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CHAPTER-V

CURRENT TRENDS IN CSR PRACTICES: ISSUES

& CHALLENGES IN ITS IMPLEMENTATION

& REGULATION

After analys ing the meaning, nature & scope of CSR, histor ica l

background, its relat ionship with corporate governance & sustainable

development in Chapter -I, II & III respect ively br ing to the forefront

the importance and significance o f CSR in current socio -economic

environment created by liberalizat ion & globalizat ion and changing

nature of State. The irresponsible behaviour on the part of Corporate

is diminishing their social acceptance and they are loosing faith &

credibilit y in society. This situat ion coupled with corporate fraud &

r is ing gap between r ich & poor as a result of pr ivat izat ion may one

day force populist governments in welfare state to reve rse t he t rend o f

Liberalisat ion/Pr ivat isat ion, which may threaten the existence o f

corporate itself. So, by now we are aware o f cr it ical importance o f

having socially responsible behaviour by Corporates. Now the next

quest ion that ar ises is how to make the corporate responsible? The

histor ical background suggests that historically Corporate Socia l

Responsibilit y pract ices are vo luntary and in t he nature o f

philanthropy i.e. char it y which means that it is not obligatory and

can‟t be forced upon them. But whe n we examined the ro le o f

government ( legislature & execut ive) and judic ial approach towards

CSR, it came to not ice that there is comprehens ive legis lat ive

framework which supports CSR which means indirect regulat ion.

Judiciary also seems favour ing regulat ing CSR by searching the roots

of CSR in jur isprudent ial postulates and relat ing corporate behaviour

with const itut ional mandate. However t ill now there is no specific

regulat ion on CSR. There are some guidelines which are vo luntary in

nature. The provis io n o f CSR in proposed Company Bill , 2012 is also

not purely mandatory in nature rather it is only about CSR report ing.

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So, present ly in India CSR is vo luntary in nature and not yet

regulated. The debate about regulat ing and non regulat ing is st il l

cont inuing. In the ongo ing chapter the current t rends in respect of

regulat ing CSR pract ices in some o f the important countries like

U.S.A., U.K., Australia and France are being examined to ascertain

the current trends on regulat ing CSR.

5.1 Recent Trends in United States of America

The concept of CSR arose in the USA in the form o f corporate

philanthropy. The concept is contro lled by the American companies

themselves. Consequent ly, CSR in the USA seems somewhat

ambiguous as there are limit ed guidelines for compan ies to fo llow in

their work with CSR. However, there are scho lars who have fo llowed

the development of CSR in the USA and contr ibuted to the discussion

on the mat ter. It is obvious from these contr ibut ions that CSR is st il l

to a great extent regarded as co rporate philanthropy. Corporate

philanthropy, however, goes for beyond the concept o f modern CSR,

as it can be dated back to the seventeenth century. Back then it was

prominent business people who made donat ions and not the actua l

company. It was not unt il the late 1800s that corporate philanthropy

was linked direct ly to the company. However, at this stage it was not

at all t ied to the company‟s st rategy.1

CSR today is t ied to a company‟s core business and explo ited as

a st rategic management and market ing tool. Nevertheless, Kot ler and

Lee2 among others, argue that American CSR is st ill connected to

corporate philanthropy. This seems to be emphasized in t he six CSR

init iat ives that Kot ler and Lee in t he their book “Corporate Social

Responsibilit y Do ing the Most Good for Your Company and Your

Cause”, a book intended to guide business managers, execut ives and

1 Susan Vangedal, Corporate Social Responsibility; A comparative Analysis of Denmark and the

USA, 2010 2 John Wiley & Sons, Corporate Social Responsibility; Doing the most good for your company and

your cause, 2005: 23-24

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their staff in their work with CSR. The six init iat ives, Promotion

Cause, Re lated Market ing, Corporate Social Market ing, Corporate

Philanthropy, Communit y Vo lunteer ing and Socially Responsible

Business Pract ices are int roduced and discussed in the next

subsect ion. However, in order to discuss whether these init iat ives are

all really concerned with philanthropy, seemingly, two different

concept ions of philanthropy exist in the literature. The one concept ion

regards philanthropy char it y, which is evident in the fo llowing

definit ions:

“Donating money to a good cause is the same as philanthropy”3

“Most philanthropic activities involve giving money to other

organizations that actually deliver the social benef it”4

The other concept ion also regards philanthropy as the pract ice

of donat ing money, but in add it ion it regards contr ibut ions o f

company resources- t ime, goods, knowledge etc as philanthropy as

long as the donat ions support a good cause or improve human life.

This is evident in the Fo llowing definit ions:

“Philanthropy is the practice of giving money or help to people

who are poor or in trouble.”5

“Philanthropy is an altruistic concern for human welfare and

advancement, usually manifested by donations of money, property, or

work to needy persons, by endowment of institutions of learning and

hospitals, and by generosity to other socially useful purposes.”

5.1.1 Corporate Social Responsibi lity Initiatives

Even though CSR and the belonging init iat ives are determined

and init iated by the American companies themselves, this sect ion will

descr ibe and discuss the six init iat ives established by Kotler and Lee.6

3 Neergaard Peter, DJurso, Tolboll, "Social Ansvarlighed, Fra idealisme til Forretnings princip"

Academica, Denmark, 2006, P. 21. 4 Porter , E. Michael, Kramer R. Mark, "The Competitive Advantage of corporate Philanthrophy",

Harvard Business Review of Corp. Responsibility, PP. 27-64. 5 Longman, "Dictionary of Contemporary English", Longman Group Ltd, 1995 .

6 Supra note 2.

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I. Corporate Philanthropy

Kot ler and Lee descr ibe this in it iat ive as the most t radit iona l

CSR init iat ive in t he USA, and as the label indicates, the init iat ive is

centered on companies making a direct contribut ion to a cause, often

in the form o f money donat ions. However, companies can also

contr ibute with other corporate resources such as products, awarding

scho larships, provid ing a service on technical expert ise. The fact that

the authors include such init iat ives in their descr ipt ion o f the

“corporate philanthropy” init iat ive suggests that they regard

philanthropy from the second view as well. Nevertheless, they have

deliberately chosen to dist inguish some o f t he init iat ives from

philanthropy, for example the init iat ive “Cause promotion. Their

reasons are presented and discussed along with the presentat ion o f th e

different init iat ives.

II. Cause Promotion

The object ive o f the CSR init iat ive “Cause Promotion” is to

increase awareness and concern for a certain social cause. “Cause

promotion” init iat ives most o ften include act ivit ies that seek to

persuade others, for example other companies, to donate money or

t ime to the actual cause.

Companies engaging in “Cause Promotion”7 most commonly

contr ibute with money that can help to increase awareness and

concern for the cause in quest ion. Second, it is common to contribut e

with t ime and expert ise, for example by help ing to develop pr int ed

mater ials, websites etc. that promote the cause. “Cause promotion” is

one of the init iat ives that Kot ler and Lee have dist inguished fro m

philanthropy. The separat ion o f these two init iat ives is based on the

fo llowing explanat ion:

7 Cause promotion is not for selling a product to customer like business promotion. It aims to make

people aware of social issues in the hope they would change their behaviour, such as not wasting

water, caring about public health, preventing air pollution and preventing infections diseases.

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“Cause promotion differs from philanthropy in t hat it invo lves

more from the company than simply writ ing a check, as promot iona l

campaigns will most often require invo lvement in the development

and dist r ibut ion o f mater ials and part icipat ion in public relat ions

act ivit ies, and will include visibili ty for the corporat ion‟s

sponsorships.”

Based on the definit ions o f philanthropy that this thesis takes

point of departure in, it seems that “Cause Promotion” is just an

init iat ive covered by the big umbrella of philanthropy. Kot ler and

Lee‟s argumentat ion presupposes that philanthropy is all about

donat ing money, despite the fact that in their presentat ion o f t he

init iat ive, “Corporate philanthropy” they argue that comp anies can

contr ibute with other things such as t ime, resources and knowledge.

Consequent ly, it seems reasonable to conclude that their

argumentat ion is self-contradictory, and therefore not persuasive

enough to maintain the separat ion of the two init iat ive s. In other

words, this thesis regards “Cause Promotion” as a philanthropic CSR

init iat ive.

III. Cause Related Marketing

“Cause Related Market ing” is an init iat ive where companies

make a money donat ion to a specific cause based on its scale o f a

certain product . Companies can for example choose to donate a

spec ific amount of money for each product sold, or a certain

percentage o f their profit from a product .

IV. Corporate Social Marketing

The purposes o f “Corporate Social Market ing ” init iat ives is to

influence and in t he long run, change a part icular public behaviour,

most often within the areas o f public health, safety, the environment

or community well being. Companies that engage in social market ing

init iat ives most often engage is co llaborat ions with organiz at ions that

are the promoters behind the behaviour change pro ject . The

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company‟s ro le is t herefore centered on support ing the work with the

actual behaviour change campaign. There are many ways in which a

company can contr ibute in t his respect , both with e xpert ise, money,

equipment , resources etc.

The “Corporate Social Market ing” init iat ive is quite similar to

the “Cause promot ion” init iat ive. Never theless, the lat ter init iat ive

focuses on build ing awareness and concern, whereas “Corporate

Social – Market ing” init iat ives focus on behaviour change.

V. Socially Responsible Business Practices

This is when a corporat ion adopts a way of working so that the

environment is protected and there is communit y well -being.

VI. Community Volunteering

“Community vo lunteer ing” is the sixt h of Kot ler and Lee‟s six

CSR init iat ives. The init iat ive is based on companies encouraging its

employees and business partners to vo luntarily donate their t ime and

talent to organizat ions or causes. Companies can do so in severa l

ways, for example, by giving the emplo yees some paid t ime o ff to do

vo lunteer work, or suggest specific causes and provide the employees

with informat ion needed in order to get invo lved. This init iat ive is

quite different from the other CSR init ia t ive, as it only invo l ves the

employees and business partners o f a company.

5.1.2 CSR in the US Today

Today, in the US, there is widespread awareness about CSR.

There is a dist inct ive emphasis on the stakeho lder theory,

sustainabilit y, corporate cit izenship, systemic r isks o f business,

business int egr it y, accountable corporate governance, and ethical and

responsible leadership. Thus, it is apparent from the emphases that the

focus has widened to every field o f business, including ethica l

challenges in techno logical innovat ion, human r ights, equalit y in

dist r ibut ion of benefit s, and sustainable environment pract ices.

Businesses in t he US usually encouraged vo lunteer ism, while giving

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communit ies resources with philanthropic programmes, and compared

to Europe and Asia, in t he US ph ilanthropic pract ices were most

established .Many business organizat ions are put t ing in place ethica l

business processes and codes o f ethics. There is a closer

understanding o f how to manage ethical r isks in organizat ions. At the

business leadership level, ethics t raining is receiving much at tent ion.

Training in areas o f ethical decis ion-making, ethical leadership

development , which also includes how to use power, is becoming

extremely popular. Ensur ing int egr it y in all act ivit ies and conduct of

the leader is being endorsed by all. American companies are

promoting ethical business pract ices because American consumers

like to ident ify with companies that pract ice ethical behaviours

beyond legal requirements. The modern awakened consumers fee l

sat isfied when they believe that they are connect ing with a brand due

to its moral and ethical make-up and buying qualit y products. This

encourages the American companies to reveal and public ize a genera l

st rategy o f CSR pract ices and st rategies, which include consumer

safety, equal opportunity emplo yment pract ices, non-explo itat ive

supply chain processes, and environment -fr iendly techno logies. An

example o f business contribut ing to society is Carnegie (the stee l

tycoon), who gave away most of his money to establish many

librar ies, schoo ls, and universit ies in t he US, the UK, and other

countr ies, as well as established a pension fund for former emplo yees.

To inculcate ideas about ethics and responsibilit y among managers,

business ethics and social responsibility have become important

themes in research and teaching. There has been a sustained effort to

promote social responsibilit y among business organizat ions since

1995.

Business scams centre around account ing frauds like Enron,

World Com (at one t ime, the second largest long-distance phone

company grew rapidly by acquir ing other telecommunicat ions

companies), Tyco (a major US company that produced a var iety o f

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products, from electronic components to healthcare products and

operated in more than a 100 countr ies), and enviro nment as well as

human disasters like the Bhopal gas t ragedy have increased the need

to review responsibilit y as a requirement for future sustainabilit y.

Var ious act ions based on mandatory regulat ions and codes have been

taken to ensure more t ransparent CSR. The Sarbanes-Oxley Act8 was

passed in 2002 as a safeguard against frauds like Enron. The Act is

meant to accomplish qualit y and t ransparency in financial report ing,

independent audits, and account ing services for public companies.

The Child Labour Deter rence Act (the Harkin Bill) was passed

through US Congress to safeguard children against unfair

explo itat ion. However, this kind o f regu lat ion led to tens o f t housands

of children in Bangladesh and elsewhere to lose their jobs and be

impover ished, showing how interconnected business is and one has to

be careful in designing the st rategy o f CSR. However, st ill t here is a

gap in the shar ing o f best pract ices among industry and among

regions. The challenges that need to be at tended to are globa l

sustainabilit y, which analyses the issues of corrupt ion and poverty

that create a gap between the pr ivileged and the under -pr ivileged

sect ions o f a society. There is an urgent need to promote thought

leadership among business managers, so that a holist ic growth is

encouraged, more than just earning pro fit for shareho lders. Businesses

have to realize that because o f their widespread impact , they can no

longer avo id issues related to moralit y and good governance. A broad

understanding o f the r isks invo lved in the business wor ld, whether

related to techno logical innovat ion or human r ights have to be

weighed with much considerat ion, so that the least harm is caused.9

8 The Sarbanes enacted on July 30, 2002, also known as the 'Public Company Accounting Reform

and Investor Protection Act and 'Corporate and Auditing Accountability and Responsibility Act and More commonly called Sarbones- Oxley, Sarbox or Sox, It is named after US Senator Paul

Sarbones and US representative Micheal G. Oxley. 9 Madhumita Chatterji; Corporate Social Responsibility, Oxford University Press, 2011, PP. 295-

296.

308

Thus we see that the concept of CSR arose in USA in the for m

of corporate philanthropy, is vo luntary in nature and controlled by the

Amer ican companies themselves. The CSR today is t ied to the

company‟s core business and explo it ed as a st rategic management and

market ing tool. CSR pract ices in USA are basically controlled by

companies t hemselves and they have been basica lly assoc iated wit h

business development . So, CSR pract ices in U.S.A. are vo luntary in

nature and not regulated by any specific & dedicated law h owever,

there are many legis lat ive provisions which relate to those act ivit ie s

which fall in t he ambit CSR and they are being examined as under:

US Corporate Constituency and Anti -Takeover Laws10

The corporate law of many comparable jur isdict ions now

permit s and somet imes even requires corporate directors to consider

not only shareho lder interests, but also non-shareho lder interests and

the third party effects o f corporate decisions and act ions too, as

reflected in laws governing directors‟ dut ies and business judgment

defenses. Authoritative US-based guidelines on corporate

governance stipulate that while „a corporation should have as its

objective the conduct of business activities with a view to enhancing

corporate prof it and shareholder gain‟ , a corporation must „act

wi thin the boundaries set by law‟, can justif iably allocate „a

reasonable amount of resources to public welfare, humanitarian,

educational, and philanthropic purposes‟ , and is ent it led to „take into

account ethical considerat ions that are reasonable regarded as

appropr iate to the responsible conduct of business‟ and it can do al l

of these things „even if corporate profit and shareho lder gain are not

thereby enhanced‟.

By the end o f the 20th century, Corporate Constituency

Statutes ostensibly promoting interests beyond shareho lder interests

10 Bryan Horrigan, 21st Centaury Corporate Social Responsibility Trends-An Emerging Comparative

Body of Law and Regulation on Corporate Responsibility, Governance and Sustainability,

MqJBL (2007) Vol. 4, P.103.

309

had been enacted in many US states. Character ist ically, t hey empower

corporate execut ives to consider a wide range o f int erests in corporate

decis ion-making, including the int erests of employees, customers,

creditors, and local communit ies. Their impetus lay in equ ivalent

amendments to Corporate charters by members, t he long-standing

debate about CSR, the r ise o f stakeholder theory in influent ia l

Amer ican business and management schools, and the need for

legislated ant i-takeover protect ion in t he USA in the lat ter part of the

20th century.11

Many o f the const ituency statutes in American states

were introduced from the 1980s onwards not simply to guard against

undes irable takeovers as such, but to ensure that state employment

and services provided by companies for local communit ies would not

be adversely affected by the result ant asset -st ripping, sell-o ffs, and

lay-o ffs inevit ably result ing from some takeovers.

At the same t ime, many o f these standard corporate

const ituency laws seem at face value to go beyond exist ing leeways o f

manager ia l discret ion, and to permit outcomes beyond simply self-

int erested maintenance o f corporate control by exist ing directors,

even if they happen to produce that effect too. So, properly viewed,

eit her they cannot be seen simply as an ant i-takeover device, or else

their ant i-takeover ro le must be assessed by reference to the

background int erests thereby served. On either view, the context o f

their or iginal int roduct ion and their relat ive lack o f success so far in

CSR terms does not completely preclude their applicabilit y to CSR

contexts in t he future.12

Thus we see that there are provis ions like

Corporate Constituency Statutes & Anti- Takeover law which

provide protect ion to var ious stakeho lder and govern those aspects

which relate to CSR. Thus in U.S.A., even though there is no specific

11 E Orts, „Beyond Shareholders: Interpreting Corporate Constituency Statutes‟ 61 George

Washington Law Review 4, (1992), P. 16-25. 12

S Deakin, „The Coming Transformation of Shareholder Value‟, Corporate Governance: An

International Review (January 2005) 13(1), PP. 11-18.

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legislat ion on CSR but there are many CSR related legislat ion.

5.2 Recent Trends in United Kingdom

The range o f possible definit ions o f „CSR‟ in U.K. is closely

related to two considerat ions. First , the extent to which importance is

placed on the central it y o f the „bus iness case‟ for responsible

behaviour in defining the scope o f CSR pract ices. Second, the extent

to which one sees a ro le for government part icular ly t hrough

legislat ion in framing the agenda.

I f the „business case‟ for CSR is key to defini ng the boundar ies

of the CSR agenda, that would indicate that as the „bus iness case‟

expands, so too do those boundar ies. But „bus iness case‟ arguments

are not the only way to define boundar ies. Some businesses choose to

balance ‟values‟ and „business case ‟ based arguments for CSR. There

are also businesses that understand philanthropic act ivit ies as an

expression o f CSR, though this is sometimes cr it icized on the basis

that since, the philanthropy is not integrated in core business

act ivit ies should not properly be considered „CSR‟. And there are

more nuanced approaches to analyzing the relat ionship between

„business case‟ and „philanthropic‟ vis ions of CSR too: “as soon as

ser ious money needs to be spent , you need something more than CSR.

For example, if a major pharmaceut ical company decides to spend £X

million on access to essent ial medicines, it ‟s st ill only doubling a

small philanthropy budget . But if you want that company to devote

10% of it s R&D to it , that‟s a who le different story. You need a real

business argument to br ing about this change.”

Many businesses understand CSR as encompassing only

„Vo luntary‟ business act ion „beyond compliance‟ with legally

mandated baselines. For example, the definit ion of CSR that is

favored by the European Commissio n is that it is “a concept whereby

companies integrate social and environmental concerns in t heir

business operat ions and in their interact ion with their stakeho lders on

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a vo luntary basis.13

In contrast , many non-governmental organizat ions

(NGOs) have chosen to focus on building support for a dist inct

agenda on „Corporate Accountabilit y‟ t hrough law , and a few have

argued for the legal accountabilit y o f businesses to be brought more

centrally into the CSR agenda, so that the two are effect ively

int egrated.

Different approaches to defining CSR also reflect wide

perspect ives on its value in framing understanding o f the ro le o f

business in society. For example, CSR could be understood essent ially

as a source o f compet it ive advantage, or alternat ively as a

co llaborat ive effort to change percept ions o f the ro le o f business in

society. A similar sent iment was reflected in the contrast between the

view that “CSR is t he business contr ibut ion to the widen agenda o f

sustainable development”, and the person who argued t hat companies

don‟t „do‟ sustainable development they simply have a ro le.

The under lying rat ionale for different definit ions o f CSR ma y

also be connected to views on a related quest ion: “Whose agenda is

it ? How much must the agenda focus on businesses, and on what

businesses can and are willing to do?” Some people st ress the

importance of put t ing business at the centre: “corporate Socia l

responsibilit y is only relevant when businesses have cho ices.” Or

“CSR is about business responsibilit y which businesses can choose to

take or not … CSR loses it s purpose if it ceases to be business led.”

Whilst there may be genera l consensus that CSR is at heart about

viewing businesses as part of society, there is much less certainly

about the nature and scope o f t hese so cietal obligat ions. This less

certainty is vis ible in the nature o f legis lat ion on CSR in U.K. and the

same is being examined now.

Present ly there is no law which makes CSR mandatory for

13 Communication From the Commission Concerning Corporate Social Responsibility: A business

contribution to sustainable development, COM (2002) 347 (01), 2nd July 2002.

312

Corporates in U.K. but there are some legislat ions which relate to

CSR and the significant CSR related provisions are;

D irectors who are looking to „promote the success o f the

company for the benefit o f its members as a who le‟ must at least take

account in their boardroom decis ion-making o f a range o f

legislat ively laid down shareho lder re lated and other stakeho lder -

related considerat ions. These considerat ions inc lude „the likely

consequences o f any decis ion in the long term‟, „the interests o f the

company‟s emplo yees‟, „the need to foster the company‟s business

relat ionships with suppliers, customers, and others‟, „the impact o f

the company‟s operat ions on the communit y and the environment‟,

„the desirabilit y o f the company maintaining a reputat ion for high

standards o f business conduct‟ and „the need to act fair ly as between

members o f the company‟.14

All t hese aspects relate to ethical

behaviour of directors.

This land mark Act is pregnant with potent ial CSR implicat ions

for a var iety o f CSR actors . Act embodies the UK Government‟s

acceptance o f the po licy o f „enlightened s hareho lder value‟, which

also condit ions and or ientates that body of law in discrete ways from

a CSR perspect ive. In part icular, it makes the cruc ial t riumvirate of

directors‟ dut ies, business r isk management , and corporate report ing

more explic it ly long-term, relat ional, and stakeho lder-sensit ive in

their st ructure, content , and implementat ion.

This enactment is t he most comprehensive legis lat ive overhau l

in more than a century o f company law generally and directors‟ dut ies

and corporate report ing obligat ions in par t icular , is bound to generate

important quest ions o f int erpretat ion, applicat ion, and pract ice for

some t ime to come for a var iety o f CSR actors in t he UK, as well as

for those interested in such comparat ive developments and

14 Section 172 of Companies Act, 2006 (UK).

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exper iments. Its many untested issues and implicat ions are

progressively unfo ld ing in judicia l test cases, professional corporate

advice, o fficia l regulatory guidance, and the pract ice o f corporate

decis ion-making, r isk management , and report ing in the UK.15

5.2.1 Provisions regarding Business Review and Reporting

Requirements in U.K.

The st rong connect ion in regulated report ing requirements

between non-financial informat ion, social and environmental mat ters,

and mater ial business r isks and dr ivers is also reflected in recent

nat ional reform o f corporate report ing in Commonwealth countr ies

such as the UK and Australia. The UK‟s provis ion for a business

review under the 2006 Companies Act16

supersedes ear lier regulatory

requirements for an Operating and Financial Review (OFR) . This

business review includes key non-financia l informat ion and

commentary, or ientated towards a forward - looking assessment o f

matters affect ing a company‟s st rategy and operat ions. Under the

impetus of applicable EU direct ives, UK law is moving further in the

direct ion o f narrat ive report ing, along a European path that also leads

to enhanced report ing o f non-financial informat ion, greater collect ive

boardroom accountabilit y, and increased corporate governance

disclosure.

Going beyond corporate report ing on environmental mat ters,

U.K. corporate law now requires annual directors‟ reports for

part icular businesses to include in a business review which, in the

case of listed public companies, must contain relevant informat ion

and appropr iate business-related performance indicators about „the

company‟s emplo yees‟, „social and community issues‟, and

15 Horrigan, Corporate social Responsibility in the 21st Century: Debate, Models and practices Across Government, Law and Business (2007).

16 The Companies Act 2006 is an Act of Parliament of UK which forms the primary sources of UK

company Law. It was brought into force, with the final provision being commenced on 1st

October 2009. It superseded the Companies Act, 1985.

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„environmental mat ters ( including the impact of the company‟s

business on the environment)‟.17

These requirements for a business

review in the directors‟ report have a number o f important features.

Given the different scale and cost of complying with these

requirements for small, medium, and large business enterpr ises,

important except ions to some or all o f these requirements apply to

different kinds o f companies. The pr imary audience for t he business

review envisaged by the legis lat ion is the company‟s shareho lders,

although the informat ion and analys is in the business review will also

be o f int erest and relevance to the company‟s other stakeho lders. The

business review is leg islat ively int ended to inform the assessment by

a company‟s shareho lders o f how well t he directors are performing

their duty to promote the company‟s success.18

The business review has both backward - looking and forward-

looking elements. The requirement imposed upon part icular kinds o f

companies to include reference in t he business review to informat ion

going to employment , environmental, and social concerns, as well as

other non-financia l informat ion, is not an abso lute requirement of a

company‟s business review. Rather, the inclusion o f such mater ial in

a company‟s business review is cont ingent upon its precise

relat ionship to „an understanding o f the development , performance or

posit ion o f t he company‟s business‟. This condit ion keeps these

aspects of the business review t ight ly focused upon how they relate to

the company‟s business, as dist inct from how well t he company meets

public po licy goals concerning the advancement of social,

environmental, and other interests in t heir own r ight . The financial

and non-financia l ind icators of a company‟s business act ivit y provide

the evidence-based plat form for the business review‟s analys is.

Relevant informat ion about a company‟s supply and dist r ibut ion chain

17 Sub-S 417(5) and 417(6) Companies Act 2006 (UK).

18 417(6) Companies Act 2006 (UK).

315

corresponds to „informat ion about persons with whom the company

has contractual or other arrangements which are essent ial to the

business o f the company‟, subject to considerat ions o f pr ivacy,

confident ialit y, compet it iveness, and other countervailing int erests

precluding the disclosure of such in format ion.

The explic it connect ion drawn in t he UK legis lat ion between

the business review‟s report ing requirements and informing investor

percept ions o f the performance by directors o f their leg islated duty to

promote the company‟s success has both legal and pract ical

implicat ions. The kinds o f mat ters legislat ively required to be

canvassed in t he business review also go to the long -term and

relat ionship-focused elements o f a successful business upon which the

proper performance o f directors‟ dut ies turns. In other words, both the

legislated duty o f promoting the company‟s success (and other

directors‟ dut ies too) and the business review requirements are

posit ioned within a wider boardroom decision-making framework that

is or ientated around the dynamics o f the 21st century business

environment , with everything that means in terms o f abandoning

short -term wealth-maximisat ion for part icular shareho lders at a

part icular t ime. Operat ionally, boards face the more immediate tasks

of relat ing the business review requ irements to internal corporate

governance and report ing, as well as to meet ing the expectat ions o f

investors and the market in assessing and compar ing what boards

report publicly in meet ing these requirements.19

The fact that narrat ive report ing and busin ess reviews can

present informat ion gather ing, assessing, and report ing challenges

that are quite different for directors from what they might be

accustomed to in annual report ing is reflected in the UK Accounting

Standards Board’s20

fir st review o f narrat ive report ing in ear ly 2007.

19 Company Law Reform White Paper, UK Department of Trade and Industry (2002). 20 The Financial Reporting Council is the UK's independent regulator responsible for promoting

high quality corporate governance and reporting to foster investment. The FRC sets the

Framework of codes and standards for the accounting, auditing, actuarial and investor

communities and overuses the conduct of professionals involved.

316

It found that companies were much bet ter at descr ibing their markets,

st rategies, and performance than disclosing forward - looking

informat ion, ident ifying sources o f business r isk, and expla ining their

approach to managing those r isks. 21

Thus, we see that in U.K. there is dispute about specifically

defining the nature and scope of CSR. However, certain aspects o f

environment protect ion, labour welfare and social obligat ions have

got recognit ion slowly-slowly. The next issue o f CS R in U.K. is about

it s regulat ion. Corporate are of the opinion that it should not be

regulated rather should remain vo luntary in nature. NGOs focus is on

corporate accountabilit y through Law. The Government has t r ied to

t read the middle path for looking a ft er the interest of varying

fact ions. First ly, while consider ing Corporate‟s po int of view the

government . has not comprehensively regulated CSR through any

spec ific legis lat ion. Secondly, t he govt . has t r ied to look after the

int erest of varying stakeho lders inc luding society by incorporat ing

provisions regarding director‟s duty in Company Act , 2006. Thirdly,

the accountabilit y is being ensured through report ing and review.

Fourthly to look after the implementat ion of these provis ions one

separate minister has been appo inted. Social report ing indexes and

rat ings are also adopted in the form of so ft legislat ion to ensure

compliance o f CSR pract ices. So researcher concluded that even

though there is no specific legislat ion on CSR in U.K. but st ill there

is well established regulatory framework for CSR through related

legislat ions, report ing & rat ing indexes and business review

provisions and government is act ively par t ic ipat ing in promot ing CSR

act ivit ies among corporates.

5.3 Recent Trends in Australia

Corporate Social Responsibilit y (CSR) is current ly one o f the

most discussed topics by business people and scho lars alike. The

concept has been enthus iast ically supported by three very disparate

21 Review of narrative Reporting by UK Listed Companies in 2006; Financial Reporting Council,

2007.

317

group by government ,22

by non-government -organizat ions (NGOs) and

by business itse lf, in part icular large corporat ions.

In 2000, a study by the Centre for Corporate Public Affairs and

the Business Council o f Australia found around half o f Australia‟s

large companies had po licies related to community invo lvement ,

social-responsibilit y or stakeho lder engagement . More than half o f

these companies had developed po lic ies related to CSR in the last

decade.23

In 2001, Cronin and Zappala concluded from their survey o f

Australia‟s top 100 companies that just over 70 percent of comp anies

surveyed had corporate community invo lvement (CCI) or CSR

polic ies.24

Increas ing numbers o f companies in Australia have po licies and

programs that purport to reflect their commitment to the communit y,

society and the environment . Yet , despite the pro lific amount o f

lit erature on CSR, part icular ly from the perspect ive of companies

themselves and from pract it ioners in t he thr iving industry of CSR

consu ltancy, there is a dearth o f empir ical studies examining whether

and if so to what extent and in what ma nner, Australian companies are

responding in pract ice to the increasing momentum surrounding CSR.

Here the researcher out lines and discusses the small number o f studies

that have been conducted in Australia over the pas t decade by

academics, business associat ions, government , non-profit

organizat ions and by consultancies into these issues.

22 There have been a number of inquiries into CSR-see Corporations and Markets Advisory

Committee, Corporate Social Responsibility Discussion Paper, November, 2005, (CAMAC

Discussion Paper) available at http:/www.camac.gov.au/camac/camac.nsf/byhedline/ PDFD

issussion+Paper/$file/CSR, Assessed 11th April, 2006; Parliament of Australia, Parliamentary

Joint Committee on Corporations and Financial Services. Corporate Responsibility: Risk and

Creating Value, June 2006, (the Parliamentary Joint Committee Report) available at http:/www.

aph.gov.au/Senate/committee/corporations_ctte/ corporate_responsibility/report/index.htm. 23 Centre of Corporate public Affairs and Business Council of Australia, „Corporate Community

Involvement : Establishing a Business Case‟ (2000) P. 38. 24 C Cronin and G. Zappala,‟ The Coming of Age of Corporate Community Involvement : An

Examination of Trades in Australia‟s Top Companies (Working Paper No.6, Research and Social

Policy Team, The Smith Family, 2002).

318

5.3.1 CSR in Australian Perspective

There is a draft o f terms associated with CSR, many o f which

elude precise and commonly shared definit ions.25

While definit ions o f

CSR it se lf o ften vary, it appears widely accepted that it invo lves a

company go ing beyond compliance with legal requ irements. Modern

understandings o f CSR emphasize the responsibilit y o f corporat ions

not only to their shareho lders, but to a much widen group o f

stakeho lders. These stakeho lders include emplo yees and contractors,

customers and suppliers, the community ( inc luding non -profit

organisat ions), society and the environment . In addit ion, it is

commonly emphasized that CSR is more than simple „cheque bo ok

philanthropy‟, „Cause related – market ing‟ or business ethics.26

Key

dimensions or cr iter ia o f CSR or corporate cit izenship in Australia

inc lude social and environmental responsibilit y, corporate

governance, social and environmental report ing, ethics spo nsorship,

stakeho lder relat ions and partnerships.27

While the terms „CSR‟ and „Corporate cit izenship‟ are regarded

by some authors as synonymous,28

others insist that they have

different connotat ions. For Birch, the Director of Deakin Universit y‟s

corporate cit izenship Research unit , CSR is a narrower, „programme

based‟ paradigm which focuses on the company‟s external behaviour.

In contrast , corporate cit izenship entails „systemic, ho list ic, cultura l

25 Mr. Jeremy Cooper of the Australian Securities and Investments Commission (ASIC) outline the

definitional issues that arise in the area of corporate responsibility : having some very veining

terminology problems.. such are what a stakeholder is, what sustainability means, what triple

bottom line reporting is and what we really mean by corporate social responsibility itself…‟P

parliamentary Joint Committee Report. 26 J Andriof and M Mclntosh, Introduction in J Andriof and M Mclntosh (eds) perspectives on

Corporate Citizenship (Sheffield: Greenleaf, 2001) 13, 15, D. Birch Corporate Citizenship:

Rethingking Business Beyond Corporate Social Responsibility‟ in J Andriof and Malcolm

Mclntosh (eds) perspectives on Corporate Citizenship (Sheffield : Greenleaf, 2001) PP. 53, 54. 27 M Glazebrook, „Corporate Citizenship and Action Research : An Australian Perspective‟ (Paris:

International Association on Business sand Society proceeding, (1999) 120-5; M Sweeney et al,

„Social Reporting and Australian Banks: Endorsement or pretence to the Triple Bottom Line?‟ (2001) 4 Journal of Corporate Citizenship 91.

28 See, Moon, above n 4; G Zappala, Corporate Citizenship and Human Resource Management : A

New Tool or a Missed Opportunity? (2004) 42(2) Asia Pacific Journal of Human Resources 185

:Andriof and mclntosh, above.

319

change‟ within the organizat ion.

Further, the report of the Par liamentary Jo int Commit tee on

Corporat ions and Financia l Services29

stated that :

“Corporate responsibility is usually described in terms of a

company considering, managing and balancing the economic, social

and environmental impacts of it s activi ties. It i s about companies

assessing and managing risks, pursuing opportunities and creating

corporate value, in areas beyond what would traditionally be

regarded as a company‟s core business. I t is also about companies

taking an „enlightened self interest‟ approach to considering the

legitimate interests of a company‟s stakeholders ” .

Recognizing that corporate responsibilit y is a mult i- facet

concept , the commit tee makes no at tempt to reach a conclusive

definit ion. Because o f the sheer diversit y o f modern corpora t ions in

terms o f size, sectors, stakeho lders, st ructures and st rategies , the

concept of corporate responsibilit y can have a different meaning to

different people and different organizat ions.

The CAMAC Discussion Paper on this aspect noted that :

While there is an increasing recognition and acknowledgement

of corporate social responsibility or comparable notions such as

„corporate citizenship‟ or „corporate social responsibi lity‟ as an

issue; the term does not have a precise or f ixed meaning. Some

descriptions focus on compliance wi th the spirit as well as the letter

of applicable laws regulating corporate conduct, while other

descriptions concentrate on the social impacts of corporate activities

(sometimes encapsulated in the notion of sustainability) on groups

(usually referred to as stakeholders) including, but extending beyond,

shareholders. This societal ef fect, going beyond the physical or social

29 The Parliamentary Joint Committee on Corporations and Financial Services was appointed on 30th

September, 2010 When the Senate agreed to a resolution From the House of Representatives,

passed on 29 September, 2010.

320

goods or services provided by companies and returns to stakeholders

are sometimes subdivided into environmen tal, social and economic

impacts .30

In a similar vein, past emphasizes that corporate cit izenship

invo lves both actual result s (what corporat ion do) and the processes

through which these are achieved (how they do it ) .31

For other

authors, however, it is CSR that is the broaden term o f t he two.32

Ult imately, both terms are fuzzy, var ied and constant ly evo lving and

it is likely that the terms will cont inue to elude precise definit ion as

different organisat ions and int erest groups tend to use the terms

different ly depending upon their normat ive view o f what should be

expected o f Australian businesses.33

In addit ion to the broad concepts o f CSR and corporate

cit izenship, there are a number o f narrower concepts t hat are int r ins ic

to discussions o f CSR. Common terms include „t r iple bottom- line

report ing‟, „sustainabilit y report ing‟, and „Corporate Communit y

Invo lvement‟ (CCI). The first term is used to refer to the pursuit o f

30 The CAMAC Discussion Paper footnoted a number of definitions or description of the term.

„sustain Ability (a UK organization) describes corporate social responsibility as „a business

approach embodying open and transparent business practices, ethical behaviour, respect for

stakeholders and a commitment to add economic, social and environmental value.‟ The European

Union (EU) Green paper promoting a European framework for Corporate Social Responsibility

(2001) described corporate social responsibility as „a concept whereby companies integrate social

and environmental concerns in their business operations and in their interaction with their

stakeholders on a voluntary basis.‟ The International Finance Corporation (IFC) refers to

corporate social responsibility as „the commitment of business of contribute to sustainable economic development by working with their employees, their families, the local community and

society at large to improve their lives in ways which are good for business and for development.‟

The Certificate General Accountants Association of Canada paper, Measuring Up: A Study on

Corporate Sustainability Reporting in Canada (2005) at 20 describes corporate social

responsibility as „a company‟s commitment to operating in an economically, socially, and

environmentally sustainable manner, while recognizing the interests of its stakeholders, including

investors, customers, employees, business partners, local communities, the environment, and

society at large.‟ Ibid. 31 J.E Post, „Meeting the Challenge of Global Corporate Citizenship‟ (Policy- Paper Series, Centre

For Corporate Community Relations, Boston-College, Chestmit Hill, MA) 8 32 Wood and Logsdon, for example, arrive that CSR is a wider concept than the more recent „

corporate citizenship‟ : I wood and J M Logsdon, „ The arising Business Citizenship‟ in J an driof & M mctntosh (eds) perspectives on Corporate Citizenship (Sheffield : Greenleaf 2008)

33 G Zappala, „Corporate Citizenship and the Role of Government : The Public policy case‟

(Research paper No.4, Information and Research Services, Department of the parliamentary

Library, 1st December 2003)3.

321

the object ives o f pro fit , environmental impact and social contr ibut ion.

This concept ion lies in contrast to convent ional „single bottom line‟

thinking and pract ices, which focus purely on secur ing the maximum

possible returns for shareho lders. The term „sustainabilit y report ing‟

refers to the pract ice of corporat ions and other organisat ions

measur ing and publicly report ing on their economic, social and

environmental performance. CCI focuses on the invo lvement o f

companies in the ir society and community, through financial or in

kind ass istance as well as through contr ibut ions o f t ime and

expert ise.34

In Australia, several o f the key studies undertaken in t he

past decade have focused on CCI.35

This appears to be because the

studies were commiss ioned by non-profit organisat ions in the

community sector, which have a part icular interest in this area36

or by

the Federal Government which tends to emphasise the philanthropic

features o f CSR.37

The Par liamentary Jo int Commit tee reported noted

that evidence received by the commit tee … strongly under lined the

importance of integrat ing the considerat ion o f broadens c ommunit y

int erests into the core business st rategy of companies, if corporate

responsibilit y was to succeed.38

5.3.2 The Australian Regulatory Framework

In Australia, regulat ion o f CSR has been overwhelming ly

through „so ft ‟ law init iat ives. This part of the review looks init ially

and very br iefly at legislat ive requirements which oblige company

directors to recognize the interests of stakeho lders other than

shareho lders. It then ident ifies the main „light touch‟ regulatory

init iat ives at both the nat ional a nd int ernat ional level. There is great

34 G. Zappala and C.Cronin, „The Contours of Corporate Community Involvement in Australia‟s

Top Companies‟ (2003) 12 journal of Corporate Citizenship 59, 60; CCPA report above n. 35 See, eg, The Smith Family‟s Study by Cronin and Zappala, above __ , and the Brotherhood of St

Laurence‟s Study by SHolm and S Lily white, „ Doing Business Responsibility : Perceptions of

ethical Practice and Governance of Australasia‟s Top 100 Companies‟ (Brotherhood of St

Laurence No member 2002) 36 See, eg, Cronin and Zappala, above n.11 37 In 1999/2000, for example, the Prime Minister‟s Business Community partnership commissioned

a survey by the Centre for corporate Public Affairs and the Business Council of Australia. See

CCPA report , above n.10 38 Parliamentary Joint-Committee Report above n.9.

322

deal o f over lap between the var ious regulatory measures, and

companies within Australia may part icipate in mult ip le vo luntary

social and environmental init iat ives.39

The regulatory framework of

CSR in Australia basica l ly invo lves The Corporat ion Act 200140

,

Var ious Normat ive pr inciples & guidelines, Rat ing Indices and

Report ing guidelines. Salient features of these provis ions are

examined as under ;

(a) The Corporation Act 2001

I t is the central piece o f legis lat ions gove rning directors‟

dut ies. There are two specific sect ions in the Act that are widely

recognized as expanding company reporting in a way that relates to

CSR. Sect ion 1013D (1) o f t he Act imposes obligat ions on

superannuat ion, life insurance and managed funds to disclose the

extent to which they take account of environmental, social, labour and

ethical standards in t heir investment decisions.41

Sect ion 199(1) ( f)

requires companies to include within their annual reports details o f

breaches o f environmental laws and licences.42

Beyond this, however,

debate surrounds the extent to which Australian company directors are

able to consider the interest of stakeholders other than immediate

shareho lders.43

Legis lat ion other than the Corporat ions Act imposes addit ional

39 Westpac, for example, measures itself against 90 social, environmental and financial indicators 40 It is an Act of the Commonwealth of Australia that sets out the Laws dealing with business

entitities in Australia at Federal and Interstate level. 41 See ASIC, Section 1013D.disclosure guidelines: ASIC guidelines to product issues for disclosure

about labour standards or environmental, social and ethical considerations in Product Disclosure

Statements (PDS)‟ (December 2003). Available at http://www.asic.gov.au/asic/ pdfnsf/lookup

ByFileNames/ s1013DA_finalguidelines.pdf/$files/s1013DA_finalguidelines.pdf. 42 G Frost. And L English., mandatory Corporate Environmental Reporting in Australia: Contested

Introduction Belies Effectiveness of its Application (November 2002) Available at http://www

.econ. usyd.edu.au/drawingboard/digest/0211/frost.html. 43 M Jones, S Marshall and Mitchell, „The Influence of Corporate Social Responsibility Policy on

Business Employment practices : Two Australian Mining Industry Case Studies‟ (Corporate Governance and Workplace Partnerships project, University of Melbourne, 2006) 3-4; Mitchell,

O‟Donnell and Ramsay, above n 4; h Grossman, „Redfining the Role of the Corporation : The

Impact 572; B Horrigan, „Fault Lines in the Intersection Between Corporate Governance and

Social Responsibility „(2002) 25 University of New South Wales Law Journal 515.

323

obligat ions on companies and their directors in relat ion to employees

and the environment . For example, companies must pay their

employees at least minimum rates o f pay44

and they must comply with

occupat ional health and safety,45

ant i-discr iminat ion and equa l

opportunity requirements.46

Companies must also comply with a wide

range of environmental requirement s.47

(b) Normative principles and guidelines related to CSR

In 2003, the Australian Stock Exchange (ASX) released the

ASX Pr inciples on Corporate Governance and Best Pract ice

Recommendat ions, which are int ended to guide publicly listed

companies in their corporate governance pract ices.48

While t he

pr inciples are vo luntary, companies are required to explain to the

ASX and to investors if and why they have opted not to fo llow the

guidelines. Three o f the recommendat ions are relevant to CSR. They

are;

Principle 3 : Promote ethical and responsible decis ion-making

Principle 7 : Recognize and manage r isk; and

Principle10 : Recognize the legit imate int erest of stakeho lders.49

There are also init iat ives relevant to part icular industr ies. In

2004, the Minerals Council o f Australia (MCA) established a

framework for sustainable development , ent it led „Endur ing Value: the

Australian Minerals Industry Framework for Sustainab le

Development .‟ Signing up to the framework is a precondit ion to MCA

membership. Signatories are required to asses system used to manage

key operat ional r isks publicit y report sustainabilit y informat ion based

44 Workplace Relations Act 1996 (Cth). 45 For example, Orupational Health and Safety Act 2004 (Vic) and the Occupational Health and

safety (Commonwealth Employment) Act 1991. 46 For example, Equal opportunity Act 1995. 47 For example, Environment protection Act 1970. 48

Available at http://www.asx.com.au/about/pdf/ASXRecommedations/pdf 49 See http://www.asx.com.au/about/pdf/ASXRecommendations.pdf

324

on the GRI indicators.50

(c) Rating indices

There are several prominent Australian indices t hat rate

companies according to CSR performance. First , The Age/ Sydney

Morning Herald‟s Good Reputat ion Index (GRI) measures the

performance o f Australia‟s top 100 largest companies in terms o f

corporate governance, market performance, management and ethics,

employee relat ions and social and environmental impact . The GRI

ranks the top 100 companies in Australia (selected from Business

Review Weekly magazine‟s annual list of the top 1000 companies)

according to their reputat ion. The rankings are compiled fro m

opinions of relevant of relevant stakeho lders for each category.

A Second major rat ing index in Australia is RepuTex‟s Social

Responsibilit y Rat ing. Rupu Tex, an independent research agency,

rates the larget 100 companies in Australia in four areas o f CSR:

corporate governance, environmental impact , social impact and

workplace pract ices. Another index is the Australian Sustainable

Asset Management (SAM) Index (AuSSI)51

. Launched in 2005, SAM

invit es the largest listed companies in Australia to part icipate in a

„corporate sustainabilit y. ‟ Finally, in 2004 the St James Ethics centre

launched the Corporate – Responsibility Index (CRI), in which

part icipat ing companies agree to be ranked publicly on their non –

f inancial aspects.

(d) Reporting Guidelines

There are a number of report ing guidelines developed

spec ifically for Australian companies. In 2003, the Department of the

Environment and Her itage developed a guide for public environmenta l

report ing, ent it led „Tr ipple Bottom line Report ing in Australia: A

50 http://www.minerals.org.au/enduringvalue 51

The Australian SAM Sustainability Indese (AuSSI) was established in February, 2005 to track the

performance of listed Australian companies that lead the field in terms of corporate sustainability.

325

Guide to Report ing aga inst Environmental Indicators‟. The

Department o f Family and Community Services in 2004 released a

draft guide to assist companies in report ing on their socia l impacts.

The concept of CSR in Australia has been well supported by

government , NGOs along with business. In 2000, the Centre for

Corporate Public Affairs and the Business Council o f Australia found

that 70% of companies have formula ted Corporate Community

Invo lvement plan or CSR po lic ies related to Community Invo lvement ,

Social Responsibilit y or Stakeho lder Management . CSR is also t reated

as synonym of Corporate Cit izenship.

Although Australian corporate law does not expressly deal with

shareho lder and non-shareho lder int erest s in the same terms as UK

law in its formulat ion o f the dut ies of directors, the federal

governmental advisory commit tee (CAMAC) and the jo int federa l

par liamentary commit tee (PJCCFS) engaged in paralle l CSR inquir ies

throughout 2005 and 2006 both concluded that t he current law

implic it ly permits and affords sufficient leeway for company d irectors

to consider both shareho lder and non-shareho lder interests in act ing

in socially responsible ways.

Thus it is amply clear that regulat ion of CSR in Australia is

through so ft legis lat ion and these legis lat ion are not specific for

regulat ing var ious aspects o f CSR rather they fa ll in t he category o f

Related legislat ion. In addit ion to these related legis lat ion there are

var ious normat ive pr inc iples & guide lines which are vo luntary in

nature, report ing requirements la id down by the governments. Then

there are rat ing indices which are being maintained by independent

agencies.

5.4 Recent Trends of CSR in France

The term “social” in t he expression “corporate social

responsibilit y” poses a lexical and conceptual problem in French. The

word “social” as used in t he expression in English is commonly

326

t ranslated into French using the same word, whereas in fact “social”

in French has a more rest r icted meaning, as it is limited for t he most

part to the social dimension o f sustainable development . Thus the

three dimens ions inherent to this not ion, “economic efficiency”,

“social equit y”, and “control o f resources”, are not naturally covered

by the term “social” in French. Hence, this proble m of language can

lead to confusion as to the very meaning of “social responsibilit y”.

Some analyst s even believe that this word is the reason for a st rong

and threefo ld resistance to CSR in the French-speaking wor ld:

First ly, Trade unions reject the idea that unilateral pr ivate

sector standards should govern the social aspects of a company;

Secondly, employers are afraid o f having new obligat ions

forced on them, in an area that they believe to be already ver y

rest r ict ive;

Thirdly, the State does not accept that the pr inciples which

have been histor ically laid down to govern corporate social relat ions,

and which combine legal intervent ion and co llect ive bargaining under

full public scrut iny, should now be challenged (Doucin 2004).

Thus the term “societal” would perhaps be more appropr iate

here, expressing as it does a systemic vision incorporat ing all t hree

aspects of social responsibilit y: economic, social, and environmental.

This lexical clar ificat ion highlights the French not ion o f

relat ions between economic, social, and po lit ical actors, especially

with regard to labour relat ions. This not ion is based on two founding

pr inciples:

First ly, the importance of a clear ly established public standard

for labour relat ions ; Secondly the fact that social dia logue was

histor ically carr ied out in a context of negot iat ions between social

partners with no pr ivileges invo lved, which can happen when

decis ions are taken unilaterally in the context of the company. There

is indeed to some extent a hierarchical opposit ion be tween hard law

327

and the infer ior so ft law which can only be invoked as an adjunct to

the hard law. As a result , CSR in the French context has a

fundamentally po lit ical d imension, which must in turn have

repercussions on the way the French democrat ic model f unct ions

(Rose 2006).

There are two aspects to the CSR situat ion in France: an

important legal framework on the one hand, and a st rong po lit ica l

dimension on the other.

5.4.1 Availabi lity of Substantial Body of Legislation in France

The first laws to cover the not ions incorporated in CSR, though

without this term being explicit ly ment ioned appeared in France in the

middle o f the 1970s with a law on social report ing in 1977. Without

referr ing specifically to CSR as such, this law already required that

the social reports that were compulsory for companies with more than

300 employees should apply 134 specific measures and indicators, and

these reflected not ions are now commonly used in relat ion to CSR.

Thus the social report required by this 1977 law opted d eliberately for

a social vis ion that focused ent irely on emplo yees and social po lic ies

(Igalens and Joras 2002). However, it was mainly after 2000 that the

body o f legislat ion began to deve lop.

The turning po int was undoubtedly the law of 15 May 2001 on

new Economic regu lat ions. With the adopt ion o f this “NRE” law ( loi

Nouvelles Regulations Economies ), which today affects more than 700

listed companies, France was the f irst country to make it mandatory

for listed companies to account for the social and envi ronmental

consequences of their activi ties . The French Council o f State fixed by

decree, the informat ion that the business report should contain

regarding social responsibilit y, the leg islat ure intended that listed

companies to be t ransparent in their act ivit ies. More obligat ions

fo llowed on from this decree in the social and environmental areas

and report ing requirements are in fo llowing areas :

328

Numbers hired i.e. number o f employees emplo yed ,

Types o f contract i.e. contract of employment ,

Informat ion on staff cutback plans, if any

Organizat ion and length o f the working week,

Pay sca les,

Health and safety condit ions and measures taken

Labour relat ions

Reports on collect ive agreements,

Training po licy,

Employment and pro fess ional int egrat ion of the di sabled,

Community work.

These were the main social areas where companies had to

account for their act ions. The areas covered under t hese report ing

covers wide area of act ivit ies covered under CSR framework . With

regard to environmental areas, t hey had to be in a posit ion to not ify

the fo llowing:

Overall consumpt ion of resources by the company,

Details o f measures taken to improve energy efficiency ,

Details o f measures taken for nuisance control and,

Details o f measures taken for waste treatment .

Legis lat ion also contained fo llowing guidelines for companies:

Evaluat ion and cert ificat ion procedures ,

Suggest ion for put t ing an environment management system in

put place, Companies must also just ify the way in which they

assess the impact of t heir act ivit ies on local development and

the local populat ion.

Companies must explain their commitment to their

stakeho lders, including non-governmental organizat ions,

consumers, educat ional inst itut ions, and local communit ies.

This new legal framework was in addit ion to t hat of the 1999

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direct ive law concerning terr itorial p lanning and sustainable local and

regional development (the “LOADT” law of ‟Orientation pour l

„Amenagement Durable du Territoire ) and was an at tempt to

reorganize relat ions between the different local author it ies by

int egrat ing economic and social actors into the procedure. Loca l

author it ies too are becoming subjected more and more to the

requirements o f sustainable development and new regulat ions on

governance, and as they draw up their own local Agend a 21 they will

need a higher level o f invo lvement and responsibilit y from companies

in mat ters of local development Durr ieu et al. (2006).

Fo llowing on from the NRE law, which to some extent laid

down the foundat ions, more laws were added to complete t he C SR

legal framework in France; these somet imes echoed decis ions taken at

European level, especially in relat ion to environmental aspects. Thus,

with regard to controlling major accident hazards, the law o f 30 July

2003 ensured that so -called Seveso companies (classified sites)52

adhere to specific rules regarding ; prevent ion, civil responsibilit y,

and vict im compensat ion.

More recent ly, t he t ransposit ion o f the European direct ive on

set t ing up a system for the exchange o f emiss ion quotas has result ed

in a ser ies o f obligat ions in terms o f emission declarat ions and quota

delivery. In 2005 Environment Charter, a Const itut ion amendment

giving legal force to the major environmental pr incip les was adopted.

This charter places the r ight to live in a balanced and he althy

environment on the same level as the human and social r ights and

recommends the precaut ionary pr inciple alt hough without

undermining the possibilit y o f innovat ion.

52 A Seveso company is a company that falls under the Seveso II directive, and there are possible

risks of major accidents occurring. it can be distinguishes law and high threshold Seveso

companies, depending on the nature and amounts of dangerous substances that may be present in

the company

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Last ly, regarding financia l mat ters, the 19 February 2001 Law

on employee savings, l ike that of 17 July 2001 on the creat ion o f a

public pension reserve fund, takes ethical, social, and environmenta l

factors into considerat ion. Similar ly, the Law o f financial secur ity,

dated 1 August 2003, ensures that listed companies produce a specific

report descr ibing the condit ions governing the preparat ion and

organizat ion o f the work of the board of directors, and interna l

control procedures put in place by the company in order to protect

themselves, again with greater t ransparency, against differen t t ypes o f

r isk. In the same vein, the introduct ion of new account ing standards

in 2005 has brought changes to the rules on informat ion and financia l

t ransparency.

Thus the 2005 report of AMF (Autorite des Marches

Financiers/French Authority for Financial Markets) analyz ing 108

reports of listed companies concluded that corporate governance and

int ernal control by companies were o f a higher qualit y. The report

under lined considerable dispar it ies between companies‟ disclosures in

these areas, these differences were however more pronounced in

int ernal control than in corporate governance, where companies can

rely on more familiar, and longer standing industry recommendat ions

(AMF 2006).

5.4.2 Contribution of Public Consultation and Instigating Bodies

in regulating CSR in France

A Nat ional Council for sustainable development br inging

together almost 100 representat ives from var ious areas of civil societ y

was created in January 2003. Fo llowing on from this, a nat iona l

sustainable development government st rategy was adopted in June

2003, in which the French government declared it s object ive to be

“the development o f social and environmental responsibilit y on the

part of companies, with the overall concern o f good governance”. This

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declared object ive has three parts: to create a common frame o f

reference at nat ional leve l in t he mat ter o f corporate social and

environmental responsibilit y, and then promote it both nat ionally and

int ernat ionally; to encourage companies to adopt a responsible mode

of operat ion both environmentally and socially; and last ly to develop

socially respons ible investment . The Regions are other t iers o f local

government (Departments, Communes, and Commune communit ies)

have been similar ly act ive with their own Agenda 21 sustainable

development st rategies.

Similar ly, in the area o f internat ional business relat ions, a

certain number o f measures have been put in place in an at tempt to

influence corporate behaviour. For example, the French contact point

has been part icular ly busy: they are responsible for monitor ing

implementat ion o f the OECD (Organizat ion o f Economic Cooperat ion

and Development) leading ind icators by mult inat ional companies that

are int egrat ing the fundamental pr inc iples and r ights at work as

recognized by the 1998 Interna t ional Labour Organizat ion (ILO)

declarat ion and the environmental pr inc iples in t he Rio Declarat ion,

Agenda 21, and the European Union‟s Aarhus Convent ion. The

contact po int has had to apply the public communicat ion procedure on

several occasions.

This short ret rospect ive o f the legal and inst itut iona l

background in France shows that CSR is both st rongly supported by

the law and yet at the same t ime somewhat scat tered across a var iet y

of different rules and regulat ions. Thus when one t r ies to ana lyze

corporate pract ices, it is apparent that while there is certainly

considerable weight behind the legal tools that have been put in place,

nevertheless, as is the case in other countr ies, these regulat ions do

nothing to reduce the great diversit y not only in cor porate pract ices

but also in company at t itudes to CSR.

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5.4.3 The Emergence in Parallel Rating Agencies and Mutualized

Activities in CSR Awareness and Promotion

There are basically two rat ing agencies that have emerged in

France since the end o f the 1990s. The first is the ARESE agency,

created in 1997 with support from the Caisse des Depots et de

Consignation (French funding body for public works and housing) and

the Caisses.d‟ Epargne (savings banks). Its aim was to produce a

Social and Environmental Rat ing for each company based on an

econometr ic procedure, origina lly intended for fund managers. In

2003, the Vigeo agency, a French public limited company (Societe

Anonyme), took over from ARESE. The agency‟s board o f directors is

made up o f companies, European t rades union organizat ions, non-

governmental organizat ions (NGOs), and suitably qualified

individuals and they o ffer sustainable development audit s for loca l

author it ies, social responsibilit y audits for companies and

organizat ions, t hemed studies, and sector-based benchmarking. About

56 pro jects were completed in 2006, 85% of which were in France.

This group is now act ive elsewhere in Europe (Belgium and Italy) and

also in Morocco since 2004. The agency‟s aud it ing act ivit y grew by

almost 63% in 2006 compared to 2005, an indicat ion of t he growth of

this market in France. In socially responsible investment too, Vigeo‟s

turnover increased considerably, showing an annual growth o f 56%

between 2003 and 2006 and reaching almost 3.2 million euros by the

end of 2006.

The second agency, BMJ Rat ings, was created from the merger

in 2004 o f the BMJ sustainable development agency, forerunner in

France s ince 1993 in the field o f so licited social rat ings, and the Core

Rat ings agency, thus creat ing the first European rat ing agency to

cover both social and environmental mat ters. They o ffer confident ial

rat ings, and in only 10 years they have built up a client base o f over

800 companies.

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In parallel with the emergence o f rat ing agencies, a further

addit ion to the CSR landscape was the appearance o f mutualized

company act ivit ies: a certain number o f company groups were formed

and now play an important role in maintaining the under lying

pr inciples of CSR, in promot ing CSR awareness, and in encouraging

good company pract ice Without claiming to produce an exhaust ive

study, we‟ will look at two types o f st ructured cooperat ion that are

fair ly significant today in France. The first are mult i -partner groups

st ructured along the same lines as ORSE (Observatoire sur la

Responsabilite Societale des Entreprises) , a study centre for

Corporate Social Responsibilit y. ORSE was created in June 2000 on

the init iat ive o f major corporat ions, fund management companies,

investment inst itut ions, t rade unions, non-governmental associat io ns,

and organizat ions. The aim was to promote a st ructure for study,

exchanges, and permanent monitor ing in the field o f CSR, sustainable

development , and ethical investments. Today ORSE undoubtedly

plays a vital ro le in terms o f analyzing pract ices and as sessing the

major consequences for companies o f issues relevant to CSR.

Along different lines, a number o f associat ions or employers‟

groups are flour ishing based on the issues surrounding CSR. The

associat ion Alliances, for example, whose aim is to help c ompanies

improve their performance while st ill respect ing man and the

environment , was created in 1994 on a fair ly small scale, by three

men from companies in northern France more in t he spir it o f a group

of commit ted managers. The associat ion puts forward the case for

CSR, showing it as something company managers should commit to ,

something that cannot be ignored if t heir company is to survive, and

also as a t remendous opportunity for the future.

5.4.4 French Companies: Various Strategic Positions on Socia l

and Environmental Responsibi lity

As we have seen, it is important to consider the specific

framework of the French legal and inst itut ional system for a bet ter

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understanding o f CSR in the context of France. The fact st ill remains,

however, that , as in many developed countr ies, int ernat ionalizat ion

and shift ing power balances between States, companies, and the

int ernat ional civil society combined with new environmental,

polit ical, and social challenges are the main factors that account for

the t ransformat ions that companies are undergo ing regarding CSR.

Thus, the degree o f internat ionalizat ion, the result ing image problems

that must be dealt with, and specific economic features relat ing to

CSR and sustainable development are the main reasons why there is

such diversit y in pract ices and st rategic posit ioning on the part of

French companies.

French companies, just like those in other countr ies, can be

found across the ent ire range o f possible posit ioning in respect o f

CSR. They range from companies that are barely inclined to invest ,

not to say stay resistant to the idea, to those that are fully commit ted

and consider CSR as an essent ial st rategic element i.e. ent ire

spectrum is there.

Thus we see that the regulatory framework of CSR in France is

very comprehensive and can act as guiding factors for other nat ions.

5.4.5 The Current international Trends & futuristic CSR through

European Commission Perspective

These t rends & futur ist ic CSR can be gauged through proposed

agenda po ints for t he per iod 2011-2014 which covers the fo llowing 8

areas:

I Enhancing the vis ibilit y o f CSR and disseminat ing good

pract ices:

This includes the creat ion o f a European award, and the

establishment o f sector -based plat forms for enterpr ises and

stakeho lders to make commitments and jo int ly monitor

progress.

II Improving and t racking levels o f t rust in business:

In this Commission will launch a public debate on the ro le and

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potent ial o f enterpr ises, and organise surveys on cit izen t rust in

business.

III Improving self and co-regulat ion processes:

In this Commiss ion proposes to develop a short protocol to

guide the development o f future self - and co-regulat ion

init iat ives.

IV Enhancing market reward for CSR:

This means leveraging EU po licies in the fields o f consu mpt ion,

investment and public procurement in order to promote market

reward for responsible business conduct .

V Improving company disclosure of social and environmenta l

informat ion:

This new po licy confirms the Commission‟s int ent ion to br ing

forward a new legis lat ive proposal on this issue.

VI Further integrat ing CSR into educat ion, t raining and research:

The Commission will provide further support for educat ion and

t raining in t he fie ld o f CSR, and explore opportunit ies for

funding more research.

VII Emphasis ing the importance o f nat ional and sub-nat ional CSR

polic ies:

The Commission invites EU Member States to present or update

their own plans for the promot ion of CSR by mid 2012.

VIII Bet ter aligning European and global approaches to CSR which

inc ludes the fo llowing:

a) OECD Guidelines for Mult inat ional Enterpr ises,

b) 10 pr inciples of the UN Global Compact ,

c) The UN Guid ing Pr incip les on Business and Human

Rights,

d) The ILO Tr i-part ite Declarat ion of Pr inciples on

Mult inat ional Enterpr ises and Socia l Po licy,

e) The ISO 26000 Guidance Standard on Social Responsibilit y.

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5.5 Current State of Corporate Social Responsib i lity in Indian

Perspective

India has a long r ich history o f close business invo lvement in

social causes for nat ional development . In I ndia, CSR is known from

ancient t ime as social duty or char it y, which through different ages is

changing it s nature in broader aspect , now generally known as CSR.

The ideo logy o f CSR in the 1950s was pr imar ily based on an

assumpt ion o f the obligat ion o f business to society. In init ial years

there was lit t le documentat ion o f social responsibilit y init iat ives in

India. Since then there is a growing realizat ion towards contribut ion

to social act ivit ies globally with a desire to improve the immediate

environment (Shinde, 2005). It has also been found that to a growing

degree companies t hat pay genu ine at tent ion to the pr inciples o f

socially responsible behavior are also favored by the public and

preferred for t heir goods and services. This has given r ise to the

concept of CSR.

After Independence, JRD Tata who always laid a great deal o f

emphasis to go beyond conduct ing themselves as honest cit izens

pointed out that there were many ways in which industr ial and

business enterpr ises can contr ibute to public welfare beyond the scope

of t heir normal act ivit ies. He advised that apart from the obvious one

of donat ing funds to good causes which has been their normal pract ice

for years; they could have used their own financia l, manager ia l and

human resourced to provide task forces for undertaking direct relief

and reconstruct ion measures. Slowly, it began to be accepted, at least

in theory that business had to share a part of the social overhead

costs. Tradit ionally, it had discharged its responsibilit y to society

through benefact ions for educat ion, med ical facilit ies, and scient ific

research among other objects. The important change at that t ime was

that industry accepted social responsibilit y as part of the management

of the enterpr ise it self. The community development and social

welfare program of the premier Tata Company, Tata Iron and Steel

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Company started the concepts o f “Social Responsibilit y.” (Gupta,

2007)

The term corporate social performance was first co ined by Sethi

(1975), expanded by Carro ll (1979), and then refined by Wart ick and

Cochran (1985).In Sethi‟s 1975 three - level mode l, the concept of

corporate social performance was discussed, and dist inct ions made

between var ious corporate behaviors. Sethi‟s three t iers are:

social obligat ion (a response to legal and market constraints) ;

social responsibilit y (congruent with societal norms) ; and

social responsiveness (adapt ive, ant icipatory and prevent ive)

(Cochran, 2007).

The last decade o f the twent ieth century witnessed a swing

away from char ity and t radit ional philanthropy towards more direct

engagement o f business in mainstream development and concern for

disadvantaged groups in t he society. This has been dr iven both

int ernally by corporate will and externally by increased governmental

and public expectat ions (Mohan, 2001).

This was evident from a sample survey conducted in 1984

report ing that of the amount companies spent on social development ,

the largest sum i.e. 47 percent was spent through company programs,

39 percent was given to outside organizat ions as a id and 14 percent

was spent through company t rusts (Working Document o f EU India

CSR, 2001). In India , as in t he rest o f the wor ld there is a growing

realizat ion that business cannot succeed in a society which fails. An

ideal CSR has both ethical and philo sophical dimens ions, part icular ly

in India where there exists a wide gap between sect ions o f people in

terms o f income and standards as well as socio -economic status

(Bajpai, 2001).

According to Infosys founder, Narayan Murthy, „Socia l

Responsibilit y is to create maximum shareho lders value working

under the circumstances, where it is fair to all it s stakeho lders,

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workers, consumers, the community, government and the

environment‟. Commission o f the European Communit ies 2001 stated

that being socially respons ible means not only fulfilling lega l

expectat ions, but also going beyond compliance and invest ing „more‟

into human capit al, the environment and the relat ion with

stakeho lders ( Bajpai, 2001). Over the t ime four different models have

emerged all o f which can be found in Ind ia regarding corporate

responsibilit y (Kumar et al. , 2001).

5.5.1 Emerging Trends on CSR according to Surveys

In the context o f India, CSR studies were few and limited.

Singh and Ahuja (1983 ) conducted the first study in India on CSR of

40 Indian public sector companies for the years 1975-76 and found

that 40 percent of the companies disclosed more than 30 percent of

total disc losure items inc luded in their survey. Raman (2006) used

content analys is technique to examine the chairman‟s mes sage sect ion

in t he annual reports of t he top 50 companies in India to ident ify t he

extent and nature of social report ing. This study concluded that the

Indian companies placed emphasis on product improvements and

development o f human resources (Raman, 200 6). According to a

survey done by Partners in Change 2000, which covered 600

companies and 20 CEOs for judging Corporate Invo lvement in Social

Development in India 85 percent agreed that companies need to be

socially responsible; only 11 percent companies had a wr it ten po licy;

over 60 percent of the companies were making monetary donat ions;

health, educat ion and infrast ructure were most supported issues.

From 2000 onwards, 4 important surveys have been conducted,

which give s ignificant macro level conclusio ns about Indian

corporate. The first and second surveys were carr ied out in 2001 and

2002 by Business Communit y Foundat ion for TERI -Europe. The

survey sought to explore the percept ion o f workers, company

execut ives and general public about social, economic and

environmental responsibilit ies. It was found that all companies

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irrespect ive o f size or sector have awareness o f CSR and it s potent ia l

benefit s. Many companies were co llaborat ing with NGOs, have labour

and environmental po licy guidelines in place. A third survey was

jo int ly conducted in 2002 by CII, Unit ed Nat ions Development

Program (UNDP), Br it ish Council (BC) and Pr ice Water Coopers

(PWC). The most st r iking features o f the responses to the survey is

that the respondents are in near unanimity that CS R is very much a

part of the domain o f corporate act ion and the passive philanthropy is

no longer sufficient . A significant proport ion of respondents,

recognize CSR as the mean to enhance long -term stake ho lder value.53

The fourth survey, the Karmyog CSR ra t ing 2007-08 is for the

largest 500 companies. Karmayog is a plat form for the Indian non-

profit sector providing research on CSR act ivit ies o f Indian

companies. It rated the 500 largest Indian Companies based on their

CSR act ivit ies. The companies were rat ed on 0 to 5 levels based on

cr iter ia‟s like products & services, reach of CSR act ivit ies,

expenditure on CSR, harmful processes etc.

CSR Study by Karmayog‟s research ( fourth survey)54

was kept

as base & further research was extended to find out the current

scenar io o f CSR act ivit ies in India. For this, fir st ly the social aspects

by organizat ions like OHSAS, GRI, and ISO etc were st reamlined for

compilat ion & bet ter understanding. Then, a list o f 500 companies

taken by Karmayog from Dun & Bradstreet‟s 2006 edit ion o f „India‟s

Top 500 companies‟ was made. Karmayog rated these companies on a

„0-5‟ scale based on informat ion from the company‟s website and

latest annual report. Out of 500 companies, 229 companies got a „0‟

rat ing and thus were filtered out for no t showing any CSR act ivity or

producing cigaret tes/tobacco products & liquor. For the rest 271

companies annual reports / CSR reports were downloaded & it s

53 Rich Gautam and Anju Singh “CSR Practices in India: A study of Top 500 companies”, Global

Business and Management research: An International Journal, Vol.2, No.1, 2010, PP.41-56. 54 Ibid.

340

content analys is was done. It was found that around 26 companies are

report ing on environment in the name o f CSR. These were dropped

out from the list , so a final list o f 245 companies was obtained on

which the further work was performed like download ing CSR related

reports from the websit es and studying the same, etc. The assessment

of 245 companies was done by mapping their reported aspects against

the 18 GRI social aspects which are globally accepted & most widely

used. The GRI socia l aspects were clubbed as Society Performance

Indicators, Human Rights Performance Indicators, Labo ur Pract ice &

decent work Indicators, and Product Responsibilit y indicators. The

CSR reports (245 companies) were thoroughly examined & it s content

analys is was done to find out the use o f GRI aspects, CSR init iat ives

& specia l innovat ions. A binary code of „0‟&„1‟ was allocate d for

„not using‟ & „using‟ the part icular indicator respect ively. The

assessment was based on four cr iter ia: t he social ind icators t racked by

the company, the innovat iveness in CSR on a 5 po int scale, linkage o f

CSR init iat ives to business, and focus area o f CSR in each company.

It was observed that 46% companies got zero rat ing (no report ing),

around 8% scored 3/5 & 4/5 Karmayog rat ing.55

Around 49%

companies out of 500 largest Indian companies were report ing on

CSR. Most of the companies report on donat io ns, renovat ing schools

in villages, mid day meals etc.56

I t is expected from a company to at

least spend a minimum of 0.2% of income on CSR act ivit ies annually.

But in most reports there is no ment ion of the amount spent in any o f

their balance sheets or annual reports. Well defined expenditure on

CSR has been shown by very few companies. Companies reach for

CSR act ivit ies was also unsat isfactory in the sense only 25%

companies CSR act ivit ies were for employees & rest were focusing on

vic inity & society at large. Many companies are only making token

55 Rich Gautam and Anju Singh “CSR Practices in India: A study of Top 500 companies”, Global

Business and Management research: An International Journal, Vol.2, No.1, 2010, PP.41-56. 56 Ibid.

341

gestures towards CSR in tangent ial ways such as donat ions to

char itable t rusts or NGOs, sponsorship of events, etc. be lieving that

char it y and philanthropy equals to CSR. Most companies use CSR as a

market ing tool to further spread the word about their bus iness, for

instance, donat ion of a token amount to some cause on purchase o f a

part icular product . The fact that companies are hir ing advert ising

agencies for their CSR further highlights this. Companies hesitate to

state the processes fo llowed by them, the damage caused by these

processes, and the steps taken to minimize this damage. Very few

companies have a clear ly defined CSR philosophy. Most implement

their CSR in an adhoc manner, unconnected with their busine ss

process. Most companies spread their CSR funds thinly across many

act ivit ies, thus somewhere losing the purpose of undertaking that

act ivity. Special CSR init iat ives were taken by some companies like

st ructured CSR etc. Genera lly speaking, most companie s seem either

unaware or don‟t monitor their company‟s CSR. However, all

companies can be considered to be an upward learning curve wit h

respect to CSR. The overall approach st ill seems to be dr iven by

philanthropy rather than int egrat ing it with business as has been

happening in t he west . The results suggest that CSR is o ften guided

by the commitment of the top management . With compliance and

enforcement s lack, employee‟s care is just employers‟ benevo lence,

environment care and total qualit y management ar e dr iven by market

forces and legislat ion, CSR is considered as an add it ional act ivity o f

Human relat ion and public re lat ion department .

5.5.2 Assessment of modern trends of CSR through trends of

Reporting on CSR activities by corporates

These t rends can be gauged from an insight in to a survey

conducted by KPMG Internat ional in respect of Corporate

Responsibilit y Report ing in 2011 and the salient po ints brought to

fore by this survey in respect of report ing on CSR are as fo llows:

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I. Ninety-five percent of the 250 largest companies in the wor ld

(G250 companies) now report on their corporate responsibilit y

(CR) act ivit ies, two-thirds o f non reporters are based in the US.

II. Tradit ional CR report ing nat ions in Europe cont inue to see the

highest report ing rates, but the Americas and the Middle East

and Afr ica region are quickly gaining ground. Only around half

of Asia Pacific companies report on their CR act ivit ies.

III . For the 100 largest companies in each of t he 34 countr ies we

studied (N100 companies), CR report ing by the consumer

markets, pharmaceut icals and construct ion industr ies more than

doubled since KPMG‟s last survey in 2008, but overall numbers

in some sectors – such as t rade and retail and t ransportat ion –

cont inue to lag stubbornly behind.

IV. Of the N100 companies, 69 percent of publicly t raded

companies conduct CR report ing, compared to just 36 percent

of family-owned enterpr ises and close to 45 percent for both

cooperat ives and companies owned by professional investors

such as pr ivate equity firms.

Around the wor ld, corporate responsibilit y report ing has

become a fundamental imperat ive for businesses. This survey finds

that – a lmost across the board – companies are demonstrat ing an

increasing willingness to account for their behavior on key so cieta l

issues. The number o f companies now report ing on CR has cont inued

to rise since KPMG‟s last CR study in 2008. Indeed, where CR

report ing was once merely considered an „opt ional but nice‟ act ivity,

it now seems to have become virtually mandatory for most

mult inat ional companies, almost regardless o f where they operate

around the wor ld.

G250 closes the gap of the 250 largest global companies, 95

percent now report on their CR act ivit ie s. This represents a jump o f

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more than 14 percent over our 2008 survey. And while one might

believe that this thresho ld is as close to universal as can reasonably

be expected, it should be noted that a two -thirds o f non-report ing

G250 companies are based in the US and it is believed that left over

are likely to begin repor t ing on CR in the near future. CR report ing

has gained ground within the Top 100 companies in each o f the 34

countr ies surveyed. European companies cont inue to lead the pack,

with 71 percent of companies report ing on CR, but the Americas are

quickly catching up. Japan and the UK both report near-unanimous

adherence to CR report ing. Almost 60 percent of China‟s largest

companies already report on corporate responsibilit y metr ics.57

The t rend on CSR report ing is catching up in India also. G250

group includes major Indian companies also. Major it y o f companies

have started report ing on CSR matters pr imar ily to fulfill

requirements o f var ious Corporate governance guidelines issued fro m

t ime to t ime by the govt . & internat ional agencies.58

So business houses all over t he wor ld are realiz ing their stake

in the society and engaging in var ious social and environmental

act ivit ies. The need o f the hour is to formulate effect ive st rategic

polic ies and adopt var ious inst ruments according to the company

history, it s content , peculiar it y in rela t ionship with it s different

stakeho lders so that CSR can be best implemented towards its goals:

sustained environmental, social and economic growth. As o f now, the

t rends have changed and CSR affects not only the company‟s

reputat ion and goodwill but also govern the financial performance. It

was analyzed that the report ing pract ices range from the very

sophist icated and well-established system to “a br ief ment ion o f CSR”

in the annual report . CSR report ing will cont inue to improve globa lly,

57 Rich Gautam and Anju Singh “CSR Practices in India: A study of Top 500 companies”, Global

Business and Management research: An International Journal, Vol.2, No.1, 2010, PP. 41-56. 58 Ibid.

344

but the informat ion it contains would need to be standardized. A

feature not iced in the development of CSR report ing is the influence

of several internat ional and local organizat ions with different

frameworks, indices, direct ives and init iat ives etc. Many o f these

init iat ives are vo luntary but are likely to hinder rather than assist the

development in the report ing systems. India‟s markets cont inue to

exhibit a pro fusion of negat ive externalit ies where the costs o f

resource use, environmental degradat ion, or community disrupt ion are

neither paid by those who incur them nor are reflected in actual

pr ices. Today‟s economic framework gives lit t le encouragement for

companies to consider the long-term the essence o f t rue sustainable

development . There are several companies in India invo lved in

diverse issues such as healthcare, educat ion, rura l development ,

sanit at ion, microcredit , and women empowerment . Analys is o f severa l

surveys in India suggest that though many companies in India have

taken on board the universal language o f CSR, CSR seem to be in a

confused state. Individual companies define CSR in their own limit ed

ways and contexts. The end result being that all act ivit ies undertaken

in t he name o f CSR are mainly philanthropy, or an extension o f

philant hropy. It seems that CSR in India has been evo lving in domain

of pro fit dist r ibut ion. There is a need to increase the understanding

and act ive part ic ipat ion o f business in equitable social development

as an integral part of good business pract ice .

The latest t rends in CSR pract ices as highlighted in study o f

500 companies which shows that out of top 500 companies, 229 did

not report on CSR act ivit ies. 49 % o f remaining 271 companies were

report ing o CSR. Many companies are making token gesture towards

CSR. Aft er studying the CSR focus and business linkage o f 30

companies as given in t he below table it is amply clear that ever y

company defines CSR in their own ways as per their needs.

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Table 1: The CSR init iat ives of 30 Indian Companies

Source: Artic le of Rich Gautam and Anju Singh “CSR Practices in India: A

study of Top 500 companies” published in Global Business and

Management research: An International Journal , Vol .2, No.1,2010,

P.51.

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5.6 Important Issues and challenges in the field of CSR

The important issues on which immediate focus of CSR

pract ices is needed for having any meaningful influence on corporate

behaviour are discussed as under:

5.6.1 Labour Laws violation

Labor laws vio lat ion is a major problem in Indian industr y

especially garment s industry. "Workers are not being paid even

statutory wages, as payment is linked to reaching unreas onably high

product ion targets simply put , unpaid overt ime.” In short , the globa l

outsourcing wor ld has a long way to go merely to attain legal

compliance. When subcontractors--even those that are subject to

monitor ing--st ill rout inely vio late local labor law, CSR programs and

their advocates may be muddying the waters. The advocacy

community presents wage demands e.g. the demand that

subcontractors pay a “l iving wage” which is asp irat ional. But urging

mult inat ionals to pay higher wages assumes that legal wages are

already being paid. Vio lat ions o f EPFO & ESI contr ibut ion. Whereas

the requirement is do ing something more than that . The real situat ion

about labour vio lat ion is pro jected by a report of Timber land

Company which is a mult inat ional company that plays act ive ly in t he

CSR field. The company's released in 2004 CSR report includes a

breakdown of factory vio lat ions by category that closely mirrors the

FLA breakdown, with "compensat ion ( i.e. minimum wage)” the

second highest category of vio lat ions (12%). By definit ion, vio lat ions

of this part of Timber land 's code o f conduct const itute pr imar ily

vio lat ions o f law. Timber land 's CSR report claims the company is

stepping up it s program "from compliance to enablement .” I f

companies merely ensured that their suppliers obeyed the law that

could br ing economic rest itut ion to millions o f workers whose pay is

purposely miscalculated.

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5.6.2 Human Rights Violation Issues

Today, human r ights cases usually stem from extreme phys ica l

abuses, but society's concept of what const itutes "abuses” will likely

cont inue to expand. I f labor laws are consistent ly broken with the

knowledge o f business partners, this could conceivabl y be considered

"unjust enr ichment” and these unjust enr ichment inherent ly include

human r ights vio lat ions.

5.6.3 Environmental Issues

Environmental pr inc iples are less specified in the CSR po licy

of companies than for example social pr inciples. Most codes o f

conduct simply refer to respect for environment . Their pract ice

however shows that they do have implemented specific environmenta l

measures and that , as a mat ter of fact , environmental pract ice seems

to be more developed than social po licy and pract ice s, also among the

smaller companies. A plausible explanat ion is that a lot of

environmental issues are regu lated by law. Companies are therefore

legally bound to implement measures. This also applies to the

act ivit ies in India. Indian legislat ion on enviro nmental issues is also

quite far developed, alt hough several companies and stakeho lders

indicated that enforcement is a majo r bot t leneck. Only a few

companies actually refer to these environmental pr inciples, which are

der ived from internat ional t reat ies a nd agreements.

5.6.4 Issue of Consumer Protection

In general, companies pay a lot of at tent ion to product safety

and qua lit y in order to fulfill requirements o f their buyers. Product

safety is ensured through the supply chain, by means o f audit s and

t raining. Informat ion towards consumers seems to be mainly focused

on product informat ion and to a much lesser extent on processes.

5.6.5 Issues of Socio Economic Development ( Inclusive Development)

Community development or invo lvement plays an important

role in the Indian context . In the western context it would be called

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char ity or corporate philanthropy, but in India contr ibut ion to the

local community is seen as a part of the corporate responsibilit y o f a

company. Most Dutch companies leave room to their Indi an daughter

company to develop init iat ives in t his field; somet imes they have a

spec ial fund. It seems that daughters o f large MNCs tend to develop

init iat ives which are more connected to the core business o f the

company or the interest of the employees. I ssues and challenges

ar ising as a resu lt of Globalizat ion

Globalizat ion is a leading concept which has become the main

factor in bus iness life dur ing the last few decades. This phenomenon

affects the economy, business life, society and environment in

different ways and almost all corporat ions have been affected by these

changes. We can see these changes most ly related with increasing

compet it ion and the rapid changing of techno logy and informat ion

t ransfer. This issue makes corporat ions more pro fit or iented than a

long term and sustainable company. However, corporat ions are a vit al

part of society which needs to be organized proper ly. Therefore, we

need some social norms, rules and pr inc iples in society and business

life for socially responsible behavior. Globa lizat ion affects the

economy, business life, society and environment in fo llowing ways:

Increas ing Compet it ion,

Techno logical Development ,

Knowledge/Informat ion Transfer,

Portfo lio Investment ,

Regulat ion/Deregulat ion, Internat ional Standards,

Market integrat ion,

Intellectual capit al mobilit y,

Financia l cr isis

It is clear that there is nothing new about economic growth,

development and globalizat ion. Economic growth generally br ings out

some consequences for the communit y. This is becoming a wor ld

phenomenon. One o f the most important reason is that we are not

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taking into account the moral, ethical and social aspects o f this

process. Economic growth and economic development might not be

possible without social and moral consequences and implicat ions.

But the important quest ion is who is responsible o f t his ongo ing

process and for ensur ing the wellbeing of people and safeguarding

their prosper it y. Is this responsibilit y of government , the business

world (businessman), consumers, shareho lders or of all peopl e?

Government is part of the system and the regulator of markets and

lawmakers. Managers, businessmen and the business world take act ion

concerning the market st ructure, consumer behavior or commercia l

condit ions. Moreover, they are respons ible to the shar eho lders for

making more pro fit to keep their interest long term in the company.

Therefore, they are taking r isk for the ir benefit / pro fit . This r isk is

not opposed to the social, moral and ethical pr inciples which they

have to apply in the company. There are many reasons for ethical and

socially responsible behaviour o f the company. However, there are

many cases o f misbehaviour and some illegal operat ions o f some

companies. Increas ing compet it ion make business more difficult than

before in t he globalized wor ld. However , compet it ion will not have

any longer bad influence on company behaviour. According to

int ernat ional norms and expectat ions, companies have to take into

account social, ethical and environmental issues more than dur ing the

last two decades. One o f the reasons is more compet it ion not always

more pro fit , another reason is consumer expectat ion is not only

related to the cost of products but also related to qualit y, proper

product ion process and environmental sensit ivity. Moreover

shareho lders are more interested in long term benefit and pro fit from

the company. The key word o f this concept is long termism which

represents also a sustainable company. Shareho lders want to get long

term benefit with a sustainable company instead o f only short term

profit . This is not only related to the company pro fit but also related

to the social and environmental performance o f the company. Thus,

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managers have to make st rategic plans for the company concerning al l

stakeho lder expectat ions which are sustainable and provide long ter m

benefit for the companies with their investments. Because of the

uncertainty surrounding the nature of CSR act ivity it is difficult to

define CSR and to be certain about any such act ivity. It is therefore

imperat ive to be able to ident ify such act ivit y and we take the view

that there are three basic pr inc iples which together comprise all CSR

act ivity. These are: Sustainabilit y, Accountabilit y & Transparency.

5.6.6 Unwillingness of Society and Consumer to pay for CSR

Expenses

This is easier said t han done. Nobody denies or doubts the

concept of CSR. As an individual is expected to be, corporate houses

should also be ethica l, car ing for the environment , providing equal

opportunity, set t ing aside part of t heir earnings for social causes, and

so on. The quest ion is as to how many of us are willing to pay for

such efforts. Are we ready to consume only the mater ials produced in

the most ethica l ways, despite a product of similar qualit y or ut ilit y

being available at cheaper pr ices in t he market? Are we ready to

invest in a company which is most ethical and conscious about its

social responsibilit ies but gives less return than companies whose

t rack record about social responsibilit y is in doubt? Many people say

that they want responsible companies, but there are limit s to what

societ ies and consumers are willing to pay. There are no simple

answers to these issues.

Businesses are created by humans and are equally vulnerable to

temptat ions, survival issues, emot ions, and so on. A so lut ion thus

needs to be found within these constraints, while maint aining a

balance between economic and development needs on one hand, and

the impact of related act ivit ies on society and the environment on the

other. Surveys show that people are willing to pay a lit t le high er i f

they have the t rust that their money is being used for the purpose for

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which it is intended. As the level o f earnings goes up, these issues

will perhaps get diluted. Moreover, a survey conducted in 2005 in t he

UK found that personal income is not a d eterminant o f or a barr ier to

giving. Its find ings reveal that support to char it y or social causes is

high across all income groups and inc reases with an increase in

income.59

The research demonstrated that there is a genuine willingness

amongst the public to support char it ies and causes. It also confirmed

that people believe that business should play it s part , part icular ly by

using the power o f its brands and products to support char it ies or

causes. Companies which have changed their businesses to operate

more sustainably and which have successfully managed to

communicate those changes to consumers are reaping the reward.

Market ing gurus believe that the t ime has come when the consumer

wants to know if a company is commit ted to corporate governance, is

an equal opportunity employer, is environment - fr iendly, and so on.

People do not mind paying a lit t le more, as long as they have belief in

the cla ims and act ions o f the product /service provider. Products and

services, which are insensit ive to the environment and to social

implicat ions, will not survive in t he long run.

The share o f the pr ivate organised sector in the nat ional income

(GDP) has increased from 13.1 percent in 1993 -94 to 24.9 per cent in

2009-2010. Thus the corporate-led growth model has produced

benefit s to it and has worked to the disadvantage o f the non -corporate

sector, especia lly the unorganized sector including agr iculture which

employs 53.2 per cent of the work force. Therefore, the negat ive

burden o f the changes in income d ist r ibut ion must be shared by the

corporate sector which is the major gainer60

. The data br ings out that

59 Sanjay K. Aggarwal; Corporate Social Responsibility in India, Response Books, 2008, P. 16. 60

The Tribune, dated 24.3.2012, “CSR-Need to ensure inclusive growth”, by Sucha Singh Gill,

Director-General, CRRID, Chandigarh.

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this sector in not ready to share it s booming prosper it y with other

sect ions o f society. Even the workers and employees in this sector are

not partners in this prosper it y to the extent that this sector is gaining

from the development process and they are not gett ing an annual r ise

in their income in commensurate with the r ising income in t he

corporate sector. Further, the corporate sector also does not shar ing

it s prosper it y with small and t iny sector engaged in subcontract ing

with the large sector. In addit ion to this, there is public percept ion

that the corporate sector has no respect for laws and rules which are

essent ial to protect the environment for sustainable develo pment and

also which ensure livelihood o f peasants and forest -dwellers,

especially when these laws and rules delay pro jects or put an extra

burden or liabilit y on the investors. Three instances are worth

ment ioning here. These have come in the form o f thre e rulings o f the

Nat ional Green Tr ibunal (NGT) which started funct ioning in July,

2011. Similar ly, there are a number o f examples o f land acquis it ion o f

peasants and forest -dwellers for mega projects under SEZs leading to

their displacement , loss o f habit a t and livelihood. In some areas these

people t hrough a resistance movement were able to save their

displacement and livelihood, the prominent being Singur and

Nandigram in West Benga l. But in large number o f places they were

displaced and uprooted. They became vict ims o f development and

especially o f mega pro jects. Those who benefited from this

development did not share the concerns of the disp laced people both

in t he rural as well as in t he urban areas. This pat tern o f development

has produced exclusive ra ther than inc lusive growth. It is imperat ive

that those who benefit from modern progress must share their

prosper it y with those who are bypassed or harmed by the very

development process. This can be par t ly mit igated by effect ive

implementat ion o f the corporate social responsibilit y idea effect ively.

353

This would also invo lve effect ive mechanism o f rehabilit at ion and

set t lement of displaced sect ions of t he populat ion. This has to be done

by observing environment protect ion laws and rules in let ter and

spir it61

.

After analyzing the state of CSR in India it is amply clear that

the fie ld o f Corporate Social Responsibilit y is not yet set t led and is

st ill evo lving and developing. There exists lot of contestat ion about

the definit ion o f Corporate Social Responsibilit y and the scope o f

CSR needs to be clear ly defined. There are arguments in favour of and

also against the concept /pr inciples of Corporate Socia l

Responsibilit y. The pr inc iples o f Corporate Social Responsibilit y are

very cr it ical for good Corporate Governance, Sustainable

Development and Inclusive growth. The subject is very important for

socio-economic development o f any nat ion. But there are many grey

areas which have cropped up dur ing this analysis. There are many

issues and challenges in the fie ld o f CSR and they are to be set t led for

having a meaningfu l CSR framework. The issues on which the concept

of CSR has been cr it ic ised are as fo llows:

5.7 Criticism of Concept of CSR

5.7.1 Criticism of Stakeholder Theory of CSR

First ly, it leads to firms denial o f Fiduciary Responsibilit y:

Stakeho lder theory has some significant disadvantages. For

instance, stakeho lder theory runs direct ly counter to corporate

governance. Since shareho lders are owners o f the firm, the fir m

should be operated to maximize their retur ns. Stakeho lder theor y

t ransfers the corporat ion‟s focus from shareho lders to the needs o f

stakeho lders. By implement ing unprofitable CSR programs, firms are

denying their fiduciary responsibilit y to shareho lders. Denies

61 India Partnership Forum: National Workshop on Promoting Corporate Citizenship in India:

Challenges and Opportunities (Background Paper), (2002); online:http:// www.indiapartner

shipforum.org/resources/Background%20pa- per.pdf

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Fiduciary Responsibilit y

Secondly, Stakeho lder Theory does over simplificat ion o f social

problem & remedies:

Society has numerous problems that have existed for many

years such as poverty and po llut ion. I f these problems were as simple

to so lve as Stakeho lder Theory advocates, they would have been

remedied long ago by pro fit - seek ing firms focused on benefit ing

society (Karnani, 2010). Many businesses have discovered, however,

that the pursuit o f society‟s welfare o ften leads to a reduct ion in

profit s. I f managers pursued CSR act ivit ies that hampered pro fit s they

would likely be out of a job. The owners of a firm desire a return on

their investment , and would likely fire a manager that purposely

opposed this object ive. Social problems are more complex than

stakeho lder theor ists claim.

Thirdly, Stakeho lder Theory emphasis on excess ive regulat ion:

Another cr it ica l argument vo iced against stakeho lder theory is

the over regulat ion argument . This argument maintains t hat the

pursuit o f CSR would lead to more r igorous environmental and social

regulat ions for businesses across the world. These regulat ions would

then make it more difficult for undeveloped nat ions to keep pace with

developed nat ions. David Henderson (2009), a Visit ing Pro fessor at

the Westminster Business School and the London Schoo l o f

Economics asserted, “when condit ions differ widely between

countr ies, as they do, prescr ibing and enforcing such common

standards. . .rest r icts the scope for mutually beneficia l t rade and

investment flows. It holds back the development of poor countries by

suppressing employment opportunit ies within them”. The potent ial for

over regulat ion st r ikes a formidable blow to stakeho lder theory.

Fourthly, Stakeho lder Theory is cr it icized due to compet ing int erests:

One of the core problems o f stakeho lder theory is the presence

of compet ing interests within and outside a firm. Supporters of

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stakeho lder theory argue for a mult ifiduciary relat ionship between

managers o f a corporat ion and all o f a firm‟s stakeho lders. B y

definit ion a fiduciary relat ionship invo lves pro moting the interests o f

one group above others; however, “as everyone recognizes, the

int erests o f shareho lders, customers, suppliers, employees, and

communit ies in the management of a firm's assets are conflict ing”

(Marcoux, 2003). Shareho lders want the h ighest return possible

through capital gains and/or dividends at the lowest possible r isk.

Customers desire qua lit y products, low pr ices, and excellent service.

Employees crave high wages, excellent working condit ions, and a

handsome benefit s package. These compet ing demands fro m

stakeho lders make stakeho lder theory untenable. It would be difficult

to balance these desires in pract ice. Some stakeho lders would be

sat isfied while others would be disgrunt led (Jensen, 2002).

Fifthly, Stakeho lder Theory is cr it ic ized as it leads to

compet it ive disadvantages:

The next argument against stakeho lder theory is the compet it ive

disadvantage argument . This argument is that “because social act ion

will have a pr ice for the firm it also entails a compet it ive

disadvantage” (Smith, 2002). Therefore, advocates o f this argument

deem that social act ions should not be init iated by businesses. The

problem with this argument is that socia l act ions may actually foster

public support of a corporat ion. The ethical act ion o f Johnson a nd

Johnson execut ive David Co llins serves as a prominent example. In

1982, Co llins recalled the ent ire Tyleno l product line after cyanide -

laced capsules o f the brand had caused several deaths in Chicago. As

an art icle in Workforce, a popular human resource magazine,

proclaimed, “To this day, Co llins‟ response is cited as the textbook

example o f how decis ive act ion, grounded in sound ethical values, can

avert a cr isis, and even bo lster a company‟s support over the long

run” (Fandray, 2000 ). Contrary to the argument , social responsibilit y

may actually provide a compet it ive advantage. Even if social

responsibilit y results in short -term losses; it can engender loya l

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employees and communit ies and consequent ly reap long -term

dividends: “CSR is also proving to bene fit companies. The most

commonly ident ified corporate advantages include maintaining and

improving reputat ion or brand image, government relat ions, brand

different iat ion, customer loyalty and employee recru itment an d

retent ion” (Walton, 2010). However, proponents of stakeho lder theor y

go too far in their support of discret ionary social expenditures. The

benefit s o f pro fitable CSR init iat ives must be balanced with the fact

that unpro fitable CSR init iat ives may put a firm at a compet it ive

disadvantage.

Sixthly, the Stakeho lder Theory is cr it ic ized as it forces

„Greenwashing ‟ i.e. it is react ive instead of proact ive and shift s the

focus from the flaws or from business failure:

Another problem with stakeho lder theory is that it is react ive

instead o f proact ive. Some corporat ions engage in CSR so lely in

response to crises. In other cases, the pr imary CSR act ion for firms is

merely report ing. This report ing is usually in t he form o f feel -good

stories with a lack o f concrete social act ion: “The content of CR very

often is misleading ly substant ial: the reports are thick and seemingly

contain much informat ion, but the actual extent of what is done

beyond legal requirements remains limited (Fougere & Solit ander,

2009). Although many companies advocate CSR in theory, th ey would

not in pract ice increase stakeho lder welfare at the expense o f

shareho lder wealth (Karnani, 2010). These firms may promote their

reputat ion in the community through rhetoric and advert isement s

related to their CSR efforts. However, they do this to shift the focus

from their flaws or to increase bus iness. This is a pract ice known as

“greenwashing.” These firms are not pursuing CSR to benefit society.

They are pursuing CSR to take advantage of consumers who are so ld

out to the concept of CSR.

Seventhly, The Stakeho lder Theory is cr it ic ized on the ground

that it has potent ial to destroy pluralism by enhancing the author ity o f

government:

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Friedman and Levit t feared the usurping o f the author ity o f

polit ical inst itut ions by businesses as a result o f CSR . Such a

combinat ion of governmental and corporate authority would result in

a fusing o f t he two inst itut ions into a powerfu l, unified ent it y.

Fr iedman and Levit t were concerned about the potent ial socialist ic

consequences o f t his fusing. They firmly belie ved in t he concept o f

pluralism. Pluralism requires the separat ion of power between the

var ious inst itut ions o f society. Fr iedman and Levit t did not desire to

see an oppressive centralized government . As Levit t (1958/1979)

stated in his art icle “The Danger s of Social Responsibilit y,”

“Government ‟s job is not business, and business‟s job is not

government . And unless these funct ions are abso lutely separated in al l

respects, they are eventua lly combined in every respect” .

The implementat ion o f CSR would likel y cause significant

disagreement among shareho lders as well. Some o f the shareho lders

would promote CSR. On the other hand, some shareho lders would

support the so le pursuit o f pro fit . Even if , shareho lders agreed that

CSR were beneficia l, t hey may differ a s to where it should be

directed. Furthermore, the stakeho lders would be compet ing for the

implementat ion o f var ious CSR programs. How could a business

manager d iscern which program(s) would be the best to pursue?

Shareho lder theory overcomes this weakness o f stakeho lder theory by

focusing corporate efforts on a single object ive, maximiz ing

shareho lder wealth. For example, a firm with a store operat ing in one

region becomes unpro fitable. The firm considers closing the store to

avo id harming shareho lders. St akeho lder theory may suggest that the

company leave the store open to cont inue to provide for the store‟s

employees and community. Shareho lder theory proponents would

propose that unless leaving the store open would maximize long -term

shareho lder wealth, it should be c losed. Although stakeho lder theory

sounds reasonable, it may introduce more problems than it so lves. It

is pract ically impossible to serve the interests of each o f the

stakeho lder groups simultaneously.

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5.7.2 Criticism of CSR on other Fundamental Principles

The concept of CSR is also cr it icized o n fo llowing fundamental

grounds:

5.7.2.1 Present ly CSR seems to be mere rhetoric not action62

The most elementary at tack comes from those who simply do

not t rust corporat ions. They view all o f the talk o f socia l

responsibilit y as a giant public relat ions campaign. The head can

pronounce; the hands do not necessar ily "respond. Thus, chief refers

to the “Gospel o f Social Responsibilit y, “designed to just ify - the

power of managers over an owner less system” : “Managers must say

that they are responsible, because they are specialist”. Chamber lain

writes, “The most common corporate response to crit icism o f a

defic ient sense o f social responsibilit y has been an augmented

program of public relat ions”.

5.7.2.2 Lack of Personal Capabilities

Another, more far -reaching at tack is that by the very nature o f

their t raining and exper ience, businessmen are ill -equipped to deal

with social issues. Theodore Levit t argues that the t yp ical senior

execut ive o f the large corporat ion is t here because he is an expert on

his own business, not on social issues.

By having had to devote so much t ime to learning his business,

“he has automat ically insulated himself from the wor ld around him”,

denying himself t he knowledge and skills ne eded to deal with social

issues. Others make a related case by claiming that the orientat ion o f

business organizat ions toward efficiency and control renders their

leaders inept at handling complex social problems, which require

flexibilit y and po lit ical fineness.

62 Henry Mintzberg; The case for Corporate Social responsibility in Corporate Social Responsibility

edited by Andrew Crane & Dirk Matten; SAGE Library in Business Management,1983, P. 12.

359

5.7.2.3 Theoretically Corporation’s Structure Precludes Social

Responsibi lity

Perhaps most devastat ing o f all, the third attack claims that

social responsibilit y is not possible in t he large corporat ion, given the

nature of its environment , st ructure, and control systems. Appropr iate

or not , social responsibilit y, it is cla imed, simply cannot and does not

work. Proponents o f social responsibili ty are dismissed as naïve.

Corporat ions, by the nature of their act ivit ies, create the social

problems. How can they so lve them? Others cla im that socia lly

responsible behavior is precluded in the economic system. We have.

Tumin, for example, bases his argument on “the pr inc iple o f least

moralit y- ,” that compet it ion or creed causes some part icipant to

depart from the rules and the rules o f social responsibilit y as noted,

are vague and not officially enforced in any event , forcing others to

fo llow su it . Business, as a result , “tends to br ing out , standardize, and

reward the most unsocialised impulses o f ma ss”. There is a good deal

of evidence to back up the cynic ism of these commentators. But

before we turn to it , let us consider a final and more far -reaching

attack on social responsibilit y.

5.7.2.4 Corporation has no right to pursue social goals

The fourth at tack is that the corporat ion has no r ight to pursue

social goals. The argument is a simple and appealing one: Corporat ion

managers lack broad public legit imacy; at best they are appo inted by

pr ivate shareho lders; more likely they are self -selected. Therefore,

they have no r ight to pursue broad social goals, to impose their

int erpretat ion of the public good on society.

Some cr it ics ask what values will be embedded in the “socia lly

responsible cho ices o f businessmen. How much o f business ideo logy

bigger is bet ter, compet it ion is good, mater ial wealth l eads to a bet ter

society, etc. will come along with these cho ices?. In a paper t it led

“The Dangers o f Socia l Responsibilit y” Levit t comments that “it s

360

guilt -dr is en urge” has caused the modern corporat ion to reshape “not

simply the economic but also the inst itut ional, social, cultural, and

polit ical topography o f society”.

He sees the cont inuat ion of this t rend as posing a ser ious threat

to democracy: “business statesmanship may create the corporate

equivalent o f the unitary state”. And then there is the argument that

the funct ion o f business is economic, not social. Social responsibilit y

(at least in it pure form) means giving away the shareho lders‟ money:

It weakens the firm‟s compet it ive posit ion, and it d ilutes the efforts

of its managers, who are supposed to focus on economic product ivit y.

The best known vo ice here is that of Milton Fr iedman:

What does it mean to say that the corporate execut ive has a

“social responsibilit y” in his capacit y as businessman ? I f this

statement is not pure rhetoric, it must mean that he is to act in some

way that is nor in the int erest of his employers.

To Fr iedman: “There is one and only one social responsibilit y

of business to use it resources and engage in act ivit ies des igned to

increase it s profit s so long as it stays within the rules of t he game,

which is to say, engages in open and free compet it ion without

decept ion or fraud”.63

Thus, we have the arguments against social responsibilit y.

Businessmen cannot be t rusted; t hey are ill-equipped to deal with

social issues; their corporat ions are not st ructured to do so; and they

have no business even t rying to do so. Let them st ick to their own

business, which is business itself

5.8 Issues & Challenges in Implementation of CSR mechanism

Lack of clar it y about definit ion leads to uncertainty o f meaning,

nature & scope of corporate social responsibilit y . Even though the

researcher accepted the Caro ll‟s definit ion as most suit able and

63 M. Friedman; “ A friedman Doctrine: The Social Responsibility of Business Is to increase Its

Profit,” The New York Times Magazine, Sept. 13,1970, PP. 32,33,122,124,126.

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comprehensive definit ion o f CSR but at the level o f implementat ion

there is lot of confusion about the meaning, nature & scope of CSR.

This situat ion leads to uncertainty about the contents and pract ices

which corporate should undertake to become socially responsible.

This sit uat ion o f uncertainty leads to confusion and confusion creates

impediments in implementat ion o f CSR pr inciples. Then there is

over lapping o f pract ices o f CSR with that of Corporate Governance.

This also leads to confusions among managers.

There is no standardizat ion about the conte nts of CSR

report ing. As far as contents o f CSR report ing is concerned there are

certain guidelines but they are vo luntary in nature and thus opt ional

in respect of it s contents and frequency o f publishing .

There is no mechanism to co -ordinate the similar CSR act ivit ies

of different corporate ent it ies. Present ly, In India the field o f CSR is

not regulated and there is no mechanism to monitor and co -ordinate

the act ivit ies o f different corporate ent it ies, whereas to have any

meaningful contr ibut ion on account of CSR then there is need to pool

resources o f different corporate ent it ies but same is not being done

because there is no mechanism established to handle the CSR fund

co llect ion and ut ilizat ion.

5.8.1 Lack of Community Participation in CSR Activities

There is a lack o f interest of t he local community in

part icipat ing and contr ibut ing to CSR act ivit ies o f companies. This is

largely at t ributable to the fact that there exists lit t le or no knowledge

about CSR within the local communit ies as no ser ious efforts have

been made to spread awareness about CSR and inst ill confidence in

the local communit ies about such init iat ives. The situat ion is further

aggravated by a lack o f communicat ion between the company and the

community at the grassroots. (Times o f India Survey on issues and

challenges)

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5.8.2 Absence of Local Capacities

Present ly in India the capacit ies of t he local non governmenta l

organizat ions & other agencies which can implement CSR is not

adequate. There is ser ious dearth of t rained and efficient

organizat ions that can effect ively contribute to the ongo ing CSR

act ivit ies init iated by companies. This ser iously compromises scaling

up of CSR init iat ives and subsequent ly limits t he scope o f such

act ivit ies.

5.8.3 Issues of Transparency

Lack of t ransparency is one o f the key issues brought forth by

the researcher . There is an expression by the companies that there

exists lack o f t ransparency on the part of the local implement ing

agencies as they do not make adequate efforts to disclose informat ion

on their programs, audit issues, impact assessment and ut ilizat ion o f

funds. This reported lack o f t ransparency negat ively impacts t he

process o f t rust building between companies and local communit ies,

which is a key to the success of any CSR init iat ive at the local level.

5.8.4 Non-avai labi lity of well organized Non-Governmental

Organizations

It is also observed that there is non-availabilit y o f wel l

organized non governmental organizat ions in remote and rura l areas

that can assess and ident ify real needs of the community and work

along with companies to ensure successful implementat ion o f CSR

act ivit ies. This also builds the case for invest ing in local communit ies

by way o f bu ilding their capac it ies to undertake development pro jects

at local levels.

5.8.5 Visibi lity Factor

First ly, t he cla ims o f var ious companies are not visible on

ground and it is very much possible that the cla ims may be false or

may be made with the intent o f avo iding tax or sight of law. The ro le

of media in highlight ing good cases o f successfu l CSR init iat ives is

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welcomed as it spreads good stories and sensit izes the local

populat ion about var ious ongo ing CSR init iat ives o f companies. This

apparent influence o f gaining visibilit y and branding exercise often

leads many non-governmental organizat ions to invo lve themselves in

event-based programs; in the process, they o ften miss out on

meaningful grassroots intervent ions.

5.8.6 Narrow Perception towards CSR Initiat ives

Non-governmental organizat ions and Government agencies

usually possess a narrow out look towards the CSR init iat ives o f

companies, o ften defining CSR init iat ives more donor -dr iven than

local in approach. As a result , they find it hard to decide whether the y

should part icipate in such act ivit ies at all in med ium and long run.

5.8.7 Lack of Consensus on Implementing CSR Issues

There is a lack o f consensus amongst local agencies regarding

CSR pro jects. This lack o f consensus o ften result s in duplicat ion o f

act ivit ies by corporate houses in areas of their intervent ion. This

result s in a compet it ive spir it between local implement ing agencies

rather than building co llaborat ive approaches on issues. This factor

limit s company‟s abilit ies to undertake impact assessment o f the ir

init iat ives from t ime to t ime.

5.8.8 Non Availabi lity of Speciali sed Agency for implementing

CSR

Present ly in Ind ia CSR act ivit ies are undertaken by the

managers o f Corporate ent it ies who are not qualified to undertake

such act ivit ies. The another agency which undertake CSR act ivit ie s

are Non- Govt . organizat ion. There funct ioning always remain under

scrut iny pr imar ily on account of capabilit y and t ransparency. These

issues are exist ing and adversely effect ing the implementat ion o f CSR

act ivit ies.

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5.8.9 Misuse of Funds dist ributed for Philanthropy by the

Corporate

In the absence of effect ive control over money donated by the

corporate in the absence of any construct ive relat ions between the

provider and end user and also due to lack of monitor ing by the

provider there are chances t hat the money received for philanthropic

act ivit ies can be misused for other ant i social act ivit ies.

5.8.10 Misuse of CSR funds by Political & Administrative Bosses

controlling the concerned Corporate Activity

In current socio -economic-po lit ical scenar io where the

government is regulator of corporate act ivity t here are chances t hat

the cr iter ia for select ing the benefic iary of CSR act ivit ies may be

manipulated according to the whims & fancies o f the regulators and

they can even be misused for polit ical ga ins.

All t hese issues & challenges exist ing in India are adversely

effect ing the development of CSR mechanism. The pr imary reasons

for this situat ion can be at t ributed to fo llowing reasons

First ly, the adopt ion o f CSR pract ice is vo luntary not

mandatory.

Secondly, the field o f CSR is regu lated by indirect or related

legislat ion not by a specific dedicated legis lat ion.

Thirdly, the CSR is undertaken by non-qualified, amateur

professional and not by specialized personnel.

Fourthly, there is no specialized agency to implement , monitor

and audit the CSR mechanism & act ivit ies.