Corporate Social Responsibility

*Dr. M. Selvakumar

**M. Nagalakshmi

 

INTRODUCTION

Corporate governance is concerned with the values, vision and visibility. It is about the value orientation of the organization, ethical norms for its performance, the direction of development and social accomplishment of the organization and the visibility of its performance and practices.  The concept of corporate governance, which emerged as a response to corporate failures and widespread dissatisfaction with the way many corporate function, has become one of the wide and deep discussions across the globe recently. It primarily hinges on complete transparency, integrity and accountability of the management. There is also an increasingly greater focus on investor protection and public interest.

WHY CORPORATE GOVERNANCE?

          The following lines gives the answer to the question why Corporate Governance?.

 

a) The liberalization and de-regulation world over gave greater freedom in management.

     This would imply greater responsibilities.

 

b) The players in the field are many. Competition brings in its wake weakness in         

     standards of reporting and accountability.

 

c) Market conditions are increasingly becoming complex in the light of global    

    developments like WTO, removal of barriers/reduction in duties.

 

*Assistant Professor, Post Graduate Department of Commerce

 

**Research Student, Post Graduate Department of Commerce

 

d) The failure of corporate due to lack of transparency and disclosures and instances of     falsification of accounts/embezzlement and the effect of such undesirable practices in     other companies.

 

PREREQUISITES FOR GOOD GOVERNANCE

There are some pre-requisites for good corporate governance. They are:

• A proper system consisting of clearly defined and adequate structure of roles, authority   and responsibility.

• Vision, principles and norms which indicate development path, normative considerations and guidelines and norms for performance.

• A proper system for guiding, monitoring, reporting and control.

CORPORATE SOCIAL RESPONSIBILITY

            Corporate Social Responsibility (CSR), also known as corporate responsibility, corporate citizenship, responsible business, Sustainable Responsible Business (SRB), or Corporate social performance, is a form of corporate self- regulation integrated into a business model.  Ideally, CSR policy would function as a built in, self regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms.  Business would embrace responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: People, Planet, and Profit.

RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY.

            Corporations are also citizens of the place where they are created like other citizens, they have social responsibilities.  In good corporate governance, the management should be able to meet their social responsibilities, these include making sure that their products are not hazardous to people and to the environment, sharing their profits for the good of the community as a natural person or human being would do, donating to social causes, organizing activities to benefit the community.

 Other good corporate governance practices that overlapped with social responsibility is complying with applicable laws, setting good labor conditions for employees, providing good products to the community, helping the economy through fair trade practices, paying taxes and other obligations due to the government, making commitments to other persons, natural and juridical alike.        

STAKEHOLDERS AND CORPORATE SOCIAL RESPONSIBILITY

Stakeholders are individuals or groups that have interests, rights, or ownership in an organization and its activities. Customers, suppliers, employees, and shareholders are example of primary stakeholder groups. These stakeholder groups form the basis of success and failure of the business. Each has interest in how an organization performs or interacts with them. These stakeholder groups can benefit from a company’s success and can be harmed by its mistakes.

Secondary stakeholders are also important because they can take action that can damage or assist the organization. Secondary stakeholders include governments (especially through regulatory agencies), unions, nongovernmental organizations (NGOs), activities, political action groups, and the media.

In orders to serve their stakeholders in an ethical and social manner, more and more organizations are adapting the model of corporate social responsibility. The term Corporate Social Responsibility goes by many other terms such as corporate citizenship, responsible business or simply corporate responsibility.

Stakeholders of Organization

When an organization builds ethical and social elements in its operating philosophy and integrate them in its business model, it is said to have possessed a self-regulating mechanism that guides, monitor and ensure its adherence to law, ethics, and norms in carrying out business activities that ensures the serving the interest of all external and internal stakeholders. In other words, the objective of being socially responsible business is achieved when its activities meet or exceed the expectations of all its stakeholders.

Here is a model for evaluating an organization’s social performance. The model indicates that total corporate social responsibility can be subdivided into four criteria-economic, legal, ethical and discretionary responsibilities.  These responsibilities are ordered from bottom to top in the following illustration.

Total Corporate Social Responsibility

Economic responsibilities:

The first criterion of social responsibility is economic responsibility. The business institution is, above all, the basic economic unit of society. Its responsibility is to produce goods and services that a society wants and to maximize profit for its owners and shareholders. Economic responsibilities, carried to the extreme, are called profit-maximizing view; it was advocated by Nobel economist Milton Friedman. This view argued that a company should be operated on a profit-oriented basis, with its sole mission to increase its profits so long as is stays within the rule of the game.

The purely profit-maximizing view is no longer considered an adequate criterion of performance in the world in general. Treating economic gain in the social as the only social responsibility can lead companies into trouble.

Legal responsibilities

All modern societies lay down ground rules, laws and regulations that businesses are expected to follow. Legal responsibility defines what society deems as important with respect to appropriate corporate behavior. Businesses are expected to fulfil their economic goals within the legal framework. Legal requirements are imposed by local councils, state and federal governments and their regulating agencies. Organizations that knowingly break the law are poor performers in this category. Intentionally manufacturing defective goods or billing a client for work not done is illegal. Legal sanctions may include embarrassing public apologies or corporate ‘confessions’.

Ethical responsibilities

Ethical responsibilities include behavior that is not necessarily codified into law and may not serve the organization’s direct economic interests. To be ethical, organization’s decision makers should act with equity, fairness and impartiality, respect the rights of individuals, and provide different treatments of individual only when differences between them are relevant to the organization’s goals and tasks. Unethical behavior occurs when decisions enable an individual or organization to gain expense of society.

Discretionary responsibilities

Discretionary responsibility is purely voluntary and guided by an organization’s desire to make social contributions not mandated by economics, laws or ethics. Discretionary activities include generous philanthropic contributions that offer no payback to the organization and are not expected. Discretionary responsibility is the highest criterion of social responsibility, because it goes beyond societal expectations to contribute to the community’s welfare.

Stakeholders governance models offer political and economic benefits.  Still stakeholder collaboration remains fairky underdeveloped and often ineffective.  Limited stakeholder inculsion, strategic management of stakeholders and co-optation of stakeholder involvement by managerial groups creates limits.  But a bigger but more hidden problem has been the lack of serious attention to models of communication in collaborative decision making.  Innovative communcation processes based in conflict rather than consensus models can positively imact Corporate Social Responsibility (CSR).

CONCLUSION

            "Success is not the art of making mistakes when nobody is looking at, true success is the truthful expression of the performance when it is measured"

Corporate governance has assumed vital role and significance due to globalization and liberalization. The excellence in terms of customer satisfaction, in terms of return, in terms of product and service, in terms of return to promoters and in terms of social responsibilities towards society and people cannot be achieved without practicing good corporate governance.

"Corporate Governance practices and concept has been recently raised due to growing level if falls out in corporate sector leading to severe injury not only to the Stake holders but to the whole economy”.