Corporate Social Responsibility: A Study on Indian Private MNCs

Chapter 1

Introduction

Preview: This chapter presents the brief of genesis and evolution of Corporate Social
Responsibility. It also explores Government’s intervention in implementing Corporate Social
Responsibility. Further it presents the business case of Corporate Social Responsibility. Certain
issues and challenges pertaining to CSR are also discussed.

1.1 Closure look at Corporate Social Responsibility

General understanding of Corporate Social Responsibility, at least in India is only philanthropy.
Even the highly educated people, working with large corporate houses are unaware about
Corporate Social Responsibility beyond philanthropy (Agarwal, 2008, Patil et al, 2009; Gautham
et al, 2010; Shrivastava et al, 2012). Over the decades, the concept of corporate social
responsibility (here onwards CSR) has continued to grow in importance and significance. It has
been the subject of considerable debate, commentary, theory building and research. In spite of
the ongoing deliberations as to what it means and what it embraces, it has developed and evolved
in both academic as well as practitioner communities worldwide. There has been an explosion of
interest in CSR in the European Union and around the world (Caroll and Shabana, 2010).

As we delve more in the concept & practices of CSR, we realize that this doctrine matches the
old saying, “Old wine in new bottles”. Further we observed that CSR has become more relevant
business practice after the industrial revolution, which is further enhanced post globalization.
Working towards better working conditions for employees, spending on community
development and welfare, and donating to charity were the obvious practices followed by
industrialists in developed nations. Even in a country like India, companies, such as Tata, Birla,
Hindustan Unilever, etc., were known for its responsible business practices, including
philanthropic activities for community involvement. We can argue that CSR initiatives &
practices are not as new as we loudly speak about, but these initiatives certainly have become
more coherent, comprehensive and professional (Crane et al, 2009, Gupta, 2012, Gosh et al,
2010, Nath, 2013).

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Corporate Social Responsibility: A Study on Indian Private MNCs

The common man all over the world believes that the rich have a responsibility towards the poor.
This belief is the outcome of age old cultural practices and religious teachings. Corporate
responsibility is viewed as a firm’s altruistic giving away of the shareholders’ money, an
episodic discretionary response, an insurance policy, a heuristic and a portfolio of selective
voluntary activities that reflect the firm’s strategic choices (Griffin et al, 2014). “CR is really
about ensuring that the company can grow on a sustainable basis, while ensuring fairness to all
stakeholders”, says N R Murthy, the former Chairman of an Indian IT firm, Infosys (Nandi,
2012).

Establishing business in twenty first century on the basis of financial and technical strength is not
a blanket license to mint money, and it is argued that organizations need to be sensitive to the
expectations both of society and state. Within the growing globalized world, business has
become a huge challenge although it provides extra ordinary opportunities. Businesses have to
reach not only the governments the stakeholders, but also look into the challenges of NGOs’,
demand, consumers’ requirement, growing awareness of legal requirements and environment
protection (Urip, 2010). The importance of corporate governance and CSR cannot be
undermined in facing these challenges.CSR is an antithesis of the famous dictum, “the business
of business is business”, pronounced by Milton Friedman, (Agrawal, 2008) which clearly points
out that the social responsibility of business is to increase its profit. But, simultaneously the ideas
arouse around the world that companies have many other responsibilities apart from making
profits.

The company will always be a profit generating entity. Blending social responsible initiative will
further force the optimization to grow in a more utilitarian approach. However, all the involved
parties will have the knowledge that in the course of business, someone or some cause will
benefit from their social efforts (Cooper & Wagman, 2009).

One school of thought about CSR argues that corporations increase long term profits by
executing CSR activities while the other school argues that the dictum of CSR is against the
objective of business that is, making profits. The relation between corporate social responsibility
(CSR) and firm performance has evoked much interest among researchers. While some studies
reveal a positive relation between the two constructs (Graves & Waddock, 1994; Griffin and
Mahon, 1997; McGuire et al, 1988; Waddock and Graves, 1997), some other indicate a negative

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Corporate Social Responsibility: A Study on Indian Private MNCs

relation (Bromiley and Marcus, 1989; Wright & Ferris, 1997), and still others (Aupperle et al,
1985; Teoh et al, 1999) establish no relation between the two constructs. Though a positive
relation between CSR and firm performance has prevailed in many studies (Margolis and Walsh,
2003; Orlitzky et al, 2003), results still remain inconclusive and creates ground for future
investigation. Carroll’s has provided us a model of CSR Pyramid in the context of a developing
country. In this pyramid Carroll has assigned relative emphasis of various responsibilities.
According to him, in developing countries, economic responsibilities still get most emphasis.
However, philanthropy is given second highest priority, followed by legal and ethical
responsibilities (Saha, 2013). The pyramid is shown in the figure 1.1 below:

Figure 1.1: CSR pyramid For Developing Countries

Adopt voluntary codes of

governance & ethics

Ensures good relations with

government officials

Set aside funds for Corporate

Social/ community Projects

Provide investments, create

jobs & pay taxes

Source: Saha, 2013, The Management Accountant, The Journal for CMAs, 48: 6: 652

Caroll’s CSR pyramid is a milestone in CSR study. One more such relevant study that speaks
about all the key aspects of CSR is conducted by Philip Kotler and Nancy Lee, Researchers have
come with various models of CSR activities. The six social initiatives explored by Kotler and
Lee are:

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Corporate Social Responsibility: A Study on Indian Private MNCs

 Cause promotions
 Cause related marketing
 Corporate social marketing
 Corporate philanthropy
 Community volunteering
 Socially responsible business practices

According to William Clay Ford Jr., Chairman of the board and CEO of Ford Motor Company,
“There is difference between a good company and a great company. A good company offers
excellent products and services. A great company also offers excellent product and services but
also strives to make the world a better place”.

CSR is not only a philosophy but also a business need. Why is CSR becoming a business need?
Is philanthropy key driver to CSR? CSR is the best possible combination of philanthropy and
ethics. If the organizations spend its resources to charity, but fail to adopt basic business ethics
principle, they will fail to portray themselves as a socially responsible organization. Indisputably,
charity is right thing to do, but it also should be focused and embedded in companies core
business (Weeden, 1998). Perhaps in 19th and 20th century the corporate giants and businessmen
all over the world thought that CSR is philanthropy, but with the emerging human rights
activism, CSR has become a business need.

The protest of Seatle in 1999 and Cancun in 2003 (USA), are the outcome of resentment towards
neglecting the social-economic and environmental aspects, that come along with globalization.
To overcome this problem the only the solution was self regulation. CSR is one such self
regulation that balances between interests of business without neglecting society at large (Rowe,
2005).

The late 1960s and 1970s, in the developing world witnessed increased efforts to regulate foreign
investor activities which became an international issue causing numerous attempts by the UN to
establish code of conduct for the activity of conglomerate companies. This was aimed to support
developing-country governments in regulating these companies nationally. Ensuing from a
realization of the intimidation posed to the independence of small, poor states a balance between
the growing power of conglomerates and the vulnerable nation-state was sought. The

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Corporate Social Responsibility: A Study on Indian Private MNCs

establishment of guidelines and code of conduct was thus prompted by the International
Chamber of Commerce in 1972 (Jenkins, 2005). The involvement of the United Nations in the
course of time further developed the notion of relating the social and business sides of CSR. This
was introduced in 1999 by the UN Secretary General (Kofi Anan) in order to reconcile efforts
towards effective implementation of statutes related to Social Performance Map 2010 (Jenkins,
2005).
Only Statutes and Government intervention cannot drive CSR. Implementation of CSR needs
self regulation philosophy to be imbibed in business practices. If not, statutory intervention, then
what can be drivers of CSR?
In the twenty first century, the drivers of CSR are well explained by various research
organizations. KPMG conducted survey of key drivers of CSR in G250 companies in 2008. As
per the survey, key drivers of CSR reporting of G250 companies’ are:

 Reputation and brand: 67%

 Ethical considerations: 59%
 Employee motivation: 44%
 Innovation and learning: 44%
 Risk management or risk reduction: 35%
 Access to capital of increased shareholder value: 32%
 Economic considerations: 32%
 Strengthened supplier relationship: 22%
 Market position improvement: 22%
 Improved relationship with Government authorities: 18%
 Cost saving: 10%

It is quite interesting to note the key drivers of CSR. The biggest spenders on CSR are the
biggest and most successful global companies, and they are still under fire all the time. CSR
seems to make little, if any, difference. So why do they do it? The two important reasons being;
1-avoiding the possible legal battles in future and 2-charity is an age old practice. Companies
have been doing it since well before the term was invented; since the early days of corporate
philanthropy in the 19 th century. (Griffin, 2008) The KPMG i International Survey of Corporate

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Corporate Social Responsibility: A Study on Indian Private MNCs

Responsibility Reporting, 2005, has identified the following drivers of corporate responsibility in
the order of their importance:

a) Economic considerations
b) Ethical consideration
c) Innovation and learning
d) Employee motivation
e) Risk management or risk reduction
f) Access to capital or increased shareholder value
g) Reputation or brand
h) Improvement in market position (market share)
i) Strengthened supplier relationship
j) Cost saving and
k) Improved relationships with governmental authorities

The added value drivers of corporate sustainability, the alternative term used for CSR by many
corporations are mentioned in figure 1.2.

Figure 1.2: Corporate sustainability: The added value drivers

Reduced Enhanced Alliance with Better Stake-holder

regulatory reputation, stronger business partners relations
intervention brand

New business Shareholders Value Attractive employer

opportunities

Access to and lower Minimize risks Cost Customer satisfaction:

cost of capital operations and M&A savings loyalty and sales

Source: Agarwal, 2008, Corporate Social Responsibility in India. Response business books from SAGE. P: 34

1.2 Genesis and Evolution

CSR is a voluntary action taken by an organization towards betterment of society and
environmental sustainability. CSR initiatives no doubt become a social investment that help the

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Corporate Social Responsibility: A Study on Indian Private MNCs

organization in building sustainable business. The last decade has seen growing mumber of
companies investing in CSR strategies because of the unseen pressure from all the stakeholders
(customers, government, shareholders and public at large).

The publication by Howard R. Bowen (1953) of his landmark book “Social Responsibilities of
Businessmen” is argued to mark the beginnings of the modern period of literature on this subject.
Bowen set forth an initial definition of the social responsibilities of businessmen: “It refers to the
obligations of businessmen to pursue those policies, to make those decisions, or to follow those
lines of action which are desirable in terms of the objectives and values of our society”. Bowen
quoted Fortune magazine’s survey, wherein the magazine’s editors thought that CSR, or the
“social consciousness,” of managers meant that businessmen were responsible for the
consequences of their actions in a sphere somewhat wider than that covered by their profit-and-
loss statements. It is fascinating to note that 93.5% of the businessmen responding agreed with
the statement.

If there was scant evidence of CSR definitions in the literature in the 1950s and before, the
decade of the 1960s marked a significant growth in attempts to formalize or, more accurately,
state what CSR means. One of the first and most prominent writers in that period to define CSR
was Keith Davis, who late wrote extensively about the topic in his business and society textbook,
later revisions and articles. Davis set forth his definition of social responsibility in an article by
arguing that it refers to “businessmen’s decisions and actions taken for reasons at least partially
beyond the firm’s direct economic or technical interest” (Caroll, 1999).

During the 2 decades, from 1970 to 1980, the discussion of the concept of CSR grew
academically. The Earth Summit in Rio, 1992 was a key moment that helped evolving the
concept of CSR. Corporate involvement in CSR succeeded in impeding the Summit’s guidelines
to find the solutions for avoidable and irreversible destruction of natural resources and world at
large. CSR is conscience of organization, which is popularly known as self imposed regulations
imbibed in overall business.CSR practices guide the organizations towards following the social,
economic, legal and ethical standards in the letter and spirit guided by international norms.
Certainly CSR would help enhancing community growth and development, bring public interest
into the purview of business help developing confidence in shareholders and leave a long lasting

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Corporate Social Responsibility: A Study on Indian Private MNCs

impact on consumers. Including CSR into the core business of the organization will
automatically make the organization the messiah of triple bottom line: people, planet, profit.

The World Business Council gave a very macro approach to CSR. It included almost all the
nuances of corporate ethics, employee welfare and community development.

According to the World Business Council for Sustainable Development, CSR includes
commitment and activities pertaining t:-

 Corporate governance and ethics

 Health and safety
 Environmental stewardship
 Human right (including core labor rights)
 Human resource management
 Community involvement, development and investment.
 Involvement of and respect for aboriginal people
 Corporate philanthropy and employee volunteering
 Customer satisfaction and adherence to principles of fair competitions
 Anti bribery and anti corruption measures
 Accountability, transparency and performance report

The world business council for sustainable development included most of the human resource
management practices into the concept of CSR. It is observed that anti-bribery and anti-
corruption measures were also considered as CSR practices. It can be concluded that World
Business Council gave a broader meaning to CSR and CSR also meant ethical governance.
Evolution of CSR is well encapsulated in the study conducted by Kashyap et al, 2011.

The details of this study are given in Table 1.1. Kashyap et al, 2011 analyzed the evolution of
CSR concept with regard to three questions.
1. What is Corporate Social Responsibility?
2. Why should firms pursue Social Responsibility objectives?
3. How does it affect firm performance?

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Corporate Social Responsibility: A Study on Indian Private MNCs

Table 1.1: Evolution of the Corporate Social Responsibility Concept

Corporate Social Responsibility Motivations for CSR Effects of CSR on

Content Firm Performance
Attempts to define CSR Socially responsible decisions Not possible to gauge
“Businessmen must follow those can have long term benefits economic impacts of
lines of action which are desirable Davis (1960) socially responsible
in terms of objectives and values actions in most cases.
of our society.” Manne and Wallich
Bowen (1953) (1972)
Broadening of scope of CSR to Firms need to balance multiple Lexicographic view of
include: Consideration of interests to ensure achievement social responsibility:
employee and community welfare of multiple goals and long-run Firms pay attention to
and educational and political needs profit maximization social issues only after
of society Johnson (1971) meeting profitability
McGuire (1963) goals.
Service to improve the quality of Johnson (1971)
human life.
Committee for Economic
Development (1971)
Acknowledgment of managerial Iron Law of Responsibility: Theory of slack
role in discharging CSR: Businesses must behave resources states that
Quality of managerial response to responsibly or lose the power firms that have
changing societal expectations is and legitimacy granted by resources to spare
explicitly mentioned. society. outperform those that
Committee for Economic Davis (1973) don’t in terms of social
Development (1971) performance.
Businesses must not spoil society Waddock and Graves
and provide solutions through (1997)
voluntary assumption of
obligations.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Manne and Wallich (1972)

Delineation of CSR and Normative stakeholder theory: Social problems can be

Actionable Models: Firms are moral agents due to turned into business
CSR encompasses economic, contractual obligations to satisfy opportunities to create
legal, ethical, and discretionary societal expectations. wealth.
expectations of society. Donaldson (1983) Drucker (1984)
Carroll (1979)
Corporate Social Performance
(Principles, Processes and
Policies).
Wartick and Cochran (1985)
Corporate Social Performance
Framework Principles, Processes,
Outcomes.
Wood (1991)

Delimiting the Scope of CSR and Instrumental stakeholder theory Environmentalism

Development of Complementary Firms must satisfy stakeholders improves business
Constructs because they are instrumental to performance
Stakeholder Theory achieving firm objectives. Environmentally
Businesses are responsible to those Freeman (1984) responsible firms can
who can affect or are affected by garner competitive
its purposes. advantages through cost
Freeman (1984) reductions,
Entrepreneurial Marketing differentiation potential
Menon and Menon (1997) and strategic direction.
Corporate Citizenship Porter and van der
Maignan, Ferrell, and Hult Linde (1995); Hart
(1999) (1995)

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Corporate Social Responsibility: A Study on Indian Private MNCs

Corporate Environmentalism Klassen and

Bannerjee, Iyer, and Kashyap McLaughlin (1999);
(2003) Judge and Douglas
(1998)
Corporate Sustainability: Sustainable Theory: Sustainable Growth:
Corporate Sustainability demands Firm satisfying stakeholders are “A business approach
attention to economic, the sole purpose and reason for a that creates long-term
environmental and social issues. firm’s existence. shareholder value by
van Marrewijk (2003) McWilliams and Siegel (1995); embracing
Stead and Stead (2001) opportunities and
Sustainable Value: managing risks deriving
Strategies that simultaneously from economic,
drive sustainable development environmental and
and shareholder value create social developments.”
sustainable value. Dow Jones
Hart, Milstein, and Caggiano Sustainability Index
(2003) 199
Source – Rajiv Kashyap, Raza Mir & Ali Mir, 2011. Corporate Social Responsibility: A call for Multidisciplinary inquiry. Journal of Business
and Economic Research, Vol. 2, Number 7

In the above table the authors compiled the objectives and importance of CSR. It is interesting to
note that researchers clearly find the positive relationship between CSR and sustainable growth
of the firm. The evolution of CSR has seen many milestones. Governments of developing nations
to the United Nations, by now everyone realize the important of imbibing CSR into government
policies. Katsovlakos et al, 2004, in their white paper on A Historic Perspective of the CSR
Movement systematically mentioned the key milestones of CSR. A list of key CSR milestones is
presented in table 1.2.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Table1.2: The key CSR milestones

1960 OECD Created Convention signed in Paris 14/12/60 which came into force 30/9/61,the
Organization for Economic Cooperation and Development was created to promote
Policies designed to achieve the highest sustainable economic growth and employment
and a rising standard of living in Member countries, while maintaining financial
stability, and thus to contribute to the development of the world economy;
to contribute to sound economic expansion in member as well as non member countries
in the process of economic development and to contribute to the expansion of world
trade on a multilateral, non-discriminatory basis in accordance with international
obligations

1961 The World Wildlife Fund WWF, now the World Wide Fund for Nature, is created at
Morges, Switzerland.

1962 Consumer Bill of Rights- USA

1966 International Convention on Economic, Social and Cultural Rights adopted by

the UN. International Covenant on Civil and Political Rights adopted by the UN.

1969 The US Congress passes the National Environmental Policy Act (NEPA) creating the
first national Agency for Environmental Protection - the EPA.

1970 The first Earth Day was held as a national awareness campaign on the environment. An
estimated twenty million people participate in peaceful demonstrations all across the
USA.

1970 The United Nation's Code of Practice for Transnational Corporations was an attempt in
the early 70's to define CSR businesses principles in terms of ethics, product standards,
competition, marketing and disclosure of information.
Greenpeace, in the 1970s, was the first major NGO to adopt policies which shifted

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the emphasis away from governments and more towards direct action on the
corporate sector.

1972 The United Nations Conference on the Human Environment, in Stockholm, considers
the need for a common outlook and for common principles to inspire and guide the
people of the world in the preservation and enhancement of the human environment.
The concept of sustainable development is cohesively argued to present a satisfactory
resolution to the environmental vs. development dilemma. The conference leads to the
establishment of numerous national environmental protection agencies and the United
Nations Environment Program (UNEP).

1979 Chair of Tata Steel (India's largest integrated private sector steel company) asks audit
committee to report on the extent to which the company has fulfilled the objectives,
regarding the social and moral responsibilities.

1982 Business in the Community is founded by UK based business organizations

focused on corporate social responsibility.

1984 CSR becomes part of mainstream management theory at least since the publication of
Edward Freeman's 1984 classic, Strategic Management: A Stakeholder Approach

1992 'Earth Summit' in Rio de Janeiro with 180 country delegations addressed ways to halt
the destruction of irreplaceable natural resources and pollution of the planet twenty
years after the first global environment conference. The Summit agrees the Rio
Declaration on Environment and Development, which sets out 27 principles supporting
sustainable development. Also agreed is a plan of action, Agenda 21, and a
recommendation that all countries should produce national sustainable development
strategies. The Earth Summit also establishes the UN Commission on Sustainable
Development, which meets every year, as well as important UN bodies - the
Framework Convention on Climate Change and the Convention on Biological
Diversity.

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Corporate Social Responsibility: A Study on Indian Private MNCs

The Earth Summit influenced all subsequent UN conferences, which have examined
the relationship between human rights, population, social development and the need for
environmentally sustainable development.
1993 US President Bill Clinton announces (Oct 20) an ambitious plan to combat global
warming through over 50 initiatives affecting all sectors of the economy.

1995 The World Business Council for Sustainable Development (WBCSD) sets a permanent
base in Geneva to provide business leadership as a catalyst for change toward
sustainable development, and to promote the role of eco-efficiency, innovation and
corporate social responsibility.

1996 In January 1996 a group of 57 European companies signed the European declaration of
businesses against social exclusion, and established CSR Europe with the support of
Jacques Delors President of the European Commission at that time. CSR Europe
mission is to help companies achieve profitability, sustainable growth and human
progress by placing corporate social responsibility in the main stream of business
practice.
1997 The Global Reporting Initiative launched to develop Sustainability reporting guidelines.
November - Around 170 nations gather at the United Nations global warming
conference in Buenos Aires to discuss ways of cutting emissions of greenhouse gases
by 2008.
1999 In an address to The World Economic Forum on 31 January 1999, United Nation
Secretary-General Kofi Annan challenged business leaders to join an international
initiative- the Global Compact-that would bring companies together with UN agencies,
labor and civil society to support ten principles in the areas of human rights, labor and
the environment.
1999 Creation of the Dow Jones Sustainability Indexes as the first global indices
tracking the financial performance of the leading sustainability-driven companies
worldwide.
2002 Business in the Community launches first Corporate Responsibility Index- October.

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There was a very interesting shift in the way people perceived importance of CSR post the year
2000 CSR Compliment Companies around the World. Table 1.3 shows the shift in CSR
compliance from 2002 to 2005:

Table 1.3: Percentage of companies which are CSR Compliant

Year (Percentage of Companies which are CSR Compliant)
USA Japan UK Korea (South) China Russia India Brazil Canada
2002 30 64 83 40 - - - - -
2005 35 83 100 60 18 8 6 5 1
Source: Saha, 2013. The Management Accountant: The Journal for CMAs. 48:6:652

There has been a clear increase in percentage of the large 100 companies in a number of
countries publishing CSR reports. KPMG International Corporate Responsibility Reporting
Survey evident from Table 1.4 has clearly shown that number of companies reporting on CSR/
sustainability issues has continued to rise. G250 companies are the top 250 largest companies of
Fortune Global500 and N100 companies are the top 100 companies from different countries.

Table 1.4: International Survey of CSR Reporting of G250 and N100 Companies by
KPMG

% of Companies
1993 1996 1999 2002 2005 2008 2011
G250 - - 36 45 64 83 95
N100 12 18 24 28 41 53 64
Source: Saha, 2013. The Management Accountant: The Journal for CMAs. 48:6:652

Globalization has changed the role of the state and its ability determines its socio economic
objectives in order to meet its human rights obligations. Additionally, activities of transnational
corporations are extended by governmental policies and international organizations like the
World Trade Organization and the International Monetary Fund, without simultaneously setting
accountability mechanisms. Since the United Nations can be seen as the main body for

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addressing responsibilities for human rights abuses, it is seen as a focal point for linking the trade
regime and human rights regime.

If we are to replace market forces with normative criteria such as human rights, it will also be
necessary to clarify the different moral, political, and legal dimensions of business’ human rights
obligations and to distinguish them from other concepts of corporate social responsibility (Patil
et al, 2009).

The EU’s equivocal stance is a reflection of a trend that is seeing corporate responsibility
gradually shifting from the realm of voluntary action to the realm of standards and
harmonization. Many nation states are also implementing, or considering, laws that will
effectively turn aspects of CSR into requirements. Forms of mandatory disclosure have been
implemented in France, Denmark and the Netherlands. In the United States, a Corporate Code of
Conduct Act was considered which would have required US-based multinationals to disclose on
various issues (Griffin, 2008).

The companies in developing nation diverted their CSR initiatives towards better infrastructure,
healthcare, primary & secondary education and in this process built an image of socially
responsible company. A unique CSR practice of micro financing discovered by Nobel laureate
from Bangladesh, Mohammad Yunus, shifted the focus of CSR towards small scale
entrepreneurship, microcredit and empowerment of minorities including women (Crane et al,
2009). Bandhan Bank founded by Chadra Shekar Ghosh is another such example of micro
financing in India. Grameen Bank of Bangladesh and Bandhan of India are the unique initiatives
supported by business organizations and banks. But these initiatives are not undertaken by
multinational companies. These are the brain child of individuals towards the development of the
society. The main reasons for the poverty of these nations are lack of economic activity and
growth. Multinational companies, indeed can create not only wealth but also help in the
development of the society.

As mentioned in previous paragraph, CSR reporting is taken very seriously by developing

countries. India went one step forward and made CSR spending mandatory in 2013. All over the
world CSR has become key to reputation management. The signs of the victory are not just in
the speeches of top executives or the diligent reporting of CSR efforts in their published

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Corporate Social Responsibility: A Study on Indian Private MNCs

accounts. Corporate social responsibility is now an industry in its own right and a flourishing
profession as well. Consultants have sprung up to advise companies on how to do CSR and how
to let it be known that they are doing it. The big auditing and general-practice consulting firms
offer clients CSR advice. Most multinationals now have a senior executive, often with a staff at
his disposal, explicitly charged with developing and co-coordinating the CSR function. In some
cases, these executives have been recruited from NGOs. There are executive-education
programmes in CSR, business-school chairs in CSR, CSR professional organizations, CSR
websites, CSR newsletters and much, much more. (Clive Crook, 2005)

1.3 Definitions
Despite numerous efforts to bring about a clear and unbiased definition of CSR, there is still
some confusion as to how CSR should be defined (Dahlsrud, 2008).

In both corporate and academic world there is an uncertainty and conflicting views about how
CSR should be defined. Unfortunately, any attempt to develop an unbiased definition is
challenging.

Contradicting views on definition of CSR, one school of thought includes ethical practices of the
firm, employee welfare, human right, customer satisfactory and adherence to principles of fair
competitions and the other extreme school of thought considers CSR as philanthropy. According
to commission of the European communities, 2001, CSR is a concept, whereby companies
integrate social and environmental concerns in their business operations and in their interaction
with their stakeholders on a voluntary basis.

According to Khoury (1999) corporate social responsibility is the overall relationship of the
corporation with all of its stakeholders. According to Commission of the European Communities
(2003), CSR is the concept that an enterprise is accountable for its impact on all relevant
stakeholders. It is continuing commitment by business to behave fairly and responsibly and
contribute to economic development while improving the quality of life of the work force, their
families and the community. According to Hopkins (2003), CSR is concerned with treating the
stakeholders of the firm ethically or in a responsible manner. The wider aim of social
responsibility is to create higher and higher standards of living, while preserving the profitability
of the corporation. According to IndianNGOs.com (2003), CSR is a business process wherein the

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Corporate Social Responsibility: A Study on Indian Private MNCs

institution and the individuals within are sensitive and careful about the direct and indirect
effects of their work on internal and external communities and natural. According to World
Business Council for Sustainable Development (1999), CSR is the continuing commitment by
business to behave ethically and contribute to economic development while improving the
quality of life of the workforce community and society at large.

United Nations Industrial Development organization (UNIDO) defines CSR as “CSR is

management concept where by companies integrate social & environmental concerns in their
business operations & interactions with their stakeholders. CSR is generally understood as being
the way through which a company achieves a balance of economic, environmental & social
imperatives (Tripe-Bottom-line-Approach) while at the same time addressing the expectations of
shareholders & stakeholders”.

CSR is concerned with treating the stakeholders of the firm ethically or in a responsible manner.
‘Ethically or responsible’ means, treating stakeholders in a manner deemed acceptable in
civilized societies. Stakeholders exist both within a firm and outside. The wider aim of social
responsibility is to create higher standards of living, while preserving the profitability of the
corporation, for people both within and outside the corporation.

European Commission (2001) defines CSR as “a concept whereby companies decide to

contribute to a better society and cleaner environment and as a process by which companies
manage their relationship with stakeholders”. All the definitions mentioned above bring out the
various aspects, nuances & drivers of Corporate Social Responsibility. In the next part of the
section, the key question - ‘do the Companies need to be socially responsible’ is discussed.

Two important articles on CSR frame this debate about the responsibility that a firm has to be
socially responsible. The first article was published in the New York Times Magazines in 1970
by the Nobel prize-winning economist, Milton Friedman- “The Social Responsibility of Business
is to Increase its Profits”. In this article, Friedman argues that profit, as a result of the actions of
the firm, is an end in itself. He believes strongly that a firm need not have any additional
justification for existing and that, in fact, social value is maximized when a firm focuses solely
on pursing its self-interest in attempting to maximize profit.

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Corporate Social Responsibility: A Study on Indian Private MNCs

The second article is a 2002 Harvard Business Review article by the influential British
management author and commentator, Charles Handy. In contrast to Friedman, Handy presents a
much broader view of the role of business in society. For Handy, it is not sufficient to justify a
firm’s profits as an end in itself. For Handy, a business has to have a motivation other than
merely making a profit in order to justify its existence – profit is merely a means to achieve a
larger end. A firm should remain in existence not just because it is profitable, but because it is
meeting a need that society as a whole values. It is salutary to ask about any organization, “If it
did not exist, would we invent it?” “Only if it could do something better or more useful than
anyone else” would have to be the answer, and profit would be the means to that larger end.

On the surface, the positions taken by Friedman and Handy would appear to be irreconcilable.
Indeed, Friedman appears to go out of his way to antagonize CSR advocates by arguing that
socially responsible behavior is a waste of the form’s resources, which legally do not belong to
the firm’s executives but to the firm’s owners, its shareholders.

But, on closer analysis, how different are these articles, really? Incorporating a strategic CSR
perspective closes the gap between two commentators considerably. (Chandler 2010).The
present study explores the possibilities of strategic CSR. The researcher probes the possibility of
CSR as a business benefit.

1.4 CSR in India: Evolution, Present Scenario Issues and Challenges

Charity and philanthropy is in the DNA of Indian culture and ancient religious practices. The
popular Indian economist of ancient origin Chankya to the pioneer Indian business group Tata
advocated the principles of social responsibilities. Inspite of such extraordinary foundation, CSR
in India is still in a nascent stage. It is still a least understood social initiative. Not all the
organizations understand and realize the requirement of imbibing CSR initiatives into core
business.

Further, the second most populous country in the world, India has its own challenges when it
comes to environmental protection. Environment protection was never a priority of independent
India, since it has worse problems to overcome, like poverty, illiteracy, malnutrition. India’s
Environment Performance Index remained low for many years. Environmental Performance
Index was developed by Centre for Environmental Law and Policy at Yale University. The 2014

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Corporate Social Responsibility: A Study on Indian Private MNCs

Environmental performance Index was a joint project between the Yale Center for
Environmental Law & Policy (YCELP) ii , and the center for the International Earth Science
iii
Information network (CIESIN) at Colombia University in collaboration with Samuel
Foundationiv and the World Economic Forum v. Research assessed on the bases of 20 indicators
ranging from Child Mortality to CO 2 emission per GDP. Switzerland has again landed in the top
spot of the 2014 EPI. The reminder of the top five is Luxembourg, Australia, Singapore and the
Czech Republic. Singapore’s presence in the fourth spot is particularly notable, demonstrating
that predominantly urban nations can capitalize on population density to achieve strong
environmental performance. Every Country in the top five not only performing well on the 2014
EPI (Environment, Performance Index), but time series data also show that these countries have
improved their environmental performance over the past decade. Among countries with largest
economies, Germany ranks the highest in the sixth spot followed by the United Kingdom in 12 th,
Japan in 26th and United States in 33 rd. The largest growing economies show diversity in their
performance although they tend to fare worse than more established economies. It is
disheartening to note that Russia ranks 73rd, Brazil 77th, China 118th and India 155thin the EPI
ranking.

As the report suggests India’s EPI is far from the ideal situation. Time has come when not only
Government Organization & NGOs thrive towards implementing CSR, but also the Multi
National Companies contribute towards better Environment and community.

CSR reporting in India came into serious criticism in recent past. CSR initiatives are considered
to be ineffective, because of professional focus, lack of authentic data and analysis of the impact
of such initiatives. CSR is moving from doing social good to business necessity. Organizations
are realizing that CSR is not only good for community and environment but also strategically
helps the business. The term CSR may be relatively new to India, but the concept dates back to
Mauryan vi history, where philosophers like Kautilya vii emphasized on ethical practices and
principles while conducting business. CSR has been informally practiced in ancient times in
form of charity to the poor and disadvantaged. Indian scriptures have at several places mentioned
the importance of sharing one’s earning with the deprived section of society. We have a deep
rooted culture of sharing and caring.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Every religion in India advocated the philanthropic practices. Hindus called it ‘Daan’, Muslim
called it ‘Zakaat’ and Sikhs called it ‘Daashaant’. Christian, Jain & Buddhist missionaries’ view
on charity is well known in the world.

Here, we can understand that the history of CSR in India runs parallel to the historical
development of India. CSR has evolved in phases like community engagement, socially
responsible production, and socially responsible employee relations. Therefore, the history
of Corporate Social responsibility in India can be broadly divided into four phases:

The first phase of CSR was driven by noble deeds of philanthropists and charity. It was
influenced by family values, traditions, culture and religion along with industrialization. Till
1850, the wealthy businessmen shared their riches with the society by either setting up temples
or religious institutions. In times of famines, they opened their granaries for the poor and hungry.
The approach towards CSR changed with the arrival of colonial rule in 1850. In the Pre-
independence era, the pioneers or propagators of industrialization also supported the concept
of CSR. In 1900s, the industrialist families like Tatas, Birlas, Modis, Godrej, Bajajs and
Singhanias promoted this concept by setting up charitable foundations, educational and
healthcare institutions, and trusts for community development. It may also be interesting to note
that their efforts for social benefit were also driven by political motives.

The second phase was the period of independence struggle when the industrialists were
pressurized to show their dedication towards the benefit of the society. Mahatma Gandhi urged
to the powerful industrialists to share their wealth for the benefit of underprivileged section of
the society. He gave the concept of trusteeship. This concept of trusteeship helped in the socio-
economic growth of India. Gandhi regarded the Indian companies and industries as “Temples of
Modern India”. He influenced the industrialists and business houses to build trusts for colleges,
research and training institutes. These trusts also worked to enhance social reforms like rural
development, women empowerment and education.

In the third phase from 1960-1980, CSR was influenced by the emergence of Public sector
undertakings to ensure proper distribution of wealth. The policy of industrial licensing, high
taxes and restrictions on the private sector resulted in corporate malpractices. This led to
enactment of legislation regarding corporate governance, labor and environmental issues. Still

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Corporate Social Responsibility: A Study on Indian Private MNCs

the PSUs were not very successful. Therefore there was a natural shift of expectation from the
public to the private sector and their active involvement in the socio-economic growth. In 1965,
the academicians, politicians and businessmen set up a national workshop on CSR, where great
stress was laid on social accountability and transparency.

In the fourth phase from 1980 onwards, Indian companies integrated CSR into a sustainable
business strategy. With globalization and economic liberalization in 1990s, and partial
withdrawal of controls and licensing systems there was a boom in the economic growth of the
country. This led to the increased momentum in industrial growth, making it possible for the
companies to contribute more towards social responsibility. What started as charity is now
understood and accepted as responsibility.

There have been many occasions in the history of independent India when this sentiment has
been voiced at the very highest levels. The first seminar on Social Responsibilities of Business in
India in 1966 with an august audience consisting of the Prime Minister Lal Bahadur Shastri,
Jayaprakash Narayan (who seems to have initiated the debate), C.D. Deshmukh, and many others
met. Their agenda was a relook at the concept of Trusteeship. In these formulations there appears
a corresponding drift from the socialist ethos to a charity ethos to one that calls for opportunity
solutions which are neither philanthropy nor charity (Mitra, 2007).

India is a developing economy, here Corporate Social Responsibility play important role in
organizations. In Indian industry one can easily notice a paradigm shift from corporate
philanthropist to being socially responsible. The importance of CSR is increasing in Indian
corporate scenario because organizations have realized that ultimate goal is not profit making. In
the hue and cry of LPG (Liberalization, Privatization and Globalization) companies were only
focused toward profit maximization which led social backwash. To overcome this fashion CSR
play an important role in sustainable development which is only possible when there is a balance
between profit and lowering social backwash or eradicating it (Prabhakar et al, 2013).

Many companies have started incorporating their CSR initiative in their annual reports. CSR is
an entry point for understanding a number of firm-related and societal issues and responding to
them in a firms’ business strategy. However, there is a universal and prominent view on
protecting the environment and stakeholders interests. Emerging economies like India have also

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Corporate Social Responsibility: A Study on Indian Private MNCs

witnessed a number of firms actively engaged in CSR activities, and the Ministry of Corporate
Affairs has come up with voluntary guidelines for firms to follow. Companies in India have quite
been proactive in taking up CSR initiatives and integrating them in their business processes.

The concept of CSR has evolved from being regarded as detrimental to a company’s
profitability, to being considered as somehow benefiting the company as a whole, at least in the
long run (Nithin Kumar,2013). It is possible for companies to behave in the ‘desired’ ethical and
responsible manner towards consumers, employees, communities, stakeholders and environment.
They have started incorporating their CSR initiative in their annual reports.

In the developed nation, the companies with the exposure to the global market emphasized more
on CSR initiatives. The modern sectors like Information Technology (IT) & Information
Technology enabled services (ITES) from the beginning are known for its global character. Post
globalization, this sector flourished in India due to extraordinary human resource. Point to be
noted here is, though the human resource remained Indian, but this sector has world based
customers. In this background many Indian business leaders & entrepreneurs emerged as pineers
in this sector. Mr Ratan Tata, Chairman, Emirates-Tata Group), Mr Narayana Murthy, Ex
Chairman of Infosys, Mr Azim Premzi, Founder & Chairman of Wipro are examples of such
emerging leadership in IT & ITES sector. The CSR initiatives of Indian IT sector are quite
evident and noticeable. The popular organization, Karmayog viii has analyzed time and again the
CSR activities of various sectors and ranked them in the order of its effectiveness. This
information is used while selecting the organizations for the present study.

The study done by TNS as part of its CSR initiative used online administration of questionnaire
and covered 11 public sector units, 39 private national agencies and 32 private multi-national.
The organizations covered were from various sectors including information technology,
insurance, automobile, cement, paper & pulp, construction, petrochemicals, metal, media,
pharmaceutical, sugar, mining and so on. About 90% of the 82 organizations — all the 11 PSUs,
four-fifths of the private national agencies (85%) and 94% of the private multi-nationals — are
involved in CSR initiatives. Tata Group (68%) emerges as the numero uno company with active
CSR initiatives, distantly followed by Infosys (14%), ITC (12%), NTPC (1 1%), Anil Dhirubhai
Ambani Reliance (10%), Ambuja Cement (9%), Microsoft (7%), Wipro, BILT and L&T (6%
each) etc. The involvement of the corporate sector in CSR seems to have picked up after 1991 as

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Corporate Social Responsibility: A Study on Indian Private MNCs

63% of the organizations started CSR during 1991-2005. About two-thirds of the private multi-
national agencies (70%) and private national agencies (67%) initiated CSR during this period,
and one third of the PSUs too started their CSR programmes in this period. In half of the cases
(56%), people living near the organization or industry are covered as part of the CSR programs.
The other groups covered include poor people living in rural areas (42%), tribal people (16%),
people selected in consultation with NGOs (11%) and communities selected randomly (11%). In
the case of PSUs, coverage of people living near the industry or organization and rural
population is more, while selection of people through NGOs is more common in the case of the
private sector.

A recent survey conducted by KPMG India in 2011 revealed the following regarding Indian
organizations. Of the selected companies 31% found to be reporting on social performance.

Bombay Chamber of Commerce’s CSR study “Status of CSR – Philosophy to Business

Sustainability” (consisting of 75 companies in India with turnover Rs 1,000- 20,000 or more)
revealed the following:

 Of the companies surveyed, 75% and 35% have CSR policies and CSR Dept.
respectively.
 In environmental perspectives, 55% sample companies have targets and Key
Performance Indicators (KPIs) and 44% have ISO14001 certificate.

The previous paragraphs describe the evolution and practices of CSR in India. It is always
important to investigate, whether consumer is a key driver of CSR in India, like in developed
nations? What interests the share holders in CSR activities? Why Indian companies should
indulge in CSR activities? What does employee of Indian companies perceive about CSR?

Research Organizations conducted various surveys to understand the key drivers of CSR in
India. One of the major surveys conducted by UNDP is given in Fig 1.3.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Figure 1.3: Key drivers of CSR in India

Source: http://csr-euasia.org/pdf/What%20Drives%20CSR%20in%20indian%20Industries%20A%20UNDP%20Publication.pdf

1.5 CSR and Guidelines of Government of India:

In the current scenario in India, the new companies act, 2013 mandates the corporate to spend
2% of their average net profits of the last three financial years towards CSR. This is applicable
for companies with a turnover of 1000 Cr/ PAT of 5 Cr/ or net worth of 500 cr.

On the other hand it is mandatory for Central Public Sector Enterprises to allocate 2-3% of the
PAT for the inclusive development of a backward district (CSR and Sustainability guidelines by
Department of Public Enterprises 2013). In which one key project has to be in CSR and the other
in Sustainability for the development of the disadvantaged and marginalized communities. Since

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Corporate Social Responsibility: A Study on Indian Private MNCs

the liberalization of the Indian economy in 1991, there has been a splurge of new generation
companies. Most of these companies in the act of profit maximization could not focus on the
basic tenets of Business like transparency, ethics, and accountability in their urge to register
double-digit growth. Recently with the life cycle of companies getting shorter, many pragmatic
and futuristic companies have started looking at CSR & Sustainability issues and welcomed the
idea in their board rooms to ensure their long term sustainability. In these times and in the times
to come it is estimated that the corporations will have to play a bigger role than ever envisaged.
The society would be the prime stakeholder as a consumer of multifarious products, application
and services which companies produce and the touch points of the society with the companies
will increase drastically. Having said this it can well be understood that companies need to be
more responsible in their conduct and contribution to the society

In India the idea of social responsibility is not new. The democracy and the Industry both were
focused on serving the society. The Public Sector Undertakings essentially by genesis were
conceptualized to serve the nation. Their social engagement programs like building schools and
hospitals, catering to the need of education and healthcare respectively is remarkable. Their
contribution towards the upliftment of the society for decades has been robust and noteworthy.
In March 2010, PSUs have again taken a giant leap in community engagement by making
CSR spend mandatory.

Private MNCs have always complemented the efforts of the public sector and the government
in CSR, wherever required through their core competence. Initiatives like employee volunteering
on social causes, paycheck giving, donations for disaster relief, education, healthcare, livelihood
initiatives, etc. have contributed significantly towards inclusive growth.

The government has been quite conscious about its role both directly and through its enterprises
in the area of CSR. The Department of Public Enterprises has formulated guidelines on CSR and
sustainability for central public sector enterprises. These guidelines provide for resource
allocation towards CSR projects in relation to their declared profits as follows:

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Corporate Social Responsibility: A Study on Indian Private MNCs

Profit Allocation for CSR:

Up to Rs. 100 crores 3 to 5 %
From Rs. 100 crores to 500 crores 2 to 3 %
above 500 crores 1 to 2 %

It is further prescribed that 80% of the amount allocated for CSR activities should be used for
community projects, 5% should be used for emergency measures including natural calamities.
Disasters, PM Relief Fund, Chief Minister’s Fund, Humanitarian Assistance, etc. and the balance
15% can be utilized for creating assisting educational infrastructure. The government has
expressed its intension that CPSEs should create social values through adoption of shared value.
The CSR and sustainability should ingrain in the DNA of the organization and get reflected in
the organizational culture while involving its employees in assisting the implementation of CSR
projects. The CPSEs should not only have good intentions in formulation of the CSR plans but
also should lay down the road map for formulation of actionable plans. Timely implementation
of the plans is the key to success of CSR agenda of CPSEs (Sharma, 2013).

The suggested areas for CSR include the following:

 Capacity building
 Empowerment of communities
 Environmental protection
 Inclusive socio-economic growth
 Promotion of green & energy efficient technologies
 Development of backward regions
 Up-liftment of marginalized and under privileged
 Adoption of villages and making them self reliant
 Providing medical & sanitation facilities
In order to increase consumer awareness about environment protection, the Government of India
launched an eco-labeling scheme known as ‘Ecomark’ in 1991 for the identification of
environment-friendly products. Any product which is made, used or disposed off in a way that
significantly reduces the harm it would otherwise cause the environment could be considered as
an environment-friendly product. The ‘Ecomark’ label is awarded to consumer goods which
meet the specified environmental criteria and the quality requirements of Indian Standards. The

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criteria follow a cradle-to-grave approach, i.e., from raw material extraction to manufacturing
and disposal.
An earthen pot (matka) has been chosen as the logo for the Ecomark scheme. Till day, the
Government of India has notified the final criteria for 16 product categories such as soaps and
detergents, paper, food items, lubricating oils, architectural paints and powder coatings, batteries
etc. The license under the Ecomark scheme is granted by the Bureau of Indian Standard mark of
the Bureau is a single mark, which is a combination of the ISI Mark and the Eco-logo.
According to a study by Consumer Unity and Trust Society, CUTS International, although the
economic scheme was launched in 1991, it has not really taken off and one rarely comes across
consumer products bearing the Ecomark.
In spite of various efforts by Government of India, the small medium and large scale companies
were too busy and involved in making profits and product developments. Though Philanthropy is
in the DNA of Indian business, the companies did not show keen interest in CSR practices till
very recently. Researcher gathered information about the CSR expenditure of top 100 companies
in India, before Companies Bill, 2012 was proposed in the parliament of India.
It is interesting to note that the CSR implementation in top 100 companies in India before
Companies Act 2013 came into force. CSR identityix is one of the research organizations that
time and again conducted surveys and brought forward the facts and figures about CSR activities
in India. Table 1.5 gives the details of the survey: What can’t be measured can’t be improved.
Csridentity.com with Forbes India has compiled the data of India’s top companies and ranked
them 1-100 based on Net sales for financial year 2012 & their amount spent for CSR activities.
This data was collected before companies Act 2013 came into force.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Table 1.5 CSR spending ranked 1 to 100

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Corporate Social Responsibility: A Study on Indian Private MNCs

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Corporate Social Responsibility: A Study on Indian Private MNCs

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Corporate Social Responsibility: A Study on Indian Private MNCs

Note:

 All figures are in Crore INR and have been rounded off to the nearest decimal point
 Avg PAT refers to the average of profit after tax recorded by a company in the last three
financial years (FY10, FY11 and FY12)
 NA stands for data ‘not available’ for companies which do not disclose their CSR spends
in their annual reports
 Revenue figures are indicative of the company’s financial performance in financial year
2011-12 (FY12) only
 2% of PAT refers to the amount that a company needs to spend in CSR activities as per
the government mandate
 N/A implies not applicable; according to government policy, loss-making firms don’t
need to invest in CSR
 Data Sources - Ace Equity; CSRidentity.com; company annual reports; company
responses via email

The table 1.5 explains very few companies CSR spend were more than 2% of PAT. It is
important to note that actual CSR spend was only Rs. 1,765 cr. against the 2% of PAT Rs.
5,611cr.

In this background public discourse on CSR gathered huge attention. In India, former Prime
Minister Dr. Manmohan Singh, in an inaugural address after taking office in June 2004 spoke
about the mandate that his party had received in the recent elections. He interpreted the mandate
as being one which clearly indicated that ‘economic growth has to be accompanied with equity
and justice’, at the 100th birth centenary celebration of J.R.D x, of corporate walking hand-in-hand
with the government, in taking India on its path of modernization and industrialization. While
recognizing the role government must play to create the enabling conditions for
entrepreneurship, he urged that corporate consider their obligation. (Mira, 2007)

With the growing awareness about the product safety, environment protection, business ethics
and corporate governance, the Government of India realized that there is a requirement to bring
CSR under statute. After passing the companies bill in parliament in 2012, Govt. of India sent a
clear message to corporate world that their participation in CSR is key to the nation’s

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development. After debate and deliberations India Inc willingly came forward to support Govt.
in implementing the law. Finally CSR found very important place in Companies Act 2013 xi.

Companies Act, 2013: The details of Sec.135 of Companies Act 2013 are given in Annexure I.

Though a new law has stipulated the portion of profits that companies must spend on Corporate
Social Responsibility (CSR) every year, the direction to choose the specific activities & causes to
be funded will rest with corporate boards, former union minister of corporate affairs, Sachin Pilot
said in New Delhi.

Under the law Companies Act, 2013, passed by parliament in Aug.2013, Profitable companies
must spend every year at least 2 percent of their average net profit. This mandatory CSR spend
rule will apply from fiscal 2014-15 onwards. Those companies that have a turnover of Rs 1000
cr. or more or net worth of - Rs 500 cr. or more will have to comply.

With the implementation of the new company law from April 1, 2014, India has become the only
country in the world with legislated CSR & a spending threshold of up to $ 2.5 billion ( 15,000/-
Crore INR). According to industry estimates, around 8000 companies will fall into the ambit of
the CSR provisions & this would translate into an estimated CSR spend of $1.95 billion to $2.44
billion. “India is the only country that has made legalization for CSR spending” said Sai
Venkatraman, Partner & Head of Accounting Advisory Services at KPMG India. “This is an
evolutionary concept & will gradually evolve over a period of time. Industry is therefore anxious
on the implementation of these new provisions” said Siddarth Birla, President of Industry body.

The act in its current form adopts the principle of ‘comply or explain’ requiring companies to
report on its CSR spending and explain the shortfalls, if any.

Corporate Social Responsibility appears to be the new route to corporate redemption. Or at

worse, as the critics say, just the right aura of respectability to mask misdemeanors of allegations
thereof and silence murmurs of radical or even leftist disapproval. Or maybe, a new way of
assuaging one’s guilty conscience and “doing one’s bit for society” with a few accidental
rewards expected on the way – like social approval, and of course, rice dividends in the market?

CSR’s appeal to government and common man alike lies in its ability to compel corporate to
give something back to society. Corporate might understandably have chosen to read more into

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it. The new CSR norms of the Ministry of Corporate Affairs, which entails companies to
mandatorily shell out at least 2 percent of their 3 year average annual profit towards CSR or
social welfare activities, forces one to think on these lines.

The new Companies Act has stipulated that for all CSR activities, companies should take the
approval of their boards of directors in accordance with the CSR policy and the decision of a
CSR Committee. Even though the norms allows a company to carry out CSR work through a
registered trust or society or a separate company, the rules insist that surplus money arising out
of CSR projects or programs must not form part of the business profit of a company. It also
allows companies to collaborate with other companies for CSR activities, though they would
have to report spending on such projects separately. The Corporate Affairs Ministry also
stipulates that companies can spend only up to 5 percent of their total CSR expenditure on
manpower in a single financial year.

Even though CSR sounds mandatory, companies failing to spend money are required to give
reasons for the same in their annual reports. Companies will have to draw shareholders attention
to their non-compliance.

According to L Rajan, Deputy General Manager, State Bank of India, CSR activities should be
taken up by professionals. “SBI recruits professionals for undertaking CSR activities, who be
sent for one year to rural areas. It will give them information on ground realities and later on help
them formulate CSR programs to tackle these,” said Rajan. At a recent interaction on CSR
activities, Balanchandran Warrier, Chief Executive Officer, Manipal Foundationxii said, “There is
no criteria that companies should be bracketed under their profit margin and other factors. We
are very concerned about our CSR activities and do not want to confine it within 2 percent. Since
nature has given us everything, it is our responsibility to give something back. We are
broadening our CSR activities”.

The public discourse in India spoke predominantly in favour of CSR. Making it mandatory
had divided opinion though.

1.6 Business case of CSR: CSR as Business Strategy

The present study probes the business case of CSR. The researcher attempts to correlate the
relationship between CSR and business strategy.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Business Strategy: There is no shortage of definitions of “Business Strategy”. A simple Google

search of the definition of “Business Strategy” yields to millions of responses. In simple words,
Strategy means ‘game plan’, ‘Techniques adopted to win’, ‘a set of objectives & actions’, all of
which are to help an organization to achieve its goals.

A good working definition of Business Strategy is captured in the following short sentence:

“A Business Strategy specifies the way a firm competes in an Industry”

The business case for CSR has been broken down into four different categories: - 1) Defend their
reputations 2) Justify benefits over costs 3) Integrate with their broader strategies 4) learn,
innovate and manage risk (Caroll and Shabana, 2010). Few other interesting business strategy
dimensions are mentioned below:

There are five dimensions of corporate strategy that are critical to the success of CSR process in
terms of value creation by the firm. They are:

a) Centrality – CSR initiative activities should be close to the firm’s mission & objectives.
b) Specifically – Strategic CSR initiatives should be able to capture the benefits of CSR
initiatives.
c) CSR initiatives should focus on the dynamics of stakeholder’s expectations to capture the
changes on socio-environmental, political & tech factors.
d) Voluntarism – CSR decisions should be discretionary & thus they should be taken up by
the firm voluntarily.
e) Visibility – Strategic CSR initiative should build firms image & add up to the goodwill
by creating positive media attention. It can also mitigate negative image of the firm.
(Srivastava et al,2012)
It is not being socialist, nor purely capitalist either, it is a new way of running business, a
third way, a more humane, trysting, productive, & in every sense, rewarding way (Semler,
1993). Philip Kotler & Nancy Lee, 2005 found CSR as a business strategy. Strategic benefits
of CSR are analyzed in the Table 1.6.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Table 1.6: Major Potential Benefits from Corporate Social Responsibilities

For the Cause Cause Social Corporate Community Social

Company Promotions related Marketing Philanthropy Volunteering responsible
Marketing business
practices
Build Strong Major Major Major Major Major
Corporate Strength Strength Strength Strength Strength
Reputation
Contribute Major Major
to general Strength Strength
business
goals
Attract & Major Major Major Major Major
Retain Strength Strength Strength Strength Strength
motivated
workforce
Reduce Major
Operating Strength
Cost
Reduce Major
regulatory Strength
oversight
Support Major Major Major
Marketing Strength Strength Strength
Objectives
Build Strong Major Major Major
Community Strength Strength Strength
relationships
Source: Corporate Social Responsibility – Building Positive Brand Equity – Philip Kotler & Nancy Lee, 2005,pp 242-243

Firms that do not meet the expectations of stakeholders may see their market shares and
profitability go down. Companies only succeed in convincing the stakeholders by investing
enough in CSR. Indeed, CSR is very much a way of building up a good reputation. This is seen
in many cases in various parts of world, in which companies started to pay attention to CSR after
an incident that damaged their reputation. John Stuart, Chairman of Quaker, once said “If this
business would split up, I would give you the land and bricks, mortar and machines, and I would
take the brands and trademarks, and I would fare better than you”. This statement reflects the
significance of brand.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Kirby Adams, CEO, Tata Steel, Europe has rightly observed that “We are committed to
conducting our business in a way that prevents the wasteful use of natural resources, improves
our energy efficiency and reduces our emission of carbon dioxide” (Nath, 2003). The review of
relevant literature argues the business case of CSR. This information motivates the author to
represent, a theoretical model as shown in the Figure 1.4. The cause related marketing and cause
promotion (suggested by Philip Kotler) are also considered as CSR activities.

Figure 1.4: CSR as business strategy

CSR Best Practices

Corporate Social Community Development Recycling

Marketing
Cause related Marketing Children & Women Corporate Governance &
Welfare Ethics
Product quality & safety Volunteering Energy Conservation

Cause Promotion Philanthropy Environment Protection

Enhancing Brand & Improved Recruitment, Better reputation, risk

Buying Behavior Retention & Employee management & Cost
Loyalty Minimization

Better Sales, Finance & Employee Performance

Source: Author’s own representation

It is simplistic to establish the business case of CSR. The globalization brings the baggage of
multiple challenges. To make globalization win-win to all the stakeholders, the organizations
must consider the angles of severe competition, requirements of NGOs and consumers,
government policies and human resourse aspects. CSR indeed emerges as an important initiative
to deal with such challenges. According to Urip (2010), workers’ health and safety, employee
moral & engagement, community building, eradicating poverty, corporate governance,
environmental issues like global warming and pollution and promoting education are the key

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 Corporate Social Responsibility: A Study on Indian Private MNCs

dimensions of CSR. Urip further believes that taking care of Profit, People and Planet is the
foundation of CSR practices. It is a proven fact that the companies that are built around business
ethics and good governance can evolve the sustainable and successful business model. If the
companies want to reap the benefits of CSR, it must define, develop, implement and measure the
impact of such initiatives. Only then the business case of CSR can be justified. While arguing
business case of CSR, one must look into its impact on employees, customers and reputation of
the company. In developed nations, this relationship is established and it is understandable that
CSR is a key driver to employee motivation and brand management. Fig 1.5 explains business
benefits of CSR.

Figure 1.5: CSR ability to Attract, Motivate & Retain Employees

Employee
Branding Attraction Employee
Retention

Preferential Employee
Treatment by Commitment
Regulatory &
Business
Licensing
Authority Benefits of CSR
Brand
Differentiation
Improving
Financial
Sales Reputation &
Performance
Performance Management

Source: Author’s own representation

In the Socio-Economic & Political transition, youth of India is becoming aware about what
country & society requires in large. Young recruiters get attracted to the Company that has
comprehensive CSR policy. Potential recruiters often ask about firm’s CSR policy during an
interview (Kaur, 2012)

Researchers (Ruth et al, 2004) have established the relationship between CSR & employee
engagement. The perceptions of employees about CSR, change the attitude and behavior of
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Corporate Social Responsibility: A Study on Indian Private MNCs

employees. Job satisfaction of employees, attracting employees towards the company, employee
engagement are considered to be key drivers of CSR in developed nation. CSR leads to
organizational commitment and citizenship. Researchers (Ganapathy et al, 2006; Sen et al, 2007)
also believe that CSR practices enhance job performance and improve productivity. CSR also
helps in employee retention and it is an innovative way to attract employees. Kotler &
Lee(2005), conducted a study to understand the perception of MBA students about CSR. Out of
2100 students more than half agreed that they would join socially responsible companies even if
offered lower salary. The CSR not only helps in employee motivation and retention but also help
retaining customers. Surveys conducted by Cone/Roper, provided strong evidence that
companies can benefit significantly from connecting themselves to a cause, as illustrated in the
following (now often quoted) findings from their benchmark survey of consumers in 1993/1994:

 “Eighty-four percent said they have a more positive image of companies that do
something to make the world better”
 “Seventy-eight percent of adults said they would be more likely to buy a product
associated with a cause they cared about”
 “Sixty-six percent said they would switch retail stores to support a cause”
 “Sixty-four percent believe that cause related marketing should be standard part of a
company’s activities”
 Clearly, one of the best examples of a corporate social initiative that increased sales and
market share was the American Express campaign for the restoration of the Statue of
Liberty in the early 1980’s.

The next segment discusses about the relationship between CSR and financial performance of
the firm. Sinha et al ,2002, suggest that demand for investments in firms deemed socially
responsible can be enhanced “as some mutual funds and large pension funds are mandated to
make investments in only those companies deemed socially responsible”.An often quoted study
by the University of Southwestern Louisiana, “The Effect of Published Reports on Unethical
Conduct on Stock Prices,” demonstrated that publicity about unethical corporate behavior lower
stock price for a minimum of six months.

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Corporate Social Responsibility: A Study on Indian Private MNCs

At Cisco Systems, for example, an energy conservation initiative called “Cleaner Air and
Millions in Savings” is expected to save the company about $4.5 million per year in operating
costs. In addition, these energy savings will eventually qualify the company for an estimated
$5.7 million in rebates from the local energy supplier, Pacific Gas & Electric. Another area for
potentially reduced costs is in advertising expenditures, especially as a result of increased free
publicity. The Body Shop, for example, is noted for its campaign against using animals for
cosmetic testing. According to an article by the World Business Council for Sustainable
Development, “The Body Shop was launched on the basis of fair prices for fairly produced
cosmetics. Anita Roddick, its founder, generated so much favorable publicity that the company
did not need to advertise: a win-win on the cost benefit front, leaving aside the do good”. The
various studies time and again proved the business case of CSR.

The following quotes best summarizes this chapter.

“We need a campaign to tell the public that we put social responsibility ahead of profits so we
can make profits.” –Anonymous

“Whenever you are in doubt....recall the face of the poorest and the weakest man whom you may
have seen and ask yourself if the step you contemplate is going to be of any use to him? Will he
gain anything by it? Will it restore him to control over his own life and destiny? That test alone
can make our plans and programs meaningful.” -Mahatma Gandhi.

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Corporate Social Responsibility: A Study on Indian Private MNCs

Chapter Notes

i
KPMG is one of the largest professional services companies in the world and one of the Big Four auditors, along with Deloitte, EY and PwC.
Its global headquarters are located in Amsterdam, the Netherlands. KPMG employs 162,000 people and has three lines of services: audit, tax, and
advisory.

ii
YCELP - The Yale Center for Environmental Law & Policy, a joint research institute between the Yale School of Forestry & Environmental
studies and Yale Law School.

CIESIN - The center for International Earth Science Information Networks’ Mission is to provide access to and enhance the use of information
iii

world wide, advance the understanding of the human interactions in the environment, and serve the needs of science and public and prive
decision making.

iv
Samuel Family Foundation - This foundation has broadened its mandate internationally, to engage in such partnerships as the Clinton Global
initiatives and participate in programmes focusing on global poverty alleviations, environmental sustainability, disability rights and human rights
advocacy.

v
World Economic Forum – The World Economic Forum is an independent international organization committed to improving the state of the
world by engaging business, political, academic and other leaders of society to shape the global, regional and industry agendas.

vi
Mouryan Dynasty - The Maurya Empire was a geographically extensive Iron Age historical power in ancient India, ruled by the Maurya
dynasty from 322–185 BCE. Originating from the kingdom of Magadha in the Indo-Gangetic Plain(modern Bihar, eastern Uttar Pradesh) in the
eastern side of the Indian subcontinent, the empire had its capital city at Pataliputra (modern Patna). The Empire was founded in 322 BCE
by Chandragupta Maurya,

Kautilya - Chanakya; (350 – 275 BCE) was an Indian teacher, philosopher, economist, jurist and royal advisor. He is traditionally identifie d
vii

as Kautilya or Vishnu Gupta, who authored the ancient Indian political treatise, the Arthaśāstra (Economics). As such, he is considered as the
pioneer of the field of political science and economics in India, and his work is thought of as an important precursor to classical economics. His
works were lost near the end of the Gupta Empire and not rediscovered until 1915.

viii Karmayog Karmyog is a Mumbai-based NGO which provides detailed CSR activities of the 500 largest Indian firms and
other Indian firms. Their rating of the largest 500 Indian Companies and sector-wise analysis of the same, guides companies
to undertake CSR programmes optimally and gives recommendations and reporting formats for Companies to adopt CSR
and also gives opportunities to NGOs under the CSR programmes of various Companies.

ix
CSRidentity.com - Tata's new global sustainability portal www.CSRidentity.com brings together 3,000 companies, 10,000 leaders, 100,000
NGOs, 195 Governments, 3,000 funding agencies and perhaps millions of unseen volunteers, marketing organizations and more creating the
world's most comprehensive "Internetworks" platform on sustainability. The Corporate Sustainability platform is known as CSRidentity.com

x
JRD - Jehangir Ratanji Dadabhoy Tata (29 July 1904 – 29 November 1993) was an Indian aviator and business tycoon. He was the Chairman
of Tata Sons. He became India's first licensed pilot in 1929. In 1983, he was awarded the French Legion of Honour and, in 1992, India's highest
civilian award, the Bharat Ratna.

xi
Companies Act 2013 - The following Act of Parliament received the assent of the President on the 29th August, 2013, and is hereby published
for general information. An Act to consolidate and amend the law relating to companies. It is enacted by Parliament in the Sixty-fourth Year of
the Republic of India.

xii
Manipal Foundation - The Manipal Foundation, is a charitable trust recognized under the Indian Income Tax Act, 1961. It is the philanthropic
arm of Manipal University and was founded in 2001.

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