Dr Shakuntala Misra National Rehabilitation University, Lucknow

Faculty of Law

(Profitability vs. Welfare-A Legal Perspective)

Assignment on
“Relation of Corporate Social Responsibility with Corporate
Governance”

By :
Shailesh kumar
8th semester
Roll no:164140060

Under the guidance of:

Mrs. Vijeta Dua Tandon

INDEX

S.NO TITLE PA TEACHER’S

 . GE SIGN.
NO.
1 Introduction 1
2 Corporate social responsibility 1-2
3 Advantages of CSR 2
4 Impacts of CSR 2-3
5 Dimensions of CSR 3-5
6 Corporate governance 5-6
7 Relationship between CSR and 6
CG
8 Conclusion 7
9 Bibliography 8

Acknowledgement

This project is as result of dedicated effort. It gives me immense pleasure to prepare this project report
on “Relation of corporate social responsibility with corporate governance”
I Would like to thank our project guide Mrs. Vijeta Dua Tandon for consultative help and
constructive suggestion on the matter in this project . I would like to thanks our parents and our
colleagues who have helped me in making this project a successful one.

Thanks

INTRODUCTION:

“Corporate Social Responsibility (CSR) is a powerful way of making sustainable competitive profit
and achieving lasting value for the shareholder as well as for stakeholders. CSR and the reporting
thereof is a win-win opportunity, not just for companies and for financial investors but for social at
large”.

The primary purpose of CSR is to engage with the internal and external stakeholders. CSR is
concerned with the treating the stakeholders of the firm ethically or in a socially responsible manner.
The aim of social responsibility is to create higher standards of living, while preserving the
profitability of the corporation. (Michael Hopkins 1998). During the initial phase of industrial
development in the Western countries, philanthropic contributions to civil society were popular. The
initial debate on CSR took place in the United States during the 60s. During this period, the debate
focused on the changing role of companies in society; and the increased power especially of
multinational companies, among others. One view sought regulations to protect society and the
environment, and that the priority of companies should be to make profit within these regulations. In
contrast, others argued that companies not only should have a responsibility to their shareholders, but
also to their other stakeholders. Your business doesn't exist in isolation, simply as a way of making
money. Your employees depend on your business. Customers, suppliers and the local community are
all affected by you and what you do. Your products, and the way you make them, have an impact on
the environment. Corporate social responsibility (CSR) takes all this into account and can help you
create and maintain effective relationships with your stakeholders. It isn't about being "right on", or
mounting an expensive publicity exercise. It means taking a responsible attitude, going beyond the
minimum legal requirements and following straightforward principles that apply whatever the size of
your business.

CORPORATE SOCIAL RESPONSIBILITY:

World Business Council for Sustainable Development defines Corporate Social Responsibility (CSR)
as ―The continuing commitment by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce and their families as well as of the
local community and society at large.

CSR exhorts firms to diverge from their sole aim of maximizing profits and to lay more importance
on improving the economic and social standards of the community in their countries of operation.
CSR can be thus be simply defined as the additional commitment by businesses to improve the social
and economic status of various stakeholders involved while complying with all legal and economic
requirements. As Warhust (2001) points out, the three major elements of CSR are product use which
focuses on contribution of industrial products which help in well being and quality of life of the
society, business practice which focuses on good corporate governance and gives high impetus for the
environmental well being and equity which tries for distribution of profits equitably across different
societies especially the host community.

World Business Council for Sustainable Development

“Corporate Social Responsibility is the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the workforce and their
families as well as of the local community and society at large”.

The term is often used interchangeably for other terms such as Corporate Citizenship and is also
linked to the concept of Triple Bottom Line Reporting (TBL), which is used as a framework for
measuring an organization‘s performance against economic, social and environmental parameters.
The rationale for CSR has been articulated in a number of ways. In essence it is about building
sustainable businesses, which need healthy economies, markets and communities.
Advantages of corporate social responsibility

Japanese companies often have 100 year business plans. If you are planning to be around in business
for the long-run then making sure ALL your stakeholders are looked after is wise. If you mess the
environment up people notice. If you mess people around people remember. If you mistreat people
they never forget. And yet when you care for the environment you are awarded. When you care for
people you are awarded. You are rarely forgotten when you genuinely care. A business enterprise is
no different to a human - people will have feelings about it and that impacts business positively or
negatively.

Many companies say they care and yet they may not take the actions of caring. Going beyond what is
expected becomes exemplar and noted. An enterprise' actions are notes the most by its employees and
staff. The business team that runs an organization knows what is going on. They know all the high
and low points of a company. These exact same people interact each and every day with the
businesses customers. How they feel about the company they work for impacts the bottom line of a
company directly. A sales person who loves his work and the company will sell more. The
receptionist who cares for her company will care for its customers making them feel better and of
course they are then more likely to return.

Many businesses make a loss the very first time a customer shops with them. This is an amazing little
known fact outside of the business world. It may cost thousands of dollars for some companies to gain
new customers because of long lead times or expensive advertising campaigns. If they only sell to a
customer once then they don't ever recover their investment in acquiring that new customer or make a
profit. Customers these days are spoilt for choice. Many customers choose a business on how they
feel about the company of the people in the company. Most purchasing decisions are subjective.
Adding subjective and hard to measure components to a business such as solid CSR programmes add
to the perceived value added benefit a customer received when they shop with the company.

The citizen brand emerges. And this comment from this key report just says it all: It means that
putting meaning into marketing is more important than ever. One of the reporters puts it this way:
"These findings present brands with an opportunity to engage in 'mutual social responsibility'-brands
and consumers working together to effect positive social change for mutual benefit -and to realize a
'return on involvement,' a new metric that looks at participation and involvement as true builders of
brand loyalty.

IMPACT OF CORPORATE SOCIAL RESPONSIBILITY:

Social responsibility is an ethical ideology or theory that an entity, be it an organization or individual,

has an obligation to act to benefit society at large. Social responsibility is a duty every individual or
organization has to perform so as to maintain a balance between the economy and the ecosystem.
There is always a trade-off between economic development, in the material sense, and the welfare of
the society and environment.

This responsibility can be passive, by avoiding engaging in socially harmful acts, or active, by
performing activities that directly advance social goals. Businesses can use ethical decision making to
secure their businesses by making decisions that allow for government agencies to minimize their
involvement with the corporation. (Kaliski, 2001) For instance if a company is proactive and follows
the United States Environmental Protection Agency (EPA) guidelines for emissions on dangerous
pollutants and even goes an extra step to get involved in the community and address those concerns
that the public might have; they would be less likely to have the EPA investigate them for
environmental concerns. A significant element of current thinking about privacy, however, stresses
"self-regulation" rather than market or government mechanisms for protecting personal information‖
(Swire ,1997) Most rules and regulations are formed due to public outcry, if there is not outcry there
often will be limited regulation. Critics argue that Corporate social responsibility (CSR) distracts from
the fundamental economic role of businesses; others argue that it is nothing more than superficial
window-dressing; others argue that it is an attempt to pre-empt the role of governments as a watchdog
over powerful multinational corporations though there is no systematic evidence to support these
criticisms. A significant number of studies have shown no negative influence on shareholder results
from CSR but rather, a slightly positive correlation with improved shareholder returns.

DIMENSIONS OF CSR:

Dimensions of CSR are generally divided in two parts

 Internal Dimension
 External Dimension

INTERNAL DIMENSION:

This relates to internal practices to the company which need to be modified to incorporate CSR

practices.

 Human Resource Management

CSR can be successfully implemented in an organization through precise management of its own
work force. The internal dimension of CSR includes elements like providing an environment for
lifelong learning for employees, employee empowerment, better information flow, improving the
balance between work, family, and leisure, diversified work force, profit sharing and share
ownership schemes, concern for employability as well as job security among others. Active
follow up and management of employees who are off work due to disabilities or injuries have also
been shown to result in cost savings for the companies. Molding of recruitment policies to include
people from ethnic minorities, older workers, women and the long-term unemployed would be a
significant step forward to incorporating CSR practices in Human Resources Management.

 Work safety and health measures

Worker safety and labor health have been documented to be having a direct impact on
productivity of the labor force. Although legal measures exist in most nations on maintaining
standards for ensuring worker safety and providing health benefits, recent trends have made it
imperative for companies to adopt a proactive approach to this issue. In emerging markets
having significant cost advantages in labor, outsourcing of labor and processes have led to the
situation where companies not only need to maintain high safety levels in their own premises
but also ensure that their suppliers and other connected parties comply with these principles.

 Adaptation to change

A recent trend in the global business scenario has been the wide spread use of mergers and
acquisitions for business expansion. Also downsizing has been used, often ineffectively, as a cost
cutting measure by firms in their relentless push for profits. In practice the process is often as
important as the substance to the success of restructuring. In particular this involves seeking the
participation and involvement of those affected through open information and consultation.

EXTERNAL DIMENSION:

The significance of this dimension of CSR has come to the forefront with the advent of globalization
leading to the development of international standards for business practices.

 Local communities

These relations are being increasingly used by multinational companies to support the integration of
their subsidiaries into various markets in which they are present .The development of positive
relations with the local community and thereby the accumulation of social capital is particularly
relevant for non-local companies.. Deep understanding of the local community and social customs is
an asset which can be utilized by the companies to gain strategic advantage. In emerging markets, this
is more relevant than ever because of the availability of cheaper labor from the local communities.
Companies would find it in their interest to substitute capital substitution with labor and reap the cost
benefits.

 Business partners

Building long term relationships of sound ethical foundation with suppliers, customers (and even
competitors in rare occasions) will enable companies to meet customer expectations better while
reducing complexity and costs. Companies should realize their CSR practices will be judged taking
into account the practices of their partners and suppliers throughout the supply chain. The effect of
corporate social responsibility activities will not remain limited to the company itself, but will also
touch upon their economic partners. Companies in emerging markets actually take on additional CSR
responsibilities because of the existence of outsourcing opportunities in the form of suppliers and
outsourcing agents. Also as part of their social responsibility companies are expected to provide high
quality products and services, which meet customer expectations in a manner reflecting the
company‘s concern for the environment and the local conditions. Thus in emerging markets,
consumer based business strategies would enable companies to build long lasting relationships with
consumers based on trust.

 Human rights

According to Robbins (2000), ―Companies operating in countries where human rights are regularly
violated may experience a climate of civil instability and corruption that makes for uneasy relations
with government officials, employees, local communities and shareholders. Amnesty International
states: Companies have a direct responsibility to ensure the protection of human rights in their own
operations. They also have a responsibility to use their influence to mitigate the violation of human
rights by governments, the forces of law and order or opposition groups in the countries in which they
operate.

 Return on Investment (ROI):

More businesses are recognizing the benefits of CSR, from cost savings on energy and materials
to direct benefits like enhanced reputation among customers and clients and indirect benefits like
 employee satisfaction. Most importantly, CSR programs provide rewards—and increased
monetary value—through the creation of products and services that support sustainability.

 Increasing Rewards for Communities and Workers:

Companies are working to mitigate their impacts on community resources such as water through
conservation and by promoting sustainable development that benefits communities and
employees.

 New Opportunities in Environmental Markets:

Beyond reducing their climate impact through decreased carbon emissions, advanced companies
are working to monetize and develop markets for environmental services like water, nutrients and
biodiversity.

 Improved reputation management.

Organizations that perform well with regard to CSR can build reputation, while those that perform
poorly can damage brand and company value when exposed. This is particularly important for
organizations with high-value retail brands, which are often the focus of media, activist and consumer
pressure. Reputation, or brand equity, is founded on values such as trust, credibility, reliability,
quality and consistency. Even for companies that do not have direct retail exposure through brands,
their reputation as a supply chain partner -- both good and bad -- for addressing CSR issues can make
the difference between a business opportunity positively realized and an uphill climb to respectability.
Enhanced ability to recruit, develop and retain staff. This can be the direct result of pride in the
company's products and practices, or of introducing improved human resources practices, such as
“family-friendly” policies. It can also be the indirect result of programs and activities that improve
employee morale and loyalty. Employees become champions of a company for which they are proud
to work.

Corporate Governance

Corporate Governance refers to the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business as per the stakeholders’ desires.
It is actually conducted by the board of Directors and the concerned committees for the company’s
stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and
social goals. Corporate Governance is the interaction between various participants (shareholders,
board of directors, and company’s management) in shaping corporation’s performance and the way it
is proceeding towards. The relationship between the owners and the managers in an organization must
be healthy and there should be no conflict between the two. The owners must see that individual’s
actual performance is according to the standard performance. These dimensions of corporate
governance should not be overlooked. Corporate Governance deals with the manner the providers of
finance guarantee themselves of getting a fair return on their investment. Corporate Governance
clearly distinguishes between the owners and the managers. The managers are the deciding authority.
In modern corporations, the functions/ tasks of owners and managers should be clearly defined, rather,
harmonizing. Corporate Governance deals with determining ways to take effective strategic decisions.
It gives ultimate authority and complete responsibility to the Board of Directors. In today’s market-
oriented economy, the need for corporate governance arises. Also, efficiency as well as globalization
are significant factors urging corporate governance. Corporate Governance is essential to develop
added value to the stakeholders. Corporate Governance ensures transparency which ensures strong
and balanced economic development. This also ensures that the interests of all shareholders (majority
as well as minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their
rights and that the organization fully recognizes their rights. Corporate Governance has a broad scope.
It includes both social and institutional aspects. Corporate Governance encourages a trustworthy,
moral, as well as ethical environment.

Relationship between Corporate Governance And CSR

The conceptualization of CSR was, initially, purely in terms of philanthropy or charity. However, the
post-liberalization phase has seen a fundamental shift from this philanthropy-based model of CSR to a
stakeholder- participation based model. Furthermore, CSR is gradually getting fused into companies’
Corporate Governance practices. Both Corporate Governance and CSR focus on the ethical practices
in the business and the responsiveness of an organisation to its stakeholders and the environment in
which it operates. Corporate Governance and CSR results into better image of an organisation and
directly affects the performance of an organisation. The OECD principles on Corporate Governance,
UN Global Compact Participation throw light on CSR scheme but in India CSR, by virtue of clause
49 of the listing agreement, have been made totally optional. It is pertinent to mention here that
transparency, disclosure, sustainability and ethical behaviour is central theme in both CSR and
Corporate Governance. Further, it is worthwhile to mention that CSR is based on the concept of self
governance which is related to external legal and regulatory mechanism, whereas Corporate
Governance is a widest control mechanism within which a company takes it management decisions.
Furthermore, the objectives and benefits of CSR and Corporate Governance are similar in nature,
some of them are stated herein below:

 Rebuilding of public trust and confidence by increased transparency in its financial as well as
non-financial reporting and thereby increasing the shareholder value.
 Establishing strong brand reputation of the company.
 Making substantial improvement in its relationship with various stakeholders.
 Contributing to the development of the region and the society around its area of operation
 Addressing the concerns of its various stakeholders in a balanced way so as to maintaining a
strong market position.

Furthermore, it may be worthwhile to note that in case of unlisted companies there is not robust
system of corporate governance, although there are some provisions in the Companies Act, 1956, in
this context the relationship between Corporate Governance and CSR is very important and
significant. In order to appraise present position of CSR and Corporate Governance, it would be
worthwhile to examine the legal and regulatory framework dealing with CSR and Corporate
Governance.

Conclusion:

For many years, the approach of companies on the role of business in society could be summarized
with the following words of Milton Friedman: “there is one and only one social responsibility of
business to increase its profits” and “Business of business is business”. However, it may be
worthwhile to mention that the world has moved far ahead from the aforesaid words of Milton
Friedman, now a day’s Corporate Governance and CSR are integral part of any company. It may be
noted that, at present, the provisions of Corporate Governance are mandatory and recommendatory
under various provisions discussed hereinabove. However, there is no concrete system for CSR, it is
purely optional. Furthermore, since Corporate Governance and CSR is interrelated and
complementary to each other, by incorporating CSR provisions within Corporate Governance
framework would be beneficial for India.

If we want to make the CSR sharper we have to apply some principles which are as follows:

 Focusing on priorities
 Allocating finance for treating CSR as an investment from which returns are expected
 Optimizing available resources by ensuring that efforts are not duplicated and existing services
are strengthened and supplemented
 Monitoring activities and liaising closely with implementation partners such as NGOs to ensure
that initiatives really deliver the desired outcomes
 Reporting performance in an open and transparent way so that all can celebrate progress and
identify areas for further action.

BIBLIOGRAPHY

 http://www.csreurope.org/pages/en/activities.html
 http://corpgov.net/stakeholders/
 http://www.bsr.org/en/bsr-conference/session-summaries
 http://en.wikipedia.org/wiki/Corporate_social_responsibility
 http://www.weforum.org/
 http://www.weforum.org/reports
 http://www.iosrjournals.org/iosr-jbm/papers/vol2-issue3/D0232426.pdf?id=5519
 https://www.managementstudyguide.com/corporate-governance.htm