Chapter 2 Corporate Social Responsibility: An International And National Scenario

CHAPTER 2
CORPORATE SOCIAL RESPONSIBILITY:
AN INTERNATIONAL AND NATIONAL SCENARIO
2.1 Introduction 57
2.2 Evolution of Corporate Social Responsibility 58
2.3 Developmental History of Corporate Social Responsibility 58
2.4 Definition and Concept of CSR 59
2.5 Concept of CSR 60
2.6 Importance of Corporate Social Responsibility 61
2.7 Corporate Social responsibility and sustainability 63
2.8 Benefits of implementing CSR for Corporate 65
2.9 Practical CSR initiatives for Small Business 68
2.10 Company’s Stakeholders and their Concerns 70
2.11 Theoretical Studies on CSR 78
2.12 Carroll’s Pyramid of Corporate Social Responsibility 82
2.13 Corporate Social Responsibility in India 85
2.14 Evolution of corporate social responsibility in India 87
2.15 Four Phases of CSR Development in India 87
2.16 Current Scenario of Corporate Social Responsibility in India 89
2.17 Legal Frame work, Guidelines and Implementation of 90
Corporate Social Responsibility in India
2.18 Guiding Principles of Corporate Social Responsibility in India 91
2.19 Implementation of Corporate Social Responsibility in India 92
2.20 Eligibility Criteria 93
2.21 Composition of CSR Committee 93
2.22 Brief on CSR Activities as prescribed under Schedule VII of 93
CA, 2013
2.23 Yearly Compliances by the Companies under Sec 135 of the 95
New Companies Act 2013
2.24 Fines and/or Imprisonment for Failure to Comply and Report 95
2.25 Permissible CSR Activities in Companies Act 96
References 98

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Chapter 2 Corporate Social Responsibility: An International And National Scenario

In this chapter, researcher made an effort to provide an overview of the

international and national trends in CSR, evolution, history, theories and practices.
Moreover, how companies are managing CSR in India, guidelines, principles, rules
and regulation, their focus areas and how they are disclosing their CSR activities to
the public. This study was based on research conducted using secondary literature
review on information available in the public domain.

2.1 Introduction
Corporate social responsibility and ethics are the issues that are becoming
more and more important in today's business environment. Business in this era is free
to operate and accumulate profits. The effects of CSR activities on the profitability
and the long-term survival of a firm are enormous (Fairbrass, O’Riordan and Mirza,
2005). Businesses are part of a society having duties like other ‘citizens’ (Carroll,
1989). Nowadays, many business firms had started realizing significance of CSR as a
tool for dominating the competitive conditions existing in the national as well as
international market, for customer retention, and sustainable growth (Skapinker,
2008). Businesses also focus on customer-centric excellence in terms of high quality
products and services simultaneously providing value for money, treating employees
fairly and partners as important assets, agility, innovation in products and services,
social responsibility, and to build up environmental friendly techniques of production,
design, recycle industrial waste- products and conserve natural resources of the
country, forest conservation by planting more and more trees and customer solutions
for sustainable development in the country (Jones, 1980). The business have impact
on different stakeholders i.e., the Employees, Customers, suppliers, shareholders, the
local community and the environment in various ways.
Corporate social responsibility (CSR) allows business organizations to
develop responsible attitude toward the all the stakeholders and give a frame to work
within that frame and to behave ethically and contribute towards the economic
development of the nations. Corporate sector in every country has a major role to play
in developing it. Moreover, corporate sector treated as a backbone of the economy
and have a great responsibility in development and growth of the nation. Every
business has some responsibility to improve the general living standards of the

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society, elevating educational standards and creating a positive impact on society.

This can be possible through CSR in this globalized economy.

2.2 Evolution of Corporate Social Responsibility

There is an impressive history associated with the evolution of the concept and
definition of Corporate Social Responsibility. The general understanding of the term,
‘Corporate Social Responsibility’, is that business has an obligation to society, which
extends beyond its narrow obligation to its owners or shareholders. This idea has been
discussed throughout the twentieth century, but it was Howard R. Bowen’s book
‘Social Responsibilities of Businessman’ published in 1953, which was the origin of
modern debate on the subject. Since then, the topic of corporate social responsibility
has been explored extensively. He reasoned that there would be general, social and
economic benefits that would accrue to society, if business recognized its broader
social goals in its decisions.

2.3 Development and History of Corporate Social Responsibility

The development of CSR comprises three phases: (1) Rise and extension; (2)
Decline and absorption; (3) Revival of the concept. Although, responsibility rhetoric
remains, the responsibility construct has tended to evaporate under criticism of its
alleged vagueness and internal inconsistency (Levitt, 1958; Friedman, 1962, 1970).
What Carroll (1999, p. 268) calls ‘alternative themes’ have succeeded that construct
in academic circles, corporate social performance, stakeholder theory, and business
ethics approaches. In managerial circles global corporate citizenship and stakeholder
stewardship rhetoric focused in practice on an emerging economic theory of profitable
‘responsibility’. The academic context of this developmental history is conceptually
and empirically disparate. Business and society studies comprise a very loose
affiliation of several research and teaching streams. While partly overlapping, these
streams do not organize around any widely accepted core paradigm (Preston, 1975).
These streams generally include business ethics, corporate social performance,
environmental protection, global corporate citizenship, international policy regimes,
public policy (i.e., business-government relations), and stakeholder agreement theory.
In 1950s saw the start of the modern era of CSR when it was more commonly known
as social responsibility. Howard Bowen in 1953 published his book, Social

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Responsibilities of the Businessman, and was largely credited with coining the phrase
corporate social responsibility and was possibly he became the father of modern CSR.
Bowen advocated that Corporate Social Responsibility was “industry’s responsibility
to practice those policies, to make those decisions, or to follow those lines of actions
which are advantageous for the society” (Bowd, 2003). An extensive move toward the
business responsibilities, including responsiveness, stewardship, social audit,
corporate citizenship and fundamental stakeholder theory (Thomas and Nowak,
2006).

2.4 Definition of Corporate Social Responsibility

(Barnett, 2005) defines “Corporate social responsibility is voluntary activity by the
business aimed at the welfare of the society"
The World Business Council on Sustainable Development (WBCSD 2002) defines
CSR as “The integration of social and environmental values within a company’s core
business operations and to the engagement with stakeholders to improve the well-
being of society”.
(Business for Social Responsibility, 2000) defines CSR as “Business decision making
linked to ethical values, compliance with legal requirements and respect for people,
communities and the environment”.
(Indian NGOs, 2003) defines “Corporate social responsibility is a business process wherein
the institution and the Individuals within are sensitive and careful about the direct and
indirect effect of their work on internal and external communities, nature and the outside
world”.
(Frederick and Post, 1992) defines “Corporate social responsibility as a principle stating
that corporations should be accountable for the effects of any of their actions on their
community and environment”.
(Hopkins, 1998) defines “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 responsibly will increase the
human development of stakeholders both within and outside the corporation”
(Strategis, 2003) defines “CSR is generally seen as the business contribution to
sustainable development, which has been defined as development that meets the needs
of the present without compromising the ability of future generations to meet their

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own needs, and is generally understood as focusing on how to achieve the integration
of economic, environmental and social imperatives”.
A Department of Trade and Industry (DTI) (2008) working group defined CSR as
“The management of an organization’s total impact on its immediate stakeholders and
the society within which it operates.” ([Link] [Link])
It can be concluded from the above definition, that CSR has been developed around
the following principles:
 The interests of the firm’s stakeholders should be represented at the company
board and the decision-making process of the firm.
 CSR activities contribute directly towards society and other stakeholders, and
help in sustainable development of the nation.
 Businesses are accountable towards the effects of their actions on their
community and environment.
 CSR provide framework to act ethically and responsibly towards different
stakeholders and profit making is not only the sole motive of corporations.
 CSR is usually understood to be the way a company achieves a balance or
integration of economic, environmental, and social necessarily and
simultaneously coping with stakeholder expectations.

2.5 Concept of Corporate Social Responsibility

The escalating concept of Corporate Social Responsibility (CSR) goes beyond
charity and requires the company to act beyond its legal obligations and to integrated
social, environmental and ethical concerns into company’s business process (Carroll,
1991). Globalization made the world minor, and business, worldwide, is expanding
like never before. Companies are expanding their operations and crossing
geographical boundaries to spread their operations in other countries (Bowd, Bowd &
Harris, 2006). Indian companies also coping with the international business boom and
are at present internationally recognized as major players. India is presently amongst
the fastest growing countries in the world. The globalization and liberalization of the
Indian economy has assisting in accelerating growth rates.
In the current scenario, business enterprises are no longer expected to play
their traditional role of mere profit making enterprises. The ever-increasing role of
civil society has started to put pressure on companies to act in an economically,

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socially and environmentally sustainable way. (Matten and Moon, 2008) The
companies are facing escalating force for transparency and accountability, being
placed on them by their employees, customers, shareholders, media and civil society.
Businesses through CSR activities are also in a unique position to influence society
and make positive impact ([Link]). The triple bottom line approach to
CSR emphasizes a company’s commitment to operating in an economically, socially
and environmentally sustainable manner. The emerging concept of CSR advocates
moving away from a ‘shareholder alone’ focus to a ‘multi-stakeholder’ focus. This
would include investors, employees, business partners, customers, regulators, supply
chain, local communities, the environment and society at large (Robins, 2005). The
concept of CSR supposes that corporate behavior that goes beyond legal
requirements. CSR is the meticulous ‘issues’ which an organization takes into
consideration when developing strategies and on which an organization exceeds its
minimum required obligations to stakeholders (Arora and Puranik, 2004). Usually,
these issues are both internal and external to the organization i.e., employee benefit,
working environment, green issues, products etc. Today, the corporate social
responsibility extends to human rights, workplace practices, marketplace practices,
corporate power, environmental impact, corruption, community affairs and effective
stakeholder dialogue.

2.6 Importance of Corporate Social Responsibility

Corporates interact with society in many ways. They invest in facilities,
produce and sell products, employ people and subcontract or in-source many
activities. They also have an impact on the environment by the nature of their
activities, by using valuable resources, or creating by-products, which influence the
physical environment. Their interaction with society is through their employees and
the many facets of society around them. Further, corporates may act explicitly as
responsible, for either emotional reasons or business purposes. As the organization is
a part of the society, it cannot function in isolation. So there is an obligation and
responsibility from the part of the corporate to take action that protects and improves
the welfare of society as a whole along with company’s own interest (Davis, 1975).
The society plays a pivotal role in the success of any organization. Hence, no

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organization can achieve long-term success without fulfilling the responsibility

towards the society.
Originally, businesses were seen strictly as economic entities with the primary
responsibility for producing goods and rendering services required by a society. This
is the classical view held by Milton Friedman and Hayek, Theodore Levitt and other
authors. According to (Friedman, 1971) “Corporate social responsibility is beyond the
basic purpose of business and violates the responsibility of business to its owners, the
stockholders”.
With the business environment being characterized by various developments
including the shift of power from capital to knowledge, increased levels of literacy
and the shrinking of geographical boundaries due to faster means of travel and
communication, people are, by and large, becoming conscious of their rights, which
has led to a rise in the expectations of society from business. Thus, businesses depend
on society further existence and (Brenner and Cochran, 1991) it is in their interest to
take care of society. Businesses cannot operate or in vacuum. Like individuals,
businesses also need to live in the real world, i.e., in society.
Corporate Social Responsibility involves a commitment by a company
towards the sustainable economic development of the society. It means engaging
directly with local communities, identifying their basic needs, and integrating their
needs with business goals and strategic intend. The government perceives CSR as the
business contribution to the nation’s sustainable development goals. Essentially, it is
about how business takes into account the economic, social and environmental impact
of the way in which it operates. Simply stated, CSR is a concept, which suggests that
commercial corporations must fulfill their duties of providing care to the society.
The managers of large corporations and smaller businesses came to realize
that they have responsibilities that extend beyond their own stockholders to a wide
range of parties dependent on or affected by corporate performance. These parties are
known as stakeholders. (Freeman 1984) classic definition of stakeholders, arguably
the most popular definition cited in the literature (Kolk and Pinske 2006), proposed
that stakeholders are ‘any group or individual who can affect or is affected by the
achievement of a corporation’s purpose’. In addition to a company’s shareholders, its
stakeholders include its employees, the communities in which it operates suppliers,
customers, government and society at large.

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The business class should render their support to the general people. If they
will be uplifted socially and economically, the productivity of the corporate is also
bound to increase. The Corporates are to act according to the environmental factors
given in Fig. 2.1 like social, legal and ethical environment.
Figure (2.1) Corporates and Environmental Factors

Source: Sethi (1991), Carroll (1993), Shivaramu (1998)

As per the above figure (2.1) Corporate Social Responsibility is an obligation of the
organization to act in a way that serves both its own interests and interests of its many
external communities and environmental factors such as social environment including
customers, employees, creditors, suppliers of goods, society and legal environment
comprises of state and local governments. To get successful results corporates should
hold moral values and judgments and ethical standards.

2.7 Corporate Social Responsibility and Sustainability

Corporates are not merely profit making institution; they have responsibilities to help
society to overcome problems of the business. One of the areas in which corporate
social responsibility has to be practiced by corporate are health, environmental issues,
education, community, and promotion of art and culture and climate change. Many
factors and influences have led to increasing attention being devoted to the role of
companies and CSR. These include:
1) Sustainable Development: United Nations’ (UN) studies and many others
have underlined the fact that humankind is using natural resources at a faster
rate than they are being replaced. If this continues, future generations will not
have the resources they need for their development. In this sense, much of

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current development is unsustainable; it cannot be continued for both practical

and moral reasons. Related issues include the need for greater attention to
poverty alleviation and respect for human rights. CSR is an entry point for
understanding sustainable development issues and responding to them in a
firm’s business strategy.
2) Globalization: With its attendant focus on cross-border trade, multinational
enterprises and global supply chains. Economic globalization raising CSR
concerns related to human resource management practices, environmental
protection, and health and safety, among other things. CSR can play a vital
role in detecting how business impacts labour conditions, local communities
and economies, and steps can be taken to ensure business helps to maintain
and build the public good. This can be especially important for export-oriented
firms in emerging economies.
3) Governance: Governments and intergovernmental bodies, such as the UN, the
Organisation for Economic Co-operation and Development (OECD) and the
International Labour Organization (ILO) have developed various compacts,
declarations, guidelines, principles and other instruments that outline norms
for what they consider to be acceptable business conduct. CSR instruments
often reflect internationally-agreed goals and laws regarding human rights, the
environment and anti-corruption.
4) Corporate Sector Impact: The sheer size and number of corporations, and
their potential to impact political, social and environmental systems relative to
governments and civil society, raise questions about influence and
accountability. Even small and medium size enterprises (SMEs), which
collectively represent the largest single employer, have a significant impact.
Companies are global ambassadors of change and values. How they behave is
becoming a matter of increasing interest and importance
5) Communications: Advances in communications technology, such as the
internet and mobile phones, are making it easier to track and discuss corporate
activities. Internally, this can facilitate management, reporting and change.
Externally, NGOs, the media and others can quickly assess and profile
business practices they view as either problematic or exemplary. In the CSR
context, modern communications technology offers opportunities to improve
dialogue and partnerships.

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6) Finance: Consumers and investors are showing increasing interest in

supporting responsible business practices and are demanding more
information on how companies are addressing risks and opportunities related
to social and environmental issues. A sound CSR approach can help build
share value, lower the cost of capital, and ensure better responsiveness to
markets.
7) Ethics: A number of serious and high-profile breaches of corporate ethics
resulting in damage to employees, shareholders, communities or the envi
mistrust of corporations. A CSR approach can help improve corporate
governance, transparency, accountability and ethical standards
8) Consistency and Community: Citizens in many countries are making it clear
that corporations should meet the same high standards of social and
environmental care, no matter where they operate. In the CSR context, firms
can help build a sense of community and shared approach to common
problems.
9) Leadership: At the same time, there is increasing awareness of the limits of
government legislative and regulatory initiatives to effectively capture all the
issues that CSR address. CSR can offer the flexibility and incentive for firms
to act in advance of regulations, or in areas where regulations seem unlikely.
10) Business Tool: Businesses are recognizing that adopting an effective
approach to CSR can reduce the risk of business disruptions, open up new
opportunities, drive innovation, enhance brand and company reputation and
even improve efficiency (Sehgal and Mir, 2014).

2.8 Benefits of implementing CSR for Corporate

1) Better anticipation and management of an ever-expanding spectrum of
risk. Effectively managing governance, legal, social, environmental, economic
and other risks in an increasingly complex market environment, with greater
oversight and stakeholder scrutiny of corporate activities, can improve the
security of supply and overall market stability. Considering the interests of
parties concerned about a firm’s impact is one way of better anticipating and
managing risk.

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2) Improved reputation management. Organizations that perform well with

regard to CSR can build their reputation, while those that perform poorly can
damage brand and company value when exposed. Reputation, or brand equity,
is founded on values such as trust, credibility, reliability, quality and
consistency. Even for firms that do not have direct retail exposure through
brands, their reputation for addressing CSR issues as a supply chain partner—
both good and bad—can be crucial commercially.
3) Enhanced ability to recruit, develop and retain staff. This can be the direct
result of pride in the company’s products and practices, or of introducing
improved human resources practices, such as “family-friendly” policies. It can
also be the indirect result of programs and activities that improve employee
morale and loyalty. Employees are not only front-line sources of ideas for
improved performance, but are champions of a company for which they are
proud to work.
4) Improved innovation, competitiveness and market positioning. CSR is as
much about seizing opportunity as avoiding risk. Drawing feedback from
diverse stakeholders can be a rich source of ideas for new products, processes
and markets, resulting in competitive advantages. For example, a firm may
become certified to environmental and social standards so it can become a
supplier to particular retailers. The history of good business has always been
one of being alert to trends, innovation, and responding to markets.
Increasingly, mainstream advertising features the environmental or social
benefits of products (e.g., hybrid cars, unleaded petrol,14 ethicallyproduced
coffee, wind turbines, etc.).
5) Enhanced operational efficiencies and cost savings. These flow in
particular from improved efficiencies identified through a systematic approach
to management that includes continuous improvement. For example, assessing
the environmental and energy aspects of an operation can reveal opportunities
for turning waste streams into revenue streams (wood chips into particle
board, for example) and for system-wide reductions in energy use, and costs.
6) Improved ability to attract and build effective and efficient supply chain
relationships. A firm is vulnerable to the weakest link in its supply chain.
Like-minded companies can form profitable long-term business relationships
by improving standards, and thereby reducing risks. Larger firms can stimulate

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smaller firms with whom they do business to implement a CSR approach. For
example, some large apparel retailers require their suppliers to comply with
worker codes and standards.
7) Enhanced ability to address change. A company with its “ear to the ground”
through regular stakeholder dialogue is in a better position to anticipate and
respond to regulatory, economic, social and environmental changes that may
occur. Increasingly, firms use CSR as “Radar” to detect evolving trends in the
market.
8) More robust “social licence” to operate in the community. Improved
citizen and stakeholder understanding of the firm and its objectives and
activities translate into improved stakeholder relations. This, in turn, may
evolve into more robust and enduring public, private and civil society alliances
(all of which relate closely to CSR reputation, discussed above). CSR can help
build “social capital.”
9) Access to capital. Financial institutions are increasingly incorporating social
and environmental criteria into their assessment of projects. When making
decisions about where to place their money, investors are looking for
indicators of effective CSR management. A business plan incorporating a
good CSR approach is often seen as a proxy for good management.
10) Improved relations with regulators. In a number of jurisdictions,
governments have expedited approval processes for firms that have
undertaken social and environmental activities beyond those required by
regulation. In some countries, governments use (or are considering using) CSR
indicators in deciding on procurement or export assistance contracts. This is
being done because governments recognize that without an increase in
business sector engagement, government sustainability goals cannot be
reached.
11) A catalyst for responsible consumption. Changing unsustainable patterns of
consumption is widely seen as an important driver to achieving sustainable
development. Companies have a key role to play in facilitating sustainable
consumption patterns and lifestyles through the goods and services they
provide and the way they provide them. “Responsible consumerism” is not
exclusively about changing consumer preferences. It is also about what goods
are supplied in the marketplace, their relationship to consumer rights and

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sustainability issues, and how regulatory authorities mediate the relationship

between producers and consumers (Hohnen and Potts 2007).

2.9 Practical CSR Initiatives for Small Business

Drawing on the activities of small businesses implementing CSR, here is a list
of practical CSR activities a small business can do. These initiatives are likely to be of
interest to personnel in larger firms as well.
2.9.1 Improving the environment:
a) Reduce consumption of energy, water and other natural resources, and
emissions of hazardous substances;
b) Use or produce recycled and recyclable materials, increase the durability of
products, and minimize packaging through effective design (reduce, reuse and
recycle).
c) Train and encourage staff to look for additional ways to reduce the firm’s
environmental footprint.
d) Use “green” (i.e., renewable energy) power electricity suppliers and energy-
efficient lighting;
e) Join or start a local “green business” club that can help local firms access
conservation grants and expertise for reducing waste, water use and energy;
f) Consider using video-conferencing to meet a potential supplier or customer
rather than always physically travelling to meetings; and
g) Establish an environmental management system with objectives and
procedures for evaluating progress, minimizing negative impacts and
transferring good practices.
2.9.2 Improving human resource management practices:
a) Establish policies to ensure the health and safety of all employees and make
the policies known to employees;
b) Involve employees in business decisions that affect them and improve the
work environment;
c) Consult employees on how to handle a downturn in business (e.g., offer the
option of all staff taking pay cuts or reduced hours instead of layoffs);
d) When layoffs or closures are unavoidable, offer outplacement services,
retraining and severance benefits;

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e) Provide training opportunities and mentoring to maximize promotion from

within the organization;
f) Extend training to life management, retirement planning and care of
dependents; Be open to job splitting, flex-time and other work-life balance
policies;
g) Share training and human resources programs with other local small
businesses;
h) Consider supporting daycare for children or elderly dependants;
i) Encourage a healthy workplace (e.g. implement a smoking ban or drug and
alcohol abuse support program); and
j) Provide exercise facilities or offer subsidized membership at a local gym.
2.9.3 Promoting diversity and human rights:
a) Make sure that all staff knows that there are explicit policies against
discrimination in hiring, salary, promotion, training or termination of any
employee on the basis of gender, race, age, ethnicity, disability, sexual
orientation or religion.
b) Do not tolerate jokes or behavior in the workplace that insult employees on the
basis of gender, race, age, ethnicity, disability, sexual orientation or religion.
c) When hiring, think creatively about where to advertise the job and whether
there are any local employability schemes (e.g., run by a local council or
employer) to help find work for people who are homeless or disabled.
d) Pay comparable wages for comparable work.
e) Support organizations that promote fair trade and human rights compliance.
f) Check where products are manufactured and look into any associated human
rights concerns.
2.9.4 Helping the community:
a) Encourage employee volunteering in the community and with financial
contributions and help in kind.
b) Make some of the business’s product or services available free or at cost to
charities and community groups.
c) Look for opportunities to make surplus product and redundant equipment
available to local schools, charities and community groups.
d) Buy from local suppliers and strive to hire locally.
e) Offer quality work experience for students (job shadowing).

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f) Collaborate with local teachers to make the business the subject of a school
project.
g) Use the business’s experience to help a local school, charity or community
group become more efficient and entrepreneurial.
h) Use some of the marketing budget to associate the business or bran with a
social cause.
2.9.5 In general:
a) Develop new environmental and social products and services; innovation
brings competitive advantage.
b) Share CSR lessons learned with business customers, business neighbours and
fellow members of a trade association or business organization.
c) The environmental, social and economic performance of the business to
stakeholders and consider their ideas and views as the business develops.
d) Commit to an external code or standard or a set of business principles that
provides a framework to measure progress on environmental, and social and
community issues (Hohnen and Potts 2007).

2.10 Company Stakeholders and their Concerns

The following table showed different important stakeholders and their concerns and
responsibility towards them:
Stakeholder Stakeholders’ Concerns
Customers Value, quality, customer care, ethical products.
Shareholders Return on investment, income
Employees Rates of pay, job security, compensation, respect, truthful
communication,
Quality, worker protection, jobs.
Society Jobs, involvement, environmental protection, shares, truthful
communication.
Government Taxation, VAT, legislation, employment, truthful reporting,
diversity, legalities, externalities.
Owner(s) Profitability, longevity, market share, market standing, succession
planning, raising capital, growth, social goals.

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2.10.1 Responsibility towards Customers

Customers are one of an organizations stakeholder. Customers provide
revenue in return for the benefits that ownership of the product or service brings.
Customers want the business to produce quality products at reasonable prices.
Without customers a business would not exist. Focused was also given on the
influence of CSR on brand image and consumer trust (Kennedy, Ferrell, & LeClair,
2001). Therefore business major objectives is to win and maintain customers by
developing and providing products and services which offer value in terms of price,
quality, safety and environmental impact, which are supported by technological,
environmental and commercial expertise.' Organizations are increasingly investing
resources to demonstrate their commitment, ethical outlook, and responsible behavior
in this area (Martinet & Reynaud, 2000). Studies have recognized that CSR programs
certainly have a strong influence on consumers’ attitudes and behaviors towards
products and companies (Sen & Bhattacharya, 2001). Practitioners understood the
value of company’s socially responsible actions and its impact on driving consumers’
purchasing decisions along with the traditional criteria of price, quality and service
(Swaen & Chumpitaz, 2008).
All companies, brands are very important as they communicate to customers,
employees and other stakeholder regarding the images of companies or their products.
If the goods or services of organization are superior, it will be supported by the
stakeholders. But, on the other hand if they are not, it damaged the company’s images,
goods or services at that point of time (Enquist Edvardsson and Sebhatu ,2008).
Company must keep customer in mind at all times and make the quality
products and services at highest priority. From the quality assurance efforts of each
employee to the quality of our company as a whole, we will devote ourselves to
creating products and services that please our customers and earn their trust. But for
the consumers patronage a business cannot survive and grow. That is why Peter
Drucker said, ‘There is only one valid definition of business purposes: to create a
customer’ and this purpose must be out- side of the business itself. The customer is
the foundation of business and keeps it in existence and it is to supply the customer
that society entrusts wealth producing resources to the business enterprise. The main
function of business is to create a customer and the profits are just a result of it.

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The Social responsibilities of business towards customers are:

(a) The goods must meet the needs of the consumers of different classes, tastes
and purchasing power.
(b) The goods must be reasonably priced, of dependable quality and of
sufficient variety.
(c) The sale should be followed by service to ensure advice. guidance and
maintenance.
A fairly widespread distribution of goods and services among all sections of
consumers and the community.
(d) The prevention of concentration of goods in the hands of a limit number of
producers or purchasers or goods.
(e) Avoiding creation of artificial scarcity.
(f) Revealing truths in advertising and labels.
(g) Avoiding misleading advertisements and
(h) Formation of a consumer advisory council to solve the consumer’s problem.
The growth of business will depend not only on meeting the present requirements of
the consumer but also on creating new consumer demands which could serve a better
cause. This aspect requires consideration of the owners of private sector as well as
public sector if they are to serve the real cause of the society. (Ali, Alam and Malik,
2012).
2.10.2 Responsibility towards Shareholders
Shareholders are concerned with assessing the profitability of their investment.
The decisions made by managers determine what they can expect both in terms of
dividends, or profits, and capital growth, both of which are reflected through the share
price ([Link] It is also important for the company's
stability that shareholders continue to hold shares. Investors have a number of
different companies and investment options to choose from and, if a company in
which they have invested is not producing returns for them, they may sell their shares
and invest elsewhere. Sales by large institutional shareholders can create uncertainty
about the company's performance and future and cause the share price to fall. This can
limit the company's ability to grow and develop.
The traditional company law very clearly lays down that the company
management has to function for the shareholders, on behalf of the shareholders and in
the interest of the shareholders. It manages the company for the shareholders and it

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much earns the maximum profit, which must ultimately, belongs to the shareholders.
It is the duty of the management as trustees to promote the interests of the
stockholders- interpreted as maximum returns on and conservation of invested capital,
any tendency to consider the interests of workers consumer or the public except as
these might directly or indirectly advance the interests of stock- holders, is therefore a
violation of a trust. This is exactly the strict legal position. But as enunciated earlier,
the concept of social responsibility provides that’ under modem conditions that the
interests of the stock- holders can be better served only by assumption of
responsibilities toward workers, consumers and the public, otherwise it would be most
difficult to run the corporation on behalf of the stockholders.” (Ali, Alam and Malik,
2012)
2.10.3 Responsibility towards Employees
Human resource is the most valuable asset for any organization. The aim of a
company management should be to win the whole-hearted support of its employees.
They should be made to feel that they belong to the company. They should be treated
in such a way that they develop a ‘sense of belonging’ or a ‘sense of oneness’ with the
organization. The management should not think that its people are mere paid servants.
They are to be considered as co-partners in the organization. It should care not only
for the working conditions and minimum living conditions of its people. Their
psychological needs such as desire for status, freedom of expression and free
association with superiors are to be satisfied. This is the basic condition for real
motivation. The following may be a variable mix for human motivation.
(1) Allotment of work according to one’s aptitude and temperament.
(2) Work-habituation-one should have been habituated to work from childhood.
(3) Assurance of vertical promotion and growth in the line of work-possibility of
reaching the top position or positions in the organization.
(4) Sufficient satisfactory and just rewards.
(5) Ambition for progress.
(6) Just political, economic and social environment.
(7) Justice, equity and fairly in behavior.
(8) Environment of equality in behavior and a spirit of comradeship everywhere
(9) A slight fear of punishment.
(10) Group pressures.
(11) High quality of direction and leadership

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(12) Good working condition.

(13) Change of workers position to avoid monotony
(14) Progress and rise of fellow workers, neighbors, relatives and others known to
the workers.
(l5) Esteem needs or egoistic needs related to worker’s dignity and self-respect.
Egoistic needs appear never to be completely satisfied and so never lose their
motivating power.
(16) Self-actualization needs. These are the individuals’ needs for realizing his own
potentialities, for self-fulfillment, for continued self-development.
(17) One’s influence and importance in the organization.
(18) Individuals’ own ideal and view of life and value system.
(19) Cultural characteristics.
(20) Education and training.
The other motivating forces which help the employees to become more satisfy and
loyal to the business are discussed below:
[Link] Fair wages and salaries: As Taylor considered money is the greatest
motivating force. They should be such that a wage- earner can provide for himself
and his family consisting of a reasonable number of members, such as wife, two
children and one or two dependants) the minimum necessities of life such as food,
clothes, a moderately rented one-room flat, reasonable medical care, education, and
basic minimum insurance against old age, invalidity and unemployment. There is also
the view that wages should be a little over what the needs justify so that employees
may have some minimum surplus for other comforts with which they can give shape
and expression to life and their own ideas. This particular social responsibility of
business with regard to wages naturally depends on the ability of the company to pay
and on the productivity of the workers.
[Link] Good Relationship between Employer & Employees: As Schoen Donald
suggested that Human relation approach is also a motivating force. The major
obstacles standing in the way of good relationship between employers and employees
can be divided under two broad categories:
I. Lapses on the part of employers.
II. Lapses on the part of Employees.

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i.) Lapses on the part of employers include:

(a) Unsympathetic and unseemly treatment by supervisors;
(b) Favoritism by employers in appoin1ment, promotion and other
matters.
(c) Lack of leave with or without pay.
(d) Lack of communication between the management and workers as a
normal routine course of behavior inside the organization
(e) General absence of any norms, and lack of appreciation of meritorious
achievements and no condemnation of lathery and neglect.
(f) Delay in settling disputes.
ii.) Lapses on the part of employees include:
(a) Indiscipline and negligence in carrying out the orders of superiors.
(b) Lack of real desire to improve efficiency.
(c) Politically inspired trade unions controlled by outsiders who do not
belong to the industry or labour:, tarnishing the whole image of the
employer relationship.
(d) Strikes, gherao, etc.
[Link] Employees Welfare Facilities
Management should assume responsibility towards employee’s welfare
amenities e.g. Provision for satisfactory working conditions, including safety and
security, educational facilities, medical facilities, housing accommodation, canteen
facilities, drinking water facilities etc. (Ali, Alam and Malik, 2012)
2.10.4 Responsibility towards Society
The management is responsible to the community for protecting the public
interest of society. By producing goods and services efficiently and by fair means,
business can contribute to the economic well being of the community and its social
uplift. This responsibility extends to improving the quality and volume of the products
lowering costs, and thereby prices, thus contributing to greater satisfaction and well
being of the consumers. The gains from increased productivity and growth should be
shared equitably among the management, the shareholders, the workers and the
consumers. Business must contribute to the advancement of local amenities of the
community. It should bear the social cost of its anti-social conduct e.g. fouling the air,
destruction of the natural beauty of the surrounding landscape, condition of slums and
congestion. Business should take all measures to clean up of existing pollution. It

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should design the processes to prevent pollution. It should maintain the environmental
quality and ecological standards. It should help the government for wider dispersal of
industry. Business should give financial support for artistic activities. Gifts and
donations should be made by business for education and assorted charitable purposes
in the society.
a) Actively contribute to the communities in which we operate, as well as the
international community, facilitating mutually beneficial relationships.
b) Respect the cultures and traditions of the countries in which we operate.
c) Engage in open dialogue with the local and international community.
d) Actively engage in activities that promote our standing as a good corporate
citizen.
e) Nurture a culture in which our employees are encouraged to participate in
volunteer activities and other activities that facilitate good corporate
citizenship.
f) Establish the systems needed to support such efforts. (Ali, Alam and Malik,
2012)
2.10.5 Responsibility towards Government
Business activities are governed by the rules and regulations framed by the
government. The various responsibilities of business towards government are:
a) To be a law-abiding citizens.
b) To pay his dues fully and honestly.
c) Not to purchase political support by unfair means.
d) To strive fairly and honestly to stimulate economic growth by making
reasonable sacrifices, if the national interest so requires.
e) Not to corrupt public servants.
f) To sell his goods and services without adulteration at fair and reasonable
prices.
g) To maintain fair trade practices and refrain from activities like restraint of
trade, hoarding, cornering and other such unfair practices.
However, to meet the above social responsibilities business also expects certain
considerations from the State. Broadly stated, business expectations from the State
are:
a) Clean, prompt and efficient administration.
b) Intelligent, practical laws, easily understood and easily applied.

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c) Reasonable stability in legislative, administrative and fiscal policies.

d) Preservation of law and other ensuring safety of life, property and continuity
of business.
e) Rational tax structure.
f) Even treatment to various groups and sections in the society. (Ali, Alam and
Malik, 2012)
2.10.6 Responsibilities towards Owners
A peep into the early history of industrialization shows that the gains arising
from production were not always distributed in a socially desirable manner. The
producer or owner of the productive unit exploited the other constituents (Workers,
consumers, etc.) in a most unfortunate manner. The main objectives of doing
business in the past had been the ‘Maximization of profit’, through exploitation of
workers or consumers, or society at large.’ But now a time has come when society is
in a mood to say halt to its own exploitation and it has begun to react sharply to any
such move of its exploitation, and such social consciousness ultimately checks the
very wheels of commerce and industry. Consequently, for the proper conduct of
business, the assumption of social responsibility is becoming very much imperative
day by day. It means that reasonable profits cannot be made unless business cares for
other partners too such as workers, consumers, etc. In this sense, the concept of social
responsibility is contributory of profit under modern conditions.
The prime concern of a company should be to mind its economic performance
and maintain sound financial health. Unhealthy sick business units will be a burden on
the society. Therefore, business should be well managed. Its resources should be
properly utilised and its finances should speak of its viable operation both in the short
and long-range perspectives. To do good’ one should ‘do well. Otherwise business
would find its way out and ultimately the society would suffer. Thus, the first
responsibility of a company is to its own self.
The social responsibility towards owners covers such areas as managing the business
profitability, ensuring fair and regular return on capital employed, guaranteeing
capital appreciation, and consolidating the financial position of the business so that it
can withstand fluctuating fortunes so common in business.
The rate of return or investment should be definitely higher than the rate of interest on
bank deposits. It is suggested in certain quarters that it should be 6% above the

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prevailing bank rate as a minimum, with the maximum not exceeding 16% of the
capital investment (Ali, Alam and Malik, 2012).

2.11 Theoretical Studies on CSR

2.11.1 Stakeholder Theory
A Stakeholder theory is a theory of organizational management and business
ethics that addresses morals and values in managing an organization. A Stakeholder
Approach (1984), stakeholder management, stakeholder theory, and other variants of
stakeholder analysis have occupied a great deal of managerial research. (Freeman,
1984) argued that business relationships should involve all those who may “affect or
be affected by” a corporation. Traditionally, shareholders or stockholders are the
owners of the company, and the firm has a binding to put their needs first, to enhance
value for them. Stakeholder theory argued that there are other parties which involved
in the businesses that include employees, customers, suppliers, creditors,
communities, governmental bodies, political groups, trade associations, NGO’s, and
trade unions. Shareholder theory represents the classical approach to business,
according to this theory a firm’s responsibility rests only with its shareholders
(Cochran, 1994). This theory challenges the outlook that shareholders have an
opportunity over other stakeholders (Freeman and Reed, 1983). In essence,
stakeholder theory states that firms should focus only on maximizing the economic
interests of shareholders, the residual owners of the firm (Orts and Schulder, 2002).
Company’s stakeholders can be grouped in the following four categories fig (2.2):
1. Authorizers – This group includes government, regulatory authorities,
shareholders, and the Board of Directors. These are the stakeholders who have
authority over the company and authorize its decisions.
2. Business partners – Employees, suppliers, trade associations, and service
providers are all business partners. These stakeholders help company in
reaching its objectives;
3. Customer groups – All kind of customers fall within this stakeholder group;
and
4. External influences – Community members, media, and issue advocates also
influence company’s decision-making process.

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The stakeholder concept is highly relevant for CSR, as without it would be

difficult to identify various groups (stakeholders) that can be, and actually in practice
are, highly influential for company’s success. Further, also many modern definitions
of CSR incorporate stakeholder theory (e.g. Chandler, the European Commission).
Also, using stakeholder concept can help in measuring CSR. (Clarkson,1995)
proposed that corporate social performance can be examined and evaluated more
efficiently by using a framework based on the management of a corporation’s
relationships with its stakeholders than by using models and methodologies based on
concepts concerning CSR.
Figure (2.2) Stakeholder Model

Source: Based on Dell (2007)

Relationships with stakeholders are not static but develop over time. These
relationships often go through the following stages:
1. Awareness – At this phase stakeholders recognize that the company exists.
2. Knowledge – Stakeholders have begun to know what the company does, its
ethics, strategy, and mission. Through this stage companies provide
stakeholders with relevant information to make knowledgeable decisions.
3. Admiration – At this stage trust between companies and stakeholders is being
developed.

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4. Action –Businesses collaborate with stakeholders. Customers refer business,

investors recommend the stock, and employees are willing to take greater
responsibility (Epstein, 2008)
2.11.2 Legitimacy Theory
According to Suchman (1995), legitimacy is generalized perception or
assumption that the actions of an entity are desirable, proper or appropriate within
some socially constructed system of norms, values, beliefs and definitions’ (Moir,
2001). Legitimacy theory closely relates to stakeholder theory, the theory also
suggests that organizations always try to ensure that they operate within the defined
norms and boundaries of their respective societies. In simpler terms, the notion behind
legitimacy theory is that there is a ‘social contract’ existing between th organization
and the society within which it operates (Guthrie, Petty, Yongvanich, & Ricceri,
2004). Reviewing the prior literature on legitimacy management and including
strategic tradition of resource dependency theory (1978), and institutional traditions
(1983), Suchman (1995) identified three types of organizational legitimacy:
pragmatic, moral, and cognitive. Further, gaining, maintaining, and repairing
legitimacy were identified as the three major challenges of legitimacy management.
Suchman (1995) put-forward that legitimacy management is heavily
dependent on communication, and thus, to understand legitimacy theory some forms
of corporate communications must be examined (Moir, 2001). Lindblom (1994)
however believes that legitimacy is not necessarily only a gentle process for
organizations to gain legitimacy from the society. She suggested four broad
legitimation strategies that an organization can employ on encountering different
legitimation threats. First, an organization can seek to educate stakeholders about its
intentions to improve their performance. Second, the organization might attempt to
change the perceptions of the ‘relevant public’, without changing the organization’s
actual performance. Third, the organization can try to divert the attention away from
the issue of concern. Fourth, the organization can attempt to manipulate external
expectations on its performance (Guthrie, Petty, Yongvanich, and Ricceri, 2004).
(Lindbolm, 1994) then concluded that legitimacy can be considered as the key reason
to undertake corporate social behavior and also as an action taken for publicity or
influences.
(Davis, 1973) presented a converse of the view proposed by (Lindblom, 1994). He
suggested that the business does not use its power to legitimate its activity, on the

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contrary, in an expectation to be used responsibly, the society grants power to the

business. Thus, if the business does not behave responsively, they tend to lose these
powers. This re-signified the concept of social contract, between the firm and society.
(Moir, 2001) thus concludes that the CSR practice within the organization is
potentially motivated in alliance with social contracts theory, and then analyzed using
the stakeholder theory, to provide enhanced reputation or legitimacy to the firm
Legitimacy theory postulates that corporate responsibility reacts to
environmental factors (economic, social, and political) and that disclosures legitimize
actions (Preston and Post, 1975; Honger, 1982; Lehman, 1983; Lindblom, 1983).
Legitimacy theory is based upon the notion that business operates in society through
a social contract where it agrees to perform various socially desired actions in return
for approval of its objectives, other rewards and its ultimate survival. It therefore
needs to disclose enough social information for society to assess whether it is a good
corporate citizen. In legitimating its actions via disclosure, the corporation hopes
ultimately to justify its continued existence (Lehman, 1783). The theory is largely
reactive in that it suggests organizations aim to produce congruence between the
social values inherent (or implied) in their activities and social norms (Lindblom,
1983). Corporate social disclosures may then be conceived as reacting to the
environment where they are employed to legitimize corporate actions. The legitimacy
theory can be conveniently bifurcated into “Legitimacy theory posits that corporate
disclosure reacts to environmental factors (economic, social, political).” It also
discloses legislative actions.
Business decisions and disclosures are influenced by two sets of factors, viz.
internal and external factors. Internal factors can be called internal environment while
external factors are called external environment. Internal factors are controllable.
They are personnel, physical facilities, organizational factors and functional means.
External factors are not within the control of a company. They include economic
factors, socio-cultural factors, government and legal factors, demographic factors,
geo-physical factors etc. are, therefore, generally regarded as uncontrollable factors.
2.11.3 Agency Theory
Agency theory explains “situations in which one individual (the agent) acts on
behalf of another (the principal) and is supposed to advance the principal’s goals.”
The principal-agent relationship arises when one party (the principal) hires another
party (the agent) to perform some service and then delegate decision-making authority

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to the agents (Steurer and Konrad, 2009). The management of agency relationships
plays an important role in corporate governance because corporate governance is
often defined as a principal-agent relation. Thus the selection of the principal and the
agent is crucial for explaining the relations between the different groups and the
choice of a strategy to manage the agency problems (Germanova, 2008). Agency
theory is based on the maximization of shareholders value. Companies exist to
maximize the wealth of the owner in the form of share price increases and dividend
payment. (Friedman, 1970) states that engaging in CSR is indicative of an agency
problem or a conflict between the interests of managers and shareholders. He argues
that managers us CSR as a means to further their own social, political, or career
agendas, at the expense of shareholders. According to this view, resources devoted to
CSR would be more wisely spent, from a social perspective, on increasing firm
efficiency. Management makes decisions in the running of the business as they have
access to information that may not be accessible to the shareholders. In the business
environment, agency theory shows the relationship between the shareholders who act
as the principals and the

2.12 Carroll’s Pyramid of Corporate Social Responsibility

A wealth of literature has been available on CSR over the period of time,
many containing their own classification of CSR and related concepts. The most
broadly accepted and referred to conceptualization of CSR found in the business and
management literature is that of Archie Carroll, who sees CSR as a construct relating
to four different areas of business-society relations (Carroll, 1979, 1991). Carroll
(1979) provided some substance to the argument that CSR involves going beyond the
law argued that a definition of social responsibility, if it is to fully address the entire
range of obligations business has to society; it must symbolize the economic, legal,
ethical and discretionary categories of business performance. Business organizations
should not only be evaluated on their monetary success but also on non-economic
criteria. He also suggested that business organizations are faced with four types of
social responsibilities: economic, legal, ethical and discretionary.
Carroll (1991) later suggests that these categories might be showed as a
pyramid. In essence a firm is regarded as socially responsible if it is profitable, obeys
the law, engages in ethical behavior and gives back to society through philanthropy

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(Carroll, 1999). Hemphill (2004) summarizes these four components of CSR as

striving to make a profit (economic), obey the law (legal), be ethical (ethics) and be a
good corporate citizen in its relationship with stakeholders (philanthropic). (Wood
and Jones, 1996) Carroll's four domains have "enjoyed wide popularity among SIM
(Social Issues in Management) scholar. Carroll's CSR domains and pyramid
framework remain a leading paradigm of CSR in the social issues in management
field.
The following model of CSR was given by Carroll known as “Pyramid”. In
the Pyramid of Corporate Social Responsibilities (CSR) each of these four elements is
discussed below fig (3):
Figure (2.3) Carroll’s Pyramid of CSR

2.12.1 Economic Responsibility: - The survival of business is motivated by the

maximization of profit and increasing shareholder value. Businesses have
shareholders who require a good return on their investments. Businesses have
employees who desire safe and fairly paid jobs; they have customers who demand
good quality of products and services at a fair price etc. Businesses are set up in
society and their first responsibility is to function correctly as an economic unit. All
responsibilities are based on this first layer of CSR. According to Carroll, the
satisfaction of economic responsibilities is hence necessary of all corporations.
Economic responsibilities considered to fulfill societal needs and wants by producing
products and services to them. It is to be expected that corporation has to make and

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sustain strategic planning and under pressure to remain its production cost as low as
possible.
2.12.2 Legal Responsibility: - Every business has some legal responsibilities and it
has to operate its function under some rule promulgate by central, state, and local
governments as the basic rules under which it operate. Legal responsibilities revealed
a view of "codified ethics" in the sense that they embody basic notions of fair acts as
established by lawmakers. Legal responsibilities are showed as the next layer on the
pyramid, but they are appropriately seen as coexisting with economic responsibilities
as fundamental precepts of the free enterprise system (Carroll, 1991).
2.12.3 Ethical Responsibility: - This responsibility obliges corporations to do what is
right, just and fair, even when they are not obliged to by the legal framework. Carroll
argues that ethical responsibilities therefore consist of what is generally expected by
society over and above economic and legal expectations (Carroll, 1991). A company's
legal responsibilities are the compulsions that are placed on it by law. Besides
ensuring that company is profitable, ensuring that business follows all laws is the
most important responsibility. Legal responsibilities are securities regulations to labor
law, environmental law and even criminal law.
2.12.4 Philanthropic Responsibility: - The fourth level of CSR emphasis at the
philanthropic or charitable responsibilities of businesses. This level of CSR deal with
a great variety of issues such as charitable donations, recreation facilities for
employees and their families, support for local schools, or sponsoring of art and sports
events, education and health facility for society. (Carroll, 1991) philanthropic
responsibilities are merely desired of corporations. A core debate in CSR is the idea
of voluntary initiative by the corporation. This certainly applies in the areas of ethical
and philanthropic responsibilities, but would also apply to the first two levels. The
underlying rationale of explicitly stating economic and legal “Responsibilities” as
“Requirements” of corporations assumes that certainly on a short term basis
corporations have discretion in the way they live up to these responsibilities.
Businesses can choose to, or by virtue of neglect, fail to meet responsibilities to the
major stakeholders of companies, shareholders and employees.

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2.13 Corporate Social Responsibility in India

Corporate Social Responsibility is not a new term in India. As far back as
1965, the then Prime Minister of India, Lal Bhahadur Shastri, presided over a national
meeting that issued the following declaration on the Social Responsibility of
Business: “Business has responsibility to itself, to its customers, workers,
shareholders and the community, every enterprise, no matter how large or small, must
if it is to enjoy confidence and respect, seek actively to discharge its responsibilities in
all directions, and not to one or two groups, such as shareholders or workers, at the
expense of community and consumer. Business must be just and humane, as well as
efficient and dynamic.” “Business cannot succeed in a society that fails”, Corporate
Social Responsibility is being considered as an imperative for carrying on business in
the society rather than as a charity. While Corporate Social Responsibility is relevant
for business in all societies, it is particularly significant for developing countries like
India, where limited resources for meeting the ever growing aspirations and diversity
of a pluralistic society, make the process of sustainable development more
challenging (Panda, 2008).
Although many companies, NGOs and trade unions were aware of corporate
responsibility practices, the concepts are yet to become part of core business strategy
in most companies in India. Almost all companies, irrespective of size and sector had
some awareness of corporate responsibility and its potential benefits. While most
companies also had policies in place related to labour issues, community relations and
environmental practices, they were for the most part not backed up by comprehensive
implementation and monitoring systems (Rani and Sarala, 2013). Community
programmes or social development initiatives, in most cases, were philanthropic
and/or adhoc in nature and not integrated into core business activities.
Indian Corporate Social Responsibility has traditionally been a matter of classical
paternalistic philanthropy, financially supporting schools, hospitals and culture
institutions. However, far from being an add-on motivated by altruism and personal
glory, the philanthropic drive has been driven by business necessity. With minimal
state welfare and infrastructure provision in many areas, companies had to ensure that
their workforce had adequate housing, healthcare and education and simultaneously
the country grows at a fast pace.

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According to a report by the Centre for Social Markets for the International
Finance Corporation (IFC), many leading foreign Multinational Companies and
domestic titans, pre-eminently members of the Tata Group, have been standard-setters
on core Corporate Social Responsibility issues such as labour conditions, health and
safety, environmental management, corporate governance and integrity.
India has a venerable tradition of philanthropy, both individual and business, and
Indian legend and history is replete with instances of generosity from both sources.
But, unlike individual and religious charity which has gone mostly towards immediate
relief of distress, business philanthropy has provided secular funds on a significant
scale to bring progress to society. Modern India owes much to the vision of the
founding fathers of India’s business and industry who endowed many educational and
welfare institutions and funded many a worthy cause, including social reform.
Indian families such as Tata and Godrej have a significant industry presence
and reputation for social responsibility. One of the Tata Group of companies, Tata
Steel, is the first in the country to produce a corporate sustainability report and it
administers the only industry town in the world, Jamshepur, which has received the
ISO14001 environmental quality certification (Hopkins, 2008). Other companies have
followed Tata’s lead, such as Infosys, Ballarpur industries Limited, Paharpur Business
Park, Ford India, Samsung India Electronics and Cadbury’s India. They have all
produced environmental and social reports.
Corporate social responsibility is one such niche area of Corporate Behavior
and Governanc that needs to get aggressively addressed and implemented tactfully in
the organizations. At the same time Corporate Social Responsibility is one such
effective tool that synergies the efforts of corporate and the social sector agencies
towards sustainable growth and development of societal objectives at large. India is a
fast growing economy and is booming with national and multinational firms (Sharma,
2011). At the same time, the Indian land also faces social challenges like poverty,
population, growth, corruption, and illiteracy just to name a few. Therefore it is all the
more imperative for the Indian companies to be sensitized to Corporate Social
Responsibility in the right perspective in order to facilitate and create an enabling
environment for the partnership between the civil society and business.

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2.14 Evolution of corporate social responsibility in India

Corporate Social Responsibility in India refers to transformation over a period in the
cultural norms of ‘businesses' commitment of corporate social responsibility.
Corporate Social Responsibility refers to the way that corporates managed to bring
about an overall positive impact on the communities, cultures, societies and
environments in which they operate. India has one of the oldest traditions of CSR but
it practices are regularly not run through or done only to earn fame particularly by
MNCs with no cultural and emotional attachments to India. The era of globalization
make Indian Entrepreneurs alert of social responsibility as significant segment of their
business activity but CSR in India has so far to receive common acknowledgment.
(Wikipedia)

2.15 Four Phases of CSR Development in India

The history of Corporate Social Responsibility in India has its four phases which run
subsequently to India's historical growth and has resulted in dissimilar approaches
towards CSR. However, the phases are not stagnant and the features of each phase
may have common characteristics to other phases.
The four phases of development of CSR are discussed below:
2.15.1 The First Phase
The first phase consists of charity and philanthropy as the main drivers of Corporate
Social Responsibility. Indian Culture, family values, religion & tradition and
industrialization had a dominant effect on CSR. The pre-industrialization phase,
which lasted till 1850, wealthy merchants shared a part of their wealth with the
society by way of setting up temples for a religious cause. Furthermore, these
merchants helped the society in getting over periods of famine and epidemics by
providing foodstuffs from their storehouses and money and thus securing an integral
position in the society. When the colonial arrived in India from the 1850’s onwards,
the approach towards CSR was changed. The businessmen of the 19th century i.e.,
Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclined towards economic
and social considerations. Though, it has been examined that their attempts towards
social as well as industrial advancement were not only driven by noble and religious
motives but also manipulated by caste groups and political objectives. (Wikipedia)

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2.15.2 The Second Phase

The second phase occurred during the independence movement, there was increasing
pressure on Indian Industrialists to show their commitment towards the growth and
development of the society. Mahatma Gandhi commenced the idea of "trusteeship",
according to which the business leaders had to deal with their wealth so as to help 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 stress on various Industrialists to take action
towards the growth of nation and its socio-economic development Indian companies
were supposed to be the "temples of modern India". Businesses established trusts for
schools and colleges and also helped in setting up training and scientific institutions.
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.
(Wikipedia)
2.15.3 The Third Phase
The third phase of Corporate Social Responsibility fall between 1960 -1980 had its
relation to the element of "mixed economy", emergence of Public Sector
Undertakings (PSUs) and laws relating to labour and environmental standards. The
public undertakings were seen as the prime mover of development and growth of
society. However, the strict legal rules and regulations surrounding the actions of the
private companies 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. 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. In 1965 Indian politicians corporate and
academicians, set up a national workshop on Corporate Social Responsibility aimed to
resolve the issues. They put emphasis upon transparency, social accountability and
regular stakeholder dialogues. ([Link])

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2.15.4 The Fourth Phase

The fourth phase from 1980 to till date Indian companies started discarding their
traditional engagement with Corporate Social Responsibility and incorporated it into a
sustainable business strategy. In the 1990’s the first opening towards globalization
and economic liberalization were started. Control and licensing scheme fairly had
done away which gave advancement to the economy the signs of which are very
obvious today. Increasing growth thrust of the economy helped Indian companies to
develop rapidly and this made them more willing. Globalization has changed India
into an important destination in terms of manufacture and industrialized bases of
TNCs are concerned. The Western markets become more and more concerned about
labour and environmental standards in the developing countries, Indian companies
which export and produce goods for the developed world need to pay a close attention
to compliance with the international standards. This phase give CSR a new era to
develop in India and bring sustainable development by the business. ([Link])

2.16 Current Scenario of Corporate Social Responsibility in India

The Companies Bill 2012, once enacted, is envisioning result in an increase
investments and strategic efforts for CSR in India. Companies will need to revisit
their CSR policies, strategies and activities in order to align with the Clause 135. Over
16,200 entities will be required to undertake CSR activities from this year under
Section 135 of the Companies Act. These companies account for just 1.6 percent of
India's total companies. The Indian Institute corporate affairs IICA, which is under the
corporate affairs ministry, will monitor the implementation of the new law. The IICA
will maintain the single biggest database of CSR activities of companies and keep an
eye on companies’ spending their money on CSR activities. In the first financial year
2014-15 itself, over Rs 20,000 crores will be spent by companies on CSR activities.
Spending money for religious or social organizations or events will not constitute
CSR activities, nor will welfare measures for employees.
"Companies will have to carry out real CSR work on the ground. They will
have to report their spending and activities to the ministry of corporate affairs. What
each one of them has done will be put up on the ministry's website and anyone can go
and cross-check if that work has really happened at the ground level or not. We hope

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that the companies will spend on CSR rather than make excuses," Chatterjee said.
(Business Standard)
Since the CSR concept is new for the majority of the companies covered, the IICA is
helping train professionals in the sector to guide companies on how to undertake
genuine work. Companies can conduct CSR work themselves by engaging
professionals or outsourcing this to NGOs.
"The intent is not to transfer government responsibility to the corporate
sector. Rather, it is to supplement and complement what the government is doing. The
government sometimes has many constraints in spending money. The private sector
has far more freedom and leeway in doing that. The corporates can bring greater
efficiency and innovation and also ensure that the money spent reaches the target.
This will help in socio-economic development, especially for the poor, marginalised
and deprived sections," Chatterjee said. (Business Standard)
Corporates who fail to comply with the new rules and also do not explain why they
failed to implement their CSR obligations will face punitive action - which could be a
penalty of Rs.25 lakh and even imprisonment.

2.17 Legal Frame work, Guidelines and Implementation of

Corporate Social Responsibility in India
India’s development sector has evolved significantly over the last few decades
and is now witnessing unprecedented interest and investments across the value chain.
A crucial and prosperous development sector is central to India’s quest for fair,
inclusive and sustainable growth. As the importance of being socially responsible is
being recognized throughout the world, governments are aware of the national
competitive advantages won from a responsible business sector. Large corporations
have progressively realized the benefit of implementing CSR initiatives where their
business operations are located. The industry has responded positively to the reform
measure undertaken by the government with a wide interest across the public and
private sector, Indian and multinational companies.
The Ministry of Corporate Affairs has adopted the role of an enabler,
facilitator and regulator for effective functioning and growth of the corporate sector.
A number of initiatives are underway on the legislative, service delivery and capacity
building sides so that the corporate sector is provided with a buoyant and enabling

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regulatory environment for its growth. Simultaneously, the Ministry is also focusing
on various issues related to inclusive growth in relation to the development of
corporate sector. The subject of Corporate Social Responsibility has evolved during
last few decades from simple philanthropic activities to integrating the interest of the
business with that of the communities in which it operates. By exhibiting socially,
environmentally and ethically responsible behavior in governance of its operations,
the business can generate value and long term sustainability for itself while making
positive contribution in the betterment of the society (MoCA, 2009). Government also
decided to bring out a set of voluntary guidelines for responsible business which will
add value to the operations and contribute towards the long term sustainability of the
business.

2.18 Guiding Principles of Corporate Social Responsibility in India

The Ministry of Corporate Affairs had released Voluntary Guidelines on CSR
in 2009 as the first step towards mainstreaming the concept of Business
Responsibilities. Keeping in view the feedback from stakeholders, it was decided to
revise the same with a more comprehensive set of guidelines that encompasses social,
environmental and economical responsibilities of business. These guiding principles
will also enable business to focus as well as contribute towards the interests of the
stakeholders.
The nine principles of National Voluntary Guidelines are given below:-
 Principle 1: Businesses should conduct and govern themselves with ethics,
transparency and accountability.
 Principle 2: Businesses should provide goods and services that are safe and
contribute to sustainability throughout their life cycle.
 Principle 3: Businesses should promote the wellbeing of all employees.
 Principle 4: Businesses should respect the interests of, and be responsive
toward all stakeholders, especially those who are disadvantaged, vulnerable
and marginalized.
 Principle 5: Businesses should respect and promote human rights.
 Principle 6: Business should respect, protect, and make efforts to restore the
environment.

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 Principle 7: Businesses, when engaged in influencing public and regulatory

policy, should do so in a responsible manner.
 Principle 8: Businesses should support inclusive growth and equitable
development.
 Principle 9: Businesses should engage with and provide value to their
customers and consumers in a responsible manner (MoCA, 2011).
The Guidelines highlighted that businesses have to make an effort to become
responsible performers in society, so that their every action leads to sustainable
growth and economic development.

2.19 Implementation of Corporate Social Responsibility in India

With the passage of the Companies Act, 2013 the mandate for corporate social
responsibility (CSR) has been formally introduced to the dashboard of the Boards of
Indian companies. There are a number of queries and concerns of companies
associated to the applicability, implementation and likely impact of the Clause 135 of
the proposed Companies Bill, 2012. The Ministry of Corporate Affairs and the Indian
Institute of Corporate Affairs have undertaken series of discussions with companies in
order to know their concerns and draft rules for successful implementation of Clause
135. The introduction of the Corporate Social Responsibility mandate under the
Companies Act, 2013 is an effort to increase the government’s efforts of justifiably
delivering the benefits of growth and to employ the Corporate World by the country’s
development agenda (CII, 2013).
There are many big entities who have been actively engaged in the CSR
activities but unfortunately the number is relatively less. In order to encourage more
entities to participate in the process of development of the society via- CSR, the
Government of India has actually implemented the concept of CSR in the new
Companies Act 2013, On 27th February, 2014, the Government of India has notified
the rules for CSR spending u/s 135 of the New Companies Act 2013 along with
Companies (Corporate Social Responsibility Policy) Rules, 2014 effective from
1st April 2014.

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2.20 Eligibility Criteria:

Company (includes foreign company with branches or project in India) having:
 Minimum net worth of rupees 500 Crores.

 Turnover up to 1000 Crores

 Or having a net profit of at least 5 crores

During any financial year, are covered by this provision of Companies Act 2013.

2.21 Composition of CSR Committee

The Company should constitute a Corporate Social Responsibility Committee as
follows:
1. The Committee shall consist of minimum 3 (three) including 1 (one)
Independent Director, however in case of Private Company or the Company,
which is not required to appoint Independent Director on board, or Foreign
Company the committee can be formulated with (2) two directors.
2. The CSR Policy shall be formulated in accordance with Schedule VII and the
CSR Committee will be responsible for framing the policy, finalizing the
amount to be spent on CSR, monitoring & implementation of the Scheme.
3. If Company ceases to fulfill the eligibility criteria for three consecutive years,
then the company is not required to comply until the company will meet the
eligibility criteria once again.
The CSR Rules provides the manner in which CSR committee shall formulate,
monitor the policy and manner of understanding for CSR activities. Under the rules,
the Government has also fixed a threshold limit of 2% of the Average Net Profits of
the block of previous three years on CSR activities and if Company fails to spend
such amount, disclosures are to be made for the same. But an exemption has been
given to the Companies that do not satisfy the above threshold for three consecutive
years. (CII, 2013)

2.22 Brief on CSR Activities as prescribed under Schedule VII of CA,

2013
1. Objective to efface the daily life segments including poverty, malnutrition and
hunger while enhancing the standard of living and promoting the facets of
better health care and sanitation.

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2. Initiative to promote the different segments of education including special

education and programs to enhance the vocation skills for all ages like
children, women, elderly and conducting other livelihood enhancement
projects.
3. Aim to bring the uniformity in respect of different sections of the society to
promote gender equality and other facilities for senior citizens and developing
hostels for women and orphans and taking initiative for empowering women
and lowering inequalities faced by socially and economically backward
groups.
4. Elevate the segment of flora and fauna to bring the ecological balance and
environmental sustainability in respect of animal welfare, conservation of
natural resources and ago forestry while maintaining the quality of air, water
and soil.
5. Enhancement of Craftsmanship while protecting art and culture and measures
to restore sites of historical importance and national heritage and promoting
the works of art and setting up of public libraries.
6. Steps to bring worthy to the part of war windows, armed force veterans and
their departments.
7. Sports programs and training sessions to enhance the level of rural sports,
nationally recognized sports, Paralympic sports and Olympics sports.
8. Favoring to Prime Minister's National Relief Fund and contribution to other
fund set up by the central government to promote socio-economic
development and welfare of the schedule castes and Schedule Tribes and for
supporting backward classes, minorities and women.
9. To uplift the technology of incubator that's comes under academic institutions
and which are approved by the Central Government.
10. Introducing varied projects for Rural Development.
The below activities doesn't include under the CSR activities of the Company:
a) Business run in the normal course.
b) Outside the territory of the India or abroad.
c) For the welfare of the employees and their families.
d) Political party contribution of any amount directly and indirectly as defined
u/s 182 of the Act.

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The above CSR activities shall be undertaken by the Company, as per its stated CSR
policy, in consonance with the new or ongoing projects excluding activities
undertaken in pursuance of its normal course of business. The Board of Directors may
decide to undertake its CSR activities approved by the CSR Committee, through a
registered trust or a registered society.

2.23 Yearly Compliances by the Companies under Sec 135 of the New
Companies Act 2013
1. The Annual Report of the Company shall include a comprehensive Report on CSR
in the format as prescribed in the Companies (Corporate Social Responsibility
Policy) Rules, 2014, containing particulars on Overview of CSR Policy, Composition
of the Committee, Avg. Net Profit, prescribed expenditure and details of its spending,
reason in case of failure etc.
2. The disclosure on CSR in Board Report should also be available on the Company's
Website.
3. The activities included in the CSR Policy and the prescribed expenditure being
undertaken/ spent shall be ensured by the Board, in the respective manner. This means
all the Companies falling in the aforesaid criteria needs to ensure CSR compliance but
it is debatable to say that the same is for welfare of the society or the companies are
doing it just to avoid penalties.
4. CSR stands to support the Company's Vision as well as directions to what
Organization stands for and will sustain its clients. An ISO 26000 is the accepted
worldwide standard for Corporate Social Responsibility (CSR).
5. CSR term has been revaluated with an aim to embrace responsibility for the
Company's actions and encourage a positive impact through its activities on the
environment, consumers, conscience, corporate citizenship, social performance,
employees, communities and all stakeholders.

2.24 Fines and/or Imprisonment for Failure to Comply and Report

While a company is not subject to liability for failing to spend on CSR under
the 2 % Formula, a company and its officers are subject to liability for not explaining
such a failure in the report of the board of directors.

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Failure to explain is punishable by a fine on the company of not less than 50,000
rupees and up to 25 lakh rupees. Further, officers who default on the reporting
provision could be subject to up to three years in prison and/or fines of not less than
50,000 rupees and as high as 5 lakh rupees.

2.25 Permissible CSR Activities in Companies Act

The CSR Clause leaves it to the discretion of the company’s board to
determine the exact manner in which the CSR amounts are spent. However, Schedule
VII of the Companies Bill requires the CSR policy created by the CSR committee
involve at least one of the following focus areas:

Source: - CII
1) Eradicating extreme hunger and poverty
2) Promotion of education
3) Promoting gender equality and empowering women
4) Reducing child mortality and improving maternal health
5) Combating [HIV], [AIDS], malaria and other diseases
6) Ensuring environmental sustainability
7) Employment-enhancing vocational skills

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8) Social business projects

9) Such other matters as may be prescribed
10) Contribution to the Prime Minister’s National Relief Fund or any other fund set
up by the Central Government or the state governments for socioeconomic
development, and relief and funds for the welfare of the Scheduled Castes, the
Scheduled Tribes, other backward classes, minorities and women (CII, 2013).

The next chapter highlights the development Corporate Social Responsibility

in Indian Insurance Sector and its overview; this chapter enlightens the life insurance
business and CSR activities of the various life insurance of companies operating in
India.

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