IS MOTIVATION FOR CSR PROFIT OR ETHICS?

Pradnya Naik Keval Kothari

BRIEF RECAP

MICHAEL PORTERS VIEWS..

If looked strategically, CSR can be more than a cost, constraint or a charitable deed and can be a source of opportunity, innovation and competitive advantage.

MICHAEL PORTERS VIEWS..

Two

reasons CSR hasnt been nearly as productive as it could be.

They pit business against society, when two are interdependent Companies think CSR as a generic responsibility instead of a firms strategy.

Prevailing

approaches are disconnected from business as to obscure many great opportunity for companies to benefit society.

WHAT IS CSR ?

SOME DEFINITIONS

European Commission definition in 2004: CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis McKinsey: Large companies need to build social issues into strategy. They need to articulate businesss social contribution and define its ultimate purpose in a way that has more subtlety than the business of business is business worldview.

Some Definitions

Philip Kotler: CSR is the commitment to improve community wellbeing through discretionary business practices and contributions of corporate resources World Business Council for Sustainable Development: Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.

MOTIVES OF CSR

ECONOMIC CSR

Strategic tool to achieve economic objectives, increased profit and wealth creation The companys activities are seen as assets to get economic results Any expected social activity is accepted if it is consistent with wealth creation

This approach usually takes shareholder value maximization as the over-riding reference for corporate decision-making

Economic CSR motive represent a defensive and business focus

Defensive focus

Activity and strategy enquire increased economic profit in their own business. This is important in market with competitive advantages Integration of CSR is a result of imitation or to get a competitive comparative advantage

Business Focus
Rationale for the CSR is derived entirely or very largely from a concern with the interest of the enterprise itself. Corporations are seen as needing to adapt because it makes good business for them to do so, and not because this not would make the world a better place.

ECONOMIC CSR AND UTILITARIANISM

Utility perspective The philosophy of utilitarianism: An action is morally right if it results in the greatest amount of good for the greatest amount of people affected by the actions looking at the consequences of any particular action and judge the ethical standing of that action in terms of those consequences If the action tends to maximize good consequences it is an ethical right action, and if not the actions is wrong.

ETHICAL CSR

Approaches are focused on the ethical requirements that strengthen the relationship between business and society. In general these approaches are based on values that state the right thing to do or the obligation to create a good society. Firms are obligated to make a payment in kind for using societys infrastructure, land, air, water, plants, and animals to generate profit. They have a duty to reimburse society for the negative externalities their activity generates.

ETHICAL CSR

Ethical CSR actively seeks a greater balance between profit and ethics. There is an overt effort to manage the organizations culture to produce the desired ethical climate. This change in the culture involves recognition of a social contract between the business and the society.

Management approaches problem solving with awareness of the ethical consequences of an action as well as its potential profitability

ALTRUISTIC CSR

Altruistic CSR is equivalent to philanthropic responsibilities to be a good corporate citizen by giving back to society Firms go beyond ethical CSR (preventing or rectifying the harms they have done) to assume liability for public welfare deficiencies they have not caused Involves contributing to the good of various societal stakeholders, even if this sacrifices part of the business profitability.

Unlike Economic CSR, where it is believed that the money put into good work will yield a return on investment for the business , with altruistic CSR this is not the motive (although the firm could conceivably benefit as a byproduct) Firms practicing altruistic CSR help to alleviate various social ills within a community or society,

such as lack of sufficient funding for educational institutions, inadequate moneys for the arts, chronic unemployment, urban blight, drug and alcohol problems, and illiteracy,

EXAMPLES

NESTLE EXAMPLE

A TERRITORY NOT MEANT FOR BUSINESS

In 1962, company wanted to enter India. Received government permission to build a dairy in Punjabs district of Moga.

A farmer owned less than 5 Acres of poorly irrigated land with infertile soil. Many kept one cow / buffalo for own consumption of milk. 60% of calves died newborn.

Poverty in the region was severe.

Infrastructure: No telephones, no electricity, no transportation, no medical care.

No methods to test for quality of milk, frequent contamination as there was lack of cold storage.

THE TRANSFORMATION

Nestle built refrigerated dairies in each town and sent trucks to collect the milk.

Farmers were given monthly training sessions. It enabled them to learn that milk quality depended on cows diet which in turn depended on feed crop irrigation. It provided technical & financial assistance to dig bore-wells. Irrigation improved, crop yields improved and standard of living improved.

With trucks went vets, nutritionists, agronomists & quality assurance experts.

Medical units were provided for sick animals.

MAHINDRA AND MAHINDRA

NANHI KALI

The Mahindra group started the project Nanhi Kali in 1996 with an objective of providing primary education to the underprivileged girl child in India . In 2005 , K.C.Mahindra education trust entered into a partnership with Nandi foundation , a reputed NGO to manage programme for 10 years . Over the years the project Nanhi Kali has successfully evolved into a major national girl child sponsorship programme , which not only provides money but also material support in form of clothes , uniforms , notebooks etc.

PEPSICO

CSR ACTIVITIES BY PEPSICO INDIA

PepsiCo India has pioneered several major initiatives to Replenish water in communities Solid Waste Management initiatives in partnership with Exnora, an environmental NGO

Continues to strengthen its partnerships with farmers across the country to boost their productivity and income
PepsiCo's Get Active & a Good Nutrition and Active Lifestyle Program for Children: to raise awareness on the importance of balanced nutrition and regular physical activity for a healthy lifestyle among school children.

PRACTICALITY AND FEASIBILITY

Is this the only duty of the firm?

Is it too much for a firm ?

Practical AND Feasible?

Economic CSR
Nestle ??

Ethical CSR
Pepsi Co??

Altruistic CSR
Nanhi Kali??

RECAP OF LAST LECTURE

Business only has an economic responsibility to make a profit Pure profit-making view or economic CSR

Corporate management to be more sensitive to the societal impact of their decisions Socially aware view or ethical CSR

Corporations actively involved in programs which can ameliorate various social ills Community service view or altruistic CSR

KARMAYOG CSR RATINGS

Watchdog organizations that look specifically at CSR activities of top 500 companies in India

Every company harms the environment and people!

Corporate Social Responsibility is thus just about two aspects: 1) The steps taken by a company to neutralise, minimise or offset the harmful effects caused by its processes and product-usage

2) The further steps a company takes using its resources, core competence, skills, location and funds for the benefit of people and the environment

CRITERIA FOR CSR RATINGS

Sufficient Criteria Company fulfilling the basic needs of society through its products or services Unique CSR activity Company reducing negative impact of others Companys annual expenditure on CSR = 0.2% of sales Necessary Criteria Focus on local community CSR embedded in the business operations Innovative ideas and practices are developed for CSR Activities sustainable, replicable, beneficial to the society Negative Criteria Companies that make liquor, tobacco, genetically modified crops Companies that violate laws/rules/regulations

HUL COMPETITIVE, PROFITABLE & SUSTAINABLE GROWTH

8888888888888

DOING WELL BY DOING GOOD

Nitin Paranjpe: It is the mandate of business to offer goods and services that meet the needs of consumers and generate a profit. Only if you make a profit can you invest, innovate and build for the future. Serving the Bottom of the Pyramid (BoP) can be a profitable opportunity for a business. The BoP markets can provide new focus to firms

ET Article: Doing well by doing good (2nd March 2012)

HULS SUCCESS AT BOTTOM OF PYRAMID

Lifebuoys Swasthya Chetna:

The single largest private rural health and hygiene programme The objective of the programme is to educate people about basic hygiene habits. With a focus on rural communities, the programme targets school children, women, and community elders.

Shakti

Reach the so-called media-dark regions by turning rural women into direct-to home distributors of its mass-market products Provides livelihoods to thousands of women

PHILANTHROPY & CSR SAME OR DIFFERENT?

SOME DEFINITIONS

Philanthropy:
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.

Corporate Philanthropy:
Corporate Philanthropy mirrors individual philanthropy except for the fact that a corporation, not an individual, is donating funds, time, or talent.

Although done on a larger scale, corporate philanthropy is still done

without any expectation of direct corporate gain (such as increases in

revenue), but usually involves indirect gains (such as enhancing a companys brand, engaging employees, recognition, etc.).

Although Corporate Philanthropy and CSR are used interchangeably, there is a thin line of difference.

CSR is going beyond philanthropy and is not just about donations.

SOME BRAINSTORMING QUESTIONS..

1.

The ministry of Company Affairs is drafting the new Companies Bill and has proposed the companies with turnover of more than Rs. 1000 crores OR net profit of Rs. 5 crores should spend 2% of their profits on CSR.

Is this the only way companies can be obliged to indulge in CSR? Is

Ethical?

it

2.

Warren Buffet, in March 2011, persuaded Indian billionaires to donate their wealth to charity. However, India has witnessed charitable activities only Shiv Nadar and Azim Premji. Rahul Bajaj says Since time of Buddha, India has been involved in philanthropy; its in our culture ; however such activities are different from those in the first world. Even Sam Walton, an American, says Walmart was never and should never be in the business of charity. Who of them is ethical and correct?