessmen alike. But the term “Corporate Citizenship” conveys different

meanings to different people. Matten et al (2003) have distinguished three

types of “Corporate Citizenship”: 1) a limited view 2) a view equivalent to

CSR and 3) an extended view. In the limited view the term “corporate

citizenship” is associated with philanthropy , social responsibilities or

certain responsibilities towards communities. The equivalent to CSR view

which is quite common is a conceptualization of the responsibilities of

business in the society. The extended view of corporate citizenship looks at

a larger role of businesses in the society in the sense that in the event of

failure by the government, corporations will tend to replace the most

powerful institution, namely the government. There have been many views

on how the term corporate citizenship is understood by various

researchers. But the converging points are that it indicates a strong sense

of business responsibility towards the community, partnerships, willingness

to improve the local community and consideration for the environment. The

concern for local community has seen an extension to the larger global

context in view of businesses spanning countries and borders.

5.4 Integrative theories

These group of theories looks at how businesses integrate the social

demands arguing that the business depends on the society for its

existence and growth. Social demands are generally considered to be the

way in which society interacts with business and gives it a certain

legitimacy and prestige. As a consequence, corporate management should

take into account social demands, and integrate them in such a way that

the business operates in accordance with social values. Basically, these

theories focus on the responsiveness of businesses to social demands

which affords it greater social acceptance and prestige.

Issues management

Social responsiveness, or responsiveness in the face of social issues, and

processes to manage them within the organization (Sethi, 1975) was an

approach which arose in the 70s. In this approach it is crucial to

understand the expectations of the organization’s relevant publics and the

organization’s actual performance. These gaps are usually located in the

zone that Ackerman (1973) calls the ‘‘zone of discretion’’ (neither regulated

nor illegal nor sanctioned) where the company receives some unclear

signals from the environment. The firm should perceive the gap and

choose a response in order to close it (Ackerman and Bauer, 1976).

Ackerman (1973), among other scholars, analyzed the relevant factors

regarding the internal structures of organizations and integration

mechanisms to manage social issues within the organization. The way a

social objective is spread and integrated across the organization, he

termed ‘‘process of institutionalization’’. According to Jones (1980),

‘‘corporate behavior should not in most cases be judged by the decisions

actually reached but by the process by which they are reached’’.

Consequently, he emphasized the idea of process rather than principles as

the appropriate approach to CSR issues. Jones emphasizes that the CSR

process should be a fair process where all interested parties have the

opportunity to be heard. So Jones has shifted focus to the inputs criterion

and feels that the CSR implementation process is more important than the

process of conceptualization.

The concept of ‘‘social responsiveness’’ was soon widened with to the

concept ‘‘Issues Management’’. Issues management has been defined by

Wartick and Rude ( 1986) as the “ processes by which the corporation can

identify, evaluate and respond to those social and political issues which

may impact significantly upon it”. Some of the aspects which have been

considered include the corporate responses to media exposure, interest

group pressures and business crises as well as organization size, top

management commitment and other organizational factors.

The principle of public responsibility

The public responsibility approach was advocated by Preston and Post

(1975, 1981), where they stressed the importance of the public process

rather than the narrow interest group defining of responsibilities. They

analyzed the scope of managerial responsibility in terms of “primary” and

“secondary” involvement of the firm in its social environment. Primary

responsibility includes tasks such as locating and establishing business

operations, selection and recruitment of personnel, production and

marketing functions. The secondary responsibility arising from the primary

responsibility involves providing career and earning opportunities for some

individuals, which comes from the primary activity of selection and

advancement of employees.

Stakeholder management

Instead of the social responsiveness or public responsibility principle, the

stakeholder approach is oriented towards the “stakeholders” or people who

affect or are affected by the corporate policies and practices. Stakeholder

management tries to integrate groups with a stake in the firm into

managerial decision making. A seminal study carried out by Freeman and

Emshoff (1978) presented two basic principles which underline stakeholder

management. The first principle is to ensure maximum cooperation

between the entire system of stakeholder groups and the objectives of the

corporation. The second principle states that the issues regarding multiple

stakeholders require efforts which simultaneously deal with various issues

affecting multiple stakeholders. In recent times, corporations have come

under intense pressure from Non- Government Organizations (NGOs),

local communities, media and other pressure groups to conform to what is

termed as socially responsible business practices.

5.5 Ethical theories

This is the fourth group of theories that focuses on the ethical

requirements. This approach is based on the right thing to do to achieve a

good society.

Theory of stakeholders in business

Stakeholder management has been included within the integrative theories

group because some authors consider that this form of management is a

way to integrate social demands. However, stakeholder management has

become an ethically based theory mainly since 1984 when Freeman wrote

Strategic Management: a Stakeholder Approach. In this book, he took as

starting point that ‘‘managers bear a fiduciary relationship to stakeholders’’

(Freeman, 1984,), instead of the conventional view of the firm which

advocated a relationship to only stockholders.

The Stakeholder concept

Stakeholders are individuals, groups or entities (including the natural

environment) that claim rights or interests in a company and its past,

present and future activities. Freeman (1984) drew a distinction between

‘primary’ and ‘secondary’ stakeholders. Primary stakeholders are those

without whose participation a company cannot survive (e.g. employees,

investors, suppliers, customers and communities). Secondary stakeholders

are those that influence the company or are affected by it, but who are not

essential to its survival, although they may be able to help or harm the

company (eg, the media, NGOs). The manager’s duty, therefore, is to

create sufficient wealth, value or satisfaction for its primary stakeholders to

ensure that they remain part of the stakeholder system. He may pay

attention to secondary stakeholders as well, but there may often be

circumstances under which the interests of the primary stakeholders are

pursued at the expense of those that are secondary.

Stakeholders include groups with quite different expectations. One

common distinction made is that between those who are influenced by the

company’s actions and those who have an interest in what the company

does. (Figure 5.1)

Company’s Influence
Low High

Low priority for Medium

priority for
Stakeholders’ Interest


Medium High priority for

priority for attention

Figure5.1.:Identifying key stakeholders based on perceived influence and interest

Source: Blowfield and Murray

In order to assess to which stakeholder priority should be accorded,

managers are advised to make judgments about the degrees of interest

and the extent of influence.

Stakeholder Attributes

When stakeholder theory is used as a managerial tool, attention must be

paid to identifying which stakeholders are more important (Cooper et al,

2001). Different stakeholders may have conflicting needs and interests

(Lerner and Fryxell, 1994).

Agle and Mitchell (1997) developed a framework for identifying

stakeholders. Using qualitative criteria of power, legitimacy and urgency,

they develop what they refer to as “the principle of what and who really

POWER Dominant



Figure: 5.2 Classification of stakeholders

Source: Agle and Mitchell (1997)

According to the above classification, if a stakeholder possesses only one

of the three attributes, they are termed as latent stakeholders and have low

salience. Stakeholder salience is the degree to which managers give

ppriority to competing stakeholder claims. Stakeholder salience would be

moderate if two of the three attributes are held by a stakeholder and such

stakeholders are called expectant stakeholders. Definitive stakeholders

possess all the three attributes, salience will be high where management

perceive that all the three are present. Stakeholders may shift from one

class to another as their salience increases or decreases by gaining or

losing certain attributes. Corporations have stakeholders ie., groups and

individuals who benefit from or are harmed by, and whose rights are

violated or respected by, corporate actions. The concept of stakeholders is

a general concept of those groups who have a stake in or claim on the firm

(suppliers, customers, employees, stockholders, and the local community).

In a more precise way, Donaldson and Preston (1995) held that the

stakeholder theory has a normative core based on two major ideas (1)

stakeholders are persons or groups with legitimate interests in procedural

and/or substantive aspects of corporate activity (stakeholders are identified

by their interests in the corporation, whether or not the corporation has any

corresponding functional interest in them) and (2) the interests of all

stakeholders are of intrinsic value (that is, each group of stakeholders

merits consideration for its own sake and not merely because of its ability

to further the interests of some other group, such as the shareowners).

Following this theory, a socially responsible firm would simultaneously give

attention to the legitimate interests of all appropriate stakeholders and has

to balance such a multiplicity of interests and not only the interests of the

firm’s stockholders. A generic formulation of stakeholder theory is not

sufficient. In order to point out how corporations have to be governed and

how managers ought to act, a normative core of ethical principles is

required (Freeman, 1994).

Theory of Stakeholders in business

CSR is the alignment of business operations with social values, integrating

the interests of the stakeholders – all those affected by a company’s

conduct – into the company’s business policies and actions. CSR focuses

on the social, environmental and financial success of the company- the

triple bottom line approach – with the goal being to positively impact

society while achieving business success. Therefore, CSR embraces two

main concepts- accountability and transparency.

Figure 5.3: The Business in Society

Source: Adapted from Mallen and Baker
In the illustration above, companies need to answer two aspects of their

operations, viz., the quality of management both in terms of people and

processes (inner circle) and the nature of and quantity of their impact on

society in various areas (outer circle). Most of the stakeholders look at the

outside circle as to what the company has actually done , good or bad, in

terms of its products and services, in terms of its impact on the

environment and on local communities, or in how it treats and develops its


CSR has become very important to corporate reputation because of the

following five trends:

a. Transparency : We live in an information-driven economy where

business practices have become increasingly transparent.

Companies can no longer sweep things under the rug. Whatever

they do (good or bad) will be known, almost immediately, around the

world. The Internet, the ubiquitous 24/7 news cycle, thousands of

media outlets, web sites, online newsletters and NGOs using

electronic communications to mobilize constituencies - all contribute

to placing corporations under a permanent microscope in this new

age of transparency.

b. Knowledge: The transition to an information-based economy also

means that consumers and investors have more information at their

disposal than at any time in history. They can be more discerning

and can wield more influence. Consumers visiting a clothing store

can now choose one brand over another based upon those

companies' respective environmental records. Likewise, investors

can choose stocks or mutual funds based not only on financial

factors but on social and environmental criteria as well. This is a

fundamentally new phenomenon; potentially altering the balance of

power between consumers/investors and corporations in ways we

are only beginning to understand.

c. Sustainability: The earth's natural systems are in serious and

accelerating decline, while global population is rising precipitously.

In the last thirty years alone, one-third of the planet's resources - the

earth's "natural" wealth - have been consumed. We are fast

approaching or have already crossed the sustainable yield

thresholds of many natural systems (fresh water, oceanic fisheries,

forests, rangelands), which cannot keep pace with projected

population growth. Failure to address these developing ecological

catastrophes will mean unimaginable changes to life - including

human life - on planet earth. As a result, corporations are under

increasing pressure from diverse stakeholder constituencies to

demonstrate that business plans and strategies are environmentally

sound and contribute to sustainable development.

d. Globalisation: In the new global economy, there is no central

government to legislate and enforce basic labour, human rights and

environmental safeguards. Globalisation represents a new stage of

capitalist development, without countervailing public institutions to

protect society by balancing private corporate interests against

broader public interests. Global corporations are under constant

scrutiny by the media, governments, workers, environmentalists,

human rights groups and NGOs to incorporate basic CSR standards

and sustainability strategies into their worldwide operations - and to

disclose and report on those strategies

Today, companies are not merely judged on the financial performance by

the various stakeholders, primarily investors, employees, consumers and

communities in which they operate. Companies are now expected to

perform well in non-financial arenas such as human rights, business ethics,

environmental policies, corporate contributions, community development,

corporate governance, and workplace issues. Social and environmental

performances are considered side by side with financial performance.

From local economic development concerns to international human rights

policies, companies are being held accountable for their actions and their


Companies are also expected to be more transparent in disclosing and

communicating their policies and practices as these impact employees,

communities, and the environment. In the new global economy, companies

that are responsive to the demands of all of their stakeholders are arguably

better positioned to achieve long-term financial success. It is no longer

optional for a company to communicate its environmental and social

impacts; stakeholders, regulators, and NGO’s demand such information in

an information-driven economy, and improved communication has become

critical for sustainable business growth. A company is considered a good

corporate citizen when it demonstrates a commitment to its stakeholders

through socially responsible business practices and transparent


Sustainable development

Sustainable development has been defined in many ways, but the most

frequently quoted definition is from Our Common Future, also known as the

Brundtland Report:

"Sustainable development is development that meets the needs of the

present without compromising the ability of future generations to meet their

own needs. It contains within it two key concepts:

 the concept of needs, in particular the essential needs of the world's

poor, to which overriding priority should be given; and

 the idea of limitations imposed by the state of technology and

social organization on the environment's ability to meet present and

future needs."

All definitions of sustainable development require that we see the world as

a system—a system that connects space; and a system that connects


When we think of the world as a system over space, we grow to

understand that air pollution from North America affects air quality in Asia,

and that pesticides sprayed in Argentina could harm fish stocks off the

coast of Australia. And when we think of the world as a system over time,
we start to realize that the decisions our grandparents made about how to

farm the land continue to affect agricultural practice today; and the

economic policies we endorse today will have an impact on urban poverty

when our children are adults.

The quality of life is a system, too. It's good to be physically healthy, but

what if you are poor and don't have access to education? It's good to have

a secure income, but what if the air in your part of the world is unclean?

And it's good to have freedom of religious expression, but what if you can't

feed your family? The concept of sustainable development is rooted in this

sort of systems thinking. It helps us understand ourselves and our world.

The problems we face are complex and serious—and we can't address

them in the same way we created them. Sustainable development is

therefore a “process of achieving human development in an inclusive,

connected manner and the ability to sustain a high quality of life for current

and future generations”.

A report from global accounting and consulting firm Grant Thornton that

used data collected in late 2010 and early 2011 noted that CSR activities

across the world have increased dramatically in recent years as

"businesses realize their value not only commercially, but also in terms of

boosting employee value, attracting staff and cutting costs." Incidentally,

"Saving the planet" came in sixth in the survey of drivers of CSR. The

Grant Thornton International Business Report was launched in 1992 and

now covers over 11,000 respondents per year in 39 economies.

Despite this seemingly irreconcilable divergence, some management

thinkers feel a meeting of minds is possible. In a 2006 Harvard Business

Review article titled, "The Link between Competitive Advantage and CSR,"

authors Michael E. Porter and Mark R. Kramer argue that creating shared

value (CSV) should take precedence over CSR. "CSV should supersede

CSR in guiding the investments of companies in their communities," they

wrote. "CSR programs focus mostly on reputation and have only a limited

connection to the business, making them hard to justify and maintain over

the long run. In contrast, CSV is integral to a company's profitability and

competitive position. It leverages the unique expertise and resources of the

company to create economic value by creating social value."

Business community must create profit to survive. Thus, CSR should be

focused on adding value, not regulatory compliance and public relations.

Irresponsible companies stand little chance of survival in the business

where public pressure will be in conflict with development aims.

Consequently, for most companies a sustainable approach can be a value

in itself. It will help build long-term relationships with customers,

employees, investors and suppliers to foster a risk management culture, all

of which are essential to a strong investment profile and strong earnings

potential to the benefit of all stakeholders.

Company sustainability offers benefits which both reduce costs and

improves market position, so directly enhancing profitability. There is also

an indirect value that comes from the benefits to the communities which

companies operate within. Involvement in local programs improves the

local environment, which in turn complements the approach of the

workforce and enhances its own satisfaction. Sustainability also embraces

the global supply chain or the value chain. Working with suppliers to

improve their economy and community helps in the wider integration of

sustainability programs.

Triple Bottom Line

Worldwide, honouring of a triple bottom line – people, planet, profit has

gained universal acceptance. The business case for CSR has been gaining

ground, revolving around the idea that what is good for the environment,

the workers and the community is also good for the financial performance

of the business. It is often described as a ‘performance with a purpose’.

CSR is closely linked with the principles of sustainable development,

according to which companies should be obliged to make decisions based

not only on financial/economic factors but also on the social, environmental

and other consequences of their activities. The Triple Bottom line (TBL)

takes in its fold the following three parameters to gauge business

performance, ie.,

a) Economic;

b) Environmental; and

c) Social factors.

The ‘Triple Bottom Line’ was coined by Sustainability Limited, an

international business consultancy. According to Sustainability, ‘The Triple

Bottom Line’ focuses corporations not just on economic value they add, but
also on the environmental and social value they add and destroy. At its

narrowest, the term ‘Triple Bottom Line’ is used as a framework for

measuring and reporting corporate performance against social, economic

and environmental parameters. At its broadest, the term is use to capture a

whole set of values, issues and processes that companies must address in

order to minimise any harm resulting from the activities and to create

economic, social and environmental value. This involves being clear about

the company’s purpose and taking into consideration the needs of all the

company’s stakeholders – shareholders, customers, employees, business

partners, governments, local communities and the public’.

Community based development

An approach to CSR that is becoming more widely accepted is

community-based development. In this approach, corporations work with

local communities to better themselves. Philanthropy, where corporates

give monetary donations and aid to local organizations and impoverished

communities, continues to dominate CSR, though it faces serious criticism.

Progressive organizations do not support this form of CSR as it creates a

dependence syndrome amongst its recipients rather than developing long-

term capabilities. Another approach that is garnering support is deliberate

inclusion of ‘public interest’ and ‘fair trade’ in corporate decision making.

CSR and economic performance

The social responsibility and economic performances of businesses have

received a great deal of attention from researchers and practitioners.

During the past six decades, the interest in the social responsibility of

organizations has increased, especially more recently ( Albinger &

Freeman, 2000; Angeldis & Ibrahim, 2004; Backhaus, Stone & Heiner,

2002; Bowen, 1953; Carroll, 1979; Caroll, 2000b; Clarkson, 1998;

Greening & Turban, 2000; Higgins, 2001; Wood, 1991). This interest has

been grounded in disciplines as varied as management science (

Makower, 1994), business ethics (Carroll, 200b), psychology (Koys,

2001),sociology ( Lackey, 1997) and organizational development ( Kraft,


CSR is larger than philanthropy; it is not about just giving. CSR implies that

you factor the cost of doing philanthropy, good works, engaging with the

community and then whatever is left is called “responsible profit”.

5.6 The Business Case for CSR

Although economic considerations constitute the main driving factor in any

business activity, there is a growing resistance against the conventional

view that business is chiefly a means for improving the economic condition

of an individual or group of individuals. It has been seen that business

managers, government officials, academicians and consultants are keen

on making a business case for CSR. The simple reason for this:

demonstrating a positive correlation between corporate responsibility and

business performance (especially financial performance) is seen as giving

social and environmental issues legitimacy in the world of mainstream

business. In this way it increases the likelihood that CSR practices would

be adopted.

Making the business case has grown in importance as the focus of CSR

has moved from philanthropy and generally giving a proportion of revenues

back to the society , to the function of CSR in core business activities. CSR

needs to be adapted to the circumstances.

CSR initiatives come in three different forms. First, companies can

contribute to society by donating money, goods or services to schools,

homeless shelters, hospitals and the like. Second, companies can focus

their efforts on community involvement through employee activities such as

mentoring students or volunteer work. And third, companies can structure

their product and service strategies in terms of CSR: focusing on green

initiatives, for instance, or factoring environmental concerns into

manufacturing processes. When the economic tide is high, of course, many

companies practise at least the first two forms of CSR to some degree, and

some, all three.

The bar for strategic CSR is now higher than ever. There are increasing

cost pressures on the companies selling products and even in trying times

every company must practice good corporate citizenship , but the reality is

that first companies must make money before they can give it away.

Preston and O’Bannon (1997) divide the business case into three types of


1. that within which corporate responsibility relates to financial


2. that within which financial performance relates to corporate


3. that within which corporate responsibility and financial performance

is synergistic.

In all the three types the relationship can be positive, neutral or negative

such that according to Freidman (1962), for example, there is a negative

relationship between corporate responsibility and financial performance,

because the former misuses company assets. According to Cornell and

Shapiro (1987), there is a positive relationship because meeting the needs

of the stakeholders other than shareholders enhances financial

performance. Case studies and other analyses exists for each type of

relationship: for example, Waddock and Graves(1997) study how the

strength of performance affects the amount that a company invests in

corporate social responsibility .

The business case for CSR differs from firm to firm, depending on a

number of factors. These include the firm's size, products, activities,

location, suppliers, leadership and reputation (as well as the reputation of

the sector within which the firm operates). Another factor is the approach a

firm takes to CSR, which can vary from being strategic and incremental on

certain issues to becoming a mission-oriented CSR leader.

The business case for CSR also revolves around the fact that firms that fail

to engage parties affected by their activities can jeopardize their ability to

create wealth for themselves and society. Taking into account the interests
and contributions of those with whom one interacts is the basis for ethical

behaviour and sound governance. CSR is essentially a strategic approach

for firms to anticipate and address issues associated with their interactions

with others and, through those interactions, to succeed in their business


There is growing consensus about the connection between corporate

social responsibility and business success. The World Business Council for

Sustainable Development has noted that a coherent CSR strategy based

on integrity, sound values and a long-term approach offers clear business

benefits to companies and contributes to the well-being of society. It is

understood that strong economic performance and good social and

environmental performance are not mutually exclusive. In fact, good

corporate citizenship improves the bottom line of companies. It is not

surprising that many analysts and investors are paying closer attention to a

company's corporate citizenship efforts for purely fiduciary reasons. Firms

with social citizenship records and a real commitment to corporate

responsibility are arguably more sustainable, better managed and,

therefore, better long-term investments.

5.7 Motivations/Drivers of CSR

Motivation theory developed in psychology suggests that while at a first

level of analysis two kinds of motivation can affect human behaviour – the

extrinsic one, aimed at achieving external rewards, and the intrinsic one,

aimed at getting internal rewards like identity -, a more in depth analysis of

motivational drivers of human behaviours makes it necessary to split the

latter into two: normative intrinsic motivation and hedonic (or enjoyment –

based) intrinsic motivation.

5.7.1 Extrinsic factors

The extrinsic motivation for CSR is supported by a large amount of

empirical findings – even if questioned and discussed (e.g. Margolis &

Walsh, 2003) - demonstrating that corporate social performance would

enhance corporate financial performance ( Waddock & Graves, 1997,

Orlitsky et al., 2003) and by a number of theoretical contributions

explaining that CSR can positively affect shareholders value by reducing

firm risk, improving reputation, enhancing employees commitment and

productivity, in short, through increasing the stock of intangible assets

available to a firm (Gardberg & Fombrun, 2006). Instead, normative (or

moral) motivations would lead companies to act in socially responsible

manners in compliance to social norms and moral obligations, regardless

of the outcomes - in terms of shareholder gains or, in more general terms,

of external rewards – they can obtain.

5.7.2 Instrumental, Normative or hedonic motivations

Activities and behaviours aiming at improving all stakeholders’ well being

can be a source of enjoyment. In such a case, motivation for CSR can be

defined hedonic, in the sense that what motivates individuals to behave

responsibly are the desirable intrinsic characteristics of those behaviours

(Deci and Ryan, 1985, Lindenberg, 2001), perceived as inherently

enjoyable, self-determined and competence-enhancing (King, Hautaluoma

et al., 1983). To the extent to which people feeling enjoyment from

engaging in CSR are a firm’s key decision makers – like the CEO or the

entrepreneur – and enjoyment-based motivations become widespread and

shared within a firm, we can say that social responsiveness is potentially

included in that firm’s goal system.

While acting in a responsible manner entails some forms of care of

stakeholders and a convergent theme in ethical theories applied to

business is deemed to be “a concern for the interests of others, as

opposed to self-interest” (Jones, Felps & Bigley, 2007), nevertheless some

authors argue that “the motivation for engaging in CSR is always driven by

some kind of self-interest (Moon, 2001)” (Hemingway & Maclagan, 2004).

Whereas instrumental motivations for CSR are based on expectations of

economic (extrinsic) rewards – avoiding loss of resources in the defensive

case and obtaining additional resources in the proactive one -, normative

motivation is associated with the reward of avoiding feeling guilty and

hedonic motivation to the pleasure and enjoyment that stem from

contributing to benefit stakeholders;

The rationale is that when motivations for CSR are instrumental CSR can

be a source of competitive or economic advantage, since it is exploited as

an intangible asset. When CSR is driven by hedonic motivations, strategy

tends to incorporate social goals, which, in turn, makes relationships with

all the stakeholders much more cohesive. Employees motivation and

commitment are higher, which, in turn, increases their productivity.

Furthermore, CSR is arguably rooted in firm resources and competences,

which enables it to have a greater (positive) impact on stakeholders. With

social as well as economic goals in mind and feeling enjoyment in serving

stakeholders needs, firm key decision makers are expected to exploit all

the opportunities to leverage on firm resources and competences to benefit

stakeholders, provided that it is sustainable from a financial standpoint in

the long period. Corporate strategy becomes ‘sense making’ and a source

of motivation and commitment.

5.7.3 Global market pressures

In today’s globalized world, the impact of buyer/supplier pressures to

adhere to international labour standards and quality norms is on the rise.

Businesses have to depend heavily on exports to survive and grow in an

increasingly competitive environment. India, being a strong export driven

economy means that many manufacturers and businesses are inevitably

subject to the rules and regulations of importing markets and international

buyers. Amid increasing competition it is imperative to comply with the

product quality standards and CSR requirements from global market

pressures. the business sector has been forced by global

market pressures to initiate its own corporate governance and CSR

strategies to retain its markets. Global market pressures have influenced

transnational corporation (TNC) and multinational corporation (MNC)

policies where extensive stakeholders are involved in decision-making

processes. This involves an effort to synchronize diverse perspectives,

objectives and values of individual and corporate investors, with demands

of various consumers from different parts of the world. Although market

pressures may give rise to environmentally-friendly production processes,

the effectiveness of these implementation depends largely on

manufacturers’ awareness, local environmental policies and regulations, as

well as employees’ cooperation. The increase in natural disasters and

rapid depletion of natural resources worldwide have sent a strong message

to corporations about the importance of environmental sustainability in

industrial growth. The private sector must acknowledge the fundamental

principles of an interdependent world economy

5.7.4 Internal and Competitive pressures for CSR

There are three pre-requisites to the effective development of any CSR

strategy. First, senior management must have an awareness of the content

and potential instrumental value of CSR. Operating in accordance with

instrumental principles would sanction any motivations leading to CSR

actions. Second, firms may be compelled to react to the first-mover CSR

strategies of their competitors where they believe that failing to do so would

disadvantage them vis à vis market positioning. A third problematic aspect

of firm- or competitive-driven CSR concerns the wide variety of definitions

and orientations. Definitions are declarative and based on experience,

convenience and observed practice. Moreover, priorities of firms vary with

respect to determining which stakeholders benefit and to what extent.

In Indian companies, the primary motivations for CSR are internal. The

owner/promoter has a major role to play in shaping the CSR agenda of the

firm. Indian public sector units (PSUs) were set up by the state to ensure

suitable distribution of resources (wealth, food etc.) to the needy. However

the public sector was effective only to a certain limited extent. This led to

shift of expectation from the public to the private sector and their active

involvement in the socio-economic development of the country became

absolutely necessary. In spite of attempts at stakeholder dialogue and

emphasis upon transparency and social accountability CSR has failed to

catch steam.

5.7.5 External pressures from investors and consumers

One of the main external stakeholders of a company is the institutional

investors. Evidence shows that institutional investors do not exert direct or

indirect pressure on invested corporations to practice CSR. Social funds

also form a small proportion of assets under management. With

globalization of production networks, corporations have to extend the reach

of their CSR policies not only to their overseas subsidiaries but also to

suppliers over which they have varying degrees of operational control. The

magnitude of the challenge involved in promoting CSR within MNCs and

along their supply chains is illustrated by the fact that there are over 63,000

MNCs with over 800,000 subsidiaries multiplied by millions of suppliers and

distributors (UNCTAD, 2001). For developing country firms, the challenge

is how to use CSR to competitive advantage, avoiding the risk that weak

CSR practices exclude them from global supply chains. CSR is a

considerable investment for companies but at the same time the

investment has the potential to contribute to long term competitiveness.

5.7.6 Regulatory pressures

The government is the first non-business actor to pressure corporations to

change behaviour. The pressures arise mostly from regulatory efforts that

affect a business even before the first product is produced or sold. These

efforts are considered to be the “least common denominator” for

behavioural change and their effectiveness depends greatly on the ability

of the government to ensure and enforce compliance. Governments

typically exert pressure on business behaviour in areas related to

employment conditions and pollution. In some cases these pressures

evolve into investor and consumer protection programs. Governments

have a significant role to play in shaping the public policy environment in

which businesses operate. Apart from playing the role of regulator,

governments can actively engage in promoting CSR as consumers.

5..7.7 Pressures from popular mobilizations – NGOs

The not-for-profit sector, excluding religious organizations, has become a

US$1 trillion-plus industry (Salamon et al., 1999, p.8). More than 30,000

NGOs operate international programs, and roughly 1,000 have

memberships drawn from three or more countries (Sikkink and Smith,

2002). Getting some large corporations to change their policies is often

easier than changing public policy (Vogel, 2005). NGOs have succeeded in

installing elements of public accountability into the transnational activities

of corporations where national or international regulatory pressures for

accountability are weak or non-existent.

5.7.8 Access to markets

By engaging in community-support programs, companies especially MNCs

are able to connect with their target consumer and establish relationships

with key business partners in the local market. These CSR programs help

guide business decision making processes by acquainting companies with

cultural norms in the host community and enabling better assessment of

public expectations. The insight gained helps ensure that the company is

recognized as a good corporate citizen within the community. Many

companies also find that community involvement reduces local regulatory

obstacles, provides access to the local political process, generates positive

media coverage, and increases access to markets for their products and


5.8 Managerial Perceptions of CSR

The role of the manager and other key decision makers is a central

concern of much CSR literature. Key staff members are understood to face

a complex task in implementing CSR values in concrete situations, and

potentially to lack the skills to do so. Much of the literature suggests that

commitment of employees and in particular decision-makers is essential to

successful CSR. The personal values of managers are understood to be

important, relating to the status of the manager as a 'moral actor'. Also

interactions between organisational culture and personal values of

managers are seen to be significant (Hemingway, 2005).

However, it is suggested that one obstacle to the implementation of CSR is

"a new set of jargon to be made concrete to their circumstances or

translated into business language" (European Multistakeholder Report,

2005: 9). It is clear that the task of including CSR considerations in

decision making potentially requires skills and information that managers

may not have, and that this could present difficulties.

Managers feel the pressures exerted by a large number of stakeholders

(Weaver, Trevino and Cochran, 1999). Managerial responses to these

pressures can originate from external regulatory requirements or reflect the

personal commitments of managers. Managers will be motivated to adopt

CSR if it is deemed to be congruent with the business strategy.

As organizations are represented by its quality of human resources,

corporate social commitments are advocated, nurtured and advanced by

individuals who supervise them.(Wood, 1991; Ali, 2003). Therefore, it can

be assumed that the individual manager’s socially responsible behaviour is

a crucial indicator of a company’s corporate social performance strongly

influencing how a corporation meets its social responsibilities (Werre 2003;

Carroll, 1991). The organization’s orientation to CSR (Tencati, Perrini &

Pogutz 2004; Holmes 1976) is driven by its top management and the

implementation of CSR by a corporation depends on the interests and

values of its managers.

Figure 5.4 below provides a general model of the factors influencing

managerial decisions on CSR issues. Institutional /environmental factors

include laws and regulations and the social and commercial setting within

which a company operates (Hunt 1999).

Individual Factors

Organizational Culture Managerial decisions

on CSR issues

Institutional factors

Figure 5.4 : Factors Influencing Managerial decisions on CSR issues

(Adapted from Hambrick and Mason, 1984).

Individual factors include the personal attributes of senior managers.

Demographic factors such as age, gender, job tenure, hierarchy of job,

level of education, religion, functional background and race have shown a

relationship to perceptions of CSR.




6.1 Introduction

6.2 Phases of CSR

6.3 Role of business

6.4 Philanthropy vs CSR

6.5 CSR and the regulatory framework

6.6 Nature of CSR activities undertaken by Indian


6.7 CSR reporting in India

6.8 CSR initiatives – some exemplary cases

6.9 Conclusion


6.1 Introduction

The concept of CSR among businessmen, particularly in India, is not new

and can be seen in the form of magnificent temples, rest houses and great

educational institutions. Business involvement in social welfare and

development has been a tradition in India and its evolution from individuals'

charity or philanthropy to Corporate Social Responsibility, Corporate

Citizenship and Responsible Business can be seen in the business sector

over the years. The concept of parting with a portion of one's surplus

wealth for the good of society is neither modern nor a Western import into

India. From around 600BC, the merchant was considered an asset to

society and was treated with respect and civility as is recorded in the

Mahabharata and the Arthashastra. Over the centuries, this strong tradition

of charity in almost all the business communities of India has acquired a

secular character.

The Indian approach to CSR is closely linked its political and economic


6.2 Phases of CSR:

The four distinct phases that has emerged are:

First Phase (1850-1914): CSR activities were mainly undertaken outside

the companies and included donations to temples and various social

causes. Under colonial rule, Western type of industrialization reached India

and changed CSR from the 1850s onwards. The pioneers of Indian

industry like the Tatas, Birlas, Bajaj, Lalbhai, Godrej, Mahindra and many

more were strongly devoted to CSR ( Mohan, 2001). The underlying

pattern of charity and philanthropy meant that there were sporadic

donations without any concrete or long term engagement.

Second phase (1914-1960): witnessed many of India's leading

businessmen influenced by Mahatma Gandhi and his theory of trusteeship

of wealth and contributed liberally to his programmes for removal of

untouchability, women’s emancipation and rural reconstruction. This period

during the freedom struggle saw Indian businesses actively engaged in the

reform process. The corporate sector’s involvement was driven by the

vision of a modern and free India.

Third phase (1960-1980) was dominated by the paradigm of “mixed

economy” where CSR took the form of regulation of business activities

and/or the emergence of the public sector as an instrument of social


Fourth phase (1980 till date) is characterized by traditional philanthropic

engagement and partly by steps taken to integrate CSR into the business

strategy.Till the late twentieth century, the mission of business firms was

exclusively economic. With the business environment being characterised

by various developments including the shift of power from capital to

knowledge, increased levels of literacy and shrinking geographical

boundaries due to faster means of travel and communication, people are

by and large becoming conscious of their rights, which has led to a rise in

the expectations of society from business. Over the years, the nature of

involvement with social causes by Indian business houses has undergone

a change. It has moved away from charity and dependence to

empowerment and partnership.

6.3 Role of Business

An organization receives inputs from society in the form of skilled/unskilled

labour, raw material and natural resources and in turn, offers goods and

services to society . While industry provides employment opportunities and

thus facilitates socio-economic progress, it also displaces people, and the

onus is , therefore on industry to ensure proper infrastructure facilities.

Businesses cannot operate either in isolation or in vacuum.

The importance of businesses in improving the quality of life is well

recognized. However, there is growing awareness that in an increasingly

complex world, businesses also have significant and long-lasting impacts

on people, our planet and our ability to sustain the levels of holistic

development that we all aspire to. This realization has also brought an

increasing concern amongst all stakeholders, who are demanding that

businesses of all types and sizes need to function with fairness and

responsibility. Specifically, this calls for businesses being thoroughly aware

and conscious of their social, environmental and economic responsibilities,

and balance these different considerations in an ethical manner. The

problem with corporate social responsibility (CSR) is that nobody is very

clear about what exactly it encompasses. Today, CSR to some companies

means providing lunch to employees. To others, it's about tackling global

warming and environmental issues. The Indian government has been

trying to make it mandatory for companies to spend at least 2% of net

profits on CSR. Facing strong criticism, it gave up the idea and made the

spending voluntary. Instead of defining CSR, the Indian government recast

it as "responsible business" in a set of voluntary guidelines for firms. The

Indian government has asked companies to keep tabs on CSR spending

and disclose it to their principal stakeholders.

Over the past several decades, the Tatas have established Trusts, which

enabled setting up of institutions like the Indian Institute of Science (IISc)

and the Tata Institute for Fundamental Research (TIFR). Wipro Chairman

Azim Premji has pledged to donate nearly Rs 10,000 crores for improving

school education in the country. Infosys commits one per cent of its profits

every year to social causes through the Infosys Foundation. The Birlas, the

Mahindras, the Kalyanis and several other large corporations have been

spending a fraction of their profits on social causes.

It is clear that in India there are an existent but small number of companies

which practice Corporate Social Responsibility (CSR). These companies

have been deeply involved with social development initiatives in the

communities surrounding their facilities. Tata’s CSR activities in

Jamshedpur include the provision of full health and education facilities for

all employees and their family members.

However, CSR in the Indian context is still one of the least understood

development initiatives. Barring the Navaratna and the Mini-Ratna PSUs,

the reputed MNCs and a handful of large Indian companies, most others

have a confused approach to CSR, interpreting it as philanthropy. To a

great extent, companies see CSR as an add-on function and not core to

their business. Hence, the approach has largely remained parental and

generally cheque-book oriented. But the situation is changing. CSR is

coming out of the purview of doing social good and is fast becoming a

business necessity.

6.4 Philanthropy vs CSR

India has a tradition of corporate philanthropy. The trouble is that

somewhere along the way, the lines between giving and CSR have grown

hazier. Corporate philanthropy and CSR are really two different things, but

get blurred, particularly in India. CSR should actually relate to the way you

conduct your business, whereas it gets confused with giving to the local

communities in which you operate. Also, it is not necessarily the quantum

of funds spent that matters, it is how it is spent.

The government has also sought to include vocational training for

employees as part of CSR. But there has been no clear definition of the

term. There have been indications from the government to include health,

culture, social welfare and education under the CSR agenda. CSR could

be and is used synonymously with terms like corporate responsibility,

corporate citizenship, sustainable responsible business, corporate social

performance and corporate sustainability.

There have been attempts made by professional bodies like the Institute of

Chartered Accountants of India (ICAI) to set up committees to identify what

should come under the CSR umbrella and what should not. But not much

progress has been made.

The white paper by KPMG and the Associated Chambers of Commerce

and Industry of India (ASSOCHAM) presented at the first International

Summit on CSR held in New Delhi in 2008 put it: "CSR is comprehended

differently by different people." The report -- titled, "CSR: Towards a

Sustainable Future" -- noted that until the 1990s, CSR was dominated by

the idea of philanthropy and that business efforts were often limited to one-

time financial grants. "Moreover, businesses never kept the stakeholder in

mind while planning such initiatives, thereby reducing the efficacy and

efficiency of CSR initiatives," according to the report. "However, over the

past few years, the concept of CSR has been changing. There has been

an apparent transition from giving as an obligation or charity to giving as a

strategy or responsibility."

CSR extends beyond philanthropy

The guidelines on CSR for Central Public Sector Enterprises (CPSE) state

that “corporate social responsibility extends beyond philanthropic activities

and reaches out to the integration of social and business goals. These

activities need to be seen as those which would, in the long run, help

secure a sustainable competitive advantage”. The CPSEs have also been

mandated to create a CSR budget with contribution up to 5% of their net

profit every year.

However, several individual companies as well as industry chambers had

lobbied hard against the move to make CSR mandatory. Those who are

opposed to the proposal argue that the very concept of CSR is built on the

premise of ‘voluntary’ contribution and hence it should not be imposed on

the companies by the Government. According to them, it is just a new form

of tax on company’s profits.

Supporters of CSR say the opposition stems from a short-sighted view

point. The environment in which the companies operate today has changed

vastly. A company cannot operate efficiently without the support of the

community. This is particularly true in the face of growing activism of the

Civil Society Organizations (NGOs), which support the cause of the under-

privileged. Increasingly, the Governments, both at the Centre as well in

several States are making inclusive growth intrinsic to their developmental

strategies. The customers, the public and the investors also

expect companies to act sustainable as well as responsible. Hence, CSR is

becoming an outcome of a variety of social, environmental and economic


6.5 CSR and the Regulatory framework

The CSR measures are actually part of a new Companies Bill that has

been in the works for several years. The new Companies Bill contains

many provisions regarding CSR. CSR will soon therefore be codified and

institutionalized. One of the recommendations include making CSR

spending figures public, as it will put adequate peer pressure on the

corporate laggards. However the India industry has been almost totally

against a mandatory clause. The Federation of Indian Chambers of

Commerce & Industry (FICCI) has suggested tax breaks instead for those

who meet the voluntary targets. Rival chamber the Confederation of Indian

Industry (CII) says that compulsory corporate responsibility would be

counterproductive. "Companies may resort to camouflaging activities to

meet such regulations, particularly during recessionary periods and

economic downturns," argues the lobbying group. Some argue that a

mandatory CSR requirement amounts to a tax and even annexation and

that it must be dealt with at the shareholder level rather than at the

company level.

India's philanthropic community is also against compulsory CSR.

Industrialists and social activities are unanimous in their opinion when they

say that once CSR is made mandatory, people will find ways and means to

get out of it. The rules will be so vague that the reporting will be even

vaguer. While they all maintain that CSR is desirable, some of them feel

that it should not lead to the outsourcing of governance. This would merely

imply taking the failure of the states and corporate and creating a model

out of it is. Therefore, the underlying sentiment is that you can’t dictate


According to some estimates, 80% of the multinationals and 50% of the

private companies in India claim to have CSR policies in place. The

elaborate charade of “doing good” is often more than not routine corporate

activities, a phenomenon dubbed “greenwashing”.

Unlike in the US, where most Fortune 500 firms have aggressive

affirmative action programmes, similar programmes don’t exist in India’s

largest companies. Proposals have been mooted—and for the most part

rejected—to impose some sort of reservation for the underprivileged in the

private sector in India.

CSR and the Government

The Central Government is now working on a framework for quantifying the

CSR initiatives of companies to promote them further. Efforts are also on to

develop a system of CSR credits, similar to the system of carbon credits

which are given to companies for green initiatives.

National Voluntary Guidelines on Social, Environmental and

economic responsibilities of Business

When businesses are supported by appropriate Government policy regime

that encourages systematic movement towards responsible thinking,

decision-making, and a progressive movement towards sustainability, the

trajectory of overall growth and development takes a positive turn. Such a

responsible approach on part of the business duly supported by the

Government alone would secure our future and ensure that wholesome

benefits accrue to people, and our planet; even as businesses continue to

make surpluses that can be re-invested for the growth of the economy.

The Ministry of Corporate Affairs has released a revised Voluntary

Guidelines on CSR in 2011 as the first step towards mainstreaming the

concept of Business Responsibilities. The revised guidelines encompass

social, environmental and economical responsibilities of business. The

Guidelines emphasize that businesses have to endeavour to become

responsible actors in society, so that their every action leads to sustainable

growth and economic development. Accordingly, the Guidelines use the

terms 'Responsible Business' instead of Corporate Social Responsibility

(CSR) as the term 'Responsible Business' encompasses the limited scope

and understanding of the term CSR. The Guidelines take into account the

learnings from various international and national good practices, norms

and frameworks, and provide a distinctively 'Indian' approach, which will

enable businesses to balance and work through the many unique

requirements of our land. By virtue of these Guidelines being derived out of

the unique challenges of the Indian economy and the Indian nation, they

take cognizance of the fact that all agencies need to collaborate together,

to ensure that businesses flourish, even as they contribute to the

wholesome and inclusive development of the country. The Guidelines

emphasize that responsible businesses alone will be able to help India

meet its ambitious goal of inclusive and sustainable all round development,

while becoming a powerful global economy by 2020.

The establishment of the National CSR Hub at the Tata Institute of Social

Sciences, Mumbai is a major step towards institutionalizing CSR activities

in the country. TISS will act as a think-tank, undertake research for the

corporate social responsibility projects. Funded by the Department of

Public Enterprises, the National CSR Hub will also undertake nation-wide

compilation, documentation and creation of database. The purpose is to

dovetail CSR activities with overall national development goals.

The Ministry of Corporate Affairs has issued Voluntary guidelines on CSR

Reporting. The new Guidelines on CSR lay stress on shift from casual

approach to the project based accountability approach. There is greater

emphasis on identification of projects based on surveys, laying down clear

cut path to implement programmes as well as their monitoring. It is also

prescribed that activities under CSR are to be implemented by specialized

agencies and not by the staff of the companies. Specialized agencies

would include community based organizations (NGOs), panchayat

organizations, academic institutes, trusts and missions, Self-Help Groups,

Mahila Mandals etc. MCA’s draft voluntary guidelines on CSR are along

global principles such as ethics and transparency, well being of employees,

human rights, health and safety, use of environment-friendly raw materials,

following regulatory frameworks and larger engagement of stakeholders.

Noted CSR expert Prof. Leo Burke says India needs to adopt ‘national-

local’ approach. “National in the sense that there will be need for

nationwide alliances and databases in order to quickly learn best practices,

share innovations, and ‘scale-up’ pilot programmes ,local in the sense that

it will require organizations to efficiently implement programmes at the

grassroots level, as well as mobilize volunteers to serve their local


The Global Compact

The Global Compact (UNGC) is a voluntary, value based initiative

complementing regulation and other voluntary initiatives. Its main objective

is to mainstream the ten CSR principles in business activities throughout

the world to catalyze the support of the UN MD goals. The ten principles

relate to human rights, labour, the environment and anti-corruption which

companies are expected to adopt within their sphere of influence. The

United Nations Global Compact was established in 2000 for business

leaders to partner with UN agencies, and for civil society to support

universal environmental and social issues. The Global Compact takes a

stakeholder perspective and seeks to integrate the following ten principles

into core business strategies and operations.

1. Businesses should support and respect the protection of

internationally proclaimed human rights within their sphere of influence.

2. Businesses should ensure that their own operations are not

complicit in human right abuses.

3. Businesses should uphold the freedom of association and the

effective recognition of the right to collective bargaining.

4. Businesses should uphold the elimination of all forms of forced and

compulsory labour.

5. Businesses should uphold the effective abolition of child labour.

6. Businesses should eliminate discrimination in respect of

employment and occupation.

7. Businesses should support a precautionary approach to

environmental challenges.

8. Businesses should undertake initiatives to promote greater

environment responsibility.

9. Businesses should encourage the development and diffusion of

environmentally friendly technologies.

10. Businesses should work against corruption in all its forms, including

extortion and bribery.

In the study, CSR is measured through employee, customers and

suppliers, community and environment activities.

Some public sector companies and a few private sector companies

surveyed are members of the UNGC, though not all stakeholders groups

are represented

6.6 Nature of CSR activities undertaken by Indian companies

Indian industry has a long record of supporting educational, health and

cultural institutions as also social welfare activities, generally targeted at

their communities. But with a few exceptions such as the Tata Foundation,

the giving has been more as acts of personal generosity and patronage

rather than the systematic pursuit of a developmental vision. In the US, on

the other hand, family foundations have been professionalized and pursue

well defined goals with clear strategies for giving.

Looking at philanthropy as a venture investment in non-governmental

organization (NGO) activity is actually a fruitful analogy. As in commercial

venture funding, the focus must be on returns averaged over several

ventures and defined in terms of desired outcomes such as children

immunized, pupils retained in school, area of degraded land rehabilitated

and so on. The role of the funder now extends to monitoring the giving. It

will involve some hand holding and networking help that could be quite

substantial for start-ups and less so for more established users.

Response to social problems

Many companies in India start CSR programs in response to the prevailing

social order and an urge to improve it. More often than not, CSR programs

and practices are shaped by the ideals of the top leadership and
orientation of the top management (Sood and Arora , 2006).Responding to

other social problems such as urban chaos and poor urban infrastructure,

as an alternative to community, some Indian companies have developed

their own ‘townships’ to encourage empowerment, participation and self-

determination. Infrastructure facilities like roads, water supply, drainage,

garbage disposal, power and open spaces are provided in planned cities.

There is a link between the identification of a social problem, a vision of a

better world and an organization’s activities.

Alternatives to the existing order can be categorized into: a) alternatives to

the state; b)alternative community; c) alternatives to the market

(Schwabenland 2006). In India, alternatives to the state and alternative

community seem to be prevalent whereas alternatives to the market are

less noticeable.

Alternatives to the State

In India there has been an increasing trend of greater involvement of the

private sector and the sharing of responsibility among the private and

public sector in the delivery of public goods and services. With the ills of

poverty, malnutrition and lack of access to quality education plaguing the

country, the private sector has taken steps to address these issues and

bring about some qualitative change in the lives of the people. The IT

sector giants have taken steps to upgrade and re-orient engineering

education to suit the needs of the industry as part of their Corporate Social

Responsibility. Business has expertise in man management, financial

management and business planning and could easily provide the missing

ingredients of leadership and organization and establish the ‘ last mile

connectivity’ to take the benefits to the people (CII 2007). Similarly in case

of work force diversity, the business leaders in India are against

‘affirmative’ action or ‘reservations’ based on caste in the private sector.

Instead it has advocated the setting up of scholarships, vocational

institutes and self-help groups for them. The work force diversity in terms of

gender has become a high priority for some companies.

Alternative Communities

Indian businesses have also addressed problems such as public chaos,

lack of urban infrastructure by creating model townships to encourage

empowerment, participation and self-determination. These townships are

self sufficient with amenities such as hospitals, schools, gardens and other

civic facilities.

Alternative markets

A growing interest in social enterprises in India has resulted in cooperative

ventures such as AMUL, SEWA . The basic objective of these enterprises

is to develop a business model with the profits shared among all the

members of the co-operative.

CSR – a mechanism to achieve inclusive growth

CSR is a much wider concept than before. Today it is associated with the

Triple Bottom Line (TBL), which is making benefits to your shareholders,

benefits to the environment (at least not harming it) and benefits to the

society. There has been a progressive change in concept as well as

practice in India, though some of it has been influenced by the West, yet

India has a long tradition of giving and responsible behaviour.

6.7 CSR Reporting in India

India Inc is less transparent than its peers in Brazil, China and South Africa

when it comes to reporting about economic, social, environmental and

governance issues concerning their business, according to a study. A

sustainability report is an organisational report that gives information about

a company’s economic, environmental, social and governance

performance. Sustainability — the capacity to endure, or be maintained —

is based on performance in these four key areas.

Among the lead adopters of this practice in India are Larsen & Toubro,

JSW Steel and the Mahindra Group. Sustainability reporting is a vital step

for change toward a global economy that combines long-term profitability

with social justice and environmental care. Fewer than one-third of India’s

top firms file reports on their corporate responsibilities and only 16%

actually have a strategy on this. Companies mostly focus on education,

healthcare, HIV/AIDS intervention and community development as part of

their CSR.

A KPMG survey found that companies in the construction, oil and gas,

metals and minerals and information technology sectors were more

dedicated to corporate responsibility reporting. It said 23% of the

companies surveyed reported the business risk of climate change, 21%

disclosed their green house gases emissions and 13% identified and

disclosed the business risk of corporate responsibility issues in their supply


Very few companies engage stakeholders, including suppliers, customers,

regulators, employees and contractors in establishing their CSR initiatives.

These kinds of reporting are highly prevalent in the developed nations and

helps companies raise better financial resources and supply chain

management. Companies that report on corporate responsibility initiatives

include Reliance Industries Ltd, Tata Power Ltd, Tata Chemicals Ltd,

Grasim Industries Ltd, Infosys Ltd and Oil and Natural Gas Corp. Ltd.

In India, most leading corporates are involved in CSR programmes in

areas like education, health, livelihood creation, skill development, and

empowerment of weaker sections of the society. According to a study

undertaken by an industry body in June 2009, which studied the CSR

activities of 300 corporate houses, corporate India has spread its CSR

activities across 20 states and Union territories, with Maharashtra gaining

the most from them. About 36 per cent of the CSR activities are

concentrated in the state, followed by about 12 per cent in Gujarat, 10 per

cent in Delhi and 9 per cent in Tamil Nadu. The companies had on an

aggregate, identified 26 different themes for their CSR initiatives. Of these

26 schemes, community welfare tops the list, followed by education,

environment, health, as well as rural development.

The survey reveals that, not surprisingly, the corporates targeted most of

their activities around the areas they operate. This trend is likely to

continue. But the flip side is that, it is generally the more developed states

that have been the beneficiaries of CSRs, rather than the ones languishing

at the bottom, whose developmental needs are more central.

Another survey, which ranked Indian companies’ CSR activities on a scale

of 0-5, showed that none of the Indian companies got placed in the highest

level. Only 16 % of the 500 companies surveyed had well defined CSR

activities. The concept was yet to catch up with the remaining 86% of the

companies. Lack of understanding, inadequately trained personnel, non

availability of authentic data and specific information on the kinds of CSR

activities, coverage, policy etc. further added to the reach and

effectiveness of CSR programmes.

The KPMG International Survey of Corporate Responsibility Reporting

2011 looked at common threads running through the top 250 companies as

well as 3,400 other companies in 34 countries and 15 sectors. Almost half

of the G250 companies report gaining financial value from their CR

initiatives. In the absence of a regulatory global sustainability reporting

standard, the drive for consistency and accessibility to quality data was

highlighted in the findings.

The survey revealed that CR reporting is now routine for 95 per cent of the

top 250 companies and that developing nation companies are also opting

it. The Global Reporting Initiative (GRI) Sustainability Reporting Guidelines

are used by 80 percent of the G250 and 69 percent of N100 companies

and is gaining wide-spread adoption as the de facto reporting standard.

6.8 CSR Initiatives – Some exemplary cases

6.8.1 Tata Steel – Corporate Citizenship

Tata Steel’s policy of inclusive development is not just a policy in paper,

but a value ingrained in the system through years of amalgamating social

change with industrial progress. The Company’s social outreach

programme covers 600 villages in and around its manufacturing and raw

materials units, through initiatives in the area of income generation, health

and medical care, education, sports among others. Tata Steel is a founder

member of United Nations Global Compact. With emphasis on improving

the health and welfare of employees and local communities, the

programmes conducted by the Group focus on adolescent health and

HIV/AIDS awareness.

Mother and child health

The concept of a healthy mother and healthy baby is one of the

cornerstones of Tata Steel’s health care programmes. Through

investments in maternal and neonatal programmes, the Company has

helped improve the health of thousands of women and children each year.


Tata Steel believes that education is a basic human right that must be

provided to all. This vision is behind the company’s involvement in a

number of educational programmes around the world. The Company

provides financial support to students at the primary and secondary school

level as well as scholarships for higher education.

Community Development

Ensuring inclusive growth for all its stakeholders is one of the key

cornerstones of Tata Steel’s values. It is the vision that manifests itself in a

focus on providing rural services in the hinterland in and around the

Company’s mines, collieries and Greenfield projects. Its ‘Building beyond

borders’ CSR programme focuses on supporting the underprivileged

elderly as well as the education of disadvantaged youth.

Sustainable livelihood through wasteland development

Tata Steel works with rural communities to strengthen agricultural

capabilities. Aid is offered to farmers to increase productivity and bring

wastelands under cultivation. Tata Steel has also introduced a scientific

water harvesting system to check the depleting levels of ground water.

Self help groups for women

Self help groups formed by rural women have been effective agents of

change in rural areas. Empowerment initiatives have raised the skill levels

of rural women, enabling rural households to benefit from additional

income sources. Tata Steel often partners with professional groups to

assist women in starting their own businesses.

Employability training

Tata Group has actively supported employability or vocational training. The

initiative aims at developing skills among communities, women and young

people, supporting local artisans to provide them with better opportunities

to compete in the job market.

Apart from the above mentioned community initiatives, Tata Steel has an

ongoing focus on safety, performance, value creation and growth and

driving sustainable growth. Tata Steel has been conferred with many

awards for excellence in CSR.

6.8.2 Ambuja Cement

Ambuja Cement works through the Ambuja Cement Foundation(ACF).

Prior to kthe people. Once community needs are identified, they are

prioritized and a plan of action for implementation is drawn up. The

programme not only addresses the issue of water in agriculture, but also its

usage in domestic areas.

Agro based Livelihood generation programme: Ensuring food and

livelihood security

ACF works closely with farmers to promote improvements in agro-based

livelihoods, leading to greater productivity and profits. ACF also promotes

allied activities like dairy production, bee keeping and animal husbandry to

help communities, especially women supplement their incomes.

Skill based livelihood programme – Creating avenues for gainful


ACF’s skill and entrepreneurship Development Institutes have been

established to train local youth in varied technical skills including welding,

carpentry, repairs of domestic appliances, mobiles, and two –wheelers etc.

ACF’s community mobilization skills have blended with technical inputs

from Ambuja Cements and governmental support to train hundreds of

unskilled tribal youths into skilled masons.

Integrated Health programme – Providing access to Quality Health care

ACF’s integrated health programme incorporates preventive and promotive

aspects of health with a strong focus on women and children. The

programme is implemented by a strong cadre of village based trained

health workers, who conduct sessions on health with women and youth,

interact with the Panchayats to implement sanitation programmes in the

villages. ACF’s HIV and AIDS prevention programme follows a holistic

approach and includes education, treatment, support and rehabilitation.

Education Programme – Making learning fun

ACF’s education Support programme works on raising the quality of

education in village level government schools and creating learning

environments for children. One of the important intervention strategies is

the strengthening of the existing school management systems.

Women Empowerment

ACF promotes the formation of Self help groups (SHGs). SHGs are not just

tools for saving or lending; they are a space to share and discuss concerns

and initiate and implement plans for change.

6.8.3 Global Telesystems Limited

GTL implements its CSR initiative through the Global Foundation. An

innovative social initiative of Global Foundation is Computer education to

underprivileged children in the rural area through a mobile computer lab.

Global Foundation provides ICT training and personality enrichment

training to the visually challenged. It supports the visually challenged in

areas of education, training, sports and employment. The foundation

conducts health camps for rural women. The Foundation also provides

funds for curative medical assistance for deserving cases for emergency

surgeries and medications. Through its ‘Project Drishti’ , Global Foundation

creates awareness on eye donation through mass media campaign and

posters. As part of its employee volunteering program, blood donation

camps are organized.

6.8.4 KPIT Cummins Infosystems Limited

KPIT has always believed in giving back to the society. The Company

renders this contribution in areas where the Company’s core strengths are,

in order to add maximum possible value. Therefore, the company uses its

expertise in the IT domain to educate and enable communities. The

Company aims to involve the energies and efforts of people in the

organization in community contribution. The company is involved in the

following focus areas:


KPIT’s approach to being an environmentally friendly organization is

founded on the belief that the interest of the future generations and society

at large is best served by the efficiency of business operations.


KPIT supports both formal and non formal education programs. It is directly

engaged with education improvement programs and also supports

NGOs/Institutions who are committed to education improvement by helping

them operate more efficiently and effectively.


The Company strives to create a positive impact on the transportation

problems by supporting various road safety and traffic related initiatives.

Employee Initiatives

KPIT believes in employee contribution and this has resulted in a bonding

between the Company, the employees and the society.

6.8.5 Hindustan Unilever

Consumer goods major Hindustan Unilever (HUL) has tied up with the Tata

Group retail arm Star Bazaar to promote education among the

underprivileged children. HUL and Star Bazaar had conducted the India’s

Favorite campaign and had created awareness about various social

causes, including education of the underprivileged children, welfare of the

blind children and supporting orphans. The initiative will offer consumers

attractive discounts on specific HUL brands - Brooke Bond Red Label,

Kissan, Knorr, Kwality Wall’s, Clear, Dove, Vaseline, Axe, Surf and Vim.

5% of the sales proceeds from of this consumer initiative will be donated to

the Smile Foundation, Parikarma and Thozhamai, which work in the area

of education for the underprivileged children.

6.8.6 Bharti Airtel

Bharti Airtel, India’s largest telecom service provider, has been testing and

implementing various options for the last two-three years. The e-bill

initiative is estimated to save as many as 24,000 trees a year (Company

newsletter). Bharti Airtel sends around two million bills by email every

month, avoiding paper. Bharti Infratel, also of the Bharti group and one of

the largest tower companies in India, generates as much as 5 million units

of solar power every year. The company’s Green Towers P7 project,

launched in 2007, aims to reduce diesel consumption by around 58 million

litres per year through a comprehensive energy management plan. Under

the project, Infratel has so far deployed renewable sources of energy at

around 1,250 tower sites leading to annual savings of 6.9 million litres of

diesel and around Rs 28 crore. Infratel also has installed free cooling units,

instead of air conditioners, at 5,200 tower sites, leading to annual savings

of 4.1 million litres of diesel. , Infratel has employed an integrated power

management system and variable speed DC generators at 3,500 sites

reducing annual diesel consumption by 1.2 million litres and almost Rs 5



ITC Hotels, one of the leading hospitality companies in India, which

promotes responsible luxury, has been rated LEED Platinum by the US

Green Building Council. It has been able to reduce energy costs by 16-

19% in the last eight to 10 years. Apart from taking to measures such as

using LEDs (light emitting diodes) rather than CFLs (compact fluorescent

lamps) and other energy efficient equipment, energy audits annually to

analyse the areas where the energy consumption is more. Close to 29.5%

of ITC Hotels’s total energy comes from renewable resources.

6.8.8 Jindal Steel and Power Ltd

JSPL has spent Rs. 146 crore in Angul, Odisha since 2005 on peripheral

expenditure including rehabilitation and resettlement. The Company

believes that it is not only concerned about “what we are doing, but how we

are doing it and what impact it will have on people’s lives.” CSR covers a

wide range of activities—health, hygiene, nutrition, education, calamity

management, youth and sports and community infrastructure.

6.8.9 Essar Group

The CSR investment has created an enabling working environment for

Essar. The local community is an equal partner in the progress. Essar is

focusing on self-help groups, health and education programmes to endear

itself to locals in Chhattisgarh and Andhra Pradesh. Apart from planting

trees and using technology to diminish its impact on the environment,

Essar has designed a bullock cart frame fashioned from steel so villagers

cut fewer trees to build these vehicles with wood.

6.8.10Steel Authority of India Limited

Steel Authority of India Ltd (Sail) spent Rs. 64 crore in 2010-11 on diverse

activities such as re-cycling, preservation of art and culture and enrolling

girls in schools to maintain a reasonable gender ratio in schools. Energy

scarcity and increasing awareness of the need to cut their carbon footprint

has turned companies into generous spenders on new, environment-

friendly and power-saving technology.

6.8.11 JSW Steel

JSW, which spends up to Rs. 40 crore on CSR across Karnataka,

Rajasthan and Maharashtra, has installed solar panels on its residential

quarters and even produces power from wind mills. The Company uses the

lowest energy among Indian companies on per tonne of steel produced.

6.8.12Titan Industries Limited

Titan Industries has been the recipient of social responsibility awards for

promoting employment for disabled people. The Company employs people

with audio-visual and locomotors disabilities. More than 5% of the total blue

collar workforce of the company consists of disabled people. It also offers

employment to large number of young girls. The Company also offers

educational scholarships for needy students.

6.8.13 Hindalco Industries Limited

Hindalco Industries Limited is the flagship company of the Aditya Birla

group. Under its CSR programme, the company undertakes projects and

programmes on healthcare, mother and child care, education, sustainable

livelihood, women self-help groups, social welfare and so on. It also

undertakes various infrastructure development and maintenance activities

near its plants.

6.8.14 Hindustan Petrochemical Corporation Limited (HPCL)

HPCL is a Government of India enterprise with a Navratna status, a

Fortune Global 500 company which follows a Triple Bottom line approach

for expenditure for CSR. It has taken up various projects such as

‘Suraksha’ – AIDS prevention units in 150 highly busy petrol pumps;

‘Swavalamban’- a training programme in retail for youth; ‘Unnati’- providing

computer training to school students; ‘Nanhi kali’- supporting girl students

from weaker, marginal sections of the society; ‘vikas’ – access to library

facilities and vocational training; ‘muskan’ – providing foster care to

orphans; HPCL has pioneered an innovative scheme called HP Gas Rasoi

ghar (Community kitchen) where people can get access to a ready kitchen

to cook their daily meals faster than before.

6.9 Conclusion

As Carroll has propounded earlier the four categories of CSR – economic,

legal, ethical and philanthropic – address the motivations for conducting

CSR activities and are also useful in identifying the benefits that flow back

to business and society for their fulfillment. The four main motivational

aspect of CSR for Indian companies are reduction in cost and risk

management, to gain competitive advantage of the firm, to build reputation

and legitimacy for the company that is the license to operate and to most

importantly ‘give something back to the community’. Most of the widely

accepted approaches to the business case include identifying benefits to

different stakeholder groups that directly or indirectly benefit the

companies’ bottom line. It is still debated world wide whether 'corporations

have social responsibilities beyond their wealth-generating function'

(Friedman, 1962; Henderson, 2001), or should they succumb to the

'increasing internal and external pressures on business organizations to

fulfill broader social goals' (Davies, 2003; Freeman, Pica, & Camponovo,


There are different ways through which a firm can exert positive social

change in society and collaborate with partners who have the explicit

power to trigger such change. Firms should have in-depth understanding of

the circumstances that lead to the pursue of various CSR activities and

implement those activities that demonstrate a convergence between the

firm’s economic objectives and the social objectives of society. Only when

firms are able to embed strategic CSR activities with the whole hearted

support of their stakeholders there will be a market for virtue and a

business case for CSR in Indian companies.

In India besides the Tata Group, there are other companies which have

adopted the CSR to conduct their business in a responsible manner. Some

of these companies are BHEL, Wipro, Bajaj Auto Ltd., Larsen & Toubro,

ACC, Birla’s, Asian Paints, Escorts, SAIL, ITC etc. The contribution of

these companies towards CSR have been multifarious these includes

formation of social trusts working towards anti pollution measures, adopting

villages, family planning clinics, training unemployed youth ,education in

the primary level and other community development activities . As a part of

their CSR programme they provide medical care, recreational facilities for

the community, develop sports, undertake consumer education campaigns

and create awareness against unethical and deceptive advertising.

In the Indian context, acceptance of social responsibility is redirecting us to

the cherished values and teachings of our ancestors and our religious

scriptures in the field of business. History has witnessed in India that

whenever people of our country have faced social or natural problems,

leading businessmen have not hesitated to thrown open their treasure

chests to provide the required assistance and help to the needy. Mahatma

Gandhi had reminded us of these values, through his theory of trusteeship.

Following Gandhiji’s footsteps companies have realized that they have

moral or ethical obligation towards society which cannot be fulfilled by

mere economic growth. A positive impact created on its employees,

customers and community at large has assumed greater significance in

measuring the success of the company and has contributed in creation of

its brand image. This realization has made Indian companies to undertake

socially responsive actions, and become an instrument for positive social


The people centric approach in CSR makes the CSR practices of Indian

companies unique, while India shares with other developing nations in its

CSR experiences and practices certain attributes that come with the

process of development, such as a distinct set of CSR agenda challenges

and the deployment of CSR as an alternative to the government. (Matten

and Moon 2008; Blowfield and Frynas 2005). Such an approach has led

the Indian companies to respond to specific challenges such as lack of

skilled labour and increased pressure to go green in a unique way. Indian

companies have a strong focus on people and community which includes

promoting work force diversity, fostering inclusive growth and training and

development. Indian CSR initiatives are also deep rooted in religion and

spirituality and one of the over arching belief is that it is inappropriate to

talk about the good things that they are doing echoing the thoughts of

India’s foremost industrialist, Mr. Ratan Tata who says that, “We do not do

it for propaganda. We do not do it for publicity. We do it for the satisfaction

of having achieved something worthwhile”. The benefits of implementing

CSR strategies are largely difficult to quantify. Therefore, it is not surprising

that a large number of arguments encouraging businesses to be socially

responsible are based on 'beyond-financial-benefits' perspectives.

This is not to suggest that CSR has no business case and is limited to

'feel-good', voluntary and charitable efforts. In many companies CSR

functions are based within the human resources or public relations

departments and in some case, in a separate unit. However, in the best of

CSR efforts the concept is so well integrated into the key business

activities of the company that the CSR values are operationalised through

direct everyday work of the employees.

Business is often intrigued with the question of business case for CSR and

Indian companies are no exception. Their primary concern has been ‘what

do the business community and organizations get out of CSR and how do

they benefit tangibly from engaging in CSR policies, activities and

practices?’ Indian companies like many of its counterparts in the west are

motivated by the bottom-line reasons for businesses pursuing CSR

strategies and policies. “Whether in the definition’s structure or its

application, business performance with respect to the environment,

stakeholders and society (social) are captured along with the categories of

economics and voluntariness (discretionary/ philanthropic)” (Carroll and

Shabana, 2009).

The upcoming provisions in the Companies Bill that seek to have

companies spend a specified amount of their net profit on CSR as well as

disclose details of their contributions to CSR are expected to increase the

focus of companies on what they do by way of such initiatives.




7.1 Introduction

7.2 Corporate Social Irresponsibility and financial


7.3 Socially responsible investing

7.4 Legitimacy of corporate response to CSR concerns

7.5 Causality

7.6 Relationship between CSR and firm performance

7.7 Conclusion


7.1 Introduction

Many CSR activities can create firm value without the intervening step of

stakeholder perception. For example, a protocol adopted by the company

to reduce energy consumption in the production process provides a cost

savings and an environmental benefit without the necessary value

perception by customers. Therefore, in deciding on CSR activities,

business leaders should use CSR instrumentally to enhance financial

performance and shareholder value. This chapter will detail the causality

between CSR and financial performance, the economic advantages of

CSR leading to the improvement of the bottom line performance of


7.2 Corporate Social Irresponsibility and financial performance

Corporate social irresponsibility is a set of actions that increases

externalized costs and/or promotes distributional conflicts. Research

studies have shown that companies which fail to act in a socially

responsible manner experience significant decline in financial performance

(Thorne et al, 1993). A study carried out by Davidson and Worrell (1988)

support this hypothesis. They found a strong negative correlation between

corporate social irresponsibility and stock market performance of

companies. This is due to the fact that markets react negatively to the

irresponsible behaviour of companies. Frooman (1997) analyzed the stock

market’s reaction to incidences of socially irresponsible behaviour and

found the effects to be negative, statistically significant and substantial in

size. Wokutch and Spencer(1987) studied 130 firms and the financial

performance measured in terms of return on sales and return on assets.

The firms were divided into four groups based on their relative social

irresponsibility. The performance indicators were substantially lower for the

group of socially irresponsible firms than the other groups. Stoh and

Brannick (1999) argue that those who ignore their social responsibilities

may suffer from boycotts, ruined reputations which then lead to a decline in

business. Companies like ENRON and Satyam are symptomatic of this

behaviour. In the past too, there have been instances of boycott of reputed

companies like Shell and Coca-Cola because of their irresponsible


7.3 Socially responsible investing

Social investing research has attracted widespread interest among

academics who have been struggling for years to find reliable and objective

ways to measure CSR.

Orlitsky et al (2003) performed a meta analysis of 52 studies in search for

the relationship between corporate social performance and corporate

financial performance. The results confirm that socially responsible

investing pays off. The relationship is the strongest for the social dimension

within corporate social performance.

Diltz (1995) and Sauer (1997) concluded that there were no statistically

significant performance differences between socially responsible

investments and traditional investments. Bauer et al (2003) also analyzed

the effect of corporate governance on stock returns and firm value.

7.4 Legitimacy of Corporate response to CSR concerns

As CSR comes into contact with many issues traditionally addressed by

governments like human rights issues, there is a strong criticism that

societal problems are best left to the freely elected governments to solve.

The resources of the corporation are poorly suited for addressing those

social problems. According to Friedman (1970) in a free society, “there is

one and only social responsibility of business- to use its resources and

engage in activities designed to increase its profits so long as it stays

within the rules of the game, which is to say, engages in open and free

competition without deception or fraud.” He argues that the mangers by

utilizing the organizations’ resources, that would otherwise go to the

owners, employees, and customers and allocating them according to the

will of the minority, fails to serve the interest of his or her principal.

A firm cannot ignore the problems of the work environment and the quality

of living of its employees. From one perspective, companies may be poorly

equipped to address some of the social or environmental problems, but

from another perspective, no matter how poorly equipped, companies may

still be in a position to ameliorate the problems.

Adopting CSR principles involves costs. These costs might involve the

purchase of a new environmental friendly equipment, the change of

management structures or the implementation of stricter quality controls.

Since being socially responsible involves costs, it should generate benefits

as well in order to be sustainable. The shareholders invest their money in a

corporation, expect the highest possible risk-adjusted return . Therefore

being responsible should have bottom line benefits in order to be


7.5 Causality

Too much emphasis has been placed on the relationship of CSR and

financial performance, rather than on how the relationship unfolds

(Margolis and Walsh, 2001). A positive relationship between CSR and

financial performance does not imply that a firm conducting CSR activities

will show improved financial performance. Correlation does not impact

causality. There is a consensus that companies which are socially

responsible tend to face lower risks and therefore are in a position to

reduce costs and improve efficiency. The slack resource theory argues that

better financial performance potentially results in the availability of slack

resources that provide opportunity for firms to invest in CSR.

7.6 Relationship between CSR and firm performance

Carroll (1991) argues that the benefits of CSR are so embedded in various

organizational relationships that it is impossible to isolate some

demonstrable relationship to financial performance. Instead of examining

the relationship between CSR and financial performance in isolation, a

more fruitful way of thinking may be to look at the impact of CSR on both

financial and non-financial measures. The non-financial measures include

enhanced image and reputation, increased market share through

increased sales and customer loyalty, lower employee turnover through

increased ability to attract and retain talented employees, improved

products through research and development and increased cost savings

and access to capital.

7.6.1 Increased reputation

Reputation is critical to corporate success (Roberts et al, 2002), and an

asset of great value especially in today’s competitive world. (Martin, 2009)

According to Roberts (2003) a good reputation enhances the value of

everything the organization does and says. A bad reputation devalues

products and services and acts as a magnet that attracts further scorn.

The resource based view of the firm (Barney, 1991; Wernerfelt, 1984) felt

that the competitive advantage of a firm depends upon the interplay of its

human, organizational and physical resources over time. Traditionally,

resources are likely to lead to competitive advantage when they are

valuable, rare, inimitable and the organization must be organized to deploy

these resources effectively. The “dynamic capabilities” approach

represents the dynamic aspects of the resources. The dynamic capabilities

refer to the organizational and strategic routines, by which managers

acquire resources, modify them, integrate them and recombine them to

generate new value creating strategies. Based on this perspective, some

authors have identified social and ethical resources and capabilities which

can be a source of competitive advantage, such as the process of moral

decision-making (Petrick and Quinn, 2001), the process of perception,

deliberation and responsiveness (Litz, 1996), and the development of

proper relationships with the primary stakeholders : employees, customers,

suppliers and communities ( Harrison and St. John, 1996). A more

comprehensive model was developed by Hart (1995) which includes three

strategic capabilities: pollution prevention, product stewardship and

sustainable development. According to him, the critical resources are

continuous improvement, stakeholder integration and shared vision.

7.6.2 Customer attraction and loyalty

Consumers represent one of the most important groups of stakeholders

(Rugimbana et al, 2008). The customer is a key external stakeholder of a

company and attraction of loyalty of this stakeholder is fundamental to any

business. The Consumer inference theory states the degree to which

consumers’ associations regarding a company influence them (Brown and

Dacin, 1997; Sen & Bhattacharya, 2001; Berens, 2004). In their germinal

work, Brown and Dacin (1997) defined corporate associations as a

“generic label for all the information about a company that a person holds”.
Corporate associations include perceptions, inferences or beliefs about a

company: a person’s knowledge of his or her behaviours with respect to

the company; information about the company’s prior actions; moods and

emotions experienced by the person with respect to the company; and

overall and specific evaluations of the company and its perceived

attributes. Bolding illustrated that offering a warranty is a way to signal to

the customer that your product is superior when asymmetric information is

present and again separates the stronger company from the weak

company that is unable to model the stronger company. In addition to

signaling to consumers on warranties, firms can signal on advertising

(Kirmani, 1990) and retailer choice (Davis, 1991) through quality signals

like brand names. Using these as signals for a product's position can

increase perceived quality, and decrease information cost and the risks

perceived by consumers (Erdim et al, 1998).

7.6.3 Employee motivation and retention

Employees are vital asset in any company (Young and Thyril, 2009) and a

company’s ability to attract talent is crucial (Hopkins, 2003). Employees’

perceptions about how a corporation accepts and manages its

responsibilities also determines an employees’ decision about where to

work (Waddock et al, 2002). The signalling theory states that there is

information asymmetry between the buyers and sellers and in this situation

consumers look at signals that distinguish the companies. This is true for

employer-employee relationships too. When an organization is viewed in a

positive light, this reflects favorably on the individuals within it, who receive
positive outcomes such as approval from others (Barber, 1998; Ehrhart &

Ziegert, 2005). Turban and Greening (1997) demonstrated this when they

hypothesized that firms engaging in socially responsible actions have

positive reputations and are perceived as attractive employers by job

applicants, thus giving these employers a competitive advantage

Firms may also signal to current and future employees. McNall (2010)

suggests, observable personnel actions by the organization (e.g., having

flexible, family-friendly policies) may be interpreted as a signal of more

unobservable characteristics such as care and concern for employees on

behalf of the organization. This is another example of asymmetric

information and negatively related variables that are signalled to the future

employee. The Social identity theory suggests that job applicants have

higher self-images when working for socially responsive firms over their

less responsive counterparts. An experiment conducted by Greening and

Turban ,in which they manipulated CSP and found that prospective job

applicants are more likely to pursue jobs from socially responsible firms

than from firms with poor social performance reputations. A model of

influence developed on the social identity theory demonstrates that CSR

initiatives are linked to stronger loyalty both because the consumer

develops a more positive company evaluation and because one identifies

more strongly with the company (Marin, 2009). Alternatively, irresponsible

behaviour by firms also receives a negative response from the

stakeholders. The reactions could range from boycotting the company,

reducing the consumption of the product, initiating public interest litigations

against the company and negative word-of-mouth publicity for the


7.6.4 Cost Saving

There have been instances of companies reducing costs and increasing

productivity through aggressive waste reduction and process improvement

programs. Hart(1997) says that improved environmental performance can

impact financial performance in a number of ways. First, it reduces

operating costs through improved ecological efficiencies. Ecological

sustainability also leads to a competitive edge with consumers increasingly

preferring eco-labelled products.

7.7 Conclusion

It is clear from the above that social responsibility pays off in the long run

and there is a link with bottom line results.



8.1 Validity of the research

8.2 Reliability of the research

8.3 Data Analysis

8.4 Major findings


8.1 Validity of the Research

Validity refers to the degree to which an instrument measures what it is

supposed to be measuring (Pilot and Hungler, 1985). Validity has a

number of different aspects and assessment approaches. There are two

ways to evaluate instrument validity: content validity and statistical validity.

8.1.1 Content validity of the questionnaire

The questionnaire was close-ended, which permits only pre-specified

responses, similar to multiple choice questions. Corporate Social

Responsibility was measured separately for each stakeholder (Table of

Appendix). Respondents were asked to answer 67 questions in all which

included 11 questions of Employee CSR which assessed CSR towards

employees including equal employment opportunities, health and safety at

work, provision of education assistance etc . The items of measures of

CSR were decided after consultation with experts and the findings of the

pilot study.

8.1.2 Criterion related validity

Internal consistency of the questionnaire was measured using correlation

coefficients between each variable of CSR and the aggregate CSR.

Table 8.1 shows the correlation coefficient and p-value for each measure

of CSR. As shown, the p-values are less than 0.05 and the correlation

coefficients are significant at α = 0.05, so it can be said that the measures

are consistent and valid to measure what it was set for.

No. Items Correlation p-
I. Employee CSR
Health care and assistance to employees .486** 0.000
Subsidized lunch/refreshments to employees .580** 0.000
Credit for education/housing .585** 0.000
Bonus/ ESOPs .657** 0.000
Finance for higher education .658** 0.000
Training and development .679** 0.000
Recreational facilities .592** 0.000
Collective bargaining .733** 0.000
Work-life balance policies .566** 0.000
Formal worker representation in decision .636** 0.000
II. Customer and Supplier CSR
Consumer education and product labelling .791** 0.000
Restrictions on use of child labour at supplier’s .748** 0.000
Tenders and standards for suppliers 720** 0.000
Grievance handling mechanism for consumer 895** 0.000
Voluntary standards for advertising .603** 0.000
III. Community CSR
Contribution to religious charities .380** 0.000
Partnership with NGOs 526 0.000
Sponsorship of sports activities .518 0.000
Employee volunteering .615** 0.000
Education initiatives .622 0.000
Contribution to Disaster relief funds .636** 0.000
Community health initiatives .710 0.000
Promotion of art and culture .578** 0.000
Contribution to rural development .679 0.000
IV. Environment CSR
Explicit environment policy .831** 0.000
Use renewable sources of energy .669** 0.000
Recycling and treatment of waste .729** 0.000
Environment/pollution protection systems .786** 0.000
Environmental awareness through messages .745** 0.000
Policy of substitution of hazardous material .855** 0.000
Voluntary information about environmental .777** 0.000
Environmental emergency plan .819** 0.000
Table 8.1 : Correlation coefficient between each of the CSR variables

8.2 Reliability of the research

The reliability of an instrument is the measure of consistency. The less

variation an instrument produces in repeated measurements of an

attribute, the higher is its reliability. The Cronbach’s Coefficient alpha can

be applied to measure the consistency of the questionnaire. This method is

used to measure the reliability of the questionnaire between each field and

the mean of the whole fields of the questionnaire. The normal range of

Cronbach’s Coefficient alpha is between 0.00 and +1. The higher the value

, the greater the consistency among the measures. The table 8.2 below

shows the Cronbach alpha of the CSR measures. The results show that

the questionnaire was reliable.

S.No. CSR measures No. Of Cronbach’s

items coefficient

1. Employee CSR 11 0.816

2. Customer and Supplier CSR 5 0.890

3. Community CSR 9 0.875

4. Environment CSR 9 0.630

5. Managerial perceptions of CSR 17 0.879

6. Motivations for CSR 8 0.710

Table 8.2 : Cronbach’s Coefficient alpha

Once the questionnaire was finalized, the soft copy of the questionnaire

was mailed to the CSR/HR managers. Before distributing the

questionnaires, confirmation of the existence of CSR activities in the

companies was obtained. After the receipt of the confirmation, permissions

were obtained from each respondent by email or phone calls. Information

was provided to the respondent on the purpose of the survey and the

targeted respondents.

8.3 Data analysis

This section describes the analysis of the empirical data collected through

the questionnaire. The sections in the chapter will cover the objective-wise

analysis and the hypothesis testing.

Company information

A total of 104 companies were surveyed representative of 19 industrial

sectors of the Indian economy. The Companies comprised of government

companies, public sector companies and private sector companies.

Number of employees

Table 8.3 shows that only 8.66% of the companies surveyed had less than

500 employees; 30.76% of the companies had employees ranging from

501 to 2000 employees; 22.12 % of the companies had employees ranging

from 2001 to 5000. 19.23% of the companies had employees in the range

5001 to 10000 and above 10000.

Number of employees Frequency Percent

Less than 500 9 8.66%
501 to 2000 32 30.76%
2001 to 5000 23 22.12%
5001 to 10000 20 19.23%
Above 10000 20 19.23%
Total 104 100%
Table 8.3 : Sample distribution according to number of employees

The impact of CSR activities of the firms on its financial and non-financial

performance was studied on the basis of responses received on the CSR

activities towards stakeholders namely, employees, Customers and

Suppliers, Community and Environment.

Aggregate CSR

Since all the variables of CSR were uniformly measured on a 5 point Likert

scale, it was decided to average the scores of the four measures of CSR

into an aggregate score, namely the Aggregate CSR. This was considered

as the comprehensive measure of CSR activities of the firm towards

various stakeholders namely, employees, customers and suppliers,

community and CSR. Aggregation of all the CSR measures were made on

the basis of the confirmatory factor analysis (CFA) carried out on the four

dimensions of CSR. The Goodness of Fit (GFI) index indicated a score of

0.91 which is above the recommended criterion of 0.90 (Bollen, 1989)

suggesting the fit of the model.

Firm Performance

A study by Griffin and Mahon (1997) has reviewed 51 studies on CSR-firm

performance relationship and found that as many as 80 different types of

financial performance measures were used. Firm size, Return on Assets

(ROA), return on equity (ROE), assets size, return on sales are some of

the frequently used and reliable financial measures of firm performance.

Financial performance measures are mainly lag indicators and capture the

historical performance of the firm. They mainly reflect on the effectiveness

of the business operations and the efficiency in the management of

tangible assets.

ROA is a robust measure of financial performance. It is an indicator of how

profitable a company is relative to its total assets. ROA gives an idea on

how efficient management is at using its assets to generate

earnings. Calculated by dividing a company's annual earnings by its total

assets, ROA is displayed as a percentage. The formula for Return on

Assets is:

= Net Income/Total Assets

Since different industries have different profit potentials (Porter, 1980), it

was decided to use industry adjusted performance measures. For each

firm, industry adjusted performance measures were calculated by taking

the unadjusted measure and subtracting the industry average. Therefore,

the Industry Adjusted ROA was obtained by subtracting the Industry ROA

from the firm ROA. The industry averages were calculated on the basis of

all firms in the same industry sector as specified in the BSE index.

Non-financial performance measures

Financial measures are based on historical data. Non financial measures

focuses on long term success factors such as customer or employee

satisfaction, quality, market share, and the number of new products. Non-

financial performance measures are sometimes considered to be leading

indicators of future financial performance, while current financial

performance measures such as earnings or return on assets are commonly

considered to be trailing measures of performance. Investments on new

product development, research and development tend to depress profits in

the short run but the benefits of such investments can be seen only in the

long run. Non-financial measures therefore are indicators of consequences

rather than causes of performance. Also, financial performance measures

are objective in nature whereas non financial measures are subjective in

nature and are dependent on the managerial perceptions.

There is no doubt that brand management and reputation can be enhanced

rather than simply defended with considerably lower costs or effect on

sales. Improved productivity and quality have been shown to flow directly

from improved, safe working conditions. A robust sustainable profile will

help both retain and attract good staff, reducing training and recruitment


An organization that embraces a sustainable ethos is likely to be always

ahead of regulation. Improved access to capital stems from both the

reputation of the company but also the increasing focus of financial

institutions and government programmes towards reinforcing sustainable


The study uses the scale developed by Govindrajan (1984) and then

modified by Hoque (2004) to measure the non-financial performance of the

company. The respondents were asked to rate their company’s

performance relative to the industry performance on twelve parameters

which covered functional areas of operations, marketing, research and

development and finance.

Objective 1: To study the impact of Corporate Social Responsibility

on firm performance as measured by financial and non- financial


Level of aggregate CSR

Descriptive statistics shows that the mean Aggregate CSR for Companies

under study was 3.27, the minimum aggregate CSR score was 1.90, the

maximum aggregate CSR score was 4.36.

Table 8.4 shows the t-value for all the variables measuring the Aggregate

CSR. The means show that there is a fairly high level of Aggregate CSR

among Indian companies.

CSR Variables Mean t-value p-value

Employee CSR 3.317 50.503 0.000

Customer & Supplier CSR 3.33 47.935 0.000

Community CSR 3.327 47.566 0.000

Environment CSR 3.461 42.206 0.000

The value of critical t value at df= 103 and significant level 0.05 equal 2.0

Table 8.4 : Aggregate level of CSR

Discussions on Employee level CSR

Socially responsible businesses take a lot of effort to provide a meaningful

and conducive work environment where the employees can realize their

potential. Some of the practices include empowerment of employees,

involvement of employees in the decision making process, a better work-

life balance, opportunities for leisure, training and development and also

job security. There is increasing evidence that these practices have a great

influence in improving employer-employee relationships and a high quality

of work life leads to increased profits through greater innovation, committed

and skilful employees.

CSR towards employees is usually portrayed by the companies through

policies on a) training and development; b) communication and

consultation; c) health and safety ; d) work-life balance; e) equality and

diversity; f) employee benefits.

In this study the quality of life of employees is related to the prospects of

individuals working in companies. The most important aspect of Employee

CSR is the various employee protection programs such as health

insurance and medical benefits such as maternity leave for women. Other

aspects include benefits such as sponsoring of higher education of

employees, training and development opportunities, recreation and sports

facilities. In short, the policies of the companies should be such as to

create a working environment where employees feel secure.

The employee benefits are non-wage compensations provided to

employees in addition to their normal wages or salaries. It s also all forms

of considerations given by an entity in exchange for service rendered by

employees. Its purpose is to increase the economic security of employees.

The table 8.5 shows that nearly 78% of the companies surveyed provided

substantial or full medical or health assistance to their employees and their

families. It can be seen that employees’ health and well being is one of the

top priorities of the companies and the HR policies of the companies reflect

this attitude.

As regards provision of subsidized or free lunch or refreshments to

employees, it was seen that nearly 58% of the companies surveyed

provided substantial or full subsidized lunch or refreshments to their

employees. It was seen that companies with manufacturing facilities

usually provided free lunch to their employees.

Financial aids such as provision of easy loans or credit for housing and

education are also an important aspect of HR policies and it was seen that

75% of the companies surveyed do not provide credit facilities. Only

around 45% of the companies surveyed paid bonus or Employee stock

options (ESOPs) to their employees. Only 7% of the companies provided

full support for employees to pursue their higher education. Around 63% of

the companies provided recreational and sports facilities to their

employees. It was also seen that club memberships were usually provided

to senior level employees. Most of the Indian companies that were

surveyed also allowed the right of the employees to form unions and had

policies for collective bargaining. In fact there was not a single company

which did not provide that right to their employees. Around 42% of the

companies had explicit policies for promotion of women and minorities. The

public sector companies and the government owned companies had

specific promotion policies for caste minorities, though the private sector

companies did not have any specific promotion policies for women or


Scale B1 B2 B3 B4 B5 B6 B7 B8 B9 B10 B11

1 0 2.9 3.8 0 4.8 0 2.9 0 16.3 5.8 92.2

2 2.8 15.4 22.1 13.5 13.5 6.7 14.4 8.7 11.5 12.5 4.8

3 20.2 24.0 34.6 41.3 43.3 29.8 44.2 27.9 28.8 38.5 1.0

4 45.2 47.1 32.7 36.5 31.7 37.5 22.1 38.5 28.8 26.9 1.0

5 31.7 10.6 6.7 8.7 6.7 26.0 16.3 25.0 14.4 16.3 1.0

Total 100 100 100 100 100 100 100 100 100 100 100

Table 8.5: Summary of the employee CSR ( in %)

Note: B1: Medical assistance; B2: Free lunch and refreshments; B3:
Housing, car and education loans; B4: Bonus/ESOPs; B5: Finance higher
education; B6: Training and development; B7: Recreational facilities ; B8:
Collective bargaining; B9: Promotion policies for women; B10: Formal
worker representation in decision making; B11: Women representation in
the Board of Directors.

A most interesting fact that emerged out of the study was that nearly none

of the companies had any specific policy for induction of women in the

Board of Directors. Except for a handful of companies, women

representation in the Board was virtually missing. Eleven variables were

used to measure the Employee related CSR. A factor analysis was

conducted which showed that all variables correlate well. The KMO result

was 0.792. Barlett’s test was significant.

Factor % of variance

Health care and assistance to employees .644

Subsidized lunch/refreshments to employees .566
Credit for education/housing .671
Bonus/ ESOPs .621
Finance for higher education .646
Recreational facilities .621
Collective bargaining .638
Work-life balance policies .658
Formal worker representation in decision making .650
Representation of women on the Board of Directors .210
Table 8.6 : Employee CSR

An analysis of the Employee CSR activities shows the validity of the scales

and the construct. This was tested by Confirmatory Factor Analysis (CFA).

The unstandardized regression weights , various fit measures of Goodness

of Fit Index (GFI), and Root Mean square of approximation (RMSEA) of the

scales are given below in Table 8.7 .

The initial measure of Employee CSR performance indicated that the

variable measuring women representation on the Board of Directors

reported an unacceptable low R squared value and was found to correlate

to a very small extent to other variables (all below .139). Therefore this

variable was eliminated and the model was formulated.


Health care and assistance to 0.33 0.05 0.486***
Subsidized lunch/refreshments to 0.31 0.29 0.580***
Credit for education/housing 0.35 0.22 0.617***
Bonus/ ESOPs 0.44 0.14 0.675***
Finance for higher education 0.44 0.02 0.675***
Recreational facilities 0.42 0.02 0.683***
Collective bargaining 0.41 0.02 0.668***
Work-life balance policies 0.34 0.03 0.617***
Formal worker representation in 0.44 0.02 0.725***
decision making
0.25 0.01 0.575***
USRW: Unstandardized regression weight; SE: Standard Error;
SRW: Standardized regression weight ***p<0.001; **p<0.01

Table 8.7 : Goodness of fit – Employee CSR

One sample T-test was used to test if the opinion of the respondents in the

content of the sentences are positive (p values less than 0.05), or the

opinion of the respondent in the content of the sentences are neutral (p

value is greater than 0.5).

Statements Mean t-value p-value

Health care and assistance to
4.06 26.288 0.000
Subsidized lunch/refreshments to
3.47 15.388 0.000
Credit for education/housing 3.16 12.150 0.000
Bonus/ ESOPs 3.40 17.239 0.000
Finance for higher education 3.22 13.329 0.000
Training and development 3.83 20.769 0.000
Recreational facilities 3.35 13.562 0.000
Collective bargaining 3.80 19.980 0.000
Work-life balance policies 3.13 9.057 0.000
Formal worker representation in
3.36 12.818 0.000
decision making
The value of critical t value at df= 103 and significant level 0.05 equal 2.0
Table 8.8 : Employee CSR – T test

Discussion on Customer and Supplier CSR

Selection of suppliers and vendors are not made only on the basis of

competitive bidding. Since the advent of globalization, the outsourcing of

manufacturing and service activities is on the increase. Suppliers are an

integral part of the supply chain and are sometimes an extension of the

company. The emphasis is on fair prices and involvement in the new

product development. A major issue in developing partnerships with

suppliers is human rights. It has been seen that many suppliers violate

fundamental rights of the workers and in some cases also use child labour

in their facilities.

Scale C1 C2 C3 C4 C5
1 0 0 0 15 9
2 10 13 15 34 27

3 29 21 32 39 30

4 45 44 31 12 27

5 16 22 22 0 7
Total 100 100 100 100 100
Table 8.9 : Summary of the Customer and Supplier CSR responses (in %)

Note: C1: Consumer education and product labelling; C2: Restrictions on

the use of child labour at supplier’s facilities; C3: Tenders and standards
for suppliers; C4: Grievance handling mechanism for consumer complaints;
C5: Voluntary standards for advertising
Successful companies build lasting relationships with customers by

focusing on their needs and providing them with superior products and

services. The customer is an important stakeholder for the company and

there are three value disciplines that successful companies adopt to

command leadership in their markets (Treacy & Wiersma, 1997). The first

is operational excellence, where customers expect the best services at the

lowest prices. Second is product leadership where customers want the

best products. The third is customer intimacy where the firm identifies its

customers and makes every effort to know them in detail.

Statements Mean t-value p-value

Consumer education and product

3.72 41.119 0.000

Restrictions on use of child labour at

3.81 40.259 0.000
supplier’s facilities

Tenders and standards for suppliers 3.65 34.622 0.000

Grievance handling mechanism for

2.47 10.836 0.000
consumer complaints

Voluntary standards for advertising 2.97 18.175 0.000

The value of critical t value at df= 103 and significant level 0.05 equal 2.0

Table 8.10: Customer and Supplier CSR

A total of five variables were used to test the Customer and Supplier CSR

activities. The variables tested the extent of implementation of voluntary

standards and codes in advertising, Consumer awareness through product

labelling, restrictions on use of child labour at the supplier’s place,

grievance handling mechanism of customer complaints etc., Factor

analysis was conducted to extract two factors which explained 67.20% of

the total variance. Principal Component Analysis was used to extract the

factors. The KMO result for this data was 0.678. Barlett’s test was


The tests for scale and validity and goodness of fit were conducted and the

results are given below in Table 8.11.


Consumer education and product 0.51 0.02 0.782***

Restrictions on use of child labour at 0.44 0.21 0.728***
supplier’s facilities
Tenders and standards for suppliers 0.40 0.02 0.703***
Grievance handling mechanism for 0.07 0.03 0.125
consumer complaints
Voluntary standards for advertising 0.30 0.02 0.589**
***p<0.001; **p<0.01
Table 8.11: Test for Goodness of Fit (Customer and Supplier CSR)

An analysis of the responses relating to Customer and Supplier CSR which

were measured using 5 variables (C1 to C5) shows the following:

Nearly 61% of the respondent companies had partially or fully implemented

policies on product labelling and conducted consumer awareness

campaigns. Nearly 87% of the respondent companies had some policy in

place regarding the use of child labour at the suppliers’ facilities. Only 15%

of the respondents were of the opinion that there were no policies in place

in their companies for appointment of suppliers. Also, only 7% of the

respondent companies had fully implemented policies on voluntary codes

and ethics in advertising.

Discussion on Community level CSR

Businesses operate in neighbourhoods and have an impact on the local,

regional, national and global communities. Companies make an important

contribution to the local communities by providing jobs. The success of

business is linked to the health, stability and prosperity of the communities

in which they exist. The contribution of business towards education, health

and sports initiatives in the community can go a long way in building strong

community partnerships. Businesses can also partner with local

governments and non-government bodies to improve the well-being of the


The Community level CSR of the companies were measured using 9

variables which tested various aspects of Community CSR such as

contribution to religious charities, partnerships with NGOs, sponsorship of

sports tournaments, employee volunteering for community development

initiatives, contribution to disaster relief funds, contribution to community

health initiatives, education initiatives, promotion of art and culture. The

following table tests for scale and validity.

Measures of Community CSR Mean t-value p-value

Contribution to religious charities 2.68 12.203 0.000

Partnership with NGOs 3.36 27.496 0.000
Sponsorship of sports activities 3.0 21.375 0.000
Employee volunteering 3.43 33.751 0.000
Education initiatives 3.62 33.983 0.000
Contribution to Disaster relief funds 3.42 30.233 0.000
Community health initiatives 3.64 35.463 0.000
Promotion of art and culture 3.14 24.896 0.000
Contribution to rural development
3.66 32.141 0.00

The value of critical t value at df= 103 and significant level 0.05 equal 2.0

Table 8.12 : Measurement of Community CSR

A factor analysis was conducted which revealed three factors that

explained nearly 61% of the variance. The KMO result of this data was

0.708 and the Barlett’s test was significant. The results of the one sample

test is shown in the Table 8.12.

Discussions on Environmental CSR

Since eight observed variables have been used to measure environmental

performance, it was deemed fit to conduct a factor analysis. It was noted

that all variables correlate well . The determinant of the correlation matrix is

.003 which is above the necessary value of 0.00001; therefore

multicollinearity is not a problem in this data set. The KMO result for this

data set was 0.918. Barlett’s test was significant. Thus, tests indicate that

factor analysis is appropriate.

Table 8.13 contains component loadings which are the correlations

between the variables and the component. The variables with low reliability

will have low loadings, thus highest scoring variables are of most


Factor % of variance

Explicit environment policy .835

Use renewable sources of energy .711

Recycling and treatment of waste .731

Environment/pollution protection systems .825

Environmental awareness through messages .766

Policy of substitution of hazardous material .863

Voluntary information about environmental management .770

Environmental emergency plan .832

Table 8.13 : Factor Matrix : Environment Scale Items

All the variables have a high scoring variables . Table 8.12 details the

factor loadings, standard errors, t values, and R2 values.


Explicit environment policy 0.497 0.06 0.38

Use renewable sources of energy 0.158 0.07 0.11
Recycling and treatment of waste 0.245 0.06 0.21
Environment/pollution protection 0.329 0.07 0.24
Environmental awareness through 0.483 0.05 0.43
Policy of substitution of hazardous 0.555 0.05 0.48
Voluntary information about 0.452 0.05 0.44
environmental management
Environmental emergency plan 0.578 0.05 0.494
Table 8.14 : Environmental CSR performance results

Descriptive statistics for the responses to the Environment level CSR is

given below:

Scale E1 E2 E3 E4 E5 E6 E7 E8
1 1 1 4 1 0 2 0 0
2 12 15 14 11 16 13 26 15
3 28 37 36 44 43 43 32 32
4 38 44 39 37 32 38 33 44
5 25 7 11 11 13 8 13 13
Total 104 104 104 104 104 104 104 104
Table 8.15 : Distribution of responses to Environment CSR

The following table shows the results of the t-tests.

Measures of Environmental CSR Mean t-value p-value

Explicit environment policy 3.72 35.291 0.000

Use renewable sources of energy 3.40 34.006 0.000
Recycling and treatment of waste 3.38 29.195 0.000
Environment/pollution protection 0.000
3.44 34.490
Environmental awareness through 0.000
3.45 32.887
Policy of substitution of hazardous 0.000
material 3.38 32.692
Voluntary information about 0.000
3.38 28.824
environmental management
Environmental emergency plan 3.55 35.522 0.000
Table 8.16 : Environment CSR –t test

Hypothesis Testing

H11: Favorable Aggregate CSR towards stakeholders will positively impact

the firm’s financial and non-financial performance.

The correlations between the Aggregate CSR and the firm’s financial

performance as measured by Industry Adjusted ROA and the firm’s non-

financial performance as measured by marketing effectiveness and

operational efficiency were studied. To examine the influence of control

variables, aggregate CSR and segregate CSR on the financial and non-

financial performance of the firms, hierarchical regression analyses were

carried out.

Aggregate Industry Non
CSR adjusted Financial
ROA performance
Pearson Correlation 1 .676** .452**
Aggregate CSR Sig. (1-tailed) .000 .000 .000
N 104 104 104
**. Correlation is significant at the 0.01 level (1-tailed).
Table 8.17 : Correlation matrix between Aggregate CSR and financial
and non-financial performance

The results show a positive correlation between Aggregate CSR and

Industry adjusted ROA (0.676). Similarly, there is a positive relationship

between Aggregate CSR and non-financial performance measures.

Aggregate CSR therefore leads to better financial and non-financial

performance (0.452). A favourable CSR towards various stakeholders

bring in gains in the form of improved efficiency in operations and reduction

in costs. Satisfied employees contribute to the firm’s performance through

better productivity, reduced attrition and lesser training costs. Satisfied and

delighted customers increase product sales through repeat purchases.

Satisfied communities support the firm’s expansion plans as they perceive

benefits from businesses through increased employment opportunities.

This in turn would reduce the public relations cost. Environmental initiatives

lead to better corporate image and better suppliers lead to better quality of

raw materials and better products. The discussion of the results indicates
that the alternative hypothesis that a favourable Aggregate CSR has a

positive relationship with firm’s financial and non financial performance

among Indian companies is accepted.

H12: Favorable CSR towards employees will positively impact the

firm’s financial and non-financial performance

An analysis of the relationship between Employee CSR and the firm

performance is given below in Table __.

Employee Industry Non
CSR adjusted Financial
ROA performance
Pearson Correlation 1 .561** .524**
Employee CSR Sig. (1-tailed) .000 .000 .000
N 104 104 104
*p<0.05; **p<.01
Table 8.18 : Correlations among Employee CSR, Industry adjusted ROA,
and Non-financial performance
A direct link between CSR towards employees and firm performance

substantiates previous findings (Bertman et al, 1999; Mishra et al, 2010).

The results show significant positive correlation between employee CSR

and financial performance (0.561) and non- financial performance (0.524).

Indian companies have successfully integrated various employee related

CSR activities in its human resource policies such as worker safety and

health, collective bargaining procedures, involvement of workers in

decision making etc., Attention on human resource management practices,

including training and development of employees, their participation in

problem solving, progressive remuneration policies and grievance handling

procedures reduces the attrition rate, increases employee productivity and

firm performance ( Huselid, 1995; Youndt et al., 1996).

H13: Favorable CSR towards customers and suppliers will positively

impact the firm’s financial and non-financial performance

With Indian companies looking for growth through exploration of global

markets, adherence to international standards and labour laws by their

suppliers and vendors has also assumed importance. Any laxity in the

norms might result in companies losing major orders. The findings of the

study reiterate that a favourable environment CSR leads to increased firm

performance (Table ). A positive correlation of 0.410 between Customer

and supplier CSR and financial performance and a positive correlation of

0.283 between Customer and Supplier CSR and non-financial firm

performance reiterates the importance of a favourable customer and

supplier CSR.

Customer & Industry Non
Supplier adjusted Financial
CSR ROA performance
Pearson Correlation 1 .410** .283**
Customer &
Sig. (1-tailed) .000 .000 .002
Supplier CSR
N 104 104 104
*p<0.05; **p<.01
Table 8.19 : Correlation matrix between Customer and Supplier CSR

and firm performance

H14: Favourable CSR towards Community will positively impact the

firm’s financial and non-financial performance

The correlations among the variables were also significant. A company’s

reputation of a good corporate citizen makes it easier for it to receive

support from local and state governments for establishing businesses. The

findings of the study show a positive significant correlation of 0.304 in

respect of Community CSR and financial performance and 0.337 in respect

of Community CSR and non-financial performance (Table 8.20 ).

Community Industry Non
CSR adjusted Financial
ROA performance
Pearson Correlation 1 .337** .334**
Sig. (1-tailed) .000 .000 .000
N 104 104 104
*p<0.05; **p<.01
Table 8.20 : Correlation matrix between Community CSR and firm
financial and non-financial performance

H15: Favorable CSR towards environment will positively impact the

firm’s financial and non-financial performance

A favourable CSR towards environment increases financial and non-

financial performance (Ahmed et al, 1998). The findings of the study (Table

8.19), however shows a very low correlation between Environment CSR

and financial performance ( 0.036). Environmental awareness among

Indian companies is still very low and with a few exceptions, companies

are reluctant to spend on environmental protection measures as it requires

huge capital investment on pollution control equipment. The results show

that Environmental CSR performance variables are not correlated among

each other.

Environment Industry Non
CSR adjusted Financial
ROA performance
Pearson Correlation 1 .036 .163
Sig. (1-tailed) .000 .358 .049
N 104 104 104
*p<0.05; **p<.01
Table 8.21 : Correlation matrix between Environment CSR and firm
financial and non-financial performance
Regression Analysis

To examine the influence of control variables namely, aggregate CSR and

segregate CSR on the financial and non-financial performance of the firms,

hierarchical regression analyses were carried out.

HO7 : There is no relationship between size of the firm

and Aggregate CSR

H17 : There is a positive relationship between size of

the firm and Aggregate CSR

HO8 : There is no relationship between shareholding

pattern and Aggregate CSR

H18 : There is a positive relationship between

shareholding pattern and Aggregate CSR

Regression analysis for financial performance

The three control variables namely Sales, number of employees and

promoter holding were entered in Step 1. None of the control variables

were significant implying that sales, number of employees or extent of

promoter holding do not influence financial performance. In the second

step of the regression analysis, aggregate CSR and segregate CSR

variables were entered. The regression analyses in respect of various

variables are given below in Table 8.22. The above results support the

main hypothesis (H1) and its components (H1.1 to H1.4) except for H1.4

where the correlation has not been seen. In the hierarchical regression

analysis, none of the control variables influenced the financial performance

in Step 1, whereas in Step 2 both aggregate and segregate CSR ( except

Environment CSR) positively influenced the financial performance.

Regression analysis for non-financial performance

In case of NFP in Step 1 only promoter holding influenced non-financial

performance. Controlling the confounding effects, aggregate CSR

predicted 7% variance of the industry-adjusted ROA and 12% variance of

the non-financial measures. The segregate measures of CSR incorporating

the CSR towards four primary stakeholders explained from as low as 6% to

as high as 17.9% variance of the Industry adjusted ROA. The segregate

measures of CSR towards the four primary stakeholders explained from as

low as 6.5% to as high as 17.3% variance of the non-financial measures

(Table 8.23)

Dependent Step Independent Regression equation

Variable Variable
Industry-Adjusted 1 Sales No independent variable is
ROA significant
No. Of
Industry-Adjusted 2 Sales
ROA No. Of
employees FP=-8.710+3.141(Agg.
Promoter CSR)

Aggregate CSR
Industry-Adjusted Sales FP = - 14.094 +
ROA No. Of 4.750(Empl. CSR)
Employee CSR
Industry adjusted 2 Sales
ROA No. Of
Promoter FP= - 7.940 +
holding 2.916(Customer CSR)
Customer &
Supplier CSR
Industry adjusted 2 Sales
ROA No. Of
employees FP=-6.443+
Promoter 2.457(Community CSR)
Community CSR
Industry adjusted 2 Sales No independent variable
ROA No. Of is significant
Table 8.22 : Regression analysis of CSR variables and Industry adjusted

Dependent Step Independent Regression equation

Variable Variable
Non - Financial 1 Sales NFP = 2.302 +
Performance 0.013x(Promoter
No. Of
Promoter holding
Non - Financial 2 Sales
Performance No. Of
employees NFP = 0.689 +
Promoter holding 0.533x(Aggr CSR) +
Aggregate CSR 0.011x(Promo Holding)

Non - Financial Sales NFP = 0.830 +
Performance No. Of 0.673x(Empl CSR)
Promoter holding
Employee CSR
Non - Financial 2 Sales NFP = 1.231 +
Performance No. Of 0.012x(Promo Holding) +
employees 0.347x(Cust CSR)
Promoter holding
Customer &
Supplier CSR
Non - Financial 2 Sales
Performance No. Of NFP = 1.165 +
employees 0.012x(Promo Holding) +
Promoter holding 0.369x(Commu CSR)
Community CSR

Non - Financial 2 Sales

Performance No. Of NFP = 2.302 +
employees 0.013x(Promo Holding)
Promoter holding
Table 8.23 : Regression analysis of CSR variables and non-financial


Objective 2: To study the relationships among Aggregate CSR and

CSR towards primary stakeholders.

Stakeholders are individuals, groups or entities (including the natural

environment) that claim rights or interests in a company and in its past,

present and future activities. Freeman (1984) drew a distinction between

‘primary’ and ‘secondary’ stakeholders. Primary stakeholders are those

without whose participation a company cannot survive (eg., employees,

investors, suppliers, communities, government and customers). Secondary

stakeholders are those that are influenced by the company’s actions and

those who have an interest in what the company does, but are not
essential to its survival, although they may be able to help or harm the

company (eg, media, NGOs). The primary duty of the managers of the

company is to create sufficient wealth, value or satisfaction for the primary

stakeholders to ensure that they remain as part of the stakeholder system.

Primary stakeholders CSR towards various stakeholders such as

employees, customers and suppliers, community and environment were

measured on the basis of responses received. The stakeholders have

varied interests in the firm. Employee CSR is characterized by good

working environment, health and safety conditions of the workers,

employee benefits such as maternity and medical benefits. Customer and

Supplier CSR is evidenced by codes for suppliers, voluntary advertising

standards etc,.

Stakeholders include groups with quite different expectations. Companies

have to therefore understand the nature of a particular stakeholder and

assess what priority to accord to the expectations of the stakeholder. The

degree of influence and perceived interest determines the priorities

accorded to the stakeholders.

The objective of the study was to also understand whether the CSR

activities towards various primary stakeholders are in conjunction with each

other. In that sense, the CSR activities are all complementary and are not

contrary to each other.

Hypothesis testing

H16 : There is a positive relationship among CSR towards various

stakeholders and aggregate CSR of the company

In order to measure the strength of this relationship, a correlation analysis

was conducted which yielded the following results:

Employee Customer & Community Environment
CSR Supplier CSR CSR
.723** .623** .646** .719**
Aggregate Correlation
CSR Sig. (1-tailed) .000 .000 .000 .000
N 104 104 104 104
*p<0.05; **p<.01
Table 8.24: Correlation matrix between aggregate CSR and CSR towards
various stakeholders

The correlation between CSR and firm performance indicated that a more

favourable aggregate CSR towards all the primary stakeholders-employees

( 0.723), customers and suppliers (0.623), community(0.646) and

environment ( 0.719) – resulted in a higher industry-adjusted ROA and

non-financial performance of the firms. A favourable CSR towards each of

the four stakeholders also enhanced the financial and non-financial

performance of the firms.

Objective 3: To study the impact of size of the firm on CSR.

Objective 4: To study the impact of shareholding pattern on

Aggregate CSR.

Size of the firm is also considered one of the important variables that

determine the level of CSR activities. A large sized firm would have more

resources to spare for CSR activities than a small-sized firm. Larger firms

tend to have CSR budgets, a separate department for CSR and dedicated

personnel responsible for CSR activities. In the study, size is measured in

terms of sales.

A correlation analysis was conducted to understand whether there is a

relationship between size of the firm and CSR.

Size Shareholding
Pearson Correlation -.030 .152
Sig. (1-tailed) .380 .062
N 104 104
Table 8.25 : Correlation matrix between Aggregate CSR and size and
shareholding pattern
The results show that there is a negative but insignificant relationship

between Aggregate CSR and size of the company as measured by sales.

There is no significant relationship between Aggregate CSR and

shareholding pattern. Therefore our hypothesis that larger firms have more

CSR activities is rejected. In fact the results show that there is a negative

relationship between the two. The hypothesis that companies that have

larger promoter holding would have more CSR is also rejected.

Promoter share-holding and firm size was the control variables. Data on

promoter shareholding pattern and firm size were obtained from the

respondents from the CMIE- Prowess database. Two indicators of the firm

size were considered for the study: a) number of employees as on 31st

March 2011 and b) average sales ( average of 3 years net sales from

2008-09 to 2010-11), which were continuous variables. Promoter

shareholding took into consideration the percentage of shareholding of the

main promoters.

The data consisted of closely held public limited companies, widely held

public limited companies and government owned companies or public

sector undertakings. Studies have shown that PSUs are generally

characterized by large employee work force, employee-friendly work

environment and benefit plans. On the other hand, privately held

companies are more profitable, and they tend to lag behind the PSUs in

respect of employee benefits etc,. Therefore, this suggests that there is a

prevalence of CSR in government owned enterprises than the private

sector companies.

Objective 5: To identify the factors that motivates companies to

engage in CSR

In order to understand the key factors that are drivers/motivators for

companies to undertake CSR, respondents were asked to give their

responses on a Likert Scale of 1 to 5 where 1=Strongly Disagree; 2-

Disagree; 3- Neither agree nor disagree; 4- Agree; 5- Strongly Agree.

Respondents were asked to mark their responses on certain common

drivers/motivators of CSR identified in previous research studies.

An analysis of the responses revealed the following:

i. Nearly 55% of the respondents felt that Pressure from

buyers/suppliers was NOT motivating factor for undertaking CSR.

ii. Nearly 88% of the respondents felt that personal values of owners

and managers were the main motivating factor for undertaking CSR.

iii. Nearly 63% of the respondents felt that religious sentiments of the

owners were NOT a motivating factor for undertaking CSR.

iv. Nearly 45% of the respondents felt that improving the image of the

company was a motivating factor for undertaking CSR.

v. Nearly 58% of the respondents felt that giving publicity to the

company was NOT a motivating factor for undertaking CSR.

vi. Nearly 81% of the respondents felt that giving back something to the

community was a motivating factor for undertaking CSR.

vii. Respondents were undecided about Improving shareholder value as

a motivating factor.

viii. Only 33% of the respondents felt that CSR was being carried out to

further business interests.

It can be seen from the above that ‘personal values of owners/managers’

was the main motivating factor for companies to undertake CSR activities.

Another factor which scored high was ‘giving something back to the


Objective 6: To examine the perceptions of managers towards CSR.

Managers were asked to address their attitudes for or against CSR. The

questions concerned were given a five point scale with ( 5) denoting

“Strongly Agree” to (1) denoting “Strongly disagree”. In order to

conceptualize the true perceptions of CSR , the following statements were

designed to identify the managerial perceptions towards CSR:

1. CSR is the commitment of an enterprise to strictly abide by the

labour and environmental laws.
2. CSR is a set of charity activities carried out by the enterprise.

3. CSR is a resource intensive and costly affair

4. CSR is primarily a public relations or a marketing exercise

5. CSR needs to be strongly promoted by government
6. Responsible businesses go beyond what is required by law to make
a positive impact on the society and environment
7. CSR can be implemented only with the assistance of experts
8. CSR can lead to increase in profits
9. CSR is a useful guideline for responsible governance.
10. CSR is a requirement for working with global clients

11. Enterprises can commit to CSR only if they get resource assistance
from the government.
12. CSR needs to be made mandatory by law
13. CSR is more relevant for manufacturing industries rather than the
service sector.
14. Engaging in CSR does not compromise the pursuit of profit
15. Socially responsible activities improves the firm’s standing with its
16. CSR activities could improve a firm’s standing with banks and help
them gain access to finance.

The descriptive statistics showing the perceptions of socially responsible

behaviour is displayed in Table in Appendix .

An exploratory factor analysis was carried out of the managerial

perceptions of CSR resulted in 6 factors. 6 strongly loading statements

(loadings >= 0.4) for factors having Eigen values greater than 1 were

retained. The six factors that emerged explained 65% of the variance

Factor 1: Image building and publicity: This factor emphasises the reality of

attitude towards CSR in India where, barring a few companies, CSR is only

a marketing or image building exercise. This is further reiterated by the fact

that only 25% of the companies surveyed had a dedicated CSR

department or a CSR foundation. In the remaining companies, the CSR

activity was handled by a single person who was part of the HR


Factor 2: Legal Compliance : This factor stresses the fact that companies

are satisfied with complying to the legal requirements rather than doing

more than what is required by law.

Factor 3: External stakeholders: Companies are aware that in order to

enter global markets, it is necessary to undertake CSR activities. Also,

banks in India have started factoring the CSR component to arrive at the

credit rating score for companies.

Factor 4: Good governance : Managers perceive that CSR activities form a

part and parcel of good governance and also feel that partnerships with

NGOs and experts are essential to successfully implement CSR activities.

Factor 5: Community orientation : Managers also perceive that

contributing to community development initiatives are important as well as

taking employee welfare measures. This in turn would result in increase in

shareholder wealth.

Factor 6: Business interests: Managers are also keenly aware of the fact

that in order to contribute to CSR activities, companies must themselves be

profitable. They feel that unless mandated by law, businesses must focus

on their core purpose – making profits.

Hypothesis Result

H1: The favorable CSR towards stakeholders will

positively iimpact the firm’s financial and non financial Accepted

H2: The favorable CSR towards employees will positively

impact the firm’s financial and non-financial performance Accepted

H3: The favorable CSR towards customers and suppliers

will positively impact the firm’s financial and non-financial Accepted

H4: The favorable CSR towards community will positively

impact the firm’s financial and non-financial performance Accepted

H5: The favorable CSR towards environment will positively

impact the firm’s financial and non-financial performance Rejected

H6: There is a positive relationship among CSR towards

various stakeholders and aggregate CSR of the Accepted

H7: There is a positive relationship between size of the

firm and Aggregate CSR Rejected

H8: There is a positive relationship between shareholding

pattern and Aggregate CSR Rejected

8.4 Major Findings

 Indian companies have changed from traditional charity/philanthropy

(donations to charities etc) to Corporate Sustainability or its


 The study revealed that there is a significant positive correlation

between CSR activities towards various stakeholders and the firm

performance, except in case of Environment CSR.

 In the Indian context of inclusive growth, the FIRM as a unit of the

economy has become more inclusive by adopting affirmative action

ie., providing employment opportunities for the disabled, helping in

primary education and health care etc. On the other hand, the

people factor among its key stakeholders has also gained

importance. These include employees ( both permanent and

temporary), suppliers and contractors ( material and labour),

dealers, advertising agencies, visitors and others. It also includes all

those who may not be connected to the business in any way but are

impacted by the negative factors.

 As per the analysis the variables of Aggregate CSR comprising of

Employee CSR, Customer and Supplier CSR, Community CSR and

Environment CSR are closely interlinked, clearly underlying the fact

that there is a complementary relationship among the variables. The

correlation analysis was used to test the relationship. As the

segregate CSR variables increase, the Aggregate CSR variable also

increases, so the hypothesis is accepted.

 The CSR towards each of the stakeholders was positive thus

ensuring that the aggregate CSR was also favourable. This implies

that the companies were following favourable CSR policies towards

all its primary stakeholders.

 The CSR activities in the supply chain are still very low and are

restricted to the monitoring of basic labour standards at suppliers’


 Listed companies are constantly under public scrutiny and therefore

keen to project a positive image in the market. However only a small

percentage of the companies in the sample had a dedicated CSR

department or a CSR foundation.

 Steel and mining companies scored very high on CSR expenditure.

The annual CSR spending in Rs. crores for some of the companies

are: Tata Steel (Rs. 126.28); JSPL (Rs. 72.27); SAIL ( Rs. 64);

Essar Group ( Rs. 50) and JSW Steel (Rs. 25).

 Many companies equated activities such as tree plantation drives,

philanthropic activities, and charitable donations to CSR. This shows

that there is a lack of proper understanding of CSR.

 A CSR budget is also missing in many cases. The work related to

CSR continues to be done out of profits but has never exceeded 1%

of the companies’ profits, whereas the government wishes to

mandate a minimum of 2% of the companies’ profits towards CSR


 Many companies have a skeletal staff for CSR related activities or in

most cases the HR manager also manages the CSR activities. This

shows a lack of intent and commitment on the part of listed


 It was observed that environmental awareness among Indian

companies is still very low and with a few exceptions, companies

are reluctant to spend on environmental protection measures as it

requires huge capital investment on pollution control equipment.

Another reason is that India lacks the environmental activism which

is prevalent in Western countries. NGOs such as Greenpeace are

not very active and the government too has not taken stringent

pollution control measures.

 The size of the company as measured by average assets and the

number of employees and ownership in terms of promoter holding

was examined. It was observed that the size of the firm did not

matter to determine the extent of CSR carried out by the firm. In fact

smaller firms were very focused on their CSR objectives. Larger

companies especially government owned companies scored high on

employee level CSR.

 It was observed from the responses of managers in the Indian listed

companies that personal values of owners and managers were the

main motivating factor for undertaking CSR. This implies that the

CSR initiatives are mainly owner driven and the promoters/owners

values are mirrored in the company’s CSR policies. In certain cases,

where the CSR initiative has been extremely successful, especially

in the spread of computer education programs, providing livelihood

for the differently able persons etc., the government has provided all

support to such companies to carry this initiatives to other areas too.

 An overwhelming majority of the respondents felt that ‘giving

something back to the community’ was the most important and

major motivating force in determining whether companies adopt


 The majority of the respondents felt that CSR should not be

mandatory, but felt that additional financial incentives must be

provided to the private sector for taking up CSR activities.

 The influence of CSR engagement on a company’s economic

performance is mostly reflected in brand value, employee

productivity and cost savings.

 A very interesting fact that came across was that though some

companies were doing exemplary work among the communities and

in environment protection, very few people outside the companies

were aware of this fact. The sentiments of the managers of these

companies were that CSR was being done as a ‘payback’ and

therefore should not be used as a public relations exercise.

 Companies undertake CSR for reasons other than purely for

‘business sense’. There are other factors also that motivate

companies to undertake CSR activities. The responses were

analyzed using principal component analysis. Scree plot and total

variance explained the 17 statements in 6 factors. After evaluating

the correlation matrix and component, 6 factors were identified:

Image building and publicity, legal compliance, stakeholders, good

governance, community orientation and business interests. The

finding of the analysis is that according to the managers’

perceptions, companies want to publicise their CSR activities as it

would help in image building and publicity. The managers also felt

that complying with the laws of the land constitutes CSR. The

respondents also felt that CSR was a major tool for good

governance and creating a positive impact in the communities in

which they operate.

 The empirical findings revealed a complex picture, where on the one

hand, the ‘business case’ was one of the relevant motives for a

company to engage in CSR, only 33% saw it as a pre-condition for

their engagement. These contradictory statements can be explained

by the widespread philanthropic approach.

 The study emphasises the reality of attitude towards CSR in India

where, barring a few companies, CSR is only a marketing or image

building exercise. This is further reiterated by the fact that CSR

activity was handled by a single person who was part of the HR


 Although the multi stakeholder approach to CSR is in its early

stages in India, self regulation is still dominant in Indian businesses.

There are very few interactions with the companies and the civil

society and almost no labour unions are actively engaged in shaping

the CSR agenda.

 Companies are aware that in order to enter global markets, it is

necessary to undertake CSR activities. Also, banks in India have

started factoring the CSR component to arrive at the credit rating

score for companies. This has driven some of the companies to

undertake CSR.

 Managers perceive that CSR activities form a part and parcel of

good governance and also feel that partnerships with NGOs and

experts are essential to successfully implement CSR activities.

 Managers also perceive that contributing to community

development initiatives are important as well as taking employee

welfare measures. This in turn would result in increase in

shareholder wealth.

 Managers are also keenly aware of the fact that in order to

contribute to CSR activities, companies must themselves be

profitable. They feel that unless mandated by law, businesses must

focus on their core purpose – making profits.



9.1 Concluding Comments

9.2 Limitations of the Study

9.3 Recommendations for future research


9.1 Concluding comments

Corporate Social responsibility is strategic when it yields business related

benefits to the firm. This study has focused on the stakeholder approach to

the business approach by linking CSR and firm performance. The first

objective of the firm was to examine the relationship between CSR and

financial and non-financial performance of listed companies in India. The

study found that CSR activities have a positive impact on a firm’s financial

and non-financial performance of firms and it is in the best business

interests of the company to undertake CSR activities. While the correlation

was significant for the CSR activities related to employee, community and

customers and suppliers, it was not statistically significant in case of

Environment CSR.

The proof of the business case for CSR has been reiterated in the study.

The financial benefits outweigh the costs- in the long run at least- to ensure

that CSR engagement is financially sustainable. The Companies with a

reputation for investing in and developing communities are at a competitive

advantage, as they are able to achieve capacity additions and expansions

at a faster pace. It has been seen that though listed companies have to

publish Annual reports, many companies have no constructive and useful

information on CSR activities carried out by the company either in the

Annual Reports or on their official websites. Therefore there is a need to

communicate the CSR activities not only in terms of the themes covered

but also the extent of impact. The overall level of CSR evaluation among

companies is low.

Despite spending significant sums on CSR initiatives and community work,

many companies have not been able to get any resultant benefits. This is

because their CSR spending was not directly linked to driving community

support for their business plan. A vast majority of the companies’ have an

orientation towards community development approach based on the

argument that it needs to “give something back to the community”.

Companies have shown a tendency to concentrate on certain areas of

community development, especially health and education as these are the

more serious challenges faced by Indian communities. These areas of

engagement have a strong public interface which may be beneficial to the


Among Indian companies, the multi-stakeholder approach is still

fragmented and interaction between the business and the civil society is


9.2 Limitations of the study and scope for future research

The report focuses on the level of CSR activities at major Indian

companies. It is restricted to listed companies. The study has focused on

the level of CSR with respect to a few primary stakeholders namely,

employees, community, customers and suppliers and environment. The

CSR activities towards other important internal stakeholders such as

investors have not been covered. Similarly some external stakeholders

such as civil society groups, other companies are also not part of the study.

This study has focused on the relationship between CSR and listed

companies under the BSE 500 index using accounting based measures

only. Future research may investigate whether similar results are obtained

using market based financial measures. Also, studies could be carried out

on a comparative analysis between manufacturing and service industries.

Studies may also look at the influence of age of companies and the level of

CSR activities. Future research may focus on socially responsible investing

which integrates the personal values and societal concerns into investment

decision making.


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Questionnaire used for the survey

Dear Respondent,


My name is Nalini Krishnan and I am a research student of Dr. D.Y. Patil

University, Department of Business Management, Navi Mumbai.

My topic of research is - Study of Corporate Social Responsibility practices among

large enterprises. Corporate Social Responsibility (CSR) is increasingly being seen
as an important strategy for sustainable businesses.

The objective of my research is to understand whether there is a relationship

between corporate social responsibility towards stakeholders and financial
performance. The stakeholders included are employees, customers, communities,
owners and environment.

The term “Corporate Social Responsibility” is defined to include all activities

undertaken by an enterprise going beyond the legal compliance and bringing about
a positive contribution at the workplace, environment, market or community.

I request you to kindly spare a few minutes of your valuable time to fill up the
questionnaire. Your responses would be used only for research purposes and
complete confidentiality would be maintained.

Nalini Krishnan


A. Basic enterprise information ( PLEASE HIGHLIGHT THE APPROPRIATE
A1. Name of the
A2. Address of
the enterprise
A3. Which Chem
industry icals
Pharmace Engine Construct g and
sector does & Paints
uticals ering ion Logistic
your company Fertili
belong to? zers
IT & mer Petroche Any
Cement FMCG
ITES Durable micals Other
A4. Year in which
business was
A5. Form of Private Limited Public Limited Government
organization Company Company Company
A6. How many Less 1000- 5000- 10000- More than
employees than 5000 10000 20000 20000
does your 1000
A7. Has your
oup instituted
a foundation
for CSR
A8. Do you have a
budget for YES NO
CSR activities
A9. If yes, please 2007 2008 2009 2010 2011
mention the
amount spent
on CSR over
the past 5
years (in Rs.
A10. Name of the
A11. Age of the < 35 36-45 46-55 >55
respondent years years
A12. Educational Graduate Post Graduate Doctorate
A13. Respondent’s
A14. Years in <5 years 5-10 years 10-15 years > 15 years
B1. Does your 1 2 3 4 5
organization No Some Partially More than Fully covered
provide cover cover covered partial
health care cover
for the
B2. Does your 1 2 3 4 5
organization None Some Quite a An Fully given
offer bit extreme
subsidized/fr amount
ee lunch or
s to its
B3. Does your 1 2 3 4 5
organization None Some Quite a An Fully given
provide bit extreme
credit for amount
B4. Does your 1 2 3 4 5
organization Never Rarely Someti Most of Always
provide mes the time
ds or
ESOPs to
B5. Does your 1 2 3 4 5
organization Never Rarely Someti Most of Always
sponsor// mes the time
for higher
B6. Does your 1 2 3 4 5
organization No Policy Policy Policy Policy exists
have policy exists but exists exists and and fully
policies for exists not and substantia implemented
the training implement partially lly
and ed impleme implement
development nted ed
B7. Does your 1 2 3 4 5

organization Never Rarely Someti Most of Always
provide mes the time
provided for
(gym, club
B8. Does your 1 2 3 4 5
organization Never Rarely Someti Most of Always
have the mes the time
right to
freedom of
B9. Does your 1 2 3 4 5
organization No Policy Policy Policy Policy exists
have policy exists but exists exists and and fully
promotion exists not and substantia implemented
policies for implement partially lly
women and ed impleme implement
minorities nted ed
B10. Does your 1 2 3 4 5
organization No Policy Policy Policy Policy exists
have policy exists but exists exists and and fully
policies for exists not and substantia implemented
formal implement partially lly
worker ed impleme implement
representati nted ed
on in
B11. Does your 1 2 3 4 5
organization No Policy Policy Policy Policy exists
have policy exists but exists exists and and fully
policies to exists not and substantia implemented
ensure implement partially lly
representati ed impleme implement
on of women nted ed
minorities on
the Board of
C1. How many 1 2 3 4 5
complaints do High Normal Low
you receive Very Very low
related to high
C2. How does your 1 2 3 4 5
organization Very Bad Average Good Very
respond to bad good
C3. Does your 1 2 3 4 5
organization No Policy Policy Policy Policy
have policies on policy exists but exists exists exists
requirement of exists not and and and fully
tenders and implement partially substanti impleme
lowest price ed impleme ally nted
standards while nted impleme
appointing nted
C4. Is your 1 2 3 4 5
organization Not at Very little Some To a Complete
directly involved all extent extent large ly
in providing extent
products to the
C5. Does your 1 2 3 4 5
organization Not at Very little Some To a Complete
have standards all extent extent large ly
and voluntary extent
codes for

D1. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
contribute to es time
religious charities
D2. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
donate to NGOs es time
for social
D3. Does your 1 2 3 4 5
company Never Rarely Sometim Most of the Always
sponsor sports es time
D4. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
encourage es time
volunteering of
employees’ for

D5. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
contribute to es time
D6. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
contribute to es time
disaster relief
D7 Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
contribute to es time
health initiatives
D8. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
contribute es time
promotion of
D9. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of the Always
contribute to es time
E1. Does your 1 2 3 4 5
organization No Policy Policy Policy Policy
have an explicit policy exists but exists exists exists
environment exists not and and and fully
policy implement partially substanti impleme
ed impleme ally nted
nted impleme
E2. Does your 1 2 3 4 5
organization use Never Rarely Sometim Most of Always
renewable es the time
sources of
E3. Does your 0 1 2 3 4 5
organization N No Policy Policy Policy Policy
have a policy of / poli exists but exists exists exists
Recycling and A cy not and and and fully
treatment of exis implement partially substanti impleme
waste ts ed impleme ally nted
nted impleme

E4. Does your 0 1 2 3 4 5
organization N No Very little Some Substant Full
have provision of / pro provision provisio ial provision
environment A visi n provisio
pollution on n
tion systems
E5. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of Always
spread es the time
messages and
E6. Does your 1 2 3 4 5
organization No Policy Policy Policy Policy
have a policy of policy exists but exists exists exists
substitution of exists not and and and fully
polluting and implement partially substanti impleme
hazardous ed impleme ally nted
materials/parts nted impleme
E7. Does your 1 2 3 4 5
organization Never Rarely Sometim Most of Always
provide regular es the time
information about
management to
customers and
E8. Does your 1 2 3 4 5
organization Not at Very little Some To a Complete
have an all extent extent large ly
Environmental extent
emergency plan.
F. SOCIAL RESPONSIBILITY- Which of the following statements define CSR
Strongly Disagree (SD); 2- Disagree (D); 3- Neutral (N); 4- Agree (A); 5-
Srongly Agree (SA)
F1 CSR is the commitment of an enterprise
to strictly abide by the labour and
1 2 3 4 5
environmental laws.
F2 CSR is a set of charity activities carried SD D N A SA
out by the enterprise. 1 2 3 4 5
F3 CSR is a resource intensive and costly SD D N A SA
affair 1 2 3 4 5
F4 CSR is primarily a public relations or a SD D N A SA
marketing exercise 1 2 3 4 5
F5 CSR needs to be strongly promoted by SD D N A SA
government 1 2 3 4 5
F6 Responsible businesses go beyond
what is required by law to make a SD D N A SA
positive impact on the society and 1 2 3 4 5
F7 CSR can be implemented only with the SD D N A SA
assistance of experts 1 2 3 4 5
F8 CSR can lead to increase in profits SD D N A SA
1 2 3 4 5
F9 CSR is a useful guideline for responsible SD D N A SA
governance. 1 2 3 4 5
F10 CSR is a concept aimed at achieving
commercial success in a way that does SD D N A SA
not compromise the well being of its 1 2 3 4 5
employees or the local community.
F11 CSR is a requirement for working with SD D N A SA
global clients 1 2 3 4 5
F12 Enterprises can commit to CSR only if
they get resource assistance from the
1 2 3 4 5
F13 CSR needs to be made mandatory by SD D N A SA
law 1 2 3 4 5
F14 CSR is more relevant for manufacturing SD D N A SA
industries rather than the service sector. 1 2 3 4 5
F15 Engaging in CSR does not compromise SD D N A SA
the pursuit of profit 1 2 3 4 5
F16 Socially responsible activities improves SD D N A SA
the firm’s standing with its investors 1 2 3 4 5
F17 CSR activities could improve a firm’s
standing with banks and help them gain
1 2 3 4 5
access to finance.

G Please indicate the extent to which each of the following factors motivated
your firm to undertake CSR.
G1. Suggestions from 3 4
2 5
third parties 1 To To a
Very little Complet
(Buyers/Competitors Not at all some great
extent ely
) extent extent
G2. Personal values 3 4
2 5
(Owners/Managers) 1 To To a
Very little Complet
Not at all some great
extent ely
extent extent
G3. Religious 3 4
2 5
sentiments(Owners/ 1 To To a
Very little Complet
Managers) Not at all some great
extent ely
extent extent
G4. Improving the image 3 4
2 5
of the company 1 To To a
Very little Complet
Not at all some great
extent ely
extent extent
G5. To give publicity to 1 2 3 4 5
the company Not at all Very little To To a Complet
extent some great ely
extent extent
G6. To give something 3 4
2 5
back to the 1 To To a
Very little Complet
community Not at all some great
extent ely
extent extent
G7. Access to capital or 3 4
2 5
increased 1 To To a
Very little Complet
shareholder value Not at all some great
extent ely
extent extent
G8. To improve 3 4
2 5
business interests 1 To To a
Very little Complet
Not at all some great
extent ely
extent extent
extent of your agreement with the following statements:
Strongly Disagree (SD); 2- Disagree (D); 3- Neutral (N); 4- Agree (A); 5-
Strongly Agree (SA)
H1. CSR has resulted in the reduction of SD D N A SA
operational costs of the company 1 2 3 4 5
H2. CSR has resulted in the improvement SD D N A SA
in exports of the company 1 2 3 4 5

H3. CSR has resulted in increased SD D N A SA

market share of the company 1 2 3 4 5
H4. CSR has resulted in the improved SD D N A SA
reputation of the company 1 2 3 4 5
H5. CSR has resulted in lower employee SD D N A SA
turnover 1 2 3 4 5
H6. CSR has improved the brand
awareness of the products of the
1 2 3 4 5
H7. CSR has resulted in improved SD D N A SA
Government relations 1 2 3 4 5
H8. CSR has made credit and lending SD D N A SA
arrangements easier for the company 1 2 3 4 5
H9. CSR has made entry into new SD D N A SA
markets easier 1 2 3 4 5
I. Other measures: Please rate your organization on the following measures
in relation to the industry norms for the year 2006-11. 1- Well Below
Average; 2 – Below Average; 3- Average; 4- Above Average; 5- Well
above average
2006-07 2007-08 2009-10 2010-11
I1. Sales growth rate
I2. Market Share
I3. Operating profits
I4. Workplace relations
I5. Cash flow from
I6. Return on investment
I7. New product
I8. Market development
I9. Research and
I10. Cost reduction programs
I11. Personnel development
I12. Employee health and


Sector Less 501 – 2001- 5001- Above Total

than 500 2000 5000 10000 10000
Agriculture 1 1 2

Capital Goods 4 3 6 6 19
Chemicals and
3 4 2 2 11
2 2 4
Diversified 2 2

FMCG 2 2

Healthcare 4 3 2 3 12

Housing related 1 1 1 1 4
1 1 3 4 9
Media and
1 1
Metal, metal
products and 2 2 2 6
Miscellaneous 3 2 5

Oil and Gas 4 4

Power 1 1 1 1 4

Telecom 1 2 3

Textile 2 2
2 4 4 10
1 2 3
Tourism 1 1

Total 9 32 23 20 20 104

Table 8.25 (a): Employees distribution(Industry sector wise)


Employee B1 B2 B3 B4 B5 B6 B7 B8 B9 B10 B11

** ** ** ** ** ** ** ** ** **
Pearson Correlation 1 .486 .580 .585 .657 .658 .679 .592 .733 .566 .636 .158
Employee Sig. (2-tailed) .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .108
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** * ** * ** **
Pearson Correlation .486 1 .189 .137 .272 .217 .353 .215 .294 .268 .168 .135
B1 Sig. (2-tailed) .000 .054 .165 .005 .027 .000 .028 .002 .006 .089 .172
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** * ** ** ** ** **
Pearson Correlation .580 .189 1 .479 .242 .258 .305 .295 .357 .299 .153 .061
B2 Sig. (2-tailed) .000 .054 .000 .013 .008 .002 .002 .000 .002 .121 .540
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** ** ** ** ** **
Pearson Correlation .585 .137 .479 1 .349 .375 .188 .257 .286 .325 .184 .084
B3 Sig. (2-tailed) .000 .165 .000 .000 .000 .056 .009 .003 .001 .062 .397
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** * ** ** ** ** ** **
Pearson Correlation .657 .272 .242 .349 1 .597 .473 .271 .401 .177 .510 -.076
B4 Sig. (2-tailed) .000 .005 .013 .000 .000 .000 .005 .000 .072 .000 .440
N 104 104 104 104 104 104 104 104 104 104 104 104
** * ** ** ** ** * ** **
Pearson Correlation .658 .217 .258 .375 .597 1 .405 .216 .381 .186 .480 .147
B5 Sig. (2-tailed) .000 .027 .008 .000 .000 .000 .028 .000 .058 .000 .136
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** ** ** ** ** ** **
Pearson Correlation .679 .353 .305 .188 .473 .405 1 .377 .676 .156 .446 .008
B6 Sig. (2-tailed) .000 .000 .002 .056 .000 .000 .000 .000 .114 .000 .934
N 104 104 104 104 104 104 104 104 104 104 104 104
** * ** ** ** * ** ** ** *
Pearson Correlation .592 .215 .295 .257 .271 .216 .377 1 .546 .309 .233 -.083
B7 Sig. (2-tailed) .000 .028 .002 .009 .005 .028 .000 .000 .001 .017 .401
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** ** ** ** ** ** ** * **
Pearson Correlation .733 .294 .357 .286 .401 .381 .676 .546 1 .214 .505 -.003
B8 Sig. (2-tailed) .000 .002 .000 .003 .000 .000 .000 .000 .029 .000 .974
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** ** ** ** * **
Pearson Correlation .566 .268 .299 .325 .177 .186 .156 .309 .214 1 .268 .124
B9 Sig. (2-tailed) .000 .006 .002 .001 .072 .058 .114 .001 .029 .006 .210
N 104 104 104 104 104 104 104 104 104 104 104 104
** ** ** ** * ** **
Pearson Correlation .636 .168 .153 .184 .510 .480 .446 .233 .505 .268 1 .000
B10 Sig. (2-tailed) .000 .089 .121 .062 .000 .000 .000 .017 .000 .006 .998
N 104 104 104 104 104 104 104 104 104 104 104 104
Pearson Correlation .158 .135 .061 .084 -.076 .147 .008 -.083 -.003 .124 .000 1
B11 Sig. (2-tailed) .108 .172 .540 .397 .440 .136 .934 .401 .974 .210 .998
N 104 104 104 104 104 104 104 104 104 104 104 104
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

Table 8.25 (b) : Correlations among Employee CSR variables

C1 C2 C3 C4 C5 Customer
** ** ** **
Pearson Correlation 1 .994 .988 .895 .960 .791**
C1 Sig. (2-tailed) .000 .000 .000 .000 .000
N 116 116 116 116 116 104
** ** ** **
Pearson Correlation .994 1 .985 .882 .955 .748**
C2 Sig. (2-tailed) .000 .000 .000 .000 .000
N 116 116 116 116 116 104
** ** ** **
Pearson Correlation .988 .985 1 .928 .974 .720**
C3 Sig. (2-tailed) .000 .000 .000 .000 .000
N 116 116 116 116 116 104
** ** ** **
Pearson Correlation .895 .882 .928 1 .976 .154
C4 Sig. (2-tailed) .000 .000 .000 .000 .119
N 116 116 116 116 116 104
** ** ** **
Pearson Correlation .960 .955 .974 .976 1 .603**
C5 Sig. (2-tailed) .000 .000 .000 .000 .000
N 116 116 116 116 116 104
** ** ** **
Pearson Correlation .791 .748 .720 .154 .603 1
Customer Sig. (2-tailed) .000 .000 .000 .119 .000
N 104 104 104 104 104 104
**. Correlation is significant at the 0.01 level (2-tailed).

Table 8.25(c) : Correlations among customer CSR variables

D1 D2 D3 D4 D5 D6 D7 D8 D9 Communit
* * * * * * * *
Pearson .959 .966 .966 .951 .966 .955 .966 .948 **
1 * * * * * * * * .380
D1 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .959 .984 .986 .990 .992 .986 .991 .970 **
* 1 * * * * * * * .526
D2 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .966 .984 .975 .963 .981 .959 .991 .948 **
* * 1 * * * * * * .518
D3 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .966 .986 .975 .989 .995 .992 .985 .977 **
* * * 1 * * * * * .615
D4 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .951 .990 .963 .989 .993 .996 .977 .985 **
* * * * 1 * * * * .622
D5 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .966 .992 .981 .995 .993 .992 .990 .980 **
* * * * * 1 * * * .636
D6 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .955 .986 .959 .992 .996 .992 .975 .986 **
* * * * * * 1 * * .710
D7 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .966 .991 .991 .985 .977 .990 .975 .952 **
* * * * * * * 1 * .578
D8 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * *
Pearson .948 .970 .948 .977 .985 .980 .986 .952 **
* * * * * * * * 1 .679
D9 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 116 104
* * * * * * * * *
Pearson .380 .526 .518 .615 .622 .636 .710 .578 .679
* * * * * * * * * 1
Sig. (2-
y .000 .000 .000 .000 .000 .000 .000 .000 .000
N 104 104 104 104 104 104 104 104 104 104
**. Correlation is significant at the 0.01 level (2-tailed).
Table 8.25 (d) : Correlations among Community CSR variables

E1 E2 E3 E4 E5 E6 E7 E8 Environment
Pearson ** ** ** ** ** ** ** **
1 .980 .987 .980 .980 .978 .982 .990 .831
E1 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.980 1 .996 .993 .989 .995 .985 .996 .669
E2 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.987 .996 1 .995 .993 .996 .988 .996 .729
E3 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.980 .993 .995 1 .996 .998 .982 .990 .786
E4 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.980 .989 .993 .996 1 .996 .990 .988 .745
E5 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.978 .995 .996 .998 .996 1 .985 .991 .855
E6 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.982 .985 .988 .982 .990 .985 1 .989 .777
E7 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.990 .996 .996 .990 .988 .991 .989 1 .819
E8 Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 116 116 116 116 116 116 116 116 104
Pearson ** ** ** ** ** ** ** **
.831 .669 .729 .786 .745 .855 .777 .819 1
Environment Sig. (2-
.000 .000 .000 .000 .000 .000 .000 .000
N 104 104 104 104 104 104 104 104 104
**. Correlation is significant at the 0.01 level (2-tailed).
Table 8.25 (e) : Correlations among Environment CSR variables

Non- e
Finan No. Av (Indus
cial of era try Prom
Perfo Emp ge Adjust oter Aggreg Emplo Custo Commu Environ
rman loye Sal ed Holdin ate yee mer nity ment
Non- Pearso
Financial n - .733(* .230(* .452(** .524(** .283(**
1 .14 .337(**) .163(*)
Performa Correla .143 *) *) ) ) )
nce tion
Sig. (1- .07
. .122 .000 .009 .000 .000 .002 .000 .049
tailed) 4
N 10
104 68 104 104 104 104 104 104 104
No. of Pearso
Employe n .18 -
-.143 1 -.011 -.198 .015 -.004 .039 -.505(**)
es Correla 9 .266(*)
Sig. (1- .06
.122 . .464 .053 .014 .451 .487 .377 .000
tailed) 1
N 68 68 68 68 68 68 68 68 68 68
Average Pearso
Sales n
-.143 .189 1 -.061 -.051 -.030 -.035 -.125 .126 -.064
Sig. (1-
.074 .061 . .269 .304 .380 .361 .104 .101 .258
N 10
104 68 104 104 104 104 104 104 104
Financial Pearso
Performa n
nce Correla .733( - .408(** .561(** .410(**
.06 1 .056 .304(**) .036
(Industry tion **) .011 ) ) )
Sig. (1- .26
.000 .464 . .285 .000 .000 .000 .001 .358
tailed) 9
N 10
104 68 104 104 104 104 104 104 104
Promoter Pearso
Holding n .230( -
.05 .056 1 .152 .190(*) .104 .147 .022
Correla **) .198
Sig. (1- .30
.009 .053 .285 . .062 .027 .147 .068 .414
tailed) 4
N 10
104 68 104 104 104 104 104 104 104
Aggregat Pearso
- -
e CSR n .452( .408(* .723(** .623(**
.266 .03 .152 1 .646(**) .719(**)
Correla **) *) ) )
(*) 0
Sig. (1- .38
.000 .014 .000 .062 . .000 .000 .000 .000
tailed) 0
N 10
104 68 104 104 104 104 104 104 104
Employe Pearso
e CSR n .524( .561(* .190(* .723(** .547(**
.015 .03 1 .413(**) .191(*)
Correla **) *) ) ) )
Sig. (1- .36
.000 .451 .000 .027 .000 . .000 .000 .026
tailed) 1
N 10
104 68 104 104 104 104 104 104 104
Customer Pearso
CSR n .283( - .410(* .623(** .547(**
.12 .104 1 .370(**) .200(*)
Correla **) .004 *) ) )
Sig. (1- .10
.002 .487 .000 .147 .000 .000 . .000 .021
tailed) 4
N 10
104 68 104 104 104 104 104 104 104
Communi Pearso
ty CSR n .337( .12 .304(* .646(** .413(** .370(**
.039 .147 1 .168(*)
Correla **) 6 *) ) ) )
Sig. (1- .10
.000 .377 .001 .068 .000 .000 .000 . .044
tailed) 1
N 10
104 68 104 104 104 104 104 104 104
Environm Pearso
- -
ent CSR n .163( .719(**
.505 .06 .036 .022 .191(*) .200(*) .168(*) 1
Correla *) )
(**) 4
Sig. (1- .25
.049 .000 .358 .414 .000 .026 .021 .044 .
tailed) 8
N 10
104 68 104 104 104 104 104 104 104
** Correlation is significant at the 0.01 level (1-tailed).
* Correlation is significant at the 0.05 level (1-tailed).


Ownership type No. Of Companies

Government Owned 32

Private Sector 72

Total 104

Table 8.25 (g): Ownership of companies

Factor Analysis

Initial Extraction
F1 1.000 .705
F2 1.000 .851
F3 1.000 .590
F4 1.000 .679
F5 1.000 .676
F6 1.000 .629
F7 1.000 .665
F8 1.000 .575
F9 1.000 .602
F10 1.000 .722
F11 1.000 .594
F12 1.000 .729
F13 1.000 .668
F14 1.000 .401
F15 1.000 .601
F16 1.000 .720
F17 1.000 .672
Extraction Method: Principal Component Analysis.

Table 8.25 (h) : Communalities

Rotated Component Matrix (a)

1 2 3 4 5 6
F1 -.028 .744 .194 -.181 -.050 .278
F2 .173 -.060 -.101 -.893 .098 .023
F3 .656 .175 -.235 .188 .028 .194
F4 .783 .065 .171 -.124 .081 -.100
F5 .185 .782 .055 .144 -.080 .001
F6 .011 .078 -.499 .447 .413 -.062
F7 .436 .378 -.160 .452 .114 .299
F8 -.052 .720 .174 .110 -.014 -.106
F9 -.511 .280 -.125 -.348 .331 .131
F10 -.048 .272 .364 .145 .436 -.550
F11 -.045 .403 .635 .012 .090 .134
F12 .741 -.156 .152 -.141 -.068 .330
F13 .091 .181 .302 .049 .083 .726
F14 .478 .263 -.123 .085 -.263 -.107
F15 -.736 .027 .007 .128 .204 -.025
F16 -.175 -.164 .004 -.075 .811 .007
F17 .077 .126 .801 .071 -.005 .053
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser
a Rotation converged in 13 iterations.
Table 8.25 (i) Rotated Component matrix

Factor Analysis - Factor Loading <0.40 suppressed


Initial Extraction
F1 1.000 .705
F2 1.000 .851
F3 1.000 .590
F4 1.000 .679
F5 1.000 .676
F6 1.000 .629
F7 1.000 .665
F8 1.000 .575
F9 1.000 .602
F10 1.000 .722
F11 1.000 .594
F12 1.000 .729
F13 1.000 .668
F14 1.000 .401
F15 1.000 .601
F16 1.000 .720
F17 1.000 .672
Table 8.25(j): Communalities Extraction Method: Principal Component Analysis.

Total Variance Explained

on Extraction Sums of Squared Rotation Sums of Squared
ent Initial Eigenvalues Loadings Loadings
% of
% of Cumulativ Varian Cumulativ % of Cumulativ
Total Variance e% Total ce e% Total Variance e%
1 3.362 19.775 19.775 3.362 19.775 19.775 2.931 17.239 17.239
2 2.640 15.532 35.307 2.640 15.532 35.307 2.356 13.859 31.098
3 1.758 10.343 45.650 1.758 10.343 45.650 1.762 10.364 41.463
4 1.178 6.930 52.580 1.178 6.930 52.580 1.516 8.917 50.379
5 1.126 6.622 59.202 1.126 6.622 59.202 1.297 7.632 58.011
6 1.015 5.970 65.172 1.015 5.970 65.172 1.217 7.160 65.172
7 .867 5.098 70.270
8 .826 4.857 75.126
9 .736 4.332 79.458
10 .673 3.958 83.416
11 .621 3.653 87.070
12 .579 3.404 90.474
13 .448 2.638 93.111
14 .407 2.392 95.503
15 .337 1.983 97.486
16 .235 1.382 98.868
17 .192 1.132 100.000
Table 8.25 (k) Extraction Method: Principal Component Analysis.

Component Matrix (a) Unrotated: Loadings <0.4 suppressed

1 2 3 4 5 6
F1 .605
F2 -.598 .476
F3 .622
F4 .642
F5 .540 .498
F6 .718
F7 .587 .480
F8 .628
F9 .410 .504
F10 .479 .482
F11 .619
F12 .635 -.421
F13 -.582
F14 .517
F15 -.615 .430
F16 .707
F17 .425 -.406 -.424
Table 8.25 (l) Extraction Method: Principal Component Analysis. 6 components

Rotated Component Matrix (a)

1 2 3 4 5 6
F1 .744
F2 -.893
F3 .656
F4 .783
F5 .782
F6 -.499 .447 .413
F7 .436 .452
F8 .720
F9 -.511
F10 .436 -.550
F11 .403 .635
F12 .741
F13 .726
F14 .478
F15 -.736
F16 .811
F17 .801
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser
a Rotation converged in 13 iterations.
Table 8.25 (m) : Principal component analysis – Extraction method

S.No. Name of the Company
1. Abbott India Ltd.

2. Aditya Birla Nuvo Ltd.

3. Akzonobel Ltd

4. Allcargologistics Ltd

5. Ambuja Cement Ltd.

6. Apollo Tyres Ltd

7. Arshiya International Ltd

8. Asahi India Ltd.

9. Ashok Leyland Ltd.

10. Asian Paints Ltd.

11. Atlas Copco Ltd.

12. Bajaj Auto Ltd.

13. Bajaj Electricals Ltd.

14. BASF Ltd.

15. Bayer India Ltd.

16. Bharat Forge Ltd.

17. Bharat Petroleum Ltd.

18. Bhushan Steel Ltd.

19. Blue Dart Ltd.

20. Bombay Dyeing Ltd.

21. Cairn India Ltd

22. CIPLA Ltd.

23. Clariant Chemicals Ltd.

24. CMC Ltd.

25. Coal India Ltd.

26. Cognizant Technologies

27. Crompton Greaves

28. Cummins Ltd

29. Deepak Fertilizers Ltd.

30. Eicher Motors Ltd.

31. Engineers India Ltd.

32. Ess Dee Aluminium

33. Exide Industries Ltd.

34. Finolex Industries Ltd.

35. Gitanjali Gems

36. Glaxo Smithkline

37. Glenmark Pharmaceuticals

38. Godrej Consumer Products Ltd.

39. Godrej Industries Ltd.

40. Godrej Properties Ltd.

41. Graphite India Ltd.

42. Grasim Industries

43. Great Eastern Shipping Ltd.

44. GTL Infrastructure

45. HCC Limited

46. HCL Infosystems Ltd

47. Hewlett Packard

48. Hindalco Industries Ltd.

49. Hindustan Copper Ltd.

50. Hindustan Insecticides Ltd.

51 Hindustan Organics Ltd.

52. ICI Limited

53. Idea Cellular

54. ITC Ltd.

55. Jagran Prakashan Ltd.

56. Jindal Poly

57. Jindal Saw Ltd

58. Jindal Steel and Power Ltd.

59. JSL Stainless Steel Ltd.

60. JSW Energy

61. JSW Ispat Steel Ltd.

62. Jubilant Lifesciences Ltd

63. KEC International Ltd.

64. Kirloskar Oil Engines Ltd.

65. KPIT Cummins

66. Larsen and Toubro Ltd.


68. Mahindra and Mahindra Ltd.

69. Mahindra Holidays and Resorts Ltd

70. Mahindra Sona Ltd

71. Mahindra Ugine Ltd.

73. Mangalore Refinery & Petroleum Ltd.

74. MARICO Ltd.

75. Nerolac Paints Ltd.

76. Nitin Fire Protection systems ltd.

77. Nuclear Power Corporation Ltd.

78. ONGC Ltd.

79. Patni Computer Systems Ltd.

80. Petronet LNG

81. Pfizer Ltd.

82. Power Grid Corporation

83. Praj Industries Ltd.

84. Prakash Industries Ltd.

85. Rashtriya Chemicals and Fertilizers Ltd.

86. Reliance Industries Ltd.

87. Shipping Corporation of India Ltd

88. SIEMENS Ltd.

89. SKF Ltd.

90. Sterlite Industries Ltd.

91. Sterlite Technologies Ltd.

92. Sun Pharma Ltd

93. Tata Chemicals Ltd.

94. Tata Coffee Ltd.

95. Tata Motors Ltd.

96. Tata Steel Ltd

97. Tata Tea Ltd.

98. Tata Power Co. Ltd

99. Tech Mahindra

100. Thermax Ltd.

101. Ultratech Cement

102. Welspun

103. WIPRO

104 Wockhart Foundation