WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

Companies, like any other human entity with the power to act and influence peoples lives, should respect human rights and should do all that is possible in order to avoid that its activities somehow violate human rights. This is part of corporate social responsibility (CSR). The concept of CSR describes the responsibilities of corporations or companies to the wider social environment in which they operate. These responsibilities go beyond the interests or needs of shareholders, workers, employees and customers, and include care for the natural environment and for the human rights of people who are affected in some way by the activities of companies. Potentially, CSR is of a global nature, because a company can affect the environment of places far away, and the human rights of people in distant countries. Transnational companies (TNCs) especially may have such a global impact, but other kinds of companies as well. For example, an arms producer doesnt have to be a TNC in order to be complicit in rights violations in different parts of the world. HOW CAN COMPANIES VIOLATE HUMAN RIGHTS? So, human rights are part of corporate social responsibility. The activities of companies can violate human rights in various ways. Just a few quick examples:


Workers and employees can be forced to accept labor conditions which violate the rights described in articles 23 and 24 of the Universal Declaration. These labor conditions can even amount to slavery (violating article 4) or child labor (violating article 26) and should include the labor conditions in the supply chain and in companies that work as subcontractors (including outsourcing).

A companys products and services can be harmful to the health of its customers, violating articles 3 and 25.  Apart from directly violating human rights, a company can also be complicit in violations committed by others. It can, for example, sell arms and other commodities to authoritarian and dictatorial governments, or governments engaged in an unjust war.  Its economic activity in a country can be beneficial to a dictatorial government and can prop up this government (e.g. buying diamonds from a government exploiting its people).  Etc. MAKING COMPANIES RESPONSIBLE FOR HUMAN RIGHTS VIOLATIONS?


Many companies have already adopted a code of conduct, voluntarily or forced by public opinion or consumer action (see here for an example). But others havent. And there are still numerous companies actively engaging in activities which they know contribute to rights violations. So the question has been raised if companies should be forced to respect human rights. Or, in other words, if corporate social responsibility in general and corporate responsibility for human rights in particular, should be madelegally enforceable. And, if so, how this should be done. Of course, many laws, including human rights laws, already apply to companies and can be used to force companies to respect human rights (for example laws on labor standards, safety, nondiscrimination etc.). However, perhaps it would be better to say that many such laws apply to individuals within companies rather than to companies themselves. And thats ok, because most of the time, human rights are violated by individuals. Someone, somewhere in a companies always decides to sell arms to a warlord, to invest in a dicatorship, to impose grossly inadequate labor conditions etc. So its possible to find someone whos legally

responsible. (The ICC, for example, can prosecute individuals acting in their cap

Total Corporate Social Responsibility Economic responsibilities: The first criterion of social responsibility is economic responsibility. The business institution is, above all, the basic economic unit of society. Its responsibility is to produce goods and services that a society wants and to maximize profit for its owners and shareholders. Economic responsibilities, carried to the extreme, are called profitmaximizing view; it was advocated by Nobel economist Milton Friedman. This view argued that a company should be operated on a profit-oriented basis, with its sole mission to increase its profits so long as is stays within the rule of the game.

The purely profit-maximizing view is no longer considered an adequate criterion of performance in the world in general. Treating economic gain in the social as the only social responsibility can lead companies into trouble. Legal responsibilities All modern societies lay down ground rules, laws and regulations that businesses are expected to follow. Legal responsibility defines what society deems as important with respect to appropriate corporate behavior. Businesses are expected to fulfil their economic goals within the legal framework. Legal requirements are imposed by local councils, state and federal governments and their regulating agencies. Organizations that knowingly break the law are poor performers in this category. Intentionally manufacturing defective goods or billing a client for work not done is illegal. Legal sanctions may include embarrassing public apologies or corporate confessions. Ethical responsibilities Ethical responsibilities include behavior that is not necessarily codified into law and may not serve the organizations direct economic interests. To be ethical, organizations decision makers should act with equity, fairness and impartiality, respect the rights of individuals, and provide different treatments of individual only when differences between them are relevant to the organizations goals and tasks. Unethical behavior occurs when decisions enable an individual or organization to gain expense of society. Discretionary responsibilities Discretionary responsibility is purely voluntary and guided by an organizations desire to make social contributions not mandated by economics, laws or ethics. Discretionary activities include generous philanthropic contributions that offer no payback to the organization and are not expected. Discretionary responsibility is the highest criterion of

social responsibility, because it goes beyond societal expectations to contribute to the communitys welfare. Stakeholders governance models offer political and economic benefits. Still stakeholder collaboration remains fairky underdeveloped and often ineffective. Limited stakeholder inculsion, strategic management of stakeholders and co-optation of stakeholder involvement by managerial groups creates limits. But a bigger but more hidden problem has been the lack of serious attention to models of communication in collaborative decision making. Innovative communcation processes based in conflict rather than consensus models can positively imact Corporate Social Responsibility (CSR).

Corporate Social Responsibility in India and Views on the proposed 2% mandatory CSR spending

Corporate Social Responsibility (CSR) is about how companies manage their business processes, behaviour to have a positive impact on the needs of the society, stakeholders and special interest groups. CSR is about business organisations doing

something good for the society at large. There are many models of CSR practiced around the globe. The US model for CSR is more philanthropic in nature, where companies donate a share of their profit to charity. The European model on the other hand is about conducting business in a socially responsible manner to benefit the society and increase business as well as wealth. The European model focuses on increasing wealth for the society. The European law requires from its companies in a disclosure of their performances both financial and non financial, relating to society, employees and environment. Since different countries have different priorities and needs, CSR is also practiced in different ways. Indian businesses have been practicing CSR for years without any law mandating it. Birla, Reliance and Tata have been engaged in CSR-related activities for a long time. However, with growing divide between India and Bharat, the industry and government are debating whether a proper law should be promulgated for CSR activities or a basic set of guidelines would be sufficient for the act of charity. Many industry captains feel that they should not be bound by any legal obligations to practice CSR or be philanthropic. However, it was not a concept really understood in the development sector. Only a handful of companies were practicing it because there sister companies and stakeholders were following it in other countries. The situation is changing in India. It is now a business necessity to practice CSR in India. The Indian government wanted to pass the 2 per cent mandatory spending of three years profits of corporate houses. But it has been opposed by a lot of industrialists. There are people like Bill Gates and Warren Buffet, who came to

India trying to influence people like Adi Godrej, Analjit Singh, Azim Premji and Ajay Piramal to practice philanthropy. What Gates and Buffet said was welcomed by the industrialists but it gave them another chance to criticise the governments initiatives to make them create a provision for CSR through amendment in 2009 Companies Bill. Business tycoon Azim Premji, the chairman of Wipro Ltd is against this legislation. He had suggested that the government should consider providing companies with a set of guidelines on CSR instead of making it a mandatory law. Minister of Corporate Affairs, Murli Deora also suggested that the government was willing to discuss the matter with the industry. Even though Azim Premji has been against the legislation, he has been a philanthropist and had set aside shares worth $1.95 billion in Wipro Ltd for educating the underprivileged. Premji along with other corporate honchos want to see CSR as a set of guidelines instead of a law. The general feeling among the business class is that social consciousness is already present. What is the need to create a law which takes away the essence of charity. Due to intense pressure from the corporate lobby, the government was unable to present the bill in the current session of Parliament. The government, however, does have a set of CSR guidelines for the public sector enterprises. The government does acknowledge the fact that making CSR spending mandatory might spawn malpractices. According to Mukesh Ambani, RIL chairman, CSR should be redefined as Continuous Social Responsibility. Ambanis CSR initiatives are through rewards and scholarships such as the Dhirubhai Ambani SSC Merit Scheme. Free health care initiatives, cancer and AIDS prevention programmes.

Sunil Bharti Mittal, chairman of Bharti Airtel Ltd, is also against any law for CSR. He felt that it should only be voluntary. Although Mittal opposes mandatory CSR spending, Bharti Airtel as a group has been actively engaged in CSR activities for a long time. For example, during the 2004 Tsunami disaster in India, the telecom giant built a mobile network in the Andaman and Nicobar Islands to help reconstructing the lives of the island people. They are also engaged in charity work such as donating surplus food and free medicines. According to Adi Godrej, the 2 per cent mandatory spending should not be passed as a law but be practiced willingly. Nitin Paranjpe, MD of HUL and Kiran Mazumdar Shaw, CMD of Biocon Ltd share the Godrej view. The corporate feels that when the government tries to impose something it does not work out well. It will better if they do not step into something which is being managed so well without their interference. It is being driven by motivated people who like doing charity on their own. It also ogres much better results. Former Minister of Corporate Affairs Salman Khurshid had proposed that companies should just disclose how much they have spent on CSR. He did not come up with the idea for CSR spending law. He understood that CSR was a part of business. On the other hand, Praful Patel, the Union Heavy Industries Minister is in favour of the CSR spending for private firms becoming mandatory as it is essential for the upliftment of the poor. He is of the opinion that making CSR spending mandatory, the backward and poor people of India will be able to get some benefits of Indias economic progress. Corporate Social Responsibility helps companies manage their corporate image with a social cause. CSR as beyond compliance is questioned on logical and descriptive grounds. Regulating CSR

is not about replacing voluntary practiced of CSR with hard law. It is about guiding discretion through law. However, the government could define what makes or constitutes CSR activities. It should make clear in the guidelines as to what CSR involves. There is a lot of ambiguity surrounding CSR. Whether a company can spend 2 per cent of its average three years of profits on a trust owned by the same firm constitutes as CSR activity. This way a company might end up spending less than it actually did on social activities. It can also mean that if this law is passed or was passed, then companies could just tick a box instead of making sure that they have actually done something good for the society. Corporate houses need to understand that by engaging in CSR related activities, they improve their brand image, goodwill and win the societys trust. If the 2 per cent mandatory spending would be a law and would be spent with discretion, then the poor would benefit from CSR law as Praful Patel pointed out. The top priority should be to remove the ambiguity around the proposed CSR law. The Institute Of Chartered Accountants of India are yet to come up with a system to track and keep a record of what the companies spend on CSR related activities. In India, CSR does not fall under any specific accounting structure and comes under corporate governance. Guidelines and education by the government on CSR would serve better. CSR is a corporate strategy which can be stressed on by the government as to why it should be passed as a law. Any business that does not give back to the society becomes dead and Mukesh Ambanis idea to redefine Corporate Social Responsibility into Continuous Social Responsibility is true. Companies should look at CSR as a long term strategy. If CSR includes United Nations Millenium Development Goals, which form the basis of CSR, then CSR can serve beyond the philanthropic model.

Hence, a set of guidelines provided by the government removing ambiguity surrounding CSR and moving it forward beyond a philanthropic model would benefit both the Indian society and the corporate sector.