Corporate Social Responsibility

&
Sustainable Development

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What is CSR?

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Why social responsibility for Corporates?

 What is the main purpose of a business

organisation?

 Who should really be concerned with social

responsibility?

 Is it really the job of a business organisation to be

concerned about social issues and problems?

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Milton Friedman

“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, engages in
open and free competition
without deception or fraud”
The Social Responsibility of
Business is to Increase its Profit
(1970)
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 Milton Friedman’s argument

“Few trends could so thoroughly undermine

the very foundations of our free society
as the acceptance by corporate officials
of a social responsibility other than
to make as much money
for their shareholders as possible.”

The business of business is business.

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Friedman’s View of Pollution

Avoiding pollution
Less profit

Business More profit

Polluting
Which behaviour does Friedman prescribe?
Is pollution by business an issue today?

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Friedman’s View of child labour

Less profit
No Child
labour

Business Child labour More profit

Which behaviour does Friedman prescribe?

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 So, should companies be responsible
only to shareholders?

 YES -Milton Friedman argues that company’s sole

responsibility is to increase profits
 Why?
 Responsibility of a Co. executive is to conduct business
according to needs of employers and make as much money
while conforming to basic rules of society
 By giving away profits, the executive is imposing taxes on
shareholders
 Taxation is the responsibility of the government
 Executives should therefore take actions that are solely in
the interests of shareholders
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Stakeholders of an Enterprise
Stakeholders are any group - inside or outside the firm - who affects or is
affected by the firm’s goals & has a stake in the firm’s performance

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Stakeholders’ Expectations
 Shareholders/Investors – expect good dividend & capital
appreciation in market value of shares
 Customers - quality, availability, price, safety
 Employees – expect good salary & perks, a dynamic, stimulating
and rewarding work environment & skill development/ career
growth
 Suppliers – expect to get paid highest sustainable prices for
goods and services, expect loyalty
 Government - taxes, employment
 Society at large –expect companies to be long-term employers and
providers of tax revenues, community development, Environment
Protection & Social Welfare

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 If the firm is strategically competitive & earns above average
returns,
 it can afford to simultaneously satisfy all stakeholders.

 When earning average or below-average returns, tradeoffs must

be made. At the level of average returns, firms must at least
minimally satisfy all stakeholders.

 When returns are below average, some stakeholders can be

minimally satisfied, while others may be dissatisfied.

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Interdependence - a Corp. and Society
 Successful corporations need a healthy society
Education, healthcare, safe working conditions,
good govt. strong regulators
 A healthy Society needs successful companies
Creates jobs, wealth that pays taxes, innovation
to improve standard of living and social
conditions
Successful Corporations cannot survive in a failing
Society

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Why CSR? …..The Moral case
 Businesses should promote the betterment of society,
acting in ways to benefit all stakeholders because
 It’s the right thing to do!
 Based on an implied social contract, society
 Grants a business the right to conduct its business
affairs
 Agrees not to unreasonably restrain a business’ pursuit
of a fair profit
 In return for a “license to operate,” a business should
 Act as a responsible citizen
 Do its fair share to promote the general welfare

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An important view on CSR
“I think many people assume, wrongly, that a company exists
simply to make money.
While this an important reason of a company’s existence, we
have to go deeper and find the real reasons for our being.
As we investigate this, we inevitably conclude that a company
exists so that … able to accomplish something collectively
that… could not accomplish separately–
…. make a contribution to society,
a phrase which sounds trite but is fundamental”
Dave Packard
a co-founder of Hewlett-Packard
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Why CSR ? …… The Business Case
CSR affects the bottom line by
•Higher employee morale and commitment
•Enhancement of the brand with customers
•Better relations with governments, local communities
•Competitive advantage over rivals
•Reduced likelihood of regulatory intervention
•Cheaper capital from investors

Shareholders benefits – the shares do better

for a socially responsible company
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Factors ‘for’ & ‘against’ CSR
 The Factors “in favour of ” CSR
 CSR Increases long-run profits
 Improves public image
 Helps avoid government regulation
 Businesses have resources and ethical obligations to act
responsibly
 The Factors “against” CSR
 Creates higher business costs
 Reduces business profits
 Dilutes business purpose
 Social issues are not the concerns of businesses
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 So, what is CSR?
 Definition # 1:

 Philip Kotler and Nancy Lee (2005) define CSR as “a commitment to

improve community well being through discretionary business
practices and contributions of corporate resources”
 Mallen Baker defines CSR - “a way companies manage the business
processes to produce an overall positive impact on society.”
 Definition # 2:
 According to World Business Council for Sustainable Development
“Corporate Social Responsibility is the continuing commitment
by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce
and their families as well as of the local community and society
at large”.
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Responsibilities of Business
The Pyramid of CSR

Archie B. Carroll (1981)

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Responsibilities of Business

Must do Have to do Should do Might do

Profit is like A responsibility A responsibility Go the extra

‘oxygen’–there to achieve to develop a set mile;
is no life without economic goals of ethical no payback
it. But,.... within the various standards and expected
.. is breathing central, state, stick to them.
the purpose of local laws.
life? 19
Responsibilities of Business

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 Philanthropic
Responsibilities

Evolving expectations Ethical

Responsibilities

Legal Responsibilities
 Societal expectations are not static, they keepEconomic
changing
with economic progress. To a large extent variation
Responsibilities
in
CSR expectations across nations has been a function of
economic prosperity.

 These changes thus have important implications on

firm’s discretionary & ethical responsibilities, gradually
moving them into the fold of legal responsibilities.

 While the economic & legal compliance is a minimal

condition of CSR, it is the ethical & discretionary
concerns that are less precisely defined and for which
there is often no clear societal consensus.

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The Key Drivers of CSR
 Owner’s/Top management’s philosophy
 Image building - Brands
- CSR offers a competitive advantage
 Greater pressure from governments/regulators
 To be a good corporate citizen & to have improved
relationship with local community

Coca-Cola’s bottling facilities in

Plachimada has remained shut since
August 2005 due to concerns about
water shortages and pollution and fined
R. 216 crores.

Tata Motors was forced to relocate its Nano plant

out of Singur despite being invited there by the West
Bengal govt.
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The Key Drivers of CSR
 Owner’s/Top management’s philosophy
 Image building - Brands
- CSR offers a competitive advantage
 Greater pressure from governments/regulators
 To be a good corporate citizen & to have improved
relationship with local community
 Investors’ pressures

World Bank and IFC have influenced many

public and private sector companies e.g.
NTPC, Ballarpur Industries etc.

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The Key Drivers of CSR
 Owner’s/Top management’s philosophy
 Image building – Brands
- CSR offers a competitive advantage
 Greater pressure from governments/regulators
 To be a good corporate citizen & to have improved
relationship with local community
 Investors’ pressures
 NGO Activism

CSE played a crucial role in tightening automobile

emission standards
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What are the Key Drivers of CSR?
 Owner’s/Top management’s philosophy
 Image building - Brands
- CSR offers a competitive advantage
 Greater pressure from governments/regulators
 To be a good corporate citizen & to have improved
relationship with local community
 Investors’ pressures
 NGO Activism
 Greater focus by media on issues of CSR

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CSR is here to stay…

The question for corporations is not

whether to engage in CSR,
but what the best way forward is
for crafting CSR programs
that reflect a company’s business values,
while addressing economic,
social & environmental challenges.

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”In a free enterprise, the community is not
just another stakeholder in business but
is in fact
the very purpose of its existence”.

J N Tata
Founder, Tata Group

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