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Published : January 26, 2012 | Author : akrita
Category : Company Law | Total Views : 8181 | Unrated

akrita sinha-law student

Corporate Social Responsibility: A small step for the corporate world, a leap for humanity

“Corporate social responsibility must not be defined by tax planning strategies alone. Rather, it should be defined within the framework of a corporate philosophy which factors the needs of the community and the regions in which a corporate entity functions. This is part of our cultural heritage. Mahatma Gandhi called it trusteeship….I invite corporate India to be a partner in making ours a more humane and just society… We need a new Partnership for Inclusive Growth based on what I describe as a Ten Point Social Charter...first, we need to have healthy respect for your workers and invest in their welfare…” .

Indian Prime Minister,
Manmohan Singh in 2007

We invite the capitalist to regard himself as a trustee for those on whom he depends for the making, the retention and the increase of his capital. Nor need the worker wait for his conversion. If capital is power, so is work. Either is dependent on the other. Immediately the worker realizes his strength, he is in a position to become a co- sharer with the capitalist instead of remaining his slave.

Mahatma Gandhi

The Gandhian concept of Trusteeship was formed to establish a very simple but a much needed concept of an egalitarian society. This concept is considered to be relatively similar to the emerging concept of Corporate Social Responsibility. The first company to implement CSR was Shell in 1998. “The 21st century will be the century of the social sector organization. The more economy, money, and information become global, the more community will matter.” CSR evolved beyond code of conduct and reporting, it started taking initiative in NGO’s, multi- stakeholder, ethical trading etc. The Green paper defined CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” as they are increasingly aware that responsible behavior leads to sustainable business success.

The World Business Council for Sustainable Development stresses, “CSR 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...”

CSR in India-

In India CSR is not a new concept as it occupied a prominent place even before India got its independence. The TATA and Birla’s have had long standing position in this field. This concept picked up pace after 1991 reforms of economic liberalization, which provided a mode of transformation for India’s business into large global enterprises. Although these industrial organizations had paid attention to large social welfare program’s but the 1991 reforms was major impact on bringing CSR into the core focused areas for market growth in the economy.

There has been major development in the triangular relationship between the Companies, state and the society and Corporate Social responsibility has become increasingly prominent in the Indian scenario. The companies have now realized that besides market growth, it is also essential for them to sustain that position by building a trustworthy relationship with the community.

In India the CREP (The Corporate Responsibility for Environmental Protection) was formed in 2003. A guideline for a set of non-mandatory norms for 17 polluting industrial sectors has been set but there is no real pressure for implementation or internalization. An ethical being which claims to respect the earth cannot have discontinuities in its practices. Ethical practices have to place in an integrity framework, and that implies at the very least a lack of multiple ways of being.

The concept of Corporate social responsibility has picked up pace after a bill in 2009 established that it will be mandatory for “every company having [(net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more)] or [a net profit of Rs. 5 crore or more during a year] shall be required to formulate a CSR Policy to ensure that every year at least 2% of its average net profits during the three immediately preceding financial years shall be spent on CSR activities as may be approved and specified by the company. The directors shall be required to make suitable disclosures in this regard in their report to members.” It was also stated that “In case any such company does not have adequate profits or is not in a position to spend prescribed amount on CSR activities, the directors would be required to give suitable disclosure/ reasons in their report to the members”

“We will encourage a voluntary approach on CSR initiatives of private sector. We will act as facilitators for companies to adopt social, environmental and economic responsibilities,” Mr Moily said at an event. The mandatory nature of the corporate social responsibility clause has been in conflict from the time it was initiated. The companies stand strongly against this emerging idea as they feel that the whole concept ought to be voluntary and not mandatory.

The MNC’s in India work hard to create their sole identities, reputations and goodwill associated with being a good corporate citizen before the society.CSR is no more a formality for the companies, due to more categories of competition the companies are integrating companies with their market plan. The state should understand that there is no need to make this concept binding on the companies as it is now an essential part of the company’s growth strategy.

There has not been any clear definition or criteria for deciding what can be categorized as a corporate social responsibility of a company. The Norwegian Embassy and Innovation Norway have established a CSR Forum for Norwegian businesses in India, called the NPR Advisory Group. This Forum comprises major Norwegian businesses established in India.

The Dutch companies in India have developed a policy on corporate social responsibility to identify good practices and potential bottlenecks in the implementation of such policy and to support companies in finding practical solutions. The CSR principles are divided into four CSR aspects: operational principles (on how companies can give account for their actions), social, environmental and economic sustainability.

Operational CSR aspects- The operational CSR aspects concern
1. Development of CSR policy
2. Supply chain responsibility.
3. Stakeholder involvement.
4. Transparency and reporting.
5. Independent verification

Social CSR aspects- The social CSR aspects mainly concern development of the society by the initiatives of the companies which include Human rights, National sovereignty and local communities, Labour ,Consumer protection.

Environmental CSR aspects- environmental aspect of CSR is defined as the duty to cover the environmental implications of the company’s operations, products and facilities; eliminate waste and emissions; maximize the efficiency and productivity of its resources; and minimize practices that might adversely affect the enjoyment of the country’s resources by future generations.

Economic CSR aspects- The economic CSR aspects deal with certain areas like Corruption, Fair competition, Taxation, Science and technology.

Although the above system gives a wide idea of the concept and is applicable on all Dutch Indian collaborations, yet the idea is still rough and some companies still fret from applying the above policies in there process of functioning. Some companies still think that there social responsibilities are fulfilled by providing lunch to their employees. The concept has to be studied and the process followed in the other nations has to be observed for establishing strict criteria for this concept. In India the Companies act of 1956 has many clauses but these are not appropriate for the present economic scenario and business functioning and therefore new laws had to be formed which fitted the present business trend. The Companies bill 2008 what was brought in the parliament, the legislation lapsed due to the dissolution of the Lok Sabha in 2009. The new bill has been tabled in the parliament (Companies bill, 2009) which is working its way through various committees.

The new bill is formed of different elements one of which is the CSR clause, this clause has created a lot of debate and the reason for the debate is it being imposed with a mandatory nature, although the report of the standing committee has stated that no oversight mechanism will be formed or has been thought of for monitoring the social obligation. It has been said that the disclosure method will be applied in this and whatever is being done will be in the public domain. The industry is not in favor of the mandatory clause Introduction of Corporate Social Responsibility (CSR) as a concept in the Bill, requiring bigger companies to make disclosures about their CSR policies and activities there under.

Wipro Chairman Azim Premji had on the behalf of the India Inc has expressed their protest against the mandatory nature of the corporate social responsibility in the bill. He said that the people on the board are sufficiently conscious regarding the matter and corporate social responsibility cannot be created with statutory requirements. He had made a statement regarding the matter at a conference with Warren Buffet and Bill and Melinda Gates.

Chief Election Commissioner SY Qureshi in his statement regarding the issue made it clear that CSR will now be a reason for survival of the company rather than a medium to do charity.

Montek Singh Ahluwalia supports the Indias Inc. stand regarding the issue stating that this would amount to “privatizing taxation”. "There are certain proposals that you should introduce a legal requirement that companies should spend a certain percentage of their profits on CSR (Corporate Social Responsibility). I am not in favour of that," Ahluwalia said here adding, "that amounts to privatizing taxation”. He had also stated that if the government wanted it can increase the rate of tax from 30% to 32% rather than making it mandatory for the companies to spend 2% on CSR. He said you cannot ask the company to spend corporate tax and then ask them to spend a separate amount on CSR.

Companies in India follow the trend “better the CSR policy, the more the sales”. The trend affects most of the product categories which are bought on daily basis which means that consumers are making purchase decisions every day. This could be one of the major reasons why Indian FMCG companies are most actively engaged in responsible activities and rank on top in the latest Associated Chambers of Commerce and Industry of India (ASSOCHAM) report on CSR by Indian corporate. The report says that of 175 Indian companies studied, 52 companies in the FMCG sector have taken the maximum of CSR initiatives. This was followed by the chemical sector and then the IT sector. Most of the initiatives taken by the companies primarily focus on welfare of the community. 'Community welfare' ranks on top in the priority list in the ASSOCHAM study. The second most-sought-out CSR initiative was providing education and enlightening the rural youth in the country. Though there has been evidence of a paradigm shift from charity to a long-term strategy, the concept is still believed to be strongly linked to philanthropy. There is a need to bring about an attitudinal change in people about the concept by having more coherent and ethnically driven discourses on CSR,' wrote Swati Piramal, president, ASSOCHAM, in one of her articles related to the report. 'It has to be understood that CSR is about how companies balance their business ethics and behaviour with business growth and commercial success along with a positive change in the stakeholder community,' Piramal added.

International aspects of corporate social responsibility-
Globalisation has had a major impact on the world and thus it has lead to CSR being a common theme around the world. NGO (non-governmental organizations) and trade unions approach the companies questioning about their commitments to the society. CSR has become a medium for the companies in strengthening their market positions and benefiting there business depending on their sector and size, thus CSR has now become a factor of competitiveness. National policy makers, International organizations (European commission, International Labour organization and United Nations commission on Human Rights) to ensure that CSR maintains its voluntary nature and companies have their discretion in there service to the society.

CSR is different issue once a company builds and maintains a production facility in emerging and developing countries. Companies are often confronted with pressing problems of these countries like crushing poverty, inadequate health care, HIV, corruption, Child Labour, restriction of trade union activity and poor education system in some cases even the lack of rules for working conditions and environmental protection.

Typical problem areas which company is confronted with-
1) A company has to comply with the statutory provisions of the host country, however these do not run counter to the general standards laid down by the United nations and International labour organization, for instance in the area of freedom of association in China, companies face dilemma: either they break the law or they infringe the generally accepted social values.

2) Another area of conflict maybe the culture and traditions of the country in question. For example-equality of opportunity of occupation for women is very difficult to be applied in Muslim countries.

3) The behavior and social commitment of the company must also take account of the economic situation of the countries in question. Hence rigorous implementation of high environmental and social standards in developing countries could be perceived as an attempt by industrialized countries to increase labour costs in those countries, thereby depriving them of their most important competitive advantage. The problem of child labour also clearly demonstrates that adherence geared to industrialized countries would result in deterioration rather than an improvement in the situation of many of those affected in developing countries. Instead of a general boycott or redundancies, the aim must then there to prevent the worst forms of child labour and provide these young workers with some form of education.

In emerging and developing countries, the companies have to do business in difficult circumstances. There are no general solutions for complex problems that confront them. The companies must develop their own strategies in response to their individual situation and associated wishes of their interest groups.

The system of Public private partnerships have emerged which are cooperative arrangements between companies and public sector development organizations. PPP projects combine the dynamism, competence and financial resources of the companies with regional know how of development organizations and development policy. The synergies can help both sides to achieve their objectives better, quicker and at a lower cost. These public private partnerships can help these companies by providing them with interesting possibilities for companies that want to make a commitment to the social situation in developing countries, building as they do on the expertise of development organizations.

In the United Kingdom Partners for water and sanitation(Paws) in an initiative which aims at bringing together Private sector, civil society and government departments in a water and sanitation partnership working with South Africa, Uganda and Nigeria. It works by using and sharing skills, knowledge and experience of UK partner organizations with municipality water sector employees and politicians in African partner countries to develop and implement sustainable solutions and in doing so to build knowledge and capacity within the municipalities and more widely at national level.

In UK supply chain issues including labour standards remain a high priority for assuring human rights and alleviating poverty. Government continues to support Ethical Trading Initiative which provides practical guidelines to companies in tackling supply chain issues.UK also chairs and actively participates in, the ILO (International labour organization) Sub- committee on Multinational Enterprise which sits biannually to look at the promotion of the ILO Declaration of principles concerning multinational enterprise and Social Policy. This Declaration addresses labour and social issues in the context of multinational enterprise and further promotes the ILO core labour standards.

A variety of companies continue to use Environmental management systems to help them improve their environmental performance. In many cases this can also lead to the identification of resource efficiency savings which go straight to the bottom line.

ILO has had a tripartite declaration which includes-
Employment, including:
· Increasing employment possibilities and standards
· Promoting equality of opportunity and equal treatment in employment
· Avoiding arbitrary dismissal procedures

Training, including:
· Appropriate training for employees in the host country / opportunities for local workers to extend their experience in suitable areas, e.g. labour relations, within the group as a whole

Working and living conditions, including:
· No pay, benefits or working conditions which are less favorable than those enjoyed by comparable workers in the host country
· Adequate wages for workers and their families to meet their basic needs
· Effective abolition of child labour
· The highest health and safety standards
· Information about health and safety standards observed in other countries
· Instruction about particular dangers and the corresponding safety measures when new products and/or processes are introduced

Labour relations, including:
· Freedom for workers to organise and associate
· Support for representative worker organizations
· Right for workers to make complaints without suffering disadvantage

The political significance of the declaration lies in the fact that, unlike other CSR instruments, it does not lay down any minimum requirements or require specific actions. Rather, it gives the companies the necessary freedom to act along the lines of the declaration, taking an individual lead based on its own needs.

The UN global impact was put in place in 2000 by UN secretary general Kofi Anan with the objective of strengthening cooperation between the United Nations, business and other groupings in society and thus making a worldwide contribution to more sustainable growth.

The companies involved in the UN global Compact set out to give closer consideration to core values in the fields of human rights, labour rights and environmental standards by the implementing its ten fundamental principles in their worldwide activities.

The ten principles of the UN Global Compact:
Human rights
1. Businesses should support and respect the protection of internationally proclaimed human rights within their sphere of influence, and
2. make sure that they are not complicit in human rights abuses.

Labour relations
3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining, and encourage
4. Elimination of all forms of forced and compulsory labour,
5. Effective elimination of child labour, and
6. Elimination of discrimination in respect of employment and occupation.

7. Businesses should support a precautionary approach to environmental challenges,
8. Undertake initiatives to promote greater environmental responsibility, and
9. Encourage development and diffusion of environmentally friendly technologies.

Combating corruption
10. Businesses should work against all forms of corruption, including extortion and bribery.

Since the initiative was established, more than 2000 companies worldwide have joined it. Any company regardless of its size can take part in the Global Compact. There is no monitoring to ensure that the principles are being met, but participating companies are expected to send the Global compact secretariat an annual report detailing their progress towards implementing the principles. On this point the, small and medium size companies can ask for exemption.

There is no single CSR business case—no single rationalization for how CSR improves the bottom line. Over the years, researchers have developed many arguments. In general, these arguments can be grouped based on approach, topics addressed, and underlying assumptions about how value is created and defined. According to this categorization, CSR is a viable business choice as it is a tool to:

· Implement cost and risk reductions;
· Gain competitive advantage;
· Develop corporate reputation and legitimacy; and
· Seek win-win outcomes through synergistic value creation.

Companies may also justify their CSR initiatives on the basis of creating, defending, and sustaining their legitimacy and strong reputations. A business is perceived as legitimate when its activities are congruent with the goals and values of the society in which the business operates. In other words, a business is perceived as legitimate when it fulfills its social responsibilities.

Corporate codes -
Corporate codes or codes of conduct are rules which companies set for themselves in order to embed their ecological and social principles and values systematically in the company. Many codes of conduct also relate to the company’s supply chain.

Although they differ widely, codes of conduct often follow common principles:
· Orientation on ILO’s core labour standards (effective prevention of exploitative child labour; elimination of forced labour; freedom of association and the right to negotiate collective agreements; non-discrimination in employment and occupation based on nationality, skin colour, religion, ethnic background, political persuasion or sex)

· Link with the principles of the UN Global Compact
· Affirmation of the Universal Declaration of Human Rights
· Environmental commitments
· Appropriate working hours and a living wage
· Health and safety standards
· Socially responsible business

Codes of conduct can be very helpful to companies for systematically incorporating compliance with ecological and social standards in their business policy. But they must be geared to the individual situation of a company.

Sectoral Codes-
A sectoral code for social issues and environment is a framework of principles that representatives of a business sector and sometimes also a sectoral trade union have agreed. This framework usually targets compliances with minimum social standards and fundamental and environmental protection measures. When these standards are being decided, sector specific criteria and requirements are taken into account. A sectoral code makes sure that the company takes on it voluntarily to comply with decided principles regarding socially and environmentally accepted business.

The following sectoral codes have already been agreed:
· “Responsible Care” of the International Council of Chemical Associations (ICCA) on health, safety and environmental protection in the international chemicals industry, since 1985

· “Code of Business Practices” of the International Council of Toy Industries (ICTI) on working conditions and environmental protection in the international toy industry,1995 (revised in 2001),

· “Code of Conduct” of the European Apparel and Textile Organisation (Euratex) and the European Trade Union Federation of Textiles, Clothing and Leather (ETUF:TCL) on core labour standards in the European textile and clothing industry, 1997, and

· “Code of Conduct” of the Comité Européen des fabricants de Sucre (CEFS) and the European Federation of Trade Unions in the Food, Agriculture and Tourism sectors and allied branches (EFFAT) on minimum social standards in the European sugar industry, 2003

International framework agreements-
Companies often face an option of being a part of being international framework agreement (IFA) that is valid worldwide. IFA’s are concluded between a multinational enterprise and an international sectoral trade union. Examples including: ICEM (International Federation of Chemical, Energy, Mine and General Workers union), IFBWW (International Federation of Building and Wood Workers).

The purpose of an IFA is to conclude a formal agreement between and international sectoral trade union and an internationally active business.

Denmark made a law on CSR on 16 December 2008, the Danish parliament adopted a bill making it mandatory for the largest Danish companies, investors and state owned companies to include information on corporate social responsibility (CSR) in their annual financial reports.

Corporate Philanthropy
Corporate philanthropy may be a tool of legitimization. Firms that have negative social performance in the areas of environmental issues and product safety use charitable contributions as a means for building their legitimacy.

Advantages to companies-
The use of CSR as a tool for companies’ strategy and public relations brings economical success, because economy and stock exchange know more and more that sustainable oriented companies are companies for the future. The Triple Bottom Line Reporting is well known, beside figures of the balance sheet and R&D capacities, also information and facts about the company as a corporate citizen is included. Moreover CSR is an efficient instrument of how to bind your workers to your companies. Last but not least also the consumers have a big say, an international survey brought the result that 70 % of the consumers make their decision whether to buy a product or not on the basis if the company shows societal responsibility or not. More advantages are: an advantage in the personnel market, to get the best workers, to improve the relationship to your customers and also more security to shareholders and owners.. Cost and risk reduction may be achieved through CSR activities directed at the natural environment, CSR activities directed at managing community relations may also result in cost and risk reductions and CSR activities in the form of equal employment opportunity (EEO) policies and practices enhance long-term shareholder value by reducing costs and risks. The argument is that explicit EEO statements are necessary to illustrate an inclusive policy that reduces employee turnover through improving morale. PricewaterhouseCoopers, 73 percent of the respondents indicated that “cost savings” was one of the top three reasons companies are becoming more socially responsible.

Advantages to the society-
The initiatives taken by these companies for the society can help in shifting part of the burden to improve standard of living of the citizens of a nation and to protect the environment from the over burdened state to the profit making companies. It is also felt by many companies that this provides a positive psychological impact on the minds of the functionaries of the company. This would also include good working conditions which directly have a positive impact on the profit making strategy of the company.

It is valuable for companies to engage in corporate social responsibility not only for the benefit of the state and the society but also for its own good. Niall Fitzerald, Former CEO of Unilever states that “Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it… because it is good for our business”. This concept is emerging in all nations with equal force and in the near future will not need any legislation to gain importance for the companies to understand and admit their duty towards the society. This system has now become closely aligned to the companies’ business expertise and is based on clearly defined social philosophy. The trend has set in and many corporate nowadays take CSR initiatives in partnerships with Non-governmental organizations that are well versed with the problems of the local communities and are experts in tackling specific social problems. In the present scenario even if the companies resist the idea of mandatory CSR being imposed through any legislation, they are still bound to take these initiatives to survive in the competitive market setting.
 # EU Green paper on CSR ‘Promoting a European Framework for Corporate Social Responsibility’ (2001)
# First WBCSD CSR dialogue in The Netherlands(1998)
# Companies bill 2009, twenty first report by ministry of corporate affairs
# Report on Corporate Social Responsibility, Policy and Practices of Dutch Companies (2004)
# The Times Of India(India, March 26 ,2011)
# The Economic Times(India, July 12, 2011)
# ASSOCHAM-Recommendations of corporate social responsibilty
# BDA-European Union and International Social Policy Department, International aspects of corporate social responsibility-practical advice to companies (2006)
# BDA-European Union and International Social Policy Department, International aspects of corporate social responsibility-practical advice to companies (2006)
# BDA-European Union and International Social Policy Department, International aspects of corporate social responsibility-practical advice to companies (2006)
# The UN Global Compact Operational Guide For Medium-Scale Enterprises (2007)
# BDA-European Union and International Social Policy Department, International aspects of corporate social responsibility-practical advice to companies
# Jennifer C. Chen, Dennis M. & Roberts Robin ‘Corporate Charitable Contributions: A Corporate Social Performance or Legitimacy Strategy?’ Journal of Business Ethics, (2008)
# The Oxford Handbook Of Corporate Social Responsibility, (2008)
# T. Smith, ‘Institutional and social investors find common ground. Journal of Investing’(2005)
# Top 10 Reasons, PricewaterhouseCoopers 2002 Sustainability Survey Report, reported in ‘Corporate America’s Social Conscience,’ Fortune(2003)

Authors contact info - articles The  author can be reached at: akrita@legalserviceindia.com

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