Corporate Social Responsibility-A Myth or Reality

Dr. D. Mukhopadhyay
Generically speaking, Corporate Social Responsibility (CSR) refers to the obligations or a set of obligations the corporations have towards the society to which theyare symbiotically associated. Corporations are part and parcel of the society. Society is essentially the owner of the factors of production which are technically connoted as the inputs and the corporations convert inputs into outputs with which a society removes or satisfies its day to day wants and make its existence comfortable in this planet which is the Earth.. CSR is quite an old concept having occupied room in the lexicon of the philosophers in the pre-Christian era and it has been perceived to be proclaimed in public to adopt and follow ethical and business practices and it culminates into making philanthropic and charitable contributions for securing welfare and wellbeing of the society. Ancient Indian scriptures and religious literatures evidence that ‘Zakaat’, ‘Daashant’ and ‘Dharmada’ are the traditional philanthropically practices of the Muslims, the Shikhs and the Hindus respectively to contribute to the welfare of the socially and economically disadvantaged socio-economic conditioned. It may be worth referring the views of Philip Kotler and Nancy Lee to understand the essence of CSR and the philosophy onwhich the foundational stone is based on. Accordingly to those worthy Economists, CSR is a commitment of the corporations for bringing about improvement in the existing economic conditions of the society through discretionary business practices. Similarly, Brown , the renowned proponent of the theory and practice of CSR advocates that CSR is an obligation of business to consistently follow and adopt policies at Board Level to decide its commitment to ensuring social well-being. Milton Friedman, one of the capitalis economists and Nobel Laureate is of the view that business of the business is to prioritize earning profits at first instance than committing to operationalize any other social, economic and environmental objectives. Under the given circumstances, there are two schools of thought and one school of thought is the ardent supporter of the practice of CSR and it speaks about an egalitarian socio-economic order and a system and CSR is a tool for efficient effecting and administering implementation of the same. Other school i.e. followers of Friedmanism are of the view that to do charity is a discretionary act of a corporation and profit is the reward of risk assumed by the enterprises and CSR is in no way should be related to that.
Of late, India has provided a dedicated Section viz. Section 135 in the newly enacted Companies Act, 2013 which stipulates that it is a must to provide 2% of last three years’ average profit for CSR activities and an implementation report on the same is a part of the Annual Reports of the company. This practice and policy adopted by a corporation essentially signifies to overrule Friedmanism and it consequentially attracted legal debates on enforceability of charitable and philanthropic activities of the companies. The word ‘company’ is derived from the Latin word ‘Companis’ where ‘Comp’ means together and ‘Panis’ means bread and the term ‘Companies’ originally refers to an association of persons who took their meals together. It is called a corporate since the persons composing it are made into one single bodyby giving a legal canvas. Again, the word ‘corporation’ is derived from a Latin word ,’Corpus’ signifying a body and etymological interpretation appears to be as such that a corporation being a ‘corpus-body’ is a legal entity created by a process other than natural birth and it may appropriately be mentioned that a company is none but a juristic person which gives the birth of debate as to whether a legal person can have any obligation towards the society. To answer such query, it is an imperative to draw the attention of the readers to the provision of Section 172 of the Companies (Amendment) Act, 2006 which inter alia stipulates that a Director must take into account the interests of the employees, foster the companies’ business relationship with suppliers, customers and others, impact of the companies’ operations on the community and the environment and the desirability of the company maintaining a reputation for high standards of business conduct and so on and the essence of the stated provisions with regard to the duties of a Director enunciated by Section 172 of the Companies (Amendment) Act, 2006 speaks of mandatory CSR and the same was provided unambiguously and more categorically under Section 135 of the Companies Act, 2013. The CompanyLaws of United Kingdom, United States and South Africa are known to be Neo American Model of Capitalism which is contrary to Rhine Model in Japan and Western Europe. Under this canvas, it is argued that companies exist for shareholders and it is constituted with intellectual and financial contributions of the shareholders in a nutshell and it then essentially justifies maximizing wealth of the shareholders which is possible only when a company runs for profit being the sole benefit accruable to the shareholders and if it is taken to be justified then why CSR is mandatory which makes a fertile ground for a contradiction. The same law stipulates that shareholders interest is of prime concerns since their concerted effort and financial and intellectual resources makes a company come into existence and again it makes CSR spending through imparting profit for social wellbeing and social welfare. In defence of CSR, it may be pointed out that companies surpluses are disclosed through media functioning under era driven by digital technology and social behavior of the corporations are more transparently exposed to mass awareness and it makes the corporations adopt society-friendly policy and CSR is one among other. Now question arises as to why CSR should be called a ‘Reality’ and not a ‘Myth’. Corporation are day by day suomoto taking into cognizance that as it is difficult to do business they do not distinguish themselves from the ‘rogue corporation’ which are those who are manifested by their socially , legally and economically undesired behaviour and such distinguishing or distancing has been leagued them socially responsible corporate citizen and this paves the way for making CSR legally valid. Albeit , CSR being a popular format for promoting social welfare and wellbeing but it is not free from debate and ambiguity as to how it can legally be mandatory to make companies subject to certain caps practice in philanthropic and charitable activities by imparting the profit which is essentially part of their equity. Besides accomplishing the objectives of the shareholders, public interest is a prominent ingredient or a constituent of CSR.
It is important to mention that CSR is merely a structure of corporation’s strategy for image building and image and reputation management. In simplicity, reputational risk of the corporations is hedged by CSR and this is enough to signify that CSR is indeed a myth as the corporations have hardly changed their behavior. CSR was introduced and included in the Annual Reports and corporate practices primarily because of legal necessity and enforcements which is a kind of legal sanction.It is worth mentioning that corporations undertake those actions which are enabler of hedging reputational risk and in essence these actions are driven by ulterior motives.CSR is perceived to be passive strategy to avoid regulations. The critics are of the views that regulations may act as a deterrent for the activities beyond the ambit of necessities performed by the corporations and they deem CSR is better than that of being regulated.
Despite the criticisms against the ulterior motives of the corporations behind CSR practices, there are many live instances of adopting the theories and healthy practices of CSR by the corporate houses as an active strategy for promoting egalitarian society is prominently visible in India. Tata group is a prominent instance of CSR and it is guided by the quote of JRD Tata , ‘No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people’.Tata case justifies the validity and reliability of theParkinson’s Theory of CSR. Parkinson is of the view that Rationale Activism and Social Activism are two different phenomena altogether. Social Activism really aims at protecting and promoting the interests of the community in general besides interests of the stakeholders. Parkinson does not find any conflict between philanthropic activities and wealth maximization in wider sense and profit maximization in narrower perspective. In defenseof this maxim, it may be worthwhile to mention that about 66.33% share is held by philanthropic trusts and around 10 % of the profit is allocated for spending on social empowerment, capacity development and charitable activities. Similarly, Tesco founded by Sir Jack Cohen in 1919 and Ambuja Cement set up in 1986 are the glaring instances that CSR is certainly not a myth but a reality. The provision for mandatory CSR activities as provided by Section 135 of the Companies Act, 2013 is an effort for healthy corporate governance and it is to stay. It is worth mentioning that the principal yardstick for deciding the efficacy of the said provision is the Cost-Benefit Analysis (CBA), the management accounting tool, for measuring the benefit against the cost likely to incur and if the quantum of benefit does not exceed cost, then feasibility of the mandatory CSR becomes void. The utilitarian calculation may be quite helpful in assessing the worthwhileness of contributing to nonprofit causes. In a nutshell, profit is one of the principal determinants and justifying factors for continuity or discontinuity of business but the business is to take care of the interests of various stakeholders of the corporation.
A firm becomes able to earn reputation and build goodwill and relational rapport with the customers which consequently helps in increasing its turnover or sales and thus profit. CSR has become a strongly institutionalized characteristic feature of the contemporary corporate horizon in the economically advanced industrial ecosystem. The hypothesis that corporations should engage in certain form of responsible behaviour is a legitimate expectation of the society since a business enjoys the right to utilize the resources owned by the society by scientific conversion processes for obtaining desired outputs converted into sales and finally profit is earned after absorbing the cost incurred in input conversion cycle. Therefore, it is the legitimate right of the society to expect that the corporations should discharge their responsibilities in befitting manner so that the social debt of the corporations is redeemed in the form of CSR. Therefore, CSR is a reality although apparently it appears to become a myth. As a set of strategic management practices, CSR has spread globally, far beyond it origins in the United States of America and the United Kingdom. Given the different political institutions and historical and socio-economic legacies involved , CSR has to assume a very different meanings across different institutional settings. To conclude, CSR as a set of strategies corporations or firms conduct their commercial operations in a manner that is ethical, society friendly and beneficial to the community in terms of development .The foundation of CSR is imbedded on the utilitarian, managerial and relational theories and CSR is in certain cases seem to be myth but in many cases, it is a reality and it certainly acts as an efficient tool for establishing an egalitarian society.