Corporate Social Responsibility - A Tool for Sustainable Business Development in Emerging Economies


By

Mrs. Shaili Vadera
Asst. Professor
Amity Business School
Amity University
Lucknow Campus
 


To Quote the words of Elizabeth Pinchot "Ethics is no longer a luxury. It is a staple in the success of any enterprise." Truly ethics in business is gaining popularity world wide.

A million Dollar question is: Can any business organisation exist in isolation? No!

No business firm can survive without its employees, factors of production, customers, suppliers, distributors, society, culture, and environment as a whole. A company manufactures a product or service by combining land, labor, capital and enterprise. But in the end it is the choice of the customers to buy or reject a product if it does not serve their purpose. If the product is accepted by consumers it will help the firm to break-even and generate profits or else it could lead to bankruptcy and finally closure of business enterprise.

So, all firms need to introspect that their existence is impossible without the involvement of the society and it is their duty to adopt ethical consumerism and to provide clean healthy environment for all the future generations to come.

Business firms are realizing its importance as a tool for dominating the competitive scenario prevailing in the national as well as international market, for customer retention, and sustainable growth by projecting itself as a firm which also focuses on motivational and leadership skills, customer-driven excellence in terms of high quality products and services at the same time providing value for money, organisational and personal learning through regular training programs, treating employees and partners as valuable assets, agility, innovation in products and services, social responsibility, and to develop environmental friendly techniques of production, design, recycle industrial waste- products and conserve natural resources, forest conservation, and customer solutions for Sustainable Business Practices. The Business Organisations affect the Employees, Customers, suppliers, shareholders, the local community and the environment in various ways. Corporate social responsibility (CSR) allows business organisations to develop responsible attitude toward the society and the environment and to behave ethically and contribute to economic development of the nations.

The term corporate social responsibility comes from integration of three words-:  'corporate,' 'social,' and 'responsibility.' Therefore, in broad terms, CSR covers the more specifically, CSR involves a business identifying its stakeholder groups and incorporating their needs and values within the strategic and day-to-day decision-making process. The term CSR was used in the early 1970s, to increase accountability of business organisations when revelations about corporate corruption, tax evasion, started to happen. Corporate Social Responsibility (CSR) is a concept whereby organizations consider the interests of society by taking responsibility for their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations.

By making business ethics its unique selling proposition, a company can accelerate its profit making process. Organisations are integrating ethics as a process for business success. But how do we  instill ethics as a business process?  The answer lies simply in doing the ethically right thing for all which in turn generates significant and sustainable business value for the organization.

Let's take examples of business firms using business ethics as a tool for retaining customers and increasing its market share by highlighting the initiatives it has taken for providing a clean environment for the society.

National Thermal Power Corporation Limited has been awarded Business world FICCI-SEDF Corporate Social Responsibility Award for its continued efforts in integrating CSR into its core business operation. NTPC Limited has decided to allocate 0.5% of distributable profit annually for its "Research and Development Fund for Sustainable Energy," for undertaking research activities in development of green and pollution free technologies.

The efforts towards ethical business operations by NTPC has earned profit after tax for the year 2007-08 to be around Rs. 7,415 crores as compared to Rs. 6,865 crores during the year 2006-07, an increase of 8.01% over previous year.

The Gross Revenue crosses Rs. 40,000 crores during 2007-08 registering an increase of 13.11%. The Board of Directors has recommended highest ever dividend of 35% for the year.

Future prospects of NTPC include areas as :-

    • Adopting clean coal technologies
    • Reducing the cost of harnessing Solar Energy, 
    • Improvement in efficiency of its power stations
    • Developing one million square feet of Green Building Space within NTPC premises by the year 2017
    • Re-powering and replacement of old units,

Other examples constitute Mahindra & Mahindra Limited which has been declared as a  winner, Tata Tea Limited as 1st runner up-and NTPC as 2nd runner up for Community Development award for undertaking CSR initiatives, disclosure and transparency of operations, understanding of stakeholders, HR Practices, environmental practices, and workforce diversity as well. The goal is to deliver long-term value to the general community by being responsible business organisations, treating others with respect, making environmentally friendly products and solutions accessible and reporting on the progress in Annual Corporate Social Responsibility Report. The business must accommodate itself to the various changes taking place in the environment. The scope of Business is to optimize the allocation of scarce natural resources thereby decreasing the costs and enhancing the productivity of the organisation, for the benefit of the society. Other Companies that have taken CSR initiatives include PepsiCo, Internet search giant Google, banking majors HSBC, BMW, to name just a few.  In the 2008 list, Oracle Corp has made it in the computer software segment, while in the apparel section Nike has made it to the list.

Types of Social Responsibility in Business Organisations:

a) Internal Social Responsibilities:   Shareholders and Employees.

b) External Social Responsibilities:  Customers, Government, Suppliers, Community and the Environment.

Social objectives refers to a company's objectives and its responsibilities towards its employees, shareholders, and the public at large.

Economic objectives refers to optimization of available resources  for maximization of profits and to survive in the competition prevailing in the industry.  Sun is named as One of the World's Most Ethical Companies. It leads the industry in offering a portfolio of eco responsible products and services that deliver powerful, sustainable, energy-efficient computing solutions that don't compromise on capacity and security. Eco Responsibility Initiative focus on includes efforts to shrink carbon emissions, develop an alternative-energy strategy, and otherwise reduce the environmental impact of its operations.

Competencies required for Corporate Social Responsibility:

January 2008 CRO Best Corporate Citizen 2008 listed the following as being top three socially responsible:

1. Intel Corp. Electrical Components & Equipment

2 Eaton Corp.Industrials - DiversiFed

3 Nike Inc. Footwear

Of course, each organisation is different from the other and they reason why one firm emerges as a leader among other firm in the industry is due to the core competencies that is exclusive to a particular firm.  The competencies that differentiates a firm from its competitors include:  

Management skills (including organization building, effective communication skills, quick decision making, awareness of advanced technologies , IT, innovation, creative problem solving skills, strategic awareness, motivation skills, leadership skills, handling disputes)

People skills (including adaptability and empathy, training , influencing without power, interpersonal skills, integrated, general awareness, self-development and learning, building partnerships, and team work)

Technical skills (including technical expertise, understanding impacts of policies on stakeholder, consultancy, selling the business case, understanding human rights and understanding sustainability).

The most important core competencies for managers involved with CSR in organisations constitute: 

  • Understanding society
  • Building capacity
  • Accountability 
  • Stakeholder relations
  • Strategic view
  • Harnessing diversity
  • Environment consciousness
  • High quality products and services
  • Avoid false advertisement claims

 Tata Group has constantly stressed on 'leadership with trust', unity, integrity, excellence, responsibility, commitment towards national interest, providing good working environment for the employees, avoidance of conflicts of interest, and emphasis on corporate social responsibility which has become an integral part of the company's core mission and vision statement and to promote ethical conduct in all its operations, which gives it an edge of stability and sustainability in the prevailing competitive scenario. But times have changed. Business Firms whose primary motive is profit only might get success initially but only those firms will sustain in the long run which undertake various initiatives for ethical consumerism, and build stronger and healthier global communities.

An excellent example is of Stuart Rose, the chief executive of Marks & Spencer, who recently announced a 220m programme to make the retailer carbon-neutral by 2012 or Terry Leahy, the boss of Tesco, who is introducing carbon labelling on all 70,000 of his product lines.

DRIVERS OF CORPORATE SOCIAL RESPONSIBILITY:

    1. EMPLOYEES AND SHAREHOLDERS

    2. BRAND EQUITY

    3. ETHICAL MARKETING PRACTICES AND SOCIAL AWARENESS

    4. THE ENVIRONMENT CONSCIOUSNESS:

    5. ENERGY CONSERVATION AND GLOBAL WARMING

    6. RESPONSIBILITY TOWARDS THE GOVERNMENT

1. EMPLOYEES AND SHAREHOLDERS:

According to Schlesinger and Heskett (1991) increased employee satisfaction leads to employee competence which results in superior service delivery and customer satisfaction. It takes decades for business organisations to build goodwill and trust in the minds of customers and shareholders which can be ruined through incidents such as corruption, piracy, stealing of Intellectual Property Rights, financial scams and scandals or producing environmentally hazardous products for the customers. Building an ethically responsible culture in organisations can reduce the chances of employees indulging on unfair practices within the organization by emphasizing on professionalism, transparency, Socially responsible investments, effective communication, employee participation, fairness, and promotions, adequate compensation and personal development. Calpers (the California Public Employees' Retirement System), one of largest US pension funds, to safeguard the interests of its shareholders, that is, US pensioners.

2. BRAND EQUITY:

A brand is a symbol carrying with it certain associations and images. Customers associate a brand with a promise and built on deep relationships with consumers. Its value to consumers is that  it provides emotional as wells as functional aspects and reduces the risk, saves time and provides reassurance on value for money. Predictable results are the promise of a brand.

Corporate Social Responsibility can play a major role in building customer loyalty based on ethical values practiced in the organizations. Brand loyalty can be strengthened through: increasing continuity of purchase via such techniques as  "frequent purchaser" programs, "members clubs", "continuity promotions", that create identification between the users of a brand and its users.

3. ETHICAL MARKETING PRACTICES AND SOCIAL AWARENESS:

Ethics in Business refers to moral standards of the people working in the organisation, and the application of right or wrong practices prevailing in the business firm.

Ethics is important in all types of organizations.

The elements of Business Ethics are:

1) Values- Moral beliefs held by individuals, organisation and society as a whole.

2) Rights- Accessibility of Claims of the individuals in the society. 

3) Duties- Duties are obligations, roles and responsibility of the individuals in the society.

The Nanhi Kali programme is deeply committed to the education of the girl child and currently supports the school level education of 31,000 underprivileged girls across the nation.

Ethical Concerns which need immediate attention:

  • Violation of consumer rights
  • Exploitation of employees
  • Protection of environment
  • Exploitation of child labor
  • Exploitation of women
  • Misleading advertisements
  • Production of hazardous products
  • Ensuring Transparency in various departments
  • Illegal trade practices
  • Indulging in Corruption and unfair practices by Management
  • Exploitation of scarce natural resources
  • Violation of Intellectual Property Rights

Industrialization in many developing countries has now opened avenues for International Trade. These policies should cover distributor relations, advertising standards, customer's service, pricing, product development and general ethical standards. Companies and managers should apply high standards of ethics and morality when making corporate decisions. Due to increasing awareness among customers regarding the malpractice in the market, privacy of products, the consumers are now more conscious about their rights.

4. THE ENVIRONMENT CONSCIOUSNESS:

Mahindra Group formally announced the launch of project Mahindra Hariyali in which 1 million trees will be planted nation-wide by Mahindra employees and other stakeholders including customers, vendors, dealers, etc. by October 2008. Of these, 1,50,000 trees have already been planted by Mahindra employees since September 2007. Issues which require immediate attention involve:

Climate change

Water conservation

Air emission

E-waste

Federal Express is involved in several initiatives that help to protect the environment including greenhouse gas reduction, renewable energy and noise reduction, recycling and using alternative fuels in its own transportation fleet.

5. ENERGY CONSERVATION AND GLOBAL WARMING:

Agricultural in India will be significantly affected by the climate change due to burning of coal, oil and other fossil fuels that produces carbon dioxide and other greenhouse gases responsible for man made global warming.

The effects of warming are being observed in the form of decline in productivity of certain crops such as wheat. Against this backdrop it is essential for the global community as a whole to stabilize the earth's climate by reducing the concentration of green house gases in the atmosphere. The Asia-Pacific region showed the strongest level of support for more regulation, at 100%, compared to 86% in mainland Europe, 77% in the UK and 69% in the US. Despite this call for stronger action by governments, most companies already expect the impact of climate change regulation on industry to increase over the next few years. UTI Ventures invest $8 million in Presco(Pragmatic Environmental solutions Co) with Beam Environmental Solutions, a company involved in waste oil recycling and alternate energy systems. Google has created research group for initiating a project called Renewable Energy Cheaper than coal is meant to help Google cut its energy cost and then to offer Customers cheaper power.

NTPC Limited has been given 'Golden Peacock Award for Occupational Health & Safety-2008' as on June 6, 2008 by the award jury constituted by Golden Peacock Awards Secretariat, Institute of Directors, under the Chairmanship of Justice P N Bhagwati, former Chief Justice of India and Member, UN Human Rights Commission. Many companies now issue a corporate social responsibility report along with their annual report which concentrates on their non-financial societal activities (Usually positive contributions in nature).The following organizations rank at the top of Nielsen India  Corporate Social Responsibility Index- IT giant Infosys, Tata Group, ITC, Reliance Industries,and  ICICI Bank.

6. RESPONSIBILITY TOWARDS THE GOVERNMENT:

All the Business Organizations have to comply with the general law applicable in every country. Management policies, strategies, mission, should be in accordance to the rules and regulations of the legal environment and should follow fair trade practices. Organizations should pay taxes and other dues and discourage bribery, corruption, and biases in the departments.

The guidelines to be followed are:

  • To pay government taxes on time.
  • To encourage Fair trade practices.
  • To discourage monopoly and concentration of economic wealth.
  • To follow Consumer Protection Act.
  • To abide by the rules and regulations of legal environment.  

REFERENCES

    1. 1.Orlitzky, M, Schmidt, F & Rynes, S 2003, 'Corporate social and financial performance: A meta analysis', Organization Studies, vol 24, no. 3, pp 403-11.

    2. PJC, Parliamentary Joint Committee on Corporations and Financial Services 2006, Corporate responsibility: Managing risk and creating value, June, Canberra.

    3. Schlesinger, L. and Heskett, J. (1991) "Breaking the cycle of failure in service", Sloan Management Review, spring, 1991, pp. 17-28.

    4. Joshua Karliner, The Corporate Planet: Ecology and Politics in the Age of Globalization, (Sierra Club Books, 1997), now available in bookstores or from Corporate Watch (see below).
     


Mrs. Shaili Vadera
Asst. Professor
Amity Business School
Amity University
Lucknow Campus
 

Source: E-mail January 21, 2010

          

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