Compulsory CSR?

An Insight into why CSR is important for corporates today

This article defines what Social responsibility is and what is being done by the corporates today as social responsibility and what needs to be done further in the future to sustain their growth. Vipul Bali, mailvipulbali@gmail.com, IIM Rohtak, 9991600363

Social Responsibility...
Is the organizations obligation to maximize its positive impact on stakeholders and minimize its negative impact? It includes legal, ethical, economic, and philanthropic (discretionary) dimensions

Legal Dimension...
refers to obeying governmental laws and regulations civil law: rights & duties of individuals and organizations criminal law: prohibits specific actions and imposes fines and/or imprisonment as punishment for breaking the law

Ethical Dimension...
behaviours and activities that are expected or prohibited by organizational members, the community, and society (not codified into law) standards, norms, or expectations that reflect the concern of major stakeholders

Economic Responsibilities...
how resources for the production of goods and services are distributed within the social system Do you think consumers favour socially responsible companies or are they most enamoured with companies that maximize profits?

EconomicResponsibilty

Legal Responsibility

Social Responsibility

Fig.1 Multiple Responsibilities of Businesses today

The pros and cons of corporate social responsibility:

Arguments for corporate social responsibility Balances corporate power with responsibility Discourages government regulation Promotes long-term profits for business Responds to changing stakeholders demands Corrects social problems caused by business Arguments against corporate social responsibility Lowers economic efficiency and profit. Imposes unequal costs among competitors. Imposes hidden costs passed on to stakeholders. Requires social skills business may lack. Places responsibility on business rather than individuals.

Two views of corporate social responsibility

The shareholder view:

The only social responsibility of business is to create shareholder wealth. Corporate management cannot decide what is in the social interest. The costs of social responsibility which do not increase the value of stock will be passed on to consumers.
The multiple stakeholders view:

All customers and employees are treated with dignity. Relationships with suppliers must be based on mutual trust. Belief in fair economic competition. Business can contribute to social reform and honour human rights.

The CSR and Strategic Environments

Both CSR and strategy are primarily concerned with the firms relationship to the environments within which it operates. Included are the internal environments of employees and shareholders and the external environments of customers. Suppliers and the larger communities in which it operates.

The CSR Filter . . . . . . Is a conceptual screen, through which strategic and tactical decisions are

evaluated for their impact on the firms various stakeholders.

Make or Buy Analysis

Strategically, firms can often buy the competencies or capabilities they need especially when doing so is faster or less expensive. A CSR competency, however, must be developed within the firm and serves as a screen through which the impact of strategic decisions can be evaluated.

Strategic CSR bridges means and ends

A business cannot ignore its profit seeking and wealth creating functions if it is to remain in existence. However, if the firm is to survive beyond the short run, it must pursue these ends of profits and wealth creation by means that are deemed acceptable to the larger society.

Environmental Forces Propelling Greater CSR

CSR and Growing Affluence in the society CSR and Ecological Sustainability CSR and Globalization CSR and The Free Flow of Information (Knowledge Era) CSR and Brands

Fig. 2 CSR and its various stakeholders

CSR policy: Offensive or Defensive?

On the offensive side, the intrinsic value of CSR sees is an opportunity that can maximize company capabilities and identify new competitive advantages. On the defensive side, CSR has value for a company, primarily by avoiding criticism and other attacks on the firm or its offerings.

Where do Firms Stand Today?

Eight of ten say corporate citizenship helps the bottom line More than half indicate it is important to their customers. Commitment to corporate citizenship by small- and medium-sized business is just as strong as in the largest corporations.

Internal barriers to good corporate citizenship:

lack of resources lack of top management commitment

Internal forces propelling good corporate citizenship:

traditions and values reputation or image of the Corporation or Brand business strategy of the company (got from Planning stage)

Gap: Social Responsibility Report

Key findings from Gaps first Social Responsibility Report:

3,000Number of factories worldwide that contract with Gap. 8,500Number of visits by Gap compliance officers to factories. 90Percentage of factories that fail initial inspection. 136Number of factories with severe enough violations that Gap pulled out

Courtesy: Amy Merrick, In Candid Report, Gap Details Violations in Its Factories, The Wall Street Journal, May 12, 2004, pA9.

How do firms become socially responsible?

CSR Business Plan of ActionShort Term

From the Top Down with Sincere Commitment Formulation of the post of a CSR Officer CSR Position Statement Awareness Creation: Measurement and Rewards CSR Audit and Report CSR Framework/Organizational Structure Stakeholder Involvement i.e. stockholders, general public, government agencies everyone should be involved in the effort of promoting Responsibility migrating away from the Simple System/Individual approach Managing the Message Corporate Governance rules of the organization promoting interest of all the stakeholders Corporate Activism corporates promoting good of the stakeholders

CSR Business Plan of ActionMedium Term