More than profits

These books do not convincingly explain how a companys social responsibilities can be made to merge with its financial performance.

TRADITIONALLY, the need to address questions of poverty, unemployment, low living standards and social justice was considered to be the domain of governments. With the growing emphasis on the idea and practice of corporate social responsibility (CSR), the pendulum seems to be swinging to the other side to the extent of placing a lot of hope on local businesses and multinational corporations for solving development problems. Given their geographical coverage, economic stren gth and political influence within and across nations, it is pointed out that much more progress can be made if only companies take seriously their obligations towards society in which they operate and make profit.

Michael Hopkins Corporate Social Responsibility and International Development is a representative example of this thick CSR view. The book does warn about the risks of placing too much faith in the corporate world but ultimately promotes the view that the corporate world holds the key to future development. One line of justification advanced for this view is the limitations of governments and their international agencies such as the United Nations to tackle poverty and under-development. Hopkins points out that even though governments and their development agencies have been busy with development for a long time, they have not been able to make any significant headway because of bureaucracy, inefficiency, corruption and lack of motivation. Even if they were to put their houses in order, the money and resources at their disposal are little when compared with some of the multinational corporations. It is assumed therefore that corporates can step in and fill up this gap. The other line of reasoning is that companies are already involved in development for philanthropic motives or because there is a short-term or long-term business case for doing so. When such consciousness is strengthened and groomed into a wider movement, development prospects would turn out to be much brighter.

In Its Only Business! Meera Mitra does not advocate a thick view of corporate responsibility. She describes and analyses some of the best CSR practices among Indian corporates. She notes how companies such as the Tata Sons group and business associations such as the Confederation of Indian Industries (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI) have been in the forefront of many CSR initiatives in the areas of labour relations, social welfare and environment protection. Moreover, in order to meet the growing demand for skilled and talented workforce in Information Technology (IT) and Information Technology Enabled Services (ITES), companies such as Wipro, Infosys, NIIT and Satyam Computer Services Ltd. have started several CSR engagements to widen the educational base in the country. There have also been some new ventures in creating wider market opportunities for small and medium enterprises. Nevertheless, unlike Hopkins, Mitra does not envisage these initiatives evolving into corporatism, particularly because of the visible presence of non-governmental organisations (NGOs) and other civil society groups in this area. Indian and international NGOs with the support of the media increasingly play a corrective role in holding companies accountable for social and environmental consequences and a collaborative role in bringing about a positive change in corporate behaviour. Also, the government cannot remain a silent spectator to the emerging issues. In some cases the government should play a regulatory role to control corporate misbehaviour and enforce ethical compliance. In other instances, it should be willing to support new initiatives and broach partnership with business enterprises to confront development challenges.

While Hopkins thick and Mitras thin accounts of responsibility offer valuable insights on the recent trends in CSR, they do not tell us convincingly how a companys social responsibility with regard to development and the economy in general can actually be made to converge with its financial performance, at least in the long run. Moreover, these accounts could have engaged the reader more substantially on how corporate success and social welfare are not entirely two different things, and that there are important linkages between the two that cannot be easily ignored. For example, recent empirical studies in India and elsewhere in the world show that firms with good ethical reputations not only attract and retain better and talented employees, but investors, suppliers and customers tend to be loyal to companies with better reputation for integrity and fairness.

Also, it is wrong for business leaders and managers to pit a companys shareholders interests against the interests of other stakeholders such as employees, customers and community, and think of successful management as making skilful trade-offs between the two. Just as a rising tide lifts all boats, it is becoming evident that the interests of all of a firms major stakeholders usually rise and fall together. It is rarely the case that you can keep your shareholders in good cheer while others are dissatisfied. A good manager is one who thinks of her fiduciary responsibility not just in terms of maximising profits for shareholders only, but is one who can take care of the interests of various stakeholders, including the development of the community and environment. The degree and nature of the obligation towards various stakeholders would, of course, be different, but the best practices in the field indicate that willingness to view responsibility in a broader perspective will actually pay in the long run. This implies that sometimes managers must be prepared to turn down profitable offers and lose money in the short run when such offers fail to pass ethical tests.

In a developing economy such as India, many companies have taken the philanthropic route to CSR by making donations, supporting NGOs and charities and providing incentives to their employees to engage in such activities. Some have gone to the extent of institutionalising their philanthropy by establishing autonomous foundations and trusts even in areas that are not related to their core business activities. Such efforts have done some amount of good to the intended beneficiaries, but in the meanwhile they have also helped to boost the companys image.

These standard ways are now proving to be insufficient. As investors, customers and citizens in general are becoming more sensitive to moral concerns, and companies in turn are keen to make use of this as competitive advantage over their competitors, a more demanding way of looking at CSR is emerging. It is not any more enough to do the routine things. A firms social responsibility needs to go beyond philanthropy so as to integrate societal goals into the very fabric of corporate strategy. Instead of viewing the demands of CSR as costs and constraints to the companys objectives, they should be looked at as opportunities for innovation and growth.