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INTRODUCTION
Globalization has become a common word in almost all parts of the world. It has virtually
connected the entire world and there seems to be no geographical barrier for access to any part of
the world. It would not be incorrect if we say that the world economy is globalized. There seems
to be only one market in the world, with interdependent production and consumption. The impact
of globalization can be seen in the growth of the world trade as a proportion of output. In this era
because of role of business entities in world economy society expects from these business
entities to be a socially responsible citizens.
In the recent years, the term corporate social responsibility (hereinafter referred as CSR)
has gained prominence, both in business and in the press, to such an extent that it seems to have
become ubiquitous. The relationship between organisations and society has been the subject of
much debate, often of a critical nature. The decade has witnessed protest concerning the actions
of organisations, exposure of corporate exploitation and unfolding of accounting scandals. At the
same time, ethical behavior and a concern for the environment have been shown to have a
positive correlation and corporate performance. The nature of CSR is therefore a topical one for
business and academics.
In other words, corporations are a part of society just as much as each one of us is, as an
individual. According to Hobbes, Locke & Jean Jacque Russeau, within the concept of Social
Contract, society and corporations must co-exist and contribute to the well being of each other.
There is a contract, which is at once explicit and implicit, that governs the operation of business
within a given community.
As when Benjamin Franklin concurs to this opinion when he remarks that doing good is
not a private act between a bountiful giver and a grateful receiver, it is a prudent social act.
While discussing Corporate Social Responsibility, the basic question is not whether we
wish to compel or forbid certain kinds of corporate conduct by legislative command, but whether
it is socially desirable for corporations organized for profit voluntarily to identify and pursue
social ends where this pursuit conflicts with the presumptive shareholder desire to maximize
profit.
Corporate governance and CSR reforms have become a major focus of governments and
corporations over the past several decades. In the United States, for example, following the
Enron scandal and the recent financial crisis, both government and private industry have become
embroiled in debates about the role of corporate governance in causing such crises and the
corporate governance solutions to prevent future crises. Similarly, some investor groups,
employee groups, and corporations themselves have advocated for or undertaken numerous CSR
efforts. These efforts focus not just on shareholder wealth maximization, but also on the broader
impact of the corporation on its stakeholders. These debates are not just occurring in developed
economies. Countries around the world are engaging in rich and nuanced debates, and
undertaking significant reforms in the corporate governance and CSR arenas.
Corporate law in India has been fundamentally transformed since the early 1990s. In
conjunction with significant economic globalization, liberalization and privatization, the Indian
government has introduced a series of corporate governance reforms aimed in part at creating a
system of transparent, ethical, and accountable corporate functioning. Early reforms sought to
implement rules and practices that addressed traditional corporate governance concerns, in other
words the relationship between firm managers and shareholders and the relationship among
different groups of shareholders, particularly majority and minority shareholders.
CSR is described as a companys obligation to be accountable to all of its stakeholders in
all its operations and activities. Socially responsible companies consider the full scope of their
impact on communities and the environment when making decisions, balancing the needs of
stakeholders with their need to make a profit.
Thus the present work deals with impact of CSR in the era of globalization. The work
focuses on the meaning and definition of CSR and what are the benefits of it. What are the legal
provisions or steps relating to CSR, how it developed and what are the future challenges before
the CSR, are some of the major issues of the present work.
Businesses are an integral part of the communities in which they operate. The general
public has high expectations of the private sector in terms of responsible behavior. Consumers
expect goods and services to reflect socially and environmentally responsible business behavior
at competitive prices. Shareholders also are searching for enhanced financial performance that
integrates social and environmental considerations, both in terms of risk and opportunities.4
3 Michael Porter, Professor, Harvard Business School, at the April 2005 Business and Society Conference
on Corporate Citizenship, sponsored by the University of Torontos Rotman School of Management
4 Responsible Competitiveness: Reshaping global markets though responsible business practices, (Sept.
26, 2012), http://www.accountability.org/images/content/1/1/110/Full%20Report%20(Compressed).pdf.
5 Working definition, ISO 26000 Working Group on Social Responsibility, Sydney, February 2007
1.2 POTENTIAL
BENEFITS OF IMPLEMENTING A
CSR
APPROACH
Key potential benefits for firms implementing CSR include the followings:
1) Better anticipation and management of an ever-expanding spectrum of risk: Effectively
managing governance, legal, social, environmental, economic and other risks in an
increasingly complex market environment, with greater oversight and stakeholder scrutiny of
corporate activities, can improve the security of supply and overall market stability.
Considering the interests of parties concerned about a firms impact is one way of better
anticipating and managing risk.
2) Improved reputation management: Organizations that perform well with regard to CSR
can build their reputation, while those that perform poorly can damage brand and company
value when exposed. Reputation, or brand equity, is founded on values such as trust,
credibility, reliability, quality and consistency. Even for firms that do not have direct retail
exposure through brands, their reputation for addressing CSR issues as a supply chain
partner- both good and bad- can be crucial commercially.
3) Enhanced ability to recruit, develop and retain staff: This can be the direct result of pride
in the companys products and practices, or of introducing improved human resources
practices, such as family-friendly policies. It can also be the indirect result of programs and
activities that improve employee morale and loyalty. Employees are not only front-line
sources of ideas for improved performance, but are champions of a company for which they
are proud to work.
4) More robust social license to operate in the community: Improved citizen and
stakeholder understanding of the firm and its objectives and activities translates into
improved stakeholder relations. This, in turn, may evolve into more robust and enduring
public, private and civil society alliances (all of which relate closely to CSR reputation,
discussed above). CSR can help build social capital.
5) Improved relations with regulators: In a number of jurisdictions, governments have
expedited approval processes for firms that have undertaken social and environmental
activities beyond those required by regulation. In some countries, governments use (or are
considering using) CSR indicators in deciding on procurement or export assistance contracts.
This is being done because governments recognize that without an increase in business sector
engagement, government sustainability goals cannot be reached.
The benefits of implementation of CSR can be well defined in terms of Ronald Bown as We
believe in CSR because it is a proposition aligned with our values, but also because it makes
business sense. Our commercial partners expect from us sound environmental and social
practices. We get and understand the message and are actively promoting CSR among associates.
We want to be recognised as a responsible industry, adding value to our products.6
STRATEGY
6 Ronald Bown, President, Chilean Fruit Exporters Association at GRI G3 launch, October 2006.
Every business and individual needs to do their bit to tackle the enormous challenges of climate
change and waste. A firm may continue to sell great quality, stylish and innovative products but
customers, employees and shareholders now expect them to take bold steps and do business
differently and responsibly. Now it believes that a responsible business can be a profitable
business.7
A CSR strategy is a road map for moving ahead on CSR issues. It sets the firms direction
and scope over the long term with regard to CSR, allowing the firm to be successful by using its
resources within its unique environment to meet market needs and fulfill stakeholder
expectations.
A good CSR strategy identifies the following:
i.
ii.
iii.
iv.
v.
vi.
overall direction for where the firm wants to take its CSR work;
the stakeholders and their perspectives and interests;
a basic approach for moving ahead;
specific priority areas;
a time line for action, responsible staff, and immediate next steps; and
a process for reviewing and assuring outcomes.
Different firms may be at different stages of awareness of and work on CSR, which will
dictate the contents of the strategy. Some may decide to adopt a minimum necessary stance.
Others may wish to make strategic forays into particular areas.
BY
GOVERNMENTAL
AND
INTER
GOVERNMENTAL BODIES
In addition to being a ready-made source of wisdom and experience, those that have been
developed with governmental input, and based on agreed international standards, offer an
additional level of legitimacy and recognition. Some of the most widely used are mentioned
below:
(A) UNITED NATIONS GLOBAL COMPACT
7 Stuart Rose, Staying Green in Tough Economic Climate, (Sept. 30, 2012),
http://www.hbrgreen.org/2008/03/the_hard_economics_of_green.html
The United Nations Global Compact, which was first launched 1999 on the initiative of
the UN Secretary-General Kofi Annan, calls on the private sector to embrace core set of ten
principles pertaining to human rights, labour, the environment, and anticorruption. Supported by
a small international secretariat and a network of local organizations, the Global Compact acts as
a learning forum to facilitate the exchange of experiences and good practice. Based on the level
of its use, it is currently the worlds most popular multi-stakeholder CSR initiative.8
(B) OECD GUIDELINES
FOR
MULTINATIONAL ENTERPRISES
In June 2000, the OECD issued its revised Guidelines for Multinational Enterprises. The
Guidelines establish non-binding principles and standards for responsible business conduct with
the aim of promoting economic, environmental and social progress. They also ensure that MNEs
act in harmony with the policies of host economies. It is the most important government-backed
CSR code and covers such diversified areas as disclosure, employment and industrial relations,
human rights, the environment, anti-bribery measures, and taxation and consumer interests. All
30 of the OECDs industrialized country members have formally adhered to the revised
guidelines, as well as nine non-member countries (Argentina, Brazil, Chile, Estonia, Israel,
Latvia, Lithuania, Romania and Slovenia). Adhering governments commit to appoint a national
contact point to promote the guidelines and to help resolve problems that may arise as they are
implemented. Also relevant in this context is the OECDs Risk Awareness Tool for Multinational
Enterprises in Weak Governance Zones.9
(C) INTERNATIONAL LABOR ORGANIZATION (ILO)
The ILO is a UN specialized agency comprising governments, employers and workers
organizations. Since its inception in 1919, the ILO has adoptedon a tripartite basis
international labour standards (ILS) covering a wide range of rights at work, including the rights
8George Kell, Towards Universal Business Principles, Dilemmas in Competitiveness, Community and
Citizenship Business and Human Rights Seminar, The London School of Economics and Political
Science, 22 May 2001, also at
http://www.unglobalcompact.org/newsandevents/speeches_and_statements/london_school_of_economics
.html
9 Jim Baker, Corporate Social Responsibility and Economic Development, (Sept. 26, 2012),
http://www.oecd.org/daf/internationalinvestment/investmentstatisticsandanalysis/2423198.pdf.
of indigenous peoples. These instruments are the basis of most other social initiatives. The labour
content of the revised OECD MNE Guidelines, for example, is based on ILS. The ILO has given
special attention to multinational enterprises by adopting the 1977 Tripartite Declaration of
Principles concerning Multinational Enterprises and Social Policy. This recently revised
Declaration is a global commitment designed to guide governments, employers and workers in
areas of employment, training, working conditions and industrial relations. More recently, the
ILO adopted the Declaration on Fundamental Principles and Rights at Work, which focuses
attention on the core labour rights dealing with child labour, forced labour, non-discrimination
and freedom of association and collective bargaining. This key document has become the basis
for the majority of social initiatives, including the labour principles of the UN Global Compact.10
(D) INTERNATIONAL FINANCE CORPORATION (IFC)
The IFC is a member of the intergovernmental World Bank Group of organizations. Its
mission is to promote sustainable private sector investment in developing countries. The IFCs
new Environmental and Social Standards of IFC came into force in April 2006, replacing
previous guidelines. The new standards define the roles and responsibilities of IFC and its client
companies. They include: a Policy on Social and Environmental Sustainability on IFCs role and
responsibility in supporting project performance in partnership with clients; a Disclosure Policy
defining IFCs obligations to disclose information about itself and its activities; and an
Environmental and Social Review Procedure, which gives direction to IFC officers in
implementing the Policy on Social and Environmental Sustainability and reviewing compliance
and implementation by private sector projects.11 The IFC was also closely involved in the
creation of the Equator Principles, an initiative of private financial institutions to set down
common social and environmental principles for the management of project financing. The
recently revised Equator Principles have now incorporated, and are fully consistent with, IFCs
10 The ILO and Corporate Social Responsibility (CSR), (Sept. 26, 2012),
http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/--multi/documents/publication/wcms_116336.pdf.
11 Performance Standard on Environmental and Social Sustainability, January 2012, (Sept. 26, 2012),
http://www1.ifc.org/wps/wcm/connect/115482804a0255db96fbffd1a5d13d27/PS_English_2012_FullDocument.pdf?MOD=AJPERES.
environmental and social Performance Standards, which ensure that there is one consistent
standard for private sector project financing for all adhering banks and institutions.12
2.3 CSR
Although the primary responsibility for the promotion and protection of human rights
rests with states, there is growing recognition of the important role that the private sector and
other actors can play in avoiding any involvement in human rights violations and more widely
promoting respect for human rights.13 Most multilaterally-endorsed CSR initiatives include a
human rights component based in part on key United Nations human rights instruments such as
the UDHR.14 For the most part, however, the human rights sections of existing mechanisms are
not as well developed as other aspects of CSR. As a set of draft norms proposed by a UN SubCommission showed, there are many relevant international conventions, and controversy about
how they should be applied.15
AND
CONSTITUTIONAL PROVISION:
In the context of CSR, our Constitution is quite straightforward and simple. Part III of the
Constitution guarantees to us certain fundamental rights. Article 14 of the Constitution grants to
12 The Equator Principles, June 2006, (Sept. 28, 2012), http://www.equatorprinciples.com/resources/equator_principles.pdf.
13 The Voluntary Principles on Security + Human Rights, (Sept. 28, 2012),
http://www.voluntaryprinciples.org./principles/introduction.
14 The Universal Declaration of Human Rights, (Sept. 26, 2012),
http://www.un.org/en/documents/udhr/index.shtml.
15 Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises
with Regard to Human Rights, E/CN.4/Sub.2/2003/12 (2003), (Sept. 30, 2012),
http://www1.umn.edu/humanrts/links/NormsApril2003.html
all peoples equality before law and equal protection of the laws. Similarly, Article 19 confers
certain fundamental freedoms, including the freedom to form any association or union. But this
freedom is not unlimited and is subject to some reasonable restrictions laid down by law.16
Article 21 of the Constitution guarantees the protection of life and personal liberty to all
persons. The expression life assured in Article 21 of the Constitution has a much wider
meaning which includes right to livelihood, better standard of living, hygienic conditions in work
place and leisure.17 The court has read Articles 21, 38, 42, 43, 46 and 48A together in Consumer
Education and research Centre v. Union of India18, the court held, Right to life includes
protection of the health and strength of the worker and is a minimum requirement to enable a
person to live with human dignity. The State, be Union or State government or an industry,
public or private, is enjoined to take all such action which will promote health, strength and
vigor of the workman during the period of employment and leisure and health even after
retirement as basic essentials to live the life with health and happiness. The right to human
dignity, development of personality, social protection, right to rest and leisure are fundamental
human rights to a workman assured by the Charter of Human Rights, in the Preamble and
Articles 38 and 39 of the Constitution.
The Supreme Court has taken recourse to this Article to interpret Article 21 to include
right to livelihood. The court in Olga Tellis v. Bombay Municipal Corporation19 observed that,
If there is an obligation upon the state to secure to the citizens an adequate means of livelihood
and the right to work, it would be sheer pedantry to exclude the right to livelihood from the
context of right to life
In Madhu Kishwar v. State of Bihar20, with a view to protect the economic interests of
tribal women depending on agriculture for their livelihood, the Supreme Court has ruled that on
16 M.P. JAIN, INDIAN CONSTITUTIONAL LAW, Lexis Nexis Butterworths Wadhwa Nagpur, Gurgaon (6th
ed. 2012) (1962)
17 Maneka Gandhi v. Union of India, AIR 1978 SC 597
18 AIR 1995 SC 922
19 AIR 1986 SC 180
death of the last male holder in an agricultural tribal family, the dependant family female
members have the constitutional remedy of continuing to hold the land as long as they remain
dependent on it to earn their livelihood.
Article 24 puts a partial restriction on employment of child labour, and it prohibits the
employment of a child below the age of fourteen years to work in any factory or mine, or in any
other hazardous employment. In Asiad labour case 21, the court held that Article 24 is a
Fundamental Right, which is plainly and indubitably enforceable against every one. It is also
the duty of the Union Government, State Governments and other government bodies to ensure
that the contractors to whom they have entrusted construction work also obey this obligation. 22
The court has reiterated this ruling in Labourers Working on Salal Hydro-Project v. State of
Jammu & Kashmir23.
The Supreme Court has expanded the locus-standi under Article 32 of the Constitution to
allow Public Interest Litigation. This has immensely helped the unorganized sector, because the
unorganized sector usually consists of those people who do not have adequate means to approach
the court for redressal of their grievances.24 PIL allows public-spirited persons or organization to
bring the cause of such people to the notice of the court and thus seek redressal. There are
number of instances where a PIL has been filed with regard to these sectors. Prominent among
them are the Asiad Labour Case25 and the Bandhua Mukti Morcha case.26
standpoint.28 The CSR Guidelines constitute the outcome of committee sessions conducted by
IICA with Advisory Expert Group members of the IICA-GTZ CSR Initiative, a bilateral
Indian/German project.29 The guidelines themselves attempt to frame CSR as part of Indian
history and culture, stating: Indian entrepreneurs and business enterprises have a long tradition
of working within the values that have defined our nations character for millennia. Indias
ancient wisdom, which is still relevant today, inspires people to work for the larger objective of
the well-being of all stakeholders.30
According to the CSR Guidelines, the CSR Policy should cover the following core
elements:
i.
ii.
iii.
iv.
v.
vi.
implement the guidelines or on what legal changes need to be made to ensure that socially
responsible practices will be part of a firm's way of doing business. It appears from the
fundamental principle of the guidelines that the board of directors will formulate and approve
CSR policies. Board members, however, may not have the knowledge or tools to undertake these
28 Umakanth Varottil, Voluntary Guidelines on Governance and Social Responsibility, (Sept. 30, 2012),
http://www.indiacorplaw.blogspot.com/2009/12/voluntary-guidelines-on-governance-and.html.
29 National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business,
(Sept. 30, 2012), http://www.responsible-business.in/csr-guidelines.
30 Ministry of Corporate Affairs, Government of India, Corporate Governance Voluntary Guidelines 2009 (Dec.
2009),
(Sept.
30,
2012),
http://www.mca.gov.in/Ministry/latestnews/CG_Voluntary_
Guidelines_2009_24dec2009.pdf.
31 Id.
efforts, but there has been little recognition of such shortcomings with respect to placing
responsibility on directors to formulate and approve CSR policies.
In addition, similar to the corporate governance Voluntary Guidelines, the CSR
Guidelines are, as the name indicates, just guidelines. This is arguably positive, as the CSR
guidelines are just the initial step into regulating CSR activities. Indeed, some experts have
argued that CSR requirements might benefit from a voluntary approach with stringent
disclosure requirements that induce a culture of comply-or-explain. This would help vigilant
investors, particularly socially responsible and ethical investors.32
3.3 CSR
AFTER
AMENDMENT
OF
2013
The CSR provision is applicable to all companies with: A net worth of~500 crores or more; a
turnover of~1,000 crores or more; and a net profit of ~5 crores or more during any financial year.
What does the Bill require a company to do?
Companies required to form a CSR committee with at least one independent director. The CSR
spend of a company that meets the required threshold needs to be two per cent of the average net
profits of the preceding three financial years.
Can a company apply for a tax break if they spend on CSR?
It may not really be the case, as several foreign jurisdictions also have CSR, as well as other
laws,which could be affecting their prices. Cost of labour, for instance, is higher in many
countries, which affect their pricing.
What are the duties of a CSR committee?
32 Umakanth Varottil, Viability of Mandatory CSR, (Sept. 30, 2012),
http://www. indiacorplaw.blogspot.com/2010/08/viability-of-mandatory-csr.html.
Formulate and recommend a CSR Policy to the Board which indicate the activities to be
undertaken by the company; recommend the amount of expenditure to be incurred in relation to
the CSR policy; and monitor the progress of the CSR policy.
Where does a company spend the CSR money?
CSR activities under the Bill include: Eradicating extreme hunger and poverty; promotion of
education promoting gender equality and empowering women; reducing child mortality and
improving maternal health; combating HIV, AIDS, malaria, etc; ensuring environmental
sustainability imparting employment enhancing vocational skills; social business projects and
contribution to certain funds. The company should give preference to local areas while
formulating its CSR policy.
How is the CSR spend to be accounted for?
The draft CSR rules presently require a company to report their CSR spend in a form provided
and it is likely that such reporting requirements will be included in the final rules as well.
What are the consequences of not complying with the CSR aspects of the Bill?
The Bill only provides that sufficient reasons need to be provided for not making the requisite
CSR spend. While no specific penalties are contemplated in the Bill with respect to CSR,
Chapter XXIX of the Bill (Sections 450 and 451) provide for general penalties for contravention
and repeat offences.
OF
OPERATIONS
IN
GLOBAL MARKET
BY A
BUSINESS ENTITY
based Anders & Winst Company lists ten of the most common mistakes. Some of these common
mistakes are as follows:33
i.
Lack of vision: Instead of asking where are we now? think about asking where do we
ii.
want to be in 10 years?
Scale of change: Some of the biggest business and sustainability opportunities will not
be achieved by bolt-on approaches. Firms should remain open to radically new
iii.
iv.
CONCLUSION
In spite of the considerable track record of initiatives that are perceived as CSR, the task
of crafting new models that are capable of addressing controversial issues of implementation in
accordance to the positive legal system and societal variation, seems to be equally challenging
for the corporate sector. The suggestion for introduction of CSR in management education and
the need for CSR experts in corporate HR departments aimed at nurturing healthy relationship
between corporate agencies and communities need serious consideration in emerging context.
However, the role of industry associations in the process remains paramount.
In the years to come, issues such as corporate accountability, corporate ethics, and
disclosure of relevant corporate information shall become increasingly important centers of
attention. Besides, diversification and adopting synergistic policies, Corporations need to
develop new measures of performance, new standards of ethics and a new awareness of multiple
bottom lines instead of concentrating only on profits as they did in the past. They have to
increasingly focus on multiple bottom lines informational, social, environmental and ethical
which are interconnected and interdependent. Hence, corporations should pay great attention to
ethical issues while performing their role because, if ethics are missing, business and society as a
whole would not flourish.
With the recent spate of corporate scandals and the subsequent interest in corporate
governance, a plethora of corporate social responsibility and corporate governance norms and
standards have sprouted around the globe. The Sarbanes-Oxley legislation in USA, the Cadbury
Committee recommendations for European companies and OECD principles of corporate
governance are perhaps the best known among these. But developing countries have not fallen
behind either. Well over a hundred different codes and norms have been identified in recent
surveys and their number is steadily increasing. India has been no exception to the rule. Several
committees and groups have looked into this issue that undoubtedly deserves all the attention it
can get.
CSR is no longer the purview of just a handful of manager concerned with the social or
environmental impact of their firms operations and increasingly has become part of overall
business strategy. Widespread economic and political concerns are at the heart of this movement
and numbers of factors explains the growing interest in CSR. Some of these are:
i.
ii.
iii.
iv.
Development of norms and guidelines are an important first step in a serious effort to
improve corporate governance. The bigger challenge, however, lies in the proper implementation
of those rules at the ground level.
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