Corporate Social Responsibility: A Value and A Strategy

Abstract

The article on corporate social responsibility aims to throw light on the concept of corporate social responsibility (CSR) and trace its evolution from philanthropy to a more elaborate concept that encompasses the environment, employee relations, corporate governance and engaging with the community. There exist divergent schools of thought pertaining to the very existence of the concept of CSR. Some critics are of the view that CSR is a whitewash to cover up the sins of the corporate houses whereas others believe CSR is indispensable and has to be woven into the very fabric of the corporate strategy. In the current scenario the latter school of thought seems to be gaining ground and as such the article explores the drivers of CSR. The business gains achieved by corporate houses who have embraced CSR as their corporate philosophy have been highlighted. To ensure the integration of CSR in organization strategy, and more so, in the culture and ethos of the organization, it needs to be rewarded and applauded. CSR is no longer a fringe activity that companies engage in to look good. Effective CSR today is that which relates directly to the giver's core competencies and creates empowerment, not just philanthropy. It is no longer considered good for business, but simply good business.
 

Introduction

As I stood in the long queues at the exchange counter of Big Bazaar, I could not refrain from asking the man behind the counter what they did with the old clothes the shoppers were depositing in lieu of the discount coupons. We send the clothes to NGOs, orphanages and destitute homes. 
Absolutely innovative and unique model of Corporate Social Responsibility, I thought.

According to Wikipedia, Corporate Social Responsibility (CSR) is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and the environment in all aspects of their operations.
Because corporates intervene in so many areas of social life, they must be responsible towards society and the environment. In India as in the rest of the world there is a growing realization that capital markets and corporations are, after all, created by society and must therefore serve it, not merely profit from it.

Origin of CSR

The primary drive for ethical business and corporate social responsibility can be traced to USA and Europe in the '80s and '90s, from campaigns run by pressure groups such as Greenpeace and Friends of the Earth.  During this period consumer boycotts, direct action, shareholder action, ethical shopping guides, ethical product labeling schemes, media campaigns and ethical competitors became increasingly effective in changing corporate perspectives. From then to now the principle or practice of CSR has gained from strength to strength. Even Wall Street has responded to this trend, with the Dow Jones launching a Sustainability Group Index (in October 1999). The SGI rates companies for their success in managing economic, environmental and social factors."¹
A recent survey conducted by a research agency showed that 86 per cent of the customers surveyed expressed a preference for purchasing a product from a company engaged in activities to improve society. People felt better buying greeting cards of CRY, an NGO engaged in working for needy children or TATA salt where for each unit of sale one rupee is donated towards Socially Relevant Activities.

 



Drivers of CSR

Various trends in the emerging global scenario acted as catalysts in strengthening the case for CSR.
Globalization : The world shrinking to a global village saw the political, economic and national barriers dividing people crumble and the concept of global citizen gained prominence. Multinational companies took off the launch pad in a major way. MNCs soon realized that they were fishing in choppy waters. In foreign lands they had to handle issues like cultural diversity and sensitivity; follow labor laws that were unknown in their parent country and comply with regulations and honor government restrictions. CSR provided a unique opportunity to earn the respect and faith of the local people. The MNCs started implementing CSR initiatives in a big way and earned favorable public opinion and acceptance in the foreign land.

Social Awareness and education : The revolution in communications technology has resulted in informed and aware customers. The increasing number and influence of consumer forums is testimony to the fact that corporations can be pressurized to do responsible business. The rising levels of education, unionization of work-force, and industrial democracy have strengthened the case for CSR. The ICFAI Republic School (IRS) with it vision to reach children from low economic backgrounds and provide them with knowledge, skills and facilities in order to enable them to compete in the mainstream, is an excellent example of CSR initiative.

Government Rules and regulations : The government in its pursuit of being a welfare state is enforcing socio-ecological friendly rules and regulations. A corporate has to abide by strict regulations; be it pollution control, protections against health hazards, ban on employment of child labor, determination of minimum wage and many more.

Crises and their aftermath : CSR initiatives taken by a corporate assume significance in a crisis situation. The stakeholder perception of the corporate being a responsible entity help the corporate to tide the crisis and salvage some of the damage suffered. The defective battery case of Nokia is a recent example. Consumer perception of Nokia being a socially responsible firm coupled with effective crisis management by the Nokia Management helped Nokia survive and salvage its reputation after the crisis.


Dichotomy regarding CSR practices

The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR. Corporations can achieve long term benefits when they operate with  a perspective broader and more holistic than their own immediate, short-term profits. But then some critics argue that CSR distracts from the fundamental economic role of businesses. The primary motive of corporate houses has been and should be to generate maximum profits for its shareholders and as such CSR cannot be regarded as a business function

Rewards of CSR

In today's world of ever increasing competition, corporates can not rely on generic strategies of cost advantage, differentiation or focus. They need to come up with something more innovative and effective. Corporate Social responsibility can prove to be the light at the end of the tunnel. One quarter of the total financial wealth is tied up in intangible assets such as corporate reputation, brand equity, strategic positioning, business alliances, knowledge etc. and CSR can be used to fortify each of them. Fulfilling CSR helps in the following business processes:-

Corporate Reputation : The focus of value creation has shifted to intangibles like reputation and relations. In today's times perception is reality, and the company's reputation capital is perhaps its most important asset. If the reputation of a well-known company is damaged the company can shrivel and die within a short span of time, destroying shareholder value and hurting the interests of virtually every category of stakeholders. The tragedy at the Union Carbide factory in Bhopal and the Uphaar Cinema Tragedy in Delhi are some of the infamous examples. Conversely, even a lesser- known company which builds a solid reputation can thrive and grow by competing effectively in the marketplace for customers, employees, vendors, desirable business partners and capital. In the process, the company is able to deliver sustained shareholder value. Adopting CSR boosts corporate reputation in a big way and in the process promotes business interest.

Brand Perception : Reports have shown that people like to buy products from firms which are socially responsible. The increasing number of customers buying greeting cards from CRY or Alpha Foundation is compelling traditional market leaders like Archies or Hallmark to indulge in introspection. CSR initiatives, in very subtle ways, create favorable perceptions of the brand and the organization in the minds of customers. Nike provides a compelling case in point. Nike suffered significant damage to its brand and its sales when it was exposed as having poor labor standards in its supply chain. Consequently, it benefited by embracing the cause of improving labor standards in the supply chain, and by publicizing its efforts to certify compliance with labor standards throughout its supply chain.

Brand differentiation : In crowded marketplaces, companies strive for a unique selling proposition which can serve to distinguish them from the competition in the minds of consumers. CSR can play an important role in building positive customer perception and  loyalty based on distinctive ethical values.

Corporate citizenship : Citizenship is defined as the rights and duties of the member of a country. Companies, as legal entities are members of countries and as such can be thought of as Corporate Citizens. Citizenship means active commitment and shouldering responsibility. It means making a difference in one's community, society or country. Good Corporate Citizenship can therefore be defined as  understanding and managing a company's wider influence on society for the benefit of the company and the society as a whole.² . Thus corporate citizenship is synonymous with the concept of CSR. A CSR which is not only 'cheque book philanthropy' but which arises from a deep set conviction of the business leaders that business can and should play a role beyond just money-making.

Share ownership : Since the corporates indulging in CSR have widened their area of influence by including not only the shareholders but also the stake holders, there has been a shift in accountability from  shareholders to stakeholders. By taking  all stakeholders into confidence the firms reduce their investment risk and optimize profits.

Goodwill : The importance of goodwill in business need not be emphasized. Goodwill is an intangible asset, probably the most intangible of all intangible assets, hard to measure and even more difficult to account for. In the emerging scenario it only pays if Corporates use CSR initiatives to leverage goodwill of society in general and its customers in particular.




Does CSR need Incentives?

The importance of rewards cannot be undermined in reinforcing  positive behavior. To ensure that CSR is not only a transient management strategy or a temporary fad, it needs to be endorsed, promoted and rewarded.
The Golden Peacock National Quality Award, named after India's national bird the "Peacock", is awarded every year. Each category has two awards - the Winner and the Runner up. Each winner and runner up receives a trophy and a certificate. The award winners may use the Golden Peacock National Quality Award logo on their printed and promotional material. The Energy and Resources Institute (TERI) acknowledges innovative practices in Indian industry and accords recognition to model corporate citizens. The awards are conferred annually to corporate bodies from a wide section of the industry. TERI instituted the TERI Corporate Awards for Environmental Excellence in 2001 and TERI Corporate Awards for Corporate Social Responsibility in 2002.

Conclusion

It is needless to mention that a corporation is framed or exists for the basic purpose of wealth generation, maximizing the stockholder's return and long run sustainability. Profit or economic gain should be the core objectives of any business to survive. But at the same time for the sake of self-sustainability and to enjoy longevity and growth, they cannot or should not forget their responsibility towards the society or the environment in which they operate. CSR should be viewed as a process and not as a destination. CSR emerged in response to public disillusionment with the traditional role of business and continues to be driven by a combination of factors like consumers, shareholders and citizens. Over the last few years efforts have been made to strength the CSR movement through a rigorous process of standardizing, reporting and auditing social and environmental performance. Yet, progress is limited by virtue of the fact that CSR remains a purely voluntary and self regulated movement.


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