Corporate social responsibility: the anchor sheet for sustenance in competitive era of India

Inc.

D.Sai Kumar, Lecturer (Finance),

Email: desraj81@gmail.com,Trident Academy of Creative Technology, Bhubaneswar

Saroj Kumar Acharya, Senior Lecturer (Finance),

Email:asarojkumar@gmail.com, Trident Academy of Technology, Bhubaneswar

Abstract

While wealth maximization as a principle aims at maximization of the wealth of the shareholders
of the company which they have invested in, it has been seen that the wealth of the society, in
which the company so incorporated, is maximized via contributions from the company so set up.
In today’s competitive era where in the companies are baying not only for better rankings but
also for acceptability in the surroundings in which they are either incorporated or want to
establish their business, it is necessary that they incorporate social and philanthropic services
which will enable them to get connected to the society and the people therein. Corporate social
responsibility, hence, is the way the companies manage their business to produce an overall
positive impact on society through economic, environmental and social actions.1 It is seen that
the implementation of programs directed towards the welfare of the society yield positive results-
be it the ITC’s e-choupal initiative2-a market led business model, to improve the living standards
of the farmers by raising the productivity and earning capacity of the farmers or Canon India’ “i-
care project” which focuses on eye care prevention and rehabilitation of the visually
handicapped3 in the rural parts of the country and for the underprivileged who cannot afford
treatments for ailments like glaucoma and cataract.

The aim of this paper would be to focus on CSR as a sustainable measure and its impact on the
performance of the firms in such competitive atmosphere and find if it is the anchor sheet for
India Inc?
1
“attaining sustainable growth through corporate social responsibility”,Pohle,Hittner,
http://www-935.ibm.com/services/au/gbs/pdf/csr_re.pdf accessed 16th March 16, 2010
2
http://www.itcportal.com/sets/echoupal_frameset.htm ,accessed 16th March 16, 2010
3
“Corporate social responsibility” http://www.canon.co.in/section/CSR/#, accessed 16th
March 16, 2010.
Introduction:

Of late, corporate social responsibility has assumed greater significance. From being considered
as a charitable function of an organization it has come a long way to be a part of the board room
meetings. It signifies that the organizations which have set up their operations in the social ambit
understand the importance of the society to which they are indebted. While wealth maximization
may be the goal of the organization, social welfare too has become a part and parcel of their
survival.

Corporate social responsibility is referred to as the social, environmental and economic activity
(-ies) which benefits the society in some way or the other. It is a very visible way in which the
firms can demonstrate its commitments to the community within which it is based and operates4.
With increased visibility of the corporate actions customer’s perception of the companies and
their purchasing behavior are fundamentally changing. This change in attitude means that the
CSR is no more a regulatory cost but is an investment that brings financial returns.5

While it is heard that many blue chip companies adopt CSR as a means to bridge the gap
between them and the society in which they operate it has also been seen that the small and
medium scale enterprises which run with 10-15 employees also are adopting the fair values of
Corporate Social Responsibility with the same attitude as the giants in the industry.

Even a small sole proprietary business like that of a tent house adheres to the principles of CSR
as has been seen in case of a tent house which caters to the need of water for the commuters on a
busy road in Bhubaneshwar,Odisha, in summers. This may be a small gesture but, in the long run
it establishes the relationship of the business that the tent house provides with the society in
which it has been established.

If measured in economic terms it can be structured as a responsiveness of the company to the

needs of the society it is established in
4
E-book “Strategic corporate social responsibility: Stakeholders in a global
environment”Werther,chandler,http://books.google.co.in/books?
id=etEOEKUxJV0C&pg=PA196&lpg=PA196&dq=from+charity+and+philanthrophy+to+CSR&source=bl&ots=6
hoFqR3Z8T&sig=VHxaRR9lVr9xL715v_VWbGKyjAc&hl=en&ei=_lKcS-rWNom
rAeN1pmPAw&sa=X&oi=book_result&ct=result&resnum=9&ved=0CBsQ6AEwCDgK#v=onepage&q=&f=false ,
accessed 16th March 20, 2010
5
“Attaining sustainable growth through corporate social responsibility”,Pohle,Hittner,
http://www-
935.ibm.com/services/au/gbs/pdf/csr_re.pdf accessed 16th March 16, 2010
CSR thus, is a beneficial investment option rather than a philanthropic and benign thought, but
what are the challenges that CSR generally addresses?

It addresses the following challenges6:

a. Health related challenges

b. Environmental challenges

c. The climatic change challenges

d. Human rights challenges

e. Global partnership for sustainable development

f. The role of the government

Hence, CSR is a much wider term which takes into its embrace a spectrum of issues than being
confined to some and it includes employees, customers, suppliers, community organizations,
subsidiaries and affiliates, joint venture partners, local neighborhoods, investors, and
shareholders or even a sole owner of a business.7

6
corporate responsibility concepts and principles,
http://www.csrquest.net/default.aspx?articleID=12061&heading=The%204CR
%20Framework, accessed 18th
March 21, 2010
7
“corporate social responsibility”, http://partnershipsforchange.com/csr.html,
accessed 20th March 22, 2010
Literature Survey:

Corporate social responsibility fails to win the confidence of the investors and the customers if
the corporate governance of the company is either weak or flawed as it has been seen in the past.
Enron did it and so did Satyam-they played with the trust of the people and the confidence of the
economy as well which not only plunged the respective sectors into the dark for sometime but
even pushed the economy into gloom every time a company so trusted deceived the
shareholders and the public at large. Such scandals not only rock the companies which are
involved in siphoning of funds or inflating the figures behind the corporate veil, they even put a
question mark on the transparency and integrity of the other firms in that sector for a while. This
calls for the strengthening of the corporate governance regulations as well as revision of the
existing norms which are being exploited for the personal benefits as has been done by
Ramalinga Raju of Satyam computers a couple of years ago. In such a situation the question of
sustenance by doing something good for the society is lost and the goodwill so gained gets
eroded. Hence, while for some, corporate governance and corporate social responsibility
converge at the level of values which include moral and ethical ways of doing business, for some
it does not mean convergence, but a realization that CSR is a package of social and
environmental risk which can have a direct impact on the financial statements of the company8
and hence need to be managed.

Whatever the perception be, Corporate Social Responsibility is a term used to describe the
relationship between the society and the environment in which the company establishes itself
where in there is a combination of values and the risks as has been seen in case of the coco-cola
which was found to be violating the environment protection norms and was alleged to have been
exploiting the water resources in excess of the authorized quantity and also was said to have been
polluting the water resources by discharging the wastes from the factory. However, undeterred
by the moves Coca cola tried to reach to the common man by different CSR measures it adopted
to protect the environment and the society where it established itself.

8
“the convergence of corporate governance and corporate social responsibility-thought-
leaders study.”, strandberg,strandberg consulting,
www.corostrandberg.com/pdfs/Corporate_Governance.pdf, accessed March 24, 2010
While the giants in the Indian industry like the Tata’s and the Birla’s have been a success with
the CSR initiative and have been able to set examples to be followed by the juniors in the
industry, it has been seen that many of the companies-Indian as well as Foreign, have been
successfully embracing the CSR as mantra of sustenance and success in the highly competitive
Indian markets today. Canon India’s “i-care” is a project in association with Venu Eye Institute
and Research Centre, which professes in eye care in the rural and the underprivileged areas, a
hope to see again. With its objective to provide “eye care protection and rehabilitation of the
visually challenged”9 canon India has been able to bridge the gap between them and the society
they are established. Apart from the i-care project, Canon India has even contributions made
always when it mattered the most to the nation- the company employees contributed a day’s
salary for a humanitarian cause when the super cyclone struck Odisha in 2000 and also when the
floods swept Bihar in 2008 ( for details please refer to the information in the appendix.)

ITC has set up “e-choupal” which focuses on over-all development of the farmers- from
educating them about their rights to helping them increase their cash flows; it has been
successful in reaching out to 4 million farmers in over 40,000 villages across ten states10.

9
“Corporate social responsibility” http://www.canon.co.in/section/CSR/#, accessed March
16, 2010.
10
“ITC e-choupal” http://www.itcportal.com/sets/echoupal_frameset.htm accessed March
24, 2010
Challenges addressed by CSR- an over view

As has been pointed out somewhere in the beginning of the paper there are 6 issues which are
addressed by the corporate social responsibility:

a. Health related challenges

b. Environmental challenges

c. The climatic change challenges

d. Human rights challenges

Let us look into each of them in terms of theory and practice:

a. Health related challenges: What are the basic health issues faced by a country like India
where approximately 70% of the population lives in rural areas and wherein a greater
percentage of them live in conditions not so conducive for the survival of humans. Be it
Dharavi in Mumbai or the Tsunami affected regions in Odisha and Tamil nadu, there are
many people who are still fighting it hard to earn for a day’s meal and for the survival.

• Three million children die every year due to lack of clean water

• 12 million children die every year due to disease

• 18 million people worldwide have been infected with HIV and 2.5 million have died of AIDS. 90% of new
infections are in developing countries

• AIDS is now the leading cause of death for adults under the age of 45 in Europe and North America.

Table 1. Health challenges (www.csrquest.com)

While there's a double-digit annual increase in health outlays, as many as 3.1 million
people are infected with HIV and roughly 800 000 contract an infectious form of
tuberculosis each year11. It is a surprise that while around 27 000 graduate doctors from
Indian medical colleges of which more than 75% of Indian doctors are based in cities,
whereas about 70% of patients in this country are village-based!

11
“Growth generates health care challenges in booming India”,Sanjit Bagchi MBBS
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2276551/, accessed March 25, 2010
 While it is seen that there are a startling number of cases left unattended to in the rural
areas there also is a vacuum created by the unavailability of the doctors thereat which
means that there is a greater scope for the initiatives to be taken and contribute towards
the development and upliftment of these masses.

b. Environment and climate change related challenges:

Environmentalists often describe the challenges in terms of threats to natural cycles such
as the carbon cycle, the nitrogen cycle and the hydrologic cycle; (Chapin, Matson and
Mooney, 2002).The carbon cycle is the one that has been mostly addressed in terms of
green house gases and climate changes. The evidence of the carbon imbalance is
manifested in global warming and related events such as the accelerated rates of the
melting of glaziers etc12.

Global warming impacts on India-an overview:

12
“meeting the environmental challenges of china and india:towards innovative policy
formulation,
http://www.joaag.com/uploads/Thampapillai.pdf, accessed March 25, 2010
 Environmental impact: increased landslides and flooding, ecological imbalances like
the coral reef disaster in 1998 which wiped out 70% of the coral reefs population in the
Lakshadweep islands, due to increased ocean temperatures tied to global warming.

Social impact: disproportionate impact on more than 700 million people living in the
rural areas and around 400 million people who constitute the rural poor living in
conditions of poverty due to the depletion of the natural reserves like the cutting of the
trees for the widening of the roads and the infrastructural developments because these
people largely depend on these natural resources to meet their basic needs of food, shelter
and clothing.

Pollution: India’s development may be a good sign for the inflow of investments and
may increase the GDP but that is also equally responsible for the increase in the pollution
levels as we see every year during winters that a thick blanket of fog hangs over for hours
together making it impossible for commutation by any means- air, rail or road which can
be attributed to the increase in industries and emission of the smoke and discharge of
factory wastes into the water resources.

The main objective to be stressed upon is that the excessive emissions need to be reduced
and hence the innovative ways are the need of the hour to deal with this lingering problem
of global warming and climate change. There is growing interest among the consumers all
over the world regarding protection of environment. Worldwide evidence indicates people
are concerned about the environment and are changing their behavior. As a result of this,
green marketing has emerged which speaks for growing, market for sustainable and
socially responsible products and services. Green marketing is a new concept which
focuses on being environment friendly and has been developed as a concept to sustain the
global warming and the climate changes which impact the sales of products or the
provision of services. It refers to the process of selling products and/or services based on
their environmental benefits. Such a product or service may be environmentally friendly in
itself or produced and/or packaged in an environmentally friendly way13.

In India, around 25% of the consumers prefer environmental-friendly products, and

around 28% may be considered healthy conscious. Therefore, green marketers have
diverse and fairly sizeable segments to cater to. The Surf Excel detergent which saves
water (advertised with the message—"do bucket paani roz bachana") and the energy-
saving LG consumers durables are examples of green marketing. The green building
movement, spearheaded by the Confederation of Indian industry (CII) - Godrej Green
business Center, has gained tremendous impetus over the last few years in our country.
From 20,000 sq ft in 2003, India's green building footprint is now over 25 million sq ft14.

13
“ green marketing”,susan ward,
http://sbinfocanada.about.com/od/marketing/g/greenmarketing.htm accessed March 25,
2010
 c. Human Rights Challenges: Human rights are rights inherent to all human beings,
whatever our nationality, place of residence, sex, national or ethnic origin, color, religion,
language, or any other status. We are all equally entitled to our human rights without
discrimination. These rights are all interrelated, interdependent and indivisible 15. Such
challenges are prevalent in a country like India where in the people are looked at on the
basis of color and caste rather than the abilty which they possess. Work place
harassments,homicides,domestic violence, child marriages and child labor are some of the
prevalent human right problems in our country which need to be addressed by the business
firms by the way of creating awareness campaigns and tying up with NGO’s.

According to a 1996 report (quoting UNICEF and ILO as sources), the number of child
laborers in India can be anywhere between 14 to 100 million children! Most of these
children work in homes as domestic help.

There are many sectors in India which are employing child labor like the beedi
manufacturing, fireworks manufacturing, diamond industry, silk manufacture, bangles
industry, construction and the more visible domestic labor which account for a major
portion of the child labor employed (see box). While on one hand we talk of the social
responsibility of the sectors and the companies it is seen that these sectors not only
violate the human rights but also have been largely responsible for degrading health of
the children working therein. While there are legislations in place to check child labor it
has been seen that despite the efforts from the government and the non government
organizations like CRY and Pratham, there still exists a greater portion of the clutter to be
cleared.

Observations and conclusion

In the paper it has been observed that while corporate social responsibility proves to be
an effective weapon to win the trust and confidence of the customers, stakeholders and
14
“Green marketing, new hopes and challenges”
http://www.123eng.com/forum/viewtopic.php?p=56597, accessed March 25,2010.
15
“ what are human rights?”
http://www.ohchr.org/EN/Issues/Pages/WhatareHumanRights.aspx accessed March 25, 2010
 the society and help a business leverage its value thereby increasing its profits ,it has to
be understood that the Corporate social responsibility of the business is not of the
business but of the corporate executives and the people who run the business to meet
their goals of wealth maximization as has been pointed out by Milton Friedman in his
article “the social responsibility of the business is to increase profits”16 it is said that the
businesses are indebted to the society as they take away the resources and the opportunity
cost of utilizing that space for some other productive or profitable purpose is lost for the
people living therein and hence are required to pay back to the society in the form of the
services to the society either by helping them economically, socially or even by
protecting the environment where they operate. This service rendering of late has come to
be viewed as a profitable investment venture by the companies which look at CSR as a
tool to push up their profits and has assumed a very important role in the board meetings
and sales meets.

While for many of the organizations like the TATA and the Birla’s who have been
pioneers in corporate social responsibility may be a service aimed at improving the
livelihoods of the people around them, for many it is a way to avoid taxes. So, what ever
be the motive, CSR initiatives by the organizations have helped them increase the
goodwill amongst the members in the society.

Be it coca cola’s initiative to protect the environment, the Idea cellular’s move to save
trees or “the save tiger campaign” by Aircel, the motive is one and the same- come close
to the society where they are located and make their presence felt. In fact this is a way in
which the organizations can exhibit their responsibility towards the society in which they
are operating.

However when it comes to implementation of the CSR it has been seen that some sectors
like the diamond industry, silk industry and the fireworks industry do violate the norms
of the society and the legislations binding them and still are blossoming. So this raises a
question – is CSR a necessity or is it a luxury at the expense of the profits of the firm? If
CSR is to be used as a tool to leverage the profits of the sector or the firm where it is
employed then, it would also increase the financial and operating risks as well at a social
level, in that case how would that help in sustenance?

16
http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html