Archive for August, 2011

History of Corporate Social Responsibility

The Oxford Handbook of Corporate Social Responsibility (Oxford Handbooks)The view that a business can have obligations that extend beyond economic role is not new in many respects. Throughout recorded history the roles of organizations producing goods and services for the marketplace were frequently linked with and include political, social, and/or military roles. For example, throughout the early evolutionary stages of company development in England (where organizations such as the Hudson Bay Company and the East India Company received broad mandates), there was a public policy understanding that corporations were to help achieve societal objectives such as the exploration of colonial territory, setting up settlements, providing transportation services, developing bank and financial services, etc.

During the nineteenth century, the corporation as a business form of organization evolved rapidly in the US. It took on a commercial form that spelled out responsibilities of the board of directors and management to shareholders (i.e. fiduciary duty). In this later evolutionary form, public policy frequently addressed specific social domains such as health and safety for workers, consumer protection, labour practices, environmental protection, etc. Thus, corporations responded to social responsibilities because they were obligated to be in compliance with the law and public policy. They also responded voluntarily to market demands that reflected consumer morals and social tastes. By the mid-point of the twentieth century, corporate social responsibility was being discussed in the US by business management experts such as Peter Drucker and in business literatures CSR emerged and continues to be a key business management, marketing, and accounting concern in the US, Europe, Canada, and other nations.

Harvard Business Review on Corporate Responsibility (Harvard Business Review Paperback Series)
Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. Companies there made profits unhindered except by fulfilling their duty to pay taxes. Then they donated a certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive any benefit from the giving. The first generation of CSR this way showed how companies can be responsible in ways that do not detract from and may contribute to commercial success. Corporate philanthropy is the practice of companies of all sizes and sectors making charitable contributions to address a variety of social, economic and other issues as part of an overall corporate citizenship strategy.

The second generation is now developing where companies and whole industries see CSR as an integral part of the long term business strategy. Now a days lot of companies are taking it seriously for good of business. From a progressive business perspective, CSR usually involves focusing on new opportunities as a way to respond to inter-related economic, societal and environmental demands in the marketplace. Many firms believe that this focus provides a clear competitive advantage and stimulates corporate innovation.

Key Concepts in Corporate Social Responsibility (SAGE Key Concepts series)In the last decade, CSR and related concepts such as corporate citizenship and corporate sustainability have expanded. This has perhaps occurred in response to new challenges such as those emanating from increased globalization on the agenda of business managers as well as for related stakeholder communities. It is now more a part of both the vocabulary and agenda of academics, professionals, non governmental organizations, consumer groups, employees, suppliers, shareholders, and investors.

A third generation of CSR is needed in order to make a significant contribution to addressing poverty and environmental degradation. This will go beyond voluntary approaches by individual companies and will involve leadership companies and organizations influencing the market in which they operate and how it is regulated to re-mould whole markets towards sustainability.

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10 reasons why CSR is important for your business

Corporations are motivated to involve stakeholders in their decision-making and to address societal challenges because today’s stakeholders are increasingly aware of the importance and impact of corporate decisions upon society and the environment. The stakeholders can reward or punish corporations. Corporations can be motivated to change their corporate behaviour in response to the business case which a CSR approach potentially promises. This includes: 
1) stronger financial performance and profitability (e.g. through eco-efficiency), 
2) improved accountability to and assessments from the investment community, 
3) enhanced employee commitment, 
4) decreased vulnerability through stronger relationships with communities, and 
5) improved reputation and branding.
CSR Strategies: Corporate Social Responsibility for a Competitive Edge in Emerging Markets
CSR is about how companies manage the business processes to produce an overall positive impact on society.
Here we find that companies need to answer two aspects of their operations: 
1) The quality of their management – both in terms of people and processes (the inner circle). 
2) The nature and quantity of their impact on society in the various areas. 
Outside, stakeholders are taking an increasing interest in the activity of the company. Most look to the outer circle – what the company has actually done, good or bad, in terms of its products and services, in terms of its impact on the environment and on local communities, or in how it treats and develops its workforce. It is believed that this model may be more sustainable because here social responsibility becomes an integral part of the wealth creation process, which if managed properly should enhance the competitiveness of business and maximize the value of wealth creation to society. When times get hard, there is the incentive to practice CSR more.
The Age of Responsibility: CSR 2.0 and the New DNA of BusinessSince the early 1980s, a significant body of CSR research has centred around the debate over whether there is a relationship between good Corporate Social Performance ( CSP) and strong financial performance and what kind of relationships exist. Today businesses are becoming increasingly interested in the idea of the ‘Triple Bottom Line’ (TBL). This idea focuses not just on the economic value of the businesses that they may gain from acting in certain way, but also on the value that they may accrue to the company’s bottomline by engaging in environmentally and socially beneficial practices. The three ‘line’ represent the economy, the environment and the society and are all dependent on each other. Whether companies do actually take each line into account is difficult to measure as the arguments surrounding financial benefits of the company from being socially responsive are not clear cut. 
Although positive relationships have been found, there are several difficulties inherent in measuring these linkages. One problem is that it is not clear whether social responsibility leads to increased financial performance or whether better profits lead to more funds being available to devote to CSR activities. The other issue is that profit is an incomplete measure of social performance (Lantos 2001). Yet another is the difficulty of developing a consistent set of measures that define CSR or CSP.
The following factors are taken into account for understanding the importance of CSR:
  • Globalization and the associated growth in competition
  • Increased size and influence of companies
  • War for talent, companies competing for expertise
  • Increased importance of intangible assets

1. Improved Financial Performance:

While it remains difficult to determine a direct causal relationship between increased accountability and financial performance, a variety of studies suggest that such a link exists. For example, according to 2002 Global Investor Opinion Survey released by McKinsey & Company, a majority of investors are prepared to pay a premium for companies exhibiting high governance standards. Premiums averaged 12-14 percent in North America and Western Europe; 20-25 percent in Asia and Latin America; and over 30 percent in Eastern Europe and Africa. The study also found that more than 60 percent of investors state that governance considerations might lead them to avoid individual companies with poor governance.

The World Guide to CSR: A Country-by-Country Analysis of Corporate Sustainability and Responsibility2. Heightened Public Credibility: 

Companies that demonstrate a willingness to provide information that is credible, verifiable, and accessible can garner increased trust among stakeholders. Forthright and candid reporting about company achievements as well as performance shortfalls helps companies create a public reputation for honesty. At the same time, companies that make a public commitment to increase accountability and transparency need to ensure that they have robust systems for implementation, lest the company risk negative public backlash for failing to live up to its commitments.

3. Reduced Costs:

The enhanced communication that is often part of corporate accountability efforts can help build trust between companies and stakeholders, which can reduce costly conflict and improve decision-making. Companies that proactively and effectively engage shareholders and address their concerns can reduce the costs associated with shareholder proposals. In addition, social and environmental reporting efforts can help identify the effectiveness of various programmes and policies, often improving operating efficiencies and reducing costs. Reporting information can also help identify priorities to ensure that company is achieving the greatest possible impact with available resources.
CSR for HR: A Necessary Partnership for Advancing Responsible Business Practices
4. Increased Attractiveness to Investors:

Investors — whether shareholders invested in socially responsible funds that screen companies for social and environmental attributes, or large institutions — welcome the increased disclosure that comes with corporate accountability. A growing number of investors are including non-financial metrics in their analysis of the quality of their investments. New metrics cover labour and environmental practices; board diversity, independence, and other corporate governance issues; and a wide variety of other social and environmental criteria. Research suggests investors may be willing to pay higher prices for the stock of companies considered to be accountable. For example, a 2000 survey of 200 large institutional investors conducted by McKinsey & Co., the World Bank, and Institutional Investor’s regional institutes found that three-quarters of stackholders consider board practices as important as financial performance when evaluating companies for investment. The study also found that more than 80 percent of investors would be willing to pay more for the shares of a well-governed company than for a poorly governed company with comparable financial performance.

5. Improved Relationships with Stakeholders:

Companies that make an effort to be transparent and accountable for their actions and decisions are better able to build trust among their stakeholders. This engagement helps companies understand how community groups and other stakeholders perceive them, and educates them about future issues and concerns that may affect their operations. The information gained can help companies better define priorities and ensure business activities align with professed business principles or ethical codes. Many government agencies and stakeholders look favourably at companies that self-identify and publicly disclose accountability challenges and demonstrate that they are working to solve them. Best practice solutions include the development of management systems that reduce the likelihood of recurrence.

6. Early Identification of Potential Liabilities:

Innovative CSR: From Risk Management to Value CreationThe strategic information that can come from efforts to develop a more accountable company — including social and environmental auditing and reporting and stakeholder dialogue — can identify practices or situations that could pose liabilities to a company. Early identification can provide companies with the opportunity to resolve problems before they result in costly legal actions or negative public exposure. Issues that might surface more quickly in an accountable company include: environmental problems that could endanger public health, workplace discrimination or harassment that could result in lawsuits, marketing practices that do not price products or services equitably, or hiring practices that inadvertently give unfair advantage to certain populations. Social and environmental auditing and reporting can also identify where company practices may be in violation of government regulations or the standards or expectations of key stakeholder groups.

7. Marketplace Advantages: 

Accountability can make entry and success in new markets easier by helping establish direct relationships with key customers and business partners. These relationships can contribute to innovation in product development or delivery, help mitigate potential negative media coverage, and enhance market presence. Some companies have used dialogue with stakeholders to help make decisions on overseas investments and operations, or to overcome the challenges of operating in markets with different cultures, laws, and languages. For example, Unilever’s Indian subsidiary, Hindustan Lever, has worked with local stakeholders to develop a new delivery system for laundry detergent in Indian villages. The company was experiencing difficulty in selling its product until it was suggested by stakeholders that the company package its product in single-use quantities that would be affordable to local residents with limited disposable incomes.

8. Improved Overall Management:

The Market for Virtue: The Potential And Limits of Corporate Social ResponsibilityMany companies that have developed clear CSR performance and accountability systems inside their organizations report experiencing an improvement in their management practices overall. Increasingly, companies are finding that the impact of systems designed to increase accountability for CSR performance is not limited to the CSR realm, but can also impact performance in other areas as the culture of the organization undergoes change. An analysis of Fortune 500 companies conducted at the Boston College, Carroll School of Management found that companies judged as treating their stakeholders well are rated by peers as also having superior management.

9. Improved Organizational Effectiveness: 

The process of self-assessment and evaluation, which is part of increasing accountability can have beneficial impact on company operations. For example, social and environmental auditing and reporting give companies the opportunity to assemble and assess more comprehensive information on operations and impacts. This information can help coordinate and maximize efficiencies and collaborations across departments, facilities, and business units. Through this process, companies compile examples of successful programmes from various parts of their organizations and share the learnings throughout the company, leading to more effective and efficient policies and practices. Dialogue and partnerships with stakeholder groups can help companies build skills and competencies, or align company operations with overarching mission and values.

10. Decreased Risk of Adverse Publicity:

Accountable companies may be better prepared to address the concerns of customers or other stakeholders who might otherwise take negative action on social issues. For example, by engaging in a dialogue with stakeholders about their interests and concerns, and addressing those concerns in business implementation processes, companies may be able to head off or minimize the impacts of boycotts organized by consumer groups. Similarly, companies that proactively address the concerns of shareholders can reduce the risk of adverse publicity stemming from high-profile shareholder disputes.

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CSR and Companies in India

Corporate Social Responsibility in IndiaIn India, most of the work done by companies is still in nature of philanthropy. Consider that of the six short listed companies for the Business World FICCI CSR award for year 2003, five ( Lupin, Canara Bank, Indal, Gujrat Ambuja and Wipro ) are involved in community development work. This means building roads, running schools and hospitals, creating income-generating schemes and similar projects . Only ITC’s CSR – its e-choupal project and others – has direct linkages with its business. This is understandable given that many of the traditional development indicators – life expectancy, infant and child mortality, sanitation facilities and access to primary education – are still abysmal for India. In fact even the government expects Corporate India to participate in welfare programmes even though it is a tacit admission that the state has failed to deliver even the most basic amenities. But of late experts argue that as India gets integrated into the global economy, companies should pick up projects that are business centric. The CSR initiatives should become a part of the business process.

In an era of no free lunches , the attraction that the business centric model of CSR holds is obvious. But if more Indian Companies are to adopt that, some other things , too, need to change besides mindsets and developmental needs. The links between good CSR and good business have to be established clearly. Sure even overseas there is still no way that the capital markets reward good CSR practices directly or are willing to ovelook other flaws in lieu of good CSR. But experience shows that substantial benefits do flow in different ways.

Research in West shows that investors are increasingly questioning companies on corporate social practices and are allying with those that have high respect for CSR. In fact there is a whole eco-system being built around this concept – with outfits like Ethical Investment Research Service, a U K based independent researcher of ethical, social and environmental practices advising outfits like Goldman Sachs, J P Morgan, Redit Suisse, Merill Lynch and Standard Life on CSR practices of companies. Moreover the likes of FTSE and Dow Jones are coming up with indices such as the FTSE 4 Good and the DOW Jones Sustainability World Index. The FTSE 4 Good is an index comprising stocks of companies with good practices. To be a part of FTSE 4 good family of indices one need to apply to the FTSE 4 Good applications committee. In the absence of all these , it’s quite unlikely that CSR in India will change from being more philanthropic to more business centric in the near future. Yet such developments taking place worldwide and also because India is developing as back office centre, movement towards business centric CSR models is possible.
Strategic Corporate Social Responsibility: Stakeholders in a Global EnvironmentTaking clue from the Business World FICCI CSR Awards, still it is not clear how much Indian companies invest in CSR but from the list of the companies that applied and evidence on ground suggest that time has come and is important for large companies to enter into business centric CSR models. However, considering India where so much is to be done, it doesn’t matter whether companies take business centric view or the philanthropic centric view.

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Level I Principles of Social Responsibility – Measuring CSR

Management Models for Corporate Social ResponsibilityThis level of the CSR model is about the relationship between business and society at large and it has three major elements:

  • Legitimate concerns of business as a social institution and it frames the analytical view of the interrelationship between business and society.
  • Public responsibility concerns of the individual firm and its processes and outcomes within the framework of its own principles. 
  • Managerial discretion whereby managers and other organisational members are moral actors. Within every domain of corporate social responsibility, they are obliged to exercise such discretion as is available to them, towards socially responsible outcomes.

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Level II Processes of Social Responsibility – Measuring CSR

It's Only Business!: India's Corporate Social Responsiveness in a Globalized WorldCorporate social responsiveness is a business’s capacity to respond to social pressures. This suggests the ability of a business organization to survive through adaptation to its business environment. To do so, it must know as much as possible about this business environment, be capable of analyzing its data, and must react to the results of this analysis. But the environment of business is not static; it is a complex and ever changing set of circumstances. This environment can be unchanged for decades, if not centuries, and then it falls apart and is reformed like a kaleidoscope with increasing rapidity. The ability to successfully scan, interpret, and react to the business environment requires equally complex mechanisms. 
Three elements are identified as basic elements of this level of the CSR model:

    Business and Society: Ethics, Sustainability, and Stakeholder Management
  • Business Environment Scanning: indicates the informational gathering arm of the business and the transmission of the gathered information throughout the organization. 
  • Stakeholder Management: A stakeholder is defined as any group or individual who can affect or is affected by the achievement of the firm’s objectives. For example, owners, suppliers, employees, customers, competitors, governments; nonprofit organizations, environmental and consumer protection groups and others. Stakeholder Management refers to mapping the relationships of stakeholder to the firm (and among each other) whilst finding, listening and meeting their expectations and seeking to balance and meet legitimate concerns as a prerequisite of any measurement process. 
  • Having identified the motivating principles of a firm and having determined the identities, relationships, and power of stakeholders, attempt then is to turn to the main issues which concern stakeholders.

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Level III Outcomes – Measuring CSR

PERCEIVED EFFECT OF INTERNAL STAKEHOLDERS ON PROJECT SUCCESS: ...Insights from AfricaThe main focus of measurement is the third level of the CSR model. To determine if “CSR makes a difference”, all of the stakeholders relevant to an issue or complex of issues must be included in any assessment of performance. There are, again, three main categories:
Internal stakeholder effects – those that affect stakeholders within the firm. An examination of these might show how a corporate code of ethics affects the day to day decision making of the firm with reference to social responsibility. Similarly, it can be concerned with human resource policies such as the positive or negative effects of corporate hiring and employee benefits practices.

External stakeholder effects concern the impact of corporate actions on persons or groups outside the firm. This might involve such things as the negative effects of a product recall, the positive effects of community related corporate philanthropy, or assuming the natural environment as a stakeholder, the effects of toxic waste disposal.

External institutional effects refer to the effects upon the larger institution of business rather than on any particular stakeholder group. For example several environmental disasters made the public aware of the effect of business decisions on the general public. This new awareness brought about pressure for environmental regulation which then affected the entire institution of business rather than one specific firm.

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The Global Reporting Initiative

How to compare companies on relevant dimensions of sustainability [An article from: Ecological Economics]The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines. These Guidelines are for voluntary use by organizations for reporting on the economic, environmental, and social dimensions of their activities, products, and services. The GRI incorporates the active participation of representatives from business, accountancy, investment, environmental, human rights, research and labour organizations from around the world. 

Started in 1997 by the Coalition for Environmentally Responsible Economies (CEREs), the GRI became independent in 2002, and is an official collaborating centre of the United Nations Environment Programme (UNEP) and works in cooperation with UN Secretary- General Kofi Annan’s Global Compact. The GRI’s Sustainability Reporting Guidelines (last revised in July 2002) address a broad range of corporate social responsibility issues related to an organization’s 
(1) economic performance (e.g., wages and benefits, training, research and development), 
(2) environmental performance (e.g., energy, water and materials use; greenhouse gas emissions, land use/biodiversity), and 
(3) social performance (e.g., labor and human rights, workplace health and safety, employee retention). 
In addition to the core GRI guidelines, GRI is also leading the development of a series of sector supplements to the guidelines, e.g., for the finance and mining communities. While the GRI promotes itself as a reporting framework/guideline only, it is having increasing influence in the debate on the ways and means a company should structure and govern its transparency and reporting, and general sustainability efforts.

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Global Sullivan Principles

Introduced in 1999, the Global Sullivan Principles expand upon the original Sullivan Principles, developed by The Reverend Leon H. Sullivan in 1977 as a voluntary code of conduct for companies doing business in apartheid South Africa. The principles cover areas of accountability, human rights, community engagement, environmental performance, marketplace practices, ethics and value chain responsibility. Endorsing companies and organizations are asked to take part in an annual reporting process to document and share their experiences in implementing the principles.

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Future of CSR

The Age of Responsibility: CSR 2.0 and the New DNA of BusinessCSR pessimists predict:
  • Increasing inconsistencies between corporate actions and stated CSR commitments; companies will become astute at shielding their actual performance. 
  • CSR will be a technical fix.
  • Real substantive issues won’t be addressed by CSR.
 Most businesses will hold back waiting for the business case to develop – however, they may never be satisfied by the evidence of business case and may use this as an excuse for inaction.

  • The business case will not be clear enough for companies to take up en masse,unless it is legislated or there are other incentives.
  • CSR will not be on the public’s radar screen and there won’t be any clarity about what CSR is and why it is important.
  • CSR will become too prescriptive and get labeled as needless red tape increasing the cost of business.
  • Companies that once embraced CSR will lose interest and pursue other objectives.
  • Those engaged in CSR shift to minimal CSR activities, never moving beyond baseline CSR.
  • Pressures on business to cater to shareholders at the expense of all other stakeholders will continue if not increase; the imbalance of power will not change unless the membership on company boards  changes to include stakeholder interests or until government legislation is brought to bear.
Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause CSR optimists believe that the pessimists are only looking at the gap of where we are and where we need to be, without acknowledging that mindset change takes time and recognizing that the slow incorporation of these ideas is underway in business. They believe that the disillusionment is a function of the hope for too much too quickly.
CSR optimists believe that:
    The Market for Virtue: The Potential And Limits of Corporate Social Responsibility
  • In the future a significant number of companies will be convinced it’s in their strategic interest to incorporate CSR substantively into their operations.
  • There is a crisis in industrial capitalism, which lacks in trust and social responsibility. Therefore, a rethinking should be done to decide the role of companies in society.
  • CSR is at crossroads, in a time of real discontinuity, enormously in flux. 
  • The crisis in global markets is broadening the discussion of accountability and transparency – in this climate there is more openness to CSR ideas. CSR will be seen as good corporate governance. 
  • There will be pressure through competition for better CSR performance – this will impact on suppliers, etc. 
  • A small group of companies will be moving ahead quickly. 
  • There will be differentiation between different models and levels of CSR as a result of continuous improvement and quality assurance. 
  • CSR will advance, but it will advance inconsistently across sectors, depending on a company’s economic performance, economic downturns, competitiveness of the market, etc. 
  • Underlying structural drivers will impact large scale companies, such as the value of knowledge workers and other intangible assets, driving companies to take different issues into account.
  • We see only a few companies committed to CSR because we are at the beginning of a long path on this journey; the shift toward sustainable capitalism is a long term trend and in 5 – 10 years only a few companies will be moving in this direction.
  • Increasingly businesses will see CSR as resulting in increased competitiveness and profitability.
  • CSR is part of a search for a new social contract between business and society. This new social contract will not necessarily be through the creation of a set of rules, but about a new set of norms arrived at through experimentation.
 In spite of the difference in views of social impact and degree of corporate commitment, the majority of the optimists and the pessimists agree that 5 – 10 years from now CSR will nonetheless become increasingly mainstream within business, even if not within the public consciousness. CSR tools, resources, language – all will become more aligned with business norms and systems. CSR standards – to greater or lesser effect – will be part of business basics and not an add-on.

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7 Strategic Steps to Fulfill Social Responsibility

CSR Strategies: Corporate Social Responsibility for a Competitive Edge in Emerging MarketsWith the given understanding that businesses have a key role of job and wealth creation in society, CSR is generally understood to be the way an organization achieves a balance between economic, environmental, and social imperatives while they address the expectations of the shareholders and the stakeholders. Companies of late see CSR as an integral part of the long term business strategy. Now a days lots of companies are taking it seriously for good of business. Very briefly, the following strategic steps should be taken by a firm to fulfill its social responsibility.
1) Assessment of economic and social impact
2) Assessment of social environment
3) Appraisal of the firm’s policies and practices
4) Formulating objectives and strategies
5) Developing operational plans and programmes
6) Monitoring social programmes
7) Summary of the outcomes and performance

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