Introduction to Corporate Social Responsibility

by Anirudh Agrawal
 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”
Lord Holme and Richard Watts

•   Corporate social responsibility encompasses not only what

companies do with their profits, but also how they make them. It
goes beyond philanthropy and compliance and addresses how
companies manage their economic, social, and environmental
impacts, as well as their relationships in all key spheres of
influence: the workplace, the marketplace, the supply chain, the
community, and the public policy realm.
Harvard University
 Most definitions of corporate social responsibility describe it as a concept where
by companies integrate social and environmental concerns in their business operations
and in their interaction with their stakeholders on a voluntary basis”.
(EU, 2001 – Green Paper

“CSR is about how companies manage the business processes to produce an

overall positive impact on society.

“Achieving commercial success in ways that honour ethical values and respect
people, communities, and the natural environment”

“a commitment to improve community

well-being through discretionary business
practices and contributions of corporate
resources”. Philip Kotler & Nancy Lee (2005)
 Main Concepts of CSR

CSR (Carrol, 1979)

Firms have responsibilities to societies including economic, legal, ethical and
discretionary (or philanthropic).
- See also DeGeorge (1999) on the “Myth of the Amoral Firm”

Social Contract (Donaldson, 1982; Donaldson and Dunfee,

1999) – There is a tacit social contract between the firm and
society; the contract bestows certain rights in exchange for certain
responsibilities.

Stakeholder Theory (Freeman, 1984) – A stakeholder is “any

group or individual who can affect or is affected by the
achievement of an organisation’s purpose.” Argues that it is in
the company’s strategic interest to respect the interests of all its
stakeholders.
• The Pyramid of Corporate Social
Responsibility is a graphic depicting the four-
part definition of CSR that envisions a
pyramid composed of four layers.
The Pyramid of Social Responsibility
PHILANTHROPIC
Responsibilities
Be a good Corporate Citizen.
Contribute resources to the
community; improve quality of life.

ETHICAL
Responsibilities
Be ethical.
Obligation to do what is right,
just and fair; Avoid harm.

LEGAL
Responsibilities
Obey the Law
Law is society’s codification of right and wrong;
Play by the rules

ECONOMIC
Responsibilities
Be Profitable
The foundation upon which all others rest

Source: Carroll (1991)

 Economic Components
• It is important to perform in a manner consistent
with maximising earnings per share
• It is important to be committed to being as
profitable as possible
• It is important to maintain a strong competitive
position
• It is important to maintain a high level of
operational efficiency
• It is important that a successful firm be defined
as one that is consistently profitable.
 Legal Components
• It is important to perform in a manner consistent
with expectations of government and the law.
• It is important to comply with various national and
supra-national laws and regulations.
• It is important to be a law-abiding corporate
citizen.
• It is important that a successful firm be defines as
one that fulfils its legal obligations.
• It is important to provide goods and services that
at least meet the minimal legal requirements.
 Ethical Components
• It is important to perform in a manner that is consistent
with the expectations of societal mores and ethical
norms.
• It is important to recognise and respect new or
evolving ethical/moral norms adopted by society.
• It is important to prevent ethical norms from being
compromised in order to achieve corporate goals.
• It is important that good corporate citizenship be
defined as doing what is expected morally or ethically.
• It is important to recognise that corporate integrity and
ethical behaviour go beyond mere compliance with
laws and regulations.
 Philanthropic Components
• It is important to perform in a manner consistent
with the philanthropic and charitable expectations
of society.
• It is important to assist the fine and performing arts.
• It is important that managers and employees
participate in voluntary and charitable activities
within their local communities.
• It is important to provide assistance to public and
private educational institutions.
• It is important to assist voluntarily those projects
that enhance a community’s ‘quality of life’.
 Key drivers of CSR

Around the world Developing Countries

• NGO Activism • Foreign customers
• Responsible investment • Domestic consumers
• Litigation • FDI
• Gov & IGO initiatives • Government & IGO
 CSR Management:
Plan, Do, Check, Act method

Plan Do
• Consult stakeholders • Establish management
• Establish code of systems and personnel
conduct • Promote code
• Set targets compliance

Check
Act • Measure progress
• Corrective action • Audit
• Reform of systems • Report
CSR Act 2013
• The new Companies Act 2013, lays down that 2% of
profits earned by a certain class of companies must
be spent on corporate social responsibility activities.
• It is estimated that an estimated Rs.27,000 crore will
flow into grassroots development and social
enterprise sectors every year.
• According to the Indian Institute of Corporate Affairs,
out of the 1.3 million companies in India, about 7,000
companies are covered under the new CSR rule.
 CSR: Companies Act 2013-Section 135

• Companies Mandated to constitute a CSR Committee

– Networth of Rs 500 Crore or more
– Turnover of Rs 1000 Crore or more
– Net profit of Rs 5 Crore or more
• CSR Committee to have
– Three or more directors
– At least one is to be an independent director
• Board’s Report shall disclose the constitution of CSR Committee
• CSR Committee will
– Formulate CSR policy and recommend to board indicating the
activities to be undertaken as specified in schedule vii
– Recommend the amount of expenditure to be incurred
– Monitor CSR Policy from time to time
 CSR: Companies Act,2013
• Board of Directors will
– Approve CSR Policy
– Ensure implementation of CSR policy
– Disclose the contents of CSR policy in the Board report
– Place the same on company’s website, if any
– Ensure CSR spending amounting to at least 2% of the
average net profit of the preceding three
financial years
• Board’s Report shall specify the reasons for not spending
the specified amount
• There is no penalty for failure to spend 2% of net profit on
CSR
 Schedule VII Activities
• Eradicating extreme hunger & poverty
• Promotion of education
• Promoting gender equality and empowering women
• Reducing child mortality and improving maternal health
• Combating human immunodeficiency virus, acquired immune
deficiency syndrome, malaria and other diseases
• Ensuring environment sustainability
• Employment enhancing vocational skills
• Social business projects
• Contributions to Prime Minister Fund or any other fund set up by
the Central Government or the State Governments for socio-
economic development and relief and funds for the welfare of the
Scheduled Caste and Schedule Tribe
• such other matters as may be prescribed
 Educating Voters Through CSR
• Thrust is on Women’s participation in Electoral Process
• Activities included in schedule VII of the Act covers ‘Gender
equality and Women’s empowerment’
• Corporates are free to formulate CSR policy including
projects/programme to be undertaken, amount to be spent,
community/geographical area to be covered etc.
• The Act provides that the company shall give preference to
the local areas
CSR Expenditure (Rule 4 &7)

• Shall include
– all expenditure including contribution to corpus of the CSR
projects, approved by the Board on recommendation of the CSR
Committee;
• Shall not include
– any expenditure on an item not in conformity with activities listed
in Sch.VII
– Contribution to Political parties
– Projects that benefit only employees/their families
– Projects outside India
– administrative expenses beyond 5% of CSR Exp.
 Trust or a Society
or a Section 8
Company
established by the
company
Company Itself

Collaboration with
another Company

CSR
Vehicles
With a track
Independent Trust
or Society or record of 3 years
another company in executing
similar programs
 ISO 26000 Roadmap
Principles of SR
1. Ethical behaviour 2. Respect for rule of law
3. Respect for international norms of behaviour
4. Respect for and considering of stakeholder interests
5. Accountability 6. Transparency
7. Precautionary approach 8. Respect for human rights

Core Subjects Implementing SR

7.3 Working With Stakeholders

Organizational Governance
7.2 7.4
Defining scope Integrating into organization
Fair operating practises
Community & society
Consumer issues
Labour Practises

7.5
Human Rights

development
Environment

Implementing in daily practise

7.7
Evaluating performance

7.8
Enhancing credibility

7.3 Communicating