CORPORATE SOCIAL RESPONSIBILITY
PRESENTED BY :
MONIS MAQSOOD ---- 833 JASWINDER PAL SINGH ---- 827 KAMAAL HASSAN KHAN ---- 814 Deptt. Of Business & Financial Studies
Corporate social responsibility (CSR), also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business (SRB), or corporate social performance, is a form of corporate selfregulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms. Business would embrace responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, business would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: People, Planet, Profit. The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, shortterm profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; others yet argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.
REASON FOR SOCIAL RESPONSIBILITIES
Business enterprises are creatures of society and should respond to the demands of society. If the management does not react to changes in social demands, the society will either force them to do so through laws or will not permit the enterprise to survive. Therefore the long term interests of business are best served when management assume social responsibilities. The image of business organization liked with the quality of its products and customer service and the extent to which it fulfills the expectations of owners, employees, consumers, government and the community at large. For longterm success it matters a great deal if the firm has a favourable image in the public mind. Every business enterprise is a organ of society and its activities have impact on the social scene. Therefore, it is important for management to consider whether their policies and actions are likely to promote the public good, advances the basic values of society, and constitute to its stability, strength and harmony. Increasing concern for the social responsibility of management, it is now recognized that besides taking care of the financial interest of owners, managers of business firms must also take into account the interest of various other groups such as employees, consumers, the government and the community as a whole. These interested groups are directly or indirectly affected by the pursuit of business activities and they are the stake-holders of the business enterprise.
FACTORS INFLUENCING CORPORATIONS TO ADOPT CSR
Corporations are motivated to adopt CSR practices by several different factors :
Ethical consumerism Globalization and market forces Social awareness and education Ethics training Laws and regulation Crises and their consequences Stakeholder priorities
ETHICAL CONSUMERISM
The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. As global population increases, so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005, 147). Industrialization in many developing countries is booming as a result of technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are beginning to make purchasing decisions related to their environmental and ethical concerns. However, this practice is far from consistent or universal.
GLOBALIZATION AND MARKET FORCES
As corporations pursue growth through globalization, they have encountered new challenges that impose limits to their growth and potential profits. Government regulations, tariffs, environmental restrictions and varying standards of what constitutes labour exploitation are problems that can cost organizations millions of dollars. Some view ethical issues as simply a costly hindrance. Some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets, helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising. (Fry, Keim, Meiners 1986, 105) Global competition places particular pressure on multinational corporations to examine not only their own labour practices, but those of their entire supply chain, from a CSR perspective.
SOCIAL
AWARENESS AND EDUCATION
The role among corporate stakeholders to work collectively to pressure corporations is changing. Shareholders and investors themselves, through socially responsible investing are exerting pressure on corporations to behave responsibly. Non-governmental organizations are also taking an increasing role, leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. Through education and dialogue, the development of community in holding businesses responsible for their actions is growing (Roux 2007).
ETHICS TRAINING
The rise of ethics training inside corporations, some of it required by government regulation, is another driver credited with changing the behaviour and culture of corporations. The aim of such training is to help employees make ethical decisions when the answers are unclear. Tullberg believes that humans are built with the capacity to cheat and manipulate, a view taken from (Trivers 1971, 1985), hence the need for learning normative values and rules in human behaviour (Tullberg 1996). The most direct benefit is reducing the likelihood of "dirty hands" (Grace and Cohen 2005), fines and damaged reputations for breaching laws or moral norms. Organizations also see secondary benefit in increasing employee loyalty and pride in the organization. Caterpillar and Best Buy are examples of organizations that have taken such steps (Thilmany 2007). Increasingly, companies are becoming interested in processes that can add visibility to their CSR policies and activities. One method that is gaining increasing popularity is the use of wellgrounded training programs, where CSR is a major issue, and business simulations can play a part in this.
LAWS AND REGULATION
Another driver of CSR is the role of independent mediators, particularly the government, in ensuring that corporations are prevented from harming the broader social good, including people and the environment. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly. The issues surrounding government regulation pose several problems. Regulation in itself is unable to cover every aspect in detail of a corporation's operations. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). General Electric is an example of a corporation that has failed to clean up the Hudson River after contaminating it with organic pollutants. The company continues to argue via the legal process on assignment of liability, while the cleanup remains stagnant. (Sullivan & Schiafo 2005).
CRISES AND THEIR CONSEQUENCES
Often it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental management is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include the lead poisoning paint used by toy giant Mattel , which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. In another example, Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup.
STAKEHOLDER PRIORITIES
Increasingly, corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i.e. more loyalty, improved recruitment, increased retention, higher productivity, and so on). Key external stakeholders include customers, consumers, investors (particularly institutional investors, regulators, academics, and the media).
RESPONSIBILTY TOWARDS DIFFERENT ASPECTS OF SOCIETY
Responsibility towards owners: The primary responsibilities of management is to assure a fair and reasonable rate of return on capital and fair return on investment can be determined on the basis of difference in the risks of business in different fields of activity. With the growth of business the shareholders can also expect appreciation in the value of their capital. Responsibility towards Shareholders : A reasonable rate of return over time. The Survival and growth of company and building reputation and goodwill of company.
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Responsibility towards consumers: In a competitive market, serving consumers is supposed to be a prime concern of management. But in reality perfect competition does not prevail in all product markets. In the event of shortage of supply there is no automatic correction. Besides consumers are often victims of unfair trade practices and unethical conduct of business. Consumer interests are thus protected to some extent with laws and pressure of organized consumer groups. Management should anticipate these developments, satisfy consumer needs and protect consumer interests. Goods must be of appropriate standard and quality and be available in adequate quantities at reasonable prices. Management should avoid resorting to hoarding or creating artificial scarcity as well as false and misleading advertisements. Responsibility towards employees: Management responsibility towards employees relate to the fair wages and salaries, satisfactory work environment, labour management relations and employee welfare. Fair wages should be fixed in the light of labor productivity, the prevailing wage rates in the same or neighbouring areas and relative importance of jobs. Managers salaries and allowances are expected to be linked with their responsibility, initiative and skill. But the spread between minimum wages and highest salaries should be reasonable. Employees are expected to build up and maintain harmonious relationships between superior and subordinates. Another aspect of responsibility towards employees is the provision of welfare amenities like safety and security of working conditions, medical facilities, housing, canteen, leave and retirement benefits.
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Responsibility towards the Governments: As a part of their social responsibility, management must conduct business affair in lawful manner, honestly pay all the taxes and dues, and should not corrupt public officials for selfish ends. Business activities must also confirm to the economic and social policies of the government. Responsibility towards the community and society: The socially responsible role of management in relation to the community are expected to be revealed by its policies with respect to the employment of handicapped persons, and weaker sections of the community, environmental protection, pollution control, setting up industries in backward areas, and providing relief to the victims of natural calamities etc.
Arguments against corporate social responsibility
Friedman and Baumol , two of the greatest economists of our time , are opposed to the view that businessmen have any social responsibility to fulfill. In the opinion of Friedman , the view that corporations and labor unions should accept the social responsibilities ³shows a fundamental misconception of the character and nature of free economy ´.He argues that in a free economy , ³there is one and only one social responsibility of business ± to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game , which is to say , engage in open and free competition without deception or fraud«.If businessmen do have social responsibility other than making maximum profit for stock holders how are they to know what it is?´In his opinion assigning any social responsibility to private entrepreneurs other than profit maximization is µA fundamentally subversive doctrine¶ which undermines the , very foundation free society . Baumol is of the view that private business should not be asked to assume the responsibilities of fulfilling the social and political goals of society nor should they be expected to allocate resources optimally. For in his , a competitive system automatically rewards efficiency and punishes inefficiency and where it fails fiscal measures ± taxes and subsidies may be adopted to correct the system and to encourage the business in favor of social goals .
ARGUMENTS AGAINST CORPORATE SOCIAL
RESPONSIBILITY
If the arguments for a socially responsible approach were widely accepted, nobody would even using the label "CSR" because everyone would be doing it. Those of us who spend our time marshalling the case for would do well to spend a little time hearing the case against, and considering what should be the response. Of course, one of the challenges in considering cases "for" and "against" CSR is the wide variety of definitions of CSR that people use. We assume here we are talking about responsibility in how the company carries out its core function - not simply about companies giving money away to charity. Below are some of the key arguments most often used against CSR and some responses. Businesse are owned by their shareholders - money spent on CSR by managers is theft of the rightful property of the owners The leading companies who report on their social responsibility are basket cases - the most effective business leaders don't waste time with this stuff Our company is too busy surviving hard times to do this. We can't afford to take our eye off the ball - we have to focus on core business It's the responsibility of the politicians to deal with all this stuff. It's not our role to get involved I have no time for this. I've got to get out and sell more to make our profit line. Corporations don't really care - they're just out to screw the poor and the environment to make their obscene profits
BUSINESSES ARE OWNED BY THEIR SHAREHOLDERS - MONEY SPENT ON CSR BY MANAGERS IS THEFT OF THE RIGHTFUL PROPERTY OF THE OWNERS.
This is the voice of the laisser-faire 1980s, still being given powerful voice by advocates such as Elaine Sternberg. Sternberg argues that there is a human rights case against CSR, which is that a stakeholder approach to management deprives shareholders of their property rights. She states that the objectives sought by conventional views of social responsibility are absurd. Not all aspects of CSR are guilty of this, however. Sternberg states that ordinary decency, honesty and fairness should be expected of any corporation. Response: In the first instance, this case strongly depends on the model of social responsibility adopted by the business being a philanthropic one. The starting point assumption is that, through CSR, corporations simply get to "give away" money which rightfully belongs to other people. If CSR is seen as a process by which the business manages its relationships with a variety of influential stakeholders who can have a real influence on its licence to operate, the business case becomes immediately apparent. CSR is about building relationships with customers, about attracting and retaining talented staff, about managing risk, and about assuring reputation. The market capitalisation of a company often far exceeds the "property" value of the company. For instance, as much as 96% of Coca Cola is made up of "intangibles" - a major part of which rests on the reputation of the company. Only a fool would run risks with a company's reputation when it is so large a part of what the shares represent. In any case, if shareholders are to be accorded full property rights one would expect to see the balancing feature of responsibility for the actions taken by the enterprises they often fleetingly own. Since most shareholders remain completely unaware of any such responsibility, it can only fall to the management - the "controlling mind" of the company, to take that responsibility on.
THE LEADING COMPANIES WHO REPORT ON THEIR SOCIAL RESPONSIBILITY ARE BASKET CASES - THE MOST EFFECTIVE BUSINESS LEADERS DON'T WASTE TIME WITH THIS STUFF.
When surveys are carried out of the "Most Respected Business Leaders" you will often find names there, such as Bill Gates of Microsoft, a few years ago Jack Welch of GE, who have not achieved their world class status by playing nice. Welch is still remembered for the brutal downsizing he led his business through, and for the environmental pollution incidents and prosecutions. Microsoft has had one of the highest profile cases of bullying market dominance of recent times - and Gates has been able to achieve the financial status where he can choose to give lots of money away by being ruthless in business. Doesn't that go to prove that "real men don't do CSR"?! Response: There is no denying the force of this argument. We do not live in a Disney world where virtue is always seen to be rewarded, and that's a fact. Nevertheless, the picture is not as simple as the above argument makes out. In the first instance, very few businesses operate in a black or white framework, where they are either wholly virtuous or wholly without redemption. There are many aspects in the way Jack Welch restructured General Electric which would play to the kind of agenda recognisable to advocates of social responsibility - in particular that of employee empowerment. Welch has gone on record as saying that he believes the time has passed when making a profit and paying taxes was all that a company had to worry about. And since Welch moved on, General Electric has been busy catching up big time with its EcoMagination initiative. Also, many of the leading companies with regard to their social responsibility are equally successful companies. The same "Most Respected" surveys will usually provide other names at, or near, the top such as IBM and Motorola - and these are companies that have been much more strongly associated with the CSR movement. Coca Cola achieved its place partially because of its profile in social responsibility. When still in charge, Sir John Browne of BP was widely respected as having led BP into a strong position as one of the world's leading companies whilst also showing environmental leadership. The events that latterly tarnished that reputation simply show that skill in execution is key to success - but even those events don't disprove the fact that success in business and commitment to responsibility can go hand in hand.
OUR COMPANY IS TOO BUSY SURVIVING HARD TIMES TO DO THIS. WE CAN'T AFFORD TO TAKE OUR EYE OFF THE BALL - WE HAVE TO FOCUS ON CORE BUSINESS.
It's all very well for the very big companies with lots of resources at their disposal. For those fighting for survival, it's a very different picture. You can't go spending money on unnecessary frills when you're laying people off and morale is rock bottom. And the odd bit of employee volunteering won't make any difference to our people when they feel cynical and negative about how the company operates. Response: Managing your social responsibility is like any other aspect of managing your business. You can do it well, or you can do it badly. If the process of managing social responsibility leads you to take your eye off the ball and stop paying attention to core business, the problem is not that you're doing it at all - it's that you're doing it badly. Well managed CSR supports the business objectives of the company, builds relationships with key stakeholders whose opinion will be most valuable when times are hard, and should reduce business costs and maximise its effectiveness. If you don't believe me, ask yourself if the following statements make sense: Times are hard, therefore it is in my interest to pollute more and run an increased risk of prosecutions and fines, not to mention attracting the attention of environmental pressure groups Times are hard, therefore I can afford to lose some of my most talented people - serving or potential - by erecting barriers on the basis of race, gender, age or sexual orientation. And it doesn't matter if employment tribunals occur as a result of my poor employment practices. Times are hard, therefore I need to ignore changing values in my customer base towards socially responsible goods and services. I can keep making things just the way I always have. Times are hard, so I can ignore the fact that the local communities around my plant are poor living environments with low education achievement, meaning that my best staff won't want to live in them and our future staff will need supplementary training in basic skills such as literacy which they should be getting at school. Our company can be an island of prosperity in a sea of deprivation.
IT'S THE RESPONSIBILITY OF THE POLITICIANS TO DEAL WITH ALL THIS STUFF. IT'S NOT OUR ROLE TO GET INVOLVED
Business has traditionally been beyond morality and public policy. We will do what we're allowed to do. We expect governments to provide the legal framework that says what society will put up with. There's no point, for instance, allowing smoking to remain legal - even making large tax receipt from it - and then acting as though tobacco companies are all immediately beyond the pale. If you think it's so dreadful, you should make it illegal. If not, then let us get on with the job of meeting the demand out there of adults who can choose for themselves. Response: In some areas, this is right - albeit that it is getting increasingly difficult to sustain. If you consider that of all the institutions which are currently getting more powerful in the world, they are essentially the global players - the multinational corporations and the non-governmental organisations. The institutions which are decreasing in power and influence are those tied to the jurisdiction of the nation state - governments first and foremost. It is tempting therefore to look towards the multinationals to take a lead in creating solutions for global problems where the governments seem incapable of achieving co-operative solutions. The interest of Unilever in sustainable fisheries comes to mind. However, there is a strong case that says that the democratic deficit created by such a process is too important to ignore. To whom are the multinational corporations accountable? Outside of that "macro" scale, the argument holds up less well. Many companies actually spend considerable time and money seeking to influence the formation of public policy in their area of interest. And since that area of interest can range far and wide - from international treaties on climate change, through to domestic policy on health (such as that relating to smoking) or transport the fact is the lobbying activities of companies show that they have a role like it or not. And if that lobbying has involved blocking legislation that serves a social end purely in order to continue to profit in the short term, then the company is on very dodgy ground. If CSR is simply about obeying the law and paying taxes, then perhaps the above statement is fair comment. If it is about managing the demands and expectations of opinion formers, customers, shareholders, local communities, governments and environmental NGOs - if it is about managing risk and reputation, and investing in community resources on which you later depend - then the argument is a nonsense.
I have no time for this. I've got to get out and sell more to make our profit line. Response: I have spoken to a lot of business managers about environmental performance, and it always struck me how difficult a sell waste minimisation was to managers who really needed to save money. Study after study after study has shown that just about any business you can think of, if it undertakes waste minimisation for the first time, can shift 1% of its overall turnover straight onto its bottom line. That is not an insignificant figure. And yet, getting out and selling more product somehow remains more attractive for business managers than making more profit through wasting less. It will take a long time and a change in fundamental attitudes towards doing business before this one shifts. In the mean time, keep looking at the evidence. Corporations don't really care - they're just out to screw the poor and the environment to make their obscene profits Corporations have their share of things to answer for - but I simply don't recognise the cynical caricature of business leaders in many of the people I deal with in business today. The fact is that if you're interested in the real solutions to world poverty or environmental degradation, you have to have some kind of view about how solutions will be found. I haven't yet seen the vision described by the anticorporatist movement that shows how the problems will be solved by "us" somehow triumphing over "them" - big business. The solutions to these common problems will either be common solutions or they won't be solutions. By all means give careful scrutiny to those who wield the most power. But recognise CSR as a business framework which enables the common solution of wealth creation as if people and the environment mattered.
SATYAM CASE STUDY
Satyam computers services founder chairman Ramanlinga Raju and his CEO and MD brother Rama Raju were arrested two days after shocking the country by admitting to the mine numbing Rs 7800 crore fraud at india¶s fourth largest I.T services firm. The Raju brothers were arrested by the police on charges of criminal conspiracy, cheating , forgery, misappropriation of funds , criminal breach of trust. Satyam computers services plunged into a deep crisis when Mr Raju resigned as its chairman after admitting to major financial wrong doing and saying his last ditch efforts to fill the ³ fictitious assets with real ones´ through the acquisition of MAYTAS properties and MAYTAS infra, failed.
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Confessing his misdeeds , Mr. Raju his letter to board of directors ,wrote that , ³ it was like riding a tiger ,not knowing how to get off without being eaten.´ Satyam has over 51000 employees , which many believe is overstated, given details of financial irregularities , Mr Raju wrote that the companies balance sheet as of September 30th carries ³inflated ( non existent ) cash and bank balances of Rs 5040 crore (as against Rs 5361 crore reflected in the books)´. The balance sheet also carries ³ an accued interest of Rs 376 crore which is non existent, and under stated liability of 1230 crore on account of funds arranged by me.(Mr. Raju), and over stated debtors position of 490 crore(as against 2651 crore reflected in the books)´, Mr .Raju wrote.
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Mr.Raju further said that Satyam reported a revenue of Rs. 2700 crore for the September quarter and an operating margin of 649 crore ( 24% revenue) as against the actual revenue of Rs. 2112 crore and an operating margin of 61 crore (3% of revenue). ³This has resulted in artificial cash and bank balances going up 588 crores in Q2 alone,´ Mr. Raju said , ³ The gap in the balance sheet has arisen purely on account of inflated profits over a period last several years( limited only to Satyam stand alone books of subsidiaries reflecting to performance. What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years.
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It has attained unmanageable proportions as the size of a company operations grew significantly«( The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations there by significantly increasing the costs, ³ Mr. Raju wrote. The aborted MAYTAS acquisition deal was the last attempt to fill the fictitious assets with real ones. MAYTAS investors were convinced that this is a good disinvestment opportunity and a strategic fit.
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Once satyam problem was solved , it was hoped MAYTAS payments can be delayed. But that was not to be,´ Mr. Raju confessed. Also , the central government has disbaned the board of directors and replaced it with a new board which has members like Deepakh Parekh and Kiran karnik.
REPERCUSSION OF
SATYAM CASE
The arrest and judicial remand of Ramalinga Raju, his brother and the Chief Financial Officer of the Satyam Computer Services Limited might be the start of an effective legal process to bring to justice the self-confessed perpetrator of the biggest corporate fraud in Indian history. However, the latest developments cannot obscure the inordinate delay on the part of the Andhra Pradesh government in setting the law in motion and going after those who have committed grave cog nisable offences that have an international dimension. Journalists, legal experts, investors, and politicians have raised the question why it took almost two-and-a-half days for the State police to act, after the main perpetrator incriminated himself (even if, as some experts suggest, his defence lies in his selfincrimination). In crimes of this nature and magnitude, it is essential that the investigating agencies move swiftly to collect the evidence before anyone has a chance to tamper with it and to demonstrate (as high-minded jurists tend to say) that µhowsoever high you may be, the law is above you.¶
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The explanation that the State police were hampered by the absence of a formal complaint does not wash. After all, the offences admitted were cognisable under the Indian Penal Code. The impression that the State government was reluctant to enforce the criminal law and moved only under the pressure of the news media and public opinion has not been erased by the subsequent arrests and remand. In contrast to the State government¶s procrastination in setting the ordinary criminal law in motion, the Union Ministry of Corporate affairs as well as the capital market regulator, the Securities and Exchange Board of India (SEBI), have acted with due speed in far more complicated areas. Coordination between these agencies and the investigating State police will be critical in this case. Going by Mr. Raju¶s own confession, he and the other perpetrators can be prosecuted under the Companies Act, the Securities Contracts (Regulation) Act, the SEBI Act, and the Indian Penal Code.
CONTD «
Given the magnitude of the scam, it is likely that the Central Bureau of Investigation will be brought in. However, it must be remembered that cases such as the Satyam scam have dragged on for years in the courts. Neither specific legal provisions nor the specialised prosecuting agencies have really helped in speeding up the process. Although not strictly comparable, the Harshad Mehta-led stock market scam of 1991-92 prompted a flurry of activities to speed up the legal processes, including the setting up of a special court at Mumbai. More than 15 years after the first case was filed, the special court finds itself bogged down in the scam cases. Many of the accused, including the principal perpetrator, are dead.
doc_676804335.pptx
PRESENTED BY :
MONIS MAQSOOD ---- 833 JASWINDER PAL SINGH ---- 827 KAMAAL HASSAN KHAN ---- 814 Deptt. Of Business & Financial Studies
Corporate social responsibility (CSR), also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business (SRB), or corporate social performance, is a form of corporate selfregulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms. Business would embrace responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, business would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: People, Planet, Profit. The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, shortterm profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; others yet argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.
REASON FOR SOCIAL RESPONSIBILITIES
Business enterprises are creatures of society and should respond to the demands of society. If the management does not react to changes in social demands, the society will either force them to do so through laws or will not permit the enterprise to survive. Therefore the long term interests of business are best served when management assume social responsibilities. The image of business organization liked with the quality of its products and customer service and the extent to which it fulfills the expectations of owners, employees, consumers, government and the community at large. For longterm success it matters a great deal if the firm has a favourable image in the public mind. Every business enterprise is a organ of society and its activities have impact on the social scene. Therefore, it is important for management to consider whether their policies and actions are likely to promote the public good, advances the basic values of society, and constitute to its stability, strength and harmony. Increasing concern for the social responsibility of management, it is now recognized that besides taking care of the financial interest of owners, managers of business firms must also take into account the interest of various other groups such as employees, consumers, the government and the community as a whole. These interested groups are directly or indirectly affected by the pursuit of business activities and they are the stake-holders of the business enterprise.
FACTORS INFLUENCING CORPORATIONS TO ADOPT CSR
Corporations are motivated to adopt CSR practices by several different factors :
Ethical consumerism Globalization and market forces Social awareness and education Ethics training Laws and regulation Crises and their consequences Stakeholder priorities
ETHICAL CONSUMERISM
The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. As global population increases, so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005, 147). Industrialization in many developing countries is booming as a result of technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are beginning to make purchasing decisions related to their environmental and ethical concerns. However, this practice is far from consistent or universal.
GLOBALIZATION AND MARKET FORCES
As corporations pursue growth through globalization, they have encountered new challenges that impose limits to their growth and potential profits. Government regulations, tariffs, environmental restrictions and varying standards of what constitutes labour exploitation are problems that can cost organizations millions of dollars. Some view ethical issues as simply a costly hindrance. Some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets, helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising. (Fry, Keim, Meiners 1986, 105) Global competition places particular pressure on multinational corporations to examine not only their own labour practices, but those of their entire supply chain, from a CSR perspective.
SOCIAL
AWARENESS AND EDUCATION
The role among corporate stakeholders to work collectively to pressure corporations is changing. Shareholders and investors themselves, through socially responsible investing are exerting pressure on corporations to behave responsibly. Non-governmental organizations are also taking an increasing role, leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. Through education and dialogue, the development of community in holding businesses responsible for their actions is growing (Roux 2007).
ETHICS TRAINING
The rise of ethics training inside corporations, some of it required by government regulation, is another driver credited with changing the behaviour and culture of corporations. The aim of such training is to help employees make ethical decisions when the answers are unclear. Tullberg believes that humans are built with the capacity to cheat and manipulate, a view taken from (Trivers 1971, 1985), hence the need for learning normative values and rules in human behaviour (Tullberg 1996). The most direct benefit is reducing the likelihood of "dirty hands" (Grace and Cohen 2005), fines and damaged reputations for breaching laws or moral norms. Organizations also see secondary benefit in increasing employee loyalty and pride in the organization. Caterpillar and Best Buy are examples of organizations that have taken such steps (Thilmany 2007). Increasingly, companies are becoming interested in processes that can add visibility to their CSR policies and activities. One method that is gaining increasing popularity is the use of wellgrounded training programs, where CSR is a major issue, and business simulations can play a part in this.
LAWS AND REGULATION
Another driver of CSR is the role of independent mediators, particularly the government, in ensuring that corporations are prevented from harming the broader social good, including people and the environment. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly. The issues surrounding government regulation pose several problems. Regulation in itself is unable to cover every aspect in detail of a corporation's operations. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). General Electric is an example of a corporation that has failed to clean up the Hudson River after contaminating it with organic pollutants. The company continues to argue via the legal process on assignment of liability, while the cleanup remains stagnant. (Sullivan & Schiafo 2005).
CRISES AND THEIR CONSEQUENCES
Often it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental management is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include the lead poisoning paint used by toy giant Mattel , which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. In another example, Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup.
STAKEHOLDER PRIORITIES
Increasingly, corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i.e. more loyalty, improved recruitment, increased retention, higher productivity, and so on). Key external stakeholders include customers, consumers, investors (particularly institutional investors, regulators, academics, and the media).
RESPONSIBILTY TOWARDS DIFFERENT ASPECTS OF SOCIETY
Responsibility towards owners: The primary responsibilities of management is to assure a fair and reasonable rate of return on capital and fair return on investment can be determined on the basis of difference in the risks of business in different fields of activity. With the growth of business the shareholders can also expect appreciation in the value of their capital. Responsibility towards Shareholders : A reasonable rate of return over time. The Survival and growth of company and building reputation and goodwill of company.
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Responsibility towards consumers: In a competitive market, serving consumers is supposed to be a prime concern of management. But in reality perfect competition does not prevail in all product markets. In the event of shortage of supply there is no automatic correction. Besides consumers are often victims of unfair trade practices and unethical conduct of business. Consumer interests are thus protected to some extent with laws and pressure of organized consumer groups. Management should anticipate these developments, satisfy consumer needs and protect consumer interests. Goods must be of appropriate standard and quality and be available in adequate quantities at reasonable prices. Management should avoid resorting to hoarding or creating artificial scarcity as well as false and misleading advertisements. Responsibility towards employees: Management responsibility towards employees relate to the fair wages and salaries, satisfactory work environment, labour management relations and employee welfare. Fair wages should be fixed in the light of labor productivity, the prevailing wage rates in the same or neighbouring areas and relative importance of jobs. Managers salaries and allowances are expected to be linked with their responsibility, initiative and skill. But the spread between minimum wages and highest salaries should be reasonable. Employees are expected to build up and maintain harmonious relationships between superior and subordinates. Another aspect of responsibility towards employees is the provision of welfare amenities like safety and security of working conditions, medical facilities, housing, canteen, leave and retirement benefits.
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Responsibility towards the Governments: As a part of their social responsibility, management must conduct business affair in lawful manner, honestly pay all the taxes and dues, and should not corrupt public officials for selfish ends. Business activities must also confirm to the economic and social policies of the government. Responsibility towards the community and society: The socially responsible role of management in relation to the community are expected to be revealed by its policies with respect to the employment of handicapped persons, and weaker sections of the community, environmental protection, pollution control, setting up industries in backward areas, and providing relief to the victims of natural calamities etc.
Arguments against corporate social responsibility
Friedman and Baumol , two of the greatest economists of our time , are opposed to the view that businessmen have any social responsibility to fulfill. In the opinion of Friedman , the view that corporations and labor unions should accept the social responsibilities ³shows a fundamental misconception of the character and nature of free economy ´.He argues that in a free economy , ³there is one and only one social responsibility of business ± to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game , which is to say , engage in open and free competition without deception or fraud«.If businessmen do have social responsibility other than making maximum profit for stock holders how are they to know what it is?´In his opinion assigning any social responsibility to private entrepreneurs other than profit maximization is µA fundamentally subversive doctrine¶ which undermines the , very foundation free society . Baumol is of the view that private business should not be asked to assume the responsibilities of fulfilling the social and political goals of society nor should they be expected to allocate resources optimally. For in his , a competitive system automatically rewards efficiency and punishes inefficiency and where it fails fiscal measures ± taxes and subsidies may be adopted to correct the system and to encourage the business in favor of social goals .
ARGUMENTS AGAINST CORPORATE SOCIAL
RESPONSIBILITY
If the arguments for a socially responsible approach were widely accepted, nobody would even using the label "CSR" because everyone would be doing it. Those of us who spend our time marshalling the case for would do well to spend a little time hearing the case against, and considering what should be the response. Of course, one of the challenges in considering cases "for" and "against" CSR is the wide variety of definitions of CSR that people use. We assume here we are talking about responsibility in how the company carries out its core function - not simply about companies giving money away to charity. Below are some of the key arguments most often used against CSR and some responses. Businesse are owned by their shareholders - money spent on CSR by managers is theft of the rightful property of the owners The leading companies who report on their social responsibility are basket cases - the most effective business leaders don't waste time with this stuff Our company is too busy surviving hard times to do this. We can't afford to take our eye off the ball - we have to focus on core business It's the responsibility of the politicians to deal with all this stuff. It's not our role to get involved I have no time for this. I've got to get out and sell more to make our profit line. Corporations don't really care - they're just out to screw the poor and the environment to make their obscene profits
BUSINESSES ARE OWNED BY THEIR SHAREHOLDERS - MONEY SPENT ON CSR BY MANAGERS IS THEFT OF THE RIGHTFUL PROPERTY OF THE OWNERS.
This is the voice of the laisser-faire 1980s, still being given powerful voice by advocates such as Elaine Sternberg. Sternberg argues that there is a human rights case against CSR, which is that a stakeholder approach to management deprives shareholders of their property rights. She states that the objectives sought by conventional views of social responsibility are absurd. Not all aspects of CSR are guilty of this, however. Sternberg states that ordinary decency, honesty and fairness should be expected of any corporation. Response: In the first instance, this case strongly depends on the model of social responsibility adopted by the business being a philanthropic one. The starting point assumption is that, through CSR, corporations simply get to "give away" money which rightfully belongs to other people. If CSR is seen as a process by which the business manages its relationships with a variety of influential stakeholders who can have a real influence on its licence to operate, the business case becomes immediately apparent. CSR is about building relationships with customers, about attracting and retaining talented staff, about managing risk, and about assuring reputation. The market capitalisation of a company often far exceeds the "property" value of the company. For instance, as much as 96% of Coca Cola is made up of "intangibles" - a major part of which rests on the reputation of the company. Only a fool would run risks with a company's reputation when it is so large a part of what the shares represent. In any case, if shareholders are to be accorded full property rights one would expect to see the balancing feature of responsibility for the actions taken by the enterprises they often fleetingly own. Since most shareholders remain completely unaware of any such responsibility, it can only fall to the management - the "controlling mind" of the company, to take that responsibility on.
THE LEADING COMPANIES WHO REPORT ON THEIR SOCIAL RESPONSIBILITY ARE BASKET CASES - THE MOST EFFECTIVE BUSINESS LEADERS DON'T WASTE TIME WITH THIS STUFF.
When surveys are carried out of the "Most Respected Business Leaders" you will often find names there, such as Bill Gates of Microsoft, a few years ago Jack Welch of GE, who have not achieved their world class status by playing nice. Welch is still remembered for the brutal downsizing he led his business through, and for the environmental pollution incidents and prosecutions. Microsoft has had one of the highest profile cases of bullying market dominance of recent times - and Gates has been able to achieve the financial status where he can choose to give lots of money away by being ruthless in business. Doesn't that go to prove that "real men don't do CSR"?! Response: There is no denying the force of this argument. We do not live in a Disney world where virtue is always seen to be rewarded, and that's a fact. Nevertheless, the picture is not as simple as the above argument makes out. In the first instance, very few businesses operate in a black or white framework, where they are either wholly virtuous or wholly without redemption. There are many aspects in the way Jack Welch restructured General Electric which would play to the kind of agenda recognisable to advocates of social responsibility - in particular that of employee empowerment. Welch has gone on record as saying that he believes the time has passed when making a profit and paying taxes was all that a company had to worry about. And since Welch moved on, General Electric has been busy catching up big time with its EcoMagination initiative. Also, many of the leading companies with regard to their social responsibility are equally successful companies. The same "Most Respected" surveys will usually provide other names at, or near, the top such as IBM and Motorola - and these are companies that have been much more strongly associated with the CSR movement. Coca Cola achieved its place partially because of its profile in social responsibility. When still in charge, Sir John Browne of BP was widely respected as having led BP into a strong position as one of the world's leading companies whilst also showing environmental leadership. The events that latterly tarnished that reputation simply show that skill in execution is key to success - but even those events don't disprove the fact that success in business and commitment to responsibility can go hand in hand.
OUR COMPANY IS TOO BUSY SURVIVING HARD TIMES TO DO THIS. WE CAN'T AFFORD TO TAKE OUR EYE OFF THE BALL - WE HAVE TO FOCUS ON CORE BUSINESS.
It's all very well for the very big companies with lots of resources at their disposal. For those fighting for survival, it's a very different picture. You can't go spending money on unnecessary frills when you're laying people off and morale is rock bottom. And the odd bit of employee volunteering won't make any difference to our people when they feel cynical and negative about how the company operates. Response: Managing your social responsibility is like any other aspect of managing your business. You can do it well, or you can do it badly. If the process of managing social responsibility leads you to take your eye off the ball and stop paying attention to core business, the problem is not that you're doing it at all - it's that you're doing it badly. Well managed CSR supports the business objectives of the company, builds relationships with key stakeholders whose opinion will be most valuable when times are hard, and should reduce business costs and maximise its effectiveness. If you don't believe me, ask yourself if the following statements make sense: Times are hard, therefore it is in my interest to pollute more and run an increased risk of prosecutions and fines, not to mention attracting the attention of environmental pressure groups Times are hard, therefore I can afford to lose some of my most talented people - serving or potential - by erecting barriers on the basis of race, gender, age or sexual orientation. And it doesn't matter if employment tribunals occur as a result of my poor employment practices. Times are hard, therefore I need to ignore changing values in my customer base towards socially responsible goods and services. I can keep making things just the way I always have. Times are hard, so I can ignore the fact that the local communities around my plant are poor living environments with low education achievement, meaning that my best staff won't want to live in them and our future staff will need supplementary training in basic skills such as literacy which they should be getting at school. Our company can be an island of prosperity in a sea of deprivation.
IT'S THE RESPONSIBILITY OF THE POLITICIANS TO DEAL WITH ALL THIS STUFF. IT'S NOT OUR ROLE TO GET INVOLVED
Business has traditionally been beyond morality and public policy. We will do what we're allowed to do. We expect governments to provide the legal framework that says what society will put up with. There's no point, for instance, allowing smoking to remain legal - even making large tax receipt from it - and then acting as though tobacco companies are all immediately beyond the pale. If you think it's so dreadful, you should make it illegal. If not, then let us get on with the job of meeting the demand out there of adults who can choose for themselves. Response: In some areas, this is right - albeit that it is getting increasingly difficult to sustain. If you consider that of all the institutions which are currently getting more powerful in the world, they are essentially the global players - the multinational corporations and the non-governmental organisations. The institutions which are decreasing in power and influence are those tied to the jurisdiction of the nation state - governments first and foremost. It is tempting therefore to look towards the multinationals to take a lead in creating solutions for global problems where the governments seem incapable of achieving co-operative solutions. The interest of Unilever in sustainable fisheries comes to mind. However, there is a strong case that says that the democratic deficit created by such a process is too important to ignore. To whom are the multinational corporations accountable? Outside of that "macro" scale, the argument holds up less well. Many companies actually spend considerable time and money seeking to influence the formation of public policy in their area of interest. And since that area of interest can range far and wide - from international treaties on climate change, through to domestic policy on health (such as that relating to smoking) or transport the fact is the lobbying activities of companies show that they have a role like it or not. And if that lobbying has involved blocking legislation that serves a social end purely in order to continue to profit in the short term, then the company is on very dodgy ground. If CSR is simply about obeying the law and paying taxes, then perhaps the above statement is fair comment. If it is about managing the demands and expectations of opinion formers, customers, shareholders, local communities, governments and environmental NGOs - if it is about managing risk and reputation, and investing in community resources on which you later depend - then the argument is a nonsense.
I have no time for this. I've got to get out and sell more to make our profit line. Response: I have spoken to a lot of business managers about environmental performance, and it always struck me how difficult a sell waste minimisation was to managers who really needed to save money. Study after study after study has shown that just about any business you can think of, if it undertakes waste minimisation for the first time, can shift 1% of its overall turnover straight onto its bottom line. That is not an insignificant figure. And yet, getting out and selling more product somehow remains more attractive for business managers than making more profit through wasting less. It will take a long time and a change in fundamental attitudes towards doing business before this one shifts. In the mean time, keep looking at the evidence. Corporations don't really care - they're just out to screw the poor and the environment to make their obscene profits Corporations have their share of things to answer for - but I simply don't recognise the cynical caricature of business leaders in many of the people I deal with in business today. The fact is that if you're interested in the real solutions to world poverty or environmental degradation, you have to have some kind of view about how solutions will be found. I haven't yet seen the vision described by the anticorporatist movement that shows how the problems will be solved by "us" somehow triumphing over "them" - big business. The solutions to these common problems will either be common solutions or they won't be solutions. By all means give careful scrutiny to those who wield the most power. But recognise CSR as a business framework which enables the common solution of wealth creation as if people and the environment mattered.
SATYAM CASE STUDY
Satyam computers services founder chairman Ramanlinga Raju and his CEO and MD brother Rama Raju were arrested two days after shocking the country by admitting to the mine numbing Rs 7800 crore fraud at india¶s fourth largest I.T services firm. The Raju brothers were arrested by the police on charges of criminal conspiracy, cheating , forgery, misappropriation of funds , criminal breach of trust. Satyam computers services plunged into a deep crisis when Mr Raju resigned as its chairman after admitting to major financial wrong doing and saying his last ditch efforts to fill the ³ fictitious assets with real ones´ through the acquisition of MAYTAS properties and MAYTAS infra, failed.
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Confessing his misdeeds , Mr. Raju his letter to board of directors ,wrote that , ³ it was like riding a tiger ,not knowing how to get off without being eaten.´ Satyam has over 51000 employees , which many believe is overstated, given details of financial irregularities , Mr Raju wrote that the companies balance sheet as of September 30th carries ³inflated ( non existent ) cash and bank balances of Rs 5040 crore (as against Rs 5361 crore reflected in the books)´. The balance sheet also carries ³ an accued interest of Rs 376 crore which is non existent, and under stated liability of 1230 crore on account of funds arranged by me.(Mr. Raju), and over stated debtors position of 490 crore(as against 2651 crore reflected in the books)´, Mr .Raju wrote.
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Mr.Raju further said that Satyam reported a revenue of Rs. 2700 crore for the September quarter and an operating margin of 649 crore ( 24% revenue) as against the actual revenue of Rs. 2112 crore and an operating margin of 61 crore (3% of revenue). ³This has resulted in artificial cash and bank balances going up 588 crores in Q2 alone,´ Mr. Raju said , ³ The gap in the balance sheet has arisen purely on account of inflated profits over a period last several years( limited only to Satyam stand alone books of subsidiaries reflecting to performance. What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years.
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It has attained unmanageable proportions as the size of a company operations grew significantly«( The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations there by significantly increasing the costs, ³ Mr. Raju wrote. The aborted MAYTAS acquisition deal was the last attempt to fill the fictitious assets with real ones. MAYTAS investors were convinced that this is a good disinvestment opportunity and a strategic fit.
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Once satyam problem was solved , it was hoped MAYTAS payments can be delayed. But that was not to be,´ Mr. Raju confessed. Also , the central government has disbaned the board of directors and replaced it with a new board which has members like Deepakh Parekh and Kiran karnik.
REPERCUSSION OF
SATYAM CASE
The arrest and judicial remand of Ramalinga Raju, his brother and the Chief Financial Officer of the Satyam Computer Services Limited might be the start of an effective legal process to bring to justice the self-confessed perpetrator of the biggest corporate fraud in Indian history. However, the latest developments cannot obscure the inordinate delay on the part of the Andhra Pradesh government in setting the law in motion and going after those who have committed grave cog nisable offences that have an international dimension. Journalists, legal experts, investors, and politicians have raised the question why it took almost two-and-a-half days for the State police to act, after the main perpetrator incriminated himself (even if, as some experts suggest, his defence lies in his selfincrimination). In crimes of this nature and magnitude, it is essential that the investigating agencies move swiftly to collect the evidence before anyone has a chance to tamper with it and to demonstrate (as high-minded jurists tend to say) that µhowsoever high you may be, the law is above you.¶
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The explanation that the State police were hampered by the absence of a formal complaint does not wash. After all, the offences admitted were cognisable under the Indian Penal Code. The impression that the State government was reluctant to enforce the criminal law and moved only under the pressure of the news media and public opinion has not been erased by the subsequent arrests and remand. In contrast to the State government¶s procrastination in setting the ordinary criminal law in motion, the Union Ministry of Corporate affairs as well as the capital market regulator, the Securities and Exchange Board of India (SEBI), have acted with due speed in far more complicated areas. Coordination between these agencies and the investigating State police will be critical in this case. Going by Mr. Raju¶s own confession, he and the other perpetrators can be prosecuted under the Companies Act, the Securities Contracts (Regulation) Act, the SEBI Act, and the Indian Penal Code.
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Given the magnitude of the scam, it is likely that the Central Bureau of Investigation will be brought in. However, it must be remembered that cases such as the Satyam scam have dragged on for years in the courts. Neither specific legal provisions nor the specialised prosecuting agencies have really helped in speeding up the process. Although not strictly comparable, the Harshad Mehta-led stock market scam of 1991-92 prompted a flurry of activities to speed up the legal processes, including the setting up of a special court at Mumbai. More than 15 years after the first case was filed, the special court finds itself bogged down in the scam cases. Many of the accused, including the principal perpetrator, are dead.
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