CHAPTER I

INTRODUCTION
 CHAPTER I

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The modern corporation is an institution of enormous economic power and social impact.
Corporations have grown in size and numbers all over the world because of their ability to
mobilize productive resources and create new wealth. The evolution of the corporation has given
rise to new opportunities and challenges that require a redefinition of the corporation and its
objectives.

The legitimacy of the corporation as an institution or its ‘license to operate’ within society depends
not only on its success in wealth creation but also on its ability to meet the expectations of diverse
constituents which contribute to its existence and success. These constituents and interest are the
corporation’s stakeholders –resource providers, customers, suppliers, alliance partners and social
political actors. Consequently, the organization must be seen as an institution engaged in mobilizing
resources to create wealth and benefits for all its stakeholders. (Post. Lee, Preston 2002)

As concerns about the broad impacts of business on society has increased, there has been an
explosion in the Corporate Social Responsibility practices in relation to social, environmental,
cultural and ethical practices. Corporate Social Responsibility (CSR) can be described as the
continuous commitment by corporations towards the economic and social development of society
in which they operate.

In recent years, scholars and managers have devoted greater attention to the strategic implications
of Corporate Social Responsibility. However, the idea of Corporate Social Responsibility is not
new. Business, through the ages, demonstrated varying degrees of responsibility to the society.
Corporate Social Responsibility is the debt that corporates owe to the society and which needs
to be repaid. It is more of a social obligation as to how the corporate relate to their customers,
employees, suppliers, society and also towards the environment from which they use various
resources for their profits.

Corporate social responsibility is that ‘companies integrating social and environmental concerns
in their daily business operations and in their interaction with their stakeholders on a voluntary
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basis.’ [European Commission promoting a European framework for Corporate Social
Responsibility]. Similarly the UK Department of Trade and Industry (DTI) regards Corporate
Social Responsibility as “involving business looking at how to improve the social cohesion,
environmental and human rights, fair trade and the ways by which fairness can be established.”

Concern for business to contribute towards social prosperity has always persisted since the days
of Aristotle who reckoned the need for business to reflect the interests of the society in which
their operations are based (Solomon, 1999:83). Dr. Manmohan Singh (2007), then Prime Minister
of India says, “Corporate Social Responsibility is not philanthropy. It is not charity. It is an
investment in our collective future.”

People live in a society and everyone is part of the social organization. A business organization
does not operate in vacuum. Business is wholly dependent on society. It can only thrive in well-
organized societies where individuals cannot, themselves, produce all their needs and wants.
Thus, a stable and well-organized society fundamentally makes it possible for people to engage
in business. It is on this basis that social activists have strongly argued that the business community
ought, in return, show concern to the society that sustains an ideal environment for profit making.
Corporate Social Responsibility is part of an international drive towards transparency and
accountability of business activities and a way of monitoring how businesses perform against
environmental, ethical and social indices in the profit making process.

One view sought regulations to protect society and environment, and that the priority of
companies should be to make profit within these regulations. In contrast, others argued that
companies not only should have a responsibility to their shareholders, but also to their other
stakeholders.

1.2 EVOLUTION OF THE CONCEPT OF CORPORATE SOCIAL

RESPONSIBILITY

There is an impressive history associated with the evolution of the concept and definition of
Corporate Social Responsibility. The general understanding of the term, ‘Corporate Social
Responsibility’, is that business has an obligation to society, which extends beyond its narrow
obligation to its owners or shareholders. This idea has been discussed throughout the twentieth
century, but it was Howard R. Bowen’s book ‘Social Responsibilities of Businessman’ published

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in 1953, which was the origin of modern debate on the subject. Since then, the topic of corporate
social responsibility has been explored extensively. Bowen reasoned that there would be general,
social and economic benefits that would accrue to society, if business recognized its broader
social goals in its decisions.

Developmental History of Corporate Social Responsibility

The developmental history comprises three phases: (1) rise and extension; (2) decline and
absorption; (3) and a revival of the concept. Although responsibility rhetoric remains, the
responsibility construct has tended to evaporate under criticism of its alleged vagueness and
internal inconsistency (Levitt, 1958; Friedman, 1962, 1970). What Carroll (1999, p. 268) calls
‘alternative themes’ have succeeded that construct in academic circles, corporate social
performance, stakeholder theory, and business ethics approaches. In managerial circles global
corporate citizenship and stakeholder stewardship rhetoric focused in practice on an emerging
economic theory of profitable ‘responsibility’. The academic context of this developmental history
is conceptually and empirically disparate. Business and society studies comprise a very loose
affiliation of several research and teaching streams. While partly overlapping, these streams do
not organize around any widely accepted core paradigm (Preston, 1975). These streams generally
include business ethics, corporate social performance, environmental protection, global corporate
citizenship, international policy regimes, public policy (i.e., business-government relations), and
stakeholder agreement theory.

The Progressive Era

Adam Smith (1776, Book 4,Ch.2) pronounced explicitly that economic self-interest is typically
a more reliable path to social welfare improvement than affecting to act for the public interest.
Responsibility and responsiveness emerged out of Progressivism. The Progressive reform
movement emerged in the U.S. at the turn of the century. Progressivism was more “the common
spirit of an age rather than an organized group or party” (Tindall, 1988, p. 941). While the
modern terminology did not develop until after World War II, business leaders have since the
1920s widely adhered to some conception of responsibility and responsiveness practices.
However, they did so as both business apologetics and business methods for defusing conflict
with potentially influential interest groups. Drucker (1999) states that managerial balancing of
stakeholder interests dates to the 1920s. Freeman (1984), in his seminal book founding
stakeholder theorizing, conceded that, despite strictly product-market theories of efficiency and
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effectiveness, “Business has always dealt with non-market-place stakeholders” (p. 28).
(Mitchell,1989) “traced the emergence of corporate social responsibility in the 1920s as an
ideological movement intended to legitimize the power of large corporations” (Oberman, 2000),
(Carnegie,1900) preached essentially, “riches oblige” (labeled here in imitation of “noblesse
oblige”). But this philanthropy occurred after retirement from the competitive race for personal
opportunities played without legal or moral restraints (Chernow, 1999).

Modern Era

The modern “mixed economy” is a blend of more and less regulated industries, leaving a large
role for government (Bowen, 1953). Corporate Social Responsibility had already shown
considerable interest in the 1960s and 70s, spawning a broad range of scholarly contributions
(Cheit, 1964; Heald, 1970; Ackermannand Bauer, 1976; Carroll, 1979), and a veritable industry
of social auditors and consultants. Increasingly, up to the 1970s the understanding of Corporate
Social Responsibility focused on companies’ obligation to work for social betterment. However,
since the 1970s focus shifted to social responsivess - in other words, the capacity of organizations
to respond to social pressures. With the change in the managerial approach, Corporate Social
Responsibility has now developed and become more mainstream and leadership roles for initiating
a wide variety of Corporate Social Responsibility activities have been crystallized and highlighted.
However, the topic vanished from most managers’ minds in the 1980s (Dierkes &Antal, 1986;
Vogel, 1986) and only re-emerged in nineties. With a wide range of contributions [(Wood, Donna
J. (1991), Gopalakrishna (1992), Frooman (1997), Reed, Darryl (1999), Pushpa Sunder (2000),
McWilliams and Siegel, (2000), Michael Hopkins (2003), Donald (2007) Matten and
JeremyMoon (2008), Field, David, (2009)] towards corporate social responsibility.

1.3 DEFINITIONS OF CORPORATE SOCIAL RESPONSIBILITY

Like many of management and social science definitions, Corporate Social Responsibility is
fraught with definitional problems, which makes it difficult for a uniform platform to assess firms’
responsiveness to it.

Defining Corporate Social Responsibility is not easy. First, this is because Corporate Social
Responsibility is an “essentially contested concept,” being considered as valued “internally complex,”
and having relatively open rules of application (Moon, Crane, and Matten, 2005:433–434).

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Second, Corporate Social Responsibility is an umbrella term overlapping with some, and being
synonymous with other conceptions of business-society relations (Matten and Crane, 2005).
Third, it has clearly been a dynamic phenomenon (Carroll, 1999).

Definitions were expanded during the 1960s and proliferated during the 1970s. In the 1980s,
there were fewer new definitions, more empirical research, and alternative themes began to mature.
These alternative themes included corporate social performance, stakeholder theory, and business
ethics theory. In the 1990s, Corporate Social Responsibility continues to serve as a core construct
but yields to or is transformed into alternative thematic frameworks (Caroll, 1979). In the early
periods of 2000s and of late Corporate Social Responsibility remains an emerging and elusive
idea for academics and a contested issue for business managers and their stakeholders.

Owing to the range of contrasting definitions, the notion of Corporate Social Responsibility has
led to the emergence of a variety of practices (Freeman 1984; Crane and Matten 2004; Welford
2004; Habisch and Jonker 2005; Fairbrass et al 2005; Moon, Siegel, 2008; Lockett, Moon,
and Visser, 2006). In brief, the concept of Corporate Social Responsibility has evolved
considerably since it first emerged in the 1950s (Carroll 1999; Freeman 1984:38; Carroll and
Beiler 1977; Sturdivant 1977). As a result there appears to be disagreement about what the term
means, whether it should be implemented, how or why it should be implemented (Welford 2004;
Stigson 2002).

At the core, Corporate Social Responsibility is the idea that reflects the social imperatives
and the social consequences of business success. Thus, Corporate Social Responsibility
empirically consists of clearly articulated and communicated policies and practices of
corporations that reflect business responsibility for some of the wider societal good. Yet, the
precise manifestation and direction of the responsibility lie at the discretion of the corporation.
Corporate Social Responsibility is therefore differentiated from business fulfilment of core
profit-making responsibility and from the social responsibilities of government (Friedman, 1970).

Bowen (1953), set forth an initial definition of the social responsibility of businessmen is one of
the early contributors on the concept, conceived Corporate Social Responsibility as business
policies and decisions, which give values to the society. “It refers to the obligations of businessmen
to pursue those policies to make those decisions or to follow those lines of action which are
desirable in terms of the objectives and values of our society” He argued that social responsibility
is no panacea, but it is an important value that must guide business in the future.
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Another early proponent of social responsibility, Frederick (1960), defines social responsibility
as the use of society’s resources; economic and human, in such a way that the whole society
derives maximum benefits beyond the corporate entities and their owners.

Keith Davis (1960), set forth his definition of social responsibility by arguing that it refers to
“businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct
economic or technical interest”. He asserted that some socially responsible business decisions
can be justified by a long, complicated process of reasoning as having a good chance of bringing
long run economic gain to the firm, thus paying it back for its socially responsible outlook. His
“Iron Law of Responsibility” held that “social responsibilities of businessmen need to commensurate
with their social power”. He further took the position that if social responsibility and power were
to be relatively equal, then the avoidance of social responsibility leads to gradual erosion of social
power on the part of businesses.

Joseph W. McGuire stated, “the idea of social responsibility supposes that the corporation has
not only economic and legal obligations but also certain responsibilities to society which extend
beyond these obligations”. He later elaborated by saying that the corporation must take an interest
in politics, in welfare of the community, in education, in the happiness of its employees and in fact
in the whole social world.

A landmark contribution to the concept of Corporate Social Responsibility came from the
Committee for Economic Development (CED), which observed, “a business functions by public
consent and its basic purpose is to serve constructively the needs of society to the satisfaction of
society”. The CED noted that the social contract between business and society was changing in
substantial and important ways – Business is being asked to assume broader responsibilities with
respect to society than ever before and to serve a wider range of human values. Business
enterprises, in effect, are being asked to contribute to the quality of life rather than just supplying
quantities of goods and services. In as much as business exists to serve society, its future will
depend on the quality of management’s response to the changing expectations of the public
(CED, 1971). According to Votaw (1972), social responsibility may also refer to an obligation,
a liability, social consciousness, corporate legitimacy, charitable contributions, “do goodism”,
managerial enlightenment and so on.

Carroll (1979) defines corporate social responsibility as the entire range of obligations a business
owes to society, and it encompasses the economic, legal, ethical and discretionary expectations
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that society has of organization at a given point in time. A good corporation is one, which
“Voluntarily shares its market power and resultant pecuniary gains and thereby yields accountability
for its action and performance with those groups- who have been adversely affected by the
power.”

According to the Canadian Center for Philanthropy, Corporate Social Responsibility is “a set of
management practices that ensure the company minimizes the negative impacts of its operations
on society while maximizing its positive impacts”. This definition provides the link between the
decisions tied to the social responsibility and the business derived from the respect of the lawyer
instruments, the population, the communities, and the environment.

‘The European Commission with the Green Paper –Promoting a European framework for
Corporate Social Responsibility’(July 2001) better defines the concept of Corporate Social
Responsibility as “a concept whereby companies integrate social and environmental concerns in
their business operations and in their interaction with their stakeholders on a voluntary basis.
Being socially responsible means not only fulfiling legal expectations, but also going beyond
compliance and investing ‘more’ into human capital, the environment and the relations with
stakeholders”. The word “more” is underlined also in the original version of the document: in this
way the European Commission wants to emphasize the lack of consideration for the different
cooperating actors highlighting, for the future, the urgency of a severe increase of the sensibility
and the cures and, at the same time, encouraging the enterprises to the investment in social
responsibility as a vehicle for the best competitiveness and enlargement.

Patricia Ditzler (1983) defined Social Responsibility as a voluntary expenditure or activity by a

corporation with charitable intent, for which marginal returns are less than those available from
other alternative activities. According to Donna Wood (1994) corporate social responsibility
means “a business organization’s configuration of principles of social responsibility, processes of
social responsiveness and observable outcomes as they relate to the firm’s societal relationships.”

Backman (1975) considers social responsibility as other stated objectives by business, which
are not directly related to economic, but rather address its negative externalities, improve
employee’s conditions and the societal quality life.

The World Business Council for Sustainable Development (WBCSD, 1998, p. 3) at its first
dialogue in 1998 conceived Corporate Social Responsibility as the continuing commitment by

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business to behave ethically and contribute to economic development while improving the quality
of life of the work force and their families as well as of the local community and society at large.
More recently (WBSCD, 2000), the working group of the council convened series of global
stakeholder dialogues and modified their earlier definition to include sustainable development.

According to Michael Hopkins (2003), Corporate Social Responsibility is concerned with treating
the stakeholders of the firm ethically or in a responsible manner. ‘Ethically or responsible’ means
treating stakeholders in a manner deemed acceptable in civilized societies. Social includes economic
and environmental responsibility. Stakeholders exist both within a firm and outside. The wider
aim of social responsibility is to create higher and higher standards of living, while preserving the
profitability of the corporation, for people both within and outside the corporation.

Jones cites the UK government’s Department of Trade and Industry-sponsored Corporate

Responsibility Group who defined Corporate Social Responsibility as: the management of an
organization’s total impact upon both its immediate stakeholders and upon the society within
which it operates. Corporate Social Responsibility is not simply about whatever funds and expertise
companies choose to invest in communities to resolve social problems, it is about the integrity
with which a company governs itself, fulfils its mission, lives by its values, engages with its
stakeholders, measures its impacts and reports on its activities.

Corporate Social Responsibility is about the way businesses take account of their economic,
social and environmental impacts in the way they operate - maximizing the benefits and minimizing
the downsides.

1.4 IMPORTANCE OF CORPORATE SOCIAL RESPONSIBILITY

Corporates interact with society in many ways. They invest in facilities, produce and sell products,
employ people and subcontract or in-source many activities. They also have an impact on the
environment by the nature of their activities, by using valuable resources, or creating by-products,
which influence the physical environment. Their interaction with society is through their employees
and the many facets of society around them. Further, corporates may act explicitly as responsible,
for either emotional reasons or business purposes.

As the organization is a part of the society, it cannot function in isolation. So there is an obligation
and responsibility from the part of the corporate to take action that protects and improves the

8
welfare of society as a whole along with their own interest (Keith Davis, 1975. The society plays
a pivotal role in the success of any organization. Hence, no organization can achieve long-term
success without fulfilling the responsibility towards the society.

Originally, businesses were seen strictly as economic entities with the primary responsibility for
producing goods and rendering services required by a society. This is the classical view held by
Milton Friedman and Hayek, Theodore Levitt and others. According to Friedman (1971)
“Corporate social responsibility is beyond the basic purpose of business and violates the
responsibility of business to its owners, the stockholders”. However, over time, business came to
see their role in broader perspectives.

With the business environment being characterized by various developments including the shift of
power from capital to knowledge, increased levels of literacy and the shrinking of 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.

An organization receives inputs from society in the form of skilled / unskilled labor, raw material
and natural resources, and, in turn, offers goods and services to society. Thus, businesses depend
on society further existence and it is in their interest to take care of society. Businesses cannot
operate or in vacuum. Like individuals, businesses also need to live in the real world, i.e., in
society.

Corporate Social Responsibility involves a commitment by a company towards the sustainable

economic development of the society. It means engaging directly with local communities, identifying
their basic needs, and integrating their needs with business goals and strategic intend. The
government perceives CSR as the business contribution to the nation’s sustainable development
goals. Essentially, it is about how business takes into account the economic, social and
environmental impact of the way in which it operates. Simply stated, CSR is a concept, which
suggests that commercial corporations must fulfill their duties of providing care to the society.

According to Goyder (1951), industry in the twentieth century can no longer be regarded as
private arrangement for enriching shareholders. It has become a joint enterprise in which workers,
management, consumers, the local government and trade union officials, all play a part. Goyder
pleaded that business has to be accountable to the public at large and he sought to equate the

9
suggestion of a responsible company with the trusteeship concept advocated by Gandhiji, the
aim of which is to ensure that private property is used for the common good.

Business today is realizing that the world is not made up of strangers. There is a human bondage.
There are customers, employees, suppliers of goods, shareholders and the competitors. Most
firms today recognize and realize that they have obligations to the society that extend beyond
economic performance. This concept came to be known as “corporate social responsibility”.
Thus, the business has an obligation to consider the impact of its activities on all stakeholders
who constitute broader segments of society.

The managers of large corporations and smaller businesses came to realize that they have
responsibilities that extend beyond their own stockholders to a wide range of parties dependent
on or affected by corporate performance. These parties are known as stakeholders. Freeman’s
(1984) classic definition of stakeholders, arguably the most popular definition cited in the
literature (Kolk and Pinske 2006), proposed that stakeholders are ‘any group or
individual who can affect or is affected by the achievement of a corporation’s purpose’. In
addition to a company’s shareholders, its stakeholders include its employees, the communities in
which it operates, suppliers, customers, government and society at large.

In the opinion of Davis Blomstorm (1975), it is the obligation of decision makers to take actions
that protect and improve the welfare of society as a whole along with their own interest. Protecting
and improving are two aspects of social responsibility. “To protect” implies avoiding negative
impact on society, whereas “to improve” implies creating positive benefits for society.

The business class should render their support to the general people. If they will be uplifted
socially and economically, the productivity of the corporate is also bound to increase. The
Corporates are to act according to the environmental factors given in Fig.1.1 like social, legal
and ethical environment.

As per the above figure Corporate Social Responsibility is an obligation of the organization to act

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 Corporates

Social Environment Legal Environment Ethical Environment

• Shareholders • Law • Moral Theories

• Customers
• Government • Moral Values and
• Employees
• Creditors Judgments
• Suppliers of Goods • Ethical Standards
• Society at Large

Figure 1.1 Corporates and Environmental Factors [Source: Sethi (1991),

Carroll (1993), Shivaramu (1998)]

in a way that serves both its own interests and interests of its many external communities and
environmental factors such as social environment including customers, employees, creditors,
suppliers of goods, society and legal environment comprises of state and local governments. To
get successful results the corporate should hold moral values and judgments and ethical standards.

Corporate is not merely profit making institution. They have a responsibility to help society to
overcome problems of the business. One of the areas in which corporate social responsibility has
to be practiced by corporate are health, - environmental issues, education, community, promotion
of art and culture and climate change. The following figure 1.2 shows clearly some of the practices
expected from corporates as their social responsibility towards society at large.

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 Health

General Environment
CORPORATE
SOCIAL
RESPONSIBILITY
TOWARDS
Promotion of PUBLIC
Education
Art and Culture

Community

Figure 1.2: Corporate Social Responsibility towards the society at large

(Adapted from Kamatchi. P, 2002)

1.5 BUSINESS AND SOCIAL RESPONSIBLITY

Business plays a significant role in economic, social, political and technological affairs. So business
owes responsibilities to all segments of society. Wealth of a country is to a great extent controlled
by business. This gives business and its executives “enormous power” to affect the lives of
employees, consumers, shareholders, etc.

Business is a part of the total environment in which we live, being influenced by it, while being a
force in influencing it. The relationship between business and its environment is one of mutual
benefits - as explained below in figure 1.3 both take from and give to various segments. Only
through such a relationship can a business survive and prosper.

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 Social Political
System System

Business

Technological Economic
System System

Figure 1.3 Business and the total environment (Porter and Kramer 2006)

Modern business has acquired a sense of social responsibility to society in general and to its
different segments in particular. The objective of business is to balance the conflicting claims of
‘stakeholders’. Business is not to confine to productive or commercial activities as its social
concern, but it has to take into account social problems, which arise due to its activity.

Business and its Stakeholders

The concept of stakeholder highlights the fact that corporate activity is not solely a set of market
transactions, and also incorporates a cooperative and competitive endeavor that involves a large
number of people organized in various ways. The corporation is an entity through which many
individuals or groups of people try to achieve their ends (Boatright 2003). Freeman and Reed
(1983) distinguish two senses of the word stakeholder. The ‘narrow definition’ includes group
that are vital to the survival and success of the corporate, while the ‘wide definition’ includes any
group or individual that it can affect, or be affected by (according to Beaauchamp and Norman
2001). Freeman (1984) presented a stakeholder map of the organization as shown in Figure 1.4.

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 Share holders

Government and
Employees
Regulators

Suppliers of
Business Customers
goods, Creditors
and Dealers

Local
Competitors
Community

Society at
Large

Figure 1.4 The Stakeholder map of an organization: adapted from (Freeman 1984)

The business is to restore its reputation as a friend, not as an enemy of progress around the
world. Doing no harm goes beyond the meeting of legal requirements regarding the environment,
conditions in community relations and ethics. The law always lies behind the best practice. Business
needs to take the lead of areas such as environmental and social sustainability instead of forever
letting it be pushed into the defensive.

In the words of Dave Packard in Harvard Business Review on Corporate Responsibility, “many
people assume wrongly that a company exists simply to make money and Corporate Social
Responsibility as business success. Corporate Social Responsibility is considered to be an
important aspect of business success– through efficient resource management, environment
protection, employment and eco-friendly atmosphere, etc.”

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1.6 CONCEPTUAL FRAMEWORK

CSR DIMENSIONS
ORGANIZATION
Stakeholder value CULTURE
DIMENSIONS
Priority areas Ability utilization BUSINESS ETHICS
Growth and DIMENSIONS
Implementation structure
Innovation
Business Ethics Attitude
Organizational benefit Helping Behavior
Low Stress Business Ethics Practice
Prompted initiation
Personalized relationship
Problem emphasis Individual Dignity and Goal
Achievement
Decision makers
Bureaucracy
Review activities Shared Outlook

Future plans

SOCIO ECONOMIC
VARIABLES
Duration of establishment
Age
Gender
Marital Status
Education
Total Experience
Experience with present
Organization
Monthly Self Income
Total Family Income

Figure 1.5 Conceptual Corporate Social Responsibility – Organizational culture –

Business Ethics Linkage model

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The Conceptual Frame Work shown in the Figure 1.5 explains the linkage between the dependent
variable Corporate social Responsibility and the independent variables Organization Culture,
Business Ethics and Socio Economic variables. Corporate social Responsibility the dependent
variable comprises of nine dimensions such as Stakeholder value, Priority areas, Implementation
structure, Organizational benefit, Prompted initiation, Problem emphasis ,Decision makers, Review
activities and Future plans. The independent variable Organization Culture highlights eight
dimensions such as Ability Utilization, Growth and Innovation, Helping Behavior, Low Stress,
Personalized Relationship, Individual Dignity and Goal Achievement, Bureaucracy and Shared
Outlook. Similarly Business Ethics analysis through two dimensions such as Business ethics
attitude and Business ethics practice. The framework also establishes relationships between the
Socio Economic variables such as duration of establishment, age, gender ,marital status, education,
total experience, experience with present organization, monthly self income and total family
income of the respondents with the variables of Corporate social Responsibility ,Organization
Culture and Business Ethics.

1.7 CORPORATE SOCIAL RESPONSIBILITY THEORIES AND MODELS

1.7.1 THE STAKEHOLDER THEORY

The most relevant model that one could think of when analysing Corporate Social Responsibility
is the well-known and accepted Stakeholder Theory. In essence it proposes that a company
needs to take into account the interests and views most if not, all of its stakeholders in order to be
accepted and to be successful in the market place.

Freeman’s (1984) classic definition of stakeholders, arguably the most popular definition cited in
the literature (Kolk and Pinske, 2006) proposed that stakeholders are ‘any group or individual
who can affect or is affected by the achievement of a corporation’s purpose’. This is clearly a
very broad definition and leaves the notion of stake and the fields of possible stakeholders
unambiguously open to include virtually everyone (Maio 2003). Providing more clarity,
Clarkson(1995) distinguishes between ‘primary’ and ‘secondary’ stakeholders. A primary or
participant stakeholder (Metcalfe 1998), is one without whose continuing participation the
corporation cannot survive as a going concern. Secondary or non-participant stakeholders
(Metcalfe1998), are defined as those who influence or affect, or are influenced or affected by the
corporation, but they are not engaged in transactions with the corporation and are not essential

16
for its survival. Balancing these different types of stakeholders has been shown to have an effect
on financial performance (Reynolds, Schultz, and Hekman 2006).

Stakeholder theory recognizes the fact that most of the firms have a large and integrated set of
stakeholders (Cochran 1994) to which they have an obligation and responsibility (Spence, Coles,
and Harris 2001). The theory challenges the view that shareholders have a privilege over other
stakeholders (Orts and Strudler 2002).

Shareholders, it is argued, are merely one of the several claimants on the firm (Heath and Norman
2004). This theory embodies the need to balance the claims of shareholders with these of
other stakeholders (Ruf et al. 2001) and through this balancing act, the organization can
attract and maintain the support of their stakeholders (Reynolds, Schultz, and Hekman
2006). The idea that organizations face a non-homogenous set of stakeholder views has
recently been conceptualised by Rasche and Esser (2006). These multiple views may be integrated
and Neville and Menguc (2006) discuss how different stakeholders may even work together to
achieve a common goal, or indeed may be diametrically opposed to each other on an issue
affecting the organization.

In recent years, stakeholder attributes have received increasing attention (Frooman1999)

to aid managers in deciding how to allocate their limited time, energy and other scarce
resources to different stakeholder groups (Vos 2003; Philips 2004). According to Cooper et
al. (2001), when stakeholder theory is used as a managerial tool it is specifically concerned
with identifying which stakeholders are more important, and as a result should receive a greater
proportion of management attention. It is clear that different stakeholder groups can present
quite different, and often conflicting, needs and interests (Sen, Bhattacharya 2006). Mitchell,
Agle, and Wood (1997) identify urgency, legitimacy and power as important stakeholder
attributes, arguing that in their various combinations these attributes are indicators of the
amount of management attention awarded to a given stakeholder. Power relates to the ability
to bring outcomes of desire or the ability of one actor within a social relationship to have
another actor do something that they would not otherwise have done (Mitchell, Agle, and
Wood 1997). Legitimacy is the perception or belief that stakeholders’ claims are proper, desirable
or appropriate (Thorn, Ferrell, and Ferrell 2003). Urgency is based on two characteristics; time
sensitivity and importance of the claim to the stakeholder (Thorne, Ferrell, and Ferrell 2003). In
addition, Sachs et al. (2006) distinguish four categories of stakeholders as benefit providers/

17
receivers and/or risk providers / bearers. Stakeholders may be granted different levels of salience
depending on the number of categories into which they fall. The main stakeholder groups
include shareholders, employees, customers, the local community and the environment
(Cooper et al. 2001). It also important to note that a single person may have different stakes in
the organization, for example they may be a customer, a prospective employee or an investor
(Neville and Menguc 2006).

The figure 1.5 illustrates the model. A company in general has a number of “layers” of stakeholders
that it needs to have a good working relationship with. There are three main groups that one has
to be cognizant with namely societal stakeholder, economic stakeholders and organizational
stakeholders (Werther and Chandler 2006).

Globalization

Societal Stakeholders

Economic
Stakeholders

Organizational
Stakeholders

Technology

Figure 1.6 Stakeholders Classification (Source: Werther and Chandler 2006)

Organizational Stakeholders

These can be people who exist within an organization. They have more or less a direct interest
that the company should be doing well. In an ideal situation these stakeholders should actively
seek to ensure that the company is robust and healthy which in turn could translate into advantages
and benefits for these particular stakeholders. The main players in this field are staff and employees.
Other organizational stakeholders are the stockholders and the managers. All these people are
directly linked to the smooth running of a company, which a well-structured Corporate Social
Responsibility policy could augment.

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Economic Stakeholders

In this category, the customers are the most vital stakeholders. Bankers, creditors and suppliers
can also be included here. These parties serve as the important interface between the company
and the larger societal environment. Customers are considered to vital as without their loyal
customers a firm might as well not exist. Modern business theories have proposed that cultivation
of loyal and long term relationship with one’s customers should be the main task of the firm.

Morsing and Schultz (2006) was referred to by Tomy Borgglund of Hallvarsson & Halvarsson
(2008) arguing that Corporate Social Responsibility is a form of branding and done correctly, a
good Corporate Social Responsibility policy can cultivate customers’ loyalty as well as
differentiating oneself from the crowd. Customers, especially those in the mass-consumer field
need to identify with the values and postions a firm takes in a society.

Societal Stakeholders

These stakeholders determine the business environment under which the companies operate.
The most common players here are various governmental agencies, Non-governmental
Organizations (NGOs), regulators, communities and the environment itself. A firm needs to follow
the laws of the land, as well as follow or at least respect various issues which the society is
engaged in. A good relationship with these stakeholders could act as a kind of “insurance” policy
for the firm if something should go wrong (Werther and Chandler 2006).

Globalization and technology

Companies in this world of instant communication cannot afford to ignore the intricacies of
globalization and technology. They need to respect and act upon the various fast changing issues,
challenges, norms, values and standards that are coming up in the world. Companies need to be
aware of that and their Corporate Social Responsibility policies have to reflect the urgencies put
upon various issues that globalization and technology can create.

1.7.2 THE ARCHIE CARROLL MODEL

The Carroll’s Corporate Social Responsibility pyramid, a dominant model that has enjoyed wide
popularity among business and society scholars. Carroll (1991) differentiates Corporate Social
Responsibilities into four levels: “economic (required), legal(required), ethical (expected), and
discretionary (philanthrophy)”.

19
General Description

The Corporate Social Responsibility pyramid was framed to embrace the entire spectrum of
society’s expectations of business responsibilities and define them in terms of categories.
According to the model (Figure 1.6), four kinds of social responsibilities constitute total
Corporate Social Responsibility: economic (“make profit”), legal (“obey the law”), ethical
(“be ethical”), and philanthropic (“be a good corporate citizen”).

THE PYRAMID OF
CORPORATE SOCIAL REPSONSIBILITY

PHILANTHROPIC
Responsibilities
Be a good corporate citizen
Contribute resources to the community:
improve quality of life

ETHICAL
Responsibilities
Be ethical
Obligation to do what is right, just and fair.
Avoid Harm

LEGAL
Responsibilities
Obey the law
Law is society's codification of right and wrong.
Play by the rules of the game.

ECONOMIC
Responsibilities
Be profitable
The foundation upon which all others rest

Figure 1.7 Carroll’s Corporate Social Responsibility-Pyramid with four kinds of

duties, responsibilities for a company. (Source: Carroll 1991)

20
Theoretical Assumptions: The central assumptions underlying the Corporate Social Responsibility
pyramid are presented below. Nature of Corporate Social Responsibility taking a managerial
approach, the four-part pyramid defines Corporate Social Responsibility in terms of social
expectations that responsible corporations should strive to meet. Prevailing social norms and
expectations provide external criteria against which corporate performance can be measured;
thus, the notion of responsibility in the pyramid model is reduced to normative restraints of
responsiveness. In other words, Corporate Social Responsibility in the pyramid formulation is
basically accommodative. Suggesting that businesses should treat Corporate Social
Responsibility not as a goal to be maximized but as a constraint, the pyramid does in effect
promote satisfying behavior rather than striving for excellence.

Scope of responsibilities : Understanding Corporate Social Responsibility as an array of

separate domains naturally leads to narrow definitions of the different responsibilities. Thus, the
economic role of the corporation is reduced in the pyramid model to the narrow emphasis on
profit making of neoclassical economics. Likewise, legal responsibility is restricted to the
“letter” of the law, while the “spirit” of law is reserved for the ethical domain. The ethical
domain is further separated from the legal domain using a negative definition as mentioned
above: ethical responsibility relates to those social expectations and norms not yet codified into
law. In the same vein, philanthropic responsibility designates those areas of voluntary social
involvement not specifically prohibited or demanded of companies because of their economic,
legal, and ethical responsibilities.

Total Corporate Social Responsibility the pyramid is a conjunction of separate domains of

responsibility. In contrast to the ordinary view, the so-called separation theory, that businesses
can focus either on profits or social concerns but not on both, the Corporate Social Responsibility
pyramid “sought to argue that businesses can not only be profitable and ethical, but they should
fulfill these obligations simultaneously.” However, the clearcut separation of the domains
raises the problem of integration. At most, the pyramid model can postulate that while
separate, the bundle of responsibilities formulated as a simple arithmetic sum must apply
simultaneously; it says nothing about how these responsibilities are interwoven.

According to Carroll, the use of a pyramid to depict the conceptual model of Corporate
Social Responsibility is intended to portray that the total Corporate Social Responsibility of
business comprises distinct components that, taken together, constitute the whole. The model
categorizes the different responsibilities hierarchically in the order of decreasing importance. The
21
most fundamental is economic responsibility, “all other business responsibilities are predicated
upon the economic responsibility of the firm, because without it the others become moot
considerations.” Businesses are expected to operate within the framework of law, thus legal
responsibility is depicted as the next layer of the pyramid. Following is ethical responsibility
defined in terms of “those activities or practices that are expected or prohibited by society
members even though they are not codified into law.” Last in importance, at the top of the
pyramid, is philanthropic responsibility, which is discretionary in nature. In the main, the pyramid
purports to describe a necessary and sufficient set of obligations that socially responsible businesses
should simultaneously fulfil, taking into consideration their decreasing importance.

1.7.3. LEGITIMACY THEORY

Legitimacy theory postulates that corporate responsibility reacts to environmental factors

(economic, social, political) and that disclosures legitimize actions (Preston and Post, 1975;
Honger, 1982; Lehman, 1983; Lindblom, 1983). Legitimacy theory is based upon the notion
that business operates in society through a social contract where it agrees to perform various
socially desired actions in return for approval of its objectives, other rewards and its ultimate
survival. It therefore needs to disclose enough social information for society to assess whether it
is a good corporate citizen. In legitimating its actions via disclosure, the corporation hopes ultimately
to justify its continued existence (Lehman, 1783). The theory is largely reactive in that it suggests
organizations aim to produce congruence between the social values inherent (or implied) in their
activities and social norms (Lindblom, 1983). Corporate social disclosures may then be conceived
as reacting to the environment where they are employed to legitimize corporate actions. The
legitimacy theory can be conveniently bifurcated into “Legitimacy theory posits that corporate
disclosure reacts to environmental factors (economic, social, political).” It also discloses legislative
actions.

Business decisions and disclosures are influenced by two sets of factors, viz. internal and external
factors. Internal factors can be called internal environment while external factors are called external
environment. Internal factors are controllable.

They are personnel, physical facilities, organizational factors and functional means. External factors
are not within the control of a company. They include economic factors, socio-cultural factors,
government and legal factors, demographic factors, geo-physical factors etc. are, therefore,
generally regarded as uncontrollable factors.
22
 External
Factors
Internal Factors 1 Economic Factor
1 Personnel 2 Socio-Cultural
2 Physical Facilities Business Factors
3 Organizational Entity 3 Government
Factors 4 Legal Factors
4 Functional Means 5 Demographic
Factors
6 Geo-Physical
Factors

Figure 1. 8 Showing the Internal and External factors of Business Entity

(Source: Preston and Post, 1975)

Government is imposing a number of legislative measures through various enactments. Legitimacy

Theory is based upon the notion that business operators in society via a social contract where it
agrees to perform various specially desired actions in return for approval of its objectives, other
rewards for ultimate survival. ‘Legitimacy Theory discloses legislative actions (Preston and Post,
1975; Hogner, 1982; Lehman, 1983; Lindblom, 1983)’.

Profit is essential for a business entity’s survival, continuity and growth. Traditional view of
performance of a business unit is idealized in the quest to maximize profits to cater to the
requirements of various groups, both internal and external and its continuous survival. It is also

23
widely acclaimed that firm’s only social responsibility in a free market system is to maximize its
profits, for, in doing, so it is presumed to maximize its contribution to the society. Under this
concept of maximization of profits, the profit of a firm which operates within the society’s legal
framework would provide all inclusive criterion for evaluating its social performance. Society’s
legal framework is endowed with a social contract theory, a network of society-business-contract
in the Contract Act. All these are prelude to business entity and its related parties.

The concept of social contract offers crucial assistance in objectives formulation by recognizing
two unique roles of a firm (1) the delivery of some socially useful goods and services and (2) the
distribution of economic, social or political rewards to social groups from which the firm derives
its power. The nature of these two roles warrants further examination. The notion of a social
contract whereby a firm agrees to perform certain socially desirable functions in return for certain
rewards. This concept of social contract, is explained well by Shocker and Sethi (1974, p.67):
Any social institution and business is no exception operates in the society via a social contract,
expressed or implied, whereby its survival and growth are based on: the delivery of some socially
desirable ends to society in general, and the distribution of economic, social, or political benefits
to groups from which it derives its power. In a dynamic society, neither the sources of institutional
power nor the needs for its services are permanent. Therefore, an institution must constantly
meet the twin tests of legitimacy and relevance by demonstrating that society requires its services
and the groups benefiting from its rewards have society’s approval.

1.7.4 ACKERMAN’S MODEL

Micro-level theorist Robert Ackerman was among the earliest people to suggest that
responsiveness, (he prefers to use the term ‘responsiveness’), should be the goal of corporate
social endeavor. Ackerman described three phases through which companies commonly tend to
pass in developing a response to social issues as explained in the following Table 1.1

24
 Table 1.1 Ackerman’s three stages of social responsibility

ORGANIZATIONAL PHASES OF ORGANIZATIONAL INVOLVEMENT

LEVEL Phase I Phase II Phase III

Chief executive Issue: Corporate Obtain knowledge Obtain organizational

obligationAction: Add staff specialist commitment. Change
Write and performance
communicate policy expectations.
Outcome; Enriched
purpose, increased
awareness
Staff Specialists Issue: Technical Provoke response
problemAction: from operating units.
design data system Apply data system to
and interpret performance
environment measurement
Outcome:
Issue: Management
Technical and problem
Division Management
informational
groundwork Action: Commit
resources and modify
procedures

Outcome: Increased
responsiveness
(Source: Adapted from Aswathappa, 1997)
In Phase 1, a corporation’s top managers deal an existing social problem. At this stage, no one
asks the company to deal with it. The Chief Executive Officer merely acknowledges the problem
by making a written or oral statement of the company’s policy towards it.

In Phase 2, the company hires staff specialists or engages outside consultants to study the problem
and to suggest ways of dealing with it. Up to this point, the company has limited itself to declaring
its intentions and formulating its plans.

Phase 3 is implementation. The company now integrates the policy into its ongoing operations.
Unfortunately, implementation often comes slowly and often not until the government or public
opinion forces the company to act. But by that time, the company has lost the initiative. Ackerman
thus advises that managers should “act early in the life cycle of any social issue in order to enjoy
the largest amount of managerial discretion over the outcome.”
25
1.7.5 QUAZI AND O’BRIEN’S TWO-DIMENSIONAL MODEL OF CORPORATE
SOCIAL RESPONSIBILITY

Quazi and O’Brien (2000) proposed a two-dimensional model of Corporate Social Responsibility
comprising two axes. The horizontal axis is intended to capture variations in views of social
responsibility, from the narrow view or the classical lens (i.e., business responsible for
providing goods and services and profit maximization within the rules of the game). To the
broader view where business considers itself responsible for a wider array of issues, expectations,
and stakeholders. The vertical axis of the model represents two extremes in terms of
perceptions of the consequences of the social action of business, ranging from pure concern
with the cost of social commitment to a focus on the benefits of social involvement (Figure 1.8).

Resulting from the intersections of the two axes are four quadrants, representing four
possible views of Corporate Social Responsibility, which they label as the classical view, the
socioeconomic view, the modern view, and the philanthropic view. The classical view embodies
a narrow conception of responsibility and a focus on costs. The socio-economic view depicts a
narrow conception of responsibility with a focus on potential benefits. The modern view captures,
on the other hand, a wide conception of responsibility with a focus on benefits and the philanthropic
view represents a wide conception of responsibility with an alertness to costs.

Benefits from
CSR Action

Modern Socio-Economic
View View

Wide Narrow
Responsibility Responsibility

Philanthropic Classical
View View

Figure 1.9 A Two-Dimensional Model of Corporate Social

Responsibility (Source: Quazi and O’Brien, 2000)

26
The classical view reects the orthodox neoclassical perspective discussed above, in which there
is no provision for business to look beyond profit-making, and where Corporate Social
Responsibility is seen to generate only costs but no benefits. The socio-economic view represents
a narrow view of social responsibility, coupled with acceptance of potential benefits to be associated
with Corporate Social Responsibility as in the avoidance of regulation, building good customer
and supplier relationships or networking. Here business continues to pursue profit maximization
as a primary concern, while also trying to meet social demand and derive some benefits in the
process. The modern view captures a perspective in which a business sees added value in serving
a wider array of societal needs and expectations and perceiving net benefits to ow from socially
responsible action. This is consistent with the stakeholder approach to Corporate Social
Responsibility. The philanthropic view depicts a broader view of social responsibility in which a
business decides to undertake Corporate Social Responsibility actions even when the latter are
generally perceived as a net cost. This stance may be enticed by a combination of altruistic/
ethical motives to do well despite the costs involved.

1.8 CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Corporate Social Responsibility is not a new term in India. As far back as 1965, the then Prime
Minister of India, Lal Bhahadur Shastri, presided over a national meeting that issued the following
declaration on the Social Responsibility of Business: “Business has responsibility to itself, to its
customers, workers, shareholders and the community, every enterprise, no matter how large or
small, must if it is to enjoy confidence and respect, seek actively to discharge its responsibilities in
all directions, and not to one or two groups, such as shareholders or workers, at the expense of
community and consumer. Business must be just and humane, as well as efficient and dynamic.”

“Business cannot succeed in a society that fails”, Corporate Social Responsibility is being
considered as an imperative for carrying on business in the society rather than as a charity. While
Corporate Social Responsibility is relevant for business in all societies, it is particularly significant
for developing countries like India, where limited resources for meeting the ever growing aspirations
and diversity of a pluralistic society, make the process of sustainable development more challenging
(Sanjay Kumar Panda, 2008).

Although many companies, NGOs and trade unions were aware of corporate responsibility
practices, the concepts are yet to become part of core business strategy in most companies in
India. Almost all companies, irrespective of size and sector had some awareness of corporate
27
responsibility and its potential benefits. While most companies also had policies in place related
to labour issues, community relations and environmental practices, they were for the most part
not backed up by comprehensive implementation and monitoring systems. Community programmes
or social development initiatives, in most cases, were philanthropic and/or adhoc in nature and
not integrated into core business activities.

Indian Corporate Social Responsibility has traditionally been a matter of classical paternalistic
philanthropy, financially supporting schools, hospitals and culture institutions. However, far from
being an add-on motivated by altruism and personal glory, the philanthropic drive has been
driven by business necessity. With minimal state welfare and infrastructure provision in many
areas, companies had to ensure that their workforce had adequate housing, healthcare and education
and simultaneously the country grows at a fast pace.

According to a report by the Centre for Social Markets for the International Finance Corporation
(IFC), many leading foreign Multinational Companies and domestic titans, pre-eminently members
of the Tata Group, have been standard-setters on core Corporate Social Responsibility issues
such as labour conditions, health and safety, environmental management, corporate governance
and integrity.

India has a venerable tradition of philanthropy, both individual and business, and Indian legend
and history is replete with instances of generosity from both sources. But, unlike individual and
religious charity which has gone mostly towards immediate relief of distress, business philanthropy
has provided secular funds on a significant scale to bring progress to society. Modern India owes
much to the vision of the founding fathers of India’s business and industry who endowed many
educational and welfare institutions and funded many a worthy cause, including social reform.

Indian families such as Tata and Godrej have a significant industry presence and reputation for
social responsibility. One of the Tata Group of companies, Tata Steel, is the first in the country to
produce a corporate sustainability report and it administers the only industry town in the world,
Jamshepur, which has received the ISO14001 environmental quality certification (Michael Hopling
(2008). Other companies have followed Tata’s lead, such as Infosys, Ballarpur industries Limited,
Paharpur Business Park, Ford India, Samsung India Electronics and Cadbury’s India. They have
all produced environmental and social reports.

Corporate social responsibility is one such niche area of Corporate Behavior and Governance
that needs to get aggressively addressed and implemented tactfully in the organizations. At the
28
same time Corporate Social Responsibility is one such effective tool that synergise the efforts of
corporate and the social sector agencies towards sustainable growth and development of societal
objectives at large. India is a fast growing economy and is booming with national and multinational
firms. At the same time, the Indian land also faces social challenges like poverty, population,
growth, corruption, and illiteracy just to name a few. Therefore it is all the more imperative for the
Indian companies to be sensitized to Corporate Social Responsibility in the right perspective in
order to facilitate and create an enabling environment for the partnership between the civil society
and business.

1.9 ORGANIZATIONAL CULTURE

In the recent past, the concept of organizational culture has gained wide acceptance as a way to
understand human systems. From an “open-systems” perspective, each aspect of organizational
culture can be seen as an important environmental condition affecting the system and its subsystems.
The examination of organizational culture is also a valuable analytical tool in its own right. This
way of looking at organizations borrows heavily from anthropology and sociology and uses many
of the same terms to define the building blocks of culture.

Edgar Schein, one of the most prominent theorists of organizational culture, gave the following
very general definition: The culture of a group can be defined as: a pattern of shared basic
assumptions that the group learned as it solved its problems of external adaptation and internal
integration, that has worked well enough to be considered valid and therefore, to be taught to
new members as the correct way to perceive, think, and feel in relation to those problems (Schein
373-374).

In other words, as groups evolve over time, they face two basic challenges: integrating individuals
into an effective whole, and adapting effectively to the external environment in order to survive.
As groups find solutions to these problems over time, they engage in a kind of collective learning
that creates the set of shared assumptions and beliefs we call ‘culture.’

Gareth Morgan describes culture as “an active living phenomenon through which people jointly
create and recreate the worlds in which they live.” For Morgan, the three basic questions for
cultural analysts are:
• What are the shared frames of reference that make organization possible?
• Where do they come from?

29
• How are they created, communicated, and sustained?
Most organization scholars and observers recognize that organizational culture has a powerful
effect on the performance and long-term effectiveness of organizations. Empirical research has
produced an impressive array of findings demonstrating the importance of culture to enhance
organizational performance (Cameron, Ettington, 1988; Denison, 1990; Trice, Beyer, 1993).

Organizational culture helps to explain why an organization behaves the way it does and shapes
the beliefs of the employees of a firm regarding what is important and what is unimportant
(Gray and Balmer 1998). Essentially it is something that a firm is rather than what it has (Lozano
and Sauquet 1999; Smircich 1983). It is acknowledged that the strength of the ethical behaviour
of a firm can be traced to its organizational culture as well as the leadership of the firm in the
promotion of the core ethical ideals (Brien 1998). The concept of organizational culture is an
important element in determining the ultimate ethical success of an organization. It can be defined
as a complicated set of beliefs, values, symbols, and assumptions that determine the way
in which an organization undertakes its business (Barney 1986).

Schein (1997) highlights nine elements of organizational culture. The first incorporating the customs,
the traditions, and the language of the firm. The second is the norms of the group and their related
values and standards. The third is the espoused or ones that are formally acknowledged. The
fourth is the official philosophy or the mission of the organization. The fifth is the “rules of the
game” which applies to all who are a part of the organization. The sixth is the climate within the
firm and how different groups interact. The seventh is the embedded skills that are present. The
eighth concerns thinking and shared knowledge. The final is shared meanings of the group. It is
proposed that a firm that possesses a strong organizational culture will develop a strong Corporate
Social Responsibility orientation (Andrew Zur).

A strong and productive culture can be an important source of sustainable competitive advantage
because it is difficult to imitate. Culture in popular managerial parlance, usually refers to how
people feel about the organization, the authorities system, the degree of employee involvement
and commitment, (Nyaw & Ng, 1994). suggests social policies affecting business vary by culture.

Pettigrew (1990:424) associates culture is the forces of ‘coherence and consistency’ in the
organization. Culture is seen as a system of informal guidelines (Deal and Kenne 1982:15) and
as a form of social agreement that helps people understand how life in the organization (Wilkins,
1983:30). Organizational culture will, for example, be evident in the symbols and rituals of the
30
organization, as well as in the beliefs and ideologies of management (Pettigrew, 1979:574). The
impact of culture is reflected in several key aspects of organizational functioning, like problem
solving styles (Schwartz and Davis, 1981:32), as well as organizational structure preferences,
control systems, reward systems, and social concerns (Pettigrew, 1990:415). Other noted effects
of organizational culture are: influencing perceptions about the distribution and legitimacy of power
or authority (Pettigrew, 1979:574; Pettigrew, 1990:424), and applying a form of social control
that makes people conform to group norms (O’Reilly, 1995:318).

Schein (1992), Alvesson (1987, 2002), Pettigrew (1979) and Smircich (1985) argue that one of
the most important features of organizational culture is that certain things are shared and held in
common by groups. The beginning of formal writing on the concept of organizational culture
started with Pettigrew (1979: 574) when he defined the organizational culture through notion of
publicly and collectively accepted meanings, which are operating for a given group at a given
time. In his definition Pettigrew already brings out the collective nature of organizational culture
by referring that the human collective accepts certain things and this collective knowledge is used
by them to interpret the processes and relationships that evolve in the organization. It presupposes
that organizational members share similar values and assumptions in order to be ready for accepting
the common meanings.

Smircich (1985) brings forth a similar idea by claiming that organizations are systems of meanings
that are shared to various degrees. Alvesson (1987) claims that the members of an organization
can be characterized by cultural similarity in terms of shared beliefs, understandings, values,
norms and symbols that make them differ to some extent from other groups outside the
organization.

Organizational culture is potentially a dysfunctional factor. Sometimes in attempting to establish

Corporate Social Responsibility as a core management discipline, especially in an organization
with a functional hierarchy past, unexpected resistance may come from the culture of the
organization. Organizational culture is known for nurturing self-sustaining forces that tend to
preserve past successful behaviours and sources of power, not recognising the need to adapt to
changes in the environment or strategy (Deal & Kennedy, 1982:137; Kilmann, 1985:354-355;
Kotter & Heskett, 1992:11-12)

Ethical behaviour is not an act but a habit. Just as good health requires cultivating the habits of
getting enough sleep and eating wholesome food, Aristotle believed that right action was the
31
result of developing good moral habits. In a business context, this means training and, at the
deepest level, something we call “Corporate culture.” (Jim Kelly, chairman and CEO of United
Parcel Post Service.)

Cultural anthropologists have proposed diverse and complex theories of culture that may be
characterized by their particular assumptions and emphases. A brief classification of concepts
from cultural anthropology provides a variety of different notions with which to examine and
position the concepts of culture found in the organization theory or management literature.

A first and critical distinction is drawn between those theorists who view culture as meshed into
the social system and those who conceive of it as a conceptually separate, ideational system. In
the former view, the cultural and social realms are integrated into a socio-cultural system, postulating
harmony, consonance between these two realms. The culture is swallowed into the social and
vice versa; manifest behaviour is the product of this socio-cultural system.

Disagreeing with this view, Kroeber and Parsons (1958) proposed a conceptual and analytical
distinction between social systems and cultural systems. ‘The social-system focus is on the
conditions involved in the interaction of actual human individuals who constitute concrete
collectivities with determinate membership. The cultural-system focus, on the other hand, is on
“patterns” of meaning, e.g., of values, of norms, of organized knowledge and beliefs, of expressive
form.’ (Parsons et al. 1961:34)

A first and striking observation is that the large body of literature, including many of the classics
on organization theory, tacitly assumes that the social and structural components are (must be)
fully integrated, synchronized and consonant with the ideational, symbolic dimensions of the
organization.

In the views of earlier anthropological concepts of culture, organizations are conceived more or
less explicitly as socio-cultural systems. Their ideational components (i.e. pattern of shared meanings
and values, systems of knowledge and beliefs) are meshed with the social structure component in
a holistic concept of organizations. In this tradition, research and theories tend to centre on the
structures, functioning and evolutionary processes of these socio-cultural systems, and on the
development of typologies to explain the large variety of forms and processes observed. Obviously,
as the symbolic and formal aspects of organizations are assumed to be attuned and
mutually supportive at all times, little attention is paid to the possible dissonance or in congruency

32
between the cultural and socio-structural aspects of organizations or to the study of their distinct,
ideational, realm.

1.9.1 ORGANIZATIONAL CULTURE AND CORPORATE SOCIAL

RESPONSIBILITY

The concept of organizational culture is an important element in determining the ultimate success
of an organization. It can be defined as a complicated set of beliefs, values, symbols, and
assumptions that determine the way in which an organization undertakes its business (Barney
1986). Organizational culture helps to explain why an organization behaves the way it does and
shapes the beliefs of the employees of a firm regarding what is important and what is
unimportant (Gray and Balmer 1998). Essentially it is something that a firm is rather than what
it has (Lozano and Sauquet 1999; Smircich 1983). It is proposed that possesses a strong
organizational culture will develop a strong Corporate Social Responsibility orientation (Andrew
Zur). Schein (1984) defines organizational culture as “the pattern of basic assumptions that a
given group has invented, discovered, or developed in learning to cope with its problems of
external adaptation and internal integration, and have worked well enough to be considered
valid, and therefore, to be taught to new members as the correct way to perceive, think, and feel
in relation to those problems.”

According to Strautmanis (2007), social responsibility is part of organizational culture and a

value in the organizational culture environment. Condition for the development of social
maturity is intelligence, unity of professionalism, social competence and human relations.
Development of social responsibility is a change in values orientation, whose task is shaping
the attitudes, transformation of the personal position so that it matches individual and public
interests.

Managers in wealthier countries are clearly less inclined to think about the welfare of the
greater community or society in their decision-making. In poorer countries, managers may feel
more of a personal responsibility toward the community and society at large (Waldman et al.,
2006). Philanthropic responsibilities, however, arise out of the philosophical, ethical tradition of
being concerned with what is good for a society as a whole, and seemingly provide a justification
for corporations to help improve the quality of life for different parties and communities in the
society as well as preserve our natural environment (Balmer et al., 2007). A crucial aspect
of business today is the corporate social and environmental responsibility behaviour of all
33
companies, but particularly of those within the world economic power basis because these countries
set the norms for others to follow (Banerjee, 2001).

Collier, Esteban (2007) identified two types of factors that bear an effect on employee motivation
and commitment to Corporate Social Responsibility ‘buy-in’. The first of these is contextual:
employee attitudes and behaviours will be affected by organizational culture and climate, by
whether Corporate Social Responsibility policies are couched in terms of compliance or in
terms of values, and by whether such policies are integrated into business processes or
simply an ‘add-on’ that serves as window-dressing. The second set of factors is perceptual.
Despite the enormous amount of theoretical writing about the connections between corporate
social responsibility and organizational culture, there are relatively few empirical studies about
the connections between facets of Corporate Social Responsibility - the firm performance
concerning social issues and the firm respects the interests of agents and organizational culture
types - clan, market, hierarchy and adhocracy. This study investigates how organizational culture
predicts corporate social responsibility.

It is believed that organizational culture influences the degree that a firm considers
itself to be Corporate Social Responsibility oriented. If the shared values and beliefs of the
employees of the organization are orientated in such a way as to act and behave morally, as well
as to consider the ethical demands of its stakeholders, then a firm should be better able to
develop and implement socially responsible policies and philosophies (Andrew Zur and Jody
Evans).

To clarify the concept of culture for the purpose of this study, it is necessary to distinguish between
two different viewpoints found in the corporate social responsibility literature. The term social
responsibility culture is often used to imply a dedicated culture that becomes manifest within the
corporate social responsibility management capability in the organization.

Culture has a vital and measurable impact on the organization’s ability to deliver on its Corporate
Social Responsibility strategy. Hence one cant can’t ignore the same when tackling issues such as
customer relationship management, environmental issues, ethical practices, or Corporate Social
Responsibility practices (Ülle Übius and Ruth Alas (2009). Thus culture is central to a successful
operation and to long-term effectiveness of the company’s corporate social responsibility practices

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1.10 BUSINESS ETHICS

1.10.1 MEANING OF ETHICS

The concept of ethics comes from the Greek word “ethos”, meaning both an individual’s character
and a community’s culture. Generally people believe business ethics involves adhering to legal,
regulatory, professional and company standard, keeping promises and commitments and abiding
by the general principles like fairness, truth, honesty and respect.

This word Ethics has originated from ethos meaning character or manners. Ethics is thus said to
be the source of morals a treatise on this moral principles recognized rules of conduct.

1.10.2 VALUES, ETHICS AND SOCIAL RESPONSIBILITY:

Business ethics is not a distinct and separate aspect of corporate life. It permeates all aspects and
departments of the firm, its operations and its links with the community. At times, the word ethics
and values are used interchangeably. Values, are set of beliefs germane to the individual, group or
organization and is the basis for action. It is something, which is held in regard, importance or
worth. Values, are essentially a thought based concept. While ethics are a set of actions, born
out of beliefs, attitudes and values. It is a branch of knowledge concerned with moral principles
that govern or influence conduct. Ethics is essentially an activity-based concept. Point to the
inescapable reality that Corporate Social Responsibility is nothing more than smart management
cloaked in the language of morality and ethics (Reich 2007).

Ethics is person specific, context specific and culture specific. It is also important to distinguish
between ‘managerial ethics’ and ‘business ethic.’ While the former is a micro view and is an
examination of individual level behaviour. The latter is a macro view and examines organizational
behaviour. It is important to look at the micro level behaviour because (1) most unethical decisions
emanate at the individual level, rather than as collective decisions of boards or committees, and
2) individual sensitivities will contribute to companies taking an active ethical stand while making
decisions.

Ethics and Corporate Social Responsibility are closely related concepts. Ethics deal with issues
pertaining to organizations and its stakeholders in day-to-day business transactions. Social
responsibility refers to a company’s posture relative to the community either narrowly or broadly
defined. Ethics tends to be more internal in orientation, while social responsibility is more external,
35
but this orientation is not an absolute one. As Shell has noted in its Principles and Profits Report,
society has moved from a ‘Trust Me’ position, through a ‘Tell Me’ position to a ‘Show Me’
position, implying that verbal assurances by corporate management are no longer sufficient to
gain the trust of stakeholders. Independent verification of social and environmental reports is one
way in which companies are addressing this lack of trust.

1.10.3 IMPORTANCE OF BUSINESS ETHICS

Business Operates within the Society: It is a part of subsystem of society. Business’s functioning
must contribute to the welfare of the society. In order to survive, develop and excel business must
earn social sanction of the society where it exists and functions. Without earning social sanctions,
business cannot get loyal customers, cannot operate in the market place. If business grows
larger, the public takes more interest in it, since this will lead to a greater impact on the community.

Thomas Donaldson says that there is a growing realization all over the world that ethics is vitally
important for any business and for the progress of any society. Ethics makes for an efficient
economy; ethics alone, not government or laws, can protect society; ethics is good in itself; ethics
and profits go together in the long run. An ethically responsible company is one which has developed
a culture of caring for people and for the environment; a culture which follows downwards from
the top managers and leaders.

The social responsibility of business involves ethics which must be reflected in the philosophy of
business organization. “The biggest corporation, like the humblest private citizen, must be held to
strict compliance with the will of the people.” Theodore Roosevelt, (1900). To be effective, a
sound ethics must be recognized by top management and reflected in the policies of the firm. Top
management should establish clear policies that encourage ethical behaviour and a cordial culture
of the organization. Management must assume responsibility for disciplining wrong doers. Members
should voluntarily accept it. Right leadership, integrity, proficiency, commitment to social values
of a manager can change the expected behavior of individuals and are crucial to business ethics
and organizational culture.

Good ethics may be good business in majority of the cases. When the crunch comes, when ethics
conflicts with the firm’s interests, any ethics program that has not already faced up to this possibility
is doomed to fail because it will undercut the rationale of the program itself. In business, as in all
other human endeavours, we must be prepared to pay the costs of ethical behavior. So also in the

36
corporate social and ethical practices, a similar danger occurs with corporations choosing or
being wooed to be environmentally friendly because it will be in their self-interest. There is the
risk of participating in the movement for the wrong reasons. The frequent strategy of the new
environmentalists is a business to help solve environmental problems by finding pure or virtually
costless ways for them to participate. They feel that compromise, not confrontation, is the only
way to save the earth.

1.10.4 BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY

Business ethics can be defined as written and unwritten codes of principles and values that
govern decisions and actions within a company. In the business world, the organization’s culture
sets standards for determining the difference between good and bad decision-making behaviour.
In the most basic terms, a definition for business ethics boils down to knowing the difference
between right and wrong and choosing to do what is right. The phrase ‘business ethics’ can be
used to describe the actions of individuals within an organization, as well as the organization as a
whole. There are two schools of thought regarding how companies should approach a definition
for business ethics: the shareholder perspective and the stakeholder perspective.

Shareholder Perspective

Those who approach ethical decision making from a shareholder perspective focus on making
decisions that are in the owners’ best interest. Decisions are guided by a need to maximize return
on investment for the organization’s shareholders. Individuals who approach ethics from this
perspective feel that ethical business practices are ones that make the most money.

Stakeholder Perspective

The phrase corporate social responsibility is often of all affected parties used in discussions of
business ethics. The idea behind this concept is the belief that companies should consider the
needs and interests of multiple stakeholder groups, not just those with a direct financial stake in
the organization’s profits and losses. Stakeholders may include employees, suppliers, customers,
competitors, government agencies, the news media, community residents and others. The idea
behind stakeholder based ethical decision-making is to make sound business decisions that work
for the good.

37
There is a growing realisation all over the world that ethics is vitally important for any organisation
and for the progress of any society. Ethics and profit go together in the long run. If the organisation
wanted to achieve competitive advantage, it should take along the ethics into business. According
to John Donaldson Business ethics can be understood as a comprehensive study of corporate
policies and not the study of an isolated topic, and it will act within business or for non-business
reasons. Although corporations can encourage ethical behaviour in informal ways (Cohen,
1993; Trevino,1990), much effort has been directed toward implementing formal programs
and policies for guiding ethical behaviour in organizations (Berenbeim, 1992; Center for
Business Ethics, 1992; Weaver, Trevino, & Cochran, 1999). All organizational values that
pertain to questions of right and wrong contribute to the company’s ethical climate and the
shared perceptions of what is correct behaviour (i.e., attitude), and how ethical issues will be
dealt with (i.e., practice (John B. Cullen and Bart (2001).

According to Juliet Altham (2002),of the International Business Ethics Institute, Corporate Ethics
is evolving into two separate, however, not necessarily, exclusive fields -Business Ethics(BE) and
Corporate Social Responsibility.

A business should not be solely for maximizing profits, but should also consider the interest of
customers, shareholders, employees, suppliers, trade, locality and the wider communities. The
substance of corporate social responsibility, according to Davis and Blomstrom (1971), arises
from the institution’s ethical “obligation” to evaluate the effects of its decisions and actions on the
whole social system. Friedman (1962) admitted the desirability of both legal and moral rules for
the social responsibility. He saw a role for public policy and business ethics.

Corporate social responsibility, according to Davis and Blomstrom (1971), arises from the
organization’s ethical “obligation” to evaluate the effects of its decisions and actions on the whole
social system. It is acknowledged that the strength of the ethical behaviour of a firm can be traced
to its organizational culture as well as the leadership of the firm in the promotion of the core
ethical ideals (Brien 1998).

1.11 INFORMATION TECHNOLOGY INDUSTRY IN INDIA

Today, Information technology industry is flourishing at an incredible pace. The IT industry in

India has today become a growth engine for the economy, contributing substantially to increases
in the GDP, urban employment and exports, to achieve the vision of a “young and resilient” India.

38
While the environmental impact of the Information Technology industry is relatively minor, its
societal impact is very significant. It is interesting to note that the success of the industry has come
without regulation, and has been enabled by the government staying out of the way, while facilitating
some of the services needed to support the industry (the Software Technology Parks of India is
a good example). The industry must push sustainability in practice on a voluntary basis so that it
becomes a concerted effort and practices such as triple bottom line reporting become voluntary
actions by corporates.

Information Technology could help the government solve a number of its operational problems,
bringing in transparency and accountability, but these initiatives have to be voluntary in nature,
and managed professionally. Until a few years ago corporates in the Information Technology
sector stayed away from direct interaction with the government, but that is changing now. Given
the impact the Information Technology industry has on society, it is entitled to pro-active aggressive
support from the government, protecting its assets such that corporates can continue to serve the
society well, and help in progress, in a sustainable fashion.

1.11.1 INDIAN I.T. SECTOR STRUCTURE AND MARKET SHARE

The Indian information technology industry has played a key role in putting India on the global
map. According to the National Association of Software and Service Companies (NASSCOM),
the apex body for software services in India, the revenue of the information technology sector
has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to 5.8 per cent
in FY 2008-09.

India’s IT growth in the world is primarily dominated by IT software and services such as Custom
Application Development and Maintenance (CADM), System Integration, IT Consulting,
Application Management, Infrastructure Management Services, Software testing, Service-oriented
architecture and Web services.

Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate
revenue (including hardware). Of this, the software and services segment accounted for US$
59.6 billion. IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9
billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09. (NASSCOM Report 2008).

Moreover, according to a study by Springboard Research, the Indian IT services market is

estimated to remain the fastest growing in the Asia-Pacific region of 18.6 percent. Despite the
39
uncertainty in the global economy, the top three IT majors— Infosys, TCS and Wipro have seen
revenue growth from all important sources of income from the North American and European
regions, in the financial services and from application Maintenance And Development (ADM)
offerings between fiscal years 2008 and 2009.

1.11.2 INFORMATION TECHNOLOGY SCENARIO IN INDIA: PAST, PRESENT

AND FUTURE

Information technology essentially refers to the digital processing, storage and communication of
information of all kinds. The information technology can potentially be used in every sector of the
economy. The true impact of information technology on growth and productivity continues to be
a matter of debate, even in the United States which has been the leader and largest adopter of
information technology. However, there is no doubt that the information technology sector has
been a dynamic one in many developed countries, and India has stood out as a developing
country despite the country’s relatively low level of income and development. Although India has
the largest number of people working in the software industry and has the highest rate of growth
of revenue, the revenue per employee is the lowest (Arora et al., 1999).

India’s achievement in information technology at present has enviable record of accomplishment.

What started as a pure resource pool for fulfilling programming demands of other countries has
now changed substantially in scope. Over the years, the term ‘information technology’ has become
more widespread and now encompasses several sectors of the economy and has created several
opportunities. Yet, there are some common threads, lessons and success factors have identified
from the past success in pure software development.

1.11.3 INDIA’S FUNDAMENTAL ADVANTAGE

India’s abundant talent and low cost are sustainable over the long term. With a young demographic
profile, where over 3.5 million graduates and postgraduates are added annually to the talent
base, no other country offers a similar mix and scale of human resources. While some gaps in
talent suitability exist, they are being addressed through strong provider-level initiatives and industry-
led programmes. India enjoys a cost advantage of around 60-70 percent as compared to source
markets. Additional productivity improvements and the development of tier cities as future delivery
centres, is expected to enhance India’s cost competitiveness.

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1.11.4 ROLE OF INFORMATION TECHNOLOGY IN ECONOMIC
DEVELOPMENT

The truly revolutionary aspect of modern information technology is believed to be the possibility
it offers to unbundled information from its physical carrier. This means that the economics of
information can be separated from the economics of things. The ‘information superhighway’ is,
as Negroponte (1995) has defined it, “about the global movement of weightless bits at the speed
of light”. Quah (2001) argues that it is this increasing weightlessness or dematerialization of
production that is characteristic of modern economics. By this he means that an increasingly
greater fraction of gross domestic product comes to reside in economic goods with little or no
physical manifestation. Economic value is embedded more and more in intangible goods than in
physical objects. This process of dematerialization derives from the increasing output share of all
services in general and from the growing importance of information technology in particular.

1.11.5 SHARE OF INFORMATION TECHNOLOGY OUTPUT TO GROSS

DOMESTIC PRODUCT (GDP)

India’s experience with growth of the information and communication technology (ICT) sectors,
especially the information technology component, has attracted attention for a number of reasons.
The pace of growth has been rapid, from a low base, tallying with the dynamism seen as typical
of the industry. Thus, according to data provided by Dataquest, over the 17 years period 1991-
92 to 2008-09, the annual compound rate of growth of output was 37.4 per cent. That is, output
was doubling every 2.2 years. The net result has been that the ratio of gross information technology
sector output to GDP rose from 0.38 per cent in 1991-1992 to 5.80 in 2008-09. It is evident
from Table 1.2

Table 1.2 Indian IT Output to GDP Ratio

Year Output Growth(%)
1991-1992 0.38
1995-1996 1.08
1997-1998 1.20
1999-2000 1.80
2000-2001 2.08
2001-2002 3.00
2007-2008 5.50
2008-2009 5.80
Source: Dataquest, http://www.gartner.com

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1.11.6 GROSS REVENUE FROM INFORMATION TECHNOLOGY SECTOR

Whether India is likely to emerge as an information technology powerhouse which invades

developed country markers and challenges developed-country players is valid at all, it can only
be true of the software segment. In information technology related services it is the export market
that provides the real opportunity. Table 1.3 shows revenues from services in the domestic market
are currently close to a fifth of that from the export market, and the ratio of domestic revenues to
export revenues and 2007-08.

Table 1.3 Gross Revenue from Domestic as well as export Earnings in Rupees
from 2004-05 to 2007-2008.
Years Domestic Export (Rs in crores)
2004-05 4358 10306
2005-06 5690 15387
2006-07 7885 28730
2007-08 8065 36153
Source: Dataquest, http://www.gartner.com

It is evident that gross revenue from domestic sector has doubled from Rs. 4,358 crores in
2004-05 to Rs. 8,065 crores during 2007-08, whereas gross revenue exports tripled from Rs.
10,306 to Rs. 36,153 crores in the same period. (NASSCOM : Annual Report 2007-08)

1.11.7 PERFORMANCE OF INDIAN IT INDUSTRY IN 2007-2008 AND 2008-

2009

The year 2008 was a transformational year for the Indian Information Technology-(IT) sector, as
it began to re-engineer itself to face the challenges presented by a macro-economic environment
which witnessed substantial volatility in commodity prices, inflation, and decline in GDP rates,
cross-currency movement, finally culminating in the economic downturn.

In an increasingly globalized world, significant complexity and uncertainty is getting attached to

this unprecedented economic crisis. The Indian economy has also been impacted by the
recessionary trends, with a slowdown in GDP growth to seven per cent. The focus and exponential
growth in the domestic market has partially offset this fall and insulated the country, resulting in
net overall momentum.

42
Even though the year 2007-08 was a period that challenged the Indian IT- BPO industry, it also
brought a crucial opportunity for the industry to showcase its maturity in sustaining its growth
momentum.

By the end of the fiscal year (FY2008), the overall revenues for the Indian IT-BPO sector grew
by over 33 per cent and touched US$64 billion. Over the same period, direct employment in the
sector reached nearly 2 million, an increase of about 375,000 professionals over the previous
year. As a proportion of national GDP, the Indian IT-BPO sector revenues grew from 1.20
percent in FY 1998 to 5.5 percent in FY2008. (Source: NASSCOM Annual Report 2007-
2008)

The Indian IT-BPO industry is estimated to achieve revenues of USD 71.7 billion in FY2009,
with the IT software and services industry accounting for USD 60 billion of revenues. During this
period, direct employment is expected to reach nearly 2.23 million, an addition of 223,000
employees, while indirect job creation is estimated to touch 8 million. As a proportion of national
GDP, the sector revenues have grown from 1.20 per cent in FY1998 to an estimated 5.8 per
cent in FY2009. Net value-added by this sector, to the economy, is estimated at 3.5-4.1 per
cent for FY2009. The sector’s share of total Indian exports (merchandise plus services) has
increased from less than 4 per cent in 1998 to almost 16 per cent in 2008. (Source: NASSCOM
Strategic Review 2009)

Exports market: The Export revenues are estimated to gross USD 47.3 billion in FY2009,
accounting for 66 per cent of the total IT-BPO industry revenues. Cross currency movement
during the year, led by the strengthening (and high volatility) of the US dollar versus some of the
major invoicing currencies (Euro, Pound), suppressed volume growth in the European market by
about 2.2 per cent at an industry level. Software and services exports (including BPO) are
expected to account for over 99 per cent of total exports, employing over 1.76 million employees.
(Strategic Review:2009)

Industry Structure: Large integrated players consisting of both Indian and international service
providers dominate the industry. During the year, the share of Indian providers went up to 65-70
per cent due to the emerging trend of monetization of captives. MNCs however, continued to
make deeper inroads into the industry and strengthened their Indian delivery centres during 2008.
(NASSCOM Report)

43
Domestic market: The domestic market presents a significant opportunity as Information
Technology spending in India is growing at a pace faster than any other country in the Asia Pacific
region. Domestic Information Technology services are expected to grow by 20 per cent in
FY2009, driven by increased acceptance of Information Technology as a growth enabler, and a
competitive tool for Indian corporations looking to compete in an increasingly globalized
environment. Increased Information Technology adoption in not only the large-sized companies,
but also the 35 million strong small segments is expected to drive growth in the future. (Source:
NASSCOM strategic review 2009)

1.11.8 NASSCOM - THE APEX BODY OF INDIAN I.T. INDUSTRY

National Association of Software and Service Companies (NASSCOM) is an apex industry

association in India. The member companies of NASSCOM are in the business of software
development, software services, Internet, e-commerce and IT-enabled services. It was established
in 1988 as a ‘not-for-profit’ organization. It represents 95 per cent of the total revenues of the
information technology, software and services industry. It has played a vital role in catalyzing the
growth of the information technology industry in India. It is credited with having positioned the
Indian information technology industry overseas markets as one that stands for an impeccable
cost value proposition. It has actively networked with policy makers, industry players, technologies
and academicians to propel the growth in the Indian information technology sector. It acts as a
single reference point for overseas companies/investors for setting up the operations/alliances in
the ICT sector for investments.

1.12 INTERNATIONAL COMPARISON

According to Evalueserve, during 2006–07, the Unites States Information Technology industry
generated approximately USD 452 billion in total revenue (i.e., domestic, as well as exports),
which is almost fifteen times more than the USD 30.1 billion generated by the Indian Information
Technology industry. In 2007, the U.S. Bureau of Labor Statistics published its report, which
stated that approximately 3.2 million Information Technology professionals were employed in
2006 in different sub-sectors of the United States Information Technology industry and forecasted
that approximately 4.01 million professionals are likely to be employed in 2016. Therefore,
Evalueserve’s study concludes with the following:

44
• With respect to the number of professionals, the Information Technology industry in India in
2016 is likely to be second in the world after the United States, with the latter employing between
1.25 and 1.33 times more professionals.

• Even in 2016, the Information Technology industry in the United States is likely to generate
approximately USD 810 billion in annual revenue, which would be approximately five times the
revenue of the corresponding industry in India.

• The Information Technology industries in both the U.S. and India have become inextricably
linked with one another and with the rest of the world. Both the countries are likely to import, as
well as export more Information Technology services and products, at least for the next 7 to 8
years. (Source:www.evalueserve.com)

1.13 NEED OF THE STUDY

Corporate Social Responsibility is an apt subject to study as it is a rather urgent issue nowadays
with all the major companies in the world spending considerable resources in this field primarily
to establish and uphold a proper rapport with their stakeholders both inside and outside the
companies.

Corporates have moved on from the traditional assumption that the business of business is to
make profits (Milton Friedman). Today the business success depends not only on quality or price
or convenience alone but also other variables like ethical business practices, strong organizational
culture, community engagement, the environmental concern and so on. Companies must also
measure the broader impact of business on society and on the key stakeholders.

As the organization is the part of the society it cannot function in isolation from the society around
them so there is an obligation and responsibility from the part of the corporate to take action that
protects and improves the welfare of society as a whole along with their own interest (Keith
Davis 1975 Frooman, 1984; Etzioni, 1988; Capra, 1992; Brenner, 1993; Reef, Muralidhar and
Paul, 1993; Clarkson, 1995; 1998; Donaldson and Preston, 1995; Sethi, 1995; Shrivatsava,
1995; Griffin and Mahon, 1997; Mitchell 1997;Kotler and Lee’s (2005 et al.).

Corporate Social Responsibility (CSR) is generally considered to be a concept or practice

whereby organisations consider the interest of society by taking responsibility for the impact of
their activities on preferably all the stakeholders, viz, customers, employees, shareholders,
45
communities and the environment in all or most aspects of their operations. This obligation is seen
to extend beyond the statutory obligation to comply with legislation and sees organizations
voluntarily taking further steps to improve the quality of life for the local community and society at
large.

The concept of Corporate Social Responsibility (CSR) has long been established in
academic literature as both a business philosophy and practice (Anderson Jr. 1989; Hay
1976 et al.). The concept, however, is seemingly much more prevalent, timely and important in
this new millennium, as firms attempt to be seen as being “sustainable” or “socially responsible” in
nature due to the demands of target stakeholders (Cornelius et al. 2007; Moir 2001; Wilson
2000). Internal and external stakeholders are requesting that firms act responsibly and behave
ethically. Moreover, firms are expected to respond to the changing beliefs and values of the
society (Anderson Jr. 1989; Committee for Economic Development 1971; Steiner 1972). Whilst
being socially responsible is often considered doing the “right thing” or being ethical, Carroll
(1979) identifies that the organization also has economic, legal, and discretionary obligations
to its target stakeholders.

The society plays a pivotal role in the success of any organization. Hence no organization can
achieve long-term success without fulfilling the responsibility towards the society. It is thus with
the intention of understanding the practices and performance of corporate social responsibility
and its relation to organizational culture and ethical practices of the business in IT industry that the
study has been undertaken.

The review of literature reveals that though a large number of studies have been carried out
across the globe analyzing the practices of Corporate Social Responsibility and its impact, there
is a dearth of literature in this subject in the Indian context. The literature review reflected a
growing trend of business towards social responsibility practices and its relation to organizational
culture and Business Ethics.

Information Technology have revolutionized life and brought prosperity to many. As the Information
Technology industry has grown in size and revenues, so have concerns about the sectors as a
player in the development process and as an industry. While the development potential of Information
Technology is undeniable, it has actually denied the gap between the information elites and
impoverished majority. While the Indian Information Technology industry has been justifiably
landed for its achievement on the economic front, several issues on the social and environmental
46
fronts still remain unresolved. Here is the role of the corporate social responsibility of Information
Technology sector.

The purpose of this research is to study how effectively Corporate Social Responsibility being
practiced by small, large and multinational companies of Information Technology industry in
Bangalore. Furthermore, is there any correlation between the Corporate Social Responsibility
practices and their organizational culture and business ethics of organizations. This study will
endeavour to answer these questions, understanding more about the present state of Corporate
Social Responsibility in Information Technology companies in Bangalore.

1.14 ORGANIZATION OF THE THESIS

Chapter I provides a general description of the dependent variable corporate social responsibility
and the independent variables organizational culture and business ethics in Information Technology
industry.

Chapter II This chapter reviews the literature relevant to the subject matter of this research. The
literature survey present the pertinent conceptual and empirical studies conducted in India and
abroad. It briefly traces the theoretical framework and developments of corporate social
responsibility the dependent variable and organizational culture and business ethics the independent
variables of the study.

Chapter III describes the research design for the study. It elaborates the methodology proposed
to be followed in order to arrive at answers to the research questions identified and finally, the
techniques to analyze the data, in order to verify the proposed hypothesis.

Chapter IV This chapter furnishes the empirical analysis and results of the study undertaken. The
results lead to the verification of the proposed hypotheses.

Chapter V This chapter gives a brief summary of findings and conducts of the study. It sketches
the implications of research to management theory and practice and the limitations and scope for
further research are also discussed.

47