CSR SIBM Arun K Rath

Corporate
Social
Responsibility

March 2021
 Why are Corporations
Important ?

• Power of Modern Corporation

• Contributions to economy
• Adverse consequences of corporations
Power of Modern Corporation

• Powerful engines of economic

development
• Principal factors in economic
organization

3
 Contributions to economy
• Corporations create jobs
• Generate income
• Produce goods and services
• Filling up the space of State
Corporations :Adverse consequences

• Failures /Scams
• Unethical Practices
• Obsession for Profit
• Low concern for social causes
• Low concern for environment
• Mindless machine
• Directors & Managers Selfish Agents
•Should Business have
Social Responsibility?
Business Philosophy : Yesterday &Today

Milton Friedman ( 1970 )

• Most famous critic of CSR concept :
CSR activities decrease company wealth .
The Social Responsibility of Business is to
Increase its Profits.
Business of business is business
• “There is one and only one social
responsibility of business–to use it resources
and engage in activities designed to increase
its profits
• Story of Henry Ford 1908
Maximizing Shareholder Wealth

Dodge v.
Ford Motor Company
• 1916, Ford Motor Company -Surplus of $60 m.
• President and majority stockholder, Henry
Ford, sought to end special dividends for
shareholders to invest in new plants ,also to
cut prices of his cars.
• Ford: "My ambition is to employ more men, to
spread the benefits to the greatest possible
number, to help them. To do this we are
putting our profits back in the business.“
• Minority shareholders objected, demanding Ford stop
reducing prices and pay special dividends from the
surplus
• Two Dodge brothers owned 10% of the company,
among the largest shareholders next to Ford.
• The Court was called upon to decide :
Can the minority shareholders prevent Ford from
operating the company for the charitable ends?
• The Court held that a business
corporation is organized
primarily for the profit of the
stockholders, as opposed to the
community or its employees.
• The discretion of the
directors does not extend to
the reduction of profits or
the non -distribution of
profits among stockholders in
order to benefit the public
• Michigan Supreme Court held that
Henry Ford owed a duty to the
shareholders to operate his
business to profit his shareholders,
rather than the community as a
whole or employees. It is often cited
as embodying the principle of
"shareholder value" in companies
• This case is frequently cited as support
for the idea that "corporate law
requires boards of directors to
maximize shareholder wealth.“
• Others refute that interpretation.
• Debatable in present context of
Corporate Social responsibility
emerging as corporate strategy along
with profit
Stakeholder Theory
• R Edward Freeman( 1984 )
• Opposed Friedman view
• Book Strategic Management: A Stakeholder
Approach
• A stakeholder in an organization is any group or
individual who can affect or is affected by the
achievement of the organization’s objectives.
• Freeman ( 2004)
Stakeholders are those groups who are vital for the
survival and success of the corporation
• Purpose of business is not just to make profit as an
end by itself, “profit would be the means to that
larger end.”
-Charles Handy HBR 2002
• “Profit for a company is like oxygen for a person .If
you don’t have enough of it, you’re out of the game.
But if you think your life is about breathing, you’re
really missing something.” –Peter Drucker
 Freeman :Stakeholder Theory
• Groups / individuals/Institutions who can
substantially affect / be affected by the company
are stakeholders
• A stakeholder holds a stake , rather than just a
share
• According to Freeman, stakeholders are the
shareholders ,employees , customers, suppliers,
and the communities in which the companies
operate—a collection of “big five”
• Creditors , govt. , & environment etc are added
as stakeholders
18
Corporate Gov.: Social Objective
• Corporate governance deals with the ways in which suppliers
of finance to corporations assure themselves of getting a
return on their investment.
(Shleifer and Vishni)

• Corporate Governance has several claimants – shareholders

and other stakeholders – which include suppliers, customers,
creditors, bankers, employees of the company, the
government and the society at large. The fundamental
objective of corporate governance is the enhancement of
shareholder value, keeping in view the interests of other
stakeholders. ( SEBI Birla Committee)

• Society as Stakeholder  CSR follows

•What is CSR ?
Defining CSR :Carroll’s Pyramid of CSR
Archie B Carroll (1979 )
• Corporations not only have to fulfill economic and legal
responsibilities but also satisfy social expectations
• Social Responsibility- a multilayered concept having four
main aspects:
1-Economic Responsibility-Required by Society
2-Legal Responsibilities-Required by Society
3-Ethical responsibilities-Expected by Society
4-Philanthropic Responsibilities- Desired by Society
• Social Responsibility of business requires meeting of all
four levels consecutively
Carroll’s four-part model of corporate social responsibility

Philanthropic Desired by society

Responsibilities

Ethical Expected by society

Responsibilities

Legal Required by society

Responsibilities

Economic Required by
Responsibilities society
CSR Definitions

• CSR includes the economic,

legal, ethical and philanthropic
expectations placed on
organizations by society at a
given point of time.
• “A concept whereby companies
integrate social and
environmental concerns in their
business operations and in their
interaction with their
stakeholders on a voluntary
basis.” EU
• An obligation, beyond that
required by the law and
economics, for a firm to pursue
long term goals that are good
for society
thank you
Class 2

-Theories of CSR
-Arguments for & against CSR(Milton
Friedman and Michel Porter)
-Sustainable Development
CSR : The Theories

CSR theories fall in four groups:

(1)instrumental theories,
(2) political theories,
(3) integrative theories ,
(4) ethical theories,
CSR : The Theories

CSR theories fall in four groups:

• (1)instrumental theories, in which the corporation is
seen as only an instrument for wealth creation, and
its social activities are only a means to achieve
economic results;
• (2) political theories, which concern themselves with
the power of corporations in society and a
responsible use of this power in the political arena;
• (3) integrative theories ,in which the corporation
is focused on the satisfaction of social demands as
integrating ; and
• (4) ethical theories, based on ethical
responsibilities of corporations to society .Thus
CSR theories present four dimensions related to
profits, political performance, social demands and
ethical values respectively.
Trusteeship of Property
• Rich and wealthy are trustees of property.
• They hold economic power on behalf of society
only as custodians.
• Must employ such economic power for the benefit
of the people and society.
• May enjoy only a portion of their wealth up to a
reasonable limit either by self-regulation or by
norms fixed by society.
• Major portion of their wealth must be available for
benefit of society.
31
Message of Upanishad
• Isopanishad lays down code of conduct about
worldly possessions which inspired Gandhi’s
theory of trusteeship.
• Based on detachment or non-possession –
“Tenā Tyāktenā Bhunjeetah: Ma Gridhāh Kasyā
swid dhanam?”
(Enjoy by renouncing: do not cling to
possession; for whose is wealth?)

 Krishna,Arjun & Karna

32
CSR : Arguments For

• Socially responsible companies outperform their less

fastidious peers on the stock market.
• CSR boosts its brand value
• Employees feel happy
• CSR attracts talented people .
• It builds trust among shareholders ,
• Customers are attracted
• Socially responsible investment ( SRI)
Against CSR
• Corporation to maximize return to shareholders.
• If unchecked, managers may squander away
resources on CSR
• CSR is just “green washing”.
• Directors should not reduce profits to company.
• Corporate Executives cannot decide on social
interests .
• Costs on CSR will be passed on to consumers .
“GREEN WASHING”
CSR & “ Green Washing”

• Green washing like whitewashing

To gloss over CSR achievements with misleading publicity .
Use of marketing to portray an organization's products,
activities or policies as environmentally friendly when they are
not
-through advertising and PR exercise .
• It is used to promote the deceptive perception that an organization's
products, aims or policies friendly to the environment even though
they are not .
• Green washing efforts can range from changing the name or label of a
product to evoke friendliness to environment .
• Harmful chemical products may be sold through multimillion-dollar
advertising campaigns portraying highly polluting energy companies
as eco-friendly.
• Many companies use green washing as a way to repair public
perception of their brand.
• Other examples of green washing are :
• Natural gas is claimed to be “clean” in burning , compared to the
dirty fossil fuel coal. But natural gas is only 50% as dirty .
• Despite this, it is often presented as a 'cleaner' fossil fuel in
environmental discourse and is often compared with solar and wind
energy.
• Many packaged food products have packaging that looks
environmentally friendly, though there has been no attempt made at
lowering the environmental impact of its production.
• In 2009, Mc Donald changed the colour of their logos from yellow and
red to yellow and green; a spokesman for the company explained that
the change was "to clarify [their] responsibility for the preservation of
natural resources." !
• Advertising Standards Authority of UK upheld several complaints
against major car manufacturers like Suzuki SEAT ,Toyota and Lexus
who made erroneous claims about their vehicles.
• Kimberly Clark's claim of "Pure and Natural" diapers in green
packaging is green washing . The product uses organic cotton on the
outside but keeps the same petrochemical gel on the inside.
Benefits Of
Responsible
Business Practices
 Benefits Of Responsible Business Policy

As seen by Business Corporations

• Shareholder Satisfaction
• Cheaper Finance
• Increased customer loyalty
• Attraction and retention of employees
• Greater motivation of workforce
• Better public image
• Reduce loss due to unethical practices
• Improved financial performance
• Better performance in stock exchange
• Long term sustainability of Corporation
Business Point of View ?

There are arguments for and against CSR !

What is business point of view ?
• Those managing business realize that they depend on
society .
• Business relies on resources from society and on
socially created institutions .
• Business can see advantages in adopting a CSR
approach in doing business
• Business organizations are decidedly adopting
strategy in favor of CSR.
CSR TERMINOLOGY
• Terminology for social objectives of Corporations :

corporate social responsibility , social issues

management, stakeholder management ,
sustainable business development , corporate
citizenship , corporate ethics , business ethics, social
trust, trusteeship of property ,social responsibility of
business

• All these terms have similar philosophical

foundations.
•CSR & Employee Volunteering
• A crucial element in CSR is community involvement by employees
• Corporations act as ‘citizens’ to give back to their communities and be
responsible members of their communities
• Employee volunteering (EV) is an increasingly salient feature of companies’
community involvement programmes.
• EV consists of company’s support for staff involvement in the local
community.
• There are a number of reasons for becoming involved in EV,
such as
‘doing good’,
‘cooperating with others’,
‘trusting’
‘networking’.
• Employee volunteerism strengthens employee satisfaction and retention
• Enhances corporate reputations and relations with stakeholders
• Many highly regarded companies specifically link employee volunteerism
to their corporate social responsibility strategy.
• Gandhi once said, “The best way to find yourself is to lose yourself in the
service of others.”
• Corporate volunteer programs offer a path for companies to find their soul
and for employees to fill their hearts.
• They’re a unique form of corporate giving that creates a direct bridge
between employees and community,
• Encourage employees to become champions of causes by sparing from a
single day of volunteer service to long-term partnerships with nonprofits.
Benefits of employee volunteerism.
• Company Benefits
• Improves relationships with surrounding community
• Improves public image
• Builds a motivated workforce
• Increases employee performance
• Enhance corporate brand reputation
• Employee Benefits
• Improves leadership and interpersonal skills
• Reduces isolation and increases interaction with employees
• Adds variety and fulfillment and increases sense of self worth
• Improves services by the community
• Community Benefits
• Provides new talent and energy by increasing number of volunteers and pool of available
skills
• Increases understanding between businesses and nonprofit sector
• Supports the quality of life in the community
• Gives capacity to provide community services that otherwise might be impossible
WIN WIN
 Sustainable development

• Brundtland Report.
-(World Commission on Environment and
Development , United Nations , 1987)
• This report stated that ‘‘sustainable development’’
seeks to “meet the needs of the present without
compromising the ability of the future generation to
meet their own needs’’
• Two principles : Least Harm and Long term
Triple bottom line

• TBL or 3BL
• (also known as "the three pillars" -people,
planet, profit)
• captures values and criteria for measuring
organizational success: economic, ecological, and
social.
• John Elkington in 1997
Triple bottom line approach
• profit ( by law)
• people (social responsibility)
• planet (sustainable development)
• In the words of the World Business Council for
Sustainable Development (2000), sustainable
development
‘‘requires the integration of social , environmental,
and economic considerations to make balanced
judgments for the long term’’.
Corporate Sustainability : Components

1. Economic Sustainability
2. Social Sustainability
3. Environmental Sustainability
The three components of Sustainability

Economic Social

Environmental
Ethics , CSR & SD

• The non-financial corporate goals which are emerging

are taken up under different terminology like Ethics ,
SD & CSR.
• All these terms have similar philosophical
foundations.
• In particular there is a clear overlap between business
ethics and social responsibility of business
The concepts concern values, and decisions based
on goals other than the mere pursuit of profits .
A socially responsible corporation must act ethically
and cause sustainable development