IMS MBA

401 – Unit I

Unit – 1

[Notes authored by (Prof.) Dr. Hatim Kayumi, IMS A’Nagar]

Notes of only Unit 1, 4 and 5 are currently available…

Meaning and Nature of Corporate Social Responsibility

(CSR)

1. Business firm is a part of society. In fact, it owes its existence to the society. Society desires / expects certain obli‐
gations to be performed by business firms. These obligations are essential not only for well being of society, but
also for survival and development of business itself.
2. Business Corporations run within the society, thus, are considered as a sub-system of the society. Business and
Society are inter-related as business gets required inputs from society and society gets goods and services from
business firms. A business can run successfully only when it enjoys acceptance from the society.
3. CSR is commitment and activities of an organization to meet society’s expectations on economic, environmental
and social performance. Undesirable activities should not be taken for the sake of earning profits.
4. There is no universal definition of CSR; hence, it is generally interpreted as organization’s way of integrating
economic, social and environmental activities. Some definitions of CSR are as follows:
According to Carroll & Buchholtz, “CSR encompasses economic, legal, ethical and philanthropic expectations placed on
organizations by society at a given point of time.”
According to Howard Bowen, “CSR is defined as obligations to pursue those policies, to make those decisions or to fol‐
low those lines of action, which are desirable in terms of objectives and values of our society.”
5. In simple words, CSR is defined as a corporate’s obligations, beyond that required by the law and economics, to pursue
long-term goals that are good for the society.
6. Company which is an artificial person created by law, is by far dominant form of business entity in modern
forms of businesses. In CSR, corporate means companies with prime objective of profit making. Sole proprietor
/ traders, HUF and non-profit making firms, charitable/educational institutions, etc are not profit making con‐
cern; and hence, are not responsible under CSR.
7. Belief that discharging CSRs increases costs and thereby reduces profits has been proved wrong. No business
can exist and survive without acceptance and sanction from the society in which it carries out its activities.

Divergent Views of Social Responsibilities

A) Traditional View

According to Classical view, a society basically demands production and supply of goods and services from a
business firm. It is the only social responsibility expected for business.
If business is utilizing factors of production (resources) effectively and efficiently and makes available goods
and services of right quality and at reasonable prices to the customers, then it is considered that business is
functioning in a socially responsible way.
It is based on assumption that economic growth is the source of all social as well as economic progress. Earning
high profits by competing firms will ultimately lead to economic growth.
The basic mission of business was considered to produce goods and services at a profit. By doing this, the cor‐
poration was considered as socially responsible.

B) Modern View

A modern company has many responsibilities towards society that goes beyond production of goods and ser‐
vices at a profit. There are number of stakeholders related to a corporation.
CSR means companies are more than simply economic institutions and hence, they have a responsibility to help
society in solving some of its most critical social problems by devoting some of its resources. Today, it is consid‐
ered that corporate can achieve its objectives by serving the society in a meaningful manner.
Responsibility is a necessary reciprocal of power. Any imbalance from company will lead to irresponsible be‐
haviour and may adversely affect welfare of society. If business avoids CSR, society shall take back away some
of its given powers.

Nature of CSR

1. Use at Multinational level

2. Driven by Morals
3. Combination of social & legal norms
4. Positive and negative nature
 5. Relationship with HRM

Drivers of (factors leading to) CSR

1. Enlightened self-interest
2. Social investment
3. Transparency and trust
4. Increased public expectations of business
5. Ethical consumerism
6. Laws and regulations

Arguments for CSR (Need / Significance of CSR)

Long term profitability

Improved public image and stable business
Conscious and Increased number of satisfied customers
Attraction of employees
Strong trade unions
More independence from government
Moral responsibility to solve social problems (pollution, dirt, water, etc.)
Use of scare valuable resources of society

Arguments against CSR (Limitations of CSR)

According to Classical view of CSR (Milton Friedman, 1962), CSR increases cost of doing business. This cost is ei‐
ther passed on to consumers in the form of higher prices or absorbed by shareholders through smaller profit mar‐
gin. Increase in prices of goods will result in decline in sales of company. If this cost is absorbed by business, it will
result in lower profits and lower returns to shareholders / owners.

Conflicting consideration (maximizing profits and CSR are opposite)

CSR affects economic health of business
Social responsibility is responsibility of Government
Burden of increased prices to be passed on consumers / society
Lack of self-interest
Companies involve in CSR with an intension to avail tax exemptions
Misuse / extensive use of society’s resources
Involvement of companies in CSR will lead to increase in dominance of business influence over the society
Dimensions of CSR (Responsibilities towards different
Stakeholders)

1. Society / Community
2. Government
Abide by laws of the nation and also policies and guidelines issued by government
Pay taxes honestly and in time
Avoid corrupting government employees
Avoid formation of monopoly or concentration of economic powers
Encourage fair trade practices in the country
Adopt fair dealings in foreign trade
3. Suppliers / Vendors
Regular and timely payments to suppliers
Fair terms and conditions regarding price, quality, delivery of goods, etc.
Avoid exploitations of small and medium suppliers
Assist small and medium suppliers by placing regular orders
Suggestions for improving quality of their products
Establish and maintain healthy relations with suppliers / vendors
4. Customers / Consumers (Customer’s satisfaction is ultimate key)
Qualitative goods with reasonable prices
Produce and supply goods / products as per customer’s needs and desire
Offer products with different varieties, classes, tastes, preferences, etc.
Prompt, polite and adequate services to consumers
Handle customer’s grievances and queries quickly and carefully
Ensure regular supply of goods and services
Ensure advertisement and other promotional materials issued be truthful
Follow fair trade practices
Avoid practices like adulteration, poor quality, lack of services, lack of courtesy, misleading / dishonest ad‐
vertisements, etc)
5. Employees (Workers / Labours)
Pay reasonable wages / salaries to employees that satisfy their daily needs and lead a good life
Provide good working conditions to maintain health of employees
Job security to employees
Insurance cover, retirement benefits & welfare benefits like housing, medical, etc.
Provide required training and education
Strong and better human relations
Worker’s participation in decision making
Form proper trade unions to protect their rights
6. Shareholders / Owners (provides required capital for business)
Higher and regular rate of return on their investments
Ensure safety of principal investment
Capital appreciation in principal value of investment
Strengthen financial position of company
Timely updates and informed about progress of the company
Safeguard of assets of business
Protect interests of all types of investors
 7. Dimensions of CSR include obligations of corporate towards several interest groups also called as
Stakeholders. These groups are classified into Internal stakeholders (i.e. shareholders / owners, employees,
etc.) & External stakeholders (i.e. customers, suppliers, Government, society as a whole, etc.)
Improvement of local environment where plant is located
Provide welfare of local community by opening dispensaries, water purifiers, etc
Ensure safety of local surroundings from industrial hazards
Take steps against air, water or noise pollution
Ensure effective use of national resources
Generate employment opportunities
Provide high quality products to the society
Improve quality of life of workers
Promote national integration
8. Reconciliation: Interests of various groups are not similar and are conflicting. It is a duty of management to
bring about a compromise among interest of various parties. Hence, management is an arbiter among various
interests.

Carroll’s Model of CSR (Types of CSR)

Carroll’s Four Part Model of CSR is the most established and accepted model of CSR proposed by Archie Carroll
(1979). According to this model, CSR is a multi-layer concept consisting of four inter-related aspects / components
of obligations and responsibilities, i.e. economic, legal, ethical & philanthropic. These components are not mutually
exclusive (they are inter-dependent). These obligations are presented as consecutive layers within a pyramid. These
responsibilities are as follows:

1. Economic Responsibility: It is first-layer and basis of subsequent responsibilities. Economic responsibility is

must for all corporations to survive in time. It includes reasonable return to investors, fair compensation to em‐
ployees, fair prices to customer, taxes to government, etc.
2. Legal Responsibility: It demands company to be abiding by laws, rules, regulations, procedures and play by
rule of game. It is a pre-requisite for any corporation to be socially responsible.
 3. Ethical Responsibility: This refers to obligations which are right, just and fair to be met by corporations. The
conduct of corporations that goes beyond law and contributes to social well being is called ethical. It consists of
what is generally expected by society from companies over & above economic & legal expectations.
4. Philanthropic Responsibility: The word ‘philanthropy’ is derived from two Greek words i.e., ‘philein’ meaning
to love, nourish, care & ‘anthropos’ meaning human being / man. Thus, philanthropy means love of humanity,
what is to be human or doing better to others. Philanthropy simply means giving for well-being of human be‐
ing. Philanthropy means charity or desire to help mankind. It is a voluntary service as it implies volunteering
oneself or resources for well being of public at large. The term Charity is narrower in scope as it mainly focuses
on solving current problems or immediate need of an individual or group (Eg: giving water bottle to a thirsty),
whereas Philanthropy aims social change at large scale through giving. (Eg: installing water purifier for public).

Interest and Influence of various Stakeholder Groups

1. Stakeholders affects or get affected by the actions taken by company. More the stakeholders get benefits or
losses; the stronger their interest is likely to be. The influence and interest can be internal or external to the
organization.
2. This interest of various stakeholders can be many and may change from group to group. Some common interest
are:

Economics
Social change
Work culture (decision making)
Time (working hours)
Working environment
Physical health
Mental health
Safety and security

3. Reasons for identifying and analyzing interest of Stakeholders

Puts more ideas

Includes various perspectives
Fair treatment to everyone
Saves from being Blindsided
Strengthens position

Bridging social capital for the community

Increases credibility of organization
Increases chances for success of effort

Interest and Influence of various Stakeholder Groups are describe as under:

Stakeholder Interest of Stakeholders Power / Influence

Shareholder Profitability, growth, higher Appointment of Board of
dividends, increased share Directors
prices
Banks and Interest payment, principal re‐
Lenders payment, credit rating
Management / Salary, status, stock option, job
Directors satisfaction, self-esteem
Employees Salaries / wages, job security,
job satisfaction, motivation
Suppliers / Prompt payments, long term
Vendors contracts, increasing purchases,
better terms and conditions
Customers / Better quality, cheap prices,
Consumers product availability, value for
money, better sales services
Community / Environment protection, job
Society opportunities
Government Tax receipts, following rules
and regulations
Enforce loan agreement, with‐
draw banking facilities, taking
over assets
Decision making based on
proper information
Staff turnover, industrial ac‐
tions, service quality
Pricing, quality, delivery and
availability of product
Brand loyalty, repeat business,
word of mouth publicity
Actions of local authorities
Subsidies, legal acts, policy
formation

Formation and Implementation of CSR Policies

1. Key components while forming CSR policy

Protect welfare of and be responsive towards all stakeholders
Focus on ethics, values and accountability (not promote malpractices, unethical practices corruption)
Provide positive work environment to promote dignity of employees
Focus on training and development
Encourage employees for forming effective trade unions
Build environment friendly atmosphere by utilizing waste material
Undertake activities for economic and social development of society
2. CSR Strategies adopted by different companies
1. Reaction: Company denies its responsibilities towards society arguing that it is the responsibility of govern‐
ment to take care of social issues
2. Defense: Company admits its responsibilities but tries to avoid as much as possible or discharge minimum
social responsibility till it does not adversely affect it
3. Accommodation: Company admits and accepts its responsibilities towards society and discharges the same
as demanded by different stakeholders
4. Pro-action: Company discharges its social responsibilities by going beyond normal rules and norms set in
this regard. This is enlightening stage where company tries to do more for social issues than what is
expected.
3. Guidelines for implementing CSR policy
Clear cut identification of activities (what is to be done, where, how, who, etc)
Time frame along with proper budgets
 Appraisal format with set standards
Take care of local laws, rules and regulations
Effective communication of every event and activity
Encourage ethical conduct and transparency in all dealings
4. Procedure for Implementing CSR (Steps)
1. Understand the relevance of CSR
2. Build case for CSR response
3. Engage with stakeholders
4. Identify and prioritize key risks
5. Develop CSR strategy
6. Develop supporting policies and procedures
7. Organizational change
8. Monitoring of performance
9. Communication to stakeholders

Bottom of Pyramid Opportunities

1. The basic concept behind BOP is to target such customers, who are not having much purchasing power, but
they are in wide numbers and an organization can fulfill their expectations as per their buying capacity.
2. Active involvement of firm at BOP is a critical element in creating inclusive capitalism, as private sector compe‐
tition for this market will promote attention of poor as customers. If an organization will target to this BOP con‐
sumers, it can also direct to significant growth and profits for firm in long run.
3. Characteristics of BOP opportunities:
Provides new growth opportunity for the firm and focus on innovation
Integral part of success and sustainable growth of firm
Targeting untapped opportunities
Producing / manufacturing quality products at lower prices
Emphasis on creativity and entrepreneurship
Focus on concept that ‘poor are not problem, while they are the market’
Higher earnings opportunities for firm
Brand consciousness and loyalty at affordable prices
Emphasis on reducing costs and R&D

Issues and Opportunities for Business in Socially and

Environmentally Sensitive World

1. Key Environmental Issues

Sustainable Natural Resource Management
Environmental Rehabilitation
Global Warming
 Energy Issues
Waste Water Management
Solid Waste Management
Identification of Environmental, Health and Safety Issues
2. Key Social Issues
Transparency and Accountability in company operations
HIV / AIDS Awareness Programs
Occupational Health & Safety
Human Rights & Gender Equality
Supply Chain Standards
Child Labour
Equal Opportunity
Community Relations
Community Health, Safety and Security
Improving Company’s Awareness and Reputation in Community
Co-operate with NGOs on specific issues

Environmental and Social Issues shaping the Market

Water Scarcity and Quality

Climate Change
Energy availability and cost
Air Pollution
Waste and its Management
Forest and Soil Degradation
Earthquakes & Volcanic Eruptions
Poverty
Human Health and Safety
Human Rights
Corruption

Corporate Citizenship

1. Citizenship is basically characterized by status and entitlements. Traditionally, the term citizenship is regarded
as a formal legal status within a specified political community that provides basis for various rights for
individuals.
2. Citizenship means legal rights and duties of a member of a country. An important justification in favour of cor‐
porate citizenship is its recognition as Artificial Person.
3. Definitions of Corporate Citizenship:
According to Gianni Zappala, Corporate Citizenship is defined as “the act of business taking greater account of its so‐
cial, environmental and financial footprints.”
 In simple words, Corporate Citizenship is defined as “the responsibility of an organization to create business value by
caring for the well-being of all stakeholders including the environment.”
4. Nature of Corporate Citizenship: On the basis of its definition, CC can be described into following three
perspectives:
Limited view of Corporate Citizenship (This is equal to Corporate Philanthropy)
Equivalent view of Corporate Citizenship (This is equal to CSR)
Extended view of Corporate Citizenship (This includes extended political role of corporate in the society)

Dimensions Limited view Equivalent view Extended view

Focus Philanthropy with All aspects of CSR Citizenship rights, i.e. so‐
limited scope cial, civil and political
rights
Stakeholders Employees and lo‐ All stakeholders Almost all groups of citi‐
group cal community zens and society at large
Motivation Philanthropic and Combination of eco‐ Political
economic nomic, legal, ethical &
philanthropic
Moral base Reciprocity (giving Feeling of responsibil‐ Changes in political arena
something back) ity to society
5. Benefits of Corporate Citizenship

Improves wealth and efficiency

Tax benefits / savings
Improved employee morale
Earns goodwill for company
Investments reflect values and mission of company
Earns competitive advantage for the company

*********************************************

[Notes authored by (Prof.) Dr. Hatim Kayumi, IMS A’Nagar]

Quick Links:

Unit I (https://imscdrmba.wordpress.com/401-unit-i/)

Unit II (N/A)

Unit III (N/A)

Unit IV (https://imscdrmba.wordpress.com/401-unit-iv/)

Unit V (https://imscdrmba.wordpress.com/401-unit-v/)
Clause 49 (https://imscdrmba.wordpress.com/401-clause-49/)

OECD Principle (https://imscdrmba.wordpress.com/401-oecd-principles/)