Presentation on theme: " What is it that the business is responsible for? It is responsible for the welfare of the shareholders and the stakeholders, the former being the."— Presentation transcript:
What is it that the business is responsible for? It is responsible for the welfare of the shareholders and the stakeholders, the former being the investors who have entrusted their money to the company for proper use so that it makes profits, and the latter consist of the workers, consumers, society in general, and the environment.
It is the latest buzzword in the area of corporate governance and the government. So far it has caught attention only of big and well regulated companies, the smaller ones still imbued with the old style of functioning.
What is need for CSR? Some of the hard facts of business
(1) Business cannot exist in a vacuum. It is a truism, indeed. It has to exist in a society and a social setting. It, therefore, must not go against the interests of the society. There is an integral relationship between the business and society.
(2) No society can function without rule of law. Since laws are framed to regulate the functioning of all, including the conduct of business, it is imperative that the laws are followed by the business.
4)With the onset of globalization and the emergence of a networking society, CSR has become a global issue. While conducting business with other countries, the company has not only to adhere to local laws, but also the laws of the host state.
It is in this context that CSR has become a categorical imperative in the international business. Most of the responsibilities are laid down in law, whereas the optional ones shall have to be the concern of the business house in order to seek the goodwill of the society.
The Indian Condition Corporate social responsibility in India has been generally considered to reside in the domain of charity and donations, both prompted by religious and altruistic considerations., the concept of CSR has not taken any roots, except in the case of a few business houses, especially in the technology sector
Like the Infosys, who have undertaken education in its project known as Pratham. The Tatas had been the earlier enterprisers in this area, funding Indian Institute of Science, Tata Institute of Social Sciences, and the town of Jamshedpur. These can be considered as the earliest investments in social responsibility in India. All the other institutions by the business houses are not prompted by social concerns, but are the outcomes of business interest. The sites for educational institutions and hospitals are often provided at reserved price. Such institutions, mostly in the area of school education or schools of business management or the type charge heavy fee from the students and run on commercial lines. Now business houses have also invested in the health sector in the form of hospitals and nursing homes. It must be appreciated that none of this activity is caused by a feeling for the social causes. It is business, pure and simple.
Thus CSR is conspicuous by its absence in India. The phenomenon is strange as the Constitution of India is replete with such concerns. Though the companies are supposed to follow laws, yet there is often a desire and an effort to circumvent than to comply. The generation of black money is the contribution of the business that has thrived on the license and quota system of governance during the era of command economy. Not only was social responsibility missing from the business, there was an effort to exploit the opportunity of shortages and using the privilege of allocations of permits to make money as well as to avoid taxes and sending the money abroad in tax havens to evade scrutiny. This also resulted in conspicuous consumption and created a deeper wedge of disparities in income. It was this money that found its destination in the religious endowments as an effort to appease the gods than use it for public good. This period can be called as an era of corporate irresponsibility.
Thus CSR is conspicuous by its absence in India. The phenomenon is strange as the Constitution of India is replete with such concerns. Though the companies are supposed to follow laws, yet there is often a desire and an effort to circumvent than to comply. The generation of black money is the contribution of the business that has thrived on the license and quota system of governance during the era of command economy. Not only was social responsibility missing from the business, there was an effort to exploit the opportunity of shortages and using the privilege of allocations of permits to make money as well as to avoid taxes and sending the money abroad in tax havens to evade scrutiny. This also resulted in conspicuous consumption and created a deeper wedge of disparities in income. It was this money that found its destination in the religious endowments as an effort to appease the gods than use it for public good. THIS PERIOD CAN BE CALLED AS AN ERA OF CORPORATE IRRESPOSIBILITY This period can be called as an era of corporate irresponsibility.
It is only recently that there is a talk of corporate social responsibility. One of the reasons is the globalization of business when the national companies have to operate in other nations both as producers in the form of outsourcing and suppliers of goods. It is this compulsion to follow the laws of some of the advanced nations who can call the house to order that the concept has to be taken note of. The companies that want to conduct business in other countries cannot ignore this reality. Second reason is the laying of the internationals standards of compliance through the trade organizations like the WTO and the International Labor Organization, besides the pressure of the human rights and environment protocols. More standards are in the offing, ISO26000,and the companies can set these aside only at the risk of their business. If they do not comply with standards, they shall be rejected. Earlier some of the western importers had rejected the fine carpets crafted by the nimble hands of child labor. Fur is not an open option and the business in this item has gone underground, as there is a pressure from the animal lovers.
The business houses have never considered rights as of any importance. Though they have been trying to comply with laws, they have never considered rights as generic and inherent in all the legislation, with the result that the focus is confined to the minimum compliance that takes them through the business rather than a desire to cater to any sense of responsibility. There is thus only a lip service to the responsibility as such and not any desire thereof. Therefore, this is the moment of reckoning and time has come for compliance with the tenets of social responsibility.
Components of social responsibility The CSR is subsumed in three international irreversible discourses on Human rights, Environment, and Transparency. These are the overarching ideas that cover most of the responsibilities. What are, therefore, the specific components of responsibility?
The International Labor Organization (ILO) has stipulated seven social principles. These pertain mostly to the responsibility of business to workers, as follows: 1. Child labour: The company shall not employ children aged under 15. 2. Forced labour - The company does not use forced or compulsory labor, meaning any work or service performed under threat, or that is not consented to by the person concerned. 3. Discrimination: The company refuses to engage in any discriminatory practices, i.e., any distinction, exclusion or preference limiting equality of opportunity or treatment. It may be based on race, color, sexual orientation, religion, political opinion, age, nationality, family obligations or other considerations. 4. Freedom of association and right to collective bargaining: The company ensures that employee representatives do not suffer any discrimination. 5. Health and safety at work: The company ensures that the workplace or its environment does not endanger the physical integrity and health of employees. It shall take action to reduce causes of accidents and improve working conditions. As a minimum, the company shall provide employees with drinking water, clean toilets, adequate ventilation, emergency exits, proper lighting and access to medical treatment. 6. Working hours: The company must ensure that applicable legal restrictions on working hours are complied with. Employees have at least one day off each week. 7.Pay: The company ensures that no wage is lower than the applicable minimum wage, and wage rates for overtime are in all cases higher than for normal working hours. The Kyoto Protocol on environment and development has given emphasis on the on various aspects of the environmental. The UN Convention against Corruption has emphasized the need for ethical norms and transparency.
Intimations of CSR in the Constitution of India A reading of the Constitution of India makes it clear that all the stipulations indicated by the ILO that deals more with the interests of the employees are contained therein. The Kyoto Protocol is concerned with the ecological issues. Both the standards of the ILO and the Kyoto Protocol are already included in the chapters on ‘Fundamental Rights’ and ‘Directive principles of State Policy’, as well as laws framed under and inspired by these.
There are, therefore, four compelling aspects of the Constitution. First is the ‘preamble’ to the Constitution that aims at assuring the dignity of the individual. The second is the ‘fundamental rights’ that prohibit discrimination on grounds of religion, race, caste, sex, or place of birth (Art 15), ensure equality of opportunity for all citizens (Art 16), provide a right to form associations or unions (Art 19), prohibit forced labour (Art 23), and impose restriction of employment of children below fourteen years in any factory or mine or any other hazardous employment (Art 24). These rights are justiciable so that in case of any violation, the superior courts can be approached. The third aspect is the ‘directive principles of state policy’ that are guidelines to the government to pursue ends for the welfare of people. These are fundamental principles for the governance of the country. The State shall secure equal pay for equal work for both men and women, and health and strength of workers (Art 39), make provision fro securing just and humane conditions of work and for maternity relief (Art 42), secure to all workers a’ living wage ensuring a decent standard of life (Art 44), take suitable steps ‘to secure the participation of workers in management of undertakings, establishments or organizations engaged in any industry’ (Art 43A), and protect and improve the environment and safeguard the forests and wildlife of the country (Art 48A). And, lastly, the ‘fundamental duties’ are expected to be performed by all citizens (Art 51A). Some of the relevant duties are to renounce practices derogatory to the dignity of women, to protect and improve natural environment, and to strive towards excellence in all spheres of individual and collective activity.
In the context of the standards laid by the ILO and the concerns of the environment, the legislation has been enacted in tune with the stipulations of the Constitution. All the fundamental rights and most of the directive principles of state policy are further supported by specific legislation. It would suffice to make a mention of some of these laws like the Minimum wages Act, Employees State Insurance Act, Payment of Bonus Act, Personal Injuries (Compensation Insurance) Act, Maternity Benefits Act, Contract Labor (regulation and Abolition) Act, Bonded labor Systems (Abolition) Act, Equal Remuneration Act, etc. Similarly, there is legislation to look after the environment like Air (Prevention and Control of Pollution) Act, Environment (Protection) Act, Forest Act, Water (Prevention and Control of Pollution) Act Wildlife Protection Act, etc. There are laws that regulate the financial aspect of the economy as well as protect the interests of consumers. Besides the restrictions, there are institutions to implement the acts.
From the above it is clear that the principles of CSR are already contained not only in the Constitution, but are also supported by specific legislation. Then what does all this imply in the case of the corporation?
Though laws are applicable for the various items contained in the ILO standards, there is often a desire to beat laws than comply with these. Laws are considered more as an imposition and an impediment rather than a compliance with the CSR standards. One thing is therefore obvious. The corporation must adhere to law. Once it is committed to the acceptance of laws, it automatically is in the league that follows the tenets of social responsibility. The ILO norms are only suggestive for those countries that have no standards on these counts. But the advantage of the ILO standards is that these do help to itemize the essentials.
Therefore one part of the CSR is the legal norms that govern the relations between individual and the company on the one hand and international legal system on the other. These norms are based upon the discourses of human rights, environmental protection, consumer protection, taxation laws, and minimum standards set by law in other matters. These are universal principles that are irreversible and have found an important niche in almost all the nations. So any corporation, indigenous or international, shall have to comply with the legal norms of the nation.
Stakeholders The second aspect of the CSR is the interest of stakeholders who are the investors, consumers, public, and the environment in which the business exists.
Shareholder He is often considered to be different from the stakeholder and is aligned with the company whose interest is to make profit and share it with the shareholders. The distinction is artificial, as the shareholders do not make decisions. Shareholder is equally at risk if the company defaults on any of the responsibilities that it is obliged to follow. The courts may impose huge penalties that would adversely affect the bottom line and thus hurt the interests of the shareholders. Moreover, the shareholders can be tricked into false escalation of the share prices by inside purchases giving the impression of huge profits and making the shares attractive for prospective buyers, or the profits maybe squandered in unusual bonus payments to top management, CEOs, board members, fictitious company expenses, etc., thus casing a dent in the share of the shareholders. Thus it would do well to consider shareholder as stakeholder rather than consider him as a separate category. An important aspect of the responsibility, therefore, lies in protecting the interests of the shareholders from the greed that had been lately manifested in the economic breakdown and recession in many advanced nations. The interests of the shareholders are best maintained by transparent policies and functioning of the organization. These include a written commitment to values, free communications, regular authentic audit, integrity in procurements, and reasonable salaries and bonuses so that there is no dent upon the profits of the company to be shared with the shareholders.
Consumers This is the third category of the stakeholders. The protection of the interests of the consumers lies in the quality, quantity (proper measure/weight), price of the product (value for money), absence of exploitation, etc. The interests of the consumers too are protected by law as well as by the Consumer Councils and the consumer courts that, of late, are progressive in their decisions. The Consumer Protection Act looks after the interests of the consumers. The consumer courts adjudicate on problems between the consumers and the producers on issues of quality, quantity, and other areas. There are laws for these, and it thus becomes the responsibility of the corporation to keep these infractions in view. The interests of the consumers are well covered in case they choose to use law. The government is trying to make people aware of these facilities.
Society Since the corporation is located in the society physically, it has a responsibility to take care of the environment and traditions of the area. It must be engaged in responsible social relationships and may partake in the activities of the society around it. It has a responsibility for the local development, if it can secure in some manner, but more important is that it must not degrade the environment with its pollutants of water or air. However, there are laws that the corporation has to follow so that all aspects of the environment, especially in terms of the waste, are taken care of.
NGOs They are not direct stakeholders, but an important conduit between the people and the industry. They mediate between the two, and look after the interests of the people so that they, by their ignorance of law or their entitlements, are not taken for a ride and exploited. They are an indirect aspect of stakeholders as such and espouse their causes. They cannot be taken lightly if the responsibility is to be executed. In fact, they may be helpful in forewarning so that the industry can take a corrective action. They act as pressure groups whose voice cannot be ignored as they act on behalf of people of the area.
Tasks of corporation In view of the above, it is now necessary to delineate the tasks the corporation has to specifically undertake in fulfillment of responsibilities. Compliance with law : Ethical sourcing : Code of conduct : Training inputs for corporations :
Role of government It may sound strange to give a role to government in the context of the CSR. But it is a fact that the government is a corporate in the sense that it has business interests and runs many public sector undertakings, including public transport, electricity, waste disposal management, etc. These are within domains of governmental interest in CSR. All that is applicable to the corporate sector also applies to the government. So the government is both an enforcer and an implementer.
The tasks of the government are as follows Implement principles of CSR in procurement as government undertakings also outsource many operations and obtain supplies form outside. There is room too for position of SCM to look after the interests of the stakeholders. Government cannot afford to deal with firms abrogating the norms of CSR. By following standards strictly, it has to set an example for others. Participate in the UN Global Compact Build consensus on standardization of CSR Government has to legally obligate companies to submit reports on compliance of standards and implementation of law.
CSR is now as aspect of globalization of business with a human face. It is different from charity or philanthropy. It is subsumed within three discourses of human rights, environment, and transparency. It is no longer on the periphery but has been sliding towards the core. It is new paradigm in business. The bottom line is no longer for profits only, but also about society, environment, and human dignity. Therefore, it requires a change in corporate culture that must be conscious of socially responsible investment (SRI). It is both a challenge and an opportunity as it improves business in the long run. It acknowledges that people have a right to fresh air and smoke free sky. Cont Conclusion
There is nothing wrong to have a concept to usher in change. To that extent CSR has underscored the need for partnership between government, business, and society. One must acknowledge that there is an advantage in a concept, a word that can trigger off change. It has driven and motivated companies, society, government and the civil society to pressurize each other. It has prodded the media for attention, thus shaping perceptions and scrutiny. It has enlivened the social sector. So whether overdone or underdone, it is a call of the moment. Conclusion
WITH THANKS TO SH P S BAWA(Ex DGP) Vice Chairman Transparency International India New Delhi