Corporate Social Responsibility: Business Ethics and Corporate Governance, 2e A. C. Fernando

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Corporate Social Responsibility
Business Ethics and Corporate Governance, 2e A. C. Fernando

Why Social Responsibility of Business?
• Accountability to Society
In a democratic society any kind of enterprise exists for
the sake of society.
• Corporations’ Debt to Society
A corporation has to behave as a good citizen. The
corporation has to donate generously towards causes of
public welfare and must get itself directly involved in
social welfare programmes.

Definitions of CSR
Corporate social responsibility (CSR) is a self-regulating
business model that helps a company be socially
accountable — to itself, its stakeholders, and the public.
It is a set of obligations 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.
It is the overall relationship of the corporate with all of its
stakeholders.
Elements of social responsibility include investment in
community outreach, employee relations, creation and
maintenance of employment, environmental stewardship
and financial performance.

VII of the
Companies Act 2013 as well as the provisions of the Companies (Corporat

e Social Responsibility Policy) Rules, 2014 to come into effect from April 1,
2014.
With effect from April 1, 2014, every company, private limited or public li
mited, which either has a
net worth of Rs 500 crore or
a turnover of Rs 1,000 crore or
net profit of Rs 5 crore,
needs to spend at least 2% of its average net profit for the immediately pr
eceding three financial years on corporate social responsibility activities.
The CSR activities should not be undertaken in the normal course of busin
ess and must be with respect to any of the activities mentioned in Schedul
e VII of the 2013 Act. Contribution to any political party is not considered
to be a CSR activity and only activities in India would be considered for co
mputing CSR expenditure.

The net worth, turnover and net profits are to be computed in terms of Section 198

of the 2013 Act as per the profit and loss statement prepared by the company in
terms of Section 381 (1) (a) and Section 198 of the 2013 Act.
Profits from any overseas branch of the company, including those branches that are
operated as a separate company would not be included in the computation of net
profits of a company. Besides, dividends received from other companies in India
which need to comply with the CSR obligations would not be included in the
computation of net profits of a company.
The activities that can be undertaken by a company to fulfil its CSR obligations
include
A. eradicating hunger, poverty and malnutrition, promoting preventive healthcare,
promoting education and promoting gender equality, setting up homes for women,
orphans and the senior citizens, measures for reducing inequalities faced by socially
and economically backward groups, ensuring environmental sustainability and
ecological balance, animal welfare, protection of national heritage and art and
culture, measures for the benefit of armed forces veterans, war widows and their
dependents, training to promote rural, nationally recognized, Paralympic or Olympic
sports, contribution to the prime minister's national relief fund or any other fund set
up by the Central Government for socio economic development and relief and
welfare of SC, ST, OBCs,

within academic institutions approved by the Central Government and
rural development projects.

However, in determining CSR activities to be undertaken, preference
would need to be given to local areas and the areas around where the
company operates.
To formulate and monitor the CSR policy of a company, a CSR Committee

of the Board needs to be constituted. Section 135 of the 2013 Act requires
the CSR Committee to consist of at least three directors, including an
independent director. However, CSR Rules exempts unlisted public
companies and private companies that are not required to appoint an
independent director from having an independent director as a part of
their CSR Committee and stipulates that the Committee for a private
company and a foreign company need have a minimum of only 2
members.
Companies can also collaborate with each other for jointly undertaking
CSR activities, provided that each of the companies are able individually
report on such projects. A company can build CSR capabilities of its
personnel or implementation agencies through institutions with
established track records of at least three years, provided that the
expenditure for such activities does not exceed 5% of the total CSR
expenditure of the company in a single financial year.
Today’s Corporate Social Responsibility
The corporate social responsibility of an organization today,

is a set of obligations with which it has to protect,
enhance, and otherwise work to the betterment of the
society in which it functions.
The concept of corporate social performance includes a
business organization’s
• configuration of principles of social responsibility
• process of social responsiveness, and
• policies, programmes, and observable outcomes as they
relate to the firm’s societal relationships.

Implementation of CSR
The systematic implementation of CSR means:

● The adoption of strong organizational values and
norms depicting behaviors that are appropriate towards a
variety of stakeholders.
● The continuous generation of intelligence about
stakeholder issues, along with positive responses to
these issues.

What are Corporations Expected to Do?
Corporations need to erase the perception of the public

that they accumulate wealth for their own cause;
They should participate in social welfare projects,
which will improve their image in public esteem;
They also have to make quality products and stick to
delivery schedules while importing and exporting goods;
and
They should create employment opportunities for the
disadvantaged.

Benefits of Corporate Social Responsibility
There are several advantages to corporations when they
exhibit a sense of CSR and implement it, such as:
1. Long term success
Reinvesting profits in the local community helps create a
thriving local economy, which in turn makes it easier to find
talented employees.
2. Enhanced brand image and reputation
Environmental consciousness “Green Image”–
Reduce Waste,
Recycling,
Minimizing carbon footprint,
Use or produce only sustainable products
Bill and Melinda Gates Foundation,
A. Social Concern- Contributing towards issues that
consumers are aware of such as:
a. Fighting poverty
a. Fighting poverty
b. Assisting those displaced by natural calamities
Local Community Involvement

Involvement in local community projects either through
financial commitment or through employee participation
Eg. Tatanagar
3. Increased Employee Loyalty

Be fair and generous towards your employees
c. Opportunities of growth and development of employees
d. Good working conditions
4. Improved sales and

Business Ethics customer
and Corporate loyaltyA. C. Fernando
Governance, 2e
4. Improved sales and customer loyalty

5. Increased ability to attract and retain employees
6. Reduced regulatory oversight
7. Innovation and learning
8. Risk management
1. Easier access to capital
2. Reduced operating costs
3. Tax Implication: Even before Section 135 of the
Companies Act, 2013 was introduced, companies were
getting full deduction for their voluntarily incurred CSR
expenditure while computing their taxable income.

People Planet Profits

*Importance of CSR to organizations
Reputation damage can be an important factor for

adopting and adjusting a CSR policy so as to contribute to a
better society. The media, campaigns and other civil society
actions can affect companies’ prestige or consumer trust
in their products and can decrease customers’ levels of
consumption, as well as the share prices of public
companies. These risks can motivate companies to take
active measures to prevent conflicts with their stakeholders.
Thus, the adoption of CSR policies can serve as another

effective way for companies to manage risks and avoid
tremendous losses or penalties due to a lack of appropriate
provisions.

Good CSR is good PR but is CSR only done for PR?
According to a 2015 Global CSR Study:
91% of global consumers expect companies to do more than make

a profit, but also operate responsibly to address social and
environmental issues.
84% of global consumers confirm that they seek out responsible

products whenever possible.
But there is another statistic that really stands out in the study.
As it turns out, 90% of consumers would boycott a company if

they learned of irresponsible or deceptive business practices.
So it should come as no surprise that brands are shifting their focus

to environmental and societal issues.

Non Compliance of CSR provisions
Companies Amendment Act, 2019
Source:
https://economictimes.indiatimes.com/news/company/corporate-trends/companies-to-face-penal-action-for-not-meetin
g-csr-rules/articleshow/70471926.cms?from=mdr
Nirmala Sitharaman has said legitimate profit earning cannot be devoid
of social responsibility, and that companies cannot get away without
meeting corporate social responsibility requirements.
Earlier: “It was easy for people to interpret that either we comply or we
give an explanation and get away with it. Now that is not happening
because Section 135 is being amended to provide specific penal provision
in case of non-compliance,” said Sitharaman.
NOW:
Violation of CSR norms will now attract fines for both the company and
defaulting officers ranging from Rs 50,000 to Rs 25 lakh, with
officers also liable for imprisonment of up to three years, as per the
provisions in the Companies Amendment Act, 2019. Companies transfer
unspent CSR money in a financial year to an escrow account
meant for CSR for three years, after which any unspent amount must
be transferred to a fund specified by the government.
Exemplary Corporate Social Responsibility
Initiatives
Source:
https://www.prezly.com/academy/relationships/corporate-social-responsibility/10-examples-of-exemplary-csr-initiatives#
Xerox
In 2018, XEROX made it to the “100 Best Corporate Citizens List” by
Corporate Responsibility Magazine for the twelfth consecutive time.
the XEROX Community Involvement Program (XCIP).
The XCIP is the company’s longest running program of its kind and it
takes a "glocal" approach to CSR. Xerox uses this initiative to fund
employees in their local communities to make a difference on
projects of their choosing.

Initiatives
Source:
Chipotle and Intermarché – Tackle Food wastage

According to Food and Agricultural Organization of the United
Nations:
Approximately 1/3rd of food produced in the world gets lost or
wasted every year.
Food losses and waste amount to roughly $680 billion in
industrialized countries and $310 billion in developing countries.
Fruits and vegetables have the highest wastage rates.
How? By selling the “inglorious” produce at a 30% discount, and

heavily publicizing the initiative. They even ran an ugly fruit and
vegetable contest on their Instagram page.

Initiatives
Source:
Twitter – The Fledgling Initiative

Everyone recognizes Twitter as one of the leading social media
networks.
But did you know that the company also dabbled in wine making?
And for a good cause, at that?
Twitter
In 2010, Twitter launched The Fledgling Initiative campaign to
support Room to Read, a non-profit organization p literacy among
children.
Enter Fledgling Wine. The company produced and sold its wine,
donating all proceeds from sales supporting the non-profit
organization.
Source: Twitter.com

Initiatives
Source:
Starbucks – C.A.F.E. Practices: Coffee and Farmer Equity (C.A.F.E.)

C.A.F.E. is a set of buying guidelines that ensure that:
All coffee purchased by the company meets their standards of quality,
It must be sustainably grown.
Support the farmers. The company requires suppliers to submit evidence of
payments made throughout the coffee supply chain to demonstrate how
much of the price Starbucks pays for green (unroasted) coffee gets
to the farmer.
Ensures safe, fair and humane working conditions for workers and
providing adequate living conditions.
Scope of Corporate Social Responsibility
Three levels of social responsibility can be identified

(evolution of areas of social responsibility)
1. Market forces
2. Mandated actions
3. Voluntary actions

Understanding Social Responsibility of
Business
1) Protecting and promoting stakeholders’ interests

a) to consumers and community
b) social responsibilities of business towards employees
c) to owners and inter-business establishments
2) Promotion of common welfare programmes
3) Philanthropy
4) Good corporate governance
5) Render social service
6) Abiding by rules and regulations

Understanding Social Responsibility of
Business (Contd.)
7) Creation of wealth
8) Ensure ecological balance
9) Focus on the human element
10) Improve productivity
11) Sponsor social and charitable causes
12) Supplement state efforts

India on the Ethical/CSR Matrix (Contd.)
Wider adoption of CSR in Indian companies will be enabled by:

• Provision of tax, duties and custom benefits.
• Inclusion of CSR performance of promoters as a parameter
in according fast track clearance to projects.
• Decreased government interventions.
• Depreciation benefits where asset investments are made.
• Development guidelines on estimation of socio-economic
impacts.

India on the Ethical/CSR Matrix
Indian corporations consider business ethics, compliance

with regulatory requirements and consistency in value
delivery as the three most important factors that impact
their social reputation.

Future of Indian CSR
There is a clear need for

• Transition from the present compliance centric approach
to the new paradigm
• Creation of an enabling environment and an array of
support measures.
• Business schools teaching CSR to facilitate this process
• Industry associations to share experiences and reward
best practice
• Need to incorporate public policies into the Indian CSR.
• International agencies to share cross-country experience.

Voluntary Reporting: GRI Global Reporting
Initiative Guidelines
Nowadays leading multinationals voluntarily prepare

sustainability reports based on the Global Reporting
Initiative (GRI) Guidelines.
The GRI Guidelines are a set of guidelines for businesses
created to stimulate socially-responsible corporate
behaviour.
The GRI was initiated in 1997 by the UN Environment
Programme (UNEP) and CERES. The GRI has
developed reporting guidelines for companies to assist
them in disclosing non-financial information about
the way they pursue their activities. The guidelines
address environmental and social conduct, but also
include other subjects, e.g. corruption and human rights.

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Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.