LESSON 5

Corporate social responsibility

“The fundamental idea of corporate social responsibility is that business

corporations have an obligation to work for social betterment. The Classical Viewpassage from Capitalism and Freedom

In such an economy, there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as its stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. Peter Drucker -Business have a role in society which is "to supply goods and services to customers and an economic surplus to society...rather than to supply jobs to workers and managers, or even dividends to shareholders"" The Contemporary ViewThe contemporary view is that business, as important and influential members of society, are responsible to help maintain and improve the society's overall welfare. Kenneth Dayton argues, that: “To maintain that business must change its priorities. We are not in business to make maximum profit for our shareholders. We are in business for only one reason - to serve society. Profit is our reward for doing it well. If business does not serve society, society will not tolerate our profits or even our existence”.

CSR –Social responsibility of a business can be

conveniently summed as- the obligation on the part of the business to

discharge its duties as any other citizen- -in an ethical manner towards the society in

general- -and towards various stakeholders of

business—- related both directly and indirectly,- in order to justify business as a member of

modern society of equality and prosperity.

A Heap of used Water Bottles

CSR and accountability to stakeholders

Business enterprises are primarily accountable to six major interest groups:

These groups are also known as stakeholders

STAKEHOLDERS OF COMPANIES

SHAREHOLDERS

Customers CREDITORS & SUPPLIERS

• EMPLOYEES

SOCIETY

GOVERNMENT

COMPANY

CSR and accountability to stakeholdersShareholders The primary responsibility of a business to protect the interests of its shareholders. To use the capital properly and operate the business in a way that

ensures a good return on their investment (through dividends and through increase in stock value)

adequate and timely information about the functioning of the organization.

Employees it is the management's responsibility to protect the interest of workers in the organization. Laws and government regulations now define the responsibilities of

the employer: ensuring equal employment for men and women, offering pensions and other retirement benefits, providing a safe and healthy work environment

Customers Customers should be charged a fair and reasonable price. uniform standard and of reasonable quality. The distribution be widespread so that customers do not face any

problems in procuring them. Unethical practices like profiteering, hoarding, or creating artificial

scarcity should be avoided. should not mislead the customers by false, misleading and exaggerated

advertisements

Creditors and Suppliers Creditors and suppliers are responsible for providing inputs for

production process in the form of raw materials and capital. Management is responsible for fulfilling its obligations to its creditors

and suppliers. Creating a long-term and healthy business relationship with them. Making prompt payments to creditors and suppliers

.

Society The management of business organizations can fulfill their

obligations toward society by preserving and enhancing the well-being of the

members of society. establishing development programmers for the benefit

of economically weaker sections of society like providing basic amenities, healthcare and education facilities, creating better living conditions.

Government The government of a country provides the basic facilities

required for the survival and growth of businesses. Be law-abiding.

Pay taxes and other dues fully, timely and honestly. Not to bribe government servants to obtain favors for the

company. Not try to use political influence in its favor.

Social responsiveness (SR) is the ability of an organization to relate its operations and policies to the social environment in ways that are mutually beneficial to the company and to society .

The various categories for measuring the social responsiveness of organizations.

Companies make direct financial contributions to charitable and civic (PUBLIC OR COMMUNITY) projects

fund-raising for a social cause, either by the organization itself or by assisting voluntary social organizations in fund-raising.

Volunteerism refers to the involvement of employees in civic activities. To conserve the environment, materials like plastic, paper etc. should be

recycled into useful products. Often, companies make direct investments to provide facilities for a

locality or a community. Pollution is a major problem. Increasing public awareness and government

pressure have made corporations more environment conscious.

Measuring Social Responsibility

Corporate Social Responsibility-Strategies:

1. Proactive Strategy: Take initiative in social programs(procative) Meet economical, legal, ethical and discretionary responsibilities

2. Accommodative Strategy: Do what is ethically required Meet economic, legal and ethical responsibilities

3. Defensive Strategy: Do minimum legally required Meet economical and legal responsibilities

4. Obstructional Strategy: Avoids CSR; in fact opposes the business role in CSR and reflects mainly economic priorities.

Fight social demands but meet economic responsibilities

Do you know that….

• A paper company manufactures paper from waste cloth to reduce the use of pulp from trees

• An FMCG company is working to protect and conserve endangered plant species in India through re-forestation programmes

• A construction company (in Mumbai) posted a 60 % profit in 2010 amounting to Rs.1400 cr. and did not do any activity to benefit society

• A power generating company is the highest CO2 emitter in Asia

Observations….Poor performing Sectors- Construction, Entertainment and Media, Mining, Retail

Best Sectors- Banking, Software, FMCG, Paper