CORPORATE SOCIAL RESPONSIBILITY

1. CORPORATE SOCIAL RESPONSIBILITY

2. Content : • Introduction • Meaning • Definitions • Elements of CSR. • Diff. b/w CSR & Corporate Philanthropy. • Argument in favour of CSR. • Arguments against CSR. • Carroll’s 4 types of Responsibility. • Obstacles in the Way of CSR. • Principles given by National Voluntary Guidelines. • Recommendations to make CSR a Success. • Social Responsibility of Business with respect to diff. Stakeholders. • Examples • Case Study • References

4. Introduction • India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to The Company Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger. • The amendment notified in the Schedule VII of the Companies Act advocates that those companies with a net worth(assets -liabilities) of US$73 million (Rs 4.96 billion) or more, or an annual turnover of US$146 million (Rs 9.92 billion) or more, or a net profit of US$732,654 (Rs 50 million) or more during a financial year, shall earmark 2 percent of average net profits of three years towards CSR.

6. CSR is about how companies manage the business processes to produce an overall positive impact on society • Corporate Social Responsibility (also known as CSR, corporate conscience, and corporate citizenship) is the integration of socially beneficial programs and practices into a corporation's business model and culture. CSR aims to increase long-term profits for online and offline businesses by enabling them to become more efficient and attract positive attention for their efforts

7. Definition • A company's sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this 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.

8. Elements of CSR • Corporate Governance & ethics; • Health & safety; • Environmental Stewardship; • Human rights (including core human rights) • Sustainable development; • Conditions of work( including safety & health, hours of work, wages); • Industrial relations; • Community involvement, development and investment; • Involvement of and respect for diverse culture and disadvantage peoples; • Corporate philanthropy & employee volunteering. • Customer satisfaction and adherence to principles of fair competition; • Anti-bribery and anti-corruption measures; • Accountability, transparency and performance reporting; and • Supplier relations, for both domestic & international supply chains.

9. Difference b/w CSR & Corporate Philanthropy

11. Carroll’s 4 types of Responsibility • The four-part definition of CSR was originally published in 1979. In 1991, Carroll extracted the four-part definition and recast it in the form of a CSR pyramid. The purpose of the pyramid was to single out the definitional aspect of CSR and to illustrate the building block nature of the four part framework. The pyramid was selected as a geometric design because it is simple, intuitive, and built to withstand the test of time. Consequently, the economic responsibility was placed as the base of the pyramid because it is a foundational requirement in business. Just as the footings of a building must be strong to support the entire edifice, sustained profitability must be strong to support society’s other expectations of enterprises. The point here is that the infrastructure of CSR is built upon the premise of an economically sound and sustainable business. • At the same time, society is conveying the message to business that it is expected to obey the law and comply with regulations because law and regulations are society’s codification of the basic ground rules upon which business is to operate in a civil society. If one looks at CSR in developing countries, for example, whether a legal and regulatory framework exists or not significantly affects whether multinationals invest there or not because such a legal infrastructure is imperative to provide a foundation for legitimate business growth.

12. In addition, business is expected to operate in an ethical fashion. This means that business has the expectation, and obligation, that it will do what is right, just, and fair and to avoid or minimize harm to all the stakeholders with whom it interacts. Finally, business is expected to be a good corporate citizen, that is, to give back and to contribute financial, physical, and human resources to the communities of which it is a part. • In short, the pyramid is built in a fashion that reflects the fundamental roles played and expected by business in society. Figure 1 presents a graphical depiction of Carroll’s Pyramid of CSR. • Archie Caroll has differentiated CSR into 4 types .

14. Carroll’s 4 types of Responsibility

16. What Benefits Does CSR Offer to Businesses? • Both ecommerce and brick-and-mortar businesses stand to benefit from the implementation of CSR strategies. Some activities that fall under the umbrella of CSR, with their corresponding benefits, include: • Prevent financial ramifications: Compliance with the spirit and letter of the law — both nationally and internationally — through self-regulatory processes will prevent fines, put your business "low on regulators' radar screens," and lower legal expenses. • Increase employee loyalty: Treating your employees fairly and generously is a part of corporate social responsibility. By providing good jobs and encouraging high professional and moral standards, you increase employee loyalty, and by procuring only those overseas products produced at factories where workers were treated ethically, you gain support among "Fair Trade" advocates.

17. Maintain a positive reputation: Demonstrated consciousness in a variety of areas can garner publicity and give a business tangible proof of their conduct, which can be proudly displayed on a company website. These include: • Environmental consciousness: Reducing waste, recycling, minimizing carbon footprint(co2 released), and other best practices can . Using or producing only sustainable products, lowering energy usage, and supporting environmental causes will boost a business's "green reputation" among environmentally concerned clients. • Social Concern: Donating to humanitarian causes that fight persistent poverty, help the victims of epidemics like AIDS or Ebola, or assist those displaced by hurricanes or earthquakes shows concern for issues that consumers are more and more aware of in our modern, interconnected world.

18. Local Community: Involvement in local community projects, either through financial donations, employee participation, connecting your customers with project leaders, or promotion of the project through advertising and fundraising enhances your CSR credentials with clients in the given location. • CSR as a business imperative must not be accepted grudgingly or half heartedly. Instead, it must be practiced with full vigor and straight from the heart passion and this certainly helps the companies in the long run. After all, business is not all about the next quarter only.

19. Arguments in Favor of CSR/Advantages

20. Arguments Against CSR/Disadvantages

21. Examples of Companies with good CSR • The first company that comes to mind as a beacon of good corporate governance is the Indian IT industry bellwether, Infosys. Indeed, Infosys is one of the companies that has set benchmarks for other companies not only in India but all over the world in the way corporate governance and social responsibility are handled and projected to the outside world. The point here is that companies not only need to walk the talk for CSR but also broadcast their achievements to the world at large. • Another company that has done an exceptional job of portraying itself as a good corporate citizen is the TATA group in India and The Body Shop (formerly owned by Anita Roddick) company in the United States.

23. While these two companies are at different ends of the spectrum as far as their product lines and lines of business are concerned, the public perceives these companies favorably mainly due to the visionary leaders that have led these companies as well as the reputation that has been established through decades of doing the right thing. Taken together with Infosys and companies like Sony Ericsson, these corporations reap the benefits of being good corporate citizens in terms of increased revenues and top of the mind brand recall by dint of being model corporate citizens. “Creating a strong business and building a better world are not conflicting goals – they are both essential ingredients for long-term success” – William Clay Ford Jr. Executive Chairman, Ford Motor Company.

24. Obstacles in the way of CSR • Lack of community participation in CSR Activities: This is lack of interest of local community in participating and contributing to CSR activities of companies. This is largely attributable to the fact that there exists little or no knowledge about. • Need to build local capacities: There is a need for capacity building of the local nongovernmental organizations as there is serious dearth of trained and efficient organizations that can effectively contribute to the ongoing CSR activities initiated by companies.

25. Issues of transparency: lack of transparency is one of the key issues brought forward by the survey. There exists lack of transparency on part of local implementing agencies as they do not make adequate efforts to disclose information on their programs, audit issues, impact assessment and utilization of funds. • Non availability of well organized Non-governmental organizations: it is also reported that non availability of well organized governmental organizations in remote and rural areas that can assess the and identify real needs of the community and work along with companies to ensure successful implementation of the CSR activities .

26. Visibility factor: The role of media in highlighting the good cases of successful CSR activities is welcomed as it spread good stories and sensitizes the local population about various ongoing CSR initiatives of companies. This apparent influence of gaining visibility and branding exercise often lead to non governmental organizations to involve themselves on event based programs; in the process, they often miss out on meaningful grassroots intervention. • Non availability of Clear CSR Guidelines: There is no clear cut statutory guidelines or policy directives to give a definitive direction to CSR initiatives of companies. It is found that the scale of CSR initiatives of companies should depend upon their business size and profile. In other words, the bigger the company, the bigger is its CSR program.

27. Principles given by National Voluntary Guidelines

28. 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 wellbeing of all employees. Principle 4: Businesses should respect the interest of , and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalized.

29. Principle 5: Businesses should respect and promote human rights Principle 6: Businesses should protect, respect and make efforts to restore the environment . Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do so in a responsive 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 responsible manner.

30. Recommendations to make CSR a success: In order to make CSR a success in India the following recommendations appear relevant: • Creation of awareness about CSR amongst the general public To make CSR initiatives more effective, awareness about CSR should be created by various stakeholders including the media to highlight the good work done by corporate houses in this area. Local community should be encouraged in participating and contributing to CSR activities of companies. • Linking CSR activities to the company values and making sincere efforts: Companies must give due weight age to the proposed CSR activities. Companies should appoint CSR teams to devise specific policies, strategies and goals for their CSR programs and set aside financial resources to support them.

31. More companies to be brought under the CSR domain: More companies need to be brought under the CSR domain. To address the issue of reaching out to wider geographical areas, the involvement of small and medium scale enterprises(SMEs) in the CSR domain will be essential. • More transparency: Transparency in operations through well defined reporting practices is a key to the success of any CSR initiative at the local level. For this, companies must disclose their spending and the areas on their own websites and the Ministry of Corporation Affairs(MCA).

32. Urban as well as Rural Areas to be covered: Both “India” as well as “Bharat” should be simultaneously covered. More emphasis should be on rural people as more than 70 percent people still reside in rural India. • Develop common strategies: There should not be any duplication of work being performed by various companies in the same area under their CSR initiatives, rather these companies should in best possible way. • Sphere of Influence: The current directives requires that the company shall give preference to the local area and areas round it where it operates, for spending the amount earmarked for CSR activities. Geographical concentration of companies will lead to developmental work in selective areas/regions. The sphere of influence should be increased with the passage of time.

33. Social Responsibility of Business with respect to different Stakeholders Who is a stakeholder? A stakeholder is any individual or organization that is affected by the activities of a business. They may have a direct or indirect interest in the business, and may be in contact of company. Stakeholders are customers, employees, suppliers, board of directors, owners, shareholders, government agencies, unions, political groups, the media, and others.

35. (A) Responsibilities towards employment • Reasonable wages and its timely payment • Workplace safety standards and workers compensation insurance • Positive working climate • Employee retention and promotion • More humanitarian • Employee engagement

36. (B) Responsibility towards investors: • Full disclosure • Reasonable returns on capital employment • Protection of interest • Communication with shareholders and investors • Reaching out to individual shareholders and investors • Reaching out to individual shareholders and investors

37. (C) Responsibilities towards suppliers and creditors • Fair dealing with suppliers and creditors • No coercion and unnecessary litigation • Sharing information • Respect for human dignity

38. (D) Responsibilities towards government • Strict compliance to the regulation • Corporate governance • Timely payment of tax and other dues

39. (E) Responsibilities towards customers • Treat the customer as king • No fake promises • Respect your customer’s time • Improving the standard of living • Fair advertisement

40. (F)Responsibilities towards society • Understanding the perspectives of a local community • Community engagement • Filling the gap

41. (G)Responsibility towards environment • Control of pollution • Environmental friendly products • Awareness

43. Section 135 of Companies Act, 2013 • Definition: • Projects or programs relating to activities specified in schedule VII to the act. • Projects or activities taken up or done by board on recommendation of CSR committee. Provided that such activities are covered under schedule VII.

44. Applicability • This section applies to a company (include foreign company) only if satisfies one or more of the following criteria in any F.Y • The NET PROFIT of the company is Rs. 5 crore or more. • The NET WORTH of the company is Rs. 500 crore or more • The TURNOVER of the company is Rs. 1000 crore or more

45. 2. Every company which ceases to fulfill. The above criteria for 3 consecutive F.Y shall not be required to: • Company with the provisions contained in section 135, till such time it meets the criteria above, and • Constitute CSR committee. • CONSTITUTION OF CSR COMMITTEE • Every company to which section 135 applies, shall constitute a CSR committee of the board. • The CSR committee shall consist of 3 or more directors. • Out of 3 directors, at least 1 director shall be an independent director.

46. 4. An unlisted public company or a private company which is not required to appoint an independent director shall have its CSR committee without any independent director. 5. A private company having only 2 directors on its board shall constitute its CSR committee with 2 directors only. 6. In case of a foreign company, the CSR committee shall comprise of at least 2 persons of which one person shall be a person resident in India authorized to accept on behalf of the foreign company service of notices and other documents, and the other person shall be nominated by the company.

47. DUTIES OF CSR COMMITTEE • The CSR committee shall formulate and recommend to the board a CSR policy. CSR policy shall indicate the activities to be undertaken by the company as specified in schedule VII. • CSR committee shall recommend the amount of expenditure to be incurred on the CSR activities to be undertaken by the company. • CSR committee shall monitor the CSR policy of the company from time to time. • CSR committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

48. DUTIES OF THE BOARD • The board shall after taking into account the recommendations made by the CSR committee, approve the CSR policy for the company. • The board shall ensure that the activities as are included in CSR policy are undertaken by the company. • The board shall ensure that the company spends in every F.Y., at least 2% of the average net profits of the company made during the 3 immediately preceding F.Y., in pursuance of its CSR policy.

49. DISCLOSURE IN BOARD’S REPORT The board’s report shall disclose: • The composition of CSR committee. • The contents of CSR policy. • The reason for not spending 2% of the avg. net profits of the 3 preceding F.Y., if the company fails to do so. CSR REPORTING • Board report of any F.Y. starting from 1st day of April must include an annual report on CSR. • In case of foreign company the balance sheet filed u/s 281 of the companies act, 2013 shall contain annexure regarding report on CSR.

50. DIPLAY OF CSR POLICY ON THE WEBSITE The board shall place the contents of CSR policy on the company’s website, if any, in such manner as may be prescribed. ACTIVITIES, PROJECTS ORPROGRAMS UNDER SCHEDULE VII • Eradicating hunger, poverty and malnutrition. Promoting healthcare and making available safe drinking water. • Promoting education. • Promoting gender equality. • Ensuring environmental sustainability.