CORPORATE SOCIAL RESPONSIBILITY: A CRITICAL …serialsjournals.com/serialjournalmanager/pdf/1470917035.pdf · Carroll (1991) organized corporate social responsibilities as a four-layered

* Public Relations Officer, Jaypee University of Engineering & Technology, Guna (M.P.).** Heads Deptt. of HSS , Jaypee University of Engineering and Technology. Guna (M.P.)

IJMRT • Volume 10 • Number 1 • January-June 2016: 47-56

CORPORATE SOCIAL RESPONSIBILITY:A CRITICAL EVALUATION OF LEGAL FRAMEWORK

Ragesh Ranjan* and Rajeev Srivastava**

Abstract: Corporate Social Responsibility (CSR) has traversed a long path from being a philanthropicactivity to its legislation. CSR should be understood best, as a process which encapsulates a host ofactivities other than merely philanthropy. This paper unravels the journey of CSR and criticallyevaluates the legal framework which is a manifestation of the inability of the Indian governmenttowards basic human development parameters. In the process, the paper also attempts to encompassthe CSR initiatives being undertaken by Indian firms and global corporate giants. Also, an attemptto juxtapose Indian firms (CSR linked with organizational processes) with global players (brandbuilding initiatives through CSR), is made. An impetus is also made on the acceptance of a company’sinitiatives (called Social License) by the stakeholders.Keywords: Corporate Social Responsibility, Human Development Index, Brand Building

INTRODUCTION

Companies need to answer two aspects of their operations: firstly, the quality of theirmanagement, both in terms of people and processes and secondly, the nature of, andquantity of their impact on society in the various areas. Stakeholders are increasinglytaking interest in the activity of the company that impacts society. What has actuallybeen done, good or bad, in terms of its products and services, in terms of its impact onthe environment and on the communities, or in how it treats and develops its workforce?The activities that impact the society positively is considered as Corporate SocialResponsibility (CSR).

The WBCSD’s defines “Corporate Social Responsibility is the continuingcommitment by business to contribute to economic development while improving thequality of life of the workforce and their families as well as of the community andsociety at large.” CSR is a concept with many definitions and practices. The way it isunderstood and implemented differs for each company and country. Moreover, CSRis a very broad concept that addresses topics such as human rights, corporategovernance, health and safety, environmental effects, working conditions andcontribution to economic development. The definition may vary but the purpose ofCSR is to drive change towards sustainability. The emerging concept of CorporateSocial Responsibility (CSR) goes beyond charity and requires companies to act beyondits legal obligations and to integrate social, environmental and ethical concerns into itsbusiness process.

48 Ragesh Ranjan and Rajeev Srivastava

Carroll (1991) organized corporate social responsibilities as a four-layered modelcalled the pyramid of responsibilities. The four responsibilities are Economical, Legal,Ethical and Philanthropic as four layers of the pyramid. According to Carroll andBuchholtz (2003), the four responsibilities in the pyramid should not be separated butconsidered as one. To be profitable, minimizing cost and maximize sales are at thebase as Economic Responsibilities. The second layer is the legal responsibilities andit is expected that corporate comply to the prevailing statutes applicable to them. Boththe Economic & Legal responsibilities are required by the society at large as theyproviding goods and/ or services demanded and also creating jobs. Ethicalresponsibilities are expected by society as consumers are at basis of the sustenance ofthe corporate. By avoiding questionable practices or operate above the minimumstandard of law could be considered as being ethical. The philanthropicresponsibilities are considered as initiatives that improve the quality of life of thesociety and are taken up by good corporate citizen voluntarily. Philanthropicresponsibilities are desired by the society.

A stakeholder model is represented by the Pyramid of CSR where the allstakeholders are affected by these responsibilities. If the business is not profitable,Economic responsibilities will directly affect employees, suppliers and owners. Legalresponsibilities belong to the owners, but it is also important for employees andconsumers. Ethical responsibilities impact on all stakeholders, but mostly engageconsumers and employees. The major impact of the Philanthropic responsibilities areto the community, but it also impacts employees as firms philanthropic performanceinfluences employees morale.

Figure 1: Carrol Model of CSR

Corporate Social Responsibility: A Critical Evaluation of Legal Framework 49

WHY IS CSR IMPORTANT TO BUSINESS?

When companies operate in an economically, socially and environmentally responsiblemanner, and they do so transparently, it helps them succeed, in particular throughencouraging shared value and social license1. Management and mitigation of socialand environmental risks are increasingly becoming important for business success, asthe costs to companies of losing that social license may be significant, both in terms ofshare price and earnings. There is an increasing understanding that incorporation ofreliable business practices into investments and operations not only benefits theeconomies and communities, but makes good business sense. (Global Affairs on CSR,Govt. of Canada).

Corporate Social Responsibility started with charity and philanthropy wherewealthy industrialist like Tata, Godrej, Bajaj, Modi, Birla, Singhania shared a part oftheir wealth for social cause. Then Mahatma Gandhi introduced the concept oftrusteeship where pressure was put on various Industrialists to act towards buildingthe nation and its socio-economic development. After independence PSU’s took upthe front seat for social development through imposition of higher taxes. ButGovernment could not meet the expectations of socio-economic development andtherefore expectation was built for private sector to take active involvement in thedevelopment of the country. Liberalization helped increase in the growth momentumof the economy, resulted in modifying CSR, as a sustainable business strategy for growthand expansion globally mandating them to comply with the internationalstandards. Need was felt that even after huge investment by corporate like Tata, Birla,IOC, BPCL, MSIL to name a few, on CSR initiatives for decades, the overall quality oflife has not improved as expected.

Human Development Report has been commissioned by the United NationsDevelopment Programme (UNDP) and in 2010 Human Development Report’s reviewof human development trends showed that most developing countries made dramaticyet often underestimated progress in health, education and basic living standards since1970. The 2010 Human Development Report introduced three new indicesthe Inequality-adjusted Human Development Index3, the Gender Inequality Index4,and the Multidimensional Poverty Index5. Each Report has its own focus drawn fromcontemporary debate.

The report suggests that India stands at a very poor state when compared withdeveloped countries. Further the developing nations are also showing betterperformance than India. Life expectancy6 at birth in India at present is 68years whichwas 65 in 2011, which was achieved by China way back in 1980, Thailand in 1980,Philippines in 1987, Indonesia in 1997 & by Sri Lanka long ago in the year 1980. Theaverage life span of people, many countries did much better than India, even whenthey were much poorer than what India was. Mortality Rate7 in India was 61 in 2011which was achieved by China long back as 1980. Its GDP per capita in PPP terms inconstant 2005 was a mere $524. By 2011, its mortality rate had dropped to 15 perthousand. China being a Communist may have account for the emphasis on socialdevelopment. But Philippines had achieved 61 in 1989, Sri Lanka achieved 46 in 1980,


Indonesia achieved 59 way back in 1997. Infant Mortality Rate8 is 41. Vietnam achievedthat level in 1980, China and Thailand in 1981, Philippines in 1985, Indonesia in 1994and Sri Lanka’s was 37 in 1980 (table 1). This reflects very clearly that governments inthese countries seem to care much more for their children than ours.

Adult Literacy is at 63%. India’s Planning Commission data put the literacy rateat 74% way back in 2011. But Sri Lanka had 87% literacy rate in 1981, China had 78% in1990, Indonesia had 82% in 1990, Vietnam 88% in 1989 and the Philippines had 94% by

Source: United Nation Development Program- Human Development Report, 2014-2015


1990. Malnutrition for children under five years is defined as those whose weight fortheir age is more than two standard deviations below for the international referencepopulation. They are not comparable with countries in East Asia. According to one ofthe indicators, 43.5% of children below five in India were malnourished in 2006;Bangladesh was 39.8%, while it was 38.8% for Nepal in that year. Sri Lanka was 21.1%in 2007.

Of course, there are mitigating factors why India hasn’t done better than some ofthe other countries. If reforms to open up the economy are put in place all together,social spending need not be an impediment to growth. And what is the use of growthif it does not assure the most basic needs of the people.

In the recently published Human Development Report 2015, it was unveiled thatIndia has been placed at 130th position in the 2015 Human Development Index9 (HDI)among the 188 countries. The data reflects that whatsoever the Government could dowith available resources, India could not meet the global standards which wereindicated by Human Development Index. Therefore, Govt. with an intention to infuseinvestment of about 20000 crore yearly by 6000 companies (Indian Institute of CorporateAffairs 2014) through amendment in Companies Act, 2013 under Section 135 andSchedule VI that came into effect on 1st April 2014; every company having a net worthof Rs 500 crore or more or a turnover of Rs 1,000 crore or more or a net profit of Rs 5crore or more has to spend at least 2% of last 3 years average net profits on CSRactivities. India is the first country in the world to mandate corporate socialresponsibility (Forbes APR 18, 2014).

Reputation Institute, a private global consulting firm in New York, invited about47,000 consumers across 15 markets to participate in a study that ranked the world’s100 most reputable companies–all multinational businesses with a global presence.The study discovered that people’s willingness to buy, recommend, work for, andinvest in a company is driven 60% by their perceptions of the company, and only 40%by their perceptions of the products. The scores were statistically derived from fouremotional indicators: trust, esteem, admiration, and good feeling. Reputation Institutethen analyzed what it calls the seven dimensions of corporate reputation, includingworkplace, governance, citizenship, financial performance, leadership, products andservices, and innovation. Three of the seven dimensions that drive reputation(citizenship, governance, and workplace) fall into the CSR category and analysis showsthat 42% of how people feel about a company is based on their perceptions of thefirm’s corporate social responsibility practices.

CSR by Indian Firms

Key CSR initiatives by Indian firms include investment on Education, Environment,Community Development, Health, Safety, Security, Resource and Energy Conservation,Women Empowerment, Skill Development and Livelihood Generation. FlagshipProgramme being conducted by key Indian Corporater are: Mahindra & Mahindra: Project Nanhi Kali supports the education of over 11 lakh underprivileged girls inten states, providing material support (uniforms, bags, notebooks, shoes and socks)


and academic support (workbooks, study classes). Tata Power : ’Act for Mahseer’, aconservation initiative for saving endangered species of a fish. It set up a breedingcentre in Lonavala as part of its eco-restoration and eco-development project for thelakes. The programme has produced and distributed in various water bodies seeds ofMahseer in excess of 10 million in India and internationally. Tata Steel : Maternal andNewborn Survival Initiative (MANSI), a public-private initiative, to reduce child andinfant mortality. L&T : It is committed to the construction of check dams taking thetotal number of check dams constructed over the years to 150. Tata Chemicals : ’Savethe Whale Shark Campaign’, aims to spread awareness about the whale shark, theworld’s largest fish, which was fast depleting because of slaughter by fishermen alongthe Gujarat coast for export. The company is now involved in the scientific study ofthe species to ensure its long-term survival. Tata Motors : Learn, Earn and Progress(LEAP) for mechanic motor vehicle training, a year-long programme where theoreticallearning is supplemented through ‘on-the job’ exposure at service centers. GAIL : Ithas established GIS which addresses the issue of unemployment and skill gap, byproviding job-linked skill training to local youth of communities in and around itsareas of operation. Bharat Petroleum : Project BOOND, which has evolved from theconstruction of rain water harvesting structures to making villages drought-free.Infosys : The Infosys Foundation mid-day meal program, an initiative in partnershipwith the Akshaya Patra Foundation, spans several states across India. Jubilant LifeSciences : To reduce malnourishment in children, JBF has proposed to develop aneffective and affordable platform for real time growth monitoring process for improvingthe nutritional intake and status of children less than five years through focusedexpansion of home fortification and promotion of breastfeeding in village communities.

Global CSR Trends

Companies worldwide are getting creative with their corporate social responsibilityinitiatives and experiment with new types of engagement. As a whole, the corporatesocial responsibility industry continues to gain traction, with social impact increasinglymaking its way in to the C-Suite2 and transparency becoming the new norm.

The Committee Encouraging Corporate Philanthropy (CEPC) sees globally themove by countries and regions to mandate certain aspects of corporate societalengagement. Companies with a current or growing multinational footprint need tounderstand this evolving landscape to inform their societal investment strategy andsupport compliance. Some emerging markets, including Brazil and Indonesia, haveregulations that determine a specific level or type of corporate societal investment,similar to India’s new ‘2 percent’ CSR requirement. In Europe the mandate trend isseen in a requirement on non-financial disclosure and reporting.

There’s no question that there has been a great deal of progress on the CSR frontand there’s even more in store in days to come. Corporate responsibility will continueto move up the hierarchy. We will see the tenets and practice continue to spread throughcorporate enterprises and touch each and every employee, stakeholder, investor andhopefully customer in the years ahead.


Microsoft : Microsoft stood out for its work with governments, investors,nonprofits, and a wide range of other organizations. The software giant takes volunteerwork and community giving very seriously. It runs an “Annual Employeegiving campaign” through which its employees have donated US$1 billion since 1983.It has also launched “YouthSpark”, an initiative designed to create opportunities foryoung people across the world to provide education, employment, andentrepreneurship opportunities. Merck: It is a pharmaceutical company that focuseson making drugs more accessible and affordable in developing countries. Merckreached an estimated 269 million people through its major responsibility programsand partnerships. It is developing new partnerships for Mothers – a US$10m and 10-year initiative aimed at combating maternal mortality. The World Bank: It suppliesfinancial and technical assistance to developing countries around the world with theultimate goal of eradicating extreme poverty. Investments are provided in areas asdiverse as education, health, public administration, infrastructure, financial and privatesector development, agriculture, and environmental and natural resource management.Google: Google has made aggressive moves toward good citizenship. Google Green isa corporate effort to use resources efficiently and support renewable power. Butrecycling and turning off the lights does more for Google than lower costs. Google hasseen an overall drop in power requirements for their data centers by an average of 50percent. Installing energy-efficient lights, allowing telecommuting and recycling willnot only improve your world but also result in cost savings. Xerox: Their CommunityInvolvement Program encourages it by directly involving half a million Xeroxemployees since 1974. The return for Xerox comes not only in community recognition,but also in the commitment employees feel when causes they care for are supportedby their employers. By incorporating a limited number of billable hours per year forvolunteer efforts, you will enjoy the dual effects of helping your community as well asincreasing your employee morale and therefore productivity. Honeybees: “Honey beesare responsible for pollinating one-third of all the foods we eat, including many of theingredients that define our all-natural ice creams, sorbets, frozen yogurt and bars.”But they are disappearing at an alarming rate. The company is donating a portion ofproceeds from its Haagen-Dazs honeybee brand to research on the topic, and it launcheda modest Twitcause campaign through the #HelpHoneyBees hashtag, raising $7,000in two days (“Bee Buzz generated: 643,748 tweets”). Greenopolis: It was developed toserve as an educational tool to teach people how to be more environmentally sound asthey go about their daily lives. The goals for the Web site are summed up in its tagline:“Learn. Act. Reward. Together.” Greenopolis was created by, and is wholly ownedby, Waste Management Recycle America, but operates independently. Last year, Bethsaid, they took part in a Social Media Breakfast in Houston.

ISO 26000: 2010

ISO 26000 is the designation of the future International Standard giving guidance onSocial Responsibility (SR). It is intended for use by organizations in both public andprivate sectors, in both developed and developing countries. It will assist them intheir efforts to operate in the socially responsible manner that society increasingly


demands. ISO 26000 contains guidance, not requirements, and therefore is not acertification standard like ISO 9001: 2000 and ISO 14001: 2004.

The need for ISO to work on an SR standard was first identified in 2001 by ISO/COPOLCO, Committee on consumer policy. In 2003, the multi-stakeholder ISO AdHoc Group on SR which had been set up by ISO’s Technical Management Board (TMB)completed an extensive overview of SR initiatives and issues worldwide. In 2004, ISOheld an international, multi-stakeholder conference on whether or not it should launchSR work. The positive recommendation of this conference led to the establishment inlate 2004 of the ISO Working Group on Social Responsibility (WG SR) to develop thefuture ISO 26000 standard.

Eighty countries and 39 organizations with liaison status participated in the WorkingGroup on Social Responsibility under the joint leadership of the ISO members for Brazil(ABNT) and Sweden (SIS). The main stakeholder groups are represented: industry,government, labour, consumers, nongovernmental organizations, service, support,research and others, as well as a geographical and gender-based balance of participants.

ISO 26000 has integrated international expertise on social responsibility – what itmeans, what issues an organization needs to address in order to operate in a sociallyresponsible manner, and what is best practice in implementing SR.

CONCLUSION

It will only be apt for us to conclude that the newer interventions undertaken by thegovernment of India were more about papering the cracks than to steer the CSRcampaign in a decisive direction. The following points would capture best, the notionof CSR; taking the critical review of the term into account-

1. Corporate Social Responsibility must be separated from Brand BuildingInitiatives through Social Cause. CSR was understood as an ethical practice bywhich industries invest a portion of their profit to compensate for the naturalresource depleted by them during the process of their operations. Governmentmust bring under its purview these industries and mandate them under statutein lines of Section 135 and Schedule VI of the Companies Act, 2013.

2. There is a possibility that due to the introduction of compulsory spending of2% of profit under Section 135 and Schedule VI of the Companies Act, 2013,many of the existing companies who were spending more may limit theirexpenditure.

3. The directive will further inconvenience foreign companies already navigatinga plethora of complex regulations while operating in India. CSR will make thecountry less alluring to foreign investors.

4. Corporate have invested their funds for running their own business and thatfor earning profit out of it. They are already creating jobs and paying taxes asper the provisions of law. The taxes collected must be utilized by theGovernment for Social upliftment under the 5 year plans. Why should corporatebear the brunt of additional 2% out of their profit?


5. Legislation has brought about 6000 companies which will infuse about 20000crore every year. This may induce many corporate who are against itsimplementation to manipulate their accounts on CSR expenditure.

6. Corporate must be incentivized if they implement ISO 26000:2010 guidelinesOR do Philanthropic activities of their own.

7. Corporate should start to look at CSR as a creative opportunity tofundamentally strengthen their businesses while contributing to society at thesame time. CSR will act as central to their overall strategies, helping them tocreatively address key business issues.

8. Corporate must invest in Social cause as a Brand Building Exercise. Firms investa lot of money on advertisement and brand building initiative hiring BrandAmbassador to push sale of their products. If a portion of the same fund beinvested to build society, boosting their Baran.

Lastly, we vouch for the fact that “CSR should form part of Corporate Strategywhich will help them to be perceived as preferred in terms of people’s willingness tobuy, recommend, work for, and invest in a company which will have multiplier effecton firms overall growth”.

Glossary

1. “Social license” generally refers to a local community’s acceptance or approval ofa company’s project or ongoing presence in an area. It is increasingly recognizedby various stakeholders and communities as a prerequisite to development.

2. “C-suite” is a widely-used slang term used to collectively refer to a corporation’smost important senior executives. C-Suite gets its name because top seniorexecutives’ titles tend to start with the letter C, for chief, as in chief executiveofficer, chief operating officer and chief information officer.

3. “Inequality-adjusted Human Development Index” combines a country’s averageachievements in health, education and income with how those achievements aredistributed among country’s population by “discounting” each dimension’s averagevalue according to its level of inequality. Thus, the IHDI is distribution-sensitiveaverage level of HD

4. “Gender Inequality Index” is an index for measurement of gender disparity thatwas introduced in the 2010 Human Development Report 20th anniversary editionby the United Nations Development Programme (UNDP).

5. “Poverty Index” was an indication of the standard of living in a country,developed by the United Nations (UN) to complement the HumanDevelopment Index (HDI) and was first reported as part of the HumanDevelopment Report in 1997.

6. “Life expectancy at birth” Life expectancy at birth reflects the overall mortalitylevel of a population. It summarizes the mortality pattern that prevails across allage groups in a given year – children and adolescents, adults and the elderly.


7. “Mortality Rate”, or death rate, is a measure of the number of deaths (in general,or due to a specific cause) in a particular population, scaled to the size of thatpopulation, per unit of time.

8. “Infant Mortality Rate” (IMR) is the number of deaths of infants under one yearold per 1,000 live births. This rate is often used as an indicator of the level of healthin a country.

9. “Human Development Index” (HDI) is a composite statistic of life expectancy,education, and income per capita indicators, which are used to rank countries intofour tiers of human development.

References

http://www.forbes.com/sites/susanmcpherson/2014/12/31/five-csr-trends-to-watch-out-for-in-2015/#6e1b7b4b4d37

Hdr.undp.org,. “| Human Development Reports”. N.p., 2016. Web. 25 Feb. 2016.

Moreno, Curt Moreno, and Gordon. “3 Excellent Examples of Corporate SocialResponsibility”. Line//Shape//Space. N.p., 2015. Web. 25 Feb. 2016.

TopMBA.com,. “Five of the Best Socially Responsible Companies to Work For”. N.p., 2013. Web.25 Feb. 2016.

Socialbrite,. “4 Examples of Corporate Social Responsibility Done Right”. N.p., 2016. Web. 25Feb. 2016.

Chakravarty, Manas. “How Far Is India Behind In Social Indicators?”.http://www.livemint.com/. N.p., 2016. Web. 19 Feb. 2016.

Documents

CORPORATE SOCIAL RESPONSIBILITY: A CRITICAL …serialsjournals.com/serialjournalmanager/pdf/1470917035.pdf · Carroll (1991) organized corporate social responsibilities as a four-layered