CORPORATE SOCIAL RESPONSIBIL ITY: FROM

PHILANTHROPY TO STRATEGIC MANAGEMENT – A

COMPARISON OF TWO MULTINATIONAL COMPANIES’ CSR

STRATEGY IN INDIA

1

1. Background

Over the last 20 years, the pressure corporations have faced to engage

in Corporate Social responsible (CSR) activities have increased

tremendously. The literature suggests that CSR policies and practices

adopted by multinational and local companies in the OECD and EU countries

are very different from the developing countries like India (Dobers p, et al,

2009; Michael B, 2003).

For instance, A third of India’s population is uneducated, around 850

Million earn only US$2 a day (World Bank report, 2011), and labour laws and

investment in CSR is almost non-existent despite the gap between the rich

and the poor in living standards, income and status in society (Puranik and

Arora, 2004). However, the developing world is where strong CSR strategies

are needed most (ICCSR, 2007).

The Indian government’s position as a dominant stakeholder in

business has prompted the country to pass a law on CSR, making it the first

country to introduce mandatory CSR spending, compelling profitable

corporations to spend 2% of their average net profit on CSR policies. This will

affect around 8000 companies in India, companies that will spend US$2 billion

annually on CSR. New CSR policy formulation, implementation and reporting

will be governed by a committee inside each company, monitoring policy to

avoid abuse of funds, enforcing strategic corporate spending rather than

taking a simple charitable approach (the Company Act, 2013, Section 135).

The new law will force MNCs to integrate CSR into their core operations,

compelling them to look beyond philanthropy. On the whole, it is likely that the

2

new law will lead companies to focus much more heavily on strategic CSR.

This may thus lead to a paradigm shift in CSR, with big companies’ corporate

CSR practices setting the standards that other companies will have to follow

to maintain their competitiveness. However, the new mandatory CSR policy

and reporting could not guarantee that highly money driven wealthy MNC’s

that will not way of abusing CSR fund and will not deploy poor tax practices

(Sikka, P. 2013).

Critics of the new CSR law such as Karnani (2013) point out that CSR

is a philanthropic and voluntary facet of big business, which governments

have no right to legislate upon. However, this fails to account the fact that the

absence of CSR will endanger business sustainability and could cost more in

financial terms (Windsor D, 2006; Schrempf J, 2012; Zhang F, 2008; Karnani

and Aneel. 2007). In the case of larger corporations like MNC’s, which were

consistently scrutinized for its poor operational practice, especially in

developing countries are facing immense pressure for corporate

accountability. Furthermore, it has been argued that MNC’s have essential

power and resources which they can use to promote CSR and social justice in

the society (Pavelin et al.,2009; Bansal and Roth, 2000). Studies have

suggested that MNCs view CSR as a burden rather than an investment, and

use its incredible power to avoid the law, especially in poorer countries like

India (Sikka, P. 2013;Deva, S. 2012). Thus being in line with Carroll’s (1979)

study, which concluded that CSR could only be successfully imposed by law

and regulations (Moon & Mattern, 2008, Windsor 2001). This facet of

3

company responsibility was considered of prime importance when the Indian

government felt compelled to intervene.

       

Most corporate CSR activities in India align themselves with the

charity-based model, donating money, and claiming this to be CSR-oriented.

In India this Philanthropic CSR is facilitated by a rapid increase in the number

of NGOs and their worldwide influence over the past 20 years. Many

researchers have confirmed that NGOs possess a better knowledge of CSR

than private organizations (Pitta, D et al, 2008), and are more effective at

facilitating strategy. 

One criticism of NGOs and charitable CSR is that giving money to an NGO is

a misallocation of corporate funds, as they are not being used to fulfill

business interests. Many researchers advocate that CSR should not be

philanthropic in nature arguing that philanthropic investment only provides

short-term reputation gains in return for tax benefits. While strategic CSR

renders long-term sustainable benefits to corporations, which will prove vital

to their existence (Gege, 2004; Heilbroner, 2002; Hanlon et al,. 2009;

McWilliams A, Siegel D, 2000).

Comparatively little has been written on the subject of strategic CSR,

which concentrates on integrating societal issues into core business

strategies (Baumgartner and Ebner, 2010), in particular in India. Furthermore,

4

There will, however, always be key questions remaining unanswered

as to how corporations can successfully integrate CSR with their main

business (Ledwidge, 2007).

India’s new legislation may change the way CSR is applied, as the

need for corporate investment in Indian society will be seen as critical for

enhancing MNCs’ own fortunes (Masaka, 2008). When the new law is

enforced, capitalist firms in India, which until now have followed

Milton Friedman’s dictum that “the only social responsibility of business is to

make profit” Friedman, M. (1962), will have to transform and could face

difficulties integrating CSR practices with its existing business strategies.

Lastly, cultural influences may lead to variations in CSR practices

across nations, states, cultures and religions. This is particularly marked in

India. The role of corporate culture and organizational values also plays a

significant role in accepting CSR and making it successful (Eastben et al,

2007; Hofstede, 1982).

2. Research Topic

There are few researches available that are comparing CSR practices

between Continents and countries (Matten and Moon, 2008; Habisch et al.,

2004; Maignon and Ralston, 2002; Aguilera et al., 2007; Campbell, 2007) and

most of the studies are focusing on USA vs. Europe , or CSR in Europe

(Habisch et al., 2004) or OECD countries. To conclude, there are relatively

few researches available comparing CSR practices in Asian countries and

finding from these studies reveals lower level of CSR in Asian countries,

excluding Japan (Welford 2004; 2005; Chapple and Moon 2005).

5

Furthermore, both researchers have found that CSR strategies are greatly

influenced by the local culture, tradition & present issues of the host country

apart from general CSR practices within the industry.

There is also a significant research gap in the literature as there is no

study yet conducted on comparing MNC’s and Indian companies’ CSR

practices.

This research is concerned with exploring the phenomenon of

corporate social responsibility of MNCs working in India, both national and

multinational. It will be a comparative analysis and will explore different areas

of strategic CSR on different levels, such as the role of stakeholders,

governments, societal pressure, local culture on CSR decision-making and

strategic behaviour.

I will examine CSR concentrating on India. In this broad field, I will take

two case studies to help focus my arguments. At this preliminary stage, I have

identified two MNCs with their headquarters in Europe; Vodafone and Nestlé.

I have obtained formal permission from Nestlé to conduct my study on CSR in

India, as well as two Indian MNCs, Bharti Airtel and Reliance

2:1 Research Questions

What is the current state of CSR practice in both MNC’s?

How differently CSR is seen, planned, implemented and

evaluated in different MNC’s?

6

What are the roles of local actors, like legislation, culture,

industry standards on the development and implementation of CSR?

How can corporations successfully integrate CSR with their

main business interests?

2:2 Research Objectives

Understand the CSR strategies of MNCs operating in

India, both local and International.

Analyze the differences and link between business and

CSR strategy practices in both types of MNC’s and the drivers of

change in such practices.

Analyze the impact of cultural aspects in CSR and the

impacts on the activities of the company.

Examine the role of government agencies, stakeholders,

in shaping the CSR in India.

3. Methodology

 In this study, quantitative-facilitation mixed method approach will be

used. According to Bryman (2001), this is the best approach when applying

research strategies to assist a study that utilises another research approach.

This proposal is mainly built on comparison of the CSR activities of two

companies and could be increased to the four companies. However, one of

the biggest drawbacks in comparative research is whether the topic has the

7

same meaning in companies being compared. To avoid this and to examine

the companies closely, qualitative methodology will be applied

This study espouses interdisciplinary methodology drawing on Carroll’s

(1979) pyramid model theory, which will be used to explain corporate

responsibilities and to define the range of CSR activities that organizations

practice. I will also use stakeholder theories (Freeman, 1984; Donaldson and

Preston, 1995) as a tool to analyse contemporary CSR practices and

challenges followed by social contract theory (Donaldson and Dunfee, 1994) a

tool used for evaluating the role of local culture on MNCs CSR strategy

formulation and decision making.

References

Aguilera et al, 2006. Corporate governance and social responsibility: a comparative analysis of the UK and the US. Corporate Governance, 14 (3): 147–58.

Bondy K, Matten D, & Moon J, 2008. Multinational corporation codes of conduct: Governance tools for Corporate Social Responsibility? Corporate Governance: An International Review, 16(4): 294-311.

Carroll AB, 1999. Corporate social responsibility – evolution of a definitional construction. Business and Society 38(3): 268–295.

Carroll AB, 1991. ‘The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders’. Business Horizons, 34, 39–48.

Chapple W, Moon J, 2005. CSR in Asia, A Seven-Country Study of CSR Web Site Reporting, Business Society 2005 44: 415.

Cheng et al., 2014. CORPORATE SOCIAL RESPONSIBILITY AND ACCESS TO FINANCE, Strat. Mgmt. J., 35: 1–23 (2014)

8

Commission of the European Communities, 2001. Promoting a European Framework for Corporate Social Responsibilities, COM (2001) 366 final, Brussels.

Dahlsrud A, 2008. How Corporate Social Responsibility is Defined: an Analysis of 37 Definitions, Corp. Soc. Responsib. Environ. Mgmt. 15, 1–13 (2008)

Daniel J, 2005, Corporate Social Responsibility: A Comparison Between the United States and the European Union, 55–59 (2005).

Dobers p, et al, 2009. Corporate Social Responsibility and Developing Countries, Corp. Soc. Responsib. Environ. Mgmt. 16, 237–249 (2009)

Dobers P, 2009. Corporate Social Responsibility: Management and methods, Corp. Soc. Responsib. Environ. Mgmt. 16, 185-191.

Elenkov et al, 2005. STRATEGIC LEADERSHIP AND EXECUTIVE Z_ INNOVATION INFLUENCE: AN INTERNATIONAL MULTI-CLUSTER COMPARATIVE STUDY, Strat. Mgmt. J. 26: 665-682.

Friedman M, 1970. The social responsibility of business is to increase its profits. The New York Times Magazine 13 September, p 32–33, p 122–126.

Hanlon G, Fleming P, (2009). Updating the Critical Perspective on Corporate Social Responsibility, Sociology Compass, 3: 937–948.

Karnani, Aneel. 2007. “Doing Well By Doing Good - Case Study: 'Fair and Lovely' Whitening Cream”. Strategic Management Journal 28:1351-7.

Lu J, Castka p, 2009. Corporate Social Responsibility in Malaysia Corp. Soc. Responsib. Environ. Mgmt. 16, 146–154.

McWilliams A, Siegel D, 2001. Corporate social responsibility: a theory of the firm perspective. The Academy of Management Review 26(1): 117–127.

McWilliams A, Siegel D, 2000. ‘Corporate social responsibility and financial performance: correlation or misspecification?’. Strategic Management Journal, 21, 603–9.

9

McWilliams et al, 2006. Corporate Social Responsibility: Strategic Implications, Journal of Management Studies 43:1, 2006

Ministry of statistics and Programme Implementation India, 2009. http://www.mospi.nic.in/Mospi_New/site/home.aspx; Last accessed Jan,2014.

Michael B, 2003. CORPORATE SOCIAL RESPONSIBILITY IN INTERNATIONAL DEVELOPMENT: AN OVERVIEW AND CRITIQUE, Corp. Soc. Responsib. Environ. Mgmt 10, 115–128 (2003).

Naeem M, Welford R, 2009. A comparative case study of Corporate Social Responsibility in Bangladesh and Pakistan, Corp. Soc. Responsib. Environ. Mgmt. 16, p 108-122.

OECD. 2008. The OECD guidelines for multinational enterprises. In The corporate social responsibility reader, Burchell J (ed.). Routledge: London; 126–135.

ONICRA plus, 2013, ONICRA Credit Rating Agency of India Ltd. http://onicra.com/intranet/2013/Onicra-Pulse-Sep-2013/Onicra-Pulse-2013-Performance-Rating-of-NGOs-for-CSR-Activities.html Last accessed Feb 2014.

Pitta, D et al, 2008. The quest for the fortune at the bottom of the pyramid: potential and challenges, Journal of consumer marketing, 393-401

Sikka, P. 2013, Smoke and mirrors: Corporate social responsibility and taxavoidance—A reply to Hasseldine and Morris, Accounting Forum 37,15-28, 2013.

Sikka, P. 2013, “Without curbing corporate power the G8 have no chance of combating tax avoidance”, The Conversation,12 June 2013 (https://theconversation.com/without-curbing-corporate-power-the-g8-have-nochance-of-combating-tax-avoidance-15153).

Puranik R, Arora B, 2004. A Review of Corporate Social Responsibility in India, 2004, 47(3), (93–100).

10

Smedley T, 2012. More NGOs finding fruitful collaborations with the private sector,

The guardian, August, 2012 http://www.theguardian.com/sustainable-business/ngos-collaboration-private-sector, Last accessed Jan, 2014.

The company act 2013, Ministry of law and justice India, 29 th August,2013 http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf. Last accessed, Sep, 2013.

Welford R, Frost S, 2006. Corporate social responsibility in Asian supply chains. Corporate Social Responsibility and Environmental Management 13(3): 166–176.

Werhane, PH. 1998. Moral imagination and the search for ethical decision-making in management. Business Ethics Quarterly, 1: 75-98.

Wernerfel B, 1984. A Resource-Based View of the Firm, Strategic Management Journal, Vol. 5, No. 2, 171-180

Worldbank report, 2011. http://www.worldbank.org/content/dam/Worldbank/document/SAR/india/in-report-india-development-update-october-2013.pdf, accessed, dec, 2013.

Windsor D, 2006. Corporate Social Responsibility:Three Key Approaches, Journal of Management Studies, 93-106.

Schrempf J, 2012.The Delimitation of Corporate Social Responsibility: Upstream, Downstream, and Historic CSR, Business Society 2012 51: 690.

Singh, P 2009. PNGO accountability in Indian context, Guide start India, 1-7,2009.

Zhang F, 2008. CSR in Emerging Markets:The Role of Multinational Corporations, Coco Cola, Great Britain, 1-12, 2008.

11