The Four Phases of CSR Development in India

The history of CSR in India has its four phases which run parallel to India's historical development
and has resulted in different approaches towards CSR. However the phases are not static and the
features of each phase may overlap other phases.

The First Phase

In the first phase charity and philanthropy were the main drivers of CSR. Culture, religion, family
values and tradition and industrialization had an influential effect on CSR. In the pre-industrialization
period, which lasted till 1850, wealthy merchants shared a part of their wealth with the wider society
by way of setting up temples for a religious cause. Moreover, these merchants helped the society in
getting over phases of famine and epidemics by providing food from their godowns and money and
thus securing an integral position in the society. With the arrival of colonial rule in India from the
1850s onwards, the approach towards CSR changed. The industrial families of the 19th century
such as Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclined towards economic as well
as social considerations. However it has been observed that their efforts towards social as well as
industrial development were not only driven by selfless and religious motives but also influenced by
caste groups and political objectives.[3] Or studies

The Second Phase

In the second phase, during the independence movement, there was increased stress on Indian
Industrialists to demonstrate their dedication towards the progress of the society. This was
when Mahatma Gandhi introduced the notion of "trusteeship", according to which the industry
leaders had to manage their wealth so as to benefit the common man. "I desire to end capitalism
almost, if not quite, as much as the most advanced socialist. But our methods differ. My theory of
trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other
theories." This was Gandhi's words which highlights his argument towards his concept of
"trusteeship". Gandhi's influence put pressure on various Industrialists to act towards building the
nation and its socio-economic development.[4] According to Gandhi, Indian companies were
supposed to be the "temples of modern India". Under his influence businesses established trusts for
schools and colleges and also helped in setting up training and scientific institutions. The operations
of the trusts were largely in line with Gandhi's reforms which sought to abolish untouchability,
encourage empowerment of women and rural development.

The Third Phase

The third phase of CSR (1960–80) had its relation to the element of "mixed economy", emergence
of Public Sector Undertakings (PSUs) and laws relating labour and environmental standards. During
this period the private sector was forced to take a backseat. The public sector was seen as the prime
mover of development. Because of the stringent legal rules and regulations surrounding the activities
of the private sector, the period was described as an "era of command and control". The policy of
industrial licensing, high taxes and restrictions on the private sector led to corporate malpractices.
This led to enactment of legislation regarding corporate governance, labour and environmental
issues. PSUs were set up by the state to ensure suitable distribution of resources (wealth, food etc.)
to the needy. However the public sector was effective only to a certain limited extent. This led to shift
of expectation from the public to the private sector and their active involvement in the socio-
economic development of the country became absolutely necessary. In 1965 Indian academicians,
politicians and businessmen set up a national workshop on CSR aimed at reconciliation. They
emphasized upon transparency, social accountability and regular stakeholder dialogues. In spite of
such attempts the CSR failed to catch steam.

The Fourth Phase

In the fourth phase (1980 - 2013) Indian companies started abandoning their traditional engagement
with CSR and integrated it into a sustainable business strategy. In the 1990s the first initiation
towards globalization and economic liberalization were undertaken. Controls and licensing system
were partly done away with which gave a boost to the economy the signs of which are very evident
today. Increased growth momentum of the economy helped Indian companies grow rapidly and this
made them more willing{Gajare, R.S. (2014). A conceptual study of CSR development in India. In
D.B. Patil & D.D. Bhakkad, Redefining Management Practices and Marketing in Modern Age Dhule,
India: Atharva Publications (p. 152-154).} and able to contribute towards social cause. Globalization
has transformed India into an important destination in terms of production and manufacturing bases
of TNCs are concerned. As Western markets are becoming more and more concerned about labour
and environmental standards in the developing countries, Indian companies which export and
produce goods for the developed world need to pay a close attention to compliance with the
international standards. [5]

Current State of CSR in India

A story of CSR promoted by Azim Premji Foundation in India playlist

As discussed above, CSR is not a new concept in India. Ever since their inception, corporates like
the Tata Group, the Aditya Birla Group,and Indian Oil Corporation, to name a few, have been
involved in serving the community. Through donations and charity events, many other organizations
have been doing their part for the society. The basic objective of CSR in these days is to maximize
the company's overall impact on the society and stakeholders. CSR policies, practices and programs
are being comprehensively integrated by an increasing number of companies throughout their
business operations and processes. A growing number of corporates feel that CSR is not just
another form of indirect expense but is important for protecting the goodwill and reputation,
defending attacks and increasing business competitiveness.[6]
Companies have specialised CSR teams that formulate policies, strategies and goals for their CSR
programs and set aside budgets to fund them. These programs are often determined by social
philosophy which have clear objectives and are well defined and are aligned with the mainstream
business. The programs are put into practice by the employees who are crucial to this process. CSR
programs ranges from community development to development in education, environment and
healthcare etc.[7]
For example, a more comprehensive method of development is adopted by some corporations such
as Bharat Petroleum Corporation Limited, Maruti Suzuki India Limited. Provision of improved
medical and sanitation facilities, building schools and houses, and empowering the villagers and in
process making them more self-reliant by providing vocational training and a knowledge of business
operations are the facilities that these corporations focus on. Many of the companies are helping
other peoples by providing them good standard of living.
Also, corporates increasingly join hands with non-governmental organizations (NGOs) and use their
expertise in devising programs which address wider social problems.
In this guide we 1) clarify the stakeholder concept and 2) provide an introduction to
stakeholder management.
 THE STAKEHOLDER CONCEPT
Gaining an understanding of the stakeholder concept requires defining some of the key terms
used.

Stakeholders are the individuals, groups or entities that have their own sets of interests,
expectations and demands from a business, and even shares in a business undertaking. If
something within a business changes, they are the ones directly or indirectly affected. The
interests, demands or shares refer to the stakesowned by the stakeholders. Stake can be further
categorized into interest, right, or ownership.

Identifying the Business Stakeholders

In any business environment, there are two general categories for stakeholders:

Primary stakeholders are composed of stakeholders with direct involvement or stake in the
organization. They are directly interested in, or are directly affected by, the progress of the
business operations. In short, they will directly benefit from the success of the business (and
suffer from its losses). Those who fall under this category are:

 Employees, or unions of employees, including team leaders

 Owners, shareholders and investors

 Management, including the executives and line managers

 Lenders, including banks

Secondary stakeholders are groups or individuals that have a special interest or a public stake
in the business. They include:

 Consumers / customers, or the end users of the business’ products and/or services

 Partners, or other collaborators such as suppliers and distributors

 Government, or other regulatory bodies

 The general public or the community, including civic, environmental and social groups
The classification of primary and secondary stakeholders will be dependent on the business, its
nature, and how it conducts its business.Some organizations may consider customers as their
primary stakeholders, while others deem them to be secondary.

We can also classify business stakeholders depending on their roles in the business environment.

1. Core stakeholders. These are the stakeholders who play a vital role in the survival of the
business.
2. Strategic stakeholders. Businesses continuously face threats and are presented with
opportunities during the course of its life.These stakeholders play major roles in addressing these threats
and identifying and taking advantage of the opportunities.

3. Environmental stakeholders. All other stakeholders who do not fall under Core and Strategic
classifications, but exist in the business environment of the organization, are lumped into this category.

The Stakeholder Views

The traditional view on stakeholder management is that the shareholders are the “only
stakeholders who matter”. Therefore, the business should make profit in order for the
shareholders to take their share in the profit of the business.

But that is no longer a conclusive view, as more stakeholders have been gaining recognition and
established themselves to be just as important.In fact, customers are said by many business
experts to be one of the most important and powerful stakeholders. This is in recognition of the
fact that the long-term value of a business can be cultivated and nurtured if you start by keeping
your customers satisfied.

The three views of stakeholders are:

1. Strategic view. Management is primarily concerned with leading the company to earn profits,
which will then be given back to the shareholders. There are many factors at play in management’s plans
and actions in increasing the business’ revenue generation.In the strategic approach, the stakeholders
are deemed one of those factors having great influence over the profit-generation aspect of the
business.

2. Multi-Fiduciary view. In this approach, management is considered to have a fiduciary

responsibility to stakeholders of the business.Meaning, the business, through its managers, will take care
of the money, assets, or the stakes of the stakeholders, who are leaving them in the former’s hands out
of trust.

3. Synthesis view. Management recognizes the role and importance of stakeholders, but they do
not have a fiduciary responsibility to them.Rather, their responsibility to the stakeholders is more of an
ethical one.

STAKEHOLDER MANAGEMENT
Stakeholder management is sometimes overlooked, with managers becoming largely unaware of
what the company can achieve when it is effectively administered.

It builds robust and solid relationships between the business and its
stakeholders.Stakeholders are likely to remain loyal to a business that they know is looking out
for them.Trust is a vital ingredient for any relationship to work – and last – and stakeholder
management is a great tool for building and fortifying that trust.
 It improves the organization’s good reputation. Naturally, potential stakeholders will be
drawn towards businesses with excellent stakeholder management.

It contributes to the overall growth and development of the business. By maintaining very
good relationships with stakeholders, you are ensuring the business’ longevity. More groups of
stakeholders would definitely want to work with your business, and help it succeed.

In stakeholder management, there are five core questions that must be answered.

 The identity of the stakeholders.Stakeholders are important because, without them, the
business will not be able to operate.Businesses need the consent and support of the community and the
public, as well as various regulatory agencies, in order to start operating and continue to do so. They also
require the support of investors and lenders toget the financing they need. Employees are also required
for the manpower and human resources of the company. Of course, the customers cannot be left out,
because it is them who will pay for the business’ products and services. Basically, the entire existence of
the business is reliant on stakeholders. You can start with identifying large and generic groups, and then
sub-divide them into more specific groupings or units. For example, in the Employees group, you can
further divide them according to age group, gender, or specialization within the business.

 The stakes of the stakeholders. What are their stakes? How powerful have they become
because of these stakes? Are the stakes valid or legitimate? Identifying the stakes will also tell you a lot
what these stakeholders want from the company. This will enable management to identify those that
have greater stakes than others, so they can prioritize. All stakeholders are important, but there is also a
need to identify those who are most important, and knowing what their stakes are is very useful. In the
long run, the business will also be in a better position to balance stakeholder interests.

 The challenges and opportunities presented by the stakeholders. What are the opportunities
that can potentially improve the relationships of the business and the stakeholders? On the other hand,
what issues and challenges often crop up with respect to these relationships? This is also where you will
identify the urgency or timing that will be needed for communicating with them, because
communication is key towards maintaining a good relationship with stakeholders.

 The organization’s economic, ethical, legal, environmental and philanthropic responsibilities

and accountabilities. What is expected of these stakeholders in the mentioned aspects?

 The strategies and actions to be performed. By getting the previous questions answered,
management can come up with an action plan geared towards managing the challenges and
opportunities presented by the stakeholders and their stakes.

Principles of Stakeholder Management

Let us take a look at the “Clarkson Principles”, or the seven principles that managers should
adhere to in their stakeholder management approaches.

Acknowledge and monitor. Managers should first identify the legitimate stakeholders and what
their respective stakes are. Then they should acknowledge the fact that stakeholders are major
players in the business and should therefore be factored into the decision-making process
involving all aspects of the business, including its operations. Continuously monitoring the
concerns of the stakeholders is already a form of acknowledgement.

Listen and communicate. The best way to find out the concerns of your stakeholders is to listen
and communicate with them directly. The message must be conveyed clearly so it is also
understood and will trigger the desired response.By maintaining open lines of communication,
you will be kept up to speed on the concerns as well as contributions of the stakeholders. They
are also bound to inform you of the risks that come with their stakes in the business, and this
will, in turn, figure directly or indirectly into the management’s decision-making
processes.Communication should also be done in an integrated manner. It is a fact that there are
different ways to communicate, so you should do so depending on who you are communicating
with. Employees, for instance, react better when communication is done on a face-to-face basis,
as frequently as possible. Regulatory agencies that the business has reportorial responsibilities to
will only be communicated to on predetermined times. Investors, on the other hand, are
communicated to depending on standards or guidelines.

Adopt. Accept the fact that stakeholders are not the same. How you deal with one group may not
give the same results when applied to other groups. An approach that works with employees, for
example, does not necessarily mean it will work with the consumers, and vice versa.Therefore,
there is a need for the business to assess the appropriate modes of behavior for each stakeholder
group and adopt them accordingly.

Recognize interdependence. Stakeholders vary depending on their stakes. Some take more risks
than others with their stake in your business.There are stakeholders who put more effort into the
business than other stakeholders, even if they have the same ownership share. It is now up to the
management to try to figure out a way to distribute the benefits and rewards in a fair manner,
taking into consideration the interdependence of efforts, results, risks, rewards, and
vulnerabilities.

Work and cooperate. Business comes with inherent risks, or risks that cannot be entirely
avoided. It is just a matter of minimizing those risks and lessening the negative impact.Managers
are expected to cooperate and work together with other groups and entities in order to minimize
these risks.

Avoid questionable activities. All acts associated with the business will, in one way or another,
affect the stakeholders. Illegal acts, crimes, and other activities that could bring harm to others or
could result to business, property, and life and limb being put in danger must be avoided at all
costs by management.

Acknowledge conflicts. Almost always, you can expect conflicts to arise with the
managers. After all, they, too, are stakeholders of the business.They are bound to come across
issues that will make them conflicted between their position as stakeholders and that of the other
stakeholders of the business. The first thing they should do is to acknowledge that these conflicts
do exist, and they may potentially arise in the course of running the business. By acknowledging
it, they will be in a better position to put into place measures that will lessen the negative impact
of these conflicts of interest. Perhaps they could set up better communication lines with the other
stakeholders and other control and review protocols to maintain transparency and protect the
interest and stakes of everyone concerned.They will be better able to compromise, since they are
fully cognizant of how divergent some stakeholders’ (including them) priorities are.

Four phases of Stakeholder Management

The principles discussed can be compressed into four phases:
 Phase 1: Stakeholder Mapping
This is basically the identification of stakeholders, in accordance with the strategy and overall
goals of the organization. Categorize them either as primary or secondary stakeholders.

The most recommended basis of segmenting your stakeholders would be on their power, or the
level of their ability to have an impact on your business or organization. Between your
shareholders and employee union leaders, for example, the one that has more power would be
your shareholders.

The identification of stakeholders should not be limited to the existing stakeholders. Managers
who are looking far ahead are also going to identify the potential stakeholders.

Phase 2: Stakeholder Listening

The best way to gain insight into your stakeholders is by listening to what they have to say. They
are bound to have questions of their own, which you must address. Aside from formal and
informal modes of communications, this can also be done through environmental scanning,
research and monitoring. Some businesses even undertake this stage by conducting surveys and
interviews.

Managers are encouraged to ask questions. It is a fact that not all information is going to be
handed to them readily. If they want to know something useful or relevant, there is nothing
wrong with asking the questions outright. When listening to the stakeholders, they should also
show empathy. Stakeholders prefer knowing that they are dealing with humans, instead of
machines.

After collecting all relevant information on the issues and position of the stakeholders, analysis
will follow.

Phase 3: Stakeholder Profiling

The information acquired from Stakeholder Listening will then be used to profile the
stakeholders, and start identifying or coming up with strategies. Note that managers will have to
make decisions and formulate strategies while always taking into account how these will impact
the stakeholders and their stakes in the business.

It is the responsibility of management to develop a management strategy for its stakeholders. In

addition, they are also tasked to develop the appropriate responses and actions that are needed to
build support for their stakeholder management strategy.

Managers could come up with the following stakeholder profiles:

 High power, high interest

 High power, low interest

 Low power, high interest

 Low power, low interest

Phase 4: Stakeholder Engagement

Again, as mentioned earlier, a company cannot have a single communication program for all the
stakeholders. Each stakeholder group has to have its own communication program or tool, since
there are simply aspects of one program that will work for one but not for others.Stakeholder
engagement is a two-way process, so it is something that takes place between the business and
the stakeholders.
It’s not just the business taking active part in the engagement activities.

Stakeholder engagement will also vary depending on the stakeholder. For example, in the four
profiled groups, managers are likely to decide to keep closer tabs on the stakeholders with high
power and high interest, providing them with periodic updates through logs and emails, and
conducting regular status meetings with them. As for those with low power and low interest, they
would probably just monitor them, and sending status reports from time to time.

Stakeholder management may fall largely on the shoulders of the management. However, it
involves the organization as a whole. Therefore, develop and implement strategies using a
coordinated organization-wide approach.