Corporate Social Responsibility LECTURE 4: Corporate Social Responsibility MGT 610 1

Corporate Social Responsibility Chapter 2 Evolution of Company and CSR 2

Corporate Social Responsibility 3 After Studying this chapter, you will be able to: Understand the concept of corporation Trace a brief history of corporations Understand how modern corporations come in to existence Provide a brief outline of corporate governance Analyze the importance of CSR in governance

Corporate Social Responsibility 4 Introduction Concept of corporation has evolved over time Hardly a human activity that does not fall under the shadow of corporation Definition of corporation In an economic system Competition for scarce resources Human creates process, capture resources and make products and create exchange Not possible for one individual to do Group with different skills and financial resources is formed Risk is also involved in this process Economic corporation works to earn profit

Corporate Social Responsibility 5 Seeds of Early Corporations Early corporations Religious Confraternity – religious association – members are committed to certain rules and guidelines to promote religious life (middle ages – to date) Played significant role in religious and social life Money was raised through banquets and feasts They provided food and medical care Activity was unorganized Controversy as to who should control philanthropy – state, municipality, confraternities or other institutions 16 th to 18 th centuries reflect conflicting policies

Corporate Social Responsibility 6 Seeds of Early Corporations (contd) Establishment of merchant guilds More organized concept of corporation with charter companies English East India Company

Corporate Social Responsibility 7 Development of Modern Corporations Early firms had single owners or a small numbers of owners Unlimited liability Started as small firms To counter this risk – legislation was made to make the corporate entity and the owner separate This laid the foundation of a corporation Shares Dividend (reduced during bad times) Proprietor has more information than the outside shareholders laws made to ensure equal sharing Shares are liquid assets Sold or pledged Diversification of portfolio Questions: Ownership Corporate governance

Corporate Social Responsibility 8 Corporate Governance: laws, codes, structures and processes put in place to run a company Proprietor becomes the first director As shareholders grow they are also owners Sharing of profits Succession planning of directors Rules and regulations that will result in a win- win situation for the owners, management and the community This process of restraining and control exerted by the company and the government related to the concept of corporate governance

Corporate Social Responsibility 9 The Incorporation of a Company Come in to existence under a law Artificial person Legally accountable and answerable Shareholders can question the activities of a corporations Shareholders are not agents. They are legal members Selection of directors Corporation have economic powers which can compete with modern state Economic power Vs Political power To rein in economic power Corporate governance File documents

Corporate Social Responsibility 10 Governance and Management of Company Corporate governance is not an abstract goal It serves corporate purposes by providing a structure within which stockholders, directors and management can pursue most effectively the objectives of the corporations Governance is the prerogative of the board of directors The management structure is a pyramid Authority, responsibility downwards and accountability upwards Activities of the board of directors Formulation of strategies, management and being answerable to shareholders First principal of fiduciary duties One having been entrusted with powers for another's benefits in under an obligation to act honestly Board and external influences Institutional investors Hostile takeovers Banks Shadow directors