Corporate Social Responsibility and its Enforceability

Article for Blog Post Writing Competition 2011 | by Aniket Pandey


May 20th, 20116:32 pm


“Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it… because it is good for our business” –

Niall Fitzerald, Former CEO, Unilever

The phrase Corporate Social Responsibility was coined in 1953 with the publication of Bowen’s Social Responsibility of Businessmen. Industrialization and impact of business on the society led to new vision to the concept of social responsibility. In between 1980 and 1990 a consistent and vibrant progress of the concept of corporate social responsibility has been emerging in the world of business. Since 1990 CSR has been recognized as a one of the standards to the corporate viz., Price Warterhouse Cooper and KPMG.

In the contemporary world, the new change will be founded on ethics and values.  Simultaneously, the limits and risks are also recognized. The first company to implement CSR was Shell in 1998. “The 21st century will be the century of the social sector organization. The more economy, money, and information become global, the more community will matter.” CSR evolved beyond code of conduct and reporting, it started taking initiative in NGO’s, multi- stakeholder, ethical trading etc. [1]The Green paper defined CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” as they are increasingly aware that responsible behavior leads to sustainable business success.

Emergence of CSR in India

The concept of CSR is not new to India. This has started to occupy a prominent place in greater national discourse in the pre-independence era. Until the 1990’s, CSR were purely conducted for charity. Companies like Tata’s and Birla’s were involved in CSR activities like financial grants for needy. The corporate sector seems to have picked CSR activities after 1991 reforms of economic liberalization, which provided a pathway for transformation of Indian businesses into large global enterprises. Though industrial groups have resorted to a large scale welfare programs before 1991, the beginning of economic liberalization and the free market economy in India has major impact on increased focus on the social role of the private enterprises by both the proponents and opponents of liberalization in India.

THE AIM

The aim of the whole process is to create for companies guidelines for responsible societal behavior.

The CSR guidelines

To create a guideline is the first step for an active plan in which the desired direction of development of a system (field of business, companies) get established. To create a guideline means to create a “visionary picture” about a desired situation for the future. It is concerned always the whole development of a system and is therefore very complex with its statements. Contrary the targets and how to achieve them get more and more concrete, step by step. Indicators are instruments which help to see if the measures were successful or not. These indicators should get easy handled for the companies. Generally it can be said that the functions of a guideline are orientation, coordination, motivation and legitimation.

This means:

The guidelines for CSR shows on the basis of sustainable development – economical successful, fair in social matters, and also with a concern to the environment, a long term desired direction of development of the Austrian economy. It offers a framework of orientation for every company and his individual management concept. The guidelines of CSR should motivate Austrian companies to check their social responsibility and corresponding to the challenges (Globalisation, costumer binding, financial security, environmental protection, Image, expanded risk-management) to create it.

The Advantage:

The advantage of CSR for companies

The use of CSR as a tool for companies’ strategy and public relations brings economical success, because economy and stock exchange know more and more that sustainable oriented companies are companies for the future. The Triple Bottom Line Reporting is well known, beside figures of the balance sheet and R&D capacities, also information and facts about the company as a corporate citizen is included. Moreover CSR is an efficient instrument of how to bind your workers to your companies. Last but not least also the consumers have a big say, an international survey brought the result that 70 % of the consumers make their decision whether to buy a product or not on the basis if the company shows societal responsibility or not. More advantages are: an advantage in the personnel market, to get the best workers, to improve the relationship to your customers and also more security to shareholders and owners. [2]

The advantage of CSR for the public

The economic progress brought prosperity to a lot of people and therefore they have the opportunity to create their way on their own. It seems that financial and social lives are secure for many people. Nowadays it is essential to ask about your own identity and individuality. Therefore it is more and more necessary to create conditions of work in which high qualified workers can use their know-how. To feel good in your job is a very important fact in order to employ the best and most creative workers. CSR helps the companies to include the needs of society in their companies strategy.

LAWS AND REGULATIONS ENFORCING CSR

As if now CSR should be voluntarily pursued. It should be totally the efforts of the company itself so that it can serve its customers well. But the business world today as we know is concerned only about one thing- money making. Companies do not want to spend in areas they think are useless. This way the society at large is at stake. Therefore, in order to protect the society and to encourage companies and businesses to take up CSR the only way left is to make laws which would mandate CSR. This method has of late has become prevalent in almost all the countries. Every country is slowly becoming aware of the need to enforce CSR to the companies. Therefore, laws regarding implementation of CSR are in process in every country. Denmark made a law on CSR on 16 December 2008, the Danish parliament adopted a bill making it mandatory for the largest Danish companies, investors and state owned companies to include information on corporate social responsibility (CSR) in their annual financial reports.

In India also in order to tackle situations a new initiative has taken by Government of India that is The Corporate Responsibility for Environmental Protection (CREP) initiated by the Indian government recently this year in 2003. A guideline for a set of non-mandatory norms for 17 polluting industrial sectors has been set but there is no real pressure for implementation or internalization. An ethical being which claims to respect the earth cannot have discontinuities in its practices. Ethical practices have to place in an integrity framework, and that implies at the very least a lack of multiple ways of being. [4] Besides individual efforts by all the countries, internationally also some CSR standards and guidelines have been defined. These international CSR standards and guidelines include the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, OECD Guidelines for Multinational Enterprises, UN Global Compact and The Universal Declaration of Human Rights. [5]

As far as Companies act, 1956 is concerned it does not contain any provision regarding corporate social responsibility till recently as in Companies Bill 2009 twenty first report by ministry of corporate affairs contained special provision for corporate social responsibility as it clearly specifies that “There was no mention in the earlier Companies Act about corporate social responsibility. We are just mentioning that there will be a Corporate Social Responsibility Policy in each and every company beyond a certain limit, which are profitable companies and which are of certain size” [6]. It was felt that the Bill may include provisions to mandate that every company having net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more or a net profit of Rs. 5 crore or more during a year shall be required to formulate a CSR policy to ensure that every year at least 2% of its average net profits during the three immediately preceding financial years shall be spent on CSR activities as may be approved and specified by the company. The directors shall be required to make suitable disclosures in this regard in their report to members. [7]

Conclusion

It can be concluded that “The business of business is business.” This view eschews corporate social responsibility for the maximization of profits, whereby society would be the indirect beneficiary of market capitalism. Organization in present world cannot be successful without taking into account the social responsibility. CSR has been a vital component for any organization to have perpetual success and to create brand. The three pillars of CSR are environment, society and commerce. Together, these create long-term sustainable development. However, CSR is still voluntary and it is not mandatory so it is important that the government should make CSR mandatory through means of law enforceability with sound implementation.

References :

1. Business Ethics and Corporate Governance, ICFAI Publications, 2008.

2. The Oxford Handbook Of Corporate Social Responsibility, 2008.

3. Mathur, Corporate Governance And Business Ethics: Text And Cases, McMillan India,Ltd. ,2005.

4. www.legalserviceindia.com/…/l362-Corporate-Social-Responsibility.html

5. Philip Kotler and Nancy Lee, Corporate Social Responsibility : Doing the most Good for   Your Company, John Wiley and Sons, Inc. New Jersey, 2005.

6. Companies bill 2009, twenty first report by ministry of corporate affairs, www.tpcc.in/Downloads/company%20bill.htm

7. Ibid

Article by-

Aniket Pandey

Student, BBA(LLB) Corporate laws

University of Petroleum and Energy Studies, Dehradun

[Submitted as an entry for the MightyLaws.in Blog Post Writing Competition, 2011]

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