CORPORATE SOCIAL RESPONSIBILITY MODULE

Business Ethics and Corporate Governance

OBJECTIVES
Corporate social responsibility (CSR) is an integral part of corporate governance, which includes Promoting common welfare programs. Protecting stakeholders interests, Exhibiting social concern, Sponsoring social and charitable causes and Supplementing States efforts in community development programs

Outline of the topics to be covered

Introduction Definitions of Corporate Social Responsibility (CSR) Justification of CSR The Scope of Social Responsibility Social Responsibility and Indian Corporations

The Business of Business is Business.

Narrowly interpreted, Corporations have only one responsibility, the single-minded pursuit of profit. "Profit maximization by the maximization of efficiency is the most socially responsible way of conducting business. This implies making quick money, with an utter disregard for the responsibility of business towards society. This limited view of business proves to be counter productive in the long run.

The long range view of business,

Aiming at the long term gains rather than at quick returns, would take into account the important dimension of social responsibility. The ethical and social behavior of corporations leads to their good reputation which is essential for the generation of the ultimate Profit .

James Burke, the chairman of Johnson & Johnson

I have long harbored the belief that the most successful corporations in this country, the ones that have delivered outstanding results over a long period of time, were driven by a simple moral imperative, namely serving the public in the broadest possible sense better than their competitors.

To compete effectively in the global market place,

corporations must take a long, hard look at their values, practices and assumptions. They need to question their accepted modes of behavior, administer new values and set up new standards of conduct which will be openly held and shared within the corporation and proclaimed to the outside world.

Accountability to Society
Another reason why corporations should be conscious of their
social responsibility . In a democratic society any kind of enterprise exists for the sake of society. If private enterprise is justified and allowed to exist, it is because it is seen to contribute better to the common good than public enterprise. It produces better goods and functions more efficiently thanks to the encouragement given to individual initiatives. Private enterprise is not encouraged because individuals may accumulate wealth for their own exclusive and selfish benefit at the expense of the public.

Corporations have a debt to pay to society

Corporations, whether public or private, draw much from society. No corporation is an island by itself! It depends on society for a developed infrastructure such as roads, water supply, electricity and an educated work force. It also depends on society for the maintenance of law and order, for transport facilities and for its reaching out to its customers through the mass media. Finally, all the consumers of its finished products are drawn from society.

Social responsibility of business is understood in different ways:

JRD Tata outlined the ethos tradition of the Tatas in his key note address at the inauguration of the Tata Foundation for Business Ethics in these terms: "The Tata industrialist ethos is inherited from the great Jamsetji himself, who tried to combine high standards and quality production with sincere concern for ethical values such as fair and honest management, product quality, human relations in industry and industrial philanthropy."

(i)

Social responsibility as abiding by rules and regulations

In common practice, however, the concept of ethical responsibility is restricted to the observance of rules and regulations that govern business transactions. Such a concept sis widely accepted since it facilitates a smooth running of business. It demands conformity with the accepted norms and interpretations of the laws dealing with business activity.

(ii)

Social responsibility as philanthropy

Philanthropy has always been the reflection of a society because on it depended a division between givers and poor recipients. The wealthy have not only given because they have more; but because by alleviating distress they have secured their own position against those who might displace them.

Philanthropy by big business is generally exercised through, "Foundations". Such philanthropic activity not infrequently adds to the prestige of an organization, builds up a humanitarian image among the public, and more importantly, widens the organization's influence to fields which often are of vital importance to the business world.

Ford, Rockefeller and Carnegie have been key investors in the growth and development of higher education institutions, think tanks and research centers around the world. Indeed, The Ford Foundation has been described as the world's largest investor in new ideas. They are architects of international networks of scholars and agencies involved in the production and dissemination of knowledge. Through these institutions and networks they have been in a unique position to influence cultural and social policies on an international scale.

(iii) Social Responsibility as Creation of Wealth

Rev. John Mahoney, Dixon Professor of Business Ethics and Social Responsibility at London Business School tends to see in the very activity of a business organization something beneficial in itself for society and truly praiseworthy from an ethical and social point of view. He explains: "Developing the earth's resources to produce goods and services to satisfy the needs and aspirations of the increasing millions of its inhabitants not only adds value in economic terms. It also enhances the value and quality of human living, by expanding human freedom and culture, and by providing a social environment in which human dignity can develop and prosper. Within this line of reflection the business of creating wealth in and for society is then seen to be a positive and constructive occupation for men and women.

(iv) ENSURING ECOLOGICAL BALANCE

Most corporates while producing goods, have allowed the environment to be polluted, the atmosphere and water bodies poisoned. They have, therefore, a moral responsibility to restore the ecological balance. Many corporates, are already doing this : Tata Steel ITC Sakthi Masala Pvt. Ltd. Srinivasan Services Trust organized by TVS

(v) HUMAN ELEMENT FOCUS

Improve quality of work-life, reduce hazards, improve equality in employment opportunities and wages. Settle disputes in industry settled within legal framework and with minimum ecological disruption. Assist employees to new arrangements while relocating plants. Provide job and retirement security of a reasonable nature.

(vi) IMPROVING PRODUCTIVITY

Employees to be made creative and their treatment to be humane. Working costs to be reduced. Induction of new technology while alert to negative impacts. Improving productivity is to enhance wealth and to increase standards of living of people. This is what development stands for.

(vii) Protecting and promoting stakeholders Interests

Some consider social responsibility in terms of services rendered to claimants or stakeholders, who could be both insiders and outsiders. The insiders are employees and shareholders while outsiders include consumers, suppliers, creditors, competitors, government and the general public. Consumers expect quality goods and services at fair prices. Workers expect fair wages without being exploited. Shareholders expect reasonable dividends and fair return on investments. Managers expect challenging jobs with attractive salary. Government and the general public expect them to add to the wealth and welfare of the country without polluting the environment. In short, business organizations have to consider themselves the custodians of public welfare , by rendering such services to the various sections of society.

(viii) Social Concern and Promotion of Welfare programmes.

Common

Another way in which the scope of social responsibility could be viewed is in terms of social concern and promotion of common welfare programmes for the benefit of the poor and the indigent public. Companies have highlighted social issues and brought them to the notice of the public. There have been occasions, though limited in number, where corporates have joined hands to sponsor advertisements promoting public causes or issues of social concern such as drug addiction and smoking. Business organizations could also consider social responsibility in terms of the relatedness to their own activities. Producers of dental or eye care products organize mass clinics in villages and semi-urban areas where surgeons attend to the medical needs of the poor and indigent. Such attempts greatly relieve the burden on the finance-strapped state in a developing country like India where people, due to poverty and for historical reasons, depend solely on the government to render every type of service.

Take the instance of how industrialists came to the rescue of the quake-devastated people in Gujarat. When Gujarat was shattered by the fury of the worst earthquake in the past 50 years, a free phone facility set up by Care India, Bharti-BT and CISCO provided the most immediate emotional relief for people anxious for news of their families as well as access to medical assistance and advice. Industrialists through the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) have committed large funds that have enabled several NGOs adopt villages that were severely hit and provided several others a great deal of relief measures.

Likewise, when disaster struck New York and Washington in the aftermath of terrorist attacks on 11th September, 2001, American MNCs played their part as good corporate citizens. While the US food giant McDonalds offered food for the rescue workers at different locations across the country in addition to a donation of $2 million, General Motors, General Electric, Ford Motor and Unocal also did their best to alleviate the sufferings of those affected by the tremendous human tragedy.

(ix) Good Corporate Governance itself is a Social Responsibility

Some social thinkers even view in the Indian context that good corporate governance itself is an ingredient of corporate social responsibility. For too long, Indian corporates have insulated themselves from wholesome developments evolving elsewhere. A closed economy, a sheltered market, limited need and access to global business/trade, lack of competitive spirit, a regulatory framework that enjoined mere observance of rules and regulations rather than realization of broader corporate objectives, marked the contours of corporate governance for well over 40 years. Corporate democracy, professional management and maximization of long-term share-holder value are attributes of good corporate governance. Corporate governance has acquired a new urgency in India due to the changing profile of corporate ownership, increasing flow of foreign investment, preferential allotment of shares to promoters, gradual unwinding of the control mechanism by the state that had hitherto provided protective cover to even poorly managed corporates and the increasing role of mutual funds since 1991.

(x)

Corporates in the Vanguard of Rendering Social Service

Some industrial houses have been promoting activities that supplement the efforts of public authorities in certain areas that are important for all-round human development. The Tatas have contributed to the growth of fundamental and social sciences by building and nurturing institutions of higher learning in these areas. The Birlas have been building and maintaining beautiful and monumental places of worship in several cities in addition to popularizing science through planetariums. Some corporates have been sponsoring sports events and helping sportspersons attain international standards. TISCO has made several contributions in such diverse areas as community, especially tribal area development, rural industrialization. SAIL has done its mite in agriculture, health care, drinking water supply, dairy and poultry farming. ITC Ltd. is socially active in agriculture, sports and pollution control, while Brooke Bond has interests in animal welfare, providing veterinary services and improvements in animal breeding. Down south, several corporates have done yeoman service in the field of education and related areas such as sports, building of institutions that train personnel as well as render social service.

The Loyola Institute of Business Administration (LIBA) that has instituted The Mother Teresa Award for Corporate Citizen is a role model as a corporate that has rendered social services far beyond the call of its duty and responsibility for others to emulate. It has identified Titan Industries, Tamil Nadu Newsprints and Papers Ltd. and Orchid Chemicals for the Award so far in recognition of several socio-economic projects they have been running for the welfare of the disadvantaged sections of society.

Some other examples are : Bajaj Auto, Balmer Lawrie, Bank of America, Business Standard, Coca Cola India, Dr. Reddy s Laboratories, Forbes Marshall, Nicholas Piramal, Excel Industries, Hindustan Machine Tools, Amar Jyothi Industries, Hindustan Lever and International Business Machines. While some of them work for the welfare of the poor, handicapped and the marginalized sections of society, others reach out to those who are in dire need of their services.

(xi) Sponsoring Social and Charitable Causes

Some entrepreneurs had not only built industrial empires, but also contributed individually to certain social and charitable causes. J.R.D. Tata s contribution to the growth of the Indian airlines industry, population-related research, education of the underprivileged has been exemplary. The late D.C. Kothari, with his wide-ranging interests, had been the moving spirit behind several charitable trusts and institutions of higher learning, apart from being the prime-mover of the Standards Movement in the country and earned the rare distinction of becoming the President of International Organisation for Standardization (ISO) from a Third World country.

(xii) Corporates should Supplement State Efforts

There are several areas where corporates can supplement effectively the ever growing welfare activities the State is expected to undertake, but does not have the resources to carry on. Corporates can run schools, either in their own areas or in any other adopted village of their choice, providing good quality primary education. If each of the more than two lakh corporates the country has adopts three villages, we will be able to cover the entire country and provide better primary and elementary education to our children. It will go a long way in promoting literacy and the development of the country. In this context, it should be borne in mind that the Asian tigers like Thailand, Phillipines, Indonesia, Malaysia and Singapore have achieved much higher growth rates before the currency crises overshadowed their achievements because of universalisation of primary education.

Corporate resources can also be allocated to run family planning clinics, medium sized hospitals in villages, literacy campaigns and adult education programmess, campaigns against smoking, pollution, AIDS, casteism and communalism and to provide housing, sports and recreational amenities for slum-dwellers etc. Corporates can also contribute effectively towards urban management as has been done in places like Jamshedpur.

Another area where their concern for social welfare can be shown is in the maintenance of the Public Health System. Corporates cannot be mute spectators to the deterioration in public health. Besides the moral and social aspects involved, they have to appreciate the fact that all their activities, business or otherwise, will come to a stand-still, if any disease of epidemic proportions breaks out. In 1999, The Hindu reported a unique Government and industry participation to improve public health in Tamil Nadu. In the first phase of the programmes, 57 Primary Health Centers (PHCs) and 6 Government Hospitals were adopted by 19 industrial groups based in the State. According to official sources, another 40 PHCs would be adopted in the second phase with more industries joining in due course. The then Chief Minister, while inaugurating the programmes, commended the whole-hearted and voluntary participation of industrial houses.

 Social responsibility has to do with much more than producing goods and services. Social responsibility has to do with equitable distribution of wealth. It has to do with a concern for the needs of the generations to come; It has to do with such things as "sustainable development" and "safeguard of the environment .

SOCIAL RESPONSIBILITIES OF BUSINESS

Towards Consumers & Community
Goods must meet the requirements of different classes, tastes and purchasing power. Goods must be reasonably priced, must be of dependable quality and of sufficient variety. Provision of after-sales service advice, guidance and maintenance. afterA fair, widespread distribution of goods and services among all sections of consumers and community. Provision of free competition and prevention of concentration of goods in the hands of a limited number of producers or purchasers or groups.

Towards Consumers & Community

Present a good image in the minds of the public for honesty and integrity of character. Advertising policy should be based on moral/ethical principles. It should not mislead by false, misleading and exaggerated advertisements. Support to educational, charitable and other programmess for the benefit of the community.

Towards Consumers & Community

Social accountability to consumers and public regarding the business conditions. Avoidance of social and moral dangers of high spots and social tensions . Prevention of slum development, improvement of housing conditions, elimination of crimes in industrial areas, and meeting the heavy costs of pollution and waste disposal. Business should lead a life of justice and have a progressive outlook. Other types of training to the existing employees. To behave like a law-abiding citizen to the State. law-

Towards Consumers & Community

To pay its dues and taxes to the state fully and honestly. Impartiality towards political affairs, i.e., to abstain from direct political involvement; and not to support political parties. To follow honest trade practices, and avoid activities leading to restraint of trade. To try not to contact public servants for selfish ends. To sell commodities and services without adulteration.

SOCIAL RESPONSIBILITIES OF BUSINESS

Towards Employees

Promote a spirit of cooperative Endeavour between employees & employers through participation in decisiondecision-making and in improving production and administration. To pay fair and reasonable wages to labour and staff members. To develop and adopt a progressive labour policy based on recognition of genuine trade union right; settlement of disputes and conciliation; to create a sense of belonging, and to improve human qualities of labour by education, training, better living conditions, housing, leisure and amenities.

Towards Employees To provide reasonable and just work conditions. To recognize the labourer as a human being and respect his dignity, and preserve his individual liberty. To provide facilities for joint consultation and collective bargaining. To help development of proper leadership from among the employees. To guarantee religious, social and political freedom to workers.

SOCIAL RESPONSIBILITIES OF BUSINESS

Owners & Inter-Business InterTo provide a fair return or dividend on the capital invested. To give fair and impartial treatment to all. To develop a healthy co-operative business relationship cobetween different business. To control such unfair practices as price-rigging, priceundercutting, patronage, unfair canvassing and unethical advertisements. To control monopoly.

OTHER RESPONSIBILITIES OF BUSINESS

1. 2. 3. 4. 5. 6.

Achieve ecological balance Consider the human element Improve Productivity Be aware of global pressures and needs Balance ethics & economics Design social partnerships

BALANCING ETHICS AND ECONOMICS

Iron law of responsibility to society responsibility to stake holders and power to be used with responsibility. All decisions should be based on the cash benefit human rights social-justice triangle. Not only interest of the business but broad public purpose, goals, values etc. to be aimed at through economic, political and social points of the corporate office.

BALANCING ETHICS AND ECONOMICS (contd.)

Stockholder and employees are owners and suppliers of capital their interest to be protected. Enrich community life by events of philanthropy, charity develop and not donate. Technology should not destroy culture, ethical values.

DESIGNING SOCIAL PARTNERSHIP

Decision making to be decentralized involving all interested parties and affected groups. Co-operative problem solving dialogue not confrontation or court procedures. Act jointly with government and other community groups for promoting social responsibility

Practical Steps to Corporate Social Responsibility

The International Chamber of Commerce recommends these nine steps to attain Corporate Social Responsibility: 1. Confirm CEO/Board commitment that priority to responsible business conduct comes first 2. State company purpose and agree on company values 3. Identify key stakeholders 4. Define business principles and policies

5.
6. 7. 8. 9.

Establish implementation procedures and management systems Benchmark against selected external codes and standards Set up internal monitoring Use language that everyone can understand Set pragmatic and realistic objectives. Corporations exist because they, in a sustainable fashion, enable people to constructively practice their craft and create jobs, economic value, and wealth for the society and the enterprise.