Table of Contents
What is CSR?
The term “Corporate Social Responsibility (CSR)” can be referred to as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare. The term generally applies to companies’ efforts that go beyond what may be required by regulators or environmental protection groups.
Corporate social responsibility may also be referred to as “corporate citizenship” and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.
CSR is the process by which an organization thinks about and evolves its relationships with stakeholders for the common good, and demonstrates its commitment in this regard by adopting appropriate business processes and strategies. Thus CSR is not charity or mere donations.
CSR is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental, and social objectives with the company’s operations and growth .”
Definition of CSR
Let’s look at the definitions of CSR:
Corporate Social Responsibility is the continuing commitment by business to behaveethically and contribute to economic development while improving the quality of life of theworkforce and their families as well as of the local community and society at large.
WorldBusiness Council for Sustainable
CSR is about how companies manage the business processes to produce an overall positiveimpact on society.
Mallen Baker
Corporate social responsibility is undertaking the role of “corporate citizenship” andensuring the business values and behaviour is aligned to balance between improving and developing the wealth of the business, with the intention to improve society, people and theplanet
For Whom It’s Applicable?
The companies on whom the provisions of the CSR shall be applicable are contained in Sub Section 1 of Section 135 of the Companies Act, 2013. As per the said section, the companies having a Net worth of INR 500 crore or more; or Turnover of INR 1000 crore or more; or a Net Profit of INR 5 crore or more during any financial year shall be required to constitute a Corporate Social Responsibility Committee of the Board “hereinafter CSR Committee” with effect from 1st April, 2014. The pictorial representation below gives the representation of Section 135 (1).
Drivers Pushing Business Towards CSR
The drivers pushing business towards CSR are:
- Shrinking Role of Government
- Demands for Greater Disclosure
- Increased Customer Interest
- Growing Investor Pressure
- Competitive Labor Markets
- Supplier Relations
Shrinking Role of Government
In the past, governments have relied on legislation and regulation to deliver social and environmental objectives in the business sector. Shrinking government resources, coupled with a distrust of regulations, has led to the exploration of voluntary and non-regulatory initiatives instead.
Demands for Greater Disclosure
There is a growing demand for corporate disclosure from stakeholders, including customers, suppliers, employees, communities, investors, and activist organizations.
Increased Customer Interest
There is evidence that the ethical conduct of companies exerts a growing influence on the purchasing decisions of customers. In a recent survey by Environics International, more than one in five consumers reported having either rewarded or punished companies based on their perceived social performance.
Growing Investor Pressure
Investors are changing the way they assess companies’ performance, and are making decisions based on criteria that include ethical concerns. The Social Investment Forum reports that in the US in 1999, there was more than $2 trillion worth of assets invested in portfolios that used trees linked to the environment and social responsibility.
Competitive Labor Markets
Employees are increasingly looking beyond paychecks and benefits, and seeking out employers whose philosophies and operating practices match their own principles. In order to hire and retain skilled employees, companies are being forced to improve working conditions.
Supplier Relations
As stakeholders are becoming increasingly interested in business affairs, many companies are taking steps to ensure that their partners conduct themselves in a socially responsible manner. Some are introducing codes of conduct for their suppliers, to ensure that other companies’ policies or practices do not tarnish their reputation.
Arguments in Favor of CSR
The following arguments favor corporate social responsibility:
- Protect Interests of Stakeholders
- Long-Run Survival
- Self-Enlightenment
- Avoids Government Regulation
- Resources
- Professionalization
Protect Interests of Stakeholders
The labor force is united into unions that demand protection of their rights from business enterprises. To get the support of workers, it has become necessary for organizations to discharge responsibility towards their employees. Caveat emptor (‘let the buyer beware’), no more holds true.
The consumer today is the kingpin around whom all marketing activities revolve. The consumer does not buy what is offered to them. He buys what he wants. Firms that fail to satisfy consumer needs will close down sooner or later.
Long-Run Survival
Business organizations are powerful institutions of society. Their acceptance by society will be denied if they ignore social problems. To avoid self-destruction in the long run, business enterprises assume social responsibility.
Self-Enlightenment
With the increase in the level of education and understanding of businesses that they are the creations of society, they are motivated to work for the cause of social good. Managers create public expectations by voluntarily setting and following standards of moral and social responsibility.
They ensure paying taxes to the Government, dividends to shareholders, fair wages to workers, quality goods to consumers, and so on. Rather than legislative interference being the cause of social responsibility, firms assume social responsibility on their own.
Avoids Government Regulation
Non-conformance to social norms may attract legislative restrictions. The government directly influences the organizations through regulations that dictate what they should do and what not. Various agencies monitor business activities.
Resources
Business organizations have enormous resources which can be partly used for solving social problems. Businesses are the creation of society and must work in the best interest of society, both economically and socially.
Professionalization
Management is moving towards professionalism which is contributing to the social orientation of business. Increasing professionalism is causing managers to have formal management education and qualifications.
Managers specialize in planning, organizing, leading, and controlling through their knowledge and subscribe to the code of ethics established by a recognized body. The ethics of the profession bind managers to social values and growing concern for society.
Arguments Against CSR
Corporate social responsibility is limited on the following grounds:
- Business is an Economic Activity
- Quantification of Social Benefits
- Cost-Benefit Analysis
- Lack of Skill and Competence
- Transfer of Social Costs
- Sub-Optimal Utilization of Resources
Business is an Economic Activity
It is argued by the opponents of social responsibility that the basic function of a business enterprise is to look into the economic viability of its operations. It is for the Government to look after the interests of the society. The prime responsibility of assuming social responsibility should, therefore, be of the Government and not of the business enterprises.
What measures social responsibility and to what extent should a business enterprise be engaged in it, what amount of resources should be committed to the social values, whose interest should hold priority over others (shareholders should be preferred over suppliers or vice versa) and numerous other questions are open to subjective considerations, which make social responsibility a difficult task to be assumed.
Cost-Benefit Analysis
Any social-benefit program where initial costs exceed the benefits may not be taken up by enterprises even in the short run.
Lack of Skill and Competence
Professionally qualified managers may not have the aptitude to solve social problems.
Costs related to social programs are adjusted by the business concerns in the following ways:
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High Prices: The costs are passed to consumers by increasing prices of goods and services.
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Low Wages: If managers maintain the level of prices, the social costs may be reflected in the reduction of wages.
- Low Profits: If wages are stabilized, profits would be reduced, which will lower dividends to the shareholders. Low profits will reduce managers’ desire to further engage in corporate social responsibility
Sub-Optimal Utilization of Resources
If scarce resources are utilized for social goals, this would violate the very purpose of the existence of an organization.
After considering the arguments in favor and against the concept of CSR, some points are still left unanswered. These are:
- Operational Definition of CSR
- No View of Competitive Corporate Environment
- Limited Ability
- Lack of Uniformity in Business Policies
- Moral Responsibility
Operational Definition of CSR
The traditional view on CSR provided no information on business concerns about social values. The modern approach also provides no clear guidelines to managers. Business executives follow their own values and interests in social expectations. The actual meaning of CSR is, however, difficult to determine.
No View of Competitive Corporate Environment
Every business operates in the larger business system. It cannot come out of that system and the transformation of society within the existing parameters of the business system seems to be illusory.
Business power is not unified and, therefore, even if they wish, they cannot fully meet the needs of society. Redirecting resources towards needs of the society can perhaps be possible if the government rewrites the rules under which business corporations will operate.
Limited Ability
The proponents of CSR assume that business units have an unlimited ability to fulfill social desires. However, it is not so. Business firms have limited ability to respond to social changes. Social actions will increase the costs and prices, which will place these firms at a competitive disadvantage in relation to firms that are not socially responsive.
Lack of Uniformity in Business Policies
Solving social problems is not feasible in a competitive business environment unless all firms follow the same policy. The government can intermediate and make all competitors pursue the same policy on social problems.
Government is in fact, framing standards for businesses to follow with respect to physical environment, occupational safety and health, equal opportunity, consumer concerns, etc.
Moral Responsibility
Business firms feel that they have an economic responsibility to produce goods and services. Their economic responsibilities justify their reason for existence. Why should business organizations have moral responsibilities? What are the moral justifications for the same?
Corporate Social Responsibility is the continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.
