CHAPTER 3

EVOLUTION AND CONCEPTUAL FRAMEWORK OF

CORPORATE SOCIAL RESPONSIBILITY

3.1 INTRODUCTION

Corporate Social Responsibility (CSR) is an important and one of the most

debated issues in contemporary business, management and politics. There is a lack of

consensus regarding the meaning of CSR in the literature available on corporate social

responsibility. Academicians, practitioners and research scholars have thus been open

to define and interpret CSR as it best fits their purpose, resulting in definitions and

interpretations that are often biased by underlying value judgements and ideologies.

The concept of CSR has increasingly gained interest among corporates and

governments and other stakeholders of business and has triggered discussions and

debates on its meaning among a number of scholars.

The roots of the concept of CSR as it is known today have a long history

which indicates that business people have paid increasing attention to the concerns of

society1. The concepts of modern CSR evolved only recently. In both the east and

west, it was called social philanthropy. Traditionally, corporate philanthropy aimed at

the welfare of the inner circle of members within the enterprise like staff and

employees and their families. This was usually in the form of contributions by

visionary business leaders to the establishment and trusts that promoted education,

women’s welfare, medical care and so on.

CSR is qualitatively different from the concept of the traditional concepts of

corporate philanthropy. It acknowledges the debt that the corporation owes to the

community within which it operates. It regards the community as an equal

stakeholder. It also defines the business organization’s partnership with social action

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groups in providing financial and other resources to support development plans,

especially among disadvantaged communities.

In the emerging perspective CSR directs the corporations to analyze its profits

in conjunction with social prosperity and ethics. Thus ethical business is more a

fundamental need emerging on the international scenario. In an ethical business, the

main thrust is on social values and business is conducted in consonance with broader

social values and the stakeholders’ long-term interest.

A better understanding of the transformation of the concept not only

contributes to a better understanding of the meaning of CSR and the relationship

between businesses and their key stakeholders but also to a better idea of what should

be the role of business in development and their contributions to society in the late

nineteenth century.

Businesses raised concerns on the welfare of their employees and their impact

on society in general. With the emergence of the labour movement and establishment

of slums as a result of the industrial revolution, businesses started to provide social

welfare on a restricted scale, including the construction of hospitals and provision of

food coupons. Business philanthropy in this period is highlighted as spearheading the

development of the CSR concept2. The Great Depression in 1929 further strengthened

this trend with the introduction of public trusteeship management in addition to

traditional profit-maximizing management3. The concept of CSR is supposed to be

emerged and thrived in the 1950s.

The last decade has seen exponential growth in the field of CSR. CSR has

grabbed the attention of numerous parties which includes business world, investors,

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consumers, and the media. In the late nineties more than half of the Fortune 1000

companies started publishing reports.

Of late larger number of companies has started engaging in a serious effort to

define and integrate CSR into all aspects of their businesses. An increasing number of

shareholders, analysts, regulators, activists, labour unions, employees, community

organization and news media are asking companies to be accountable for an ever-

changing set of CSR issues. There is increasing demand for transparency and growing

expectations that corporations measure, report, and continuously improve their social,

environmental, and economic performance.

Each company differs in how it implements CSR. The differences depend on

various factors such as the size of the company, management, profitability, the type of

products and services rendered, the business culture of the firm, stakeholder demands

and social commitments. Some companies focus on a single area, which is regarded

as most important for them or where they have the highest impact or vulnerability;

human rights, for example, or the environment, while others aim to integrate CSR in

all aspects of their operations.

In India, CSR has evolved to incorporate employees, customers, stakeholders

and sustainable development. CSR taken up by various genres of companies primarily

focuses on poverty alleviation, environmental protection and sustained development.

Companies are also taking initiatives for developing infrastructure in rural areas.

Government, social activists and the media hold companies answerable for the

outcome of their social activities. Various organizations grade companies on the

performance of their corporate social responsibility. As a result CSR has emerged as

an inevitable concern for business managers in every organization.

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3.2 CSR - DEFINITIONS

CSR is intended to assure the organizations and entities regarding the impact

which their business has upon the society which includes their own stakeholders and

the community or environment in which it operates. CSR is a concept with many

definitions and practices. The way it is comprehended and the way in which it is

applied differ greatly for each country and company. Moreover, CSR is a very broad

concept that addresses many and various topics such as human rights, corporate

governance, health and safety, environmental effects, working conditions and

contribution to economic development. Whatever be the definition of CSR, the

purpose of it is to navigate change towards sustainability. There are as many

definitions of CSR as there are disagreements over the appropriate role of the

corporation in society. Here is an overview of some of the popular definitions of CSR

that have been proposed over the years.

Bowen4 defines the social responsibility of businesses “as the obligations of

businessmen to pursue those policies, to make those decisions, or to follow those lines

of action which are desirable in terms of the objectives and values of our society”.

According to this definition every aspect of corporate activity should be integrated in

such a manner so as to remain socially approved action. Thus this definition lays

stress on normative behaviour and covers ethical behaviour of corporate and can be

termed as broad view of CSR and covers all stakeholders. He argued that businessmen

are responsible for the consequences of their actions in a sphere somewhat wider than

corporate financial performance, indicating the existence and importance of corporate

social performance.

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 According to Frederick5 “CSR as a private contribution to society’s economic

and human resources and a willingness on the part of business to see that those

resources were utilized for broad social ends”. Frederick summarised the development

of CSR in the 1950s into three core ideas: (1) corporate managers as public trustees

through the shareholding system; (2) stakeholders’ balanced claims to corporate

resources; and (3) the acceptance of business philanthropy.

In the opinion of Davis6 “CSR refers to the firm’s consideration of, and

response to, issues beyond the narrow economic, technical, and legal requirements of

the firm”. This definition is very wide and does specifically stipulate the areas and

actions which relate to comprehensive CSR. This definition also covers the entire

stakeholders. The definition of CSR that he set forth refers to businessmen’s decisions

and actions taken for reasons at least partially beyond the firm’s direct economic or

technical interest. By arguing that CSR was a blunt idea and the same had to be

discussed in a managerial context, he further advocated that economic gains of the

entities in the long-run shall only be used to justify the socially responsible business

decisions, thus paying back for its socially responsible behaviour.

According to Friedman7; “the social responsibility of the firm is to increase its

profits”. This definition lays stress only on economic responsibility of corporate and

can be termed as narrow view of CSR. This definition covers only one stakeholder i.e.

shareholder.

As per Carroll8; “the social responsibility of business encompasses the

economic, legal, ethical, and discretionary expectations that society has of

organizations at a given point in time”. This definition is very comprehensive and

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covers all aspects which relate to all responsibilities of business. The scope of this

definition is very wide.

According to Thomas M. Jones9; “Corporate social responsibility is the notion

that corporations have an obligation to constituent groups in society other than

stockholders and beyond that prescribed by law and union contract”. Two facets of

this definition are critical. First, the obligation must be voluntarily adopted; behaviour

influenced by the coercive forces of law or union contract is not voluntary. Secondly

the obligation is a broad, extending beyond the traditional duty to shareholders, to

other societal groups such as customers, employees, suppliers and neighbouring

communities. The scope of this definition is also wide and relates to stakeholder

approach.

Epstein10 defined CSR as “something that relates primarily to achieving

outcomes from organizational decisions concerning specific issues or problems which

(by some normative standard) have beneficial rather than adverse effects on pertinent

corporate stakeholders. The normative correctness of the products of corporate action

has been the main focus of corporate social responsibility”. This definition lays

emphasis on stakeholder approach with ethical responsible behaviour.

Wood11 has defined CSR as “the basic idea of corporate social responsibility is

that business and society are interwoven rather than distinct entities; therefore, society

has certain expectations for appropriate business behaviour and outcomes”.

World Business Council for Sustainable Development12 defined CSR as “the

continuing commitment by business to behave ethically and contribute to economic

development while improving the quality of life of the workforce and their families as

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well as of the local community and society at large. Corporate social responsibility

(CSR) is a subject matter of great interest in the corporate world”.

An analysis of the contents of various definitions reveals that there are no

universally agreed-upon definitions of the term ‘Corporate Citizenship’ and

‘Corporate Social Responsibility’. The nature and scope of corporate social

responsibility has changed over time. CSR has been gathering more and more interest

worldwide over recent years.

3.3 BASIC PRINCIPLES OF CSR

There are three basic principles which together comprise all CSR activity. They are;

1. Sustainability

This is concerned with the effect which action taken in the present has upon

the options available in the future. If resources are utilized today without any control

then they will no longer be available for use in the future, and this is of particular

concern if the resources are finite in quantity. Sustainability implies that the society

must not use a particular resource than can be restored. Thus paper industry should

have a policy of re-planting trees to replace those felled for making paper. Viewing an

organization as a part of a wider social and economic system implies that these effects

must be taken into account, not just for the measurement of costs and value created in

the present but also for the future of the business itself.

2. Accountability

This is concerned with an organization recognizing that its actions affect the

external environment, and therefore the company assumes responsibility for the

effects of its actions. This suggests quantifying the effects of actions taken, both

internal to the organization and externally. More specifically the concept involves

reporting of those quantifications to all parties affected by those actions. It includes

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reporting to external stakeholders of the effects of actions taken by the organization

and how they are affecting those stakeholders. Accountability necessitates the

development of appropriate measures of environmental performance and reporting of

the actions of the firm.

3. Transparency

The principle of transparency imports the idea that the external impact of the

CSR initiatives of the organization can be ascertained from its reports and pertinent

facts are not concealed within that reporting. Thus all the effects of the actions of the

organization, including external impacts, should be traceable to all from using the

information provided by the organization’s reporting mechanisms.

3.4 THEORIES OF CORPORATE SOCIAL RESPONSIBILITY

Following are the two important theories of corporate social responsibility:

1. Legitimacy Theory

Legitimacy theory is derived from the concept of ‘Organizational Legitimacy’

which has been defined by Dowling and Pfeiffer. The theory states that corporate

responsibility responds to environmental factors, namely economic, social, and

political and the disclosures of legitimate actions. 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. 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. Corporate

social disclosures may then be conceived as reacting to the environment where they

are employed to legitimize corporate actions.

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2. Stakeholder Theory

Ian Mitroff in his book "Stakeholders of the Organizational Mind”, published

in 1983 in San Francisco13 gave a comprehensive explanation on stakeholder theory.

However there are large number of articles and books on stakeholder theory which

acknowledge R. Edward Freeman as the "father of stakeholder theory." Freeman's

“Strategic Management: A Stakeholder Approach” is widely quoted in the field as

being the underpinning of stakeholder theory, although Freeman himself praises

several bodies of literature in the development of this methodology.

While analyzing corporate social responsibility, the most relevant model is the

well-known and widely accepted stakeholder theory. It puts forward that a company

needs to take into account the interests and views most, if not, all of its stakeholders in

order to be accepted and to be successful in the market place. The concept of

stakeholder theory is about organizational management and business ethics that

discourses on morals and values in managing an organization. Classical definition of

stakeholders, arguably the most popular definition cited in the literature proposed that

stakeholders are “Any group or individual who can affect or is affected by the

achievement of a corporation’s purpose”. This is clearly a very broad definition and

leaves the notion of stake and the fields of possible stakeholders unambiguously open

to include virtually everyone. Clarkson14 distinguishes between “primary” and

“secondary” stakeholders adding to the earlier concept. A primary or participant

stakeholder is one without whose on-going participation the corporation cannot

survive as a going concern. Secondary or non-participant stakeholders are defined as

those who influence or affect, or are influenced or affected by the corporation, but

they are not engaged in transactions with the corporation directly and are not essential

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for its survival. These can be people who exist within an organization. They have

more or less a direct interest that the company.

According to the World Business Council for Sustainable Development,

companies had a responsibility to the following stakeholders:

(1) Owners and investors - profit maximization;

(2) Employees - consistent, fairly compensated employment;

(3) Customers - high quality products and services;

(4) Business partners - fair, ethical treatment as partners;

(5) Suppliers - consistent customer upon which to base the supplier’s business;

(6) Competitors - maintain industry image;

(7) Government regulators - abide to the rules and regulations;

(8) Non-governmental organizations - meeting or exceeding their expectations;

(9) Communities - safe and sustainable livelihood.

3.5 MODELS OF SOCIAL RESPONSIBILITY

Several models are proposed to understand the relationship between the

corporate world and society. The problems regarding CSR are the concepts that are

difficult to measure and evaluate. Therefore different models have arisen in an

attempt to depict what is included in CSR. The popular models of CSR are Walton’s

Model, Ackerman’s Model and Pyramid Model by Carroll.

1. Models Propounded by Walton

C.C.Walton15 in 1967 suggested some models of social conduct adoptable by

top managers as a way of responding to public needs. The five models propounded by

Walton are as follows;

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 i. Austere Model:

In Austere model the emphasis of business is on ownership interest and profit

objective. Social responsibility is non-existent in model;

ii. Household Model:

In this model also social responsibility is at the low ebb. Greater emphasis is

on employee jobs and benefit;

iii. Vendor Model:

Vendor model gives more emphasis to consumer interest, taste and right;

Emphasis on social responsibility is still low but higher than house hold model;

iv. Investment Model:

Investment model sees organization as an entity that requires long-term profit

and survival. Social responsibility in this model is much higher than vendor model;

v. Civil Model:

Civil model views organization as a corporate citizen that goes beyond

improved obligations which accepts social responsibility and makes a positive

commitment to social needs. It gives higher emphasis to social responsibility.

2. Ackerman’s Model

Robert Ackerman, the micro-theorist was one of the foremost scholars to

suggest that responsiveness should be the goal of corporate social endeavour.

“Responsiveness” was the term he preferred to use. According to him, companies tend

to pass through three stages in evolving a social response to the issues of the society.

The three stages of Ackerman’s social responsibility are depicted in Table 3.1.

In Stage 1, the top managers of the corporation deal with an existing social

problem. At this stage, the company is not required to be reminded to do it by

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anybody. The Chief Executive Officer merely acknowledges the problem by making a

written or oral statement of the company’s policy towards it.

Stage 2 deals with the observation and preparation. The company hires staff

specialists or engages outside consultants to study the problem and to suggest ways

and means of dealing with it. Till this point, the company has limited itself by

declaring its intentions and plan formulations only.

Table 3.1

Ackerman’s Three Stages of Social Responsibility

Organizational Stages of Organizational Involvement

Level Stage 1 Stage 2 Stage 3
Issue: Corporate
Obligation
Action: Write and
Obtain organizational
communicate Obtain
Commitment. Change
Chief Executive policy knowledge. Add
performance
Outcome: staff specialist
expectations
Enriched purpose,
increased
awareness
Issue: Technical
problem
Action: Design
Provoke response from
data system and
operating units. Apply
interpret
Staff Specialists data system to
environment
performance
Outcome:
measurement
Technical and
informational
groundwork
Issue: Management
Problem
Action: Commit
Division
resources and modify
Management
procedures
Outcome: Increased
responsiveness
Source: Aswathappa16, (2004), Essential of Business Environment

Stage 3 deals with implementation. The company now integrates the policy

into its on-going operations. Implementation often comes slowly and often not until

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the government or public opinion forces the company to act. But by that time, the

company has lost the initiative. Ackerman thus advises that managers should “act

early in the life cycle of any social issue in order to enjoy the largest amount of

managerial discretion over the outcome.”

3. The Archie Carroll Pyramid Model17

The Pyramid of Corporate Social Responsibility propounded by Archie

Carroll is the foremost model that has enjoyed wide popularity among businesses.

Carroll discerned corporate social responsibilities into four dimensions: “Economic

(required), Legal (required), Ethical (expected), and Discretionary (philanthropy)”.

One of the most used and quoted models is Carroll‘s ‘Pyramid of Corporate

Social Responsibility’. Carroll’s CSR pyramid is depicted in Figure 3.1

Figure 3.1

Carroll’s CSR Pyramid

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3.6 DIMENSIONS OF PYRAMID MODEL

The CSR pyramid is based on four important dimensions, viz. Economic,

Legal, Ethical and Philanthropic standpoint. The concept of the dimensions of CSR

model includes the idea that the organizations have not only economic and legal

obligations, but ethical and discretionary responsibility as well. It is during the recent

years that ethical and philanthropic functions have taken a more significant role. The

pyramid of CSR is a tool for measuring the level of CSR at the firms based on how

they fulfil their responsibilities towards the society.

1. Economic Responsibility

Economically speaking, all firms have a responsibility to earn a profit, since

capitalism and a free market society deem that this is necessary. Businesses were

created as economic entities, designed to provide goods and services to the members

of the society. Economic responsibility explained the most fundamental one since all

other business responsibilities are rested upon the economic responsibility of the firm,

because without it the others become unresolved aspects. It is worth noting that

Carroll‘s pyramid of CSR begins with the economic performance. According to this

principle, if a firm is not making profits and is not providing high quality of goods

and services to meet consumer’s needs, it cannot be considered socially responsible

even when the firm has devoted many efforts in social causes. The economical

responsibilities are the foundation upon which all rests and refer to the firm’s

responsibilities towards their shareholders. These responsibilities are required by the

society.

2. Legal Responsibility

Businesses are expected to pursue its economic responsibility within the

constraints of the existing laws. At the same time business is expected to comply with

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the laws and regulations stipulated by federal, state and local governments as the

ground rules under which business must operate. Legal responsibilities express basic

notions of fair operations as established by our lawmakers. Even though they are

depicted as the next level of the pyramid it is seen co-existing with the economic one.

3. Ethical Responsibility

Ethical responsibility is referring to those activities and practices that are

expected or prohibited by the members of the society even if they are not classified

into written law. Carroll did not offer much explanation about what the ethical

responsibilities of businesses are; beyond the general statement above. However,

perhaps this is because, in general, ethics are difficult to explain. Levy18 stated that

ethics are simply values in action, and as a result, they tend to change as societal

values change. Ethical responsibilities are about accepted norms, standards and

expectations that reflect a concern for what consumers, employees, shareholders, and

the community regards as fair. It is simply about respecting and protecting

stakeholder‘s moral rights. Even though ethical responsibility is the next layer in

Carroll‘s CSR pyramid, it must according to Carroll be consistently recognized that it

is in dynamic interplay with the legal responsibility category. Henderson19 points out

that it is hard to tell which voice is actually mirroring the society at large and which is

from critical non-governmental organizations. Furthermore there is a dynamic process

between the ethical responsibilities and the legal responsibilities since what have

earlier been ethical often become laws when there is a strong enough consensus in the

society.

4. Philanthropic Responsibility

At the top of the pyramid there are the philanthropic responsibilities of the

firm, which responds to the society‘s expectation of the firm to be a good citizen.

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Philanthropic responsibility refers to corporations acting as a good corporate citizen,

by contributing resources to the community and improves quality of life. The

distinction between ethical and philanthropic is that the philanthropic one is not

expected in an ethical or moral sense. It is good if businesses give away contributions,

but they are not seen as unscrupulous corporations if they aren‘t engaged in those kind

of activities. Philanthropic responsibility is therefore more discretionary on the part of

businesses. In other words, philanthropy is highly desired and prized but actually less

important than the other three categories of social responsibility.

3.7 EVOLUTION OF CSR - GLOBAL ARENA

There has been a tradition of benevolent capitalism in the UK for over 150

years, for example, Quaker families such as the Cadburys, Rowntrees and Hersheys

who sought to improve their employees’ standard of living as well as enhancing the

standards of the communities in which they lived. Business leaders such as, Carnegie,

Rockefeller and Wellcome went on to endow great foundations to carry on the

community work that they saw as their social responsibility or good citizenship and

established a new level in corporate charitable behaviour20.

In the 19th century, many owners took up an active, and indeed, a leading role

in the development of the local communities and society where they were based.

Business leaders helped get schools and universities built and made financial

contributions over and above their taxes to support development of infrastructural

facilities, museums, sports, and recreation facilities. Great cities like Manchester,

Bombay, New York, and Sydney were given many of their public assets such as

libraries and concert halls by the business leaders of the time21.

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 This tradition seems to have been built up on two complementary motives.

First, the ethical view, often pronounced by the religious ensemble was that those who

have wealth and power should help those who do not, and so charitable giving was

expected of wealthy industrialists and was considered to be providing for a social

cause. Second, there was an element of social investment in which businesses would

gain long-term benefits from having first-class schools, technical institutes, and

universities in their cities.

From 1917 onwards, in both the developed and developing world, there was

a move sought to bring private economic power under the control of the state with the

exception of the United States, governments worldwide came to dominate social

provision in developed and developing countries alike. Business paid its taxes, while

national and local governments provided the services and took care of social and

cultural affairs.

Early advocates of corporate social responsibility concept were Chief

Executive Officers (CEOs) and business leaders from the big oil and energy firms,

telecommunication corporations and automobile manufacturers of the 1920s22.

Windsor23 is of the view that business leaders have since the 1920s widely adhered to

some conception of responsibility and responsiveness practices.

Others have argued that the genesis of CSR was in the 1930s with the debate

between A.A. Berle and E. Merrick Dodd over the role of managers. Merrick Dodd

contended that, the powers of corporate management are held in trust for the entire

community24.

From the 1950s onward, business scholars have provided various definitions

of CSR and related notions such as Corporate Citizenship, Corporate Social

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Responsiveness and Corporate Social Performance25. The differentiated terminology

employed, along with the assortment of the theories proposed, underpins the

complexity of the CSR concept. CSR is visualized as social obligation – the

obligation to pursue those policies, to make those decisions, or to follow those lines of

action which are desirable in terms of the objectives and values of our society26.

The book written by H.R Bowen titled “The Social Responsibilities of a

Businessman” was an authoritative literature on CSR. Archie.B.Carroll27 has

described Bowen as the modern ‘Father of Corporate Social Responsibility’ and

believes that his work marks the beginning of the modern period of literature on CSR.

Bowen took a broad approach to business responsibilities, including responsiveness,

stewardship, social audit, corporate citizenship and rudimentary stakeholder theory.

Even in the 1950s and 1960s, firms in the United States, Europe, and beyond

continued to make charitable gifts, but the word ‘social’ more or less dropped out of

the discussion of corporate responsibility because of the role of the state in the

provision of education and welfare. Corporate responsibility became focused on

issues much more internal to the management of the business, such as how a firm

treated its employees and customers.

The literature available during the 1960s contained limited deliberations and

discussions on the topic of CSR. However, Carroll believed that this decade marked a

significant growth in attempts to formalise, or more accurately, state what CSR means

(Carroll 1999). It was based on the general idea that those with greater powers have

greater responsibilities, which many called for the business world to be more

proactive in stopping the societal problems and start engaging in solving societal

problems. Many statutes were made with respect to equal employment opportunity,

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product safety, worker safety, and environment conservation. Moreover, society had

begun to expect businesses to voluntarily participate in solving social problems

whether they had caused the problems or not. This was based on the opinion that

corporations should go past their economic and legal responsibilities and accept

responsibilities related to the betterment of society. This view of corporate social

responsibility is the prevailing view in much of the world today. During the 1960s

Davis‘s assertion that some socially responsible business decisions can be justified by

having a good chance of bringing long-run economic gain to the firm, thus paying it

back for its socially responsible outlook is an interesting precursor to contemporary

debates about the financial implications of CSR.

In 1970, the literature on CSR includes many references to Milton Friedman‘s

minimalist‘s view of corporate responsibility and his famous comment in 1970:

“There is one and only one social responsibility of business – to use its resources and

engage in activities designed to increase its profits so long as it stays within the rules

of the game, which is to say, engage in open and free competition, without deception

or fraud”.

This view of Friedman has continued to be debated over the decades. Many

concluded that Friedman‘s arguments were unsound and his views unclear and many

were of the view that today, society would not be comfortable with such a profit-

oriented statement.

In 1974, Eells and Walton‘s discussion of CSR could perhaps be seen as

moving toward the issue of social licence that was to emerge more fully nearly thirty

years later. In its broadest sense, corporate social responsibility represents a concern

with the needs and goals of society which goes beyond the merely economic. In so far

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as the business system as it exists today can only survive in an effectively functioning

free society, the corporate social responsibility movement represents a broad concern

with business‘s role in supporting and improving the social order.

The 1980s have been described as having a more responsible approach to

corporate strategy. The most prominent work during the period was that of R. Edward

Freeman on the emerging Stakeholder Theory. Freeman saw meeting shareholders

needs as only one element in a value-adding process and identified a range of

stakeholders (including shareholders) who were relevant to the firm‘s operations.

Freeman‘s 1984 paper continues to be identified as an influential paper on stakeholder

theory and stakeholder theory as the dominant paradigm in CSR.

The literature of the 1990s has not so much expanded the definition of CSR,

but used the CSR concept as the base point, building block, or point-of-departure for

other related concepts and themes, many of which embraced CSR-thinking and were

quite compatible with it. Corporate Social Performance (CSP), stakeholder-theory,

business ethics theory, and corporate citizenship were the major themes that took

centre stage in the 1990s (Carroll, 1999).

Warren Buffet, David Rockefeller, George Soros, Ted Turner, and Bill Gates

in the United States organized their personal philanthropies like earlier generations of

business leaders however; CSR has become a fundamental business practice and has

gained much attention from Chief Executives, Chairmen, Boards of Directors and

Executive management teams of larger international companies. They understand that

a strong CSR program is an essential element in achieving good business practices

and effective leadership. Companies have determined that their impact on the

economic, social and environmental landscape directly affects their relationships with

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stakeholders, in particular investors, employees, customers, business partners,

governments and communities.

The 21st century CSR is more aggressive and strategically important for

business to improve their brand image in the cut throat business environment and is

more practical than the theory. The issue of CSR came to public prominence as a

result of highly-publicised events such as the collapse of Enron and the James Hardie

asbestos scandal in Australia. The debate about the place of CSR in the global

economy continues.

3.8 ORIGIN AND DEVELOPMENT OF CSR IN INDIA28

In India CSR activity mainly includes philanthropic and community

development activities. According to a survey conducted by German Development

Institute in 2007 Indian companies and stakeholders are beginning to adopt

integration of CSR into their business processes and engagement in multi-stakeholder

dialogues. To comprehend the present state and future prospects of CSR India’s

political and history must be taken into account. Evolution of CSR is divided into four

main phases.

1. First Phase: CSR Motivated by Charity and Philanthropy

The first phase of CSR is predominantly determined by culture, religion,

family tradition, and industrialization. Business operations and CSR engagement were

based mainly on corporate self-regulation. Being the oldest form of CSR, charity and

philanthropy still influence CSR practices today, especially in community

development. In the pre-industrial period up to the 1850s, merchants committed

themselves to society for religious reasons, sharing their wealth, for instance, by

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building temples. Moreover, the business community occupied a significant place in

ancient Indian society and the merchants provided relief in times of crisis such as

famine or epidemics throwing open warehouses of food and treasure chests. Under

colonial rule, western type of industrialization reached India and changed CSR from

the 1850s onwards. The pioneers of industrialization in the 19th century in India were

a few families such as the Tata, Birla, Bajaj, Lalbhai, Sarabhai, Godrej, Shriram,

Singhania, Modi, Naidu, Mahindra and Annamali, who were strongly devoted to

philanthropically motivated CSR. The early pioneers of industry in India were leaders

in the economic, as also in the social fields. Nevertheless, it has been pointed out that

their engagement was not only altruistic and stimulated by religious motives; it had

business considerations in supporting efforts towards industrial and social

development of the nation and was influenced by caste groups and political

objectives. The underlying pattern of charity and philanthropy means that

entrepreneurs sporadically donate without any concrete or long-term engagement.

Charitable and philanthropic CSR is practised outside the company, focusing on such

external stakeholders as communities and general social welfare bodies.

2. Second Phase: CSR for India’s Social Development

The second phase of Indian CSR (1914-1960) was dominated by the country’s

struggle for independence and influenced fundamentally by Gandhi’s theory of

trusteeship, the aim of which was to consolidate and amplify social development.

During the struggle for independence, Indian businesses actively engaged in the

reform process. Not only did companies see the country’s economic development as a

protest against colonial rule; they also participated in its institutional and social

development. The corporate sector’s involvement was stimulated by the vision of a

modern and free India. Gandhi introduced the notion of trusteeship in order to make

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companies the “temples of modern India”. Businesses, especially well-established

family businesses, set up trusts for schools and colleges; they also established training

and scientific institutes. The heads of the companies largely aligned the activities of

their trusts with Gandhi’s reform programs. These programs included activities that

sought in particular the abolition of untouchability, women’s empowerment and rural

development.

3. Third Phase: CSR under the Paradigm of the Mixed Economy

The paradigm of the “mixed economy,” with the emergence of Public Sector

Undertakings (PSUs) and ample legislation on labour and environmental standards,

affected the third phase of Indian CSR (1960-1980). This phase is also characterized

by a shift from corporate self-regulation to strict legal and public regulation of

business activities. Under the paradigm of the “mixed economy”, the role of the

private sector in advancing India receded. During the cold war, India decided to take a

third course between capitalism and communism. In this scenario, the public sector

was seen as the key force of development. The 1960s have been described as an ‘era

of command and control’, because strict legal regulations determined the activities of

the private sector. The introduction of a regime of high taxes and a quota and licence

system imposed tight restrictions on the private sector and indirectly triggered

corporate malpractices. As a result, corporate governance, labour and environmental

issues rose on the political agenda and quickly became the subject of legislation.

Furthermore, state authorities established PSUs with the intention of guaranteeing the

appropriate distribution of wealth to the needy. However, the assumption and

anticipation that the public sector could tackle developmental challenges effectively

materialised to only a limited extent. Consequently, what was expected of the private

sector grew, and the need for its involvement in socio-economic development became

78
indispensable. An initial and cautious attempt at reconciliation was made by Indian

academics, politicians and businessmen at a national workshop on CSR in 1965.

According to this agenda, businesses were to play their part as respectable corporate

citizens, and the call went out for regular stakeholder dialogues, social accountability

and transparency. Despite these progressive acknowledgements, this CSR approach

did not materialise at that time.

4. Fourth Phase: Interface between Philanthropic and Business Approaches

In the fourth phase (1980 to date) Indian companies and stakeholders began

abandoning traditional philanthropic engagement and, to some extent, integrated CSR

into a coherent and sustainable business strategy, partly adopting the multi-

stakeholder approach. In the 1990s, the Indian government initiated reforms to

liberalize and deregulate the Indian economy by tackling the shortcomings of the

“mixed economy” and tried to integrate India into the global market. Consequently,

controls and license systems were partly abolished, and the Indian economy

experienced a pronounced boom, which has persisted until today. This rapid growth

did not lead to a reduction in philanthropic donations; on the contrary, the increased

profitability also increased business willingness as well as ability to give, along with a

surge in public and government expectations of businesses. Against this background,

India has meanwhile become an important economic and political factor in the

process of globalization. This new situation has also affected the Indian CSR agenda.

With more Trans National Corporations resorting to global sourcing, India has

become an attractive and important production and manufacturing site. As western

consumer markets are becoming more responsive to labour and environmental

standards in developing countries, Indian companies producing for the global market

need to comply with international standards.

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3.9 CSR IN INDIA-PRESENT SCENARIO

India’s economic reforms and its rise to become an emerging market and

global player have not resulted in a substantial change in its CSR approach. Contrary

to various expectations that India would adopt the global CSR agenda, its present

CSR approach still largely retains its own characteristics, adopting only some aspects

of global mainstream CSR. The empirical results of the present study show that Indian

CSR is still in a confused state. This is evident from the following:

 The Indian understanding of CSR seems to be shifting from traditional

philanthropy towards sustainable business. Nevertheless, philanthropic patterns

remain widespread in many Indian companies.

 Community development still plays the decisive role in the Indian CSR agenda.

3.10 CORPORATE SOCIAL RESPONSIBILITY IN INDIA-LEGAL ASPECTS

The 21st century is characterised by unprecedented challenges and

opportunities, arising from globalization, the desire for inclusive development and the

imperatives of climate change. Indian business, which is today viewed globally as a

responsible component of the ascendancy of India, is poised now to take on a

leadership role in the challenges of our times. It is recognized the world over that

integrating social, environmental and ethical responsibilities into the governance of

businesses ensures their long term success, competitiveness and sustainability. This

approach also reaffirms the view that businesses are an integral part of society, and

have a critical and active role to play in the sustenance and improvement of healthy

ecosystems, in fostering social inclusiveness and equity, and in upholding the

essentials of ethical practices and good governance.

CSR in India has traditionally been seen as a philanthropic activity. And in

keeping with the Indian tradition, it was an activity that was performed but not

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deliberated. As a result, there is limited documentation on specific activities related to

this concept.

The Ministry of Corporate Affairs (MCA) on conclusion of ‘India Corporate

Week- 2009’ has announced Corporate Social Responsibility Voluntary Guidelines

2009 which advocates value based and ethical business practices, cordial labour

relations, customer satisfaction and loyalty, generating benefits to the community and

the environment, being the major stakeholder

India's National Voluntary Guidelines on Social, Environmental and

Economic Responsibilities of Business (NVGs) were released by Mr. Murli Deora,

the former Honourable Minister for Corporate Affairs in July 2011. The national

voluntary guidelines on business responsibility is essentially a set of nine principles

that offer businesses an Indian understanding and approach to inculcating responsible

business conduct. The NVGs are the revised version of the CSR (Corporate Social

Responsibility) Voluntary Guidelines 2009.

In India, the concept of CSR is governed by clause 135 of the Companies Act,

2013, which was passed by both Houses of the Parliament, and had received the

assent of the President of India on 29 August 2013.

1. Corporate Social Responsibility Voluntary Guidelines - 200929

CSR is not philanthropy and CSR activities are purely voluntary- what

companies will like to do beyond any statutory requirement or obligation. To provide

companies with guidance in dealing with the above-mentioned expectations, while

working closely within the framework of national aspirations and policies, following

Voluntary Guidelines for Corporate Social Responsibility have been developed.

While the guidelines have been prepared for the Indian context, enterprises that have a

trans-national presence would benefit from using these guidelines for their overseas

81
operations as well. Since the guidelines are voluntary and not prepared in the nature

of a prescriptive road-map, they are not intended for regulatory or contractual use.

Each business entity should formulate a CSR policy to guide its strategic

planning and provide a roadmap for its CSR initiatives, which should be an integral

part of overall business policy and aligned with its business goals. The policy should

be framed with the participation of various level executives and should be approved

by the board. The core elements of CSR Policy are as follows:

i. Care for all stakeholders

Organizations should respect the interests of all stakeholders, including

shareholders, employees, customers, suppliers, project affected people, society at

large etc. and create value for all of them and be responsive towards their needs. They

should develop mechanism to actively engage with all stakeholders, inform them of

inherent risks and mitigate them where they occur.

ii. Ethical Functioning

The company’s governance systems should be underpinned by ethics,

transparency and accountability. They should not engage in business practices that are

abusive, unfair, corrupt or anti-competitive.

iii. Respect for Worker’s Right and Welfare

Companies should provide a workplace environment that is safe, hygienic and

humane and which upholds the dignity of employees. They should provide all

employees with access to training and development of necessary skills for career

advancement, on an equal and non-discriminatory basis. They should uphold the

freedom of association and the effective recognition of the right to collective

bargaining of labour, have an effective system to address grievances, should not

82
employ child or forced labour and provide and maintain equality of opportunities

without any discrimination on any grounds in recruitment and during employment.

iv. Respect for Human Rights

Companies should respect human rights for all and avoid complicity with

human rights abuses by them or by third party.

v. Respect for Environment

Companies should take measures to check and prevent pollution; recycle,

manage and reduce waste, should manage natural resources in a sustainable manner

and ensure optimal use of resources like land and water, should proactively respond to

the challenges of climate change by adopting cleaner production methods, promoting

efficient use of energy and environment friendly technologies.

vi. Activities for Social and Inclusive Development

Depending upon their core competency and business interest, companies

should undertake activities for economic and social development of communities and

geographical areas, particularly in the vicinity of their operations. These could

include: education, skill building for livelihood of people, health, cultural and social

welfare etc., particularly targeting at disadvantaged sections of society.

2. National Voluntary Guidelines on Social, Environmental and Economic

Responsibilities of Business (NVGs) – 201130

The NVGs are the revised version of the Corporate Social Responsibility

Voluntary Guidelines 2009. These were released by the Ministry of Corporate Affairs

(MCA) on 8 July 2011.

The Guidelines Drafting Committee (GDC) was appointed by the MCA in the

year 2009. The committee had started its work on the new mandate for review and

elaboration of the 2009 guidelines. The process of drafting the guidelines was

83
completed in October 2010 and the final draft was presented to the MCA on 3

November 2010. The revised guidelines were named National Voluntary Guidelines

on Social, Environmental and Economic Responsibilities of Business.

The NVGs serves as a guidance document for businesses of all size,

ownership, sector, and geography to achieve the triple bottom line. In 2012, following

the release of the NVGs the Securities and Exchange Board of India (SEBI), a market

regulator, mandated the Annual Business Responsibility Reporting (ABRR), a

reporting framework based on the NVGs.

The NVGs are unique, not just in what they represent but also in the way in

which they have been framed. The guidelines are India specific and are broader in

understanding the concept of business responsibility. The “process” was premised on

widespread intensive stakeholder consultations to bring out the commonly agreed

elements of business responsibility in keeping with India’s unique developmental

challenges and priorities.

i. Principles on Responsible Business in NVGs

The NVGs are an aspirational and comprehensive guideline to encourage

responsible business behaviour in India. The NVGs, a set of nine principles cover a

broad array of social, economic, environmental and governance issues and

developmental priorities. To actualise the principles a corresponding set of core

elements have also been developed. The NVGs also offer guidance on

implementation, through its four integral actions – leadership, integration,

engagement and reporting. The annexures articulate the business case for adopting the

NVGs, existing legislation relevant to the various principles and a set of resources. A

special section has been dedicated on the applicability of the principles for Micro,

Small and Medium Enterprises (MSMEs), to ensure inclusivity irrespective of scale.

84
ii. The Nine Principles of NVGs

 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 well-being of all employees.

 Principle 4: Businesses should respect the interests of, and be responsive towards

all stakeholders, especially those who are disadvantaged, vulnerable and

marginalized.

 Principle 5: Businesses should respect and promote human rights.

 Principle 6: Businesses should respect, protect, and make efforts to restore the

environment.

 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.

iii. Annual Business Responsibility Report based on NVGs

Following the release of the NVGs, the MCA reconstituted the GDC as the

Disclosures Framework Committee with two additional members to develop a

disclosure framework based on the NVGs. The disclosure framework, 'Annual

Business Responsibility Report' (ABRR), was formulated by the Disclosure

Framework Committee to ensure wider evidence based uptake of the NVGs. The

ABRR is a reporting format that requires principle-wise (NVGs) disclosure by

85
businesses. This reporting framework helps Indian companies implement the NVGs

and communicate the same to its stakeholders. It is designed on an ‘Apply or Explain’

methodology and aims at assisting companies to re-examine their processes and align

them with the ethos of the NVGs.

The ‘Apply-or-Explain’ principle is an enabling measure that encourages

companies to do three things:

 Disclose the current status of sustainability driven performance at whatever stage

that may be.

 Disclose reasons for non-adoption of any of the principles, which may include

non-applicability as per their understanding, or future plans of implementation.

 Ideally undertake a process of review to identify and manage sustainability gaps

and risks in line with the future outlook of the company.

3. Securities and Exchange Board of India Directives on NVGs

A board resolution was passed by the Securities and Exchange Board of India

(SEBI), wherein they mandated the top 100 listed companies to report on their

Environmental, Social and Governance (ESG) performance through a Business

Responsibility Report (BRR) which would then form a part of their annual

report/filings. The BRR is envisioned as an annual document describing the measures

taken by companies against the nine principles of the NVGs. The SEBI directive took

effect at the start of the fiscal year 2013-14 for the top 100 companies. Companies

falling under the purview of the mandate have filed their BRR along with the Annual

Reports in the financial year 2013-14 which is available as public knowledge on

National and Bombay Stock Exchanges websites.

86
4. The Companies Act, 201331

In India, the concept of CSR is governed by Section 135 of the Companies

Act, 2013, which was passed by both Houses of the Parliament, and had received the

assent of the President of India on 29 August 2013.

The CSR provisions within the Act is applicable to companies with an annual

turnover of Rs.1,000 crores and more, or a net worth of Rs.500 crores and more, or a

net profit of Rs.5 crores and more during any financial year. Any company belonging

to the class mentioned shall set-up a CSR committee. This committee needs to

comprise of three or more directors, out of which, at least one director should be an

independent director. The composition of the committee shall be included in the

board’s report. The new rules will be applicable from the fiscal year 2014-15

onwards.

1. Areas of Activities of CSR

Schedule VII of Companies Act, 2013 broadly mention the areas of activities

where CSR spending should be made. Following are the activities suggested.

i. Eradicating extreme hunger and poverty.

ii. Promotion of education.

iii. Promoting gender equality and empowering women.

iv. Reducing child mortality and improving maternal health.

v. Combating human immunodeficiency virus, acquired immune deficiency

syndrome, malaria and other diseases.

vi. Ensuring environmental sustainability.

vii. Employment enhancing vocational skills.

viii. Social business projects.

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 ix. Contribution to the Prime Minister’s National Relief Fund or any other fund

set-up by the central government or the state governments for socio-economic

development and relief, and funds for the welfare of the scheduled castes and

tribes, other backward classes, minorities and women.

x. Such other matters as may be prescribed.

2. Provisions Relating to CSR Spending

The committee shall recommend the amount of expenditure to be incurred and

monitor the CSR policy from a time-to-time. The board shall disclose the contents of

the policy in its report, and place it on the website, if any, of the company. The

Companies Act, 2013 mandates that these companies would be required to spend at

least 2% of the average net-profits of the immediately preceding three years on CSR

activities, and if not spent, explanation for the reasons thereof would need to be given

in the director’s report (Section 135 of the Companies Act, 2013). These rules will be

applicable from F.Y.2014-15 onwards.

3. Method of Spending

i. Directly by the company itself.

ii. Through the company’s own non-profit foundation set up so as to facilitate

this initiative. (E.g. Union Bank Social Foundation, SBI Foundation, etc.)

iii. Through independently registered non-profit organizations that have a track

record of 3 years in similar activities.

iv. Pooling resources with other companies.

4. CSR Planning and Strategizing

A strategy, in the usual meaning of the term, implies something that is

planned, preconceived and deliberate. So a CSR strategy is a series of deliberate

stages intended to achieve a particular outcome. CSR strategy involves making

88
choices. Once these decisions have been made, the person or people responsible for

implementing CSR strategy will have a basis for CSR decisions. This is a CSR

strategy. CSR process is depicted in Figure 3.2.

Figure 3.2

Steps Involved in CSR

Developing a CSR strategy and policy

Operationalizing the institutional mechanism

Due diligence of the implementation partner

Project development

Project approval

Finalizing the arrangement with the implementing agency

Progress monitoring and reporting

Impact measurement

Report consolidation and communication

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3.11 GLOBAL GUIDELINES ON SOCIAL RESPONSIBILITIES

A comprehensive guidance for companies pertaining to CSR is available in the

form of several globally recognized guidelines, frameworks, principles and tools,

some of which are discussed below. It must be noted that most of these guidelines

relate to the larger concept of sustainability or business responsibility, in keeping with

the fact that these concepts are closely aligned globally with the notion of CSR.

1. United Nations Global Compact32 (UNGC)

The United Nations Global Compact is a United Nations initiative to motivate

businesses globally to implement sustainable and socially responsible policies, and to

report their implementation. The UN Global Compact is a principle-based framework

for businesses, stating ten principles in the areas of human rights, labour,

the environment and anti-corruption. Under the Global Compact, companies are

brought together with UN agencies, labour groups and civil society. The UN Global

Compact is the world's largest corporate citizenship initiative with 10000 corporate

participants and other stakeholders over 130 countries with two objectives:

‘Mainstream the ten principles in business activities around the world’ and ‘Catalyse

actions in support of broader UN goals’. The UN Global Compact was initially

launched with nine principles. On June 24, 2004, during the first Global Compact

Leaders’ Summit, Kofi Annan (Former United Nations Secretary General) announced

the addition of the tenth principle against corruption in accordance with the United

Nations Convention against Corruption adopted in 2003. The ten principles are

depicted in Figure 3.3.

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 Figure 3.3
Ten Principles of UNGC

Principle 1: Business should support

internationally proclaimed human rights
HUMAN RIGHTS

Principle 2: Business activities should

not abuse human rights

Principle 3: Business should uphold

freedom of association
UNITED NATIONS GLOBAL COMPACT

Principle 4: Business should eliminate

forced and compulsory labour
LABOUR
STANDARDS
Principle 5: Business should uphold
effective abolition of child labour

Principle 6: Eliminate discrimination in

employment and occupation

Principle 7: Business should act against

environmental challenges

ENVIRONMENT Principle 8: Business should promote

environmental responsibility

Principle 9: Business should encourage

environment friendly technologies

ANTI- Principle 10: Business should work

CORRUPTION against all forms of corruption

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2. UN Global Compact in India

The Global Compact Network (GCN) India was formed by organizations from

India who participate in the UN Global Compact. It was registered on 24th November

2003, with Registrar of Societies, Delhi, as a non-profit body. The main objective of

the Network is to provide a forum to various Indian companies/ organizations to

exchange experiences, network and work together on activities related to corporate

social responsibility (CSR). This is expected to promote sustainable growth besides

encouraging good corporate citizenship. The Network, acts as an apex level nodal

agency representing various Indian corporate bodies/ institutions/NGOs/SMEs, who

are committed to the UN Global Compact principles.

The Global Compact Network India has been one of the pioneering local

initiatives of the UN Global Compact. It is one of the first local networks to be set up

as a legal entity. Over the last nine years the network has seen modest growth and has

been able to create a niche for itself within efforts by the business community directed

towards realising the vision of sustainable development in India.

3.12 CONCLUSION

With the implementation of new Companies Act, India has become the first

country to have legislated CSR mandates. According to industry estimates around

8000 companies will fall into the ambit of CSR provisions. The concept of corporate

social responsibility has gained much popularity and has been the focal point of

various discussions and it has been a sought out topic for research. The concepts,

practices, theories, models and guidelines, referred to in this chapter enables to

comprehend an idea about corporate social responsibility and provide an overview of

how the concept and practice of CSR has grown, manifested itself, and flourished. It

92
considers how the CSR concept, expanded from its focus on a few stakeholders to be

more far reaching and inclusive, eventually becoming global in scope. In addition, in

brief the chapter considers what changes have taken place in the field of law,

especially the enactment of Companies Act ‘2013, to accommodate these new

initiatives, to the point at which it has become fully institutionalized today. CSR in

many firms is moving towards full integration with strategic management and

corporate governance.

93
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