Corporate social responsibility (CSR)

 Corporate social responsibility (CSR) is a self-regulating business model

that helps a company be socially accountable — to itself, its stakeholders,
and the public. 

 By practicing corporate social responsibility, also called corporate

citizenship, companies can be conscious of the kind of impact they are
having on all aspects of society including economic, social, and
environmental.

 To engage in CSR means that, in the normal course of business, a

company is operating in ways that enhance society and the environment,
instead of contributing negatively to them

 The aim of a business is not merely profit maximisation but it is the

social responsibility of business to provide benefits to the society also.
 Corporate social responsibility (CSR) is how companies manage their
business processes to produce an overall positive impact on society.

 It covers sustainability, social impact and ethics, and done correctly

should be about core business - how companies make their money -
not just add-on extras such as philanthropy.

 It involves an analysis of social costs and social benefits.

CSR in India

 India is the first country in the world to make corporate social responsibility
(CSR) mandatory, following an amendment to the  Companies Act, 2013 in
April 2014.

 Businesses can invest their profits in areas such as education, poverty,

gender equality, and hunger as part of any CSR compliance.

 The amendment notified in the Companies Act, 2013 requires companies with

a net worth of INR 500 crore (US $70 million) or more, or an annual turnover
of INR 1000 crore (US $140 million) or more, or net profit of INR 5 crore (US
$699,125) or more, to spend 2 percent of their average net profits of three
years on CSR.
  Prior to that, the CSR clause was voluntary for companies, though it was
mandatory to disclose their CSR spending to shareholders. 

CSR amendments under the Companies (Amendment) Act,

2019
 Until now, if a company was unable to fully spend its CSR funds in a given
year, it could carry the amount forward and spend it in the next fiscal, in
addition to the money allotted for that year.

 The CSR amendments introduced under the Act now require companies to
deposit the unspent CSR funds into a fund prescribed under  Schedule VII of
the Act within the end of the fiscal year. This amount must be utilized within
three years from the date of transfer, failing which the fund must be deposited
in to one of the specified funds.

 The new law prescribes for a monetary penalty as well as imprisonment in

case of non-compliance. The penalty ranges from INR 50,000 (US $700)  to
INR 25 lakh (US $35,000) whereas the defaulting officer of the company may
be liable to imprisonment for up to three years, or a fine up to INR 5 lakh (US
$7,023), or both.

The government, however, is reviewing these rules after the industry objected to the
strict provisions,  especially with respect to the jail terms for CSR violations, and is
yet to operationalize them.

The methodology of CSR

CSR is the procedure for assessing an organization’s impact on society and
evaluating their responsibilities. It begins with an assessment of the following
aspects of each business:

 Customers;
 Suppliers;

 Environment;

 Communities; and,
  Employees.

 CSR should also be sustainable – involving activities that an

organization can uphold without negatively affecting their business
goals.

 Organizations in India have been quite sensible in taking up CSR initiatives

and integrating them into their business processes.

 It has become progressively projected in the Indian corporate setting because

organizations have recognized that besides growing their businesses, it is
also important to shape responsible and supportable relationships with the
community at large.

 Companies now have specific departments and teams that develop specific
policies, strategies, and goals for their CSR programs and set separate
budgets to support them.

CSR trends in India

 Since the applicability of mandatory CSR provision in 2014, CSR spending by
corporate India has increased significantly.

 In 2018, companies spent 47 percent higher as compared to the amount in

2014-15, contributing INR 7,536 crores (US $1 billion) to CSR initiatives,
according to a survey.

 Listed companies in India spent INR 10,000 crore (US$1.4 billion) in various
programs ranging from educational programs, skill development, social
welfare, healthcare, and environment conservation, while the Prime Minister’s
Relief Fund saw an increase of 139 percent in CSR contribution over last one
year.  

 The education sector received the maximum funding (38 percent of the total)
followed by hunger, poverty, and healthcare (25 percent), environmental
sustainability (12 percent), rural development (11 percent). Programs such
as technology incubators, sports, armed forces, reducing inequalities saw
negligible spends.
  Taking into account the recent amendments to CSR provisions, industry
research estimates CSR compliance to improve and range between 97 to 98
percent by FY 2019-20.

Examples of CSR in India

Tata Group

The Tata Group conglomerate in India carries out various CSR projects, most of
which are community improvement and poverty alleviation programs. Through self-
help groups, it has engaged in women empowerment activities, income generation,
rural community development, and other social welfare programs. In the field of
education, the Tata Group provides scholarships and endowments for numerous
institutions.

The group also engages in healthcare projects, such as the facilitation of child
education, immunization, and creation of awareness of AIDS. Other areas include
economic empowerment through agriculture programs, environment protection,
providing sports scholarships, and infrastructure development, such as hospitals,
research centers, educational institutions, sports academy, and cultural centers.

Ultratech Cement

Ultratech Cement, India’s biggest cement company is involved in social work across
407 villages in the country aiming to create sustainability and self-reliance. Its CSR
activities focus on healthcare and family welfare programs, education, infrastructure,
environment, social welfare, and sustainable livelihood.

The company has organized medical camps, immunization programs, sanitization

programs, school enrollment, plantation drives, water conservation programs,
industrial training, and organic farming programs.

Mahindra & Mahindra

Indian automobile manufacturer Mahindra & Mahindra (M&M) established the K. C.

Mahindra Education Trust in 1954, followed by Mahindra Foundation in 1969 with the
purpose of promoting education. The company primarily focuses on education
programs to assist economically and socially disadvantaged communities.

Its CSR programs invest in scholarships and grants, livelihood training, healthcare
for remote areas, water conservation, and disaster relief programs. M&M runs
programs such as Nanhi Kali focusing on education for girls, Mahindra Pride Schools
for industrial training, and Lifeline Express for healthcare services in remote areas.

ITC Group

ITC Group, a conglomerate with business interests across hotels, FMCG,

agriculture, IT, and packaging sectors has been focusing on creating sustainable
livelihood and environment protection programs. The company has been able to
generate sustainable livelihood opportunities for six million people through its CSR
activities.

Their e-Choupal program, which aims to connect rural farmers through the internet
for procuring agriculture products, covers 40,000 villages and over four million
farmers. It’s social and farm forestry program assists farmers in converting
wasteland to pulpwood plantations. Social empowerment programs through micro-
enterprises or loans have created sustainable livelihoods for over 40,000 rural
women.

*********************************************************************************************************
*********************************************************************************************************
Stakeholder Theory

 Stakeholder theory, which has been described by Edward Freeman

and others, is the mirror image of corporate social responsibility.
 Instead of starting with a business and looking out into the world
to see what ethical obligations are there, stakeholder theory starts
in the world.

 It lists and describes those individuals and groups who will be

affected by (or affect) the company’s actions and asks, “What are
their legitimate claims on the business?” “What rights do they have
with respect to the company’s actions?” and “What kind of
responsibilities and obligations can they justifiably impose on a
particular business?”

 In a single sentence, stakeholder theory affirms

that those whose lives are touched by a corporation
hold a right and obligation to participate in directing it.
Example

 When a factory produces industrial waste, a CSR perspective

attaches a responsibility directly to factory owners to dispose of the
waste safely.
 In this case, a stakeholder theorist begins with those living in the
surrounding community who may find their environment
poisoned, and begins to talk about business ethics by insisting that
they have a right to clean air and water.

 Therefore, they’re stakeholders in the company and their voices

must contribute to corporate decisions.

 It’s true that they may own no stock, but they have a moral claim to
participate in the decision-making process.

 At least in theoretical form, those affected by a company’s actions

actually become something like shareholders and owners.

 Because they’re touched by a company’s actions, they have a right

to participate in managing it.

List of the stakeholders surrounding the companies.

The answer depends on the particular business, but the list can be quite
extensive. If the enterprise produces chemicals for industrial use and is
located in a small town, the stakeholders include:

 Company owners, whether a private individual or shareholders

 Company workers

 Customers and potential customers of the company

 Suppliers and potential suppliers to the company

 Everyone living in the town who may be affected by contamination

from workplace operations
  Creditors whose money or loaned goods are mixed into the
company’s actions

 Government entities involved in regulation and taxation

 Local businesses that cater to company employees (restaurants

where workers have lunch, grocery stores where employee families
shop, and similar)

 Other companies in the same line of work competing for market

share

 Other companies that may find themselves subjected to new and

potentially burdensome regulations because of contamination at
that one plant

The first five on the list—shareholders, workers, customers, suppliers,

and community—may be cited as the five cardinal stakeholders.

 In an abstract sense, it’s probably true that everyone in the world

counts as a stakeholder of any serious factory insofar as we all
breathe the same air and because the global economy is so tightly
linked that decisions taken in a boardroom in a small town on the
East Coast can end up costing someone in India her job and the
effects keep rippling out from there.
 Realistically, the stakeholders surrounding a business should be
defined as those tangibly affected by the company’s action. There
ought to be an unbroken line that you can follow from a corporate
decision to an individual’s life.

 Once a discrete set of stakeholders surrounding an enterprise has

been located, stakeholder ethics may begin.
  The purpose of the firm, underneath this theory, is to maximize
profit on a collective bottom line, with profit defined not as money
but as human welfare.

 The collective bottom line is the summed effect of a company’s

actions on all stakeholders.

 Company managers, that means, are primarily charged not with

representing the interests of shareholders (the owners of the
company) but with the more social task of coordinating the
interests of all stakeholders, balancing them in the case of conflict
and maximizing the sum of benefits over the medium and long
term.

 Corporate directors, in other words, spend part of the day just as

directors always have: explaining to board members and
shareholders how it is that the current plans will boost profits.

 They spend other parts of the day, however, talking with other
stakeholders about their interests: they ask for input from local
environmentalists about how pollution could be limited, they seek
advice from consumers about how product safety could be
improved and so on.

 At every turn, stakeholders are treated (to some extent) like

shareholders, as people whose interests need to be served and
whose voices carry real force.

Social Responsibility towards Different Interest Groups

After identifying the concept and importance of social responsibility of business
the various responsibilities that a business has towards different groups with
whom it interacts are discussed below. The business generally interacts with
owners, investors, employees, suppliers, customers, competitors, government
and society. They are called as interest groups because by each and every
activity of business, the interest of these groups is affected directly or indirectly.
 

Responsibility of Business Towards Different Interest Groups

i. Business

ii. Investors

iii. Employees

iv. Government

v.   Competitors

vi. Society

vii.Customers

viii. Suppliers

1. Responsibility towards Owners

Owners are the persons who own the business. They contribute capital and bear
the business risks. The primary responsibilities of business towards its owners
are to
           Run the business efficiently.

           Proper utilisation of capital and other resources.

           Growth and appreciation of capital.

           Regular and fair return on capital invested.

2. Responsibility towards Investors

Investors are those who provide finance by way of investment in debentures,

bonds, deposits etc. Banks, financial institutions, and investing public are all
included in this category. The responsibilities of business towards its investors
are :

           Ensuring safety of their investment,

           Regular payment of interest,

           Timely repayment of principal amount.

3. Responsibility towards Employees

Business needs employees or workers to work for it. These employees put their
best effort for the benefit of the business. So it is the prime responsibility of
every business to take care of the interest of their employees. If the employees
are satisfied and efficient, then the only business can be successful. The
responsibilities of business towards its employees include:

           Timely and regular payment of wages and salaries.

           Proper working conditions and welfare amenities.

           Opportunity for better career prospects.

           Job security as well as social security like facilities of provident fund,

group insurance, pension, retirement benefits, etc.

           Better living conditions like housing, transport, canteen, crèches etc.

           Timely training and development.

4. Responsibility towards Suppliers

Suppliers are businessmen  who  supply raw materials and other items required
by manufacturersandtraders.Certainsuppliers, called distributors, supply
finished products to the consumers. The responsibilities of business towards
these suppliers are:

           Giving regular orders for purchase of goods.

           Dealing on fair terms and conditions.

           Availing reasonable credit period.

           Timely payment of dues.

5. Responsibility towards Customers

No business can survive without the support of customers. As a part of the

responsibility of business towards them the business should provide the
following facilities:

           Products and services must be able to take care of the needs of the
customers.

           Products and services must be qualitative

           There must be regularity in supply of goods and services

6. Responsibility towards community and society.

1. To work for improvement of local environment where the plant is

located
2. To provide for welfare of local community through opening dispensaries
etc
3. To ensure safety of local surroundings
4. To take steps against air, water and noise pollution
5. To ensure efficient use of national resources
6. To generate employment opportunities
7. To provide high quality products to the society
8. To improve quality of life of the workers
9. To promote national integration