chapter-v current trends in csr practices: issues &...
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CHAPTER-V
CURRENT TRENDS IN CSR PRACTICES: ISSUES
& CHALLENGES IN ITS IMPLEMENTATION
& REGULATION
After analys ing the meaning, nature & scope of CSR, histor ica l
background, its relat ionship with corporate governance & sustainable
development in Chapter -I, II & III respect ively br ing to the forefront
the importance and significance o f CSR in current socio -economic
environment created by liberalizat ion & globalizat ion and changing
nature of State. The irresponsible behaviour on the part of Corporate
is diminishing their social acceptance and they are loosing faith &
credibilit y in society. This situat ion coupled with corporate fraud &
r is ing gap between r ich & poor as a result of pr ivat izat ion may one
day force populist governments in welfare state to reve rse t he t rend o f
Liberalisat ion/Pr ivat isat ion, which may threaten the existence o f
corporate itself. So, by now we are aware o f cr it ical importance o f
having socially responsible behaviour by Corporates. Now the next
quest ion that ar ises is how to make the corporate responsible? The
histor ical background suggests that historically Corporate Socia l
Responsibilit y pract ices are vo luntary and in t he nature o f
philanthropy i.e. char it y which means that it is not obligatory and
can‟t be forced upon them. But whe n we examined the ro le o f
government ( legislature & execut ive) and judic ial approach towards
CSR, it came to not ice that there is comprehens ive legis lat ive
framework which supports CSR which means indirect regulat ion.
Judiciary also seems favour ing regulat ing CSR by searching the roots
of CSR in jur isprudent ial postulates and relat ing corporate behaviour
with const itut ional mandate. However t ill now there is no specific
regulat ion on CSR. There are some guidelines which are vo luntary in
nature. The provis io n o f CSR in proposed Company Bill , 2012 is also
not purely mandatory in nature rather it is only about CSR report ing.
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So, present ly in India CSR is vo luntary in nature and not yet
regulated. The debate about regulat ing and non regulat ing is st il l
cont inuing. In the ongo ing chapter the current t rends in respect of
regulat ing CSR pract ices in some o f the important countries like
U.S.A., U.K., Australia and France are being examined to ascertain
the current trends on regulat ing CSR.
5.1 Recent Trends in United States of America
The concept of CSR arose in the USA in the form o f corporate
philanthropy. The concept is contro lled by the American companies
themselves. Consequent ly, CSR in the USA seems somewhat
ambiguous as there are limit ed guidelines for compan ies to fo llow in
their work with CSR. However, there are scho lars who have fo llowed
the development of CSR in the USA and contr ibuted to the discussion
on the mat ter. It is obvious from these contr ibut ions that CSR is st il l
to a great extent regarded as co rporate philanthropy. Corporate
philanthropy, however, goes for beyond the concept o f modern CSR,
as it can be dated back to the seventeenth century. Back then it was
prominent business people who made donat ions and not the actua l
company. It was not unt il the late 1800s that corporate philanthropy
was linked direct ly to the company. However, at this stage it was not
at all t ied to the company‟s st rategy.1
CSR today is t ied to a company‟s core business and explo ited as
a st rategic management and market ing tool. Nevertheless, Kot ler and
Lee2 among others, argue that American CSR is st ill connected to
corporate philanthropy. This seems to be emphasized in t he six CSR
init iat ives that Kot ler and Lee in t he their book “Corporate Social
Responsibilit y Do ing the Most Good for Your Company and Your
Cause”, a book intended to guide business managers, execut ives and
1 Susan Vangedal, Corporate Social Responsibility; A comparative Analysis of Denmark and the
USA, 2010 2 John Wiley & Sons, Corporate Social Responsibility; Doing the most good for your company and
your cause, 2005: 23-24
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their staff in their work with CSR. The six init iat ives, Promotion
Cause, Re lated Market ing, Corporate Social Market ing, Corporate
Philanthropy, Communit y Vo lunteer ing and Socially Responsible
Business Pract ices are int roduced and discussed in the next
subsect ion. However, in order to discuss whether these init iat ives are
all really concerned with philanthropy, seemingly, two different
concept ions of philanthropy exist in the literature. The one concept ion
regards philanthropy char it y, which is evident in the fo llowing
definit ions:
“Donating money to a good cause is the same as philanthropy”3
“Most philanthropic activities involve giving money to other
organizations that actually deliver the social benef it”4
The other concept ion also regards philanthropy as the pract ice
of donat ing money, but in add it ion it regards contr ibut ions o f
company resources- t ime, goods, knowledge etc as philanthropy as
long as the donat ions support a good cause or improve human life.
This is evident in the Fo llowing definit ions:
“Philanthropy is the practice of giving money or help to people
who are poor or in trouble.”5
“Philanthropy is an altruistic concern for human welfare and
advancement, usually manifested by donations of money, property, or
work to needy persons, by endowment of institutions of learning and
hospitals, and by generosity to other socially useful purposes.”
5.1.1 Corporate Social Responsibi lity Initiatives
Even though CSR and the belonging init iat ives are determined
and init iated by the American companies themselves, this sect ion will
descr ibe and discuss the six init iat ives established by Kotler and Lee.6
3 Neergaard Peter, DJurso, Tolboll, "Social Ansvarlighed, Fra idealisme til Forretnings princip"
Academica, Denmark, 2006, P. 21. 4 Porter , E. Michael, Kramer R. Mark, "The Competitive Advantage of corporate Philanthrophy",
Harvard Business Review of Corp. Responsibility, PP. 27-64. 5 Longman, "Dictionary of Contemporary English", Longman Group Ltd, 1995 .
6 Supra note 2.
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I. Corporate Philanthropy
Kot ler and Lee descr ibe this in it iat ive as the most t radit iona l
CSR init iat ive in t he USA, and as the label indicates, the init iat ive is
centered on companies making a direct contribut ion to a cause, often
in the form o f money donat ions. However, companies can also
contr ibute with other corporate resources such as products, awarding
scho larships, provid ing a service on technical expert ise. The fact that
the authors include such init iat ives in their descr ipt ion o f the
“corporate philanthropy” init iat ive suggests that they regard
philanthropy from the second view as well. Nevertheless, they have
deliberately chosen to dist inguish some o f t he init iat ives from
philanthropy, for example the init iat ive “Cause promotion. Their
reasons are presented and discussed along with the presentat ion o f th e
different init iat ives.
II. Cause Promotion
The object ive o f the CSR init iat ive “Cause Promotion” is to
increase awareness and concern for a certain social cause. “Cause
promotion” init iat ives most o ften include act ivit ies that seek to
persuade others, for example other companies, to donate money or
t ime to the actual cause.
Companies engaging in “Cause Promotion”7 most commonly
contr ibute with money that can help to increase awareness and
concern for the cause in quest ion. Second, it is common to contribut e
with t ime and expert ise, for example by help ing to develop pr int ed
mater ials, websites etc. that promote the cause. “Cause promotion” is
one of the init iat ives that Kot ler and Lee have dist inguished fro m
philanthropy. The separat ion o f these two init iat ives is based on the
fo llowing explanat ion:
7 Cause promotion is not for selling a product to customer like business promotion. It aims to make
people aware of social issues in the hope they would change their behaviour, such as not wasting
water, caring about public health, preventing air pollution and preventing infections diseases.
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“Cause promotion differs from philanthropy in t hat it invo lves
more from the company than simply writ ing a check, as promot iona l
campaigns will most often require invo lvement in the development
and dist r ibut ion o f mater ials and part icipat ion in public relat ions
act ivit ies, and will include visibili ty for the corporat ion‟s
sponsorships.”
Based on the definit ions o f philanthropy that this thesis takes
point of departure in, it seems that “Cause Promotion” is just an
init iat ive covered by the big umbrella of philanthropy. Kot ler and
Lee‟s argumentat ion presupposes that philanthropy is all about
donat ing money, despite the fact that in their presentat ion o f t he
init iat ive, “Corporate philanthropy” they argue that comp anies can
contr ibute with other things such as t ime, resources and knowledge.
Consequent ly, it seems reasonable to conclude that their
argumentat ion is self-contradictory, and therefore not persuasive
enough to maintain the separat ion of the two init iat ive s. In other
words, this thesis regards “Cause Promotion” as a philanthropic CSR
init iat ive.
III. Cause Related Marketing
“Cause Related Market ing” is an init iat ive where companies
make a money donat ion to a specific cause based on its scale o f a
certain product . Companies can for example choose to donate a
spec ific amount of money for each product sold, or a certain
percentage o f their profit from a product .
IV. Corporate Social Marketing
The purposes o f “Corporate Social Market ing ” init iat ives is to
influence and in t he long run, change a part icular public behaviour,
most often within the areas o f public health, safety, the environment
or community well being. Companies that engage in social market ing
init iat ives most often engage is co llaborat ions with organiz at ions that
are the promoters behind the behaviour change pro ject . The
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company‟s ro le is t herefore centered on support ing the work with the
actual behaviour change campaign. There are many ways in which a
company can contr ibute in t his respect , both with e xpert ise, money,
equipment , resources etc.
The “Corporate Social Market ing” init iat ive is quite similar to
the “Cause promot ion” init iat ive. Never theless, the lat ter init iat ive
focuses on build ing awareness and concern, whereas “Corporate
Social – Market ing” init iat ives focus on behaviour change.
V. Socially Responsible Business Practices
This is when a corporat ion adopts a way of working so that the
environment is protected and there is communit y well -being.
VI. Community Volunteering
“Community vo lunteer ing” is the sixt h of Kot ler and Lee‟s six
CSR init iat ives. The init iat ive is based on companies encouraging its
employees and business partners to vo luntarily donate their t ime and
talent to organizat ions or causes. Companies can do so in severa l
ways, for example, by giving the emplo yees some paid t ime o ff to do
vo lunteer work, or suggest specific causes and provide the employees
with informat ion needed in order to get invo lved. This init iat ive is
quite different from the other CSR init ia t ive, as it only invo l ves the
employees and business partners o f a company.
5.1.2 CSR in the US Today
Today, in the US, there is widespread awareness about CSR.
There is a dist inct ive emphasis on the stakeho lder theory,
sustainabilit y, corporate cit izenship, systemic r isks o f business,
business int egr it y, accountable corporate governance, and ethical and
responsible leadership. Thus, it is apparent from the emphases that the
focus has widened to every field o f business, including ethica l
challenges in techno logical innovat ion, human r ights, equalit y in
dist r ibut ion of benefit s, and sustainable environment pract ices.
Businesses in t he US usually encouraged vo lunteer ism, while giving
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communit ies resources with philanthropic programmes, and compared
to Europe and Asia, in t he US ph ilanthropic pract ices were most
established .Many business organizat ions are put t ing in place ethica l
business processes and codes o f ethics. There is a closer
understanding o f how to manage ethical r isks in organizat ions. At the
business leadership level, ethics t raining is receiving much at tent ion.
Training in areas o f ethical decis ion-making, ethical leadership
development , which also includes how to use power, is becoming
extremely popular. Ensur ing int egr it y in all act ivit ies and conduct of
the leader is being endorsed by all. American companies are
promoting ethical business pract ices because American consumers
like to ident ify with companies that pract ice ethical behaviours
beyond legal requirements. The modern awakened consumers fee l
sat isfied when they believe that they are connect ing with a brand due
to its moral and ethical make-up and buying qualit y products. This
encourages the American companies to reveal and public ize a genera l
st rategy o f CSR pract ices and st rategies, which include consumer
safety, equal opportunity emplo yment pract ices, non-explo itat ive
supply chain processes, and environment -fr iendly techno logies. An
example o f business contribut ing to society is Carnegie (the stee l
tycoon), who gave away most of his money to establish many
librar ies, schoo ls, and universit ies in t he US, the UK, and other
countr ies, as well as established a pension fund for former emplo yees.
To inculcate ideas about ethics and responsibilit y among managers,
business ethics and social responsibility have become important
themes in research and teaching. There has been a sustained effort to
promote social responsibilit y among business organizat ions since
1995.
Business scams centre around account ing frauds like Enron,
World Com (at one t ime, the second largest long-distance phone
company grew rapidly by acquir ing other telecommunicat ions
companies), Tyco (a major US company that produced a var iety o f
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products, from electronic components to healthcare products and
operated in more than a 100 countr ies), and enviro nment as well as
human disasters like the Bhopal gas t ragedy have increased the need
to review responsibilit y as a requirement for future sustainabilit y.
Var ious act ions based on mandatory regulat ions and codes have been
taken to ensure more t ransparent CSR. The Sarbanes-Oxley Act8 was
passed in 2002 as a safeguard against frauds like Enron. The Act is
meant to accomplish qualit y and t ransparency in financial report ing,
independent audits, and account ing services for public companies.
The Child Labour Deter rence Act (the Harkin Bill) was passed
through US Congress to safeguard children against unfair
explo itat ion. However, this kind o f regu lat ion led to tens o f t housands
of children in Bangladesh and elsewhere to lose their jobs and be
impover ished, showing how interconnected business is and one has to
be careful in designing the st rategy o f CSR. However, st ill t here is a
gap in the shar ing o f best pract ices among industry and among
regions. The challenges that need to be at tended to are globa l
sustainabilit y, which analyses the issues of corrupt ion and poverty
that create a gap between the pr ivileged and the under -pr ivileged
sect ions o f a society. There is an urgent need to promote thought
leadership among business managers, so that a holist ic growth is
encouraged, more than just earning pro fit for shareho lders. Businesses
have to realize that because o f their widespread impact , they can no
longer avo id issues related to moralit y and good governance. A broad
understanding o f the r isks invo lved in the business wor ld, whether
related to techno logical innovat ion or human r ights have to be
weighed with much considerat ion, so that the least harm is caused.9
8 The Sarbanes enacted on July 30, 2002, also known as the 'Public Company Accounting Reform
and Investor Protection Act and 'Corporate and Auditing Accountability and Responsibility Act and More commonly called Sarbones- Oxley, Sarbox or Sox, It is named after US Senator Paul
Sarbones and US representative Micheal G. Oxley. 9 Madhumita Chatterji; Corporate Social Responsibility, Oxford University Press, 2011, PP. 295-
296.
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Thus we see that the concept of CSR arose in USA in the for m
of corporate philanthropy, is vo luntary in nature and controlled by the
Amer ican companies themselves. The CSR today is t ied to the
company‟s core business and explo it ed as a st rategic management and
market ing tool. CSR pract ices in USA are basically controlled by
companies t hemselves and they have been basica lly assoc iated wit h
business development . So, CSR pract ices in U.S.A. are vo luntary in
nature and not regulated by any specific & dedicated law h owever,
there are many legis lat ive provisions which relate to those act ivit ie s
which fall in t he ambit CSR and they are being examined as under:
US Corporate Constituency and Anti -Takeover Laws10
The corporate law of many comparable jur isdict ions now
permit s and somet imes even requires corporate directors to consider
not only shareho lder interests, but also non-shareho lder interests and
the third party effects o f corporate decisions and act ions too, as
reflected in laws governing directors‟ dut ies and business judgment
defenses. Authoritative US-based guidelines on corporate
governance stipulate that while „a corporation should have as its
objective the conduct of business activities with a view to enhancing
corporate prof it and shareholder gain‟ , a corporation must „act
wi thin the boundaries set by law‟, can justif iably allocate „a
reasonable amount of resources to public welfare, humanitarian,
educational, and philanthropic purposes‟ , and is ent it led to „take into
account ethical considerat ions that are reasonable regarded as
appropr iate to the responsible conduct of business‟ and it can do al l
of these things „even if corporate profit and shareho lder gain are not
thereby enhanced‟.
By the end o f the 20th century, Corporate Constituency
Statutes ostensibly promoting interests beyond shareho lder interests
10 Bryan Horrigan, 21st Centaury Corporate Social Responsibility Trends-An Emerging Comparative
Body of Law and Regulation on Corporate Responsibility, Governance and Sustainability,
MqJBL (2007) Vol. 4, P.103.
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had been enacted in many US states. Character ist ically, t hey empower
corporate execut ives to consider a wide range o f int erests in corporate
decis ion-making, including the int erests of employees, customers,
creditors, and local communit ies. Their impetus lay in equ ivalent
amendments to Corporate charters by members, t he long-standing
debate about CSR, the r ise o f stakeholder theory in influent ia l
Amer ican business and management schools, and the need for
legislated ant i-takeover protect ion in t he USA in the lat ter part of the
20th century.11
Many o f the const ituency statutes in American states
were introduced from the 1980s onwards not simply to guard against
undes irable takeovers as such, but to ensure that state employment
and services provided by companies for local communit ies would not
be adversely affected by the result ant asset -st ripping, sell-o ffs, and
lay-o ffs inevit ably result ing from some takeovers.
At the same t ime, many o f these standard corporate
const ituency laws seem at face value to go beyond exist ing leeways o f
manager ia l discret ion, and to permit outcomes beyond simply self-
int erested maintenance o f corporate control by exist ing directors,
even if they happen to produce that effect too. So, properly viewed,
eit her they cannot be seen simply as an ant i-takeover device, or else
their ant i-takeover ro le must be assessed by reference to the
background int erests thereby served. On either view, the context o f
their or iginal int roduct ion and their relat ive lack o f success so far in
CSR terms does not completely preclude their applicabilit y to CSR
contexts in t he future.12
Thus we see that there are provis ions like
Corporate Constituency Statutes & Anti- Takeover law which
provide protect ion to var ious stakeho lder and govern those aspects
which relate to CSR. Thus in U.S.A., even though there is no specific
11 E Orts, „Beyond Shareholders: Interpreting Corporate Constituency Statutes‟ 61 George
Washington Law Review 4, (1992), P. 16-25. 12
S Deakin, „The Coming Transformation of Shareholder Value‟, Corporate Governance: An
International Review (January 2005) 13(1), PP. 11-18.
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legislat ion on CSR but there are many CSR related legislat ion.
5.2 Recent Trends in United Kingdom
The range o f possible definit ions o f „CSR‟ in U.K. is closely
related to two considerat ions. First , the extent to which importance is
placed on the central it y o f the „bus iness case‟ for responsible
behaviour in defining the scope o f CSR pract ices. Second, the extent
to which one sees a ro le for government part icular ly t hrough
legislat ion in framing the agenda.
I f the „business case‟ for CSR is key to defini ng the boundar ies
of the CSR agenda, that would indicate that as the „bus iness case‟
expands, so too do those boundar ies. But „bus iness case‟ arguments
are not the only way to define boundar ies. Some businesses choose to
balance ‟values‟ and „business case ‟ based arguments for CSR. There
are also businesses that understand philanthropic act ivit ies as an
expression o f CSR, though this is sometimes cr it icized on the basis
that since, the philanthropy is not integrated in core business
act ivit ies should not properly be considered „CSR‟. And there are
more nuanced approaches to analyzing the relat ionship between
„business case‟ and „philanthropic‟ vis ions of CSR too: “as soon as
ser ious money needs to be spent , you need something more than CSR.
For example, if a major pharmaceut ical company decides to spend £X
million on access to essent ial medicines, it ‟s st ill only doubling a
small philanthropy budget . But if you want that company to devote
10% of it s R&D to it , that‟s a who le different story. You need a real
business argument to br ing about this change.”
Many businesses understand CSR as encompassing only
„Vo luntary‟ business act ion „beyond compliance‟ with legally
mandated baselines. For example, the definit ion of CSR that is
favored by the European Commissio n is that it is “a concept whereby
companies integrate social and environmental concerns in t heir
business operat ions and in their interact ion with their stakeho lders on
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a vo luntary basis.13
In contrast , many non-governmental organizat ions
(NGOs) have chosen to focus on building support for a dist inct
agenda on „Corporate Accountabilit y‟ t hrough law , and a few have
argued for the legal accountabilit y o f businesses to be brought more
centrally into the CSR agenda, so that the two are effect ively
int egrated.
Different approaches to defining CSR also reflect wide
perspect ives on its value in framing understanding o f the ro le o f
business in society. For example, CSR could be understood essent ially
as a source o f compet it ive advantage, or alternat ively as a
co llaborat ive effort to change percept ions o f the ro le o f business in
society. A similar sent iment was reflected in the contrast between the
view that “CSR is t he business contr ibut ion to the widen agenda o f
sustainable development”, and the person who argued t hat companies
don‟t „do‟ sustainable development they simply have a ro le.
The under lying rat ionale for different definit ions o f CSR ma y
also be connected to views on a related quest ion: “Whose agenda is
it ? How much must the agenda focus on businesses, and on what
businesses can and are willing to do?” Some people st ress the
importance of put t ing business at the centre: “corporate Socia l
responsibilit y is only relevant when businesses have cho ices.” Or
“CSR is about business responsibilit y which businesses can choose to
take or not … CSR loses it s purpose if it ceases to be business led.”
Whilst there may be genera l consensus that CSR is at heart about
viewing businesses as part of society, there is much less certainly
about the nature and scope o f t hese so cietal obligat ions. This less
certainty is vis ible in the nature o f legis lat ion on CSR in U.K. and the
same is being examined now.
Present ly there is no law which makes CSR mandatory for
13 Communication From the Commission Concerning Corporate Social Responsibility: A business
contribution to sustainable development, COM (2002) 347 (01), 2nd July 2002.
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Corporates in U.K. but there are some legislat ions which relate to
CSR and the significant CSR related provisions are;
D irectors who are looking to „promote the success o f the
company for the benefit o f its members as a who le‟ must at least take
account in their boardroom decis ion-making o f a range o f
legislat ively laid down shareho lder re lated and other stakeho lder -
related considerat ions. These considerat ions inc lude „the likely
consequences o f any decis ion in the long term‟, „the interests o f the
company‟s emplo yees‟, „the need to foster the company‟s business
relat ionships with suppliers, customers, and others‟, „the impact o f
the company‟s operat ions on the communit y and the environment‟,
„the desirabilit y o f the company maintaining a reputat ion for high
standards o f business conduct‟ and „the need to act fair ly as between
members o f the company‟.14
All t hese aspects relate to ethical
behaviour of directors.
This land mark Act is pregnant with potent ial CSR implicat ions
for a var iety o f CSR actors . Act embodies the UK Government‟s
acceptance o f the po licy o f „enlightened s hareho lder value‟, which
also condit ions and or ientates that body of law in discrete ways from
a CSR perspect ive. In part icular, it makes the cruc ial t riumvirate of
directors‟ dut ies, business r isk management , and corporate report ing
more explic it ly long-term, relat ional, and stakeho lder-sensit ive in
their st ructure, content , and implementat ion.
This enactment is t he most comprehensive legis lat ive overhau l
in more than a century o f company law generally and directors‟ dut ies
and corporate report ing obligat ions in par t icular , is bound to generate
important quest ions o f int erpretat ion, applicat ion, and pract ice for
some t ime to come for a var iety o f CSR actors in t he UK, as well as
for those interested in such comparat ive developments and
14 Section 172 of Companies Act, 2006 (UK).
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exper iments. Its many untested issues and implicat ions are
progressively unfo ld ing in judicia l test cases, professional corporate
advice, o fficia l regulatory guidance, and the pract ice o f corporate
decis ion-making, r isk management , and report ing in the UK.15
5.2.1 Provisions regarding Business Review and Reporting
Requirements in U.K.
The st rong connect ion in regulated report ing requirements
between non-financial informat ion, social and environmental mat ters,
and mater ial business r isks and dr ivers is also reflected in recent
nat ional reform o f corporate report ing in Commonwealth countr ies
such as the UK and Australia. The UK‟s provis ion for a business
review under the 2006 Companies Act16
supersedes ear lier regulatory
requirements for an Operating and Financial Review (OFR) . This
business review includes key non-financia l informat ion and
commentary, or ientated towards a forward - looking assessment o f
matters affect ing a company‟s st rategy and operat ions. Under the
impetus of applicable EU direct ives, UK law is moving further in the
direct ion o f narrat ive report ing, along a European path that also leads
to enhanced report ing o f non-financial informat ion, greater collect ive
boardroom accountabilit y, and increased corporate governance
disclosure.
Going beyond corporate report ing on environmental mat ters,
U.K. corporate law now requires annual directors‟ reports for
part icular businesses to include in a business review which, in the
case of listed public companies, must contain relevant informat ion
and appropr iate business-related performance indicators about „the
company‟s emplo yees‟, „social and community issues‟, and
15 Horrigan, Corporate social Responsibility in the 21st Century: Debate, Models and practices Across Government, Law and Business (2007).
16 The Companies Act 2006 is an Act of Parliament of UK which forms the primary sources of UK
company Law. It was brought into force, with the final provision being commenced on 1st
October 2009. It superseded the Companies Act, 1985.
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„environmental mat ters ( including the impact of the company‟s
business on the environment)‟.17
These requirements for a business
review in the directors‟ report have a number o f important features.
Given the different scale and cost of complying with these
requirements for small, medium, and large business enterpr ises,
important except ions to some or all o f these requirements apply to
different kinds o f companies. The pr imary audience for t he business
review envisaged by the legis lat ion is the company‟s shareho lders,
although the informat ion and analys is in the business review will also
be o f int erest and relevance to the company‟s other stakeho lders. The
business review is leg islat ively int ended to inform the assessment by
a company‟s shareho lders o f how well t he directors are performing
their duty to promote the company‟s success.18
The business review has both backward - looking and forward-
looking elements. The requirement imposed upon part icular kinds o f
companies to include reference in t he business review to informat ion
going to employment , environmental, and social concerns, as well as
other non-financia l informat ion, is not an abso lute requirement of a
company‟s business review. Rather, the inclusion o f such mater ial in
a company‟s business review is cont ingent upon its precise
relat ionship to „an understanding o f the development , performance or
posit ion o f t he company‟s business‟. This condit ion keeps these
aspects of the business review t ight ly focused upon how they relate to
the company‟s business, as dist inct from how well t he company meets
public po licy goals concerning the advancement of social,
environmental, and other interests in t heir own r ight . The financial
and non-financia l ind icators of a company‟s business act ivit y provide
the evidence-based plat form for the business review‟s analys is.
Relevant informat ion about a company‟s supply and dist r ibut ion chain
17 Sub-S 417(5) and 417(6) Companies Act 2006 (UK).
18 417(6) Companies Act 2006 (UK).
315
corresponds to „informat ion about persons with whom the company
has contractual or other arrangements which are essent ial to the
business o f the company‟, subject to considerat ions o f pr ivacy,
confident ialit y, compet it iveness, and other countervailing int erests
precluding the disclosure of such in format ion.
The explic it connect ion drawn in t he UK legis lat ion between
the business review‟s report ing requirements and informing investor
percept ions o f the performance by directors o f their leg islated duty to
promote the company‟s success has both legal and pract ical
implicat ions. The kinds o f mat ters legislat ively required to be
canvassed in t he business review also go to the long -term and
relat ionship-focused elements o f a successful business upon which the
proper performance o f directors‟ dut ies turns. In other words, both the
legislated duty o f promoting the company‟s success (and other
directors‟ dut ies too) and the business review requirements are
posit ioned within a wider boardroom decision-making framework that
is or ientated around the dynamics o f the 21st century business
environment , with everything that means in terms o f abandoning
short -term wealth-maximisat ion for part icular shareho lders at a
part icular t ime. Operat ionally, boards face the more immediate tasks
of relat ing the business review requ irements to internal corporate
governance and report ing, as well as to meet ing the expectat ions o f
investors and the market in assessing and compar ing what boards
report publicly in meet ing these requirements.19
The fact that narrat ive report ing and busin ess reviews can
present informat ion gather ing, assessing, and report ing challenges
that are quite different for directors from what they might be
accustomed to in annual report ing is reflected in the UK Accounting
Standards Board’s20
fir st review o f narrat ive report ing in ear ly 2007.
19 Company Law Reform White Paper, UK Department of Trade and Industry (2002). 20 The Financial Reporting Council is the UK's independent regulator responsible for promoting
high quality corporate governance and reporting to foster investment. The FRC sets the
Framework of codes and standards for the accounting, auditing, actuarial and investor
communities and overuses the conduct of professionals involved.
316
It found that companies were much bet ter at descr ibing their markets,
st rategies, and performance than disclosing forward - looking
informat ion, ident ifying sources o f business r isk, and expla ining their
approach to managing those r isks. 21
Thus, we see that in U.K. there is dispute about specifically
defining the nature and scope of CSR. However, certain aspects o f
environment protect ion, labour welfare and social obligat ions have
got recognit ion slowly-slowly. The next issue o f CS R in U.K. is about
it s regulat ion. Corporate are of the opinion that it should not be
regulated rather should remain vo luntary in nature. NGOs focus is on
corporate accountabilit y through Law. The Government has t r ied to
t read the middle path for looking a ft er the interest of varying
fact ions. First ly, while consider ing Corporate‟s po int of view the
government . has not comprehensively regulated CSR through any
spec ific legis lat ion. Secondly, t he govt . has t r ied to look after the
int erest of varying stakeho lders inc luding society by incorporat ing
provisions regarding director‟s duty in Company Act , 2006. Thirdly,
the accountabilit y is being ensured through report ing and review.
Fourthly to look after the implementat ion of these provis ions one
separate minister has been appo inted. Social report ing indexes and
rat ings are also adopted in the form of so ft legislat ion to ensure
compliance o f CSR pract ices. So researcher concluded that even
though there is no specific legislat ion on CSR in U.K. but st ill there
is well established regulatory framework for CSR through related
legislat ions, report ing & rat ing indexes and business review
provisions and government is act ively par t ic ipat ing in promot ing CSR
act ivit ies among corporates.
5.3 Recent Trends in Australia
Corporate Social Responsibilit y (CSR) is current ly one o f the
most discussed topics by business people and scho lars alike. The
concept has been enthus iast ically supported by three very disparate
21 Review of narrative Reporting by UK Listed Companies in 2006; Financial Reporting Council,
2007.
317
group by government ,22
by non-government -organizat ions (NGOs) and
by business itse lf, in part icular large corporat ions.
In 2000, a study by the Centre for Corporate Public Affairs and
the Business Council o f Australia found around half o f Australia‟s
large companies had po licies related to community invo lvement ,
social-responsibilit y or stakeho lder engagement . More than half o f
these companies had developed po lic ies related to CSR in the last
decade.23
In 2001, Cronin and Zappala concluded from their survey o f
Australia‟s top 100 companies that just over 70 percent of comp anies
surveyed had corporate community invo lvement (CCI) or CSR
polic ies.24
Increas ing numbers o f companies in Australia have po licies and
programs that purport to reflect their commitment to the communit y,
society and the environment . Yet , despite the pro lific amount o f
lit erature on CSR, part icular ly from the perspect ive of companies
themselves and from pract it ioners in t he thr iving industry of CSR
consu ltancy, there is a dearth o f empir ical studies examining whether
and if so to what extent and in what ma nner, Australian companies are
responding in pract ice to the increasing momentum surrounding CSR.
Here the researcher out lines and discusses the small number o f studies
that have been conducted in Australia over the pas t decade by
academics, business associat ions, government , non-profit
organizat ions and by consultancies into these issues.
22 There have been a number of inquiries into CSR-see Corporations and Markets Advisory
Committee, Corporate Social Responsibility Discussion Paper, November, 2005, (CAMAC
Discussion Paper) available at http:/www.camac.gov.au/camac/camac.nsf/byhedline/ PDFD
issussion+Paper/$file/CSR, Assessed 11th April, 2006; Parliament of Australia, Parliamentary
Joint Committee on Corporations and Financial Services. Corporate Responsibility: Risk and
Creating Value, June 2006, (the Parliamentary Joint Committee Report) available at http:/www.
aph.gov.au/Senate/committee/corporations_ctte/ corporate_responsibility/report/index.htm. 23 Centre of Corporate public Affairs and Business Council of Australia, „Corporate Community
Involvement : Establishing a Business Case‟ (2000) P. 38. 24 C Cronin and G. Zappala,‟ The Coming of Age of Corporate Community Involvement : An
Examination of Trades in Australia‟s Top Companies (Working Paper No.6, Research and Social
Policy Team, The Smith Family, 2002).
318
5.3.1 CSR in Australian Perspective
There is a draft o f terms associated with CSR, many o f which
elude precise and commonly shared definit ions.25
While definit ions o f
CSR it se lf o ften vary, it appears widely accepted that it invo lves a
company go ing beyond compliance with legal requ irements. Modern
understandings o f CSR emphasize the responsibilit y o f corporat ions
not only to their shareho lders, but to a much widen group o f
stakeho lders. These stakeho lders include emplo yees and contractors,
customers and suppliers, the community ( inc luding non -profit
organisat ions), society and the environment . In addit ion, it is
commonly emphasized that CSR is more than simple „cheque bo ok
philanthropy‟, „Cause related – market ing‟ or business ethics.26
Key
dimensions or cr iter ia o f CSR or corporate cit izenship in Australia
inc lude social and environmental responsibilit y, corporate
governance, social and environmental report ing, ethics spo nsorship,
stakeho lder relat ions and partnerships.27
While the terms „CSR‟ and „Corporate cit izenship‟ are regarded
by some authors as synonymous,28
others insist that they have
different connotat ions. For Birch, the Director of Deakin Universit y‟s
corporate cit izenship Research unit , CSR is a narrower, „programme
based‟ paradigm which focuses on the company‟s external behaviour.
In contrast , corporate cit izenship entails „systemic, ho list ic, cultura l
25 Mr. Jeremy Cooper of the Australian Securities and Investments Commission (ASIC) outline the
definitional issues that arise in the area of corporate responsibility : having some very veining
terminology problems.. such are what a stakeholder is, what sustainability means, what triple
bottom line reporting is and what we really mean by corporate social responsibility itself…‟P
parliamentary Joint Committee Report. 26 J Andriof and M Mclntosh, Introduction in J Andriof and M Mclntosh (eds) perspectives on
Corporate Citizenship (Sheffield: Greenleaf, 2001) 13, 15, D. Birch Corporate Citizenship:
Rethingking Business Beyond Corporate Social Responsibility‟ in J Andriof and Malcolm
Mclntosh (eds) perspectives on Corporate Citizenship (Sheffield : Greenleaf, 2001) PP. 53, 54. 27 M Glazebrook, „Corporate Citizenship and Action Research : An Australian Perspective‟ (Paris:
International Association on Business sand Society proceeding, (1999) 120-5; M Sweeney et al,
„Social Reporting and Australian Banks: Endorsement or pretence to the Triple Bottom Line?‟ (2001) 4 Journal of Corporate Citizenship 91.
28 See, Moon, above n 4; G Zappala, Corporate Citizenship and Human Resource Management : A
New Tool or a Missed Opportunity? (2004) 42(2) Asia Pacific Journal of Human Resources 185
:Andriof and mclntosh, above.
319
change‟ within the organizat ion.
Further, the report of the Par liamentary Jo int Commit tee on
Corporat ions and Financia l Services29
stated that :
“Corporate responsibility is usually described in terms of a
company considering, managing and balancing the economic, social
and environmental impacts of it s activi ties. It i s about companies
assessing and managing risks, pursuing opportunities and creating
corporate value, in areas beyond what would traditionally be
regarded as a company‟s core business. I t is also about companies
taking an „enlightened self interest‟ approach to considering the
legitimate interests of a company‟s stakeholders ” .
Recognizing that corporate responsibilit y is a mult i- facet
concept , the commit tee makes no at tempt to reach a conclusive
definit ion. Because o f the sheer diversit y o f modern corpora t ions in
terms o f size, sectors, stakeho lders, st ructures and st rategies , the
concept of corporate responsibilit y can have a different meaning to
different people and different organizat ions.
The CAMAC Discussion Paper on this aspect noted that :
While there is an increasing recognition and acknowledgement
of corporate social responsibility or comparable notions such as
„corporate citizenship‟ or „corporate social responsibi lity‟ as an
issue; the term does not have a precise or f ixed meaning. Some
descriptions focus on compliance wi th the spirit as well as the letter
of applicable laws regulating corporate conduct, while other
descriptions concentrate on the social impacts of corporate activities
(sometimes encapsulated in the notion of sustainability) on groups
(usually referred to as stakeholders) including, but extending beyond,
shareholders. This societal ef fect, going beyond the physical or social
29 The Parliamentary Joint Committee on Corporations and Financial Services was appointed on 30th
September, 2010 When the Senate agreed to a resolution From the House of Representatives,
passed on 29 September, 2010.
320
goods or services provided by companies and returns to stakeholders
are sometimes subdivided into environmen tal, social and economic
impacts .30
In a similar vein, past emphasizes that corporate cit izenship
invo lves both actual result s (what corporat ion do) and the processes
through which these are achieved (how they do it ) .31
For other
authors, however, it is CSR that is the broaden term o f t he two.32
Ult imately, both terms are fuzzy, var ied and constant ly evo lving and
it is likely that the terms will cont inue to elude precise definit ion as
different organisat ions and int erest groups tend to use the terms
different ly depending upon their normat ive view o f what should be
expected o f Australian businesses.33
In addit ion to the broad concepts o f CSR and corporate
cit izenship, there are a number o f narrower concepts t hat are int r ins ic
to discussions o f CSR. Common terms include „t r iple bottom- line
report ing‟, „sustainabilit y report ing‟, and „Corporate Communit y
Invo lvement‟ (CCI). The first term is used to refer to the pursuit o f
30 The CAMAC Discussion Paper footnoted a number of definitions or description of the term.
„sustain Ability (a UK organization) describes corporate social responsibility as „a business
approach embodying open and transparent business practices, ethical behaviour, respect for
stakeholders and a commitment to add economic, social and environmental value.‟ The European
Union (EU) Green paper promoting a European framework for Corporate Social Responsibility
(2001) described corporate social responsibility 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.‟ The International Finance Corporation (IFC) refers to
corporate social responsibility as „the commitment of business of contribute to sustainable economic development by working with their employees, their families, the local community and
society at large to improve their lives in ways which are good for business and for development.‟
The Certificate General Accountants Association of Canada paper, Measuring Up: A Study on
Corporate Sustainability Reporting in Canada (2005) at 20 describes corporate social
responsibility as „a company‟s commitment to operating in an economically, socially, and
environmentally sustainable manner, while recognizing the interests of its stakeholders, including
investors, customers, employees, business partners, local communities, the environment, and
society at large.‟ Ibid. 31 J.E Post, „Meeting the Challenge of Global Corporate Citizenship‟ (Policy- Paper Series, Centre
For Corporate Community Relations, Boston-College, Chestmit Hill, MA) 8 32 Wood and Logsdon, for example, arrive that CSR is a wider concept than the more recent „
corporate citizenship‟ : I wood and J M Logsdon, „ The arising Business Citizenship‟ in J an driof & M mctntosh (eds) perspectives on Corporate Citizenship (Sheffield : Greenleaf 2008)
33 G Zappala, „Corporate Citizenship and the Role of Government : The Public policy case‟
(Research paper No.4, Information and Research Services, Department of the parliamentary
Library, 1st December 2003)3.
321
the object ives o f pro fit , environmental impact and social contr ibut ion.
This concept ion lies in contrast to convent ional „single bottom line‟
thinking and pract ices, which focus purely on secur ing the maximum
possible returns for shareho lders. The term „sustainabilit y report ing‟
refers to the pract ice of corporat ions and other organisat ions
measur ing and publicly report ing on their economic, social and
environmental performance. CCI focuses on the invo lvement o f
companies in the ir society and community, through financial or in
kind ass istance as well as through contr ibut ions o f t ime and
expert ise.34
In Australia, several o f the key studies undertaken in t he
past decade have focused on CCI.35
This appears to be because the
studies were commiss ioned by non-profit organisat ions in the
community sector, which have a part icular interest in this area36
or by
the Federal Government which tends to emphasise the philanthropic
features o f CSR.37
The Par liamentary Jo int Commit tee reported noted
that evidence received by the commit tee … strongly under lined the
importance of integrat ing the considerat ion o f broadens c ommunit y
int erests into the core business st rategy of companies, if corporate
responsibilit y was to succeed.38
5.3.2 The Australian Regulatory Framework
In Australia, regulat ion o f CSR has been overwhelming ly
through „so ft ‟ law init iat ives. This part of the review looks init ially
and very br iefly at legislat ive requirements which oblige company
directors to recognize the interests of stakeho lders other than
shareho lders. It then ident ifies the main „light touch‟ regulatory
init iat ives at both the nat ional a nd int ernat ional level. There is great
34 G. Zappala and C.Cronin, „The Contours of Corporate Community Involvement in Australia‟s
Top Companies‟ (2003) 12 journal of Corporate Citizenship 59, 60; CCPA report above n. 35 See, eg, The Smith Family‟s Study by Cronin and Zappala, above __ , and the Brotherhood of St
Laurence‟s Study by SHolm and S Lily white, „ Doing Business Responsibility : Perceptions of
ethical Practice and Governance of Australasia‟s Top 100 Companies‟ (Brotherhood of St
Laurence No member 2002) 36 See, eg, Cronin and Zappala, above n.11 37 In 1999/2000, for example, the Prime Minister‟s Business Community partnership commissioned
a survey by the Centre for corporate Public Affairs and the Business Council of Australia. See
CCPA report , above n.10 38 Parliamentary Joint-Committee Report above n.9.
322
deal o f over lap between the var ious regulatory measures, and
companies within Australia may part icipate in mult ip le vo luntary
social and environmental init iat ives.39
The regulatory framework of
CSR in Australia basica l ly invo lves The Corporat ion Act 200140
,
Var ious Normat ive pr inciples & guidelines, Rat ing Indices and
Report ing guidelines. Salient features of these provis ions are
examined as under ;
(a) The Corporation Act 2001
I t is the central piece o f legis lat ions gove rning directors‟
dut ies. There are two specific sect ions in the Act that are widely
recognized as expanding company reporting in a way that relates to
CSR. Sect ion 1013D (1) o f t he Act imposes obligat ions on
superannuat ion, life insurance and managed funds to disclose the
extent to which they take account of environmental, social, labour and
ethical standards in t heir investment decisions.41
Sect ion 199(1) ( f)
requires companies to include within their annual reports details o f
breaches o f environmental laws and licences.42
Beyond this, however,
debate surrounds the extent to which Australian company directors are
able to consider the interest of stakeholders other than immediate
shareho lders.43
Legis lat ion other than the Corporat ions Act imposes addit ional
39 Westpac, for example, measures itself against 90 social, environmental and financial indicators 40 It is an Act of the Commonwealth of Australia that sets out the Laws dealing with business
entitities in Australia at Federal and Interstate level. 41 See ASIC, Section 1013D.disclosure guidelines: ASIC guidelines to product issues for disclosure
about labour standards or environmental, social and ethical considerations in Product Disclosure
Statements (PDS)‟ (December 2003). Available at http://www.asic.gov.au/asic/ pdfnsf/lookup
ByFileNames/ s1013DA_finalguidelines.pdf/$files/s1013DA_finalguidelines.pdf. 42 G Frost. And L English., mandatory Corporate Environmental Reporting in Australia: Contested
Introduction Belies Effectiveness of its Application (November 2002) Available at http://www
.econ. usyd.edu.au/drawingboard/digest/0211/frost.html. 43 M Jones, S Marshall and Mitchell, „The Influence of Corporate Social Responsibility Policy on
Business Employment practices : Two Australian Mining Industry Case Studies‟ (Corporate Governance and Workplace Partnerships project, University of Melbourne, 2006) 3-4; Mitchell,
O‟Donnell and Ramsay, above n 4; h Grossman, „Redfining the Role of the Corporation : The
Impact 572; B Horrigan, „Fault Lines in the Intersection Between Corporate Governance and
Social Responsibility „(2002) 25 University of New South Wales Law Journal 515.
323
obligat ions on companies and their directors in relat ion to employees
and the environment . For example, companies must pay their
employees at least minimum rates o f pay44
and they must comply with
occupat ional health and safety,45
ant i-discr iminat ion and equa l
opportunity requirements.46
Companies must also comply with a wide
range of environmental requirement s.47
(b) Normative principles and guidelines related to CSR
In 2003, the Australian Stock Exchange (ASX) released the
ASX Pr inciples on Corporate Governance and Best Pract ice
Recommendat ions, which are int ended to guide publicly listed
companies in their corporate governance pract ices.48
While t he
pr inciples are vo luntary, companies are required to explain to the
ASX and to investors if and why they have opted not to fo llow the
guidelines. Three o f the recommendat ions are relevant to CSR. They
are;
Principle 3 : Promote ethical and responsible decis ion-making
Principle 7 : Recognize and manage r isk; and
Principle10 : Recognize the legit imate int erest of stakeho lders.49
There are also init iat ives relevant to part icular industr ies. In
2004, the Minerals Council o f Australia (MCA) established a
framework for sustainable development , ent it led „Endur ing Value: the
Australian Minerals Industry Framework for Sustainab le
Development .‟ Signing up to the framework is a precondit ion to MCA
membership. Signatories are required to asses system used to manage
key operat ional r isks publicit y report sustainabilit y informat ion based
44 Workplace Relations Act 1996 (Cth). 45 For example, Orupational Health and Safety Act 2004 (Vic) and the Occupational Health and
safety (Commonwealth Employment) Act 1991. 46 For example, Equal opportunity Act 1995. 47 For example, Environment protection Act 1970. 48
Available at http://www.asx.com.au/about/pdf/ASXRecommedations/pdf 49 See http://www.asx.com.au/about/pdf/ASXRecommendations.pdf
324
on the GRI indicators.50
(c) Rating indices
There are several prominent Australian indices t hat rate
companies according to CSR performance. First , The Age/ Sydney
Morning Herald‟s Good Reputat ion Index (GRI) measures the
performance o f Australia‟s top 100 largest companies in terms o f
corporate governance, market performance, management and ethics,
employee relat ions and social and environmental impact . The GRI
ranks the top 100 companies in Australia (selected from Business
Review Weekly magazine‟s annual list of the top 1000 companies)
according to their reputat ion. The rankings are compiled fro m
opinions of relevant of relevant stakeho lders for each category.
A Second major rat ing index in Australia is RepuTex‟s Social
Responsibilit y Rat ing. Rupu Tex, an independent research agency,
rates the larget 100 companies in Australia in four areas o f CSR:
corporate governance, environmental impact , social impact and
workplace pract ices. Another index is the Australian Sustainable
Asset Management (SAM) Index (AuSSI)51
. Launched in 2005, SAM
invit es the largest listed companies in Australia to part icipate in a
„corporate sustainabilit y. ‟ Finally, in 2004 the St James Ethics centre
launched the Corporate – Responsibility Index (CRI), in which
part icipat ing companies agree to be ranked publicly on their non –
f inancial aspects.
(d) Reporting Guidelines
There are a number of report ing guidelines developed
spec ifically for Australian companies. In 2003, the Department of the
Environment and Her itage developed a guide for public environmenta l
report ing, ent it led „Tr ipple Bottom line Report ing in Australia: A
50 http://www.minerals.org.au/enduringvalue 51
The Australian SAM Sustainability Indese (AuSSI) was established in February, 2005 to track the
performance of listed Australian companies that lead the field in terms of corporate sustainability.
325
Guide to Report ing aga inst Environmental Indicators‟. The
Department o f Family and Community Services in 2004 released a
draft guide to assist companies in report ing on their socia l impacts.
The concept of CSR in Australia has been well supported by
government , NGOs along with business. In 2000, the Centre for
Corporate Public Affairs and the Business Council o f Australia found
that 70% of companies have formula ted Corporate Community
Invo lvement plan or CSR po lic ies related to Community Invo lvement ,
Social Responsibilit y or Stakeho lder Management . CSR is also t reated
as synonym of Corporate Cit izenship.
Although Australian corporate law does not expressly deal with
shareho lder and non-shareho lder int erest s in the same terms as UK
law in its formulat ion o f the dut ies of directors, the federal
governmental advisory commit tee (CAMAC) and the jo int federa l
par liamentary commit tee (PJCCFS) engaged in paralle l CSR inquir ies
throughout 2005 and 2006 both concluded that t he current law
implic it ly permits and affords sufficient leeway for company d irectors
to consider both shareho lder and non-shareho lder interests in act ing
in socially responsible ways.
Thus it is amply clear that regulat ion of CSR in Australia is
through so ft legis lat ion and these legis lat ion are not specific for
regulat ing var ious aspects o f CSR rather they fa ll in t he category o f
Related legislat ion. In addit ion to these related legis lat ion there are
var ious normat ive pr inc iples & guide lines which are vo luntary in
nature, report ing requirements la id down by the governments. Then
there are rat ing indices which are being maintained by independent
agencies.
5.4 Recent Trends of CSR in France
The term “social” in t he expression “corporate social
responsibilit y” poses a lexical and conceptual problem in French. The
word “social” as used in t he expression in English is commonly
326
t ranslated into French using the same word, whereas in fact “social”
in French has a more rest r icted meaning, as it is limited for t he most
part to the social dimension o f sustainable development . Thus the
three dimens ions inherent to this not ion, “economic efficiency”,
“social equit y”, and “control o f resources”, are not naturally covered
by the term “social” in French. Hence, this proble m of language can
lead to confusion as to the very meaning of “social responsibilit y”.
Some analyst s even believe that this word is the reason for a st rong
and threefo ld resistance to CSR in the French-speaking wor ld:
First ly, Trade unions reject the idea that unilateral pr ivate
sector standards should govern the social aspects of a company;
Secondly, employers are afraid o f having new obligat ions
forced on them, in an area that they believe to be already ver y
rest r ict ive;
Thirdly, the State does not accept that the pr inciples which
have been histor ically laid down to govern corporate social relat ions,
and which combine legal intervent ion and co llect ive bargaining under
full public scrut iny, should now be challenged (Doucin 2004).
Thus the term “societal” would perhaps be more appropr iate
here, expressing as it does a systemic vision incorporat ing all t hree
aspects of social responsibilit y: economic, social, and environmental.
This lexical clar ificat ion highlights the French not ion o f
relat ions between economic, social, and po lit ical actors, especially
with regard to labour relat ions. This not ion is based on two founding
pr inciples:
First ly, the importance of a clear ly established public standard
for labour relat ions ; Secondly the fact that social dia logue was
histor ically carr ied out in a context of negot iat ions between social
partners with no pr ivileges invo lved, which can happen when
decis ions are taken unilaterally in the context of the company. There
is indeed to some extent a hierarchical opposit ion be tween hard law
327
and the infer ior so ft law which can only be invoked as an adjunct to
the hard law. As a result , CSR in the French context has a
fundamentally po lit ical d imension, which must in turn have
repercussions on the way the French democrat ic model f unct ions
(Rose 2006).
There are two aspects to the CSR situat ion in France: an
important legal framework on the one hand, and a st rong po lit ica l
dimension on the other.
5.4.1 Availabi lity of Substantial Body of Legislation in France
The first laws to cover the not ions incorporated in CSR, though
without this term being explicit ly ment ioned appeared in France in the
middle o f the 1970s with a law on social report ing in 1977. Without
referr ing specifically to CSR as such, this law already required that
the social reports that were compulsory for companies with more than
300 employees should apply 134 specific measures and indicators, and
these reflected not ions are now commonly used in relat ion to CSR.
Thus the social report required by this 1977 law opted d eliberately for
a social vis ion that focused ent irely on emplo yees and social po lic ies
(Igalens and Joras 2002). However, it was mainly after 2000 that the
body o f legislat ion began to deve lop.
The turning po int was undoubtedly the law of 15 May 2001 on
new Economic regu lat ions. With the adopt ion o f this “NRE” law ( loi
Nouvelles Regulations Economies ), which today affects more than 700
listed companies, France was the f irst country to make it mandatory
for listed companies to account for the social and envi ronmental
consequences of their activi ties . The French Council o f State fixed by
decree, the informat ion that the business report should contain
regarding social responsibilit y, the leg islat ure intended that listed
companies to be t ransparent in their act ivit ies. More obligat ions
fo llowed on from this decree in the social and environmental areas
and report ing requirements are in fo llowing areas :
328
Numbers hired i.e. number o f employees emplo yed ,
Types o f contract i.e. contract of employment ,
Informat ion on staff cutback plans, if any
Organizat ion and length o f the working week,
Pay sca les,
Health and safety condit ions and measures taken
Labour relat ions
Reports on collect ive agreements,
Training po licy,
Employment and pro fess ional int egrat ion of the di sabled,
Community work.
These were the main social areas where companies had to
account for their act ions. The areas covered under t hese report ing
covers wide area of act ivit ies covered under CSR framework . With
regard to environmental areas, t hey had to be in a posit ion to not ify
the fo llowing:
Overall consumpt ion of resources by the company,
Details o f measures taken to improve energy efficiency ,
Details o f measures taken for nuisance control and,
Details o f measures taken for waste treatment .
Legis lat ion also contained fo llowing guidelines for companies:
Evaluat ion and cert ificat ion procedures ,
Suggest ion for put t ing an environment management system in
put place, Companies must also just ify the way in which they
assess the impact of t heir act ivit ies on local development and
the local populat ion.
Companies must explain their commitment to their
stakeho lders, including non-governmental organizat ions,
consumers, educat ional inst itut ions, and local communit ies.
This new legal framework was in addit ion to t hat of the 1999
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direct ive law concerning terr itorial p lanning and sustainable local and
regional development (the “LOADT” law of ‟Orientation pour l
„Amenagement Durable du Territoire ) and was an at tempt to
reorganize relat ions between the different local author it ies by
int egrat ing economic and social actors into the procedure. Loca l
author it ies too are becoming subjected more and more to the
requirements o f sustainable development and new regulat ions on
governance, and as they draw up their own local Agend a 21 they will
need a higher level o f invo lvement and responsibilit y from companies
in mat ters of local development Durr ieu et al. (2006).
Fo llowing on from the NRE law, which to some extent laid
down the foundat ions, more laws were added to complete t he C SR
legal framework in France; these somet imes echoed decis ions taken at
European level, especially in relat ion to environmental aspects. Thus,
with regard to controlling major accident hazards, the law o f 30 July
2003 ensured that so -called Seveso companies (classified sites)52
adhere to specific rules regarding ; prevent ion, civil responsibilit y,
and vict im compensat ion.
More recent ly, t he t ransposit ion o f the European direct ive on
set t ing up a system for the exchange o f emiss ion quotas has result ed
in a ser ies o f obligat ions in terms o f emission declarat ions and quota
delivery. In 2005 Environment Charter, a Const itut ion amendment
giving legal force to the major environmental pr incip les was adopted.
This charter places the r ight to live in a balanced and he althy
environment on the same level as the human and social r ights and
recommends the precaut ionary pr inciple alt hough without
undermining the possibilit y o f innovat ion.
52 A Seveso company is a company that falls under the Seveso II directive, and there are possible
risks of major accidents occurring. it can be distinguishes law and high threshold Seveso
companies, depending on the nature and amounts of dangerous substances that may be present in
the company
330
Last ly, regarding financia l mat ters, the 19 February 2001 Law
on employee savings, l ike that of 17 July 2001 on the creat ion o f a
public pension reserve fund, takes ethical, social, and environmenta l
factors into considerat ion. Similar ly, the Law o f financial secur ity,
dated 1 August 2003, ensures that listed companies produce a specific
report descr ibing the condit ions governing the preparat ion and
organizat ion o f the work of the board of directors, and interna l
control procedures put in place by the company in order to protect
themselves, again with greater t ransparency, against differen t t ypes o f
r isk. In the same vein, the introduct ion of new account ing standards
in 2005 has brought changes to the rules on informat ion and financia l
t ransparency.
Thus the 2005 report of AMF (Autorite des Marches
Financiers/French Authority for Financial Markets) analyz ing 108
reports of listed companies concluded that corporate governance and
int ernal control by companies were o f a higher qualit y. The report
under lined considerable dispar it ies between companies‟ disclosures in
these areas, these differences were however more pronounced in
int ernal control than in corporate governance, where companies can
rely on more familiar, and longer standing industry recommendat ions
(AMF 2006).
5.4.2 Contribution of Public Consultation and Instigating Bodies
in regulating CSR in France
A Nat ional Council for sustainable development br inging
together almost 100 representat ives from var ious areas of civil societ y
was created in January 2003. Fo llowing on from this, a nat iona l
sustainable development government st rategy was adopted in June
2003, in which the French government declared it s object ive to be
“the development o f social and environmental responsibilit y on the
part of companies, with the overall concern o f good governance”. This
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declared object ive has three parts: to create a common frame o f
reference at nat ional leve l in t he mat ter o f corporate social and
environmental responsibilit y, and then promote it both nat ionally and
int ernat ionally; to encourage companies to adopt a responsible mode
of operat ion both environmentally and socially; and last ly to develop
socially respons ible investment . The Regions are other t iers o f local
government (Departments, Communes, and Commune communit ies)
have been similar ly act ive with their own Agenda 21 sustainable
development st rategies.
Similar ly, in the area o f internat ional business relat ions, a
certain number o f measures have been put in place in an at tempt to
influence corporate behaviour. For example, the French contact point
has been part icular ly busy: they are responsible for monitor ing
implementat ion o f the OECD (Organizat ion o f Economic Cooperat ion
and Development) leading ind icators by mult inat ional companies that
are int egrat ing the fundamental pr inc iples and r ights at work as
recognized by the 1998 Interna t ional Labour Organizat ion (ILO)
declarat ion and the environmental pr inc iples in t he Rio Declarat ion,
Agenda 21, and the European Union‟s Aarhus Convent ion. The
contact po int has had to apply the public communicat ion procedure on
several occasions.
This short ret rospect ive o f the legal and inst itut iona l
background in France shows that CSR is both st rongly supported by
the law and yet at the same t ime somewhat scat tered across a var iet y
of different rules and regulat ions. Thus when one t r ies to ana lyze
corporate pract ices, it is apparent that while there is certainly
considerable weight behind the legal tools that have been put in place,
nevertheless, as is the case in other countr ies, these regulat ions do
nothing to reduce the great diversit y not only in cor porate pract ices
but also in company at t itudes to CSR.
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5.4.3 The Emergence in Parallel Rating Agencies and Mutualized
Activities in CSR Awareness and Promotion
There are basically two rat ing agencies that have emerged in
France since the end o f the 1990s. The first is the ARESE agency,
created in 1997 with support from the Caisse des Depots et de
Consignation (French funding body for public works and housing) and
the Caisses.d‟ Epargne (savings banks). Its aim was to produce a
Social and Environmental Rat ing for each company based on an
econometr ic procedure, origina lly intended for fund managers. In
2003, the Vigeo agency, a French public limited company (Societe
Anonyme), took over from ARESE. The agency‟s board o f directors is
made up o f companies, European t rades union organizat ions, non-
governmental organizat ions (NGOs), and suitably qualified
individuals and they o ffer sustainable development audit s for loca l
author it ies, social responsibilit y audits for companies and
organizat ions, t hemed studies, and sector-based benchmarking. About
56 pro jects were completed in 2006, 85% of which were in France.
This group is now act ive elsewhere in Europe (Belgium and Italy) and
also in Morocco since 2004. The agency‟s aud it ing act ivit y grew by
almost 63% in 2006 compared to 2005, an indicat ion of t he growth of
this market in France. In socially responsible investment too, Vigeo‟s
turnover increased considerably, showing an annual growth o f 56%
between 2003 and 2006 and reaching almost 3.2 million euros by the
end of 2006.
The second agency, BMJ Rat ings, was created from the merger
in 2004 o f the BMJ sustainable development agency, forerunner in
France s ince 1993 in the field o f so licited social rat ings, and the Core
Rat ings agency, thus creat ing the first European rat ing agency to
cover both social and environmental mat ters. They o ffer confident ial
rat ings, and in only 10 years they have built up a client base o f over
800 companies.
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In parallel with the emergence o f rat ing agencies, a further
addit ion to the CSR landscape was the appearance o f mutualized
company act ivit ies: a certain number o f company groups were formed
and now play an important role in maintaining the under lying
pr inciples of CSR, in promot ing CSR awareness, and in encouraging
good company pract ice Without claiming to produce an exhaust ive
study, we‟ will look at two types o f st ructured cooperat ion that are
fair ly significant today in France. The first are mult i -partner groups
st ructured along the same lines as ORSE (Observatoire sur la
Responsabilite Societale des Entreprises) , a study centre for
Corporate Social Responsibilit y. ORSE was created in June 2000 on
the init iat ive o f major corporat ions, fund management companies,
investment inst itut ions, t rade unions, non-governmental associat io ns,
and organizat ions. The aim was to promote a st ructure for study,
exchanges, and permanent monitor ing in the field o f CSR, sustainable
development , and ethical investments. Today ORSE undoubtedly
plays a vital ro le in terms o f analyzing pract ices and as sessing the
major consequences for companies o f issues relevant to CSR.
Along different lines, a number o f associat ions or employers‟
groups are flour ishing based on the issues surrounding CSR. The
associat ion Alliances, for example, whose aim is to help c ompanies
improve their performance while st ill respect ing man and the
environment , was created in 1994 on a fair ly small scale, by three
men from companies in northern France more in t he spir it o f a group
of commit ted managers. The associat ion puts forward the case for
CSR, showing it as something company managers should commit to ,
something that cannot be ignored if t heir company is to survive, and
also as a t remendous opportunity for the future.
5.4.4 French Companies: Various Strategic Positions on Socia l
and Environmental Responsibi lity
As we have seen, it is important to consider the specific
framework of the French legal and inst itut ional system for a bet ter
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understanding o f CSR in the context of France. The fact st ill remains,
however, that , as in many developed countr ies, int ernat ionalizat ion
and shift ing power balances between States, companies, and the
int ernat ional civil society combined with new environmental,
polit ical, and social challenges are the main factors that account for
the t ransformat ions that companies are undergo ing regarding CSR.
Thus, the degree o f internat ionalizat ion, the result ing image problems
that must be dealt with, and specific economic features relat ing to
CSR and sustainable development are the main reasons why there is
such diversit y in pract ices and st rategic posit ioning on the part of
French companies.
French companies, just like those in other countr ies, can be
found across the ent ire range o f possible posit ioning in respect o f
CSR. They range from companies that are barely inclined to invest ,
not to say stay resistant to the idea, to those that are fully commit ted
and consider CSR as an essent ial st rategic element i.e. ent ire
spectrum is there.
Thus we see that the regulatory framework of CSR in France is
very comprehensive and can act as guiding factors for other nat ions.
5.4.5 The Current international Trends & futuristic CSR through
European Commission Perspective
These t rends & futur ist ic CSR can be gauged through proposed
agenda po ints for t he per iod 2011-2014 which covers the fo llowing 8
areas:
I Enhancing the vis ibilit y o f CSR and disseminat ing good
pract ices:
This includes the creat ion o f a European award, and the
establishment o f sector -based plat forms for enterpr ises and
stakeho lders to make commitments and jo int ly monitor
progress.
II Improving and t racking levels o f t rust in business:
In this Commission will launch a public debate on the ro le and
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potent ial o f enterpr ises, and organise surveys on cit izen t rust in
business.
III Improving self and co-regulat ion processes:
In this Commiss ion proposes to develop a short protocol to
guide the development o f future self - and co-regulat ion
init iat ives.
IV Enhancing market reward for CSR:
This means leveraging EU po licies in the fields o f consu mpt ion,
investment and public procurement in order to promote market
reward for responsible business conduct .
V Improving company disclosure of social and environmenta l
informat ion:
This new po licy confirms the Commission‟s int ent ion to br ing
forward a new legis lat ive proposal on this issue.
VI Further integrat ing CSR into educat ion, t raining and research:
The Commission will provide further support for educat ion and
t raining in t he fie ld o f CSR, and explore opportunit ies for
funding more research.
VII Emphasis ing the importance o f nat ional and sub-nat ional CSR
polic ies:
The Commission invites EU Member States to present or update
their own plans for the promot ion of CSR by mid 2012.
VIII Bet ter aligning European and global approaches to CSR which
inc ludes the fo llowing:
a) OECD Guidelines for Mult inat ional Enterpr ises,
b) 10 pr inciples of the UN Global Compact ,
c) The UN Guid ing Pr incip les on Business and Human
Rights,
d) The ILO Tr i-part ite Declarat ion of Pr inciples on
Mult inat ional Enterpr ises and Socia l Po licy,
e) The ISO 26000 Guidance Standard on Social Responsibilit y.
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5.5 Current State of Corporate Social Responsib i lity in Indian
Perspective
India has a long r ich history o f close business invo lvement in
social causes for nat ional development . In I ndia, CSR is known from
ancient t ime as social duty or char it y, which through different ages is
changing it s nature in broader aspect , now generally known as CSR.
The ideo logy o f CSR in the 1950s was pr imar ily based on an
assumpt ion o f the obligat ion o f business to society. In init ial years
there was lit t le documentat ion o f social responsibilit y init iat ives in
India. Since then there is a growing realizat ion towards contribut ion
to social act ivit ies globally with a desire to improve the immediate
environment (Shinde, 2005). It has also been found that to a growing
degree companies t hat pay genu ine at tent ion to the pr inciples o f
socially responsible behavior are also favored by the public and
preferred for t heir goods and services. This has given r ise to the
concept of CSR.
After Independence, JRD Tata who always laid a great deal o f
emphasis to go beyond conduct ing themselves as honest cit izens
pointed out that there were many ways in which industr ial and
business enterpr ises can contr ibute to public welfare beyond the scope
of t heir normal act ivit ies. He advised that apart from the obvious one
of donat ing funds to good causes which has been their normal pract ice
for years; they could have used their own financia l, manager ia l and
human resourced to provide task forces for undertaking direct relief
and reconstruct ion measures. Slowly, it began to be accepted, at least
in theory that business had to share a part of the social overhead
costs. Tradit ionally, it had discharged its responsibilit y to society
through benefact ions for educat ion, med ical facilit ies, and scient ific
research among other objects. The important change at that t ime was
that industry accepted social responsibilit y as part of the management
of the enterpr ise it self. The community development and social
welfare program of the premier Tata Company, Tata Iron and Steel
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Company started the concepts o f “Social Responsibilit y.” (Gupta,
2007)
The term corporate social performance was first co ined by Sethi
(1975), expanded by Carro ll (1979), and then refined by Wart ick and
Cochran (1985).In Sethi‟s 1975 three - level mode l, the concept of
corporate social performance was discussed, and dist inct ions made
between var ious corporate behaviors. Sethi‟s three t iers are:
social obligat ion (a response to legal and market constraints) ;
social responsibilit y (congruent with societal norms) ; and
social responsiveness (adapt ive, ant icipatory and prevent ive)
(Cochran, 2007).
The last decade o f the twent ieth century witnessed a swing
away from char ity and t radit ional philanthropy towards more direct
engagement o f business in mainstream development and concern for
disadvantaged groups in t he society. This has been dr iven both
int ernally by corporate will and externally by increased governmental
and public expectat ions (Mohan, 2001).
This was evident from a sample survey conducted in 1984
report ing that of the amount companies spent on social development ,
the largest sum i.e. 47 percent was spent through company programs,
39 percent was given to outside organizat ions as a id and 14 percent
was spent through company t rusts (Working Document o f EU India
CSR, 2001). In India , as in t he rest o f the wor ld there is a growing
realizat ion that business cannot succeed in a society which fails. An
ideal CSR has both ethical and philo sophical dimens ions, part icular ly
in India where there exists a wide gap between sect ions o f people in
terms o f income and standards as well as socio -economic status
(Bajpai, 2001).
According to Infosys founder, Narayan Murthy, „Socia l
Responsibilit y is to create maximum shareho lders value working
under the circumstances, where it is fair to all it s stakeho lders,
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workers, consumers, the community, government and the
environment‟. Commission o f the European Communit ies 2001 stated
that being socially respons ible means not only fulfilling lega l
expectat ions, but also going beyond compliance and invest ing „more‟
into human capit al, the environment and the relat ion with
stakeho lders ( Bajpai, 2001). Over the t ime four different models have
emerged all o f which can be found in Ind ia regarding corporate
responsibilit y (Kumar et al. , 2001).
5.5.1 Emerging Trends on CSR according to Surveys
In the context o f India, CSR studies were few and limited.
Singh and Ahuja (1983 ) conducted the first study in India on CSR of
40 Indian public sector companies for the years 1975-76 and found
that 40 percent of the companies disclosed more than 30 percent of
total disc losure items inc luded in their survey. Raman (2006) used
content analys is technique to examine the chairman‟s mes sage sect ion
in t he annual reports of t he top 50 companies in India to ident ify t he
extent and nature of social report ing. This study concluded that the
Indian companies placed emphasis on product improvements and
development o f human resources (Raman, 200 6). According to a
survey done by Partners in Change 2000, which covered 600
companies and 20 CEOs for judging Corporate Invo lvement in Social
Development in India 85 percent agreed that companies need to be
socially responsible; only 11 percent companies had a wr it ten po licy;
over 60 percent of the companies were making monetary donat ions;
health, educat ion and infrast ructure were most supported issues.
From 2000 onwards, 4 important surveys have been conducted,
which give s ignificant macro level conclusio ns about Indian
corporate. The first and second surveys were carr ied out in 2001 and
2002 by Business Communit y Foundat ion for TERI -Europe. The
survey sought to explore the percept ion o f workers, company
execut ives and general public about social, economic and
environmental responsibilit ies. It was found that all companies
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irrespect ive o f size or sector have awareness o f CSR and it s potent ia l
benefit s. Many companies were co llaborat ing with NGOs, have labour
and environmental po licy guidelines in place. A third survey was
jo int ly conducted in 2002 by CII, Unit ed Nat ions Development
Program (UNDP), Br it ish Council (BC) and Pr ice Water Coopers
(PWC). The most st r iking features o f the responses to the survey is
that the respondents are in near unanimity that CS R is very much a
part of the domain o f corporate act ion and the passive philanthropy is
no longer sufficient . A significant proport ion of respondents,
recognize CSR as the mean to enhance long -term stake ho lder value.53
The fourth survey, the Karmyog CSR ra t ing 2007-08 is for the
largest 500 companies. Karmayog is a plat form for the Indian non-
profit sector providing research on CSR act ivit ies o f Indian
companies. It rated the 500 largest Indian Companies based on their
CSR act ivit ies. The companies were rat ed on 0 to 5 levels based on
cr iter ia‟s like products & services, reach of CSR act ivit ies,
expenditure on CSR, harmful processes etc.
CSR Study by Karmayog‟s research ( fourth survey)54
was kept
as base & further research was extended to find out the current
scenar io o f CSR act ivit ies in India. For this, fir st ly the social aspects
by organizat ions like OHSAS, GRI, and ISO etc were st reamlined for
compilat ion & bet ter understanding. Then, a list o f 500 companies
taken by Karmayog from Dun & Bradstreet‟s 2006 edit ion o f „India‟s
Top 500 companies‟ was made. Karmayog rated these companies on a
„0-5‟ scale based on informat ion from the company‟s website and
latest annual report. Out of 500 companies, 229 companies got a „0‟
rat ing and thus were filtered out for no t showing any CSR act ivity or
producing cigaret tes/tobacco products & liquor. For the rest 271
companies annual reports / CSR reports were downloaded & it s
53 Rich Gautam and Anju Singh “CSR Practices in India: A study of Top 500 companies”, Global
Business and Management research: An International Journal, Vol.2, No.1, 2010, PP.41-56. 54 Ibid.
340
content analys is was done. It was found that around 26 companies are
report ing on environment in the name o f CSR. These were dropped
out from the list , so a final list o f 245 companies was obtained on
which the further work was performed like download ing CSR related
reports from the websit es and studying the same, etc. The assessment
of 245 companies was done by mapping their reported aspects against
the 18 GRI social aspects which are globally accepted & most widely
used. The GRI socia l aspects were clubbed as Society Performance
Indicators, Human Rights Performance Indicators, Labo ur Pract ice &
decent work Indicators, and Product Responsibilit y indicators. The
CSR reports (245 companies) were thoroughly examined & it s content
analys is was done to find out the use o f GRI aspects, CSR init iat ives
& specia l innovat ions. A binary code of „0‟&„1‟ was allocate d for
„not using‟ & „using‟ the part icular indicator respect ively. The
assessment was based on four cr iter ia: t he social ind icators t racked by
the company, the innovat iveness in CSR on a 5 po int scale, linkage o f
CSR init iat ives to business, and focus area o f CSR in each company.
It was observed that 46% companies got zero rat ing (no report ing),
around 8% scored 3/5 & 4/5 Karmayog rat ing.55
Around 49%
companies out of 500 largest Indian companies were report ing on
CSR. Most of the companies report on donat io ns, renovat ing schools
in villages, mid day meals etc.56
I t is expected from a company to at
least spend a minimum of 0.2% of income on CSR act ivit ies annually.
But in most reports there is no ment ion of the amount spent in any o f
their balance sheets or annual reports. Well defined expenditure on
CSR has been shown by very few companies. Companies reach for
CSR act ivit ies was also unsat isfactory in the sense only 25%
companies CSR act ivit ies were for employees & rest were focusing on
vic inity & society at large. Many companies are only making token
55 Rich Gautam and Anju Singh “CSR Practices in India: A study of Top 500 companies”, Global
Business and Management research: An International Journal, Vol.2, No.1, 2010, PP.41-56. 56 Ibid.
341
gestures towards CSR in tangent ial ways such as donat ions to
char itable t rusts or NGOs, sponsorship of events, etc. be lieving that
char it y and philanthropy equals to CSR. Most companies use CSR as a
market ing tool to further spread the word about their bus iness, for
instance, donat ion of a token amount to some cause on purchase o f a
part icular product . The fact that companies are hir ing advert ising
agencies for their CSR further highlights this. Companies hesitate to
state the processes fo llowed by them, the damage caused by these
processes, and the steps taken to minimize this damage. Very few
companies have a clear ly defined CSR philosophy. Most implement
their CSR in an adhoc manner, unconnected with their busine ss
process. Most companies spread their CSR funds thinly across many
act ivit ies, thus somewhere losing the purpose of undertaking that
act ivity. Special CSR init iat ives were taken by some companies like
st ructured CSR etc. Genera lly speaking, most companie s seem either
unaware or don‟t monitor their company‟s CSR. However, all
companies can be considered to be an upward learning curve wit h
respect to CSR. The overall approach st ill seems to be dr iven by
philanthropy rather than int egrat ing it with business as has been
happening in t he west . The results suggest that CSR is o ften guided
by the commitment of the top management . With compliance and
enforcement s lack, employee‟s care is just employers‟ benevo lence,
environment care and total qualit y management ar e dr iven by market
forces and legislat ion, CSR is considered as an add it ional act ivity o f
Human relat ion and public re lat ion department .
5.5.2 Assessment of modern trends of CSR through trends of
Reporting on CSR activities by corporates
These t rends can be gauged from an insight in to a survey
conducted by KPMG Internat ional in respect of Corporate
Responsibilit y Report ing in 2011 and the salient po ints brought to
fore by this survey in respect of report ing on CSR are as fo llows:
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I. Ninety-five percent of the 250 largest companies in the wor ld
(G250 companies) now report on their corporate responsibilit y
(CR) act ivit ies, two-thirds o f non reporters are based in the US.
II. Tradit ional CR report ing nat ions in Europe cont inue to see the
highest report ing rates, but the Americas and the Middle East
and Afr ica region are quickly gaining ground. Only around half
of Asia Pacific companies report on their CR act ivit ies.
III . For the 100 largest companies in each of t he 34 countr ies we
studied (N100 companies), CR report ing by the consumer
markets, pharmaceut icals and construct ion industr ies more than
doubled since KPMG‟s last survey in 2008, but overall numbers
in some sectors – such as t rade and retail and t ransportat ion –
cont inue to lag stubbornly behind.
IV. Of the N100 companies, 69 percent of publicly t raded
companies conduct CR report ing, compared to just 36 percent
of family-owned enterpr ises and close to 45 percent for both
cooperat ives and companies owned by professional investors
such as pr ivate equity firms.
Around the wor ld, corporate responsibilit y report ing has
become a fundamental imperat ive for businesses. This survey finds
that – a lmost across the board – companies are demonstrat ing an
increasing willingness to account for their behavior on key so cieta l
issues. The number o f companies now report ing on CR has cont inued
to rise since KPMG‟s last CR study in 2008. Indeed, where CR
report ing was once merely considered an „opt ional but nice‟ act ivity,
it now seems to have become virtually mandatory for most
mult inat ional companies, almost regardless o f where they operate
around the wor ld.
G250 closes the gap of the 250 largest global companies, 95
percent now report on their CR act ivit ie s. This represents a jump o f
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more than 14 percent over our 2008 survey. And while one might
believe that this thresho ld is as close to universal as can reasonably
be expected, it should be noted that a two -thirds o f non-report ing
G250 companies are based in the US and it is believed that left over
are likely to begin repor t ing on CR in the near future. CR report ing
has gained ground within the Top 100 companies in each o f the 34
countr ies surveyed. European companies cont inue to lead the pack,
with 71 percent of companies report ing on CR, but the Americas are
quickly catching up. Japan and the UK both report near-unanimous
adherence to CR report ing. Almost 60 percent of China‟s largest
companies already report on corporate responsibilit y metr ics.57
The t rend on CSR report ing is catching up in India also. G250
group includes major Indian companies also. Major it y o f companies
have started report ing on CSR matters pr imar ily to fulfill
requirements o f var ious Corporate governance guidelines issued fro m
t ime to t ime by the govt . & internat ional agencies.58
So business houses all over t he wor ld are realiz ing their stake
in the society and engaging in var ious social and environmental
act ivit ies. The need o f the hour is to formulate effect ive st rategic
polic ies and adopt var ious inst ruments according to the company
history, it s content , peculiar it y in rela t ionship with it s different
stakeho lders so that CSR can be best implemented towards its goals:
sustained environmental, social and economic growth. As o f now, the
t rends have changed and CSR affects not only the company‟s
reputat ion and goodwill but also govern the financial performance. It
was analyzed that the report ing pract ices range from the very
sophist icated and well-established system to “a br ief ment ion o f CSR”
in the annual report . CSR report ing will cont inue to improve globa lly,
57 Rich Gautam and Anju Singh “CSR Practices in India: A study of Top 500 companies”, Global
Business and Management research: An International Journal, Vol.2, No.1, 2010, PP. 41-56. 58 Ibid.
344
but the informat ion it contains would need to be standardized. A
feature not iced in the development of CSR report ing is the influence
of several internat ional and local organizat ions with different
frameworks, indices, direct ives and init iat ives etc. Many o f these
init iat ives are vo luntary but are likely to hinder rather than assist the
development in the report ing systems. India‟s markets cont inue to
exhibit a pro fusion of negat ive externalit ies where the costs o f
resource use, environmental degradat ion, or community disrupt ion are
neither paid by those who incur them nor are reflected in actual
pr ices. Today‟s economic framework gives lit t le encouragement for
companies to consider the long-term the essence o f t rue sustainable
development . There are several companies in India invo lved in
diverse issues such as healthcare, educat ion, rura l development ,
sanit at ion, microcredit , and women empowerment . Analys is o f severa l
surveys in India suggest that though many companies in India have
taken on board the universal language o f CSR, CSR seem to be in a
confused state. Individual companies define CSR in their own limit ed
ways and contexts. The end result being that all act ivit ies undertaken
in t he name o f CSR are mainly philanthropy, or an extension o f
philant hropy. It seems that CSR in India has been evo lving in domain
of pro fit dist r ibut ion. There is a need to increase the understanding
and act ive part ic ipat ion o f business in equitable social development
as an integral part of good business pract ice .
The latest t rends in CSR pract ices as highlighted in study o f
500 companies which shows that out of top 500 companies, 229 did
not report on CSR act ivit ies. 49 % o f remaining 271 companies were
report ing o CSR. Many companies are making token gesture towards
CSR. Aft er studying the CSR focus and business linkage o f 30
companies as given in t he below table it is amply clear that ever y
company defines CSR in their own ways as per their needs.
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Table 1: The CSR init iat ives of 30 Indian Companies
Source: Artic le of Rich Gautam and Anju Singh “CSR Practices in India: A
study of Top 500 companies” published in Global Business and
Management research: An International Journal , Vol .2, No.1,2010,
P.51.
346
5.6 Important Issues and challenges in the field of CSR
The important issues on which immediate focus of CSR
pract ices is needed for having any meaningful influence on corporate
behaviour are discussed as under:
5.6.1 Labour Laws violation
Labor laws vio lat ion is a major problem in Indian industr y
especially garment s industry. "Workers are not being paid even
statutory wages, as payment is linked to reaching unreas onably high
product ion targets simply put , unpaid overt ime.” In short , the globa l
outsourcing wor ld has a long way to go merely to attain legal
compliance. When subcontractors--even those that are subject to
monitor ing--st ill rout inely vio late local labor law, CSR programs and
their advocates may be muddying the waters. The advocacy
community presents wage demands e.g. the demand that
subcontractors pay a “l iving wage” which is asp irat ional. But urging
mult inat ionals to pay higher wages assumes that legal wages are
already being paid. Vio lat ions o f EPFO & ESI contr ibut ion. Whereas
the requirement is do ing something more than that . The real situat ion
about labour vio lat ion is pro jected by a report of Timber land
Company which is a mult inat ional company that plays act ive ly in t he
CSR field. The company's released in 2004 CSR report includes a
breakdown of factory vio lat ions by category that closely mirrors the
FLA breakdown, with "compensat ion ( i.e. minimum wage)” the
second highest category of vio lat ions (12%). By definit ion, vio lat ions
of this part of Timber land 's code o f conduct const itute pr imar ily
vio lat ions o f law. Timber land 's CSR report claims the company is
stepping up it s program "from compliance to enablement .” I f
companies merely ensured that their suppliers obeyed the law that
could br ing economic rest itut ion to millions o f workers whose pay is
purposely miscalculated.
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5.6.2 Human Rights Violation Issues
Today, human r ights cases usually stem from extreme phys ica l
abuses, but society's concept of what const itutes "abuses” will likely
cont inue to expand. I f labor laws are consistent ly broken with the
knowledge o f business partners, this could conceivabl y be considered
"unjust enr ichment” and these unjust enr ichment inherent ly include
human r ights vio lat ions.
5.6.3 Environmental Issues
Environmental pr inc iples are less specified in the CSR po licy
of companies than for example social pr inciples. Most codes o f
conduct simply refer to respect for environment . Their pract ice
however shows that they do have implemented specific environmenta l
measures and that , as a mat ter of fact , environmental pract ice seems
to be more developed than social po licy and pract ice s, also among the
smaller companies. A plausible explanat ion is that a lot of
environmental issues are regu lated by law. Companies are therefore
legally bound to implement measures. This also applies to the
act ivit ies in India. Indian legislat ion on enviro nmental issues is also
quite far developed, alt hough several companies and stakeho lders
indicated that enforcement is a majo r bot t leneck. Only a few
companies actually refer to these environmental pr inciples, which are
der ived from internat ional t reat ies a nd agreements.
5.6.4 Issue of Consumer Protection
In general, companies pay a lot of at tent ion to product safety
and qua lit y in order to fulfill requirements o f their buyers. Product
safety is ensured through the supply chain, by means o f audit s and
t raining. Informat ion towards consumers seems to be mainly focused
on product informat ion and to a much lesser extent on processes.
5.6.5 Issues of Socio Economic Development ( Inclusive Development)
Community development or invo lvement plays an important
role in the Indian context . In the western context it would be called
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char ity or corporate philanthropy, but in India contr ibut ion to the
local community is seen as a part of the corporate responsibilit y o f a
company. Most Dutch companies leave room to their Indi an daughter
company to develop init iat ives in t his field; somet imes they have a
spec ial fund. It seems that daughters o f large MNCs tend to develop
init iat ives which are more connected to the core business o f the
company or the interest of the employees. I ssues and challenges
ar ising as a resu lt of Globalizat ion
Globalizat ion is a leading concept which has become the main
factor in bus iness life dur ing the last few decades. This phenomenon
affects the economy, business life, society and environment in
different ways and almost all corporat ions have been affected by these
changes. We can see these changes most ly related with increasing
compet it ion and the rapid changing of techno logy and informat ion
t ransfer. This issue makes corporat ions more pro fit or iented than a
long term and sustainable company. However, corporat ions are a vit al
part of society which needs to be organized proper ly. Therefore, we
need some social norms, rules and pr inc iples in society and business
life for socially responsible behavior. Globa lizat ion affects the
economy, business life, society and environment in fo llowing ways:
Increas ing Compet it ion,
Techno logical Development ,
Knowledge/Informat ion Transfer,
Portfo lio Investment ,
Regulat ion/Deregulat ion, Internat ional Standards,
Market integrat ion,
Intellectual capit al mobilit y,
Financia l cr isis
It is clear that there is nothing new about economic growth,
development and globalizat ion. Economic growth generally br ings out
some consequences for the communit y. This is becoming a wor ld
phenomenon. One o f the most important reason is that we are not
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taking into account the moral, ethical and social aspects o f this
process. Economic growth and economic development might not be
possible without social and moral consequences and implicat ions.
But the important quest ion is who is responsible o f t his ongo ing
process and for ensur ing the wellbeing of people and safeguarding
their prosper it y. Is this responsibilit y of government , the business
world (businessman), consumers, shareho lders or of all peopl e?
Government is part of the system and the regulator of markets and
lawmakers. Managers, businessmen and the business world take act ion
concerning the market st ructure, consumer behavior or commercia l
condit ions. Moreover, they are respons ible to the shar eho lders for
making more pro fit to keep their interest long term in the company.
Therefore, they are taking r isk for the ir benefit / pro fit . This r isk is
not opposed to the social, moral and ethical pr inciples which they
have to apply in the company. There are many reasons for ethical and
socially responsible behaviour o f the company. However, there are
many cases o f misbehaviour and some illegal operat ions o f some
companies. Increas ing compet it ion make business more difficult than
before in t he globalized wor ld. However , compet it ion will not have
any longer bad influence on company behaviour. According to
int ernat ional norms and expectat ions, companies have to take into
account social, ethical and environmental issues more than dur ing the
last two decades. One o f the reasons is more compet it ion not always
more pro fit , another reason is consumer expectat ion is not only
related to the cost of products but also related to qualit y, proper
product ion process and environmental sensit ivity. Moreover
shareho lders are more interested in long term benefit and pro fit from
the company. The key word o f this concept is long termism which
represents also a sustainable company. Shareho lders want to get long
term benefit with a sustainable company instead o f only short term
profit . This is not only related to the company pro fit but also related
to the social and environmental performance o f the company. Thus,
350
managers have to make st rategic plans for the company concerning al l
stakeho lder expectat ions which are sustainable and provide long ter m
benefit for the companies with their investments. Because of the
uncertainty surrounding the nature of CSR act ivity it is difficult to
define CSR and to be certain about any such act ivity. It is therefore
imperat ive to be able to ident ify such act ivit y and we take the view
that there are three basic pr inc iples which together comprise all CSR
act ivity. These are: Sustainabilit y, Accountabilit y & Transparency.
5.6.6 Unwillingness of Society and Consumer to pay for CSR
Expenses
This is easier said t han done. Nobody denies or doubts the
concept of CSR. As an individual is expected to be, corporate houses
should also be ethica l, car ing for the environment , providing equal
opportunity, set t ing aside part of t heir earnings for social causes, and
so on. The quest ion is as to how many of us are willing to pay for
such efforts. Are we ready to consume only the mater ials produced in
the most ethica l ways, despite a product of similar qualit y or ut ilit y
being available at cheaper pr ices in t he market? Are we ready to
invest in a company which is most ethical and conscious about its
social responsibilit ies but gives less return than companies whose
t rack record about social responsibilit y is in doubt? Many people say
that they want responsible companies, but there are limit s to what
societ ies and consumers are willing to pay. There are no simple
answers to these issues.
Businesses are created by humans and are equally vulnerable to
temptat ions, survival issues, emot ions, and so on. A so lut ion thus
needs to be found within these constraints, while maint aining a
balance between economic and development needs on one hand, and
the impact of related act ivit ies on society and the environment on the
other. Surveys show that people are willing to pay a lit t le high er i f
they have the t rust that their money is being used for the purpose for
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which it is intended. As the level o f earnings goes up, these issues
will perhaps get diluted. Moreover, a survey conducted in 2005 in t he
UK found that personal income is not a d eterminant o f or a barr ier to
giving. Its find ings reveal that support to char it y or social causes is
high across all income groups and inc reases with an increase in
income.59
The research demonstrated that there is a genuine willingness
amongst the public to support char it ies and causes. It also confirmed
that people believe that business should play it s part , part icular ly by
using the power o f its brands and products to support char it ies or
causes. Companies which have changed their businesses to operate
more sustainably and which have successfully managed to
communicate those changes to consumers are reaping the reward.
Market ing gurus believe that the t ime has come when the consumer
wants to know if a company is commit ted to corporate governance, is
an equal opportunity employer, is environment - fr iendly, and so on.
People do not mind paying a lit t le more, as long as they have belief in
the cla ims and act ions o f the product /service provider. Products and
services, which are insensit ive to the environment and to social
implicat ions, will not survive in t he long run.
The share o f the pr ivate organised sector in the nat ional income
(GDP) has increased from 13.1 percent in 1993 -94 to 24.9 per cent in
2009-2010. Thus the corporate-led growth model has produced
benefit s to it and has worked to the disadvantage o f the non -corporate
sector, especia lly the unorganized sector including agr iculture which
employs 53.2 per cent of the work force. Therefore, the negat ive
burden o f the changes in income d ist r ibut ion must be shared by the
corporate sector which is the major gainer60
. The data br ings out that
59 Sanjay K. Aggarwal; Corporate Social Responsibility in India, Response Books, 2008, P. 16. 60
The Tribune, dated 24.3.2012, “CSR-Need to ensure inclusive growth”, by Sucha Singh Gill,
Director-General, CRRID, Chandigarh.
352
this sector in not ready to share it s booming prosper it y with other
sect ions o f society. Even the workers and employees in this sector are
not partners in this prosper it y to the extent that this sector is gaining
from the development process and they are not gett ing an annual r ise
in their income in commensurate with the r ising income in t he
corporate sector. Further, the corporate sector also does not shar ing
it s prosper it y with small and t iny sector engaged in subcontract ing
with the large sector. In addit ion to this, there is public percept ion
that the corporate sector has no respect for laws and rules which are
essent ial to protect the environment for sustainable develo pment and
also which ensure livelihood o f peasants and forest -dwellers,
especially when these laws and rules delay pro jects or put an extra
burden or liabilit y on the investors. Three instances are worth
ment ioning here. These have come in the form o f thre e rulings o f the
Nat ional Green Tr ibunal (NGT) which started funct ioning in July,
2011. Similar ly, there are a number o f examples o f land acquis it ion o f
peasants and forest -dwellers for mega projects under SEZs leading to
their displacement , loss o f habit a t and livelihood. In some areas these
people t hrough a resistance movement were able to save their
displacement and livelihood, the prominent being Singur and
Nandigram in West Benga l. But in large number o f places they were
displaced and uprooted. They became vict ims o f development and
especially o f mega pro jects. Those who benefited from this
development did not share the concerns of the disp laced people both
in t he rural as well as in t he urban areas. This pat tern o f development
has produced exclusive ra ther than inc lusive growth. It is imperat ive
that those who benefit from modern progress must share their
prosper it y with those who are bypassed or harmed by the very
development process. This can be par t ly mit igated by effect ive
implementat ion o f the corporate social responsibilit y idea effect ively.
353
This would also invo lve effect ive mechanism o f rehabilit at ion and
set t lement of displaced sect ions of t he populat ion. This has to be done
by observing environment protect ion laws and rules in let ter and
spir it61
.
After analyzing the state of CSR in India it is amply clear that
the fie ld o f Corporate Social Responsibilit y is not yet set t led and is
st ill evo lving and developing. There exists lot of contestat ion about
the definit ion o f Corporate Social Responsibilit y and the scope o f
CSR needs to be clear ly defined. There are arguments in favour of and
also against the concept /pr inciples of Corporate Socia l
Responsibilit y. The pr inc iples o f Corporate Social Responsibilit y are
very cr it ical for good Corporate Governance, Sustainable
Development and Inclusive growth. The subject is very important for
socio-economic development o f any nat ion. But there are many grey
areas which have cropped up dur ing this analysis. There are many
issues and challenges in the fie ld o f CSR and they are to be set t led for
having a meaningfu l CSR framework. The issues on which the concept
of CSR has been cr it ic ised are as fo llows:
5.7 Criticism of Concept of CSR
5.7.1 Criticism of Stakeholder Theory of CSR
First ly, it leads to firms denial o f Fiduciary Responsibilit y:
Stakeho lder theory has some significant disadvantages. For
instance, stakeho lder theory runs direct ly counter to corporate
governance. Since shareho lders are owners o f the firm, the fir m
should be operated to maximize their retur ns. Stakeho lder theor y
t ransfers the corporat ion‟s focus from shareho lders to the needs o f
stakeho lders. By implement ing unprofitable CSR programs, firms are
denying their fiduciary responsibilit y to shareho lders. Denies
61 India Partnership Forum: National Workshop on Promoting Corporate Citizenship in India:
Challenges and Opportunities (Background Paper), (2002); online:http:// www.indiapartner
shipforum.org/resources/Background%20pa- per.pdf
354
Fiduciary Responsibilit y
Secondly, Stakeho lder Theory does over simplificat ion o f social
problem & remedies:
Society has numerous problems that have existed for many
years such as poverty and po llut ion. I f these problems were as simple
to so lve as Stakeho lder Theory advocates, they would have been
remedied long ago by pro fit - seek ing firms focused on benefit ing
society (Karnani, 2010). Many businesses have discovered, however,
that the pursuit o f society‟s welfare o ften leads to a reduct ion in
profit s. I f managers pursued CSR act ivit ies that hampered pro fit s they
would likely be out of a job. The owners of a firm desire a return on
their investment , and would likely fire a manager that purposely
opposed this object ive. Social problems are more complex than
stakeho lder theor ists claim.
Thirdly, Stakeho lder Theory emphasis on excess ive regulat ion:
Another cr it ica l argument vo iced against stakeho lder theory is
the over regulat ion argument . This argument maintains t hat the
pursuit o f CSR would lead to more r igorous environmental and social
regulat ions for businesses across the world. These regulat ions would
then make it more difficult for undeveloped nat ions to keep pace with
developed nat ions. David Henderson (2009), a Visit ing Pro fessor at
the Westminster Business School and the London Schoo l o f
Economics asserted, “when condit ions differ widely between
countr ies, as they do, prescr ibing and enforcing such common
standards. . .rest r icts the scope for mutually beneficia l t rade and
investment flows. It holds back the development of poor countries by
suppressing employment opportunit ies within them”. The potent ial for
over regulat ion st r ikes a formidable blow to stakeho lder theory.
Fourthly, Stakeho lder Theory is cr it icized due to compet ing int erests:
One of the core problems o f stakeho lder theory is the presence
of compet ing interests within and outside a firm. Supporters of
355
stakeho lder theory argue for a mult ifiduciary relat ionship between
managers o f a corporat ion and all o f a firm‟s stakeho lders. B y
definit ion a fiduciary relat ionship invo lves pro moting the interests o f
one group above others; however, “as everyone recognizes, the
int erests o f shareho lders, customers, suppliers, employees, and
communit ies in the management of a firm's assets are conflict ing”
(Marcoux, 2003). Shareho lders want the h ighest return possible
through capital gains and/or dividends at the lowest possible r isk.
Customers desire qua lit y products, low pr ices, and excellent service.
Employees crave high wages, excellent working condit ions, and a
handsome benefit s package. These compet ing demands fro m
stakeho lders make stakeho lder theory untenable. It would be difficult
to balance these desires in pract ice. Some stakeho lders would be
sat isfied while others would be disgrunt led (Jensen, 2002).
Fifthly, Stakeho lder Theory is cr it ic ized as it leads to
compet it ive disadvantages:
The next argument against stakeho lder theory is the compet it ive
disadvantage argument . This argument is that “because social act ion
will have a pr ice for the firm it also entails a compet it ive
disadvantage” (Smith, 2002). Therefore, advocates o f this argument
deem that social act ions should not be init iated by businesses. The
problem with this argument is that socia l act ions may actually foster
public support of a corporat ion. The ethical act ion o f Johnson a nd
Johnson execut ive David Co llins serves as a prominent example. In
1982, Co llins recalled the ent ire Tyleno l product line after cyanide -
laced capsules o f the brand had caused several deaths in Chicago. As
an art icle in Workforce, a popular human resource magazine,
proclaimed, “To this day, Co llins‟ response is cited as the textbook
example o f how decis ive act ion, grounded in sound ethical values, can
avert a cr isis, and even bo lster a company‟s support over the long
run” (Fandray, 2000 ). Contrary to the argument , social responsibilit y
may actually provide a compet it ive advantage. Even if social
responsibilit y results in short -term losses; it can engender loya l
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employees and communit ies and consequent ly reap long -term
dividends: “CSR is also proving to bene fit companies. The most
commonly ident ified corporate advantages include maintaining and
improving reputat ion or brand image, government relat ions, brand
different iat ion, customer loyalty and employee recru itment an d
retent ion” (Walton, 2010). However, proponents of stakeho lder theor y
go too far in their support of discret ionary social expenditures. The
benefit s o f pro fitable CSR init iat ives must be balanced with the fact
that unpro fitable CSR init iat ives may put a firm at a compet it ive
disadvantage.
Sixthly, the Stakeho lder Theory is cr it ic ized as it forces
„Greenwashing ‟ i.e. it is react ive instead of proact ive and shift s the
focus from the flaws or from business failure:
Another problem with stakeho lder theory is that it is react ive
instead o f proact ive. Some corporat ions engage in CSR so lely in
response to crises. In other cases, the pr imary CSR act ion for firms is
merely report ing. This report ing is usually in t he form o f feel -good
stories with a lack o f concrete social act ion: “The content of CR very
often is misleading ly substant ial: the reports are thick and seemingly
contain much informat ion, but the actual extent of what is done
beyond legal requirements remains limited (Fougere & Solit ander,
2009). Although many companies advocate CSR in theory, th ey would
not in pract ice increase stakeho lder welfare at the expense o f
shareho lder wealth (Karnani, 2010). These firms may promote their
reputat ion in the community through rhetoric and advert isement s
related to their CSR efforts. However, they do this to shift the focus
from their flaws or to increase bus iness. This is a pract ice known as
“greenwashing.” These firms are not pursuing CSR to benefit society.
They are pursuing CSR to take advantage of consumers who are so ld
out to the concept of CSR.
Seventhly, The Stakeho lder Theory is cr it ic ized on the ground
that it has potent ial to destroy pluralism by enhancing the author ity o f
government:
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Friedman and Levit t feared the usurping o f the author ity o f
polit ical inst itut ions by businesses as a result o f CSR . Such a
combinat ion of governmental and corporate authority would result in
a fusing o f t he two inst itut ions into a powerfu l, unified ent it y.
Fr iedman and Levit t were concerned about the potent ial socialist ic
consequences o f t his fusing. They firmly belie ved in t he concept o f
pluralism. Pluralism requires the separat ion of power between the
var ious inst itut ions o f society. Fr iedman and Levit t did not desire to
see an oppressive centralized government . As Levit t (1958/1979)
stated in his art icle “The Danger s of Social Responsibilit y,”
“Government ‟s job is not business, and business‟s job is not
government . And unless these funct ions are abso lutely separated in al l
respects, they are eventua lly combined in every respect” .
The implementat ion o f CSR would likel y cause significant
disagreement among shareho lders as well. Some o f the shareho lders
would promote CSR. On the other hand, some shareho lders would
support the so le pursuit o f pro fit . Even if , shareho lders agreed that
CSR were beneficia l, t hey may differ a s to where it should be
directed. Furthermore, the stakeho lders would be compet ing for the
implementat ion o f var ious CSR programs. How could a business
manager d iscern which program(s) would be the best to pursue?
Shareho lder theory overcomes this weakness o f stakeho lder theory by
focusing corporate efforts on a single object ive, maximiz ing
shareho lder wealth. For example, a firm with a store operat ing in one
region becomes unpro fitable. The firm considers closing the store to
avo id harming shareho lders. St akeho lder theory may suggest that the
company leave the store open to cont inue to provide for the store‟s
employees and community. Shareho lder theory proponents would
propose that unless leaving the store open would maximize long -term
shareho lder wealth, it should be c losed. Although stakeho lder theory
sounds reasonable, it may introduce more problems than it so lves. It
is pract ically impossible to serve the interests of each o f the
stakeho lder groups simultaneously.
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5.7.2 Criticism of CSR on other Fundamental Principles
The concept of CSR is also cr it icized o n fo llowing fundamental
grounds:
5.7.2.1 Present ly CSR seems to be mere rhetoric not action62
The most elementary at tack comes from those who simply do
not t rust corporat ions. They view all o f the talk o f socia l
responsibilit y as a giant public relat ions campaign. The head can
pronounce; the hands do not necessar ily "respond. Thus, chief refers
to the “Gospel o f Social Responsibilit y, “designed to just ify - the
power of managers over an owner less system” : “Managers must say
that they are responsible, because they are specialist”. Chamber lain
writes, “The most common corporate response to crit icism o f a
defic ient sense o f social responsibilit y has been an augmented
program of public relat ions”.
5.7.2.2 Lack of Personal Capabilities
Another, more far -reaching at tack is that by the very nature o f
their t raining and exper ience, businessmen are ill -equipped to deal
with social issues. Theodore Levit t argues that the t yp ical senior
execut ive o f the large corporat ion is t here because he is an expert on
his own business, not on social issues.
By having had to devote so much t ime to learning his business,
“he has automat ically insulated himself from the wor ld around him”,
denying himself t he knowledge and skills ne eded to deal with social
issues. Others make a related case by claiming that the orientat ion o f
business organizat ions toward efficiency and control renders their
leaders inept at handling complex social problems, which require
flexibilit y and po lit ical fineness.
62 Henry Mintzberg; The case for Corporate Social responsibility in Corporate Social Responsibility
edited by Andrew Crane & Dirk Matten; SAGE Library in Business Management,1983, P. 12.
359
5.7.2.3 Theoretically Corporation’s Structure Precludes Social
Responsibi lity
Perhaps most devastat ing o f all, the third attack claims that
social responsibilit y is not possible in t he large corporat ion, given the
nature of its environment , st ructure, and control systems. Appropr iate
or not , social responsibilit y, it is cla imed, simply cannot and does not
work. Proponents o f social responsibili ty are dismissed as naïve.
Corporat ions, by the nature of their act ivit ies, create the social
problems. How can they so lve them? Others cla im that socia lly
responsible behavior is precluded in the economic system. We have.
Tumin, for example, bases his argument on “the pr inc iple o f least
moralit y- ,” that compet it ion or creed causes some part icipant to
depart from the rules and the rules o f social responsibilit y as noted,
are vague and not officially enforced in any event , forcing others to
fo llow su it . Business, as a result , “tends to br ing out , standardize, and
reward the most unsocialised impulses o f ma ss”. There is a good deal
of evidence to back up the cynic ism of these commentators. But
before we turn to it , let us consider a final and more far -reaching
attack on social responsibilit y.
5.7.2.4 Corporation has no right to pursue social goals
The fourth at tack is that the corporat ion has no r ight to pursue
social goals. The argument is a simple and appealing one: Corporat ion
managers lack broad public legit imacy; at best they are appo inted by
pr ivate shareho lders; more likely they are self -selected. Therefore,
they have no r ight to pursue broad social goals, to impose their
int erpretat ion of the public good on society.
Some cr it ics ask what values will be embedded in the “socia lly
responsible cho ices o f businessmen. How much o f business ideo logy
bigger is bet ter, compet it ion is good, mater ial wealth l eads to a bet ter
society, etc. will come along with these cho ices?. In a paper t it led
“The Dangers o f Socia l Responsibilit y” Levit t comments that “it s
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guilt -dr is en urge” has caused the modern corporat ion to reshape “not
simply the economic but also the inst itut ional, social, cultural, and
polit ical topography o f society”.
He sees the cont inuat ion of this t rend as posing a ser ious threat
to democracy: “business statesmanship may create the corporate
equivalent o f the unitary state”. And then there is the argument that
the funct ion o f business is economic, not social. Social responsibilit y
(at least in it pure form) means giving away the shareho lders‟ money:
It weakens the firm‟s compet it ive posit ion, and it d ilutes the efforts
of its managers, who are supposed to focus on economic product ivit y.
The best known vo ice here is that of Milton Fr iedman:
What does it mean to say that the corporate execut ive has a
“social responsibilit y” in his capacit y as businessman ? I f this
statement is not pure rhetoric, it must mean that he is to act in some
way that is nor in the int erest of his employers.
To Fr iedman: “There is one and only one social responsibilit y
of business to use it resources and engage in act ivit ies des igned to
increase it s profit s so long as it stays within the rules of t he game,
which is to say, engages in open and free compet it ion without
decept ion or fraud”.63
Thus, we have the arguments against social responsibilit y.
Businessmen cannot be t rusted; t hey are ill-equipped to deal with
social issues; their corporat ions are not st ructured to do so; and they
have no business even t rying to do so. Let them st ick to their own
business, which is business itself
5.8 Issues & Challenges in Implementation of CSR mechanism
Lack of clar it y about definit ion leads to uncertainty o f meaning,
nature & scope of corporate social responsibilit y . Even though the
researcher accepted the Caro ll‟s definit ion as most suit able and
63 M. Friedman; “ A friedman Doctrine: The Social Responsibility of Business Is to increase Its
Profit,” The New York Times Magazine, Sept. 13,1970, PP. 32,33,122,124,126.
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comprehensive definit ion o f CSR but at the level o f implementat ion
there is lot of confusion about the meaning, nature & scope of CSR.
This situat ion leads to uncertainty about the contents and pract ices
which corporate should undertake to become socially responsible.
This sit uat ion o f uncertainty leads to confusion and confusion creates
impediments in implementat ion o f CSR pr inciples. Then there is
over lapping o f pract ices o f CSR with that of Corporate Governance.
This also leads to confusions among managers.
There is no standardizat ion about the conte nts of CSR
report ing. As far as contents o f CSR report ing is concerned there are
certain guidelines but they are vo luntary in nature and thus opt ional
in respect of it s contents and frequency o f publishing .
There is no mechanism to co -ordinate the similar CSR act ivit ies
of different corporate ent it ies. Present ly, In India the field o f CSR is
not regulated and there is no mechanism to monitor and co -ordinate
the act ivit ies o f different corporate ent it ies, whereas to have any
meaningful contr ibut ion on account of CSR then there is need to pool
resources o f different corporate ent it ies but same is not being done
because there is no mechanism established to handle the CSR fund
co llect ion and ut ilizat ion.
5.8.1 Lack of Community Participation in CSR Activities
There is a lack o f interest of t he local community in
part icipat ing and contr ibut ing to CSR act ivit ies o f companies. This is
largely at t ributable to the fact that there exists lit t le or no knowledge
about CSR within the local communit ies as no ser ious efforts have
been made to spread awareness about CSR and inst ill confidence in
the local communit ies about such init iat ives. The situat ion is further
aggravated by a lack o f communicat ion between the company and the
community at the grassroots. (Times o f India Survey on issues and
challenges)
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5.8.2 Absence of Local Capacities
Present ly in India the capacit ies of t he local non governmenta l
organizat ions & other agencies which can implement CSR is not
adequate. There is ser ious dearth of t rained and efficient
organizat ions that can effect ively contribute to the ongo ing CSR
act ivit ies init iated by companies. This ser iously compromises scaling
up of CSR init iat ives and subsequent ly limits t he scope o f such
act ivit ies.
5.8.3 Issues of Transparency
Lack of t ransparency is one o f the key issues brought forth by
the researcher . There is an expression by the companies that there
exists lack o f t ransparency on the part of the local implement ing
agencies as they do not make adequate efforts to disclose informat ion
on their programs, audit issues, impact assessment and ut ilizat ion o f
funds. This reported lack o f t ransparency negat ively impacts t he
process o f t rust building between companies and local communit ies,
which is a key to the success of any CSR init iat ive at the local level.
5.8.4 Non-avai labi lity of well organized Non-Governmental
Organizations
It is also observed that there is non-availabilit y o f wel l
organized non governmental organizat ions in remote and rura l areas
that can assess and ident ify real needs of the community and work
along with companies to ensure successful implementat ion o f CSR
act ivit ies. This also builds the case for invest ing in local communit ies
by way o f bu ilding their capac it ies to undertake development pro jects
at local levels.
5.8.5 Visibi lity Factor
First ly, t he cla ims o f var ious companies are not visible on
ground and it is very much possible that the cla ims may be false or
may be made with the intent o f avo iding tax or sight of law. The ro le
of media in highlight ing good cases o f successfu l CSR init iat ives is
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welcomed as it spreads good stories and sensit izes the local
populat ion about var ious ongo ing CSR init iat ives o f companies. This
apparent influence o f gaining visibilit y and branding exercise often
leads many non-governmental organizat ions to invo lve themselves in
event-based programs; in the process, they o ften miss out on
meaningful grassroots intervent ions.
5.8.6 Narrow Perception towards CSR Initiat ives
Non-governmental organizat ions and Government agencies
usually possess a narrow out look towards the CSR init iat ives o f
companies, o ften defining CSR init iat ives more donor -dr iven than
local in approach. As a result , they find it hard to decide whether the y
should part icipate in such act ivit ies at all in med ium and long run.
5.8.7 Lack of Consensus on Implementing CSR Issues
There is a lack o f consensus amongst local agencies regarding
CSR pro jects. This lack o f consensus o ften result s in duplicat ion o f
act ivit ies by corporate houses in areas of their intervent ion. This
result s in a compet it ive spir it between local implement ing agencies
rather than building co llaborat ive approaches on issues. This factor
limit s company‟s abilit ies to undertake impact assessment o f the ir
init iat ives from t ime to t ime.
5.8.8 Non Availabi lity of Speciali sed Agency for implementing
CSR
Present ly in Ind ia CSR act ivit ies are undertaken by the
managers o f Corporate ent it ies who are not qualified to undertake
such act ivit ies. The another agency which undertake CSR act ivit ie s
are Non- Govt . organizat ion. There funct ioning always remain under
scrut iny pr imar ily on account of capabilit y and t ransparency. These
issues are exist ing and adversely effect ing the implementat ion o f CSR
act ivit ies.
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5.8.9 Misuse of Funds dist ributed for Philanthropy by the
Corporate
In the absence of effect ive control over money donated by the
corporate in the absence of any construct ive relat ions between the
provider and end user and also due to lack of monitor ing by the
provider there are chances t hat the money received for philanthropic
act ivit ies can be misused for other ant i social act ivit ies.
5.8.10 Misuse of CSR funds by Political & Administrative Bosses
controlling the concerned Corporate Activity
In current socio -economic-po lit ical scenar io where the
government is regulator of corporate act ivity t here are chances t hat
the cr iter ia for select ing the benefic iary of CSR act ivit ies may be
manipulated according to the whims & fancies o f the regulators and
they can even be misused for polit ical ga ins.
All t hese issues & challenges exist ing in India are adversely
effect ing the development of CSR mechanism. The pr imary reasons
for this situat ion can be at t ributed to fo llowing reasons
First ly, the adopt ion o f CSR pract ice is vo luntary not
mandatory.
Secondly, the field o f CSR is regu lated by indirect or related
legislat ion not by a specific dedicated legis lat ion.
Thirdly, the CSR is undertaken by non-qualified, amateur
professional and not by specialized personnel.
Fourthly, there is no specialized agency to implement , monitor
and audit the CSR mechanism & act ivit ies.