Tata Institute of Social Science Masters in Globalisation and Labour Studies Social Protection and the State (GL4)
Draft Paper for Literature Review on
Corporate Social Reponsibility and Social Welfare
ASHONSHOK KACHUI M2015GL001
Submitted to: Versha Ayyar Assistant Professor Center for Labour Studies TISS, Mumbai
Date: 29 Sep 2015 Place: Mumbai
Contents Introduction
1
Corporates towards Social Welfare
2
Social Welfare through Corporate Social Responsibility
3
Corporate Social Responsibility and the future
4
Conclusion
5
Reference
Abstract -
INTRODUCTION Corporate Social Responsibility has been around for the past 50 years since the rise of the corporations and private firms in the the late 20th century. After Keynesian economics or government interventionist declined their control paving the way for neoliberal and privatised corporatist led economy in the 1980s and 1990s, there is a growing debate for defining Corporate Social Responsibility. Yet after so many years, there isn't one conclusive idea to promulgate CSR. Many scholars are of the view that Corporate Social Responsibility encompasses several concepts such as corporate citizenship, sustainable business, environmental responsibility, business ethics and corporate accountability (Matten, Moon 2008). It was during 1950s that corporates conceptualized the idea to build, restore or maintain public image (Caroll 1991). There are several reasons behind the shift or goal displacement1 . Some scholars like Richter (2001), Jenkin (2005), Bendell (2005) are of the view that CSR saw its initiative after growing waves of anti-trust movements around the world and especially in the US. One of the most intriguing thing as observed about the corporate social responsibility is that it is getting more expansive than accumulative (Crane et al., 2008). A simple search on Google for the phrase 'corporate social responsibility' garnered 12,900,000 results in 2007 (Broomhill, 2007) but in 2015, October 1, the same phrase got 64,900,000 results. This five fold increase in a span of eight years asserts that CSR is a trend that is ever growing. The definition of Corporate Social Responsibility is also contested and debated. Thus in general term, the CSR is viewed as according to the likeness and whatever seem fit by the author who is ascribed to a particular set of thought. To a neo-liberal CSR term seen as a set of voluntary policies, codes or regulations initiated and driven by the corporations. To a radical politcal economist, it is view as a naive and uneffective and inadequate practice initiated to cover up and legitimise the environmentally destructive practice by the corporates. To a neo-Keynesian, CSR is seen an initiative for the 'stakeholders' for positive and inclusive growth which is voluntary and not mandatory. One must ask why there is surge in CSR practice both in academic and corporate practices. CSR growth is emphasised as a result of growing influence of corporates and decline of state intervention. Yet others view it in positive light saying CSR is an ethical business activity, benefiting the stakeholders and the company as a result of 'tricke-down-effect'. This review article will try to link CSR and social welfare practice and try to come to a conclusion in a positive light since corporations have gained so much ground into our lives and they are as unavoidable or unignorable. In order to come to understand this, the methodology applied here will be to ask 1. Do corporate have obligations to commit resources for social welfare? 2. What are the socially responsible business practices the corporates needs to initiate? 3. What is the future prospect or role of CSR in India?
Corporates towards Social Welfare Adrian Cadbury (2006) writes that corporate social responsibility stems from the fact that businesses are under implied agreement with the society. So this agreement obligates them to look to it that they follow fair competition and trade practices, comply local community and state's guidelines and deliver practices that do not effect the environment by means of reduction in greenhouse gases or use of alternative clean energy. Corporates are legally obligated to commit resources to social welfare in India2 and some parts the world. However, the government of India put caps and limits who should contribute mandatorily and voluntarily, and Indian law seems to favour corporate side as the Companies Act, 2013 first obligates companies with turnover of over Rs. 1000crs to have mandatory CSR programmes with CSR committee members elected from the board members with atleast one independant directors and for those with Rs. 500 net worth as voluntary. Reinhardt et al., (2008) says 'imposition of regulatory constraints' by the state should be one condition for CSR's contribution towards social welfare. As companies attain new heights through increased profits, high level of motivation from the state, domination through market, influence through products, it is about time that they stress more towards social welfare by sacrificing corporate profits in the public interest (Elhauge 2005). Social Welfare as defined by the Wikipedia is the provision of minimum level of well-being for all citizens sometimes refered to as public aid. By stressing the word 'minimum' and 'profit', it is reasonable to argue that mimimal contribution by the corporates through CSR can be a legitimate bargain for both. Legitimate because corporates are bound under implied agreement with the society; agreement that may or maynot be written . However, the society should keep in mind that corporates thrive because of people buy from the corporates and not the other way round. Social Welfare is supposed to be taken care of by the government as citizens are under social contract with the state. Yet when almost 70% of a citizen's income are spend on consumable and non-consumable item, it is imperative that Corporates must contribute something back. A simple check list of compiled expenditure shows rural and urban expendure: an overview of average spending on buying goods and luxery items. Average expenditure on food items across urban and rural area was 42.6% of income. The chart below shows the corporate involvement in daily expenditures. The figures correspondent to the National Sample Survey 68th Round (June 2011-July 2012).
Expenditure
Percentage
Fuel and Lighting (excluding
Corporate Involvement 7%
transportation) Clothing and Footwear
Yes. (Tata Power, Reliance Power)
7%
Yes. Almost all brands are corporates.2
Medical Expenditure
6.7%
Yes.
Purely
Indian
pharma
industry is fairly low. Public hospital system is in decline.3 Education
3.5%
Yes.
Public
education
institution is doing well. Conveyence
4.2%
Yes. But chief transport like train and bus is still under public control.
Luxury Items
4%
Yes. 100% luxury items are owned by private.
Consumer durables
4.5%
Total
36.9
Yes.
Fig 1. Corporate involvement into the daily expenditure of Indian citizens both rural and urban.
The above table does not contain the food item expentiture. The same survey reports that average Indian household spends about 42.6% of income on food and other consumable items. In the food industry, corporations are heavily involved. There has been rise in consumption of miscellaneous goods and services, rom 23.4% in 2004-05 to 26% in 2011-12 in rural areas and from 37.2% in 2004-05 to nearly 40% in urban areas. Sumarising the above expenditure, it is pertinent to say that corporations are highly influential into the lifestyle of an average Indian. From the moment a person wakes up to brush his teeth to the night time he washes his face, he uses corporate made products to satisfy his needs. So if we spend so much on buying stuffs from the corporates, why can't we push forward and make them contribute atleast for some minimal assistence. The government of India is highly supportive of corporates and even go to the extend of waiving legal sanctions, taxes, charges from them. At the same time, the baseline Profitability Index3 in India is significantly stronger as compared to other developing states. BPI measures how much an asset's value grows, the preservation of that value while the asset is owned, and the ease of bringing home the proceeds from selling the assets. This assesment
indicate the profitability of corporates in India. It is only fair to justify that corporations give back back in the form of social welfare for the people they are involved with. If they take so much of what general public earns, it is logical to argue that corporates return what they have accumulated in the form of social welfare.
Social Welfare through Corporate Social Responsibility Although the root of corporate social responsibility lies in philantrophy and charity, the prospect of it is large. It encompasses several activities from feeding the hungry to granting opportunities for the marginalised, to taking care of the sick and destitute to giving aid for starting up ventures. Before we began to assert that corporates should provide social welfare to the general society, there were a number of detractors who didn't favour it. Milton Friedman (1970) proposed that management was a sole entity only for the purpose of making profits. Another reason that CSR should not promote social welfare was that they have no social skill since they are in 'pursuit of profit' (Davis 1973). F.A. Hayek in his Studies In Philosophy, Politics And Economics (1969) argues that corporate social responsibility would displace the aim and endeavour of the firm. Yet if we observe the classical objections to CSR, they were merely driven because at that time corporation's were not as big as today, CSR was a new concept and state intervention was prevalent. A simple search in google typed 'against csr' will show result of 23,200,000 while for 'support for crs' shows 56,000,000 results. This google result may not serve as a evidence but considering the abject intrusion of corporates into our lives, its should be rationale for citizens to demand more from them. Social Welfare is vast and extensive as human needs are unlimited. Yet in academic context of CSR, there are four generally practiced norms that is considered to be quintessential. Also known as Caroll pyramid of corporate social responsibility, the four chief responsibilities are: Philantrophy, Ethics, Legal and Economic.
Fig. 1 Diagram of Caroll's CSR Pyramid (Caroll 1991) Some of the good socially responsible businesses that can benefit the public in the form of social welfare will be: 1. Discretionary business practices and investments that supports social cause (Kotler & Lee, 2005) Over the years comapanies shift towards adoption of more responsible business practices as a result of regulations, consumer complaints and interests groups who lobbied with their state representatives to pressurize companies. The companies also with evidences that socially responsible business practices led to increase in profitability and good will of company commited resources to such venture. Companies which take discretionary practices seriously are rated above those who don't. A case example of a company's discretionary practice is given in the box. CASE 1. Google Green Google's effort to promote focuses on people, profit, and planet, where it addressed environmental and social issues to improve our collective liveability. It also stressed on natural capital where it placed negative values on practices that deteriorate eco-system and focus on positive practices that promoted clean eco-system. As a result, it invested on R&Ds that offered clean source of energy, less paper work, less wastage of resource. Google Green initiative impacted growth as their data center reduced energy consumption by over 50%.
2. Ethics and Corporate Social Responsibility (Cavaleiri 2007) The growth of global competition and the growing divide between developing countries and developed countries prompts to ' take advantage of the economic and legislative asymmetries present in the global market'. Through globalisation and liberalisation, big and small companies alike locate their manufacturing activities anywhere where significant economic gain can be achieved. Somewhere where there is less regulation on environment, cheap labour cheap raw materials. So there is a growing trend for need to 'contain' this phenomenon of globalisation. Not only is it important that companies hold protection of environment, quality and transparency into account but that they ethically practice cooperation with the local bodies so in the form of proper wage, social protection and social responsibility. Thus a company that ethically practices its business will ultimately contribute to the social welfare as a whole.
CASE 2. Adidas' PlayFair-PayFair Through CSR intitiative, the company ensured that its suppliers ethically practice fair play by compensating workers by complying the state's standard minimum wages where ever it is located. And whenever new and higher minimum wage are required, Adidas make it obligatory for its suppliers to abide by the norms and standards mandated by the unions and governments. It considers the benefits of maintaining long-term relationships, so they avoid shifting or changing thier suppliers. Thus Adidas is ranked one of best global brands in the world.
3. Legal Responsibilities (Valor 2013) Law is defined as “the system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties.” 4 Therefore it is a consensus defined and written, applicable when desired. Corporates as they come under the periphery of the community also have to abide by the laws. So when they promote Corporate Social Responsibility, they should make sure that they have to they are doing it in light of the community standard and laws. So it is the duty of community as a stakeholder to push companies to incorporate social and environmental objectives in their agenda even when economic agents show that these agenda may be of little economic value. Companies incorporating community agenda and law also have to be held accountability when there is breach of trust. So it is imperative that Corporates practice that there may be welfare for the community and not only for economic growth.
Molson Coors Alcohol Responsibly Drinking is a social problem around the world. Legal control over it has not done so much to mitigate it. As a producer, Molson Coors incorporated a policy through CSR that seeks to spread education of drinking responsibily. It commits its resources for the community through innovative means like making free taxi available in some booze themed New Year's Eve party, Fourth of July party etc for the consumers who drink in their pubs. This simple initiate avoid hassles and problems arising out of inebriation. Thus contributing to the social harmony where Molson Coors participate.
4. Economic Responsibility (Rai and Bansal 2014) As per the An Analysis of Corporate Social Responsibility Expenditure in India published by Economic and Political Weekly, the concept of CSR has the potential to bring a revolution in the development of the economy. CSR can adress the problems of society when there is rising fiscal deficit and leakages in the welfare schemes by generating capital (now that it is made into law) that can give a boost to investment in human and physical capital. India has passed a law that make it mandatory for companies to spend 2% of their profit for CSR, these account for upto 20,000-25,000
crore. These contribution if utilised under proper direction and innovative use, can significantly improve economic sustainability of India. CASE 4 TCS's 100 crore pledge toward 'Clean India' PM Narendra Modi's Swachh Bharat urged companies and stakeholder of India to contribute to clean India. Tata Consultancy pledged Rs. 100 Crore towards PM's novel project. This fund will finance hygienic sanitation facilities for girl students across 10,000 schools in the country. TCS believes that this initiative will have a tangible impact on the level of education achievement and development of India's next generation. The project will go on to improve sanitation and in the long run reduce financial burdens required for sanitation.
Corporate Social Responsibility and the future. CSR is in itself evolving over time. And along with globalisation, it has brought a mixed reaction with it. In this interdependent world, there is a mixture of both good and bad reaction for whatever companies practice. So CSR is also seen as both good and bad. Some are optimistic it will become imparative for companies to come forward and share responsibilities for distributing social welfare and growth (Chatterji 2011). While others are of the view that many countries will take years to catch up with CSR practices prevalent in Western countries (Steger 2008). In the wake of globalisation, many national governments have seen decline in their ability to ensure well being of their nation. The United Millenium Declaration clearly indicate the need to add a social dimension to the business activities of corporates. It aims to achieve global enhancement by developing good partnership with corporations as they posses expertise, talent and funds. Therefore the UN suggests that Corporates should invest in emerging economies and provide financial aid and acess to technology and knowledge. By doing so, the burden to provided basic social and development will be lightened. Due to globalisation, corporates are procuring and intruding almost all the aspects of our lives, therefore they can atleast contribute minimum profits for the welfare of all. Ulrich Steger in the concluding paper of The Oxford Handbook Of Corporate Social Responsibility points out that many developing nations are suspicious of Western intentions, as they feel that CSR is a con to intervene into the local business. These suspicion might stem from the lack of CSR practice that remain unheard of. The way CSR runs today can change the outcome it is view tomorow. If a company wants to venture into new and potential economy, they can initiate CSR activity before introducing itself.* Globalisation has indeed seen its positive and negative results, some benefiting from it while others losing because of it. -
REFERENCE 1. Bendell, J. (2005). In whose name? The accountability of corporate social responsibility. Development in Practice, 15(3-4), 362-374. 2. Broomhill, R. (2007). Corporate Socal Responsibility: Key Issues and Debates. Don Dunstan Foundation. 3. Cadbury, A. (2006). Corporate social responsibility. Twenty-First Century Society, 1(1), 5-21. 4. Cavalieri, E. (2007). Ethics and Corporate Social Responsibility. Management (www. unimib. it/symphonya), (2), 24-34. 5. Chatterji, M. (2011). Corporate social responsibility 6. Crane, A., McWilliams, A., Matten, D., Moon, J., & Siegel, D. S. (Eds.). (2008).The Oxford handbook of corporate social responsibility. Oxford University Press. 7. Davis, K. (1973). The case for and against business assumption of social responsibilities. Academy of Management journal, 16(2), 312-322. 8. Elhauge, E. (2005). Sacrificing corporate profits in the public interest. NyUL Rev., 80, 733. 9. Friedman, M. (1970, September 13). The Social Responsibility of Business is to Increase its Profits. New York Times Magazine. 10. Hayek, F. A. (1969). The corporation in a democratic society: in whose interest ought it and will it be run. Business Strategy. Harmondsworth: Penguin Books, 225. 11. Jenkins, R. (2005). Globalization, corporate social responsibility and poverty.International affairs, 81(3), 525-540. 12. Kotler, P., & Lee, N. (2005). Corporate social responsibility. Doing the Most Good for Your Company and Your Cause, New Jersey. 13. Matten, D., & Moon, J. (2008). “Implicit” and “explicit” CSR: a conceptual framework for a comparative understanding of corporate social responsibility.Academy of management Review, 33(2), 404-424. 14. Reinhardt, F. L., Stavins, R. N., & Vietor, R. H. (2008). Corporate social responsibility through an economic lens. Review of Environmental Economics and Policy, 2(2), 219-239. 15. 9. Rai, S., Bansal, S. (2014) An Analysis of Corporate Social Responsibility Expenditure in India. Economic and Political Weekly, Vol - XLIX No. 50, December 13, 2014. 16. Richter, J. (2001). Holding corporations accountable: Corporate conduct, international codes, and citizen action. Palgrave Macmillan. 17. Steger, U. (2008). Future perspectives of corporate social responsibility, where we are coming from? Where are we heading. The Oxford Handbook of Corporate Social Responsibility. Oxford, NY, 560-567.
18. Valor, C. (2005). Corporate social responsibility and corporate citizenship: Towards corporate accountability. Business and Society Review, 110(2), 191-212.
CASE 1. Moreno, C. (2015, February 10). Doing Their Part: 3 Excellent Examples of Corporate Social Responsibility. Retrieved from http://lineshapespace.com/doing-their-part-3-excellentexamples-of-corporate-social-responsibility/ CASE 2. "The Adidas Group." ALL IN FOR A LIVING WAGE. N.p., 26 June 2014. Web. 03 Oct. 2015. CASE 3. Corporate Values | Business Ethics | Molson Coors. (n.d.). Retrieved from http://www.molsoncoors.com/en/responsibility/what-matters-to-us/alcohol-responsibility CASE 4. Economictimes.com. (2014, August 18). TCS pledges Rs 100 crore for PM Narendra Modi's 'Clean India' initiative. Economic Times.
NOTES: 1. Goal displacement is the act of unintentional goal in the original goal into a new goal. Such displacement diverts organizational resources away from the organizational goal. When served goal become the primary goal in an organization goal displacement takes place. 2. India was the first country to bring mandatory CSR and made it into law under Companies ACT 2013. 3. Baseline Profitabilty Index How much an asset's value grows, the preservation of that value while the asset is owned, and the ease of bringing home the proceeds from selling the assets. 4.
