Monday, 21 July 2014

Corporate Social Responsibility

The evolution of the concept and definition of Corporate Social Responsibility (CSR) has an impressive history associated with it. During the 1960s and 1970s, meaning of CSR was further expanded and. In the 1980s, more empirical research and alternative themes began to mature. These alternative themes included corporate social performance (CSP), stakeholder theory, and business ethics theory. 

One of the most frequently asked questions is: what is the meaning of "Corporate Social Responsibility" ? There are various definitions provided by various organisations. The most appropriate and common definition is: Corporate Social Responsibility is that exercise which helps the companies to have a positive impact on the society in the process of managing their business.

According to the book "Making Good Business Sense" by Lord Holme and Richard Watts, "Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large".

In USA, CSR is looked as a philanthropic model. The companies are expected to donate a certain share of their post-tax profits for charitable cause.  The European model, however, sees the CSR activity as running the business in a socially responsible way. In Europe social responsibility is considered to be an integral part of the wealth creation process.

If we look at the broad range of definitions of CSR, one can see a common thread—all definitions share the belief that companies have a responsibility towards the public good. Blowfield and Murray have defined CSR as an ‘umbrella term’ capturing the various ways in which business relates to society; it involves values that guide a company’s interactions with other society members, it addresses the role of businesses in wider society and the different types of business-society interaction.  It also looks at the categories in which corporates are expected to take action. 

International awareness about CSR arose in the 1990s. These were the times which saw labour and environmental conditions deteriorating and the gap between the haves and have-nots increasing substantially. More and more leading companies, especially in USA, were challenged to justify their actions and any adverse publicity or social wrong-doing resulted in bad publicity in the stock markets and a negative impact on their sales and profits. The public opinion for greater regulation and supervision led to a series of UN summits that further led to setting-up of commissions to look into the corporate social responsibilities.

Over a period of time, CSR has emerged as a management response to negative media exposure and increased regulation. CSR has also become a way to deflect criticism, as also capitalize on business opportunities associated with ‘doing, and being seen to be doing, good’. Today, corporates have become pro-active players in shaping the CSR agenda, as also activities of international organisations like the World Bank, and NGOs like the World Wildlife Fund, UNICEF and Oxfam.

 CSR in India

In India, too, all the big companies are now expected to meet their social obligations towards the society and the environment, while working to increase their profits. Today, almost all leading corporates in India have their CSR programmes in place, in areas like empowerment of poor, development of skills among the weaker sections, education and health facilities in villages, remote areas and slums etc. Companies like Infosys, Airtel, Tata, ITC Welcom, IOC, ONGC, Wipro etc are very strong in their CSR activities.

Corporate India has spread its CSR activities across 20 States and Union territories, with Maharashtra gaining the most from them (36 per cent), according to a study undertaken by an industry body in June 2009. Maharashtra is followed by Gujarat (around 12 per cent), Delhi (10 per cent) and Tamil Nadu (9 per cent).

The Forbes Asia’s ‘48 Heroes of Philanthropy’ list 2010 has named India among the top ten Asian countries paying increasing importance towards corporate social responsibility disclosure norms. 

The government of India is also ensuring that the public sector companies participate actively in CSR initiatives. Guidelines for central public sector undertakings (PSUs) have been prepared by the Department of Public Enterprises (DPE) to take up important CSR projects. These projects will be funded by using 2-5 per cent of the net profits of the PSUs.

Efforts are also being made by companies to become more environment friendly. The financial services sector, especially,  is in the fore-front to ease its carbon foot-print by shifting to e-statements, e-reports and e-receipts. 

Opposition to CSR

CSR activities has its fair share of critics, too. Many scholars feel that CSR cannot be adapted into meeting the needs of the poor people.  Neo-liberal economists such as Milton Friedman (1970), argue that companies have ‘no business’ getting involved in the public as they already contribute to society through the creation of jobs, the payment of tax and the delivery of goods and services. 

It is also argued that CSR is a public relations tool which is often used to mask the devastating impact of questionable activities of some businesses on vulnerable people and their environments . Critics of CSR activity also feel that it fails to address the issues of power and participation that are the key to reducing poverty. In other words, CSR activity is like spoon-feeding which does not go to the root of the problem, as also, does not work towards rooting out the problem.

Then, there are the cases of companies that are very active in their CSR in one area of operation, but have failed to address human rights abuses, environmentally harmful activities and poor standards of labour within their core operations. Many a times a conflict of interest has been seen. For example, Toyota is championing green motoring with its Prius hybrid model, but, on the other hand, has joined the lobby against a tough fuel-economy standard in USA. Another question put by critics is: how should one see the corporates who are very active in their CSR but, on the other hand, indulge in lobbying, tax evasion and/or avoidance?
In his book, Capitalism and Freedom, Friedman argues that "there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.

In the real world, knowingly or unknowingly (for example, through sub-contractors), many companies, especially the larger ones, are often found to be involved in exploitative practices of some sort. With their financial muscle, many of them manage to influence policies in their favour, which is not a good example of open and free competition.

Businesses have a big impact on lives of people and so activists feel they should be more accountable for their actions. Given their immense power, corporates have been seen ignoring or exploiting  environmental, human-rights and social justice issues. Activists, on their part, have tried to go through their governments and even shareholders to ensure better responsibility.

Many business leaders, as a result,  have tried to pursue corporate social responsibility practices, or have tried to embed them in their systems.

Are CSR initiatives useful?  

A world where corporate virtue is rewarded and irresponsibility punished will be an ideal place to live in. However, the truth is that the "market of virtue" is very limited. And, it is also not growing.

There is no co-relation between CSR activity and performance of a company. There are all sorts of companies around us—those who have done well on both performance and CSR and those who failed on both fronts. Then, there are many who have had a good CSR record but have otherwise not done well. There are also many examples of firms with poor CSR activity who have constantly done very well in their business. 

CSR activity has been found to be largely irrelevant to the financial performance of the corporates. One reason for this can be attributed to very few consumers caring about the social record of the companies. Price, convenience and quality has been given the first priority by the consumers while making their purchases.

As of now, CSR does not seem to be critical to the success of any company. That new world where the corporate goals will get reconciled with public purposes look to be Utopian as of now. No doubt, the corporates should work responsibly and be sensitive to social and environmental issues. But, while doing that, they should not expect to be rewarded for their virtue.