Corporate Social Responsibility

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University Degree Business and Administrative studies

Corporate Citizenship Initiatives

Introduction to Corporate Social Responsibility

               Business as it is said, is a product of environment. The nature of business, location, the product to be manufactured, the size, volume of operation, etc is determined by the environment in which it operates.        

             Similarly it has an impact on the environment in which it exists. The business decisions in an organization completely depend upon the environment and their impact. The environment can be divided into:

  • Internal Environment
  • External Environment

 

              Social Responsibility of business refers to what business does over and above the statutory requirement for the benefit of the society. The word  “responsibility” emphasizes that the business has some moral obligations towards the society.

              The term corporate citizenship is also commonly used to refer to the moral obligations of the business towards the society. It implies that like individuals, corporates are also the part of the society and their behavior shall be guided by the social norms.

Social Responsibility has been defined by Davis as follows:

“Social responsibilities refer to businessman’s decision and actions taken to reason at least partially beyond the firm’s direct economic or technical interest.”

             

Still broader view has been suggested by Andrews when he says that:

“By social responsibility, we mean the intelligent and objective concern for the welfare of the society that restrains   individual   and corporate behavior from ultimately destructive activities, no mater how immediately profitable, and leads in the direction of positive contributions to human betterment, variously as the latter may be defined.”

              There has been a growing acceptance of the plea that business should be socially responsible i.e. it   should   discharge its   duties and responsibilities in enhancing the welfare of the society of which it is an integral part.

              H. S. Singhania classifies CSR into two categories:

  • The manner in which a business carries out its own business activity.
  • The welfare activity that it takes upon itself as an additional function.

Models of Corporate Social Responsibility

              There are some models, which endeavor to describe the evolution and extent of social orientation of companies.

        Carroll’s Model:

                    He defines CSR as a range and obligations a business has towards the society. There are four categories of the obligation.

 

           

   

  • Economic Responsibility:

              A firm being an economic unity, this is its prime responsibility, i.e. to satisfy the economic needs of   the society through generating surplus and investing in development of the society.

  • Legal Responsibility:

              A company performs this because it is bound to obey the law and the legal system.

  • Ethical Responsibility:

              Business organization is expected to undertake these though they are not   mandatory.  These   include not restoring to unfair trade practices, not cheating the customer, etc.

  • Discretionary Responsibility:

              It refers to the voluntary activities undertaken by the organization for social development programmes.

              These levels of responsibilities was named as “Pyramid of Corporate Social Responsibility”

        Ackerman’s Model:

                    Also described that CSR done by a company generally spreads over three phases:

  • FIRST where the top management recognizes the existence of social problem, which deserves attention and acknowledges the company’s policy towards it by making an oral or written statement.
  • SECOND phase is where the Co. appoints staff specialists or external consultants to study the problem and suggest ways of dealing with it.
  • THIRD phase involves the implementation of the social responsibility programmes.

THE INTEREST GROUPS

        

Social Responsibility requires the identification of various interest groups, which may affect the functioning of a business organization and may also be affected by its functioning. Normally various groups associated with a business organization are shareholders, workers, customers, creditors, suppliers, government and society in general. The management owes responsibility towards all these groups. Therefore, management should show a standardized norm of behavior.

  • Shareholders:

The first responsibility of the management is to protect the interest of shareholders. The interests of majority of shareholders and large minority of shareholders are generally well protected through either direct participation in the management actions or they have real power to intervene, if necessary. They should be informed about the functioning of the organization adequately and timely.

Therefore, management has a responsibility to provide proper safeguard to the money invested by shareholders.

  • Workers:

Workers have direct interest in an organization because by working there, they satisfy their needs. Thus, it is the management’s responsibility to protect the interest of workers in the organization. This can be done by the management in the following ways:

  • Management should treat workers as another wheel of the cart
  • Management should develop administrative process in such a way that promotes cooperative endeavor between employers and employees.
  • The management should adopt a progressive labor policy based on recognition of genuine trade union rights – participation of workers in management, creating a sense of belongingness, improving their living and working conditions.
  • Management should pay fair and reasonable wages and other financial benefits to workers.

  • Customers:

Management owes a primary obligation to give a fair deal to the customers. This can be done in the following ways:

  • Customers should be charged a fair and reasonable price.
  • The supply of goods and services should be of uniform standard and of reasonable quality.
  • Management should not indulge in profiteering, hoarding, or creating artificial scarcity.
  • Management should not mislead the customers by false, misleading and exaggerated advertisements.

  • Creditors, Suppliers and Others:

They affect the organization in various ways. Therefore , the management is responsible to fulfill its obligations towards them. This can be done in the following ways.

  • Management should create healthy and cooperative inter business relationship between different businesses.
  •  Management should provide accurate and relevant information to creditors and suppliers.
  • Payments of price of materials, interest on borrowings, other charges should be prompt.

  • Government:

It is very closely related with the business system of the country. It provides various facilities for the development of business. Government, no doubt, exercises control over business, but these controls are meant for overall development of business. Management can discharge its obligation to government by:

  • Management should be a law-abiding citizen
  • Management should pay taxes and other dues fully, timely & honestly.
  • It should not corrupt government workers and public servants and the democratic process
  • It should not buy political favors by any means

  • Society:

Organizations exist within a social system and get facilities from the system. Therefore, they owe obligations to the society as a whole. This can be done by:

  • Management should maintain fair business policies and practices.
  • It should play a proper role in civic affairs.
  • It should provide and promote general amenities and help in creating better living conditions in general.

WHY SOCIAL RESPONSIBILITIES OF BUSINESS?

            “Why should business be concerned about social responsibilities?” is a question that has attracted the attention of many thinkers, both from academics as well as from practitioners. There have been arguments and counterarguments in favour of and against social responsibility of business.

Arguments against Social Responsibility:

           

  1. Profit maximization:

        The first and the most important argument against CSR is that a business organization’s primary objective is profit maximization. Since business operates in a world of poverty and hunger, the economic efficiency of the business is a matter of top priority and should be the sole mission of business. Its function is economic and not social and economic values should be the only criteria used to measure success.

  1. Society has to pay the cost:

        Another argument is that the costs of social responsibility will be passed on to the society and it is the society, which has to bear its cost. The question is whether the society can afford these costs?

  1. Lack of social skills:

        Business managers are best in managing matters related to business. They are not equally good at solving social problems. If society is going to depend on someone to work with social problems, why choose a group, which is not qualified to do it.

  1. Lack of accountability:

        Another point of view is that business has not direct accountability towards the people, so it is unwise to give the businessman the responsibility for areas he is not accountable. Until the society can develop mechanisms, which establish direct lines of social accountability from business to the public, it should pursue its goal of profit where it is directly accountable through the market system.

  1. Friedman’s Views:

        The most convincing criticism has been voiced by the economist Milton Friedman. Friedman based his arguments on two principal contentions, one economic and one legal. From the economic perspective, he asserted that if managers spend corporate funds on projects not intended to maximize profits, the efficiency of the market mechanism will be undermined and resources will be misallocated within the economy.

        On the legal side, Friedman contended that because managers are legal agents of the stockholders, their sole duty is to maximize the financial return to the stockholders. Hence if they spend corporate funds for social purposes they are essentially stealing from the stockholders.

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Arguments for Social Responsibility:

  1.  Changed Public Expectations of Business:

One of the most potent arguments for social responsibilities is that public expectations from business have changed. It is reasoned that the institution of business exists only because it satisfies the valuable need of the society. Society gave business its charter to exist, and the charter can be amended or revoked at any time that business fails to live up to society’s expectations. Therefore, if business wishes to remain viable in the long run, it must respond to society’s needs and give society’s needs and ...

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Corporate Social Responsibility
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    Business and Administrative studies
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