Corporate Social Responsibility (CSR) is the continuing commitment by business 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. The analysis of the above-mentioned definition provides us with the clear picture as to the burden the corporate houses are required to discharge in order to be called as socially responsible in the true sense. The onus is not discounted for the fact that business houses form a single component of the society and hence are liable to be ineffective to discharge the onus put on them. The primary reason for such an attitude towards trading concerns is because of their ability to impact the society, which is only second to political forces. The corporate czars are perceived so, on account of the following features: –
a) The perception of being a Large mass of capital,
b) Accessibility to all the Resources of Society
c) Ability to Utilize the Resource Value
d) Channelizing the resource value.
The entire body of the term Corporate Social Responsibility stems from the aforementioned characteristics of an organization. But a special emphasis needs to be placed on the last attribute i.e. the ability to channelize resources. The underpinning rationale for such an emphasis is the concept of distributive justice (Normative principles designed to guide the allocation of the benefits and burdens of economic activity) which can be summed up as the prohibition from the concentration of benefits arising from state resources to a group or an individual.
Four prevailing justification for CSR provided by Harvard Business Review are as follows
a) Moral Obligation: An obligation on the corporations to cater to the society in the best manner possible
b) Sustainability: CSR serves the objective of survival of business in the long run without draining the resources.
c) License to Operate: CSR aids in avoiding state intervention in corporate schemes
d) Reputation: The brand value is augmented by CSR measures, which helps the organization earn profits optimally in long run.
The author cites the 4 approaches to CSR propagated by Rob Van Tudler in his book, in an order, they are as follows:
a) The ‘Inactive’ approach: It concerns with the profitarian agenda of the corporate body very much akin to Friedman’s theory
b) The ‘Reactive’ approach’: It seeks to address primarily the efficiency issues of the corporate body with an eye to manage the interest of primary stakeholders.
c) The Conditional Morality Approach: This approach aims to respond to actions of external factors that could damage their reputation, and therefore relates to the concept of ‘conditional morality’.
d) The ‘Active’ Approach: Ethical values dominate the company vision, the ideal situation.
It is submitted that active approach towards CSR is not possible in the ideal sense. Since pragmatism dictates that an organization for profit always keeps the profitarian agenda first and the ethics take a back seat to it. In essence, where there is a conflict between ethics and profit motive, it is the latter that takes precedence over the other for the profit making body. With regard to the current status of CSR regimes prevalent, it can be safely said that they are more akin to the third approach i.e. a condition based approach towards CSR, this is so because most CSR initiatives are being undertaken due to succeeding reasons: a) There have been various case studies showing that survival and growth of business are intimately connected with a firm’s social contribution.
a) There have been various case studies showing that survival and growth of business are intimately connected with a firm’s social contribution.
b) The State and Societal pressure have forced the corporate giants to bend for the social cause, this originates from the idea that society is the ultimate stakeholder in any venture of a firm because it is the society that demands goods and services and it is the same society which allows the resources be utilized.
c) CSR is being seen as a new avenue where corporations are willing to compete for the sake of brand value. This inter-firm rivalry over CSR will augment the social initiatives.
In the backdrop of the above it is not incorrect to say that CSR has transformed more into Externality Driven Policy (EDP), a term used to describe the CSR initiatives of the corporation by Mr. Theo Vermalean, Professor Finance at INSEAD. The term holds water since it adequately describes the compulsive nature of CSR for business concerns caused by externalities like state, society etc.
GLOBAL ISSUES AND AGENDA
Corporate Social Responsibility in the global arena has been perceived very much akin to the concept of sustainable development. This is visible from the number of guidelines provided by various international organizations addressing various aspects of CSR. The prominent characters in international legal regime governing CSR are
a) ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy: premier instrument of social change
b) OECD Guidelines for Multinational Enterprises: a joint address by the governments to corporate houses/MNE
c) Universal Declaration on Human Rights: Basic Document of reference
d) UN Global Compact: Principles concerning human rights, environmental issues, labour standards etc
Apart from the above, there has been various conventions and declaration furthering the cause of corporate accountability likewise Johannesburg Declaration on Sustainable Development (2002), UN Convention Against Corruption (2003), Global Reporting Initiatives, Global Sullivan Principles etc.
Due to such wide notions prevailing at the global scene about corporate social Responsibility, there is a tendency that the term ends up including a host of issues which makes defining CSR a cumbersome job. It is precisely the reason why across global jurisdiction countries have incorporated different principles in a different manner in their legal scheme of things to enforce CSR. The author cites few examples:
a) In the United Kingdom, Section 417(2), Sec 172 of the Companies Act 2006 provide for a form of social accounting. The Directors report is to comprise of the details of the company regarding CSR also. Section 417 (4) involves a backward looking analysis of business development.
b) South Africa Company law requires all the listed companies at Johannesburg stock exchange need to produce the sustainability report.
c) Even in France there are legal requirements for social accounting and auditing, eg (French Bilan)
An analysis of the above scheme provides us an indication that across international borders legal base lines have been continuously expanding due to the CSR phenomenon. The broad tendency is to augment the compliance laws relating to social accountability and mandatory disclosure requirements. This tendency is all pervasive. But there are many contrasting examples where countries have taken stricter measures to further CSR objectives, the following exhibit the same
a) Nigerian Plan On Imposing CSR tax: A tax @ 3.5 % on gross profits has been planned to be imposed as CSR tax by the government in power, despite admitting that CSR is voluntary scheme.
b) In the Philippines, the Corporate Social Responsibility Act 2009 Bill has been introduced in the legislature; the bill requires the corporations to consider the impact of their action on the stakeholders, environment, and other related bodies. The introduction of the bill has been cited as a measure to further the object of sustainable economic development.
c) Indonesia already has enacted environment tax of 5 % on corporations.
d) Even Indian counterparts have planned such a measure by introducing a mandatory CSR scheme in the proposed Company Law Bill 2009. The government has also issued National Voluntary Guidelines on Social, Economic & Environment Responsibilities of Business 2009 providing nine principles based on “Apply or Explain Principle”, it traces its links to the Triple Bottom Line(TBL i.e. People, Planet, Profit).
From the above, it is discernible that countries are motivated towards radical measures of CSR, which include taxation, mandatory CSR, Extensive Disclosure Policies. All these have culminated into an expansion of the legal base line, increasing compliance for corporate houses. And for the very same rationale attracts vehement opposition caused due to the feeling of being overburdened. But looking from the perspective of the state their reasoning of imposing such burdens is not ill- founded, the justifying rationale provided below
Catalyst Reasons for CSR dominating the Global agenda
a) Inefficacy of the legal frame work to involve business concerns in the process of nation building. The premise of the statement lies in the fact that law has been restricted to a phenomenon of minimum legal compliance to avoid state intervention into the capitalist’s scheme. This is where CSR was seen as the way ahead, the concept itself envisaged compliance with the spirit of law and ethics.
b) Drive for CSR actually picked up speed in the 90’s when organizations like Dow Chemicals, Enron, and Nike were in news due to their unethical practices. Later, these companies sought after CSR as a part of mitigating the damage already done. This evinced a clear case for CSR.
c) The Taxation regime where the corporate houses pay tax to the government who in turn are the guardians of social welfare has failed to find legal answers the question of trading concerns contributing to the society.
Therefore the question that begs consideration is whether CSR should be Mandatory of Voluntary?
MANDATORY V/S VOLUNTARY CSR
The issue whether CSR should be Mandatory or Voluntary has seen raging debates over the past few years. The author in his work attempts to identify the touchstone on which the call for a mandatory or voluntary CSR can be made.
It is pertinent here to note that all the debate surrounding a mandatory CSR regime emanates for its social desirability of maximal contribution by the companies to the society pool and the belief that CSR if not regulated is an eye – wash which arises from the notion that corporations are unmindful of the society. This leads to a situation where CSR partakes legal character and becomes a compliance issue, in other words, lip service thereby defeating the whole purpose of CSR. Needless to mention that attitude of business concerns towards legal obligations is to cut corners and make hay while the sun shines a common practice. In the ultimate analysis, we are back to square one because window dressing still continues and the social initiative undertaken by corporation provides next to nil contribution to the society.
Therefore, it needs to be understood that until and unless the CSR ideology fits into the corporate scheme, so much so that it becomes a ‘core value’ for the organization optimal gains out of any measure of CSR cannot be extracted. The above argument is plainly misunderstood to mean that CSR has to conform to the pure economic approach suggested by Milton Friedman. The fallacy lies in the fact that advocates for CSR themselves provide a standard argument of economic gains ensuing from such initiatives, hence showing a sensitization towards profit motivated agendas and its link to CSR.
This brings the author to his prime contention that understanding business dynamics to incorporate the whole scheme is important instead of tightening the noose around the corporations.
Before proceeding further it is conceded at the threshold stage that state intervention is necessary for CSR measures to bear fruit but intervention should be in the form of collaboration, otherwise, it would be too much a burden for companies to discharge.
In short, the appeal for CSR should initiate a voluntary expression by the body corporate under a regulated/guided system. This can be better understood by the concept of Strategic CSR.
Strategic CSR: Strategic CSR aims at achieving large and distinctive social and business benefits from a strategically focused set of initiatives.
From the brief overview of the definition itself, one can make out that any CSR initiative should have a net positive impact on the business such that the organization perceives an advantage in its industry environment. If this requirement is fulfilled only then will a corporate feel like engaging voluntarily and vigorously towards the set of initiatives chalked out.
As mentioned above that not only does society wants profit motivated organizations to contribute to the social sphere but the desire is to seek optimum benefit possible from these corporate czars.
The mention of Strategic CSR has been made because this phenomenon helps extract optimum benefit an organization can provide to the society while maintaining a flexible approach at the same time. The submission flows from the premise that voluntary efforts yield more than coerced efforts. In simple words, CSR which can be understood as an EDP will lose its compulsive character thereby aligning with the business dynamics of an organization.
The question that intrigues our entire mind is that what role does the state play in bringing the corporate world to contribute voluntarily in the social sphere?
What role the state can play in exhorting firms to contribute to the society depends largely on its commitment to come forth and help the corporate to channelize their efforts in a particular direction. Commitment here signifies more than just passing legislation that makes social initiatives mandatory. Instead, it means a vigilant approach to see that the desired result is achieved without resorting to unethical practices. In other words, a state role would envisage the following:
a) Taking adequate and appropriate steps to reduce the burden on the corporate to help them contribute willingly to social causes.
b) Coordinate the efforts of the corporate world to generate substantial gains
c) Appropriate assistance be provided
d) Add sufficient incentive to motivate entrepreneurs.
And even if legislative intervention is to be made, it should always be kept in hindsight that minimum hit is received to the profitarian agenda of the organizations otherwise the entire policy will be an eyewash or will not lead to substantial results. This might also culminate into a slowdown in economic growth which is undesirable for half the countries in the world at present.
NATIONAL SIGNIFICANCE – SPECIAL EMPHASIS INDIA
The significance of CSR in India shall be understood in light of the fact that India has off late picked up speed in its economic development and hence economic growth is very dear to Indian scenario. At the micro level, individual entrepreneur plans operation not only in domestic arena but at international forefront also. This makes the entire paradigm of CSR irksome for these aspiring entrepreneurs; this is applicable not only to aspiring but established entrepreneurs also. The reason for the same is that it is only recently that Indian players are entering the international scene and to compete at the global level any impediment in any form is a hindrance, for which many of such entrepreneurs may be ready to cut corners.
From the above, it can be reasonably deduced that CSR might not really be the concern for corporations that are burgeoning in India at present. And this is evinced by the fact that in past few years huge corporate scandals have been unearthed. This also gives us the clear picture why the legislature is hell bent on mandating the social initiative regime in India. All this has culminated into a proposed draft of the Company Law (2009 bill) included in it a mandatory provision for CSR. All though the provision has received vehement opposition from Industry leaders as well known institutions like FICCI and CII the debate has not been put to rest.
So the situation can be summarized by saying that Industry leaders are hostile towards imposed CSR mechanisms and the State is hostile towards the lacking social initiatives of the corporate houses that are the situation even when both sides of the floor want sustainable development.
CSR in Indian context assumes huge importance because the state inefficiency in maintaining the societal order. The state efficiency in devising sustainable plans has always been in the shadow of doubts. This is illustrated by the fact that in the post independence period when Gandhian and Nehruvian models for holding ground, the industry was incapable of providing any aid but the same was not true when Indira Gandhi s regime came in power, the corporate houses took on social initiatives to avoid draconian state policies and regulations. But at all times idea of corporate philanthropy was prevalent and the states lacked the vision to coordinate such philanthropic measures. And the same situation is prevalent in the current scenario.
And since the authorities lacked coordination, the philanthropic scheme has had a little impact, but due to the rise of the stakeholder participation model, the corporate houses have to take up compulsively or voluntarily measures which have an immediate nexus to the nation building prominent example being the establishment of BITS Institute by Birla’s. The incentive for them is the understanding that if parity between economic growth and social progress cannot be maintained then economic growth would ultimately break down.
The above point is reinforced by the fact that both the corporate element and the social element of the entire scheme are bound to fluctuate. The corporate element fluctuates due to business cycles in the environment, take for example a rescission hit India, in that scenario the inclination towards spending more on social initiatives would be less. And if take the social scenario which is heavily influenced by innumerable factors then there is bound to be a change in the way people expect the business to conduct them. This can be illustrated by examining the current hype over corruption which is leading to increased sensitization of the need for transparency and accountability in every area of public domain
All this adds burden to the Indian industrialists who compared to their counterparts in the west are far more unequipped to deal with such obligations while maintaining their growth chart. The picture looks dismal going by the hypothesis of many researchers who believe that appropriate mechanism is lacking in emerging economies to practice CSR.
Keeping all the above in mind it is postulated that corporate houses be relieved of the burden of mandatory CSR and are encouraged by state activism in the same area by looking at the legal answers for them. This is in consonance with the concept of expanding legal baselines, where each legislative intendment is aimed at welfare concern but is progressive in particular direction and is not a blanket rule.
From the above discussion it is concluded that right approach towards bringing CSR regime in action is to reduce the burden on the corporations by proper and guided state action, so that the voluntary nature of CSR is retained without resorting to strict measure which adds burden on the organizations and at the same time strengthen the present legal framework allowing welfare measure scheme to be implemented strictly. This would result in optimal gains from the proposition of CSR without making it a matter of minimum legal compliance. The ideal scenario as suggested by eminent Prof Robert Reich that Government should set the CSR agenda for social responsibility by way of laws. But compliance has to keep voluntary but driven by externalities.