innovations in corporate social responsibility- india

Innovations in CSR Management Education

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Innovations in Corporate Social Responsibility: "Management Education -

Creating Effective Business Leaders and Management Thinkers

Dean Michael Castelino

Saint Joseph's College of Commerce (Autonomous)

Email ID: mailto:[email protected]

Contact Number: +91 99 024 65543

mailto:[email protected]

Dean Michael Castelino St. Joseph’s College of Commerce (Autonomous)

Abstract

This article looks at the meaning of Corporate Social Responsibility (CSR), as well as the traditional arguments for

the practice of CSR. The four traditional arguments are the moral (or ethical) argument, the license-to-operate (or

legal) argument, the sustainability argument, and finally the reputation (brand image) argument. While

acknowledging that these are solid arguments in support of CSR, the article further argues that another solid reason

for pursuing a strategic CSR program is that it could lead to innovation. In conclusion, the article argues that CSR

should not just be considered an expense, but rather an investment.

According to Joe Silbilia, CEO of CSRWire, “Innovation in CSR will look at companies across industries and

examine how they are innovating and using CSR to reach and engage stakeholders, employees and customers.”

In this article, there are many instances and ideas that have or should help companies take control of their own CSR

and also how it has been proven that CSR increases the profitability of a company.

CSR driven innovation on the other hand is a process where companies use CSR (Corporate Social Responsibility)

as a driver for designing a profitable product or service, which will prove beneficial for the surrounding

environment and society.


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Introduction

As early as in the 18th century, companies have acted in socially responsible manners by

building houses and schools for their employees and their children (Cannon 1994, Carroll and

Buchholtz 1999). Michell (1989) traced the emergence of corporate social responsibility as a

concept back to the 1920s. He sees the discussion as an ideological movement to legitimize the

power of large corporations. However, since the mid1990s, political and public debates about the

social responsibilities of firms have gained renewed force. Increasing numbers of companies are

beginning to realize that they can no longer ignore the moral expectations society places on

them. Many firms are working to deal with a variety of often inconsistent and conflicting norms

and demands placed upon them. They struggle with the question of how to define their role as

good corporate citizens.

Policymakers, the general public, and even corporate leaders, agree that companies of all types

must also be responsive to the needs of the communities in which they do business. Advocates of

Corporate Social Responsibility (CSR) such as Stigson (2002) argue that “it is clear that society

expects much more from companies than simply a well-made product or a reliable service at the

right price” (p. 24). Not only is society expecting companies to be good corporate citizens, it is

also becoming less and less tolerant of companies that fail to address their social responsibilities.

CSR can no longer be ignored, especially by major corporations, and evidence that it has become

a hot topic is found in corporate boardrooms around the world. Today, many scholars and

analysts are recommending a more strategic approach to the CSR. Some corporate leaders now

see CSR as part of their strategic management program, while others see it as a source of

innovation (Allen & Husted, 2006). In fact, in the course of pursuing CSR initiatives, some

companies have developed very innovative products and services that are beneficial to the

company’s profitability.

Strategic CSR should be distinguished from charitable donations or the “good works” of

corporations and requires the company to balance the needs of all stakeholders with its need to

make a profit and reward shareholders adequately. Traditionally, supporters of CSR have used

concepts such as moral obligation, sustainability, license-to-operate, and reputation as arguments

why CSR is important. To this end, this study examines this latest argument in support of (CSR)

and provides an overview of CSR and how it can help organizations achieve their goals,

sometimes in unexpected ways.

What is CSR?

Corporate Social Responsibility is a management concept whereby companies integrate social

and environmental concerns in their business operations and interactions with their stakeholders.

CSR is generally understood as being the way through which a company achieves a balance of

economic, environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the

same time addressing the expectations of shareholders and stakeholders. In this sense it is

important to draw a distinction between CSR, which can be a strategic business management

concept, and charity, sponsorships or philanthropy. Even though the latter can also make a


valuable contribution to poverty reduction, will directly enhance the reputation of a company and

strengthen its brand, the concept of CSR clearly goes beyond that.

Why CSR? Moving Forward

If you are serious about driving a CSR strategy through your own business, then you should be

acutely aware where global corporate social responsibility is headed in the future. CSR trend

analysis suggest the following points:

1. Consumers are increasingly interested in taking action on issues such as climate change

2. CSR and branding campaigns that resonate with consumers are those that address the

consumer's interest, provide easy-to-digest education, and spark dialogue and action

3. Reputable campaigns are those that are innovative and substantiated by the company's

authentic commitment and ability to demonstrate tangible results towards its CSR goals.

4. Partnerships are critical as a pathway forward, either between companies or with NGO

partners. They help build credibility, and no one company can go through such a large issue like

AIDS or global warming.

5. CSR isn't going away soon. The Millennial generation, which is now hitting the workforce, is

demanding and driving this reality.

6. Competitors are developing CSR strategies. Not considering a CSR strategy ourselves would

let the competitor get ahead. CSR does not tend to show and yield instant results, it being a long

term interest and venture.

Benefits of CSR

Collective corporate social responsibility (CSR) activities amongst various corporations

and its stakeholders could contribute to the microeconomic development of a developing

country through sustainable benefit to all. At the same time, optimum national impact,

cooperation, and communication should be encouraged and socialized.

Government

Development and acceleration of microeconomic sustainable growth through using

‘‘good corporate governance/value change’’ and ‘‘best practices,’’ resulting to a

market environment conducive to both local and foreign investors (with the

availability of good infrastructure, good education and health facilities, well-trained

human resources and labor, and well-cared-for environment)

Encouraging CSR activities, giving benefit to the community, with meeting certain

development and sustainability criteria possibly being considered for tax incentives

Joint CSR budgets possibly representing an additional source of public revenue

(employment and wealth creation to reduce poverty)


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Local Community and Society

Changed habits, improved quality of life

Capacity building, creates employment and wealth

Corporations

Growth, profit, image, and competitive edge

Community acceptance and goodwill

Pride and spiritual values to employees and their families

Genuine dialog with stakeholders

The World and Environment

Waste management

Balanced ecosystem

Green and clean environment

Review on Ongoing CSR Activities

Corporate suggestion boxes may be crammed full of such innovative ideas, methods or devices

in virtually every industry, but “new” does not necessarily translate into “profitable,” so there is

clearly something more required to make any such innovation sufficiently worthwhile to pursue

to achieve improved profitability or otherwise contribute to a company’s bottom line. In some

cases, an unexpected or unintended aspect of the innovation may represent the best chances for

profitability and these cannot be foreseen of course. From another perspective, it is possible for

an organization to achieve an improved bottom line simply by taking advantage of the positive

public relations that result from a greener approach to its operations or supply chain management

activities as the result of some innovation.

Environmentalism

According to Hood (1995), "Within the corporate social responsibility movement, there is no

more important issue than environmentalism. Often the call for corporate responsibility and the

exhortation to 'save the planet' from a host of environmental problems seem virtually to be the

same thing. The firms most honoured for their responsibility such as The Body Shop and Ben

and Jerry's, usually exhibit some sort of (highly publicized) commitment to environmental

goals”(p. 80). The American public has been responsive to companies that use their innovations

for the collective good, then, as long as they are made aware of them and many companies spare

no expense to accomplish this, spending far more perhaps on advertising their good deeds than

they did on the original innovation.

Notwithstanding these misguided corporate tactics, the fact remains that CSR is just good

business and if managed properly, can provide a company with a positive return on the any

investments made to this end. For example, as Jones and Maurrasse (2003) point out, “As

environmental pressures continue to increase, companies that improve environmental

performance more than their peers are likely to achieve superior financial returns and

competitive positioning over the mid to long term. In addition, corporate environmental leaders

frequently report achieving enhanced profitability in the short term” (p. 34)


Manning in his essay, “Benefits of Environmental Stewardship” (2004) reports that,

Today, more than ever before, the air we breathe and the water we drink are not strictly

‘environmental’ issues. They're business issues. That's because today, more than any time in our

history, business and the environment are inextricably linked. And successful companies know

it. They communicate regularly with people and businesses in the neighborhoods they serve to

understand and fulfill their needs ... and to avoid taking steps that could be perceived as harming

them in any way (p. 9).

CSR as another Word for Philanthropy

An innovation that could satisfy the needs of the local community represents such an opportunity

for using CSR to a company’s advantage, again providing that the otherwise strictly altruistic

nature of the enterprise is not lost on the company’s consumers and potential consumers.

Communication is the key here.

According to Manning, companies that use their CSR in this fashion stand to gain across the

board:

Are these businesses being philanthropic? Yes and no. They're doing the right thing, to be sure.

But they're also doing the smart thing. With more local and investment communities looking

beyond earnings to a company's ‘triple’ bottom line, being socially and environmentally

conscious is key to success, even survival, in today's competitive business climate”

As noted above, corporate leaders must remain vigilant to recognize opportunities to use

innovations to their advantage in terms of its impact on their bottom line. Although the phrase

“thinking outside the box” has become somewhat worn, it is entirely appropriate in this case

because the “innovation” in question may well be the unexpected or unintended beneficial

outcomes of something that is already being done as well as the introduction of some new

method, concept or device.

CSR. What to do about it?

Although corporate leaders today cannot wait for an apple to drop on their collective heads to

provide them with the inspiration needed for a particular innovative approach, of course, they

can take advantage of unexpected opportunities to use the results of their CSR initiatives in

innovative ways. Because innovations can span the entire range of a company’s operations, the

manner in which CSR initiatives can be used to accomplish them are virtually limitless and are

constrained only by the imaginations of the players involved.

Some guidelines provided by Manning can be used to help business leaders recognize

opportunities for addressing an existing need or using an unexpected or unintended outcome to

their advantage as shown in Table 1 below.


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Table 1: Guidelines for identifying opportunities for using CSR innovations to a company’s

advantage

Steps Commitment/Rationale

Make Environmental Commitment Part of

Your Corporate Culture.

One way to "stick to your guns" is to put

environmental responsibility right in the

"holster." Make it a corporate value ... and

publicize that value, both internally and

externally, to all who will listen. Most

importantly, follow through. Staying true to

your environmental ideals is an important way

to build solid relationships with communities,

customers, investors and regulators. And these

relationships can, in turn, give you the respect

and credibility you need to successfully

negotiate issues that could be important to your

company later on. Also, make your

Environmental organization an integral, and

high-profile, part of your corporation; not a

department relegated to a remote operating

area. Your environmental performance does,

after all, have far-reaching implications that

extend beyond the realm of "Environment."

And it's becoming more evident as time goes

by that green companies not only have a great

track record with attracting and retaining

customers, they also have a competitive edge

when it comes to recruiting and holding on to

the best and brightest employees.

Stay 'Ahead of the Curve' with Rules and

Regulations.

As most companies realize, laws--particularly

environmental laws--are dynamic, not static,

and they continue to emerge at an exponential

rate. Smart businesses look to stay ahead of the

curve by anticipating future regulations ... and

by influencing the regulatory process to assure

the application of sound science. Many simply

go above and beyond compliance as a regular

practice. Examples include: exceeding emission

requirements; reporting more, not less, to the

public; advancing environmental stewardship

in your service territory; encouraging

employees to volunteer for community

environmental projects; and, voluntarily

donating legacy sites for open space, rather


than development. Besides protecting and

preparing yourself for the future, your efforts

generally won't go unnoticed ... by the public,

press and environmental regulatory agencies.

Keep Your Programs, Practices and Products

Clean.

Even businesses in industries that are not

inherently clean--transportation, power

generation, manufacturing, etc.--can make a

positive difference in their communities by

running their operations as cleanly and

efficiently as possible. Explore and try to

utilize the latest technologies available. Make

an investment in future efficiency by putting

your R & D dollars and muscle to work. Today,

more than ever, there are sophisticated

technologies coming to market that can turn

your ambitions of environmental stewardship

into reality. Make sure your product ... and the

way you manufacture it ... is as clean as

possible. And use it yourself. If you're going to

say you're "green," you need to act green. So, if

you're promoting natural gas as an alternative

transportation fuel, use it in your own fleet. If

you're selling recycled paper, use recycled

paper. And if you're generating electricity, use

clean fuels to do it. Also, no matter what field

you're in, get involved in your local

communities, and introduce programs and

services that can benefit their members. Staying

in touch with local customers' needs and

concerns--and striving to meet them--is an

excellent way to forge positive, long-lasting

relationships, and to put yourself in the positive

public eye.

In Times of Trouble ... Don't Wait for

Community Needs To Become Community

Nuisances.

Get out there and address communities' needs

and concerns at the start of each project you

contemplate. Make it a priority to achieve

positive results for everyone, even (or

especially) in a difficult situation. For example,

if you're considering a development project that

might meet with public skepticism or "NIMBY

(Not In My Backyard)-ism," don't wait for the

yelling to start. Engage the community, and

come up with compromises and workable

solutions right at the beginning. Be honest

about your plans and, if possible, be flexible

about how you're going to achieve your goals,


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with the community's interests always in mind.

No news can be good news in certain

circumstances, and being proactive can shield

your company from the consequences of bad

press that inevitably results from going against

the wishes of the community you are trying to

serve.

Make Environmental Groups Your Friends,

Not Foes.

Businesses and environmental groups are no

longer necessarily on opposite sides of the

fence. Many are establishing and maintaining

fruitful partnerships that benefit both business

and the environment. Businesses that support

their local environmental groups may be

surprised to find that many groups are just as

willing to cooperate with you as you are with

them--for the good of the environment and the

local community. They can also guide you

toward environmentally friendly practices that

are not necessarily more difficult, time-

consuming or expensive, but which can greatly

benefit the local environment. The bottom line

is that businesses and environmental groups

working together can forge compromises that

strike a balance between conservation and

development; between philanthropy and

profitability, etc.

FOCUS POINT

Characteristics of a good CSR program:

Is embedded within the business operation.

Generates sustainable benefit.

Provides a win–win solution.

Is impossible for a company without profit.

Can only be sustainable if continuous capacity building and community empowerment

are done, supported by the necessary infrastructure.

Continuous improvements through monitoring, assessing, and reporting.


The Changing Popularity of CSR

A wide variety of corporate practices has been developed under the vignette of CSR, most often

in reference to acts of responsibility. Etymologically, to be responsible is to be answerable

(Lucas 1993), to be able and willing to answer. As a matter of moral principle, being or acting

‘responsible’ is good. But things change once the principle is turned into practice. Immediately,

many questions rise, for example regarding the realm for which responsibility is to be assumed,

and the manners by which it is to be expressed. And things get worse once multiple

responsibilities towards different stakeholders have to be addressed, all the more so if these

responsibilities are incompatible or conflicting. Indeed, various corporate audiences express

different expectations regarding how firms should assume their social responsibilities. The

differences between principle and praxis are all the more visible once the CSR debate is

examined at different levels of abstraction. If the CSR debate is examined at a high level of

abstraction, there are two different positions. These are (1) firms do not and should not have any

social responsibilities beyond maximizing shareholder value (Friedman 1962; Jensen 2002),

versus, (2) firms do have such responsibilities and should act accordingly (Quazi and O’Brien

2000; Roberts 2003).

According to the first position ‘the social responsibility of business is to increase profits’

(Friedman 2001: 29). ‘The business of business is business’ is an often used quote from

Friedman. Jensen further elaborates this viewpoint by stating that ‘200 years’ worth of work in

economics and finance indicate that social welfare is maximized when all firms in an economy

maximize total firm value’ (2002: 239). In this perspective any investments in CSR will be theft

of shareholders’ money. The position is firmly based in contractual theory. The argument is often

repeated in the business press that a particular company is striving to maximize shareholder

return.

The second position states that companies, because of the impact they have, should act socially

responsible. Although within this position there is some variety in concepts, definitions, and

interpretations (Carroll 1999; van Marrewijk 2003), fundamentally, concepts such as corporate

social responsibility, corporate social performance, stakeholder management, corporate

citizenship, business virtue, business ethics, or corporate sustainability all are manifestations of

one and the same underlying position, namely that corporate decisions have moral consequences

and that therefore corporate decision makers should consider the moral consequences of their

decisions (Freeman 1994).

A Middle Ground

However, the two positions are less conflicting if the former is reformulated to stress the firm’s

obligation to act socially responsible if doing so maximizes shareholder value, and if the latter is

believed, as many observers have suggested, to result in outcomes beneficial to the firm, if not in

the short term, then at least in the long term. The claim has often been made that firms practicing

CSR are more successful than others, for instance in terms of financial performance (Orlitzky,

Schmidt and Rynes 2003; Waddock and Graves 1997). Companies that meet the expectations of

stakeholders and society at large are expected to gain a competitive advantage over other firms


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(Sinding 2000). If this is the case, there would not be a conflict between the practice of CSR and

maximizing shareholder value. Because creating value for shareholders seems to be dominant for

management today, ‘many contemporary advocates of CSR have implicitly accepted Friedman’s

position that the primary responsibility of companies is to create wealth for their shareholders’

(Vogel 2005: 27). For that reason, business is turning to the research community to provide the

‘business case’ for CSR. However, attempts to provide evidence for a positive correlation

between CSR and financial performance have not been that successful up till now (Margolis and

Walsh 2003).

FOCUS POINT

A company can expect to practice sustainable CSR successfully only when it is able to

exert the high degree of control required to ensure good corporate governance within its

core business operations.

Evolution of Corporate Social Responsibility in India

Among other countries India has one of the richest traditions of CSR. Much has been done in

recent years to make Indian Entrepreneurs aware of social responsibility as an important segment

of their business activity but CSR in India has yet to receive widespread recognition. If this goal

has to be realized then the CSR approach of corporates has to be in line with their attitudes

towards mainstream business- companies setting clear objectives, undertaking potential

investments, measuring and reporting performance publicly.

The Four Phases of CSR Development in India

The history of CSR in India has its four phases which run parallel to India's historical

development and has resulted in different approaches towards CSR. However the phases are not

static and the features of each phase may overlap other phases.

The First Phase

In the first phase charity and philanthropy were the main drivers of CSR. Culture, religion,

family values and tradition and industrialization had an influential effect on CSR. In the pre-

industrialization period, which lasted till 1850, wealthy merchants shared a part of their wealth

with the wider society by way of setting up temples for a religious cause. Moreover, these

merchants helped the society in getting over phases of famine and epidemics by providing food

from their godowns and money and thus securing an integral position in the society. With the

arrival of colonial rule in India from the 1850s onwards, the approach towards CSR changed.

The industrial families of the 19th century such as Tata, Godrej, Bajaj, Modi, Birla, Singhania

were strongly inclined towards economic as well as social considerations. However it has been

observed that their efforts towards social as well as industrial development were not only driven

by selfless and religious motives but also influenced by caste groups and political objectives.


The Second Phase

In the second phase, during the independence movement, there was increased stress on Indian

Industrialists to demonstrate their dedication towards the progress of the society. This was

when Mahatma Gandhi introduced the notion of "trusteeship", according to which the industry

leaders had to manage their wealth so as to benefit the common man. "I desire to end capitalism

almost, if not quite, as much as the most advanced socialist. But our methods differ. My theory of

trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other

theories." This was Gandhi's words which highlights his argument towards his concept of

"trusteeship". Gandhi's influence put pressure on various Industrialists to act towards building

the nation and its socio-economic development. According to Gandhi, Indian companies were

supposed to be the "temples of modern India". Under his influence businesses established trusts

for schools and colleges and also helped in setting up training and scientific institutions. The

operations of the trusts were largely in line with Gandhi's reforms which sought to abolish

untouchability, encourage empowerment of women and rural development.

The Third Phase

The third phase of CSR (1960–80) had its relation to the element of "mixed economy",

emergence of Public Sector Undertakings (PSUs) and laws relating labor and environmental

standards. During this period the private sector was forced to take a backseat. The public sector

was seen as the prime mover of development. Because of the stringent legal rules and regulations

surrounding the activities of the private sector, the period was described as an "era of command

and control". The policy of industrial licensing, high taxes and restrictions on the private sector

led to corporate malpractices. This led to enactment of legislation regarding corporate

governance, labor and environmental issues. PSUs were set up by the state to ensure suitable

distribution of resources (wealth, food etc.) to the needy. However the public sector was

effective only to a certain limited extent. This led to shift of expectation from the public to the

private sector and their active involvement in the socio-economic development of the country

became absolutely necessary. In 1965 Indian academicians, politicians and businessmen set up a

national workshop on CSR aimed at reconciliation. They emphasized upon transparency, social

accountability and regular stakeholder dialogues. In spite of such attempts the CSR failed to

catch steam.

The Fourth Phase

In the fourth phase (1980 until the present) Indian companies started abandoning their traditional

engagement with CSR and integrated it into a sustainable business strategy. In the 1990s the first

initiation towards globalization and economic liberalization were undertaken. Controls and

licensing system were partly done away with which gave a boost to the economy the signs of

which are very evident today. Increased growth momentum of the economy helped Indian

companies grow rapidly and this made them more willing Gajare, R.S. (2014). A conceptual

study of CSR development in India. In D.B. Patil & D.D. Bhakkad, Redefining Management


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Practices and Marketing in Modern Age Dhule, India: Atharva Publications (p. 152-154).}and

able to contribute towards social cause. Globalization has transformed India into an important

destination in terms of production and manufacturing bases of TNCs are concerned. As Western

markets are becoming more and more concerned about labor and environmental standards in the

developing countries, Indian companies which export and produce goods for the developed

world need to pay a close attention to compliance with the international standards.

Current State of CSR in India

As discussed above, CSR is not a new concept in India. Ever since their inception, corporates

like the Tata Group, the Aditya Birla Group, and Indian Oil Corporation, to name a few, have

been involved in serving the community. Through donations and charity events, many other

organizations have been doing their part for the society. The basic objective of CSR in these days

is to maximize the company's overall impact on the society and stakeholders. CSR policies,

practices and programs are being comprehensively integrated by an increasing number of

companies throughout their business operations and processes. A growing number of corporates

feel that CSR is not just another form of indirect expense but is important for protecting the

goodwill and reputation, defending attacks and increasing business competitiveness.

Companies have specialized CSR teams that formulate policies, strategies and goals for their

CSR programs and set aside budgets to fund them. These programs are often determined by

social philosophy which have clear objectives and are well defined and are aligned with the

mainstream business. The programs are put into practice by the employees who are crucial to this

process. CSR programs ranges from community development to development in education,

environment and healthcare etc.

For example, a more comprehensive method of development is adopted by some corporations

such as Bharat Petroleum Corporation Limited, Maruti Suzuki India Limited, and Hindustan.

Provision of improved medical and sanitation facilities, building schools and houses, and

empowering the villagers and in process making them more self-reliant by providing vocational

training and a knowledge of business operations are the facilities that these corporations focus

on. Many of the companies are helping other peoples by providing them good standard of living.

On the other hand, the CSR programs of corporations like GlaxoSmithKline

Pharmaceuticals’ focus on the health aspect of the community. They set up health camps in tribal

villages which offer medical check-ups and treatment and undertake health awareness programs.

Some of the non-profit organizations which carry out health and education programs in

backward areas are to a certain extent funded by such corporations.

Also Corporates increasingly join hands with Non-governmental organizations (NGOs) and use

their expertise in devising programs which address wider social problems.

For example, a lot of work is being undertaken to rebuild the lives of the tsunami affected

victims. This is exclusively undertaken by SAP India in partnership with Hope Foundation, an

NGO that focuses mainly on bringing about improvement in the lives of the poor and needy .


The SAP Labs Center of HOPE in Bangalore was started by this venture which looks after the

food, clothing, shelter and medical care of street children.

CSR has gone through many phases in India. The ability to make a significant difference in the

society and improve the overall quality of life has clearly been proven by the corporates. Not one

but all corporates should try and bring about a change in the current social situation in India in

order to have an effective and lasting solution to the social woes. Partnerships between

companies, NGOs and the government should be facilitated so that a combination of their skills

such as expertise, strategic thinking, manpower and money to initiate extensive social change

will put the socio-economic development of India on a fast track.

What does the law say?

Under the Companies Act, 2013, any company having a net worth of rupees 500 crore or more or

a turnover of rupees 1,000 crore or more or a net profit of rupees 5 crore or more should

mandatorily spend 2% of their net profits per fiscal on CSR activities. The rules came into effect

from 1 April 2014.

The Details

The 2013 Act has introduced several provisions which would change the way Indian corporates

do business and one such provision is spending on Corporate Social Responsibility (CSR)

activities. CSR, which has largely been voluntary contribution, by corporates has now been

included in law. Basis the CSR provisions, as laid down under the 2013 Act and the draft CSR

rules made available for public comments, in this bulletin we bring out the key provisions,

analysis and challenges relating to the compliance of these provisions for companies to consider.

A Dedicated CSR Committee

Section 135 of the 2013 Act states that every company having:

net worth of INR 500 Crore or more, or

turnover of INR 1000 Crore or more ,or

net profit of INR 5 Crore or more during any financial year shall constitute a Corporate

Social Responsibility Committee of the Board

The committee would comprise of three or more directors, out of which at least one director shall

be an independent director.

Mandate of the Committee

The mandate of the said CSR committee shall be:

to formulate and recommend to the Board, a Corporate Social Responsibility Policy,

which shall indicate the activities to be undertaken by the company as specified in

Schedule VII;


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to recommend the amount of expenditure to be incurred on the activities referred to

above;

to monitor the Corporate Social Responsibility Policy of the company from time to time

Actions to be taken by Board of Directors

The Board of every company referred to above shall after taking into account the

recommendations made by CSR Committee:

The mandate of the said CSR committee shall be:

to formulate and recommend to the Board, a Corporate Social Responsibility Policy,

which shall indicate the activities to be undertaken by the company as specified in

Schedule VII;

to recommend the amount of expenditure to be incurred on the activities referred to

above;

to monitor the Corporate Social Responsibility Policy of the company from time to time

approve the CSR Policy for the company and disclose contents of such Policy in its

report and also place it on the company’s website, and

ensure that the activities as are included in CSR Policy of the company are undertaken by

the company, and

ensure that the company spends, in every financial year, at least two per cent of the

average net profits

If the Company fails to spend such amount, the Board shall, in its report specify the

reasons for not spending the amount

“Like for all good things, corporate India had to wait a long time for a

corporate reporting framework that is current, and with some work, can be

considered visionary. Introduction of the ‘comply or explain’ principle in the

case of CSR rule is one such example.”

– Vishesh C Chandiok, National Managing Partner

Grant Thornton India LLP

CSR Activities as per Schedule VII

CSR activities to include:

eradicating extreme hunger and poverty

promotion of education

promoting gender equality and empowering women

reducing child mortality and improving maternal health

combating human immunodeficiency virus, acquired immune deficiency syndrome,

malaria and other diseases


ensuring environmental sustainability

employment enhancing vocational skills

social business projects

contribution to the Prime Minister's National Relief Fund or any other fund set up by the

Central Government or the State Governments for socio-economic development and

relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other

backward classes, minorities and women; and

such other matters as may be prescribed

The 2013 Act provides that the company shall give preference to the local area and areas around

it where it operates.

Analysis of the CSR mandate of the Companies Act 2013 (‘2013 Act’)

CSR which has largely been a voluntary contribution by corporate companies has now been

included in law

There is a debate as to whether any penal consequences will emanate on failure to spend,

or an explanation in the directors’ report on the reasons therefore are only warranted

There may be reluctance in compliance, especially in case of companies which are not

profitable, but fall under the designated category due to triggering net worth or turnover

criteria

It is not clear what all constitutes CSR activities as the list specified under Schedule VII

of the Act seems like an inclusive list and not exhaustive

The CSR provisions under the 2013 Act require a minimum of 3 directors for the

constitution of the CSR committee, clarification needed as to whether qualifying private

companies would be required to appoint a third director to comply with the CSR

provisions

The Rise and fall of CSR

Corporate social responsibility (CSR) has been debated and practiced in one form or another for

more than 4,000 years. The ancient Vedic and Sutra texts of Hinduism and the Jatakas of

Buddhism include ethical admonitions on usury (the charging of excessive interest), and Islam

has long advocated the use of zakat, or a wealth tax (Visser & McIntosh 1998). The modern

concept of CSR can be traced to the mid-to-late 1800s, with industrialists like John H. Patterson

of National Cash Register seeding the industrial welfare movement, and philanthropists like John

D. Rockefeller setting a charitable precedent that we see echoed more than 100 years later with

the likes of Bill Gates (Carroll 2008).

Despite these early variations, CSR only entered the popular lexicon in the 1950s with R.

Bowen’s landmark book, Social Responsibilities of the Businessman (Bowen 1953). The concept

was challenged and strengthened in the 1960s with the birth of the environmental movement,

following Rachel Carson’s critique of the chemicals industry in Silent Spring (Carson 1962),


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and that of the consumer movement arising out of Ralph Nader’s social activism, most famously

over General Motors’ safety record (Nader 1965).

The 1970s saw the emergence of the first widely accepted definition of CSR – Archie Carroll’s

four-part concept of economic, legal, ethical and philanthropic responsibilities, later depicted as

a CSR pyramid (Carroll 1979) – as well as the first CSR code, the Sullivan Principles. The 1980s

brought the application of quality management to occupational health and safety and the

introduction of CSR codes such as ‘Responsible Care’.

In the 1990s, CSR was institutionalized with standards like ISO 14001 and SA8000, guidelines

like the Global Reporting Initiative (GRI) and corporate governance codes like Cadbury and

King. The 21st century has mostly seen more of the same, spawning a plethora of CSR

guidelines, codes and standards (there are more than 100 listed in The A to Z of Corporate Social

Responsibility ), with industry sector and climate-change variations on the theme.

The Failure of CSR

Why has CSR failed so spectacularly to address the very issues it claims to be most concerned

about? This comes down to three factors – the ‘triple curse’ of modern CSR, if you like.

Curse 1: Incremental CSR

One of the great revolutions of the 1970s was total quality management, conceived by American

statistician W. Edwards Deming, perfected by the Japanese and exported around the world as

ISO 9001. At the very core of Deming’s TQM model and the ISO standard is continual

improvement, a principle that has now become ubiquitous in all management system approaches

to performance. It is no surprise, therefore, that the most popular environmental management

standard, ISO 14001, is also built on the same principle.

There is nothing wrong with continuous improvement per se. On the contrary, it has brought

safety and reliability to the very products and services that we associate with a modern quality of

life. But when we use it as the primary approach to tackling our social, environmental and ethical

challenges, it fails on two critical counts: speed and scale. The incremental approach of CSR,

while replete with evidence of micro-scale, gradual improvements, has completely and utterly

failed to make any impact on the massive sustainability crises that we face, many of which are

getting worse at a pace that far outstrips any futile CSR-led attempts at amelioration.

Curse 2: Peripheral CSR

Ask any CSR manager what their greatest frustration is and they will tell you: lack of top

management commitment. This is ‘code’ for saying that CSR is, at best, a peripheral function in

most companies. There may be a CSR manager, a CSR department even, a CSR report and a

public commitment to any number of CSR codes and standards. But these do little to mask the

underlying truth that shareholder-driven capitalism is rampant and its obsession with short-term


financial measures of progress is contradictory in almost every way to the long-term, stakeholder

approach needed for high-impact CSR. The reason Enron collapsed, and indeed why our current

financial crisis was allowed to spiral out of control, was not because of a few rogue executives or

creative accounting practices; it was because of a culture of greed embedded in the DNA of the

company and the financial markets. Joel Baken (2004) goes so far as to suggest that companies

are legally bound to act like psychopaths. Whether you agree or not (and despite the emerging

research on ‘responsible competitiveness’), it is hard to find any substantive examples in which

the financial markets reward responsible behavior.

Curse 3: Uneconomic CSR

If there was ever a monotonously repetitive, stuck record in CSR debates, it is the one about the

so-called ‘business case’ for CSR. That is because CSR managers and consultants, and even the

occasional saintly CEO, are desperate to find compelling evidence that ‘doing good is good for

businesses, i.e. CSR pays! And indeed, the lack of sympathetic research seems to be no

impediment for these desperados endlessly incanting the motto of the business case, as if it were

an entirely self-evident fact.

The rather more ‘inconvenient truth’ is that CSR sometimes pays, in specific circumstances, but

more often does not. Of course, there are low hanging fruit – like eco-efficiencies around waste

and energy – but these only go so far. Most of the hard-core CSR changes that are needed to

reverse the misery of poverty and the sixth mass extinction of species that is currently under way

require strategic change and massive investment. They may very well be lucrative in the long

term, economically rational over a generation or two, but we have already established that the

financial markets don’t work like that – at least, not yet.

A Scenario to Consider

For example, if something is part of a CSR initiative, it must be therefore also be “socially

responsible” by definition and therefore potentially beneficial to a company’s bottom line –

right? Well, not always. Unfortunately, in their rush to achieve as much profitability as possible

in as short a time as possible from an innovation, some companies run the risk of shooting

themselves in the corporate foot because they fail to take into account the long-term implications

of their innovation and its potential to back-fire on their bottom-lines.

Results and Discussion

This paper shows that CSR has assumed new importance and relevance to a company’s

profitability in recent years. A number of win-win outcomes were identified in the literature

review wherein more and more companies are recognizing that their CSR initiatives represent

opportunities for improving their profitability through various community-based programs that

respond to local needs, while others are also finding ways to use what there are already doing to

gain a CSR-related advantage over their competitors. The research also showed that the key to


19

success in using any type of innovation to a company’s advantage from the CSR perspective is to

communication with local municipal authorities, the press and most importantly, the general

public that stands to benefit from such initiatives. This paper shows that CSR has assumed new

importance and relevance to a company’s profitability in recent years. A number of win-win

outcomes were identified in the literature review wherein more and more companies are

recognizing that their CSR initiatives represent opportunities for improving their profitability

through various community-based programs that respond to local needs, while others are also

finding ways to use what there are already doing to gain a CSR-related advantage over their

competitors. The research also showed that the key to success in using any type of innovation to

a company’s advantage from the CSR perspective is to communication with local municipal

authorities, the press and most importantly, the general public that stands to benefit from such

initiatives.

Recommendations

Key ways a company can be seen as socially responsible are-

a. Fair employee treatment

b. Protection of the environment

c. Job creation

Basic sectors such as Environment, Community, Marketplace and Workplace should be

targeted in order to improve CSR effectively and within and outside the organization.

1. The company’s newly devised or running strategies must aim to permeate each stage of

the business process

2. The CSR strategy developed must not lack clarity. Have strong initiatives and integration

3. Try to comprehend and learn from competitors’ best practices to improve one’s own

strategy

4. Identify problems in the society and area around so as to help maximize effectiveness of

efforts and to obtain quicker results

5. Identify and act upon solutions to environmental problems that are faced by the company

6. Take up community initiatives

7. Aligning business programs with current CSR strategies for positive growth

Conclusion

It is clear from the foregoing that innovation should be considered a valid argument for CSR,

along the lines of the four traditional arguments for social responsibility – moral, reputation,

license-to-operate, and sustainability. Innovation in the department of CSR can prove to be a

game booster for all companies.

CSR not only improves brand value and brand name but also is seen as one of the few factors

seen in elite companies which sets them apart. Although CSR maybe seen as a social

requirement for big companies, there is no set benchmark for doing well for the society. Hence,


no effort made is too small. Hence, Corporate Social Responsibility should be taken seriously

and from this research we can see that continuous innovation of CSR strategies can help the

company succeed in the books as well in the market.

References and Bibliography

1. Thornton India LLP, G. (n.d.). Implications of Companies Act, 2013 Corporate Social

Responsibility. Retrieved September 10, 2014, from

http://gtw3.grantthornton.in/assets/Companies_Act-CSR.pdf

2. Asongu, J. (2007). Innovation as an Argument for Corporate Social Responsibility.

Journal of Business and Public Policy, 1(3). Retrieved September 11, 2014, from

http://isites.harvard.edu/fs/docs/icb.topic747719.files/Supplemental Reading

Folder/Innovation.pdf

3. What is CSR? (n.d.). Retrieved September 10, 2014, from http://www.unido.org/en/what-

we-do/trade/csr/what-is-csr.html

4. Evolution of corporate social responsibility in India. (2014, October 9). Retrieved

September 11, 2014, from

http://en.wikipedia.org/wiki/Evolution_of_corporate_social_responsibility_in_India

5. Urip, S. (2010). Benefits of Corporate Social Responsibility. In CSR strategies corporate

social responsibility for a competitive edge in emerging markets (pp. Xiii-xvi).

Singapore: Wiley.

6. Urip, S. (2010). Focus Point: Sustainable CSR. In CSR strategies corporate social

responsibility for a competitive edge in emerging markets (p. 8). Singapore: Wiley.

7. Urip, S. (2010). Focus Point: Characteristics of a good CSR program. In CSR strategies

corporate social responsibility for a competitive edge in emerging markets (p. 32).

Singapore: Wiley.

8. Hond, F. (2007). Introduction to Managing Corporate Social Responsibility in Action:

Talking, Doing and Measuring. In Managing corporate social responsibility in action

talking, doing and measuring. Aldershot, Hampshire, England: Ashgate.

9. McElhaney, K. (2008). CSR, Tomorrow and Beyond. In Just good business the strategic

guide to aligning corporate responsibility and brand (pp. 35-36). San Francisco: Berrett-

Koehler.

10. Manning, D. (2004). Review of Business. In Benefits of Environmental Stewardship.

11. Pohl, M., & Tolhurst, N. (2010). CSR 2.0: The Evolution and Revolution of CSR. In

Responsible Business How to Manage a CSR Strategy Successfully. (pp. 314-315).

Hoboken: John Wiley & Sons.

12. Pronay, F. (n.d.). CSR driven innovation. Retrieved September 11, 2014, from

https://webgate.ec.europa.eu/socialinnovationeurope/directory/organisation/csr-driven-

innovation

http://gtw3.grantthornton.in/assets/Companies_Act-CSR.pdf

http://isites.harvard.edu/fs/docs/icb.topic747719.files/Supplemental%20Reading%20Folder/Innovation.pdf

http://isites.harvard.edu/fs/docs/icb.topic747719.files/Supplemental%20Reading%20Folder/Innovation.pdf

http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html

http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html

http://en.wikipedia.org/wiki/Evolution_of_corporate_social_responsibility_in_India