Corporate Social Responsibility (CSR)

19/05/2020 0 By indiafreenotes

CSR being an evolving term does not have a standard definition or a fully recognized set of specific criteria. As a relatively new entrant in the lexicon of management thought, CSR is often a much bandied, little understood term.

Some of the more popular meanings of CSR include “profit making only”, “going beyond profit making”, “voluntary activities”, “concern for the broader social system”, and “social responsiveness”. While there is no universal definition of CSR, it is generally interpreted as organizations’ way of integrating economic, social and environmental imperatives of their activities.

This is an old concept but new term. As a concept, corporate social responsibility has gained momentum recently in India, but as a way of life Indians have practiced corporate social responsibility since times immemorial to affect social welfare and social well-being.

These ethical considerations of ancient India hold good even today and guide the economic activities of business corporations. Today business needs to imbibe such spirits and virtues to integrate itself with the social aspects of people’s life and also discharge its social responsibilities.

Holme and Watts have defined CSR as “a continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”

Keith Davis (Davis 1960) defined social responsibility of business as “Social responsibilities refer to the businessman’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest. In brief, corporate social responsibility means business’s responsiveness to the social cause of a given point of time.”

Carroll and Buchholtz offer the following definition of CSR “Corporate social responsibility encompasses the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point of time.”

Components of Corporate Social Responsibility

  1. Community Involvement

It refers to a wide range of actions taken by companies to maximize the impacts of their spending, time products, services for the welfare of community at large.

  1. Human Rights

The business practices can profoundly affect the rights and dignity of employees and communities. The main focus is on developing workplace free from discriminations where creativity and learning can flourish decent codes of profession conduct and where a proper balance can he created.

  1. Labour Security

It includes freedom of association and the effective recognition of the right to collective bargaining, the eliminations of all forms of forced and compulsory labour, the effective abolition of child labour and the eliminations of discrimination in respect of employment and occupation.

  1. Environmental Protection

The environmental issues have been global concerns thus the corporate sector also focuses on finding sustain able solutions for natural resources and to reduce companies’ impact on environment. Over the past several years, environmental responsibility has expanded to involve substantially more than compliance with all applicable government regulations or even a few initiatives such as recycling or energy efficiency.

Many citizens, environmental organizations and leadership companies define environmental responsibility as involving a comprehensive approach to company’s operations, products and facilities including assessing business, products, processes and maintained balance between work and other aspects of life.

  1. Business Standard

It covers a broad area of corporate activist such as ethics, financial return and environment protections.

  1. Educations and Leadership Development

As education is one of the key elements of sustainable development and pro-poor growth, businesses, working together with public sector and civil society can make an important contribution in providing access to quality education for all further companies can also make more critical impact on the development process by raising standards in corporate education and leadership development.

Importance of Corporate Social Responsibility

The notion that discharging corporate social responsibility involves costs and, in turn, reduces profits has proved wrong without doubt. Rather, it has been well established that discharging social responsibility strengthens the corporation’s foundation to earn profit not just in the short-run but also in the long- run. Numerous such stories abound in the corporate world.

Johnson & Johnson presents one classical example of how a company puts public welfare ahead of its own interest (profit), especially when the company itself is a victim. 28 September 1982 was a tragic day for Chicago when Johnson & Johnson made Extra Strength Tylenol caused cyanide poisoning and killed many people.

Showing its utmost concern for social welfare, Johnson & Johnson not only cooperated with the efforts to investigate into the incident, but also announced a reward of $ 1, 00,000 for giving information about the culprit.

The Tylenol crisis cost Johnson & Johnson plenty some $ 50 million besides withdrawal of 31 million bottles from the market with a retail value of over $ 100 million. Potentially, the most devastating cost resulted from lost public confidence. Only six weeks after it had withdrawn all Tylenol capsules from the market, the company reintroduced the product in tamper-proof packages, as are used in all of today’s pharmaceutical products.

Amazingly, Johnson & Johnson regained 95 per cent of the market share it had before the Tylenol crisis (Waldholz 1982). Johnson & Johnson’s this vignette clearly exemplifies how concern for social welfare strengthens an organisation’s foundation, better call it “Organisational Character” and, in turn, its profit earning capacity. Character is foundation for over all prosperity. As Swami Vivekananda also said: “First build character, everything else will follow”.

Maruti Udyog Limited (MUL) is another such example that kept social welfare ahead of its interest. In the year 1997, of all the cars sold between January and April, this responsible company recalled about 50,000 of their most popular product, the Maruti 800 passenger cars from the market, because they suspected them to be made of inferior steel. This became a newspaper headlines, as it was the biggest ever recall of cars from the Indian market place.

The logic behind this positive relationship appears to be that social involvement of business provides a number of benefits to it that more than offset its costs. These benefits would include a positive consumer image, a more dedicated and motivated workforce, strong public confidence, social acceptance, and even less interference from regulating agencies.

One way to understand the relevance of corporate social responsibility lies in our ancient teaching of Propkaram Paramam Dharma, i.e., helping others, what the sociologists call, altruism, is the most sacred duty. Performing duty is “Dharma” and “Dharma” is truth.

Truth prevails in its own manifestations and lasts for long. Our past is witness that in all walks of life, at last satyamev jayate, i.e., ultimately truth alone prevails and wins. Cooperate social responsibility is a company’s ‘dharma’ that enables the company to survive and thrive for long.

Just as any untruth is short lived, so is an untruth or unethical business too. There are plethora of corporate examples like Arthur Anderson, Enron, Union Carbide, Harshad Mehta Stock Business and so on confirming that no business can exist and survive without the acceptance and sanction of the society in which it carries out its activities. Without social sanction, business is sure to flounder and perish.

Following are some more justifications in favour of why corporations should discharge social responsibility. Many of these (Mintzerg 1983) tend to be couched in terms of enlightened self- interest, i.e., the corporation takes on social responsibilities insofar as doing so promotes its own self-interest.

  1. Corporations perceived as being socially responsible might be rewarded with extra and/or more satisfied customers, whilst perceived irresponsibility may result in rejection or boycott by customers. Pepsi and Coca-Cola experienced such boycott from customers in India in 2007.
  2. Research reports that employees are attracted to and even become more committed to corporations that show socially responsible behaviour (Greening and Turban 2000).
  3. Corporations that voluntarily commit to social actions and programmes may also forestall legislation and ensure greater corporate independence from government.
  4. Making positive contribution through socially responsible behaviour to society might be regarded as a long-term investment in creating an improved and stable business context to do business.

In addition to above business justifications couched in favour of corporate social responsibility, following are some important moral justifications also in favour of Corporate Social Responsibility (CSR):

  1. Corporations through their actions cause some social problems like pollution, dirtiness, etc. and hence they have a moral responsibility to solve these problems caused by them and also make efforts to prevent such problems in future.
  2. Corporations as social actors use social resources which are often scarce. Hence, they should use these resources in responsible manner for the benefit of the society.
  3. Corporate activities of one type or other like providing products and services, employment to workers, and so on and so forth, have social impacts be positive or negative or neutral. Hence, corporations are responsible to own the responsibility of these impacts.

In reality, corporations rely not only on the contributions of shareholders but also of wide constituencies, or say, stakeholders in society such as consumers, suppliers, local communities, etc. Hence, corporations have a duty to take into account the interests and goals of shareholders as well as other stakeholders.

Given the range of justifications in favour of CSR, there has not been any doubt about the need for and significance of socially responsible behaviour exhibited by the corporations.

Forms of Corporate Social Responsibility (CSR)

Among the organizational researchers who have tried from time to time to identify and describe the various forms of CSR, probably the most established and accepted model of CSR which addresses the forms of CSR is the one called ‘Four-Part Model of Corporate Social Responsibility’ as proposed by Archie Carroll and subsequently refined later by Carroll and Buchholtz. This model is depicted in the following Figure 1.Carroll’s Four-Part Model of Corporate Social Responsibility. According to Carroll, CSR is a multi-layer concept consisting of four inter-related aspects of responsibilities, namely, economic, legal, ethical, and philanthropic. He presents these different responsibilities as consecutive layers within a pyramid.

Hence, he offers the definition of CSR in these words: “Corporate social responsibility encompasses the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time.”

Fig: Carrol’s 4 part model of CSR

  1. Economic Responsibility

A corporation has to meet its economic responsibilities in terms of reasonable return to investors, fair compensation to employees, goods at fair prices to customers, etc. Thus, meeting economic responsibility is the first-layer of responsibility and also the basis for the subsequent responsibilities. The fact remains that meeting economic responsibility is must for all corporations to survive in the time.

  1. Legal Responsibility

The legal responsibility of business corporations demands that businesses abide by the law of land and play by the rule of the game. Laws are the codification of do’s and don’ts do’s in the society.

Abiding by laws is the prerequisite for any corporation to be socially responsible. Corporate history is replete with instances where violation of laws disallowed corporations to run any longer. Enron, Union Carbide, Global Trust Bank, etc. are some of such illustrative corporate cases of social rejection and boycott.

  1. Ethical Responsibility

These responsibilities refer to obligations which are right, just, and fair to be met by corporations. Just abiding by law, procedure, and rule and regulations does not make business conduct always as ethical or good. The conduct of corporations that go beyond law and contribute to social well being is called ethical.

Hence, corporations have an ethical responsibility to do, even going beyond law and rule and regulations, what proves good for the society. In other words, ethical responsibilities consist of what is generally expected by society from corporations over and above economic and legal expectations.

  1. Philanthropic Responsibility

The Greek word ‘philanthropy’ means literally ‘the love of the fellow human.’ The use of this idea in business context incorporates activities that are, of course, within the corporation’s discretion to improve the quality of life of employees, local communities, and ultimately society at large.

Making donations to charitable institutions, building of recreational facilities for employees and their families, support for educational institutions, supporting art and support activities, etc. are the examples of philanthropic responsibilities discharged by the corporations. It is important to note that the philanthropic activities are desires of corporations, not expected by the society.

Dimensions of CSR

The facets and dimensions of corporate social responsibility include the obligations a business has to its interest groups also called ‘stakeholders.’ The stakeholders in a business include shareholders / owners, consumers, employees, government, society, etc.

These are depicted in the following diagram: