Chakravarti Rishi

Chakravarti Rishi

Word Count- 1932/PIN-10437

Subtopic 1: Rethinking of Corporate Social Responsibility

(CSR) and Social Entrepreneurship

Introduction

According to the World Bank, Corporate Social Responsibility can be defined as the

commitment of business to contribute to sustainable economic development working with

employees, their families, the local community, and society at large to improve their

quality of life, in ways that are both good for business and good for development.

CSR is nothing but voluntary strategies undertaken by companies to address issues

perceived as being a part of their social responsibility. It is about corporate management

strategies adopted by companies to minimize their negative impact on the environment

and society through their production activities and giving back to the society what the

corporation takes away from it. This concept is closely associated with the concept of

sustainable development which is the development that meets the needs of the present

without compromising the ability of future generations to meet their own needs.

The bone of contention:

Many might feel that caring about customers and employees are good for business, but

they might have some reservations at believing that a company has any responsibility to

its community and environment. They will argue that donating time and capital to

philanthropy is a drain from investors. After all, a company’s assets legally do belong to

the investors. The management’s duty is to increase shareholder value; therefore any

activity which doesn’t maximize shareholder’s value is a violation of this duty. However,

I feel that this argument is too narrow even though it may be true.

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Chakravarti Rishi

Global Initiatives Symposium in Taiwan 2009

Chakravarti Rishi

A certain amount of corporate philanthropy is good for business and is beneficial in the

long term for investors as well.

Now the question arises, where do we draw the line? If donating 10% of the profit to

CSR is good, then 20% would be better still! If we keep thinking this way then why not

donate 100% of a company’s profits to CSR activities? It is important to strike a balance

between the two as the company has responsibilities towards both the society as well as

its shareholders. We cannot arbitrarily point out that 10% or 20% is the “right amount”

for CSR donation.

Proposition:

I believe that a donation, of the above kind, by the companies for CSR purposes is not

sustainable for the community as well as for the company in the long run. There is a

symbiotic relationship between the two. I strongly believe that it is always better for the

corporation to help the community help themselves to make the whole CSR process

sustainable.

In this essay, I wish to highlight my proposition through a simple case study of one of

India’s leading companies and thereby present my model on how the issue of

sustainability can be addressed to.

How are Companies Responsible?

Economics studies two forms of externalities- positive and negative. An externality is

something that influences the society as a whole while it does not monetarily affect the

producer of a good.

A positive externality is something that benefits society, but in such a way that the

producer cannot fully profit from the gains made. A negative externality, on the other

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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship

hand, is something that costs the producer nothing, but imposes a cost on society in

general.

Pollution is a very common negative externality in production processes. A company

that pollutes loses no money in doing so, but society must pay heavily to take care of the

problem pollution caused.

The problem this creates is that companies do not fully measure the economic costs of

their actions. They do not have to subtract these costs from their revenues, which means

that profits inaccurately portray the company's actions as positive. This can lead to

inefficiency in the allocation of resources.

This allocation problem can be solved by internalizing the net cost inflicted on the society

by the company and through responsible behavior of the companies with respect to the

society and the environment. This is termed as ‘Corporate Social Responsibility’ in

modern day corporate philosophy.

A Case Study: Indian Tobacco Company Limited- ITC’s e-Choupal Initiative

-Helping communities help themselves

An Overview:

ITC’s Agriculture-Business Division, one of India’s largest exporters of agricultural

commodities, has conceived e-Choupal as an efficient supply chain aimed at delivering

value to its customers around the world on a sustainable basis while still contributing to

environmental conservation in the process.

The e-Choupal model has been specifically designed to tackle the challenges posed by

the unique features of Indian agriculture, characterized by fragmented farms, weak

infrastructure, the involvement of numerous intermediaries and limited knowledge on

environmental conservation by farmers.

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The Plan of Action:

‘e-Choupal’, with its judicious blend of technology and agricultural practices, has

installed village internet kiosks which are managed by farmers themselves. This enables

the agricultural community to access information in their local language on the weather,

market prices, disseminate knowledge on scientific farm practices and risk management,

facilitate the sale of farm inputs and purchase farm produce from the farmers’ doorsteps.

It also gives the farmers the know-how on environmental protection and resource

conservation.

The input provided by ‘e-Choupal’ enhances the ability of farmers to take decisions and

align their farm output with market demand and secure quality and productivity. This

gives them access to high quality inputs from established and reputed manufacturers at

fair prices.

Figure2: Flow Chart Showing ITC’s e-Choupal Initiative.

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The Impact

While the farmers benefit through enhanced farm productivity and higher farm-gate

prices, ITC benefits from the lower net cost of procurement (despite offering better prices

to the farmer) having eliminated costs in the supply chain that do not add value. This

outreach of technology in rural India has worked miracles for the poor farming

community in many rural villages in India.

This has also resulted in several Self-Help-Groups (SHGs) in rural India. With increased

prosperity (due to higher farm-gate prices offered by ITC), the farmers form groups of 6-

15 people in villages, where they pool funds from their savings. With this fund as

collateral they are able to access formal bank loans which are certain multiples of this

collateral. These SHGs are, thus, able to access more funds from the banks and this

money is used for other need based productive purposes for community development

(building schools and hospitals for themselves), giving rise to social entrepreneurship.

This has helped address several social issues which the local populace take care of by

themselves. Thus, the ‘e-Choupal’ initiative has a tremendous domino effect towards

community development in rural India.

From this we see that ITC has been able to provide better standards of living for the rural

farmers (stakeholders) as well as for its shareholders through increased profitability-

hitting two targets in one shot! The ‘e-Choupal’ initiative also has significant bearing on

the environment and resource management like water conservation and check on the use

of harmful pesticides.

Present Status:

Launched in June 2000, 'e-Choupal', has already become the largest initiative among all

Internet-based interventions in rural India. 'e-Choupal' services today reach out to over 4

million farmers growing a range of crops- soyabean, coffee, wheat, rice, pulses, shrimp-

in over 40,000 villages.

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The Model

- A push in the right direction

In order to illustrate an idea of companies helping communities help themselves through

execution of CSR practices, I propose the following simplistic 3 tier model:

Tier I:

Lay Down Basic Policy Guidelines: The company has to come out openly defining their

strategy towards community development and peg it with the growth of the company.

Making profit for this representative company is the means of attaining the goal of

fulfilling its core business mission. Besides other missions of this model company, it

aims at improving the wellbeing of the community; provide meaningful employment

opportunities for the youth in the community. The company cannot fulfill this mission

unless it is profitable. Profits are necessary to spur growth for the community. Just as

people cannot live without eating, similarly a business cannot live without profits.

Rational people don’t eat to live and so neither must a business operate to make profits.

Identify Key Persons: the execution of the policy effectively is crucial for the success of

this model of CSR implementation. The company should identify key players in the

community who have significant power for effective implementation of the strategy. For

example, it could be the SHGs or social entrepreneurs.

Tier II:

Interacting with stakeholders and identifying their priorities: the company along with the

key persons should have a dialogue with the local community members, government and

all the stake holders in this business. This will give an idea on the approximate social cost

which the company will be imposing on the livelihoods of the people.

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Working on a location specific strategy: After the priorities and requirements of the

stakeholders are identified, a strategy should be developed in conformation with the

needs of the local community and include it in the business practice of the company. For

example, adopting pollution abatement technologies, such as removing particulate matter

and sulphur from chimneys with ‘precipitators’, ‘treating’ sewage before releasing it in

water bodies and so on. This strategy will depend on the specific region the company is

targeting to set up their factory/business.

Training of Employees: The skill generation is necessary for the efficiency of the

workforce. Efficiency raises the productivity of the workers.

Tier III:

Laying Down the Measurement Parameters: After interacting with the stakeholders and

the employees, the management team should consult the government and decide on the

emission parameters of their factories. These standards will reflect the maximum cap on

the pollution emission which is absolutely unavoidable.

Evaluation: After a certain period of company operations in the locality, they must let

themselves be evaluated on several counts by the community on the benefits which the

company promised. In India, research has shown that companies which allow themselves

to be evaluated in this manner, which have wide ranging communication with the

stakeholders, win the understanding and approval of the market and help change the

market’s values. This form of evaluation bridges the gap between the community and the

corporation.

Rewards for Achievers: Any long-term solution requires the understanding of the

problems at all levels. While things may are relatively easier at the level of the MNCs

which are following a consistent code of conduct, the situation gets difficult for those

operating at lower levels and facing the pressure from clients whose objectives are not to

become good corporate citizens but just to get a lower price. This calls for the

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establishment of strong rewarding incentives, so that corporations become enticed to

provide information on their environmental and social performance. Rewards are

essential to make this corporation and the community development sustainable in the

long run.

The model is summarized below:

Figure3: The Model structure

Conclusion

“By pursuing his own interest [an individual] frequently promotes that of the society

more effectually than when he really intends to promote it.”

-Adam Smith, The Wealth of Nations

CSR lies at the heart of a company's comprehensive activities aimed at maintaining

harmony between the corporation, society, and the environment with an eye on

sustainable development. Like any other practices- medicine, law- business too, has noble

purposes: to provide goods and services that improve its customers' lives, to provide jobs

and meaningful work for employees, to create wealth and prosperity for its investors, and

to be a responsible and caring citizen benefiting the society.

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LAYDOWN BASIC

POLICY GUIDELINES

IDENTIFY KEY PERSONS

INTERACT WITH

STAKEHOLDERS LAY DOWN STRATEGY TRAIN EMPLOYEES

LAY DOWN

MEASUREMENT

PARAMETERS

EVALUATION

REWARDS FOR

ACHIEVERS


I believe that corporations add far more to society by maximizing their business goals

than they do by merely donating time and money to charity. It is important that the

society benefits and grows along with the company to make the CSR sustainable in the

long run.

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Chakravarti Rishi

References

Books and Articles referred to:

• Asongu, J.J. (Spring 2007), The History of Corporate Social Responsibility,

Volume 1, Number 2

• Assisi, C. and I. Gupta (January, 2003): “ITC’s Rural Symphony”, Business

World, 14-20, 30-37

• Basu, Priya: Improving Access to Finance for India’s Rural Poor, 62,63

• Milton Friedman (1970), The New York Times Magazine, September 13

• Sawhney, M. (2002): “Fields of Online Dreams”, The CIO Magazine, October 15

Websites referred to:

• http://www.i4donline.net/oct05/dgaward.pdf

• http://www.worldbank.org/

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Chakravarti Rishi