Corporate Social Responsibility: Not An Option But An Imperative

Published by MBA Skool Team, Published on June 22, 2012

Business occupies an important place in our lives. It is through business, the community satisfies its needs. There is an economic responsibility of a firm towards the community. But, a corporate has its social responsibility as well. Interestingly, the concept of Corporate Social Responsibility (CSR) is as old as the business itself.

But, CSR of today is different from what it was until 1950s. Until recently, it was thought to be mere charity. Large corporate used to spend huge amount on charity annually. Some ‘generous’ businessmen spent heavily on employee welfare. Corporate philanthropy dominated the concept of CSR. But if we analyse, the total practice was highly unsustainable. It was a tool to make any society lame. In fact, this was not CSR. So what actually is a CSR? Well, there is no single definition to capture its essence. To some, doing a business legally is responsible business while to others; it is running a business within ethical boundaries.

Some people argue employee welfare to be a part of responsible business while for others responsibility may go beyond organizational boundaries. Besides employees, there may be responsibility towards business partners, government or even community. In my view the best definition is ‘the obligation of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’ (Bowen, 1953). In short we can understand CSR by 3P concept, i.e. responsibility of business towards people, planet and profit.

Live as per need not as per greed, they say. The larger you gain, the greedier you become. Same seems to be the case with large corporations. Greed of earning more revenue allures them to become irresponsible.  This irresponsible behaviour actually costs them heavily! A peek into the history would unfold various corporate irresponsibility issues. There are issues related with BP, Chevron, Exxon Mobil and Shell. All are top 10 Fortune 500 companies! BP had to pay $20 billion as a compensation for oil spill (The Guardian, 2012). Chevron was ordered to pay $8.64 billion to clean up the contamination caused in Ecuadorian rainforest (San Francisco Chronicle, 2011). The case is still pending in the court.

Exxon Mobil was asked to pay $507.5 million as compensation (ABC News, 2008). Shell kept on exploiting Nigeria for more than half a century. In 2011 it agreed to pay compensation for the damages caused (BBC News, 2011). There was an industrial disaster in Bhopal. The Government of India claimed $3.3 billion from Union Carbide (India Today, 2012). Even after 25 years, the case has not reached any settlement.

There were issues of child labour in the supply chain of Nestle and Nike. Nestle also suffered a huge boycott due to its irresponsible business. These incidents have tarnished the image of the companies. One thing is common in all of them. All these companies neglected their responsibility towards community; the responsibility of doing fair business operations. They became myopic to earn short term revenues and overlooked the long term sustainability. There are many more such examples.

Companies have now learnt a lesson. They have learnt that a business has many spheres of influence. The business operations not only affect the ‘stockholders’ but also the ‘stakeholders’. Today, it would not be apt to say ‘business of a business is to do business’ (Friedman, 1970). Larger the size of corporate larger is its influence. Corporate world has realised the role of responsible business for their long term sustainability. It is due to this reason we now find them advocating sustainable development. We can find them show-casing their community development initiatives through websites and advertisements. The companies are now actively involving the various stakeholders before starting any business operations.

CSR has become a buzz word now. In fact, it has become a tool to offset their social and environmental footprints. Suzlon Energy in India was facing community protest for its wind park projects in different Indian states. The company was proactive and Suzlon Foundation (SF), a non-profit company was formed to do Suzlon’s CSR initiatives. When SF started its work significant mistrust existed among the civil society organizations and among communities in the villages surrounding Suzlon locations. Suzlon’s image was selfish, exploitative and opportunistic. A rift opened between community and corporate generating mistrust, misunderstandings, myths and biases. This inspired rumours, unrest, thefts, and stoppage of turbines, detention of engineers, strikes and overall uncertainty.  This could have resulted in a huge loss to Suzlon. But, the problem was averted through CSR initiatives started in 2008.

Now, the results are telling the different story. After four years of closely working with the community, the company’s image has got improved. A good bonding has been created between the community and the company. Had Suzlon just thought of short term profits, it might have faced very serious problems. There are many other such examples from the corporate world.

CSR is not only about community development. It benefits the corporate as well. It boosts company image and creates trust among the community. The employee morale increases. They can be retained for a longer time. It becomes easy to recruit new employees. This reduces cost of recruitment and retraining.

A good relation with the community helps in doing business easily. Having understood the community, the business can develop new products and services accordingly. The expansion of the business becomes easy. This makes a company more competitive. Efficient utilization of resources not only benefits environment but also helps in reducing cost.  The cost can be reduced either by reducing wastage or by using the waste for some productive work. Interestingly, many companies are fulfilling their fuel needs through gasification of their waste. Thus reducing cost!

It is the duty of a business to produce quality goods and services at proper cost. But, it is not the only responsibility. The business has its social responsibility as well. As the firm operates in the community it would definitely create some impact. A fertilizer company dumping waste into a river or pond may disturb the fisheries thereby harming the livelihoods of local community. It may also dump waste on land thus creating land pollution. A sugar factory may disturb pristine nature by polluting the environment.  An oil spill in sea may kill thousands of marine species. It could also create other unpredictable complex ecological disturbances. 

A business cannot operate in isolation. It is vital for any business to offset its footprints on the community. Deprived of such awareness, a company may face serious consequences. It may even be called to shut down. Undoubtedly, it is apt for any business to earn huge profits. But, it should also seek to secure supply of those profits in the long term. CSR has a potential to do it. Thankfully, the companies are accepting this fact. They have realised the various problems that may arise by neglecting their social responsibility. Interestingly, the studies have shown that the companies which are more socially responsible have recorded more profits. To the corporate world CSR is not an option but it has become an imperative.

This article has been authored by Danish Khan from BimTech.


Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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