31st Jul 2021
Author(S): Ritwick Machhral (4th Year Amity Law School Noida)
Fagun Sharma(5th Year Amity Law School Noida)
CSR now-a-days is a generally perceived and an adjusted term. One of the significant difficulties looked by the organizations and firms in the globalized world is the blending of corporate social obligation with the business. Partners need numerous different things from the organizations separated from development and benefit. Some sort of government backed retirement is additionally wanted by the partners of the organizations. Corporate social obligation has made its way in the Indian Markets. Alongside the responsive exercises corporates have taken numerous acceptable and bearable drives to work on personal satisfaction and had enormous effect on the general public. The fundamental focal point of this article is on the idea of the corporates assuming the role of social importance, its different measurements and the significance of corporate social obligation during pandemic.
The idea of CSR has been prevailing in India for a long period of time. This concept of CSR goes back to the times of Vedic age. During such times kings had a duty towards society and on the other hand merchants displayed their own business responsibility by building places of worship, education, inns and wells. CSR has been conceptualized and explained in many ways by the process of debate, analysis and confrontation around the theme from the past four hundred years. The idea of CSR can be termed as self-regulation adopted voluntarily to improve the working of the company or serving the society. This can even relate to labour, environment or the human rights issues.
Keywords: CSR, Stakeholders, Sustainable
CSR is like a moral framework that provides suggestion that any entity, be it a business organisation or an individual has an obligation to serve the society at large. From the business point of view it can be referred to as permanent and the consistent commitment to behave in an ethical manner and contribute towards the economic development of the society as a whole.
A variety of synonyms are used interchangeably to describe CSR, such as corporate citizenship, business ethics, corporate accountability and many more. At the whole they all address the efforts which the companies take for the ethical and economical upliftment of the society. Company’s ethical practices, employment friendly, governance, environmental practices and community engagement are within the core functions of the companies.
Concept of CSR has spread very much in the recent decades. The major reason behind this widespread is the awareness among the investors about the risks they may face when they do not address CSR-related issues and the benefits that may be possible when they do.
CSR is a wide term and can take many forms depending upon the type of industry or the organisation. With the help of the CSR programs and the initiatives and efforts of the volunteers businesses can benefit the society and also build their brand value. CSR is equally important to the company as it is important to the society.
CSR can be defined as an offspring of the business ethics and is concerned with the moral values of the companies. In the words of Dr. A.P.J Abdul kalam “Corporate decision making and policy making is linked to ethical values, compliance with legal requirements and respect for people, communities and the environment around the world.” CSR is an evolving term that does not have any particular definition or fully recognised set of specific criteria.
The Institute of Directors, UK (2002), “CSR is about businesses and other organisations going beyond the legal obligations to manage the impact they have on the environment and society. In particular, this could include how organisations interact with their employees, suppliers, customers and communities in which they operate, as well as the extent they attempt to protect the environment.”
The European Union (2004),‘‘A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment, this is done by integrating social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”
India was the first country among the entire world to make CSR compulsory under the Indian Constitution following an amendment to the Companies Act, 2013 in the year 2014 in the month of April. Big corporations and businesses can invest their profits into the field of education, health services and hunger as a part of CSR. Prior to the amendment it was voluntary and was on the choice of the companies to disclose their CSR expenses to the shareholders.
Amendments under Companies Act, 2019
Up till now, if any organisation or company was not able to spend its whole CSR funds in a given year, they could carry the amount forward to the next fiscal period and spend it in the next fiscal period, in addition to the money allotted for that new fiscal year.
The CSR amendments mentioned under the Act now require companies to deposit the leftover CSR funds into a fund prescribed under Schedule VII of the Act within the end of the particular fiscal year. The following amount must be used within three years from the date of transfer of the funds.
The new law lays down a monetary penalty as well as imprisonment in case of non-compliance with the new provisions. The penalty ranges from INR 50,000 to INR 2.5 million and also , on the other hand the defaulting officer of the company may be liable to imprisonment for up to three years, or a fine up to INR 500,000, or both.
The history of CSR takes us to back many years and in one case it can even be traced back to 5000 years in Ancient Mesopotamia around 1700 BC history, where King Hammurabi introduced a uniform code in which builders, inn-keepers or farmers were put to death if their negligence was the result of deaths of others, or causes inconvenience to the large number of local citizens. In Ancient Rome the senators complained about the failure of businesses to come up with sufficient taxes to fund their military campaigns, while in the year1622 dissatisfied shareholders of the Dutch East India Company started issuing pamphlets grumbling about management secrecy and “self-enrichment”. With establishment of industrialisation, the impacts of business on society and the environment presumed an entirely new dimension. The “corporate paternalists” , in the late nineteenth and mid 20th hundreds of years, utilized a portion of their cash to help liberality adventures. By the 1920s conversations about the social corporate obligations of business had formed into what we can perceive as the beginnings of Modern CSR development. “The term CSR was first instituted in the year 1953 with the distribution of Bowen’s Social Responsibility of Businessmen ” (Corporate watch report, 2006). The advancement of CSR is pretty much as old as exchange and business for any enterprise. Industrialization and impressions of organizations on the general public prompted a total new motivation. By the 80’s and 90’s, CSR was first taken into conversation, the primary organization to carry out the possibility of Corporate social obligation was Shell in the year 1998 Corporate watch report, 2006. With the help of well informed and educated general people it has become a threat to the corporate and CSR is the solution to it. In 1990, CSR was standard in the industry with companies like Price Waterhouse Cooper and KPMG.
Clause 135 of the Companies Act, 2013 and the Companies (CSR Policy) Rules, 2014 are the two most important documents providing legal framework for CSR. a) Clause 135, Companies Act, 2013 Under 135 (1), every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a CSR Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. Under 135 (2), the Board’s report should disclose the composition of the CSR Committee. Under 135 (3) the CSR Committee should formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII [The Schedule VII mentions the list of activities which may be included by companies in their CSR Policies].
The list of activities is as follows:
∙ Eradicating extreme hunger and poverty
∙ Promoting education
∙ Promoting gender equality and empowering women
∙ Reducing child mortality and improving maternal health
∙ Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
∙ Ensuring environmental sustainability
∙ Enhancing vocational skills
∙ Promoting social business projects
In the past, many social workers have distrusted the market agencies and corporations. They have the fear of being co-opted by the corporate houses. On the other hand, even the corporations were adopting CSR policies without any real commitment. But the times have changed and there is a dire need now for informed social workers to actively participate in the CSR activities of the corporations.
This will help us tap the resources and streamline millions of rupees for social welfare. Hence social workers should grab the opportunity and ensure accountability of corporations towards multiple stakeholders.
Case Study: Starbucks
Starbucks is a worldwide chain of coffee houses and coffee roastery based in America with headquarters in Washington, Seattle. According to early 2020 data, the company owns and operates more than 30,000 stores in about 70 countries. The company was founded in 1971 and it is now the world’s largest and most popular coffee company. It has created a brand image which is colored with loyalty, integrity and longevity. Starbucks has surpassed its existence as a name and has now become a culture.
CSR is a self-regulating business model which helps a company be socially reliable to itself, the shareholders as well as the public. C.S.R. operations showcase that the company is operating in ways which promote and enhance the society and environment instead of negatively contributing to the same. It promotes awareness and a consciousness about the impact that the company has on all aspects of the environment- societal, environmental and economic. Starbucks is a leader in creating CSR programs in many aspects of its business. C.S.R. not only promotes conscious awareness about the environment but also creates a pleasant work environment with increased morals.
Starbucks has long been known for its keen sense of CSR and commitment to sustainability and community welfare. According to its 2019 Global Social Impact Report, these milestones include reaching 99% of ethically sourced coffee, creating a global network of farmers, pioneering green building throughout its stores, contributing millions of hours of community service, and creating a ground-breaking college program for its partner/employees.
According to the provided case study, the following issues have been addressed:
- Commitment to the Environment: Starbucks set up the Fair-Trade Coffee with a push from an NGO. This refers to purchasing 100% ethically sourced coffee which is responsibly grown and traded. These benefits both the environment and farmers. It preserves energy and water when it comes to the farming practices. It is important to note that this has increased the cost for Starbucks overall.
Starbucks also has a go green initiative which aims at making Starbucks stores “green” by replacing older equipment with more energy efficient alternatives and spreading awareness about the same through store wide placed plaques. The first store to go green was the Manhattan store (15 years old, renovated.) which has now started to conserve energy, water, materials, and uses recycled/recyclable products.
12 stores are planned to be renovated, with each store to become LEED or Leader in energy and environmental design which improves performance in terms of energy savings, water efficiency, and emission reduction despite increasing the upfront cost for Starbucks.
- Commitment to consumers: Through their research on consumer demographics Starbucks realized the importance of P.W.D.s and is thus trying to turn stores into more disabled friendly. Changes include lowering the height of the counter so that it becomes easy for the persons on the wheelchair to place orders and also to include at least one separate entrance for the physically disabled persons, another change was to add disability etiquette to handbooks of the starbucks employees, which also includes training the employees on disability by making them join the national Business Disability Council which gives them access to resumes of people with disabilities. Starbucks has even cut down on costs so as to retain loyal customers. They also started providing Loyalty Cards which gives customers incentives and promotions. Starbucks realized the importance of lowering prices and they did the same by simplifying their business practices. Cost cutting was also done through outsourcing payroll and human resources administration.
- Commitment and Response to Shareholders: Starbucks is paying 35% or more of its net income or earnings to shareholders as dividends. This helps maintain financial stability. They also plan on purchasing more stocks (15 million) so as to attract investors. Starbucks talks about this commitment by talking directly to the media about its shareholders, steering away from politics. To attract more customers Starbucks talks about opening more stores in Japanese and Vietnamese markets due to their coffee consumption.
- Commitment to employees: Employees are specially taken care of by Starbucks. 20 hours of work a week means stock options and benefits. These benefits include health insurance and contributions to employee’s 401k plans. Starbucks even takes care of its part time workers who work at odd hours since the work is not a regular 9 to 5 office hours job. Each employee is treated as an individual and is greeted individually by the CEO either in person or through a video. This ensures that every employee feels cared for.
- Ethical and unethical business behavior: it is important to notice how despite the compromise in profits, Starbucks continues with its fair-trade agreement and ethically sourced coffee. This has a positive impact on their public image. Starbucks also provides a jumpstart program which helps students with their education. On the flip side of the coin, Starbucks has struggled with closing 600+ stores because they weren’t doing well, they battled landlords because of chain breaking lease agreements, and on their 35th anniversary they had trouble with their new logo a topless mermaid which was seen as a sex symbol.
In conclusion, it is important to note how Starbucks values CSR enough to compromise profits but yet provides their shareholders with amazing dividends. Through CSR the company has been able to maintain and retain its employees, public image and finances. Despite the flip side, Starbucks as a company has boomed and grown into one of the largest organizations in the world and this somewhere can be attributed to their amazing work ethic and responsibility towards the economy, the society and the environment.
CSR During The Times Of COVID-19
In day to day business, a company runs in a way that enhances society and environment. Global pandemic Covid-19 has extremely affected the world. The pandemic has negatively affected the socio-economic circumstances. In India, the government announced a nation-wide lockdown in March 2020 to maintain social distancing. Here, Corporate plays a significant role in creating a scenario of being socially responsible. According to Section 135 of Companies (CSR) Rules, 2014 and Schedule VII of Companies Act 2013: Every company with a net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or more or net profit of Rs 5 crore or more during the immediate preceding financial year, must have a CSR committee and spend at least 2 percent of average net profits earned during three immediate preceding financial years to CSR activities. During the tough time of Covid-19, the government is trying its level best to inspire companies to provide social support. According to a March 23, 2020 Ministry of Corporate Affairs circular, all expenditures incurred on activities related to COVID-19 would be added as permissible avenues for CSR expenditure.
The companies responded tremendously to the government’s call to support Covid-19 situations. Huge sum of relief efforts have been donated to various government funds. The companies are struggling to find a way to locate the donated funds being effectively utilized. With the declaration by the public authority that any sum given by organizations on the side of the battle against COVID-19 will qualify as CSR, a greater part of the organizations either added to the PM CARES Fund or for different purposes that added to ensuring wellbeing and forestalling yearning of the influenced.
Companies try to build a bigger market by showing their customers that they have their back and exist not just for market profits. The authentic plans of several companies to insure help during pandemic portray that CSR works in the best interests of society. The company needs to focus on some unique plans to showcase themselves.
In reality as we know it where the intended interest group requests a business that conveys extraordinary items and administrations, yet in addition adds to the local area, turns out to be more straightforward and plays a functioning part in resolving general issues, corporate social duty has become a compulsory necessity for any association in India.
Today the corporates are zeroing in on giving their best to the general public and the environment. What is required is fitting some successful techniques to assist with developing business keeping Corporate Social duties at importance. Powerful plans are needed to fabricate solid bonds with partners so CSR can be carried out beyond its objectives.
It shall also be concluded that there is a vast media coverage of events but actual implementation still lacks somewhere. A number of companies are building social relationships, reputations, and employee retention by CSR activities.
Through this article , it is reasoned that numerous organizations center around building solid relations with the partners to keep up with the social turn of events. Fair friendly advancement or we should say Equitable social development is the need of great importance.
- Moon, J. (2002). ‗CSR: An Overview‘ in International Directory of Corporate Philanthropy, London, Europa Publications.
- Bhattacharya, C.B., Sankar Sen and Daniel Korschun (2008), “Using CSR to Win the War for Talent,” MIT Sloan Management Review, 49 (2), 37-44.
- Financial Times, Wednesday, 11 July 2001.
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