CSR e-book

Corporate Social ResponsibilityAuthor : Co-author : Research Assistance : Editorial Assistance : Dr. Meena Galliara Dr. Sujata Mukerjee, Faculty, Social Enterprise Cell, for Lesson 1 Ms. Sonam Chawla, for Lesson 1, 4 & part of Lesson 6 Dr. Ratna Huirem & Ms. Aditi Punekar, Research Associates, Social Enterprise Cell Copyright © 2009, NMIMS University All Rights Reserved Produced and Printed by EXCEL BOOKS PRIVATE LIMITED A-45, Naraina, Phase-I, New Delhi-110 028 for THE SCHOOL OF DISTANCE LEARNING SVKM's NMIMS University V.L. Mehta Road, Vile Parle (W), Mumbai – 400 056. CONTENTS Page No. MODULE I Lesson 1 Lesson 2 Lesson 3 Lesson 4 Corporate Social Responsibility: The Global Context Business and its Stakeholders From Philanthropy to CSR: Historical and Theoretical Perspective The Business Case for CSR MODULE II Lesson 5 Lesson 6 Developing a CSR Strategy Implementing CSR Strategy MODULE III Lesson 7 Lesson 8 Lesson 9 CSR Monitoring and Measurement Reporting for CSR Role of Government and Voluntary Codes in CSR MODULE IV Lesson 10 Corporate Governance 127 99 108 115 59 71 7 16 30 48 CORPORATE SOCIAL RESPONSIBILITY SYLLABUS Model I: Globalization and its Impact: Economic, Social; Sustainable Development; Role of Business in Sustainable Development; Millennium Development Goals; India and the MDGS Business and Society; Business Organizations as Systems; From Shareholder Theory to Stakeholder Theory; Stakeholder Concept; Typology of Stakeholders and their Influence; Stakeholder Engagement; Stakeholders versus Shareholders; Dynamic Environment of Business History of CSR in India: Pre-Independence Period, Post-Independence India; Liberalization and CSR; Emerging CSR Trends; Contemporary Scenario: Achievements; Theories of CSR: Friedman's Theory/Fundamentalist Theory, Social Contract Theory, Social Justice Theory, Rights Theory, Deontological Theory, Stakeholder Theory, Gandhiji's Trusteeship Theory; The Pyramid of Corporate Social Responsibility; Generations of CSR; Changing Trends: Philanthropy - Strategic Philanthropy - CSR Arguments against CSR; The Business Case for CSR; Importance of CSR for India: Current Business Scenario in India; Contemporary Drivers for CSR Model II: Steps in Designing CSR Strategy; Develop a Working Definition of CSR, Review Corporate Documents, Processes and Activities; Developing a CSR Strategy: Build Support with Senior Management and Employees, Research what others are doing, Prepare a Matrix of Proposed CSR Actions, Develop Options for Proceeding and Develop the Business Case for CSR Action, Decide on Direction, Approach and Focus Areas Implement CSR Commitments: Develop an Integrated CSR Decision-making Structure, Prepare and Implement CSR Business Plan, Set Measurable Targets and Identify Performance Measures, Engage Employees and Others to Whom CSR Commitments Apply, Design and Conduct CSR Training, Establish Mechanisms for Addressing Problematic Behaviour, Create Internal and External Communication Plan; Areas of CSR Implementation; CSR at Market Place: Benefits of Marketplace CSR, Designing Market Place CSR Activities; CSR at Workplace: Benefits of CSR at Workplace, Designing Work Place CSR Activities; Environmental CSR: Benefits of Environmental CSR, Designing Environmental CSR; CSR with Communities; Types of Interventions: Benefits of Community Interventions, Steps to Design CSR Intervention; Strategic Partnerships: Reasons for Corporate NGO Partnership, Criteria for Selecting NGO Partner, NGO Strategies to Influence CSR Model III: Focus of Measurement: Measure Fewer Things Better, Measure What Matters, Communicate Fewer Metrics in Multiple Ways; What is Monitoring?: Internal Compliance Monitoring, External Monitoring and Measurement Importance and Benefits of Reporting: Whom to Report, How to Report, Contents of CSR Report; Formats of CSR Communication and Reporting; The Reporting Team; Additional References for CSR Reporting Model IV: Role of Government; Government Support at International Level; Voluntary Codes in CSR: OECD Guidelines for Multi-national Corporations, ILO Conventions, ISO 9000 & ISO 14000, SA8000, UN Draft Principles for Behaviour of Trans-national Corporations, LEED, GRI, DOW Jones Sustainability Index, FTSE4GOOD, Smart Growth Network, Equator Principles, UN Global Compact, Coalition of Environmentally Responsible Economies (CERES) What is Corporate Governance; Constituents of Corporate Governance; The Corporate Governance Debate; Theories and Responsibilities of Corporate Governance; Global Growth of Corporate Governance; History of Corporate Governance in India; The Current State of Corporate Governance in India; Board Composition in India; Corporate Governance: Need to Strengthen: How to Improve Corporate Governance, Benefits of Corporate Governance; Efforts to Improve Corporate Governance; Corporate Governance and CSR. 5 Corporate Social Responsibility: The Global Context UNIT 1 MODULE I 6 Corporate Social Responsibility The revolution in technological development has transformed the global economic scenario by reducing the costs of communication. culture. economic development and prosperity.2.5 1.1).” In the present context. and facilitating movement of labour and capital across the globe (ILO. and governments of different countries.6 1.d. n. “Globalization on one hand is seen as an irresistible and benign force for delivering economic prosperity to people throughout the world and on the other end.9 1.10 1.. p. “A process of interaction and integration among the people.d. The impact of globalization has been varied across regions of the globe (Refer Table 1. and physical human wellbeing in societies around the world.7 1. .0 1. it is blamed as a source of all contemporary ills” (ILO.0 AIMS AND OBJECTIVES After studying this lesson.). a process driven by international trade and investment and aided by information technology. you should be able to: Understand about globalization and it’s varying economic and social impacts Know the need for integrating the goal of sustainable development into business 1.2 Aims and Objectives Introduction Globalization and Its Impact 1. The Carnegie Endowment for International Peace defines globalization as. providing easier access to information. political systems. 24).8 1.1 1.2.1 INTRODUCTION Globalization has increased the volume of world trade and foreign investments. companies.1 1.11 Economic Impacts Social Impacts Sustainable Development Role of Business in Sustainable Development Millennium Development Goals India and the MDGs Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 1.LESSON 7 Corporate Social Responsibility: The Global Context 1 CORPORATE SOCIAL RESPONSIBILITY: THE GLOBAL CONTEXT CONTENTS 1. This process affects the environment.2 1. n.3 1.4 1. it brought about public awareness on issues such as gender inequality. In India and China globalization resulted in poverty reduction. Malaysia: 4. Poland became a part of the European Union to reap the benefits of globalization. which lead to squeezing wages and corporate mergers.8 Corporate Social Responsibility Table 1.6%. Venezuela: 1. the impact of globalization was more or less positive. Brazil: 8. 23.0%. In fact globalisation has undermined their traditional livelihoods. Thailand: 2.5%. social security systems and resulted in increased rural-urban intra -regional inequalities. it resulted in increased conflict among communities due to liberalization of investments and the capital flows were badly affected by the Asian crises. Bermuda: 2. HIV/AIDS. Source: ILO Report (n. it resulted in severe restraints on the finance of the welfare state. Overshadowed by war & continuing Arab-Israeli conflict. liberalization increased trade. In Philippines much of the globalization impact was superficial. Legal and illegal migration also increased to a large extent .0%. poverty & migration have aggravated due to poor governance and inability to attract foreign investments to tackle the problems. In fact. sustainable development and acceptance of other universal values and ethics. Mexico: 8. Republic of Korea: 2. there were increased investment flows. Hong Kong SAR: 7. expanded export markets and newer opportunities for higher growth. In Russia. Western Europe & North America In Western Europe. but there was large unemployment due to restructuring of industries and the farm sector.1%. Although not for all more than one billion people (approximately) have seen no reward. China. Volatile global financial markets badly hit the ‘middle class’ because of inadequate government policies and poor understanding of local conditions by the IMF and foreign banks.3%.3% . Remaining 176 developing countries & territories: 25. Argentina: 5. There was thus increased need for enforcement of labour legislations. decrease in unemployment.1 Economic Impacts Liberalization and expansion of international trade has led to increase in FDI investments which are currently concentrated 1 in about ten developing countries 1 1 China. except for new pressures on companies to be more competitive. It also led to the formation of the European Union as a response to the pressures of globalization.2 GLOBALIZATION AND ITS IMPACT The ILO Report identifies economic and social impacts of globalization. capital flows and international competition. Chile: 2. 1. human rights.2%.7%. Dominated by oil exports & migration and the fears for the impact on cultural identity and local traditions. foreign debts. Poland 1.) Arab & Israeli Asia Latin America & the Caribbean Russia .7%.7%. but consequently it also increased income disparities.On a positive note. Singapore: 6. Due to export of jobs to lower-cost countries and higher international tax competition.2.7%. and loss of low skilled jobs to other countries. reform f the educational system and control of migration.1%.d. greater employment generation.1: Perceived Impact of Globalization Regions of the World Africa Perceived Impact Badly hit by globalization because of unfair rules. In North America. spurred economic growth and industrial productivity. . The key economic characteristics of globalization clearly indicate that though development in global systems have got us closer together economically. machinery to churn out goods faster. and (vi) emergence of new financial instrument: derivatives. With regard to rural and informal economies. 34 ILO Report (n. factor availabilities and the congeniality of the investment climate” (ILO. ibid. credit. This resulted in loss of jobs as well exploitation of workers rights by various MNCs leading to a reduction in the cost of goods. Consequently. Revolution in information and communications technology and declining transportation costs have resulted in multi country based production of goods and services. at the expense of basic access to humane conditions of work (ILO. .000 Multi National Corporations (MNCs) with around 8. Production processes are unbundled and located across the globe to “exploit economic advantages arising from differences in costs. The integration of the financial markets resulted in private financial flows and investments from North to South in “emerging markets”. Industrial restructuring in the face of competitive global markets and lack of imports have displaced previously protected domestic firms.2. which are technically and economically feasible. n. Approximately today there are 65. hedge funds. mobile phones. 9 Corporate Social Responsibility: The Global Context 1. The global production system is also pronounced in the service sector where technological advancement has made it possible for services such as software development. Globalization has also brought a change in the governance structure of the global financial system with an increase in influence of private actors such as banks.d. information and extension services thereby aggravating the problem of unemployment. 2 3 4 5 6 The integration of financial markets after the fall of Bretton Woods system lead to (i) unification of exchange rates.d.2 Social Impacts Due to globalization. 27). resulting in persistent poverty.5 in 2000. 2006). Technology has not only enabled economic globalization but has also helped in increasing connectivity 5 among civil societies. p. electronic conferencing The UN Human Development Report 2006 estimated the Gini Index – an indicator of income inequality – for India to be 32. this has resulted in widening of income gaps between the rich and the poor leading to large scale income inequality 6 within and amongst countries. governments and individuals.000 foreign affiliates coordinating the global supply chains linking the decentralized production system outside the formal factory system 4 . p.. better communication facilities etc.d. low cost telephone services. (iii) opening up of capital accounts. financial services and call centers accessible from different countries around the globe. (ii) removal of controls over the allocation of credit in the domestic market. unskilled. the social impacts of globalization across the globe has varied negative impacts. (iv) revolution in technology improving the speed of knowledge of foreign markets.). The process of globalization has resulted not only in increased global competition and efficiency but also in building convenient sources of transportation. 33 Spread of internet.and has also brought changes in the nature of financial flows by integrating the financial markets 2 . (v) development of new financial transactions. illiterate and asset-less labour remain on the margins. p. n. e-mail.). equity funds and rating agencies 3 . leading to an increase in the levels of unemployment (Lee et al. small enterprises have been impacted because of their inability to access capital.50. Relative poverty 7 has increased in majority of the countries as an effect of globalization. The problem has further aggravated due to lack of regulations and implementation mechanisms at the national and global levels. Political and business leaders at the international and national levels are stressing the need for global sustainable development. it has also led to corporate scandals. thus giving rise to unprecedented ecological challenges to the world in the 21st century. The global natural environment has also been affected by globalization because of the following reasons: (i) increase in travel (ii) larger corporations with centralized distribution (iii) poor pollution control mechanisms of MNCs in foreign markets and (iv) extractive industries using natural resources non-judiciously. This has further created issues relating to sustainable development and poverty. and over extension of credits to unstable local banks and firms resulting in financial crises of increasing frequency and severity. Statistics reveals that FDI from the private sector into developing countries collectively has 7 8 Relative Poverty is defined in relation to the overall distribution of income or consumption in country. 8). Sustainable development being one of the greatest global challenges in this era has not escaped worldwide notice. the UN General Assembly recognized that environmental problems were global in nature and determined that it was in the common interest of all nations to establish policies for sustainable development. Gro Harlem Brundtland. known by the name of its Chair. The fall in transportation costs and growth of mass tourism has made smuggling of people and drugs difficult to detect and punish.3 SUSTAINABLE DEVELOPMENT The challenges of globalization facing humanity are closely intertwined and tend to complicate the solutions for attaining sustainable development. There has been an increase in illicit cross-border activities like tax evasion. sex and drug trades. manipulations. . Latin America (14 million) and the Caribbean (8 million).10 Corporate Social Responsibility It is difficult to assess the impact of globalization on poverty. it has increased in Sub-Saharan Africa. The primary objective of sustainable development is to reduce absolute poverty of the world's poor by providing lasting and secure livelihoods that minimize resource depletion. 1. formally the World Commission on Environment and Development (WCED). environmental degradation. Europe and Central Asia (82 million). Migrants from all regions particularly women are driven into an illegal economy in countries of destination leaving them vulnerable to exploitation and trafficking. Though people living in poverty have decreased in China. thereby creating a (i) carbonconstrained and water-constrained world. 1. Due to this. Private financial institutions are exerting power over emerging markets in designing their economic policies. Globalization has disrupted the ecological balance. migration (both in-migration & outmigration) has increased across the globe. 1987). The Brundtland Commission.4 ROLE OF BUSINESS IN SUSTAINABLE DEVELOPMENT Responsible business has always contributed for societal development." In establishing the commission. Though the increased influence of private institutions has led to better financial resource allocation. The commission was created to address growing concern "about the accelerating deterioration of the human environment and natural resources and the consequences of that deterioration for economic and social development. 1987. cultural disruption and social instability (WCED. Sustainable development is defined by the Brundtland Commission 8 as “Development that meets the need of the present without compromising the ability of future generations to meet their own needs” (WCED. money laundering. p. was convened by the United Nations in 1983. and also aims at combating child mortality. development assistance.. the World Bank and other international organizations FDI investments by private companies should enhance a process of sustainable growth that minimizes the damaging effects on the environment. 2006). As per the United Nations. “We now face the ultimate management challenge. world leaders belonging to the government. Business cannot flourish in any country if the environment required by business is not conducive. and the contribution that developed countries should make through trade. inequality. maternal health. companies CSR policies have been framed. Halve. lack of education. society needs to be developed. debt relief. healthcare and clean water( UNDP. and gender equality. Table 1. companies are committing to take action through their core business in enhancing growth and help to meet the MDGs. 212). the proportion of people whose income is less than $1 a day.2 provides a list of the MDGs. time-bound targets called the Millennium Development Goals (MDGs) to address issues of inadequate incomes.2: Millennium Development Goals Goal 1: Target 1: Target 2: Goal 2: Target 3: Eradicate extreme poverty and hunger Halve. the proportion of people who suffer from hunger Achieve universal primary education Ensure that. However the challenges of sustainable development in the new millennium are a new imperative for governments. AIDS and other diseases. 2005). unemployment. 2005. boys and girls alike. The Government alone cannot deal with the issues of sustainable development. children everywhere. nation states invested 50 billion dollars.. Table 1. access to essential medicines and technology transfer. Secretary General of the World Summit. Social upheavals impact the entire society in general and business in particular because to a large extent business is dependent on society for its growth and prosperity. environmental degradation and social integration are causes of concern because they have an impact on society thereby impacting businesses worldwide. widespread hunger. p. In September 2000. It is therefore essential to take the agenda of developing collaborations to address the issues of sustainable development and poverty in the new millennium. by 2015.5 MILLENNIUM DEVELOPMENT GOALS The MDGs promote poverty reduction. will be able to complete a full course of primary schooling Contd…. businesses. businesses and civil societies is the call of the day. education. Thus. 9 In 2004. . measurable. shops and acquiring shares of foreign companies based in developing countries. Today’s world is interdependent where problems of poverty. between 1990 and 2015. that of managing our own future as species” (Lawrence et al. businesses and NGOs in the gathering at the United Nations adopted eight specific. based on these MDGs. The Millennium Declaration of MDGs emphasizes the efforts to be taken by developing countries. business spent more than 100 billion on building factories.exceeded the amount of financial aid granted by governments 9 (World Bank Institute. Looking from this macro perspective.189 United Nations member states and at least 23 international organizations have agreed to achieve MDGs by the year 2015. To quote Maurice Strong. gender inequality. between 1990 and 2015. which have been accepted at the global level. the private sector has already contributed to the reduction of poverty at the global level during the past decade. 11 Corporate Social Responsibility: The Global Context 1. Collaborative partnership amongst governments. environmental deterioration. and society to collaborate and work to strengthen each sector and create a qualitatively better world to live in. offices. By signing the Millennium Declaration. If business has to develop. Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases. but more ambitious than the Millennium Development Goals (MDGs). .3). by 2020. the well-being of the average citizen is a measure of development. Halve. 10 11 12 The Human Development Index (HDI) takes into account three basic dimensions of human development: the right to live a long & healthy life. the maternal mortality ratio Combat HIV/AIDS. Ensure environmental sustainability Integrate the principles of sustainable development into country policies and program and reverse the loss of environmental resources. maternal mortality and child mortality. nutrition. and other diseases Have halted by 2015 and begun to reverse the spread of HIV/AIDS.6 INDIA AND THE MDGS In the present context. landlocked countries. The Human Development Index 10 (2008) puts India 11 at the bottom 50 of the 177 nations because a large part of the population lacks access to education. Some of the indicators listed below will be monitored separately for the least developed countries. Target 13: Target 14: Target 15: Source: World Bank Group. between 1990 and 2015. and more generous ODA for countries committed to poverty reduction) Address the special needs of landlocked countries and small island developing states (through the Program of Action for the Sustainable Development of Small Island Developing States and 22nd General Assembly provisions) Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. The Government of India being a member state of the United Nations set up targets in the Tenth 12 as well as the Eleventh Five Year Plan to achieve the MDGs. and small island developing states.d. health and social services. between 1990 and 2015. The areas that require redoubled efforts include literacy. by 2015. development. malaria. to acquire knowledge. ( n. Address the special needs of the least developed countries (includes tariff-and quotafree access for exports enhanced program of debt relief for HIPC and cancellation of official bilateral debt. the proportion of people without sustainable access to safe drinking water and basic sanitation Have achieved. consistent with. Africa.) 1.12 Corporate Social Responsibility Goal 3: Target 4: Goal 4: Target 5: Goal 5: Target 6: Goal 6: Target 7: Target 8: Goal 7: Target 9: Target 10: Target 11: Goal 8: Target 12: Promote gender equality and empower women Eliminate gender disparity in primary and secondary education preferably by 2005 and in all levels of education no later than 2015 Reduce child mortality Reduce by two-thirds. and to have a decent standard of living. The Eleventh Five-Year Plan (2008-2012) proposes specific targets to achieve MDGs (Refer Table 1. and poverty reduction—both nationally and internationally). HDI Rank of India : 128 India’s Tenth Five-Year Plan (2003-2007) included targets of human development that can be monitored. the under-five mortality rate Improve maternal health Reduce by three-quarters. The Government has launched several large programmes with regard to the MDGs. a significant improvement in the lives of at least 100 million slum dwellers Develop a global partnership for development Develop further an open. rule-based. non-discriminatory trading and financial system (includes a commitment to good governance. predictable. 9 per cent a) Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007 b) Reduction of Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007 Achieving zero level increase of HIV /AIDS prevalence by 2007 a) Reduction of Infant Mortality Rate (IMR) 28 per 1000 births by 2012 b) Reduction of Maternal Mortality Ratio (MMR) to 1 per 1000 live births by 2012 Reduce new infections by 60% in high prevalence States so as to obtain reversal of the epidemic and by 40% in the vulnerable States so as to stabilize the epidemic a) Eliminate Malaria and other water borne diseases b) Provide clean drinking water for all and 100% sanitation coverage 7. 1.3: Targets of the Eleventh Five Year Plan Monitorable targets for Tenth and Eleventh Five Year Plan Sr. No. 5. Malaria and other diseases a) 25% reduction in morbidity and mortality due to malaria by 2007 b) All villages to have sustained access to potable drinking water a) Increase in forest and tree cover to 25 per cent by 2007 b) Cleaning of all major polluted rivers by 2007 9. HIV/ AIDS 8. . Population Infant and Maternal Mortality Rate Reduction in the decadal rate of population growth between 2001 and 2011 to 15. 4. 6. Environment Sustainability a) To increase forest and tree cover by 5 percentage points b) To attain WHO standards of air quality in all major cities by 2012 c) To treat all urban waste water by 2012 and to clean river waters d) To increase energy efficiency by an additional 20% by 2016–17 Source: Planning Commission of India. Primary Education a) All children in school by 2003 b) All children to complete 5 years of schooling by 2007 c) Increase in literacy rates to 75 percent within the Tenth Plan period a) Universal enrolment of children in the age group 6–14 including the hard to reach segment by 2015 b) Dropout at primary level to be eliminated and elementary level to be reduced to 20%. 2.Table 1. Focus Areas Poverty Employment Tenth Five Year Plan (2002-2007) Reduction of poverty ratio 5 percentage points Providing gainful and highquality employment at least to the additional labour force over the Tenth Plan period Eleventh Five Year Plan (2007-2012) Reduction of poverty 10 percentage points ratio by 13 Corporate Social Responsibility: The Global Context a) Generation of 58 million new work opportunities b) Reduction of unemployment among the educated to less than 5% c) 20% rise in the real wage rate of unskilled workers 3. c) Increase literacy rates for persons of age 7 years or more to 85% by 2012. 2008. Gender Disparity Reduction in gender gaps in literacy and wage rates by at least 50 per cent a) Reduction in gender literacy by 10 % gaps in b) Sex ratio for the age group 0–6 to be raised to 935 by 2011–12 c) Ensuring that at least 33% of the direct and indirect beneficiaries of all government schemes are women and girl children. 8 KEYWORDS Globalization: Integration and interaction between people. Today’s world is interdependent where problems of poverty.14 Corporate Social Responsibility 1. The world faces unprecedented ecological and social challenges in the 21st century which cannot be tackled by yesteryear’s rule of governance anymore. The trend worldwide is to tackle the problems by adopting collaborative and consultative models through a judicious mix of government. (d) The aim of sustainable development is to reduce relative poverty. unemployment. inequality. environmental degradation and social disintegration are concerned. (e) It is the government of the country who can lead sustainable development. State whether the following statements are true or false: (a) Globalization has led to easier access of information and labour from around the globe. companies and governments of different countries Sustainable Development: Balancing the present needs and future needs Millennium Development Goals: Eight internal goals that members of UN and other organizations have agreed to achieve till 2015.7 LET US SUM UP The impact of globalization on society is largely from technological and social change. businesses and non-government initiatives. 2. Corporate Social Responsibility: A form of self regulation integrated into business 1. 1.9 SELF ASSESSMENT 1. (b) Globalization has brought the economies closer. Choose the appropriate answer: (a) Globalization integrates: (i) People (ii) Companies (iii) Governments (iv) All of the above (b) Globalization impacts: (i) Cultures (ii) Environment (iii) Political systems (iv) All of the above (c) Which one of these is one of the economic impacts of globalization? (i) Increase in FDI (ii) Expansion of production facilities (iii) Increased global competition (iv) Decrease in local competition . (c) Globalization has facilitated illegal trade practices and illegal migration. nic.un-documents. (n. Planning Commission Government of India.ilo. Available at http://ftp. World Development Report: A Better Investment Climate for Everyone.pdf. E. Available at http://siteresources. What is sustainable development? How can business contribute towards promoting sustainable development? 4.11 SUGGESTED READINGS International Labour Organisation. (2005).in/plans/planrel/fiveyr/11th/11_v2/11th_vol2. Available at http://planningcommission. Available at http://planningcommission. Weber. (2006). Singapore : McGraw-Hill. Planning Commission Government of India.pdf Lawrence. .(d) Sustainable development calls for minimizing: (i) Resource depletion (ii) Environmental degradation (iii) Current demands (iv) Social instability (e) Which of these is not a MDG? (i) Promote education (ii) Reduce gender inequality (iii) Reduce child labour (iv) Reduce infant mortality 15 Corporate Social Responsibility: The Global Context 1. Lee.pdf. Business and Society. Eleventh Five year Plan 2007-2012. M. J. United Nations Development Programme. Volume II – Social Sector. New Delhi: Oxford University Press.org/INTWDR2005/Resources/complete_report. Report of the World Commission on Environment and Development: Our Common Future. A. The Social Impact of Globalization in the Developing Countries. The Planning Commission.d. Available at http://www. & Vivarelli. Institute for the Study of Labor. Available at www.).pdf.).in/plans/planrel/fiveyr/11th/11_v1/11th_vol1.pdf.nic.. The World Bank. About the MDGs: Basics. & Post. (a) True 2. (1987). (2008). Available at http://www.org/mdg/basics.htm. How do you think globalization has impacted trade and finance around the world? 2.d. (2008). Volume I –Inclusive Growth. Oxford: Oxford University Press.org/dp1925. DC: The World Bank and Oxford University Press.10 REVIEW QUESTIONS 1.. Millennium Development Goals. The Planning Commission. Washington. What are the Millennium Development Goals? How can business contribute towards achieving these goals? Answers: Self Assessment 1. J. What in your opinion can be done to mitigate the negative social impacts of globalization? 3. Eleventh Five year Plan 2007-2012. New Delhi: Oxford University Press.iza.shtml United Nations Documents. (a) iv (b) True (b) iv (c) True (c) iv (d) False (d) iii (e) False (e) iii 1.org/public/english/wcsdg/docs/rep2.undp.worldbank. (n.net/wced-ocf. Globalization and its Impact. (2005). 2 2. are the stakeholders of a business.12 2. debtors. you should be able to: Clarity about a meaningful coexistence of business and society Understand the need and responsibility to create a conducive environment for business Understand stakeholder typologies and their significance in business Underline the role of communication in Stakeholder Management Appreciate the need for stakeholder contribution in decision making Recognize the need for effective communication in CSR initiatives 2. It requires the support and integration of elements like employees.9 2.1 INTRODUCTION A business entity is a unit made up of several units.14 Aims and Objectives Introduction Business and Society Business Organizations as Systems From Shareholder Theory to Stakeholder Theory Stakeholder Concept Typology of Stakeholders and their Influence Stakeholder Engagement Stakeholders versus Shareholders Dynamic Environment of Business Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 2.13 2.7 2.4 2.0 AIMS AND OBJECTIVES After studying this lesson. society and government to run smoothly.6 2. . All these elements which belong to a larger unit.5 2.8 2. Business has a very important role to play in development of society.11 2.3 2.0 2.1 2.16 Corporate Social Responsibility LESSON 2 BUSINESS AND ITS STAKEHOLDERS CONTENTS 2. creditors. A business can’t be run alone. customers. society.10 2. In economics. community.2 BUSINESS AND SOCIETY Business is one of the most dominant institutions in society. Consequently. Positive and negative business activities impact society. police system. 17 Business and its Stakeholders 2. which is dependent on the society for sustaining itself. Systems have input.000 people. Sociological studies on society view society a systems perspective 1 . such as social systems comprise of numerous subsystems as well. predator/prey). Businesses vary in size and impact. India also has a vibrant capital market comprising of 23 stock exchanges with over 9000 listed companies. In the past.). outputs and outcomes. processes.2. They range from a small enterprise to huge Corporations like BPCL. outputs and outcomes geared to accomplish an overall goal for the subsystem. which employs more than 20. the organization suffered as a whole. in which most interactions are with other individuals belonging to the group. The theory emphasizes the ways in which organized systems (human and non-human) respond in an adaptive way to cope with significant changes in their external environments so as 1 A system is a collection of parts (or subsystems) integrated to accomplish an overall goal (a system of people is an organization). If one part of the system is removed.). a society is defined as a network of relationships between social entities. thermostat). human/mechanical systems (e. education system and so on. Specifically the term society is used to refer to segments of humankind such as members of a specific caste. Business forms one of the major subsystems of the society. . managers typically took one part of the organization and focused their attention on that and subsequently moved their attention to another part. There are numerous types of systems. These subsystems are arranged in hierarchies. Human society consists of various subsystems which has distinct roles and functions like the judiciary system.) Complex systems. and integrated to accomplish the overall goal of the overall system.g. For instance it gets manpower. provide employment. supply and demand. In 1940 the General Systems Theory was introduced.g. Systems range from very simple to very complex. More abstractly. In return businesses help in contributing to the GDP of the nation. Each subsystem has its own boundaries of sorts and includes various inputs. with ongoing feedback among these various parts.g. ecological systems (e. riding a bicycle. The term society refers to a group of people that form a semi-closed social system. It has brought a new perspective for managers to interpret patterns and events in their organizations. It is significant that India has the third largest investor base in the world. This theory highlights that all organizations are open to and interact with their external environment.3 BUSINESS ORGANIZATIONS AS SYSTEMS The systems theory helps managers to look at organizations from a broader perspective. aid in infrastructure development and improve the quality of life of the people. The above point illustrates that business and society are highly interdependent. raw materials. heart. etc. friendship. Therefore an understanding of the organizations key relationships with its environment and assessment of the impact of managerial decisions on the larger society will assist managers to manage these interdependencies. For example. processes. financial and other resources from the society. there are biological systems (e. Bombay Stock Exchange is the second largest after the New York Stock Exchange (NYSE). and social systems (groups. In this organizations could have wonderful departments that operated well by themselves but did not integrate well together. mechanical systems (e.g. business refers to organizing and maintaining collective productivity toward accomplishing a set of creative and productive goals. and the actions by governments and other subsystems in society continuously affect businesses. nation and so on. group. the nature of the system is changed. It also needs the larger society to facilitate the exchange of its finished products and services. etc. Most economists focused on the economic benefits of these enterprises. Businesses are basically outcomes of social creation and hence they must be responsible to their stakeholders 3 including the 2 3 Other constituencies of the firm. the primary duty of those who manage a firm is to maximize the interests of the firm’s shareholders. in particular focus. The manifestations of the above events put the relationship between managers and other firms and constituencies 2 . such as deforestation. The price of these benefits is a responsibility to the public that goes beyond simply maximizing the wealth of investors. 2. and customers. Milton Friedman. Maximizing their returns should provide the most efficient outcome for the firm and society.18 Corporate Social Responsibility to maintain their basic structures intact. Systems theory models of decision-making in human groups and organizations emphasize their interaction with "outside" actors and organizations and concentrate on identifying the particular elements in the environment of the group or organization that significantly affect the outcomes of its decision-making. The corporate law commits managers solely to the maximization of profits for the benefit of the firm’s owner/shareholders. The society at large emphasized that the benefits of legally sanctioned business organizations—limited liability and perpetual existence—come at some cost. Social obligations of the firm are limited establishing contractual relations. the interrelations of the parts. As applied to business management discipline. the system’s concept implies that business firms are embedded in a broader social structure (external environment) with which they constantly interact. obeying the law. not by examining what appear to be separate pieces of the organization. including the public.. and adhering to ordinary moral expectations. the shareholders. They diagnose problems. that is. suppliers. and in particular.g. environmental degradation. . include employees. for e. According to shareholder theorists such as Nobel laureate economist. Shareholders are the “residual” owners of the firm’s assets.4 FROM SHAREHOLDER THEORY TO STAKEHOLDER THEORY Every organization attempting to accomplish something has to ask what is their purpose? And to whom are they responsible? According to the Ownership Theory of the Firm. A stakeholder is any individual or organisation that is affected by the activities of a business. but they could not explain why they caused such social upheaval. The growth of industries from technological age to information age has produced large business enterprises. and may be in contact with the business on a daily basis. but it has also spawned the social problems that are associated with industrial firms. but by recognizing larger patterns of interactions. to maximize profits. In contemporary society more managers are beginning to recognize the existence of the various parts of the organization. managers ought to serve the interests of the firm's owners. or just occasionally. To understand what an organization did. the coordination of central offices with other departments. For many. urban blight. They focus on structures that provoke behaviors that determine events – rather than reacting to events as was the practice in the past. migration. They have a direct or indirect interest in the business. Managers maintain perspective by focusing on the outcomes they want from their organizations. Managers now a days focus more attention on ongoing matters of the organization and feedback. and child labor. sweatshops. at least not in rational economic terms. supervisors with workers. engineering with manufacturing. these social dislocations were simply the price of progress. unemployment. try to find out what threat or opportunity it was responding to and how its pre-existing response mechanisms worked to do this. Suppliers: Their interests are regular business and prompt payments. suppliers. Government: Their special concerns are revenue. Stakeholders have an interest in the company but do not own it (unless they are shareholders).. This theory treats the firm as a social creation that must operate for the benefit of society. Edward Freeman propagated the Stakeholder Theory. or may just occasionally. There are two types of stakeholders. local communities. Banks and other financial organizations: They lend money to the business. A stakeholder is any individual or organization that is affected by the activities of a business. Secondary social stakeholders may be extremely influential. customs and excise. and therefore are influential.’ The very purpose of the firm. customers. Local Community: They are interested in jobs and minimum disruption in their daily lives. is to serve and coordinate the interests of its various stakeholders. In this context R. For instance. civic .e. They sound the same – but the difference is crucial Shareholders hold shares in the company – that is they own part of it. Management and employees: They may also be shareholders. This understanding of the firm's purpose and its management's obligations diverges sharply from the understanding advanced in the Shareholder Theory of the firm. The main stakeholders in businesses are: Shareholders: They will be interested in their dividends and capital growth of their shares. 19 Business and its Stakeholders 2.society at large. Primary and Secondary Stakeholders. Pressure Groups: Their interests are whether the business is acting appropriately towards their area of interest. and may be in contact with the business on a daily basis. Primary social stakeholders have a direct stake in the organization and its success. It is the moral obligation of the firm's managers to strike an appropriate balance among the ‘Big Five’ interests in directing the activities of the firm. For example. Stakeholders include shareholders. but their stake in the organization is more representational than direct. They may have a direct or indirect interest in the business. prospects and pay. affect or are affected by) the firm.5 STAKEHOLDER CONCEPT It is important to distinguish between a stakeholder and a shareholder. The theory holds that managers ought to serve the interests of all those who have a ‘stake’ in (that is. employees. Each relationship is based on a specific transaction between the firm and the stakeholder. according to this view. employees and managers. as they will be collecting taxes from businesses. and the communities in which the firm operates—a collection that Freeman terms the ‘Big Five. suppliers and other business partners. shareholders and investors. government and regulators.6 TYPOLOGY OF STAKEHOLDERS AND THEIR INFLUENCE A business firm’s relationship with its stakeholders depends upon its interface. customers. Trade Unions: They will represent the interests of the workers. They will be interested in their job security. especially in affecting reputation and public standing. Customers: They are interested in fair price and safe products. 2. i. Dangerous Stakeholder 3. Discretionary Stakeholder Urgency Source: Mitchell et al. trade bodies. Definitive Stakeholders 6. legitimacy 5 . Dominant Stakeholders 2. Agle. media and academic commentators. The authors group the stakeholders into the following classes: (a) latent or low salience (Areas 1. Dominant Stakeholder Legitimacy 5. 874. legitimacy. The authors define salience as the degree to which managers give priority to competing stakeholder claims. and Wood (1997) developed a theory of stakeholder identification and salience based upon stakeholder possession of one or more of the three attributes: power 4 . 2.. and 3). to do something that B would not otherwise do. (1997). values. proper or appropriate within some socially constructed system of norms. In addition. Because of the absence of power and 4 5 6 Power . Legitimacy . competitors. (b) expectant or moderately salient (Areas 4. Urgency .A relationship among social actors in which one social actor. 289-293). influence and relationship with the organization. namely. The stakeholder classes resulting from possessing the attributes is illustrated in the Figure 2. and 6). Power can be based upon force or threat. two. and that managers' perceptions dictate stakeholder salience. These stakeholders have little or no interaction with the firm but may become more salient if they acquire one or both of the other two attributes. p. their power is not exercised.1: Types of Stakeholder Power 1. dormant. 8: Non-stakeholder Latent stakeholders are those that possess only one of the attributes and thus have low salience. and definition that is based on the individual. Figure 2.1 below. Thus. 5. the various classes of stakeholders might be identified based upon the possession of one. It is assumed that managers who wish to achieve particular end will pay attention to the various classes of stakeholders. Mitchell. managers do not ignore dormant stakeholders. the organization. and it exists when a claim or relationship is of a time sensitive nature and when that claim or relationship is important or critical to the stakeholder (1997. Individuals or entities possessing none of the attributes are non stakeholders (Area 8). A. can get another social actor. incentives.20 Corporate Social Responsibility institutions. These stakeholders possess legitimacy but not power or urgency. B. Latent stakeholders are not likely to give any attention to the firm. and (c) definitive or highly salient (Area 7). Each stakeholder group has unique concerns. Three types of latent stakeholders exist. discretionary. social pressure groups. Dependent Stakeholder 4. or symbolic influences. Dormant stakeholders possess the power to impose their will on the firm but as they lack a legitimate or an urgent claim. and urgency. beliefs. Demanding Stakeholder 7.The degree to which the stake holder’s claim or relationship call for immediate attention. and urgency 6 . and demanding. Managers may not recognize their existence or may do nothing about these stakeholders. A second type of latent stakeholder is discretionary (Area 2). or society. . or all the three attributes of power.A generalized perception or assumption that the actions of an entity are desirable. and warrant only passing management attention (Mitchell et al. employment training agencies Other groups: environmental impact in Bhavnagar (e. Box 2.urgency. Dangerous . loss of trade for Mumbai -based suppliers Government agencies: regional development agencies. Non-stakeholder Non or Potential .2 below. traffic) The stakeholder concept suggests that the managers of a business should take into account their responsibilities to other groups – not just the shareholder group . often the government. managers are not under any pressure to engage in a relationship with the stakeholder although they may choose to do so. concerns about family. government agencies. total sales. These include the traditional objective of profit maximisation (in other words. they also include goals relating to earnings per share. Definitive Definitive . 1997). Demanding . or interest group terrorism or blockages. families of employees.A fired or laid off employee speaking out against the firm or filing wrongful dismissal suit. As these stakeholders lack power and legitimacy. a wider variety of goals have been suggested for a business.Recipients of discretionary corporate social responsibility. The third type of latent stakeholder is demanding (Area 3) and possesses the urgency attribute. The concept suggests that businesses can benefit significantly from . housing. environmental protection and many others. and special interest groups.Shareholders and creditors who expect to receive management’s attention. change in "living standards" New employees in Bhavnagar: job opportunities.Lone picketer opposing actions of firm. training Customers: impact on supply of product or service.1: Stakeholders Acceptance of Stakeholder Concept Latent Stakeholders Dormant . agencies providing other grants. Box 2. Discretionary .when making decisions. Businesses come into regular contact with customers.g. A major reason for increasing adoption of a Stakeholder concept in setting business objectives is the recognition that businesses are affected by the "environment" in which they operate. manager satisfaction. Decisions made by a business are likely to affect one or more of these "stakeholder groups". number of employees.Shareholders voting to replace management..2: Impact of Decisions on Stakeholder Groups Business Decision Relocation of Head Office from Mumbai to Bhavnagar Stakeholders Affected Employees in Mumbai: potential redundancies. Dependent . they are merely troublesome but not dangerous. Suppliers: impact on supply costs. the shareholder concept has not been abandoned). Some examples are given in Box 2.Individuals or entities processing none of the attributes 21 Business and its Stakeholders In recent years.Employees who are involved in wildcat strikes or sabotage. Expectant Stakeholders Dominant . measures for employee welfare. suppliers. However.Local residents or the environment who depend on a dominant stakeholder. Its global quest is to improve the quality of human life by enabling people to do more. suppliers. partners or neighbours. Entering the 21st century our commitment remains as strong as ever. regulators. employees. mode of engagement. GSK's strategic intent is to become the indisputable leader in its industry . If we had to say what we believe in a single sentence. but in how it uses that size to achieve its mission.3) Box 2. investors. Since the 1930s. Marks & Spencer has been actively involved in improving the quality of life for a wide range of communities. investors to back us. creed or education.3: Examples of Stated Business Objectives that Incorporate the Stakeholder Concept Company British Telecom Stakeholder Statement We aim to be at the heart of the information society – a communications-rich world in which everyone. employees.5 for summary of various key stakeholders. ethnicity. suppliers. has access to the benefits of information and communications technology (ICT). culture.7 STAKEHOLDER ENGAGEMENT With increasing frequency.not simply in terms of size. which will facilitate the functioning of the firm. and the public are focused on corporate governance and business ethics. key sustainability concerns and the initiatives taken by ITC). 2. Marks & Spencer Our commitment to society is nothing new. but the world is changing. corporations are facing demands from their stakeholders. Business is becoming global. GSK partners with and supports organisations whose goals and objectives reflect its mission of improving the quality of human life. it means we are committed to doing business in a way that: Maximizes the benefits of ICT for individuals Contributes to the communities in which we operate Minimizes any adverse impact that we might have on the environment It means doing business in a way that will persuade customers to buy from us. society more diverse and our environment is under greater threat than at any time before. Stakeholders must be engaged in a dialogue. whether as customers. workplace health and safety. Investors. irrespective of nationality. incorporating their needs in the decision-making process. human rights. a sustainable retail business needs the support of healthy communities and a high quality environment. environmental performance. customers. Companies have to consider how their actions impact on an increasingly connected set of issues. (See Box 2. We've always known that besides providing the right products. (See Box 2. When deciding future strategy for the short and long term. We aim to be the most trusted retailer wherever we trade by demonstrating a clear sense of social responsibility and consistency in our decision-making and behaviour.4 for ITC’s stakeholder engagement statement and Box 2. the best people to work for us. and communities to have us around. stakeholder views must be considered. feel better and live longer. impact on communities and reporting transparency. In practical terms. Glaxo SmithKline GlaxoSmithKline is one of the world's leading pharmaceutical companies. Through its Global Community Partnerships function and Corporate Donations Committee. We've always tried to make an active contribution to the needs of our stakeholders. it would be this: ‘Better communications help create a better world’.22 Corporate Social Responsibility cooperating with stakeholder groups. class. . . are posted on the Company’s website. . Key Sustainability Concerns and the Initiatives Taken by ITC Stakeholder & Mode of Engagement 1. if any.htm 23 Business and its Stakeholders Box 2. contractors. Source: http://www. Such services are provided by a dedicated and trained team of professionals backed by stateof-the-art infrastructure. ITC’s Investor Service Centre (ISC) provides share registration and other related services. Two exclusive sections on ‘Shareholder Value’ and ‘Investor Relations’ serve to inform and service shareholder needs. (Occupational) Health and Safety (EHS). ITC is committed to the timely disclosure of relevant and reliable information about its financial performance. made to them. suppliers. ITC has a large number of stakeholders comprising of Government and statutory bodies. Audited Annual results are declared within two months of the end of the financial year. The Company’s various businesses have evolved and institutionalised structured systems to formally review and update their understanding of stakeholder expectations. its entire gamut of activities relating to Environment. Mode of Engagement. The entire Report and Accounts as well as quarterly and half-yearly financial results are now available in downloadable formats under the section ‘Shareholder Value’ on the Company’s website to facilitate easy access to all information. Shareholders: Annual General Meeting Written Communication Investor Service Centre Key Sustainability Concerns Profitability & Growth Initiatives by the Company The quarterly results of the Company are announced and published within a month of completion of the quarter. the Investor Service Centre endeavours to keep investor servicing contemporary and efficient. ITC and all its units consistently strive to anticipate emerging stakeholder expectations.com/sustainablity_report/page_08. Already a benchmark in-house Registrar. social responsibility activities and EHS performance. Contd….itcportal. ITC believes that the disclosure of all appropriate and useful information with regard to all Company activities that can impact stakeholders is at the heart of good governance. All these results.Box 2. is also posted on SEBI’s EDIFAR website The Company’s corporate website ‘www. are posted on SEBI’s EDIFAR website.4: ITC’s Stakeholder Engagement Statement As a large Corporation.itcportal. The ‘Newsroom’ section includes all major Press Releases from the Company and relevant press clippings.5: Summary of Various Key Stakeholders. including the entire Report and Accounts. Information related to shareholding pattern. including presentations. employees. and its social initiatives. who are impacted by the Company’s operations. shareholders. etc. customers. compliance with corporate governance norms. local communities and the society at large.com’ is a comprehensive source of information on ITC’s portfolio of businesses. with a diverse business portfolio and Units spread over 60 locations. Clarifications as and when provided to institutional investors and analysts. Quality. EHS & social issues and regulatory trends Regulatory Issues & Community Interests Proactive periodic fulfilment of all formalities and procedures 3. regular visits by Managers. surveys through NGOs. Failure to fully monitor. online instrumentation to ensure product quality and consistency Improved designs and processes through R&D and product development Source-http://www.6 for details).com/sustainablity_report_2006/html/stakeholder enagement. public hearings for new projects.htm Organizations face various challenges in the stakeholder engagement process. costs. engage and manage stakeholder support is crucial for an organization’s survival. Employees: Regular interaction through elected unions and delegates. innovation. delivery. Direct Interaction at the workplace. need-based discussions/written communication The organisation of water supply to nearby colonies and for irrigation The conduct of Public Awareness Programmes on EHS The organisation of medical facilities like pulse polio and eye camps Provision of infrastructural support through road building and effecting improvements in school buildings and public toilets Active support to local NGO initiatives in public health. Implementation of Suggestion Schemes. Communities: Neighbourhood societies. services.24 Corporate Social Responsibility 2. Customers: Customer and market surveys. . sewerage and community waste management Improving the quality of life in the community 5. IQRS (International Quality Rating System) certification. redressal systems etc. Customer complaint records. CANDO (5S). (Refer Box 2. Government: Regular meetings and structured communication on key economic.itcportal. Representation of employees in EHS and Social Committees Participation of employees in EHS and Social Initiatives Health & Safety Growth prospects Employee satisfaction and commitment Ethical standards in business Attracting and retaining talent Career development opportunities Air & Water quality Environment quality: Disposal of fly ash Organisation of EHS Training Programmes Conduct of Public Awareness Programmes Systematic encouragement of Innovation Programmes to discover and promote leadership talent Conceptualisation and implementation of knowledge management tools The creation of an organisational culture that combines a warm and caring ambience with a high performance ethos 4. flexibility Use of IT to improve supply chain management Adoption of ISO 9000. 25 Business and its Stakeholders 2. Developing a relationship with the strategic stakeholders based on commitment and accountability. Moreover. the workers may go on strike or the customers refuse to buy the company’s products). It also affects business reputations in terms of boycotts or media disasters or corruption scandals. Developing and communicating the organization’s values through the engagement process. and by growing consumer power. . child labour. employee concerns for participation. We have examples of human rights. and other related factors.g. firms and corporations today are defined by their social cultural environment as much as they define that environment themselves. The conflict often arises because while shareholders want short-term profits.8 STAKEHOLDERS VERSUS SHAREHOLDERS Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict. the viscosity of institutional change. the other stakeholders’ desires tend to cost money and reduce profits. Above all. and communities that remain local. Providing information on the real performance of your organization rather than on the perception people might have. 2. They are increasingly facing a rise in public expectations partly because of the decline of the State and partly because of the erosion of a common framework for dialogue between businesses. as well as their needs and concerns. greater transparencies and ethical behaviour affects the internal labour markets of companies. Businesses today face several major challenges. technological and market change.Box 2.6: The Key Challenges in Stakeholder Engagement Assessing who the key stakeholders are. Having a mechanism to properly collect and respond to stakeholder views. Capital markets also get affected through investor preferences and new types of performance rating and accounting and how can business strategies and profit considerations be reconciled with these changing and growing social demands.9 DYNAMIC ENVIRONMENT OF BUSINESS The end of the last century has taught us many lessons about the relationship between business and society. which perhaps was not perceived so clearly at the beginning of the 90s. Deciding how to get assurance for the data used. which force them to change. This affects product markets because it impacts on consumer demand as individual values and ethical considerations are given market expression. This question has been sharpened by the inexorable drive towards greater shareholder value and hyper competition. They also face a challenge through the new individualism. Restoring and enhancing reputation/trust when it has been damaged. all of which affect consumer choice. Ensuring data sources are reliable and information provided to stakeholders is consistent and accurate. Finding a cost effective approach to monitor and report performance. as these are important powerful dynamic elements within the organizations. then deciding how to measure and communicate performance. which is already impacted on the State and on political institutions and this new individualism impacts on firms and their market environment in a series of ways. which are global. environment. We have understood the impact of lack of synchronicity between political and economic cycles. These incidences have brought home the truth that expanding markets can go hand in hand with shrinking social space. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e. Designing an effective engagement programme on strategy and operations. com/ombuds/integrity_business_relationships. On other hand the Stakeholder Theory states that the firm should act in the interest of all its stakeholders. suppliers. social groups. Business activities impact the social environment. When entering into any business commitment. Comply with all legal and contractual obligations in dealing with governments. Employees dealing with Wipro customers. Source: http://www. . are required to understand and abide by Wipro contracting policies and guidelines including proper Authorization. suppliers. corporate integrity is at the foundation of our business conduct code. The world today is moving towards ethical business strategies. Stakeholders can be divided into two: primary stakeholders – who have direct stake in a company like employees. so has the recognition that viable and long-term business growth can no longer be separated from the well-being of societies abroad and from the way in which we deal with problems and challenges that transcend national boundaries. Accepting or receiving bribes or gifts that could compromise the company’s interests. So. This theory states that open to (interact) with the external environment.wiprocorporate.7: Integrity in Business Relationships – Wipro Ltd As an international business. it is important to define the rights and obligations of each party in appropriate written contracts.7 to understand how Wipro has developed integrity in business relationship. investors. civic bodies etc.26 Corporate Social Responsibility As markets and businesses have gone global. ensuring against Sham Transactions. Shareholders own shares in the company so they own a part of the company but stakeholders (except shareholders) have interest in the company but do not own it.asp 2.10 LET US SUM UP Business is to organize and maintain collective productivity to achieve a set of productive and creative goals. employees or any other stakeholders. Building a culture of responsibility and becoming more actively engaged in finding solutions to broader societal challenges is one way forward. hence honesty is not only the best policy but it is the best business policy. and secondary stakeholders – who don’t have direct stake like media. Ownership Theory of the Firm stresses that the primary duty of a firm is to maximize shareholder’s profits. See Box 2. Staying aloof is no longer a choice we can afford. While deciding future strategies-whether short term or long term-stakeholders views must be taken into consideration. any fund or other assets belonging to Wipro for political purposes in any territory or country are prohibited. 2. whether it’s our Customers. therefore the managers need to understand this relationship and assess the impact of business decisions on society. The term society refers to a semi-closed in which most of the interactions are with the other members belonging to the group. Systems Theory helps managers to look at organizations from a broader perspective. Box 2. everyone is looking for dependability and protection of their interests in these turbulent times. Contributions without the prior approval of the management of Wipro. Wipro’s business transaction policies clearly outline procedures to be followed by the employees strictly while dealing with the company’s customers like committing to obtaining and conducting business legally and ethically.11 KEYWORDS Business: Legally recognized organizations that provide goods and services to customers Society: Network of relationships between social entities. local communities. business partners etc. we are required to interact and transact with a variety of business organizations and even governments and international organizations in different jurisdictions. Latent Stakeholders: Have low salience and give low attention to the firm. (e) Shareholders have vested interest in the company but do not own it. (d) Stakeholders Theory states that shareholder’s profit maximization is the prime motive of the business. (c) System concept states that businesses have broader perspective and they constantly interact with the external environment. Stakeholders: Have vested interest in the firm but do not own it.12 SELF ASSESSMENT 1. (f) Discretionary stakeholders have legitimacy but no power. stakeholders should posses these 3 attributes: (i) Power. Agle and Wood. recognition and legitimacy (iv) Power.Shareholders: Owners of a firm. (g) The objectives of shareholders and other stakeholders are conflicting. Definitive Stakeholders: Shareholders who can vote and replace the management. 27 Business and its Stakeholders 2. legitimacy and Urgency . recognition and interest (iii) Value. Salience: Degree to which managers give priority to competing stakeholders claim. 2. legitimacy and interest (ii) Power. Choose the appropriate answer: (a) Which of these theories emphasizes on interaction with outside factor? (i) Stakeholder Theory (ii) System Theory (iii) Ownership Theory (iv) Societal Theory (b) Which theory believes that the firm is a social creation and it works for the benefit of society? (i) Stakeholder Theory (ii) System Theory (iii) Ownership Theory (iv) Societal Theory (c) Which of these are not primary stakeholders? (i) Debtors (ii) Community (iii) Rivals (iv) Creditors (d) According to Mitchell. (b) Only negative activities of a business impact the society. who owns shares in a firm. State whether the following statements are true or false: (a) Business is one of the major sub-systems of the society. (2006). (1984). J. 3.edu/5374/Week11/StakeholderArticleAME. Strategies for assessing and managing organizational stakeholders. (n. Available http://www. employees and government. Nix.com/sustainability_report_2006/html/stakeholder-engagement.28 Corporate Social Responsibility (e) Stakeholders that expect to receive management’s attention are: (i) Demanding stakeholders (ii) Dominant stakeholders (iii) Dangerous stakeholders (iv) Dependent stakeholders (f) Which of these is less likely to affect consumer’s choice? (i) Human rights (ii) Environmental issues (iii) Child labour (iv) Firm’s profits 2. which is better from a firm’s point of view. Answers: Self Assessment 1.64. Academy of Management Executive.. Available at http://www. (2004).d.. C. & Blair.ba. Available at http://jblair.htm Wipro Limited. Sustainability Report 2006. Strategic Management: A Stakeholder Approach.itcportal. Why do you think that the interests of shareholders and stakeholders come into conflict? 6. (a) True (e) False 2. 5.asp Available at at Savage. What factors comprise a business environment and how do they impact business? 4.). Distinguish between stakeholders and shareholders. (1991).13 REVIEW QUESTIONS 1. T. Take an example of a company and show how they have changed over the years to adapt to the new business environment. Sustainability Report 2004. ITC Limited. Boston: Pitman.com/ sustainablity_report/default. 2. T. Whitehead.html ITC Limited.wiprocorporate. Include facts related to major contributions that benefited the stakeholders like society.14 SUGGESTED READINGS Freeman. Discuss the various typologies of stakeholders and the influences that they have on business.ttu.itcportal.pdf . 61. Compare Ownership Theory and Stakeholder Theory. 5 (2). Integrity in Business Relationships.com/ombuds/integrity_business_relationships.. (a) ii (e) ii (b) False (f) True (b) i (f) iv (c) True (g) False (c) iii (d) iv (d) False 2. http://www. According to you. R. (1997). 853-886... 22 (4). & Wood. Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts.Mitchell. D. Agle. R. Academy of Management Review. 29 Business and its Stakeholders . B. 8 The Pyramid of Corporate Social Responsibility Generations of CSR 3.8.4 3.10 3.1 3.8.6.9 3.6.1 3.6.1 3.7 3.2 3.11 3.5 3.14 Changing Trends: Philanthropy – Strategic Philanthropy – CSR Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 3.2.6.12 3.6 Pre-Independence Period Post-Independence India Liberalization and CSR Emerging CSR Trends Contemporary Scenario: Achievements Theories of CSR 3.13 3.30 Corporate Social Responsibility LESSON 3 FROM PHILANTHROPY TO CSR: HISTORICAL AND THEORETICAL PERSPECTIVE CONTENTS 3.2 3.2.2 3.1 3.7 Friedman’s Theory/ Fundamentalist Theory Social Contract Theory Social Justice Theory Rights Theory Deontological Theory Stakeholder Theory Gandhiji’s Trusteeship Theory 3.6.6 3.3 3.0 AIMS AND OBJECTIVES After studying this lesson.2 Aims and Objectives Introduction History of CSR in India 3.6.6. you should be able to: Understand the origin and growth of CSR in India .8.5 3.3 First Generation Second Generation Third Generation 3.3 3.4 3.0 3. however. wells. 1938). and Wipro technologies. At an individual level they gave alms to the poor and needy. Alongside these are the leading multinational companies with strong international shareholdings.Get oriented to the theoretical framework and generations of CSR Understand the contemporary CSR approach adopted by businesses Understand the drivers of CSR in the present scenario 31 From Philanthropy to CSR: Historical and Theoretical Perspective 3. International Tobacco Company (ITC) and others where local dynamics have fused with the business standards of the parent or partner organizations. but it actually has a much older history. The post liberalisation period expects businesses to adopt the triple bottom line approach as an inseparable part of their strategy to attain both shareholder as well as societal value.8). it is important to map out the CSR format institutionalized by old and new public and private sector undertakings. Housing Development Finance Corporation (HDFC). arranged for their feeding. providing relief in times of famine or floods. but also for members of their guild. provision of drinking water. The preindustrial era expected mercantile traders to care for not only themselves. (HUL). 3. building temples. water tanks. Infosys. lay greater emphasis on minimizing the negative impacts and maximizing the positive spillover effects of corporate development. The underlying concept of CSR. Public sector enterprises. The importance of socially responsible behaviour in the 20th century was reported as early as 1938 (Barnard. Merchants’ charity in the ancient India took various forms. constructed night shelters for the poor and travellers. the global trade scene witnessed the emergence of corporations as distinct legal entities that functioned solely on a profit maximisation motive and rejected the proposition that business was responsible for the state’s social welfare. set up traditional schools (pathshalas). such as Bharat Heavy Electricals Ltd (BHEL). India has one of the world’s richest traditions of business involvement in social causes for national development. such as Hindustan UniLever Ltd. the poor and other needy communities. National Thermal Power Corporation (NTPC) and Oil and Natural Gas Corporation (ONGC) have also incorporated social obligations as an integral part of their business. such as treasury chests for the needy.2 HISTORY OF CSR IN INDIA Historically.1 INTRODUCTION Social responsibility of corporations has been a question for academics and business executives since the beginning of the 1950s. ponds. Merchants contributed towards charity both individually as well as collectively through their business and social organizations. made provision for drinking water during summer. With the advent of industrialisation. that of an implied social contract between business and society. To understand the current status of Corporate Social Responsibility (CSR) in India. p. gave access to their private granaries in times of famine. Ranbaxy. In India the concept of a corporation or an entrepreneur having a social responsibility towards his community has come a long way since the rise of mercantilism. the Philanthropy of Indian businessmen is deeply rooted in religious belief. such as the Birlas and the Tatas. commissioned artists to prepare . Longestablished old private sector industrial dynasties. have integrated the concepts of nation building and trusteeship long before CSR become a popular cause. 1970. built water tanks and bathing areas (ghats). supporting schools and so on. New generation enterprises like Dr Reddy’s Lab. the modern era of CSR is generally traced to the publication of Bowen (1953). dates back to the writings of the Greek philosopher Epictetus in the first half of the seventeenth century” (Anshen. The emphasis was on vocational and technical training. As part of collective charity. After independence. Though the more enlightened merchants began to diversify their charitable giving in content and intent. colleges. Singer (1972).2. the need for rapid progress on the part of the government. 3.2 Post-Independence India Post-independence. power and water supply and the Gandhian social reform movements. Gupta. Founders of business families supported schools. Dobbin. Herdeck & Piramal (1985) . more inclusive in terms of caste. Appadurai (1981). 1 Haynes. it will not be able to ensure its own survival. when India came under the British crown. They felt that the business community is an essential ingredient of the democratic society and it has a duty not only to create wealth but also to promote the ethical and social goals of the community. Business leaders increasingly engaged themselves and their businesses in social welfare and reform. a group of families or all the inhabitants of the town would collect voluntary offerings and present them according to different needs of the community. merchant charity began to change from being largely religious. (1987). The credit for integrating social responsibility with the conscience of business goes principally to business leaders like JRD Tata. Industries were termed as “Temples of Modern India. provided for dowries and marriage expenses of poor girls. (1972). The business leaders of the emerging indigenous industry remained rooted in the tradition of Philanthropy. As champions of free enterprise. Arvind Mafatlal and Kasturbhai Lalbhai. economic gain. where it is still visible among individual businessmen and the unorganized sector. which he held up as an ideal to be approximated by business. and so on. creed and community and more oriented towards bringing progress to society through western style modern institutions. By the third decade of the nineteenth century. Gandhiji reinterpreted the traditional concept of "charity” (dana) in his theory of trusteeship. 3. they continued the older forms of gifting as well. public health. hospitals. orphanages and the promotion of art and culture. and honour. India struggled to stand on her own feet through indigenous manufacturing and creation of jobs. Studies conducted by European and Indian researchers 1 have pointed to the use of Philanthropy by merchants to gain political power. caste or religion towards being more secular. personal status. Gordon (1978). Tripathi (1984). There was a strong tradition of charity in almost all the business communities of India. The tradition of merchant’s charity has continued down the ages. Ramakrishna Bajaj.” Industrialists participated in nation-building programmes by setting up institutes of scientific and technical learning. The single most important factor influencing business Philanthropy in the preindependence period was the emergence of Mahatma Gandhi as a political and social leader. Unless it fulfils both these functions.2. Bayly (1973).32 Corporate Social Responsibility religious texts and other works of art for temples. even to present times. Mehta (1981. ameliorative in nature and confined to members of their own community. which gradually metamorphosed into businesses consciously contributing to social development to liberate India. education and other like aspects of general welfare. 1991). sanitation. The period between 1850 to early 1900 witnessed businesses setting up trusts and endowment funds. people and the business community propelled businesses to contribute more towards social development. such as health. the initial trade and business interest of the East India Company changed to the social and political management of the country by the company executives until 1885. Over the next 200 years. they feared that irresponsible behaviour by the business community would lead the government to encroach on their freedom. (1979).1 Pre-Independence Period The arrival of the East India Company in 1620 AD was a milestone in the history of trade and socio-political environment of India. which referred to the integration of environmental. The ‘World Business Council for Sustained Development’ has coined the definition of CSR as “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to the 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”. social and governance factors into business strategies and operations for attaining business and societal sustainability. 2 India has been extremely successful in achieving a yearly growth rate of four to eight percent as part of its reform policies in the market economy. (c) responsibility towards employees.In 1965. as for any other developing country. 2003). nutrition. 4. education. consumer education.623 crores) Japanese FDI in India tripled to $5. Hindustan UniLever Ltd. in 2008. 33 From Philanthropy to CSR: Historical and Theoretical Perspective 3. (d) responsibility towards shareholders and other businesses and (e) responsibility towards the State. among others. safe drinking water and the likes continue to remain crucial challenges for India. with the country lagging behind the MDG targets. The western driven CSR approach clearly differentiated between corporate Philanthropy and CSR. 2001:8). . However. with increased foreign direct investments. the Seminar on Social Responsibilities of Business highlighted that the concept of social responsibility was broader than charity.43. 2 Cumulative amount of FDI inflows (from August 1991 to February 2009) amounted to US$ 104.3 LIBERALIZATION AND CSR Since 1991. High unemployment with inequity in distribution of wealth and opportunity. (b) responsibility towards the community. developing rural markets and so on and direct engagement of business in mainstream development. lower access to and standards of health. Tata Iron and Steel Company commenced with the integration of the concept of “Social Responsibility. The fundamental objective of the economic reforms was to bring about rapid and sustained improvement in the quality of life of the people of India. sanitation. India’s performance in attaining the Millennium Development Goals (MDGs) is mixed. The community development and social welfare program of the premier Tata Company.” The last decades of the twentieth century witnessed a swing away from mere charity and traditional Philanthropy towards designing interventions in the areas of ecology. on enrolment for girls in primary school and elimination of gender disparity in secondary education. India ranked 128 out of the 173 countries on the human development index. The cumulative result of all these influences was that the industry accepted social responsibility as an inherent part of management of the enterprise itself. Many of the old multinationals such as ICI.4 billion in 2008. as decline in incomes and employment continues unabated. Central to this goal was the rapid growth in incomes and productive employment (Chaudhuri. analysts of economic reforms in India argue that the expectations from economic reforms have not had much success. It specified that business social responsibilities comprised of (a) responsibility towards consumers.567million (Rs. and ITC became Indianised and began to feel the same responsibility as the indigenous businesses. Despite all its growth. and other sexually transmitted diseases (ADB. The definition implied that business should exhibits the ethical behavior towards its internal and external stakeholders (customers as well as employees) as well execute its responsibility towards the environment and society in which it operates. The deprivation also contributes to the increasing incidence of trafficking in women and children and the increased spate of HIV/AIDS. Corporate India under the influence of increased FDI from western countries expected itself as heading towards a “social market economy with a human face” by incorporating CSR as its main business strategy for creating both shareholder as well as societal value. and so on. employee morale (30 per cent) and ethics (30 per cent) respectively. market place and environmental practices to develop sustainable business also has started gaining its due attention. culture. several cases of companies in India involved in diverse issues such as healthcare. the urgency for the business community to take up wider social responsibilities towards society is growing. Confederation of Indian Industries and PriceWaterhouse Coopers. The survey showed that there are. Activities include in the area Large of education. . Alongside issues related to developing ethical and responsible work place. 2002 ‘India’ presented jointly by the British Council. Bajaj. UNDP. rural development. and ‘Corporate Social Responsibility Survey. (b) The ‘statist model’ propounded by Jawaharlal Nehru which calls for adopting responsible practices by State interventions in economic activities and protecting stakeholders through legislation. which calls for companies to respond to all stakeholder needs. Fears of global warming.34 Corporate Social Responsibility With India facing a plethora of developmental challenges and particularly with the State retreating from economic activity. Shriram. religious and a host of other issues. where companies voluntarily commit to public welfare 4 and participate in nation building. CSR seems to be in a confused state. or an extension of Philanthropy. education. Infosys. Dr Reddy’s Foundation. arts. Nearly all companies with CSR embedded in the core corporate activity do so because of company tradition rather than a company strategy leading to ad hoc and largely CEOdriven CSR policy. conducted by Partners in Change (PiC) reveals that Philanthropy is the most significant driver (64 per cent) of CSR. including corporate Philanthropy. The 2001 survey of 536 companies across India. Birla Group. followed by image building (42 per cent). rural infrastructure. and to define the drivers and barriers of CSR in India. micro-credit and women empowerment. (c) The ‘liberal model’ by Milton Friedman which discusses CSR being limited to private owners or shareholders and d) The ‘stakeholder model’ championed by R Edward Freeman.‘Altered Images: the 2001 State of Corporate Responsibility in India Poll’ by Tata Energy Research Institute (TERI). etc. sanitation. Modi. healthcare services. ITC. However. Hero Honda. Number of corporate houses and companies in India are doing tremendous work in CSR. and conservation of wildlife and nature. and reality of human-poverty and development indicators in India on the other. The end result being that all activities undertaken in the name of CSR are merely Philanthropy. environment protection. Individual companies define CSR in their own limited ways and contexts. 3. Lupin. 3 4 Some of the prominent surveys include ‘Corporate Involvement in Social Development in India’ by Partners in Change (PiC). culture. Corporate social responsibility emphasises the responsibility of companies towards the stakeholders as against their earlier focus on profit-making alone. Kanoria. preserving art. heritage. the constant exhaustion of natural resources etc is urging the corporate world to take social initiative with a new perspective. some surveys 3 have been conducted in India by different organizations to understand the perception of CSR among companies and their different stakeholders. Creating trusts and foundations seem to be a favorite route of CSR practice by Indian companies. appreciably. Ranbaxy. development. analysis of the surveys quoted suggest that though many companies in India have taken on board the universal language of CSR. community welfare. but largely such trusts and foundations work at an arm’s length from the company preventing the mainstreaming of CSR into the core business processes and limiting CSR to community development only. Singhania. ‘Corporate Social Responsibility: Perceptions of Indian Business’ by Centre for Social Markets (CSM). four models of CSR co-exist in India: (a) The ‘ethical model’ as suggested by Mahatma Gandhi.4 EMERGING CSR TRENDS In the past few years. Prominent examples are – Tata Group. given the economic progress and increase in corporate profits on the one hand. According to the survey. Godrej. heritage. relief and emergency assistance. Mahindra and Mahindra. help bridge the gap between the rich and the poor. HDFC.5 CONTEMPORARY SCENARIO: ACHIEVEMENTS In 2007. A comprehensive picture of the state of CSR in India based on the Karmayog 5 2008 CSR Ratings highlights that 49% of the 1000 companies studied across 35 sectors have not undertaken any CSR activity. however. revealed that many companies are still steeped in an amalgamation of transition from trusteeship/ethical model to the statist model. sector and geographical location (CSM.. as older companies with greater turnover were more likely to believe in their role in CSR activities. ACC Ltd. given that the fundamental expectation of the public from companies was that they should provide good quality products at low prices. Kansai Nerolac. The CSR ratings from level ‘0’ (lowest) to level ‘5’ (highest) were measured on two aspects: a) steps taken by the company to reduce the negative effects caused by its products and processes on the environment. protect the environment. . which emphasises the role of corporates in pushing up the Indian economy. The survey further highlighted that belief in the company’s role in CSR activities was directly co-related with its age and turnover. Moser Baer. and the public opinion is still focused on brand-quality and reputation of companies. Jubilant Organosys. 5 6 A leading NGO information Portal. particularly. treat employees well without discrimination. and protecting reputations. complicated tax systems.The 2004 PiC survey findings present a marked increase in the number of companies developing and adopting CSR policy as against the earlier survey findings. The study highlights that banking sector is one of the best performing sectors and CSR initiatives. and Titan Industries.. and help in social and economic development. This may be attributed to an enabling corporate environment that is more conscious of the implications of involvement of business in CSR activities with specific reference to the Indian context. The CSR survey conducted in 2002 by British Council et al. The survey conducted by Center for Social Markets (2004) highlighted that the primary reason for changing attitudes of businesses towards social and environmental issues was the pressure exerted by the international business code of conduct. Only ten companies 6 have got a Level 4 rating. and b) positive steps a company takes using its resources and core competence for the benefit of society. are largely undertaken due to the mandatory regulations on social sector expenditure for PSUs. and poor infrastructure was the key barrier to CSR in India (PrakashMani. that the demand for CSR is low in India (Kumar et al. The Ministry of Corporate Affairs. Ballarpur Industries. and highlighted growing recognition among companies that passive Philanthropy is no longer sufficient in the realm of CSR (British Council et al. The Centre for Social Markets (CSM) survey. Tata Steel. The Construction sector is one of the sectors with very low CSR activity. Infosys Technologies. of July 2001. ineffective bureaucracy. The survey report claimed that the government with unclear policies. The survey. as per the World Investment Report of the United Nations Conference on Trade and Development (UNCTAD). TCS. 2001). also revealed that Indians are not yet judging companies according to these criteria. 2001). 35 From Philanthropy to CSR: Historical and Theoretical Perspective 3. poor monitoring record. 2002). India has emerged as the second most-attractive location for Foreign Direct Investment (FDI) after China. explored perceptions of and attitudes towards corporate social and environmental responsibility of modern Indian business covering a wide range of businesses in terms of size. The private sector today accounts for 80 per cent investment in the Indian economy. The survey thus confirms a prior finding by Environics International in 2001. 2002). currently. environmental and social impacts. Some consider CSR merely as compliance or legal responsibility.’ Since then there has been a shift in terminology from the social responsibility of business to CSR. by September 2008. the performance and behavior of Indian companies is under greater scrutiny than ever before. The code had started with 23 new signatories and the total number of code signatories had gone up to 102. to still others. It provides consultancy services and technical assistance on social development and CSR. However Indian private sector is now being managed by executives who have a global understanding and have recognized that the competitive international marketplace increasingly rewards those that go beyond the legal requirements in terms of managing their economic. Kofi Annan. The theories of CSR are developed on the basis of the extent of interaction between business and society. which was formulated in 2006. India is one of the countries that have 'credits' for emitting less carbon. it is important to map the territory in which most relevant CSR theories and related approaches are situated. increasingly practice a sustainable approach to business and undertake sustainability reporting in response to this peer pressure and the competitive international environment. p.. many simply equate it with a charitable contribution. 7 A set of 10 principles launched in by the former UN Secretary-General. the meaning transmitted is that of ‘responsible for’ in a causal mode. with the other emerging economies. cost advantaged-focused strategies to longer-term. For instance 1250 businesses in India received ISO 14001 certifications. to others. Indian CSR is now considered as an important part of the movement away from “rapid-growth. ‘Social Responsibilities of the Businessman. CII's 'Mission on Sustainable Growth' has set up a code. As a result. has recommended that corporates ought to work in cohesion with the government for the promotion of inclusive growth in the country. In the absence of global benchmarks it is difficult to comparing the CSR progress of India Inc. 1972. Another broader measure of corporate commitment to social responsibility is the UN Global Compact 7 . In 1953. Given the increasing overseas presence of Indian companies and the expectation that India will become the second largest global economy by 2050. p. 2005. Indian companies investing overseas. However. some proxy indicators suggest that companies in India are taking proactive stands in the areas of environmental responsibilities. In order to contribute to a clarification of the field of business and society. some take it to mean socially conscious. which are 'green' to promote the cause of sustainable development. export-oriented. 82). business development initiatives” (Balasubramanian et al.36 Corporate Social Responsibility Government of India. 3. many of those who embrace it most fervently see it as a mere synonym for legitimacy in the context of belonging or being proper or valid. it means socially responsible behavior in the ethical sense. The mission's aims are to promote the reduction of excessive consumption of natural resources and emission of greenhouse gases. Similarly global carbon credit trading in 2007 was estimated at $5 billion. It was reported that 12 Indian companies have disclosed their sustainability performance at a global level in 2007. 25). Many large corporate houses are taking up projects— along with the help of the government—. . the India chapter has membership of 206 members that has backed the Global Compact. a few see a sort of fiduciary duty imposing higher standards of behavior on businessmen than on citizens at large” (Votaw.6 THEORIES OF CSR Since the second half of the 20th century a long debate on corporate social responsibility (CSR) has been taking place. Bowen (1953) authored wrote the seminal book. with India's contribution at around $1 billion. To amend these externalities we need government policies or other market-correcting interventions to restore the socially optimal equilibrium. goods. p. it will lose its position in society because other groups will occupy it. In the long run those who do not use power in a manner which society considers responsible will tend to lose it because other groups eventually will step in to assume those responsibilities” (1960. Donaldson (1982) further extended on the work of Davis and assumed that some sort of implicit social contract between business and society exists and business will have to honour the contract as business is not just an economic institution... enter into these contracts with other members of society. 1983). 48). as organizations. from the economic to the social forum and from there to the political forum and vice versa. Davis noted that the causes that generate the social power of the firm are not solely internal of the firm but also external. which is to say.6. 1967. and institutions. and societal approval to operate in exchange for good behaviour.to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game. but also a social one.3. According to social contract theory. economic institutions designed only to make money. Additionally. He held that business is a social institution and it must use power responsibly. 37 From Philanthropy to CSR: Historical and Theoretical Perspective 3. Davis formulated two principles that express how social power has to be managed: “the social power equation” and “the iron law of responsibility”.. installing environmental systems and so on. exploitation of labour and so on. organizations. Thus the corporation has no special moral or social obligations. the "business of business is business. In doing so.. it is likely that in order to minimize the expenses of the firm. It is not a creation of society" (DeGeorge. The iron law of responsibility refers to the negative consequences of the absence of use of power. the corporation is an autonomous entity. . In his own words: “whoever does not use his social power responsibly will lose it. especially when society demands responsibility from business. 1990). he introduces business power as a new element in the debate of CSR. According to Friedman. without deception or fraud" (Friedman.2 Social Contract Theory The central tenet of social contract theory is that society consists of a series of explicit and implicit contracts between individuals. Hence the concept of ‘Corporate Citizenship’ was propagated.1 Friedman’s Theory/Fundamentalist Theory Friedman's position is captured in his pronouncement that "there is one and only one social responsibility of business . owned and run by a freely constituted group. they may take decisions that can normally create negative externalities on the larger society like creating environmental hazards. Corporations are fully private.. 63). and receive resources. engages in open and free competition. These contracts evolved so that exchanges could be made between parties in an environment of trust and harmony. corporations. Friedman's reference to the "rules of the game" suggests that social responsibility is derived from the general economic environment or context in which business operates. "According to the legal recognition view. p. So if a firm does not use its social power. waste management. Hence. Their locus is unstable and constantly shifting.6." Believers in Friedman’s view consider investing marginal costs with regard to decisions regarding labour. Davis (1960) was one of the first to explore the role of power that business has in society and the social impact of this power.. The social power equation principle states that “social responsibilities of businessmen arise from the amount of social power that they have” (Davis. Friedman's position on CSR has been characterized as "fundamentalism" and gathered under what has been called the "legal recognition" view. 3. The goal of stakeholder theory is to help corporations strengthen relationships with external groups in order to develop a competitive advantage. and other stakeholders. not just those with power and wealth. and according to what principles.6. As a result. this does not give them license to override the basic human rights of employees. Stakeholder theory suggests that it is in the company’s own best economic interest to work in this direction because doing so will strengthen its relationship with stakeholders. which in turn will help the company meet its business objectives. he became a trustee of that portion for God’s people.38 Corporate Social Responsibility 3.6. when an individual had more than his respective portion. One argument in rights theory is that property rights should not override human rights. and other intangibles) are distributed amongst the members of society. According to Gandhi. including corporate managers. Basically. Proponents of social justice theory argue that a fair society is one in which the needs of all members of society are considered.” CSR contributes to corporate sustainability by providing ethical arguments as to why corporate managers should work toward sustainable development: If society in general believes that sustainable development is a worthwhile goal. the Trusteeship formula reads as follows: Trusteeship provides a means of transforming the present capitalist order into an egalitarian one. If people could imbibe this principle in general. power.4 Rights Theory Rights theory. It does not recognize any right of private ownership of property. including listening and considering their needs. It was founded on his religious belief that everything belonged to God and was from God. Gandhi’s idea of Trusteeship arose from his faith in the law of non-possession.6 Stakeholder Theory Stakeholder theory was originally. Gandhi suggested this concept as an answer to the economic inequalities of ownership and income. society’s goods (here meaning wealth.5 Deontological Theory Deontological theory deals with the belief that everyone. is concerned with the meaning of rights. 3.6. .6. including basic human rights and property rights. This is sometimes referred to as the “Golden Rule. and is still primarily. Trusteeship would become a legalized institution. except so far as it may be permitted by society for its own welfare. corporations have an ethical obligation to help society move in that direction. a kind of non-violent way of resolving all social and economic conflicts prevalent in the world.3 Social Justice Theory Social justice theory focuses on fairness and distributive justice – how. 3. corporate managers need to consider how these goods can be most appropriately distributed in society. has a moral duty to treat everyone else with respect. The contribution of stakeholder theory to the corporate sustainability is the addition of business arguments as to why companies should work toward sustainable development.6. This means that while shareholders of a corporation have certain property rights. 3.7 Gandhiji’s Trusteeship Theory Gandhi’s efforts towards “spiritualizing economics” are reflected in his concept of Trusteeship. It does not exclude legislation of the ownership and use of wealth. local community members. a strategic management concept. In concrete form. The Gandhian concept of Trusteeship departs significantly from Marxian economic philosophy too. The whole idea of possessing wealth only to guard it from being misused and to distribute it equitably. so much so that the tendency should be towards the obliteration of the difference. Profits result from this activity and are necessary for any other responsibilities to be carried out. It was suggested that. If Marxism is the child of the Industrial Revolution. a limit should be fixed for the maximum income that would be allowed to any person in society. and philanthropic that can be depicted in a pyramid. formulated by governments that act as the ground rules under which business must operate. it “helps the manager to see that the different types of obligations are in a constant tension with one another”. Gandhian socialism. Under such an economic order. Corporations are expected to pursue profits within the framework of the law.1. which he claims presents the concept such that social responsibility will be accepted by a conscientious businessperson. Man to Gandhi. If it is possessed for any other objective. is different from Marxian socialism. It is assumed that corporations will be as profitable as possible. ethical.Under State-regulated Trusteeship. Society expects that all goods and services and relationships with stakeholders will meet at least minimal legal requirements. Carroll contends that all of these responsibilities have always existed to some degree. There are four kinds of social responsibility: economic. it is objectionable on moral grounds. but only trust. an individual will not be free to hold or use his wealth for selfish satisfaction. Gandhian theory can be understood only in the context of certain basic spiritual values of the Indian tradition. Ethical responsibilities include those activities that are not expected or . but ethical and philanthropic responsibilities have only become significant in recent years. although the components are not mutually exclusive. The most significant difference between Marxian socialism and Gandhian socialism lies in the method they recommend to achieve it. whereas the Gandhian approach is not to destroy the institution. Society expects business to conform to laws and regulations. is an ethical being first and a social being later. the character of production will be determined by social necessity and not by personal greed. The common man trusts his trustee and the latter plays the role of a custodian. and maintain a high level of operating efficiency. Though this kind of socialism is difficult to achieve. Gandhian socialism aims at a change of heart on the part of the rich. but to reform it. Economic responsibilities relate to Business's provision of goods and services in society. As man advances from a narrow sphere of personal satisfaction to the nobler concept of the welfare of all. which establishes what are considered fair operations. Gandhi enjoins this moral obligation on the part of the trustees. Gandhi advocated it as he believed in the basic strength of the goodness of man and the value of morals. legal.7 THE PYRAMID OF CORPORATE SOCIAL RESPONSIBILITY One way to view corporate social responsibility is through Carroll's Pyramid (1991). The difference between such minimum and maximum incomes should be reasonable and equitable and variable from time to time. Just as in the case of a decent minimum living wage. Whereas Marxian socialism harps on violence. as he is fully aware of the ills of capitalism that widen the gap between the rich and the poor. he marches closer towards self-realization. 39 From Philanthropy to CSR: Historical and Theoretical Perspective 3. maintain a strong competitive position. Marxian socialism aims at the destruction of the class called capitalists. aims at protecting human dignity. being ethical. in disregard of the interests of society. as presented in Figure 3. There is no place for violence. 8. 39-43). and be a good corporate citizen (1991.1 First Generation The first generation of CSR showed companies can be responsible in ways that do not detract from. 3. be ethical.csrquest. . Expansion of the geographic focus of corporate giving to reflect the needs and expectations of a global workforce and customer base. in which companies align charitable giving with the company’s core business interests. Such contributions were part of the overall corporate citizenship strategy. charities. economic and other issues.8 GENERATIONS OF CSR Based on the changing relationship between business and society. Economic responsibility contains to “do what is required by global capitalism”. Figure 3. pp. and philanthropic responsibility means to “do what is desired by global stakeholders”. Simon Zadek (2001) describes the development of CSR broadly in terms of three generations. which stated in pragmatic terms means that the corporation should strive to make a profit. and education. norms.net/default. Examples are contributions to the arts. More recently Carroll (2004) attempted to incorporate the notion of stakeholders. 3.aspx?articleID=12770&heading In summary. Carroll views the total social responsibility of business as involving the simultaneous fulfillment of the four responsibilities. but ethical responsibilities are seen as embracing the emerging values and norms that society expects of business even if not required by law presently. Companies out of their own free will contributed towards charity or corporate Philanthropy to address a variety of social. Standards. ethical responsibility means to “do what is expected by global stakeholders”. Ethics or values may be reflected in laws or regulations. legal responsibility holds that companies “do what is required by global stakeholders”. obey the law.1: Pyramid of Responsibility Source: Carroll’s CSR Pyramid available at http://www. In recent years. and may contribute to commercial success.40 Corporate Social Responsibility prohibited by society as economic or legal responsibilities. or expectations that reflect concern for select stakeholder input is fair. several events and trends have contributed to companies changing the way they approach their Philanthropy. The most prominent changes include: Adoption of a strategic approach to Philanthropy. or in keeping with their moral rights. Philanthropic responsibilities involve being a good corporate citizen and include active participation in acts or programs to promote human welfare or goodwill. just. and entire industries. This generation goes beyond voluntary approaches by individual companies and involves leadership companies and organisations influencing the market in which they operate and how it is regulated to remould entire markets toward sustainability.8. Contemporary businesses evoke greater stakeholder participation in philanthropic activities.9 CHANGING TRENDS: PHILANTHROPY – STRATEGIC PHILANTHROPY – CSR From the above theoretical discussion it can be inferred that the Indian model of CSR commenced with Philanthropy addressing social development issues which primarily were driven with religious sentiments. to achieving social and economic stability in areas of operation while growing new and viable consumer markets. For creating social cohesion and business competition. which reward CSR and penalize poor performance. Such an initiative in turn helps Microsoft to fortify its image in the consumer market. stay better connected with stakeholders and enhance corporate reputation 3. exclusion and environmental degradation. Currently many companies because of the intellectual capital undergoing change within the organizations are taking CSR seriously and are moving companies towards second generation CSR. 3. In a similar way. family traditions and voluntary contributions driven by personal motives. 3. For example. This involves both partnerships with civil society and bringing changes in public policy 8 . create long-term relationships with non-profit organizations and communities.1: Strategic Philanthropy Bill Gates has donated millions of dollars for the Bill and Melinda Gates foundation. mandatory social and environmental reporting and support for consumer education. industry leaders are strategically aligning their corporate donations.3 Third Generation The Third Generation of CSR makes significant contribution to addressing poverty. employee volunteerism.1) Box 3. Consequently. such strategic innovations have resulted in creating business and social value and reputation enhancement for the business.Microsoft. ITC and Unilever in their initiative to uplift the rural sector have entered the rural consumer market by providing products at subsidised costs. Certain organisations carry out the activities of Philanthropy in such a way that it helps them to sell or advertise their products. public-private sector partnerships and pro bono services with their core business competencies to deliver greater benefit to society. . (See Box 3. the organization tries to align business goals and social goals to maintain its profitability. see CSR as an integral part of long-term business strategy. With change in the business environment and increase in FDI’s in the liberalization period the ‘giving’ /Philanthropy started getting integrated 8 This includes changes to the corporate tax regime. and organize their philanthropic programmes. 41 From Philanthropy to CSR: Historical and Theoretical Perspective Successful companies recognize that corporate strategic Philanthropy and community investment bring tangible returns on investment and reputation – from fostering workforce pride and ensuring a healthy pool of potential employees.8. While generating a response for this foundation he has travelled to different nations.Development of measurement tools for evaluating the impact of charitable contribution. companies like TCS and Wipro distribute their special softwares to help teachers impart computer education to rural students.2 Second Generation The Second Generation of CSR is where companies. thus generating awareness among people about his campaign and indirectly about his organisation . develop rural markets and so on. Both domestic and global forces encourage a broader understanding of corporate 9 10 Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic. In the new millennium because of increased globalization and competitiveness there is consistent transformation in the CSR practices for developing corporate sustainability 9 through balancing stakeholders’ interest. 3. business ethics. development of quality institutions. environmental and social developments. The underlying philosophy is that CSR is responsibility of business to society at large. The company board is required to focus on the companies’ obligation and duties towards its stakeholders. innovation. Few corporate leaders wanted to make it sure that they get tangible and intangible results from the investments they made for social developments in the form of tax returns. The narrowest meaning of the term is a framework for measuring and reporting corporate performance against economic. Companies realized that corporate success depends not on altruistic CSR but development of the local environment through developing appropriate infrastructure. ethical and environmental) bottom line evaluates a corporation’s performance according to a summary of the economic. environmental and social developments can be quantified and used to identify and select leading companies for investment purposes. and shareholders will quickly lose interest if their money does not give them tangible results. This includes clarifying the corporation’s purpose and taking into consideration all stakeholders. co-operation with local suppliers. 1995). environmental. the only social responsibility of a firm is to provide employment and pay taxes. social and environmental indicators. Societal expectations in India are that businesses should be involved in wider issues of societal and national concern while continuing to conduct their business responsibly. The triple e (economic. corporate contributions. Over a period of time with changes in business environment it was felt that complying with tax obligations is not apparently a sufficient condition to convey the level of corporate social responsibilities of firms (Bowie. Companies realized that merely by just being good and donating a lot of money to social initiatives implies wastage of shareholders' money. The quality of a company's strategy and management and its performance in dealing with opportunities and risks deriving from economic. governance. In the new market economy this arrangement is not sustainable in the long-run. In an open market economy as a result of significant reductions in government spending on social welfare.10 LET US SUM UP According to neo-classical view of firm. These types of initiatives developed with NGO and government partnership can have great impact. environmental policies. which will be beneficial for the company but also for the local society. social and environmental value the corporation adds. Despite the development of Indian CSR from its initial philanthropic focus. customer loyalty. and so on. and financial performance. Such views are in harmony with profit-only idea of Friedman. CSR today is basically linked to the broader issue of corporate governance. designing the right types and quality of education to future employees. Corporate sustainability leaders achieve long-term shareholder value creation by gearing their strategies and management to harness the market's potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks. community development. . Leading sustainability companies lead their industries and set industry-wide best practices in the following areas: strategy. shareholders. issues and processes that corporations must address in order to minimize any harm resulting from their value adding or destroying activities. employees and other stakeholders. Leadership companies which align business and social goals evaluate their company’s performance by incorporating ‘triple bottom line 10 performance that includes social. Recently a boarder meaning as been attributed to the term in that the concept is used to capture a whole set of values. corporate governance and workplace issues. public policy makers expect greater social involvement from corporations. there are still cultural influences to modern CSR. or destroys. They are now looking at performance in non-financial areas such as human rights.42 Corporate Social Responsibility into strategic thinking. responsibility to develop in India. 43 From Philanthropy to CSR: Historical and Theoretical Perspective 3. companies should strive to govern their companies by adopting ethical practices. Social responsibility is now more about how companies align their values and move towards creating a business strategy that aims at developing sustainable business and communities. Though there is no universal definition of CSR. 2. Strategic Philanthropy: Aligning firm’s goals with social welfare. social.12 SELF ASSESSMENT 1. as well as to ensure the sustainability of natural resources. Indians by and large feel that the business sector must play a wider and more expansive societal role. and economic. in ancient India.11 KEYWORDS Merchant Charity: Contributions of merchants towards societal development. 3. The aims of corporate social responsibility in a country like India is to use the market economy to address gaps in income distribution and help pull people out of poverty. Choose the appropriate answer: (a) CSR includes responsibilities of a business towards: (i) Employees (ii) Customers . In addition to providing good quality products at reasonable prices. “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to the 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”. (f) Social Contract theory emphasizes on fairness and distributive justice. CSR certainly has a potential for becoming a real tool for development— human. Spill Over Effect: Externalities of business activities on those who are not directly involved Corporate Sustainability: Creating long term shareholder value Fundamentalism: Basic rule of using society’s resources and making profits Deontology: Doing things which are inherently good Triple Bottom Line: Includes economic. the mostly widely accepted definition of CSR has been coined by the ‘World Business Council for Sustained Development’ which states. reduce human rights abuses and mitigate poverty. (d) CSR is a compulsion for every company. ecological criteria for evaluating a firm. (e) Friedman’s theory says that business is responsible for making profits and serving the community. (b) The main objective of the economic reforms was developing competitive industries. State whether the following statements are true or false: (a) Merchant charity is still prevalent in unorganized sector. (c) Creation of trusts limits CSR to community development only. social. adhere to high labour standards. The public’s expectations from business are growing. make their operations environmentally sound. companies see it as an integral part of long-term strategy.44 Corporate Social Responsibility (iii) Environment (iv) All of the above (b) Which of these is not a model enumerated by PiC survey that exists in India? (i) Ethical model (ii) Statist model (iii) Shareholder model (iv) Liberal model (c) The theories of CSR are based on the basis of interaction of business and……….generation of CSR. (i) First (ii) Second (iii) Third (iv) Fourth . is sometimes referred as Golden Rule. (i) Fundamental Theory (ii) Rights Theory (iii) Deontological Theory (iv) Trusteeship Theory (g) In……………………. (i) Shareholders (ii) Society (iii) Government (iv) Stakeholders (d) Who argued that business is a social institution and it must use its power responsibly? (i) Davis (ii) Friedman (iii) Mahatma Gandhi (iv) Votaw (e) Donaldson propagated: (i) Social Rights (ii) Corporate Citizenship (iii) Distributive Justice (iv) Deontology (f) ……………………. 14 SUGGESTED READINGS Asian Development Bank. (2004). Centre for Social Markets. Available at http://www. B. F. Corporate Social Responsibility Survey. Bebbington. Available http://www. Amsterdam: CREM. M. (1938). (2003). Corporate Social Responsibility: Perceptions of Indian Business. (1953). Bowen. Available at http://www. (1991). 6. New York: Harper & Row.. 4. Review of CSR in India. Social Responsibilities of the Businessman. India.bsr. Country Strategy and Program 2003-2006. Barnard. Invigoration through Innovation. F. UNDP. Changing the Social Contract: A Role for Business. and Trends of Thinking about CSR. Discuss any three theories of CSR. January 1). Journal of Corporate Citizenship. 47 (3). (a) iv (g) ii (b) False (b) iii (c) True (c) ii (d) False (d) i (e) False (e) ii (f) False (f) iii 3.pdf.). 6.asp. T. Policy and Practices of Dutch Companies. New Delhi: Manohar Publishers. (2001). India: British Council.13 REVIEW QUESTIONS 1. (2001). Discuss Gandhiji’s Trusteeship theory and its relevance to contemporary India.nl/CSRIndia_CREMfinal.org/Documents/CSPs/IND/2003/default. (2001). Corporate Social Responsibility in India. S. Discuss how did business contribute to society in the pre-independence and Independence period. 97-115. 93-100. (1970). R.org/resourcecenter/topic. Business for Social Responsibility. (2007). The Stakeholder Theory of the Corporation: Concepts. Available at http://www. (2005). Changing Attitudes towards Business in India (D.3. J. Donaldson. Discuss what type of shift in CSR approach took place after liberalization in India. Business Ethics Quarterly. pp. Cambridge: Harvard University Press. 3.adb. 6-14. Palgrave McMillan Journal. 25 (2). (2004). pp. business and accounting literature. L. Kolkata: Centre for Social Markets. CII and Pricewaterhouse Coopers. in India. Introduction to Corporate Social Responsibility. Tripathi.4-5. Academy of Management Review. Discuss the changing trend of CSR in India. (a) True 2. & Puranik. at Consultancy and Research for Environmental Management. Accountability-Central.accountability-central. Discuss the generations of CSR with examples.com/single-view-default/article/article-13-invigorationthrough-innovation. evidence and implications. 2. Bowen. 128-157. Sustainable Development: A review of the international development. 5. The Functions of the Executive. H. M.The Moral Manager: Communicative ethics and Exxon Valdez disaster. Arora. (1993). Ambi Rajan. Colombia Journal of World Business. Ed. & Preston. & Poer. pp. Emerging opportunities or traditions reinforced? An analysis of the attitudes towards CSR. (2002). 45 From Philanthropy to CSR: Historical and Theoretical Perspective Answers: Self-Assessment 1.com.indianet. 3(2). C. . Anshen. Accounting Forum. Siemensma. British Council. (1995. htm. Available at http://www. (1990). S. 48 (2). D. S. The Planetary Bargain: Corporate social responsibility comes of age. J. A. (1984). (2003). Administrative Science Quarterly. Piramal. (2003).org. Corporate Social Responsibility: A Theory of the Firm Perspective. McWilliams.. R.pdf Freeman. & Walsh.india-seminar. April). Strategic Management: A Stakeholder Approach. Frontline. 2.pdf. (2001. Corporate Governance: A Stakeholder Interpretation. Seminar. Business Maharaja.com. & Balsari. Available at http://www. & Siegel. 117–127.hinduonnet. Friedman. R. Karmayog. (Eds. Roy. Journal of Behavioral Economics. K.html Ghosh. November 10). R.org/docs/csr_state. Freeman. Available at http://isid. The State of CSR in India 2004-Acknowledging Progress. Delhi: Penguin Books India. (1996). Murphy. Report http://www. (2004).colorado. & Evan. Corporate Sustainability Reporting: How Indian Companies Measure Up.org/docs/CSR-India. . Business Ethics Quarterly. New Delhi: India: India International Centre. New Delhi: Tata Energy Research Institute. 312–322. (2002). Corporate Social Responsibility in the Indian Context. 5 (2). on Karmayog CSR Ratings. Available at http://www. (1966). Corporate Citizenship: Perspectives from India. Freeman. Political Economy of India’s Economic Reforms.hu. September 13).com. Mohan. 537. (2007). Third Report on Corporate Involvement in Social development in India. R. India International Centre. (1997).edu/studentgroups /libertarians/issues/friedman-soc-resp-business.txstate.in/pdf/norway. UK: Sustainability Radar. 16 (2).) (2004). R. http://www. Available at http://uweb. 107-117. The Social Responsibility of Business is to Increase its Profits. M. Social Responsibilities of Business. 4(4). Strategy for Development. Academy of Management Journal. M. 331–349. R. Available at http://www. W. G. London: The Energy & Resource Institute. 49-68. Prioritizing Action. 26(1). (2002). Academy of Management Review.terieurope. (2001).. Business Ethics Quarterly. ICFAI Journal of Environmental Economics. (1994). Partners in Change. D. Available at Kumar.terieurope. 19(4). (2004).PDF Hopkins. Working Paper of the Institute for Studies in Industrial Development (ISID). The New York Times Magazine. New Delhi: Tata Energy Research Institute. Available at Goyal. R. Boston: Pitman Publishing. K. Journal of Corporate Citizenship. 337–359. 20(18). Pachauri.pdf Kumar. (2004. The Case For and Against Business Assumption of Social Responsibilities. The Politics of Stakeholder Theory: Some Future Directions. V. Business Unusual: Championing corporate social responsibility. India: Partners in Change..karmayog. Margolis.. R. & Philips. J. J.. Development Journal from India. (2001). Misery loves Companies: Rethinking social initiatives by business.com/fline/fl2018/stories/20030912005211600. 12(3). Prakash-Mani. Available at http://www. Altered Images: The 2001state of corporate social responsibility in India poll. Excerpts from CEO Forum. (2004). (2008). (1970.46 Corporate Social Responsibility Davis.edu/~ek10/socialresponsibility. A.mtu. webedition. 409–429. National Seminar on Corporate Social Responsibility.edu/~rgay/ Fall07/AirMidwest/politics_stakeholder. London: Macmillan Press.pdf Freeman. Stakeholder Theory: A Libertarian Defence. (1973). T.Our Brave New Industry. Mumbai: Confederation of Indian Industry. (1999). & Venkateswaran.Does it Work? Global Future. (2000). P. (2000). (2004.com/oldStory/44349/. Innovation.C..indianexpress. (2001). Srinivasan. Sheffield: Greenleaf. Reintegrating India with the World Economy. Sunder.Shourie.The Why. H. S. & Tendulkar. April 4). and Governance. (2003). New Delhi: Tata McGraw Hill.: Institute for International Economics. A. Promoting Development through Corporate Social Responsibility . S. P. McIntosh (Eds. Beyond Business.. 47 From Philanthropy to CSR: Historical and Theoretical Perspective . Required: A new form of governance for a new economy. Zadek. London: World Vision International. Business of Social Responsibility .). Shrivastava. Corporate Citizenship. Sunder. In J. S. Bangalore: Books for Change. (2003). Andriof and M. D. Available at http://www. What and How of Corporate Social Responsibility in India. Perspectives on Corporate Citizenship (pp. Utting. P. Washington. Partnership Alchemy: Engagement. 200–212). Indian Express Newspaper Article Series . Part III. 5 4. In the light of this. The sole legitimate purpose of business is to create shareholder value. it is meaningful to consider some of the rising arguments and rebuttal cases .0 4.2 4." This implies that social issues are peripheral to the challenges of corporate management.48 Corporate Social Responsibility LESSON 4 THE BUSINESS CASE FOR CSR CONTENTS 4.4 Aims and Objectives Introduction Arguments against CSR The Business Case for CSR Importance of CSR for India 4. The debate between these points of view has increasingly taken on global significance.4.1 4.10 Current Business Scenario in India Contemporary Drivers for CSR Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 4.8 4.6 4. "the business of business is business. rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact. On the other side are the proponents of corporate social responsibility. you should be able to: Examine arguments for and against CSR Understand the business case for CSR Examine the importance of CSR in India Identify the current drivers of CSR 4. There is no universal definition of CSR and hence there is significant room for arguments and criticisms against the concept.0 AIMS AND OBJECTIVES After studying this lesson. As a growing movement.3 4. to borrow Milton Friedman's phrase. On one side of the current debate are those who argue that.1 4. the concept of CSR is interpreted differently by different cultures and different businesses. a rapidly growing.9 4.1 INTRODUCTION The great.7 4. long-running debate about business's role in society is currently caught between two contrasting ideological positions. Hence there is a need to balance stakeholder responsibility to ensure higher and consistent returns to the stockholders” 3 . The lobbying activities of companies show that both business and social goals are at times interdependent.mallenbaker. CSR is about building relationships with customers. decide for themselves if they want to do things beyond mere compliance.d. about managing risk. after all. If CSR is seen as a process by which the business manages its relationships with a variety of influential stakeholders who can have a real influence on its license to operate. B. better supplier and government relationships. wholesalers. Explanation: Due to the on-going globalization. Businesses rely on societies within which they operate and cannot exist in isolation. employees and consumer base all of which comes from the society. “It is the responsibility of the politicians to deal with social issues. 49 The Business Case for CSR 4. Every business today has to manage its primary and secondary stakeholders 1 . Each stakeholder demands organizations to fulfill their demands. general public(Galliara. CSR does not mean that a company should give away their money that rightfully belongs to the shareholders to charity just for the sake of it.2 ARGUMENTS AGAINST CSR A. Viewed from this context CSR is all about a strategy which helps businesses to manage the risks and reputation in the market. available at http://www. Media. “Businesses are owned by their shareholders – thus any money they spend on social responsibility is effectively theft from those shareholders who can. C. social activist groups.php#shareholdertheft ibid .) Baker M (n. creditors. businesses today have greater power and leverage to induce changes in public policies and achieve better results than the government institutions. and about assuring good reputation. business support groups. “Management has to concentrate on a company’s core business and cannot spend resources on CSR.). For instance. suppliers. the business case becomes immediately apparent. suppliers want to form business partnerships with companies they can rely on.net / csr/against.d. Governments. employees and secondary stakeholders are local communities. donate to charitable causes or have business standards which are convenient to them. lesser employee turnover 2 . which can range far and wide – from international treaties on climate change. as stakeholder management results in higher profits. about attracting and retaining talented staff. 1 2 3 4 Primary Stakeholders are customers. It is not the role of a corporation to get involved in social issues. to domestic policies on health (such as that relating to smoking) or transport. consumers today want to buy products from companies they trust. n. employees want to work for companies they respect and investors want to invest in responsible companies. shareholders.2008) 11-year Harvard University study found that "stakeholder-balanced" companies showed four times the growth rate and eight times the employment growth when compared to companies that are only focused on shareholders” (CSR Network. In order to further the profits. Arguments against Social Responsibility.which were often ignored in the hustle of the growing attention to the concept in order to find a possible agreement. Investing in societal development is indeed creating markets for the future and ensures long term sustainability” 4 . The paragraphs below discuss a few arguments challenging the concept of CSR. They need infrastructure. Explanation: This is the most commonly voiced argument of those questioning the viability of CSR today. which are essential for an organization to sustain. companies often spend a considerable amount of time and money to influence policies affecting them or their area of interest. 4. committed. waste management systems. Operations Efficiency: The efficiency of a business is about productivity and effective use of resources.50 Corporate Social Responsibility CSR might make sense if perceived not as extra work but to integrate it with core business like designing environmental systems. Driven by this understanding. because of its wide negative publicity. another UK retailer. Positive management-employee relations are also crucial in bringing about good customer service. Create Shareholder Value: Investors are becoming more concerned to invest in companies that act with good corporate governance and social responsibility. and CSR has become one of the key components of corporate reputation. Today consumers. 4. water 5 ibid . Global consumers today are more selective and sensitive about buying eco friendly products and care to consider company’s image and CSR efforts. For instance. In this new business environment. Strategic Branding: A company’s reputation is fundamental in maintaining and attracting new customer base. Increasingly. investors. a company’s performance as a responsible business is key to its financial and stock market standing. CSR initiatives and cause-related marketing could build reputation and goodwill among suppliers and customers. helping to protect it from instability and share price volatility. Marks and Spencer’s has effectively positioned itself as the most environmentally sound and socially responsible UK retailer. 3. While CSR is not a de jure obligation of companies doing business according to applying laws. productivity and product innovation. which has faced reduction in the number of consumer footfalls. as part of eco-efficiency strategy. and more prepared to make sacrifices as a team member. while in contrast is Primark.3 THE BUSINESS CASE FOR CSR The “business case” refers to the commercial business benefits of CSR in quantifiable terms which convince ‘non-believers’ of the business benefits of CSR. Increased Revenue Base: CSR can boost factors that drive revenue in important ways. governments and even employees have become more sophisticated and more aware of good corporate behavior. Toyota and ITC have adopted environmental sustainable methods in the areas of solid waste management. For instance. a win-win situation for the company and its stakeholders can evolve” 5 . CSR can help to increase efficiency through environment conservation and recycling initiatives. 2. or lack thereof. Most of the arguments above mainly stem from a misinterpretation of CSR. Sony. Employees who identify with the social mission are likely to be motivated. it is nevertheless a de facto obligation because of its long term significance for corporate success and as a tool of differentiation in the competitive game. water and other resources which will contribute to the generation of future profits just like any other investments. energy efficiency. Many organizations have developed clear CSR efforts as strategic branding and management approach in achieving a win-win outcome. The following points discuss how responsible business helps to enhance business operations and achieve sustainable outcomes: 1. recycling paper. A distinctive CSR profile serves as a strategic branding tool in differentiating from competitors. Hotel Orchid. Positive CSR experiences build confidence and goodwill with stakeholders. a company's reputation has become one of its most valuable assets. Better Access to Capital: Access to capital enables a company to grow and make timely investment. Access to New Markets: CSR also provides business organizations with access to new markets. (Galliara. the employees in the Tata Group. 2006). Unfortunately. 6. the Coca-Cola Pesticide case in India. 2006). Good workplace conditions and relations can help a company to attract. If Coco.. it wouldn’t have undergone this crisis and would have certainly reduced its social. and a healthier environment’ (UN. results in reduction in errors and defective pieces in their work producing higher quality of products and services 6 . a small firm that is certified to have environmental and social standards 7 can be a supplier to international retailers like Marks and Spencer’s. Lower Business Risk: Companies are being held increasingly accountable for their actions today. 6 7 CSR Network available at http://www. Infosys. 9.conservation and preservation. ISO 9000. For example.csrnetwork. in preempting and minimizing the repercussions. encouraging participation. labour conditions. improves the competitiveness and market positioning. right from the consumers to the investors of Cocacola. access to capital and even long-term viability in some instance. et al. SAI 8000. Proactive dialogue with external stakeholders can help to foster understanding. The rationale for focusing on CSR in India as well as other developing countries as distinct from CSR in the developed world is fourfold: 1. These have reduced their operational cost to a large extent and have also provided unique positioning in the minds of the consumer. environment and economic risk exposure to a large extent. 2. L&T. India is one of the developing nations where social and environmental crises are usually most acutely felt. affected the trust of all its stakeholders. Increased Productivity and Quality: CSR facilitates increased productivity within the organization. Mitsubishi. 8. and others. 5. The growth emphasis in Socially Responsible Investment (SRI) is a clear indication of likely future trends.asp ISO 14000.com/services. and hence the most lucrative growth markets for business (IMF. keep and develop human capital. and so on. (WRI. and Wipro find the organizations to be more employee sensitive and friendly. 2005. these global aspirations remain far from being met. In that period. Community involvement can play a complementary role in developing new skills set. their sales declined by up to fifteen per cent across the country. sharing and team spirit in the workplace as well. equal opportunities for women. n.cola had fulfilled its CSR. p5). Levi’s. For instance. hunger and disease. Companies with good CSR standing are likely to be able to secure equity and debt capital with utmost ease. and facilitate increased employee involvement. Such business risk could affect reputation. UNDP. 7. For instance. greater survival prospects for mothers and their infants. This enhances the company’s brand image and reputation and enjoys greater credibility with the government as well as political organizations. better educated children.d. For instance companies that improve their supply chain practices. . 2006: 3). keeping operations and staff morale high. Human & Intellectual Capital: A company’s human and intellectual capital is one of its most valuable assets.4 IMPORTANCE OF CSR FOR INDIA The challenge for corporate social responsibility (CSR) in India is framed by a vision that was distilled in 2000 into the Millennium Development Goals—‘a world with less poverty. 51 The Business Case for CSR 4. UN Global Compact Principles and others. India represents the most rapidly expanding economies. Sexual harassment at workplace though observed. textile and manufacturing industries to a large extent. Bribery and corruption (considered by foreign companies as the biggest threats to doing business in India). Instances like these create a bad environment and impact the reputation of companies. Consequently. Similarly. efficacy and price. falsifying export/import documents and evading income-tax. Among the more abhorrent social problems created and proliferated by the existence of a global economy lacking global regulation is the insidious practice of exploiting child labour because it helps in cutting labour costs. This is a clear indication of the internal business environment. by Transparency International 8 . multinational drug companies. as well as low costs of operation and wide availability of target participants. 2006). mining. business associates and shareholders are worst affected in the process. Corruption Perception Index Study ( 2008) retrieved from http://www. 4. Discrimination against women and vulnerable groups like the handicapped and socially backward groups is evident at workplaces in varied aspects and degrees. Ernst & Young (2008) reports the incidence of fraud becoming an increasing menace. and 4. economic crime is emerging as a bigger threat than before. insider trading in the stock market. investment. BPOs. Irresponsible and delinquent work practices of employees are major reasons for financial frauds. 55% of Indian companies in the past two years had reported incidents of fraud and a PricewaterhouseCoopers (PwC) study (2007) indicates the average direct loss from fraud per company at the global level is $2. market place and environmental practices which are not sufficiently accounted for by state domestic laws or international legal systems. suggesting that business relationships and success may not be determined only on the basis of a product or service quality.5 million. In India. The PWC report (2007) reveals that as many as 34% of companies which are believed to be paying bribes and exercising undue influence.transparency. Amongst the growing unethical business practices in India. The explosive growth and concomitant deregulation of the global economy has produced a myriad of issues in India in the areas of work place. have all been a regular feature of the Indian black economy. which are collectively quite different to those. but the 21st century business across the world.org/news_room/in_focus/2008/cpi2008/cpi_2008_table . India like other developing countries presents a distinctive set of CSR agenda challenges. Delhi. Registered under the Societies Registration Act 1860. researchers and institutions are increasingly basing their illegal clinical trials in India owing to lack of regulation and accountability.1 Current Business Scenario in India The 20th century business environment in India was driven by the government. construction. Working conditions of staff specifically in IT industry. employees. and business activity is likely to have the most dramatic social and environmental impacts (both positive and negative) (World Bank. including India. India was being ranked low (85) on transparency meaning high on corruption.4.52 Corporate Social Responsibility 3. At another level. 8 Transparency International India: The Coalition against Corruption. is seldom reported. India is one of the developing countries where globalization. In 2008. are only compliance oriented. have given their competitors an unfair advantage. 34% of companies in India reported loss of a business opportunity due to the likely payment of bribe by a competitor. faced in the developed world. being contractual in nature. they raise significant issues on governance for stakeholders. economic growth.4 million and for India it is $1. is governed by the free market economy. and instead. While being quality conscious in manufacturing products or delivering services businesses should develop systems and processes which contribute towards preserving environment. Shrinking Role of Government: In many countries. shareholder resolutions. Meeting Changing Expectations of Stakeholders: Various stakeholders are increasingly looking to the private sector to help them with myriad complex and pressing social and economic issues. through actions such as public demonstrations. Business leaders identify the following major drivers which have compelled them to integrate CSR as a business strategy: 1.Unethical market practice also includes cases of land grabbing. food products. companies and multinational companies in particular are relying less on government for guidance. companies are finding that they need to turn to nontraditional labor pools – including economically disadvantaged. governments.5 CONTEMPORARY DRIVERS FOR CSR If India wants to address the above issues and attract more FDI for developing business. avoiding corrupt practices. universities and other institutions to align their purchasing decisions with social criteria. protecting human rights. More Competitive Labor Markets: In a tight labor market. adopting their own policies to govern such matters as environmental performance. there is a significant move by many companies. These efforts emphasize the issue of accountability to stakeholders when doing business (BSR 2001). Forcibly evicting peasants and grabbing their agricultural lands for developing special economic zones amounts to violation of the Constitutional and human rights of farmers. 4. 53 The Business Case for CSR 4. non-English-speaking. Under the garb of "development". and promoting transparency & accountability for developing sustainability. At the same time. it is essential that it should review its business practices and see that it does not create externalities. Starbucks Coffee sources coffee beans from fair trade labeled suppliers. technical or highly skilled employees are looking beyond paychecks and benefits to seek employers whose philosophies and operating practices align with their own beliefs. poor rural residents are driven from their lands into the slums. In the former. and physically or mentally challenged individuals – to meet current and future demands for both skilled and entry-level employees (BSR 2001). many workers especially professional. working conditions and ethical marketing practices (BSR 2001). There is a growing ability and sophistication of activist groups to target corporations they perceive as not being socially responsible. Increased Customer Interest: The growing interest in CSR comes from both business-to-business customers and consumers. 3. For instance. As a result. particularly those related to companies' environmental and human rights performance. national and local governments have taken a more hands-off approach to regulating business. . For example. some companies have found that having "family friendly" policies or being identified as an employer of choice have given them a competitive advantage in attracting and retaining employees. and even "denial of service" attacks on company websites. Many international brands are marketing new material such as plastics. 2. corporates like Tata’s and L&T have developed a policy to purchase recycled paper. packaging or electronics but do not bring along systems of waste minimization or management. due to the globalization of commerce and shrinking resources. which they readily incorporate into their western operations. 7. employee and community relations. regulators. labour standards. 8. (b) Improved customer loyalty. including environmental responsibility. religious freedom in the workplace. community groups. consumer concern over the use of genetically modified organisms in agriculture. companies that commit to developing a comprehensive CSR strategy attribute this as requirements of the global marketplace and their supply chains.even when it may be negative . responsible sourcing and human rights. both for consumers and employees. (d) Gaining an informal social license. social and environmental impacts of their operations to maximise the benefits and minimise the downsides. It has been reported that consistent CSR practices brings out a number of possible positive outcomes.onto their publicly accessible websites (BSR 2001). social equity. Toyota has designed a manual of CSR for its suppliers. environmental management. which they are supposed to adhere to. changing stakeholder expectations and risk management strategies of the corporates. 4.54 Corporate Social Responsibility 5. Established global protocols also have influenced CSR practices of businesses. Key CSR issues include governance. "cyber ethics" issues of access to and privacy linked to information technology. (c) Reduction of risk as a result of clearer grasp of positions taken by stakeholders. encouraging suppliers to adopt socially responsible business practices (BSR 2001). community involvement. This has a cascading effect along the entire supply chain. many companies are putting increasingly detailed information about their social and environmental performance . such as how boards of directors are chosen and compensated. ethical decision-making and corporate governance. investors. Growing Investor Pressure: The growth of socially responsible investing has accelerated in recent years. . workplace policies. with investor groups increasingly pressurizing companies on social issues.6 LET US SUM UP CSR is a process driven by globalization. environmental activists. For instance. leadership companies are responding with a variety of reports and/or social audits that describe and disclose their social performance on one or several fronts. many companies are finding that they are responsible not only for their own CSR performance. Activist groups are also buying shares in targeted companies to give them access to annual meetings and the shareholder resolution process (BSR 2001). trading partners and others are asking companies for more and more detailed information about their social performance. Despite criticisms against CSR. a company's suppliers as well as its customers. Many of these investors are using the shareholder resolution process to pressurize companies to change policies and increase disclosure on a wide range of CSR issues. deregulation and privatization. 6. and the new demands brought about by the increased interest in environmental sustainability (BSR 2001). including: (a) Enhanced brand value and corporate image. Demands for Increased Disclosure: Customers. As part of this move toward greater disclosure. Increasing Supply Chain Responsibility: As stakeholders take a growing interest in companies' corporate social responsibility. The result is that some companies are imposing codes of conduct on both their suppliers and customers to ensure that other companies' policies or practices do not reflect unfavorably on them. Included among these are corporate governance issues. facilitating business in sensitive environments. New and Emerging Issues: Recent years have seen a growth in the breadth of topics considered under the "corporate social responsibility" umbrella. but for that of the companies "upstream" and "downstream" – that is. In response. CSR strategy aims at managing the economic. human rights practices. stakeholder engagement. (d) CSR initiatives are not linked with productivity. Choose the appropriate answer: (a) CSR can act as an effective tool of…………………for companies. by undertaking various programs to strengthen brand equity is: (i) Brand positioning (ii) Brand differentiation (iii) Strategic branding (iv) Product branding (c) …………………is important for increasing operating efficiency. 2. (i) Experienced staff (ii) Technology . impact of social and environmental crisis is not that visible. (e) In India. (b) CSR should not be viewed as an extra compulsion but should be integrated with other activities. as a part of CSR. (i) Good employee-management relations (ii) CSR (iii) both a and b (iv) none of the above (d) Along with all other things. (c) Companies can do strategic branding to improve their image. State whether the following statements are true or false: (a) It is only the role of government and politicians to deal with social issues.4.8 SELF ASSESSMENT 1. (i) Positioning (ii) Differentiation (iii) Branding (iv) All of the above (b) Using CSR to maintain large customer base. (f) Increased knowledge and expertise of the workforce has led to an increasing demand for CSR.7 KEYWORDS Lobbying: Influencing decisions made by government Business Case: Commercial business benefits of CSR Strategic Branding: Activities and programs to manage and build brand equity Market positioning: Create an image of your company in the market Supply Chain: System for moving products from one end to another 55 The Business Case for CSR 4. international companies should bring in ………………… to India. Critically analyze the contemporary drivers for CSR. Give examples in each case. CSR Network. Discussion Paper on Corporate Social Responsibility. ‘The business of business is to do business”. What is CSR? Available at http://www.php. (a) iv (b) True (b) iii (c) True (c) iii (d) False (d) iii (e) False (e) i (f) False 4. Arguments against Corporate Social Responsibility.).bsr.net/csr/against. Available at http://www.org/about/bsr-report.transparency. Answers: Self-Assessment 1. (2005). Corporate Social Responsibility. Available at http://www.9 REVIEW QUESTIONS 1. (2008). Social Enterprise Cell. 3.net. (a) False 2.mallenbaker.d. (2008). M. (n.csrnetwork.56 Corporate Social Responsibility (iii) Waste Management System (iv) Risk Management System (e) Companies supply chain extends from: (i) Suppliers to customers (ii) Suppliers to retailers (iii) Company to customers (iv) Supplier to company 4. Available at http://www. Meeting the Challenge of a Reset World. Discuss the business case for CSR. .).cfm. Why is CSR important for a country like India? Give Examples. (n. 4. 2. 5.com/csr. Comment. Are the arguments against CSR justified? Give your viewpoints.d.10 SUGGESTED READINGS Mallen. Mallenbaker. B.org/news_room/in_focus/2008/cpi2008/cpi_2008_table. Mumbai: NMIMS University Transparency International. Business for Social Responsibility.asp Galliara. Corruption Perception Index Study – 2008. 57 Developing a CSR Strategy UNIT 1 MODULE II . 58 Corporate Social Responsibility . 7 5.2 5.4. Approach and Focus Areas 5. A good CSR strategy identifies the following: Overall direction about where the organization wishes to go in its CSR work.4.3 5.8 5.4.9 Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 5.1 INTRODUCTION CSR strategy is a road map for moving ahead on CSR issues.4 Assemble a CSR Leadership Team Develop a Working Definition of CSR Review Corporate Documents. It sets the organization's direction and scope over the long term with regard to CSR.3. Processes and Activities Developing a CSR Strategy 5.2 5.4.0 5.5 5.3 Aims and Objectives Introduction Steps in Designing CSR Strategy How to do an Assessment 5.4. A basic approach for integrating CSR as a business strategy.6 5.3.1 5.1 5. .0 AIMS AND OBJECTIVES After studying this lesson.LESSON 59 Developing a CSR Strategy 5 DEVELOPING A CSR STRATEGY CONTENTS 5.3.4 5. allowing the organization to be successful by using its resources within its unique environment to meet stakeholder expectations. you should be able to: Understand the importance of assessing CSR for developing strategy Know the steps involved in understanding CSR 5.3 5.2 5.5 Build Support with Senior Management and Employees Research what others are Doing Prepare a Matrix of Proposed CSR Actions Develop Options for Proceeding and Develop the Business Case for CSR Action Decide on Direction.1 5. Other representatives could be selected as per the requirement of the organization. Even when there are no members of the board of directors on the team. and to locate its "pressure points" for CSR action. See Box 5.60 Corporate Social Responsibility Specific priority areas. processes and activities. Immediate next steps. The key CSR issues that are affecting or could affect the organization. This is essential information for identifying CSR priorities and seeking support for CSR from stakeholders. 3. or who need to be. ultimately. Keen employees should be encouraged to volunteer their time. 2. This will assure that CSR is supported by the top management.3.3 HOW TO DO AN ASSESSMENT A four-stage CSR assessment process requires the following: 1. This will become the foundation for the rest of the assessment. it is vitally important that the team be directly accountable to senior management and.1 for examples. The human resource and budgetary implications of such an approach. Existing CSR-related initiatives. decision-making processes and activities to determine accurately where the organization is now with respect to CSR activity. 5. Identifying a key senior manager as the CSR champion sends a clear signal that the organization considers corporate social responsibility to be important.1 Assemble a CSR Leadership Team A CSR leadership team would include representatives from the board of directors and top management or owners. . Key stakeholders who are. Identify and engage key stakeholders. Review corporate documents.2 Develop a Working Definition of CSR The first task of the leadership team is to develop a working definition of CSR for the organization. A proper CSR assessment should provide an understanding of the following: The organization's values and ethics. 5. the board. Develop a working definition of CSR. as well as key employee volunteers from various units within the organization that need to be involved in CSR issues. Assemble a CSR leadership team. 5. The current corporate decision-making structure and its strengths and inadequacies in terms of implementing a more integrated CSR approach. The assessment should identify the main risks and opportunities. services. engaged. 4.3. and culminate in a thorough gap analysis of analyzing strengths and weaknesses of the organization from stakeholder perspective. 5.2 STEPS IN DESIGNING CSR STRATEGY The first step for designing CSR strategy starts with ‘Assessment of the Organization or Business Organization’ It is important to gather and examine relevant information about the products. energy and ideas. The internal and external drivers motivating the organization to undertake a more systematic approach to CSR. . Table 5.3. In many organizations. environmental and social objectives while at the same time. Engaging people at all levels of the organization – from employees to managers and members of the board of directors – from the very beginning in developing the definition will ensure support and acceptance of the idea of integrating CSR as a business strategy. It is imperative for the CSR team to review these types of decisions. community relations. guidelines and other operating documents should be reviewed. such as inclusivity. bribery and corruption. It means that the organization's products and services create value for customers and contributes to the wellbeing of society. processes and activities for actual and potential CSR implications. decision making concerning suppliers is an area that touches on CSR in many regards. By the same token. including appointment of labour. to the environment. addressing stakeholder expectations and sustaining or enhancing shareholder value.1: Relevance of Reviewing Documents Documents Existing mission statements. training. It means the organization operates using ethical business practices and expects the same from its suppliers and partners. policies. an absence of any reference to societal impacts or commitments in these documents may indicate that a cultural shift may be required to effectively integrate CSR into decision making and business activities.3 Review Corporate Documents.1 below highlights the benefits of reviewing corporate documents which can have relevance in assessing CSR.Box 5. For example. It is useful for the CSR team to explore why these items were developed and to learn from them (or at least acknowledge that they are CSR-related). Organizations typically have specific decision processes and associated decisionmaking bodies in place to address particular aspects of operations. and health and safety protection. may consider the legal and social implications of developing environmental CSR. the team should then review key corporate documents. a health and safety committee may take the lead in determining the resources. Contd…. For instance an organization which has not taken any steps in the area of environmental conservation. principles. 61 Developing a CSR Strategy The team may also wish to identify key values that motivate the organization. Processes and Activities With a working CSR definition and an initial understanding of the motivations behind the organization's interest in CSR.1: Working Definitions of CSR CSR is the way the company integrates economic. customers. and how they are made. wages. for example. in conjunction with senior engineers and other staff. paying taxes and making a profit. It means providing jobs. stewardship and integrity. These could be related. 5. It may also be that various parts of the organization are treated quite differently from one another. workplace. training and implementation of worker health and safety programs. Processes . and these may bear on the CSR approach. It is also important to determine whether there is a unit or process in place to coordinate decisions about issues with a societal dimension. who makes them. government relations. Senior managers may play a key role in decisions about environmental protection activities. It may be that they were past responses to CSR pressure points. and particular concerns it has and members of its supply chain have. or corporate governance. Table 5. CSR is the responsibility the organization has to its stakeholders. codes of conduct. It means treating employees with respect and being a good neighbour to the immediate localities and the society at large. human rights. as well as supporting philanthropy and community involvement. It means minimizing the environmental impact of its facilities and products. For instance. the team can assess the benefits. being accountable to them when accountability is called for. organizations marketing seeds & fertilizers should analyze the impact of the same on agricultural productivity. environmental NGOs can be involved in understanding their expectations from the business organization. along with their codes. FICCI 2 .4 DEVELOPING A CSR STRATEGY After completing the CSR assessment. The team should also consider activities of business partners (particularly supply-chain partners) since these may significantly affect the organization. Engagement implies understanding their views and taking them into consideration. The CSR team should hold discussions with key internal and external stakeholders about CSR. 5.1 Build Support with Senior Management and Employees The CSR team should report to senior management (and. It is important to take advantage of the ideas of various stakeholders in developing the CSR strategy and approach CSR issues systematically. For instance. CSR Wire and so on. Identify and engage key stakeholders 5. The strategy has to be built on the strengths of stakeholders. new CSR-related product lines or approaches. to develop a CSR approach entirely on its own. In addition to thoroughly examining internal operations for CSR-related challenges and opportunities. On this basis. it could examine the similarities and differences between the company and these organizations. can be very useful.4. and any initiatives or programs in which they participate. ultimately. Associated Chambers of Commerce and CSR specialist organizations like Center for Social Markets. Examining the vision.4. Research what other businesses are doing 3. Three useful sources of information to assist the organization in this regard are contacting industry associations like CII 1 . Decide on direction. the following steps are recommended to develop a CSR strategy. 5. Develop options for proceeding and the business case for them 5. 1. The Federation of Indian Chambers of Commerce and Industry. Stakeholder engagement comprises the formal and informal ways of staying connected to the parties who have an actual or potential interest in or effect on the business. If the team finds that companies (in India or elsewhere in the same sector and related sectors) are emphasizing different CSR activities. 1 2 Confederation of Indian Industries. Prepare a matrix of proposed CSR actions 4. Women employees can be involved in developing women friendly workplaces. . it may be useful for the CSR team to examine the CSR activities of their competitors and other organizations in allied sectors. there is considerable value in drawing on the experience and expertise of others. the board of directors) about the key findings of the CSR assessment and gauge their interest and support in moving ahead. Mapping the interests and concerns of stakeholders against those of the organization can reveal opportunities and potential problem areas. and using the information acquired from them to drive innovation. Build support with senior management and employees 2.62 Corporate Social Responsibility Activities The organization's activities that relate directly to providing its products or services to users can be closely connected to CSR.2 Research What others are Doing Although it is possible for the CSR team working with other members of the organization. approach and focus areas CSR strategy is likely to succeed only when it is based on a clear understanding of the organization's values. values and policy statements of leading competitors. in/download/csr.g. Quality/Customer Satisfaction . possibly spelling out environmental. it should be possible to create a matrix of proposed CSR actions.) The CSR team can plot current and possible CSR activities. To this end. communities) Current Started Workers Education Programme and adopted four local schools None at present Proposed SA8000* or Fair Labor Association (FLA) Economic activity (e. social and economic aspects. REC Ltd. For instance see Table 5.pdf 63 Developing a CSR Strategy 5. to set well-defined goals and accountabilities. maintaining leading corporate governance practices.g. The plan lays out the key CSR issues REC would take up and sets out an incremental process for addressing them.4. has incorporated CSR into its overall corporate strategy.2 below for how Rural Electrification Corporation (REC) developed its CSR strategy. cross-reference them against the organization's current activities and structure to see how well they fit. workers.nic.3 Prepare a Matrix of Proposed CSR Actions In the context of the data collected. processes. immediate outcomes.2 below. and to implement mechanisms to measure progress. A key feature of the plan was to set up a mechanism so that the CSR agenda could be discussed and moved forward throughout the organization. (There may be some overlap. including being an employer of choice. and being a positive influence in the communities where it operates. The working group makes recommendations to the senior executive level CSR advisory board. continually building shareholder value. Source: http://recindia.costs. products and impacts on the matrix.2: CSR Strategy Planning Process (REC) REC launched a six-month research in CSR issues to be addressed and came up with a set of recommendations for how REC should define CSR and further integrate it into its operations. In parallel.2: Matrix of Proposed CSR Actions Environmental activity Social activity (e. resource implications and changes to current practices. and deciding to develop a CSR strategic plan. leading in overall customer satisfaction. One of these recommendations resulted in REC deciding to have dedicated CSR managers and staff. See Box 5. Table 5. customer satisfaction) Current Registered to ISI9001* Proposed Integrated managment systems (IMS)? Current Processes Registered to ISO 14001* Proposed Kyoto emission reductions? Products/ services Some products use Environmental Choice logo Internal impact assessment undertaken Could all products be certified by Energy Star? Possible SA 8000 or FLA product certification Use of ISO 9001 logo on company letterhead Keep abreast of ISO work on IMS? Impacts Supply chain /community impacts? Internal impact assessment undertaken Supply chain/ community impacts? Internal impact assessment undertaken Supply chain/ community impacts? Responsibility centre Environmental Affairs Deptartment Human Resources Department Manager. Box 5. a CSR working group has been set up with membership from the various business areas that are directly linked to the key CSR issues for REC Ltd. quality assurance. Taking a strategic approach has allowed REC Ltd to dedicate specific resources to CSR. 64 Corporate Social Responsibility 5.F. The business case should focus on a number of elements. C. the first step is to come up with ways for the organization to integrate CSR into operations.A. processed and traded in a sustainable manner.E. See Box 5. In addition to stimulating new ideas. The business case for CSR ensures that investment in CSR will enhance the profitability of business. The CSR leadership team can draw on the material generated by the assessment. Informal networking can also be a useful way to see whether the organization is on the right track.E. and Conservation International (CI).3 for business case in CSR. “The business case” refers to the commercial business benefits of CSR in quantifiable terms.A. Starbucks hopes to this expand its preferred supplier list by Contd…. methods and core competencies and other aspects as listed below: Possible leverage points (on which particularly large CSR gains can be made) Areas in which the organization could potentially gain a competitive advantage Areas in which stakeholders might have particular influence Short. environmental leadership in coffee growing and environmental leadership in coffee processing. 'Coffee and Farmer Equity (C. except for Starbuck's prerequisites of product quality and economic accountability.4. Following a multi-year pilot project it applied its own experience and stakeholder feedback to pioneer a coffee buying programme that strives to improve the lives of farmers and increase the amount of high-quality coffee that is grown. in the light of the organization's business objectives. It chose the name C. key business partners and other stakeholders. Practices to emphasise the importance of farmer equity in relations to Starbucks coffee. Box 5.A. Practices are founded on socially.4 Develop Options for Proceeding and Develop the Business Case for CSR Action Two options for proceeding at this point are either to take an incremental approach to CSR or to decide on a more comprehensive change in direction. environmentally and economically responsible coffee buying guidelines that have evolved to reflect more than three years work and the contributions of coffee farmers. sustainability experts. employees. such brainstorming sessions can also generate excitement and build awareness about CSR activity within the organization.and long-term goals Estimated costs of implementing each option (including that of not spending more on CSR) Anticipated benefits Opportunities for cost reductions Broader changes the organization would need to make Any risks or threats each option poses Implications of each option for new developments. The guidelines contain 28 specific indicators that fall under five focus areas: product quality.F. Brainstorming sessions on the CSR matrix developed could be held with senior managers. Whatever approach is adopted.E. methods and core competencies. social responsibility. The tabulated total score determines preferred supplier status. . its research into what others are doing. and the brainstorming sessions to devise a business case for the potential initiatives that could be undertaken. economic accountability (transparency). Participants must be clear on the need to align any CSR approach with the organization's core business objectives.) Practices'. Each indicator is assigned a maximum number of points that can be earned. Farmers and suppliers who demonstrate the use of best practices according to the guidelines. and obtain independent verification of their performance may become Starbucks’ preferred and strategic suppliers.F.3: Business Case for CSR Starbucks has embodied its solution in its green coffee purchase programme. CSR strategy. and the benefits associated with it.4. an organization might decide to first revise its mission. For example.A. Focus areas: These should align most clearly with the business objectives of the organization and.F. higher prices and better contract terms. Toshiba. A casual approach could jeopardize the credibility of the CSR strategy as well as its implementation. finally design CSR inputs for contractors in the supply chain. approach and focus areas with regard to CSR. environmental.3 describes a basic template which aims to provide a basic framework to companies to develop CSR assessment. Approach and Focus Areas The CSR team in consensus with the senior management should take an informed decision on how the organization should proceed. An automobile industry like Maruti Suzuki has decided to work on Traffic safety by introducing training in safe driving methods. and values and ethics statements. processing and trading coffee. As CSR initiatives have resource implications. To become a Starbucks C. The size of the problem and its seriousness. It is important to determine the organization's general direction.E. preferred or strategic supplier.encouraging others to use these guidelines and hopes that C. a food retailer might decide to focus on combating obesity as an immediate objective. 5. Starbucks believes its guidelines define the critical social. they should be reviewed with rigour and substance.php?action=show_solution&solution_id=348 65 Developing a CSR Strategy 5. For example.org/solutions. Source: http://www.csreurope. processors and suppliers must meet minimum requirements and demonstrate best practices that are subject to independent verification under its guidelines. For example. similar to how normal financial and investment decisions are reviewed. communicate with and train employees and. For example. Clarity about direct strategic fit and benefits to business can go a long way in integrating CSR philosophy in business. The focus areas may be identified gaps in the organization's processes which may attempt to capitalize on a new opportunity or may address needs of certain key stakeholders.5 Decide on Direction. CSR decisions will necessitate setting priorities. design a CSR policy. It is important to follow sequential steps and solicit top management support as well as other stakeholders in designing CSR strategies. legal and customer requirements.F. the estimated effectiveness of possible solutions and the ease of implementation are key factors to take into account when prioritizing. Sumitomo Corporation and a few others have designed guide books in CSR for their contractors.5 LET US SUM UP For developing long term corporate sustainability. High scoring suppliers receive preferential buying status. it is essential that the company designs a thorough CSR policy and strategy. Practices’ verified. Table 5. vision. coffee farmers. A high technology company might decide intervention in anti-bribery measures as a target area. leading MNCs like Hitachi Chemical Group. Other important factors are the financial and human resources needed to implement the changes. . and the speed with which decisions can be implemented. put a new code of conduct in place. A paper company might decide that environmental issues associated with forestry would be the nucleus of its activities. an apparel company could decide to emphasize worker health and safety. hence. as described below: Direction: This is the overall course the organization can pursue or the main area it aims to address.E. A mining company operating could choose improving relations with surrounding communities as its chief concern. economic and quality aspects of growing. Practices will become a model for other coffee buying companies to integrate into their own business. are immediate priorities. Approach: This refers to how an organization plans to move in the direction identified.A. forums) • Pay & benefits – remuneration. other benefits • Workplace climate – employee handbook • Industrial relations • HR management • Child labour/forced labour • Other (specific company issues) Staff retention Motivated staff Employer of choice Promotion of good working conditions and practices Reduced accidents Contd…. shareholders of the company Economic impact • Turnover – sales • Number of employees • Market share • Profit Mission statement • Company objectives linked to CSR • MD/CEO CSR Values Stakeholder consultation statement on Stakeholders can relate to the mission statement and company values – this may be potential employees. disability) – workforce profile • Health and Safety – policies and training • Training/personal development • Communication with employees (newsletters. age. strategy and CSR report will truly reflect the impact on stakeholders • Benefits to business Company information Stakeholders welcome transparency.66 Corporate Social Responsibility Table 5.3: Basic Framework for Designing CSR Policy & Strategy Headings Sub Headings General information Initiatives/ Content (examples) • Geographic information • Size of company • Who owns the company. intranet. new customers or suppliers who share these values Shows that the CSR policy. gender. this also develops trust • List company values • List who the main stakeholders are on whom the company has an impact • Relationships with nongovernmental organizations Workplace Employees • Equal opportunities (race. pensions. . assets • Regeneration – economic impact. Measure value of support – cash and in-kind Focus on key partners and form long-term relationships (2-way benefit) Support with planning applications and developments Local government recognition • In-kind support – time. Encourage customers to repeat purchase Become preferred supplier – link to customer values = brand loyalty Suppliers/ supply chain • Code of conduct • Selection criteria (linked to CSR) • Support local suppliers • Payment of bills on time • Bribes & corruption • Creating CSR awareness of Support CSR through the supply chain Build relationships Seen as credible and reputable business Helping local suppliers and build community support Better value on contracts due to honouring payment terms Train partners on CSR practice and transparency Community • Charities. number of jobs • • Employee involvement Impact on society Good PR New skills for employees Recruitment (awareness) Reputation as a good employer Environment Waste • • • • Recycling Waste generated (tonnes or kilos) Hazardous waste Policies Water used (joules) Control Programmes Reduced landfill costs Compliance for suppliers/customers Water • • Reduce costs Reduce impact on environment and natural resources Contd… . donations sponsorship.Marketplace Customers • Customer satisfaction • Customer retention • Safety and quality • After sales • Consumer education Better understanding customer views Meet procurement criteria of 67 Developing a CSR Strategy Processes for accepting and measuring complaints Loyalty schemes to retain customers ISO standards to encourage customers Helping customer after sales. resources. (d) Top management executives need not be in CSR team. CSR Assessment: Gather and examine business information from CSR point of view Corporate Documents: Documents containing business information Incremental Approach: Step by step approach Brainstorming: Group of people are given a problem and suggestions are sought Core Competencies: Capabilities that are critical in gaining competitive advantage 5. 2.7 SELF ASSESSMENT 1. State whether the following statements are true or false: (a) A good CSR strategy identifies priority areas and steps to be taken.th/the_files/$$11/level4/00003646_Lorraine_toolkit.dft. (e) Companies can either adopt incremental approach or a comprehensive approach to CSR. (b) Assessment of business assessment should succeed strategy designing. Downloaded from http://www.pdf 5.6 KEYWORDS CSR Strategy: Roadmap for moving ahead on CSR issues. (c) Assessment of business aspects should not ignore organizational values abd culture.go. Choose the appropriate answer: (a) A good CSR strategy identifies: (i) Overall direction of CSR initiatives (ii) Ideas for integrating business and CSR (iii) Priority areas (iv) All of the above .68 Corporate Social Responsibility Energy • • Energy used (Kw) Control programmes Reduce costs Reduce impact on environment and natural resources Analyze usage patterns Information for customers & suppliers Materials • • • • Types used Activities Recycled materials consumed Materials recycled ISO EMAS Training Communication to staff Green transport plans Fuel reduction policy Car fleet Health & Safety • • • • Compliance Reduce accidents at the workplace Transport • • • Monitor carbon footprint Produce statistics for suppliers/customers Pre-empt legislation Source: Simply CSR Toolkit. A. Practices. Oxford University Press.E.9 SUGGESTED READINGS Coffee Buying Guidelines .html.8 REVIEW QUESTIONS 1. (i) Business (ii) Shareholders (iii) Stakeholders (iv) Environment (c) The members of the CSR team should be directly accountable to: (i) Stakeholders (ii) Top management (iii) Society (iv) Government (d) Which of these is a CSR specialist organization? (i) FICCI (ii) CII (iii) Center for Social Markets (iv) Associated Chambers of Commerce (e) Business Case refers to commercial benefits of business of CSR in……………….terms. J. Available at http://www. Discuss why and how CSR Assessment should be carried out. (Eds. Moon. Industry Canada. Key International CSR Instruments. What is the Business Case for CSR? Answers: Self-Assessment 1. What is the importance of engaging stakeholders in developing a CSR strategy? 4.C.). (2003).F..nsf/eng/rs00143. 2.csreurope. Matten.gc.. Crane.(b) CSR assessment should identify risks and opportunities from………….point of view. (a) True 2. The Oxford Handbook of Corporate Social Responsibility. Available at http://www. .A. McWilliams. D. Design a basic framework for CSR for your organization. (i) Qualitative (ii) Quantitative (iii) Comprehensive (iv) Ethical 69 Developing a CSR Strategy 5. (2009).ic. 3..phpactionshow_solution&solution_id348 Corporate Social Responsibility. (a) iv (b) False (b) iii (c) True (c) ii (d) True (d) iii (e) True (e) ii 5. A. Discuss the steps involved in designing CSR strategy. 5.ca/eic/site/csr-rse. & Siegel. (2008).org/solutions. Suppose you are a top management executive of a banking firm. D.. The European Business Network for CSR. Physica-verlag Heidelberg.70 Corporate Social Responsibility Simply CSR: Responsible Business Planning.). P. (2009). Available at http://www.dft. Simply CSR Toolkit. .d. (n.go.pdf Schreck. The Business Case for Corporate Social Responsibility: Understanding and Measuring Economic Impacts of Corporate Social Performance.th/the_files/11/level4/00003646_Lorraine toolkit. 1 6.1 6.12 6.2.5 CSR at Workplace 6.5.2.6.0 6.2 Aims and Objectives Introduction Implement CSR Commitments 6.4.1 6.9.8 CSR with Communities Types of Interventions 6.2.8.1 6.1 6.13 6.6.8.2.2 6.6 6.2 Benefits of Marketplace CSR Designing Market Place CSR Activities Benefits of CSR at Workplace Designing Work Place CSR Activities Benefits of Environmental CSR Designing Environmental CSR 6.2.5 6.1 6.LESSON 71 Implementing CSR Strategy 6 IMPLEMENTING CSR STRATEGY CONTENTS 6.2.4.3 6.3 6.2 6.2.3 6.2 6.10 6.7 6.14 Let us Sum up Keywords Self Assessment Review Questions Suggested Readings .6 Environmental CSR 6.4 Develop an Integrated CSR Decision-making Structure Prepare and Implement CSR Business Plan Set Measurable Targets and Identify Performance Measures Engage Employees and others to whom CSR Commitments Apply Design and Conduct CSR Training Establish Mechanisms for Addressing Problematic Behaviour Create Internal and External Communication Plan Areas of CSR Implementation CSR at Market Place 6.4 6.1 6.2 Benefits of Community Interventions Steps to Design CSR Intervention Reasons for Corporate NGO Partnership Criteria for Selecting NGO Partner NGO Strategies to Influence CSR 6.9.7 6.2 6.11 6.9.9 Strategic Partnerships 6.5. size. stakeholder engagement in implementing CSR The CSR issues at market place. 2. 6. 6. way of organizing its affairs. workplace and with local communities and societies at large and strategies to deal with them The importance of environmental CSR and strategies to improve environmental CSR The role of NGOs in influencing CSR policies of business organization 6. HDFC. Design and conduct CSR training.1 INTRODUCTION Implementation refers to the day-to-day decisions. operations and risk areas – and given its CSR strategy and commitments – what is the most effective and efficient CSR decisionmaking structure to put in place?” It is essential that the organization aligns its CSR goals and decision making with its overall goals and strategies. 3. each has a decision-making structure in place to ensure that it can meet its commitments and customer needs. practices and activities which ensure that the organization meets its CSR commitments. Prepare and implement a CSR business plan. There is no single way of organizing an organization's CSR decision making structure. Infosys and others who integrate CSR for developing long term sustainability follow the following steps for implementing CSR. “Given the organization's existing mission. An organization that effectively implements its commitments is less likely to run into problems and be more favourably rewarded in the long run.2 IMPLEMENT CSR COMMITMENTS Every organization is different and will approach CSR implementation in different ways.72 Corporate Social Responsibility 6. Tata’s. 5. Engage employees and others to whom CSR commitments apply. Develop an integrated CSR decision-making structure. Establish mechanisms for addressing problematic behaviour.1 Develop an Integrated CSR Decision-making Structure Although every organization is different. 7. Create internal and external communications plans. 6. Set measurable targets and identify performance measures. Some organizations will prefer a centralized CSR decision-making structure (TCCI) 1 . sector. culture. Leading companies like ABN Amro. you should be able to understand: Steps involved in implementing CSR The importance of developing appropriate decision making structure.2. while still others will want a hybrid. depending on their operating features and management style (Sumitomo Corporation). processes. The key question to ask here is. 4.0 AIMS AND OBJECTIVES After studying this lesson. 1 Tata Council For Community Initiatives . so that incorporating CSR considerations in corporate decision making becomes as natural as taking customer perspectives into account. others a de-centralized one (ABN AMRO). 1. it should follow the SMART guidelines for developing its objectives: Simple. commitments. 73 Implementing CSR Strategy 6. with an online version that includes frequently asked questions.2 Prepare and Implement CSR Business Plan The CSR business plan may be separately described or included as part of the company's existing overall business plan. The first step to implement this commitment might be to create a training course on the distinction between proper and improper payments. and as a result form a strong and effective chain of developing ethical business within the organization. It is important to develop the CSR decisionmaking structure to facilitate internal and external verification.3 Set Measurable Targets and Identify Performance Measures To ensure effective implementation. commissions) and to ensure it does not indirectly encourage improper behaviour. they can help build CSR momentum in the organization. health and safety protection. the organization needs to set measurable targets for the commitments. targets may also be a source of celebration in their own right. community relations. In the CSR business plan. There are several options for board participation’s participation in CSR activities. Measurable. An excellent way of doing this is to determine what human. human resource management. The team should be supported by cross-functional teams. environmental. develop key performance indicators. and decision-making structures in place. Achievable. When achieved. Particular departments having CSR responsibilities (e. For example. or the entire board could be involved in CSR decisions. Reliable and Time-bound.2. a board member could be tasked with broad responsibility for CSR activities. while a fourth one could be creating whistle-blower protection measures. 6. it is important for the CSR decision-making structure to be an integral component of the organization's governance activities and be visible. In this sense. In essence. Regardless of the exact approach taken.g. a new CSR board committee could be formed. CSR responsibilities could be added to the work of existing board committees. financial and other resources and activities will be required to carry out the CSR strategy and commitments. These obligations should be built into the job description and performance objectives of each lead person. A widely used approach to measuring success is to identify the objectives underlying a CSR commitment. accountability and performance. A senior official or committee responsible for overall CSR implementation within the organization should be identified and given the resources to do the job. supplier relations. CSR responsibilities should be built into employees' job descriptions and performance evaluations. A third step might be to involve setting up a hotline. work out the measurement method and then measure the results. these targets are guideposts to reach the ultimate goal of developing sustainability. Assigning CSR responsibilities to board members ensures that CSR issues will receive the attention they deserve. A second step might be to review the organization's incentive and disincentive structure (e.As CSR is fundamentally concerned with transparency. with time lines and resource requirements for each. a new member who has specific CSR expertise could be appointed. a CSR commitment may be that the organization will not offer improper payments to officials. each of these tasks could be further broken down into smaller components. executive and senior management. customer relations) should report to the senior official or committee. the CSR business plan helps to ensure that the words are transformed into effective action. For instance.2. . With the strategy. The CSR team should be accountable to board.g. As a result. and by purchasing zero emission and renewable electricity. how it fits with existing organization objectives. The measurement method might be the kilograms of garbage produced each month. The key performance indicators underlying this commitment and objectives could be the number of community meetings organized and the number of complaints registered at the end of the year. “Aviva in its 2009 CSR Report highlights that in 2008. which needs to be recorded. In the second example above.000 tonnes – and by reducing business travel” 2 . why the approach was adopted. 2 Aviva CR Report ( 2009) available at http://www.74 Corporate Social Responsibility For instance. employee representatives and suppliers about CSR strategy. their total CO2 emissions decreased with all businesses reporting consistently on their footprint and applying practices to reduce their emissions. Therefore. the organization might conclude that increasing the number of community meetings did not improve community relations. objectives. For instance. a better objective might be increasing the number of resolved complaints. To create an environment which is conducive. a commitment to improve relations with the community might be translated into objectives to double the number of community meetings the company holds and reduce the number of community complaints by half. CSR implementation largely rests in the hands of employees and. The key performance indicator would be the amount of waste sent to the landfill.com/corporate-responsibility/ .aviva. including the motivation for engaging in it. Aviva anticipates that their carbon footprint will further reduce to 108. which needs to be recorded. suppliers. changing behaviours.4 Engage Employees and others to whom CSR Commitments Apply The input of employees and other key stakeholders has been solicited at every stage. employee representatives and suppliers in implementation means focusing on awareness (employees will be well aware of CSR directions. commitment and implementation. In the above examples/cases. if not properly engaged. but suppliers may be less so). its relevance to the organization. these parties are often the organization's human face capable of acting as ambassadors. in some cases. since underlying problems were not resolved. through strategy development and articulation of commitments.2. if an organization has an underlying commitment to decrease the amount of waste a facility generates. They have achieved this by using technologies. ultimately. how it changes current approaches. In a sense. On the other hand. To take another example. strategies and commitments from earlier activities. 6.000 tonnes in 2009 through their divestment of AutoWindscreens and AGS – 10. indicators and measurement methods would lead the organization to modify its objectives. Employees and suppliers should receive context for and background on the organization's approach to CSR. Employees play a central role in CSR implementation. While overall CSR success depends first on senior leadership. advocates and sources of new ideas and information on CSR. there might be an objective to reduce solid waste by 25 percent by the end of the calendar year. all parties must be enthusiastic about implementing the organization's CSR commitments. and other implications. regular review of the commitments. The measurement method might be quarterly tallying of meetings and complaints. Engaging employees. employees and suppliers could be a source of problems. from preliminary assessment. it is important to facilitate good communication between top management and employees. This will happen only when employees and suppliers believe that senior management is serious about CSR and acts in a manner that reflects the spirit of the commitments. and all aspects of business operations. interactive training is offered in seven languages and is available in classroom and online formats. Care must be taken to ensure that the mechanisms for dealing with the problems are designed well. Box 6.1: Comprehensive CSR training at IKEA IKEA has developed effective strategies for operationalizing CSR. M. To the extent possible. top-management support. IKEA's Co-worker Environment and Social Responsibility Training program was created in response to the company's first environmental action plan. Literacy levels may also need to be assessed. launched in 1992. suggestion boxes and appointing ombudspersons. As CSR is an ongoing commitment. In addition to clear communications on the consequences of reporting breaches of CSR commitments. annual reports.Involving employees.5 Design and Conduct CSR Training Organizations need to train employees directly involved in CSR activities. The programme is also designed to show employees how they can help the company achieve its goals in these areas.2. accessories & bathroom & kitchen items in their retail stores around the world. product design and packaging. This is particularly essential while training employees in various parts of the world.6 Establish Mechanisms for Addressing Problematic Behaviour It is important for organizations to put in place mechanisms and processes that will allow for early detection. activities and performance reporting must be communicated visibly and frequently to all employees. (See Box 6. Corporate Social Responsibility in Global Supply Chains. CO2 emissions. training or informal mechanisms. meetings. such as suppliers. .2. training modules must be offered in those languages and must consider the employees' cultural orientation. 6.2. organizations could consider designing hotlines. transportation waste management.1) When the organization's employees speak various languages. The acronym stand for Ingvar Kamprad Elmtaryd Agunnaryd. reporting and resolution of problematic CSR activity. The training covers IKEA's worldwide environmental and social policies. will ensure employees have information on the organization's CSR commitments. 3 IKEA is a privately held international home products retailer that sells furniture. A senior manager should be assigned responsibility for investigating and reporting compliance on these issues. bringing in a CSR champion for senior management or from the board of directors will help in conveying the importance with which the organization treats the issue. programs and implementation. The program has been well received by employees and has received consistent. The program is implemented in each business unit by the organization's human resources department and the unit's environmental coordinator. Organizations should devise approaches that are sensitive to the vulnerable position of employees who see wrongdoing or the potential for non-compliance. employee representatives and suppliers in discussions of how CSR commitments are implemented is a way for these stakeholders to develop a sense of ownership and pride in the organization's CSR activities. 6. intranet communication. such as the one taken by IKEA 3 . &. Providing regular updates on progress (in meetings or the company newsletter) Developing incentives (such as rewards for best suggestions) 75 Implementing CSR Strategy 6. Information about CSR commitments. goals and performance. Skjoett-Larsen (2009). Source: Andersen. training needs will change over a period of time. Employee support for CSR implementation can be maintained in a number of ways: Incorporating CSR performance elements into job descriptions and performance evaluations.7 Create Internal and External Communication Plan Employees must know that CSR is a company priority. A comprehensive approach to training. allowing it to be easily updated. Tage. To facilitate implementation. Information can be percolated through newsletters. programs. These are further discussed from section 6.g.4 onwards. Figure 6.1: Functional Intervention Categories Business Ethics Types Corporate mission.3 AREAS OF CSR IMPLEMENTATION CSR can be implemented at the workplace. at the marketplace for environmental protection. Website design can help to ensure that parties can easily access CSR information of interest to them.1 below presents the variety of activities that can be conducted to implement CSR in an organization. a good communication plan is important.76 Corporate Social Responsibility Updates on CSR should also be put on the agenda of meetings at all levels of the company. and also for communities. communications to investors are likely to be quite different from those addressed to communities). Table 6.1 contains a summary of functional CSR interventions that can be implemented by any company. Table 6. Figure 6. For external audiences.1: Areas of CSR Implementation Most of the above CSR functional interventions are not industry-specific. 6. vision and values Evaluation and monitoring of ethics in the company Ethics training and hotlines for employees Cyber ethics Consideration of ethical dimensions of strategic decisions Corporate Structure and Governance Stakeholder engagement Executive and Board selection Executive and Board compensation Education and training for employees Contd… . It should identify the individuals and groups that need to be aware of a particular CSR initiative and those who should receive hard copies of CSR documents. It is quite possible that communications will have to be tailored for various audiences (e. 4 CSR AT MARKET PLACE To understand market place CSR responsibilities. disposing. The scope of marketplace practices also includes . plant closing and reengineering measures Volunteering in local communities Health and safety on the job 77 Implementing CSR Strategy Labour and Human Rights Engagement with unions and adherence to union standards Codes of conduct that set standards for a company or the entire industry on labour treatment Responsible supply chain management: ensuring that suppliers adhere to the company's code of conduct Product design and development Environmental Management Environmental supply chain management Consumption reduction Natural resource stewardship Alternative energy Clean technology innovation Green real estate development and ecological building design Product and packaging design End-of-life-cycle product stewardship Philanthropy and sponsorships Involvement and Economic Development Operation in underserved communities Use of local supplier’s community Education. diversity training. healthcare and housing programs for employees and communities Legal and regulatory compliance Accountability Adherence to Code of Conduct and other standards. diversity. including inspections. each business organization should ask: Does my product/ services create or add value to the society? Is the selling process designed with integrity and honesty? Are we buying from suppliers fairly and with due diligence? Are the advertisements projecting the correct message? What are the short term and long term costs the business is imposing on society for manufacturing a product or rendering a service? How is the organization shouldering responsibility for the integrity. drug pricing for the poor and the elderly. market place social responsibility issues include integrity in governing the life cycle of the product which includes sourcing and producing (supply chain practices). training inspectors or hiring of third-party inspectors Social and environmental auditing and reporting Certification of raw materials 6. marketing and promotion. privacy and technology issues. use and consequences of its products/ services on the larger society? Predominantly. and religious freedom Work/life balance and wellness programs Employee compensation for downsizing.Human Resources Health and other insurance benefits Employee recognition and rewards Equal opportunity. 78 Corporate Social Responsibility environmental responsibility. wholesalers. Business Social Responsibility Group (2003) defines market place issues as. Avoid deceptive and anti-competitive pricing or high pricing of products especially in case of life support products like drugs and other necessities (Serpell & Garner. For instance.. governments.11). For instance..2: Broad Issues of CSR at Market Place Issue Disclosure of labeling & packaging Responsibility Provide complete and accurate information of ingredients/components of a product. Garner. Nestle infant formula product distribution included nurses on commission to promote their baby milk products. which relate to corporate social responsibility which extend across a wide range of business activities that define a company's relationship with its customers.” (See Table 6. Coca-cola’s lapse in manufacturing standards resulted in pesticides in their soft drinks and contaminating the groundwater of the communities (Galliara. Assignment submitted . Its varied benefits range from providing risk management to increasing the credibility of the organization in the minds of the stakeholders. 2000). Parle Industries marketed packaged drinking water as mineral water. shampoos and so on mislead the customer about benefits of the product or Thumps up/ Sprite commercials displaying stunts without any consumer warnings promote risky activities amongst children and adolescents. n. 2000). business support groups. These activities are grouped into the following categories: (a) integrity of product manufacturing and quality.4. labeling and packaging. retailers.d). (2008). For instance advertisements related to cosmetic products like creams. 4 5 6 7 Market stakeholders: Employees. Includes distributing and selling the products through ethical means and avoid high pressure selling (Serpell. Non-market stakeholders: Communities.htm . Jain V. suppliers. Cadbury reviewed its safe packaging practices to ensure complete safety. (2004. Includes responsibility of the company to produce high quality products with essential manufacturing standards. an organization's responsibility (or lack thereof) to pay "fair trade" prices that will sustain poor suppliers and to pay compensation for past harms. For instance: McDonald’s Corporation misled the Indian consumer by labeling their beef flavoring as ‘natural flavor’ which hurt the sentiments of the pure Hindu vegetarians 6 . (See Table 6. Similarly enterprises must extend absolute product responsibility with reference to product safety and usage. an organization's relationship with its competitors. more philosophical questions about the sustainable nature of consumption itself are emerging as well. high prices of life saving drugs for AIDs makes it unaffordable for the poor and results in increasing infections 7 . 2000) For instance. (c) marketing and advertising. It has to be acknowledged that in the changing business environment both market 4 and non-market 5 stakeholders are scrutinizing business practices in the market and hence businesses are compelled to rework their business strategies to gain short term as well as long-term sustainability. “Issues. AIDS: drug wars: downloaded from The Hindu Website www. Pricing Marketing & advertising Integrity of product manufacturing & Quality Distribution & Selling Practices 6.com /thehindu/mag/2004/07/11/stories/2004071100160200.hinduonnet.. (d) selling practices (e) pricing. Avoid circumventing or deceiving the customer or promoting offensive advertising (Serpell & Garner. Chawla S. general public. ‘CSR at Market Place’.3). SVKM’s NMIMS School of Business Management Doshi T. For instance. July. customers. (ICFAI. (b) disclosure. activist groups and media.2) Table 6.1 Benefits of Marketplace CSR CSR at marketplace offers long-term sustainability for business. (f) distribution and access. distributors. creditors and stockholders. 2004). Larger. For instance.html ‘Look behind the Label Campaign’ contained details of washing cotton t-shirts at less than 30oc which would be saving tons of energy when practiced by all customers. all of which facilitates expansion into new markets (Radley. their own.Similarly Kansai Nerolac Paints Ltd (KNPL) has developed technology to reduce the usage of hazardous material in their paints (Kansai Nerolac Paints Ltd Environmental Report. credibility and reputation by making CSR at market place an essential risk management strategy. Companies that demonstrate a willingness to provide information that is credible. 2008). 2008). One of their most recent researches. Embracing socially responsible practices is a unique strategy for product differentiation and higher product recall. USA website: http://www. 2004).com/2008/01/13231138/CSR-Advertising----Doinggood. For instance. and enhances market presence. which match.org/media/press/mcds/chicagosuntimes100103. As price and quality become more equal. it had to pay $ 10 million to vegetarians and religious groups in a proposed settlement in March 2002 8 . and companies whose activities they can respect. M&S’s the ‘Look behind the Label Campaign’ 9 facilitated M&S in differentiating its cotton T-shirts from other competitors and created a different brand position in the mind of the consumer (M&S CSR report. ‘CSR Advertising | Doing good to look good’. downloaded from The Livemint Website: http://www. c) It helps in mitigating potential negative media coverage. declined the environmental impact of M&S products (M&S CSR report.Y. When companies misrepresent their products or use unethical selling practices it affects their sales and brand credibility (Serpell & Garner. Jan 10). recipe pots and trays.Jan13).mcspotlight. For instance M&S conducts constant researches to know more about their customers’ evolving needs. which has reduced the annual cost of the raw material as well as. in the case of Mc Donald’s Corporation.Y. Sharma. McDonald's/Vegetarian Lawsuit 'Settlement' Controversy Continues’ downloaded from Chicago Sun Times . All of these initiatives have helped in differentiating their products from the competitors and created unique brand associations (Radley. 2004). they are looking towards brand values. This can be seen in the law suits being filed on companies due to lapse in fulfilling their social responsibility at the market place. 2007) Similarly ITC has supported rainwater harvesting.livemint.(2008. and accessible can garner increased trust among stakeholders (Radley. The effect of integrating market place accountability and responsibility directly contributes to the increased public image. companies like Marks & Spencer’s. Mehra. For instance. beverage bottles. 2000). 2004). Entry and success in new markets becomes easier because of three major reasons: a) higher accountability of the company helps in establishing direct relationships with key customers and business partners across the globe. 79 Implementing CSR Strategy Product Differentiation/ Product Recalls Customer Loyalty Increase in Public Credibility Global Marketplace Advantages Technological Innovation Improved Financial Performance 8 9 10 Guy. Customers are becoming increasingly demanding.S (2003. Likewise. states that 76 % of their customers are passionate and expect business to take lead in adopting CSR practices.html?d=1 . with Cadbury. verifiable. ITC. 2004).Y. b) It contributes to innovation in product development and delivery thus providing an edge in the market.Y. M&S recycles plastic and uses it in the packaging of its salad bowls. each of them have had large impacts on their sales.3: Benefits of CSR at Market Place Risk Management Companies can safeguard themselves from lasting damages by implementing their market place social responsibility. published in their M&S CSR Report.Y.Table 6. afforestation and rural education through their cause related marketing strategies. HUL. For instance. Nestle and Coca-cola. Many companies are investing in research and development to build systems and processes that will reduce/minimize pollution and liabilities which consequently reduce their operational and environmental costs (Radley.R.P. 2008. Hindustan Unilever Limited’s (HUL’s) Ponds cream has promoted education through scholarships and presented women’s empowerment through a collaboration with the United Nations Development Fund for Women 10 . Investors increasingly wish to invest in companies which are sustainability oriented and have developed a triple bottom line approach (Radley. Kansai Nerolac and TATA companies have increased the trust of their stakeholders on the enterprise by adopting socially responsible practices. 2004). 6. CSR at workplace includes responsibility of a business operation to go beyond compliance addressing the needs of the employees strategically. Ethical human resource policies .30 pm they are paid Rs 50. The broad issues of CSR at workplace are discussed in Table 6. In many developing countries. work style and experience. employees were curtailed from tea breaks. 5. wages for overtime. Similarly in Wal-Mart. Table 6. with a significant number of employees working outside traditional office environments. For example. 2003).300 rupees a month when it costs an employee 500 Rupees to take the bus to work and has to manage their entire family within the remaining Rs 1800 (Bailly.30 to 6.2 Designing Market Place CSR Activities To design market place CSR activities the following steps need to be followed: 1. For instance. hotel rooms of business travellers and temporary offices of itinerant workers. IKEA has factories in developing countries like India where wages are kept particularly low at about Rs 2.00 pm there is no over time paid. Conduct review to identify the current market place polices within the organization and identify strengths and weaknesses of your policies. 4. Conduct surveys to identify the needs.5 CSR AT WORKPLACE Today. holidays and other requirements essential for the wellbeing of the employees. When these employees raise a voice or demand for rights they face the threat of losing their jobs (Bailly. 2007). 2.30 am to 1. In addition. suppliers and business development agencies to identify their expectations from your organization. Formulate teams and train them to implement. or those caring for elderly family members. For instance. the definition of “workplace” has expanded to include the home-based offices of telecommuters. IKEA has an official eight-hour day from 9. work-life issues no longer are focused exclusively on parents with children. 3. And diversity increasingly extends beyond issues of race and gender to include such factors as culture. monitor and report CSR activities at market place. They had paid break times which was disguised under the term ‘discipline’. Only if they work up to 10.4. et al 2006).30 pm & 2. intervals within working hours.30 pm but a research indicated that if employees work till 8. et al 2006). but is clearly a step to bonded labour (Dale. These expanded types of workplaces are challenging companies to create new policies and practices related to such issues as telecommuting and privacy. Design procedures and targets to implement the new policy. the minimum wages are not sufficient for basic living.80 Corporate Social Responsibility 6. age.4.4: Broad Issues of CSR at Workplace Issues Remuneration Responsibility Includes fair wages as per legal compliance as well as beyond legal compliance. Design new policies based on the findings of step (i) & (ii) by engaging relevant stakeholders. Includes appropriate working hours. but increasingly address the needs of single or childless employees. diversity of work styles also has led to willingness on the part of many companies to go beyond a “benefits and policies orientation” and look more expansively and creatively at issues in the workplace” (BSR. Contd…. automobile-based offices of salespeople and service technicians. feedback and satisfaction levels of customers. telecommuting. 2005). Downloaded from http://www. n. 2003) Contd…. (Matters. age or class. time and stress management skills. counseling.htm . For instance: an Intel Employee from Arizona reported that Robert Petriello who was exposed to a lot of job related stress. retraining and generous redundancy terms.Imperial Sugar.d. 2008). But likewise. “Includes respect to all current and potential employees by valuing them for themselves. Companies need to take steps to increase the morale of employees who are left behind as the work load is increased and morale is low (Baker. ”(Baker. suffered from a massive heat attack in July of 97. while around 17.2008”(Dewan. ‘An Intel Employee from Arizona Reported Suicides and Heart Attacks’. It allows its employees to work part-time or for flexible hours. better treatment of employees and others. It also allows telecommuting. Monsanto and others are making use of hazardous forms of child labor in cotton seed production An estimated number of 25. 81 Implementing CSR Strategy Work Life balance Age of employees Downsizing Diversity in work culture Privacy 11 Former and Current Employees of Intel (FACE). where employees come to the office only for half a day and work from home for the rest of the day. employees are treated inhumanely in case they cannot meet a days target which is insulting. the owner of a refinery near Savannah failed to implement safety measures even after being aware of them since 2002. mostly girls. gender. especially young mothers. 2002).S based retailer. For instance Hewlett Packard (HP) India “offers its employees almost all forms of flexible work options (FWO). “Some companies have undertaken such exercises with active employee placement services. Includes avoiding child labour and better treatment of older workers. 15% from minority backgrounds and 22% of employees over 50 years of age (M&S CSR report . it can be a sound part of due diligence by a company that deals with sensitive matters seeking to reduce risk for its customers to have a check on employee behaviour. “Many companies do resort to routinely monitor employee use of email and the internet. In this context. Similarly IBM paid an undisclosed amount to settle lawsuits brought by about 50 current and former workers who were suffering from cancer that they attributed to workplace exposure. On the other hand companies providing high stress results in employees having heart attacks and also suicides in certain cases. death. especially to older workers (Serres.000 children work for Monsanto at lower wages as well as hazardous conditions of work (Galleria. This has become extremely important today with numerous companies across the globe from Lehman Brothers to Jet Airways and many others laying off employees on a large scale. Many companies across the globe have failed to provide basic safety to their employees resulting in severe injuries. 2006) Includes providing employees balance in their work life with the help of flexible work options.Health and Safety Includes providing healthy and safe work environment for all employees. it is important to engage employees to devise a strategy to maintain the confidentiality standards pertaining to customer information and maintain a balance between due diligence and workers personal privacy. Similarly in case of a U.faceintel.com/suicides. For instance. Teflon. Others believe that such an open lack of trust fundamentally damages the relationship. 2003). Includes concerns of employees who are being downsized.). diseases and others. and avoiding placing artificial barriers or distinctions based on color. which required a triple bypass surgery 11 . resulting in the death of 13 workers in a sugar dust explosion in February. Employees are also allowed to return to the normal schedule after working as per any of the flexibility options for a specified time period thus improving the work life balance of employees (ICMR. For instance: “Atlanta . M&S work force diversity as on March 2008 includes 76 % women employees. work an average of ten to thirteen hours a day for HUL. 2003). This is just one of the many unreported cases of high stress in corporate work life. caste and others”(Baker. 2008) Employees are not slaves and it is important to protect and respect their privacy.000 children. For instance cotton seed companies in India like HUL. Adoption of CSR practices helps in higher retention and productivity as stated above in this table thus reducing the cost of high attrition. companies have shown an increasing interest in being known as a company where workplace policies and practices are viewed favorably by current and prospective employees. For instance in case of IKEA the research conducted revealed that ten of their suppliers who employed 2000 employees did not permit freedom of association and collective bargaining for wages and overtime. One of the most high profile instances being HIV/AIDS (Baker. Data shows that the rates of HIV infection worldwide are highest for the young and for women. freely chosen employment. health and safety. For instance.1 Benefits of CSR at Workplace In recent years. Developing ethical human resource policies and appropriate work life balance boosts employee morale. Wal-Mart had to pay 62. Teflon and others.5) Table 6. the cost of failing to implement socially responsible practices is much more. This includes minimum age of employment. Global Sourcing Principles. Forward-thinking companies in many countries are taking proactive steps to address HIV/AIDS issues before the impact to their workforce becomes greater (ILO 2003). who are major contributors to the workforce. IKEA. 2003). To implement consistency of working environments has created a list of Global Sourcing Principles to be adopted by all suppliers. 2005). working hours and rates of pay (M&S. 2003).000 employees for more than 30 days (Dale. Companies failing to implement CSR at workplace have faced various risks and large financial damages due this lapse: For instance. L& T was the first company in India which designed work place intervention policy for HIV-AIDS in 1986. Includes implementation of ethical workplace practices across all their branches/factories across the globe. newspaper articles and others. Although Africa and Asia have been the hardest hit.5: Benefits of CSR at Workplace Increase in employee productivity and higher retention Customers The implementation of CSR at workplace results in increasing employee productivity. an ever-wider sphere of business operations is being touched by the disease. Companies adopting CSR at workplace have greater credibility and recognition in the market through various employee survey awards. freedom of association and the right to collective bargaining. every continent has seen significant consequences due to HIV/AIDS.3 million $ for withholding payment of 125. et al 2006). received ‘Best Employer’ of 2008 and in 2009 Intelenet was ranked amongst the top 25 companies as Best Employers in India. no discrimination. If the employees are discontented. For all of these reasons. (Hutchinson. increases job satisfaction and loyalty of employees towards the company. Contd…. Such recognitions aid in building the organization’s credibility. Includes providing employees with a fair and equal right of collective bargaining which is usually suppressed in case of large companies like WalMart. retain and attract talented human resources. Although implementing CSR practices for employees is an additional cost for the organization.5. Credibility and recognition Risk Management Costs and Returns . For instance M&S has 1900 suppliers across the globe.2004). No one was "aware" of IKEA's code of conduct (Bailly. These companies have viewed workplace initiatives benefits as a strategic competitive advantage.82 Corporate Social Responsibility High profile instances Includes how companies respond to extraordinary circumstances. which highlights that. SAP Labs India. businesses with operations or suppliers in countries hard hit by HIV/AIDS are looking for more aggressive ways to address the disease’ impact on their workforce and operations. reduces the stress on work life. The relationship between a company and its employees can have a key impact on customers as the employees are the human face of the company. 2007). Concerns for freedom Consistency across different working environments 6. “as the pandemic progresses. (See Table 6. it would definitely impact their behavior during customer interaction affecting the brand image and the experience of the customer with the company (Baker. This is recognized by the ILO report of 2004 on Rights of Workers. approval from the senior management and board is essential for smooth implementation (Hutchinson. physical.p 85). 2004. greater choice Social interaction may be missed. working hours. (b) A code of conduct explicitly giving direction on avoiding situations contrary to the company's values and.6: Strengths & Weaknesses of Work Place Initiatives Human Resource Policy Working from Home for single mothers (Hutchinson. working environment and other states above on the broad areas of CSR at workplace should be carried out. To design work place CSR activities the following steps need to be followed: 1.5. 2. p64) Potential Benefit to the employee Less travel required to place of work Equipment could be ready at home each day to start work Work can be done at most effective or Appropriate time. employees and employers (Hutchinson. such as reducing or recycling the amount of workplace waste. supporting a solid management framework to achieve organisational objectives. 6. Post approval. 83 Implementing CSR Strategy 6.Lesser Government Intervention Implementing CSR practices at workplace provides for services beyond legal compliance thus reducing government interference in achieving organization goals and objectives. particularly when doing routine work full-time at home Potential problem in implementation Can blur the line between home and work Need to have self discipline and self Motivation Higher job satisfaction Higher retention due to flexibility Office space for one more individual Lower attrition thus reduced cost of training and orientation Absenteeism cost is also reduced Potential Benefit to company Boost in employee morale Better productivity Potential costs benefit analysis Cost in monetary terms (nil) Benefit in monetary terms 4. (c) A clear set of processes facilitating good communication and training. remuneration. Then the company must formally announce the new polices within the organization and provide information to all staff members across all levels in the . (Hutchinson. it is essential to develop a training strategy to ensure managers understand the methods of implementation. Once an analysis is completed. At first a review needs to be conducted to identify the current human resource polices in place within the organization. 2003). This can be done with the help of standard guidelines and procedures to be adopted by the managers for the implementation of the new policies. technical and financial components of the work environment as each factor impacts the others. Table 6.2 Designing Work Place CSR Activities An effective workplace strategy must simultaneously address the social. 2004). Secondly a survey within the organization to identify the needs of employees with reference to work life balance. 3.6 below. See Table 6. and enforcing basic health and safety rules” (Baker. 2004. 2004). Once the needs of the employees are identified the human resource department needs to analyze the strengths and weaknesses of each of the CSR policies with reference to the benefits and costs to the company. 5. This should include: “(a) A statement of values giving clear direction on how employees are expected to behave. Table 6. in the Tirpur Case companies need to adopt cleaner production systems. 7. What is carbon dioxide and how is it discovered?. 3m Solutions.Thus making it essential for companies to take corrective actions to reduce their environmental impact.84 Corporate Social Responsibility hierarchy . Product Stewardship downloaded from http://solutions.htm. Contd…. For instance. uses 90 million liters of water and discharges 87 million liters of waste effluent water (Ninan. For instance. Carbon dioxide (CO2) emissions are one of the major causes for climate change and global warming. Companies often contaminate water bodies affecting the ecosystem as a whole. use and disposal of the products 13 .’(Post Graduate Institute of Medical Research (PGIMR.3m. reproductive disorder. and pollution prevention. For instance 3M Ltd. 6. construct individual or common treatment plants to treat and recycle water to fulfill their environmental responsibility. The remaining 20-25% of the emissions is caused by land clearing & burning and by emission from motor vehicle exhausts. 2004. Life Cycle Management. The situation is so grim that villagers in the vicinity have been found to have various health related issues like cancer. p 85).lenntech. Table 6. water and land resources.’ A case in point is Punjab’s cotton belt which is engulfed by lethal pesticides causing major health problems. Fossil fuel combustion for energy generation causes about 70-75% of the carbon dioxide emissions. 2007). 2003) into local rivers which have become the natural drainage courses that stagnate in the riverbeds and percolate into the groundwater contaminating the water bodies and aquifers (Dwivedi. Companies therefore need to take steps to reduce air pollution for sustainable development. (Wiki) . Most carbon dioxide emissions derive from industrial processes 12 . 2002).7 below shows the key issues to be addressed by companies to fulfill their environmental responsibility. with clearly defined role and steps to be taken by each staff member in the implementation of the new policies’ (Hutchinson.com/carbon-dioxide. downloaded from http://www. manufacturing. Lastly the organization should conduct quarterly monitoring to know the effectiveness and impact across the expected benefits and costs of the new policies. birth of mentally challenged children and other pesticide related diseases. which is a textile hub of India.7: Key Issues: Environmental CSR Issues Air Pollution Responsibility Various emissions from the industrial processes contaminate air. Water Pollution Soil Pollution 12 13 14 Lenntech. this being the main source of such emissions.6 ENVIRONMENTAL CSR Corporate environmental responsibility today has expanded to cover substantially more than legal compliance.com/wps/portal/3M/en_US/global/sustainability/policies-standards/life-cyclemanagement/ Bio accumulation and bio magnification Bio-Accumulation refers to the process by which persistent organic pollutants (POPs) (like pesticides and others) accumulate in higher levels as they are passed from one trophic level to another through food chain magnifying their impact on all living species. waste minimization. Soil pollution is caused due to pesticides and fertilizers sprayed on crops resulting in bio accumulation 14 which contaminate the food chain with carcinogenic chemicals resulting in harmful diseases like cancer and others. Effective resource management and energy efficiency are major environmental CSR goals which any company has to attain. For instance. USA in its global operations adopts a life cycle management approach for their product development process where it identifies the impact on environment during the procurement of raw material. Tirpur. Disposal of these materials create health hazards. The manufacturing of these products consist of hazardous materials. However today after the oil exploration in the Amazon. production. OECD countries are demonstrating a growing interest in considering wastes as potential resources that can be used as inputs for new products.html . Many had to change their professions to low-paid physical labour like rickshaw driving. forming crude oil sludge along a huge stretch of coastline. less disposal and often less processing of waste 16 . found that the Indramayu Petroleum Plant polluted the sea by spreading crude oil to as far as 25 kilometers. For instance. Humanity's ecological footprint is over 23% larger than what the planet can regenerate.5 billion worth of e-waste (Vinutha.1 Benefits of Environmental CSR Environmental CSR initiatives impacts climate change.3343.fr_2649_34395_37895358_1_1_1_1.S. Table 6. revenue generation.8: Benefits: Environmental CSR Reduction of Risks & Financial Penalties Companies failing to implement CSR at environment have faced various risks and large financial damages.oecd. Industrial accidents have long term effects on the environment and health of the communities. 85 Implementing CSR Strategy Destruction of Livelihoods Industrial Accidents Industrial Material Disposal E-Waste 6. pay punitive damages and monitor 8000 residents in the area for signs of cancer due to dumping toxic arsenic. 2008). while others had to take their children out of school due to lack of finances. 2008).8 below highlights various benefits to the company. Fishes caught in the sea were often contaminated with crude oil and had no market.A.000 fishermen and the 32.5 acres of this forest contained as many tree species as that in the United States and Canada combined. developing eco friendly product designs. the species are on the brink of extinction (Enström. For instance. Companies like Wipro have developed polices to buy back computers to recycle electronic waste. 2005). Table 6.000 shrimp farmers of Indramayu. The depletion of natural resources caused by companies as stated above in this table affects the livelihoods of the communities that are dependent on the environmental resources. Toxic Link a Delhi-based Non-governmental Organisation (NGO). Contd….00. (Ashymah. For instance: The Environment Ministry of Indonesia. Ecuadorian Amazon was declared as a biosphere reserve in 1989 after biologists found that a mere 2. footprint and energy use effectiveness by improving their operational efficiency. http://www. 15 The pollution had a direct and terrible impact on the lives of the 17. U. This leads to opportunities for cost savings. 2004). 2008). For instance the Bhopal gas tragedy even after 20 years of the aftermath finds children in that community are victims of mental retardation and various physical disabilities. For instance Dupont. cadmium and lead at the plant endangering their health (Urbina. As electronic products become cheaper gradually. they tend to rapidly become obsolete.org/document/62/0. 15 16 It discovered a disposal pipeline that was leaking oil into the ocean. had to pay the largest civil penalty ever levied of $382 million by the court to clean up a site. Such use of wastes can result in less virgin material extraction with related reduction of negative environmental impacts. The ground water is largely contaminated and has varied effects on plants. and innovative technologies. use and disposal of materials accounts for significant quantities of energy and resources Companies being a large stakeholder need to acquire sustainable raw materials by regenerating waste for their production.Bio Diversity Biodiversity is largely damaged due to the harmful processes of the industries. Thus it is essential for companies to take steps to mitigate potential environmental accidents. and can even influence overall brand strength through positive environmental reputation. water use.6. states that India annually generates $1. animals and humans (Sengupta. The sourcing. A severe drought worsened conditions and the Indramayu community were left in dire economic and social conditions. reuse and recycle resources which has provided them a cost reduction of Rs 39. Similarly Kansai Nerolac Paints Ltd (KNPL) has developed technology to reduce the usage of hazardous material in their paints (Kansai Nerolac Paints Ltd Environmental Report. in the long run. businesses and local authorities to reduce waste and recycle more. vigilance from external authorities. Similarly companies promote their products having eco friendly features like use of recycled paper.Y. 2008). has been facing large government and NGO interventions which has affected its regular operations. less energy consumption and so on. This is a new source of income. it results in large cost savings due to the innovative technologies. For instance. Bayer require their suppliers to adhere to environmental standards like ISO 14000 and others 19 in order to be a regular supplier to them.com/news/Sustainability-norms-follow-or-perish/ . 2008). Dupont. declined the environmental impact of M&S products (M&S CSR Report. For instance. Sustainability norms: follow or perish! (2005.86 Corporate Social Responsibility Costs and Returns Although implementing CSR practices for environmental sustainability is an additional cost in the initial stage. The WRAP symbol informs the customer that this material can be composted at home in the right conditions. For each tonne of carbon dioxide (the major GHG) emission avoided. August 6). and even lending from international sources. (KNPL) adopts a sound environmental practices to reduce.19 lakhs in the year 2008 alone (KNPL Environmental report. Kansai Nerolac Paintings Ltd. For instance. M&S recycles plastic and uses it in the packaging of its salad bowls. as it is a trading market. with each credit currently selling for 10-17euros’ (Sethi. 2006). recipe pots and trays. Environmental CSR provides for services beyond legal compliance thus reducing government interference in achieving organizational goals and objectives. The symbols clearly indicate the process of disposal proving a differentiator. Companies adopting Environmental CSR approaches have greater credibility and recognition in the market through various awards. which has reduced the annual cost of the raw material as well as. Access to a New Market -Carbon Credit Lesser Government Intervention Technological Innovation Product Recall and Differentiation Credibility and recognition Global Marketplace Advantages 17 18 19 WRAP is a UK based company that helps individuals. For instance. consequently reducing their greenhouse gas emissions. ‘Carbon credits are generated by enterprises in the developing world that shift to cleaner technologies and thereby save on energy consumption. Embracing environmental socially responsible practices is a unique strategy for product differentiation and higher product recall. one of the largest mining organizations across the globe. For instance. Downloaded from Financial Express Website: www. Companies require environmental standards / compliances to have a market place advantages as well as credibility of being an environmentally sustainable company. newspaper articles and others. India has received Association Business Communicators of India (ABCI) Award for its Environmental Report 2006 and Greentech Environmental Excellence Award for Bawal plant. using a compost heap in the garden or a home composter (M&S CSR Report. Indonesia. Such recognitions provide public credibility. making better use of resources and helping to tackle climate change. the entity can get a carbon emission certificate which they can sell either immediately or through a futures market. Freeport McMoran. 2008). For instance companies like Marks & Spencer’s. Many companies are investing in research and development to build systems and processes that will reduce/minimize pollution and liabilities which consequently reduce their operational and environmental costs (Radley. (WALHI-Indonesian Forum for Environment. KNPL.financialexpress. just like any other commodity.2008). India is the global market leader having already generated 29 million carbon credits and has another 139 million in the pipeline for sale. 2007). Marks & Spencer has created WRAP 17 symbols 18 across 80% of their food packaging. beverage bottles. has taken very limited steps to reduce their large environmental impact at Grasberg and hence. 2004). investor & customer demands. this diversion of land has serious consequences for rural livelihoods and rural eco systems. legal compliances on corporates are pressurizing companies to engage themselves in developing community development activities.6.navdanya. (g) Report EHS activities to all stakeholders so as to increase transparency. 87 Implementing CSR Strategy 6. Natural Bioenergy Ltd. partnerships with local organizations and philanthropy have the potential to improve quality of life and build capacities of the community. and Reliance Energy Ltd 21 . Increasing NGO 20 pressure. standard of living and the potential for economic development are important considerations for any company. The southern online Biotechnologies Ltd. community reputation. In a land starved country.htm . Due to corporate establishments. For example: India plans to cultivate Jatropha in 11 million hectares.. Table 6.org/news/5dec07.. (c) Set goals and targets to protect environment.6. affects the livelihoods of the communities that are dependent on the environmental resources. (f) Develop regularly monitoring processes of EHS activities. (b) Formulate an environmental department and formulate an Environment Safety and Health (EHS) policy. (e) Conduct environmental health and safety awareness events for the employees on a monthly basis to develop capacities of the staff. Jain irrigation System Ltd.. For further discussion see Table 6. accountability and credibility.. Community factors such as quality of life. Tata Motors.9: Key Issues of CSR at Community Issues Destruction of Livelihoods Responsibility The depletion of natural resources caused by companies as stated in CSR at environment module.7 CSR WITH COMMUNITIES When any company enters a community. pro bono work. http://www. Godrej Agrovet Ltd. Kochi Refineries Ltd. Contd…. The Companies involved in the gold rush of Jatropha in India are D1 Oil. Develop an internal audit system. communities face a number of challenges which impact their quality of life and hence need the company’s intervention. Biohealthcare Pvt.. workforce development.9. (d) Design processes and systems to increase compliance and environment conservation standards in the company. it creates jobs and pays taxes. The resources that good companies invest in operations. Indian Oil Corporation. 20 21 Social development organization assisting in empowerment of people. If corporates do not engage in mitigating the risks they create for communities they are likely to face more negative business impacts.2 Designing Environmental CSR (a) Review current environmental compliance status in the company. Africa. For instance Anglo Gold Ashanti Violation Kilo (ASK) one of the largest mining companies in the world. use. “a mining company in Blackwell. Such partnerships have large benefits to the company and assist them in managing their organizations more effectively and efficiently. Losses generally involve the release of damaging substances (e.10. As stated by one of the 70.edu/unupress/unupbooks/uu21le/uu21le03. effectively making the waste toxic. manufacture. 2008) Unsafe Practices 6. and we are not paid.unu. Pollution and Includes companies that treat the local village areas as dump yards of the industrial waste. Industrial hazards can occur at any stage in the production process. cross sector partnerships with NGOs and public sector organizations that bring specialized expertise to address issues of community development. 22 http://www. 6. “It is very difficult. For instance. including extraction. India in two communities.g. “In China Luoyang Zhonggui High-Technology Co.000 artisinal miners. stored chemically hazardous waste sand in heaps around the facility. extracts large tons of gold found in. punishing work. To create sustainable communities.8. or wastes and impact local communities 22 .88 Corporate Social Responsibility Includes industrial practices that are disguised as a benefit. which can provide benefits to both companies and communities. but are actually harmful to the health of the community in the long run. and gave it away by the truckload to private citizens and to the town for public works projects.htm#the nature of industrial disaster . Industrial hazards are threats to people and life-support systems that arise from the Industrial mass production of goods and services. albeit in many cases there is a Human violation of human rights where employees are not paid enough. 2008). spills. fires. this relationship is mutually reinforcing. and disposal.A during its 58 productive years. Ituri.Inc. This can be attained by formally encouraging community-company dialogue.” (Stickland. and has continued to do so for nine months.S. chemicals. processing. Corporate community interventions for community development refer to a wide range of actions companies can take by donating money. This sand has ended up in driveways and roadsides all over town. ill treated by the Rights employers and provided with no social benefit.1 Benefits of Community Interventions The details of the possible benefits to companies adopting CSR at communities are displayed in Table 6. time. Companies that employ the local community. products and services. To develop capacities of communities it is important for companies to share their management knowledge and other resources for empowering communities by developing livelihood support activities through developing partnerships with NGOs and promoting employee volunteer programs. we work until we hit the vein of gold and hope that they will pay us. When these threats exceed human coping accidents capabilities or the absorptive capacities of environmental systems they give rise to industrial disasters. genetic materials) or damaging levels of energy from industrial facilities or equipment into surrounding environments. was distributing as part of its community initiatives its solid waste to farmers in the area as "fertilizer". First and foremost it is important that corporates minimize their negative impacts on communities by preserving environment. 2008). dumps Waste accumulation trucks of silicon tetrachloride (highly toxic substance) between the cornfields and the primary school playground of the nearby village. companies can bring a range of resources to bear on communities’ economic and social development.8 TYPES OF INTERVENTIONS Since a company’s workforce and operational strength depends upon the economic and social health of its communities. It also lies underneath the high school track and the parking lot of the First Baptist Church. storage. Similarly Coca-Cola. transportation.”(Deibert. Coca-Cola stopped the practice of distributing its toxic waste only when ordered to do so by the state government. Plachimada and Mehdiganj. This usually occurs in the form of explosions. U. leaks. radioactivity. Oklahoma. which has now made the land infertile and the vicinity is not suitable for people to live "(Eunjung Cha . For instance Amax. Tests conducted by the BBC found cadmium and lead in the waste. where the miners of the community are suffering for their basic needs and amenities. rural women are trained to be independent direct-to-consumer sales distributors for HUL’s soaps and shampoos. double their previous income. i. Companies supporting fair trade products assist in supporting livelihoods of the poor Most organisations buy tea. 2007). Companies developing community infrastructure and quality of life have greater credibility and recognition in the market . environment and the community.. Companies failing to implement CSR at communities have to face various risks and large financial damages. which grows from eroded soil and requires limited water. mining. increase rural incomes as well as increase availability of fuel with reduced emissions (Stiftung. On implementing CSR at community an organization provides for services beyond legal compliance thus reducing government interference in achieving organization goals and objectives. The proposed store cannot be approved if the studies find it is likely to cause a quantifiable.000 residents in the area for signs of cancer due to dumping toxic arsenic.Table 6. the environment and local businesses. which makes the project sustainable in the long run. This aids in differentiating Starbucks coffee from others.10: Benefits of CSR at Community Sustainability of the Project Implementing CSR practices for community can definitely result in producing win-win solution for the company and community. and biscuits & all these are available via the fair trade market. (Urbina. sugar.8. which definitely distinguishes Tata’s level of community development from other organizations. 89 Implementing CSR Strategy Access to a New Market Lesser Government Intervention Risk Management Support for Fair Trade & Product Differentiation Credibility and Recognition Global Market Place Advantages 6. For instance Dupont. Buying these products is one way of showing that your organisation can help make a difference. under the Hindustan Unilever Ltd (HUL). India is developed through a unique scientific process to benefit the company.A. a vegetable plant. U. 700-800 per month.S. They earn Rs. For instance.”(Hudson. For instance Daimler Chrysler (DC) energy project. 2007). provides them with an edge in the global market place. coffee. "undue adverse impact" on more than one of those fronts and is expected to have a harmful effect on the community overall.For instance.A .000 square feet to conduct studies gauging the project's impact on Municipal services. Shakti Entrepreneur project. 2007). Match the corporate drivers and community needs.2 Steps to Design CSR Intervention Step 1: Step 2: Develop a clear understanding and recognition of ‘community’ as an important stakeholder of the business and its sustainability. cement and other high impact industries that have failed to fulfill their community and environment responsibility resulting in various risks and financial damages. Companies having positive community support and renowned credibility of developing communities. Some companies may be motivated more by . Starbucks Coffee purchases coffee beans only from fair trade organizations. had to pay the largest civil penalty ever levied of $382 million by the court to clean up a site. pay punitive damages and monitor 8. Maine Government has signed a law which requires developers of retail stores exceeding 75. “The process adopted is plantation of Jatropha. This initiative has helped HUL to have access to a new supply chain at low cost and high community support (Stiftung. Tata Steel has developed Jamshedpur to be the only city in the world that has been accredited with the UN Global Compact. Strategic CSR at the community level provides access to new markets.e.S. Similar laws across different sectors are now in consideration increasing the need for CSR at Community. For instance in U.2008). Motivations for companies to develop CSR policies and invest in local communities vary from one organization to other. cadmium and lead at the plant endangering their health. There have been many instances across the globe by oil companies. It produces a fruit which can be used to make oil and be converted via a simple process to low-emission bio diesel (particulate matter emissions are 70 percent less than traditional fuel)” This cultivation thus has the potential to contribute to wasteland rehabilitation which is the major issue of the local farmer. For instance the credibility developed by Tata Group through their contribution to the community has rewarded them with global recognition. For example: A bank offering micro finance product may like to develop financial education programme for local youth and women. which you want to initiate. academic or research institutions or any other company. Based on the model chosen the organization has to take a decision to partner with NGOs. while others may be motivated by production. monitoring and measurement process between the partnering agency and the company to attain the goals of sustainability. Step 3: Identify the type and extent of support in which the company would like to develop partnership with communities.2: Type of Company Support Step 4: Identify the method and mode in which the organization would like to implement the activities. supply chain linkages. Figure 6. mitigation of negative impacts. Focus on key activities. See Figure 6. The benefits and risks of the models are displayed in Table 6. Assessing the development needs of the community by engaging them in a dialogue is very essential. distribution issues. It is essential to develop a memorandum of understanding. A community survey and engagement with local NGOs can be of great assistance in this process.11.2 below. . marketing.90 Corporate Social Responsibility reputation assurance needs or concerns around social licenses to operate. Community development activities can be implemented by adopting various models through direct or indirect investment. creating new market opportunities or building good will/managing reputational risk (Owen 2007). It is important to match the community needs and motivations of the company to facilitate strategic alliance. legal compliance. local public sector organizations. from the World Bank Website Report No. . Traditionally NGOs have covered the fields of environmental protection. Figure 6. or even hostile.11: Potential Implementation Models 91 Implementing CSR Strategy Source: Owen. secular. the protection of consumers. human rights.Table 6. Strategic partnerships involving governments. business. health and education. Multistakeholder dialogue involving NGOs and government is seen as the key to make globalisation work for all. democratic. a few NGOs sought to go beyond this attitude of criticism alone and to bring influence to bear fruits in a different way.. No single actor or sector can be expected to provide for the fulfillment of all human rights.org/EXTSOCIALDEVELOPMENT/Resources. However.Beyond Corporate Social Responsibility: The Scope for Corporate Investment in Community Driven Development.3: Typology of NGOs Relationships between NGOs and businesses were traditionally seen as rather argumentative. the fight against poverty. flexible.worldbank. D. 37379-GLB :http://siteresources. and so on. development aid. government and civil society organisations work together to address these problems progress is possible. and civil society in the protection of human rights and the promotion of sustainable development. non-profit people's organization working for and/or assisting in the empowerment of economically and socially. Companies today have realized that ignoring arguments of the NGOs can be 23 An NGO is an independent.pdf 6. or the solution to all social problems. NGOs 23 and businesses are extremely important. marginalized groups.(2007). but if businesses.9 STRATEGIC PARTNERSHIPS The emerging global system is redefining roles of state. It must enjoy complete independence from the company or the authorities. To benefit from expertise on the issues of sustainable development from NGOs and design mutually beneficial strategies. companies are mounting an overall search for expertise and skills that they are not accustomed to applying. (See Figure 6.12 below lists reasons for Corporate & NGO partnerships.92 Corporate Social Responsibility dangerous as businesses today work with contemporary service oriented and advocacy oriented NGOs at local. To improve their image within the company and outside. In addition. It must be capable of forming multilateral partnerships. they can provide guidance and pathways for companies in respect of other parties involved.9. 6. It must have a stable and reliable reputation.2 Criteria for Selecting NGO Partner When a company wishes to start a partnership with an NGO. To get more people involved in its social cause as they become better known. The companies’ aims in dealing with NGOs To be able to open up to civil society. societal and/or environmental contexts. Table 6. such as governments or local authorities. It must have a development capability in order to be able to advance the project to a bigger scale (geographically. as well as in terms of extent and impact). human and technical resources for carrying out a specific project. To gather financial. To encourage companies to adopt a vision of sustainable development rather than managing crises alone. .3) 6. image and credibility while adopting those of civil society together with the issues of sustainable development. To avoid or escape from crisis situations. To encourage companies to improve the way they act in social. They want to promote their own values. To signal their willingness to become involved in socially responsible practices and/or those that are environmentally more satisfactory. Because NGOs have an understanding of civil society and related issues.12: Reasons for Partnerships The NGOs’ aims in dealing with companies To be able to move their ideas forward.1 Reasons for Corporate NGO Partnership Companies want to move away from mere crisis management towards socially responsible commitments. To be involved in determining community development strategy as well as in its monitoring.9. To develop companies relationships with other To become a stakeholder in the community and civil society as a result of the NGOs' special understanding. To improve the internal management practices of NGOs and develop their capacities in addressing social issues. It must hold a predominant position in its sector. the latter must satisfy a number of basic conditions: It must demonstrate competence and good results over time. Table 6. Its structure must be professionally managed. national and international levels. 6. marketplace. the company can work out positive and negative consequences of its actions.3 NGO Strategies to Influence CSR NGOs adopt different strategies in their attempt to influence the corporates to execute their social responsibilities. File shareholder resolutions.10 LET US SUM UP Business leaders are increasingly concerned about how their organizations can implement CSR in a consistent manner without compromising on its profitability.” 24 NGOs cannot really force corporations to do anything. Litigation seeking punitive damages. By working through each step of the value chain. Companies engaged in developing strategic CSR practices recommend the following steps for CSR implementation: (a) Develop an integrated CSR decision-making structure (b) Prepare and implement a CSR business plan (c) Set measurable targets and identify performance measures (d) Engage employees and others to whom CSR commitments apply (e) Design and conduct CSR training (f) Establish mechanisms for addressing problematic behaviour (g) Create internal and external communications plans. Advocacy of selective purchasing laws.pdf . but there are clear philosophical differences between those that favor dialogue and those on the confrontational side of the spectrum. There are at least eight different tactics that various NGOs have employed with respect to different companies in order to encourage them to accept social responsibilities. CSR should be viewed as an opportunity rather than a cost because there are points of intersection between a company and its stakeholders. “In practice. Advocacy of social accounting and independent verification schemes. Advocacy of government . Most NGOs try to tailor the tactics to the target based upon the specific characteristics of the company’s position on corporate social responsibility issues. they are: Dialogue aimed at promoting the adoption of voluntary codes of conduct—the pure CSR approach (Refer chapter IX).imposed standards. Arranged in order from the least to the most confrontational. For instance. and their attempts to influence corporate behavior by means of any combination of strategies and tactics are unlikely to be successful in the long run unless they are able to mobilize two other important constituencies: consumers and governments.com/file/view/NGO+Strategies+for+Promoting+Corporate+Social+Responsibil ity. 93 Implementing CSR Strategy 6. asbestos was 24 Winston M ( 2002). no NGO acts solely as an engager. This includes identifying and acknowledging evolving or future social effects. all utilize strategies that fall along an engagement and confrontation spectrum.wikispaces. Based on this analysis.9. for environmental protection and the communities need to be identified. nor do any act purely in a confrontational mode. To develop business sustainability CSR intersection points at workplace. NGO Strategies for Promoting Corporate Social Responsibility available at http://ycri. a value proposition that is unique to its stakeholders can be worked out. Documentation of abuses and moral shaming. Calls for boycotts of company products or divestment of stock. 6. rule of law and so on. .94 Corporate Social Responsibility considered safe in the early 20th century. For instance. The company needs to work out what it can and cannot influence. Contemporary NGOs play an important role in influencing CSR commitments of companies as they wish to see business develop sustainable business practices for protecting mankind's future.11 KEYWORDS Whistle-Blowing: Publicly alleging misconduct in an organization Non-Compliance: Failure to comply with policies Market Place Issues: Issues that relate to CSR that effect firm’s relations with customers Biodiversity: Variety of different species within a region Reputational Risk: Risk involving the image and goodwill of a company NGO: Non Government Organizations that work for the community Ombudsperson: An employee who mediates disputes between employees and top management. (f) Environmental CSR can save costs but doesn’t help in brand promotion. From here. In this context. air etc). availability of talent. NGOs and CSR experts desire more collaborative and pragmatic relations with companies and hence develop strategic alliance to promote development of sustainable communities and business. but we now know the horrifying impact of asbestos on humans and the subsequent compliances that need to be observed. intellectual property protection. State whether the following statements are true or false: (a) It is important for CSR activities to be an integral component of governance activities. (e) Marketplace CSR addresses issues like ethical promotion and advertising. External social conditions affect an organisation in many ways. it must then prioritize which issues to address. 6. Toyota designed. happy customers. (b) CSR activities should not be considered while performance evaluations of employees. ‘Prius’. cleaner roads. For instance. majority of them accept that even companies in controversial industry sectors can be converted into responsible businesses if they address the social and environmental issues particular to their sector.12 SELF ASSESSMENT 1. (g) NGOs can compel the corporations to alter their behavior towards their employees. (c) Overall CSR initiatives lie largely in the hands of employees. NGOs have high expectations of corporate conduct. and many have still to be convinced of the sincerity and effectiveness of companies' efforts. (d) An ombudsperson can be appointed to communicate the results of breach of CSR commitments. While dealing with communities it is important to examine which social issue intersects with its business where shared value can be created. Nevertheless. the increasingly popular hybrid car which is an intersection between Toyota’s business and environmental benefits (less emissions. Although tensions in working with companies are recognized. Reliable and Time bound (iii) Simple. wage plan. Choose the appropriate answer: (a) SMART guidelines says that objectives should be: (i) Simple. Measurable. What are the potential areas in which CSR plans can be implemented? 4. Maintainable. (i) Ethical Human Resource policies (ii) Remuneration (iii) Work life balance (iv) Health and Safety (e) To adopt more responsible commitments towards society. Achievable. Reliable and Time bound (b) Employees can be kept engaged in CSR initiatives by: (i) Developing Incentives (ii) Providing them with updates (iii) Including CSR performance in performance evaluation (iv) All of the above (c) Which of these doesn’t influence company’s relations with customers? (i) Marketing and promotion (ii) Distribution and Access (iii) Company culture (iv) Labeling and Packaging of products (d) Issues like defined work hours. Realistic and Time bound (iv) Simple.13 REVIEW QUESTIONS 1.2. . the companies can go for: (i) Social Campaigns (ii) Strategic Partnerships (iii) FDI (iv) Marketplace CSR 95 Implementing CSR Strategy 6. breaks and intervals and holidays deal with………issues. What are the types of workplace issues that need to be considered by an organization and what is its impact? 6. Accessible. Maintainable. Why should employees be engaged in implementing CSR commitments? 3. Why should an organization develop an integrated decision making structure for CSR? 2. Achievable. Realistic and Time bound (ii) Simple. Achievable. Measurable. How do companies impact environment? Discuss the importance and strategies to develop environmental CSR initiatives. What are the market place issues in CSR and how can they be resolved? 5. unu. T. (2007.d. M. Discuss the strategies NGOs use in influencing corporates to execute their social responsibilities.14 SUGGESTED READINGS Andersen. 16 (2). (n.pdf.html Rural Electrification Corporation Ltd. Available at http://recindia. 75-86.Navdanya. Organization for Economic Co-operation and Development.pdf.00.com/corporate-responsibility Biofuel Hoax: Jatropha and Land Grab. . Answers: Self Assessment 1.wikispaces. REC Ltd. Available at http://www. December 5). Available at http://www. (a) True 2.Htm Mitchell. & Skjoett-Larsen. What are the reasons for NGO partnerships with corporates? 9. Taking the Right Steps Forward.edu/unupress/unupboks/uu211e/uu211e03..). Supply Chain Management: An International Journal. Corporate Social Responsibility Policy.org/document/62/0. Aviva Corporate Social Responsibility Report.fr264934395378953581111. How do companies impact local communities and what are the strategies companies can adopt to strengthen its relationship with communities? 8.d). Sustainable Materials Management. Corporate Social Responsibility in Global Supply Chains.com/file/view/ NGOStrategiesforPromotingCorporateSocialResponsibility.in/download/csr. Winston. NGO Strategies for Promoting Corporate Social Responsibility.aviva.Org/News/5dec07. (2002).nic.96 Corporate Social Responsibility 7. M. (2008). (2009). Available at http://www. 14 (2).oecd. (a) ii (b) False (b) iv (c) True (d) True (e) True (f) False (g) False (c) iii (d) i (e) ii 6. J. (n. Improving Community Responses to Industrial Disasters.htm. 71-87. Navdanya. (2009).3343. Ethics & International Affairs. Available at http://ycri. Available at http://www. 97 CSR Monitoring and Measurement UNIT 1 MODULE III . 98 Corporate Social Responsibility . LESSON 99 CSR Monitoring and Measurement 7 CSR MONITORING AND MEASUREMENT CONTENTS 7.0 7.1 7.2 Aims and Objectives Introduction Focus of Measurement 7.2.1 7.2.2 7.2.3 7.3 Measure Fewer Things Better Measure What Matters Communicate Fewer Metrics in Multiple Ways What is Monitoring? 7.3.1 7.3.2 Internal Compliance Monitoring External Monitoring and Measurement 7.4 7.5 7.6 7.7 7.8 Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 7.0 AIMS AND OBJECTIVES After studying this lesson, you should be able to: Understand the importance of monitoring and measuring CSR Understand various techniques and processes of CSR monitoring Develop preliminary skills in designing CSR measurement index 7.1 INTRODUCTION Corporate social responsibility increasingly involves considerable resources, not just in terms of money, but also scarce senior management time. So questions about what is being achieved becomes even more pressing. A business cannot just say it is engaged in CSR; it must prove itself through its actions. Investors require companies to explain to them the returns on investment for corporate social responsibility (CSR). It is in this context that monitoring and measurement of CSR becomes very important. While the implementation of CSR is quite well understood as giving effect to and putting into action various activities, the meaning and scope of monitoring of CSR is less clear. Measuring CSR becomes a complex task largely because it is a very wideranging concept with innumerable qualitative and quantitative dimensions. The impact of CSR at times is intangible; it is difficult to measure it accurately in either length or width, or in weight or distance. Hence, the impact of CSR to the organisation has to be studied in terms of employee loyalty, zero-day or reduced strikes in the production 100 Corporate Social Responsibility line, increased employee performance, increased productivity, and many other parameters which are an outcome of practicing CSR in the organisation/industry. The measurement of CSR will undoubtedly be useful for the CEOs and all the employees who devote precious time and resources in developing the strategic fit. See Box 7.1 for reasons to measure CSR. Box 7.1: Reasons to Measure CSR Improves accountability. Helps in avoiding action from pressure groups and local communities. Avoids reputation (and hence business) risk. Improves brand image (targeted at customers, employees, investors and suppliers). Links social performance with financial performance. Satisfies regulators. 7.2 FOCUS OF MEASUREMENT To determine if CSR makes a difference to stakeholders, an unbiased assessment has to be undertaken on the following categories: Internal Stakeholder Effects: concerns with how various activities of the company affects the stakeholders inside the firm. External Stakeholders Effects: concerns the impact of corporate actions on persons outside the firm. External Institutional Effects: refers to the effects business has on the larger institution of the State, Nation and international level rather than any particular stakeholder group. 7.2.1 Measure Fewer Things Better To start with, it is important to focus on measuring a few specific things that are relevant to the organization’s CSR strategy, such as brand reputation, energy efficiency, employee loyalty, waste reduction and positive changes in leadership skills among employees. Few more metrics can be added when the organization gains confidence and is convinced that the CSR strategy is functional. 7.2.2 Measure What Matters Companies adopt different indicators of measuring the impact of CSR initiatives which depend on their projects and objectives for developing sustainability practices and secure a just and equitable process of socio-economic development. For example, Hewlett-Packard’s (HP) core business objectives are growth, efficiency and capital. So when HP sets out to measure progress on its chosen CSR strategies, the company started by measuring CSR impact on its growth. For instance, it measured if the company’s energy optimization strategy penetrated new markets or gained new customer segments or won big government contracts. When thinking about what to measure, start by thinking about how the CSR strategy can support your overall corporate strategy. For instance, for an organization like Big Bazaar, if the focus areas are minimizing waste, energy usage, and increasing sustainability, the company should be looking at developing two or three good metrics in each of these areas, such as energy and money saved from removing high electric consumption light bulbs from the retail outlets. If the company is focused on marketing fair trade label products — it should measure the increase in sales for those products or product lines, and through them measure how many farmers were benefitted and how the organization’s profitability was impacted. Sona Group of Industries evaluates the effectiveness of its CSR programme on the community in terms of benefits to society it provides in the process. For instance, it measures the number of patients treated per day in their “Sona Swasthya Kendra” (Sona Health Center) or number of girls benefitting from the schools that they have improved.” 101 CSR Monitoring and Measurement 7.2.3 Communicate Fewer Metrics in Multiple Ways It is important that rather than aiming to measure as many metrics as possible, one should think about measuring the same thing and articulating its value in several different ways. For instance, measure your CSR strategy on the dimensions of value: Monetary: Accounting-based value of inflow & outflow of cash. Financial: Translation of in-kind contributions of employee time and/or product into rupee or dollar value. Quantitative: Number of new energy-efficient or sustainable products added to a product line. Qualitative: Types and descriptions of new energy-efficient or sustainable products; storytelling (narration) or marketing value through media mentions or changes in consumer attitudes. Measuring value through such ways can be difficult for companies that train employees to articulate all value in terms of money. But by employing these measurements, it is possible to paint a better picture of the value of a company’s CSR strategy. For instance, “Dow Chemicals shipped two tons of water purification filters to Africa. After calculating the monetary value for the company, there are other benefits that can be measured, such as employee pride and satisfaction, enhanced brand reputation, and access to new markets of potential customers and employees. Let us look at Dow Chemicals’ experience with its human element campaign, an advertising campaign based on CSR strategy. The campaign announces Dow’s vision of addressing some of the most pressing economic, social and environmental concerns facing the global community in the coming decade. It showcases human stories of Dow’s commitment to technology, innovation and sustainability to communicate the power of “the human element” to solve global problems such as poverty and access to clean water. To measure the effectiveness of this campaign, Dow looked at the impact of its storytelling on consumers. It found that after some exposure to the campaign through TV advertisements, the web, and print media, consumers were much more likely to support Dow as a business in their communities, recommend Dow’s stock to a friend, and defend Dow’s reputation to a friend. This campaign has helped edge Dow Chemicals closer to the reputational scores of its peers, which historically have been significantly higher.” 1 It is important to note that reputation accounts for a significant component of a firm’s intangible assets, which in today’s valuations can account for up to 80 percent of a firm’s value. 7.3 WHAT IS MONITORING? A useful definition of monitoring is provided by Hellawell (1991) 2 as, “Monitoring is an intermittent (regular or irregular) series of observations in time, carried out to show the extent of compliance with a formulated standard (target) or degree of deviation from an expected norm/target.” In line with this definition, one needs to define the 1 2 Mcelhaney, K. (n.d). Measuring What Matters in Evaluating CSR’s Return On Investment. University of California, Berkeley, Haas School of Business. Available on http://dimbulb.typepad.com/files/what-matters.pdf Hellawell, J. (1991). Development of a Rationale for Monitoring, in: Monitoring for Conservation and Ecology, Goldsmith, FB (ed.), NY: Chapman and Hall, pp.1-14. the indexes can be regularly reviewed and revised. junior management as well as the shop-floor level 3 . roughly three types of monitoring methods can be identified: 1. Internal compliance monitoring and measurement. and discuss key performance indicators (KPIs).timesascent. Depending on the nature of business and CSR activity initiated.3. Measuring CSR. For the purposes of explanation.1 Internal Compliance Monitoring For monitoring and measuring CSR. Education Times. Though there is no standard format for developing indicators. the UN Global Compact Principles and Accountability 1000 series provide guidance in the planning & implementation of CSR initiatives. senior. leadership companies normally follow Global Reporting Initiatives guidelines to develop their own indexes for monitoring and measuring CSR. social and environmental performance. (2009. across the supply chain and in the community. then the same team can continue with the monitoring task. The EU Eco-label criterion measures the eco-friendliness of the products. Instruments like Global Reporting Initiative (GRI). External monitoring and measurements. 7. a template for monitoring and measuring format is given at the end of this chapter.com. it is essential to form a monitoring team consisting of subject experts and executives who have business as well as social orientation. In order to monitor and measure triple bottom line CSR (social. the OECD Guidelines for Multinational Enterprises stresses on corporate governance matters. middle. economic and environment) objectively the team will have to develop performance indicators. April 13). which can measure various aspects of a company’s economic. Accreditations/certifications for verifications of measurements. and then undertake monitoring to assess whether these objectives are being met. There are several instruments. Other existing instruments may support the companies in specific aspects of CSR. U. For instance. Amnesty International’s Human Rights Guidelines for Companies. Sustainability Report Guidelines.in/index. Available at http://www. has constituted a special committee called ‘CSR Council’ that comprises members from the top. Sona Group of Companies. 2. A few of these standards or voluntary codes for CSR are discussed briefly in Chapter IX. which then can be linked to the overall profitability of the company.102 Corporate Social Responsibility standard in terms of objectives or targets.aspx?page=article&sectid=75&contentid=200904132009041312165 4552c0862e32 . If CSR team is formulated in the organization. 3. the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises Social Policy and Core Labour Standards and the Social Accountability International (SA 8000) which measures the labour standards. For example. When looking at CSR monitoring and measurements. Some instruments generally concentrate on a single issue or a stakeholder and thus fail to capture the full impact of a company’s activities. 3 Narang. The team has to diligently engage itself in monitoring the processes involved in implementing CSR activities both within the organization. However some companies are outsourcing monitoring of CSR activities to NGOs and research agencies. Listings and rankings in Dow Jones sustainability index. dialogue and informal 103 CSR Monitoring and Measurement financial analysts and Perception about stakeholders.2 External Monitoring and Measurement Businesses are reluctant to allow outside agencies for monitoring and measuring CSR activities of their organizations. it is imperative for companies to give a testimony of commitments by developing appropriate monitoring and measurement tools for developing sustainable business and societies. Reporting tools such as GRI.4 LET US SUM UP Although corporate social responsibility is often portrayed as a voluntary initiative of businesses acting to be good corporate citizens.2: CSR Measurement & Monitoring Tools Quantitative Tools Employee and customer surveys. 7. which can measure aspects of a company’s economic. It depends upon the company which type of monitoring and measurement systems it intends to design for gaining further insights into its CSR strategy. Peer and expert evaluation. Some of the tools used for monitoring and measuring CSR both by internal and external stakeholders are listed in Box 7. Box 7.5 KEYWORDS Monitoring: Observations to show compliance or deviations form target Measurement: Studying qualitative and quantitative impact of CSR initiatives Qualitative Metrics: Measures the progression of an activity from non-numeric aspect Quantitative Metrics: Measures the progression form numeric aspect Internal Monitoring: Monitoring by internal experts chosen from within the company External Monitoring: Monitoring by outside agencies like NGOs . social and environmental performance to build its competitive advantage. KPI and environmental audit systems.7. These agencies also depend upon the monitoring and measurement instruments developed by international agencies mentioned in the above paragraphs and customize the same to the organizations requirements. Image among regulators. Shareholder feedbacks.2 below.3. There are several instruments or voluntary codes. Employee health and safety. Qualitative Tools Positive and negative media coverage. efficiency in resource usage and productivity surveys. the reality is that the private businesses that choose to adopt and implement CSR codes are in the centre of a system of pressures. incentives. reduction of wastes. Public attitude and trust surveys. FTSE4Good & other sustainability indexes. Hence. company amongst 7. and advocacy that involves many other actors. SRI rankings. (c) Measurement of all the CSR initiatives pertaining to all regions must be measured.104 Corporate Social Responsibility 7. What is monitoring & measurement of CSR? Discuss the importance of the same.6 SELF ASSESSMENT 1. (e) External monitoring is monitoring by people outside the company. Choose the appropriate answer: (a) Which of these are important for a firm to measure? (i) Brand Image (ii) Employee productivity (iii) Employee loyalty (iv) All of the above (b) Which of these is not a method generally used for monitoring? (i) Management monitoring and measurement (ii) Internal Compliance monitoring and measurement (iii) External monitoring and measurement (iv) Accreditations/ Certifications (c) Work that companies like Standard and Poor’s and Ernst and Young do are: (i) External monitoring (ii) Internal monitoring (iii) Management monitoring (iv) Expert monitoring (d) While monitoring. (b) Measurement of impact of CSR activities should only be done for internal stakeholders. 2. 2. What are various tools used in monitoring and measuring CSR? 4. . Discuss various ways in which CSR can be monitored. State whether the following statements are true or false: (a) Impact of CSR on organizations has to be studied form point of view of employee productivity. 3. employee loyalty and improved performance. the standards should be defined in terms of: (i) Productivity (ii) Brand reputation (iii) Employee loyalty (iv) All the objectives and targets 7. (d) Financial metrics measure inflow and outflow of cash.7 REVIEW QUESTIONS 1. Discuss how your company can develop a CSR measurement indicator/index. AIM Center for Corporate Responsibility.nsf. del Rosario Sr. Journal of Long Range Planning. Available at http://www. Management Toolkit. A Dialogue On CSR: Asking The Hard Questions Rather Than Trying To Summarize All Points. Makati City: Ramon V.com/csr/CSRWebAssist. Goldsmith.aspxpagearticle&sectid75&contentid20090413200904131216 54552c0862e32 Oxford IPC Worldwide Limited. No. Development of a Rationale for Monitoring.com. Available at Corporate Social Responsibility Forum. Available at http://www. (2009.mhcinternational.html.a1. CSR Roadmap. Measuring CSR. Berkeley: Haas School of Business. University of California. in: Monitoring for Conservation and Ecology. Ascent. New York: Chapman and Hall. K.com/csr. Corporate Social Responsibility. Top Business Leaders ‘need to do’ Corporate Social Responsibility. (2000).html. (2008). F. J.in/index. (2000).net/~mikegree/career/social.typepad. Luz.html. G. Total People Employed a) Men b) Women Contd… .csrforum. Available in http://www. Lefrere.com.bm.timesascent.pdf MHC International Limited. An Introduction To Base Level Guidelines For Corporate Social Performance. (2000).com/ csr/CSRWebAssist.com/publications. Quintas. (2000. Makati City: Asian Institute of Management.emeraldlibrary. Template for Developing CSR Monitoring & Measurement Table 7. Corporate Social Responsibility: Balancing Bottom Line Concerns with Social Responsibility. pp. (1991). P. Human Resource Indicators Target for the year Status in Status in April Sept (current (current year) Year) Status in March Year End (Total Achieved) Difference between Target Set & Achieved Last Year’s Figures 1.html..1: Work Place Indicators S. (1997). Corporate Social Responsibility Forum (2000). Burson-Marstellers’ Corporate Social Responsibility Unit. Available at http://dimbulb. M. Narang.8 SUGGESTED READINGS Asian Institute of Management.a1. Corporate Social Responsibility around the World. Knowledge Management: A Strategic Agenda. (a) True 2. Available at http://www. Notes on Case-Writing Project on Corporate Responsibility.nsf/content. (2001). (1997).). 30 (3). (2001). Mcelhaney. April 13). U. Available at http://www.com/ brev/11906cal. Available in http://www. csrforum.. & Jones. Available at http://www.uk.Answers: Self Assessment 1. Evaluating CSR’s Return on Investment. P. June).com/files/what-matters. (ed. Canadian Business for Social Responsibility.ziplink.nsf/content. (1998). Available at http://www. Measuring What Matters.1-14.ethicsinaction. Green. http://www. oxford-ipc.. (a) iv (b) False (b) i (c) False (c) i (d) False (d) iv (e) True 105 CSR Monitoring and Measurement 7. 385-391.htm. Times of India. of In-house Training Conducted No.2: Environment S. Total Paper Usage Paper Usage Per Unit/ Division Recycled Paper Recycled Waste Total Water Usage Water Usage Per Unit/Division Total Electricity Use Electricity Use per Division Carbon Emissions Business Travel by Plane Business Travel by Car Initiatives taken to Mitigate Environmental Risks .No. 10.106 Corporate Social Responsibility 2. 6. 11. 3. 4. Table 7. No. Type of Employment a) Men b) Women 3. 9. 8. 7. Environment Indicators Target for the Year Status in April (current year) Status in Sept (current year) Status in March Year End (Total Achieved) Difference between Target Set & Achieved Last Year’s Figures 1. 6. of Employees deputed for higher education a) Men b) Women 7. 12. of Man days lost due to Absenteeism No. of Employees Left a) Men b) Women 4. Training Provided a) Men b) Women 5. 2. 5. No. 4: Community S. 6. 4.3: Market Place S. Community Target for the Year Status in April (current year) Status in Sept (current year) Status in March Year End (Total Achieved) Difference between Target Set & Achieved Last Year’s Figures 1. 5.Table 7. Advertising complaints upheld Number of complaints regarding products and services Complaints about late payment of bills Upheld cases of anticorruptive behavior Customer satisfaction levels Customer retention Sales gained due to cause related marketing 3. 4. Table 7. No.No. Financial donation Employee Volunteers Donation in kind Sponsorship to children Plantations undertaken Training undertaken . Market Place Target for the Year Status in April (current year) Status in Sept (current year) Status in March Year End (Total Achieved) Difference Last between Year’s Target Set Figures & Achieved 107 CSR Monitoring and Measurement 1. 6. 3. 2. 5. 7. 2. 1 INTRODUCTION The company’s impact through its CSR strategy and initiatives on the triple bottom line (social. non financial reports. The report also covers the role sustainability plays in the overall strategic direction.7 8. environmental and financial) are communicated to the external as well as internal stakeholders by generating CSR reports also known as sustainability reports. or corporate citizenship reports.3 8.1 8. Many companies also generate their annual reports and CSR reports in conjunction.0 8.6 8. economic and social goals/ metrics.2 IMPORTANCE AND BENEFITS OF REPORTING In the context of the pressurizing demands for transparency and corporate action on global social issues like climate change. .2 8.3 8.9 8. you should be able to: Understand the need and relevance of CSR reporting Gain clarity about contents and formats of CSR reporting 8.2.108 Corporate Social Responsibility LESSON 8 REPORTING FOR CSR CONTENTS 8. a CSR report details the company’s performance against specific environmental.4 8.8 8.10 Whom to Report How to Report Contents of CSR Report Formats of CSR Communication and Reporting The Reporting Team Additional References for CSR Reporting Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 8. anti corruption.2.0 AIMS AND OBJECTIVES After studying this lesson.1 8. environmental conservation.2.2 Aims and Objectives Introduction Importance and Benefits of Reporting 8. 8.5 8. While the annual report covers operating and financial performance. make decisions that position the company to meet their needs. insight and foresight to understand stakeholder expectations.sustreport. CSR reporting is one of the anchors that enable a company to succeed as a high performance organization. Good CSR reports explain how the tenets of CSR and sustainability manifest themselves through the company’s codes and policies to create sustainability. Corporate Sustainability Reporting. As a marketing tool. (See Box 8.2. NGOs. Source: Corporate Sustainability Reporting 1 109 Reporting for CSR 8. K.2 How to Report It is critical to “sell” CSR readership to both internal as well as external stakeholders and hence a strong cover theme and design can set the tone for the report and/or convey a key message and encourage potential readers to open the report and learn more about the company. Board) and external stakeholders comprising of local and global investors. It can also be an important tool to engage employees and external stakeholders in the company’s CSR activities. employees.html . the public and other stakeholders. and marshal their resources effectively to help meet evolving global challenges. 8. A successful pilot project persuaded decision-makers to take the initiative company-wide. candor and effective design.1) A good CSR report provides valuable and impartial information to allow stakeholders.d.human rights and so on. Companies produce a corporate sustainability report (CSR) for multiple reasons. it becomes important for companies to provide information about how they have integrated CSR as an integral part of their functioning.). & Peters. The process provides the hindsight.1: Reasons for CSR Reporting Providing information about challenges and achievements to shareholders. media and so on of the company.1 Whom to Report CSR should be reported to both internal (employees. government. suppliers. Box 8. An internal commitment to environmental and social responsibility. reporting on corporate responsibility/sustainability performance must be done with clarity. companies use Global Reporting Initiative (GRI) indexes/formats. Taking first steps towards doing things in a more sustainable way. Producing a CSR report ingrains sustainability into a company’s corporate culture through its operating and governance structures. current and potential customers. To be truly meaningful. For formulating such reports.org/business/report/issues. including investors. and a commitment to remaining competitive while becoming a world leader in sustainability. to assess a company’s CSR strategy and their current and future performance. Available at http://www. Tracking progress on integration of sustainability principles into company planning and programs. public and private organizations. TBLR integrates information throughout all business processes and 1 MacDonald. Increasing global companies are using Triple Bottom Line Reporting (TBLR). M.2. (n. Strong reports are tools for improvement of social and environmental performance. associating the company with sound environmental management and sustainable activities. as well as those factors. operating performance. geographic footprint. Information about the company would include an overview of its history. 2.2. will set the tone for the context. Stakeholder Engagement CSR reporting is a dialogue between a company and its stakeholders. beneficial dialogue with stakeholders. Performance is demonstrated by key performance indicators (KPIs) and information on performance should include both achievement and under-achievements. This allows stakeholders to understand the context in which the CSR policies and strategies have been developed as well as how CSR impacts operating and financial strategies.110 Corporate Social Responsibility encourages the measurement. the report should identify the company’s stakeholders and explain how it approaches and manages stakeholder engagement. and what challenges has the company been facing? The following paragraphs briefly describe what should be the contents of the CSR report. principles or guidelines to which the company subscribes Governance structure and responsibilities Corporate and community committees Processes for identifying and mitigating risks Environmental and social management systems Integration of triple bottom line into decision-making. financial strength and corporate goals. Ultimately whatever pattern of reporting is adopted. management. What are the benefits of CSR to the company. review panels and feedback formats. An effective message to stakeholders should convince all those affected by the company’s operations that their concerns are understood and being addressed. It can also provide balance in the testimonials by including comments on weaknesses or setbacks as well as accomplishments. social and economic results on an equal basis. current operations. systems and structures that ensure those standards are met. Testimonials. This should include how often. procedures. stakeholders have been engaged and how the same is incorporated into CSR decisions and activities. Performance Committing to sustainability and corporate social responsibility means adherence to a set of external and self-imposed standards of performance as well as the policies. 3. focus groups. illustrations. geographic locations and other matters. expert commentary and case studies can improve credibility and foster an honest. Corporate Context Effective CSR practices and reporting must be placed within the context of a company’s business activities. major products or services. management and communication of environmental. Therefore. with whom and through what activities. readers want to see an honest and forthright discussion of how strongly CSR is embedded.3 Contents of CSR Report 1. A brief review and explanation of main trends and factors contributing to the development and performance of the business during the financial year. environmental and social charters. . directors and suppliers External economic. Good graphic elements such as photographs. surveys. This framework should report information on: Codes of conduct for employees. which are likely to affect future performance. where does CSR fit with the overall corporate strategy. past performance. such as workshops. 8. and stand alone CSR reports can be designed to communicate with various audience. and against targets worked out by the company as a basis for reviewing overall performance. Monsanto’s report is presented exclusively as an electronic document. Factors that influence credibility in CSR reporting are: a) stakeholder participation. and d) maintaining consistency in providing information.diagrams. For instance. Stakeholder review panels can be used to provide a more informal review of the report. There is value in looking at different ways of communicating CSR information. either alone or in conjunction with a formal auditor.3 FORMATS OF CSR COMMUNICATION & REPORTING Being strategic and targeted will improve CSR communication as well as the readership of CSR reports. historical performance along with expectations for the future. b) honesty in reporting. External or independent auditors examine a variety of performance measures. The CSR communication and report can be made interesting by using a variety of communication devices and tactics to keep the stakeholder informed and engaged. SA 8000 or GRI guidelines. management processes and strategy against available guidelines such as Accountability’s AA1000 Assurance Standard. It is essential to back up the discussions with hard numbers that should have been collected using a consistent methodology over time. c) admitting limitations. The assurance statement of the report should explain the scope of the review as well as the assurance methodology. Assurance and Validation Assurance adds another level of credibility by providing an opinion of the company’s CSR report. short format. Table 8. 4.1: Format of CSR Reporting Stakeholders Internal Format Team briefings Procedural notes Training sessions Internal magazines Internal compliance or audit reports Intranet Notice boards Site locations Specific reports Annual reports Websites Stand alone reports External magazines AGMs Media outlets Corporate videos Speaking platforms for senior managers External . Companies should tailor their approach to establish the credibility of its reports through external verifications.1 below lists various formats of CSR communication and reporting patterns adopted by various companies with their internal and external stakeholders. graphs or maps can improve a report’s ability to effectively communicate key messages. It should be linked to business goals & objectives. The report should include a discussion of risks as well as opportunities. Table 8. 111 Reporting for CSR 8. Web-based. KPIs should cover critical performance information on both management processes adopted and its impact. 8.jsp) 5.com/publicinterest/activities/subjects /sustainability/awards) 2. protection of human rights.net/aa1000series) 3.eu/index.6 LET US SUM UP It is important for companies to be communicating with their stakeholders to demonstrate leadership. their values.accountability21.org/Home) 9.com/researchandadvocacy/globalreporters.org/home/) 4. These activities can include issues such as community involvement. (www. A thorough CSR report will describe every element of a company’s CSR framework. Sustainability: Explains global reporters programme from strategy consultancy and think-tank (www. recent changes made and anticipated improvements. (www.accountingforsustainability. CSR reports in addition to environmental performance of the organisation also report on the most important organisational social issues and non-financial key performance indicators. social investments. stakeholder engagement.com/conferences/) 8.blacksunplc.bitc.accaglobal. Ethical Corporation: Provides information about conferences exploring best practices in CSR and business ethics. (www. progress against last year’s commitments and more. creation of social dimensions at workplace and marketplace.4 THE REPORTING TEAM CSR reports must be documented by the CSR team headed by a senior executive (Senior VP. ACCA: Provides information on annual sustainability reporting awards and criteria on completeness. and Company Director). Accounting for Sustainability: Discusses campaign and guidance for better integration of sustainability and financial performance reporting. the extent to which each element has been implemented. Geographical representation as well as representation from different divisions greatly increases the probability of the report having internal and external value. (www. BITC CR Index: Highlights voluntary benchmark of corporate responsibility governance and management. news and research on latest trends from reporting consultancy.sustainability. Global Reporting Initiative: Presents information about global sustainability reporting guidelines. credibility and communication (www.com/corporate/work/work.112 Corporate Social Responsibility 8. . Accountability AA1000: Presents standards to promote accountability. CEO.htm) Presents trends and 7. Black Sun: Presents best practice case studies. Transparency about what the company does.5 ADDITIONAL REFERENCES FOR CSR REPORTING The following websites can be referred by the CSR team to learn more about CSR standards and sustainability reporting.html) 6. (www. (www. (www.asp?id=1486) 8.sustainabilityreporting. 1.globalreporting.uk/cr_strategy_and_integration/cr_index/index.org. responsibility and sustainability. why and how it does is a fundamental principle of responsible business. successes & failures in CSR.ethicalcorp. vision. The CSR team as discussed in the earlier chapter must include representatives from both the corporate policy and operational divisions. European Sustainability Reporting Association: developments in sustainability reporting. The report provides valuable and impartial information to allow stakeholders. (c) The CSR should explain level and management of stakeholder engagement. CSR Reports showing concrete actions taken and improvements made. 2. Ultimately.7 KEYWORDS Triple Bottom Line Reporting: Taking into account ecological and social performance of firm Global Reporting Guideline: Provides guidelines about global sustainability reporting Key Performance Indicator: Measures performance of relevant areas in a firm 8. 113 Reporting for CSR 8. (b) CSR should be reported to both external and internal stakeholders. to assess a company’s CSR strategy and their current and future performance. Choose the appropriate answer: (a) CSR report should cover company’s performance related to: (i) Environment (ii) Society (iii) Bio diversity (iv) All of the above (b) CSR performance should be reported to: (i) Potential customers (ii) Current customers (iii) NGOs (iv) All of the above (c) Measures of firm’s performance are: (i) CSR reports (ii) Key performance indicators (iii) Performance graph (iv) Performance chart (d) Which of these is not a format to report to external stakeholders? (i) Websites (ii) AGMs (iii) Corporate Videos (iv) Audit report . (d) CSR report includes company’s financial and operating performance also. the report is only as good as the operational performance it highlights. State whether the following statements are true or false: (a) A good CSR report provides valuable and partial information about the CSR activities. in all aspects of a company’s CSR activities therefore have very strong impacts. The most popular formats of CSR reporting are based on TBLR and GRI guidelines.8 SELF ASSESSMENT 1. including investors. org/business/report/issues. Available at http://www. (n.10 SUGGESTED READINGS Ballantine. Available at http://www.sustreport.Org. Available at http://www. How to. SustainabilityBlog.org/Reporting Framework.sustainabilityblog. What should be the contents of CSR Report? 3. M. Corporate Social Responsibility Reporting.114 Corporate Social Responsibility 8. 2007). (November 26. & Peters. Global Reporting Initiative.com/business-green/analysis/2238240/write-csr-report.html Reporting Framework.d. (2009. (n. . The Sustainability Report.).businessgreen. March 11).. Why is reporting of CSR important? 2.globalreporting. (a) iv (b) True (b) iv (c) True (c) ii (d) False (d) iv 8.org/2007/11/26/corporatesocial-responsibility-reporting/ MacDonald.. J.d. write the perfect CSR report.). K. Available at http://www. What are the formats of CSR Reporting? Answers: Self Assessment 1. A Review of Corporate Sustainability Reporting. Fabian. (a) False 2.9 REVIEW QUESTIONS 1. 2 9.8 9.11 9.4.0 9.4.9 9.10 9.5 9.2 9.LESSON 115 Role of Government and Voluntary Codes in CSR 9 ROLE OF GOVERNMENT AND VOLUNTARY CODES IN CSR CONTENTS 9.6 9.4.6 9.4 9.0 AIMS AND OBJECTIVES After studying this lesson.4.4.7 9.4. you should be able to: Understand the role of government in shaping business behavior Know the various types of voluntary codes/standards available for corporates to work towards sustainability .8 9.9 OECD Guidelines for Multi-national Corporations ILO Conventions ISO 9000 & ISO 14000 SA8000 UN Draft Principles for Behaviour of Trans-national Corporations LEED GRI DOW Jones Sustainability Index FTSE4GOOD Smart Growth Network Equator Principles UN Global Compact Coalition of Environmentally Responsible Economies (CERES) Let us Sum up Keywords Self Assessment Review Questions Suggested Readings 9.5 9.12 9.13 9.3 9.1 9.3 9.4.4.4.1 9.4.4.7 9.4.4.4 Aims and Objectives Introduction Role of Government Government Support at International Level Voluntary Codes in CSR 9. 9. in 2000. they are the slowest to respond to a changed world. While the expectation from government is to create a good environment for business to flourish. Governmental policies should be designed to facilitate ethical and sustainable business practices. the Belgian Parliament approved a law to promote socially responsible production through the establishment of a voluntary social responsibility label. governments have both identified the issue and in principle are committed to play an active role. In such markets. rules and laws shape the regulation of businesses. Such initiatives and the basic conditions necessary for CSR to prosper and develop linkages with an active civil society and government for developing good business environment are still scarce in many parts of the world. environmental and social) for firms with shares traded on the stock market. the Government of the United Kingdom appointed a Minister of Corporate Social Responsibility. In India. Governments should see that public purchasing. In 2002.116 Corporate Social Responsibility 9. government itself is largely responsible for the emergence of the CSR concept. government remains a huge investor. when it enacted the law on new economic regulation. public investment and public/private partnerships should be based on developing sustainable practices embracing the full range of corporate responsibility. Proponents of CSR in India advocate the following ways for government to activate CSR: 1. manipulated and exploited. In addition to the above. governments encouraged business to "improve social and environmental performance through voluntary initiatives. A few governments in the west have actively promoted CSR. In the 1992 Earth Summit. governments are required to regulate businesses to protect the interests of stakeholders and shareholders. society will be misled. Today governments all over the world are enacting laws to safeguard the interest of consumers and to protect the environment from greedy and unethical corporations. France became the first country to mandate a triple balance sheet (financial. Governments have a huge potential to influence corporate behaviour especially in under developed markets like India.1 INTRODUCTION To create responsible business behaviour government should ensure that businesses should not hurt or harm society and the environment. in operationalising environmental CSR. contractor and purchaser of goods and services. Generally. with many business organisations advocating voluntary codes arguing that they allow companies to be innovative in Corporate Social Responsibility. For example. despite increased privatisation.2 ROLE OF GOVERNMENT Ironically. It is therefore the responsibility of the government to regulate business. government policies. codes of conduct. Governments should formulate and implement laws/ regulations to monitor the conduct and operate businesses in an ethical manner. including environmental management systems. In 2001. There are a wide variety of opinions about what the ideal regulatory framework for business behaviour should be. governments defined and endorsed "responsible entrepreneurship". for example. At the UN World Summit on Sustainable Development in 2002. and more importantly provide a level playing field for all businesses to operate and grow. The voluntary codes of CSR – outside the realm of government regulation aims at improving sustainable practices of business. The absence of business regulation is not good for organizations as well as the society. In the absence of government regulation. certification and public reporting on environmental and social issues". In short. . Though governments see CSR as a tool to move towards internationally agreed goals through non-mandated action. governments should regularly amend the provisions in the regulations to punish violators of the policy. 2. Governments can assume a key role in the promotion of CSR, by creating a climate favourable to business (that ensures respect and defence of property rights and the rule of the law) and establishing good governance standards (for example, promoting transparency and eliminating corruption). This promotion does not imply managing CSR initiatives or making them mandatory; rather it seeks to foster a climate conducive to sustainable development and responsible behaviour on the part of business enterprises. 3. Governments can shape the regulation of businesses by giving incentives and grants to businesses that comply with government regulations. Governments can also provide direct incentives for promoting certain aspects of CSR through “green” fiscal instruments. For example, by ensuring that their procurement policies include safeguards to ensure compliance along with codes of conduct. Through these types of instruments, governments can promote decent work while also supporting the use of ecologically sustainable materials, processes and production technologies (for example, the use of recycled materials, the adoption of renewable energy, the efficient use of non-renewable resources and the reduction of environmental contaminants and waste products). They can also promote “green” products and services (for example, low-emission vehicles and ecotourism services). 4. Governments can consider introducing provisions of incentives such as tax cuts, subsidies and low-interest loans for enterprises that abide by labour laws, international labour standards and sustainable practices which can go a long way in motivating corporates to be socially responsible. 117 Role of Government and Voluntary Codes in CSR 9.3 GOVERNMENT SUPPORT AT INTERNATIONAL LEVEL At the international level, governmental support is required for broadening the criteria on which the International Monetary Fund (IMF) and the World Trade Organization (WTO) operates, so that balancing the interests of investors and of the societies in which they invest is facilitated. Governments are party to these various international instruments like the United Nations Universal Declaration of Human Rights, the Convention on the Rights of the Child, and the core conventions of the International Labour Organization, now encapsulated in the UN Human Rights Sub-Commission's draft norms on the Responsibilities of Transnational Corporations and other Business Enterprises in regard to observing and respecting human rights. All of these have direct relevance to the behaviour of companies, but governments fail to interpret them into practice by amending national legislations. Till the time our laws are not in place or are amended, governments at the international level should exert moral pressure on businesses to voluntarily develop ethical business standards privately, company officials regularly hint that if voluntary instruments do not work, mandatory approaches will become necessary. 9.4 VOLUNTARY CODES IN CSR Apart from government regulations, to develop sustainable business practices, which create both shareholder and societal value, there are various voluntary codes, which are formulated by international NGOs, business associations and UN agencies to guide businesses towards developing responsible practices. “A voluntary code of conduct is an important element of corporate social responsibility (CSR) commitments on the part of businesses. The objective of the creation of voluntary codes of conduct for companies is to establish public trust in 118 Corporate Social Responsibility their business practices by demonstrating commitment and efforts to meet the type of behavior that corresponds to societal expectations.” 1 The following paragraphs give a brief description about the major codes which are normally used by businesses: 9.4.1 OECD Guidelines for Multi-national Corporations 2 The OECD Guidelines for Multinational Enterprises (MNEs) are recommendations to enterprises made by the Governments of OECD member countries. Their aim is to ensure that MNEs operate in harmony with the policies of the countries where they operate. These voluntary standards cover the full range of MNEs' operations. The Guidelines cover the range of MNE activities. The guidelines aim at good corporate practice and increasing MNEs social accountability. They guide MNEs for designing general operational policies, formulating appropriate information disclosure and systems for finance, taxation, employment and environmental regulation. 9.4.2 ILO Conventions 3 The Core Labour Standards enshrined in the ILO Declaration on Fundamental Principles and Rights at Work (1998) are the basic minimum human rights enshrined within the ILO’s eight specialized conventions. The eight core Conventions are: Forced Labour (1930) Freedom of Association and Protection of the Right to Organize (1948) Right to Organize and Collective Bargaining & Equal Remuneration (1951) Equal Remuneration Convention, 1951 Abolition of Forced Labour (1957) Discrimination (Employment and Occupation)(1958) Minimum Age Convention (1973) Elimination of the Worst Forms of Child Labour (1999) ILO Conventions and recommendations cover a broad range of subjects concerning work, employment, social security, social policy and related human rights. In today's globalized economy, international labour standards are essential components in the international framework for ensuring that the growth of the global economy provides benefits to all. 9.4.3 ISO 9000 & ISO 14000 4 The ISO issues guidelines for voluntary standardization for an extremely wide variety of areas, primarily for technical aspects. ISO guidelines are accredited with these standard. More recently, they have developed environmental management standards ISO 14000 series. In addition, the ISO 9000 is a quality management system. ISO is currently in the process of developing an ISO standard for CSR. The guidance standard will be published in 2010 as ISO 26000 and is meant for voluntary use. 9.4.4 SA8000 5 Launched by Social Accountability International in 1997, SA 8000 is a standard addressing labour and workplace conditions. SA8000 builds on ISO 9000 auditing techniques, specifying corrective and preventive actions; encouraging continuous 1 2 3 4 5 Voluntary Codes of Conduct for Multinational Corporations Conference (May 12-15, 2004) available at http://info.worldbank.org/etools/bSPAN/EventView.asp?EID=625ble http://www.oecd.org/department/0,2688,en_2649_34889_1_1_1_1_1,00.html www.ilo.org http://www.iso.org/iso/home.htm www.sa-intl.org improvement; and focusing on management systems and documentation proving these systems. SA8000 certification is done by independent, external auditors and relates to the company’s actual performance in regard to labour conditions rather than published performance. 119 Role of Government and Voluntary Codes in CSR 9.4.5 UN Draft Principles for Behaviour of Trans-national Corporations 6 These draft principles drawn up by a working group of the UN Subcommittee on Human Rights would provide an internationally binding set of principles by which TNCs should operate. The principles are broad in that they include aspects of nondiscrimination, war crimes, workers’ rights, environmental protection, and consumer protection as well as interpreting TNCs’ responsibilities with regard to international law. However, it remains to be seen whether the UN Human Rights Committee and eventually national governments will ever ratify these draft principles and thus make them binding under international law. It is also unclear what, if any, enforcement mechanism would be included in this mechanism. 9.4.6 LEED 7 The LEED (Leadership in Energy and Environmental Design) Green Building Rating System® is a voluntary, consensus-based national standard for developing highperformance, sustainable buildings. LEED provides a complete framework for assessing building performance and meeting sustainability goals. It emphasizes state of the art strategies for sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. LEED recognizes achievements and promotes expertise in green building through a comprehensive system offering project certification, professional accreditation, training and practical resources. 9.4.7 GRI 8 Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines set a globally applicable framework for reporting the economic, environmental, and social dimensions of an organization's activities, products, and services. It is the most widely used and internationally recognized standard for corporate sustainability measurement and reporting. 9.4.8 DOW Jones Sustainability Index 9 Dow Jones Sustainability Index (DJSI) is described as the first global index tracking the financial performance of the leading sustainability-driven companies worldwide. Company questionnaire is designed to assess opportunities and risks deriving from economic, environmental and social activities of companies. Inclusion in the Index is a competitive process; selection is considered a mark of distinction for companies that want investors to see them as sustainability leaders. 9.4.9 FTSE4GOOD 10 The FTSE4Good Index Series was created by FTSE, a respected global financial index company based in Britain, in response to the increasing interest in socially responsible investment (SRI). Its inclusion criteria measures the performance of companies that meet globally recognized corporate responsibility standards. The visibility and reputation of FTSE4Good provides companies with a powerful vehicle to communicate their CSR achievements. FTSE indices are used extensively by a range of investors such as consultants, asset owners, fund managers, investment 6 7 8 9 10 www.ohchr.org/english/issues/globalization/business/docs/lawhouse2.doc www.usgbc.org/LEED/ http://www.globalreporting.org http://www.sustainability-index.com http://www.ftse.com/ftse4good/index.jsp smartgrowth. By doing so.12 UN Global Compact 13 The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies in the areas of labour.13 Coalition of Environmentally Responsible Economies 14 (CERES) The CERES report is a standardised format for corporate environmental reporting developed through collaboration by companies. and enhancing community vitality. employment and environment.aspx?pid=705 . The reports undergo a joint pre-publication review to ensure conformity to the standard.11 Equator Principles 12 The Equator Principles is a framework for financial institutions to manage environmental and social issues in project financing. performance measurement. protecting the environment. suggests methods of measurement.5 LET US SUM UP Globalization has changed the role of the state in the market and consequently the basis on which private enterprise operates. stock exchanges and brokers. Though government has a fundamental role in setting up the parameters for the private sector. business. 9. Globalization of the supply chain has pressurized countries to review its own laws for regulating business behaviour with its stakeholders. The CERES report establishes the environmental performance data that should be disclosed. technology and finance advance in ways that benefit economies and societies everywhere. institutional investors and environmental organizations.org http://www.equator-principles. portfolio hedging and creation of index tracking funds.4. such as traffic.unglobalcompact. The indices are used for purposes of: investment analysis. housing. and quickly became a global market standard for availing project finance.4.120 Corporate Social Responsibility banks.4. with emphasis on integrative solutions to a mix of community issues. 9. internal. as a primary agent driving globalization can help ensure that markets. 9.4. CSR voluntary standards developed at the international level today are influencing the way in which industries operate around the globe. The Principles were developed and adopted by IFC and 20 of the world's leading banks. 9. engages companies and stakeholders in productive problem solving. environmental and social procedures and standards for project financing activities across all industry sectors globally. It is widely used by companies that seek to build strong community bonds. commerce. Its focus is on community engagement and development.10 Smart Growth Network 11 The Smart Growth Network (SGN) was formed in response to increasing community concerns about the need for new ways to grow local communities while boosting the economy. asset allocation. and offering a unique strategic platform for participants to advance their commitments to sustainability and corporate citizenship. environment and anti-corruption. 11 12 13 14 http://www.org/page. Smart Growth is gaining attention in recent years because it provides alternative to single-issue focus.ceres. The Global Compact is a leadership platform. The Principles are intended to serve as a common baseline for the implementation of individual. endorsed by Chief Executive Officers. and helps companies quantify their environmental performance.org/AboutTheGC/ http://www. 9.com http://www. This is certainly true in India given its dependence on export-led economic growth.000: Guidelines for quality and environment management respectively 9. (e) Dow Jones study social performance of the firm. anticorruption and environment Dow’s Sustainability Index: Tracks financial performance of sustainability driven companies CERES: Establishes environmental performance data for measurement and corrections SMART GROWTH Network: Focuses on community engagement and development FTSE4Good Index: This is a measure of socially responsible investments. 121 Role of Government and Voluntary Codes in CSR 9. (b) Voluntary codes govern the social and environment impact of businesses and are backed by law. both within our borders and beyond. forestry.6 KEYWORDS Voluntary Codes: Govern social and environmental impact of business without enforcement of law Global Reporting Initiatives: Gives global guidelines for sustainability reporting UN Global Compact: Initiative for businesses that align their operations and strategies in areas of labour. CSR is not just a management tool for business. CSR codes may take the form of individual company codes. (d) ILO conventions include system of quality maintenance.7 SELF ASSESSMENT 1. (g) CERES report provides financial performance data. It can be a powerful ally of public policy in the social and environmental field. State whether the following statements are true or false: (a) Government influences corporate behavior to a large extent in India. The voluntary code of conduct requires firms to adopt policies that sometimes exceed national legal requirements. Voluntary codes of conduct that govern social and environmental impacts of companies without state enforcement constitute a relatively new approach to solving societal problems. sector-based codes (for sectors such as energy. . chemicals and textiles and apparel) as well as voluntary codes made by national governments or by international organizations such as the UN or the OECD. (c) OECD guidelines deal with environmental and labour issues. (f) Equator Principles were developed by IFC. SA 8000: Addresses labour and workplace conditions LEED: Framework for assessing building performance and meeting sustainability goals OECD Guidelines: Ensures that MNEs work in consonance with host country’s policies ISO 9000 & 14. To accelerate the process of developing sustainability the task for the government is to make sure that the process of global economic and social change activated by business is managed properly and fairly. Choose the appropriate answer: (a) To save society from being exploited and misled. (i) CSR initiatives (ii) Government regulations (iii) Social Laws (iv) Enforced rules (b) Issue of forced labour is addressed by: (i) LEED (ii) OECD (iii) CERES (iv) ILO (c) Smart Growth Network deals with: (i) Financial development of firms (ii) Labour issues (iii) Community development (iv) Sustainable Reporting (d) As per UN Draft principles. Explain ISO 9000 and ISO 14000. ……………… are important. 3. What is the role of the government in shaping business behaviour? 2. TNCs should not: (i) Discriminate (ii) Exploit consumers (iii) Exploit labour rights (iv) All of the above (e) LEED is: (i) Leadership in Energy and Environmental Design (ii) Leadership in Efficiency and Environmental Design (iii) Leadership in Energy and Ethics Design (iv) Leadership in Ethics and Environmental Design 9. 4. (a) ii (b) iv (c) iii (d) iv (e) i (b) False (c) True (d) False (e) False (f) True . Write a note on ISO standards. What are voluntary codes? Discuss any two voluntary codes and its importance in developing sustainable business.122 Corporate Social Responsibility 2.8 REVIEW QUESTIONS 1. Answers: Self Assessment 1. (a) True (g) False 2. In your opinion should governments regulate business behaviour? Justify your answer with suitable examples. The Role of Public Policy in Promoting CSR.2688. & Olsen.org/department/0. www.unglobalcompact.ohchr.ceres. Government and Corporate Social Responsibility – the democratic deficit.00. Ethical Corporation Institute.doc UN Global Compact. C. (n.org/page.asp?ContentID=276.pdf Voluntary Codes of Conduct for Multinational Corporations Conference.ftse.equator-principles.asp?EID=625ble Wilson.uk/Website/IC. (2004.org/etools/bSPAN/EventView.com/content.globalreporting.sa-intl. The World Bank Group.aspx?pid=705 5. http://www. L.usgbc. http://www. Corporate Responsibility – Who is Responsible? The Ashridge Journal.smartgrowth.www.org/iso/home.nsf/wFARATT/ CorporateResponsibility–WhoisResponsible/file/corporateres. Available at http://www. Available at http://www.org/LEED/ SMART GROWTH Network.com Equator Principles.pdf CERES. http://www.org/english/issues/globalization/business/docs/lawhouse2. www. A. (2003). May 12-15).sustainability-index.oecd. Diamantopoulou.jsp Global Reporting Initiatives.ilo.ethicalcorp.htm Leadership in Energy and Environmental Design. http://www.com/ftse4good/index. http://www.org UN Draft Principles for Behaviour of Trans-National www2.org. Available at http://www.org/AboutTheGC/ Corporations 123 Role of Government and Voluntary Codes in CSR . http://www.net/csrpdf/Europe/TheroleofpublicpolicyinpromotingCSR. A.iccuk.9 SUGGESTED READINGS Chandler.org) Social Accountability International.iso.en_2649_34889_1_1_1_1_1.9.).com FTSE4 GOOD. Directorate of Financial Enterprise Affairs http://www.html Dow Jones Sustainability Index.org International Organization for Standardization.org International Labour Organization.ashridge. http://www.worldbank.http://www. (2002).d. Available at http://info. 2 Applied Operations Research for Management 0 . 125 Corporate Governance UNIT 1 MODULE IV . 126 Corporate Social Responsibility . 2 10.LESSON 127 Corporate Governance 10 CORPORATE GOVERNANCE CONTENTS 10.15 Keywords 10. you should be able to: Understand the concept and need for corporate governance Understand the role of main constituents of corporate governance Discuss the growth of corporate governance at local and global level Know the role and functions of independent directors and the Board Examine the theories of corporate governance Discuss the need to strengthen good corporate governance in India .11 Corporate Governance: Need to Strengthen 10.12 Efforts to Improve Corporate Governance 10.9 Aims and Objectives Introduction What is Corporate Governance? Constituents of Corporate Governance The Corporate Governance Debate Theories of Corporate Governance Responsibilities of Corporate Governance Global Growth of Corporate Governance History of Corporate Governance in India The Current State of Corporate Governance in India 10.0 AIMS AND OBJECTIVES After studying this lesson.14 Let us Sum up 10.7 10.1 10.6 10.16 Self-Assessment 10.2 Benefits of Corporate Governance 10.11.17 Review Questions 10.8 10.11.0 10.18 Suggested Readings 10.13 Corporate Governance and CSR 10.3 10.10 Board Composition in India 10.1 How to Improve Corporate Governance 10.5 10.4 10. Board of Directors A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. as well as about the rights of shareholders and the role of Board of Directors have never been as prominent as they are today. Corporate governance is about transparency and raising the trust and confidence of stakeholders in the way the company is run.nfcgindia. WorldCom.128 Corporate Social Responsibility 10.com/definition/corporategovernance. “Corporate governance is traditionally defined as the ways in which a firm safeguards the interests of its financiers (investors. the management needs to act as trustees of the shareholders at large and prevent asymmetry of benefits between various sections of shareholders. employees. In this regard. how they are to be chosen. the government and the society-at-large. and information-flows to serve as a system of checks-and-balances. privileges. Lehman Brothers and the dramatic decline of stock markets have fuelled an age-old debate on the fundamental issues of corporate governance: for what purpose the corporation exists and whose interests it serves.org/aboutus. rights. which requires adherence to the best corporate governance practices. and when they are to meet.2 WHAT IS CORPORATE GOVERNANCE? There is no single definition of Corporate Governance. and transparency in the firm's relationship with its all stakeholders (financiers. It is about owners and the managers operating as the trustees on behalf of every shareholder .). and responsibilities delegated to it or conferred on it by an authority outside itself. Infosys. The board's activities are determined by the powers. lenders. A brief description about the same is given below. and creditors). customers. The byelaws commonly also specify the number of members of the board. and (3) procedures for proper supervision. investors." 2 10.large or small. Chief Mentor.d. The modern definition calls it the framework of rules and practices by which a board of directors ensures accountability. especially between the owner-managers and the rest of the shareholders.html Available at http://www. (n. Corporate governance malpractices such as the scandals of Enron. control. government. and roles. fairness. 10.” 1 In the words of Narayan Murthy. (b) the Shareholders and (c) the Management. vendors.htm . "Corporate governance is maximizing the shareholder value in a corporation while ensuring fairness to all stakeholders. The issues of governance. customers. 1 2 Cororate Governance. management.1 INTRODUCTION Corporations around the world are increasing recognizing that sustained growth of their organization requires cooperation of all stakeholders. This framework consists of (1) explicit and implicit contracts between the firm and the stakeholders for distribution of responsibilities.businessdictionary. (2) procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties. employees. duties. Available at http://www. accountability and transparency in the affairs of the company.3 CONSTITUENTS OF CORPORATE GOVERNANCE The three key constituents of corporate governance are (a) the Board of Directors. and rewards. and the community). These matters are typically detailed in the organization's byelaws. Hence. Shareholders are the owners of a company. integrity and above all. It cannot be regulated by legislation alone. . As owners of companies. Legislation can only lay down a common framework – the "form" to ensure standards.in a firm). The focus here is on stakeholders (people or organizations with an interest or concern . sets its strategic aim and financial goals and oversees their implementation. accountability of the board and in so doing.” It means personnel of the company who are members of its core management team excluding Board of Directors. For achieving the goals of the company it is necessary to put in place adequate internal controls. The board is accountable to the stakeholders.1 below describes the roles of the constituents in Corporate Governance. They have the potential to profit if the company does well. or performance and conduct oversight of the corporation. It holds the board accountable for the proper governance of the company. this would comprise all members of management one level below the executive directors. 1996). or other institution that owns at least one share in a company.1: Role of Constituents Constituents Board of Directors Role The pivotal role in any system of corporate governance is performed by the board of directors. but that comes with the potential to lose if the company does poorly. This reflects a movement that requires firms to take a more responsible and ethical role in their societal context focused upon the notion of "corporate citizenship". shareholders are required to play an active role in exercising their rights. supervision. enhance the practice of good corporate governance. The shareholders' role in corporate governance is to appoint the directors and the auditors.4 THE CORPORATE GOVERNANCE DEBATE Corporate governance is concerned with the regulation. Normally.Shareholders Any person. By participating actively. A shareholder may also be referred to as a "stockholder". Management The term management means “senior management. Table 10. 129 Corporate Governance Shareholders Management 10. The responsibility of the management is to undertake the management of the company in terms of the direction provided by the board. company. The "substance" will ultimately determine the credibility and integrity of the process. to put in place adequate control systems and to ensure their operation. steers the company.which may or may not be financial . The debate between the continuum of stockholder versus stakeholders has taken a centre stage and is a matter of debate both at local as well as global level. companies should add value to as many organizational stakeholders as is practicable (Bain & Band. The orthodox view is that the aim of corporate governance is to ensure that suppliers of capital (stockholders) get a return on their investment by increasing the profits of the business. and periodically report the activities and progress of the company in a transparent manner to all the stakeholders. Substance is inexorably linked to the mindset and ethical standards of management. The modern view of corporate governance is beyond the realm of law. The management provides information to the board on a timely basis and in a transparent manner to enable the board to monitor the accountability of the management. They can bring the company directors to task if they believe that the business is not being run in the best interest of the company. shareholders can encourage openness. including all functional heads. Table 10. with its central proposition that a wider objective function of the firm is to be more equitable and more socially efficient than one confined to shareholder wealth ( Keasey et al. To these the corporation adds secondary stakeholders. p. . insisting that markets are the most effective regulators of managerial discretion. suppliers. The principal-agent model regards the central problem of corporate governance as self-interested managerial behaviour in a universal principal-agent relationship. who are vital to the survival and success of the corporation. Organization for Economic Cooperation and Development and the World Bank reveal that there is no single model of good corporate governance. Agency problems arise when the agent does not share the principal's objectives. Proponents of the stakeholder model hold that its efficiency is demonstrable in two principal ways (Keasey et al. which are often referred to as the primary stakeholders. is recognised. corporate goals are defined more widely than shareholders' profits. 1984. employees. pp. The goal of corporate governance is to maximise the wealth creation of the corporation as a whole.5 THEORIES OF CORPORATE GOVERNANCE Studies of corporate governance practices across several countries conducted by the Asian Development Bank. . If firms build a reputation for ethical collaborations over a long period.oriented model.Owners of the company. that is society in general. Furthermore. the media. it denies the inherent failure of market mechanisms. 58). Agents are the managers of the company. customers. p. and this is "meant to generalise the notion of stockholder as the only group to whom management needs to be responsive" (Freeman.. and typically. The principal-agent model agrees upon the failure of corporate internal control. p. they are able to substitute co-operative outcomes for unsatisfactory and unethical ones. the separation of ownership and control increases the power of professional managers and leaves them free to pursue their own aims and serve their own interests at the expense of shareholders (Berle & Means. there are two main theories: a) Shareholder-oriented governance: the Principal-Agent or finance model and b) Stakeholder. 25). lenders. the courts. 31). These definitions were formulated from the base that modern corporation is affected by a large set of interest groups. Friedman. 1984. which support profitable investments and mutually beneficial exchanges. such as the local community. special interest groups and the general public. 1989. 1997. the 3 Principals. suppliers and management. 2003. who have a long-term association with the firm and therefore a "stake" in its long-term success. Amongst a couple of theories of corporate governance. 1970). The first shows that firms developing a reputation for the ethical treatment of suppliers. There are two problems in this model. The second argument for the efficiency of this approach draws on Japan and Germany as examples of successful industrial societies in which extensive stakeholder involvement with the firm is pervasive. customers and managers. The second problem is that the principal and the agent may prefer different actions because of the different attitudes toward risk (Eisenhardt. Hence. The well-being of other groups such as employees. International Monetary Fund.130 Corporate Social Responsibility 10. 1995). 8-9). In both countries. This is because ethical behaviour reduces the costs of social association. Specifically. 1997). a stakeholder is defined as "any group or individual who can affect or is affected by the achievement of the firm's objectives" (Freeman. the principal cannot verify that the agent has behaved appropriately. The Principal-Agent model 3 starts from an assumption that the social purpose of corporations is to maximise shareholders' wealth (Coelho et al. including shareholders. the government. 1932). The first is that because it is difficult or expensive for the principal to verify what the agent is actually doing. Perhaps the most fundamental challenge to the orthodoxy is the ‘Stakeholder model’. they are better able to pursue competitive advantage through both internal and external relationships (Jones. customers and employees are able to build up trust relations. and the Japanese lifetime employment guarantee and consumers-based decision-making to name a few. corporate governance cannot be isolated from social and other non-economic conditions and factors such as power.corporation is viewed as an enduring social institution. suppliers and major customers are linked to the corporation through interlocking shareholdings and cross-directorships. Corporate governance is a social rather than purely economic reality. Economic Responsibilities: acting in accordance with the logic of competitive markets to earn profits on the basis of innovation and respect for the rights/democracy of the shareholders which can be expressed in terms of managements' obligation as 'maximizing shareholders value'. 10. with a proper public interest .1 below lists the main reports submitted by various committees to improve and develop appropriate framework. respect for the system of rights and the principles of constitutional state. the issue of corporate governance has received a high level of attention. Box 10. social relations and institutional contexts. legislation. codes and practices to be followed globally. which the company understands and promotes either as a community with shared values or as a part of a larger community with shared values. and with public responsibilities (Kay & Silberston. As a business process. Social Responsibilities: the corporate ethical responsibilities. with personality. (Keasey et al. Growth of Corporate governance globally and locally is an indication that corporate governance is constantly changing and is always driven by both internal processual impetuses and external environmental dynamics. The interests of labour receive particular safeguards in decision-making. several codes. 131 Corporate Governance 10.7 GLOBAL GROWTH OF CORPORATE GOVERNANCE In the changing global scenario. . They seek to establish the accountability standards of Directors and CEOs as well as define the roles and responsibilities of the Board of Directors and stakeholders in the company. 1995). 1997. which include the German co-determination system.the interests of a wide range of stakeholder groups. character and aspirations of its own. culture. In both countries. 9-10).6 RESPONSIBILITIES OF CORPORATE GOVERNANCE Modern corporate governance standards expect companies to fulfill three different forms of corporate responsibilities: Political Responsibilities: the basic political obligations are: abiding by legitimate law. pp. guidelines and principles have been made and implemented covering varied aspects of corporate governance.. Accordingly. it has become necessary to bring in effective governance practices in the corporate sector. They were introduced in order to restore investors' confidence as well as to enhance corporate transparency and accountability. Various important and valuable lessons have been learnt from the series of corporate collapses that occurred in different parts of the world over time. Over the years. for promoting good corporate governance standards. "that all industrial units obtain licenses from the central government. Government accountability was minimal. However. the country was poor. it essentially "converted private bankruptcy to high-cost public debt. financial and nonfinancial disclosures.132 Corporate Social Responsibility Box 10. Boards of directors invariably were staffed by friends or relatives of management. Subsequent laws. the country turned away from its capitalist past and embraced socialism.” The 1956 Industrial Policy Resolution stipulated that the public sector would dominate the economy. the government rarely initiated punitive action." It even had four fully operational stock exchanges. as well as improve the face of relationship between supervisory and executive bodies. trading. it still possessed sophisticated laws regarding "listing. Until recently." As the government took over floundering private enterprises and rejuvenated them. 10. India's equity markets "were not liquid or sophisticated enough" to punish these abuses.The Financial Aspects of Corporate Governance (1992) Greenbury Committee Report on Directors' Remuneration (1995) Hampel Committee Report on Corporate Governance (1998) The Combined Code. etc. To put this plan into effect. such as the 1956 Companies Act. and settlements.1: Important Committee Reports on Corporate Governance Cadbury Committee Report. requiring. The 1951 Industries Act was a step in this direction. financial reporting and internal controls. and India steadily moved toward a culture of "corruption. compliance with codes of corporate governance. All these efforts have helped to bring favourable changes in the operating systems of Board of Directors. and abuses by dominant shareholders and management were commonplace. shareholders rights and responsibilities. Principles of Good Governance and Code of Best Practice. hostile takeovers were almost entirely . and the few private companies that remained on India's business landscape enjoyed free reign with respect to most laws. In the decades following India's independence from Great Britain. the Indian government created enormous state-owned enterprises. further solidified the rights of investors." The absence of a corporate-governance framework exacerbated the situation.8 HISTORY OF CORPORATE GOVERNANCE IN INDIA Pre-Liberalization When India attained independence from British rule in 1947. competitive remuneration policy. even for nonconformity with basic governance laws. London Stock Exchange (1998) CalPERS' Global Principles of Accountable Corporate Governance (1999) Blue Ribbon Report (1999) King’s Committee On Corporate Governance (2002) Sarbanes Oxley Act (2002) Higgs Report: Review of the role and effectiveness of non-executive directors (2003) The Combined Code on Corporate Governance (2003) ASX Corporate Governance Council Report (2003) OECD Principles of Corporate Governance (2004) The Combined Code on Corporate Governance (2006) UNCTAD Guidance on Good Practices in Corporate Governance Disclosure (2006) The Combined Code on Corporate Governance (2008) The recommendations and principles made by various committees on corporate governance have been mainly focused on structure of the company. nepotism and inefficiency. Company's management and administration. . at least half of the Board should be comprised of independent directors. The SEBI laws that took effect on January 1. scrutinizing the decisions of the management. other stakeholders. (See Box 10. at least one-third of the Board should be comprised of independent directors." In the years leading up to 2000. as Indian enterprises turned to the stock market for capital. The new laws require that when the "Chairman of the Board is a non-executive director. Additionally." The definition of independent directors is sufficiently strict. where appropriate. few firms embraced it. in the business model of the company as well as the risk profile of the business parameters of the company.non-existent in India." Each of the three sets of recommendations (the CII Code recommendations from 1997. and therefore. 133 Corporate Governance 10. For example. independent. unveiled India's first code of corporate governance. SEBI accepted the recommendations of the Birla Committee and introduced Clause 49 into the Listing Agreement of Stock Exchanges. and the Murthy Committee recommendations from 2003) has advanced a more nuanced and sophisticated understanding of corporate governance in this respect. and to regulate the securities market. SEBI appointed the Birla Committee to develop a code of corporate governance. the poorly governed Indian firms had little to worry about in terms of following corporate laws once they had raised capital through their initial public offering. required only that the "majority and chair" of the audit committee be independent and that at least one director be well-versed in finance. In 1998.. Their duty is to provide an unbiased. In 2000. since the Code's adoption was voluntary. SEBI has since incorporated the recommendations of the Murthy Committee.9 THE CURRENT STATE OF CORPORATE GOVERNANCE IN INDIA Corporate governance reforms in India has focused primarily on the "role and composition of the board of directors. in contrast. and corporate governance emerged as a solution to the problem of unscrupulous corporate behavior. SEBI instituted the Murthy Committee to scrutinize India's corporate-governance framework further and to make additional recommendations to enhance its effectiveness. it became important to ensure good corporate governance industry-wide." and when "the chairman is an executive director. are based in part on the Murthy Committee's recommendations and represent a substantial improvement over the laws that previously were in effect. the Indian Parliament created the Securities and Exchange Board of India ("SEBI") to "protect the interests of investors in securities and to promote the development of." Another notable recommendation of the Murthy Committee was that the Audit Committee be comprised entirely of "financially literate non-executive members with at least one member having accounting or related financial management expertise. The presence of sizeable independent representatives on the board. Soon after. a plethora of scams rocked the Indian business scene.2 below for explanation of Independent Directors)." The Birla Committee. Thus. varied and experienced perspective to the board. and the latest revisions to Clause 49 became law on January 1. the Kumar Mangalam Birla Committee recommendations from 2000. the Confederation of Indian Industry (CII). corporate governance in India was in a dismal condition by the early 1990s. while the CII Code was silent on the financial-literacy levels expected of directors. 2006. is widely considered as a means of protecting the interests of shareholders and. the Murthy Committee recommended that companies train their "Board members . However.. In 2003. Post-Liberalization In 1999. Clause 49 outlines requirements vis-a-vis corporate governance in exchange-traded companies. 2006. the law mandates that "two-thirds of the members of the audit committee shall be independent directors.2: Independent Directors According to the latest SEBI rules.. Alternate Directors are officiating Directors. does not have any material pecuniary relationships or transactions with the company. and ii) the legal firm(s) and consulting firm(s) that have a material association with the company. In India as per Clause 49 of the listing agreement. .10 BOARD COMPOSITION IN INDIA In various countries as per their legal framework the board comprises of executive.com/clause49.. b. Executive directors: are the directors of the company who are involved in the day to day management of the company. owning two percent or more of the block of voting shares Source:http://www. 10. its promoters. e. to name just a few shortcomings. which already exists and." Finally. holding companies and financial institutions or other lenders. it does not address the problem of institutional-investor apathy in India. 2006.e. at least one third of the Board should comprise of independent directors and in case he is an executive director. If the Chairman of the Board is a non-executive director. as they are not involved in the day to day management of the company. c. non executive/ independent. Apart from receiving the director's remuneration.134 Corporate Social Responsibility Further. Box 10. Independent /Non-Executive directors are not involved in the day to day management of the company and are appointed from outside the company. If any Director is absent for a period of three months or more from the State in which the meetings of the board are ordinarily held the Board has the powers to appoint ‘Alternate Directors’. its senior management or its holding company.3: Types of Directors in the Board a. the Board of Directors (BOD) of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of nonexecutive directors." Box 10. they can bring an independent voice and perspective to the board. The rationale behind appointing nonexecutive directors is that.htm The new law that has taken effect on January 1. which may affect independence of the director. its directors. no new office of Director is created by his appointment. an independent director is one who: a. associate directors and a couple of other directors. Has not been an executive of the company in the immediately preceding three financial years. its subsidiaries and associates which may affect the independence of the director. at least half of the Board should comprise of independent directors. c. These directors are nominated to represent their interest on the Board. d. of any of the following: i) the statutory audit firm or the internal audit firm that is associated with the company. Is not related to promoters or persons occupying management positions at the board level or at one level below the board. service provider or customer or a lessor or lessee of the company. It creates no official requirement for whistleblower protection.3 below briefly describes types of directors a board can appoint. Box 10. Is not a partner or an executive or was not partner or an executive during the preceding three years. Is not a material supplier. Nominee Directors are those who represent third parties in the Board like government officials. every firm must "submit a quarterly corporate-governance compliance report to the stock exchanges. i.clause49. foreign collaborators. falls short on a number of key criteria. b. etc. nominee directors. and it does not necessitate director retraining. The Alternate Director merely fills a temporary vacancy in the office of a Director. Is not a substantial shareholder of the company. and f. d. participation of stakeholders in the management. responsibilities and accountability of the Board.1 How to Improve Corporate Governance Quality of corporate governance primarily depends on the following factors. namely: integrity of the management. 55% of Indian companies in the past two years had reported incidents of fraud and a PricewaterhouseCoopers (PwC) study (2007) indicates the average direct loss from fraud per company at the global level is $2. this is an important element affecting the long-term financial health of companies. 34% of companies in India reported loss of a business opportunity due to the likely payment of bribe by a competitor. good governance framework also calls for effective legal and institutional environment. Board Independence: An independent board is essential for sound corporate governance. knowledge and experience so . Such independence ensures the effectiveness of the board in supervising the activities of management as well as making sure that there are no actual or perceived conflicts of interests.11 CORPORATE GOVERNANCE: NEED TO STRENGTHEN As India Inc. they are exposed to not just ‘home-grown’ frauds. The report claims only 34% of Indian companies have insurance covers for losses due to fraud against 45% globally. Role and Powers of the Board: The foremost requirement of good corporate governance is the clear identification of powers. CEO and the Chairman of the Board.4 million and for India it is $1. efficacy and price. quality of corporate reporting. 135 Corporate Governance 10. Since. Code of Conduct: It is essential that an organization's explicitly prescribed code of conduct are communicated to all stakeholders and are clearly understood by them.5 million. goes global.11. but also frauds prevalent in other markets.10. skills. Hence. the board must possess the necessary blend of qualities. The main constituents of good corporate governance listed below have to be incorporated by each company to improve its credibility in the market. According to KPMG survey (2008) on the state of corporate governance in India. business associates and shareholders are worst affected in the process. Industry insiders point to several acquisition deals that have turned sour and resulted in litigations after the acquired company managements failed to meet key conditions. Ernst & Young (2008) reports that the incidence of fraud is becoming an increasing menace. Consequently. commitment level of individual Board members. It means that the board is capable of assessing the performance of managers with an objective perspective. the majority of board members should be independent of both the management team and any commercial dealings with the company. etc. When companies in India expand their reach to other countries. Legislation: Understanding the legislative and regulatory framework is fundamental to effective corporate governance. there is a need for stronger regulatory review and exemplary enforcement. There should be some system in place to periodically measure and evaluate the adherence to such code of conduct by each member of the organization. business ethics and awareness of the environmental and societal interests. economic crime is emerging as a bigger threat than before. Board Skills: In order to be able to undertake its functions effectively. majority of respondents believe that while corporate governance should be practiced through principle-based standards and moderate regulations. Amongst the growing unethical business practices in India. employees. roles. ability of the Board. suggesting that business relationships and success may not be determined only on the basis of a product or service quality. adequacy of the processes. providing for transparency and clear enunciation of responsibility and accountability. Strategy Setting: The objective of the company must be clearly documented with a long term corporate strategy including an annual business plan together with achievable and measurable performance targets and milestones. Financial and Operational Reporting: The board requires comprehensive. The board has the ultimate responsibility for identifying major risks to the organization. correct and relevant information in a proper format and of a quality that is appropriate to discharge its function of monitoring corporate performance. encouraging business risk assessment. yet it must also take care of the community's obligations. setting acceptable levels of risks.136 Corporate Social Responsibility as to make quality contribution. reviewing the adequacy of internal control and compliance with significant policies and procedures. monitor. Monitoring the Board Performance: The board must monitor and evaluate its combined performance and also that of individual directors at periodic intervals. establishing performance evaluation measures and evaluating performance and sufficiently recognizing individual and group contribution. Board Induction and Training: It is essential to ensure that directors remain abreast of all development. regular. This includes operational or technical expertise. financial skills. using key performance indicators besides peer review. Such meetings enable directors to discharge their responsibilities. There should be a clearly established process of identifying. and ensuring that senior management takes steps to detect. implementing sound business planning. establishing clear boundaries for acceptable behaviour. . Risk Management: Risk is an important element of corporate functioning and governance. Business and Community Obligations: Though the basic activity of a business entity is inherently commercial. Board Appointments: To ensure that the most competent people are appointed on the board. The mandatory and non mandatory requirements of Clause 49 to be complied with for improving corporate governance are listed at the end of the chapter in the Annexure. reporting to the board on key issues. which could prevent the company from effectively achieving its objectives. legal skills as well as knowledge of government and regulatory requirements. having right people and right skill for jobs. internal and statutory auditors. which impact or. and control these risks. A well defined and open procedure must be in place for reappointments as well as for appointment of new directors. may impact corporate governance and other related issues. The stakeholders must be informed about the approval by the proposed and on going initiatives taken to meet the community obligations. Management Environment: This includes setting up of clear objectives and appropriate ethical framework. establishing due processes. the board positions must be filled through the process of extensive search. analyzing and treating risks. The effectiveness of board meetings is dependent on carefully planned agendas and provision of relevant papers and materials to directors sufficiently prior to board meetings. Board Meetings: These are the forums for board decision making. timely. reliable. Audit Committee: It is inter alia responsible for liaison with management. Rationalizing the management and constant monitoring of risk that a firm faces globally. 2. 3. Instances of financial crisis like Subprime crisis. Effective governance reduces perceived risks. government. the environment in which firms operate changes and in such a dynamic environment the systems of corporate governance also need to evolve. Gain long term reputational effects and strengthening of stakeholders’ relationship amongst key internal and external stakeholders.government organizations. Good corporate governance recognizes the diverse interests of shareholders. Improving strategic thinking in the Board through induction of independent directors who bring in experience and new ideas. to sensitize corporate leaders on the importance of good corporate governance practices as well as to facilitate exchange of experiences and ideas amongst corporate leaders. 4 5 6 Confederation of Indian Industries Institute of Chartered Accountants of India Institute of Company’s Secretaries of India . Madoff Investment Securities scam. 137 Corporate Governance 10. Builds confidence amongst stakeholders as well as prospective stakeholders.11. lenders. Box 10. corporations need to access global pools of capital as well as attract and retain the best human capital from various parts of the world.12 EFFORTS TO IMPROVE CORPORATE GOVERNANCE A National Foundation for Corporate Governance (NFCG) is set up in association with the CII 4 . Several studies in India and abroad have indicated that markets and investors take notice of the credibility offered by good corporate governance procedures designed by the company and helps them to take long term investment decisions. policy makers. employees. its growth is directly dependent on the cooperation rendered by all the stakeholders. Companies like Infosys and Wipro have demonstrated that adoption of good corporate governance practices provides stability and growth to the enterprise. Limiting the liability of top management and directors by carefully articulating the decision making process.4: Benefits of Corporate Governance 1. ICAI 5 and ICSI 6 to provide a platform to deliberate on issues relating to good corporate governance. 4.1. and develop intellectual honesty and integrity. Under such a scenario. have brought the subject of corporate governance to the surface. Effectiveness of corporate governance system cannot merely be legislated by law.4 below summarizes the benefits of corporate governance. law enforcing agencies and non. Hence. etc. regulators. unless a corporation embraces and demonstrates ethical conduct. 6. Assuring the integrity of financial reports and other communication. rather than form. As competition increases. consequently reduces cost of capital and enables board of directors to take quick and better decisions which ultimately improves bottom line of the corporates. The corporation being a congregation of various stakeholders. Box 10.2 Benefits of Corporate Governance In today's globalized world. This is because financial and non-financial disclosures made by any firm are only as good and honest as the people behind them. neither can any system of corporate governance be static. it will not be able to succeed. Satyam scam. there is a need to shift the emphasis on compliance of corporate governance with substance. Investors are willing to pay higher prices to the corporates demonstrating strict adherence to internally accepted norms of corporate governance.10. 5. The underlying principles of corporate governance revolve around certain basic inter-related segments displayed in Figure 10. businesses need risk management strategy which can be designed by formulating and implementing CSR strategy and preparing triple bottom line reports. It is also important to understand that diversity and independence are important because the best collective decisions are the product of disagreement and contest. Reddy’s Lab and Infosys who have a large global workforce. 10. violation of market place. With ethical intellectual capital governing new companies like Wipro. the external auditor and other advisors. . strategic orientation and at the same time. they have developed a "no tolerance" policy towards any kind of fraud. or environmental frame-works can impact the profitability of business and reputation. effective corporate governance must include a Board of Directors independent from management but accountable to the company and its shareholders. Sound. For instance. which impact stakeholder relationships and are risks for business. Systemic organizational failures and negative social consequences are created by corporate governance structures and processes. CSR is a risk management strategy for business. Even proxy bribing by vendors or partners is not permitted. diverse. they must also be supported by the "right" attitudes on the part of management. Boards of directors cannot function effectively if they do not have the "right people" as members and the "right chairman" as leader. Viewed from this context. too was forced to resign. The penalty is the same across the company and penal policies are the same. be both independent and collaborative. Recently Wipro terminated 100 employees after it was discovered that these employees had furnished fake resumes in connivance with the external hiring agency. not consensus or compromise. ethical and socially oriented executives. who had wrongfully claimed medical reimbursement for a corrective eye surgery. Wipro values its policies above everything else. a senior employee.138 Corporate Social Responsibility Figure 10. Moreover. Dr.13 CORPORATE GOVERNANCE AND CSR Good corporate governance is the foundation of CSR. Wipro has developed a code of business conduct that defines do’s and don’ts and tolerance levels in the company.1: Interrelated Segments of Corporate Governance Ethical Business Transparency Corporate Governance Management ownership of Corporate Actions Disclosure Independence of Board & Auditors For effective corporate governance there is a need of selecting meritorious. To overcome these risks. All board members need to have knowledge and experience that allows them to demonstrate results orientation. Similarly. work place. As CSR is fundamentally concerned with transparency, accountability and performance, it is important for the CSR decision-making structure to be an integral component of the corporate governance system. For developing ethical business standards within the organization there are several options for board participation in CSR activities. For instance a board member could be tasked with a broad responsibility for CSR activities; a new member who has specific CSR expertise could be appointed; CSR responsibilities could be added to the work of existing board committees; a new CSR board committee could be formed; or the entire board could be involved in CSR decisions. Recognizing the fact that businesses are vital partners in development, the governance standards and the stakeholder social responsibility practices adopted by the companies need to be strategically aligned to achieve both business and social goals. Corporate Governance & CSR are crucial elements to foster sustainability of businesses and society. 139 Corporate Governance 10.14 LET US SUM UP It is true that 'corporate governance' has no unique structure or design and is largely considered ambiguous. There is still lack of awareness about its various issues like, quality and frequency of financial and managerial disclosure, compliance with the code of best practice, roles and responsibilities of Board of Directories, shareholders rights, etc. There have been many instances of failure and scams in the corporate sector, like collusion between companies and their accounting firms, presence of weak or ineffective internal audits, lack of required skills by managers, lack of proper disclosures, non-compliance with standards, etc. As a result, both management and auditors have come under greater scrutiny. Industry bodies like CII, NASSCOM 7 and regulators like SEBI should look at a more unified approach towards handling corporate misgovernance and at developing benchmarks in good governance practices. The degree to which corporations observe basic principles of good corporate governance is an increasingly important factor for taking key investment decisions. If companies are to reap the full benefits of the global capital market, capture efficiency gains, benefit from economies of scale and attract long term capital, adoption of corporate governance standards must be credible, consistent, coherent and inspiring. Hence, in the years to come, corporate governance will become more relevant and a more acceptable practice worldwide. Good corporate-governance practices can help increase investment, decrease corruption, and reduce wasting of scarce resources. Ultimately, India's corporategovernance destiny will be shaped by how effectively its legislature, judiciary, and SEBI implement transparent and effective corporate-governance laws and to what extent company is committed to improve its long-term sustainability. 10.15 KYWORDS Corporate Governance: How firm safeguards interest of its stakeholders. Independent Directors: Not involved in company day to day operations and are appointed form outside. Clause 49: Outlines requirement of corporate governance in companies Principle Agent Model: Believes that firm’s prime motive is shareholders’ wealth maximization. 7 The National Association of Software and Services Companies 140 Corporate Social Responsibility Stakeholder Model: Holds that firm should take care of all its stakeholders Alternate Director: Temporarily fills in office of an existing director 10.16 SELF ASSESSMENT 1. State whether the following statements are true or false: (a) Corporate governance deals with maximizing shareholders returns while ensuring fairness to all the stakeholders. (b) Society forms a key constituent of corporate governance framework. (c) Business should also consider secondary stakeholders while designing a corporate governance framework. (d) Corporate governance deals with economies of business. (e) SEBI Committee makes it mandatory that at least one-third of the members of the audit committee should be independent directors. (f) Executive directors are elected form outside the company. (g) Monitoring of board performance is must to ensure smooth governance. (h) CSR is an integral part of company’s corporate governance system. 2. Choose the appropriate answer: (a) When agents’ and principles’ interest are conflicting, it gives rise to: (i) Principle problems (ii) Agency problems (iii) Governance problems (iv) System problems (b) As per the principle-agent model, the principle and agent may choose separate actions due to their different approach towards: (i) Governance (ii) Growth (iii) Risk (iv) Goals (c) To give due consideration to shareholders’ wealth is…………….responsibility of corporate governance. (i) Moral (ii) Social (iii) Economic (iv) Political (d) Which of these relate to Indian scenario before 1991? (i) SEBI Committee reports (ii) Investors interest were protected by guidelines given by government (iii) Introduction of first code of corporate governance by CII (iv) No solid equity markets in India maximization (e) As per SEBI guidelines independent directors should not be: (i) Customer or supplier of the firm (ii) Major shareholder (iii) In relation to members of management (iv) All of the above (f) In case of failure of corporate governance system, CSR can also act as: (i) Risk management system (ii) Negative publicity (iii) Legal support (iv) Monetary support 141 Corporate Governance 10.17 REVIEW QUESTIONS 1. What is Corporate Governance? 2. Discuss the functions of the main constituents of Corporate Governance. 3. Discuss the growth of corporate governance in India. 4. Discuss why and how should India strengthen its corporate governance. 5. Examine Clause 49 and discuss what does the clause highlight. 6. What is the relationship between CSR and corporate governance? Answers: Self Assessment 1. (a) True (g) True 2. (a) ii (b) False (h) True (b) iii (c) iii (d) iv (e) iv (f) i (c) True (d) False (e) False (f) False 10.18 SUGGESTED READINGS Ahooja, B., & Gupta, A. (2005). Corporate India: Whistleblower and Clause 49. Available at http://www.indlaw.com/publicdata/articles/article78.pdf. Bain, N., & Band, D. (1996). Winning Ways through Corporate Governance. London: Macmilllan Business. Blair, M. (1995). Ownership and Control: Rethinking Corporate Governance for the Twentyfirst Century. Washington, DC: Brookings Institution Press. Berle, A., & Means, G. (1932). The Modern Corporation and Private Property. New York: Macmillan. Clause 49. (n.d.). About Clause49. Available at http://www.clause49.com/clause49.htm Coelho, P., McClure, J., and Spry, J. (2003). The social responsibility of corporate management: a classical critique. Mid-American Journal of Business, 18 (1), 15-24. Confederation of Indian Industry. http://cii.in/menu_content.phpmenu_id=3. (n.d.). About Us. Available at Confederation of Indian Industry. (1998, April). Desirable Corporate Governance: A Code. Available at http://www.nfcgindia.org/desirable_corporate_governance_cii.pdf. Eisenhardt, K. (1989). Agency Theory: An assessment and review. Academy of Management Review, 14 (1), 57-74. 1956. Strategic Management: A Stakeholder Approach.people.pdf. and Wright. (2004. Corporate Governance: Economic and Financial Issues. Available at Press Release No. March 29).ey. KPMG in India.in/commreport/corpgov.in/~jrvarma/papers/iimbr9-4.iimahd. Murthy. 84-97.Economic Crime: People.pdf Freeman. Extension of Date of Ensuring Compliance with Revised Clause 49 of the Listing Agreement. Academy of Management Review. 249273. Available at Transparency International.pdf Machold. Corruption or Compliance. & Wright.pdf Kay. Corporate Governance Country Assessment. S. 66/2005.gov.sebi. (2003). Corporate Governance in India. (2007). (2001). (2000). (2008). A State of Corporate Governance in India . 9 (4). (1995). Corporate Governance.in/commreport/corpgov.nsf/docid/45B0CF98377B0945CA25739200379 D15/$file/GECS_India_report_2007. J.ac. Securities and Exchange Board of India. 404-437.html. April). 1956. Available at http://www. Keasey.nic. M.in/press/2005/200566.sebi.worldbank. culture & controls (India).in/fullact1. T. & Silberston.142 Corporate Social Responsibility Ernst & Young. Available at http://www.gov. (2008). Kar. (1995). 56 . Instrumental Stakeholder Theory: A synthesis of ethics and economics. Acts of Parliament. Thompson.transparency. (2004). http://indiacode.usp. . Introduction: the corporate governance problem-competing diagnoses and solutions. (Eds).fj/AF411/Jones. Bangalore.Acadamymanagementreview. A. The 4th Biennial Global Economic Crime Survey. 5-18.77. The Tenth Global Fraud Survey.html.. In Corporate Governance In Asia: A Comparative Perspective Organisation for Economic Co-operation and Development. Corporate Governance Models in Emerging Markets: The Case of India.nfcgindia. Report of the Kumar Mangalam Birla Committee on Corporate Governance. Report on The Observance of Standards And Codes (Rosc). International Journal of Business Governance and Ethics 1(1). Available at http://web. London: Pitman Publishing.org/home. 20. K. (2009). A.com/extweb/pwcpublications. & Vasudevan.. In Keasey. Available at http://classshares.asp?tfnm=195601. Available at http://www. 1. (1997). National Institute Economic Review. (1997).A poll. Investigations and Forensic Services.d. R.in. Report of the SEBI Committee on Corporate Governance. About NFCG. Thompson..). M. Corporate Governance in India: Disciplining the Dominant Shareholder. Available at http://www. Management Review.ernet. Corruption Perception Index Study -2008. K.org/news_room/in_focus/2008/cpi2008/cpi_2008_table Varma. National Foundation or Corporate Governance.pdf Jones. Oxford: Oxford University Press. (2005. OECD Publishing. Available at http://www.student.pdf. No. Indian Institute Management.kpmg. (1984). Available at http://www.edu/jlerner/develop.org/ifa/rosc_cg_ind.com/Publication/vwLUAssets/FIDS_Corruption_or_compliance_weighing_the _costs/$FILE/Corruption_or_compliance_weighing_the_costs. N. P. Developing Countries.pwc. G. 153. Private Equity in http://www.hbs.Weighing the Costs. Available at http://www. J.gov. (1997).html Pacanins. S. (n.sebi. Available at http://www.com/TL_Files/Pictures/CGSurveyReport.html The Companies Act. Available at http://www.pdf Securities and Exchange Board of India. S. at least half of the Board should comprise of independent directors. Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place. at least one-third of the Board should comprise of independent directors and in case he is an executive director.. f. service provider or customer or a Lessor or lessee of the company. i. c. For the purpose of the sub-clause (ii).Annexure I 8 Clause 49 . and 143 Corporate Governance 2. if any. its subsidiaries and associates which may affect independence of the director. A director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director. including independent directors. Downloaded from http://www. shall be fixed by the Board of Directors and shall require previous approval of shareholders in the general meeting. including independent directors. Other Provisions for the Board and Committees 1. owning two percent or more of the block of voting shares. Non-executive Directors’ Compensation and Disclosures All fees/compensation. Contd. 8 2. which may affect independence of the director. e. apart from receiving director’s remuneration. of any of the following: i) the statutory audit firm or the internal audit firm that is associated with the company. and is not a substantial shareholder of the company.Corporate Governance The company agrees to comply with the following provisions: BOARD OF DIRECTORS Composition of Board 1. The shareholders’ resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors.. The Board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors. its senior management or its holding company.nfcgindia. is not a partner or an executive or was not a partner or an executive during the preceding three years. its directors. the expression ‘independent director’ shall mean a non-executive director of the company who: a. is not a material supplier.e. paid to non-executive directors. is not related to promoters or persons occupying management positions at the board level or at one level below the board.pdf . Where the Chairman of the Board is a non-executive director. The minimum information to be made available to the board is given in Annexure– I A. ii) the legal firm(s) and consulting firm(s) that have a material association with the company. 3. b. The board shall meet at least four times a year. has not been an executive of the company in the immediately preceding three financial years. in any financial year and in aggregate. with a maximum time gap of three months between any two meetings. does not have any material pecuniary relationships or transactions with the company. d. its promoters.org/clause49%20_2004.. To obtain outside legal or other professional advice. The quorum shall be either two members or one third of the members of the audit committee whichever is greater. The Board shall lay down a code of conduct for all Board members and senior management of the company. Powers of Audit Committee The audit committee shall have powers. the replacement or removal of the statutory auditor and the fixation of audit fees. Recommending to the Board. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct. Role of Audit Committee The role of the audit committee shall include the following: 1. 3. 2. in accounting policies and practices and reasons for the same Major accounting entries involving estimates based on the exercise of judgment by management Significant adjustments made in the financial statements arising out of audit findings Compliance with listing and other legal requirements relating to financial statements Contd. The Annual Report of the company shall contain a declaration to this effect signed by the CEO. 4. 4. 2. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. 2. Two-thirds of the members of audit committee shall be independent directors. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. if required. if it considers necessary. The code of conduct shall be posted on the website of the company. the appointment. Reviewing.. with particular reference to: a. sufficient and credible. which should include the following: 1. d. b. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. if any. Meeting of Audit Committee The audit committee should meet at least four times in a year and not more than four months shall lapse between two meetings. re-appointment and. e. but there should be a minimum of two independent members present. 1956 Changes.144 Corporate Social Responsibility Code of Conduct 1. giving the terms of reference subject to the following: 1. To secure attendance of outsiders with relevant expertise. AUDIT COMMITTEE Qualified and Independent Audit Committee A qualified and independent audit committee shall be set up. . 3. To investigate any activity within its terms of reference. c. with the management. To seek information from any employee. The audit committee shall have minimum three directors as members. 2. Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (2AA) of section 217 of the Companies Act.. the annual financial statements before submission to the board for approval. 10. including the structure of the internal audit department. 11. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. 8. 4. The management should periodically bring to the attention of the Board of Directors of the listed holding company. 2. shareholders (in case of non payment of declared dividends) and creditors. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company.f. the quarterly financial statements before submission to the board for approval Reviewing. 3. . adequacy of the internal control systems. submitted by management. and The appointment. performance of statutory and internal auditors. with the management. 3. At least one independent director on the Board of Directors of the holding company shall be a Director on the Board of Directors of a material non listed Indian subsidiary company. staffing and seniority of the official heading the department. 5. 12. To review the functioning of the Whistle Blower mechanism. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. Management discussion and analysis of financial condition and results of operations. Review of Information by Audit Committee The Audit Committee shall mandatorily review the following information: 1. To look into the reasons for substantial defaults in the payment to the depositors. debenture holders. Reviewing the adequacy of internal audit function. Discussion with statutory auditors before the audit commences. Disclosure of any related party transactions Qualifications in the draft audit report. 9. reporting structure coverage and frequency of internal audit. 2. 7. in case the same is existing. Management letters / letters of internal control weaknesses issued by the statutory auditors. 5.. with the management. Internal audit reports relating to internal control weaknesses. Statement of significant related party transactions (as defined by the audit committee). Contd. 6. g. a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company. the investments made by the unlisted subsidiary company. Discussion with internal auditors any significant findings and follow up there on. if any. 13. removal and terms of remuneration of the Chief Internal Auditor shall be subject to review by the Audit Committee SUBSIDIARY COMPANIES 1. 145 Corporate Governance Reviewing. The Audit Committee of the listed holding company shall also review the financial statements. about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.. in particular. sales and marketing. if any – and whether issued at a discount as well as the period over which accrued and over which exercisable. working capital. 3. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report.146 Corporate Social Responsibility DISCLOSURES Basis of Related Party Transactions 1.. on an annual basis. Further the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the Annual Report: (a) All elements of remuneration package of individual directors summarized under major groups. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee. it shall disclose to the Audit Committee. bonuses. These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework. pension etc. Disclosure of Accounting Treatment Where in the preparation of financial statements. the usage / applications of funds by major category (capital expenditure. etc). this may be put up on the company’s website and reference drawn thereto in the annual report.). which are not at an arm’s length basis should be placed before the audit committee. This statement shall be certified by the statutory auditors of the company. stock options. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter. together with Management’s justification for the same. Remuneration of Directors 1. The company shall publish its criteria of making payments to non-executive directors in its annual report. such as salary.. along with the performance criteria. the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and place it before the audit committee. Alternatively. When money is raised through an issue (public issues. Rights Issues. severance fees. Contd. . A statement in summary form of transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee. (d) Stock option details. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. 2. (c) Service contracts. on a quarterly basis as a part of their quarterly declaration of financial results. 2. (b) Details of fixed component and performance linked incentives. rights issues. the fact shall be disclosed in the financial statements. 4. together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report. Details of material individual transactions with related parties or others. Further. a treatment different from that prescribed in an Accounting Standard has been followed. benefits. All pecuniary relationship or transactions of the non-executive directors vis-à-vis the company shall be disclosed in the Annual Report. preferential issues etc. Board Disclosures – Risk Management The company shall lay down procedures to inform Board members about the risk assessment and minimization procedures. notice period. 3. Preferential Issues etc. Proceeds from Public Issues. which have shareholding of management and their relatives etc. 2. and (d) Shareholding of non-executive directors as stated in Clause 49 (IV) (E) (v) above 2. Industry structure and developments. vi. Non-executive directors shall be required to disclose their shareholding (both own or held by / for other persons on a beneficial basis) in the listed company in which they are proposed to be appointed as directors. or shall be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site. In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information: (a) A brief resume of the director. This Committee shall be designated as ‘Shareholders/Investors Grievance Committee’. a Management Discussion and Analysis Report should form part of the Annual Report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the company’s competitive position: i. commercial dealings with bodies.. Outlook v.) Shareholders 1. 147 Corporate Governance These details should be disclosed in the notice to the general meeting called for appointment of such director Management 1. viii Material developments in Human Resources / Industrial Relations front. Contd. (b) Nature of his expertise in specific functional areas. To expedite the process of share transfers. The delegated authority shall attend to share transfer formalities at least once in a fortnight. Discussion on financial performance with respect to operational performance. iii. Risks and concerns. Opportunities and Threats. ii. non-receipt of declared dividends etc. where they have personal interest. . that may have a potential conflict with the interest of the company at large (for example. prior to their appointment. iv. dealing in company shares. Segment–wise or product-wise performance. Quarterly results and presentations made by the company to analysts shall be put on company’s web-site. vii. As part of the directors’ report or as an addition thereto. the Board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents. non-receipt of balance sheet. including number of people employed. 4. Senior management shall make disclosures to the board relating to all material financial and commercial transactions. 3. A board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressal of shareholder and investors complaints like transfer of shares.. (c) Names of companies in which the person also holds the directorship and the membership of Committees of the Board. Internal control systems and their adequacy.5. deficiencies in the design or operation of internal controls. They accept responsibility for establishing and maintaining internal controls and that they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the Audit Committee. However. The company shall obtain a certificate from either the auditors or practicing company and annex the certificate with the directors’ report. 2. 2. if any. the Managing Director or Manager appointed in terms of the Companies Act. i. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief: (i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading. 3. (ii) these statements together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards. The suggested list of items to be included in this report is given in Annexure. the whole-time Finance Director or any other person heading the finance function discharging that function shall certify to the Board that: 1. 4. (ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements. if any. of the management or an employee having a significant role in the company’s internal control system REPORT ON CORPORATE GOVERNANCE 1. illegal or violative of the company’s code of conduct. COMPLIANCE 1.e. . no transactions entered into by the company during the year which are fraudulent. 2. with a detailed compliance report on Corporate Governance. applicable laws and regulations. The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the company. Non-compliance of any mandatory requirement of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted.e. the disclosures of the compliance with mandatory requirements and adoption (and compliance) / non-adoption of the non-mandatory requirements shall be made in the section on corporate governance of the Annual Report. They have indicated to the auditors and the Audit committee (i) significant changes in internal control during the year. to the best of their knowledge and belief. of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.148 Corporate Social Responsibility CEO/CFO CERTIFICATION The CEO. The report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company. and (iii) instances of significant fraud of which they have become aware and the involvement therein. which is sent annually to all the shareholders of the company. There shall be a separate section on Corporate Governance in the Annual Reports of the company. The companies shall submit a quarterly compliance report to the stock exchanges within 15 days from the close of the quarter as per the format given in Annexure I B. There are. The non-mandatory requirements given in Annexure – I D may be implemented as per the discretion of the company.I C and list of non-mandatory requirements is given in Annexure – I D. 1956 and the CFO i. dangerous occurrences. Capital budgets and any updates. including appointment or removal of Chief Financial Officer and the Company Secretary. 4. Fatal or serious accidents. 3. 149 Corporate Governance 6. any material effluent or pollution problems. 14. Significant labour problems and their proposed solutions. which involves possible public or product liability claims of substantial nature. 13. if material. 11. Annual operating plans and budgets and any updates. or substantial nonpayment for goods sold by the company. which is not in the normal course of business.org/clause49%20_2004. Any material default in financial obligations to and by the company. 7. 9 Downloaded from http://www.ANNEXURE IA 9 Information to be placed before Board of Directors 1. Any issue. brand equity. Minutes of meetings of audit committee and other committees of the board. 8. 5.nfcgindia. Sale of material. or intellectual property. including any judgement or order which. Show cause. 15. The information on recruitment and remuneration of senior officers just below the board level. Transactions that involve substantial payment towards goodwill. 12.pdf . 2. statutory or listing requirements and shareholders service such as non-payment of dividends delay in share transfers etc. Non-compliance of any regulatory. 10. Details of any joint venture or collaboration agreement. Quarterly results for the company and its operating divisions or business segments. implementation of Voluntary Retirement Scheme etc. Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement. nature of investments. may have passed strictures on the conduct of the company or taken an adverse view regarding another enterprise that can have negative implications on the company. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement. demand. 9. subsidiaries or assets. prosecution notices and penalty notices which are materially important. 10 Downloaded from http://www. it might be indicated in the "Remarks" column as – “will be complied with at the AGM”. which would be done only in the AGM/EGM.150 Corporate Social Responsibility ANNEXURE IB 10 Format of Quarterly Compliance Report on Corporate Governance Name of the Company: Quarter ending on: Particulars Clause of Listing agreement 49 I 49(IA) 49 (IB) 49 (IC) 49 (ID) 49 (II) 49 (IIA) 49 (IIB) 49 (IIC) 49 II(D) 49 (IIE) 49 (III) 49 (IV) 49 (IV A) 49 (IV B) 49 (IV C) 49 (IV D) 49 (IV E) 49 (IV F) 49 (V) 49 (VI) 49 (VII) Compliance Status Yes/No Remarks I. the words "will be complied in the next Annual Report" may be indicated. For example..A. for example. in case the company has no related party transactions.3. the words “N. in respect of matters which can be complied with only where the situation arises. Audit Committee III. Similarly. "Yes" may be indicated.org/clause49%20_2004. if the Board has been composed in accordance with the Clause 49 I of the Listing Agreement. Subsidiary Companies IV. 3.nfcgindia. Basis of related party transactions Board Disclosures Proceeds from public issues. "Report on Corporate Governance" is to be a part of Annual Report only. reasons for non-compliance may be indicated. preferential issues etc. rights issues. The details under each head shall be provided to incorporate all the information required as per the provisions of the Clause 49 of the Listing Agreement. 2. Disclosures (A) (B) (C) (D) (E) (F) V. compliance or non-compliance may be indicated by Yes/No/N. Similarly.” may be indicated against 49 (IV A). In the remarks column. for example. Board of Directors (A) (B) (C) (D) (A) (B) (C) (D) (E) Composition of Board Non-executive Directors' compensation & disclosures Other provisions as to Board and Committees Code of Conduct Qualified & Independent Audit Committee Meeting of Audit Committee Powers of Audit Committee Role of Audit Committee Review of Information by Audit Committee II.pdf . in case of requirement related to circulation of information to the shareholders. Compliance Note: 1.A. In the column No. Report on Corporate Governance VII. Remuneration of Directors Management Shareholders CEO/CFO Certification VI. executive. for example. Details of remuneration to all the directors. Audit Committee: i. which institution represented as lender or as equity investor. 5. ii. dates on which held. . where last three AGMs held. Contd. Details of non-compliance by the company. 2. nominee director. 151 Corporate Governance ii. during the last three years. Remuneration Committee: i. Attendance of each director at the Board meetings and the last AGM. executive. Brief description of terms of reference ii. Attendance during the year iv. Location and time. Whether any special resolutions passed in the previous 3 AGMs iii.. Number not solved to the satisfaction of shareholders v. Procedure for postal ballot 7. strictures imposed on the company by Stock Exchange or SEBI or any statutory authority. Disclosures: i.. Board of Directors: i. Number of pending complaints General Body meetings: i. as per format in main report. name of members and Chairperson iii. on any matter related to capital markets. Whether any special resolution passed last year through postal ballot details of voting pattern iv. Composition and category of directors. Composition. Person who conducted the postal ballot exercise v. A brief statement on company’s philosophy on code of governance. Number of other Boards or Board Committees in which he/she is a member or Chairperson iv. Composition. independent non-executive. Number of Board meetings held. Brief description of terms of reference ii. non. Meetings and attendance during the year 4. ii. Number of shareholders’ complaints received so far iv. penalties. 3. Whether any special resolution is proposed to be conducted through postal ballot vi. Name of non-executive director heading the committee ii. iii. promoter. Remuneration policy v. Shareholders Committee: i.ANNEXURE IC Suggested List of Items to be Included In the Report on Corporate Governance in the Annual Report of Companies 1. 6. Disclosures on materially significant related party transactions that may have potential conflict with the interests of company at large. Name and designation of compliance officer iii. name of members and Chairperson iii. AGM: Date. Any website. 9. and v. Distribution of shareholding xii. time and venue ii. Plant Locations xv. Quarterly results ii. i. Listing on Stock Exchanges vi. Whether it also displays official news releases. where displayed iv. Whistle Blower policy and affirmation that no personnel has been denied access to the audit committee.152 Corporate Social Responsibility iii. Registrar and Transfer Agents x. Financial year iii.Performance in comparison to broad-based indices such as BSE Sensex. Address for correspondence Convertible instruments. CRISIL index etc. Market Price Data: High. Stock Code vii. Details of compliance with mandatory requirements and adoption of the non-mandatory requirements of this clause 8. Date of Book closure iv. Dividend Payment Date v. Share Transfer System xi..Outstanding GDRs/ADRs/Warrants or any conversion date and likely impact on equity xiv. The presentations made to institutional investors or to the analysts. Dematerialization of shares and liquidity xiii. iv. General Shareholder information: i. Newspapers wherein results normally published iii. . Low during each month in last financial year viii. Means of communication. ix. it would be up to the Chairman to decide who should answer the queries. and the best ways to discharge them. To avoid conflicts of interest. the remuneration committee. actual or suspected fraud or violation of the company’s code of conduct or ethics policy. 3 Shareholder Rights A half-yearly declaration of financial performance including summary of the significant events in last six-months. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit committee in exceptional cases. excluding the director being evaluated. and Peer Group evaluation could be the mechanism to determine whether to extend / continue the terms of appointment of non-executive directors. Whistle Blower Policy The company may establish a mechanism for employees to report to the management concerns about unethical behaviour. on the Board of a company. a period of nine years. The board may set up a remuneration committee to determine on their behalf and on behalf of the shareholders with agreed terms of reference. However. in the aggregate. Independent Directors may have a tenure not exceeding. The Board A non-executive Chairman may be entitled to maintain a Chairman’s office at the company’s expense and also allowed reimbursement of expenses incurred in performance of his duties. the Chairman of committee being an independent director.ANNEXURE ID Non-Mandatory Requirements 1. to answer the shareholder queries. Training of Board Members A company may train its Board members in the business model of the company as well as the risk profile of the business parameters of the company. the company’s policy on specific remuneration packages for executive directors including pension rights and any compensation payment. their responsibilities as directors. 2. 6. 7. Mechanism for evaluating non-executive Board Members The performance evaluation of non-executive directors could be done by a peer group comprising the entire Board of Directors. iii. 5. Audit qualifications Company may move towards a regime of unqualified financial statements. All the members of the remuneration committee could be present at the meeting. Once established. 153 Corporate Governance ii. 4. the existence of the mechanism may be appropriately communicated within the organization. The Chairman of the remuneration committee could be present at the Annual General Meeting. may be sent to each household of shareholders. Remuneration Committee i. all of whom should be non-executive directors. which would determine the remuneration packages of the executive directors may comprise of at least three directors. iv. .