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Corporate Social Responsibility

Lecture Outline:
 The Concept of Corporate Social responsibility.

 Types and nature of social responsibilities.

 CSR principles and strategies.

 Models of CSR.

 Best practices of CSR.

 Need of CSR.

 Arguments for and against CSR.


 Person going from one side of the canyon to the other… a lot
of clouds like fog. The point is going from one way of doing
business to another is very tough. There’s a lot uncertainty.
It takes a lot of skill, but we have to lift ourselves beyond
that, above the fog, and that’s not going to be a simple
exercise.
The message is that
whatever we do today will
have an impact on future
generations. We should not
hope that the walls we
build to protect ourselves
will be tall enough to
protect our children. Only
with very conscious effort
we can make the world for
them a better place to
live…even if we address
our most selfish needs we
have to address the needs
of the next generation.
That’s what CSR is
about.”
Meaning:
 Corporate social responsibility is a gesture of showing the
company’s concern & commitment towards society’s
sustainability & development.

 CSR is the ethical behaviour of a company towards society.


 The way a corporation achieves a balance among its
economic, social, and environmental responsibilities in its
operations so as to address shareholder and other stakeholder
expectations.
WBCSD (World Business Council for
Sustainable Development)

“The continuing commitment by business to behave


ethically and contribute to sustainable economic
development while improving the quality of life of the
workforce and their families as well as of the local
community and society.”
 How should corporate performance in society be judged apart
from traditional economic standards?
 Are there goals and measures that individuals inside and
outside the corporation can use for guidance?
 Given the relationship between the corporation and its social
environment, what is the scope of managerial responsibility?
 To what extent should the corporation involve itself in social
concerns?
 How do corporations typically respond to social involvement
issues?
 Is there a common process that will enhance the
corporation’s understanding of corporate social performance?
Basic Constituents of CSR

Contribute Make Improvement Towards


towards a desirable Business
of social
sustainable social
economic
environment & Society
changes
development
3 Principles of CSR
1. The principle of legitimacy
-refers to society’s granting of legitimacy and power
to business, and business’s appropriate use of that
power and the possibility of losing that power.
2. The principle of public responsibility
- means that business is responsible for
outcomes related to its areas of involvement with
society.
3. The principle of managerial discretion
-refers to managers as moral actors who are
obliged to exercise such discretion as is available
to them to achieve socially responsible out-
comes.
Types of Social Responsibility
Responsibility towards Society
 Carrying on business with moral& ethical standards.
 Prevention of environmental pollution.
 Minimizing ecological imbalance.
 Contributing towards the development of social health,
education
 Making use of appropriate technology.
 Overall development of locality.
Responsibility towards Government
 Obey rules & regulations.
 Regular payment of taxes.
 Cooperating with the Govt to
promote social values.
 Not to take advantage of
loopholes in business laws.
 Cooperating with the Govt for
economic growth & development.
Responsibility towards Shareholders
 To ensure a reasonable rate of
return over time.
 To work for the survival & the
growth of the concern.
 To build reputation & goodwill
of the company.
 To remain transparent &
accountable.
Responsibility towards Employee
 To provide a healthy working environment.
 To grant regular & fair wages.
 To provide welfare services.
 To provide training & promotion facilities.
 To provide reasonable working standard &
norms.
 To provide efficient mechanism to redress
worker’s grievances.
 Proper recognition of efficiency & hard work.
Responsibility towards consumers
 Supplying socially harmless
products.
 Supplying the quality, standards,
as promised.
 Adopt fair pricing.
 Provide after sales services.
 Resisting black-marketing &
profiteering.
 Maintaining consumer’s
grievances cell.
 Fair competition.
CSR Principles & Strategies.
 Respect for human rights.
 Respect for the differences of views.
 Diversity & non-discrimination should be the guiding
principle.
 Make some social contribution.
 Enter into e dialogue
 Self-realization & creativity.
 Fair dealings & collaboration.
 Feedback from the community.
 Positive value- added
 Long term economic & social development.
Best Practices of CSR
 To set a feasible, Viable & measureable goal.

 Build a long lasting relationship with the community.

 Retain the community core values.

 The impact of the CSR needs to be assessed.

 Reporting the impact.

 Create community awareness.


Need for Corporate Social Responsibility

 To reduce the social cost.


 To enhance the performance of employees.
 It’s a type of investment.
 It leads to industrial peace.
 It improves the public image.
 Can generate more profit.
 To provide moral justification.
 It satisfies the stakeholders.
 Helps to avoid government regulations & control.
 Enhance the health by non polluting measures.
Arguments for & against the CSR

 Corporate should have some moral & social obligations to


undertake for the welfare of the society.

 Proper use of resources, capability & competence.

 The expenditure on CSR is a sort of investment.

 Company can avoid many legal complications.

 It create a better impression.

 Corporate should return a part of wealth.


Arguments against the CSR

 Fundamental principles of business gets violated.

 It vey expensive for business houses.

 CSR projects will not be successful.

 There are not the special areas of any business.

 CSR is to induce them to steal away the shareholders money.


CSR EXAMPLES
 IBM UK - Reinventing Education Partnership programme
Interactions and sharing of knowledge through a web-based
technology - the “Learning Village” software. Culture of
openness and sharing of good practice

 AVON - a partnership with Breakthrough Breast Cancer, and


its Breast Cancer Crusade has raised over 10 million pounds
since its launch 12 years ago
Companies in trouble
 Dasani mineral water (part of Coca-Cola).

 Coke’s sale was banned as the result of tests, including


those by the Indian government, which found high
concentrations of pesticides.

 Communities in India , around Coca-Cola's bottling


operations are facing severe shortages of water as a result
of the cola major sucking huge amounts of water from the
common groundwater source.
Issues at NIKE
 Nike Inc producer of footwear, clothing, equipment and accessory
products for the sports and athletic market.
 Selling to approximately 19,000 retail accounts in the US, and
approximately 140 countries around the world.
 Manufactures in China, Taiwan, Korea, Indonesia , Mexico as well as
in the US and in Italy.
 People working - 58% young adults between 20 and 24 years old,
83% - women.
 Few have work-related skills when they arrive at the factory.
 Issue- unhealthy work environment – debates heated arguments,
verbal abuse , 7.8% of workers reported receiving unwelcome sexual
comments, and 3.3% reported being physically abused. In addition,
sexual trade practices in recruitment and promotion were reported
Case Study
Jack Cohen founded Tesco in 1919
when he began to sell surplus
groceries from a stall in the East
End of London. The Tesco brand
first appeared in 1924. The name
came about after Jack Cohen
bought a shipment of tea from T.E.
Stockwell. He made new labels
using the first three letters of the
supplier's name (TES), and the first
two letters of his surname (CO),
forming the word TESCO. The first
Tesco store was opened in 1929 in
Burnt Oak, Edgware, Middlesex.
Tesco was floated on the London
Stock Exchange in 1947 as Tesco
Stores (Holdings) Limited.
Vodafone promised to cut down their carbon
dioxide emissions in half by 2020 through
improving the energy efficiency of its
global mobile -phone networks. Additional
points for Vodafone on CSR because they are
constantly updating us with the results of the
campaign; no matter whether it’s going well or
not.
Future promises includes pledging to recycle
95% of network equipment waste and plans to
reduce work-related accidents that cause lost
time by 10%. On top of that, Vodafone is a
leading business in socially responsible
products such as the text-to-speech software
for blind people and easy-to-use handsets for
the elderly.
The bank’s head of corporate
sustainability, Teresa Au, has said that
despite the economic situation, HSBC
would continue to support its
sustainability campaign. Initiatives
include providing small businesses with
sustainability insurance options and
developing an index for climate change.
The business has also boosted its
management of ethical and socially
responsible investing funds by 60% over
the last two years. HSBC has an
American unit that is dedicated to
assisting local communities by
promoting affordable homeownership,
among other goals.
INTRODUCTION:
 Corporate Governance is concerned with holding the balance between
economic and social goals and between individual and communal goals.
The corporate governance framework is there to encourage the efficient
use of resources and equally to require accountability for the
stewardship of those resources. The aim is to align as nearly as possible
the interests of individuals, corporations and society
 Corporate social responsibility is concerned with treating the
stakeholders of the firm ethically or in a socially responsible manner.
Stakeholders exist both within a firm and outside. Consequently,
behaving socially responsibly will increase the human development of
stakeholders both within and outside the corporation.
Principles of
Corporate Governance

 TRANSPARENCY
 ACCOUNTIBILITY
 RESPONSIBILITY
 FAIRNESS
Elements of Corporate
Governance
 Dispersed ownership
 Transparent  Written board guidelines
Ownership
 One share/one vote  Board committees
 Anti-takeover
defenses  Disclosure
 Meeting notification
 Board size
 Accounting standards
 Outside directors  Independent audit
 Independent directors
 Written board  Board disclosure
guidelines
 Timely disclosure
Corporate Governance CG
 The system by which companies are directed
and controlled
 CG encompasses the notions of compliance,
Accountability and transparency

 How managers exert their functions through


compliance with the existing laws
 regulations and codes of conduct
voluntary

Practices
Beyond
philanthropy CSR &
values

Social &
Economic
 There is no universally accepted definition of the word
“CSR”, the meaning and definition of CSR depends
upon on mainly two factors; Firstly, context in which
it is used and secondly, stakeholder. The difficulties
in defining precisely CSR are in part reflective of the
way in which this topic has developed and the context
of its use. For some, it has grown out of corporate
philanthropy with a clear emphasis on social
improvements or strategic investment keeping in view
long term goals. For others, CSR has a much broader
definition and is closely related to the sustainable
development and environment issues
Relationship between
Corporate Governance and CSR
 CSR is gradually getting fused into companies’ Corporate
Governance practices.
 Both Corporate Governance and CSR focus on the ethical practices
in the business and the responsiveness of an organization to its
stakeholders and the environment in which it operates.
 Corporate Governance and CSR results into better image of an
organization and directly affects the performance of an
organization.
 CSR is based on the concept of self governance which is related to
external legal and regulatory mechanism, whereas Corporate
Governance is a widest control mechanism within which a
company takes it management decisions.
Contradiction between CG
& CSR

 CG is related to profit maximization and protection who have provided


capital to firm
 CSR apparently in contrast of profit maximization because it suggest a
set of actions beneficial for external stake holder and may not be good
for share holder
 Managers hired focused to maximize the value of firm, would behave
unethically by being socially responsible
 They may raise external stakeholder value at the expense of
shareholders wealth maximization
CONCLUSION
 The relationship between CG & CSR are best interpreted by abandoning
the standard view of the firm as a shareholder value maximizer and
embracing the view of a firm as a stake holder maximizer.

 Social and ethically responsible firms are often viewed as the most
respected and profitable firms.

 CG & CSR are a strong compliments to each other.

 The positive relation between CG & CSR on one hand and the market
value of the firm on the other hand suggest that market is somehow able
to detect the corporations which are beyond the traditional bottom line
and towards an extended bottom line.
STAKEHOLDER & SHAREHOLDER
What is Good Corporate
Governance?
Corporate governance is "the system by
which companies are directed and controlled"
(Cadbury Committee, 1992)

It involves a set of
relationships between a
company’s management,
its board, its
shareholders and other
stakeholders
What is Stakeholder?
A person, group, or organization that has
direct or indirect stake in an organization
because they can affect or be affected by
the organization's actions, objectives,
and policies.
Board of Employees
Directors and Family Competitor
Management

Consumer
INTERNAL
STAKEHOLDER Distributor
Employee

EXTERNAL
STAKEHOLDER
Shareholders
Peers Supplier

Community Bank

The Government

Classifications
Primary Stakeholder (Main)
People that actively participated with the
company and directly work there.

Secondary Stakeholder (Supporter)


Is stakeholder that has no directly
business due to a project, but they are
concern so they have impact.

Key Stakeholder
That has legal role in the decision
making.
What is Shareholder?
A shareholder or stockholder
is an individual or institution,
including a corporation that
legally owns any part of
a share of stock in a public or
private corporation.
Shareholders own the stock,
but not the corporation itself.
Companies or Investment
Companies

Insurance
Person who buy
shares with
his/her personal
savings.
INSTITUTIONAL
INVESTORS

Banks

INDIVIDUAL
INVESTORS
The
Classifications
 Common-stockholder  Preferred-
- Temporary dividend. stockholder
- Fixed dividend.

From types of stock…


- Own more than 50% of
stock.
- Exerts complete control over
the company by being able
to replace the board of
directors and the
management.
- Have a bigger voting rights.

-Own less than 50% of


stock.
-Has less authority than
majority shareholder.
-Have less voting right.

From stock ownership…


Agency Theory
Agency Theory
 A theory concerning the
relationship between a principal
(shareholder) and an agent of the
principal (company's managers).

Conflict
The Relations
 Shareholder → Stakeholder

 Capital → Shareholders provide money


to the firm to increase stakeholder
wealth.

 Profit → The higher the income, the


greater the share price and dividends,
then the stakeholder is considered
successful / good performers deserve
incentives so high.
M M
A I
J N
SHAREHOLDERS
O O
R R
I I
T T
Y Y
Meetings of Company
Meetings of Company:
 Meetings of the company are of three kinds:

 1. Meetings of Members
 2. Meetings of Directors
 3. Meetings of creditors
Meetings of Members
 These meetings are general meetings as they are
attended by all the members.
 The management of the company is undertaken
through meetings of the company’s shareholders
where major decisions are to be taken. The meetings
are usually called by directors, but may also be called
by the shareholders. In case of default the
Commission may call a meeting, either of its own
accord or on the application of members.
Meetings of Members
 Types of meetings of the shareholders:
 The meetings of the shareholders are of three
types:
1. The Statutory Meeting
2. The Annual General Meeting
3. Extra Ordinary General Meeting
Meetings of Members
1. The Statutory Meeting:
 The statutory meeting is the first meeting of the
members of the company after it commences
business. It is held once in lifetime of the company.
 Section 157(1) states that “ every company limited
by shares and every company limited by guarantee
and having a share capital shall , within a period of
not less than three months, nor more than six
months, from the date at which the company is
entitled to commence business, hold a general
meeting of the members of the company, which
shall be called ‘the statutory meeting’”.
The Statutory Meeting:
 Subsection (12) states that this section shall
not apply to a private company.
 Thus the following companies are required to
hold the statutory meeting:
 Every public company limited by shares.
 Every company limited by guarantee and
having a share capital.
The Statutory Meeting:
 Requirements of Statutory Meeting:
Following are the requirements of statutory meeting:
 It is to be held within a period of three to six months
after the commencement of business.
 Twenty one days before the date on which the
meeting is held, the director shall forward a report,
“ the Statutory Report ” to every member. The
report is to be certified by the CEO and two other
directors. After certification a copy is to be sent to
the registrar and the auditors.
The Statutory Meeting
 The Statutory report includes the following:
 List of Members
 Shares allotted and the amount received from them
 Particulars of the directors, managers and secretary
 Particulars of contracts that have to be approved
 The detail of company’s affairs along with fees and
brokerage paid.
 The members present at meeting are at liberty to
disclose any matter relating to the formation of the
company.
2. Annual General Meeting (AGM)
 The Annual General Meeting (AGM) is a
required meeting under the ordinance. It is an
annual meeting through which the
shareholders control the affairs of the
company. They may raise questions about the
affairs of the company including its accounts.
It is, therefore, the annual general meeting of
the company that protects the interest of the
shareholders.
2. Annual General Meeting (AGM)
 Requirements of AGM:
Following are the requirements of AGM:
i. It must be held every year.
ii. The first AGM is to be held within eighteen
months of incorporation.
iii. Every subsequent(coming) AGM is to be
held within four months of the closing of the
company’s annual financial year.
2. Annual General Meeting (AGM)
iv. Notice of the date of the meeting is to be send
twenty one days before such date to the
shareholders whereas in case of a listed company
the notice is also required to be published in the
newspaper.
v. In case of default in complying with any of these
requirements all officers party to such default shall
be held liable.
vi. The gap between two AGMs should not be more
than fifteen months.
2. Annual General Meeting (AGM)
 Agenda of AGM:
 In this meeting the following matters are
usually considered.
 Annual accounts of the company
 Declaration of dividend
 Retirement and appointment of auditors
 retirement and appointment of Directors
3. Extra Ordinary General Meeting
 According to section 159 all general meetings of a
company , other than AGM and the statutory
meeting are called Extra Ordinary General Meeting.
Such meetings are called to deal with some urgent
special business that can not be postponed till the
AGM.
These meetings are called by two ways:
i. Calling of Extra Ordinary General Meeting by
Directors.
ii. Calling of Extra Ordinary General Meeting on the
Requisition of Members.
3. Extra Ordinary General Meeting
i. Calling of Extra Ordinary General Meeting by
Directors:
 The directors may at any time call the Extra
Ordinary General Meeting of the company to
consider any matter which requires the approval of
the company in general meeting.
ii. Calling of Extra Ordinary General Meeting on
the Requisition of Members.
 The directors shall, on the requisition of members
representing the one tenth of the voting power on
the date of deposit of requisition, forthwith to
proceed to call an extra ordinary general meeting.
3. Extra Ordinary General Meeting
 Requirements of Calling Extra Ordinary
General Meeting on the Requisition of Members.
 Requirements of Calling Extra Ordinary General
Meeting on the Requisition of Members are
following:
i. The requisition shall state the objects of the
meeting.
ii. It will be signed by the requisitionists.
iii. The requisition will be deposited at the registered
office of the company.
3. Extra Ordinary General Meeting
iv. If the directors do not proceed within the twenty-
one days from the date of the requisition being so
deposited to call a meeting, the requisitionists may
themselves call the meeting.
v. The meeting so called shall be held within three
months from the date of depositing such requisition.
vi. The meeting will be called in the same manner as
the meetings are called by directors.
3. Extra Ordinary General Meeting
 Notice of an Extra Ordinary General
Meeting:
 The notice of an Extra Ordinary General
Meeting shall be send to the members at least
twenty one days before the date of the meeting
and in case of a listed company it shall also be
published in a newspaper. A shorter notice
period will require approval of the registrar.
The Changing Meaning of Transparency
Topic:
How the view on transparency
in corporate reporting has
shifted and defined the CSR
movement – and why it
matters to your organization.

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Transparency: A Definition
“Transparency is the opposite of
secrecy. Secrecy means deliberately
hiding your actions; transparency
means deliberately revealing
them…Transparency is a choice,
encouraged by changing attitudes
about what constitutes appropriate
behavior.” 1

1 "Rivet Software - XBRL Solutions." Rivet Software - XBRL Solutions. N.p., 2010. Web. 22 Aug. 2012.
<http://www.rivetsoftware.com/premium/Rivet-Software-White-Paper-Talking-About-Transparency.pdf>.
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Old View vs. New View

TRANSPARENCY
Old View
• Twenty years ago, transparency in corporate
reporting was viewed negatively and sustainable
practices were not a business priority; most companies
didn’t report on social and environmental practices

• Transparency was too risky because it exposed


businesses to unwanted scrutiny from all stakeholders

• Organizations shied away from transparency for 2


reasons:
1. Bad press could arise after disclosing the environmental or
social impact of the business
2. Revealing too much could make businesses vulnerable to
competition

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Fact
In 1999, only ≈600 companies
in the world submitted
Corporate Responsibility
(CR) Reports. 2

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New View
• Over the last 10 years, businesses have realized that
transparency is necessary to build trust with stakeholders

• Transparency is not equivalent to compromising intellectual


property, but is being honest about what you do and how you
do it – this forces companies to adopt better, more sustainable
practices

• The key to transparency is voluntarily disclosing


information. This is usually done through annual reports,
conferences and/or online tools like websites and social
media

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Fact
In 2009, ≈3,800 companies in
the world submitted CR
reports. This is a 533%
increase from a decade
earlier.2

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The people have spoken – and now organizations respond

WHAT CHANGED?
An Educated Public
• People have become more educated about the environmental
and social impact corporations have around the world

• Millions of individuals are proactively reducing their


carbon footprint and making contributions for social change

• They now hold corporations to the same standard, and are


paying attention to ethics and supply chain sustainability

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Fact
Between 2005 and 2009, there
was an 84% increase in
companies producing CSR
reports for the first-time.3

3 "CRRA CRReporting Awards '10." Corporate Register. Corporate Register, Apr. 2010. Web. 22 Aug. 2012.
http://www.corporateregister.com/pdf/CRRA10.pdf>.
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The Result
• Smart companies are becoming more transparent and
producing corporate social responsibility reports detailing
their efforts toward becoming more sustainable

• Consumers are increasingly making purchase decisions


based on this information

• People are plugged in all the time and want information on


demand, so it’s essential that companies not only put a
sustainable plan in place, but then make it easily accessible
(and digestible!) for the public

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Fact
In 2010 CSR Trends Report,
81% of all companies
surveyed had CSR
information on their websites.

4 PwC, and Craib Design and Communications. CSR Trends 2010. Rep. PwC, 2011. Web. 23 Aug. 2012.
<http://www.pwc.com/ca/en/sustainability/publications/csr-trends-2010-09.pdf>.
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WHY TRANSPARENCY MATTERS
TO
YOUR BUSINESS
And what you can do about it?
A Necessary Good
• This new form of transparency has brought an opennesss
among corporations that is subject to both criticism and
praise

• With so many corporations being transparent in their


CSR strategies, organizations are competing to be the
most sustainable and produce the best reports. This is
raising the bar for other companies practicing CSR

• The Global Reporting Initiative (GRI) Guidelines


have helped standardize reporting so collaboration and
global benchmarking are possible

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Join the Conversation
• If your organization doesn’t already have a CSR program,
it’s time to start developing one to stay competitive and
make a positive impact

• The best place to start is to research competitor CSR


reports to determine best practices

• Once your plan is in place, you can continue to analyze


competitor reports to assist with benchmarking and to
keep on top of industry trends

• Transparency in corporate responsibility will help you


retain a competitive edge in the marketplace and will earn
trust and good-will from consumers, eventually affecting
your bottom line

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“Truth never damages a cause that is just.”
-Mahatma Ghandi

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