Definition – Evolution and need for CSR Meaning:

Corporate Social Responsibility (CSR) is a mechanism by which companies hold themselves to a

set of legal, ethical, social and ecological standards. Corporate social responsibility (CSR) is a
type of business self-regulation with the aim of being socially accountable. There is no one
"right" way companies can practice CSR; many corporate CSR initiatives strive to positively
contribute to the public, the economy or the environment.
In today's socially conscious environment, employees and customers place a premium on
working for and spending their money with businesses that prioritize CSR.
It is a form of business self-regulation that has developed alongside greater public awareness of
ethical and environmental issues. But is it always a force for good?
We live in an ever-more globalized world. Not only have national economies become highly
intermingled and interdependent, but humanity ‘s most pressing problems are increasingly cross-
border issues. The capacities of individual governments to address these issues alone are limited,
and there has been a growing attention paid towards the role businesses have to play.
A Short History of CSR
Although definitions of Corporate Social Responsibility (CSR) vary, it is generally understood to
be a mechanism whereby companies take responsibility for the impacts of their decisions and
practices by holding themselves to a set of ethical, social and ecological standards - with the aim
of contributing towards the health, welfare and sustainable development of society. The term
was coined in the 1950s, although the real impetus came later on after a number of industrial
disasters, such as the 1969 Santa Barbara oil spill, which led to low public confidence in
businesses and translated into massive public
protests.

 These culminated in the first Earth Day in 1970, and spurred a host of new environmental
regulations in the USA, as well as the founding of a number of businesses grounded in
CSR norms.
 In the 1990s, CSR began to gather steam on an international level. This decade saw high
profile international events such as the UN Summit on the Environment and
Development and the signing of the Kyoto Protocol on climate change, which, among
other things, raised expectations on corporate behaviour.
 Moreover it was a period of rapid economic globalisation, and as companies expanded
internationally they faced uneven regulatory frameworks and increased global visibility
and reputational risk.
NEED FOR CSR:
Corporate social responsibility (CSR) promotes a vision of business accountability to a wide
range of stakeholders, besides shareholders and investors. Key areas of concern are
environmental protection and the wellbeing of employees, the community and civil society in
general, both now and in the future.
The concept of CSR is underpinned by the idea that corporations can no longer act as isolated
economic entities operating in detachment from broader society.
Traditional views about competitiveness, survival and profitability are being swept
away.
Some of the drivers pushing business towards CSR include:

1. The shrinking role of government

In the past, governments have relied on legislation and regulation to deliver social and
environmental objectives in the business sector. Shrinking government resources, coupled with a
distrust of regulations, has led to the exploration of voluntary and non- regulatory initiatives
instead.
2. Demands for greater disclosure
There is a growing demand for corporate disclosure from stakeholders, including customers,
suppliers, employees, communities, investors, and activist organizations.
3. Increased customer interest
There is evidence that the ethical conduct of companies exerts a growing influence on the
purchasing decisions of customers. In a recent survey by Environics International, more than one
in five consumers reported having either rewarded or punished companies based on their
perceived social performance.
4. Growing investor pressure
Investors are changing the way they assess companies' performance, and are making decisions
based on criteria that include ethical concerns. The Social Investment Forum reports that in the
US in 1999, there was more than $2 trillion worth of assets invested in portfolios that used
screens linked to the environment and social responsibility. A separate survey by Environics
International revealed that more than a quarter of share-owning Americans took into account
ethical considerations when buying and selling stocks.
5. Competitive labor markets
Employees are increasingly looking beyond paychecks and benefits, and seeking out whose
philosophies and operating practices match their own principles. In order to hire and retain
skilled employees, companies are being forced to improve working conditions.
6. Supplier relations
As stakeholders are becoming increasingly interested in business affairs, many companies are
taking steps to ensure that their partners conduct themselves in a socially responsible manner.
Some are introducing codes of conduct for their suppliers, to ensure that other companies'
policies or practices do not tarnish their
reputation.

Some of the positive outcomes that can arise when businesses adopt a policy of social
responsibility include:
1. Company benefits:
• Improved financial performance;

 Lower operating costs;

• Enhanced brand image and reputation;

• Increased sales and customer loyalty;
• Greater productivity and quality;
• More ability to attract and retain employees;
• Reduced regulatory oversight;
• Access to capital;
• Workforce diversity;
• Product safety and decreased liability.
2. Benefits to the community and the general public:
• Charitable contributions;
• Employee volunteer programmes;
• Corporate involvement in community education, employment and
homelessness programmes;
• Product safety and quality.
3. Environmental benefits:
• Greater material recyclability;
• Better product durability and functionality;
• Greater use of renewable resources;
• Integration of environmental management tools into business plans, including life -cycle
assessment and costing, environmental management standards, and eco- labelling.
Nevertheless, many companies continue to overlook CSR in the supply chain – for example by
importing and retailing timber that has been illegally harvested. While governments can impose
embargos and penalties on offending companies, the organizations themselves can make a
commitment to sustainability by being more discerning in their choice of suppliers.
The concept of corporate social responsibility is now firmly rooted on the global business
agenda. But in order to move from theory to concrete action, many obstacles need to be
overcome.
A key challenge facing business is the need for more reliable indicators of progress in the field of
CSR, along with the dissemination of CSR strategies. Transparency and dialogue can help to
make a business appear more trustworthy, and push up the standards of other organizations at the
same time.
TYPES OF CORPORATE RESPONSIBILITY BUSINESSES CAN
PRACTICE – DONE IN CLASS
Recognizing how important socially responsible efforts are to their customers, employees and
stakeholders, many companies focus on a few broad CSR categories, including:

1. Environmental efforts: One primary focus of CSR is the environment. Businesses, regardless
of size, have large carbon footprints. Any steps a company can take to reduce its footprint is
considered good for both the company and society.
2. Philanthropy: Businesses can practice social responsibility by donating money, products or
services to social causes and nonprofits. Larger companies tend to have plentiful resources that
can benefit charities and local community programs; however, as a small business, your efforts
can make a big difference. If there is a specific charity or program you have in mind, reach out to
the organization and ask them about their specific needs and whether a donation of money, time
or perhaps your company's products would best help them.
3. Ethical labor practices: By treating employees fairly and ethically, companies can
demonstrate CSR. This is especially true of businesses that operate in international locations with
labor laws that differ from those in the United States.
4. Volunteering: Participating in local causes or volunteering your time (and your staff's time) in
community events says a lot about a company's sincerity. By doing good deeds without
expecting anything in return, companies can express their concern (and support) for specific
issues and social causes.
Arguments in Favour and Against Corporate Social Responsibility (CSR) |
Management
Arguments in favour of CSR:
The following arguments favour corporate social responsibility:
1. Protect the interests of stakeholders:
Labour force is united into unions which demand protection of their rights from business
enterprises. To get the support of workers, it has become necessary for organizations to discharge
responsibility towards their employees.
Firms that assume social responsibilities may suffer losses in the short-run but
fulfilling social obligations is beneficial for long-run survival of the firms. The short term costs
are, therefore, investments for long-run profitability.
2. Long-run survival:
Business organizations are powerful institutions of the society. Their acceptance by the society
will be denied if they ignore social problems. To avoid self-destruction in the long-run, business
enterprises assume social responsibility.
3. Self-enlightenment:
With increase in the level of education and understanding of businesses that they are the
creations of society, they are motivated to work for the cause of social good. Managers create
public expectations by voluntarily setting and following standards of moral and social
responsibility.
They ensure paying taxes to the Government, dividends to shareholders, fair wages to workers,
quality goods to consumers and so on. Rather than legislative interference being the cause of
social responsibility, firms assume social responsibility on their own.
4. Avoids government regulation:
Non-conformance to social norms may attract legislative restrictions. Government directly
influences the organisations through regulations that dictate what they should do and what not.
Various agencies monitor business activities. For example, Central Pollution Control Board takes
care of issues related to environmental pollution, Securities and Exchange Board of India
considers issues related to investor protection, Employees State Insurance Corporation promotes
issues related to employees ‘health etc. Organizations that violate these regulations are levied
fines and penalties. To avoid such interventions, organisations have risen to the cause of social
concerns.
5. Resources:
Business organisations have enormous resources which can be partly used for solving social
problems. Businesses are the creation of society and must work in the best interest of society,
both economically and socially.
6. Professionalization:
Management is moving towards professionalism which is contributing to social orientation of
business. Increasing professionalism is causing managers to have formal management education
and qualifications. Managers specialize in planning, organizing, leading and controlling through
their knowledge and subscribe to the code of ethics established by a recognized body.
The ethics of profession bind managers to social values and growing concern for society. Thus,
there is increasing awareness of social responsibility. To grow in the environment of dynamism
and challenge, business concern does not decide whether or not to discharge social
responsibilities but decides how much social responsibility to discharge. A good business
anticipates developments and acts in accordance with the currently conceived social
responsibilities to achieve the future targets.
Arguments against CSR:
Corporate social responsibility is limited on the following grounds:
1. Business is an economic activity:
It is argued by the opponents of social responsibility that basic function of a business enterprise
is to look into economic viability of its operations. It is for the Government to look after interests
of the society. The prime responsibility of assuming social responsibility should, therefore, be of
the Government and not of the business enterprises.
2. Quantification of social benefits:
What measures social responsibility and to what extent should a business enterprise be engaged
in it, what amount of resources should be committed to the social values, whose interest should
hold priority over others (shareholders should be preferred over suppliers or vice versa) and
numerous other questions are open to subjective considerations, which make social responsibility
a difficult task to be assumed.
3. Cost-benefit analysis:
Any social-benefit programme where initial costs exceed the benefits may not be taken up by
enterprises even in the short-run.
4. Lack of skill and competence: Professionally qualified managers may not have the aptitude
to solve the social problems.
5. Transfer of social costs:
Costs related to social programmes are adjusted by the business concerns in the
following ways:
(a) High prices:
The costs are passed to consumers by increasing prices of goods and services.
(b) Low wages:
If managers maintain the level of prices, the social costs may be reflected in reduction of wages.
(c) Low profits
If wages are stabilized, profits would be reduced, which will lower dividends to the shareholders.
Low profits will reduce managers ‘desire to further engage in corporate social responsibility
6. Sub-optimal utilization of resources:
If scarce resources are utilized for social goals, this would violate the very purpose of existence
of an organization.
Debate over CSR:
After considering the arguments in favor and against the concept of CSR, some points are still
left unanswered. These are:
1. Operational definition of CSR:
The traditional view on CSR provided no information on business concerns about social values.
The modern approach also provides no clear guidelines to managers. Business executives follow
their own values and interests about social expectations. Actual meaning of CSR is, however,
difficult to determine.
2. No view of competitive corporate environment:
Every business operates in the larger business system. It cannot come out of that system and
transformation of society within the existing parameters of business system seems to be illusory.
Business power is not unified and, therefore, even if they wish, they cannot fully meet the needs
of the society. Redirecting resources towards needs of the society can perhaps be possible if
government rewrites rules under which business corporations will operate.
3. Limited ability:
The proponents of CSR assume that business units have unlimited ability to fulfill social desires.
However, it is not so. Business firms have limited ability to respond to social changes. Social
actions will increase the costs and prices, which will place these firms at a competitive
disadvantage in relation to firms who are not socially responsive.

4. Lack of uniformity in business policies:

Solving social problems is not feasible in competitive business environment unless all firm
follow the same policy. Government can intermediate and make all competitors pursue the same
policy on social problems. Government is in fact, framing standards for businesses to follow with
respect to physical environment, occupational safety and health, equal opportunity, consumer
concerns etc.
5. Moral responsibility:
Business firms feel that they have economic responsibility to produce goods and services. Their
economic responsibilities justify their reason for existence. Why should business organisations
have moral responsibilities? What are the moral justifications for the same?

Stakeholder Theory 

Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between
a business and its customers, suppliers, employees, investors, communities and others who have
a stake in the organization. The theory argues that a firm should create value for all stakeholders,
not just shareholders.
It emphasizes the interconnections between business and all those who have a stake in it, namely
customers, employees, suppliers, investors and the community. The business to serve
the needs of the stakeholders, and not just the shareholders.

The broad definition of a stakeholder is any person or group that can affect or is affected by
a business organization. Stakeholder theory deals with discussions on if a business has a greater
responsibility towards these stakeholders than towards the shareholders, and how to fulfill these
responsibilities.
Six Principles of Stakeholders Theory and Strategy

Freeman outlined six principles that should govern the relationship between the stakeholders and
the corporation.

 The principle of entry and exit: According to this principle, there must be clear rules that
delineate, For example, the rules when it comes to hiring employees and terminating their
employment should be clear-cut and transparent.
 The principle of governance: This principle is concerned with how the rules governing
the relationship between the stakeholders and the firm can be amended. With unanimous
consent, any changes
 The principle of externalities: This is concerned with how a group that does not benefit
from the actions of the corporation has to suffer certain difficulties because of the actions
of the corporation. The principle of externalities suggests that anyone who has to bear the
costs of other stakeholders has the right to become a stakeholder as well based on
stakeholder theory. Anyone who is affected by a business becomes a stakeholder.
 The principle of contract costs: Each party to a contract should either bear equal
amounts when it comes to cost, or the cost they bear should be proportional to the
advantage they have in the firm. Not all of these costs are financial in nature, so they may
be difficult to quantify.
 Agency principle: This principle states that the manager of a firm is an agent of the firm
and therefore has responsibilities to the stakeholders as well as the shareholders.
 The principle of limited immortality: This principle deals with the longevity of a firm.
To ensure the success of the organization and its owners alike, it is necessary for the
organization to exist for a prolonged period of time. If the firm only exists for a very
limited period of time, it would be advantageous for some of the stakeholders and
disadvantageous for others. This violates the concept of a stakeholder theory. Thus the
firm must remain in existence for a length of time, and it should be managed in a way
that ensures its survival. “Limited” immortality refers to the fact that the firm can be
long-lasting but it is impossible for it to actually be immortal.
The Theories of Entrepreneurship

a) Richard Cantilon

An entrepreneur as a person with foresight and competence to operate in conditions on

uncertainty. Richard was a particular about an entrepreneur being a person who performed in
uncertain environments because the market demand is not perfectly predictable not necessarily
that his products are untested an untried. Cantilon contributed to the contention that an
entrepreneur is somebody who has foresight and confidence to operate under conditions of
uncertainty. He associated risks and uncertainties with administrative decisions of entrepreneurs.
He identified the facto that profit to the entrepreneur arises out of decision making and risk
taking.

b) John Baptise

Entrepreneurs coordinate and combine the factors of production. John described the entrepreneur
as a rare phenomenon who is able to coordinate and combine the factors of production. He places
emphasis on the variety of markers and inputs which the entrepreneur has to deal with “
successfully” in effect, the entrepreneur is expected to “ perceive and realize potential arbitrage”
in addition to taking risks associated with uncertainty. According to say, the entrepreneur must
surmount abundant obstacles, suppress anxieties, repair misfortunes and devise expedients. As a
result, the entrepreneur accommodates the unexpected and overcome problems successfully in
dealing both the input and consumer market. A possible conclusion form this contention is that
the entrepreneur is a locator of resources in the adjustment process during equilibrium, during
equilibrium, towards equilibrium.

c) Carl Menger,(1950) and the Austrian School

Carl Menger and what is known as the Autrian school in economics emphasizes the locative role
in directing that entrepreneurs role is that of risk taker in an uncertain environment. They added
that the entrepreneur needs information and has to have the ability to analyze and use this
information to make the correct decision in allocating resources. Other followers of the Austrian
school of Thought went on to add that the alertness, superior perception and leadership of the
entrepreneur cause factors of production to be allocated and continuously allocated.
d) Joseph Schumpeter (Innovation) He in the early 20th century provided perhaps one of the
most comprehensive analyses of entrepreneurship within the context of economic development.
He introduced the notion that the entrepreneur is not just an allocate or director of resources, but
combines inputs in untried combinations (innovator). Schumpeter asserted that the entrepreneur
only remained an entrepreneur for as long as he is innovative, and losses that characteristics as
soon as he falls into the routine management of the business.

Schumpeter described this process as discrete rather than constituting a gradualist change or
evolution.

d) MC Cleland (a function of High Achievement)

According to MC Cleland, the characteristics of entrepreneur have two features- first doing
things in a new better way and second making under uncertainty. He emphasizes achievement
orientation as most important factor for entrepreneurs. Individuals with high achievements
orientation are not influenced by considerations of money or any other external incentives. He
argues that profit and incentives are merely yardsticks of measurement of success of
entrepreneurs with high achievement orientation. The achievement orientation can be taught and
increased by deliberate efforts.  He finally observed that the individual with high achievement
orientation take calculated risks and can make decisions where there are incomplete information
or have tolerance for ambiguity Psychologists call this behavior a type –A behaviour.