UNIT I

SUBJECT: CORPORATE SOCIAL RESPONSBILITY

SUBJECT CODE: DOCM16C

CLASS: I M.Sc. CS.

UNIT I

Corporate social responsibility – Meaning – Definition – scope of CSR– a rational

argument of CSR – Economic argument for CSR – strategies of CSR – challenges
and implementation of CSR in Indian – relation between CSR and corporate
governance – major code of CSR initiative in India – barriers to social
responsibility – social responsibility of business.

Corporate Social Responsibility

Corporate Social Responsibility:

Meaning,
Definitions,
Scope,
Types,
Challenges,
Advantages and Limitations
___________________________________________________________________________

Meaning:
CSR denotes the way the companies integrate the general, social, environmental
and economic concerns of the society into their own values, strategies and
operations in a transparent and accountable manner and thereby contribute to the
creation of wealth and improvement in the standard of living of the society at
large.
The World Business Council for Sustainable Development has described
CSR as the business contribution to sustainable economic development and
includes commitment and activities pertaining to the following topics:
(a) Health and safety
(b) Environmental concerns
(c) Community development
(d) Human rights in relation to labour
(e) Customer satisfaction and fair competition
(f) Accountability and transparency in financial reporting
(g) Maintaining relationship with suppliers

Social responsibility objectives need to be built into corporate strategy of

business rather than merely be statements of good intentions. The concept of CSR
extends beyond notions embodied in current law and it introduces new
dimensions and new problems. There is no generally accepted concept of social
responsibility of business enterprises.

The evolution of CSR concept can be summarized as follows:

(a) The first approach originates in classical economic theory as expressed in the
hypothesis that the firm has one and only one objective, which is to maximize
profit. By extension, the objective of a corporation should be to maximize
shareholders’ wealth. It is asserted that in striving to attain this objective, within
the constraint of the existing legal and ethical framework, business corporations
are acting in the best interests of the society at large.

(b) The second approach developed in the 1970s, and recognizes the significance
of social objectives in relation to the maximization of profit. In this view,
corporate managers should make decisions which maintain an equitable balance
between the claims of shareholders, employees, customers, suppliers and the
general public. The corporation represents, a coalition of interests, and the proper
consideration of the various interests of this coalition is the only way to ensure
that the corporation will attain its long-term profit maximization objective.

(c) The third view regards profit as a means to an end and not as an end in itself.
In this view, ‘the chief executive of a large corporation has the problem of
reconciling the demands of employees for more wages and improved benefit
plans, customers for lower prices and greater values, shareholders for higher
dividends and greater capital appreciation; all within a frame work that will be
constructive and acceptable to society’.

Accordingly, organizational decisions should be concerned with the selection of

socially responsible alternatives. Instead of seeking to maximize profit generally,
the end result should be satisfactory level of profit which is compatible with the
attainment of a range of social goals. The change from the second to the third
approach to social responsibility is characterized as a move from a concept of the
business corporation based on shareholders’ interest to one which extends the
definition of ‘stakeholder’.

The former concept views the business enterprise as being concerned with
making profits for its shareholders and treats the claims of other interested groups,
such as customers, employees and community, as constraints on this objective.
The latter concept acknowledges that the business enterprise has responsibility to
all stakeholders, that is, those who stand to gain or lose as a result of the firm’s
activities.
There are a number of common objectives which express the expectations of
a large company.
Some of these can be stated as follows:
(a) Rebuilding of public trust and confidence by increased transparency in its
financial as well as non- financial reporting and thereby increasing the
shareholder value.
(b) Establishing strong corporate governance practices to enhance the brand
reputation of the company.
(c) Giving adequate support to the health, safety and environment protection
policies of the company both within the manufacturing operations as well as
while dealing with outsiders.
(d) Making substantial improvement in its relationship with the labour force
thereby showing its concern for human rights and making it known as an ideal
employer.
(e) Contributing to the development of the region and the society around its area
of operation.
(f) Addressing the concerns of its various stakeholders in a balanced way so as to
maintaining a strong market position.
The corporate sector will have to integrate the concepts of CSR and sustainability
with their business strategy.

This can be achieved by making certain commitments such as:

(a) By making a quantum shift in their vision statement from profit maximization
to social, environmental and economic sustainability.
(b) By adopting sound corporate governance practices both in letter as well as in
spirit.
(c) By minimizing the socially and environmentally detrimental impact of their
operations.
(d) By creating a conducive atmosphere for the working class and accepting the
human rights of the labour force.
(e) By showing a greater degree of transparency in it’s reporting of both financial
as well as non-financial matters.
(f) By establishing a chain of suppliers having similar CSR values.

Scope of Corporate Social Responsibility:

Ernst and Ernst (1978) identified six areas in which corporate social
objectives may be found:
1. Environment:
This area involves the environmental aspects of production, covering pollution
control in the conduct of business operations, prevention or repair of damage to
the environment resulting from processing of natural resources and the
conservation of natural resources.
Corporate social objectives are to be found in the abatement of the negative
external social effects of industrial production, and adopting more efficient
technologies to minimize the use of irreplaceable resources and the production of
waste.
2. Energy:
This area covers conservation of energy in the conduct of business operations and
increasing the energy efficiency of the company’s products.
3. Fair Business Practices:
This area concerns the relationship of the company to special interest groups.
In particular it deals with:
i. Employment of minorities
ii. Advancement of minorities
iii. Employment of women
iv. Employment of other special interest groups
v. Support for minority businesses
vi. Socially responsible practices abroad.
4. Human Resources:
This area concerns the impact of organizational activities on the people who
constitute the human resources of the organization.
These activities include:
i. Recruiting practices
ii. Training programs
iii. Experience building -job rotation
iv. Job enrichment
v. Wage and salary levels
vi. Fringe benefit plans
vii. Congruence of employee and organizational goals
viii. Mutual trust and confidence
ix. Job security, stability of workforce, layoff and recall practices
x. Transfer and promotion policies
xi. Occupational health
5. Community Development:
This area involves community activities, health-related activities, education and
the arts and other community activity disclosures.
6. Products:
This area concerns the qualitative aspects of the products, for example their
utility, life- durability, safety and serviceability, as well as their effect on
pollution. Moreover, it includes customer satisfaction, truthfulness in advertising,
completeness and clarity of labelling and packaging. Many of these
considerations are important already from a marketing point of view. It is clear,
however, that the social responsibility aspect of the product contribution extends
beyond what is advantageous from a marketing angle.
Limitations of Social Reporting and Social Auditing:
Though the importance of social responsibility and reporting is being
recognized by many companies in India, yet its progress and performance is
hindered due to the following reasons:
(a) Not Mandatory – Disclosure of social responsibility information is not
mandatory for private sector units. In the case of public sector units also ‘order
for social overheads schedule’ does not at all fulfill the requirements of social
audit.
(b) No Standard format – There are not well established concepts, conventions,
postulates and axioms to guide the social accountant in drafting his accounts and
reporting.
(c) Lack of clear cut definition of social reporting – Every enterprise adopts
different methods for measuring, reporting and evaluating social responsibility as
there is no clear cut definition and procedure for social reporting.
(d) No cadre of social auditors – There is no separate cadre of social auditors and
it is not clear how and who will conduct such audit.
(e) Auditing social cost and benefit is an intricate function – It is highly doubtful
if only accountancy scholars would be able to perform the stupendous task of
identifying and documenting the many sided social effects of business behaviour
and auditing social costs and benefits.
(f) Evaluation – The performance appraisal on social ground is not expected by
the business owners.
(g) Lack of objectivity – The collection of data, evaluation of accuracy and
objectivity are difficult.

Social Cost Benefit Analysis:

Social Cost Benefit Analysis (SCBA) is a systematic evaluation of an
organization’s social performance as distinguished from its economic
performance. It is concerned with the possible influences on the social quality of
life instead of economic quality of life. It analyses all such activities which have
a social or macro impact. The development of an economy not only depends on
the quantum of investment but also on the rational and prudent allocation of
resources among various competing projects.

The technique is most popular for making socially viable decisions of selection
or rejection of projects is based on an analysis of social costs and social benefits
of projects. In other words, social cost-benefit analysis is an important technique
of comparing economic alternatives. It is used to determine- (a) which alternative
or choice is socially viable (or most suitable) and (b) which alternative is the
optimal or the best solution.
The need for SCBA arises due to the reason that the criterion used to measure
commercial profitability that guides the capital budgeting in the private sector
may not be an appropriate criteria for public or social investment decisions.
Private investors are more interested in minimizing the private costs and
therefore, take into account only those elements which directly affect, their
private gain i.e. private expenses and private benefits.

Both the private benefits and private expenses are valued at prevailing market
prices. But the existence of externalities in benefits and expenses introduces bias
in market-price based investment decisions. The total benefits expected from a
project to the society are composed of the private benefits (internal profit or
returns) accruing to owner of the project plus the external benefits (also known
as externalities or spillovers). Thus social benefits or returns equals to internal
benefits to the owner plus the external benefits to the society as whole.

SCBA is a systematic evaluation of an organization’s social performance as

distinguished from its possible inferences on the social quality of life instead of
economic quality of life. It analyses all such activities which have a social or
macro impact. The development of an economy not only depends on the quantum
of investment but also on the rational and prudent allocation of resources.

The technique is most popular for making socially viable decisions of selection
or rejection of projects based on an analysis of social cost and social benefits of
projects. As an aid to planning, evolution and decision making, the cost-benefit
analysis is a scientific quantitative appraisal of a project to determine whether the
total social benefits of the project justify the total social cost. United Nations
Industrial Development Organization (UNIDO) and Organization of Economic
Cooperation and Development (OECD) have extensively conducted studies on
SCBA.

Indicators of Social Desirability of a Project:

A project is also assessed from the social angle in addition to assessment of its
commercial viability.
The following social desirability factors will be considered in accept or reject
decisions of a project:
i. Employment Potential – The employment potential of a project is looked into.
A project with high employment potential is considered highly desirable.
ii. Foreign Exchange Earnings – A project with potential to earn foreign exchange
to the country or an import substitution project which saves the country’s foreign
exchange reserves is highly desirable.
iii. Social Cost-Benefit Analysis – A project with net benefits to the society over
the costs to the society is preferred.
iv. Capital-Output Ratio – If the value of expected output in relation to the capital
employed is high, the project is given priority over the others.
v. Value Added per Unit of Capital – The amount invested in the project should
generate the value addition to the capital employed by earning surplus profits
which can be used for further capital investments to contribute development of
the national economy.

Corporate Social Responsibility (CSR) –

Definition,
Types,
CSR Implementation Process and Benefits and
Challenges to CSR Initiatives in India

Corporate Social Responsibility (CSR) is an evolving concept that is yet to

command a standard definition. With an understanding that businesses have a key
role of job and wealth creation in a society, CSR is generally understood to be the
way an organization achieves a balance between economic, environmental, and
social imperatives while addressing the expectations of shareholders and
stakeholders.

While businesses try to comply with laws and regulations on these fronts set by
legislators and legal institutions, CSR is often understood as involving private
sector commitments and activities that extend beyond compliance with laws.

It is generally seen as a business contribution towards sustainable development

and has been defined by the Brundtland Commission as ‘development that meets
the present needs without compromising on the ability of future generations to
meet their own needs’. It focuses on achieving the integration of economic,
environmental, and social imperatives. In addition, it is often synonymous with
certain features of related concepts such as corporate sustainability, corporate
accountability, corporate responsibility, corporate citizenship, and corporate
stewardship.
Many times CSR is motivated by the urge to make a difference by running an
organized business, while being accountable to people and society and balancing
their present and future needs, with the view that beyond fair and just profit, an
organization should also give back to society. This is probably the reason why
many companies set aside a percentage of their profits for socially-meaningful
initiatives under the CSR banner. We can define CSR as a way of operating a
business in a manner that meets or excels the ethical, legal, commercial, and
public expectations that a society has of the business.

Definition of CSR:
According to Bowen (1953), CSR is defined as ‘the obligation of businessmen to
pursue those policies, to make those decisions or to follow those lines of action
which are desirable in terms of objectives and values of society’. It is a concept
whereby companies voluntarily integrate social and environmental concerns in
their business operations and in their interactions with their stakeholders.

Corporate social responsibility has evolved into a way of corporate life and has
become a part of any corporate performance review. The purview of CSR has
also changed into a more inclusive one, involving all stakeholders, instead of just
company management.

According to The World Business Council for Sustainable Development, ‘CSR

is the continuing commitment by business to behave ethically and contribute
towards 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’. The European Commission says, ‘Being socially responsible means not
only fulfilling legal expectations, but also going beyond compliance and
investing more into human capital, the environment and relations with
stakeholders.’

In the Indian context, CSR became a part of the socialistic pattern of economic
growth during early post-independence period. In 1965, the then Prime Minister
of India, Lal Bahadur Shastri, presided over a national meeting that issued the
following declaration on the social responsibilities of business – ‘Business has
responsibility to itself, to its customers, workers, shareholders and the
community… every enterprise, no matter how large or small, must, if it is to enjoy
confidence and respect, seek actively to discharge its responsibilities in all
directions …and not to one or two groups, such as shareholders or workers, at the
expense of community and consumer. Business must be just and humane, as well
as efficient and dynamic.’

Types of CSR:

CSR can be broadly grouped under four heads, based on the involvement of
the following:
1. Community
2. Stakeholders
3. Production processes
4. Employee relations.
1. Community:
The corporate sector involves both the external and internal community. Any
business, while developing a project in a particular location, is regulated by the
laws of the land in regard to environment pollution, fair compensation for the
land taken over from the local residents for the project, and compensation for use
of natural resources of the community, such as water, minerals, and vegetation.
There could be initiatives aimed at providing localized rural employment and
livelihood opportunities to empower rural communities. There is also a growing
commitment to raising the quality of life and social well-being by contributing to
the basics of life in harmony with nature.

It may be noted here that the CSR activities relate to society on the basis of
sustainable development, which hinges on protection of the environment and a
country’s natural resources in relation to corporate activity. It is also to be noted
that the United Nations’ Millennium Development Goals (MDGs) and the
WEHAB (Water, Energy, Health, Agriculture, and Biodiversity) agenda of the
UN Secretary General are key essentials for bringing about a solution to the very
basic problems facing society.

Consequently, if corporate actions are to target the fundamental problems facing

society in developing countries, then the components of the MDGs, including
water and sanitation, prevention of eradicable diseases, and other items should be
included in the CSR agenda of companies.

Many critics believe that a company should manage only the bottom line,
measured purely in financial terms, as that is what an investor would be interested
in. However, business leaders who plan on evolving long-term strategies have
understood the importance of CSR. They have been quick to accept the new ethos
and has identified its potential for triple bottom line benefits, namely economic
bottom line, social bottom line, and environmental bottom line.

A number of companies also adopt the triple bottom line accounting method,
expanding the traditional reporting framework and taking into account
environmental and social performance in addition to financial performance.
Triple bottom line accounting is a popular method of accounting for government
businesses and non-profit organizations.

It is a type of accounting that holds companies accountable for more than just
financial information. For example, IBM’s corporate responsibility effort is
aligned with their strategic business priorities and integral to all their
relationships—with clients, employees, and communities worldwide, and is
reported in their corporate social responsibility report (2009).

Similarly, Nike’s corporate social responsibility ethos is detailed on its website.

Many large corporates across the globe share these details nowadays. In India,
many public sector companies, such as Neyveli Lignite Corporation, give detailed
accounts of their CSR activities.

While examining the CSR activities pursued by companies in India, it can be seen
that while improving the environment, companies find that their business
interests are also served. The cost-benefit analysis shows that they have realized
income from the expenditure incurred towards CSR programmes. In fact, firms
are now realizing that CSR is an investment for future growth, as it improves
company’s bonds with the community, which could in turn help it to draw on
resources for growth including quality manpower.

Some traditional manufacturing firms and large industrial houses such as the
Tatas and Birlas, public sector firms, and new generation IT companies have
evolved on similar lines. Employee referrals in IT companies were successful at
one point not just due to economic reasons but also because their values were
based on CSR and governance.
In short, CSR, in relation to a community can be treated as the principle of
preventive action that supports a precautionary approach to environmental
challenges. It can also contribute to the preservation of biodiversity, and to equal
access to health facilities and basic food, housing, sanitation, and sufficient safe
drinking water.

2. Stakeholders:
The CSR issues in dealing with various stakeholders in the company are as
follows:
i. Vendors:
While a company focuses on increasing wealth for shareholders, it must
recognize that the main stakeholders in the corporate sector include shareholders,
employees, the surrounding community, vendors, and consumers. It is important
that every stakeholder’s interest be addressed by the company.

In the following paragraphs, the firm’s responsibilities towards consumers and

vendors are discussed. Responsible procurement as a practice is picking up vastly
these days. The European nations and the US are proactively declaring
responsible procurement in their purchasing decisions.

Responsible procurement processes ensure that the vendor understands corporate

values, and provides raw materials and components of specifications that promote
the quality of the finished product. In addition, the company makes sure that
ethical practices are upheld in materials supply to avoid adulteration, pilferage,
and other malpractices, and that trade practices respect the law of the land in
regard to payment of duties, taxes, etc. These tenants help to treat the vendor as
a partner and not as transaction based relationship.
A research report on ‘Responsible procurement practices in India – an empirical
analysis’ done by Chandrasekaran, Ramasubramaniam, and Christie (2009)
examined the integration of responsible procurement practices of a firm with
supply chain management, especially in procurement. In the light of the
development in corporate governance, attention was focused on understanding
the main features of responsible procurement aspects of supply chain
management relationships in the global context, and on exploring the
determinants of the inclusion of social and environmental issues.

The main conclusions of the study conducted in India are as follows:

1. Capability has an effect on the responsible procurement score, which implies
that higher the role of the top/middle management employees in procurement
practices, more responsible they are likely to be.
2. Higher the buying frequency, there are higher chances of managers being
responsible in their procurement practices.
3. Firms with significant external pressure tend to be more responsible in
procurement practices.
4. Size of the firm is also an important factor for firms to be more responsible in
procurement processes.
5. Based on the interaction with respondents, it was found that firm investment,
strategic posture, and supplier relationships are important.

Thus, the study concluded that responsible procurement as a concept becomes

more relevant as quality processes trigger the pace of adoption of a responsible
procurement practice. In addition, international lending institutions have
institutionalized a number of such systems through their lending processes.
ii. Customers:
Customers are the king of today’s business. Customer perception of the values
and beliefs of the company and demonstration of its commitment to such
principles is important. Firms like to ensure the right to safety with respect to
physical handling, usage and internal consumption, in case of commodities and
items that are to be consumed. There must be a complete disclosure based on
statutory needs under various laws and protection for damages in case of breach
of promise and trust.

In contemporary business, there is a need to respect the consumer’s right to

education (about the functionality, limitation, and liability of the product and
business) and to privacy. Companies such as Suzuki Motors in India, Toyota and
many others have even gone for product recall and replaced faulty components
or attended to customer complaints to ensure their positioning as a responsible
firm. Demonstration of such commitment has become core to today’s business
success.

3. Production Processes:
Production process design may lead to certain undesirable impacts on the local
community and other stakeholders. For example, earlier, cement manufacturing
plants would pollute the atmosphere with their wastes, causing health hazards to
people inside and outside their factories. However, stringent measures on the
design of chimneys and other pollution control measures have improved the
situation to a great extent today.

Similarly, there are many occupational hazards that are also a part of production
processes. Therefore the adoption of safety systems and procedures is now
becoming a statutory requirement. For example, in an industrial alcohol plant, a
waste called spent wash that is not easily incinerated or absorbed by soil is
generated. In fact, it adversely affects the system if let out on open land or in
water. In quarries, the dust problem is so overwhelming that it can result in
silicosis, a pulmonary ailment for those who are working on site.

Statutorily, the company has to provide safety equipments, adopt safety

procedures, and the compliance in this regard has to be complete. However, it is
also important for firms to be proactively engaged with stakeholders, including
the local community. Social responsibility requires the company to periodically
monitor the impact of occupational hazards on employees, proactively, to avoid
any deleterious effects. Certain companies go further to provide dietary
supplements to the employees to resist any ill effects due to work hazards.

CSR in relation to production processes can also be carried out to reduce energy
use, limit or alter material use, reduce water use, save natural resources,
efficiently manage emissions, reduce waste, and recycle recoverable items. There
are a number of companies carrying out CSR activities and the reader is
encouraged to check literature on these companies in open sources.

4. Employee Relations:
There are a number of laws and statutory regulations that protect the interest of
employees in an organization. These are common in a socialistic pattern of
government and in capitalistic society as well. What signifies CSR initiatives of
a firm towards employees is its ability to voluntarily provide more than what is
expected legally.

CSR in relation to employee rights would include, among other things, respecting
and ensuring employees’ freedom of association, the right to collective
bargaining, proactive declaration on abolition of child labour, non-discrimination
of resources on caste, creed and color, and respecting the time and comfort of
employees.

Though there are standard norms for CSR, only the more enlightened employers
take care of the families of the employees by providing health care, education,
counselling, and improved living conditions. IT companies and new-generation
companies through their employee engagement activities go a long way in
providing support to employees.

Options to work from home, sabbaticals for higher education or to attend to

personal needs, preferences for women employees during post maternity to
choose work options such as flexible hours, suiting their economic and social
need, and encouraging employees to work with the outside community on
sabbatical but with full pay are some examples.
Chambers, E., Chappie, W., Moon, J., and Sullivan, M. (2003) conducted a seven
country study of CSR in South Asia. The extent of CSR penetration in the seven
Asian countries showed that the average for the seven countries (including
industrially-advanced Japan) in terms of value was just 41 per cent compared to
say a score of 98 per cent for a developed nation such as the United Kingdom.
However, India had an average CSR penetration of 72 per cent compared to
Indonesia’s 24 per cent.

CSR Implementation Process and Benefits:

Usually, the head of CSR, followed by the CEO of the company, is the chief
architect and the main person responsible for the implementation of CSR
initiatives across the organization. In the case of public sector companies, HR
departments and administrative departments also get involved in the
implementation of CSR activities.
CSR is the catalyst that brings about a positive social change that is welcome for
business, government, and society at large. Benefits to a company include
improved perception about the company’s brands, tax benefits, and compliance
with statutory requirements. Apart from these, other benefits could be a positive
and long-term relationship with communities, improving product-supply
management, and contributing to the prosperity of the region/nation.

Some big corporate houses have their own foundations for CSR-related work.
This allows them to focus exclusively on CSR initiatives and activities, and get
involved in genuine social concerns without the pressure of the business or a
company focus intruding on their work. Such independent moves help them
generate funds in order to support activities with a larger fund base. With such
independence, there can also be more transparency in CSR activities.

Challenges to CSR Initiatives in India:

There are a number of challenges a company would face while implementing its
CSR activities.
Some of these challenges are as follows:
1. Lack of Community Participation:
Inadequate communication between the company and the community limits the
scope of conducting CSR activities. In addition, due to inadequate knowledge of
CSR among communities, coupled with poor communication, problems escalate.
There is a general deterrence to participation by the community.
2. Narrow Perception of CSR Initiatives:
Many NGOs and government agencies presume that companies involved in CSR
activities are only interested in funds. This de-motivates companies to initiate and
implement CSR activities.
3. Transparency Issues:
Challenges may also be caused by the commonly-held view that there may be a
lack of transparency on the part of local implementing agencies, and that they do
not make adequate efforts to disclose information on the progress of social
programmes that have been initiated.
In addition, companies and funding agencies are particular that audit
mechanisms, impact assessment, and the utilization of their funds must be well-
recorded and shared among stakeholders. Such a perceived lack of transparency
negatively impacts the process of trust-building between companies and local
communities.
4. Need to Build Local Capabilities:
One of the reasons for lack of transparency is inadequate local capabilities. There
is a need for building the capabilities of the local NGOs as there is a serious dearth
of trained and efficient organizations that can effectively contribute to the
ongoing CSR activities initiated by companies. This also limits the ramp up,
scope, and size of CSR initiatives. Similarly, there are also challenges with
respect to reaching remote and rural areas, the inability to assess and identify the
real needs of the community and work with the corporate sector to ensure
successful implementation of CSR activities.
5. Lack of Consensus on Implementing CSR Issues:
There is a lack of consensus amongst local communities, agencies, government
bodies, and companies while implementing CSR projects. This lack of consensus
often results in duplication of activities by corporate houses in their areas of
intervention. This results in a competitive spirit between local implementing
agencies rather than a collaborative approach.
These challenges can be handled by companies by better planning and
coordination. Large companies and trusts are well-geared to draw support and
create success through such initiatives. A strategic analyst must view CSR as a
strategy to normalize the environmental factors of business and solicit harmony
through well-intended programmes.

Corporate Social Responsibility (CSR) –

Rationale,
Limitations and the Emerging Scenario

Social responsibility of business has been traditionally understood as what a firm

does, over and above the statutory requirement, for the benefit of the society. The
term social responsibility connotes that a firm has some moral obligation to the
society (particularly because of the reasons described in the sub-section The
Rationale). With the Companies Act, 2013, making CSR mandatory for certain
categories of companies on the basis of net worth/turnover/net profit, CSR can be
regarded as a voluntary contribution to societal welfare by companies only when
the CSR expenditure exceeds the mandatory requirement.
The United Nations Industrial Development Organisation (UNIDO) has defined
corporate social responsibility (CSR) as a management concept whereby
companies integrate social and environmental concerns in their business
operations and interactions with their stakeholders. CSR is a way in which
companies achieve a balance of economic, environmental and social imperatives.

Singhania, a prominent Indian industrialist, has classified the nature of the

social responsibility of business into two categories:
1. The manner in which a business carries out its own business activity. This
involves the acceptance of the fact that business is not merely a profit-making
occupation but a social function which involves certain duties, and requires that
appropriate ethics are followed. For example – a business must obey all the laws,
even when they are disagreeable, it should produce the maximum goods of good
quality, ensure smooth supplies at competitive prices, pay taxes, shun
malpractices, and pay a fair wage to employees and a reasonable dividend to
shareholders.
2. The welfare activity that it takes upon itself as an additional function. In
addition to its commercial activity, business also plays a role in promoting social
welfare activity, even directly.

George Goyder, in his famous book, The Future of Private Enterprise – A

Study in Responsibility, mentions the following as the principal objectives of
a responsible company:
1. The extension, development and improvement of the company’s business and
the building up of its financial independence.
2. The payment of fair and regular dividends to the shareholders.
3. The payment of fair wages under the best possible conditions to the workers.
4. The reduction in the prices to be charged to consumers.
In other words, the primary objectives of a socially responsible business should
be to strengthen itself with due regard to the interests of the shareholders,
employees and consumers.
A responsible company has certain secondary objectives as well.

The important among them, according to Goyder, are:

1. To enhance labour welfare
2. To enhance customer service and goodwill
3. To assist in developing and promoting the amenities in the locality
4. To assist in developing the industry of which the firm is a member
5. To contribute to national goals.
The Rationale:
The rationale of the CSR/TBL (and the National Voluntary Guidelines) is
business vis-a-vis the business ecosystem, i.e., it is rooted in the ecological view
of society (see the sub-section is TBL a New/Better Idea?) The operations of
business enterprises affect a wide spectrum. The resources they make use of are
not limited to those of the proprietors and the impact of their operations is felt
also by many a people who are in no way connected with the enterprises.

The shareholders, the suppliers of resources, the consumers, the local community
and society at large are affected by the way an enterprise functions. Hence, a
business enterprise has to be socially very responsive so that a social balance may
be struck between the opposing interests of these groups. Further, business and
other economic activities have been causing serious damage to the natural
ecosystem which needs to be prevented and remedied.

About six-and-a-half decades ago, Goyder argued – “Industry can no longer be

regarded as a private arrangement for enriching shareholders. It has become a
joint enterprise in which workers, management, consumers, the locality,
Government and trade union officials all play a part. If the system which we know
by the name private enterprise is to continue, some way must be found to embrace
many interests which go to make up industry in a common purpose.”

Later, in 1978, while delivering the C. C. Desai Memorial Lecture, he reiterated

his plea that if the corporation has to function effectively, it has to be accountable
to the public at large, and he sought to equate the suggestion of a responsible
company with the trusteeship concept advocated by Gandhiji, the aim of which
was to ensure that private property was used for the common good.
The declaration issued by the international seminar on the social responsibility of
business held in India in 1965 also correlated the Gandhian concept of trusteeship
with the social responsibility of business as “responsibility to customers, workers,
shareholders and the community.”

There has been a growing acceptance of the plea that business should be socially
responsible in the sense that the business enterprise, which makes use of the
resources of society and depends on society for its functioning, should discharge
its duties and responsibilities in enhancing the welfare of the society of which it
is an integral part.

The High Powered Expert Committee on Companies and MRTPA Acts (Sachar
Committee), in its Report submitted to Government in August 1978, observed
that, “in the development of corporate ethics, we have reached a stage where the
question of the social responsibility of business to the community can no longer
be scoffed at or taken lightly.”

The Committee further points out that, “In the environment of modern economic
development, the corporate sector no longer functions in isolation. If the plea of
the companies that they are performing a social purpose in the development of
the country is to be accepted, it can only be judged by the test of social
responsiveness shown to the needs of the community by the companies. The
company must behave and function as a responsible member of society, like any
other individual. It cannot shun moral values, nor can it ignore actual
compulsions. The real need is for some focus of accountability on the part of the
management which is not limited to shareholders alone. In modern times, the
objective of business has to be the proper utilisation of resources for the benefit
of others. A profit is still a necessary part of the total picture, but it is not the
primary purpose. This implies that the claims of various interests will have to be
balanced, not on the narrow ground of what is best for the shareholders alone but
from the point of view of what is best for the community at large. The company
must accept its obligation to be socially responsible and to work for the larger
benefit of the community.”

CSR to TBL:
Terms TBL and 3Ps are gaining mare popularity over CSR. However, they are,
in essence, not significantly different from CSR and social audit.

The view that there shall be a holistic approach to evaluating the outcomes of the
operations of business enterprises and other organisations is a long standing one.
Although the usage triple bottom line or its rhythmic expression profit, people
and planet – the triple P – is of recent origin, the basic idea behind it has been
there in the intellectual domain for a long time.

The concept of TBL, consisting of the triple Ps – people, planet, profit – holds
that a company’s responsibility lies with the stakeholders, i.e., to those who are
influenced, either directly or indirectly, by the actions of the firm, not merely with
the shareholders. In other words, it is a reflection of the stakeholder theory
according to which the business entity should be used as a vehicle for
coordinating stakeholder interests, instead of maximising shareholder (owner)
profit.

In the currently popular nomenclature Triple P, People are often linked to

corporate social responsibility (CSR), and another P is in place to represent the
environment. Social responsibility in a broader perspective encompasses planet
too and as such the People and Planet are akin to the social responsibility of
business.
At its broadest, the term TBL is used to capture the whole set of values, issues
and processes that companies must address in order to minimise any harm
resulting from their activities and to create economic, social and environmental
value. This involves being clear about the company’s purpose and taking into
consideration the needs of all the company’s stakeholders – shareholders,
customers, employees, business partners, governments, local communities and
the public.

The above descriptions clearly indicate that the accounting framework of TBL
incorporates the social and environmental dimensions of the performance of an
organisation, besides the traditional financial performance.

The connotation of the TBL, thus, is that companies should be preparing

three different (and quite separate) bottom lines:
1. The traditional bottom line of the profit and loss account.
2. The bottom line of a company’s people account – a measure in some shape or
form of how socially responsible then organisation has been in its operations.
3. The bottom line of the company’s planet account – a measure of how
environmentally responsible it has been.

Is TBL a New/Better Idea?

The view that there shall be a holistic approach to evaluating the outcomes of the
operations of business enterprises and other organisations is a long standing one.
Although the usage triple bottom line or its rhythmic expression profit, people
and planet – the triple P – is of recent origin, the basic idea behind it has been
there in the intellectual domain for a long time.

Coining of the phrase Triple Bottom Line, consisting of the triple Ps – people,
planet and profit – is widely (and wrongly) attributed to John Elkington in 1995
while at Sustain Ability. The phrase got significant currency with the publication
in 1997 of his book Cannibals with Forks. The Triple Bottom Line of 21st
Century Business and the adoption of Triple Bottom Line as the title of the Anglo-
Dutch oil company Shell’s first sustainability report in 1997. Literature on this
topic, however, cites the usage of this phrase much earlier.

For example – the Triple Bottom Line Investing (a group advocating and
publicising these principles) was founded in 1998 by Robert J. Rubinstein. It is
also pointed out that in 1981 Freer Spreckley first articulated the triple bottom
line in a publication called Social Audit – A Management Tool for Cooperative
Working as he described what social enterprises should include in their
performance measurement.
George Goyder has given an exposition of the basic idea behind it as early as
1951.
Keith Davis and Robert L. Blomstorm in their book Business, Society and
Environment, published in 1971, aver that the modern view of society is an
ecological one. “Ecology is concerned with the mutual relations of human
populations or systems with their environment. It is necessary to take this broad
view because the influence and involvement of business are extensive. Business
cannot isolate itself from the rest of society. Today, the whole society is a
business’s environment.”

The Genuine Progress Indicator (GPI), developed in the mid-1950s, is often

considered as a replacement to the gross domestic product (GDP) economic
indicator. The GPI indicator takes everything the GDP uses into account, and also
adds other figures that represent the cost of the negative effects related to
economic activity (such as – the cost of crime, cost of ozone depletion and cost
of resource depletion, among others).
The GPI nets the positive and negative results of economic growth to examine
whether or not it has benefited people overall. The GPI is used in green
economics, sustainability and more inclusive types of economics commonly
known as the True Cost economics.

The marketing approach/philosophy known as the Societal Marketing Concept,

which emerged more than four decades ago, is perhaps a better proposition than
the TBL because it more explicitly emphasises the long-term impact of the
consumption of a product on the consumer. As Philip Kotler points out, “the
addition of long-run customer welfare asks the businessman to include social and
ecological considerations in his product and marketing planning. He is asked to
do it not only to meet his social responsibilities but also because failure to do this
may hurt his long-run interests.”

Frank Vanclay of University of Tasmania argues that “TBL is inherently limited

in what it has to offer, and is promulgated by proponents who are largely ignorant
of other approaches. Although TBL is meant to add social and environment to the
equation, it is often championed by people who have little understanding of what
the social entails. The concept of TBL is not fundamentally different to the well-
established field of impact assessment, but that impact assessment and, in
particular, the field of social impact assessment (SIA), have much more to offer
in terms of accumulated experience and understanding, and a professional and
theoretical base the originators of TBL and its current advocates seem to be
ignorant of the field of impact assessment. It is argued that impact assessment,
and specifically social impact assessment, offers far more to those concerned
about social justice and human welfare than does TBL.”

There are companies which conceived the Triple P concept in one form or other
long before its ceremonial baptism. For example, some seven decades ago,
Johnson & Johnson published its Credo announcing that its primary stakeholders
were its customers, employees and the communities it operated in – in that order,
and explicitly ahead of its stockholders.

The Credo ends by affirming that “Our final responsibility is to our stockholders.
When we operate according to these principles (i.e., those outlining obligations
to other stakeholders), the stockholders should realise a fair return”.

Back home, Tata Iron and Steel Company (TISCO), now known as Tata Steel,
provides a shining example of social responsibility. The Committee appointed to
conduct the Social Audit of TISCO observed in its Report observed – “At a time
when Max Weber, the great German Sociologist, was advocating his theory of
transforming a traditional society into a modern one through industrialisation and
modern management, little did he know that in the Jungles of Bihar an Indian
visionary had already planned the establishment of the first Steel City (not a mere
factory) in Asia.”
Before he passed away, Jamsedji Tata had in a letter to his son Dorab instructed
him – “Be sure to lay out wide streets planted with shady trees, every other one
of a quick growing variety. Be sure there is plenty of space for lawns and gardens,
reserve large areas for football, hockey and parks. Earmark areas for Hindu
temples, Mohammedan mosques and Christian churches.”

No wonder Jamshedpur emerged as a beautiful and well developed city. 1970

witnessed a landmark development when the Articles of Association of TISCO
was amended to incorporate the social and moral responsibilities of the company
to consumers, employees, shareholders, society and the local people. A decade
later, the Board of Directors of TISCO appointed a Social Audit Committee to go
in to the question of whether and to what extent the company had fulfilled its
social obligations laid down in the Articles.
This resulted in the first social audit ever undertaken by any company, public or
private, in India, at a time it was not popular anywhere in the world. The Report
of the Committee was a glowing tribute to TISCO’s endeavours in the discharge
of its social obligations to the various segments of the society.

In short, Triple Bottom Line, or Triple P is not a new idea, it is old wine in new
bottle.

It is observed that “the apparent novelty of 3BL lies in its supporters’ contention
that the overall fulfillment of obligations to communities, employees, customers,
and suppliers (to name but four stakeholders) should be measured, calculated,
audited and reported – just as the financial performance of public companies has
been for more than a century. This is an exciting promise. One of the more
enduring cliches of modern management is that “if you can’t measure it, you can’t
manage it”. If we believe that ethical business practices and social responsibility
are important functions of corporate governance and management, then we
should welcome attempts to develop tools that make more transparent to
managers, shareholders and other stakeholders just how well a firm is doing in
this regard.”

It is argued that even the argument that it is the emphasis on measurement and
reporting that characterise the 3BL movement is not true either. Those who use
the language of 3BL are part of a much larger movement sometimes identified by
the acronym SEAAR – social and ethical accounting, auditing and reporting.
This movement (to use that term loosely) has grown in leaps and bounds over the
past decade, and has produced a variety of competing standards and standard-
setting bodies, including the Global Reporting Initiative (GRI), the SA 8000 from
Social Accountability International, the AA 1000 from Account Ability, as well
as parts of various ISO standards. The most important function of these standards
is to identify indicators of social performance as well as methodologies for
measuring and auditing performance along these indicators.

Is Profit Incompatible with CSR/People and Planet?

There is a wrong conception that profit is not compatible with the other two Ps.
This presumption is inherently dangerous because the premises of this line of
thinking is that profit may be made sacrificing people and planet. A corollary of
this view is that zeroing in people and planet will result in a lower level of profit.
The cardinal principle of the TBL is not a trade-off between the three but an
inevitable harmonious and enduring integration of them – it shall be a way of
life.

Profit objective need not necessarily be against the social objective. The profit
goes against the social objectives only when it is aimed to make profits at the
expense of the social objectives. A reasonable level of profit is not only
compatible with socially responsible business but also necessary for the discharge
of social obligations and responsibility.

As George Goyder, the champion of the idea of social responsibility of business,

observes, “in a responsible company, profits will continue to be the criterion of
financial health. As blood is the life of man, so are profits the life of industry and
just as man must maintain life before he can be free to pursue the life objects he
has set before him. So profits are necessary to business and are in the proper sense
of the word primary.” In short, a reasonable level of profit is necessary to enable
a company to pursue the social objectives.

It is possible that adoption of the triple P principle will help companies in

enhancing the profit in some cases. For example, the triple R – reduces, reuse,
recycle – can lead to cost reduction. Similarly, use of new materials, technologies,
etc. as part of the green movement can also have similar effects.
Further, consumer preference for green products is increasing. Many consumers
are willing to pay a premium for such products.

It is pointed out that the following business-based arguments support the

concept of TBL:
1. Reaching Untapped Market Potential:
TBL companies can find financially profitable niches which were missed when
money alone was the driving factor.
Examples include:
i. Adding ecotourism and geo tourism to an already rich tourism market.
Developing profitable methods to assist existing NGOs with their missions such
as fundraising, reaching clients, or creating networking opportunities with
multiple NGOs.
ii. Providing products or services which benefit underserved populations and/or
the environment which are also financially profitable.
2. Adapting to New Business Sectors:
Since many business opportunities are developing in the realm of social
entrepreneurialism, businesses hoping to reach this expanding market must
design themselves to be financially profitable, socially beneficial and
ecologically sustainable or fail to compete with those companies who do design
themselves as such.
For example – Fair Trade and Ethical Trade companies require ethical and
sustainable practices from all of their suppliers and service providers. A business
which is planning to work with Fair Trade or Ethical Trade companies must
design their business model to be TBL.
People and Planet may be antagonistic to the unscrupulous businessmen.
However, they will have to fall in line when the expected moral and social
commitment will become a legal obligation.
Limitations:
A major difficulty in implementing TBL is accurately measuring the people and
planet impacts. There is also no unanimity about the factors to be assessed.
Monetisation of people and planet impact is too difficult a task. How do we assign
monetary values to the species that are extinct or endangered or weather and
climatic changes? Although several indices have been developed for the
measurement, they all suffer from several limitations.

The application of the TBL by businesses, non-profits and governments are

motivated by the principles of economic, environmental and social sustainability,
but differ with regard to the way they measure the three categories of outcomes.
Proponents who have developed and applied sustainability assessment
frameworks like the TBL encountered many challenges, chief among them, how
to make an index that is both comprehensive and meaningful and how to identify
suitable data for the variables that compose the index.

The Genuine Progress Indicator (GPI), for example – consists of 25 variables that
encompass economic, social and environmental factors. Those variables are
converted into monetary units and summed into a single, dollar-denominated
measure.

Further, for many, TBL is mere a fad than a sincere and committed philosophy.
The adoption of 3BL rhetoric by a number of very prominent multinationals
without traditions of support for green and CSR principles is a more curious
phenomenon. Perhaps, it should not be wholly surprising that prominent on this
list are some firms trying to shake off recent reputations for decidedly
irresponsible business practices or aloof management structures – firms like Shell
and BP, British Telecom, AT&T and Dow Chemical.

Of course, mind-set changes are possible. But, sometimes they may be eye
washes or defensive tactics. There are also large organisations, such as Wal-Mart
and McDonald’s, which show green initiative but at the same time is unethical to
‘people’.

The Emerging Scenario:

A large number of business enterprises – multinationals to small ones – now use
3BL terminology in their press releases, annual reports and other documents.
Most of the big accounting firms are now using the concept approvingly and
offering services to help firms that want to measure, report or audit their two
additional “bottom lines”.

Similarly, there is now a sizable portion of the investment industry devoted to

screening companies on the basis of their social and environmental performance,
and many of these explicitly use the language of 3BL. Governments, government
departments and political parties (especially Green parties) are also well
represented in the growing documentation of those advocating or accepting 3BL
“principles”. For many NGOs and activist organisations, 3BL seems to be pretty
much an article of faith.

The popularity the TBL concept made the businessmen and society more
concerned about the adverse impacts of economic activities in general and of
large business enterprises in particular. Now, there is even clamour for social
reporting, in several cases just for the sake of it. There have been several
endeavours to develop criteria and framework for social reporting.
The Global Reporting Initiative is an important institution in this area. It
originated as a project of the Coalition for Environmentally Responsible
Economies (CERES) and the United Nations Environment Program (UNEP) in
late 1997 and become an independent institution at the end of 2002. This initiative
was recognised at the UN World Summit on Sustainable Development.

The aim of the guidelines issued by this organisation is to enable companies and
other organisations to prepare comparable TBL reports on their economic,
environmental and social performances. The GRI is also working with several
industries to apply a multi-stakeholder model to develop industry specific
supplements to the core Guidelines.

It is observed that there are a number of corporations that have long prided
themselves on their traditions of social responsibility and good corporate
citizenship. Having succeeded despite putting principles ahead of short-term
profits, societal concern is part of the lore in the cultures of companies like
Johnson & Johnson, Levis Strauss, Cadbury’s, and IKEA. And in the cultures of
many smaller or more recent firms, from The Body Shop to your local organic
grocer, CSR and green principles have often served as the organisation’s very
raison d’etre.

For many of these firms, social and environmental reporting provides an

opportunity to display their clean laundry in public, so to speak. They have long
sought to improve their social and environmental performance. So, they can be
confident that reporting these achievements publicly will cause little
embarrassment.

Indeed, insofar as many of these firms make social responsibility part of their
corporate image (hoping to woo the increasingly large pool of consumers and
investors who claim to be willing to pay more to support ethical firms), the
adoption of 3BL principles and the production of social reports is consistent with
other strategies of brand management. (This observation is not meant in any way
to reduce these efforts to a simple marketing strategy, but just to show why they
are a logical step in a direction in which the firm was already travelling.)

National Voluntary Guidelines on Social, Environmental and Economic

Responsibilities of Business announced by the Government and the Companies
Act, 2012, now make CSR/TBL compelling in India.

It may be mentioned here that several Indian companies have been publishing
social audit report, CSR report, sustainability report, etc. Some companies have
been very quick to respond to the National Voluntary Guidelines. For example –
the Annual Report of ITC for 2011-12 includes reporting as per the format
prescribed by the Guidelines.

International Business and CSR:

It is alleged that many MNCs do not pay to the developed countries as much
attention they pay to their home country/developed countries in respect of social
responsibility or ecological impacts of their operations. Some of them also
locate/market in developing countries industries/ production processes/products
which are banned in developed countries.

MNCs should, actually, discharge more CSR in developing countries considering

their huge resources and the poor socio-economic conditions of these countries.
There are, of course, MNCs which do considerable CSR in these countries. But
in some cases, these are just to mask the harm their operations cause. There are
also MNCs which are not considerate.
They should also devote their R&D efforts to the social needs of the developing
countries, rather than being completely guided by profit maximisation. Because
of their resources position, they should also be expected to make a significant
contribution to social welfare. An amount equivalent to the annual spend on
entertainment by some MNCs can go a long way to improve the social welfare in
some small poor economies.

The multinationals shall show as much social responsibility in the foreign

countries as they do in the home country – one criticism against the MNCs is that
they adopt double/multiple standards – with different norms/standards for
developing countries compared to the home country or developed countries.

Recent Developments in India:

In 2011, the Central Government brought out a set of National Voluntary
Guidelines on Social, Environmental and Economic Responsibilities of Business
and certain provisions were incorporated in the Companies Act, 2013, requiring
every company with certain level of turnover / profit to draw up a CSR Policy
and earmark a certain portion of the profit for CSR activities.

Government Guidelines:
In July 2011, the Ministry of Corporate Affairs, Government of India, brought
out a set of National Voluntary Guidelines on Social, Environmental and
Economic Responsibilities of Business to be adopted by all categories of
enterprises, including SMEs. The Guidelines prefer the use of responsible
business to corporate social responsibility.

The Principles and Core elements laid down in the Guidelines are required to be
integrated in the business policies, strategies and business processes emanating
from the core business purpose of an enterprise. These Government guidelines
and TBL, in essence, connote more or less the same as the broad perspective of
CSR.

Nature and Significance of the Guidelines:

These Guidelines are not prescriptive in nature, but are based on practices and
precepts that take into account the realities of Indian business and society as well
as global trends and best practices adapted to the Indian context. It urges
businesses to embrace the “triple bottom line” approach whereby its financial
performance can be harmonised with the expectations of society, the environment
and the many stakeholders it interfaces with in a sustainable manner.

The Guidelines have been articulated in the form of nine Principles with the Core
Elements to actualise each of the principles. A reading of each Principle, with its
attendant Core Elements, should provide a very clear basis for putting that
Principle into practice.
Principle 1 – Businesses should conduct and govern themselves with Ethics,
Transparency and Accountability.
Principle 2 – Businesses should provide goods and services that are safe and
contribute to sustainability throughout their life cycle.
Principle 3 – Businesses should promote the well-being of all employees.
Principle 4 – Businesses should respect the interests of, and be responsive
towards all stakeholders, especially those who are disadvantaged, vulnerable and
marginalised.
Principle 5 – Businesses should respect and promote human rights.
Principle 6 – Business should respect, protect, and make efforts to restore the
environment.
Principle 7 – Businesses, when engaged in influencing public and regulatory
policy, should do so in a responsible manner.
Principle 8 – Businesses should support inclusive growth and equitable
development.
Principle 9 – Businesses should engage with and provide value to their customers
and consumers.
Companies are required to disclose their compliance to these principles.

Corporate Social Responsibility (CSR) – Advantages

Over the years the social involvement of corporate sector has been increasing.
Earlier corporate entities were mainly focused on their economic objectives—
profit, profitability, cost of production, margins, etc. However, nowadays
corporate entities are posed with the challenge pertaining to the social
responsibility of business.

Earlier social responsibility was mainly the concern of universities, non-

governmental organizations, non-profit organizations, charitable trusts, churches,
etc. As such the idea of social responsibility of business is not new. Prominent
business houses, such as Tatas, Birlas, and the Bajaj group, had ingrained
contribution to society as a separate mission in their philosophy of business.

All these groups have been contributing to the society in the areas of education,
health, rural development, drinking water, etc. through specially formed trusts.
The idea of social responsibility of business is getting more and more ingrained
in recent years.

It was given an impetus particularly with the publication of the book Social
Responsibilities of the Businessman by Howard R. Bowen (1953), who suggested
that businesses should consider the social implications of their decisions.
Although there is no firm agreement on the definition of corporate social
responsibility (CSR), the widely accepted definition focuses on need for seriously
considering the impact of the company’s actions on society.

Another concept similar to CSR is social responsiveness, which refers to the

extent to which a company’s policies and programmes are geared to the social
environment, so that it turns out to be beneficial to both the society and the
company. The responsiveness focuses on actions that result in ways and means
of a firm’s responses to social concerns as against responsibility that focuses more
on ‘need’ and ‘should’ for corporate sustained growth.

Here it is important to understand that responsiveness to social environment does

not mean that managers should just be reactive to the social concerns as and when
required. Corporate entities should anticipate and prepare themselves in advance
to meet and respond to the emerging challenges and situations by being proactive
in the area of social responsibility.
The CSR basically refers to the obligation towards the society voluntarily
assumed by the business. The philosophy of business as highlighted by Keith
Davis and Robert Blomstrom (1975) states ‘social responsibility is the obligation
of decision-makers to take actions which protect and improve the welfare of
society as a whole along with their own interests’.

This implies that business has to be viewed more than a money- making
proposition and it provides a great opportunity to serve society. A business entity
should focus its efforts on protecting the welfare of the society by creating
positive benefits for the society.

Different organizations have integrated CSR at different levels in terms of

intensity of contribution to the other stakeholders, such as social interest groups,
environmental groups, local community groups, media, consumer groups, and the
society at large. The first level is economic responsibility. It implies that profit is
the basic foundation for all other activities.

Every business entity should fulfil legal responsibilities by following rules and
regulations of the game by obeying laws that determine what is right and what is
wrong in the society. After fulfilling economic and legal responsibilities, the
organization has to gear up its operations to fulfil ethical responsibilities.

It implies taking actions and doing things that are right, just, and fair for the
society, and do not cause any harm to people in general. The highest level of CSR
relates to voluntary responsibilities, implying contributing resources for the well-
being of the community and society, so as to improve the overall quality of life.
Organizations that have integrated CSR in their philosophy of business contribute
a great deal for the welfare of the society.
This of course also provides them indirect goodwill, brand image, and even
business gains.

Advantages of CSR:
Organizations that integrate CSR as part and parcel of their philosophy of growth,
derive various advantages, such as improved financial performance, cost
reduction, enhanced brand image and reputation, increased customer satisfaction,
enhanced productivity, quality, increased market share, more engaged investors,
environmental sustainability, and above all, competitive edge in the market.

Social Audit:
The CSR has posed a basic question as to the criterion and process to measure
social performance. This has given rise to the concept of ‘social audit’, which
was first proposed by Bowen in the 1950s.
The social audit has been defined by Fenn and Bauer (1973) as ‘a commitment to
systematic assessment of and reporting on some meaningful, definable domains
of the company’s activities that have social impact’. Social audit provides an
assessment of the impact of an organization’s non-financial objectives through
systematically and regularly monitoring its performance and the views of its
stakeholders.

Social audit can be categorized into two broad categories, namely (1) mandatory
as required by government involving pollution check, employment standards,
labour amenities to be provided as per the Factory Act, minimum wages to be
provided, stipulated reservation to backward classes as applicable, if any, etc.;
and (2) evaluation of variety of voluntary social programmes undertaken by
companies.
For effectively undertaking social audit, a corporate entity has to be clear about
its organizational objectives—both internal and external. It should evaluate—(1)
its action plans, that is, how is it going to work for achievement of objectives; and

(2) indicators to measure the performance.

Once indicators are in place, the organization can develop simple procedures to
find out what is going on vis-a-vis the targets and to take action to bridge the
gaps, if any.

Barriers to social responsibility are: (i) manager(ii)

organisation(iii) industry and (iv) division!
To fulfill the task of social responsibility the following problems
may be faced at organisational level which hinder the process of
implementation of achieving the goal of social responsibility.
(i) The Manager:
The managers are extra cautious while planning and implementing
the programmes related to social responsibility as the people at high
level may not approve the plans of managers if they feel that the
plans are non- profitable to organisation.

ADVERTISEMENTS:

It is the manager who is ultimately responsible for social action

programmes of any organisation. The manager can also plan or
implement the social action programme.

(ii) The Organisation:

The main objective of any organisation is profit maximisation as
shareholders want dividend ultimately or they may like the profits
to be re-ploughed back for expansion of business and people
working in the organisation expect higher salaries.

ADVERTISEMENTS:

So social action projects need to be evaluated very carefully in terms

of cost and benefit. So social responsibility may be overlooked while
achieving the main objective of the organisation i.e. profit
maximisation.

(iii) The Industry:

There are many competitors in the same industry for an
organisation. When a particular organisation does some socially
beneficial activity for the benefit of society only then it may not be
appreciated by other competitors in the industry which makes
individual organisation very difficult to survive in the industry
alone.
(iv) The Division:
There are number of divisions in the organisation which are
competing among themselves and also strive towards main goal of
organisation i.e. profit. Any social responsibility decision and
project which affects or reduces the profit might threaten the
existence of that particular division.

This is one of the main reasons that most of the divisions feel
hesitant in initiating and implementing social responsibility
programmes unless & until there are clear guidelines and
instructions from the people at top level.

References:

 https://www.businessmanagementideas.com/csr/corporate-social-
responsibility/19920

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