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CSR: Corporations Shunning Responsibility?
 

CSR: Corporations Shunning Responsibility?

TestFunda ,  03-Apr-09

Stakeholders – Corporations and businesses, shareholders, investors, customers, clients, governments

Corporate social responsibility (CSR) is a topic of much debate in academia, political circles, investor meetings, environmental organizations, coalitions of countries, business associations, the UN and in the GD of any prospective wannabe MBA. It is not a new debate but the stakes of CSR are getting higher each time.

What everyone is discussing

What is the key role of any business? Should businesses strive to be socially responsible and if yes, then how do they go about it? How does a business benefit by engaging in CSR? Does CSR make good business sense? Do society and the environment truly benefit from CSR? Why CSR in 2009?

The two extreme viewpoints

·         No debate on CSR is ever complete without mentioning Milton Friedman’s (American economist) article published in 1970. Friedman’s conclusion sums up the essence of what he believed the key role of a business was: "There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

·         The counterview is that business has a deep impact on society and the natural environment. Businesses owe an obligation to mitigate the problems and challenges of the human and natural environments in which they operate. Bill Gates termed it as creative capitalism.

CSR – A working definition

Despite the debate that has continued for years, there is still no one definition of CSR. The concept of CSR is perceived differently in different socio-economic contexts. Legal requirements for businesses are also different for each country.

CSR is a management concept. It is a tool used by a business to help align business operations with societal and environmental needs, along with meeting the needs of its stakeholders and shareholders.

Changing context of business in 21st century

·         The social, economic and environmental concerns of the 21st century have created a very different business climate. Globalization is connecting multinational corporations (MNCs) with local communities around the world.

·         Globalization has led to a change in patterns of production and consumption. Bottled water packaged at the source is often shipped to consumers thousands of miles away. The bottled water industry thereby is culpable of adding more carbon emissions. Walk down the food section of a supermarket and you can see global products sourced from remote places.

·         Global businesses often have health impacts on local communities. Take the horrific Bhopal Gas Tragedy. The gas leak at the American-owned Union Carbide plant killed many. Studies indicate that the next generation of residents are still suffering health problems. Was there a lack of ethical standards in business operations on the part of Union Carbide? Dow Chemicals which bought Union Carbide has been under tremendous pressure from investors, activists and the local people to find solutions to mitigate the problems.

·         Global businesses also affect the natural environment in which they operate.

·         Corporate scams and scandals have brought down the economies of many nations worldwide.

·         Some of today’s MNCs are possibly larger than an entire nation.

·         Business coalitions and alliances have the power to affect national and global political decisions.

·         Policies of trade organizations are often shaped by global businesses.

Business has a wide range of impact and the pressure on businesses to operate in a sustainable manner is growing. In the wake of all this, businesses are shaping up their CSR policies.

CSR roundup

·         Board room or MBA classrooms, people in the business community cannot ignore the CSR topic. More B-schools are realizing the significance of CSR in the 21st century business world. University of Nottingham is the first B-school in the UK to offer an MBA in CSR. Interestingly though, the CSR program is funded by British American Tobacco (BAT) a multinational tobacco company.

·         Some studies have indicated a rise in CSR jobs. To fill these positions, companies are recruiting students with training and education in CSR.

·         Pick up the paper on any day and you will observe that stories about the go green movement and about initiatives to improve the social and human conditions are placed in the business section of the paper.

·         Environmentally conscious customers are demanding eco-friendly products and also expect businesses to adopt green policies and measures. This is a key driver in CSR initiatives.

·         Businesses are indulging in CSR activities to regain the public faith after the recent spurt of scams and scandals. People want to work at companies that they perceive to be socially and ethically responsible.

·         Recently a new trend in businesses can be observed – environmental and social auditing. The audit is in the form of an annual publication documenting the environmental impacts estimated by a company’s operations. This is balanced against the company’s efforts towards socially/environmentally responsible behaviour.

·         Auditing firm KPMG reported a 30 percent jump from 2005 to 2008 in the percentage of large companies generating CSR reports; four out of five (79%) of the world's largest companies now provide this information in a publicly available form. Thousands of firms are listed on an online corporate register - a global directory for CSR resources.

·         Prime Minister Dr. Manmohan Singh formulated a 10 point social charter in the Confederation of Indian Industry (CII) meeting in 2007. The charter strongly urges Indian businesses to adopt a more holistic approach to CSR in order to mitigate India’s social and environmental problems. In return, the government promises support in fostering a climate where businesses would flourish. This influential speech has also spurred CSR initiatives in Indian industries.

A few CSR examples in India

·         As a contribution towards socially responsible behaviour, the Indian dairy food giant Amul supported the Pink Chaddi Campaign in its advertising.

·         JSW Steel Ltd went beyond traditional CSR by helping farmers near its Karnataka plant, to set up sustainable farming practices.

·         Euro Fruits, an Indian company that is the leading exporter of table grapes to Europe has opened a school in Sangli to cater to the needs of the farmer’s children.

·         NTPC the public-sector thermal power company has CSR initiatives in the areas of health, environment, development of the girl child, and education. More than 200 villages and over 2,500 people have benefited from NTPC’s CSR activities.

From the Exxon oil spill to the Enron scandal, CSR is getting harder to ignore. What remains controversial is whether CSR is a myth or a reality.  

Does CSR make a difference?

No

·         CSR is a myth – a mere window-dressing to hide the “bad practices” of an organization. Satyam’s good CSR track record did not stop it from indulging in ethical malpractices.

·         CSR is just another name for public relation stunts whereby a company gets away by making a few charitable donations, planting a few trees or providing tickets to its employees for some gala event.

·         Industries engage in CSR to gain limelight and the intention behind the activity remains dubious. This prevents a company from engaging in any meaningful activity that could make a real difference to society.

·         Eco-friendly practices are just used as selling points. Businesses are geared towards profit making and cannot engage in activities that will improve the environment or society.

·         A business is responsible to its shareholders. Profits earned by businesses are the rightful property of shareholders and must go back to them.

·         Only large MNCs and very large industries can engage in CSR. Smaller companies just don’t have the funds.

·         Better government regulations and international enforcements would be more effective than hypocritical voluntary CSR practiced by corporations.

·         Most companies think of CSR as something to do only after profits have been earned and not as a business model that can actually help earn profits.

·         Financial crisis has caused many companies to freeze money spent on CSR activities which just shows what businesses really think of CSR.

·         Different countries have different business standards and requirements. CSR is not a legal requirement around the world. Globalized businesses can easily escape one country’s stringent requirements by setting offshore centres elsewhere – better known as industrial flight.

·         Businesses will only engage in true CSR if they believe that there is something in it for them. There is no conclusive data that proves a strong and direct correlation between CSR and financial success.

Yes

·         CSR helps in attracting and retaining employees. Lower attrition rates imply lower costs in recruitment and training.

·         Employees want to work with socially responsible companies. Candidates often ask about a company’s CSR initiatives during an interview.  

·         CSR helps build brand image. The public today wants to buy products and services that they perceive as eco-friendly.

·         Proactive measures such as product recall and fines for excessive pollution would help in enforcing stricter quality norms which would lead to a reduction of environmental risks.

·         CSR activities when integrated in every aspect of the business can give a competitive edge to the business.

·         Given all the scams and scandals, businesses need all the more to engage in proactive CSR. Companies that are socially responsible will be more attractive to investors.

·         Health of the workforce can affect business. It is in the business’s best interests to help promote a healthy work environment for its workers. Health of not just the workforce but the entire community of people where the business operates is important. Creating health and wealth would only add to a business’s growth.

More Links:

·         CSR Doesn't Pay      

·         The strategic utility of CSR      

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