Business Ethics

Corporate Social Responsibility

Foundation of Debate

Ethical Dilemma Egoism Utilitarianism

Introduction

Companies have become so large that they must be held responsible for society and environment

The other view is that businesses are only responsible for their economic function and that the rest should be left to government

Citizens give businesses special rights, powers, privileges, protection and benefits

So companies have responsibility to fulfill social purposes

Debt to Society

Society provides infrastructure, law and order, mass media and consumers

Company must be a good citizen and should pay taxes, observe laws, control pollution, ensure safety, etc. and donate to welfare

CSR Definition

Continuing commitment to behave ethically and

Contribute to economic development while Improving the quality of life of the workforce

and The local community and Society at large

Theoretical Justifications

Trusteeship Model Social Entity Model Pluralistic Model

Trusteeship Model

Shareholder’s do not really have ownership rights because the corporation is an independent legal entity

Shareholders are only residual claimants The company has its own assets, rights,

duties, will and responsibilities Management is not really the agent of

shareholders but are trustees of the company

Difference between Trusteeship and Agency Model

Fiduciary duty of trustees is to sustain company’s assets including shareholder wealth but also broader stakeholder’s value

Managers must balance conflicting interests of current and future stakeholders and manage from a long term perspective and not short term shareholder gains

Statutory changes in corporate governance are required to establish the model

Social Entity Theory

Does not regard the company as a private association united by individual property rights

But as a public association constituted through political and legal processes and

As a social entity for pursuing collective goals with public objectives

So executives are guardians of overall interests of all stakeholders

Pluralistic Model

Supports the idea of multiple interests of stakeholders

These stakeholders should participate in decision making

Does not suggest a total movement away from ownership rights

CSR Implementation Models

Ethical Model (Gandhian Trusteeship Model) Voluntary commitment to public welfare Wealth created from society should be ploughed back to society

Statist Model (Nehruvian Model) State owned PSUs.

Liberal Model (Milton Friedmann’s Model) Free market will take care of CSR if company makes profits. The

rest can be left to government.

Stakeholder Model (Continental European Model) Triple bottom line – profit, people and planet

Advantages

Improved financial performance Enhanced brand image and reputation Increased sales and customer loyalty Ability to attract and retain employees Reduced regulatory oversight Innovation and learning Risk management Easier access to capital Reduced operating costs

Scope of CSR Understanding social responsibility Protecting and promoting stakeholder interest Promotion of common welfare programs Philanthropy Good corporate governance Render social service Abiding by rules and regulations Creation of wealth Ensure ecological balance Focus on human element Improve productivity Sponsor social and charitable causes Supplement state efforts

External Standards

The Caux Round Table Organization for Economic Cooperation and Development

(OECD) UN Global Compact Asia-Pacific Economic Cooperation (APEC) Code of Conduct The Global Reporting Initiative AA1000 Accountability Social Accountability 8000 Principles for Global Corporate Responsibility The Global Sullivan Principles The Keidanren Charter

Awards for CSR

Most Admired Companies List Best Companies to Work For Business Ethics Magazine’s CSR Award 100 Best Corporate Citizens Award American Business Ethics Award Corporate Conscience Awards Golden Peacock Award UNEP Environmental Awards Global Leadership Award

New Companies Bill on CSR

Companies with a turnover of Rs.1000 crore or net profit of Rs.5 crore

Should earmark 2% of net profit for the preceding 3 years for CSR activities

No policing on how it is carried out If company fails to meet prescribed spending,

it should explain the reasons to shareholders

The End