CSR: From Philanthropy to Commercial Interest

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By Vikas Varma

Corporate social responsibility (CSR) isn’t new to Indian companies and several business houses have been spearheading community initiatives even before independence. A simple google search will show you that some of India’s finest business houses — the Tatas, the Birlas, ACC, Bajaj — were giving back to the community much before the term CSR found its way into boardroom dictionaries.

In those days philanthropy was the biggest driver of community programmes and perhaps the only other reason companies would initiate welfare schemes was the publicity it fetched for their promoters.

In the past two decades, however, the whole concept of giving back has undergone a sea change, both in terms of the scope of activity and for the different set of reasons that drive CSR. Companies are no longer doing it simply to grab headlines or for the “feel-good” factor and recognize globalisation as a bigger impetus.

Today, social responsibility is more about how companies align their values and move towards a social cause taking the investors, suppliers, regulators, employees and the society as a whole. Simply put, CSR today is basically linked to the broader issue of corporate governance.

There aren’t any standard approaches to social responsibility and the model a company adopts will depend largely on the kind of objectives it seeks to achieve.

A company entering a new market, for instance, will regard CSR as an image-building strategy in its bid to minimize the risk associated with investing in a geography or product line, and to capture a big slice of the market. Often, it will include its CSR in its advertising and align it to its social marketing activities. Some businesses have even been known to collaborate with not-for profit organizations.

Companies whose ads say a part of the sales price of their products will go to charity fall in this category.
At the next level, there are companies that are fairly well established, but for whom long-term sustainability of business is the prime objective. Their chief concerns typically are security of production inputs and stability of the socio-political environment. The second concern is accentuated if the company is operating in a new territory or country.

An example of this brand of CSR is ITC Ltd’s e-choupal initiative, which leverages information technology to empower the farmer, a critical link in the company’s supply chain. In a sense, ITC’s social initiatives in this sphere function both as a philosophy (for its ability to strengthen the hands of the cultivator) and as a strategy (to ensure long-term supply of inputs for its operations).

Another school of corporate thought dwells on all stakeholders of the company — shareholders, employees, customers, vendors, social organizations, regulators and the communities in which it operates — and their right to know. This school believes that an enterprise doesn’t exist merely for engaging in a profitable business, but also assumes the role of a public institution. The CSR thrust of such an entity is a high degree of accountability and transparency. It places special emphasis on social and environmental investment.

The Tata group is one such that falls in this category. The business house is one of the few in the country to draw up a CSR budget every year and functions in areas, such as creating a safe haven for Siberian cranes, contributing to the arts among a host of other things that have little to do with its business activities.

Not for small businesses?
Unlike in the west, where it percolates down to the of the SME, in India, the CSR practice is confined to the larger companies and is still generally equated with philanthropy at the level of the small business. At best, the small guy uses it as a standard mechanism for retaining jobs, trade and investment. This has provided fuel to arguments favouring making CSR standards mandatory. The standards are usually based on internationally agreed norms but often put developing countries, which usually lack technology and environment-friendly infrastructure at a disadvantage. The biggest impediment here is the high cost of appointing external auditors and consultants to monitor community initiatives.
Vikas Verma is the president and CEO of Nirvana Advisory Group Pvt. Ltd, a New Delhi-based consulting organization focused on corporate governance

(http://www.livemint.com/Specials/Et3WoFh0eRizU78QUyLNCL/CSR-From-philanthropy-to-commercial-interest.html)

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