1. 1 Business Environment-Session:7. Corporate Social Responsibility, Development-Driven Business and Social Business

2. 2 Definition of Ethics Encyclopedia Britannica The branch of philosophy that is concerned with what is morally good and bad, right or wrong, a synonym for it is moral philosophy Webster's Dictionary The discipline dealing with what is good or bad or right or wrong or with moral duty or obligation

3. 3 Bertrand Russell on ethics. Similar dichotomy characterizes ethics We have in fact, two kinds of morality, side by side. One which we preach but do not practice and one which we practice but seldom preach. Then why bother about ethics and law?

4. 4 Relevance of Ethics to Business 1. Both ethics and business are based on trust. Ethical conduct creates virtuous cycle of trust. Unethical conduct unleashes vicious cycle of distrust 2. Ethics contributes to employee commitment. A 2000 Survey in USA shows that 79% employees value importance of ethics in contemporary world. It improves performance of employees.

5. 5 Relevance of Ethics to Business 3. Ethics builds up reputation – it is a marketable commodity. It attracts investors. Companies perceived by their employees as having a high degree of honesty (three year total return to shareholder 101%) is much higher than those with low degree of honesty ( comparable return 69%)

6. 6 Relevance of Ethics to Business 4.Ethics contributes to customer satisfaction. A poll of twenty five thousand citizens in 23 countries found that almost 60 percent of people focus on social responsibility ahead of brand reputation and financial factors. Special interest groups force the companies comply with ethical standard. Boycotting for oil spill, for not using dolphin friendly nets selling tuna

7. 7 Relevance of ethics to Business 5. Ethics contributes to profit. It is a two way relationship. Profits make spending on ethics easier. On the other hand, ethics enhances profit. CSR increases profit. Sears suffered when its automotive repair shops sold customers the parts they do not need. Ethical misconduct creates bad publicity, Bad publicity means bad business.

8. 8 Types of Ethical Issues in Business 1. Internal ethical issues: Day to day issues which do not attract public attention like hiding information, non-transparent conflict of interest etc. 2. External ethical issues which attract public attention like CSR

9. 9 Code of Ethics The first essential measure is the Code of Ethics Such codes define the dos and donts from ethical point of view. This is helpful in fixing responsibility for unethical behavior. This helps the companies in disseminating its values to the companies. The code of ethics may reduce legal liabilities in companies.

10. 10 Ethics officer The ethics officers are responsible for managing their organizational ethics and legal compliance programs. They are usually responsible for assessing the needs and risks that an organization-wide ethics program must address. They prepare ethics code, train employees in ethics and enforce the code.

11. 11 Ethics Audit An ethics audit is a systematic evaluation of an organization’s ethics program and performance to determine whether it is effective. An audit program can also be the first step for the preparation of ethics program. It includes the audit of social responsibility initiatives. Like an accounting audit, an ethics audit may be conducted by someone with expertise from outside the organization.

12. 12 Intellectual Roots of CSR Intellectual roots of CSR could be traced to: 1.Corporations as trust 2.Corporate citizenship 3.Responsibility to stakeholder 4. Social responsibility

13. 13 Corporation as Trust The idea that corporations are trusts surfaced in 1920s and 1930s. In 1953, Bowen developed the idea and conceptualized CSR as social obligation “ to pursue those policies, to make those decisions, to follow those lines of action which are desirable in terms of values and objectives of the society.” In 1954 Peter Drucker suggested that it was important for the management to consider the impact of every business policy and actions on society. Bowen and Drucker pioneered the concept of CSR.

14. 14 Corporate citizenship It is a revolt against a footloose abstract concept. Corporations cannot be absolved of moral responsibility. A company is more than just a legal entity. It combines the talents, hopes and dreams of thousands of real people. It is a community of people together by a common purpose. Corporate citizenship implies that a company should be a good neighbor.

15. 15 Corporate citizenship Corporate citizenship research unit of Australia describe corporate citizenship as “ a recognition that a business corporation or business like organization has social, cultural and environmental responsibilities to the communities to operate. It is useful foer employees (schools, recreation), enhance prestige of the company and creates congenial environment.

16. 16 Corporate citizenship Duties view – Duties linked to locality. Corporations also claim rights. In 2010 US Supreme Court in Citizens versus Federal Election Commission held that the corporations have a basic right to provide funding for political ads and other communications during elections.

17. 17 Responsibility to stakeholder The primary responsibility is to stakeholder and not to shareholders. The idea was developed by Freeman in 1980s.Companies have unique opportunities to improve society through meeting the needs of stakeholders.Stakeholders are defined by their interest in the corporation, not whether the corporation has any interest in them. Companies have various responsibilities to each of their stakeholders.

18. 18 Who are the stakeholders? Traditional view. Shareholders. Narrow view: investors, employers, suppliers and customers Extended view: government bodies, political groups, trade associations, trade unions, communities, associated corporations, prospective employees, prospective customers and the public at large.

19. 19 Social Responsibility The idea of social responsibility was emphasized in 1960s by writers like Keith Davis and William C. Frederick. Social responsibility is an organization’s obligation to maximize its positive impact on stakeholders and to minimize its negative impact. The main arguments of Keith Davis: 1. Social responsibility arises from social power (over such as environment, minority employment, neighborhood development etc.)

20. 20 Social responsibility 2. Business shall operate as a two way open system with open receipt of input from society and open disclosure of its operation to public 3. The social costs and benefits of an activity, product or service shall be thoroughly calculated and considered in deciding whether to proceed with it. 4.The social costs related to each activity product, product or service are passed to consumers. 5. Business organizations as citizens have the responsibility to become involved in certain social problems that are outside their areas of operation. The theory of social responsibility is criticized by Milton Friedman who believes that social responsibility of business is to make profit.

21. 21 Acceptance of Social Responsibility through Philanthropy This view is further popularized in recent years by large philanthropies. Bill and Melinda Gates Foundation - $33.5 billion William Buffet, one of the richest persons in the world, donated more than $ 30b to Bill and Melinda Gates Foundation. He questioned the foundation of dynastic wealth in a capricious economy where money may be made in an unjust way.

22. 22 Four Dimensions of CSR According to Archie Carroll, there are four dimensions of CSR: Level 1. Economic – the first and foremost social responsibility of a firm is economic. The firm must survive by producing goods and services for a profit.

23. 23 Four dimensions of CSR Level 2 -Legal – society expects firms to operate their business within legal framework Level-3. Ethical – these responsibilities are those over and above the ones codified in laws and are in line with societal norms and customs. They are expected though not required by society even though they maybe ill-defined. This could include things such as environmental ethics.

24. 24 Dimensions of CSR Philanthropy – corporate giving is discretionary although increasingly desired by stakeholder communities.

25. 25 Criticism of Carroll’s 4 dimensions 1. Which level should have higher priority? Profit or compliance with law? 2. Milton Friedman accepts only first two levels. As Friedman states, “That 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 rules of the game which is to say engages in open and free competition without deception or fraud”.

26. 26 Criticism of levels 3. An alternative formulation could be to run competitive business and remove manifest injustices. Philanthropy should not be for charity but for removing manifest injustices.

27. 27 Definition of CSR Kok and others define CSR as “ the obligation of a business to use its resources in ways to benefit society through committed participation as a member of society, taking into account society at large … independent of the direct gains of the company”

28. 28 Definition of CSR European Commission defines it as follows “ A concept whereby companies decide voluntarily to contribute to a better society and cleaner environment” No explicit mention of philanthropy.

29. 29 Definition of CSR CSR is the deliberate inclusion of public interest into corporate decision-making and the honoring of triple bottom line, People, Planet and Profit

30. 30 Aaronson’s definition Business decision making linked to ethical values, compliance with legal requirements and respect for people, communities and the environment around the world. Not restricted to local community but the world.

31. 31 Definition of CSR CSR policy functions as a built- in mechanism whereby business monitors and ensures its active compliance with the spirit of law, ethical standards and international norms”

32. 32 Definition of CSR A firm’s sense of responsibility towards the community and environment ( both ecological and social) in which it operates ad draws and sustenance from. Firms express their citizenship (1) through their waste and pollution reduction processes (2) by contributing educational and social programs and (3) by earning adequate returns on the employed resources also.

33. 33 Conclusion on definition There is considerable difference on the concept itself. The emphasis is on compliance with the spirit and not letter of law. Charity is a marginal component

34. 34 Four main Approaches Community based development such as school, health centers. Corporation involved in local project. Philanthropic approach – charity locally or globally Incorporation of CSO strategy in business. Boycotting goods produced immorally Shared value approach. Corporate success and social welfare integrated

35. 35 Advantages of CSR 1. CSR increases profit. Orlitzky, Schimdt and Rynes found a positive correlation between social environment performance and financial performance. The correlation is not enough

36. 36 Advantages of CSR 2.Better personnel are attracted to companies with better record of CSR 3. Helpful in keeping the image of the company intact. CSR nourishes a climate of ethics. This prevents untoward activities

37. 37 Advantages 4. Brand loyalty. Customers tend to be loyal to brands of companies with better CSR 5. Ethically satisfying and legally safe.

38. 38 Disadvantages of CSR 1. Window dressing. Used as a tactic for commercial promotion and hiding undesirable activities. British American Tobacco sells tobacco and Wall Mart contributes to charity. Wall Mart gives to charity $170 million out of a profit of 10 billion. But exploits workers. McDonald sells junk food and pays low salary but pays to charity. This is corporate hypocrisy.

39. 39 Disadvantages 2. The costs of Charity is often borne by the Government where tax exemption is given. 3. Less attention is paid to compliance with laws. When Enron executives were falsifying revenue and taking excessive risk, where was their sense of corporate citizenship?

40. 40 Disadvantages 4. Some firms use benchmarking – assess what the competitors are doing in CSR and then devise their strategy to face competitors. This is morally wrong. CSR should not be a strategy 5. CSR detracts the attention of management from their economic role of profit making. Let the firms earn and Government tax. The firm defines the CSR from their selfish point. Robert Reich argues that Government should define CSR.

41. 41 Conclusion The success of CSR depends on the change of the mindset. The management must engage in a continuous dialogue with stakeholder. CSR is a journey and not a destination. A learning process which must grapple with a changing world. Controversy on the role of Government. Denmark passed a CSR law mandating CSR report of large corporations in annual financial statement

42. 42 New Dimensions of CSR in developing countries Two major models Development driven business by Tata in India Social business model of Dr. Yunus

43. 43 Development-Driven Business Of Tata An extension of CSR principles to developing country context Social expenditure is funded not from profit but is budgeted well in advance as a business cost like any other An employee is designated as community champions to look after specific areas in which they work

44. 44 Development-Driven Business Employees are encouraged to join Tata corps of volunteers Tata Council of Community Initiatives (TCCI) coordinates the activities. Tata Index of Sustainable Human Development is used to measure the progress in communities where TCCI is involved. TCCI spent $36 million in 2000.

45. 45 Social Business The concept of Social business was developed by Dr. Md. Yunus. Social business may be defined as an economic activity that aims at solving a social problem by using business methods. The aim is to help others without making any financial gain. It is a business because it must be self-sustaining – that is it generates enough income to cover its own costs.

46. 46 Social business and CSR CSR programs are mostly used to build a company’s image, to promote the idea that a company is a good neighbor or good citizen. By contrast, a social businesses directly devoted to changing the economic and social situation of the poor or to creating some other social improvement in the world,

47. 47 SB and CSR As Dr. Yunus says, “A profit maximization company that practices CSR may devote 95% of its resources to producing profits or 5% or less making the world better. A social business devotes 100 of its resources to making the world a better place”.

48. 48 SB and Development- driven business In development driven business, the poor are recipients of training, education end health services etc. The business is done by Tata who aims at development of community where it works. In SB, business is conducted by the poor. There is no community champions or volunteers in SB.

49. 49 Two types of SB 1. Type-1 Social Business – a no- loss no-dividend company devoted to solving a social problem and owned by investors who reinvest all profits in expanding and improving the business

50. 50 Type 2 Social Business A type-2 Social business is a profit-making company owned by poor people either directly or though a trust which is dedicated to a pre-defined social cause. Distribution of profit to poor people is a social cause.

51. 51 Why business and not a non-profit company Non-profit can start as a business and may degenerate as a charity. Business ensures sustainability

52. 52 Type-1 Social Business Example Grameen Danone to solve the problem of malnutrition Grameen Veolia Water by selling pure water at a cheap price to address the problem of arsenic contamination BASF Grameen to produce mosquito nets treated with repellents

53. 53 Key characteristics of Type-1 Social Business 1. objective to address poverty or poverty related problems such as health and education etc. etc, 2. will attain financial and economic sustainability 3. Investor will get back investment amount but profits stay with the company

54. 54 Type1 SB 4.the company will be environmentally conscious 5. The workers will get market wages but better than standard working conditions 6. When the investment is paid back, profits stay with the company for expansion and improvements. 7. Do it with joy.

55. 55 Type-2 S.B. There are 22 functioning Grameen affiliates. One is a type-2 project – Grameen Danone, 4 are trust and 17 are businesses, but not all social businesses. 6 relate to it and 2 relate to consultancy in business. At best, 11 are social business. Grameenphone started asatype-2 Social business. Is it a social business? Is Grameen knitwear a social business? Why not worker ownership?

56. 56 Criticism of Social Business It is too early to evaluate. Not many SBs are in existence The poor cannot build a social business without a catalytic agent like Grameen Bank. It is not feasible for them to find viable options and line-up foreign finance.

57. 57 Criticism All businesses are not profitable. Many businesses take time to be viable. Seven enterprises or affiliates are making losses (such as Grameen solutions, Grameen Krishi Foundation) are kept alive by cross subsidies. Grameen Danone faced many teething problems initially. Who will bear the losses?

58. 58 Criticism The purpose of companies change. Danone may become viable by selling to urban rich rather than addressing nutrition problem of rural porthole Grameen phone became a victim of its own success. The original purpose changed.

59. 59 Criticism Will corporate invest without profit? Apart from businesses, non-profit foundations may provide funds. The real challenge is to attract technology transfer by multinationals. Universities can play a role in designing new businesses.

60. 60 Main issues 1. Briefly review the intellectual origins of CSR. 2. What is CSR? What are the main components of CSR? 3. Explain the advantages and disadvantages of CSR.