UNIT-VCORPORATE SOCIAL

RESPONSIBILITY (CSR)

UNIT CONTENT

Social Responsibility of Business with respect to different stakeholdersArguments for and against Social Responsibility of BusinessSocial Audit

CONCEPTUAL FRAMEWORK

Social Responsibility of Business can be defined as the obligation an organization’s management team has towards the interests and welfare of the society or community that provides it with resources and environment to not only survive but flourish.

In other words, Social Responsibility is the way your company gives back to and takes care of the community it is located in and the greater society we are all a part of.

CONCEPTUAL FRAMEWORK

“Conceptually social responsibility may be taken up to mean intelligent and objective concern for the welfare of the society.” K.R. Andrews

“Social responsibility is the personal obligation of every one as he acts for his own interests to assure that the rights and legitimate interests of all other are not impinged.”

Koontz and O’DonnelCorporate Social Responsibility (CSR) is also known as corporate citizenship, corporate conscience, social performance, sustainable responsible business, or responsible business.

CONCEPTUAL FRAMEWORK

There are four dimensions of Corporate Responsibilities:1. Economic:

Responsibility to earn profit for owners2. Legal:

Responsibility to comply with laws3. Ethical:

Doing what is right, just and fair4. Voluntary and Philanthropic:

Promoting human welfare and goodwill. Being a good corporate citizen

contributing to community and quality of life.

PHILANTHROPIC

RESPONSIBILITY

ETHICAL RESPONSIBILITY

LEGALRESPONSIBILITY

ECONOMIC RESPONSIBILITY

SOCIAL RESPONSIBILITY PYRAMID

Social benefit activities by Indian Companies Infosys Foundation, attends social causes like

water supply and toilet facilities to schools, guest houses to cancer patients, supply of computers to schools and colleges.

Tata Group invest in foot-ball academy, hockey academy and sponsor sports tournament. Give scholarship to meritorious students at All India level.

“WIPRO Cares” Foundation, with a targeted corpus of Rs 100 crore for primary education.

Birla foundation spends money on educational institutes, temple and old age homes on a regular basis.

NEW COMPANY’S BILL, 2013Parliament has passed a new bill which is the first major overhaul of Company law in more than 50 years.The legislation strengthens accounting standards and shareholder rights, and makes it mandatory for companies with market capitalisation of more than Rs. 500 crore to spend 2 per cent of their annual net profits on Corporate Social Responsibility (CSR), such as social work or charity.Schedule 7 of the Act lists out activities, which a qualified company can take up in discharging its CSR and includes promotion of education, promoting of gender equality and empowering women and employment enhancing vocational skills. Section 135 and Schedule 7 specifically provide that a preference should be given to the local area where a company operates.

SIGNIFICANCE OF CSRCorporate Social Responsibility is important for organization and its stakeholders due to following reasons:1. Increased productivity and quality2. Reducing operating cost3. Increased sales and customer loyalty4. Reduced corruption5. Improved financial performance6. Improved transparency and reporting7. Reduced regulatory oversight

FACTORS FOR GROWING CONCERN FOR CSR

Several forces have led to growing concern for socially responsible business behaviour. Some of the forces are:

1. Consumerism2. Trade Unionism3. Public opinion4. Enlightened self-interest5. Professionalization6. Trusteeship

Difference between Shareholder and Stakeholder

Shareholders and Stakeholders are the people who have some interest in the company in which they have either financial or non-financial stake. Shareholders are the people who have some share or stocks of the company in their name and as such are part owners of the company. Stakeholders are all those who have an interest in the company whether they are financially involved with the company or not. For example, employees of a company may not possess any share of the company and yet they are said to be stakeholders in the company.

SOCIAL RESPONSIBILITY OF BUSINESS WITH RESPECT TO DIFFERENT STAKEHOLDERS

SOCIAL RESPONSIBILITY OF BUSINESS

SOCIAL RESPONSIBILITY OF BUSINESS

SHARE--HOLDERS

EMPLOYEES

CUSTOMERS

SUPPLIERS

CREDITORS

GOVERN- -MENT

COMMUNITY

1. Responsibility towards Shareholders

1. Shareholders are source of funds for the company. They expect maximization of the value of their investment in the company.

2. It is the duty of management to see that the financial position of the company is sound and the company always looks for growth.

3. The management should keep the shareholders well informed about the progress and financial position of the company.

4. The assets of the company are purchased with the funds provided by the shareholders. The management is responsible to safeguard these assets.

2. Responsibility towards Workers1. Every business should pay reasonable wages and

salaries to its employees so that they may satisfy their needs and lead a good life.

2. Good working conditions are necessary to maintain the health of the workers. Since workers spend about 8 hours at work place, they must be provided with good working conditions.

3. Workers should be provided with adequate benefits such as housing and medical facilities, insurance cover and retirement benefits.

4. The management should recognize the workers’ right to fair wages, to participate in decision affecting their working life, to form trade unions etc.

5. The workers should be helped by training and other means to improve their skills.

3. Responsibility towards Customers1. The management should produce goods which

meet the needs of the consumers of different classes, tastes and with different purchasing power.

2. The management should make goods of right quality available to right people at the right time and place at reasonable price.

3. The management should provide a prompt, adequate and courteous service to customers and handle their grievances carefully.

4. The management should ensure that advertisement and statement issued by the business are true and fair.

5. The management should not indulge into unfair and unethical practice such as black marketing, hoarding, adulteration etc.

4. Responsibility towards Suppliers

1. Giving regular orders for purchase of goods.

2. Dealing on fair terms and conditions.3. Availing reasonable credit period.4. Informing about the taste of consumers.5. Timely payment of dues6. Informing the suppliers for future

development plans.

5. Responsibility towards Creditors

1. Provide accurate information regarding financial health of the organization.

2. Fairness in transactions3. Promote a healthy atmosphere where

creditors, suppliers and other interest groups are treated as patterns in a co-operative endeavor.

6. Responsibility towards Government

1. To abide by the laws of the nation2. To pay government taxes honestly3. To avoid corrupting government

employees4. To encourage fair trade practices.

7. Responsibility towards Community1. The management should not indulge in any

practice which is not fair from social point of view. Society expects that the business uses the factors of production effectively and efficiently.

2. The management can develop the surrounding area for the well being of workers and general public. It should take preventive measures against water and air pollution and should contribute to community development activities.

3. It is the responsibility of management to help increase direct and indirect employment in the area where it is functioning.

4. The management should make best possible use of capital, raw material, machine, technical knowledge and other resources for the well-being of the society.

Arguments for CSR1. Changed Public Expectations of Business

One of the most potent arguments for social responsibility is that public expectations from business. It is reasoned that business exists only because it satisfies the valuable needs of society.

2. Public ImageAnother argument in favor of social responsibility is that it improves public image which results into gaining more customers, better employees, more responsive money market and other benefits.

3. Business has resourcesBusiness has vast pool of resources in terms of men, talents, functional expertise and money. With these resources at its command business is in a better position to work for social goals.

Arguments for CSR4. Better Environment for Business

Social responsibility creates a better environment for business. The concept rationalizes that a better society produces environmental conditions more favorable for business operations. Labour recruiting will be easier, labour will be of high quality, turnover and absenteeism will be reduced.

5. Moral ResponsibilityToday modern industrial society faces many social problems. The corporations therefore have moral responsibility to help or solve these problems.

6. Citizenship ArgumentCorporations are institutional members of society. If individual members of society have an obligation towards society, then the corporations also have this responsibility.

Arguments against CSR1. Profit Maximization

First and most forceful argument disfavoring social responsibility is that business has profit maximization as its main objective.

2. Lack of social skillsBusiness managers are not expert in social work. They are best at managing matters relating to business. Their outlook is primarily economic and that there skills are the same.

3. Lack of AccountabilityAnother point of view is that the businesses have no direct accountability to the people, therefore it is unwise to give businessmen responsibility for areas where they are not responsible.

Arguments against CSR4. Social overhead Cost

Cost on social responsibility is considered to be a social cost which will not immediately benefit the business. It the heavy social overhead cost which is one of the reasons for the miserable performance.

5. Lack of broad supportBusiness involvement in social goals lack support from all groups in society. There is lack of agreement among the general public, among intellectuals, in the government and even among the businessmen themselves.

6. International CompetitionOne of the important arguments given by Indian business is that they have to face international competition. If they adopt social responsibility, it will increase the prices of their product and after competition business will fail and foreign companies will win in competition.

SOCIAL AUDIT

SOCIAL AUDITA social audit attempts to measure a company’s actual social performance against the social objectives it has set for itself. It is a process of evaluating a firm's various operating procedures, code of conduct, and other factors to determine its effect on a society. The goal is to identify what, if any, actions of the firm have impacted the society in some way. A social audit may be initiated by a firm that is seeking to improve its cohesiveness or improve its image within the society. If the results are positive, they may be released to the public. For example, if a factory is believed to have a negative impact, the company may have a social audit conducted to identify actions that actually benefit the society.

SOCIAL AUDIT

“A social audit is a systematic assessment of a company’s activities in terms of their social impact.” Mondy, Sharplin and Premeaux

“Social audit is the process which an organization undertakes when assessing and reporting on its social performance.”

Cotton

HISTORY OF SOCIAL AUDITThe word ‘Audit’ is derived form Latin, which means ‘to hear’. In ancient times, emperors used to recruit persons designated as auditors to get feedback about the activities undertaken by the king in their kingdom.

Charles Medawar pioneered the concept of social audit in 1972 with the application of the idea in medicine policy, drug safety issues and on matters of corporate, governmental and professional accountability. According to him, the concept starts from the principle that in a democracy the decision makers should account for the use of their power and the power should be used as far as possible with the consent and understanding of all concerned.

HISTORY OF SOCIAL AUDIT

OBJECTIVES OF SOCIAL AUDIT

1. To monitor social and ethical impact and performance of the organization. 2. To provide a basis for shaping management

strategy in a socially responsible and accountable way and to design strategies.3. To facilitate organizational learning on how to improve social performance.4. Proper budgeting and proper utilization of funds in accordance with the budget. 5. To inform the community, public other organizations and institutions about the allocation of their resources (time and money); this refers to issues of accountability, ethics (e.g. ethical investment) etc.

EXAMPLE OF SOCIAL AUDITSocial audit in Jharnipalli Panchayat, Agaipur Block, Bolangir district, Orissa

In October 2001, the gram sabha members of Jharnipalli Panchayat conducted a social audit of development works carried out in the panchayat over the preceding 3 years. The audit took place with active participation of many individuals and agencies, including block and district administration officials, MKSS [Mazdoor Kisan Shakti Sanghatan], NCPRI [National Campaign for People’s Right to Information] and Action Aid India. The Audit found that:

1. Although the works were not carried out, the sanctioned funds were shown in the records as having been utilized.

2. Contractors were banned under government guidelines, but 31 contractors were working on the project.

3. Muster rolls were not maintained by the contractors.

4. Instead of target of 100 man-days of employment for families Below Poverty Line (BPL), only 12 half days of work were generated.

5. BPL families could not buy subsidized food from the Public Distribution System (PDS) shops as partial wages because they did not possess the needed ration cards.

BENEFITS OF SOCIAL AUDIT

1. Enhances Reputation2. Involvement of people in developmental activities ensures that money is spent where it is actually needed. 3. Affect positive organizational change4. Increases accountability5. Reduction of wastages6. Improves the standard of governance7. Benefits disadvantaged groups8. Encourages community participation

PROCESS OF SOCIAL AUDIT

Identification of Activities

Assessment of Social Cost &

Benefits

Measurement of Social Cost &

Benefits

Reporting

STEPS FOR SOCIAL AUDIT

1. Clarity of purpose and goal of the local elected body.

2. Identify stakeholders with a focus on their specific roles since social auditing aims to ensure a say for all stakeholders. Indicator data must be collected by stakeholders on a regular basis.

3. Regular meetings to review data/information and analysing it for improvement in future needs.

4. Follow-up of social audit, actions, activities and viewpoints of stakeholders.

5. Establishment of a group of people to be involved in the verification and to judge if the decisions based on social audit have been implemented.

6. Findings of the audit should be shared with all stakeholders. This encourages transparency and accountability.

KEY FACTORS FOR SUCCESSFUL SOCIAL AUDIT

Following are the key factors for successful social audit:1. Level of information shared with and

involvement of stakeholders, particularly of the rural poor, women, and other marginalized sections.2. Commitment, seriousness and clear

responsibilities for follow-up actions by elected members.3. Involvement of key facilitators in the

process.

UNIVERSITY EXAMINATION1. Explain the concept of Corporate Social Responsibility. (2011)

2. What is Social Responsibility of Business? (2012)

3. Describe social audit. (2013)

4. Mention other names of corporate social responsibility.

(2014)

5. What is social audit? How it is done and why?(2011)

6. Explain the importance of social audit in present era. (2013)

7. What do you mean by Corporate Social Responsibility? Discuss the social responsibility of business with respect to different stakeholders.

(2011)

8. Explain why is it important for a corporate to work as socially responsible entity.

(2013)