CSR :A Perspective on major issues

by S Ramachander

The subject of corporate social responsibility (CSR) has risen to the top in the agenda of policy makers, managers and social activists in recent times. One motivation for it is the emerging legislation on corporate governance, compulsory minimum number of non-executive directors, and disclosure of far more details of the operations and finances of an enterprise, including quarterly and segmental reporting. On the other hand the trend can be traced to the growing recent evidence about corporate wrongdoing, and overweening greed, despite all the regulatory oversight, mainly but not only in America, indeed wherever fairly freewheeling capitalism is encouraged. On the other hand, corporations are finding themselves the centre of attention from influential groups and agitation by all kinds of activists. Typical issues range from unfair trade practices, exploiting the primary producers of the third world, testing of experimental formulations on animals and human beings, lack of full disclosure of information on a variety of medical research findings from lung cancer to arthritis, which might be connected to the consumer’s perception of the product.  The financial markets are another Pandora’s Box of possibilities for wilful wrongdoing or negligence, where millions of other people’s money are traded and at risk every minute of the day – and charlatans and crooks do come to light occasionally.

As is customary with such a weighty subject, it is pertinent to begin with an official definition of CSR, which 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”. The European Multi-Stakeholder Forum (EMS) an outgrowth of the 2000 Lisbon Summit, where the European Council first pushed for adoption of CSR principles by business, adopted this in its a final report on Corporate Social Responsibility.

This definition is so simple, logical and self-evident that few would seriously disagree with it. It is noteworthy that the need for a voluntary basis is spelt out. Businesses are thus expected to feel naturally inclined, rather than obliged, to comply with relevant legal requirements; and besides honestly and accurately reporting financial results of their operations, respect the rights of their employees and the citizens, observe environmental laws and regulations. Both the natural and the human environments are clearly implied in this.

So what is the debate about then? The critical issues in the lively debate on CSR would be around the definition of the boundaries or the extent of the activities, the metrics for evaluation or setting standards, as well as the scope and limitations of voluntary action through a management initiative. The last mentioned aspect addresses the question whether indeed we can expect business leaders, buffeted as they are by highly competitive forces and pressures on costs and margins, to be proactive in their meeting the needs of society? And to go a step further, should they interpret their responsibility beyond taking all possible steps to mitigate the undesirable effects of industrialisation? This implies that even a combination of legal liabilities and moral responsibilities do not cover everything. There could be more, left to the corporate imagination and vision.

Apart from, therefore, taking adequate action to treat the fallouts such as effluents, air and water pollution and so on, must they address issues of the society at large, such as the threat of AIDS epidemic, malnutrition amongst underprivileged children, labour housing shortages, illiteracy, and poor quality of drinking water? While the case for a more tolerant and compassionate capitalism is easy to argue, the time has probably arrived for us in India, as distinct from the more traditionally free market economies, to recognise the enormous hurdles and challenges in the way of corporate munificence. For, the fact is that discharging social responsibilities beyond and outside the business processes involved directly in the operations, adds significantly to costs. Hence the importance of where one draws the line.

It is fairly easy to be prescriptive in dealing with the stakeholders fairly -- that is to say, not just by the letter of the law. Paying beyond minimum or average wages of the industry, sustaining a long term relationship as far as feasible with the vendor and dealer network in order to ensure a long term livelihood and reduce serious risks to their businesses – these are now generally taken as par for the course. The manufacturing company employing sweated labour or arm-twisting all weaker partners and associates is not easily accepted, although not entirely uncommon. Packaging products and advertising them in a manner that takes care of more than the minimum legally required needs of safety and declaration of contents are another case in point.  If there are instances of wrong claims, mislabelling, or any unfairness the resultant adverse publicity and the recovery from it are so expensive that well managed companies take abundant precaution as inevitable cost of doing business. One example would be the recent actions taken immediately by the pharmaceutical industry in India when American research reports into a certain drug for arthritis suspected after effects such as increasing the risks of cardiac problems. At the slightest suggestion of an emerging problem with a critical part such as tyres, automotive companies are known to order immediate recall and refitting of thousands of vehicles at enormous cost. They sense that the customer would take the dramatic announcement itself as evidence of exceptional vigilance and good intentions. Already the large-scale manufacturing sector in India has adopted many such safe practices in principle as good enterprise management.

What is perhaps not always so apparent is that even pricing ought to have, in a sense, responsible action built into it. Not all manufacturers or service providers consider it their social responsibility to charge a “reasonable” price keeping in mind the ability to pay and lower disposable incomes than levels obtaining in the West. Only competition brings in a welcome, salutary restraint.

It would be no exaggeration to say that but for the sense of responsibility of some industrial groups such as the Tatas, the country could not have seen the strides that has made in many areas. It is now well documented that Mr JRD Tata was personally enthusiastic about all aspects of labour welfare, including family planning, in pre-Independence India long before all these became part of the socialist creed of the state. The group introduced a notion of minimum wage, provident fund, insurance, old age pensions, housing, health, education, sport – in short just about everything a citizen could expect from a civilised society. In their townships the Tatas (as indeed many of the public sector businesses that followed) ran a parallel municipality – and usually an excellently managed one, in comparison to the normal run of such civic bodies.

The generosity of some of the leading companies in India is only equalled by the practices of the Quaker enterprises of England such as Cadbury’s, which created welfare capitalism long before such words were much used, in the rural Midlands life of the late eighteenth century. It is not a coincidence that the pioneering work on internationally adopted norms for corporate governance bear the name and leadership of a scion of that family, Sir Adrian Cadbury.

Notwithstanding all this, the first targets of any cost cutting drive, when faced with the need to survive against global competition, are the expenditures not seen to directly contribute to the production and sales of goods. Of course in the public sector, the political will to control abuse and misuse of money is usually hard to find, so that all forms of systemic leakages do occur; and the intended benefits of a benevolent state-managed capitalism are seldom realised in full. Many of the large new towns created by the huge spurt in public sector during the early decades of planning in India stand mute and decrepit testimony to this fact. Managing the tensions between the already established expectations from the Public sector (especially the utilities) on the one hand and the imperatives of competitiveness on the other, is one of the unenviable tasks of the present government. On a smaller scale, the same dilemma applies to CEO’s in the private sector as well. An additional practical problem they face is that the finances welfare trusts, which they have funded from past surpluses and personal donations, are currently under severe strain. Corpus funds that used to yield 14 or 15 percent a year some six years ago now barely yield half that level of return, a fall in absolute rupees that the managers are hard put to make up through fresh injections of capital. Many deserving activities thus go unsupported, despite the best intentions.

One extreme view is at times heard that businessmen serve society best when they do very well what they are especially good at: which is to make money for themselves and others; and therefore they should stick to their knitting. Since the purpose of any business is mainly to create value for shareholders -- and perhaps opportunities for employment -- so long as it does this without breaking the law it is indeed behaving in a responsible fashion. Some businessmen would perhaps add that doing that is difficult enough these days! There are those who see in the preoccupation of the business world with larger moral questions, such as the prevention of AIDS or training of the underprivileged sections, an unwarranted encroachment on what is legitimately the domain of governments, charities and voluntary organisations.  Some non-governmental organizations have criticized the CSR movement, suggesting businesses are promoting it in order to eliminate government functions and oversight. On the other hand, some businesses are concerned that CSR advocates are attempting to transfer public responsibilities to companies, although of course there is little disagreement that companies must act responsibly relative to the world around them.

Companies that adopt CSR usually do so by establishing a code of conduct, disseminating it amongst all associates, especially those who act on their behalf or in their place, such as advertising agencies and dealers. Many CSR initiatives outside the realm of business in a purely societal context such as refurbishing ancient temples, places of pilgrimage, building places for pilgrims to stay and so on are often carried out through trusts created for the specific purposes. As anyone who has dabbled in this would know, it is not raising the money that is the key issue but managing it well. Rare is the company that puts the best of its professional managerial time into say the running of a school or hospital and yet when they do the results are conspicuous. In some parts of the world it is customary now for a company to produce a formal CSR report, which is only fair in one sense – if the funds come from shareholders, they do indeed have a right to know what is being done with it. Although many companies embrace the philosophy of doing good, some prefer action rather than talking about doing good.

There is little doubt, according to surveys conducted in the UK, about how widespread public support is for companies to take social responsibilities into account, and institutional shareholders now regard it as an issue which boards should address, and the market is the ultimate judge of relevance. This is reinforced by the reaction of consumers to the standing of companies in respect of their social policies. A UK consumer survey asks shoppers every month: “How important is the social responsibility of a business to you when you are purchasing a product?” In 1998, 28% answered “very important”; by 2000 that figure had risen to 46%. The figures are meaningless: the trend is significant.

To paraphrase Sir Adrian, the three keys to an effective CSR policy are commitment, clarity and congruence with corporate values. The lead must clearly come from the top. Clarity is all-important because social responsibility is a broad term, and it needs to be debated and hammered out to meet each company’s circumstances. Congruence is about ensuring that the company’s attitude to its responsibilities towards society is consistent with the way in which it runs the whole business, i.e. its values and culture.

S Ramachander.

Chennai