Corporate Social Responsibility

Business Government and Society in India

The Evolving Idea of Social Responsibility

The fundamental idea is that corporations have duties that go beyond carrying out their basic economic function in a lawful manner. Over time the doctrine has evolved to require more expansive action by companies largely because: Stakeholder groups have gained more power to impose their agendas The ethical and legal philosophies underlying it have matured
Corporate social responsibility The duty of a corporation to create wealth in ways that avoid harm to, protect, or enhance societal assets.

In search of a complete Definition

What is Corporate Social Responsibility?
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. World Business Council For Sustainable Development

A (non)voluntary initiative on the part of a business to contribute to a better society and a greener and cleaner environment.

CSR! Is that really for me? So technical, very expensive!! Im overwhelmed

What is CSR?
Concept of CSR often criticized because of lack of legally defined or commonly accepted definition. Is this criticism justified?

Should it matter that CSR is not legally defined or subject to a single universal definition?
By comparison, the term corporate governance is not in itself legally defined or subject to a commonly accepted definitionthe term is associated with concepts, ideas and principles that evolve over time. Arguably, CSR should never be given a fixed definition. This will foster evolution.

Myths surrounding CSR

CSR is not for small businesses It is too complicated and technical It is too expensive It is a market gimmick

It is a separate corporate initiative

Corporate Social Responsibility (CSR)

Corporate Citizenship Concepts Corporate social responsibility emphasizes obligation and accountability to society Corporate social responsiveness emphasizes action, activity Corporate social performance emphasizes outcomes, results

Corporate Social Responsibility (CSR)

Business Criticism/ Social Response Cycle

Factors in the Societal Environment Criticism of Business Increased concern for the Social Environment A Changed Social Contract

Business Assumption of Corporate Social Responsibility Social Responsiveness, Social Performance, Corporate Citizenship

A More Satisfied Society

Fewer Factors Leading to Business Criticism Increased Expectations Leading to More Criticism

Benefits of CSR
Winning new businesses

Legislative Framework

Increase in customer retention

Enhanced Relationship with stakeholders

Saving money on energy and operating cost

Benefits of CSR
Enhancing your influence in the industry

Attracting, Retaining and Maintaining a happy workforce

Differentiating yourself from the competitor

Media interest and good reputation Access to funding opportunities

CSR Initiatives
CSR Projects for Businesses
Employee focused initiative Market focused initiative

Society focused initiative

Result - Driven CSR = Benefits

Product focused initiative

Environmentally focused initiative

Corporate Social Responsibility Continuum

Do more than required; e.g. engage in philanthropic giving Integrate social objectives and business goals

Maximize firms profits to the exclusion of all else

Fight social responsibility initiatives

Balance profits and social objectives

Lead the industry and other businesses with best practices

Do what it takes to make a profit; skirt the law; fly below social radar

Comply; do what is legally required

Articulate social value objectives

Social Responsibility in Classical Economic Theory

Throughout American history, classical capitalism has been the basic inspiration for business. In this view, a business is socially responsible if it maximizes profits while operating within the law. The idea that markets harness low motives and work them into social progress has always attracted skeptics. Today the classical ideology still commands the economic landscape, but ethical theories of broader responsibility have worn down its prominences.

CSR Models
Position Minimalist Self interested Responsible to Stockholders/owners Stockholders/ owners/ cost controllers Those with social and legal contract Those who influence direction and fortunes Society as whole / future therefore Maximizing profit Do good when furthers quest for growth and profit Goes beyond law to spirit of commitment Develop responsive strategies Solutions for social problems

Social contract Stakeholder Management Stakeholder stewardship

The Early Charitable Impulse

Most colonial era businesses practiced frugality, yet charity was a coexisting virtue. The wealthy endowed social causes as individuals, not through their companies. Steven Girard changed the climate of education in the United States by bequeathing $6 million for a school to educate orphaned boys. John D. Rockefeller systematically gave away $550 million over his lifetime. Andrew Carnegie gave $350 million over his lifetime to causes that would elevate the culture of a society. Carnegie believed fortunes should not be wasted by paying higher wages or giving gifts to poor people.

The Early Charitable Impulse (continued)

People such as Andrew Carnegie and Herbert Spencer believed in the doctrine of social Darwinism when it came to charity. Social Darwinism held that charity interfered with the natural evolutionary process in which society shed its less fit to make way for the better adapted. Additionally, courts consistently held charitable gifts to be ultra vires (beyond the law) because charters granted by states when corporations were formed did not expressly permit them.

Social Responsibility in the Late Nineteenth and Early Twentieth Centuries

Giving, no matter how generous, was a narrow kind of social responsibility often unrelated to a companys impacts on society. During the Progressive era, three interrelated themes of broader responsibility emerged: Managers were trustees Managers had an obligation to balance multiple interests Many managers subscribed to the service principle

Social Responsibility in the Late Nineteenth and Early Twentieth Centuries (continued)
Henry Ford touted citizenship but was ultimately unconcerned about the welfare of his employees. General Robert E. Wood believed in responsibility to customers, the public, employees, suppliers, and finally stockholders. 1920s and beyond, organized charities began forming to which corporations contributed: Community Chest Red Cross Boy Scouts

1950The Present
Contemporary understanding of corporate social responsibility formed during this period. Social Responsibilities of the Businessman Dissenters to this theory were conservative economists who claimed that business is most responsible when it makes money efficiently, not when it misapplies its energy to social projects. 1971 Bold statement by the Committee for Economic Development outlining three concentric circles of responsibilities. 1981 Statement on Corporate Responsibility from the Business Roundtable.

Basic Elements of Social Responsibility

General Principles of Corporate Social Responsibility

Corporations are economic institutions run for profit. All firms must follow multiple bodies of law. Managers must act ethically Corporations have a duty to correct the adverse social impacts they cause. Social responsibility varies with company characteristics. Managers should try to meet legitimate needs of stakeholders. Corporate behavior must comply with norms in an underlying social contract. Corporations should also accept a measure of accountability toward society.

Are Social and Financial Performance Related?

A recent review of 95 studies over 30 years found that a majority (53 percent) of businesses showed a positive relationship between profits and responsibility, while only 5 percent showed a negative one.

Results inconsistent and ultimately inconclusive due to methodological questions. Safe to say corporations rated high in social responsibility are no less profitable than lower rated firms.

Corporate Social Responsibility in a Global Context

By the end of the twentieth century the doctrine of corporate social responsibility had been widely accepted in industrialized nations. Recent debates over the duties of corporations in their international operations.
International law is weak in addressing social impacts of business. Giant corporations may not be subject to strong laws and regulations in foreign countries. In adapting to global economic growth corporations have used business strategies that distance them from direct accountability or social harms. More national regulation of multinational corporations is unlikely.

Corporate Social Responsibility in a Global Context (continued)

Extraterritoriality enforcement is problematic. Nongovernmental organizations (NGOs) voluntary organizations becoming powerful advocates of restricting corporate power outside the borders of industrialized nations. Pushed for UN-sponsored conferences on the environment, population, human rights, social development, and gender. Soft law statements of philosophy, policy, and principle found in nonbinding international conventions

Global CSR: Development of Norms and Principles

Norm a standard that arises over time and is enforced b social sanction or law Principle a rule, natural law, or truth used as a standard to guide conduct Milestones in the development of norms
U.N. Universal Declaration of Human Rights Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy Norms on the Responsibilities of Transnational Corporations

Global CSR: Codes of Conduct

Codes of conduct set forth aspirations, principles, guidelines, and rules for corporate behavior. Created by companies, trade associations, NGOs, governments, and international organizations. The target is the corporation The codes effectiveness depends on how the corporation carries it out. Many codes are weak because they lack the force of law

IS CSR a Voluntary Concept?

Some definitions (e.g. European Union) describe CSR as a voluntary concept. Given the multitude of initiatives that promote CSR (e.g. Global Compact, Global Reporting Initiative, OECD Guidelines) in a voluntary fashion- not surprising CSR is perceived in this way However, recent legal developments suggest CSR is no longer a voluntary concept. Two major areas of development: Reporting and Directors Duties

Mandatory CSR Reporting

Backed by increasing calls from investors and the community for more disclosure and reporting on CSR issues, many jurisdictions have now introduced mandatory corporate reporting requirements on environmental and social matters:

Australia France South Africa Sweden Canada Denmark Netherlands Norway And very soon the UK.

Global CSR: Reporting and Verification Standards

Sustainability reporting the practice of a corporation publishing information about its economic, social, and environmental performance Two problems of sustainability reporting:
Defining and measuring social performance is difficult Reports are not comparable from company to company

Global CSR: Labeling and Certification Schemes

Influence the market on the demand side. Criteria for labels set by industry, NGOs, unions, and sometimes governments. Certifications promote many ideals including human rights, fair trade, and campaigns against child labor.

Global CSR: Management Standards

Eco-Management and Audit Scheme (EMAS) International Standards Organization (ISO)

Global CSR: Social Investment and Lending

U.N. Principles for Responsible Investment require signatories to consider a companys environmental, social, and governance performance when they invest. FTSE4Good Global Index is intended to set the world standard for investors seeking companies that meet globally recognized corporate responsibility standards.

International Finance Corporation (IFC) seeks to promote development and reduce poverty by funding projects for corporations.

Global CSR: Government Actions and Civil Society Vigilance

Governments advance corporate responsibility through binding regulation and by actively promoting voluntary actions. NGOs watch multinational corporations and police actions they see as departing from emerging norms.

Assessing the Evolving Global CSR System

As multinational corporations grew in power with the expansion of global trade, a perceived deficiency in regulation was countered by action within civil society. No company can remain aloof from the emerging global CSR system that promotes and enforces corporate adherence to international CSR standards .

An important issue is whether or not the emerging system is the most appropriate way to regulate large corporations.

Concluding Observations
Historically, corporations have been motivated primarily by the central focus on profits. Corporations are now being pressured to alter this focus. The idea of corporate social responsibility has continuously expanded in meaning. The power of stakeholders to define corporate duty has increased. The explosive growth of global trade and global corporations has created new standards and practices of social responsibility tied to global norms.