Instead of taking a narrow, short-term view and defining the business of business as business, can we define the purpose of business as human well-being? With this overview,social responsibility becomes an integral part of an organisation’s culture and business philosophy – a way of life.

In the past few years, there has been much talk on the subject of "Corporate Social Responsibility"
(CSR). It has become a leading topic at World Economic Forum meetings. Economist Adam Smith, who wrote the bible of capitalism, Wealth of Nations, more importantly also wrote A Theory of Moral Sentiments, in which he emphasised that sympathy and a proper regard for others was the basis of any civilised society. Mahatma Gandhi believed in the trusteeship model, whereby the wealth you create has to be ploughed back for the benefit of society. In fact, today the debate is not about whether corporates need to take on social responsibility, because that is taken as given, and the only dilemma is how this responsibility is to be discharged and how it is to be measured, audited and continuously improved upon.

What is CSR? Business for Social Responsibility, a global organisation that helps member companies make CSR an integral part of their business operations, defines it as ‘Achieving commercial success in ways that honour ethical values and respect people, communities and the natural environment.’ In its simplest form it is ‘what you do, how you do it and when and what you say.’ Since corporates have to draw on the community in which they operate for all resources, they also have obligations to their multiple stakeholders. Stakeholders are defined as those who get affected by corporate policies and practices. Today it is acknowledged that business has not just financial accountability but also has social and environmental responsibility – popularly known as the triple bottom line of good governance.

The fundamental idea embedded in CSR is that business corporations can no longer act as isolated economic entities in detachment from the broader issues of society. Although there is a clear difference between CSR stemming from a desire to do good (the normative case) and CSR that reflects an enlightened self-interest (the business case) – in many cases a firm’s reasons for embracing CSR reflect a mixture of both these motivations.

In simple terms, being socially responsible makes good business sense and firms could be rewarded by increased patronage. Let me illustrate. In the United Kingdom, more and more consumers are buying free-range eggs, now accounting for 35 per cent of sales in the UK though they are 25 per cent more expensive than eggs laid by battery hens. What is the difference? The free-range eggs are a result of more humane and ethical poultry practices. So the consumer is far more receptive to environmental and social issues than we think.

A powerful set of external forces and changes have contributed to the recent rise in pre-eminence of CSR: increased consumer and societal expectations from business, voiced by powerful NGOs like Greenpeace and closer home, the Delhi-based Centre for Science and Environment which has exposed the cola and bottled water majors. Or the FDA’s pursuit of the chocolate-worms controversy. The heightened reach of media, assisted by advances in information technology, has made these corporates run for cover, forcing them to orchestrate expensive and elaborate damage control exercises.

Demand for transparency and reporting

Contributing to sustainable development

Ø Starbucks’ employee turnover is said to be less than a third compared to the norm for the retail food industry. This is attributed to Starbucks’ socially responsible practices like violence prevention and violence victim assistance programmes and its support to small coffee growing farmers. While acknowledging a normative case, Starbucks emphasises a strong business case for CSR. And I quote: "Consumers are demanding more than products from their favourite brands. Employees are choosing to work for companies with strong values. Shareholders are more inclined to invest in businesses with outstanding corporate reputations. Quite simply, being socially responsible is not only the right thing to do; it can distinguish a company from its industry peers."

We can visualise a company operating in a bounded space, which looks like a hexagon, which exerts competing pressures. The six sides are represented by: Customers; Employees; Shareholders and Investors; Environment and Community; Suppliers; and Government.

At the centre of the hexagon is the Board of Trustees, which holds accountability for all the stakeholders occupying the hexagon. The responsibility of the Board is to perform a stewardship role, which balances the short-term interests of the present day shareholders with the need to safeguard the interest of all the stakeholders – now and in the future.

Let us now look at each of the stakeholders and what they expect from corporates:

Customers

Employees

Shareholders and Investors

Ø Rising health costs due to growing air and water pollution.

Ø Depletion of natural resources, as with deforestation.

Ø Loss of revenue due to reduced international tourism.

Not showing concern for the environment and society can be very detrimental and can actually shake the foundations of a business that has been built over decades. This is best illustrated by the examples of Union Carbide in India and Asia Brown Boveri which has been fighting a long protracted asbestos liability suit in the USA.

Michael Porter, in an excellent article called "Green and Competitive", has demonstrated that properly designed environmental standards can trigger innovations that lower the total cost of a product or improve its value. He gives the example of the Dutch flower industry that was polluting the soil due to intensive cultivation of flowers in small areas with pesticides, herbicides and fertilisers. With strict regulations on the use of chemicals, the Dutch flower industry started growing flowers in greenhouses, water and rock wool and not in the soil. This system has reduced the risk of infestation, cut down costs and eliminated pollution.

Can this example teach us to be innovative in solving environmental problems? Can corporates join hands with universities and research institutes to come up with solutions that would reduce or eliminate pollution and at the same time make them more competitive?

We are aware of oil as a scarce resource but are we aware that in India it is predicted that by 2020 there will be an acute water shortage because of wastage and also because we have indiscriminately polluted our surface and ground water? Can corporates take a lead in harvesting rainwater, and reuse and recycle this precious vital resource?

In the field of energy, cogeneration, trigeneration, using bio-mass for power, solar energy, wind and hydro power are all present-day means of generating power either efficiently or through natural resources without the burden of pollution. To my mind, the government can and should play a vital role in promoting clean fuels by offering subsidies, carbon credits, tax benefits and the like. This is an area where governments and corporates can work together to maximise opportunities.

This brings me to a rather ticklish issue. Should corporates manufacture anything that can sell and would generate profits or do corporates have a responsibility to ascertain whether it fulfils a genuine need in keeping with the value system of the community? For instance, should a company manufacture and sell alcohol, cigarettes and guns? One view could be that as long as the law of the land permits it, corporates could produce anything that sells. For example, they cannot produce heroin or cocaine, even if there is a huge demand, because it is illegal. This is a very touchy and debatable issue but I do think that enlightened corporates, with a high sense of social consciousness, would question what they are producing from an ethical point of view and its impact on society.

Corporates are not islands unto themselves, but exist in the community. In the long run, in their own enlightened self interest, they need to invest in the community because it is from there that they get their talent pool, their customers and their shareholders. The more educated and prosperous the community, business will eventually benefit.

There are several instances of exemplary demonstration of social responsibility by Indian corporates. I would like to cite a few cases. Jamshedji Tata, with his vision to create an Indian iron and steel industry, transformed an unknown, backward village named Sakchi, later renamed Jamshedpur, which is a model of town planning and community care. The House of Tatas, Godrej, Birlas are known for their commitment to developing social infrastructure.

The National Dairy Development Board (NDDB) has transformed huge areas in Indian villages by empowering producers and creating a marketing outlet for their produce. Operation White Flood is a result of this initiative.

Suppliers

Traditionally, a company used to get a component or product from its vendor or supplier but did not take the responsibility to ensure at least minimum and humane standards that a supplier would offer to its workforce. Corporates argued that they did not own their suppliers and hence had no right or responsibility to interfere in their workspace. But the famous or not so famous Nike case has changed that attitude, at least to some extent.

Nike shoes and clothing is manufactured in more than 700 factories in 50 countries. Monitoring what takes place in each of these factories is not an easy task. Nike learnt about the power of the Internet and how adverse publicity can damage the company in many ways. Nike has been accused of allowing child labour to be used in its vendors’ factories in developing countries, under sub-standard conditions.

When news of ‘sweat shops’ was all over the USA, a graduate student from MIT responded to Nike’s offer to personalise customer’s trainers by asking for the word ‘sweat shop’ to be printed on the side of his shoes. When Nike refused, the student e-mailed the company saying ‘Thank you for the time and energy you have spent on my request. I have decided to order the shoes with a different ID, but I would like to make one small request. Could you please send me a colour snapshot of the ten-year-old Vietnamese girl who makes my shoes?" His e-mail exchange with Nike was flashed around the world, which created a very negative public image for the company.

With this experience, Nike woke up to its social responsibility and has been very self-critical of its past behaviour and has taken proactive steps to take responsibility for its supply chain. Today it has over 90 people employed in CSR positions and it invests heavily in independent third-party audits of its suppliers, the findings of which it agrees to publish even though they may be unfavourable. It bothers me that we corporates always seem to need a threat to mobilise us into action.

Government

Ø After 56 years of independence, we have a population of 1 billion and by 2040 we will surpass the population of China.

Ø About 33 per cent of our population lives below the poverty line.

Ø Fifty per cent of Indian children suffer from malnutrition and this is reflected in the death rate of one in every nine children under the age of five.

Ø Adult literacy levels are as low as 30 per cent in some states.

Ø India has 4 million people affected by HIV/AIDS, which is the highest in the world.

Ø India’s four largest metros rank among the 10 worst polluted cities in the world.

What has led to this state of affairs? It is the apathy demonstrated by the government, the corporate world and the average citizen.

Let me first give you an overview of CSR in India. These are the findings of a survey jointly conducted by the Confederation of Indian Industry, United Nations Development Programme, British Council and Price Waterhouse Coopers.

Labelled as the most ambitious attempt to capture the entire gamut of issues pertaining to Corporate Social Responsibility (CSR) in India, the survey was carried out in September-October 2002. In all, 43 questions were posed to corporates. The findings are based on the responses of 102 companies – small, medium and large. The salient findings:

Ø The most striking feature of the responses to the survey is that the respondents are in near unanimity that CSR is very much a part of the domain of corporate action and that ‘passive philanthropy’ is no longer sufficient. A significant section of respondents recognise CSR as the means to enhance long-term stakeholder value.

Ø CSR creates a ‘feel good’ factor about the company, which is increasingly instrumental in retention of talented professionals.

Ø A distinct customer preference for companies with a social conscience.

Ø The increasing expectation of shareholders that their companies be sensitive to the needs of society.

Ø One of the most important drivers of CSR identified by the survey is that good corporate citizenship and CSR initiatives are directly linked with improved brand reputation.

Ø The second most important aspect of CSR according to the survey report is that it provides an opportunity to improve relationships with local communities.

Ø The survey also showed that most companies do not have a systematic approach to CSR implementation and they do not commit resources for it in a planned manner. The factor hindering adoption of CSR on a wider scale is lack of comprehension and capacity to implement it.

Ø The survey felt that industry associates also have a critical role to play in shaping of experiences and rewarding best practices. It suggested the inclusion of CSR as a subject in business schools to ensure that the managers of the future are imparted with the requisite skills and sensitivities.

Earlier I mentioned a few Indian corporates who have demonstrated an exemplary sense of social responsibility. Let me mention two more corporates who have consistently demonstrated a high sense of social responsibility – Infosys and Wipro.

Infosys currently commits up to 1.5 per cent of its profit after tax annually for social and community causes, which include education, women’s projects, health care, community development and preservation of art and culture.

Wipro, through the Azim Premji Foundation, has dedicated itself to the cause of universalisation of elementary education in India and currently runs 1,900 schools in various parts of India.

These are all laudable efforts. But given the extent of poverty in India, the low levels of literacy especially among women and the abject health care facilities available to the weaker sections of society, a lot more needs to be done – especially by the corporate sector, which has the financial and organisational muscle. In partnership with the government and NGOs, it can make a significant and measurable contribution to improving the lot of the less fortunate men, women and children of our country.

I would also like to touch upon two related issues, which I think are of great importance and where corporate India can play an influential role. The issues are corruption and social justice.

Corruption in India has got its tentacles in all spheres and has eaten into our moral fibre. What is sad is that everyone, including corporates, has looked at corruption as inevitable and justify that it is widely prevalent in all developing countries. Honesty is viewed as an old fashioned virtue and corruption is considered a non-issue. We at times grumble about it, but who will take the first step to reduce and eliminate it? It has been well established that 80-85 per cent of government spending ends up in corruption and inefficiency. What a shame! Should we wait for the government to give up corruption (which is most unlikely) or should corporates take a stand and demand more accountability from the government? Also, can we refrain from taking short cuts by bribing officials and not succumb to their unfair demands? It would be difficult for individual companies to fight corruption but industry and professional associations can take a lead.

India has chosen to define itself as secular and its rich diversity needs to be preserved. From time to time we have had communal violence but recently it has been systematically whipped up. When there is grave injustice, as happened in Delhi after Indira Gandhi’s assassination and in Gujarat recently, can corporates afford not to raise their voice? I make a distinction between individual acts of violence, terrorism and State-sponsored violence.

The two incidents I have mentioned above are where the State turned a blind eye to the atrocities. Individual companies can be targeted by government and may buckle down under pressure, but can industry associations turn a blind eye to such injustice and assume that their role is only towards economic development and what happens in the social sphere is not within their purview? We forget that political parties need business support as much as corporates need their blessings. Collectively can we be in touch with the tremendous power we can exert? Instead of always trying to be on the right side of the political party in power, can business associations do what is good for the country and not play safe all the time?

Right now the corporate world is doing well and the mood is extremely upbeat. But can we sustain our economic growth when the gap between the rich and poor is widening? If corporates do not assume responsibility to ensure that the less privileged are offered opportunities for education, get employment and improve their lot, they may not accept this huge disparity between the rich and the poor and may become more vocal and demanding, leading to unrest. Can corporates thrive when there are bandhs, riots and instability?

The two important questions I want to leave with you are:

Ø Who will take on the task of enhancing the social consciousness of our leaders – whether in politics or in business? This is the crying need of the hour in our country – leaders with intellectual and moral integrity.

Ø How can we help the average Indian to come out of his helplessness and apathy and accept that we are all custodians of our democratic society and pluralistic culture?

I am an incorrigible optimist. I am confident that India can be a world leader because we have a very talented pool of knowledge, workers, the ability to work hard and handle adversities, abundant natural resources, a democratic tradition and a rich cultural heritage. Can we add the dimension of social responsibility to all this to ensure that India purposefully moves from being a developing nation to a world power? n