Chapter-1 Corporate Social Responsibility (CSR)- Introduction and Theoretical Consideration

Transcription

1 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 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 1

2 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 2

3 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 20 th 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 3

4 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). 4

5 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 5

6 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 6

7 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 7

8 measured. For example, improved motivation could lead to reduce absenteeism and reduced staff turnover. purchasing. Similar, customer loyalty could increase levels of repeat 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; 8

9 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. follows: Response of business to the above propositions is rather lackluster and are as 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. 9

10 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). 10

11 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- 11

12 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. 12

13 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. 13

14 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; 14

15 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 points: 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 15

16 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 16

17 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; 17

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: 18

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) 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 19

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) 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 20

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) Strategies for achieving competitive advantages: 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 21

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). 22

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) 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: 23

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) 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 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 24

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. 25

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 17 th century through Thomas Hobbes Leviathan. Philosophers such as John Locke ( ) and Jean-Jacques Rousseau ( ) 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 26

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) 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 21 st 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 27

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 Subsequently, business with local responsibility and, at the same time, being a global actor that places emphasis on business responsibilities in a 28

29 global context, have been considered as a key issue by some scholars (Tichy et al., 1997; Wood and Lodgson, 2002) 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) 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 29

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 decisionmaking 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). 30

31 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, 31

32 coalition building, grassroots organization, corporate public affairs and the role of public interest and other advocacy groups (Garriga and Mele,2004) 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). 32

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) 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 33

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 CSRphilanthropic 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) 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. 34

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 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 Groups / Activists Primary Stakeholders Customers Suppliers The organization Employees Shareholders Unions 35

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, ). 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 36

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, 37

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 misinterpretations, 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 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. 38

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 39

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). 40

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) 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 In 2000 the Global 41

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 ( 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) 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 42

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 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 43

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 ( TABLE 1.1 Corporate social responsibilities theories and related approaches* Type of theory Approaches Short description Some key references Instrumental theories (focusing on achieving economic objectives through social activities) Political theories (focusing on a Maximization of shareholder value Strategies for competitive advantages Cause-related marketing Corporate constitutionalism Long-term value maximization Social investments in a competitive context Strategies based on the natural resource view of the firm and the dynamic capabilities of the firm Strategies for the bottom of the economic pyramid Altruistic activities socially recognized used as an instrument of marketing Social responsibilities of business arise from the 44 Friedman(1970), Jensen (2000) Proter and Kramer (2002) Hart (1995), Lizt (1996) Prahalad and Hammond(2002), Hart and Chirstensen(2002), Prahalad(2003) Varadarajan and Menon (1998), Murray and Montanari (1986) Davis (1990,1967)

45 responsible use of business power I the political arena) Integrative theories (focusing on the integration of social demands) Ethical theories (focusing on the right thing to achieve a good society) Integrative Social Contract Theory Corporate(or business) citizens Issues management Public responsibility Stakeholder management Corporate social performance Stakeholder normative theory Universal rights Sustainable development The common good *Source: Garriga and Mele, (2004). 1.8 Approaches or models to CSR: amount of social power that they have Assumes that a social contract between business and society exists The firm is understood as being like a citizen with certain involvement in the community Corporate process of response to those social and political issues which may impact significantly upon it Law and the existing public policy process are taken as a reference for social performance Balances the interests of the stakeholders of the firm Searches for social legitimacy and process to give appropriate responses to social issues Considers fiduciary duties towards stakeholders of the firm. Its application requires reference to some moral theory (Kantian, Utilitarianism, theories of justice, etc.) Frameworks based on human rights, labour rights and respect for the environment Aimed at achieving human development considering present and future generations Oriented towards the common good of society Donaldson and Dunfee (1994, 1999) Wood and Lodgson (2002), Andriof and McIntosh (2001) Matten and Crane (in press) Sethi (1975), Akerman(1973), Jones(1980), Vogel(1986), Wartick and Mahon (1994) Preston and Post(1975,1981) Mitchell et al. 1997) Agle and Mitchell(1999), Rowley(1997) Carroll(1997), Wartick and Cochran(1985), Wood(1991b) Swanson (1995) Freeman(1984,1994), Evan and Freeman(1988), Donaldson and Preston(1995), Freeman and Philips(2002), Phillips et al. (2003) The Global Sullivan Principles (1999),UN Global Compact (1999) World Commission on Environment and Development (Brutland Report) (1987), Gladwin and Kennelly (1995) Alford and Naughton(2002), Mele(2002) Kaku (1997) 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. 45

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 cofounder 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 multistakeholder approach by most CSR advocates( Wikipedia). 46

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 47

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 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 Staff Specialists Division Management Obtain knowledge Add staff specialists Issue: Technical problem Action: Design data system and interpret environment Outcome: Technical and information ground work 48 Obtain organization commitment. Change performance expectations. Provoke response from operating units Apply data system to performance measurement. 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 Economic responsibility Legal Responsibility Ethical Responsibility Discretionary 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 49

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) 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 50

51 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. S.No Table-1.3 Economic, Legal, Ethical & Philanthropic Components of Carroll s CSR Pyramid Economic Components Legal Components (Responsibilities) (Responsibilities) 1. It is important to perform in a manner consistent with maximizing earnings per share 2. It is important to be committed to being as profitable as possible. 3. It is important to maintain a strong competitive position. 4. It is important to maintain a high level of operating efficiency. 5. It is important that a successful corporation be defined as one that is consistently profitable. Ethical Components (Responsibilities) It is important to perform in a manner consistent with expectations of government and law. It is important to comply with various federal, state, and local regulations. It is important to be a law abiding corporate citizen. It is important that a successful corporation be defined as one that fulfils its legal obligations. It is important to provide goods and services that at least meet minimal legal requirements. Philanthropic Components (Responsibilities) 51

52 1. It is important to perform in a manner consistent with expectations of societal mores and ethical norms. 2. It is important to recognize and respect new or evolving ethical moral norms adopted by society. 3. It is important to prevent ethical norms from being compromised in order to achieve corporate goals. 4. It is important that good corporate citizenship be defined as doing what is expected morally or ethically. 5. It is important to recognize that corporate integrity and ethical behaviour go beyond mere compliance with laws and regulations. 52 It is important to perform in a Manner consistent with the philanthropic and charitable expectations of society. It is important to assist the fine and performing arts. It is important that managers and employees participate in voluntary and charitable activities within their local communities. It is important to provide assistance to private and public educational institutions. 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), 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

53 much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom 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 53

54 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). 54

55 Table- 1.4 Definitions of CSR by researchers and organizations promoting the field Author Definition WBCSD (1999) (World Business Council for Sustainable Development) Bloom and Gundlach(2001) Mc Williams and Siegel (2001) Jackson (2003) Crowther and Rayman- Bacchus(2004) The European Union (2004) 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. 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. CSR are actions that appear to further some social good, beyond the interests of the firm and that which is required by law. 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. CSR is concerned with what is or should be the relationship between the global corporation, government of countries, and individual citizens. 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 55

56 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: 56

57 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) s 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 57

58 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). 58

59 s: 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 59

60 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 s: 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): 60

61 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 61

62 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) s: 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 62

63 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. 63

64 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 valueadding 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 64

65 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) s: The CSR concept is used as the base point, building block, or point-ofdeparture for other related concepts and themes, many of which embraced CSRthinking 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 standalone 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). CSR: Swanson (1995) suggested that there were three main types of motivation for 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 65

66 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. 66

67 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, 67

68 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) An Historical Perspective: At the start of the 20 th 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. 68

69 1.9.7 Phase one: Profit-Maximizing Management- During the period of economic scarcity in the 19 th and early part of the 20 th 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 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 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 st 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). 69

70 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. 70

71 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 71

72 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). 72

73 Figure 1.5: CSR triangle concept Multi-stakeholder Initiatives/co-regulation CSR Self-regulation Legal regulation Source: Chahoud et.al., (2007) 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. 73

74 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) 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) 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). 74

75 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) 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 75

76 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 wellbeing 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 76

77 CEOs and others have to follow internationally agreed standards and instruments, since these offer legitimacy and consistency for CSR efforts (Hohnen, 2007) 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) 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 77

78 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 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 78

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) Business for Social Responsibility (BSR) 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. 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. 79

80 Global Environmental Management Initiative (GEMI) Caux Round Table Self Assessment and improvement Tool table.org/ resource.html 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 selfassessment and planning tool that can be customized to suit the needs of individual companies. 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 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 ( ) CSR activities were mainly undertaken outside companies and included donations to temples and various social welfare causes. The second phase ( ) 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 ( ) 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 80

81 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 windowdressing 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. 81

82 The phases are not static and the features of each phase may overlap other phases, they are presented in detail: 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 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 82

83 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) The Third Phase: The third phase of CSR ( ) 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) 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 83

84 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) Current State of CSR in India: The opening up of India s economy to foreign trade, investment, and competition can be traced back to 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 84

85 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. 85

86 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 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 18 th Dec-2012 the Lok Sabha cleared the companies Bill 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- 18 th 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 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). 86

87 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 lawmakers 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 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. 87

88 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 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, 88

89 Intellectual capital mobility, and Financial crisis-contagion effect-global crisis 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) 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). 89

90 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 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) Regulation/deregulation and international standards: 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 90

91 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) 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 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). 91

92 1.22 Financial crisis-contagion effect-global crisis: 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) 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). 92

93 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 93

94 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) 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 94

95 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 95

96 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) 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 96

97 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 97

98 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) Arguments for and Against Social Responsibility: 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, 98

99 consumers reject higher prices, and then sales drop. company will lose. For this reason the 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. 99

100 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. 100

101 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). 101

102 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. 102

103 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 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; 103

104 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: Value generated by the productive Process Rs. xxx + unappropriable benefits xxx - external costs imposed on the community xxx Net social profit / loss xxx 104

105 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 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 105

106 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 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 106

107 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 Prespective Innovation and 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 107

108 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-businessprocess 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) 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 108

109 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). 109

110 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) 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 110

111 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 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 misunderstanding. 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 111

112 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). 112

113 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) Other views on CSR Evaluation (measurement) and 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. 113

114 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 Likerman suggests a four step measurement model: 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 114

115 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 He also suggests eight step Approaches to measurement: 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? 115

116 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 116

117 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 forprofit 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 117

118 behavior and social impact of an organisation relation to its aims and those of its stakeholders 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 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 Global Reporting Initiative: The Global Reporting Initiative (GRI) s reporting guidelines were released in March 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 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 118

119 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 Certification / Standard Social Accountability International's SA8000 standard Standard Ethics Aei guidelines The ISO environmental management standard 119

120 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 standalone 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 120

121 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 c) British Standards Institution s OHSAS 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; 121

122 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 Raman Model: Raman (2012) by deriving from different research reports and working papers on various social enterprises (focusing on India) offer an effective framework for measuring / evaluating a community-based development approach of a CSR initiative. The questions engendered here one may have to come back to these again and again as the project evolves will ensure that a social initiative maximizes limited resources in pursuit for scaling-up its operations to reach the masses. Figure Inclusivity Customers (Innovations for the people) 1. What is the product s addressable market? Are the customers or suppliers really from the lowest income segments? 2. Do low-income people say they genuinely want these products of services? Does the enterprise need to push the product? 3. What substitutes exist for the products? How else do poor customers satisfy the demand offered by the product or services? 122

123 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 123

124 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 Strategy Provide products And services that enhance people s lives People Sustainable Creating new and rewarding jobs Beneficial Equitable Produce products that are friendly to our planet Planet Viable Profit Manage a business that provides a good for return for shareholders 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. 124

125 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. 125

126 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 agendaconsidering 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 126

127 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 127

128 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 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 128

129 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 129

130 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 illafford 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 130

131 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 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. 131

132 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: A case of Increased retention, reduced recruitment 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: 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 132

133 (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 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 Web ProNews. Employee Retention: What Employee Turnover Really Costs Your Company. costs-your-company accessed Feb. 9, 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 133

134 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 134

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). 135 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

136 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 The CSR competency Framework: 2005). The CSR competency Framework is made up of six characteristics (Redington, 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. account. Working with them through consultation and taking their views into 136

137 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 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: 137

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. activities would normally address: The community The government and the media Employees Customers in the marketplace Suppliers and subcontractors in the supply chain Non governmental organization Figure 1.8 Drivers for CSR* Government CSR Consumers CSR Employment Human rights Suppliers customers/client environment community Investors Employees Suppliers Source: The virtuous circle The significance of each activity will vary by business and industry but companies typically report on: 138

139 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 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). 139

140 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 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). 140

141 Figure 1.9 HR practices contributing to CSR Embedded Functional activity Corporate activity Tick box mentality None High Quite high Moderate Low Very low Extent of CSR activity Source: The Virtuous Circle Extent of HR involvement 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. 141

142 Step 1: Vision, mission, values for CSR strategy 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 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 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 142

143 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 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 143

144 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 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. 144

145 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 Step 5: Compensation and performance management: 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. 145

146 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 underachievement 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. 146

147 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 Step 6: Change management and corporate culture: 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 147

148 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 148

149 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 Step 7: Employee involvement and participation: 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). 149

150 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. 150