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Chapter-1

Corporate Social Responsibility (CSR)-

Introduction and Theoretical Consideration

The chapter attempts to provide introduction and theoretical consideration to

Corporate Social Responsibility (CSR) evaluation techniques of CSR in vogue’ and role

of HRM in CSR and CSR in India.

1.1. Introduction

Organizations felt it is their responsibility and responded to issues such as global

warming and climate change, green house gases and the dangers of deforestation by

developing policies on how to manage their operations in an ethically and socially

responsible manner. The concept of corporate social responsibility (CSR) has

emerged to explain this ‘new’ approach, building on the existing and more narrowly

focused concept of business ethics. This shift can be seen in a range of changing

organizational priorities, for instance: sourcing more products ethically (e.g. the growing

commitment to Fair trade products), the implementation of diversity policies that go

beyond the minimum requirements of equal opportunities legislation, the increased use

of environmentally-friendly machinery in manufacturing operations, and the increased

re-use of recycled materials. Increasingly organizations have been developing

strategies and policies for CSR and publicizing these to customers, suppliers,

shareholders, and employees; as well as to other relevant stakeholders, such as

national and regional governments. Consumers and the media are much more aware

of the social and environmental responsibilities of organizations. However, some

business executives still indulge in socially irresponsible and unacceptable behavior

(Idowu and Papasolomou, 2007).

The idea that a business has one and only one objective to maximize profits has

been the majority view of business for the better part of our history. In other words

business mangers exist only to serve the best interests of the stockholders. The first

change came in the 1930s. The view was advanced and accepted that managers of

large companies must make decisions which maintain an equitable balance among the

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claims of stockholders, employers, customers, suppliers, and the general public.

Managers were considered trustees for these interests. Although decisions might be

made which resulted in short-range profits at less than a maximum, many of those who

held this view argued that if the balancing was done correctly, the long-range profit

interests of the company would be maximized. There were some who felt that some

actions not directly related to profits might be taken, but their acceptable range was

negligible (Steiner, 1975).

Another major break from the older concept has taken place. It is the view that

business must get deeply involved in dealing with major social problems. Although this

involvement is partly justified by its proponents because it may be done profitably, there

is a growing body of opinion, in and out of business, that significant business actions

have to be taken even though there is no direct relationship with profit. There are some

people who talk as though business alone can handle the social problems the

government has failed to resolve. Most observers see the lack of reality in this view,

but many assert that business must reexamine the profit concept. Paralleling this

thought is a deep concern about the human values of the employees of corporations.

At this stage actions may be accepted which do not directly increase and may actually

reduce profits, at least in the short run (Steiner, 1975). There is no consensus about

these current ideas, and it does seem clear that the underlying thought is distinctly

different from the past views of balancing interests and of profit maximization (Adizes

and Weston, 1973). These three views are not of course, sequential. Among

managers, the public, government officials, and students of business, each idea can be

found today as a basis for action and thought (Richman, 1973).

People create organizations to leverage their collective resources in pursuit of

common goals. As organizations pursue these goals, they interact with others inside a

larger context called society. Based on their purpose, organizations can be classified

as for-profits, governments, or nonprofits. At a minimum, for-profits seek gain for their

owners; governments exist to define the rules and structures of society within which all

organizations must operate; and nonprofits (also called NGOs non-governmental

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organizations) emerge to do social good when the political will or the profit motive is

insufficient to address society’s needs (Werther & Chandler, 2010).

Society exists, therefore, as a mix of these different organizational forms. Each

performs different roles, but each also depends on the others to provide the complete

patchwork of exchange interactions (products and services, financial and social capital,

etc.) that constitute a well-functioning society. Whether called corporations,

companies, business, proprietor-ships, or firms, for example, for-profit organizations

also interact with government, trade unions, suppliers, NGOs, and other groups in the

communities in which they operate, in both positive and negative ways. Each of these

groups or actors, therefore, can claim to have a stake in the operations of the firm.

Some benefit more, some are involved more directly, and others can be harmed by the

firm’s actions, but all are connected in some way to what the firm does on a day-to-day

basis (Werther & Chandler, 2010).

A firm’s stakeholders include those individuals and groups that have a stake in

the firm’s operations. However a broad view has not always been the norm, however.

Over time, as the impact of business on society has grown, the range of stakeholders

whose concerns a company needs to address has fluctuated from the initial view of the

corporation as a legal entity that is granted societal permission to exist by charter, to a

narrower focus on the rights of owners, to a broader range of constituents (including

employees and customers), and back again and at the end of the 20th century, to a

disproportionate focus on shareholders. Increasingly, however, companies are again

adopting a broader stakeholder outlook, extending their perspective to include

constituents such as the communities in which they operate. Today, companies are

more likely to recognize the degree of interdependence between the firm and each of

these groups, leaving less room to ignore stakeholders’ pressing concerns (Werther &

Chandler, 2010).

Just because an individual or organization meets this definition of an “interested

constituent”, however, does not compel a firm (either legally or logically) to comply with

every stakeholder demand. Nevertheless, affected parties who are ignored long

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enough may take action against the firm, such as a product boycott, or they may turn to

government for redressal. In democratic societies, laws, rulings by government

agencies, and judicial interpretations provide a minimal framework for business

operations that reflects a rough consensus of the governed. Because government

cannot anticipate every possible interaction, however, legal action takes time, and a

general consensus is often slow to form. As a result, regulatory powers often lag

behind the need for action. This is particularly so in complex areas of rapid change,

such as information technology and medical research (Werther & Chandler, 2010).

CSR is both critical and controversial. It is critical because the for-profit sector is

the largest and most innovative part of any free society’s economy. Companies

intertwine with the societies in which they operate in mutually beneficial ways, driving

social progress and affluence. In fact, the term company comes from a combination of

the Latin words cum and panis, the literal translation of which originally meant

“breaking bread together. Today, however, the meaning of a company implies a far

greater degree of complexity. Companies create most of the jobs, wealth, and

innovations that enable the larger society to prosper. They are the primary delivery

system for food, housing, medicines, medical care, and other necessities of life.

Without modern day corporations, the jobs, taxes, donations, and other resources that

support governments and nonprofits would decline significantly, negatively affecting the

wealth and well-being of society as a whole. Businesses are the engines of society

that propel us toward a better future (Werther & Chandler, 2010).

At the same time, however, CSR remains controversial. People who have

thought deeply about why businesses exist or what purpose they have within society do

not agree on the answers. In spite of the rising importance of CSR today for corporate

leaders, academics, and bureaucrats alike, many still draw on the views of Milton

Friedman, who argued against CSR in the 1960s because it distracted leaders from

economic goals. Friedman believed that the only “social responsibility of business is to

increasing its profits” that society benefits most when businesses focus on maximizing

their financial success (Werther & Chandler, 2010).

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The entirety of CSR can be discerned from the three words this phrase contains:

corporate social, and responsibility. CSR covers the relationship between corporations

(or other large organizations) and the societies with which they interact. CSR also

includes the responsibilities that are inherent on both sides of these relationships. CSR

defines society in its widest sense and on many levels, to include all stakeholder and

constituent groups that maintain an ongoing interest in the organization’s operations

‘(Werther & Chandler, 2010). A view of the corporation and its role in society that

assumes a responsibility among firms to pursue goals in addition to profit maximization

and a responsibility among a firm’s stakeholders to hold the firm accountable for its

actions (Carroll, 2002).

‘Stakeholder groups range from clearly defined consumers, employees,

suppliers, creditors, and regulating authorities to other more amorphous constituents,

such as local communities and even the environment. Issues of legitimacy and

accountability exist, with many nonprofit organizations, for example, claiming expertise

and demanding representative status, even when it is unclear exactly how many people

support their vision or claims. Ultimately, however, each firm must identify those

stakeholders that constitute its operating environment and then prioritize their strategic

importance to the organization. Increasingly, companies need to incorporate the

concerns of stakeholder groups within the organization’s strategic outlook or risk losing

societal legitimacy. CSR provides a framework that helps firms embrace these

decisions and adjust the internal strategic planning process to maximize the long-term

viability of the organizations. Consider some different viewpoints (Werther & Chandler,

2010).

CSR is a fluid concept. It is both a means and an end. An integral element of

the firm’s strategy the way the firm goes about delivering its products or services to

markets, it is also a way of maintaining the legitimacy of its actions in the larger society

by bringing stakeholder concerns to the foreground (end). The success of a firm’s CSR

reflects how well it has been able to navigate stakeholder concerns while implementing

its business model. CSR means valuing the interdependent relations that exist among

businesses, their stakeholder groups, the economic system, and the communities

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within which they exist. CSR is a vehicle for discussing the obligations a business has

to its immediate society, way of proposing policy ideas on how those obligations can be

met, and a tool for identifying the mutual benefits for meeting those obligations. To put

it simply CSR addresses a company’s relationships with its stakeholders (Werther &

Chandler, 2010).

As a result of the blend of academic study and managerial practice,

understanding of CSR and how firms are integrating it is complex and still evolving.

And because CSR influences all aspects of firm’s strategic outlook and day-to-day

operations, CSR’s cutting edge can be controversial, especially among those

stakeholders whose interests are not considered primary by decision makers.

CSR embraces the range of economic, legal, ethical, and discretionary actions

that affect the economic performance of the firm. A significant part of a firm’s

fundamental responsibilities is complying with the legal or regulatory requirements that

relate to day-to-day operations. To break these regulations is to break the law, which

does not constitute socially responsible behavior. Clearly, adhering to the law is an

important component of any ethical organization. But, legal compliance is merely a

minimum condition of CSR. Rather than focus of firms’ legal and regulatory

obligations, Strategic CSR focuses more on the ethical and discretionary concerns that

are less precisely defined and for which there is often no clear societal consensus’

(Werther & Chandler, 2010).

As organizations around the globe continue to restructure, downsize, and

reshape the social contract through varied, short-term employment contracts, concerns

arise regarding the appropriate actors and ethical spaces of CSR. Who should assume

responsibility for workers, and how do national players shape the policies and practice

of CSR within a global economy? (Townsley and Sthol, 2003).

One of the assumptions used by advocates of CSR is that organizations with

better reputation enjoy competitive advantage over those with lower or inadequate

reputation. Or, this theme might be fashioned as advocates of reputation management

who champion it. One of the advantages of achieving and being perceived to have

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achieved the objective of corporate responsibility gives the organization a stronger and

therefore more rewarding reputation. This stronger reputation can lead to profits and

defend the organization in times of crisis and during public policy issues and battles

(Heath and Ni, 2009).

Roberts (2003) sought to delineate four different versions of CSR. The first is a

negative case that suggest that CSR is an ethical sensibility which is routinely

construed as an exclusively financial burden, advertised and enforced by disciplinary

processes both within and beyond the corporate hierarchy, with a view to protect self

from negative public criticism.

The second is a more positive form of CSR termed as the ‘ethics of

narcissuses’. Stimulated by new forms of negative external visibility, the corporate

response has been to seek to build a positive image of its own by nurturing corporate

ethical codes and new forms of social and environmental reports.

The third comprises of an attempt to develop corporate social responsibility

which seeks to give more than local reach to sincere moral sensibility within the

corporation. This is done by the creation of new forms of internal social and

environmental controls, with associated rewards and incentives. The final form

suggests, the need felt by the organization to establish potential dialogue across the

corporate boundary with the stake holders who, are most vulnerable to the effects of

negative corporate conduct.

The rise in social consciousness is the effort of a number of interest groups.

One group that has taken social justice concerns directly to large corporations is the

activist shareholder community. It is primarily composed of nonprofit, nongovernmental

groups like religious, environmental, and labour organizations, among others as well as

interest groups, that want to influence corporate behavior (Logsdown and Buren 2008).

It is also felt that corporate social responsibility can help cut costs and boost sales.

However, there are other significant benefits which businesses sometime forget about,

as they are slightly harder to measure. Benefits such as improved reputation, stronger

customer loyalty and motivated employees need not be overlooked, and can in fact be

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measured. For example, improved motivation could lead to reduce absenteeism and

reduced staff turnover. Similar, customer loyalty could increase levels of repeat

purchasing.

According to Davis and Blomstorm, the concept of social responsibility is based

on the premise that social responsibility arises from the huge ‘social power’ that

business wields in the community where it exists, by means of the opportunities for

employment that it creates for the local population. This is besides the protection that it

provides to the environment. So, business must have an equitable relationship with the

rest of the community/society. Business is part and parcel of the socio-political system.

As such, decisions about business activity cannot be treated merely as abstract

economic decisions. Economic activities are inseparable from the overall system.

And, therefore, it owes responsibility for consequences of its own operations which

impact others interests.

There are five propositions based on the said premise which are as follows:

� Those who do not use power responsibly in a way acceptable to the society will in the long run, stand to lose it (power);

� As a responsible organization, the company will function as an open system. Since it uses the resources of the society as input it will disclose its operations to the society. As an open system it will interact with the society;

� Prior to making decisions on the manufacture of a given product or service that it wants to provide to the society, the organization will accurately calculate and properly evaluate the social costs and benefits of the activity;

� The final selling price of the product should include the full social cost of the product and the service, lest the consumers pay for the impact of their consumption;

� Business organizations are responsible for direct social costs. As such, their managers should be involved in taking up need-based projects to meet the social needs of the local communities.

Implications of the five propositions are as follows:

� Since the society has allowed business to harness its resources in furtherance of its (company’s) objectives to achieve the business mission, and goals, it (society) expects the business to manage resources as a responsible trustee. Business is expected to act as a responsible trustee, failing which the law takes its own course;

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� Profit- seeking organizations ought to constantly survey their environment to assess the merging needs and wants of the society. If the social costs of needs are too high, responsible organizations will postpone the related operations voluntarily till such costs are reduced;

� Organizations ought to carry out through cost-benefit analysis prior to the start of the operations;

� Organizations should change a fair price for their products and services. The price will include social and overhead costs. Further, in the past the society had to incur the social cost of eliminating pollution. But, in contemporary times, if the polluter fails to eliminate pollution voluntarily, the law takes its own course. For example, the Bhopal Gas Tragedy of 1984, where the management of the Union Carbide Factory was penalized by the Supreme Court of India, though its orders, asking the company to pay heavily for the immense irreparable, physical damages caused to the people. The penalty runs into crores of rupees payable to the victims of the tragedy;

� Business should bear the proportionate societal cost as an individual citizens.

Response of business to the above propositions is rather lackluster and are as

follows:

� Business observes the code of practice, relevant legislations of the society; � Business pays local and corporate taxes.

The above arguments of business are countered by the following rejoinders:

� That business derives benefits from the society; � That business should contribute to the costs of resolving the problems of the

society, e.g. related to education and training, sanitation, creation of purchasing power, social amenities, piped drinking water system in certain areas not covered by the state and so on.

In return, business gets supply of educated, healthy personnel for jobs and

developed community life where business can prosper. However, in case the voluntary

methods as regards its social responsibility fails, the law takes its own course.

A responsible business is achieving commercial success in ways that honour

ethical values and respect people, communities and the natural environment. These

businesses minimize any negative environmental and social impacts and maximize the

positive ones. In practice, CSR involves assessing all the potential ways that the

company’s actions and operations may impact others. It means looking beyond the

office walls and outside the operational fence lines to consider how decisions affect a

broad range of individuals, groups and organizations referred to as stakeholders.

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These affected interests include local communities, non-governmental organizations,

investors, employees, customers, suppliers, host governments and regulatory agencies

(Ramesh & Praseeda, 2010).

Events around the world over the last few decades have emphasized the need

for corporate entitles, their stakeholders, governments and international organizations

to take the issue of corporate social responsibility seriously. Incidents such as the

explosion at Union Carbide in Bhopal, India in 1984, the oil spillage at Prince William

Sound, Alaska USA in 1989, a few corporate scandals; for example the Mirror Group

UK 1991, Bank of Credit and Commerce International (BCCI) 1991 UK, Satyam

computers India, Polly Peck 1991 UK, Enron USA 2001, World Com USA 2002,

Parmalat, Italy, 2003 etc., remain fresh and indelible in our minds. Other issues such

as climate change and global warming, human rights abuses, terrorism and the

globalization of the world economy also affect how corporate entities conduct their

operational practices. These operational practices consequently impinge on how

corporate entities perceive their responsibilities to societies; and in turn societies’

expectations from corporate entities have increase (Idowu & Filho, 2009).

The issue of CSR is a topical one in every country around the world today

(although the importance attached to it may differ in each country), not because CSR is

a soft issue but because it is an issue that touches different aspects which are

important and of concern to us all. A transnational organization for example; may be

faced with differing aspects of CSR in different countries of operation. What falls under

the umbrella of CSR in one country may perhaps be of little or no significance in

another. Issues such as poverty, inability to service and repay international debt,

illiteracy, HIV/AIDS, the absence of clean running water and electricity, fraud, bribery

and corruption are social ills typical of the under-developed world whilst other issues

such as global warming, terrorism, money laundering, corporate and individual

philanthropy, CO2 emissions reduction might be issues that affect all nations but are

publicized by the more industrialized ones. The impact of these social problems, will

differ from country to country and some of the consequences are CSR related which

require CSR related solutions (Idowu & Filho, 2009).

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Many years ago, corporate entities were only expected by societies to provide

goods and services, provide employment, pay corporate taxes, maximize the wealth of

the providers of capital regardless of whose interests or feeling were injured during the

course of doing so and conform to the basic rules of society. In addition to all these, as

a result of some of the events and issues noted above, they are now expected to be

socially responsible. Being socially responsible simply requires a corporate entity to

behave well in all its dealings and put in place appropriate measures which would help

to reduce the adverse impact of its actions on both the environment and its

stakeholders. An entity that fails to demonstrate responsibility in its actions, may not

survive beyond the short term, it is therefore in the best interest of those corporations

which aspire survive and prosper to behave responsibly. The field of CSR has several

challenges and opportunities. It has been argued by some commentators, researchers

and advocates of the field of CSR that several benefits could be derived by an entity if it

were perceived by an entity if it were perceived by its stakeholders and the general

public as being socially responsible. The following are a few of the often cited:

• Improvement in its shareholder value; • Increased customer loyalty; • Ability to form beneficial strategic alliances; • Ability to attract motivated and committed workforce; • Sympathetic media at critical times; • Ability to attract top class employees from top class universities; • Tax incentives given by tax authorizes (Idowu & Filho, 2009).

Organization entities around the world have realized that modern stakeholders

are no longer naïve instead they are sophisticated, educated, well informed and above

all, they know what is best for them. They will not hesitate to take whatever actions are

deemed responsible and legitimate to request organization to produce what is needed.

Many companies have realized that providing information to ‘all and sundry’ on their

CSR activities is a good method of achieving positive public relations. Several other

benefits flow from this action, for example customers will continue to be loyal, equity

investors will be happy to invest, donors will continue to donate generously, loan

creditors and suppliers would happily take credit risks, there will be nothing for the non-

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governmental organizations (NGOs) and their members to complain or protest about

and several other requirements of modern stakeholders and the environment would

have been met. Effective CSR is now at the forefront of what modern corporate entities

crave, they aspire to implement CSR initiatives which portray them as being socially

responsible in all the actions they take visible results of these initiatives go a very long

way to placate and satisfy all stakeholders ‘(Idowu & Filho, 2009).

1.2 The rationale for CSR:

Stakeholder theory as first propounded by Freeman (1984) suggested that

managers must satisfy a variety of constituents (ed. Workers, customers, suppliers,

local community organizations) who can influence firm outcomes. According to this

view, it is not sufficient for managers to focus exclusively on the needs of stockholders

or the owners of the corporation. Stakeholder theory implies that it can be beneficial for

the firm to engage in certain CSR activities that non-financial stakeholders perceive to

be important.

A different view was expressed by Theodore Levitt, marketing expert. In his

1958 Harvard Business Review article, ‘The dangers of social responsibility’, he

warned that ‘governments’ job is not business, and business’s job is not government’.

Milton Friedman(1970), the Chicago monetarist, expressed the same sentiment. His

maxim was that the social responsibility of business is to maximize profits within the

bounds of the law. He argued that the mere existence of CSR was an agency problem

within the firm in that it was misuse of the resources entrusted to managers by owners,

which could be better used on value-added internal projects or returned to the

shareholders.

Generally, however, academics at least have been in favour of CSR and there is

plenty of evidence both in the UK and the United States that many firms are pursuing

CSR policies.

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1.3 Arguments supporting CSR:

The moral appeal-the argument that companies have a duty to be good citizens.

The US business association Business for Social Responsibility (2007) asks its

members ‘to achieve commercial success in ways that honour ethical values and

respect people, communities and the natural environment’.

� Sustainability-an emphasis on environmental and community stewardship. As

expressed by the World Business Council for Sustainable Social Development

(2006) this involves ‘meeting the needs of the present without compromising the

ability of future generations to meet their own needs’.

� Licence to operate-every company needs tacit or explicit permission from

government, communities and other stakeholders to do business.

� Reputation-CSR initiatives can be justified because they improve a company’s

image, strengthen its brand, enliven morale and even raise the value of its stock

Porter and Kramer (2006).

The rationale for CSR as defined by Millman and Keim (2001) is based on two

propositions. First, there is a moral imperative for businesses to ‘do right thing’ without

regard to how such decisions affect firm performance (the social issues argument) and

second, firms can achieve competitive advantage by tying CSR activities to primary

stakeholders (the stakeholders argument). Their research in 500 firms implied that

investing in stakeholder management may be complementary to shareholders value

creation and could indeed provide a basis for competitive advantage as important

resources and capabilities are created that differentiate a firm from its competitors.

However, participating in social issues beyond the direct stakeholders may adversely

affect a firm’s ability to create shareholder wealth.

As argued by Moran and Ghoshal (1996), ‘that what is good for society does not

necessarily have to be bad for the firm, and what is good for the firm does not

necessarily have to come at a cost to society’. It could be argued, more cynically, that

there is room for enlightened self-interest that involves doing well by doing good.

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Much research has been conducted into the relationship between CSR and firm

performance, with mixed results. For example, Russo and Focus (1997) found that

there was a positive relationship between environmental performance and financial

performance. Hillman and Kiem (2001) found that if the socially responsible activity

were directly related to primary stakeholders, then investments may benefits not only

stakeholders but also result in increased shareholders wealth. However, participation

in social issues beyond the direct stakeholders may adversely affect a firm’s ability to

create shareholder wealth.

1.4 CSR competency framework:

The basis for developing a CSR strategy is provided by the following

competency framework of the CSR Academy (2006), which is made up of six

characteristics.

� Understanding society-understanding how business operates in the broader context and knowing the social and environmental impact that the business has on society;

� Building capacity- building the capacity of others to help manage the business effectively. For example, suppliers understand the business’s approach to the environment and employees can apply social and environmental concerns in their day-to-day roles;

� Questioning business as usual-individuals continually questioning the business in relation to a more sustainable future and being open to improving the quality of life and the environment;

� Stakeholder relations-understanding who the key stakeholders are and the risks and opportunities they present. Working with them through consultation and taking their views into account;

� Strategic view-ensuring that social and environmental views are included in the business strategy so that they are integral to the way the business operates;

� Harnessing diversity- respecting that people are different, which is reflected in fair and transparent business practices?

To develop and implement a CSR strategy based on these principles it is necessary to:

� Understand the business and social environment in which the firm operates; � Understand the business and HR strategies and how the CSR strategy should

be aligned to them;

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� Known who the stakeholders are (including top management) and find out their views and expectations on CSR;

� Identify the areas in which CSR activities might take place by reference to their relevance in the business context of the organization and an evaluation of their significance to stakeholders;

� Prioritizes as necessary on the basis of an assessment of the relevant and significance of CSR to the organization and its stakeholders and the practicalities of introducing the activity or practice;

� Draw up the strategy and make the case for it to top management and the stakeholders;

� Obtain approval for the CSR strategy from top management and key stakeholders;

� Communicate information on the whys and wherefores of the strategy comprehensively and regularly;

� Provide training to employees on the skills they need in implementing the CSR strategy;

� Measure and evaluate the effectiveness of CSR.

1.5 Corporate Social Responsibility-key learning po ints:

The meaning of corporate social responsibility (CSR): CSR refers to the actions

taken by business that further some social good beyond the interests of the firm and

that which is required by law. It is concerned with the impact of business behavior on

society and can be regarded as a process of integrating business and society.

CSR strategy: CSR strategy determines how socially responsible behavior is

exercised both outside and within the firm.

CSR activities: CSR activities include incorporating social characteristics or

features into products and manufacturing processes, adopting progressive human

resource management practices, achieving higher levels of environment performance

through recycling and pollution abatement, and advancing the goals of community

organizations.

The rationale for CSR: There are two arguments for CSR (Hillman and Keim,

2001). First, there is a moral imperative for businesses to ‘do the right thing’ without

regard to how such decisions affect firm performance (the social issues argument) and

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second, firms can achieve competitive advantage by tying CSR activities to primary

stakeholders (the stakeholders argument).

1.6 Developing a CSR strategy:

� Identify the areas in which CSR activities might take place by reference to their relevant in the business context of the organization and an evaluation of their significance to stakeholders;

� Prioritize as necessary on the basis of an assessment of the relevance and significance of CSR to the organization and its stakeholders and the practicalities of introducing the activity or practice;

� Draw up the strategy and make the case for it to top management and the stakeholders in order to obtain their approval;

� Communicate information on the strategy comprehensively and regularly; � Provide training to employees on the skills they need in implementing the CSR

strategy. 1. What does the concept of corporate social responsibility (CSR) mean and what

are the main activities involved? Review the situation in your own organization

and identify what CSR activities are taking place and what more could be done.

2. Common on the following remarks: “The most important thing a corporation can

do for society, and for any community, is contribute to a prosperous economy’

(Porter and Kramer, 2006). ‘Profits should be a reflection not of corporate greed

but a vote of confidence from society that what is offered by a firm is valued’

(Matsushita, 2000).

3. You have been asked by your HR director to produce a memorandum setting

out the business case on why the company should develop a more active

corporate responsibility strategy. You looked at the research conducted by IRS

(Egan, 2006) and came across the following information: ‘The main motivation

for employers in engaging in community and charitable work seem to be varied

and sometimes interlinked. The following factors were cited by 12 organizations

each: to enhance corporate image/reputation, to promote the business and to

improve employee satisfaction and motivation. The desire yo help others was

mentioned by 10, with seven wishing to help employee development and four

hoping to boost recruitment and retention. Two organizations each mentioned

the aims of enhancing profitability, helping acquire public sector contracts and

helping to acquire other contracts. Just one employer was motivated by a sense

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of moral obligation’. Taking into account these varied arguments, produce the

business case.

1.7 CSR Theories:

Garriga & Mele (2004) after considerable research and review on CSR theories

present a synthesis which is worth examining. ‘Since the second half of the 20th

century a long debate on CSR has been taking place. In 1953, Bowen (1953) wrote

the seminal book Social Responsibilities of the Businessman. Since then there has

been a shift in terminology from the social responsibility of business to CSR.

Additionally, this field has grown significantly and today contains a great proliferation of

theories, approaches and terminologies. Society and business, social issues

management, public policy and business, stakeholder management, corporate

accountability are just some of the terms used to describe the phenomena related to

corporate responsibility in society(Garriga and Mele,2004). Recently, renewed interest

for corporate social responsibilities and new alternative concepts has been proposed,

including corporate citizenship and corporate sustainability. Some scholars have

compared these new concepts with the classic notion of CSR (Marrewijk, 2003; and

Matten et al., 2003 and Wood and Lodgson, 2002).

Some theories combine different approaches and use the same terminology with

different meanings. This problem is an old one. It was 30 years ago that Votaw(1972)

wrote: ‘‘corporate social responsibility means something, but not always the same thing

to everybody. To some it conveys the idea of legal responsibility or liability; to others, it

means socially responsible behavior in the ethical sense; to still others, the meaning

transmitted is that of ‘responsible for’ in a causal mode; many simply equate it with a

charitable contribution; some take it to mean socially conscious; many of those who

embrace it most fervently see it as a mere synonym for legitimacy in the context of

belonging or being proper or valid; a few see a sort of fiduciary duty imposing higher

standards of behavior on businessmen than on citizens at large’’. Nowadays the

panorama is not much better. Carroll (1994), characterized the situation as ‘‘an eclectic

field with loose boundaries, multiple memberships, and differing training/perspectives;

18

broadly rather than focused, multidisciplinary; wide breadth; brings in a wider range of

literature; and interdisciplinary’’.

However, some attempts have been made to address this deficiency. Frederick

(1987, 1998) outlined a classification based on a conceptual transition from the ethical–

philosophical concept of CSR (what he calls CSR1), to the action-oriented managerial

concept of social responsiveness (CSR2). He then included a normative element based

on ethics and values (CSR3) and finally he introduced the cosmos as the basic

normative reference for social issues in management and considered the role of

science and religion in these issues (CSR4). In a more systematic way, Heald (1988)

and Carroll (1999) have offered a historical sequence of the main developments in how

the responsibilities of business in society have been understood (Garriga and

Mele,2004).

Other classifications have been suggested based on matters related to CSR,

such as Issues Management (Wartick and Rude, 1986; Wood, 1991a) or the concept of

Corporate Citizenship (Altman, 1998). An alternative approach is presented by

Brummer (1991) who proposes a classification in four groups of theories based on six

criteria (motive, relation to profits, group affected by decisions, type of act, type of

effect, expressed or ideal interest). These classifications, in spite of their valuable

contribution, are quite limited in scope and, what is more, the nature of the relationship

between business and society is rarely situated at the center of their discussion

(Garriga and Mele,2004). This vision could be questioned as CSR seems to be a

consequence of how this relationship is understood (Jones, 1983; McMahon, 1986;

Preston, 1975; Wood, 1991).

CSR theories and related approaches are focused on one of the following

aspects of social reality: economics, politics, social integration and ethics. According to

Parsons (1961), it can be observed in any social system: adaptation to the environment

(related to resources and economics), goal attainment (related to politics), social

integration and pattern maintenance or latency (related to culture and values). CSR

theories are classified into four groups:

19

1. A first group in which it is assumed that the corporation is an instrument for

wealth creation and that this is its sole social responsibility. Only the economic aspect

of the interactions between business and society is considered. So any supposed

social activity is accepted if, and only if, it is consistent with wealth creation. This group

of theories could be called instrumental theories because they understand CSR as a

mere means to the end of profits.

2. A second group in which the social power of corporation is emphasized,

specifically in its relationship with society and its responsibility in the political arena

associated with this power. This leads the corporation to accept social duties and rights

or participate in certain social cooperation. They can be called as political theories.

3. A third group includes theories which consider that business ought to

integrate social demands. They usually argue that business depends on society for its

continuity and growth and even for the existence of business itself. This can be termed

as group integrative theories.

4. A fourth group of theories understands that the relationship between business

and societies are embedded with ethical values. This leads to a vision of CSR from an

ethical perspective and as a consequence, firms ought to accept social responsibilities

as an ethical obligation above any other consideration. These can be termed as group

ethical theories (Garriga and Mele,2004).

1.7.1 Instrumental theories:

In this group of theories CSR is seen only as a strategic tool to achieve

economic objectives and, ultimately, wealth creation. Friedman’s view regarding this

approach is that ‘‘the only one responsibility of business towards society is the

maximization of profits to the shareholders within the legal framework and the ethical

custom of the country’’ (1970).

Instrumental theories have a long tradition and have enjoyed a wide acceptance

in business. As Windsor (2001) has pointed out recently, ‘‘a leitmotiv of wealth creation

progressively dominates the managerial conception of responsibility’’ (Windsor, 2001).

Concern for profits does not exclude taking into account the interests of all who

have a stake in the firm (stakeholders). It has been argued that in certain conditions the

20

satisfaction of these interests can contribute to maximizing the shareholder value

(Mitchell. et, al., 1997; Odgen and Watson, 1999). An adequate level of investment in

philanthropy and social activities is also acceptable for the sake of profits (McWilliams

and Siegel, 2001).

In practice, a number of studies have been carried out to determine the

correlation between CSR and corporate financial performance. Of these, an increasing

number show a positive correlation between the social responsibility and financial

performance of corporations in most cases (Frooman, 1997; Griffin and Mahon, 1997;

Key and Popkin, 1998; Roman et, al., 1999; Waddock and Graves, 1997).

Three main groups of instrumental theories can be identified, depending on the

economic objective proposed. In the first group the objective is the maximization of

shareholder value, measured by the share price. Frequently, this leads to a short-term

profits orientation. The second group of theories focuses on the strategic goal of

achieving competitive advantages, which would produce long-term profits. In both

cases, CSR is only a question of enlightened self-interest (Keim, 1978) since CSRs are

a mere instrument for profits. The third is related to cause-related marketing and is very

close to the second (Garriga and Mele,2004).

1.7.2 Maximizing the shareholder value approach:

A well-known approach is that which takes the straightforward contribution to

maximizing the shareholder value as the supreme criterion to evaluate specific

corporate social activity. Any investment in social demands that would produce an

increase of the shareholder value is to be made, acting without deception and fraud. In

contrast, if the social demands only impose a cost on the company it has to be

rejected. Friedman (1970) is clear, giving an example about investment in the local

community: ‘‘it will be in the long run interest of a corporation that is a major employer

in a small community to devote resources to providing amenities to that community or

to improving its government. That makes it easier to attract desirable employees, it may

reduce the wage bill or lessen losses from pilferage and sabotage or have other

21

worthwhile effects.’’ So, the socio-economic objectives are completely separate from

the economic objectives (Garriga and Mele,2004).

Currently, this approach usually takes the shareholder value maximization as the

supreme reference for corporate decision-making. The Agency Theory (Jensen and

Meckling, 1976; Ross, 1973) is the most popular way to articulate this reference.

However, today it is quite readily accepted that shareholder value maximization is not

incompatible with satisfying certain interests of people with a stake in the firm

(stakeholders). In this respect, Jensen (2000) has proposed ‘enlightened value

maximization’. This concept specifies long-term value maximization or value-seeking as

the firm’s objective. At the same time, this objective is employed as the criterion for

making the requisite tradeoffs among its stakeholders (Garriga and Mele,2004).

1.7.3 Strategies for achieving competitive advantag es:

A second group of theories are focused on how to allocate resources in order to

achieve long-term social objectives and create a competitive advantage (Husted and

Allen, 2000). In this group three approaches can be included: (a) social investments in

competitive context, (b) natural resource-based view of the firm and its dynamic

capabilities and (c) strategies for the bottom of the economic pyramid.

a) Social investments in a competitive context. Porter and Kramer (2002) applied

the well-known Porter model on competitive advantage (Porter, 1980) to consider

investment in areas of what they call competitive context. The authors argue that

investing in philanthropic activities may be the only way to improve the context of

competitive advantage of a firm and usually creates greater social value than individual

donors or government can. The reason presented (the opposite of Freidman’s position)

is that the firm has the knowledge and resources for a better understanding of how to

solve some problems related to its mission. As Burke and Lodgson (1996) pointed out,

when philanthropic activities are closer to the company’s mission, they create greater

wealth than other kinds of donations. Porter and Kramer (2002) conclude,

‘‘philanthropic investments by members of cluster, either individually or collectively, can

22

have a powerful effect on the cluster competitiveness and the performance of all its

constituents companies’’.

b) Natural resource-based view of the firm and dynamic capabilities. The

resource-based view of the firm (Barney, 1991; Wernerfelt, 1984) maintains that the

ability of a firm to perform better than its competitors depends on the unique interplay of

human, organizational, and physical resources over time. Traditionally, resources that

are most likely to lead to competitive advantage are those that meet the four point

criteria: they should be valuable, rare, and inimitable, and the organization must be

organized to deploy these resources effectively (Garriga and Mele,2004).

The ‘‘dynamic capabilities’’ approach presents the dynamic aspect of the

resources; it is focused on the drivers behind the creation, evolution and recombination

of the resources into new sources of competitive advantage (Teece et al., 1997). So

dynamic capabilities are organizational and strategic routines, by which managers

acquire resources, modify them, integrate them, and recombine them to generate new

value-creating strategies. Based on this perspective, some authors have identified

social and ethical resources and capabilities which can be a source of competitive

advantage, such as the process of moral decision-making (Petrick and Quinn, 2001),

the process of perception, deliberation and responsiveness or capacity of adaptation

(Litz, 1996) and the development of proper relationships with the primary stakeholders:

employees, customers, suppliers, and communities (Harrison and St. John, 1996;

Hillman and Keim, 2001).

A more complete model of the ‘Resource-Based View of the Firm’ has been

presented by Hart (1995). It includes aspects of dynamic capabilities and a link with the

external environment. Hart argues that the most important drivers for new resource and

capabilities development are constraints and challenges posed by the natural

biophysical environment. Hart has developed his conceptual framework with three main

interconnected strategic capabilities: pollution prevention, product stewardship and

sustainable development. He considers as critical resources continuous improvement,

stakeholder integration and shared vision (Garriga and Mele,2004).

23

c) Strategies for the bottom of the economic pyramid. Traditionally most

business strategies are focused on targeting products at upper and middle-class

people, but most of the world’s population is poor or lower- middle class. At the bottom

of the economic pyramid there may be some 4000 million people. On reflection, certain

strategies can serve the poor and simultaneously make profits. Prahalad (2002),

analyzing the India experience, has suggested some mind-set changes for converting

the poor into active consumers. The first of these is seeing the poor as an opportunity

to innovate rather than as a problem. A specific means for attending to the bottom of

the economic pyramid is disruptive innovation. Disruptive innovations (Christensen and

Overdorf, 2000; Christensen et al., 2001) are products or services that do not have the

same capabilities and conditions as those being used by customers in the mainstream

markets; as a result they can be introduced only for new or less demanding

applications among non-traditional customers, with a low-cost production and adapted

to the necessities of the population (Garriga and Mele,2004).

Disruptive innovations can improve the social and economic conditions at the

‘‘base of the pyramid’’ and at the same time they create a competitive advantage for

the firms in telecommunications, consumer electronics and energy production and

many other industries, especially in developing countries (Hart and Christensen, 2002;

Prahalad and Hammond, 2002).

1.7.4 Cause-related marketing:

Cause-related marketing has been defined as ‘‘the process of formulating and

implementing marketing activities that are characterized by an offer from the firm to

contribute a specified amount to a designated cause when customers engage in a

revenue-providing exchanges that satisfy organizational and individual objectives’’

(Varadarajan and Menon, 1988). Its goal then is to enhance company revenues and

sales or customer relationship by building the brand through the acquisition of, and

association with the ethical dimension or social responsibility dimension (Murray and

Montanari, 1986; Varadarajan and Menon, 1988). In a way, it seeks product

differentiation by creating socially responsible attributes that affect company reputation

(Smith and Higgins, 2000). As McWilliams and Siegel (2001) have pointed out:

24

‘‘support of cause related marketing creates a reputation that a firm is reliable and

honest. Consumers typically assume that the products of a reliable and honest firm will

be of high quality’’. For example, a pesticide-free or non-animal-tested ingredient can

be perceived by some buyers as preferable to other attributes of competitors’ products.

Other activities, which typically exploit because related marketing, are classical musical

concerts, art exhibitions, golf tournaments or literacy campaigns (Garriga and

Mele,2004). All of these are a form of enlightened self-interest and a win–win situation

as both the company and the charitable cause receive benefits: ‘‘the brand manager

uses consumer concern for business responsibility as a means for securing competitive

advantage. At the same time a charitable cause receives substantial financial benefits’’

(Smith and Higgins, 2000).

1.7.5 Political theories:

The political theory of corporate social responsibility is based on assumptions

about the “motivations of public official and corporations. Political decision-makers

orient their behavior towards constituencies that can provide valuable resource”.

“Elected officials seek resources that can help them get reelected.” Appointed officials

seek political support to perform their jobs effectively (Baxi & Prasad (ed.), 2006).

A group of CSR theories and approaches focus on interactions and connections

between business and society and on the power and position of business and its

inherent responsibility. They include both political considerations and political analysis

in the CSR debate. Although there are a variety of approaches, two major theories can

be distinguished: Corporate Constitutionalism and Corporate Citizenship.

1.7.6 Corporate constitutionalism:

Davis (1960) was one of the first to explore the role of power that business has

in society and the social impact of this power. In doing so, he introduces business

power as a new element in the debate of CSR. He held that business is a social

institution and it must use power responsibly. Additionally, Davis noted that the causes

that generate the social power of the firm are not solely internal of the firm but also

25

external. Their locus is unstable and constantly shifting, from the economic to the social

forum and from there to the political forum and vice versa (Garriga and Mele,2004).

Davis attacked the assumption of the classical economic theory of perfect

competition that precludes the involvement of the firm in society besides the creation of

wealth. The firm has power to influence the equilibrium of the market and therefore the

price is not a pareto optimum reflecting the free will of participants with perfect

knowledge of the market (Garriga and Mele,2004).

Davis formulated two principles that express how social power has to be

managed: ‘‘the social power equation’’ and ‘‘the iron law of responsibility’’. The social

power equation principle states that ‘‘social responsibilities of businessmen arise from

the amount of social power that they have’’ (Davis, 1967). The iron law of responsibility

refers to the negative consequences of the absence of use of power. In his own words:

‘‘whoever does not use his social power responsibly will lose it. In the long run those

who do not use power in a manner which society considers responsible will tend to lose

it because other groups eventually will step in to assume those responsibilities’’

(Davis,1960). So if a firm does not use its social power, it will lose its position in society

because other groups will occupy it, especially when society demands responsibility

from business (Davis, 1960).

According to Davis, the equation of social power responsibility has to be

understood through the functional role of business and managers. In this respect, Davis

rejects the idea of total responsibility of business as he rejected the radical free-market

ideology of no responsibility of business. The limits of functional power come from the

pressures of different constituency groups. This ‘‘restricts organizational power in the

same way that a governmental constitution does.’’ The constituency groups do not

destroy power. Rather they define conditions for its responsible use. They channel

organizational power in a supportive way and to protect other interests against

unreasonable organizational power (Davis, 1967). As a consequence, his theory is

called ‘‘Corporate Constitutionalism’’.

26

1.7.7 Integrative social contract theory:

The earliest elements of the notion of the existence of a ‘social contract’ are

found in Plato’s ‘The Republic’. However, the Social Contract Theory developed in the

17th century through Thomas Hobbes’ Leviathan. Philosophers such as John Locke

(1632-1704) and Jean-Jacques Rousseau (1712-1778) later expanded on Hobbes’

work and developed it towards different directions. A social contract, with implicit and

explicit terms, is conceived to exists between the organization and the public at large,

not just merely its shareholders (Baxi & Prasad (ed.), 2006).

Donaldson (1982) considered the business and society relationship from the

social contract tradition, mainly from the philosophical thought of Locke. He assumed

that a sort of implicit social contract between business and society exists. This social

contract implies some indirect obligations of business towards society. This approach

would overcome some limitations of deontological and teleological theories applied to

business (Garriga and Mele,2004).

Afterwards, Donaldson and Dunfee (1994, 1999) extended this approach and

proposed an ‘‘Integrative Social Contract Theory’’ (ISCT) in order to take into account

the socio-cultural context and also to integrate empirical and normative aspects of

management. Social responsibilities come from consent. These scholars assumed two

levels of consent. Firstly a theoretical macro social contract appealing to all rational

contractors, and secondly, a real micro social contract by members of numerous

localized communities. According to these authors, this theory offers a process in which

the contracts among industries, departments and economic systems can be legitimate.

In this process the participants will agree upon the ground rules defining the foundation

of economics that will be acceptable to them (Garriga and Mele,2004).

The macro social contract provides rules for any social contracting. These rules

are called the ‘‘hyper-norms’’; they ought to take precedence over other contracts.

These hyper-norms are so fundamental and basic that they ‘‘are discernible in a

convergence of religious, political and philosophical thought’’ (Donaldson and Dunfee,

2000). The micro social contracts show explicit or implicit agreements that are binding

within an identified community, whatever this may be: industry, companies or economic

27

systems. These micro social contracts, which generate ‘authentic norms’, are based on

the attitudes and behaviors of the members of the norm-generating community and, in

order to be legitimate, have to accord with the hyper-norms (Garriga and Mele,2004).

1.7.8 Corporate citizenship:

Although the idea of the firm as citizen is not new (Davis, 1973) a renewed

interest in this concept among practitioners has appeared recently due to certain

factors that have had an impact on the business and society relationship. Among these

factors, especially worthy of note are the crisis of the Welfare State and the

globalization phenomenon. These, together with the deregulation process and

decreasing costs with technological improvements, have meant that some large

multinational companies have greater economical and social power than some

governments. The corporate citizenship framework looks to give an account of this new

reality, as we will try to explain here (Garriga and Mele,2004).

In the eighties the term ‘‘corporate citizenship’’ was introduced into the business

and society relationship mainly through practitioners (Altman and Vidaver- Cohen,

2000). Since the late 1990s and early 21st century this term has become more and

more popular in business and increasing academic work has been carried out (Andriof

and McIntosh, 2001; Matten and Crane, 2003).

Although the academic reflection on the concept of ‘‘corporate citizenship’’, and

on a similar one called ‘the business citizen’, is quite recent (Matten et al., 2003; Wood

and Logsdon, 2002), this notion has always connoted a sense of belonging to a

community. Perhaps for this reason it has been so popular among managers and

business people, because it is increasingly clear that business needs to take into

account the community where it is operating (Garriga and Mele,2004).

The term ‘‘corporate citizenship’’ cannot have the same meaning for everybody.

Matten et, al., (2003) have distinguished three views of ‘‘corporate citizenship’’: (1) a

limited view, (2) a view equivalent to CSR and (3) an extended view of corporate

citizenship, which is held by them. In the limited view ‘‘corporate citizenship’’ is used in

a sense quite close to corporate philanthropy, social investment or certain

28

responsibilities assumed towards the local community. The equivalent to CSR view is

quite common. Carroll (1999) believes that ‘‘Corporate citizenship’’ seems a new

conceptualization of the role of business in society and depending on which way it is

defined, this notion largely overlaps with other theories on the responsibility of business

in society. Finally, in the extended view of corporate citizenship (Matten et al., 2003,

Matten and Crane, 2003), corporations enter the arena of citizenship at the point of

government failure in the protection of citizenship. This view arises from the fact that

some corporations have gradually come to replace the most powerful institution in the

traditional concept of citizenship, namely government (Garriga and Mele,2004).

The term ‘‘citizenship’’, taken from political science, is at the core of the

‘‘corporate citizenship’’ notion. For Wood and Logsdon(2002) ‘‘business citizenship

cannot be deemed equivalent to individual citizenship-instead it derives from and is

secondary to individual citizenship’’. Whether or not this view is accepted, theories and

approaches on ‘‘corporate citizenship’’ are focused on rights, responsibilities and

possible partnerships of business in society (Garriga and Mele,2004). Some theories

on corporate citizenship are based on a social contract theory (Dion, 2001) as

developed by Donaldson and Dunfee (1994, 1999), although other approaches are also

possible (Wood and Logsdon, 2002).

In spite of some noteworthy differences in corporate citizenship theories, most

authors generally converge on some points, such as a strong sense of business

responsibility towards the local community, partnerships, which are the specific ways of

formalizing the willingness to improve the local community, and for consideration for the

environment (Garriga and Mele,2004).

The concern for local community has extended progressively to a global concern

in great part due to the very intense protests against globalization, mainly since the end

of the 90s. This sense of global corporate citizenship led to the joint statement ‘‘Global

Corporate Citizenship – the Leadership Challenge for CEOs and Boards’’, signed by 34

of the world largest multinational corporations during the World Economic Forum in

New York in January 2002. Subsequently, business with local responsibility and, at the

same time, being a global actor that places emphasis on business responsibilities in a

29

global context, have been considered as a key issue by some scholars (Tichy et al.,

1997; Wood and Lodgson, 2002).

1.7.9 Integrative theories:

This group of theories looks at how business integrates social demands, arguing

that business depends on society for its existence, continuity and growth. Social

demands are generally considered to be the way in which society interacts with

business and gives it a certain legitimacy and prestige. As a consequence, corporate

management has to take into account social demands, and integrate them in such a

way that the business operates in accordance with social values (Garriga and

Mele,2004).

The content of business responsibility is limited to the space and time of each

situation depending on the values of society at that moment, and comes through the

company’s functional roles (Preston and Post, 1975). In other words, there is no

specific action that management is responsible for performing throughout time and in

each industry. Basically, the theories of this group are focused on the detection and

scanning of, and response to, the social demands that achieve social legitimacy,

greater social acceptance and prestige (Garriga and Mele,2004).

1.7.10 Issues management:

Social responsiveness, or responsiveness in the face of social issues, and

processes to manage them within the organization (Sethi, 1975) was an approach

which arose in the 70s. In this approach it is crucial to consider the gap between what

the organization’s relevant public expect its performance to be and the organization’s

actual performance. These gaps are usually located in the zone that Ackerman (1973)

calls the ‘‘zone of discretion’’ (neither regulated nor illegal nor sanctioned) where the

company receives some unclear signals from the environment. The firm should

perceive the gap and choose a response in order to close it (Ackerman and Bauer,

1976).

Ackerman (1973), among other scholars, analyzed the relevant factors regarding

the internal structures of organizations and integration mechanisms to manage social

issues within the organization. The way a social objective is spread and integrated

30

across the organization, he termed ‘‘process of institutionalization’’. According to Jones

(1980), ‘‘corporate behavior should not in most cases be judged by the decisions

actually reached but by the process by which they are reached’’. Consequently, he

emphasized the idea of process rather than principles as the appropriate approach to

CSR issues (Garriga and Mele,2004).

Jones(1980) draws an analogy with the political process assessing that the

appropriate process of CSR can be a fair process where all interests have the

opportunity to be heard. So Jones has shifted the criterion to the inputs in the decision-

making process rather than outcomes, and has focused more on the process of

implementation of CSR activities than on the process of conceptualization (Garriga and

Mele,2004).

The concept of ‘‘social responsiveness’’ was soon widened with the concept

‘‘Issues Management’’. The latter includes the former but emphasizes the process for

making a corporate response to social issues. Issues management has been defined

by Wartick and Rude (1986) as ‘‘the processes by which the corporation can identify,

evaluate and respond to those social and political issues which may impact significantly

upon it’’. They add that issues management attempts to minimize ‘‘surprises’’ which

accompany social and political change by serving as an early warning system for

potential environmental threats and opportunities. Further, it prompts more systematic

and effective responses to particular issues by serving as a coordinating and

integrating force within the corporation. Issues management research has been

influenced by the strategy field, since it has been seen as a special group of strategic

issues (Greening and Gray, 1994), or a part of international studies (Brewer, 1992).

That led to the study of topics related with issues (identification, evaluation and

categorization), formalization of stages of social issues and management issue

response. Other factors, which have been considered, include the corporate responses

to media exposure, interest group pressures and business crises, as well as

organization size, top management commitment and other organizational factors

(Garriga and Mele,2004).

31

1.7.11 The principle of public responsibility:

Preston and Post (1975, 1981) criticized a responsiveness approach and the

purely process approach (Jones, 1980) as insufficient. Instead, they proposed ‘‘the

principle of public responsibility’’. They choose the term ‘‘public’’ rather than ‘‘social’’, to

stress the importance of the public process, rather than personal-morality views or

narrow interest groups defining the scope of responsibilities (Garriga and Mele,2004).

According to Preston and Post an appropriate guideline for a legitimate

managerial behavior is found within the framework of relevant public policy. They

added that ‘‘public policy includes not only the literal text of law and regulation but also

the broad pattern of social direction reflected in public opinion, emerging issues, formal

legal requirements and enforcement or implementation practices’’ (Preston and Post,

1981).

Preston and Post (1975, 1981) analyzed the scope of managerial responsibility

in terms of the ‘‘primary’’ and ‘‘secondary’’ involvement of the firm in its social

environment. Primary involvement includes the essential economic task of the firm,

such as locating and establishing its facilities, procuring suppliers, engaging

employees, carrying out its production functions and marketing products. It also

includes legal requirements. Secondary involvements come as consequence of the

primary.

In practice, discovering the content of the principle of public responsibility is a

complex and difficult task and requires substantial management attention. As Preston

and Post (1975, 1981) recognized, ‘‘the content of public policy is not necessarily

obvious or easy to discover, nor is it invariable over time’’. According to this view, if

business adhered to the standards of performance in law and the existing public policy

process, then it would be judged acceptably responsive in terms of social expectations.

The development of this approach was parallel to the study of the scope regarding

business–government relationship (Vogel, 1986). These studies focused on

government regulations – their formulation and implementation – as well as corporate

strategies to influence these regulations, including campaign contributions, lobbying,

32

coalition building, grassroots organization, corporate public affairs and the role of public

interest and other advocacy groups (Garriga and Mele,2004).

1.7.12 Stakeholder management:

Instead of focusing on generic responsiveness, specific issues or on the public

responsibility principle, the approach called ‘‘stakeholder management’’ is oriented

towards ‘‘stakeholders’’ or people who affect or are affected by corporate policies and

practices. Although the practice of stakeholder management is long-established, its

academic development started only at the end of 70s (Sturdivant, 1979). In a seminal

paper, Emshoff and Freeman (1978) presented two basic principles, which underpin

stakeholder management. The first is that the central goal is to achieve maximum

overall cooperation between the entire system of stakeholder groups and the objectives

of the corporation. The second states that the most efficient strategies for managing

stakeholder relations involve efforts, which simultaneously deal with issues affecting

multiple stakeholders (Garriga and Mele,2004).

Stakeholder management tries to integrate groups with a stake in the firm into

managerial decision making. A great deal of empirical research has been done, guided

by a sense of pragmatism. It includes topics such as how to determine the best practice

in corporate stakeholder relations (Bendheim et. al., 1998), stakeholder salience to

managers (Agle and Mitchell, 1999; Mitchell et. al., 1997), the impact of stakeholder

management on financial performance (Berman et. al., 1999), the influence of

stakeholder network structural relations (Rowley, 1997) and how managers can

successfully balance the competing demands of various stakeholder groups (Ogden

and Watson, 1999).

In recent times, corporations have been pressured by non-governmental

organizations (NGOs), activists, communities, governments, media and other

institutional forces. These groups demand what they consider to be responsible

corporate practices. Now some corporations are seeking corporate responses to social

demands by establishing dialogue with a wide spectrum of stakeholders (Garriga and

Mele,2004).

33

Stakeholder dialogue helps to address the question of responsiveness to the

generally unclear signals received from the environment. In addition, this dialogue ‘‘not

only enhances a company’s sensitivity to its environment but also increases the

environments understanding of the dilemmas facing the organization’’ (Kaptein and

Van Tulder, 2003).

1.7.13 Corporate social performance:

The corporate social performance (CSP) includes a search for social legitimacy,

with processes for giving appropriate responses.

Carroll (1979), generally considered to have introduced this model, suggested a

model of ‘‘corporate performance’’ with three elements: a basic definition of social

responsibility, a listing of issues in which social responsibility exists and a specification

of the philosophy of response to social issues. Carroll considered that a definition of

social responsibility, which fully addresses the entire range of obligations business has

to society, must embody the economic, legal, ethical, and discretionary categories of

business performance. He later incorporated his four-part categorization into a

‘‘Pyramid of Corporate Social Responsibilities’’ (Carroll, 1991). Recently, Schwartz and

Carroll (2003) have proposed an alternative approach based on three core domains

(economic, legal and ethical responsibilities) and a Venn model framework. The Venn

framework yields seven CSR categories resulting from the overlap of the three core

domains (Garriga and Mele,2004).

Figure-1.1

Carroll’s CSR Pyramid

34

Carroll (1979) categorised CSR into four layers, namely, economic, legal, ethical

and discretionary responsibilities. In the past, businesses focused on economic and

legal aspects, but gradually, they showed concern for ethical and discretionary aspects

as well. The pyramid diagram enables to visualise that there is friction between the 4

opposing components and that they cannot satisfy all of them at the same time.

The terms altruistic or humanitarian CSR involves possible personal or

organizational sacrifice. Humanitarian CSR is Carroll’s “fourth face” of CSR-

philanthropic responsibilities: the implied concept of corporate citizenship fundamental

to the notion of giving back to society (Brenkert, 1996).

Strategic CSR: Strategic CSR or “strategic philanthropy” (Carroll, 2001) is done

to accomplish strategic business goals. Such strategic philanthropy grew popular

around the mid-1980s. Carroll, (2001) expects it to grow in the years ahead. Socially

responsible behavior involves sacrifices (Baxi and Prasad. 2006).

Wartich and Cochran (1985) extended the Carroll approach suggesting that

corporate social involvement rests on the principles of social responsibility, the process

of social responsiveness and the policy of issues management. A new development

came with Wood (1991b) who presented a model of corporate social performance

composed of principles of CSR, processes of corporate social responsiveness and

outcomes of corporate behavior. The principles of CSR are understood to be analytical

forms to be filled with value content that is operationalized. They include: principles of

CSR, expressed on institutional, organizational and individual levels, processes of

corporate social responsiveness, such as environmental assessment, stakeholder

management and issues management, and outcomes of corporate behavior including

social impacts, social programs and social policies (Garriga and Mele, 2004).

1.7.14 Ethical theories :

The fourth group of theories or approaches focus on the ethical requirements

that cement the relationship between business and society. They are based on

principles that express the right thing to do or the necessity to achieve a good society.

From the main approaches the following are distinguished.

35

The concept of social responsibility is closely related to business ethics. Social

responsibility refers to the idea that business have a responsibility to society beyond

making profits. That is, social responsibility means that a company must consider the

welfare of other constituents (e.g., customers, suppliers) in addition to stockholders.

Although business ethics usually concern the ethical dilemmas faced by managers as

individuals, social responsibility is usually concerned with the ethical consequences of

policies and procedures of the company as an organization. Monitoring the working

conditions of suppliers, paying for the education of the children of workers, and

donating money to the local community are examples of social responsibility in action.

1.7.15 Normative stakeholder theory:

Stakeholder theory, which McWilliams (2001) called ‘the dominant paradigm in

CSR,’ originated in response to one of CSR’s most noteworthy critic, eminent

economist Milton Friedman. Thus, stakeholder social responsibility holds that mangers

and other employees have obligations to identifiable groups that are affected by or can

affect the achievement of an organization’s goals.

Three primary reasons often are suggested for embracing stakeholder social responsibility: (1) enlightened self-interest, (2) sound investment, and (3) interference avoidance. Under the rationale of enlightened self-interest, management uses social responsibility to justify numerous decisions and actions. The general idea is that a better society creates a better environment for business. Under the rationale of sound investment, management believes that social responsibility has a positive effect on a company’s net worth.

Figure-1.2

Common Stakeholders of Organizations

Secondary Stakeholders

Media Governments (regulatory Agencies)

Political Action Unions Groups / Activists

Primary Stakeholders

Customers Suppliers Employees Shareholders

The organization

36

The following Strategic Action Competency feature reports on key section of Nortel.

Network’s published statement of its commitments to primary stakeholders. The facets

of a model comprehensive ethics program within a single organization are:

� Broad performance criteria: Managers and employees consider and accept broader criteria for measuring the organization’s performance and social role than those required by law and the marketplace.

� Ethical norms: Managers and employees take stands on issues of public concern. They advocate ethical norms for the organization, the industry, and business in general.

� Operating strategy: Managers and employees maintain or improve current standards of the physical and social environment. Another operating strategy is for organizations to compensate victims of pollution and other hazards created, even in the absence of clearly established legal grounds. Also, managers and employees evaluate possible negative effects of the organization’s plans on other stakeholders and then attempt to eliminate or substantially reduce such negative effects before implementing the plans.

� Response to social pressures: Managers and employees accept responsibility for solving current problems. They are willing to discuss activities with outside groups and make information freely available to them. They are also receptive to formal and informal inputs from outside stakeholders in decision making.

� Legislative and political activities: Managers show a willingness to work with outside stakeholders for enactment, for example, of environmental protection laws. They promote honesty and openness in government and in their own organization’s lobbying activities.

The stakeholder approach grounded in ethical theories presents a different

perspective on CSR, in which ethics is central.

In 1984, Freeman focused on the stakeholder view and propounded six

categories: owners, employees, customers, suppliers, communities and governments.

Other scholars have since included the natural environment as an additional

stakeholder (Carroll and Buchholz, 1999-2000). Donaldson and Preston (1995)

created a well-known stakeholder theory typology to argue for stakeholder engagement

as an essential management tool (Baxi and Prasad, 2006).

Stakeholder management has been included within the integrative theories

group because some authors consider that this form of management is a way to

37

integrate social demands. However, stakeholder management has become an ethically

based theory mainly since 1984 when Freeman (1984) wrote Strategic Management: a

Stakeholder Approach. In this book, he took as starting point that ‘‘managers bear a

fiduciary relationship to stakeholders’’ (Freeman, 1984), instead of having exclusively

fiduciary duties towards stockholders, as was held by the conventional view of the firm.

He understood as stakeholders those groups who have a stake in or claim on the firm

(suppliers, customers, employees, stockholders, and the local community). In a more

precise way, Donaldson and Preston (1995) held that the stakeholder theory has a

normative core based on two major ideas (1) stakeholders are persons or groups with

legitimate interests in procedural and/or substantive aspects of corporate activity

(stakeholders are identified by their interests in the corporation, whether or not the

corporation has any corresponding functional interest in them) and (2) the interests of

all stakeholders are of intrinsic value (that is, each group of stakeholders merits

consideration for its own sake and not merely because of its ability to further the

interests of some other group, such as the shareowners) (Garriga and Mele, 2004).

Following this theory, a socially responsible firm requires simultaneous attention

to the legitimate interests of all appropriate stakeholders and has to balance such a

multiplicity of interests and not only the interests of the firm’s stockholders. Supporters

of normative stakeholder theory have attempted to justify it through arguments taken

from Kantian capitalism (Bowie, 1991; Evan and Freeman, 1988), modern theories of

property and distributive justice (Donaldson and Preston, 1995), and also Libertarian

theories with its notions of freedom, rights and consent (Freeman and Philips, 2002).

A generic formulation of stakeholder theory is not sufficient. In order to point out

how corporations have to be governed and how managers ought to act, a normative

core of ethical principles is required (Freeman, 1994). To this end, different scholars

have proposed differing normative ethical theories. Freeman and Evan (1990)

introduced Rawlsian principles. Bowie (1998) proposed a combination of Kantian and

Rawlsian grounds. Freeman (1994) proposed the doctrine of fair contracts and Phillips

(1997, 2003) suggested introducing the fairness principle based on six of Rawls’

characteristics of the principle of fair play: mutual benefit, justice, cooperation, sacrifice,

38

free-rider possibility and voluntary acceptance of the benefits of cooperative schemes.

Freeman and Philips (2002) have presented six principles for the guidance of

stakeholder theory by combining Libertarian concepts and the Fairness principle. Some

scholars (Burton and Dunn, 1996; Wicks et. al., 1994) proposed instead using a

‘‘feminist ethics’’ approach. Donaldson and Dunfee (1999) hold their ‘Integrative Social

Contract Theory’. Argandona (1998) suggested the common good notion and Wijnberg

(2000) an Aristotelian approach. From a practical perspective, the normative core of

which is risk management, The Clarkson Center for Business Ethics (1999) has

published a set of Principles of Stakeholder Management (Garriga and Mele, 2004).

Stakeholder normative theory has suffered critical distortions and friendly mis-

interpretations, which Freeman and co-workers are trying to clarify (Phillips et. al.,

2003). In practice, this theory has been applied to a variety of business fields, including

stakeholder management for the business and society relationship(Carroll and

Buchholtz, 2002; Post et. al., 2002; Weiss, 2003).

The stakeholder social responsibility holds that mangers and other employees

have obligations to identifiable groups that are affected by or can affect the

achievement of an organization’s goals.

1.7.16 Law and social responsibility:

Many members of society argue strongly that managers must consider the

impact of their decisions and actions on society as a whole and that they must assume

responsibility for their activities. It is argued that managers have to take steps to

protect and improve the welfare of society. Some researchers have suggested that

organizations exist for the purpose of serving the needs of society. Therefore, being a

steward of the needs of society is socially responsible, appropriate, and natural act. In

short, managers must evaluate their decisions and actions, not merely from the

perspective of organizational effectiveness, but also from the perspective of the greater

good.

39

Managers must, of course, obey the law, but social responsibility goes beyond

the letter of the law. Social responsibility is an organization’s obligation to engage in

activities that protect and contribute to the welfare of society. An organization’s social

responsibilities are always shaped by the culture and the historical period in which the

organization operates. Just as a society’s values, norms, and mores change over time,

so does the definition of what is socially responsible behavior.

The two concepts “legality” and “social responsibility” are not one and the same.

Social responsibility is often seen as acts that “go beyond” what is prescribed by the

law. The legality and responsibility identifies four distinct organizational approaches to

social responsibility: illegal and irresponsible, illegal and responsible, irresponsible and

legal, and legal and responsible.

Illegal and Irresponsible: Today, an illegal and irresponsible strategy is a high-risk

strategy and may be fatal to an organization, because a broad spectrum of society will

no longer tolerate such behavior.

Illegal and Responsible: Some organizations fellow strategies that are social

conscious and responsible, but that violate the letter of the law.

Irresponsible and Legal: Some organizations operate without violating a single law,

but still do not act in socially responsible manner.

Legal and Responsible: Finally, some organizations obey the law and at the same

time engage in socially responsible behavior.

There is lot discussion on the relationship between CSR and HRM/HRD.

Scholars rarely cover the topic in any depth while those in other disciplines rarely

mention a role for HRM/HRD apart from limited references to training interventions.

Corporate social responsibility (CSR) is an ambiguous and problematic concept

that is difficult to operationalize (Pedersen, 2006). Consequently, there are no easy

solutions to how an organization can best implement a CSR strategy. This suggests

the need for experimentation based on learning-by-doing: testing out different

40

strategies and gauging reactions to these. It also makes it difficult to determine the

true, underlying reasons why organizations adopt a CSR policy/strategy.

In terms of understanding the impact on organizations of CSR it is important to

appreciate two particular theories: shareholder theory and stakeholder theory. These

two theories reflect the tensions that exist between the two competing perspectives on

globalization referred to above. Shareholder theory gives priority to profit maximization

based on a corporation’s legal obligations to generate shareholder wealth (Key, 1999).

This is consistent with the economic perspective on globalization referred to above.

Stakeholder theory looks beyond profit maximization and focuses on social and

environmental values, based on a corporation’s moral obligations to all those who have

a stake in the business (Freeman, 2001). This reflects the social perspective on

globalization referred to above. However, this delineation between economic and

social is an artificial one as economic decisions tend to have social consequences

(Pedersen, 2006). A CSR strategy underpinned by shareholder theory encourages a

short term perspective.

However, shareholder theory has been criticized as an overly simplistic view

given that business organizations have to satisfy the needs of stakeholders other than

shareholders (Freeman, et. al.,2004). Stakeholder theory enables an organization to

adopt a longer term perspective. Stakeholder theory looks beyond shareholder value

to embrace a wide range of stakeholders. It is being increasingly recognized that long

term sustainability relies not just on the shareholder but on all other stakeholders

relevant to the organization (Zink,2005). This perspective increasingly underpins

organizational approaches to CSR (Burchell and Cook, 2006) as a successful CSR

strategy involves a two-way relationship between business corporations, as well as

other types of large organization, and the societies within which they interact (Werther

and Chandler, 2006). MNCs, in particular, interact with a wide range of societies

across the globe both directly (e.g. subsidiaries are located in different countries) and

indirectly (e.g. sourcing of raw materials). Consequently, organizations need to wrestle

with a balancing act between economic, ethical and social objective (Lantos,2001).

41

As Crane and Matten(2007) observe, CSR encompasses the following

responsibilities:

� Economic: business corporations exist to make a profit for shareholders while providing other stakeholders with economic benefits such as fair-paying jobs for employees and good quality products for customers (Lantos, 2002). Equally, other types of organization, such as local government, health, charities etc need to adhere to economic and financial principles to ensure their continued existence.

� Legal: all organizations operate within the context of a legal framework which can reflect national, regional, and international legislation. The emphasis is on compliance (Maycunich Gilley, et. al., 2003).

� Ethical: This is the ‘grey’ area as discussed above. Organizations may not be legally required to operate in a particular way but may choose to do so because of some overriding moral obligation. This is about doing something because it is right to do so (Lantos, 2002).

� Philanthropic: this is where an organization exercises ‘discretion to improve the quality of life of employees, local communities, and ultimately society in general’ (ibid: 50). This has been termed altruistic by Lantos(2002) and often manifests as organizations making significant charitable donations. There is link here to the fifth layer of HRD evaluation labeled; ultimate value’ that was discussed in chapter-9.

The need to achieve a balance reflects the fact that the overlap between

economic and social benefit is at the heart of a successful CSR policy (Werther and

Chandler, 2006). However, from an international perspective different CSR

responsibilities are emphasized in different parts of the world (Crane and Matten,

2007).

1.7.17 Universal rights:

Human rights have been taken as a basis for CSR, especially in the global

market place (Cassel, 2001). In recent years, some human-rights-based approaches

for corporate responsibility have been proposed. One of them is the UN Global

Compact, which includes nine principles in the areas of human rights, labor and the

environment. It was first presented by the United Nations Secretary- General Kofi

Annan in an address to The World Economic Forum in 1999. In 2000 the Global

42

Compact’s operational phase was launched at UN Headquarters in New York. Many

companies have since adopted it. Another, previously presented and updated in 1999,

is The Global Sullivan Principles, which has the objective of supporting economic,

social and political justice by companies where they do business. The certification

SA8000 (www.cepaa.org) for accreditation of social responsibility is also based on

human and labor rights. Despite using different approaches, all are based on the

Universal Declaration of Human Rights adopted by the United Nations general

assembly in 1948 and on other international declarations of human rights, labor rights

and environmental protection.

Although for many people universal rights are a question of mere consensus,

they have a theoretical grounding, and some moral philosophy theories give them

support (Donnelly, 1985). It is worth mentioning the Natural Law tradition (Simon,

1992), which defends the existence of natural human rights (Maritain, 1971).

1.7.18 Sustainable development:

Another values-based concept, which has become popular, is ‘‘sustainable

development’’. Although this approach was developed at macro level rather than

corporate level, it demands a relevant corporate contribution. The term came into

widespread use in 1987, when the World Commission on Environment and

Development (United Nations) published a report known as ‘‘Brutland Report’’. This

report stated that ‘‘sustainable development’’ seeks to meet the needs of the present

without compromising the ability to meet the future generation to meet their own needs’’

(World Commission on Environment and Development, 1987). Although this report

originally included the environmental factor, the concept of ‘‘sustainable development’’

has since expanded to include the consideration of the social dimension as being

inseparable from development. In the words of the World Business Council for

Sustainable Development (2000), sustainable development ‘‘requires the integration of

social, environmental, and economic considerations to make balanced judgments for

the long term’’.

Numerous definitions have been proposed for sustainable development

(Gladwin and Kennelly, 1995). In spite of which, a content analysis of the main

definitions suggests that sustainable development is ‘‘a process of achieving human

43

development in an inclusive, connected, equip able, prudent and secure manner.’’

(Gladwin and Kennelly, 1995).

The problem comes when the corporation has to develop the processes and

implement strategies to meet the corporate challenge of corporate sustainable

development. As Wheeler et. al. (2003) have stated, sustainability is ‘‘an ideal toward

which society and business can continually strive, the way we strive is by creating

value, creating outcomes that are consistent with the ideal of sustainability along social

environmental and economic dimensions’’.

However, some suggestions have been proposed to achieve corporate

ecological sustainability (Shrivastava, 1995; Stead and Stead, 2000). A pragmatic

proposal is to extend the traditional ‘‘bottom line’’ accounting, which shows overall net

profitability, to a ‘‘triple bottom line’’ that would include economic, social and

environmental aspects of corporation. Van Marrewijk and Werre (2003) maintain that

corporate sustainability is a custom-made process and each organization should

choose its own specific ambition and approach regarding corporate sustainability. This

has to meet the organization’s aims and intentions, and be aligned with the

organization strategy, as an appropriate response to the circumstances in which the

organization operates.

1.7.19 Common good approach:

This third group of approaches, less consolidated than the stakeholder approach

but with potential, holds the common good of society as the referential value for CSR

(Mahon and McGowan, 1991; Velasquez, 1992). The common good is a classical

concept rooted in Aristotelian tradition (Smith, 1999), in Medieval Scholastics

(Kempshall, 1999), developed philosophically (Maritain, 1966) and assumed into

Catholic social thought (Carey, 2001) as a key reference for business ethics (Alford and

Naughton, 2002; Mele, 2002; Pope John Paul II, 1991). This approach maintains that

business, as with any other social group or individual in society, has to contribute to the

common good, because it is a part of society. In this respect, it has been argued that

business is a mediating institution (Fort, 1996, 1999). Business should be neither

44

harmful to nor a parasite on society, but purely a positive contributor to the wellbeing of

the society.

Business contributes to the common good in different ways, such as creating

wealth, providing goods and services in an efficient and fair way, at the same time

respecting the dignity and the inalienable and fundamental rights of the individual.

Furthermore, it contributes to social well-being and a harmonic way of living together in

just, peaceful and friendly conditions, both in the present and in the future (Mele, 2002).

To some extent, this approach has a lot in common with both the stakeholder

approach (Argandona, 1998) and sustainable development, but the philosophical base

is different. Although there are several ways of understanding the notion of common

good (Sulmasy, 2001), the interpretation based on the knowledge of human nature and

its fulfillment seems to us particularly convincing. It permits the circumnavigation of

cultural relativism, which is frequently embedded in some definitions of sustainable

development.

The common good notion is also very close to the Japanese concept of Kyosei

(Goodpaster, 1999; Kaku, 1997; Yamaji, 1997), understood as ‘‘living and working

together for the common good’’, which, together with the principle of human dignity, is

one of the founding principles of the popular ‘‘The Caux Roundtable Principles for

Business’’ (www.cauxroundtable.org).

TABLE 1.1 Corporate social responsibilities theories and rela ted approaches*

Type of theory Approaches Short description Some key references Instrumental theories (focusing on achieving economic objectives through social activities)

Maximization of shareholder value

Long-term value maximization

Friedman(1970), Jensen (2000)

Strategies for competitive advantages

Social investments in a competitive context

Proter and Kramer (2002)

Strategies based on the natural resource view of the firm and the dynamic capabilities of the firm

Hart (1995), Lizt (1996)

Strategies for the bottom of the economic pyramid

Prahalad and Hammond(2002), Hart and Chirstensen(2002), Prahalad(2003)

Cause-related marketing

Altruistic activities socially recognized used as an instrument of marketing

Varadarajan and Menon (1998), Murray and Montanari (1986)

Political theories (focusing on a

Corporate constitutionalism

Social responsibilities of business arise from the

Davis (1990,1967)

45

responsible use of business power I the political arena)

amount of social power that they have

Integrative Social Contract Theory

Assumes that a social contract between business and society exists

Donaldson and Dunfee (1994, 1999)

Corporate(or business) citizens

The firm is understood as being like a citizen with certain involvement in the community

Wood and Lodgson (2002), Andriof and McIntosh (2001) Matten and Crane (in press)

Integrative theories (focusing on the integration of social demands)

Issues management Corporate process of response to those social and political issues which may impact significantly upon it

Sethi (1975), Akerman(1973), Jones(1980), Vogel(1986), Wartick and Mahon (1994)

Public responsibility Law and the existing public policy process are taken as a reference for social performance

Preston and Post(1975,1981)

Stakeholder management

Balances the interests of the stakeholders of the firm

Mitchell et al. 1997) Agle and Mitchell(1999), Rowley(1997)

Corporate social performance

Searches for social legitimacy and process to give appropriate responses to social issues

Carroll(1997), Wartick and Cochran(1985), Wood(1991b) Swanson (1995)

Ethical theories (focusing on the right thing to achieve a good society)

Stakeholder normative theory

Considers fiduciary duties towards stakeholders of the firm. Its application requires reference to some moral theory (Kantian, Utilitarianism, theories of justice, etc.)

Freeman(1984,1994), Evan and Freeman(1988), Donaldson and Preston(1995), Freeman and Philips(2002), Phillips et al. (2003)

Universal rights Frameworks based on human rights, labour rights and respect for the environment

The Global Sullivan Principles (1999),UN Global Compact (1999)

Sustainable development

Aimed at achieving human development considering present and future generations

World Commission on Environment and Development (Brutland Report) (1987), Gladwin and Kennelly (1995)

The common good Oriented towards the common good of society

Alford and Naughton(2002), Mele(2002) Kaku (1997)

*Source: Garriga and Mele, (2004).

1.8 Approaches or models to CSR:

According to Wikipedia some researchers have identified a difference between

the Canadian (Montreal school of CSR), the Continental European and the Anglo-

Saxon approaches to CSR. And even within Europe the discussion about CSR is very

heterogeneous.

46

A more common approach of CSR is philanthropy. This includes monetary

donations and aid given to local organizations and impoverished communities in

developing countries. Some organizations do not like this approach as it does not help

build on the skills of the local people, whereas community-based development

generally leads to more sustainable development.

Another approach to CSR is to incorporate the CSR strategy directly into the

business strategy of an organization. For instance, procurement of Fair Trade tea and

coffee has been adopted by various business houses. Its CSR manager commented,

"Fair trade fits very strongly into our commitment to our communities."

Another approach is garnering increasing corporate responsibility interest. This

is called Creating Shared Value, or CSV. The shared value model is based on the idea

that corporate success and social welfare are interdependent. A business needs a

healthy, educated workforce, sustainable resources and adept government to compete

effectively. For society to thrive, profitable and competitive businesses must be

developed and supported to create income, wealth, tax revenues, and opportunities for

philanthropy. CSV received global attention in the Harvard Business Review article

Strategy & Society: The Link between Competitive Advantage and Corporate Social

Responsibility by Michael E. Porter, a leading authority on competitive strategy and

head of the Institute for Strategy and Competitiveness at Harvard Business School; and

Mark R. Kramer, Senior Fellow at the Kennedy School at Harvard University and co-

founder of FSG Social Impact Advisors. The article provides insights and relevant

examples of companies that have developed deep linkages between their business

strategies and corporate social responsibility. Many approaches to CSR emphasize

businesses against society, stressing the costs and limitations of compliance with

externally imposed social and environmental standards. CSV acknowledges trade-offs

between short-term profitability and social or environmental goals, but focuses more on

the opportunities for competitive advantage from building a social value proposition into

corporate strategy. CSV has a limitation in that it gives the impression that only two

stakeholders are important - shareholders and consumers - and belives the multi-

stakeholder approach by most CSR advocates( Wikipedia).

47

Many companies use the strategy of benchmarking to compete within their

respective industries in CSR policy, implementation, and effectiveness. Benchmarking

involves reviewing competitor CSR initiatives, as well as measuring and evaluating the

impact that those policies have on society and the environment, and how customers

perceive competitor CSR strategy. After a comprehensive study of competitor strategy

and an internal policy review performed, a comparison can be drawn and a strategy

developed for competition with CSR initiatives (Wikipedia).

Figure-1.3

Source: Wikipedia

There are several approaches to Corporate Social Responsibility (CSR), which are

discussed below:

The Three- Approach to CSR:

� Level 1: Principles of social responsibility.

� Level 2: Processes of social responsiveness.

� Level3: Products (or Outcomes) as they relate to the firm’s societal

relationships.

Social responsibility emanates from the fact that the business organization exists

within the social construct and owes its very existence to the demand created by

societal agents. Therefore there is a need for the organization to plough back some of

48

the benefits back into creation of social assets. Social responsiveness related to the

ability of the business organization to be able to realize this responsibility and to rise to

the occasion. Social responsiveness exhibits the desire of the organization to make

meaningful contribution and not just make gestures of corporate philanthropy. The

organizations also need to look beyond public relations into the concept of creation of

healthy and positive societal relationships that will yield results in the long term.

According to Aswathappa,(1999), there are two basic approaches to the

concept of corporate social responsibility. Some theorists, focusing on the “micro” level

of analysis, try to show individual companies how they can be more socially

responsive. Other researchers concern themselves with the “macro” level of analysis,

assuming that the government, not individual companies, should establish a country’s

social goals. Needless to say that it is the micro level of analysis which is significant.

1.8.1 Ackerman’s Model: Micro-level theorist Robert Ackerman was among the

earliest people to suggest that responsiveness, is should be the goal of corporate

social endeavour. Ackerman described three phases through which companies

commonly tend to pass in developing a response to social issues (see Table-2).

Table -1.2: Ackerman’s three stages of social responsibility

Organizational level

Phase of organizational Involvement Phase I Phase II Phase III

Chief Executive Issue: Corporate Obligation Action: Write and communicate policy Outcome: Enriched purpose, increased awareness

Obtain knowledge Add staff specialists

Obtain organization commitment. Change performance expectations.

Staff Specialists Issue: Technical problem Action: Design data system and interpret environment Outcome: Technical and information ground work

Provoke response from operating units Apply data system to performance measurement.

Division Management

Issue: Management problem Action: Commit resources and modify procedures Outcome: Increased responsiveness

49

In phase 1: a corporation’s top managers learn of an existing social problem. At this stage, no one asks the company to deal with it. The chief executive officer merely acknowledges the problem by making a written or oral statement of the company’s policy towards it.

In Phase 2: the company hires staff specialists or engages outside consultants

to study the problem and to suggest ways of dealing with it. Up to this point, the

company has limited itself to declaring its intentions and formulating its plans.

In Phase 3: is implementation. The company now integrates the policy into its

ongoing operations. Unfortunately, implementation often comes slowly-and often not

until the government or public opinion forces the company to act. By that time, the

company has lost the initiative. Ackerman thus advises that managers to “act early in

the life cycle of any social issue in order to enjoy the largest amount of managerial

discretion over the outcome.”

Carroll’s four-part Model: Archie B. Carroll has promulgated the four part model

(Shown in Figure-3), while discussing the Nature of social responsibility. The model

(through the length of its bars) suggests that because a business firm is basically an

economic entity, its primary responsibility is economic. It must produce the goods and

/or services that society wants and sell them for a profit. Legal responsibilities are also

basic. Firms should operate within the law. Some researchers also call this as

Business and Society Approach.

Figure-1.4 Total Social Responsibilities

In the above model, ethical responsibilities refer to behavior by the firm that is

expected by society but not codified into law. Although these responsibilities are

somewhat ill-defined in general, in specific situations they can be fairly clear. However,

ethical and discretionary responsibilities together constitute the social responsibility of

business. The four responsibilities are listed in order of priority. A business unit must

Discretionary

Responsibilities

Economic

responsibility

Ethical

Responsibility

Legal

Responsibility

50

earn profit in order to satisfy its economic responsibilities. In order to continue to exist it

must follow laws thus fulfilling legal responsibilities. After these basic responsibilities

have been satisfied, the firm should seek to fulfill its social responsibilities. It can then

fulfill its ethical responsibilities by doing those things that society tends to value but

have not been brought under legal frame. After satisfying its ethical responsibilities, the

company can focus on discretionary responsibilities which are purely voluntary actions

that society has not yet considered as important (Aswathappa,1999).

The discretionary responsibilities of today may become the ethical

responsibilities of tomorrow. The provision of day-care facilities, for example, is moving

rapidly from discretionary to an ethical responsibility. Carroll suggests that to the extent

that firms fail to acknowledge discretionary or ethical responsibilities, society will assert,

and bring them under legal framework. Before that happens, it is advisable that

companies undertake ethical and discretionary activities voluntarily

(Aswathappa,1999).

1.8.2 Business and Society Approach:

The view that corporations have an obligation to society developed at a time

when corporations were enjoying unprecedented levels of power – especially over

citizens – while exercising little social responsibility (Wood, 1991, Carroll, 1999).

Carroll’s model of CSR, which came into prominence during the 1970s, framed

business responsibilities into four components: economic, legal, ethical, and

discretionary. When the author reformulated the model in 1991, he depicted it in the

form of a pyramid, with economic performance being the most basic function

(depicted at the bottom of the pyramid) and moving up to legal, ethical and

philanthropic (which replaced discretionary) components (Table -1.3 ).

Carroll’s CSR pyramid (1991) stated that a socially responsible corporation

should simultaneously “strive to make a profit, obey the law, be ethical, and be a good

corporate citizen”. He specifically distinguished between philanthropic and ethical

responsibilities noting that many corporations assume that they are being socially

responsible by being good corporate citizens in the community. Interestingly, several

scholars and economists have in fact rejected philanthropy as a legitimate corporate

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action (Lantos, 2001; Friedman, 1970). Carroll himself stated that philanthropy, while

highly desirable, is actually less important than the first three components of CSR. It

should be noted that even though the four components have been discussed as

separate constructs, they are not mutually exclusive.

Building on Carroll’s work, Lantos (2001) classified CSR into three forms:

ethical, altruistic, and strategic. Ethical CSR is the minimal, mandatory fulfillment of a

corporation’s economic, legal, and ethical responsibilities to its publics. Lantos argued

that strategic CSR, where corporations participate only in those philanthropic actions

that will financially benefit them by attracting positive publicity and goodwill, should be

practiced over altruistic CSR, which constitutes making philanthropic contributions at

the possible expense of stockholders. He stated that altruistic CSR is not legitimate.

Despite their different orientations, these scholars have put forth a common notion that

corporations do not operate in isolation from the society where they exist. This

symbiotic relationship was summarized by Wood (1991): “Business and society are

interwoven rather than distinct entities”.

Table-1.3 Economic, Legal, Ethical & Philanthropic Components of

Carroll’s CSR Pyramid S.No Economic Components

(Responsibilities) Legal Components (Responsibili ties)

1. It is important to perform in a manner consistent with maximizing earnings per share

It is important to perform in a manner consistent with expectations of government and law.

2. It is important to be committed to being as profitable as possible.

It is important to comply with various federal, state, and local regulations.

3. It is important to maintain a strong competitive position.

It is important to be a law abiding corporate citizen.

4. It is important to maintain a high level of operating efficiency.

It is important that a successful corporation be defined as one that fulfils its legal obligations.

5. It is important that a successful corporation be defined as one that is consistently profitable.

It is important to provide goods and services that at least meet minimal legal requirements.

Ethical C omponents (Responsibilities)

Philanthropic Components (Responsibilities )

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1. It is important to perform in a manner consistent with expectations of societal mores and ethical norms.

It is important to perform in a Manner consistent with the philanthropic and charitable expectations of society.

2. It is important to recognize and respect new or evolving ethical moral norms adopted by society.

It is important to assist the fine and performing arts.

3. It is important to prevent ethical norms from being compromised in order to achieve corporate goals.

It is important that managers and employees participate in voluntary and charitable activities within their local communities.

4. It is important that good corporate citizenship be defined as doing what is expected morally or ethically.

It is important to provide assistance to private and public educational institutions.

5. It is important to recognize that corporate integrity and ethical behaviour go beyond mere compliance with laws and regulations.

It is important to assist voluntarily Those projects that enhance a community’s "quality of life."

Source: Carroll, A. B. (1991) The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders. Business Horizons, 34 (4), 39-48

1.8.3 Economic Approach:

Contrary to the proponents of the business and society approach, classical

economists separated social functions from economic functions, asserting that

businesses have the basic responsibility of maximizing profits for their owners or

shareholders. Adam Smith (1863, as cited in Lantos, 2001), perhaps the first to

espouse the market value maximization perspective, argued that by pursuing profits,

corporations produce the greatest social good because the invisible hand of the

capitalist market ultimately helped solve society’s problems. Lantos (2001) used the

term Economic CSR to refer to profit-oriented CSR activities, which absolves

corporations from social contribution because they pay taxes and wages to employees

rather than enslaving them (Marvoux, 2000). Some economists have gone as far as to

argue that the only social responsibility corporations have is to obey the law

(Carroll,1996).

Like Carroll, Milton Friedman offered the dominant and well known view

representing the economic approach separating social functions from business

functions, asserting that the “business of business is business.” (Klonoski, 2001).

However, Friedman (1970) did recognize a spectrum of moral and ethical

responsibilities, positing that the social responsibility of corporations is to “make as

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much money as possible while conforming to the basic rules of the society, both those

embodied in law and those embodied in ethical custom.”

1.8.4 Stakeholder Approach:

The economic approach overlooked the fact that in the effort to maximize

profits, corporations do affect multiple stakeholders (Freeman, 2001). The stakeholder

approach to CSR viewed the corporation as “a set of interrelated, explicit or implicit

connections between individuals and or groups of individuals” (Rowley, 1997) that

include anybody who “can affect or is affected by the achievement of the organization’s

objectives” (Freeman, 1984). This approach distinguishes between primary (e.g.

employees, customers and suppliers) and secondary (e.g. the media and NGOs)

stakeholders according to their relative impact on the corporation (Clarkson, 1995). It

advocates that corporations are responsible for addressing the interests of the various

stakeholders – not just those of the owners and/or shareholders – because they make

other, non-monetary investments, albeit at varying levels depending on the

corporation’s objectives (Freeman, 1984; Key and Popkin, 1998; Boehm, 2002).

1.9 Definitions of CSR- A Historical Growth:

‘It is widely acknowledged that modern corporations have some social

responsibility towards society; even the most adamant opponents of CSR agree with

this assertion. There is, however, a different perception of what this responsibility

entails, which in effect suggests that there are different paradigms of CSR. On the one

hand there are some supporters of CSR who believe and argue fervently that an

entity’s social responsibility is a single one, which is that the entity must increase its

profits whilst staying within the rules of the game. To argue otherwise, they say is

preaching pure and unadulterated socialism; after all businesses are not established for

eleemosynary purposes (Friedman 1962, 1970). On the other hand, Elkington (1997)

in his triple bottom line concept argues that the social responsibility of a business entity

is three-fold: to create Economic value by being profitable; to create Ecological value,

which is to engage in activities that are beneficial to the natural environment; and to

create Social value, which is to engage in activities that are beneficial to life and the

community. Carroll and Buchholtz (2003) have extended this idea and argue that the

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social responsibility of a business organization is fourfold. This responsibility, they

argue, can be expressed either as a pyramid or in terms of a equation. When

expressed as an equation, it is the sum total of four different responsibilities: Economic

responsibilities (ECR) (which is to make a profit) plus Legal responsibilities (LGR) (to

obey the law) plus Ethical responsibilities (ETR) (to do what is right, fair, and just at all

times) plus philanthropic responsibilities (PHP) (to be a good corporate citizen),’ (ldow

and Felho,2009).

When the arguments of these researchers are expressed mathematically, three

equations emanate (ldow and Felho,2009):

Friedman (1962,1970): CSR=Profit Elkington(1997):

CSR=ECV+ECLV+SOCV Carroll and Buchholtz (2003): CSR=ECR+LGR+ETR+PHR

When Carroll and Buchholtz’s (2003) proposition is expressed in terms of a

pyramid, it results in an entity’s ECR at the base and its PHR at the top. The entity’s

CSR is therefore depicted in a hierarchical form in the order of ECR, LGR, ETR, and

PHR (ldow and Felho,2009).

Friedman (1962, 1970), Elkington (1997), and Carroll and Buchholtz (2003) all

agree that making a profit is a social responsibility of a business entity and that this is

one of the objectives of any profit-seeking concern. A not-for-profit corporate entity

either has no social responsibility or has a different set of CSRs according to Friedman

(1962,1970). Interestingly, all but Friedman (1962, 1970) agree that there is more to

CSR than just profit seeking. CSR covers a wide spectrum of other activities that seek

to make life a lot better seeking. CSR covers a wide spectrum of other activities that

seek to make life a lot better for stakeholders, societies, and the environment (ldow and

Felho,2009).

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Table- 1.4 Definitions of CSR by researchers and organizations promoting the

field Author Definition

WBCSD (1999) (World Business Council for Sustainable Development)

CSR is the ethical behavior of a company towards society; management acting responsibly in its relationship with other stakeholders who have a legitimate interest in the business, and it is the 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 the local community and society at large.

Bloom and Gundlach(2001)

The obligations of the firm to its stakeholders people and groups who can affect or who are affected by corporate policies and practices. These obligations go beyond legal requirements and the company’s duties to its shareholders. The fulfillment of these obligations is intended to minimize any harm and maximize the long-run beneficial impact of the firm on society.

Mc Williams and Siegel (2001)

CSR are actions that appear to further some social good, beyond the interests of the firm and that which is required by law.

Jackson (2003) CSR is the overall relationship of the corporation with all its stakeholders…. Elements of corporate social responsibility include investment in community outreach, employee relations, creation and maintenance of employment, environmental responsibility, human rights, and financial performance.

Crowther and Rayman-Bacchus(2004)

CSR is concerned with what is or should be the relationship between the global corporation, government of countries, and individual citizens.

The European Union (2004)

CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

Kotler and Lee (2005) CSR is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources.

A fundamental problem in the field of corporate social responsibility (CSR) is that

there is no universally accepted definition of the concept (Sriramesh, 2007). Bowen

(1953) offered one of the earliest definitions seeing CSR as the “obligations of

businessmen to pursue those policies, to make those decisions, or to follow those lines

of action which are desirable in terms of the objectives and values of our society”. Since

then, the field has evolved assuming different names such as corporate social

responsiveness (in the 1970s) and corporate social performance (in the 1980s). This

evolution also reflects an increase in awareness in important areas of action and

performance that the early definitions had overlooked (Carroll,1991).

Bowd, Harris, and Cornelissen’s (2003) defines CSR, by deriving from the views

of scholars such as Carroll (1999), Wood (1991), Freeman (1984), and Friedman

(1970). Bowd, et. al. and incorporating recent industry reports such as Commission of

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the European Communities (2001, 2002) and the Financial Times Top 100 Index to

define the term: CSR in corporations’ being held accountable by explicit or inferred

social contract with internal and external stakeholders, obeying the laws and

regulations of government and operating in an ethical manner which exceeds statutory

requirements….

Addressing the vagueness of the term “ethical manner,” Bowd, et. al. offered

examples of ethical behavior such as proactive community involvement, philanthropy,

corporate governance, and commitment to the environment. This definition also entails

a commitment to accountability, where the organization is obliged to measure and audit

its CSR strategy, aims, principles, and manifestations, while simultaneously continuing

its focus on generating profits for investors.

CSR has variously been described as a ‘motherhood issue’ (Ryan, 2002) ‘the

hot business issue of the noughties’ (Blyth, 2005) and ‘the talk of the town in corporate

circles these days’ (Mees & Bonham, 2004). There seems to be an infinite number of

definitions of CSR, ranging from the simplistic to the complex, and a range of

associated terms and ideas (some used interchangeably), including ‘corporate

sustainability, corporate citizenship, corporate social investment, the triple bottom line,

socially responsible investment, business sustainability and corporate governance’

(Prime Minister's Community Business Partnership,2006). It has been suggested that

‘some…researchers…distort the definition of corporate social responsibility or

performance so much that the concept becomes morally vacuous, conceptually

meaningless, and utterly unrecognizable’(Orlitzky, 2005); or CSR may be regarded as

‘the panacea which will solve the global poverty gap, social exclusion and

environmental degradation’ (Van Marrewijk, 2003). Hopkins has commented that

‘without a common language we don’t really know that our dialogue with companies is

being heard and interpreted in a consistent way’ (Hopkins, 2003). It is therefore

important to explore the language of CSR if we are to understand and debate the

concepts involved (Thomas and Nowak, 2006). The researcher reviews and examines

the studies made on CSR and synthesizes various definitions for better understanding:

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The term CSR may appear to be relatively new to the corporate world, the

literature reveals that the evolution of the concept itself has taken place over several

decades. The fact that the terminology itself has changed over this time also suggests

that the meaning ascribed to concepts such as CSR will continue to evolve in tune with

business, political and social developments. The impact of globalization and mass

communication also means that while definitions will reflect local situations, they will

also be strongly influenced by global trends and changes in international law (Thomas

and Nowak, 2006).

1.9.1 1920s – 1950s:

The CSR has a long history, which evolved with the development of businesses

and that has been meeting the emerging needs of the society. The modern concept

and form of CSR has appeared through a transition that started during the early

twentieth century. During that period, calls for CSR came from outside the industrial

sector in the form of unions (Kuhn and Shriver ,1991).

Bowen (1953), raises a question, “What responsibilities to society may

businessmen reasonably be expected to assume?”

Bowen (1953) makes an initial definition of the social responsibilities of

businessmen: It refers to the obligations of businessmen to pursue those policies, to

make those decisions, or to follow those lines of action which are desirable in terms of

the objectives and values of our society.

According to Heald (1957), another CSR expert of the contemporary period

gave a definition of CSR as: CSR is recognition on the part of management of an

obligation to the society it serves not only for maximum economic performance but for

humane and constructive social policies as well.

It has been suggested by Windsor that ‘business leaders have since the 1920s

widely adhered to some conception of responsibility and responsiveness practices’

(Windsor 2001). Others have argued that the genesis of CSR was in the 1930s with the

debate between AA Berle and E Merrick Dodd over the role of managers (Post, 2003 ;

Turner 2006). Merrick Dodd contended ‘that the powers of corporate management are

held in trust for the entire community’ (Boatright in Post 2003). In 1953, Bowen

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conceptualized CSR as social obligation – the obligation ‘to pursue those policies, to

make those decisions, or to follow those lines of action which are desirable in terms of

the objectives and values of our society’ (Bowen in Maignan & Ferrell, 2004). Carroll

has described Bowen as the modern ‘Father of Corporate Social Responsibility’ and

believes that his work marks the beginning of the modern period of literature on CSR.

(Carroll, 1999) Bowen took a broad approach to business responsibilities, including

responsiveness, stewardship, social audit, corporate citizenship and rudimentary

stakeholder theory (Windsor, 2001).

Peter Drucker(1954) was one of the first to explicitly address CSR, including

public responsibility as one of the eight key areas for business objectives developed in

his 1954 book, The Practice of Management. While Drucker(1954), believed that

management’s first responsibility to society involved making a profit, ‘he felt it was also

most important that management consider the impact of every business policy and

action upon society’ (Joyner & Payne, 2002).

The case for social responsibilities of business rests primarily on the ground that

corporations are creatures of society and should therefore respond to the demands of

society. It is indeed in the interest of the enterprise itself. As Druker(1954), has

observed, “The first responsibilities which management owes to the enterprise…is to

consider such demands made by society on the enterprise (or is likely to be made in

the near future) as may affect attainment of its business objectives. It is management’s

job to find a way to convert these demands from threats to, or restrictions on, the

enterprise’s freedom of action into opportunities for sound growth, or at least to satisfy

them with least damage to the enterprise” (Drucker, 1954).

It is now clearly understood that the 1950s was a period of the beginning of

Modern era of CSR. Corporate managers and board directors started feeling that they

exist as society exist and they have some obligation towards the society

(Rahman,2011). CSR literature during this period discussed about the obligations of

the businesses towards achieving the desired objectives, values and policies for the

society (Bowen, 1953; Heald, 1957).

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1.9.2 1960s:

The literature of the 1960s is not heavily represented in CSR discussion.

However, Carroll believed that this decade ‘marked a significant growth in attempts to

formalize, or more accurately, state what CSR means’. (Carroll,1999) To mention that

some of the most prominent writers during that time were Keith Davis, Joseph W

McGuire, William C Frederick and Clarence C Walton. Davis’s assertion that ‘some

socially responsible business decisions can be justified by… having a good chance of

bringing long-run economic gain to the firm, thus paying it back for its socially

responsible outlook’ (Davis in Carroll, 1999) is an interesting precursor to contemporary

debates about the financial implications of CSR. Davis’s later assertion that ‘The

substance of social responsibility arises from concern for the ethical consequence of

one’s acts as they might affect the interests of others’ (Davis in Carroll, 1999)

introduces the notion of business ethics to CSR.

Keith Davis (1960) defines social responsibility by arguing that it refers to

“businessmen’s decisions and actions taken for reasons at least partially beyond the

firm’s direct economic or technical interest”. Frederick (1960) was also an influential

contributor to the early definitions of social responsibility and according to him: [Social

responsibilities] mean that businessmen should oversee the operation of an economic

system that fulfils the expectations of the public. And this means in turn that the

economy’s means of production should be employed in such a way that production and

distribution should enhance total socio-economic welfare.

Walton (1967), addresses many facets of CSR in modern society. He presents a

number of different varieties, or models, of social responsibility, including his

fundamental definition of social responsibility: In short, the new concept of social

responsibility recognizes the intimacy of the relationships between the corporation and

society and realizes that such relationships must be kept in mind by top managers as

the corporation and the related groups pursue their respective goals (Walton, 1967).

In 1960, Frederick wrote that ‘Social responsibility in the final analysis implies a

public posture toward society’s economic and human resources and a willingness to

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see that those resources are used for broad social ends and not simply for the narrowly

circumscribed interests of private persons and firms’(Frederick,1960). Clarence C

Walton emphasized that ‘the essential ingredient of the corporation’s social

responsibilities include a degree of voluntarism, as opposed to coercion’ (Walton,

1967), an argument that business continues to put forth today. Walton also counselled

‘the acceptance that costs are involved for which it may not be possible to gauge any

direct measurable economic returns’ (Walton ,1967).

Beginning in the 1960s moral issues in business were raised on a record level.

During this time, many businesses were selling unsafe products harmful for the

environment, society was not succeeding in helping economically deprived citizens,

bribery was common and morality suffered to money and power (Lantos, 2001). The

1960s broadened the area of literature on CSR.

1.9.3 1970s:

The literature on CSR includes many references to Milton Friedman’s

‘minimalist’ view of corporate responsibility (Lucas, Wollin & Lafferty, 2001) and his

famous comment in 1970 (Hopkins 2003 ; Turner, 2006). Friedman (1970) expressed

CSR from a different angle and with a business-centric view:

There is one and only one social responsibility of business – to use its resources

and engage in activities designed to increase its profits so long as it stays within the

rules of the game, which is to say, engage in open and free competition, without

deception or fraud.

Friedman’s view has continued to be debated over the decades, for example

McAleer, who concluded that Friedman’s arguments were unsound and his views

unclear, and Oketch, who suggested that ‘Today, many would not be comfortable with

such a profit-oriented statement’ (McAleer 2003, and Oketch, 2004).

Johnson (1971) presented a number of definitions of CSR and then criticized

and analysed them. Johnson presented four views of CSR as narrated below (Rahman,

2011):

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1. A socially responsible firm is one whose managerial staff balances a

multiplicity of interests. Instead of striving only for larger profits for its stockholders, a

responsible enterprise also takes into account employees, suppliers, dealers, local

communities, and the nation.

2. Social responsibility states that businesses carry out social programs to add

profits to their organization.

3. A socially responsible entrepreneur or manager is one who has a utility

function of the second type, such that he is interested not only in his own well-being but

also in that of the other members of the enterprise and that of his fellow citizens.

4. The goals of the enterprise, like those of the consumer, are ranked in order of

importance and that targets are assessed for each goal. These target levels are

shaped by a variety of factors, but the most important are the firm’s past experience

with these goals and the past performance of similar business enterprises; individuals

and organizations generally want to do at least as well as others in similar

circumstances.

Eilbert and Parket (1973), define CSR as:

Perhaps the best way to understand social responsibility is to think of it as “good

neighbourliness.” The concept involves two phases. On one hand, it means not doing

things that spoil the neighbourhood. On the other, it may be expressed as the voluntary

assumption of the obligation to help solve neighbourhood problems. Those who find

neighbourliness an awkward or coy concept may substitute the idea that social

responsibility means the commitment of a business or Business, in general, to an

active role in the solution of broad social problems, such as racial discrimination,

pollution, transportation, or urban decay.

Sethi (1975), in a classic article, discusses “dimensions of corporate social

performance,” and distinguished between corporate behaviour into 3 level model-these

three tiers were called as “social obligation”(a response to legal and market

constraints), “social responsibility” (congruent with societal norms) and “social

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responsiveness” (adoptive, anticipatory and preventive). Preston and Post (1975)

sought to draw attention away from the concept of CSR and toward a notion of public

responsibility. They stated that in the principle of public responsibility, “the scope of

managerial responsibility is not unlimited, as the popular conception of “social

responsibility” might suggest, but specifically defined in terms of primary and secondary

involvement areas”. In 1979, Carroll, offered the following definition: The social

responsibility of business encompasses the economic, legal, ethical, and discretionary

expectations that society has of organizations at a given point in time (Carroll, 1979).

Early research studies on CSR conducted in the 1970s included Bowman and

Haire’s measurement of corporate involvement in CSR. Their research used a variant

of content analysis to measure the number of lines covering social responsibility in

company annual reports. The headings they used included ‘corporate responsibility,

social responsibility, social action, public service, corporate citizenship, public

responsibility, and social responsiveness’ (Carroll 1999).

CSR definitions grew well in the 1970s. Business people during that period were

significantly engaged with corporate philanthropy and community relations. A few

definitions appeared this time that stressed the inclusion of stakeholders, needed to

match public expectation and utilization of CSR for long term benefits of the society.

Four facets of social performance became well known during this period. These were

social responsibility, social accounting, social indicators, and the social audit

(Backman, 1975).

1.9.4 1980s:

In 1980, Thomas M. Jones entered the CSR discussion with an interesting

perspective. He defined CSR:

Corporate Social Responsibility is the notion that corporations have an obligation

to constituent groups in society other than stockholders and beyond that prescribed by

law and union contract. Two facets of this definition are critical. First, the obligation

must be voluntarily adopted; behaviour influenced by the coercive forces of law or

union contract is not voluntary. Second, the obligation is a broad, extending beyond the

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traditional duty to shareholders to other societal groups such as customers, employees,

suppliers, and neighbouring communities.

Carroll believes that in the 1980s, ‘the focus on developing new or refined

definitions of CSR gave way to research on CSR and a splintering of writings into

alternative concepts and themes such as corporate social responsiveness, CSP, public

policy, business ethics, and stakeholder theory/management’ (Carroll,1999). Carroll

outlined the work of a number of researchers, including Jones(1980), who ‘posited that

CSR ought to be seen not as a set of outcomes but as a process’ and Tuzzolino and

Armandi ( 1981) who ‘sought to develop a better mechanism for assessing CSR by

proposing a need-hierarchy framework patterned after Maslow’s (Carroll,1999). Their

organizational need hierarchy suggest that organizations, like individuals, had criteria

that needed to be fulfilled or met, just as people do, as portrayed in the Maslow

hierarchy. Thus developed the organisational hierarchy as a conceptual tool that could

be used to assess socially responsible organizational performance.

Strand (1983) presents a systems paradigm of organizational adaptations to the

social environment that how social responsibility, social responsiveness, and social

responses connected to an organization-environment model. Carroll (1983) provides

another definition of CSR:

CSR involves the conduct of a business so that it is economically profitable, law

abiding, ethical and socially supportive. To be socially responsible . . . then means that

profitability and obedience to the law are foremost conditions to discussing the firm’s

ethics and the extent to which it supports the society in which it exists with contributions

of money, time and talent. Thus, CSR is composed of four parts: economic, legal,

ethical and voluntary or philanthropic.

Freeman (1984), developed stakeholders theory and brought a new dimension

in CSR literature. According to him, stakeholders include customers, competitors, trade

associations, media, environmentalists, suppliers, government, consumer advocates,

local communities and business community, who need active participation for

successful CSR implementation.

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Epstein (1987) defines CSR by relating it to social responsibility,

responsiveness, and business ethics. He pointed out that these three concepts dealt

with intimately related, even overlapping, themes and concerns. He defined CSR as the

following: Corporate social responsibility relates primarily to achieving outcomes from

organizational decisions concerning specific issues or problems which (by some

normative standard) have beneficial rather than adverse effects on pertinent corporate

stakeholders. The normative correctness of the products of corporate action have been

the main focus of corporate social responsibility.

The 1980s have been described as having ‘a more responsible approach to

corporate strategy’ (Freeman,1984). Prominent was the work of R Edward Freeman on

the emerging Stakeholder Theory (Lucas, Wollin & Lafferty 2001; Post 2003; Windsor

2001). Freeman saw ‘meeting shareholders’ needs as only one element in a value-

adding process’ and identified a range of stakeholders (including shareholders) who

were relevant to the firm’s operations (Freeman,1984). Freeman’s 1984 paper

continues to be identified as a ‘seminal paper on stakeholder theory’, and stakeholder

theory as the ‘dominant paradigm’ in CSR. (McWilliams & Siegel, 2001).

A prominent development in terms of CSR was the global debate on sustainable

development that emerged in this decade. The World Conservation Strategy that was

published in 1980 stressed the interdependence of conservation and development and

was the first to conceptualize ‘sustainable development’ (Tilbury & Wortman, 2004). In

1987 the World Commission on Environment and Development (WCED) published the

Brundtland Report, ‘Our Common Future’. The report states that ‘Sustainable

development seeks to meet the needs and aspirations of the present without

compromising the ability to meet those of the future’ (World Commission on

Environment and Development, 1987). This early definition of sustainable development

is often quoted, but it is interesting from the viewpoint of the CSR debate that most

authors do not seem to quote the next sentence from the report (Thomas and Nowak,

2006):

Far from requiring the cessation of economic growth, it recognizes that the

problems of poverty and underdevelopment cannot be solved unless there is a new era

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of growth in which developing countries play a large role and reap large benefits,

(World Commission on Environment and Development, 1987).

The report clearly links sustainable development with economic growth and sets

the direction for future debate on this issue. Although there are examples of earlier

work that touched on the issue of CSR and financial profit, Carroll identified the 1980s

as the period when ‘scholars were becoming interested in the question of whether

socially responsible firms were also profitable firms. If it could be demonstrated that

they were, this would be an added argument in support of the CSR movement’

(Carroll, 1999). Aupperle, Carroll, and Hatfield’s 1985 study of the relationship between

CSR and profitability confirmed the priorities of four components of CSR previously

identified by Carroll, as ‘economic, legal, ethical, and discretionary’ (Carroll, 1999).

1.9.5 1990s:

The CSR concept is used ‘as the base point, building block, or point-of-

departure for other related concepts and themes, many of which embraced CSR-

thinking and were quite compatible with it. CSP, stakeholder-theory, business ethics

theory, and corporate citizenship were the major themes that took center stage in the

1990s’. (Carroll, 1999).

An important contribution to the literature was made by Wood in 1991 when she

revisited the CSP model and ‘placed CSR into a broader context than just a stand-

alone definition (Thomas and Nowak, 2006). An important emphasis in her model was

on outcomes or performance’. (Carroll,1999) The CSP framework developed by Wood

and the pyramid of responsibilities developed by Carroll, with economic responsibilities

at the base and philanthropy at the apex, are discussed in depth in the literature,

including Carroll (1999) and Windsor (2001).

Swanson (1995) suggested that there were three main types of motivation for

CSR:

i. The utilitarian perspective (an instrument to help achieve performance objectives);

ii. The negative duty approach (compulsion to adopt socially responsible initiatives to appease stakeholders); and

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iii. The positive duty view (businesses self-motivated regardless of social pressures), (Swanson in Maignan & Ralston 2002).

Wood (1991) also identified three main types of processes used by businesses

to implement their CSR motivational principles: environmental management, issues

management and stakeholder management. ‘Once implemented throughout the

organization, these processes help the firm to keep abreast of, and to address

successfully, stakeholder demands’ (Wood in Maignan & Ralston 2002). However, this

may be a somewhat simplistic view of CSR and relationships with stakeholders. It is

also a view that was overtaken in the 90s by a broadening discussion of the concept of

stakeholder, and whether ‘the first priority of a corporation is to its shareholders’

(Nahan in Ryan, 2002) or whether policymakers should develop ‘a flexible multi

stakeholder approach to promoting CSR.

Even within the group that O’Rourke (2003) has described as the ‘primary’

stakeholders – the shareholders – ‘the boundary zone of CSR is currently being

negotiated’ with companies (O'Rourke 2003). According to O’Rourke(2003):

A trend also noteworthy in the late 1990s was that of shareholder activists

linking their environmental or social issue to financial performance and/or risks faced by

the company. By claiming that environmental and social issues have a direct effect on

shareholder value, shareholder activists are moving the rhetoric of their activism out of

the realm of “ethics” or good versus bad behaviour, and into that of traditional issues of

profitability, risk and shareholder value.

During 1990, a few more definition of CSR emerged. Hopkins (1998), defines

CSR, where he emphasized on treating internal and external stakeholders ethically or

responsibly, as below: Corporate social responsibility is concerned with treating the

stakeholders of the firm ethically or in a socially responsible manner. Stakeholders exist

both within a firm and outside. Consequently, behaving socially responsible will

increase the human development of stakeholders both within and outside the

corporation.

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Woodward and Clyde (1999) define CSR as a contract between business and

society: A “Contract between society and business wherein a community grants a

company a license to operate and in return the matter meets certain obligations and

behaves in an acceptable manner.

On one hand “stakeholders involvement is one of the major components of CSR,

on the other hand, employees as well as community support is also a very integral

parts of CSR as well (Rahman, 2011). Khoury, et. al., (1999), promoters of

stakeholders‟ roles, employees and community support, describe CSR as:

Corporate social responsibility is the overall relationship of the corporation with

all of its stakeholders. These include customers, employees, communities,

owners/investors, government, suppliers and competitors. Elements of social

responsibility include investment in community outreach, employee relations, creation

and maintenance of employment, environmental stewardship and financial

performance.

Elkington (1997) introduced the concept Triple Bottom Line which focuses on

three issues - social responsibility (people), environmental responsibility (Planet), and

economic responsibility (profit).

During this period, Carroll and Buchholtz (2000) defines CSR as: The idea of

social responsibility requires the individual to consider his (or her) acts in terms of a

whole social system, and holds him (or her) responsible for the effects of his (or her)

acts anywhere in that system.

In the 1990s, a few major definitions of CSR emerged that brought a new

phenomenon in the definition of CSR. Hopkins, (1998) explanation regarding CSR

stakeholders, who play both within and outside the organization, sounds appropriate.

Woodward-Clyde (1999) defines CSR as a social contract that gives us an

understanding of CSR definition in a very simple way. The concept of triple bottom-line

was introduced in this decade by Elkington(1997), which has been widely accepted in

the corporate world. The business case for CSR has been gaining solid foundation,

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surrounding the idea of People, Planet and Profit, which means that what is good for

the environment and what is good for the society is also good for the financial

performance of the business. Finally, Carrolls,( 1999) contributions in the development

of CSR history through his article Evolution of a Definitional Construct, has given a new

height in the relevant literatures in this decade and can be really appreciated (Rahman,

2011).

Writing in 1999, as the new millennium approached, Carroll(1999) suggested

that, ‘the CSR concept will remain as an essential part of the business language and

practice, because it is a vital underpinning to many of the other theories and is

continually consistent with what the public expects of the business community

today’,(Carroll 1999).

1.9.6 An Historical Perspective:

At the start of the 20th century, there were few corporate acts of charity. Instead,

wealthy business people gave as individuals from their personal wealth to charitable

causes. Two principles provided the foundation for contemporary views on social

responsibility. The first of these, the principle of charity, is rooted in religious tradition

and suggests that those who have plenty should give to those who do not. Under the

influence of this principle, individuals in the business community increasingly decided to

use some of their corporate power and wealth for the social good. Over time, an

increasing number of business leaders adopted and spread the idea that business has

a responsibility to society beyond simply providing necessary goods and services.

A second principle that shaped corporate social responsibility is the principle of

stewardship. This principle asserts that organizations have an obligation to see that

the public’s interests are served by corporate actions and the way in which profits are

spent. Because corporations control vast resources, because they are powerful, and

because this power and wealth come from their operations within society, they have an

obligation to serve society’s needs. In this way, managers and corporations become

the stewards, or trustees, for society.

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1.9.7 Phase one: Profit-Maximizing Management - During the period of economic

scarcity in the 19th and early part of the 20th century, most American business

managers felt they had one primary responsibility to society. They were to underwrite

the country’s economic growth and oversee the accumulation of wealth. Business

managers could pursue, almost single-mindedly, the objective of maximizing profits.

Managers essentially felt that what was good for business was good for the country.

This strong business ethos was shattered, however, by the Great Depression of the

1930s.

1.9.8 Phase Two: Trusteeship Management- After the Great Depression, the number

of privately held American corporations began to decline. Organizations found

themselves having to respond to the demands of both internal and external groups,

such as stockholders, customers, suppliers, and creditors. As a consequence,

organizations had to shift their orientation to social responsibility, and the result was the

emergence of trusteeship management. Corporate managers needed to maintain an

equitable balance among the competing interests of all groups with a stake in the

organization. Pressure from these groups led to the use of some of the corporate

wealth to meet social needs.

1.9.9 Phase Three: Quality-of-Life Management- In the 1960s, a new set of national

priorities began to develop, and the pressure on managers to behave in socially

responsible ways intensified. Such issues as poverty, environmental pollution, and

deteriorating inner cities raised widespread concern about the quality of life in the

United States. The consensus was that managers had to do more than achieve narrow

economic goals. They are to enhance our quality of life by helping solve society’s ills.

The principles of charity and stewardship were firmly in place.

1.9.10 21st

Century:

Moir (2001), the prolific writer in the history, reviews a broad understanding of

what is meant by corporate social responsibility and how and why business might

accept such behaviour in the beginning of 21st century (Rahman, 2011).

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European Commission (2002) describes CSR as a close relationships between

companies and societies to tackle social and environmental concerns. They define

CSR as:

CSR is a concept whereby companies integrate social and environmental

concerns in their business operations and in their interaction with their stakeholders on

a voluntary basis.

According to Lantos (2001), there are three kinds of CSR, ethical, altruistic and

strategic. Ethical CSR is the demand for firms to be morally responsible to prevent

injuries and harm that could be caused by their activities. Altruistic CSR is true

voluntary caring, even at possible personal or organizational sacrifice. Lantos (2002)

states, strategic CSR is exhibited when a firm undertakes certain caring corporate

community service activities that accomplish strategic business goals(Rahman,2011).

De Bakker et. al., (2005) presents that though CSR literature has been in existence for

more than three decades and this issue has been in discussion from many angles, but

no progress has been achieved in CSR literature due to three contradictory views.

These views were, a) development occurred from conceptual vagueness; b) hardly any

progress is to be expected because of the inherently normative character of the

literature; c) progress in the literature on the social responsibilities of business is

obscured or even hampered by the continuing introduction of new constructs

(Rahman,2011).

CSR has generated significant debate in academic and corporate circles in

recent times. According to Jamali and Miurshak (2007), this debate acknowledges the

importance of CSR in the first-world, but raises questions regarding the extent to which

corporations operating in developing countries have CSR obligations. They added, due

to lack of knowledge and experience in the CSR field, many corporations in the

developing countries may not feel any obligation to the society. World Business Council

for Sustainable Development (2008) has introduced its CSR definition, which 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”.

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The 21st Century is the era of emerging CSR as an important concept in

industry. Large corporations are having full fledged CSR departments and hiring CSR

Managers and CSR consultants, nowadays. Law and accounting firms are emerging to

tackle CSR issues in their relevant fields. Universities are holding CSR conferences

and researcher are contributing to the new literature in the CSR field with a great

momentum; there are publishers, who are printing CSR related books and journals;

there are journalists, who are reporting on CSR issues in the newspapers

(Rahman,2011). These notions, perceptions and observations are supported by

McBarnet et. al., (2009).

Many CSR definitions were developed by the scholars based on the social,

economical, political and environmental context of that period since 1950s. No unique

definition emerged in last few decades in the history of CSR that can be used for all

purposes. It is also suggested to organizations by many experts to develop their own

working definition of CSR themselves. All the definitions of CSR cover various

dimensions including economic development, ethical practices, environmental

protection, stakeholders involvement, transparency, accountability, responsible

behaviour, moral obligation, corporate responsiveness and corporate social

responsibility.

The concept of corporate social responsibility is based on the idea that not only

public policy but companies, too, should take responsibility for social issues. In more

recent approaches, CSR is seen as a concept in which companies voluntarily integrate

social and environmental concerns into their business operations and into the

interaction with their stakeholders. The idea of being a socially responsible company

means doing more than comply with the law when investing in human resources and

the environment (Chahoud et.al., (2007).

In general terms, the CSR approach seeks to motivate companies to assume

responsibility for problems and challenges that used to be addressed by the state

regulation. Despite various attempts at an unambiguous description of CSR, the

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concept still lacks a uniform definition. Consequently, the various stakeholders define

CSR in their own way, and several approaches to CSR exist Chahoud et.al., (2007).

The two poles of the existing approaches are self-regulation and legal regulation

(Chahoud, 2005,). Between those two extremes, the multi-stakeholder initiatives stand

for the alternative approach of co-regulation (figure 4). The dimensions of the CSR

triangular concept can be characterized as follows Chahoud et.al., (2007):

� The self-regulation approach is characteristic of most company-related initiatives. In this case, companies decide for themselves how far to engage in CSR and which CSR measures to implement. As the role of the state is limited, liability is limited, too.

� In legal regulation, the government is the most important player. This is reflected in multinational initiatives which are based on binding legal commitments. Individual codes of conduct for companies from one side of the spectrum, the legal instruments the other.

� Multi-stakeholder initiatives, such as the Global Compact or the OECD Guidelines for Multinational Companies, are located between the two extremes and can be defined conceptually as co-regulation approaches in which stakeholders are involved in a company’s CSR policy-making process. In this “third way” (Utting,2005), NGOs, business associations, governmental organizations and multilateral institutions, among others, work together in a constructive manner to achieve complementary goals in the CSR process.

It is important to bear in mind the difference between internal CSR, where

workers, shareholders and investors are the beneficiaries, and external CSR, where

communities, civil society groups, other companies or institutions are the main

beneficiaries. Internal and external CSR should be seen as complementary if the

sustainable development of CSR policies is to be achieved Chahoud et.al., (2007).

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Figure 1.5: CSR triangle concept

Source: Chahoud et.al., (2007).

1.10 Organizing a CSR programme:

“All most all organizations whether big and small recognize that some sort of

CSR related problem, opportunity or challenge exists. In turn, this recognition provides

the intent proceeding with a CSR assessment, with the purpose of better understanding

the nature of the problem, opportunity or challenge and its significance for the business

( Hohnen, 2007).

A logical first step is to gather and examine relevant information about the firm’s

products, services, decision making processes and activities to determine where firm

currently is with respect to CSR activity, and to locate its “pressure points” for CSR

action. A proper CSR assessment has to provide an understanding of the following:

� The firm’s values and ethics;

� The international and external drivers motivating the firm to undertake a more

systematic approach to CSR;

� The key CSR issues that are affecting or could affect the firm;

� The key stakeholder who need to be engaged, and their concerns;

� The current corporate decision making structure and its strengths and

inadequacies in terms of implementing a more integrated CSR approach;

� The human resource and budgetary implications of such an approach; and

� Existing CSR-related initiatives.

Multi-stakeholder

Initiatives/co-regulation

CSR

Self-regulation Legal regulation

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The assessment should identify the main and opportunities, and culminate in a

thorough gap analysis: where is the organization strong and where is it weak relative to

internals goals, peers and best practices? How well is the firm’s strategy responding to

emerging issues and opportunities? This is essential for identifying priorities and for

selling the approach within and outside the firm ( Hohnen, 2007).

1.10.1 Need for an assessment:

A rate snapshot of how far the firm is down the CSR road, is necessary to make

informed decisions about moving ahead. Front-end intelligence gathering in the form of

a CSR assessment can save a firm from launching an ineffective CSR approach or

heading in a direction that is not sustainable in business terms. An assessment can

also help identify CSR gaps and opportunities and thereby improve business decision

making. Importantly, it can act as a remainder of existing legal requirements (Hohnen,

2007).

1.10.2 Assessment Procedure:

A five stage CSR assessment process:

1. Assemble a CSR leadership team;

2. Develop a working dentition of CSR;

3. Identify legal requirements;

4. Review corporate documents, processes and activities; and

5. Identify and engage key stakeholders.

This is not the only way to do an assessment; rather it is one way a firm can

review the full range of its operations through a CSR lens. A number of organizations,

have developed useful tools to help firms perform an assessment. The bottom line is

that as long as the firm does a through appraisal of its current and potential activities

from a CSR perspective then it will have achieved the objective of the assessment

(Hohnen, 2007).

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1.10.3 Assembling a CSR leadership team:

Like any successful management strategy, CSR processes needs both high

level management vision and support, and buy-in all levels of the company. For this

reason, a CSR leadership team would include representatives from the board of

directors and top management or owners, as well as volunteers from various units

within the firm that are affected by or involved in CSR issues. Other representatives

could be senior personnel from human resources, environmental services, health and

safety, community relations, legal affairs, finance, marketing and communications.

Front-line staff in these areas and any other personnel who may become key players

involved in implementing the CSR approach the firm eventually develops also have to

be on the team (Hohnen, 2007).

Employees at all levels have to be encouraged to contribute their time, energy

and ideas. As the work of the team progresses and a better understanding of the

implications of CSR emerge for the firm, it is quite possible that the membership of the

team will change.

Even when there are no members of the board of directors on the team, it is

vitally important that it be directly accountable to senior management and ultimately,

the board. This acknowledges that affective CSR implementation requires integration

of the principles of CSR into the firm’s central values and activities. Involvement of the

CEO as CSR champion sends a clear signal that the firm considers CSR to be

important (Hohnen, 2007).

1.10.4 Developing a working definition of CSR:

The first task of any leadership team is to develop a working definition of CSR

for the firm. According to Hohnen, (2007) the definition of CSR has to be something

quite general:

� CSR is the firm’s practices and policies that contribute to the well-being of the

environment, economy and society. They address the need of customers,

suppliers, shareholders and employees, as well as those of government, the

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general public and the communities where the firm operates, without

compromising the ability of future generations to meet their own needs.

� CSR is the way the company integrates economic, environmental and social

objectives while, at the same time, addressing stakeholder expectations and

sustaining or enhancing shareholder value.

� CSR is the overall relationship between the corporation and its stakeholders,

which include customers, employees, communities, owners/investors,

government, suppliers and competitors. Elements of CSR include investment in

community outreach, employee relations, creation and maintenance of

employment, environmental stewardship and financial performance.

� CSR is the responsibility the firm has to its stakeholders. It means that the firm’s

products and services create value for customers and contribute to the well-

being of society. It means the firm operates using ethical business practices

and expects the same from its suppliers and partners. It means minimizing the

environmental impact of its facilities and products. It means providing jobs,

paying taxes and making a profit, as well as supporting philanthropy and

community involvement. It means treating employees with respect and being a

good neighbor to the people next door as well as those half a world away.

The team may also wish to identify key values that motivate the firm, and

particular concerns it and members of its supply chain have, such as inclusiveness,

stewardship and integrity. These could be related, for example, to the environment,

workplace, community relations (including diversity issues), human rights, customers,

government relations, bribery and corruption, or corporate governance (Hohnen, 2007).

Engaging people at all levels of the organization from employees to managers

and members of the board of directors in developing the definition of CSR from the very

beginning will help ensure the approach the firm ultimately takes to CSR will resonate

and be supported throughout the organization.

The input of members of the board, the CEO and other senior managers can be

particularly helpful in articulating a definition, since they ared able to shed light on the

initial motivations for launching work on CSR. As noted above, wherever possible

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CEOs and others have to follow internationally agreed standards and instruments,

since these offer legitimacy and consistency for CSR efforts (Hohnen, 2007).

1.10.5 Identifying legal requirements:

As noted above, a CSR approach is not a compliance-based activity. It

is all above voluntary choices a firm makes to improve its performance and the way it

relates to society. In this context, an essential step is to ensure that the business

already respects existing laws, whether in relation to such things as governance,

taxation, bribery, labour or environment. A good CSR strategy and the firms’ reputation

can be quickly damaged if it is found to be in breach of basic laws (Hohnen, 2007).

1.10.6 Reviewing corporate documents, processes and activities:

With a working CSR definition and an initial understanding of the motivations

behind the firm’s interest in CSR, the team has to review key corporate documents,

processes and activities for actual and potential CSR implications.

� Documents: Existing mission statements, policies, codes of conduct, principles

and other operating documents are logical candidates for review. External

documents associated with programs or initiatives which the firm subscribes to

may also need revisiting. These would include sector-wide standards, principles

or guidelines. It may be that the existing mission statement, policies or codes

address worker relations, customer satisfaction or environmental protection in

some regard. It is useful for the leadership team to explore why these items

were developed and to learn from them (or at least acknowledge that they are

CSR-related). It may be that they were past response to CSR pressure points.

By the same token, an absence of any reference to societal impacts or

commitments in these documents may indicate that a culture shift may be

required to integrate CSR effectively into decision making and business

activities.

� Processes: One of the advantages of a CSR approach can be to promote

“joined-up” thinking and a more integrated strategic approach to material social

and environmental issues. For this reason, existing decision-making social and

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environmental issues. For this reason, existing decision-making processes

warrant review. Typically, firms have specific decision-making processes and

associated decision-making bodies in place to address particular aspects of

operations, and these may affect the CSR approach. For example, a health and

safety committee may take the lead in determining the resources, training and

implementation of worker health and safety programs. Senior legal counsel may

play a key role in decisions about environmental protection activities, in

conjunction with senior engineers and other staff. It may also be that various

parts of the organization are treated quite differently from one another. In many

firms, decision making concerning suppliers is an area that touches on CSR in

many regards, including training, wages, and health and safety protection. It is

instructive for the leadership team to review these types of decisions, who

makes them and how. It is also important to determine whether there is a unit or

process in place to coordinate decisions about issues with a societal dimension.

� Activities: The firm’s activities that relate directly to providing its products or

services to users can be closely connected to CSR. In addition to thoroughly

examining internal operations for CSR-related challenges and opportunities, it

may be useful for the leadership team to examine those of competitors and firms

in other sectors. These can be helpful indications of areas in which the firm

might wish to concentrate attention. Practical ideas may also be gleaned by

examining activities in other jurisdictions, such as the level of security or conflict

overseas, since these may be indicators of challenges or opportunities to come.

The team also have to consider activities of business partners (particularly

supply-chain partners), since these may significantly affect the firm.

1.10.7 Identifying and engaging key stakeholders:

The leadership team has to reveal important social responsibility trends,

problems and opportunities to act upon, the team may nevertheless miss important

issues that are more evident to those outside the firm. As a result, the team may wish

to hold discussions with key external stakeholders about CSR. Mapping the interests

and concerns of stakeholders against those of the firm can reveal both opportunities

79

and potential problem areas. Indeed, many leading firms now see stakeholder

engagement as central to the task of identifying the issues that are most material to

them (Hohnen, 2007).

It is important to be clear about the purpose of these discussions, since

stakeholders might view it as an opportunity to express their views more generally

about the company’s behavior in relation to them. Key to engaging effectively with

stakeholders is to map their definition of “success” in working with the company.

Identifying the results from this task (e.g., a summary of the CSR assessment that is

publicly available) would be helpful. Larger firms may choose to engage one of the

many independent consultants specialized in stakeholder mapping to help them with

this or other CSR processes. As noted below, another consideration to bear in mind

the capacity of stakeholder groups to remain engaged in any ongoing consultation’

(Hohnen, 2007).

The table-6 is an example of the many CSR self-help tools that are on the

market and have been developed largely by the business community.

Table-1.5

CSR tools

World Business Council for Sustainable Development (WBCSD) www.wbcsd.org

The WBCSD is a Geneva-based business association with a membership of some 180 international companies from 35 countries, covering more than 20 industrial sectors. Its mission is to promote sustainable development through economic growth, ecological balance and social progress. WBCSD’s free “Corporate Social Responsibility: Making good business sense” publication provides a process for addressing CSR, including a self-assessment questionnaire. The WBCSD Chronos e-learning tool (mentioned above) is also relevant.

Business for Social Responsibility (BSR) http://www.bsr.org

BSR is a non-profit business association headquartered in San Francisco with offices in Europe and Asia. Established in 1992, it offers advisory services, research and conferences on CSR. BSR’s “Designing a CSR structure” tool is a low cost aid for helping identify the steps necessary for a company to consider and set up an internal management system integrating CSR into the entire company’s organization and culture.

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Global Environmental Management Initiative (GEMI) http://www.gemi.org

GEMI is a U.S. based organization of companies dedicated to fostering global environmental, health and safety (EHS) excellence through the sharing of tools and information to help business achieve EHS excellence. Since 1990, GEMI has created tools and provided a forum to help business foster global environmental, health and safety excellence and economic success. GEMI’s SD Planner is a free self-assessment and planning tool that can be customized to suit the needs of individual companies.

Caux Round Table Self Assessment and improvement Tool http://www.cauxroundtable.org/ resource.html

Founded in 1986, the Caux Round Table is a network of senior business leaders from industrialized and developing nations who recognize that business must take a leadership role in developing a more fair, free and transparent society. In addition to its Principles for Business, the group has developed the Self Assessment and improvement Tool to help senior executives and boards of directors address growing expectations for responsible business conduct. Modelled after the Malcolm Baldrige National Quality Program, it translates seven general principles for business into seven assessment categories, and considers company performance within each from seven perspectives.

1.11 CSR in India and current trends:

To understand the current state of Indian CSR, India’s long tradition must be

taken into account. Its CSR approach is closely linked to its political and economic

history, in which four phases can be distinguished:

During the first phase (1850-1914) CSR activities were mainly undertaken

outside companies and included donations to temples and various social welfare

causes. The second phase (1914-1960) was largely influenced by Mahatma Gandhi’s

theory of trusteeship, the aim of which was to consolidate and amplify social

development. The reform programmes included activities geared particularly to

abolishing untouchability, empowering women and developing rural areas. The third

phase (1960-1980) was dominated by the paradigm of the “mixed economy”. In this

context, CSR largely took the form of the legal regulation of business activities and/or

the promotion of public-sector undertakings (PSUs). The fourth phase (1980 until the

present) is characterized partly by traditional philanthropic engagement and partly by

steps taken to integrate CSR into a sustainable business strategy.

Contrary to various expectations that India would follow the global agenda, its

current approach still largely maintains its own features, elements of the global CSR

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mainstream being only marginally integrated. Specifically, the philanthropic approach is

still widespread: while the Indian understanding of CSR shows a slight shift from

traditional philanthropy to sustainable business, philanthropic CSR patterns are still

apparent in many Indian companies. In addition, the imbalance between the internal

and external CSR dimensions is still huge.

The Indian CSR agenda continues to be dominated by community development

activities, particularly in the areas of health and education. While most Indian

companies view their community development projects as important contributions to

the existing development challenges in their region of operation, many stakeholders are

more critical of this approach. Where community development is concerned, Indian

stakeholders’ criticism focuses on the following aspects:

� a company’s community development approach based on the argument that it

needs to “give something back to society” lacks transparency and specific

standards;

� community development approaches often amount to little more than window-

dressing and must be compared to violations of social and environmental

standards within companies;

� public authorities in local communities very often lack the required know-how

and experience to negotiate business-driven commitment to community

development;

� very few companies disclose their motivation and business interests when

engaging in community development.

In India the CSR multi-stakeholder approach is still rather fragmented, and

interaction between business and civil society organizations, especially trade unions, is

still rare and takes place, at best, on an ad-hoc basis. Although many civil society

organizations are active in India, the empirical findings did not show that these

initiatives play a significant role in shaping the CSR agenda in India. Despite these

general observations, there are numerous networks that could form a basis for an

effective and powerful CSR multi-stakeholder approach in the future.

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The phases are not static and the features of each phase may overlap other

phases, they are presented in detail:

1.11.1 The First Phase:

In the first phase charity and philanthropy were the main drivers of CSR. Culture,

religion, family values and tradition and industrialization had an influential effect on

CSR. In the pre-industrialization period which lasted till 1850, wealthy merchants

shared a part of their wealth with the wider society by way of setting up temples for a

religious cause. Moreover these merchants helped the society in getting over phases of

famine and epidemics by providing food from their godowns and money and thus

securing an integral position in the society. With the arrival of the colonial rule in India

from 1850s onwards the approach towards CSR was changed.

The industrial families of the 19th century such as Tata, Godrej, Bajaj, Modi,

Birla, Singhania were strongly inclined towards economic as well as social

considerations (Mohan, 2001). However it has been observed that their efforts towards

social as well as industrial development were not only driven selfless and religious

motives but also influenced by caste groups and political objectives.

1.11.2 The Second Phase:

In the second phase, during the independence movement, there was increased

stress on Indian Industrialists to demonstrate their dedication towards the progress of

the society. This was when Mahatma Gandhi introduced the notion of "trusteeship",

according to which the industry leaders had to manage their wealth so as to benefit the

common man. "I desire to end capitalism almost, if not quite, as much as the most

advanced socialist. But our methods differ. My theory of trusteeship is no make-shift,

certainly no camouflage. I am confident that it will survive all other theories." This was

Gandhi's words which highlights his argument towards his concept of "trusteeship".

Gandhi's influence put pressure on various Industrialists to act towards building the

nation and its socio-economic development. According to Gandhi, Indian companies

were supposed to be the "temples of modern India". Under his influence businesses

established trusts for schools and colleges and also helped in setting up training and

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scientific institutions (Mohan, 2001). The operations of the trusts were largely in line

with Gandhi's reforms which sought to abolish untouchability, encourage empowerment

of women and rural development (Arora, 2004).

1.11.3 The Third Phase:

The third phase of CSR (1960–80) had its relation to the element of "mixed

economy", emergence of Public Sector Undertakings (PSUs) and laws relating labour

and environmental standards. During this period the private sector was forced to take a

backseat. The public sector was seen as the prime mover of development. Because of

the stringent legal rules and regulations surrounding the activities of the private sector,

the period was described as an "era of command and control". The policy of industrial

licensing, high taxes and restrictions on the private sector led to corporate

malpractices. This led to enactment of legislation regarding corporate governance,

labour and environmental issues. PSUs were set up by the state to ensure suitable

distribution of resources (wealth, food etc.) to the needy. However the public sector

was effective only to a certain limited extent. This led to shift of expectation from the

public to the private sector and their active involvement in the socio-economic

development of the country became absolutely necessary (Arora, 2004). In 1965 Indian

academicians, politicians and businessmen set up a national workshop on CSR aimed

at reconciliation. They emphasized upon transparency, social accountability and

regular stakeholder dialogues. In spite of such attempts the CSR failed to catch steam

(Mohan, 2001).

1.11.4 The Fourth Phase:

In the fourth phase Indian companies started abandoning their traditional

engagement with CSR and integrated it into a sustainable business strategy. In 1990s

the first initiation towards globalization and economic liberalization were undertaken.

Controls and licensing system were partly done away with which gave a boost to the

economy the signs of which are very evident today. Increased growth momentum of the

economy helped Indian companies grow rapidly and this made them more willing and

able to contribute towards social cause. Globalization has transformed India into an

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important destination in terms of production and manufacturing bases of TNCs are

concerned. As Western markets are becoming more and more concerned about and

labour and environmental standards in the developing countries, Indian companies who

export and produce goods for the developed world need to pay a close attention to

compliance with the international standards (Arora and Puranik, 2004).

1.12 Current State of CSR in India:

The opening up of India’s economy to foreign trade, investment, and competition

can be traced back to 1991. Capitalism in the country is built on a caste system that

has been criticized by many people from other cultures as oppressive but which has

proven to be highly stable as a social system. In the past major development projects

have been hindered by endemic corruption within India’s bureaucratic and political

structures. It is a country that seems to be characterized by disorder and social

networks based on nepotism. Despite the economic growth many in India remain

desperately poor. Often unemployed parents have to send their children to work in

sweatshops as it is easier for children to find this type of work than it is for adults.

Estimate of the number of people in India living in poverty vary from 260 million to 470

million. In the impoverished rural areas standards of education are very poor.

However, despite the inefficiencies of the state education system, there is still a large

pool of well-educated, financially literate, and highly motivated workers (mainly the

result of an expanding private education sector). In terms of the environment, air

quality in large cities is poor, enforcement of environmental laws is weak, and water is

becoming increasingly scarce. Dirty water is causing the deaths of hundreds of

thousands of children each year. Deforestation is contributing to problems of soil

erosion, which in turn impacts on farming. People still remember the Union Carbide

scandal at Bhopal in 1984 when there was a major leak from the plant causing death

and illness to many thousands. The abandoned plant remains today along with 25

tonnes to toxic waste. Eventually the company paid out US$ 470 million in

compensation although this was relatively little given the scale of the disaster.

As discussed above, CSR is not a new concept in India. Ever since their

inception, corporates like the Tata Group, the Aditya Birla Group, and Indian Oil

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Corporation, to name a few, have been involved in serving the community. Through

donations and charity events, many other organizations have been doing their part for

the society. The basic objective of CSR in these days is to maximize the company's

overall impact on the society and stakeholders. CSR policies, practices and programs

are being comprehensively integrated by a increasing number of companies throughout

their business operations and processes. A growing number of Corporates feel that

CSR is not just another form of indirect expense but is important for protecting the

goodwill and reputation, defending attacks and increasing business competitiveness.

Companies have specialized CSR teams that formulate policies, strategies and

goals for their CSR programs and set aside budgets to fund them. These programs are

often determined by social philosophy which have clear objectives and are well defined

and are aligned with the mainstream business. The programs are put into practice by

the employees who are crucial to this process. CSR programs ranges from community

development to development in education, environment and healthcare etc.

For example, a more comprehensive method of development is adopted by

some corporations such as Bharat Petroleum Corporation Limited, Maruti Suzuki India

Limited, and Hindustan Unilever Limited. Provision of improved medical and sanitation

facilities, building schools and houses, and empowering the villagers and in process

making them more self-reliant by providing vocational training and a knowledge of

business operations are the facilities that these corporations focus on.

On the other hand, the CSR programs of corporations like GlaxoSmithKline

Pharmaceuticals’ focus on the health aspect of the community. They set up health

camps in tribal villages which offer medical check-ups and treatment and undertake

health awareness programs. Some of the non-profit organizations which carry out

health and education programs in backward areas are to a certain extent funded by

such corporations.

Also corporates increasingly join hands with Non-governmental organizations

(NGOs) and use their expertise in devising programs which address wider social

problems.

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India’s economic reforms and its rise to become an emerging market and global

player has not resulted in a substantial change in its CSR approach. Contrary to

various expectations that India would adopt the global CSR agenda, its present CSR

approach still largely retains its own characteristics, adopting only some aspects of

global mainstream CSR.

In the year 2010-11 the Government of India issued guidelines on CSR for

public sector enterprises and all the PSU’s follow the same in implementing CSR

programmes. On 18th Dec-2012 the Lok Sabha cleared the companies Bill-2011. Only

France and Indonesia are having CSR as part of their legislation. And if this bill goes

through Rajya Sabha, perhaps India is going to the first country in the world that will

have CSR as law. Aspect the bill certain companies will quality for CSR- the

companies that have a turnover of Rs.1000 crores, values of Rs. 500 crores and

average net profit of Rs.5 crores for the preceding three years. They have to spend 2%

of profits on CSR activities. The choice of speding (CSR) is left to the respective

industries. In case if they don’t spend that money, they have to report-why they did not

do it. In case the organization don’t spend and don’t report the government can also

invoke section 134-which means, they will be penalized, fined etc (Economics Times-

18th December-2012).

The empirical results of the study show that Indian CSR is still in a confused

state (Arora and Puranik, 2004). This is evident from the following:

� The Indian understanding of CSR seems to be shifting from traditional philanthropy towards sustainable business. Nevertheless, philanthropic patterns remain widespread in many Indian companies.

� Community development still plays the decisive role in the Indian CSR agenda.

1.13 CSR Movement:

Corporate Social Responsibility is not new to any country. India has a long

tradition in this field ( to give an example in 1850’s merchants and in 1907 Tata’s are

involved in philanthropic activity).

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But many people view the CSR movement as a relatively recent social

phenomenon, but this is not entirely true. In actual fact, moral issues arising from

commercial activities have occupied philosophers, writers, religions leaders and law-

makers for centuries, if not millennia (Hood, 1996).

With industrialization, however the role of business in society became an issue

of more than academic importance, as large scale commercial activity began to impact

on the lives of more and more people. Some industrialists began to take philanthropic

obligation upon them, inspired by religion convictions, social concern, a desire to

emulate the land-owning classes, or a combination of there.

But isolated philanthropic initiatives provided no answer to the more fundamental

questions: did business have any inherent responsibilities towards society? It was in

America, during the 1930s, that this debate really took off. In 1929, in a address that

this still stands strikingly relevant today, the then Dean of Harvard Business School,

Walter B. Donhan, said; Business started long centuries before the dawn of history, but

business as we now know it is not new in its broadening scope, new in its social

significance. Business has not learned how to handle these changes, nor does it

recognize the magnitude of its responsibilities for the future of civilization (Peattie,

2002). There are many individual examples of what today are called ‘voluntary CSR

initiatives’ that date back to the same time, or earlier, in 1914.

In due course, overall, the CSR movement has brought about a change in

emphasis. Reflecting the shift from a ‘state centered’ to a ‘market-dominated world’,

greater prominence is now given to ‘people centered (as opposed to ‘state centered’)

concerns. This is to suggest that organization do not continue to pose considerable

political and regulatory problems of states. But while states have made studies in the

national and international regulations of issues such as investor protection taxation and

corruption, it seems that health and safety and environmental issues have been left

behind.

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Globalization is giving rise to a new political struggle, not between states and

multi-nationals or, necessarily between North and South, but between ‘people and

corporation’.

1.14 Globalisation and CSR:

‘Globalization can be defined as the free movement of goods, services and

capital. This definition does not cover all the aspects of globalization or global changing.

Globalization also is a process which integrates world economies, culture, technology

and governance. This is because globalization also involves the transfer of information,

skilled employee mobility, the exchange of technology, financial funds flow and

geographic arbitrage between developed countries and developing countries. Moreover

globalization has religious, environmental and social dimensions. In order to

encompass this broad impact area globalisation covers all dimensions of the world

economy, environment and society. Moreover it is apparent all over the world and the

world is changing dramatically. Every government has a responsibility to protect all of

their economy and domestic market from this rapid changing (Crowther, and Aras,

2008).

The question is how a company will adapt to this changing. First of all companies

have to know different effects of globalization. Globalization has some opportunities and

threats. A company might have learn how to protect itself from some negative effects

and how to get opportunities from this situation.

Globalization affects the economy, business life, society and environment in different

ways:

� Increasing competition,

� Technological development,

� Knowledge/Information transfer,

� Portfolio investment (fund transfer between developed countries and emerging

� markets),

� Regulation/deregulation, International standards,

� Market integration,

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� Intellectual capital mobility, and

� Financial crisis-contagion effect-global crisis.

1.15 Competition:

Globalization leads to increased competition. (Increased competition is a

consequence of globalization) This competition can be related to product and service

cost and price, target market, technological adaptation, quick response and quick

production by companies etc. When a company produces with less cost and sells

cheaper, it will be able to increase its market share (Crowther, and Aras, 2008).

Customers have too much choice in the market and they want to acquire goods

and services quickly and in a more efficient way. And also they are expecting hıgh

quality and a cheap price which they are willing to pay. All these expectations need a

response from the company, otherwise sales of company will decrease and they will

lose profit and market share. A company must be always ready for price, product and

service and customer preferences because all of these are global market requirements

(Crowther, and Aras, 2008).

1.16 Exchange of Technology:

One of the most striking manifestations of globalization is the use of new

technologies by entrepreneurial and internationally oriented firms to exploit new

business opportunities. Internet and e-commerce procedures hold particular potential

for to broaden their involvement into new international markets (Wrighta & Etemad,

2001). Technology is also one of the main tools of competition and the quality of goods

and services. On the other hand it necessitates quite a lot of cost for the company. The

company has to use the latest technology for increasing their sales and product quality.

Globalisation has increased the speed of technology transfer and technological

improvement. Customer expectations are directing markets. Mostly companies in capital

intensive markets are at risk and that is why they need quick/rapid adapting concerning

the customer/market expectations. These companies have to have efficient technology

management and efficient R&D management (Crowther, and Aras, 2008).

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1.17 Knowledge/Information transfer:

Information is a most expensive and valuable production factor in the current

environment (presently/currently/at the current time). Information can be easily

transferred and exchanged from one country to another. If a company have a chance to

use knowledge and information then it means that it can adapt to this global changing.

This issue is similar with the technology transfer issue in global markets. The rapid

changing of the market requires also quick transfer of knowledge and efficient using of

that knowledge and information.

1.18 Portfolio investment (Financial fund flows):

Globalization encourages increased international portfolio investment.

Additionally, financial markets have become increasingly open to international capital

flows. For this reason, portfolio investment is one of the major problems of developing

economies. It is almost the only way to increase liquidity of the markets and economies

for emerging countries through attracting foreign funds. Significantly, this short term

investment can dramatically impact on the financial markets. When the emerging

economies have some problem in their country or investors make enough profit from

their investment then these investors might leave the market. This would mean that

market liquidity decreased and financial markets indicators plummet immediately

(Crowther, and Aras, 2008).

1.19 Regulation/deregulation and international stan dards:

Globalization needs more regulation of the markets and economy. There are

many new and complicated financial instruments and methods in the market and such

instruments easily transfer and trade in other countries because of the globalisation

effect. Every new system, instrument or tool requires new rules and regulations to

determine its impact area. These regulations are also necessary to protect countries

against global risks and crises. When the crisis comes out of one country then it

influences other countries with trade channels and fund transfers, which we call the

contagion effect. On the other hand, during globalisation the shares of big companies

are trading in the international stock markets and these companies have shareholders

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and stakeholders in many different countries. International rules and regulations also

offers protection to small investors against the big scandals and other problems in

companies.

International standards also regulate markets and economies by means of

international principles and rules such as International accounting standards,

international auditing standards. It aims to make corporate reporting standardized and

comparable. So that is why the globalised world has more rules and more regulations

and international standards than before (Crowther, and Aras, 2008).

1.20 Market integration:

In fact globalisation leads to the conversion of many markets and economies into

one market and economy. The aim of international standards and regulations is also to

deregulate all these markets. The economy needs financial structures capable of

handling the higher risk in the new economy. For this reason financial markets must be

broad, deep, and liquid. There are many examples in the current situation for market

integration which are also the result of increasing competition in the economy.

Integration examples are prominent in company mergers and acquisitions as well.

1.21 Qualitative Intellectual capital mobility:

Another effect of globalisation is human capital mobility through knowledge and

information transfers. One of the reasons is that international/multinational companies

have subsidiaries, partners and agencies in different countries. They need skilled and

experienced international employees and rotation from country to country to provide

appropriate international business practice. This changing also requires more skilled,

well educated and movable employees who can adapt quickly to different market

conditions (Crowther, and Aras, 2008).

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1.22 Financial crisis-contagion effect-global crisi s:

Financial crises are mostly determined through globalisation and as a result of

the globalisation impact. In fact, this is quite a true explanation. The financial world has

witnessed a number of crises cases. Generally financial crises come out from

international funds/capital flows (portfolio investments), lack of proper regulations and

standards, complex financial instruments, rapid development of financial markets,

asymmetric information and information transfers. One country crisis can turn into a

global crisis with systemic risk effect. Systemic risk refers to a spreading financial crisis

from one country to another country. In some cases, crises spread even between

countries which do not appear to have any common economic fundamentals/problems.

Previous global crises have also showed that one of the reasons for the crisis is

unregulated markets (Crowther, and Aras, 2008).

1.23 Globalisation affects on CSR:

John Maynard Keynes calculated that the standard of living had increased 100

percent over four thousand years. Adam Smith had an important (seminal) idea about

the wealth of communities and in 1776 he described conditions which would lead to

increasing income and prosperity. Similarly there is much evidence from economic

history to demonstrate the benefit of moral behaviour; for example, Robert Owen in New

Lanark, and Jedediah Strutt in Derbyshire – both in the UK – showed the economic

benefits of caring for stakeholders. More recently Friedman has paid attention to the

moral impact of the economic growth and development of society.

It is clear that there is nothing new about economic growth, development and

globalisation. Economic growth generally brings out some consequences for the

community. This is becoming a world phenomenon. One of the most important reasons

is that they are not taking into account the moral, ethical and social aspects of this

process. Some theorists indicated the effect of this rapid changing more than a hundred

year ago. Economic growth and economic development might not be without social and

moral consequences and implications (Crowther, and Aras, 2008).

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Another question is who is responsible of this ongoing process and for ensuring

the wellbeing of people and safeguarding their prosperity. Is this the responsibility of

governments, the business world (businessman), consumers, shareholders, or of all

people? Government is part of the system and the regulator of markets and lawmakers.

Managers, businessmen and the business world take action concerning the market

structure, consumer behaviour or commercial conditions. Moreover, they are

responsible to the shareholders for making more profit to keep their interest long term in

the company. Therefore they are taking risk for their benefit/profit. This risk is not

opposed to the social or moral/ethical principles which they have to apply in the

company. There are many reasons for ethical and socially responsible behaviour of the

company. However, there are many cases of misbehavior and some illegal operations

of some companies. Increasing competition makes business more difficult than before

in the globalised world.

The good news and our expectations are that competition will not have any

longer bad influence on company behaviour. According to international norms (practice)

and expectations, companies have to take into account social, ethical and

environmental issues more than during the last two decades. One of the reasons is

more competition not always more profit; another reason is consumer expectation is not

only related to the cost of products but also related to quality, proper production process

and environmental sensitivity (Crowther, and Aras, 2008).

Moreover shareholders are more interested in long term benefit and profit from

the company. The key word of this concept is long termism which represents also a

sustainable company. Shareholders want to get long term benefit with a sustainable

company instead of only short term profit. This is not only related to the company profit

but also related to the social and environmental performance of the company. Thus,

managers have to make strategic plans for the company concerning all stakeholder

expectations which are sustainable and provide long term benefit for the companies

with their investments. However, Sustainability can be seen as including the

requirement that whatever justice is about – fair distribution of goods, fair procedures,

respect for rights – is capable of being sustained into the future indefinitely. Thus

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sustainability requires that the values of justice are capable of being continued into the

future: if current practices for instance were just from the present point of view but

would prevent the same practices from occurring in the future, that would be rejected

from the point of view of sustainability (Dower, 2004). So investor or shareholder

expectations and all other stakeholders approaches are supporting a socially

responsible and ethical company more than other companies. Globalisation has had a

very sharp effect on company behaviour and still see many problems crop up

particularly in developing countries. This is one of the realities of the globalisation

process. However they are hoping to see some different approaches and improvements

to this process with some of them naturally related to some international principles,

rules and norms. But most of them are related to the end of this flawed system and the

problems of capitalization (Crowther, and Aras, 2008).

The challenge of CSR in a globalizing world is to engage in a process of political

deliberation which aims at setting and resetting the standards of global business

behaviour. “While stakeholder management deals with the idea of internalizing the

demands, values and interests of those factors that affect or are affected by corporate

decision-making, we argue that political CSR can be understood as a movement of the

corporation into environmental and social challenges such as human rights, global

warming, or deforestation” (Scherer & Palazzo, 2008).

1.24 Globalisation, Corporate Failures and CSR:

Enron, WorldCom, Qwest, Parmalat, Sunkill, ImClone, Satyam Computers and

various other corporate failures bring out some governance and CSR issues and have

increased attention to the role of business ethics. Managers and CEO’s of these

companies must be considered responsible for all of these failures and these are cases

of “corporate irresponsibility”. Many people have the opinion that if corporations were to

behave responsibly, most probably corporate scandals would stop (Crowther, and Aras,

2008).

CSR protects firms against some long term loss. When corporations have social

responsibilities, they calculate their risk and the cost of failure. Firstly, a company has to

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have responsibility to share holders and also to all stakeholders which means that it has

responsibility to all society. Corporate failures have an important impact on all the

society. In particular, big scandals sharply affect the market and the economy. Various

stakeholders (e.g. employee, customer, consumer, suppliers etc.) as well as

shareholders and regulators of the firm have a responsibility to ensure good

performance. Therefore, CSR is not only related to firms but also related to all society.

So changing the role of corporate responsibility shifts/moves the focus from the real

problem that society needs to address (Crowther, and Aras, 2008).

One of the reasons for this result is increasing competition between the company

and the market. Managers tend to become much more ambitious than before in their

behaviour and status in the globalised world. Thus the focus has to be on corporate and

managerial behaviour. The question is how to behave as a socially responsible

manager and how to solve this vital problem in business life and in society. In the

business world there are always some rules, principles and norms as well as

regulations and some legal requirements.

However, to be socially responsible one must be more than simply law abiding

who has to be capable of acting and being held accountable for decisions and actions.

The problem is the implication for all of these directions for company and managerial

behaviour. On the other hand, one perspective is that a corporation is a “legal person”

and has the rights and duties that go with that status—including social responsibility. In

the case of Enron, managers were aware of all regulations, even though they have

known all irresponsible and unethical problems in the company management, they did

not change their approach and behavior (Crowther, and Aras, 2008).

It is not always possible to control behaviour and corporate activity with

regulations, rules and norms. So another question arises in this situation, that if people

do not know their responsibility and socially responsible things to do and if they do not

behave socially responsibly then, who will control this problem in business life and in

the market. The concern is that the social responsibility implication of the company

cannot be controlled through legal means. This is the only social contract between

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mangers and society and stakeholders of the company and for responsible and

accountable behavior (Crowther and Aras, 2008).

Firms will consciously need to focus on creating value not only in financial terms,

but also in ecological and social terms. The challenge facing the business sector is how

to set about meeting these expectations. Firms will need to change not only in

themselves, but also in the way they interact with their environment (Cramer,2002).

1.25 Globalisation - opportunity or threat for CSR:

It is clear that the globalisation has different effects on the social responsibility of

the company and the behaviour of managers. Some of these are supporting

companies/managers for motivating towards socially responsible behaviour, while

others of them are destroying fair business and all principles, norms and regulations

which are the result of increasing competition. Globalization has created bigger

companies in terms of turnover, market capitalization, and amount of assets. This

causes imperfect competition with other small and medium size companies which is a

major threat for them. But it might also provide to companies great opportunities for

reaching people and customers, and for collaboration with other companies from all

over the world. In fact globalisation is an inevitable phenomenon for which there is no

alternative. Well regulated and controlled markets are not a big problem and threat, but

lack of regulation and norms is the main problem in a developing country which

globalisation has a big influence in these economies (Crowther and Aras, 2008).

Moreover CSR implementation is the one of the most important issues for

globalised economies and markets. CSR requires some rules for the determination of

the relationship between the corporation and society, which is still a complicated

process. The implication is that CSR is not merely a simple process but also needs a

long term strategic approach by companies which need to learn socially responsible

behaviour and their decision makers must enforce these principles in the company.

When the company takes a long term perspective it will have benefits concerning

profit and stakeholder interests in the company. Some studies show that there is a clear

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relationship between CSR and corporate financial performance which is an important

academic research topic. Research results focus on the existence of slack resources

resulting from better financial performance made when companies invest in areas that

are related to social actions. Some other results also support the good management

approach which states that good management practice resulting from engagement in

social actions enhances the relationship with stakeholders, leading to better financial

performance. This topic still needs more research for finding better solutions for

corporate behavior (Crowther, and Aras, 2008).

The duty of corporations is serving their shareholder through providing proper

products and services. The purchasing decision of the customer is not only related with

price and quality but also based on a consideration of the social behaviour of the

company. Socially responsible investment and behaviour gives some opportunities to

the company which is more visible than others and show more concern for stakeholders

also.

In particular, the development of information technology is helpful for the

company for trading in any place in the world to any customer. Customers want the

corporation to behave properly to its suppliers, and their suppliers to treat their

labourers fairly even in far distant countries. When the company behaves unethically

then people will know this problem all over the word and its effect on company sales

and stakeholder interests for the company (Crowther, and Aras, 2008).

Globalisation has a multidimensional effect relating to socially responsible

behaviour. Good and bad behaviour are easily visible around the world and all company

stakeholders will be aware of it. A company can use this opportunity both ways, which

is that good behaviour affects the company positively but unethical behaviour will

undoubtedly have negative effects for them. Companies already know that proper

behaviour is the only way they can survive and enhance their commercial interests and

thereby increase their profits. So the demands of society will be reflected in corporate

behaviour. A firm has an investment in reputation, including its reputation for being

socially responsible. An increase in perceived social responsibility may improve the

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image of the firm's management and permit it to exchange costly explicit claims for less

costly implicit charges. In contrast, a decline in the level of stakeholders' view of a firm's

social responsibility may reduce its reputation and result in an increase in costly explicit

claims (Mcguire & Sundgren &Schneeweis,1988), the CSR’s impact at the present time

is that it benefits some people and some companies in some situations. Consequently

thought is being given to the implications of CSR for the developing world (Blowfield M,

J. G. Frynas, 2005).

Globalisation has an enormous effect on society and business life which can be

manifest in a number of different ways. So business life needs more regulation and

proper and socially responsible behavior than before. The relationship between

business failure/ scandals increased after the globalization, and social responsible

behavior (Crowther, and Aras, 2008).

1.26 Arguments for and Against Social Responsibilit y:

The classical view of Milton Freidman about social responsibility is:

� What does it mean to say that ‘business has responsibilities’? Only people can

have responsibilities. A corporation is an artificial person and in this sense may

have artificial responsibilities, but ‘business as a whole cannot be said to have

responsibilities, even in this vague sense…. What does it mean to say that the

corporate executive has a ‘social responsibility’ in his capacity as businessman?

If these statements are not pure rhetoric, it must mean that the corporate

executive is to act in some way that is not in the interest of his employees.

Friedman says that economists argue that today’s manager’s primary

responsibilities is to operate the business in the best interest of stockholders.

Because the stockholder’s single concern is financial return, managers should

not suggest spending their organization’s money and resources for social good.

If they do so, they undermine the market mechanism as well. Because socially

responsible actions usually reduce profit and dividends, stockholders lose. If

prices go up to pay for our social actions, our customers lose. Moreover,

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consumers reject higher prices, and then sales drop. For this reason the

company will lose.

1.27 An analysis of Friedman’s View:

When Friedman recommends that business managers seek only to ‘increase

profit’ and make as much money as possible’, he is not suggesting that they ignore

ethical responsibilities. He does not endorse any of the skeptical positions. Rather, he

argues for the normative position, and claims that in pursuing the maximization of

profits one is doing what is ethically required. Business managers ought to increase

profits because, objectively, this is the ethically correct thing to do.

On moral issues, Friedman offers the following principle to guide the action of

individual business managers:

In a free enterprise or a private-property system, a corporate executive is an

employee of the owners of the business. He has a direct responsibility to his

employers. That responsibility is to conduct the business, in accordance with their

desire, which generally will be to make us much money as possible while conforming to

the basic rules of the society, both those embodied in law and those embodied in

ethical custom.

Friedman’s ethical position is quite radical. He tells us that in principle an

individual in business must always make the decision that will increase profit, but what

increase the profit? For example:

� To stock market will view the socially responsible company as less risky and

open to public criticism, which is why social responsibility will improve

company’s stock price in the long term;

� Business organizations usually have enough money, resource, technical

experts, and managerial talent to support social projects;

� People consider social goals very important.

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The investors and consumers are empowered by information. This transparency

of business practices means that corporate social responsibility is no longer a luxury

but a requirement.

A narrow focus on products and services, brands and logos, revenues and

margins, is no longer enough. In the emerging global economy, companies will also be

judged on the basis of environmental stewardship, employee relations, diversity,

community relations, and human rights. If a company cannot communicate in these

terms-if it cannot manage its reputation to these requirements-then it cannot compete

and it will not prosper. Consumers want to know is inside a company. They want to do

business with companies they can trust and believe in.

Corporate social responsibility is nothing more than corporations becoming

accountable to all their stakeholders-not just shareholders, but employees, customers,

the communities in which they do business, the people downriver and downwind who

drink and breathe and inhabit the ecosystem that each corporation touches, for good or

for bad.

The emerging, information-based global economy will demand transparency and

sustainability. Business can no longer succeed at the expense of their employees, the

community or the environment. Corporate social responsibility is a business strategy

designed for an economy where economic, environmental and social goals are

positively interwoven.

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Part-B

1.28 CSR Evaluation (measurement) and Reporting

An evaluation tracks the overall progress of a firm’s CSR approach and forms

the basis for improvement and modification. With the information derived from

verification and reporting, a firm is in a good position to rethink its current approaches

and make adjustments.

Evaluation is all about learning. Learning organizations are those whose

existence is based on continuous receipt and review of new information and adaptation

for sustainable advantage. They do not simply attempt to achieve objectives; they are

constantly on the alert to adapt to changing circumstances or to find ways for improving

their approaches. An evaluation involves stakeholder engagement, including comments

and suggestions from management, CSR coordinators, managers and committees,

employees and outside stakeholders (Hohnen, 2007).

The art of business has analogies to sailing. It is about setting a course, steering

to make best use of the prevailing winds, and constantly checking to see if the sails

need to be adjusted. In similar fashion, an evaluation allows a firm to see whether it is

on course, and what it needs to do to be more effective. It enables the firm to:

� determine what is working well, why and how to ensure that it continues to

do so;

� investigate what is not working well and why not, to explore the barriers to

success and what can be changed to overcome the barriers;

� assess what competitors and others in the sector are doing and have

achieved; and

� revisit original goals and make new ones as necessary.

This base of information allows the firm to determine whether the current CSR

approach is achieving its objectives and whether the implementation approach and

overall strategy are correct. An evaluation not only helps identify valuable information

about process and performance, it also helps identify internal partners, and can help

develop more “joined-up” management (Hohnen, 2007).

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Drawing on the CSR objectives and indicators, and the information obtained

through the verification and reporting process, firms have to consider and respond to

the following questions (Hohnen, 2007):

� What worked well? In what areas did the firm meet or exceed targets?

� Why did it work well? Were there factors within or outside the firm that helped it

meet its targets?

� What did not work well? In what areas did the firm not meet its targets?

� Why were these areas problematic? Were there factors within or outside the firm

that made the process more difficult or created obstacles?

� What did the firm learn from this experience? What should continue and what

should be done differently?

� Drawing on this knowledge, and information concerning new trends, what are

the CSR priorities for the firm in the coming year? and

� Are there new CSR objectives?

The determination of good performance is dependent upon the perspective from

which that performance is being considered and that what one stakeholder grouping

might consider to be good performance may very well be considered by another

grouping to be poor performance (Child, 1984). The evaluation of performance therefore

for a business depends not just upon the identification of adequate means of measuring

that performance but also upon the determination of what good performance actually

consists of (Crowther & Aras, 2008).

As the determination of standards of performance depends upon the perspective

from which it is being evaluated, so too does the measurement of that performance,

which needs suitably relevant measures to evaluate performance, not absolutely as this

has no meaning, but within the context in which it is being evaluated. From an external

perspective therefore a very different evaluation of performance might arise, but

moreover a very different measurement of performance, implying a very different use of

accounting in that measurement process, might arise.

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The measurement of stakeholder performance is perhaps even more

problematic than the measurement of financial performance. Objective measures of

stakeholder performance are usually reported in the annual reports of companies.

These measures provide a reputation rating, as gathered from ‘rivals’ perceptions, in

nine categories and these measures are also added to also provide a total score. The

nine categories are (Crowther & Aras, 2008):

� Quality of management;

� Quality of goods and services;

� Capacity to innovate;

� Quality of marketing;

� Ability to retain top talent;

� Community and environmental responsibility;

� Financial soundness;

� Value as long-term investment; and

� Use of corporate assets.

1.29 Social accounting:

Social accounting first came to prominence during the 1970’s when the

performance of businesses in a wider arena than the stock market, and its value to

shareholders, tended to become of increasing concern. This concern was first

expressed through a concern with social accounting. This can be considered to be an

approach to reporting a firm's activities which stresses the need for identification of

socially relevant behaviour, the determination of those to whom the company is

accountable for its social performance and the development of appropriate measures

and reporting techniques.

Thus social accounting considers a wide range of aspects of corporate

performance and encompasses a recognition that different aspects of performance are

of interest to different stakeholder groupings. These aspects can include (Crowther &

Aras, 2008):

� The concerns of investors;

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� A focus upon community relations; and

� A concern with ecology.

Measuring performance in terms of these aspects will include, in addition to the

traditional profit based measures, such things as:

� Consumer surplus;

� Economic rent;

� Environmental impact; and

� Non-monetary values.

Many writers consider, by implication, that measuring social performance is

important without giving reasons for believing so. Solomons (1974) however considered

the reasons for measuring objectively the social performance of a business. He

suggests that while one reason is to aid rational decision making, another reason is of a

defensive nature (Crowther & Aras, 2008).

Unlike other writers, Solomons(1974) not only argued for the need to account for

the activities of an organisation in term of its social performance but also suggests a

model for doing this, in terms of a statement of social income. His model for the analysis

of social performance is as follows (Crowther & Aras, 2008):

Table-1.6

Model for social performance

Analysis of Social Performance

Statement of Social Income: Rs.

Value generated by the productive Process

xxx

+ unappropriable benefits

xxx

- external costs imposed on the community

xxx

Net social profit / loss

xxx

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While Solomons (1974) proposes this model, which seems to provide a

reasonable method of reporting upon the effects of the activities of an organisation on

its external environment, he fails to provide any suggestions as to the actual

measurement of external costs and benefits. Such measurement is much more

problematic and this is one of the main problems of any form of social accounting – the

fact that the measurement of effects external to the organisation is extremely difficult

(Crowther & Aras, 2008).

Indeed it can be argued that this difficulty in measurement is one reason why

organisations have concentrated upon the measurement through accounting for their

internal activities, which are much more susceptible to measurement.

1.30 Aspects of performance:

One factor of importance to all organizations, which comes from its control

system, is the factor of performance measurement and evaluation. To evaluate

performance it is necessary to measure performance and Churchman (1967) states that

measurement needs the following components (Crowther & Aras, 2008):

� Language to express results;

� Specification of objects to which the results will apply;

� Standardization for transferability between organisations or over time; and

� Accuracy and control to permit evaluation.

Kimberley, Norling and Weiss (1983) also make this point and argue that

traditional measures do not necessarily even measure some aspects of performance

and can certainly lead to inadequate and misleading evaluations of performance. They

state that (Crowther & Aras, 2008):

� Traditional perspectives on performance tend to ignore the fact that

organizations also perform in other, less observable arenas. Their performance

in these areas may in some cases be more powerful shapers of future

possibilities than how they measure up on traditional criteria. And, paradoxically

competence in the less observable arenas may be interpreted as incompetence

by those whose judgements are based solely on traditional criteria. Particularly in

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the case of organizations serving the interests of more than one group where

power is not highly skewed and orientations diverge, the ability to develop and

maintain a variety of relationships in the context of diverse and perhaps

contradictory pressure is critical yet not necessarily visible to the external

observer.

1.31 The balanced scorecard:

A different perspective upon performance evaluation has been proposed by

Kaplan and Norton (1992) with the development of their balanced scorecard approach.

They argue that traditional measurement systems in organisation are based upon the

finance function and so have a control bias but that the balanced scorecard puts

strategy and vision at the centre. They identify four components of the balanced

scorecard, each of equal importance, and each having associated goals and measures.

The four components are (Crowther & Aras, 2008):

� Financial perspective - how does the firm look to shareholders;

� Customer perspective - how do customers perceive the firm;

� Internal business perspective - what must the firm excel at; and

� Innovation and learning perspective - can the firm continue to improve and create value.

They state (1993) that measurement is an integral part of strategy, stating:

The managers of today recognize the impact that measures have on

performance. But they rarely think of measurement as an essential part of their

strategy. For example, executives may introduce new strategies and innovative

operating processes intended to achieve breakthrough performance, then continue to

use the same short-term financial indicators they have used for decades, measures like

return on investment, sales growth, and operating income, and effective measurement,

however, must be an integral part of the management process (Crowther & Aras, 2008).

They maintain that the balanced scorecard is a way of evaluating performance

which recognizes all the factors affecting performance and it is certainly true that an

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external perspective, in the shape of customers, is included in this framework. The

framework they propose looks as in Table-7

Table-1.7

The Balanced Scorecard Financial Perspective Customer Perspective

Internal Business Innovation and

Prespective Learning Perspective

The scorecard enables companies to balance their short-run and long-run goals.

It also highlights where results have been achieved by trade off of other objectives

(Crowther & Aras, 2008).

The scorecard uses four perspectives from which to view the firm. These are:

� Financial How the company is perceived by the shareholders. � Customers How the company is perceived by its customers. � Internal What must the company excel at e.g. core competencies. � Innovation & Learning How can future value are created.

Each business that adopts the approach develops its own purpose built

scorecard that reflects its “mission, strategy, technology and culture”. The strength of

the system is that it measures the success in achieving the strategies cascaded down

by top management. There is often a divergence between mission statements,

strategies and performance measures. The scorecard offers a mechanism to avoid this

divergence (Crowther & Aras, 2008).

The scorecard could, for example, take a mission statement that has a customer

focus and convert generally stated goals into specific objectives and then develop

associated performance measures. In this example the measurement system may seek

an interface with the customer’s management information system. If the customer has a

system for capturing data that assesses its suppliers the firm could attempt to capture

this information to enable it to judge its performance through the customer’s eyes

(Crowther & Aras, 2008).

The balanced scorecard system, it is claimed, actually balances the competing

needs of an organisation. In its original form (1992) the balanced scorecard was

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credited with the ability to "allow managers to look at the business from four important

perspectives". The technique is claimed to focus upon the needs of the stakeholders of

a business. Thus shareholders and customers are two specific stakeholders that are

mentioned within the balanced scorecard. The focus upon innovation and learning

however and upon continuous improvement would also indicate the need for employee

development and supplier relations should be incorporated within the internal-business-

process perspective (Crowther & Aras, 2008).

In fact each business is expected to design and adopt its own scorecard to meet

its own needs. Kaplan and Norton (1996) explicitly state that they "don't think that all

stakeholders are entitled to a position on a business unit's scorecard. The scorecard

outcomes and performance drivers should measure those factors that create

competitive advantage and breakthroughs for an organization." The overarching

objective of the balanced scorecard is to achieve both short-term and long-term

financial success and is actually competing with other more explicitly shareholder value

based approaches as a method to enable businesses to achieve this (Crowther & Aras,

2008).

1.32 The environmental audit:

Before the development of any appropriate measures can be considered it is first

necessary for the organisation to develop an understanding of the effects of its activities

upon the external environment. The starting point for the development of such an

understanding therefore is the undertaking of an environmental audit. An environmental

audit is merely an investigation and recording of the activities of the organisation in

order to develop this understanding (Kinnersley, 1994).

Indeed ISO14000 is concerned with such audits in the context of the development

of environmental management systems. Such an audit will address, inter alia, the

following issues:

� The extent of compliance with regulations and possible future regulations; � The extent and effectiveness of pollution control procedures; � The extent of energy usage and possibilities increasing for energy efficiency; � The extent of waste produced in the production processes and the possibilities

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for reducing such waste or finding uses for the waste necessarily produced; � The extent of usage of sustainable resources and possibilities for the

development of renewable resources; � The extent of usage of recycled materials and possibilities for increasing

Recycling; � Life cycle analysis of products and processes; � The possibilities of increasing capital investment to affect these issues; and � The existence of or potential for environmental management procedures to be

Implemented.

Such an audit will require a detailed understanding of the processes of an

organisation and so will be detailed and cannot be undertaken just by the accountants

of the organisation. It will also involve other specialists and managers within the

organisation who will need to pool their knowledge and expertise to arrive at a full

understanding. Indeed one of the features of environmental accounting is that its

operation depends to a significant extent upon the cooperation of the various technical

and managerial specialists within the organisation such accounting cannot be

undertaken by the accountants alone (Crowther & Aras, 2008).

The objective of such an audit is firstly to arrive at an understanding of the effects

of organisational activity and then to be able to assign costs to such activity. It has to

enable the managers of the organisation to consider alternative ways of undertaking the

various activities which comprise the operational processes of the organisation and to

consider and evaluate the cost implications, as well as the benefits, of undertaking such

processes differently.

Such an audit will probably necessitate the collection of information which has

not previously been collected by the organisation, although it may well be in existence

somewhere within the organisation’s data files. A complete environmental audit is a

detailed and time consuming operation but there is no need for such an exercise to be

completed as one operation. Indeed the review of processes and costs have to be a

continuous part of any organisation’s activity which can lead to the implementation of

better processes or control procedures without any regard to environmental

implications(Crowther & Aras, 2008).

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Thus the way to approach this is to extend the normal routines of the

organisation to include a consideration, and quantification, of environmental effects on

an ongoing basis.

Once this audit has been completed then it is possible to consider the

development of appropriate measures and reporting mechanisms to provide the

necessary information for both internal and external consumption. These measures

need to be based upon the principles of environmental accounting, as outlined below. It

is important to recognize however that such an environmental audit, is essential starting

point for the development of such accounting and reporting, is not to be viewed as an

discrete isolated event in the developmental process.

Environmental auditing needs to be carried out on a recurrent basis, much as is

financial or systems auditing, in order to both review progress through a comparative

analysis and to establish where further improvement can be made in the light of

progress to date and changing operational procedures (Crowther & Aras, 2008).

1.33 The Measurement of Performance:

The measurement of performance is central to any consideration of performance

evaluation and this resolves into two areas for consideration, namely why measure and

what to measure. Measurement theory states that measurement is essentially a

comparative process, and comparison provides the purpose for measurement.

Measurement enables the comparison of the constituents of performance in the

following areas (Crowther & Aras, 2008):

� Temporally by enabling the comparison of one time period with another; � Geographically by enabling the comparison of one business;

sector or nation with another; and � Strategically by enabling alternative courses of action and their projected consequences to be compared.

Performance itself is not absolute but rather comparative and it is essential in

evaluating performance to be able to assess comparatively in the nature of ‘better than

expected’, ‘worse than the competition’ etc. It is not possible to assess performance in

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other than these terms and so a quantitative approach to performance evaluation is

essential even if some aspects of performance are qualitative in nature. It is necessary

therefore that measurement is a constituent of performance evaluation and so it

becomes necessary to determine what has to be measured in order to evaluate

performance (Crowther & Aras, 2008).

It is essential therefore to select appropriate measures for the purpose of the

evaluation. It is argued however that appropriate measures cannot be selected until the

purpose of evaluation has been determined. It is therefore again demonstrated that the

foundation of performance measurement is the identification of the reasons for the

evaluation of performance, and this must now be considered. It is clear from the

evaluation of the literature, and a consideration of actual practice, that the evaluation of

performance takes place for several reasons (Crowther & Aras, 2008).

� For control;

� For strategy formulation; and

� For accountability.

1.34 The Evaluation of Performance:

A variety of measures exists to measure and evaluate performance, and while

these have been criticized in their efficiency by some writers, it is nevertheless true that

such measures have a role in this function. The efficiency of measures of performance

can only be determined however by considering their use in the measurement of

performance when the purpose of that measurement has been determined. It seems

reasonable to argue that different purposes need different measures and that perhaps

some, but by no means all, measures are universal in addressing all needs.

Measurements derive their meaning however from the use to which they are

applied and mis-measurement by using measures incorrectly causes conflict and mis-

understanding. Once a framework has been developed which identifies and addresses

needs and purposes of evaluation it is then possible to consider the efficiency and

effectiveness of existing measures and identify deficiencies in the measurement

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system. It is then possible to develop and implement new measures which are

appropriate to the purposes identified (Crowther & Aras, 2008).

It can readily be seen that the differing needs of different parties in the evaluation

process cause tensions within the organisation as it seeks to meet its internal control,

strategy formulation and accountability functions and produce a reporting structure to

meet these needs. While the basic information required to satisfy these needs is the

same information, or at least derives from the same source data, the way in which it is

analyzed and used is different, which can lead to conflict within the organisation.

Such conflict is exacerbated when a measure is adapted for one need but only at

the expense of deterioration in its appropriateness for another purpose. Part of the

semiotic of corporate reporting however is that managers have the ability to manage

information provision in such a way that all stakeholders can be satisfied both with the

information received and with the performance of the organisation (Crowther & Aras,

2008).

One factor of importance in performance evaluation is the concept of the

sustainability of performance. It is therefore important for all stakeholders to be able to

ascertain, or at least project, not just current performance but its implications for the

future. Performance evaluation must therefore necessarily have a future orientation for

all evaluations. The appropriate measures developed through this proposed framework

are likely to facilitate a better projection of the sustainability of performance levels and

the future impact of current performance.

This is because the addressing of the needs of all stakeholders is likely to reveal

factors which will impact upon future performance and which might not be considered if

a more traditional approach was taken towards performance evaluation. An example

might be the degree to which raw materials from renewable resources have become

significant to many industries recently but were not considered at all until recently by

any stakeholders of an organisation other than community and environmental pressure

groups (Crowther & Aras, 2008).

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1.35 Multi-dimensional performance management:

Probably the best known of the multi-dimensional performance measurement

frameworks is the balanced scorecard, which is already considered. Another example is

the service profit chain which specifically considers three stakeholders – namely

employees, customers and shareholders. Again this model specifically considers the

first two stakeholders as means to achieving superior financial results.

Thus it is argued that satisfied and motivated employees are essential if service

quality is to be of a high standard and hence customers are to be satisfied. Further it is

then argued that satisfied customers provide the base for superior financial results. Both

of these models acknowledge the needs of stakeholder groups and thus deem it

necessary to measure performance for these groups but still target financial

performance as the ultimate goal (Crowther & Aras, 2008).

A stakeholder managed organisation therefore attempts to consider the diverse

and conflicting interests of its stakeholders and balance these interests equitably. The

motivations for organizations to use stakeholder management maybe in order to

improve financial performance or social or ethical performance, howsoever these may

be measured. In order to be able to adequately manage stakeholder interests it is

necessary to measure the organization’s performance to these stakeholders and this

can prove complicated and time-consuming (Crowther & Aras, 2008).

1.36 Other views on CSR Evaluation (measurement) an d Reporting:

The researcher after reviewing the studies made on measurement and

evaluation thought it is necessary to present other views with regard to measurement

tools and techniques followed and existing all over the world.

According to Ramesh and Praseeda (2010) for years, people wanting to

measure and report real performance in CSR have been frustrated over one area in

particular the apparent impossibility in making any kind of real objective measurement

of the company’s social impact. Now, a new tool claims to solve this problem the

Social Footprint.

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The Social Footprint, produced by the Centre for Sustainable Innovation,

promises great things. It is, according to the Centre, “ a corporate sustainability

measurement and reporting method that quantifies the social impact of organizations

on people”. Further, it “produces the true bottom-line oriented measures of impact”

(Baker, 2006). It’s worth remembering that measurements will probably only show the

immediate impact of CSR.

The Karmayog has offered a few guidelines that may be used to measure the

CSR activity of an organization. They are:

1. A company must spend a minimum of 0.2% of annual sales on CSR;

2. A company must publish its CSR activities in the annual report, or in a separate

Sustainability Report; and

3. A company must adopt international guidelines for Environment, Health and

Safety as well as for industry-specific processes.

Many corporate social responsibility reports are largely taken up with

apparitional statements about cheerful but apparently random initiatives accompanied

by pictures of cheerful and apparently random employees. If there are measures,

these tend to focus on activity numbers of programmes started; numbers of people

seconded and amounts of money spent. This is not entirely surprising as charting the

results of corporate social responsibility initiatives really difficult. Finally, there is the

issue of how to interpret the results. As with any set of objectives, success will depend

on the choice of measure, the basis of comparison and the degree of stretch in target.

1.37 Likerman suggests a four step measurement mode l:

1. Clarify the measurement framework

The process of defining the objectives in terms that reconcile external

requirements with internal aims is the first elements in clarifying the measurement

framework.

2. Find better measures

Measures and related targets, linked clearly to corporate social responsibility

objectives, need to be chosen with care. Work practices in a recycling workshop in

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Bangladesh or a textile plant in Burma may meet local criteria but be quite

unacceptable in Britain.

3. Ensure that measurement is credible

Credible measures of achievement start with credible data. This is often a

serious problem on the ground contributions to HIV/Aids in sub-Saharan Africa will be

difficult enough for those on the spot and the definition of “cure” for less lethal diseases

may well vary. This also applies inside the organization.

4. Recognize Limitations of the measures alone

Even after clarifying objectives, improving the measures and ensuring credibility,

performance measurement challenges will remain. Corporate social responsibility is

not a factory product and its measurement is not an exact science.

1.37.1 He also suggests eight step Approaches to me asurement:

Ogilvy Public Relations Worldwide has developed an eight-step program for

CSR Issues Management. The eight steps are:

� Identification: What issues could arise either because of the client’s industry or

its scale?

� Prioritization/classification: Which of these issues could cause significant

damage to the client’s reputation or business operations if not managed

effectively?

� Monitoring: How is this issue evolving, on a monthly or even daily basis?

� Preparation: How can we anticipate the course of this evolution and devise an

action plan?

� Action to influence issue: What steps can we take to change the course of an

issue’s progression?

� Issue/crisis response: If the issue developed into a crisis that threatened the

company’s ability to conduct business, how would we react?

� Evaluation: Did we respond effectively to the issue, preventing its emergence as

a crisis? What lessons were learned?

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� Re-classification: Has the issue lessened in severity over time? Is it still a

concern moving forward? (Narang, 2009).

In recent years, there has been growing evidence in academia suggesting that

the relationship between CSR practices and financial performance is at minimum

neutral but quite likely positive (Bodwell, Graves, & Waddock, 2002). To date, there

are no generally accepted models for auditing CSR practices, although the Global

Reporting Initiative (GRI) and the International Organization for Standardization (ISO)

did make significant attempts at providing guidelines for social responsibility. However,

these do not constitute an over- arching approach to auditing CSP as a result of which

many corporations either contract auditing corporations to conduct traditional

verification, draw on area expert consultancies, or use customized processes to

measure their CSR activities.

Some aspects are amenable to quantification while others are not.

Nevertheless, measurement tools are needed to be developed.

Since CSR can be operationlized in so many different ways, there are no reliable

aggregate numbers available on CSR activity at the present time. The ‘Global

Reporting Initiative,’ a key coalition of corporations, NGOs, accountancy organizations,

business associations, and other stakeholders from around the world convened by the

United Nations Environment Program, confirmed in 2001 “there is a need to assess the

uptake of CSR practices and aggregate and disaggregate data from various sources”

(White, 2002).

An example of the private-sector working to develop its own standards is the

accounting profession. Accounting firms and professional accounting societies,

including the American Institute of Certified Public Accountants, the Institute of

Chartered Accountants in England and Wales, and the Society of Management

Accounts of Canada, has designed frameworks of CSP indicators that companies can

voluntarily apply.

Kotler and Lee (2008), opine that the ongoing measurement of marking activities

and financial investments for corporations has a long record, with decades of

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experience in building sophisticated tracking systems and databases that provide

analysis of returns on investments and compare current activities to benchmarks and

“gold standards.” By contrast, the science of measuring return on investments in

corporate social initiatives is very young, with little historic data and expertise.

Marketing professionals and academic experts in the field confirm this challenge.

• Sinha, Dev, and Salas (2004) report that “Since the benefits related to CSR are

the directly measurable, and most firms do not disclose expenses related to

such activities, it is difficult to directly assess the return on CSR investment.

• McDonald’s(2002) reports that even measuring a major event is challenging.

“Most of our current goals and measurements are related to processes, systems

development, and standard setting….. We are 70 percent franchised around the

world: Currently, we do not have systems to collect and aggregate what some

5,500 independent owner/operators do for their community, people, and

environment at the local level.”

• John Gourville and Kash Rangan(2003) confirm this difficulty: “Rarely do firms

fully assess a cause marketing alliance and its potential impact on both the for-

profit and the nonprofit entities. Yes, there are several stunning success

stories….but most for-profit businesses would be hard-pressed to document the

long-term business impact of their cause marketing campaigns and most

nonprofits would have trouble pinpointing the value they bring to the

partnership.”

And yet, as Bloom, Hoeffler, Keller, and Basurto (quoted in Kotler & Lee, 2005)

conclude, “showing that the program was a more financially productive promotional tool

than other possible promotional tools is becoming increasingly necessary.”

Michael (2003), elucidates the following techniques to measure the impact of CSR:

1.38 Social Auditing:

Several techniques have been developed for measuring different aspects of

social responsibilities discharged by corporate houses. Social Auditing (SA) techniques

was introduced for dealing with defining, observing and reporting measures of ethical

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behavior and social impact of an organisation relation to its aims and those of its

stakeholders.

1.39 AA 1000:

Account Ability 1000 (AA 1000) was launched in November 1999 by the ISEA.

Account Ability deals with linking various CSR management tools, such as the Global

Reporting Initiative (GRI), the Sustainability Integrated Guidelines for Management

(SIGMA), the Balanced Scorecard and other initiatives.

1.40 EAS:

Ethical Accounting Statement (EAS) was developed at the Copenhagen

Business School basing on the stakeholders’ approach. However, this approach does

not believe in benchmarking with reference to external sources on the ground that such

measures are meaningless.

1.41 Global Reporting Initiative:

The Global Reporting Initiative (GRI)’s reporting guidelines were released in

March 1999. Subsequently in 2002, GRI was set up as a permanent, independent,

international body with a multi-stakeholder governance structure with headquarters in

Amsterdam.

Based on sustainability concept, GRI has been developed as one of the

important frameworks to assess and measure CSR. It has been attempting to devise a

set of indicators so that companies can report progress in meeting the Triple Bottom

Line (TBL) covering (i)Principles of social responsibility, (ii) Process of social

responsibility and (iii) Products (or outcomes), as they relate to the firm’s societal

relationships.

1.42 SA 8000:

In 2002, Social Accountability International (SAI) developed new International

standards (SA 8000) indicating the auditable requirements on a broad range of issues

such as child labour, health and safety, freedom of association, right to collective

bargaining, discrimination, disciplinary practices, working hours and remuneration

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According to Wikipedia: a business to take responsibility for its actions, that

business must be fully accountable. Social accounting, a concept describing the

communication of social and environmental effects of a company's economic actions to

particular interest groups within society and to society at large, is thus an important

element of CSR.

Social accounting emphasizes the notion of corporate accountability.

Crowther defines social accounting in this sense as "an approach to reporting a firm’s

activities which stresses the need for the identification of socially relevant behavior, the

determination of those to whom the company is accountable for its social performance

and the development of appropriate measures and reporting techniques." An example

of social accounting, to a limited extent, is found in an annual Director's Report, under

the requirements of UK Company Law.

A number of reporting guidelines or standards have been developed to serve as

frameworks for social accounting, auditing and reporting including:

• Accountability’s AA1000 standard, based on John Elkington's triple bottom line

(3BL) reporting

• The Prince's Accounting for Sustainability Project's Connected Reporting

Framework

• The Fair Labor Association conducts audits based on its Workplace Code of

Conduct and posts audit results on the FLA website.

• The Fair Wear Foundation takes a unique approach to verifying labour

conditions in companies' supply chains, using interdisciplinary auditing teams.

• Global Reporting Initiative's Sustainability Reporting Guidelines

• Good Corporation's Standard developed in association with the Institute of

Business Ethics

• Earthcheck www.earthcheck.org Certification / Standard

• Social Accountability International's SA8000 standard

• Standard Ethics Aei guidelines

• The ISO 14000 environmental management standard

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• The United Nations Global Compact requires companies to communicate on

their progress (or to produce a Communication on Progress, COP), and to

describe the company's implementation of the Compact's ten universal

principles. This information should be fully integrated in the participant’s main

medium of stakeholder communications, for example a corporate responsibility

or sustainability report and/or an integrated financial and sustainability report. If

a company does not publish formal reports, a COP can be created as a stand-

alone document.

• The United Nations Intergovernmental Working Group of Experts on

International Standards of Accounting and Reporting (ISAR) provides voluntary

technical guidance on eco-efficiency indicators, corporate responsibility

reporting, and corporate governance disclosure.

The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR

performance of companies.

In some nations, legal requirements for social accounting, auditing and reporting

exist (e.g. in the French Bilan Social), though international or national agreement on

meaningful measurements of social and environmental performance is difficult. Many

companies now produce externally audited annual reports that cover Sustainable

Development and CSR issues ("Triple Bottom Line Reports"), but the reports vary

widely in format, style, and evaluation methodology (even within the same industry).

Critics dismiss these reports as lip service, citing examples such as Enron's yearly

"Corporate Responsibility Annual Report" and tobacco corporations' social reports.

In South Africa, as of June 2010, all companies listed on the Johannesburg

Stock Exchange (JSE) were required to produce an integrated report in place of an

annual financial report and sustainability report. An integrated report includes

environmental, social and economic performance alongside financial performance

information and is expected to provide users with a more holistic overview of a

company. However, this requirement was implemented in the absence of any formal or

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legal standards for an integrated report. An Integrated Reporting Committee (IRC) was

established to issue guidelines for good practice in this field.

EU Commission 2003 gives sector-wide CSR instruments (measurement/reporting)

as:

� Aspiration Principles and Codes of Practice (no external audit or benchmarking)

a) UN Global Compact (UNGC)

b) Ethical Trading Initiative Base Code (ETI)

(companies active in UK markets only)

c) Global Sullivan Principles (mainly US companies)

d) OECD Guidelines for TNCs

� Management Systems and Certification Schemes (external audit/ verification

standard including professional auditor accreditation)

a) Social Accountability SA 8000

b) ISO 14000

c) British Standards Institution’s OHSAS 18001 Occupational Health and Safety Assessment Series

d) Fair Labour Association (FLA)

e) Eco-Management and Audit Scheme EMAS

f) EU Eco-label criteria (for specific products) (companies active in EU markets)

� Rating Indices (no-sign-up; external audit & benchmarking; no professional auditor accreditation; only for companies listed in the respective indices)

a) Dow Jones Sustainability Group Index (DJSI)

b) FTSE 4 Good Selection Criteria � Accountability and Reporting Frameworks (i.e. no substantive guidelines)

a) Global Reporting Initiative Guidelines (GRI)

b) Account Ability 1000 Series (AA 1000S).

According to CSR Globe participating companies are the Measurement & Monitoring Tools are:

� Employed and customer surveys; � SRI rankings; � Listings and rankings in Dow Jones sustainability index, FTSE4 Good Global

100 index & other sustainability indexes;

� Relationships with stakeholders;� Public attitude and trust surveys;� Internal measurements such as improvements in employee health and safety,

reduction of wastes, efficiency in resources usage and productivity;� Positive and negative media coverage;� Peer and expert evaluation;� Benchmarking; � Reporting tools such as GRI, KPI and environmental audit systems;� Shareholder dialogue and informational feedbacks;� Image among financial analysts and regulators; and� External auditors and verifications.

1.43 Raman Model:

Raman (2012) by

papers on various social

framework for measuring

of a CSR initiative. The

to these again and again

maximizes limited resources in pursuit for scaling

masses.

1. Inclusivity

Customers

(Innovations for the peopl

1. What is the product’s

really from the lowest

2. Do low-income

Does the enterprise need to “push” the product?

3. What substitutes

the demand offered by the

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Relationships with stakeholders; Public attitude and trust surveys; Internal measurements such as improvements in employee health and safety,

wastes, efficiency in resources usage and productivity;Positive and negative media coverage; Peer and expert evaluation;

Reporting tools such as GRI, KPI and environmental audit systems;Shareholder dialogue and informational feedbacks;

e among financial analysts and regulators; and External auditors and verifications.

Raman Model:

Raman (2012) by deriving from different research

social enterprises (focusing on India)

easuring / evaluating a community-based d

The questions engendered here – one may

again as the project evolves – will ensure

ited resources in pursuit for scaling-up its operations to reach the

Figure-1.6

Innovations for the people)

product’s addressable market? Are the custo

lowest income segments?

people say they genuinely want these prod

enterprise need to “push” the product?

substitutes exist for the products? How else do poor

offered by the product or services?

Internal measurements such as improvements in employee health and safety, wastes, efficiency in resources usage and productivity;

Reporting tools such as GRI, KPI and environmental audit systems;

reports and working

India) offer an effective

development approach

ay have to come back

that a social initiative

up its operations to reach the

customers or suppliers

products of services?

poor customers satisfy

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Producers (Innovations by the people)

1. Are the stakeholders of the enterprise, beneficiaries of the products or

services? What is the level of community participation in delivering the

products / services for its own benefit?

2. Is the enterprise exploiting the existing distribution channels of others? Is it

aggregating the consumers and suppliers?

3. Is the enterprise open to continuous innovation to improve its operations?

2. Structure

(Innovations of the people)

1. What is the ownership pattern of the enterprise? Is it working as a franchise or

a cooperative?

2. Can the enterprise motivate large corporations to enter and participate

given the opportunities elsewhere? What are the networks and alliances the

enterprise has as part of its value chain?

3. Sustainability

1. What is the level of business model maturity?

2. What are the incentives for the participants in every segment of the supply chain? 3. What are the costs to reach and aggregate the participants – customers and suppliers?

4. How strong are the market linkages to end buyer? Can the business model at least cover its costs in the long run?

4. Capital Model

1. What type of financing is the enterprise using and how is the capital invested? 2. Are there enough credit facilities available for the project? 3. Is the producer cash flow cycle sustainable? Are the products priced to

match customer cash flow? Is the ticket price sufficiently low and the payback period sufficiently brief?

4. Is the enterprise affected by any form of government intervention (in the form of subsidies, schemes, etc.)? Is the local governance an ally or an adversary?

5. Evaluation Metrics

1. Is the enterprise focusing on people and not just shareholders’ wealth and

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profits? 2. Are the consumers treated as beneficiaries, suppliers as partners and employees as innovators? 3. Is the enterprise measuring impact on community and environment also? 4. Are there concurrent evaluations during the course of the project? 5. Is the enterprise following the Triple Bottom Line (or 3BL) approach to evaluate its business?

As per Wikipedia, the concept of TBL demands that a company's

responsibility lies with stakeholders rather than shareholders. In this case,

"stakeholders" refers to anyone who is influenced, either directly or indirectly,

by the actions of the firm. According to the stakeholder theory, the business entity

should be used as a vehicle for coordinating stakeholder interests, instead of

maximizing shareholder (owner) profit.

Figure -1.7

Triple Bottom Line Core Strateg y

Source: Pulmor Inc

CSR primarily relates to management practices, which promote sustainable

development and generate higher social capital for the corporate CSR practices are to

be viewed as business practices to be evolved by mutual consensus for meeting the

greater needs of the society and promoting the interest of the corporate as well.

People Provide products

And services that

enhance people’s lives

Creating new and

rewarding jobs

Sustainable

Viable

Beneficial

Planet Produce products that

are friendly to our

planet

Manage a business that

provides a good for

return for shareholders

Equitable

Profit

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Part- C

1.44 CSR and role of Human Resource Management

Corporate social responsibility (CSR) is exercised by organizations when they

conduct their business in an ethical way, taking account of the social, environmental

and economic impact of how they operate, and going beyond compliance. As defined

by McWilliams, et.al.,(2006). CSR refers to the actions by business ‘that further some

social good beyond the interests of the firm and that which is required by law’.

CSR has also been described by Husted and Salazar (2006) as being

concerned with ‘the impact of business behavior on society’ and by Porter and Kramer

(2006) as a process of integrating business and society. The latter argued that to

advance CSR, ‘we must root it in a broad understanding of the inter relationship

between a corporation and society while at the same time anchoring it in the

strategies and activities of specific companies.’

The contribution of people management (Redington, 2005) placed more

emphasis on CSR in the workplace when it defined it as: ‘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 was justified by the CIPD (2007b) as a relevant and important HR activity

because:

� HR is responsible for the key system and processes underpinning effective

delivery. Through HR, CSR can be given credibility and aligned with how

business run. CSR could be integrated into process such as the employer

brand, recruitment, appraisal, retention, motivation, reward, internal

communication, diversity, coaching and training.

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There is a strategic aspect in CSR and it is about deciding initially the extent to

which the firm should be in social issues and then creating a corporate social agenda-

considering and what social issues to focus on and to what extent. As Porter and

Kramer (2006) emphasize, strategy is always about choice. They suggest that

organizations that ‘make the right choices and build focused, proactive and integrated

social initiatives in concert with their core strategies will increasingly distance

themselves from the pick’. They also believe that: ‘It is through strategic CSR that the

company will make the greatest social impact and reap the greatest business benefits.’

Baron (2001) points out that CSR are what a firm does when it provides ‘a public good

in conjunction with its business and marketing strategy’.

According to Armstrong CSR strategy needs to be integrated with the business

strategy but it is also closely associated with HR strategy. This is because it is

concerned with socially responsible behavior both outside and within the firm-with

society generally and with the internal community. In the latter case this means

creating a working environment where personal and employment rights are upheld and

HR policies and practices provide for the fair and ethical treatment of employees. CSR

activities as listed by McWilliams.et.al.,(2006)include incorporating social

characteristics of features into products and manufacturing processes, adopting

progressive human resource management practices, achieving higher levels of

environmental performance through recycling and pollution abatement and advancing

the goals of community organizations.

Human resource management is well positioned to play an instrumental role in

helping the organization achieve its goals of becoming a socially and environmentally

responsible firm –reducing negative and enhancing positive impacts on society and the

environment. Further, human resource (HR) professionals in organizations who

perceive successful corporate social responsibility (CSR) as a key driver of

organizations financial performance, are influential in realizing on that objective. By

giving considerable guidance to organizations who wish to be the best place to work

and for firms who seek to manage their employee relationships in a socially responsible

way, there is a dearth of information for the HR manager who sees the importance of

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embedding their firm’s CSR values throughout the organization, who wish to assist the

executive team in integrating CSR into the company’s DNA. And as high profile

corporate failures make all too clear, organizations that pay lip-service to CSR while

neglecting to foster a CSR culture run the risk of damaging their corporate reputation if

not their demise. Indeed, HR’s mandate to communicate and implement ideas, policies,

and cultural and behavioural change in organizations makes it central to fulfilling an

organization’s objectives to “integrate CSR in all that they do.” It is important to

understand that employee engagement is not simply the mandate of HR. Indeed

people leadership rests with all departmental managers. HR can facilitate the

development of processes and systems; however, employee engagement is ultimately

a shared responsibility. The more the HR practitioner can understand their leverage

with respect to CSR, the greater their ability to pass these insights along to their

business partners towards the organization’s objectives in integrating CSR throughout

their operations and business model.

The Human resources in many organizations influences many of the key

systems and business processes underpinning effective delivery, it is well positioned to

foster a CSR ethic and achieve a high performance CSR culture. Human resource

management can play a significant role so that CSR can become “the way the things

are done”. HR can be the key organizational partner to ensure that what the

organization is saying publicly aligns with how people are treated within the

organization. HR is in the important position of being able to provide the tools and

framework for the executive team and CEO to embed CSR ethic and culture into the

brand and the strategic framework of the organization. It is the only function that

influences across the entire organization for the entire ‘lifecycle’ of the employees who

work there – thus it has considerable influence if handled correctly. HR is poised for

this lead role as it is adept at working horizontally and vertically across and within the

organization, so important for successful CSR delivery.

Of course, for effective CSR implementation, it has to be under the Board level

and CEO’s control. If any organizational gap exist, the senior HR leader can become

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champion, lead and help drive a CSR approach. As CSR is increasingly becoming part

of the business agenda and responsibility of the corporations, it will, certainly become

a natural agenda for the HR practitioner.

The following are key trends and business drivers for fostering this CSR-HR

connection, followed by a proposed roadmap or pathway for human resource

manager’s leaders seeking to make a substantial contribution to sustainability, CSR

and their firm’s business goals.

1.45 Trends and Drivers:

The evidence shows that if CSR in effectively implemented, it can have

significant impact in motivating, developing and retaining staff. The CSR study of

human resource practitioners conducted by the Society for Human Resource

Management (SHRM) in 2006, reveals that CSR practices are seen as important to

employee morale (50%), loyalty (41%), retention (29%), recruitment of top employees

(25%) and productivity (12%) (SHRM, 2007).

Internationally, HR, managers are developing and implementing incentive and

appraisal systems for organizational sustainability by hiring personnel that embody

these values. The research by The Conference Board reveals that 50% of global

managers report their companies do, or plan to, include corporate citizenship (aka

CSR) as a performance evaluation category. Additionally, 68% of respondents cite the

link between corporate citizenship and performance appraisal as “increasingly

important.” (Lockwood, 2004).

There are traces of incorporating CSR into human resource policies, but CSR

leadership remains limited, piecemeal and anecdotal, as found in the SHRM study:

nearly 2/3rds of HR professionals interviewed were directly involved in CSR activities,

only 6% were mainly responsible for creating CSR strategy and only 17% were

charged with implementing the strategy.” (SHRM, 2007).

Research shows that the critical success factors for implementing CSR include

overarching vision that includes CSR, having senior management and board level

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commitment, engaged staff and the provision of skills, tools and incentives. The staff

participation in delivering on the company’s CSR aspirations is central to success in

this area. Documented case studies show that HR practices such as competency

development, can help embed CSR in an organization, not to mention benefit the

bottom line (Redington, 2005). The companies with a good CSR reputation are

benefiting from the stakeholder view that a company’s behaviour and presumably that

of its people is aligned with CSR values, in a consistent way. The organizations

seeking to build marketplace trust and reputation must embed their CSR values

throughout their business. And most of the leading companies are realizing that CSR

can be incorporated in the company’s employee brand and can be part of the value

proposition for working at a given firm. Sustainable HR management is central to this

objective.

The report, Developing the Global Leader of Tomorrow, observed that “a range

of human resource levers are important for developing [CSR] organizational

capabilities: building these knowledge and skills through leadership development

programs, career development planning, succession planning, performance

management and incentive systems and competency frameworks, and seeking these

knowledge and skills when recruiting new talent into the organization”(Ashridge, 2008).

Another factor that compels an active role for human resource managers is the

centrality of employees to achieving any organizational objective. Employees are the

top priority stakeholders; the others are shareholders, customers, and communities. As

a key driver of value in any organization, employees need to be engaged in the task of

integrating CSR throughout the firm, helping the organization achieve its CSR goals

and adhere to its CSR principles consistent with its strategic business direction.

Anything short of this is likely to develop cynicism and lead to reputational issues and a

disconnection between rhetoric and practice. The growing awareness that business

value is more and more a function of intangibles such as goodwill, reputation, trust,

talent and intellectual capital, makes this an increasingly important consideration.

In the “war for talent”, employer differentiation will become more and more

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important. People increasingly want to work for an organization that has a

“conscience”, and values are key to building conscience. Thus, more and more

companies will be defining their organizational values in ways that are aligned with their

mission and vision. People prefer to work for companies that make a difference;

corporate values, infused with CSR, generate conscience. Companies that walk their

talk by embedding CSR throughout all they do will be the employer of choice in the

future labour market.

The same holds for “today’s” labour market, embroiled as it is in the economic

downturn. Many prospective employees will be seeking the basics of employment

security and belonging over employer conscience in the short term. Thus, companies

need to integrate their CSR beliefs with the financial business model in order to survive.

And the companies have to prove stable and financially viable in order to attract talent

– and they have to step up their efforts to fully integrate their CSR value proposition.

The companies that fail to engage their employees in the fulfillment of a robust

business mission are likely to experience declining productivity, which firms can ill-

afford in the current economy.

Under any circumstances, it is important that employees employment needs are

fulfilled before they are called upon to help the organization achieve its CSR goals. To

have a high performing team, it is essential that people receive the proper

compensation and recognition for their work.

Shareholders are another driver of the HR-CSR connection. Shareholders

around the world are pressuring companies to link executive compensation packages

to the company’s sustainability performance, motivated in part by the prevalence of

short-term and stock market-linked metrics in many executive compensation schemes

(The Ethical Funds Company, 2006). Active shareholders believe that compensation

packages based primarily on achievement of short-term financial targets have the

potential to deter companies from undertaking those activities that create sustainable

longer term value. This is in marked contrast to the 2005 survey of Canadian board

directors, conducted by McKinsey & Company and HRI Corporation on behalf of the

Canadian Coalition for Good Governance, which found the following factors to be

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desirable in setting executive compensation: employee satisfaction (71%); leadership

development (78%); customer satisfaction (84%) and sustainable development (89%).

Increasingly asset managers, particularly institutional investors with long-term

investment horizons, are raising these issues in meetings with companies and through

the shareholder resolution process.

The global trend towards assessing the social and environmental impact of

business decisions will result in more organizations incorporating CSR practices in their

business strategies, as noted by Susan Meisinger, President and CEO of the Society

for Human Resource Management. “As these practices increase, HR professionals will

play a larger role in CSR programs, from strategy to implementation.” (CSR wire,

2007.) As noted earlier, CSR practices were seen as important to employee loyalty,

morale, retention, recruitment and productivity, important HR responsibilities and

important business drivers in the firm.

A key driver for HR activation on CSR goals is the CSR business case. The

benefits to employees are arguably the most quantifiable and the most frequently-cited

benefits of all the business case benefits for adopting a CSR or sustainability approach,

as seen below.

1.46 The Business Case:

One of the top, if not the top, factor driving CSR take-up is the need for

businesses to attract and retain high quality staff to meet current and future demands,

identified by 65% of respondents in a global study of privately held businesses

conducted by Grant Thornton (Grant Thornton, 2008A). A strong employer brand

aligned with employee values and concerns is becoming recognized as one of the best

ways of retaining talent with employees proud to work for a business that is highly

regarded. Further, staff attrition is disruptive, putting pressure on the remaining

employees and absorbing management time. Staff turnover can result in increased

operating costs, loss of business to competitors and reduced customer service

standards (Grant Thornton, 2008B) A well-developed performance and talent

management strategy with embedded CSR components can reduce the likelihood and

impact of losing employees.

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Generally, there is a growing desire among employees to derive a sense of

greater purpose from their work; happier employees with increased job satisfaction can

unleash innovation in a firm. The following list provides an overview of the key business

benefits and economic value from employee CSR engagement. (Drawn from “The

Business Case for Sustainability” at: http://corostrandberg.com/publications_Tools.html#25h)

1.47 A case of Increased retention, reduced recruit ment and training costs:

A survey conducted for the Conference Board of Canada in 2000 found that

71% of employees want to work for companies that commit to social and community

concerns. In a similar Corporate Citizenship study by Cone Inc. in the U.S., 77% of

respondents indicated that “a company’s commitment to social issues is important

when I decide where to work”. A Scotiabank 2007 study of employed Canadians

concluded that 70% would consider changing jobs if their employers did not operate in

a socially responsible manner. With the replacement costs for the average worker

about $50,000 including lost output, recruitment, training and other elements, it pays for

companies to manage their CSR as well as their financial performance. (Another study

has put the recruitment, interviewing, hiring, training and reduced productivity costs at

$3,500 to replace one $8.00/hour employee.1) Further evidence of the importance of

social and environmental performance management comes from a World Business

Council for Sustainable Development (WBCSD) publication, in which it was reported

that “three-fifths of the graduates and potential employees surveyed by Accenture in

2004 rated ethical management as an important factor in their job search. Similarly

over two-thirds of the students (68%) in a global survey by Globe Scan in 2003

disagreed that salary is more important than a company’s social and environmental

reputation when deciding which company to work for.” (Pierce & Madden (n.d.). And in

the UK, 75% of professionals take social or ethical considerations into account when

changing employment, while over half of graduates will not work for companies they

believe to be unethical. (from: http://www.management-

issues.com/2006/5/25/opinion/csr-anintroduction.asp accessed on February 8, 2009.)

The Aspen Institute’s 2007 study of MBA students found them to be expressing

more interest in finding work that offers the potential of making a contribution to society

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(26% of respondents in 2007 said this is an important factor in their job selection

compared with 15% in 2002). Further, in a 2006 study of 14 – 18 year-olds, 78% said

money “was less important to them than personal fulfillment”. They went on to work for

“companies that promote equality, a green environment, and social responsibility.”

(Commissioned by 1 Blake, R. 2006. Web ProNews. Employee Retention: What

Employee Turnover Really Costs Your Company.

www.webpronews.com/expertarticles/2006/07/24/employee-retention-what-employee-

turnoverreally- costs-your-company accessed Feb. 9, 2009. ad agency Energy BBDO,

as reported in “Saving the World at Work”, by Tim Sanders). A 2003 Stanford

University study Corporate Social Responsibility Reputation Effects on MBA Job

Choice found that MBA graduates would sacrifice an average of $13,700 in salary to

work for a socially responsible company. Some predict that the war for talent will not be

won through money, but through these intangibles.

It has long been known that a more motivated, engaged and inspired workforce

generates higher long-term productivity. A 2002 GlobeScan International survey

showed that eight in ten people who worked for a large company felt greater motivation

and loyalty towards their jobs and companies the more socially responsible their

employers became. Another study, reported on in the WBCSD publication revealed that

70% of staff who were committed to the values of the company said that their

productivity had increased in the past year while of those staff not committed to the

company only 1% had productivity improvements. (Pierce & Madden (n.d.). Bob

Willard, retired Canadian telecommunications executive and well known CSR author

and thought leader, has predicted that companies can expect a 2% increase in

employee productivity from improved company-wide teaming around common

sustainability issues that transcend departmental boundaries, and a 2% increase in

employee productivity from an improved work environment as a result of CSR. These

percentages generate tangible economic value to any firm’s balance sheet. Further, it

is well understood that boosted employee satisfaction and performance leads to

increased customer satisfaction, generating a further win-win for CSR oriented

companies. The converse is also true. Brand research reveals that in a study of

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customer behaviour, “8% of customers switching brands are lured away by competition;

in contrast, 68% are turned away by an employee’s indifferent attitude” (Melcrum,

2008, citing American Marketing Association). Research shows that every unsatisfied

customer tells at least eight people about their experience (Melcrum, 2008). Engaged

employees are the company’s best defense against this virus. Employees working for

organizations aligned with their values are more likely to foster customer satisfaction

and loyalty, providing, of course, that their expectations are met. If an organization

promotes itself as being environmentally and socially responsible, and recruits

employees based on these claims, they need to demonstrate this is, in fact, true.

Employees will expect to see CSR in action, otherwise engagement drops immediately;

they will feel they were sold a “faulty” experience.

These business case benefits to the HR value proposition for firms with a strong

CSR brand are well documented and are driving many firms to intuitively strive for

higher CSR performance – to show that CSR is “the way we do things around here”.

The following is a roadmap or pathway for HR practitioners who seek to contribute to

the firm’s success and simultaneously, improvements to local and global social and

environmental quality.

A key aspect of organizations acting in a socially responsible manner is an

investment in human capital (Zink, 2005). This is easier for organizations that have a

surplus of resources to invest in this way (Pedersen, 2006). Consequently, HRM/HRD

practice should be at the heart of any CSR strategy. But what exactly is the role of

HRM/HRD in this process? In the non- HRM/HRD literature the role is usually restricted

to the provision of training. Training employees to do their jobs more effectively is

seen as having a positive effect on performance resulting in satisfied customers and

better financial gains for the organization (Crawford and Scalleta, 2005). Training can

be focused specifically on CSR or on helping employees in way that reflect on

organization’s commitment to CSR. For instance, in the provision of training and

education interventions to help employees manage personal financial debt. Training is

one way in which the leading businesses demonstrate their commitment to CSR

(Comfort, et. al., 2005). Most of the companies, have been training staff, those who

135

have volunteered to be ‘green champions’, how to conduct environmental audits and

how to educate other employees about CSR (Johnson, 2008). Training can assist

managers to engage with CSR particularly those who need help in adjusting their

behavior towards the concept (as with many preceding concepts many managers may

simply dismiss CSR as the latest ‘fad’ and only pay lip-service/offer limited support to

CSR policies, systems of reporting, and operational practices). Rees and McBain

(2004) observe that many managers are left untrained or poorly briefed on the

implications of CSR. The European Commission action plan on CSR published in 2002

recommended that management schools should include training on CSR (Zink, 2005).

In terms of the HRM/HRD literature, the HRM/HRD role is seen as being more

influential at a strategic level. For instance, Hatcher (2004) argues that HRM/HRD

practitioners have to develop democratic values in the workplace and focus more on

social justice than performance improvement. While Packer and Sharrar (2003) argue

that HRM/HRD departments can be turned into what they term HHBD departments:

Helping Human Beings Develop departments. This is emphasizing a holistic approach

to development that is consistent with a socially responsible approach to work (Bates

and Chen, 2005). Given that socially conscious organizations are likely to conduct

social audits in order to reflect on and evaluate CSR initiatives and identify

improvements (Maycunich Gilley, et. al., 2003) there is a potential role for the HRD

practitioner in:

� The design, implementation, and review of the social audit; � The design, implementation, and evaluation of improvement projects; � The communication of CSR benefits through daily HRD practice.

There is also an initial and the ongoing educational role that spans the design of

induction and CSR awareness sessions for existing employees. This can be achieved

through a combination of technology-based and face-to-face interventions. Maycunich

Gilley, et. al., (2003) refer to this approach as socially conscious HRM/HRD which has

both an educative and supportive role:

� HRM/HRD has responsibility to create a socially conscious work environment that benefits the whole social system, not just the organization…. HRD has a

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unique opportunity to educate organizations about social responsibility and use HRD strategies to integrate social consciousness into organizational activities that have the potential to effect significant social change.

Maycunich Gilley, et. al., (2003) suggest that HRM/HRD practitioners should:

� Act as an advocate for employees when an organization breaches the psychological contract;

� Ensure that decisions are arrived at democratically by involving all stakeholders; � Teach and promote ethical management and leadership; � Challenge and improve traditional performance measures to include socially

responsible metrics; � Analyze and negotiate power relations in ‘a manner that facilitates socially

conscious though and action in organizations’.

1.48 The CSR competency Framework:

The CSR competency Framework is made up of six characteristics (Redington,

2005).

Understanding society:

Understanding how the business operates in the broader context and knowing

the social and environmental impact that the business has on society.

Building capacity:

Building the capacity of the others to help manage the business effectively. For

example, suppliers understand the business’s approach to the environment and

employees can apply social and environmental concerns in their day-today roles.

Questioning business as usual:

Individuals continually questioning the business in relation to a more sustainable

future and being open to improving the quality of life and the environment.

Stakeholder relations:

Understanding who the key stakeholders are and the risks and opportunities

they present. Working with them through consultation and taking their views into

account.

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Strategic view:

Ensuring that social and environmental views are included in the business

strategy such that they are accepted as integral to the way the business operates.

1.49 Harnessing diversity:

Respecting that people are different, which is reflected in fair and transparent

employment and business practices.

Across each attribute, five levels of attainment are described: awareness,

understanding, application, integration and leadership. These attributes and

characteristics can be used for rating purposes, or as a basis for developing individual

competencies within a business.

World Business Council on Sustainable Development defined CSR as : 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.

According to Redington (2005) the DTI CSR competency framework literature

explains that: business operates today in a new market place. More than ever before,

stakeholders demand that business functions in a responsible way. While pressures to

make profits are unremitting, stakeholders expect ever-increasing standards of

accountability and transparency. Business responsibility and its relationship to the

community in which it operates and seeks to serve is more important than ever.

CSR is about recognizing the impacts a business has on all aspects of its

environment-i.e., economic, social, ecological- and the way it behaves towards them.

Other terms are;

� Corporate responsibility

� Corporate citizenship

� Sustainability

� Better world (BT-branded theme).

The driving forces behind the increasing interest in CSR (See Figure5, opposite)

include pressure from:

138

� Legislation, eg; on pollution and environmental issues

� Investors, with the spread of CSR performance indices

� Other stakeholders, particularly the enhanced power of non-governmental

organizations and lobbying groups

� Commercial issues of compliance and risk management

� The need to develop competitive advantage and brand reputation.

The companies prepare and public reports on their CSR activities. CSR

activities would normally address:

� The community

� The government and the media

� Employees

� Customers in the marketplace

� Suppliers and subcontractors in the supply chain

Figure 1.8

Drivers for CSR*

• Source: The virtuous circle

The significance of each activity will vary by business and industry but

companies typically report on:

Government Non

governmental

organization

CSR

Employment customers/client

Human rights environment

Suppliers community

Suppliers Employees

Investors Consumers

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� Environmental responsibilities

� Human rights

� Ethics

� Health and safety.

Some people believe that CSR means business adopting a philanthropic

approach. But research supports the premise that there are strong links between the

extents of CSR activity and the performance of organizations.

Increasingly, CSR is recognized as being about having good business practices

and its impacts are seen as contributing to a business’s reputation and performance.

The latter is becoming increasingly important as the value of business becomes more

and more reliant on intangible elements. Qualitative information about a company is

becoming recognized as a key determinant of a share price and, therefore, an

important commercial issue for any quoted business.

1.50 The role of the HR function:

Most of the CSR activities are fundamentally related to the way in which people

are managed and developed an activity for which, in most cases, the HR function has

overall responsibility. Modern HR has evolved out of welfare functions (which can also

be seen as an early form of CSR activity). The function continues to evolve, as HR

professionals seek to:

� Put more people management responsibility ‘into the line’

� Make HR administration more efficient

� Play a more strategic role in support of the business.

The way people are managed and developed is critical to business performance.

Many HR practitioners recognize a need to develop a greater awareness and

confidence in dealing with wider business issues. The organizations have to develop

a more business-focused role. Correspondingly, the business agenda post-Enron,

(Satyam and) similar scandals have moved away from a pure shareholder focus to

emphasize the importance of all stakeholders (Redington, 2005).

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The current interest in human capital management is also supporting HR

professional in their efforts to become more closely focused on outputs and outcomes.

Organizations are putting more resources into measuring the range of ways in which

people related activities contribute to their value.

The human resource management practices contribute value to business in

support of a CSR agenda. The organizations have to stimulate HR practitioners to look

for opportunities where their skills and actions can yield new, positive and measurable

benefits to the organization that employ them.

1.51 CSR and HR:

Some people interpret CSR as a cynical and defensive reaction to increased

external pressure and scrutiny. The HR practices such as a competency development

can help embed CSR in an organization and benefit its bottom line. The HR

departments have responsibility for codes of ethics and they should be well placed to

contribute to organizations wider CSR activities. An overall CSR strategy to be

successful, effective HR practices needs to be in place.

The model in Figure-7, which is based on empirical experience, describes the

relationship between the levels of involvement of HR practices and success of CSR

activity (Redington, 2005).

The strong HR involvement is a key factor in good CSR policies and procedures.

Having a good CSR reputation implies that a company’s behavior and that of its people

is consistent and is of a particular standard. So CSR values must be embedded

throughout the business, and good HR practices make this happen (Redington, 2005).

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Figure 1.9 HR practices contributing to CSR

Extent of CSR activity Extent of HR involvement Source: The Virtuous Circle

� Tick box mentality means having a basic compliance approach to CSR. This

approach means that the organization has CSR policies in place, but not

necessarily the processes to sustain them for example, claiming to be an equal

opportunities employer without having measures to justify the claim.

� Corporate activity is when there is a degree of reporting, but it is driven centrally,

without any significant commitment or input from within the business.

� Functional activity is when CSR activity exists in different parts of the

organization, but there is no integrated approach across functions.

� Embedded means that the values and standards are fully understood by all staff,

adhered to in their day-to-day activity reflected in the organization’s strategic

decision-making.

Embedded

Functional activity

Corporate activity

Tick box mentality

None

High

Quite high

Moderate

Low

Very low

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1.51.1 Step 1: Vision, mission, values for CSR stra tegy development:

Vision, Mission, Values

Successful CSR requires a clearly articulated vision, mission and values. The

HR manager could initiate or support the development, or upgrade, of a vision, mission

and values foundation if is not existing or does not explicitly address CSR. The

foundation needs to incorporate elements of corporate social responsibility or

sustainability in order for it to foster alignment. Where a CSR ethic has not yet taken

hold, the HR manager could champion the need and opportunity for a vision, mission

and set of values and show how it can add return on investment (ROI) to the

organization, why this could be both a good business strategy and a good people

strategy. The manager can bring the opportunities to the attention of the senior

executive and the board on what it means, and why it makes good business sense.

1.51.2 CSR Strategy Development:

Once the vision, mission and values framework is defined, the firm is ready to

undertake the development of its CSR strategy. The role of the human resource

manager at this phase is central to all other steps: it is critical that the human resource

function be represented at the table in the development of the CSR business plan and

strategic direction. They have an important “people perspective” to contribute and will

be involved in implementing key measures. Particularly in those firms where CSR is

housed in the human resource department, the HR manager has a key role in CSR

strategy development. HR is a strategic partner in the organization and as such, can

help drive the formulation of the CSR strategy.

1.51.3 Step 2: Employee codes of conduct:

The HR function is typically responsible for drafting and implementing employee

codes of conduct. The HR managers have to be through with the principles contained

in the employee codes. Since a number of recent high profile corporate frauds, boards

of directors have become very concerned about the ethical culture within their

organizations. This is an ideal home for the expression of an organization’s

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commitment to socially and environmentally-based decision-making as it is one of the

rare documents which all employees are bound by and come into contact with. As such

it is a key tool for cultural integration of CSR norms. It is important to avoid rhetoric and

undefined terms such as “sustainability” and “CSR”, but to clearly enunciate the

conduct standards expected of employees.

1.51.4 Step 3: Workforce planning and recruitment:

Workforce planning consists of analyzing present workforce competencies;

identification of competencies needed in the future; comparison of the present

workforce to future needs to identify competency gaps and surpluses; the preparation

of plans for building the workforce needed in the future; and an evaluation process to

assure that the workforce competency model remains valid and that objectives are

being met. For a CSR oriented company, this consists of evaluating the need for skill

sets and competencies central to the emergent sustainability economy – an economy

of resource and energy scarcity, human and environmental security constraints,

changing societal norms and government expectations. Companies need to identify

their key CSR competencies and gaps in the context of these structural changes.

Referred to by many as the “green economy”, regardless of its title, the marketplace is

undergoing a systemic transformation that will require new competencies and skills.

(unpublished paper: Sustainability Labour Market Trends by Strandberg, 2009.) The

Co-operators Group Ltd., for example, is upgrading its eight competencies

(accountability and ownership; time and deadline management, practical problem

solving and judgment, communication, coaching and working with others) to reflect

their corporate sustainability commitments and values.

Talent management, which refers to the process of developing and integrating

new workers, developing and keeping current workers and attracting highly skilled

workers to work for the company, needs to consider alignment with the company’s CSR

vision and goals to ensure talent is developed with the appropriate focus. Often in the

area of talent management and recruitment, leading CSR companies develop an

employer brand that incorporates their CSR perspective into the employee value

proposition. More and more firms are profiling their CSR ethics in their recruitment

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branding and marketing programs, promoting the benefits of working within a values

based culture. Employee volunteer programs and community involvement are oft-cited

company values expressed by employees, and found within employee value

proposition and internal brand development efforts. Campus recruitment programs are

ideal environments for CSR oriented recruitment, as is online recruiting where

technology savvy employees search for work. In this environment, recruitment

interviews include questions on ethics and CSR; the offer letter reinforces the corporate

culture; and early employee contact reinforces the CSR brand.

1.51.5 Step 4: Orientation, training and competency development:

During the orientation process employees should be given a thorough overview

of the clear line of sight between the company’s vision, mission and core CSR values

and goals. To ensure maximum alignment and early employee ‘buy-in’ to the strategic

CSR direction of the organization, this general orientation should be deemed

mandatory for all levels of new employees. New employees need to be provided

information about CSR policies and commitments, the key CSR issues the company

faces and the key stakeholders with which the firm engages. How the company

measures its CSR performance, the annual sustainability or CSR report, and where

they can find further company information on CSR are important elements of new

employee orientation programs. New hires should receive a copy of the core values.

Once inducted, employees have to be provided CSR training on an annual or

other regular basis. Employees will either have direct CSR responsibilities (e.g. energy

manager) or indirect CSR responsibilities (e.g. payroll clerk). Those with direct

responsibilities will receive technical and specialized training in CSR while those with

indirect responsibilities should receive training in top priority CSR issues of a more

general nature. Either way, it should be job-relevant as with health and safety training

for factory workers to strategic sustainability issues for executive management and the

Board.

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It is important not to overlook the probationary review. This is an ideal moment

for consideration of the employee’s alignment with and commitment to the

organization’s CSR aspirations.

Through the workforce planning efforts referenced in Step 4 above, the firms

have to identify the CSR competencies the firm will require in future; learning plans and

programs will need to address anticipated CSR competency gaps. The management

plays an important role in understanding and delivering on key CSR objectives, it is

vital to make CSR an integral part of management training programs.

Simple measures, such as providing company values in all training sites and integrating

a dimension of CSR into all training programs have to be taken care.

Human resource managers understand the win-win in employee career pathing

and succession planning, particularly for the high performance individual. Employees

included in efforts to advance their career within the firm are more motivated, more

loyal and therefore more productive employees. Furthermore, succession planning is a

form of recruitment, insofar as recruitment costs are reduced and ideal candidates are

available to fill vacancies, especially in executive or career-track positions. Career

mapping and succession planning programs could incorporate CSR experiences either

within or outside the company, for example through secondments to social or

environmental organizations or assignments, or leaves to pursue CSR-related

executive work experience, to prepare the individual for CSR leadership as well as

general management roles.

1.51.6 Step 5: Compensation and performance managem ent:

Next to recruitment and competency development, compensation and

performance management are central to the HR function. HR is involved in setting

performance standards and expectations and monitoring results to performance

objectives. HR managers have to integrate CSR elements into job descriptions,

individual performance plans and team goals.

The most critical HR tool of all is the compensation and incentive program.

Human resource practitioners understand very well that “you get what you pay for”.

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Typically companies reward on the basis of financial performance, which will singularly

foster profit-maximizing behaviour, overlooking the need to also consider sustainability

factors. The total reward and recognition program, including base salary, incentive pay,

long term incentives and other non-monetary recognition benefits (such as award

programs, employee of the month, promotions, career pathing, etc.), needs to be

aligned with the company’s CSR values and strategy. To do less is to guarantee under-

achievement of a company’s CSR objectives.

The strategic direction of an organization has to be set by the CEO and

Executive team, however, the HR department can help business units establish CSR

targets and develop performance evaluation systems that foster CSR behaviour by

providing the right tools and counsel.

In addition to focusing on executives and senior managers, the personal

objectives set by each employee could incorporate one CSR objective aligned with the

corporate CSR strategy. CSR has to be recognized in both the base job responsibilities

as well as the annual performance objectives at the individual and team levels.

Performance reviews could consider how the employee has advanced their personal

and the organization’s CSR goals over the period.

If CSR is built into incentive systems – salary packages and targets that

determine whether the manager receives a pay raise, promotion, etc. – the firm is

likelier to motivate greater CSR alignment. Certainly the opposite is true. Some

examples of nonfinancial measures include: customer satisfaction, reputation,

employee engagement, health and safety, greenhouse gas emissions, etc.

Job descriptions are not revised that frequently, so the opportunity of integrating

CSR into every job description throughout a company may be limited, unless a new

department is being established or a start-up company is launching. However, as roles,

departments and job requirements evolve, this often brings with it the task of fine-tuning

job descriptions. These are ideal opportunities for incorporating CSR parameters in the

job description – again, it is important that CSR generalities are avoided in favour of

specific deliverables and responsibilities.

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From time to time there may be instances of significant CSR underperformance

or obstruction on the part of some employees, often employees in key positions of

influence. A finely tuned incentive program could influence most of this. However, there

may be a few instances where a senior influential employee who is not aligned with the

strategic CSR direction of the organization needs to be “performance managed” out of

the firm or given early retirement, or other exit packages.

Before this step is taken, one needs to be assured that the critical steps for

fostering change management, identified in Step 6 below, have been followed.

Oftentimes employee resistance comes about because deep-seated concerns or

values have been overlooked.

The final check can be during the exit interview process where questions related

to CSR and ethical matters can be asked in order to assess the degree to which

departing employees perceive values alignment conflicts with respect to the firm’s

decision making. Indeed, every exit interview can inquire into whether the firm delivered

on its CSR commitments and lived up to the terminating employee’s expectations.

1.51.7 Step 6: Change management and corporate cult ure:

Human resource managers are the guardians of corporate culture, team building

and change management processes. Growing and adapting to the changing

marketplace necessitates that firms pursue significant behavioural shifts from time to

time. Sometimes organizations require the outside assistance of change management

professionals to help them identify an appropriate strategy when they are attempting to

create significant behavioural change, but in the end, culture shift can only be achieved

and sustained if it is driven and sponsored effectively internally.

Mindsets and behavioural change come about through role modeling, building

awareness and generating desire (what is in it for me?) and conviction, developing

knowledge and ability and reinforcement through incentive programs. Culture change

requires setting the tone at the top – where executives and management demonstrate

and model the organization’s values – and then creating alignment throughout the

organization with the values you espouse to live. The values need to be reflected in all

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processes starting with how you attract and recruit employees, to decision-making and

rewards and incentive programs, etc.

Keeping true to the CSR values compass is a critical guidepost to change

management and team alignment. Additionally, the move to incorporate a CSR ethic

throughout the firm necessitates a change management approach.

Change management experts realize that people come in different states of

readiness for advances for sustainability, or any change for that matter. People can be

grouped by state of readiness and then you can tailor your change approach

appropriately to each group. Nancy Lee, Founder and President of Social Marketing

Inc., has proposed a model for how this might work in a firm advancing a CSR change

management program. (Lee, 2008). As people generally fall into one of three readiness

groups, Nancy calls them greens, sprouts and browns, labeled A, B, and C below:

� Those that have the value and the behavior;

� Those that have the value but not the behavior; and

� Those that do not have the value or the behavior.

To advance CSR the organizations have to tailor their change strategy appropriately:

� Recognize Group A for their behaviour to encourage them to continue it;

� Promote, incent and reward Group B for behaviour changes. Ensure that these

“tools” are specifically designed so that the benefits are meaningful and the

barriers to change are removed for this group; and

� Leave Group C alone. Do not cut them out; just don’t tailor your promotions,

incentives, etc. to their needs. A large percentage of the C’s will change their

behaviour once the Group B’s (or the sprouts) have changed their behaviour so

that they do not stand out as the minority. The remainder of the C’s will not

change and they truly will be the minority (and perhaps a group you no longer

find a fit within your organization).

If each person is treated with the same strategy there is a risk of alienating

Group A because their behaviour was not recognized, find less advances with the

Group B’s because the promotions, incentives, etc, were not tailored to them, and

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through the organization spends a lot of time, effort and money on Group C it can never

see a return as their motivator is not stand out.

It is important to advance a CSR ethic and program with these perspectives in

mind. The organizational culture, or “how work gets done around here”, is a key

dimension of any strong CSR agenda. People need to be rewarded for the way the

leaders want work done on the shop floor and in the C-suite. The foregoing steps are

building blocks to the development of a strong CSR ethic and corporate culture, the

likes of which will attract and retain the best and the brightest employees.

1.51.8 Step 7: Employee involvement and participati on:

As mentioned earlier, employees are among the key stakeholders for the

development of any CSR strategy or program. A critical first step in mission, vision,

values and strategy development is to understand the key concerns, priorities and

perspectives of all key stakeholders, particularly employees. It is a truism that

employees consulted and engaged in the development of new programs and

approaches are likelier to follow through with their implementation. Often companies

consult and engage their employees in the development and delivery of their

community involvement and charitable donations programs; however, what is called for

here is more substantive than this.

Melcurm has conceived of an employee engagement pyramid (Figure-8), from “I

am aware of the message”, I which employees are familiar with CSR strategy and how

it helps the company meet its objectives; to “I understand the message” wherein

employees learn the reasons behind the company’s CSR objectives and begin to

understand their role in making the company successful. The next stage is “I believe”,

where employees feel conviction towards the company’s values and objectives, and

finally, “I am committed to act”, at the pinnacle of the pyramid. Those employees who

are and feel their basic job needs are being meet and who achieve this level, will be

inspired to act in way that help the company reach its goals. (Melcrum, 2006).

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Figure-1.10

To achieve basic employee education and awareness, many HR departments

become actively engaged in awareness-raising events and initiatives, such as contests,

and the like. Best practice CSR firms actively sponsor the establishment of “CSR

Champions Teams” in which employees throughout the organization are encouraged to

join a goup that meets on company time to conceive and launch CSR initiatives that

both green the company’s operations and achieve social value in the community.

Further, best practice CSR firms have programs and initiatives underway to support

employees and their families learn about, and take action on, their social and

environmental concerns at work, at home and in their communities. The Co-operators,

for example, held sustainability fair at their head office, inviting members of the

community to participate and providing information on environmental footprint

reduction, locally available eco products and other resources.

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This is employee CSR engagement at the most engaged level – employees

helped to align their total work experience with their community and home values

become highly engaged, motivated and loyal employees.

In addition to ensuring employees are included in key decisions, an employee

CSR involvement and participation program can help develop the employee value

proposition that can foster retention and enhance recruitment. It is important not to miss

this step as organizations that fail to engage their employees in key decisions and in

their CSR embedment will generate low employee engagement resulting in employees

that either quit and leave or quit and stay.

1.51.9 Step 8: CSR Policy and Program Development:

HR is also in a position to drive policy development and program implementation

in HR areas that directly support CSR values. Wellness, diversity, work-life balance and

flextime policies are CSR programs directly within the HR manager’s purview. In

organizations committed to reducing their carbon footprint HR practitioners can develop

programs enabling employees to use alternative transportation to get to work (e.g.

providing showers, secure bike lock-ups, parking spots for van pools and co-op or

hybrid cars, bus passes, etc.) and work remotely, including other forms of

headquartering and “hoteling”, tele working, etc. Wellness programs can become a

platform for engaging employees in discussions about “personal sustainability” and

provide support for employees in the areas of stress management, spirituality at work,

health and fitness, healthy lifestyles, etc. Employee volunteering programs are also

within the HR mandate, and can help build out the employee value proposition and

employer brand while concurrently delivering on the firm’s CSR goals for community

engagement and investment. A related policy could be the development of an unpaid

leave program for employees to pursue personal projects aligned with company values.

Successful wellness, carbon reduction and employee volunteer programs require

management support, role-modeling and ongoing communications – which, if in place

become further vehicles to fostering employee awareness of, and engagement in, the

firm’s CSR approach.

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Some HR departments also have responsibility for procurement. Those that do

could incorporate their CSR commitments into their purchasing program. By adopting a

sustainable purchasing policy, and integrating their social and environmental objectives

into supply chain management, HR practitioners can influence the sustainability

performance of their suppliers. Benefits providers, recruiters, and other suppliers to the

HR department can be asked to demonstrate how their practices align with the buyer’s

CSR values. Request for Proposals (RFPs) can incorporate questions and

requirements for a certain level of sustainability or CSR performance on the part of

vendors, thereby cascading CSR into the supply chain as further demonstration of how

the organization is walking its talk. (www.buysmartbc.com for tools, resources and

examples of how to integrate sustainability into your purchasing programs). HR

practitioners have a number of direct pressure points they can activate to leverage

sustainable practices throughout the workforce and the economy more generally.

1.51.10 Step 9: Employee Communications:

Every CSR strategy requires the development and implementation of an

employee communication program to convey the corporate direction, objectives,

innovation and performance on its CSR efforts. Intranets, websites, blogs, wikis, social

networking sites, podcasting, videos, forums, town hall meetings, regular tream

briefings, webcasts, voicemails, print and electronic newsletters and other forms of

social media need to be deployed to bring the CSR message to the workforce – in

ways that are attuned to the communication channels of the employee, which are

changing rapidly in this age of web 2.0. Even role-modeling by executive and the HR

department can be a useful tool of communicating CSR values. The ultimate goal of

CSR communications is to engage employees in the CSR mission of the firm, to help

build out the firm’s CSR DNA. It is important to note that employee engagement is

dependent on communication of board, CEO and senior management commitment, in

the absence of which employees will become cynical and unmotivated. Lack of CSR

commitment at senior levels could lead to disgruntled and frustrated employees finding

unmonitored, anonymous social networking sites to express their dissatisfaction. It is

important to close this potential gap with clear communication and walking the walk on

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the part of senior executives. The Co-operators, for example, launched their 2008 –

2010 Sustainability Strategy with a CEO speech and CEO video to all staff.

One means to raise awareness of CSR on a regular basis, and to track

perceptions and opportunities throughout the year is the “quick poll”. The following

example is from 2008 experience :

� Is your household eco-friendly? � In the 2 minutes it takes for you to brush your teeth, how much water goes down

the drain? � October 19 – 25 is Waste Reduction Week. What is the top way your family

reduces household waste? � Which method of washing your dirty car wastes the least amount of water? � It’s Earth Day. What’s the biggest sacrifice you’re willing to make for the

environment? � A locovore is a new term for someone who…? � Do you expect to see the Arctic ice cap completely melted in your lifetime? � Do you make a conscious decision to buy Fair-trade products?

Staff responses can help the organization identify miscommunications and the

need for course corrections along the way. Such ad hoc, awareness raising surveys

can be important proactive tools to foster and embed the CSR message.

Through employee communications, HR can find and profile success stories of

CSR leadership within departments. HR managers are well positioned to share and

bring to life the organizational stories that can become guideposts for CSR values in

action within the company.

Whatever your approach, it is important to keep your CSR commitments alive in

your corporate communications on a regular basis.

1.51.11 Step 10: Measurement, Reporting – and celeb rating successes along the

way:

As what gets measured gets managed, it is vital that both CSR performance and

employee CSR engagement be actively measured and reported to executive, the board

of directors and publicly. Typically this is done in the form of an annual CSR report.

Increasingly, many of these reports are disclosing employee engagement scores,

including employee response to such questions as:

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� “I am aware of and understand our CSR Strategy”;

� “I believe the firm acts in alignment with its CSR values and policy”;

� “I believe the firm is making progress towards implementing its CSR Strategy”;

� “Our CSR Strategy makes me feel proud to be working at the firm”;

� “I feel the firm encourages and supports me to contribute to CSR in the office/at

the workplace/in our meetings”;

� “I feel comfortable raising CSR issues in the workplace” ; and

� “I believe our organization is a champion of sustainability amongst the public”.

Other human capital metrics, such as turnover, health and safety, employee

development and diversity, for example, can be additional metrics which reveal the

firm’s CSR commitment and the degree to which it walks its talk.

In designing your CSR report again it is important to consult employees on what

to report and it is important that the report be received and approved by the board of

directors for public release. It is only under these conditions can the HR professional be

assured that these metrics and the firm’s CSR performance are taken seriously.

Some corporate boards go so far as to create a CSR committee of the board.

This is a topic of its own (see, for example, “The Role of the Board of Directors in

Corporate Social Responsibility” produced for the Conference Board by Strandberg

Consulting), however, if the Board buys into CSR as a business differentiator and sees

CSR as contributing to shareholder value, it warrants oversight by the full board of

directors and if possible, by a CSR committee of the Board of Directors. The Vancouver

Organizing Committee for the Olympic and Paralympic Winter Games (VANOC) for

example, have a board committee on Human Resources and Sustainability which

meets regularly to review the organization’s human resource and CSR performance

against its objectives. If the Board of Directors is in receipt of these performance

reports, it is likelier that the CEO will be held accountable for the elements that bring

the CSR strategy to fruition.

And finally, the organizations have to celebrate the successes large and small

along the way. From pats on the back to profile articles on the company intranet, to

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celebratory events, ensure people are congratulated and achievements celebrated on

an informal and formal basis. To fully realize CSR objectives, including the integration

of CSR into “the way business is done around here”, it is important to honour the small

wins and major milestones achieved on the journey.

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