CSR: Challenges and Implementation
Corporate social responsibility and its
equally important companion, environmental, social, and corporate governance (ESG) principles have risen to new
prominence in a world where how you do business—and how your business
activities reflect your company’s affects not only your bottom line, but
your ability to operate, compete, and attract talent, investors, and customers.
Today’s consumer is no longer content to know
only what a company’s selling, or the services it offers. They are, in large
part, also very concerned with the policies and practices companies hold with
regard to prominent social and environmental issues—and for companies with an
undeveloped, ill-considered, or (perhaps worst of all) absent response, those
consumers are happy to take their interest, and dollars, elsewhere
In 2011, less than one in five companies on the S&P 500 had
published formalized documentation of the business practices they’d developed
in relation to corporate social responsibility. By 2014, 75% were publishing
their CSR activities, and by 2018, the number had climbed to 86%.
Some of the elements that commonly appear in CSR plans include:
· Direct employee engagement to provide healthier, happier, and generally more positive working conditions, with a keen awareness of work-life balance and the need for diversity, transparency, and accountability.
· Enhanced training for disenfranchised groups.
· Direct investment in community organizations, such as food banks, community job centers, etc. with additional support via employee volunteerism.
· Environmental responsibility initiatives that seek to address environmental concerns and reduce negative environmental impact through business activities such as sustainable supply chain optimization, sustainable development, etc.
·
Proactive responses to unexpected disruptions from global
economic, political, and environmental disasters. For example, the rapid shift
to support remote workers and define “the New Normal” during the COVID-19
pandemic, or working with sustainably sourced suppliers in the local community
to ensure business continuity during disruptions caused by the Amazon Rainforest Fires.
Companies appear to apply stakeholder approachin implementation of their CSR activities, where they value their relationship
with the stakeholders and are very concerned about the stakeholders'
perceptions on their companies. The CSR activities which they implement appear
to serve as a bridge to tighten these relationships. On the other hand, the
cost and complexity of implementation, and time consumed to implement are among
the biggest challenges to the organizations in their implementation of CSR
activities.
When
a company grow in size from SME to MSME, Large enterprise, MNC, Listed on national/International
Stock Exchanges, the number of stakeholders as well as and requirement for
funds to meet expectations of stakeholders increase manifold.
Freeman
(1984) introduces the stakeholder theory in relation to social responsibilities
of companies stating that the companies’ responsibility is to “any group or
individual who can affect or is affected by the achievement of the
organization’s objectives”. Moreover, Carroll (1998) defines four different
responsibilities in relation to the CSR: economic, legal, ethical, and
discretionary/philanthropic. The World Business Council for Sustainable
Development (1999) defines the CSR as the “…operating a business enterprise in
a manner that consistently meets or exceeds the ethical, legal, commercial, and
public expectations society has of business”. Another definition proposed by
the European Commission (2001) states that CSR “…means not only fulfilling
legal expectations, but also going beyond compliance and investing ‘more’ into
human capital, the environment and the relations with stakeholders”, while
Maignan and Farrell (2004) define it as the satisfaction of the stakeholders’
demands.
According
to Haigh and Jones (2005), there are six main factors that drive companies to
adopt CSR policy: intra-organizational factors, competitive dynamics,
institutional investors, end-consumers, government regulators and
non-governmental organizations.
It
is important to mention that the stakeholders can “never fully understand a
corporation’s capabilities, competitive positioning, or the tradeoffs it must
make” (Porter and Kramer, 2006), thus the stakeholders continuously demand from
companies to be more responsible and devote more resources to them (McWilliams
and Siegel, 2001). Some companies concentrated their CSR attention on multiple
dimensions of society while others concentrated on a single dimension of
society as their capability, economic or managerial, is limited or it is most
important for them
The
Corporate Social Responsibility (CSR) has become a successful concept for
companies in order to ensure their capacity for long term value and gain
competitive advantages. It is an effective mean in order to mitigate the new
type of risk that has emerged, known as social risk (Kytle and Ruggie, 2005).
The
most comprehensive methodologies are those that are adopted by Dow Jones
Sustainability Indexes, Ethibel Sustainability Index, KLD and Advanced
Sustainable Performance Indices.
Some
of the areas that are noticed not to have uniformity include the transparency
provided by the assessment agencies, the proposal of specific criteria to
specific sectors and countries, the agreement as regards the weight rate of the
criteria, the suggestion of criteria that refer to the CSR outcome and
irresponsibility, the assessment of the main stakeholders, the capability of
criteria selection and the consensus of the CSR criteria.
The
models of CSR emerged over a period of time from Business Ethics(1950s) to Corporate Citizenship (End of 1990s) and these thoughts had influenced
international organizations like United Nations . This in turn affected the
governments and MNCs to address stakeholder needs.
- · Increases employee loyalty and retention
- · Increased customer loyalty
- · Increased reputation in the corporate world and brand image
- · Greater productivity and quality
- · Increased quality of products and services
- · Product safety and decreased liability
- · Less volatile stock value
- · Reduced regulatory oversight
- · Ensures the company’s sustainability and long term performance
- · Increased employee satisfaction
- · Increase in the growth potential of an organization
- · Prevent the focus of companies from only profit maximization
Corporate Social Responsibility means working in an organization
where it benefits both the organization and the society. There is much debate
on the concept of Corporate Social Responsibility. Some people have a strong
belief that the sole aim of the business is only to take care of the interest
of the owners and the shareholders of the business while others believe that a
business should benefit all, including the environment and the society. Hence,
on a social level, the concept of CSR faces many challenges.
CSR Challenges
1.
Responsibility towards Shareholders only
People confuse the
objective of a business with the concept of Corporate Social Responsibility.
Some entrepreneurs say that the sole aim of the business should only lie in the
interest of the stakeholders. Anything done out of this objective violates the
fundamental principles of the business and moreover is not acknowledged in the
eyes of the community.
An organization has the
responsibility to earn as much profit as it can for the shareholders or the
owners. It is totally accountable to the shareholders of the business. How can
a business forgo this basic purpose just for the sake of society or how can it
even make a decision that undermines the basic objective of the business?
2.
Responsibility towards Stakeholders
Freeman
(1984) introduces the stakeholder theory in relation to social responsibilities
of companies stating that the companies’ responsibility is to “any group or
individual who can affect or is affected by the achievement of the
organization’s objectives”. Moreover, Carroll (1998) defines four different
responsibilities in relation to the CSR: economic, legal, ethical, and
discretionary/philanthropic. When a company grow in size from SME to MSME,
Large enterprise, MNC, Listed on national/International Stock Exchanges, the
number of stakeholders as well as and requirement for funds to meet expectations
of stakeholders increase manifold. Carroll’s definition suggests level of the
activity and not the exact extent of coverage of the stakeholders and their
expectations.
3.
Failure of the public to recognize organizations through CSR
Even if the activities
of the organization benefit the society, the actual benefit is totally
negligible in the eyes of the community. Companies that work in this direction
never get the due credit for it. Moreover, Corporate Social Responsibility
should result in a positive outcome that benefits both society and the
organization as a whole.
4.
Input not equal to the output
The input provided by
the organizations in the business for the community is far less than the output
received. But if they use the same input for earning purposes, the organization
will end up making huge profits for themselves. The public always fails to see
the good deeds of the organization made for the betterment of society. It
always denies them the appropriate appreciation and acknowledgment for their
work.
5.
Measurement of CSR
Internationally,
the most comprehensive methodologies are those that are adopted by Dow Jones
Sustainability Indexes, Ethibel Sustainability Index, KLD and Advanced
Sustainable Performance Indices. Some of the areas that are noticed not to have
uniformity among these indices include the transparency provided by the
assessment agencies, the proposal of specific criteria to specific sectors and
countries, the agreement as regards the weight rate of the criteria, the
suggestion of criteria that refer to the CSR outcome and irresponsibility, the
assessment of the main stakeholders, the capability of criteria selection and
the consensus of the CSR criteria.
6.
Mentality of consumers
Many organizations work
in the best interest of the community and the environment. But the consumers
always think that the business is done for some secret objective which is for
their own good. So the hard work of the organization is never recognized.
Hence, there is no point working day and night for the benefit of society. No
matter what, the organization is criticized by society even if they are
actively involved in socially responsible projects.
7. Ethical Investors
concerns
In the modern times, a need breed of investors who do not like to invest
in unethical Business / Business practices are offer another kind of challenge.
Certain investors do not want to invest in business like liquor/Tobacco etc or
companies that have discrimination in on the basis of Race/cast/creed/Gender or
companies that deal in interest on money accepted as deposits or loan given
(Banks/NBFCs etc). Ethical investments has emerged as a new class of investing
even among Mutual Funds.
8.
Power Play
Which stakeholder group is dominant power in the Society
determines the whether Environmental/Political/similar other groups activists
get upper hand in the budgetary allocations of CSR funds viewed from
Environmental, Social & Governance (ESG) angle. This may put pressure on
the company to deviate from strategic CSR spend and merely remain at simple
charity
9. Tugging CSR activities
into the Corporate Strategy
More
than ever, it has come to fore that the Corporate has to align its CSR
activities to corporate objectives and enable maximum stakeholders participation
in the supply chain, as far as possible.
10.
Legal Requirements
In India companies have to spend regular
board time and application of mind by top management to spend 2% of the average
profits of last 3 years for specified activities and duly report the same. Indian
CSR model is quite different from the popular and dominant western model. In
the western model companies has option to voluntarily engage in the CSR
activities of their choice with the spend decided by the management. On the
other hand, Indian companies are bound by the law to not only spend mandated
amount but also engage in CSR activities listed in Schedule VII of the
companies Act. The CSR policy and decision has also been mandated on the board
of the companies. The companies are also required to present the details of CSR
activities in their annual report.
Conclusion
Just
like the popular concept of Work-Life balance for an employee, it is important for the Corporation to have
a balance between its business objective and the CSR activities it undertakes. Enabling
maximum stakeholder participation in its supply chain is very important for
reasonable perceived power distribution in the society. Therefore, every organization wants to be good in the eyes
of the government, community and sustain its business for long. To achieve
this, it should take up socially responsible projects keeping in mind the regulatory
compliance, CSR benefits and challenges.
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