CORPORATE SOCIAL RESPONSIBILITY IN INDIA

CASIRJ

Volume 5 Issue 5 [Year - 2014]

ISSN 2319 – 9202

CORPORATE SOCIAL RESPONSIBILITY IN INDIA Author

: Ritika Dhiman

(Assistant Professor) S.L.C. (EVE), Delhi University Email: [email protected]

ABSTRACT: - Corporate social responsibility is nothing but how the business takes responsibility for social, economic and environmental impacts it may produce from its operation or products. The aim of this research paper is to explain the need of Corporate Social Responsibility in business organizations and ascertain how various organizations apply it to achieve various objectives. Objectives: the roles played by business education in the development of key Corporate Social Responsibility skills, the impact of customer perception on loyalty basing on Corporate Social Responsibility, how corporate social responsibility is capable of enhancing corporate reputation and some of the main strategic decisions which are faced by various business organizations in their strive to improve or enhance their performance of Corporate Social Responsibility. Research Questions:  

How can a business improve public reputation with CSR What are the strategic decisions that are faced by business organizations when trying improving their performance of CSR?

However, majority of the business firms have fully supported the adoption and use of Corporate Social Responsibility because of the various benefits that arise as a result of its application. Business firms who have failed to adopt and apply the use of CSR within their midst have attributed this failure to lack of funds toes enable the use of various strategies and poor management or leadership styles of the business managers or leaders.

INTRODUCTION: - CSR is not a new concept in India. Ever since their inception, corporate like the Tata Group, the Aditya Birla Group,and Indian Oil Corporation, to name a few, have been involved in serving the community. Through donations and charity events, many other organizations have been doing their part for the society. The basic objective of CSR in these days is to maximize the company's overall impact on the society and stakeholders. CSR policies, practices and programs are being comprehensively integrated by an increasing number of International Research Journal of Commerce Arts and Science http://www.casirj.com

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CASIRJ

Volume 5 Issue 5 [Year - 2014]

ISSN 2319 – 9202

companies throughout their business operations and processes. A growing number of corporates feel that CSR is not just another form of indirect expense but is important for protecting the goodwill and reputation, defending attacks and increasing business competitiveness. CLAUSE 135, COMPANIES ACT,2013 In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013, which was passed by both Houses of the Parliament, and had received the assent of the President of India on 29 August 2013. The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore INR and more, or a net worth of 500 crore INR and more, or a net profit of five crore INR and more. The new rules, which will be applicable from the fiscal year 2014-15 onwards, also require companies to set-up a CSR committee consisting of their board members, including at least one independent director. The Act encourages companies to spend at least 2% of their average net profit in the previous three years on CSR activities. The ministry’s draft rules, that have been put up for public comment, define net profit as the profit before tax as per the books of accounts, excluding profits arising from branches outside India. The Act lists out a set of activities eligible under CSR. Companies may implement these activities taking into account the local conditions after seeking board approval. The indicative activities which can be undertaken by a company under CSR have been specified under Schedule VII of the Act. Why do Businesses need CSR policies? Understanding the Types of CSR: There are actually two different types of corporate social responsibility to consider. The first one consists of corporations providing funding and resources for worthwhile social causes, such as donating money or employee time to charities. For many people, this is the definition used when thinking about corporate responsibility. However, another type of CSR involves putting together a real plan to produce products or provide services that are in the best interests of society. These include things like using safe materials in design and manufacture, corporate environmental initiatives, and other factors such as job creation and economic development. Showing a True Commitment: The most successful corporate social responsibility programs integrate these two types of CSR together to show a true commitment to a cause. For example, a company that uses sustainable materials in their products, donates financial resources to environmental causes, and allows employees to take paid time off for volunteering at environmental charities would be showing a true commitment to the environment that goes beyond any single CSR initiative. Social Media Visibility: One of the reasons that corporations should have visible CSR campaigns is due to the importance and prevalence of social media. Corporations that want to protect their International Research Journal of Commerce Arts and Science http://www.casirj.com

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CASIRJ

Volume 5 Issue 5 [Year - 2014]

ISSN 2319 – 9202

brand understand that social media is an integral part of public perception. When a corporation exercises social responsibility in the form of fundraising or setting up employee giving programs, using social media to promote these actions helps to create a positive branding environment and it is a great way to engage with your audience on a deeper level that goes beyond your products or services. Public Relations Benefits: Public relations are a potent tool for shaping consumer perception and building a company’s image. Corporations that actively promote their social responsibility activities often take steps to publicize these efforts through the media. Getting the word out about corporate donations, employee volunteer programs, or other CSR initiatives is a powerful branding tool that can build publicity for you in both online and print media. Government Relations: Corporations that place an emphasis on corporate social responsibility typically have an easier experience when dealing with politicians and government regulators. In contrast, businesses that present a reckless disregard for social responsibility tend to find themselves fending off various inquiries and probes, often brought on at the insistence of public service organizations. The more positive the public perception is that a corporation takes social responsibility seriously; the less likely it is that activist groups will launch public campaigns and demand government inquiries against it. Building a Positive Workplace Environment: Finally, one of the greatest benefits of promoting social responsibility in the workplace is the positive environment you build for your employees. When employees and management feel they are working for a company that has a true conscience, they will likely be more enthusiastic and engaged in their jobs. This can build a sense of community and teamwork which brings everyone together and leads to happier, more productive employees.

Evolution of CSR:The Four Phases of CSR Development in India: The First Phase: In the first phase charity and philanthropy were the main drivers of CSR. Culture, religion, family values and tradition and industrialization had an influential effect on CSR. In the pre-industrialization period, which lasted till 1850, wealthy merchants shared a part of their wealth with the wider society by way of setting up temples for a religious cause. With the arrival of colonial rule in India from 1850s onwards, the approach towards CSR changed. The industrial families of the 19th century such as Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclined towards economic as well as social considerations. However it has been observed that their efforts towards social as well as industrial development were not only objectives. The Second Phase: In the second phase, during the independence movement, there was increased stress on Indian Industrialists to demonstrate their dedication towards the progress of the society. International Research Journal of Commerce Arts and Science http://www.casirj.com

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Volume 5 Issue 5 [Year - 2014]

ISSN 2319 – 9202

This was when Mahatma Gandhi introduced the notion of "trusteeship", according to which the industry leaders had to manage their wealth so as to benefit the common man. "I desire to end capitalism almost, if not quite, as much as the most advanced socialist. But our methods differ. My theory of trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other theories." This was Gandhi's words which highlights his argument towards his concept of "trusteeship". Gandhi's influence put pressure on various Industrialists to act towards building the nation and its socio-economic development. According to Gandhi, Indian companies were supposed to be the "temples of modern India". Under his influence businesses established trusts for schools and colleges and also helped in setting up training and scientific institutions. The operations of the trusts were largely in line with Gandhi's reforms which sought to abolish untouchability, encourage empowerment of women and rural development. The Third Phase: The third phase of CSR (1960–80) had its relation to the element of "mixed economy", emergence of Public Sector Undertakings (psus) and laws relating labor and environmental standards. During this period the private sector was forced to take a backseat. The public sector was seen as the prime mover of development. Because of the stringent legal rules and regulations surrounding the activities of the private sector, the period was described as an "era of command and control". The policy of industrial licensing, high taxes and restrictions on the private sector led to corporate malpractices. This led to enactment of legislation regarding corporate governance, labor and environmental issues. Psus were set up by the state to ensure suitable distribution of resources (wealth, food etc.) To the needy. However the public sector was effective only to a certain limited extent. This led to shift of expectation from the public to the private sector and their active involvement in the socio-economic development of the country became absolutely necessary. In 1965 Indian academicians, politicians and businessmen set up a national workshop on CSR aimed at reconciliation. They emphasized upon transparency, social accountability and regular stakeholder dialogues. In spite of such attempts the CSR failed to catch steam. The Fourth Phase: In the fourth phase (1980 until the present) Indian companies started abandoning their traditional engagement with CSR and integrated it into a sustainable business strategy. In 1990s the first initiation towards globalization and economic liberalization were undertaken. Controls and licensing system were partly done away with which gave a boost to the economy the signs of which are very evident today. Increased growth momentum of the economy helped Indian companies grow rapidly and this made them more willing and able to contribute towards social cause. Globalization has transformed India into an important destination in terms of production and manufacturing bases of tncs are concerned. As Western markets are becoming more and more concerned about and labor and environmental standards in the developing countries, Indian companies who export and produce goods for the developed world need to pay a close attention to compliance with the international standards. ARGUMENTS IN FAVOUR OF CORPORATE SOCIAL RESPONSIBILITY: International Research Journal of Commerce Arts and Science http://www.casirj.com

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ISSN 2319 – 9202

CSR is the commitment of business to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders. The Iron Law of Responsibility: If a business intends to operate, it must respond to the needs and expectations of the society. The inputs of a business and outputs are regulated by the society and these must acceptable to the society Achievement of Long-term: Under current conditions management cannot effectively discharge its long term responsibilities to shareholders unless it also behaves responsible towards employees, customer, government and public at large. Since business has been given economic power and access to productive resources of society, they are obliged to use those resources for the welfare of the society. Social Responsibility avoids Government Interventions: When a corporation voluntarily responds to social expectations, the intervention of government is no more needed to control business activities. Regulation and control restrict flexibility of doing the business. Once government control is established it is never done away with. CSR recognizes Socio-cultural Norms and Respects Social Consciousness: Since an enterprise operates within a framework of socio-cultural norms it has to work with-in the desirable limits set by the society. The society certainly expects good quality product, fair trade practices, and safety measures at work, and labor welfare into consideration and this is automatically taken care of in the CSR orientations. Improved financial performance: Research has shown a positive relationship between CSR activities and financial performance of the firms. Depaul’s University study in 20025 signifies that Business Ethics Best Citizen companies are significantly between than that of the remaining companies in the Standard and Poor 500 index, based on 2001 Business week ranking of total financial performance. This ranking is based on eight statistical criteria including total return sales growth and profit growth over the three year period. CSR increases Sales and Customer loyalty: There is empirical evidence which shows relationship between companies that are socially responsible and growing market for their products and services. Business has to satisfy customer on key criteria such as price, quality, availability, safety and comfort. Helps Minimize Ecological Damage: Many corporations damage the environment. By socially responsible behavior, a business may minimize damage to the ecological balance. Profit is to be viewed as Long-term Objective: Economic objective of profit is to be considered as the long-run objective. Expenditure on social issues certainly reduces short-term profit but increases consumer loyalty and business standing which is certainly conducive to long-term gains. International Research Journal of Commerce Arts and Science http://www.casirj.com

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CASIRJ

Volume 5 Issue 5 [Year - 2014]

ISSN 2319 – 9202

REVIEW OF LITERATURE:1)According to the article by the Harvard Law School on Financial Regulation and Corporate governance, it was ascertained that activities, which were related, to Corporate Social Responsibility had a greater potential in the creation of various forms of value which were distinct to the customers. It was through the perception of customers towards this value that can mediate the relationship between a company’s CSR activities and its subsequent performance in finance. It is also through this article that it can be established that CSR increases a business firms’ profitability due to increased loyalty of the clients, lower risks in reputation during crisis and willingness of paying the premium prices (Chandler, 2010, p.48-50). 2) Customer perceptions on loyalty based on CSR: According to Crespo, H, et al (2005, p.1), customer loyalty and valuation of various business services is profoundly influenced by Corporate Social Responsibility. It was ascertained that Corporate Social Responsibility had a lot of influence on the customers’ behavior. This was done through the identification of the various dimensions of social responsibility from the point of view of consumers and the weight of each of the dimension in the global construct of social responsibility. It is not, however, easy for consumers or customers to memorize and acquire information regarding a company’s social responsibility. 3) The adoption of Corporate Social Responsibility by business organizations is beneficial because it leads to improved financial performance by the company, increased customer loyalty and sales, reduced regulatory oversight, workforce diversity, decreased liability, access to capital and product safety, more ability in attraction and retention of employees by the company, lower operational costs, greater quality and productivity and enhanced brand reputation and brand image among others (Joyner and Pyane,2002, p. 297-311). 4) Consumers now more than ever can affect the way corporations do business, and this necessitates a strong focus on CSR. In an article by the Baylor Business Review, Melanie Merrifield attributes this to four factors: transparency, knowledge, CSR and globalization. Because consumers now have much more knowledge available at their fingertips, they can be more discerning about the companies whose products they purchase (Merrifield, 2003). 5) Companies do feel greater internal and external pressure to implement CSR programs, and the recent downturn in the world economy has heightened the importance of CSR programs. According to “Weathering the Storm,” a 2009 report on the state of corporate citizenship in the United States that included a survey of 759 executives, more business leaders recognize having strong CSR strategies adds value to the corporation. The survey revealed that many executives believe a connection International Research Journal of Commerce Arts and Science http://www.casirj.com

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between CSR and reputation is increasingly important when the American public’s distrust of business is high; furthermore, when businesses are operating during tough economic times, greater attention is paid to the issues that contribute to and affect their bottom lines. This again highlights the importance of social responsibility and shows it can add significant value to a corporation (Veleva & Googins, 2009). CONCLUSION: - As any business wants to exist in the industry for a longer period and they do use social or natural resources which make them able to run their business. So it’s a responsibility of a business to return back what they have taken from the society. For this particular purpose, corporate social responsibility came into existence. Businesses contribute some percentage of the net profits in society’s welfare and make society happy. The implementation of these responsibilities may vary depending upon the firm’s size, management’s philosophy, corporate strategy, industry characteristics, the state of the economy, and other such mitigating conditions, but the four component parts provide management with a skeletal outline of the nature and kinds of their CSR.

REFERENCES/BIBLIOGRAPHY:      

Http://www.paperwritings.com/free-examples/business-and-corporate-socialresponsibility.html#ixzz35aodyd00 Http://www.ehow.com/info_8557878_can-social-responsibility-improve-business.html Http://www.goizueta.emory.edu/upload/155/rad5b4ed.pdf Http://amrc.org.hk/taxonomy/term/issue_2/48 Roberts, p., & dowling, g. (2002, September 19). Corporate reputation and sustained superior financial performance. Bonner, Julia and Adam Friedman, “corporate social responsibility: who's responsible?” Craig Smith, N., “ CORPORATE SOCIAL RESPONSIBILITY: NOT WHETHER, BUT HOW?”, Centre for Marketing Working Paper ,No. 03-701 ,April 2003

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