Social Responsibility of Business

1. Social Responsibility
of Business
BY
VANDNA BHANDARI

2. Definition
 Social responsibility in business or corporate social responsibility (CSR) pertains to
people and organizations behaving and conducting business ethically and with
sensitivity towards social, cultural, economic, and environmental issues.
 Striving for social responsibility helps individuals, organizations, and governments
have a positive impact on development, business, and society.
 The standard for social responsibility published by the International Organization
for Standardization (ISO) is ISO 26000

3. Social Responsibility of Business
 Social Responsibilty is to pursue those policies and decisions or to follow
those lines of actions which are desirable in terms of its objectives and
values of our society.
 It implies recognition and understanding of the aspirations of society and
determination to contribute towards their achievement.
 Social Responsibility of business implies achieving business objectives in
an environment of fairness, honesty and courtesy towards our clients,
employees, vendors and society at large.

4. Need for Social Responsibility of
Business
 Good Public Image: Better Public Image attracts customers
 Avoidance of Government Interference: When businessmen voluntarily discharge
social obligations, government interference is avoided. For instance, if business
takes care of water pollution, air pollution voluntarily, then govt. will not interfere in
the activities of such business on the ground of environment pollution.
On the other hand, if business is spreading pollution, government will take action to
close the business or to change its location. Such intervention will badly damage the
image of such business in the society.

5. Need for Social Responsibility of
Business
 Moral Justification: Every business uses resources of the society and also sells
the goods and services in the society. It also makes use of the common facilities
provided by he society like roads ,railways ,power supply, water supply, law and
order etc. So, it is the responsibility of the business to contribute to the well
being of the society.
 To avoid class conflicts: If business fulfils its social responsibility towards its
employees like providing them good working conditions, housing, retirement
benefits, etc. then it will improve the morale of the employees and they will not
go for strikes. It will improve the productivity of the employees which in turn will
benefit the organisation in terms of increased production, increased profits.

6. Need for Social Responsibility of
Business
 Consumer’s Consciousness: Now a days, consumers have become more
conscious of their rights. Consumers form their registered associations. If any
manufacturer cheats consumers by supplying inferior goods, then consumer
associations take action against such business units. So to avoid conflicts with
customers, business units assume social responsibility and produce good quality
products.
 Business is a part of society:
 Long-term interest of Business:

7. Why is it Essential?
 CSR is generally understood as being the way through which a company
achieves a balance of economic, environmental and social
imperatives while at the same time addressing the expectations of
shareholders and stakeholders.

8. Evolving Role of Social Responsibility
A firm must now focus its attention on both increasing its bottom line and
being a good corporate citizen.
Keeping abreast of global trends and remaining committed to financial
obligations to deliver both private and public benefits have forced
organizations to reshape their frameworks, rules, and business models.

9. An Effective CSR Model
 To completely meet their social responsibility vision, enterprises “should
have in place a process to integrate social, environmental, ethical human
rights and consumer concerns into their business operations and core
strategy in close collaboration with their stakeholders”

10. Some Limitations of CSR
 Increase in Prices: Meeting Social Responsibility involves huge cost as donations to
educational institutions, donations to charitable institutions etc. which is passed on
to the society in the form of increasing prices.
 Lack of skill to solve social problems: Solving social problems requires specialised
knowledge. A person may be very good in managing business problems, but he
may not be good at solving social problems.
 Meeting social responsibility deviates from main objectives: The money spent on
meeting social responsibility can be invested in business to earn more profit.
Moreover, business is an economic institution and not a social welfare organisation.

11. Some Limitations of CSR
 Shortage of Time: The business mangers have no time for solving social
problems.
 Regular Burden: Once a business starts meeting social responsibility then
it becomes a regular burden on the business unit. The society expects the
business unit to continue meeting its social responsibility forever in future.
Even if in some years, business unit faces financial difficulties, it cannot
afford to discontinue meeting social responsibilities, as it will have
negative effect on its image.
 Opposition by other firms in the same Industry:

12. Social Responsibility of Business towards
different interest groups
Responsibility towards Owners
 If ownership and management are in different hands, then managers (directors) have the
following responsibility towards owners i.e. shareholders.
 To ensure safety of capital
 To ensure fair and reasonable return on their capital
 Timely payment of dividend
 Regular and accurate information about the working of company
 To treat shareholders of the same class equally
 To ensure proper utilisation of invested capital

13. Responsibility towards Employees
 Giving appropriate remuneration
 Providing clean work atmosphere and good working conditions
 Respecting individual dignity
 Providing medical facilities, housing, canteen, leave and retirement benefits etc.
 Adopting incentive system of wage payment
 Giving them a share of profits as bonus
 Giving security of service(job security)
 Promoting worker’s participation in management
 Solving labour problems in time
 Providing training to employees
 Providing opportunity for promotion and development

14. Responsibility towards Consumers
 To make available good quality products at cheap rates
 To avoid misleading advertisements and bring out reality in advertise ment
 To avoid adulteration
 To provide after-sale service and to handle customers complaints quickly and
carefully
 To make goods according to the liking and tastes of consumers
 To make goods available to the customers at the nearest point
 To ensure regular supply of goods and services
 To avoid unfair trade practices like not to indulge in lowering competition by
making cartels
 To discourage monopolistic tendencies

15. Responsibility towards Government
 To ensure the progress of a country, government makes certain laws and
decides tax structures. A manager should help the government in the
development of the country by observing these laws and thus fulfilling the
responsibilities
 To pay the tax honestly and not to indulge in tax evasion
 To perform business in lawful manner and observe rules laid down by
government
 Not to exploit government machinery by unfair means i.e. not to bribe the
government employees

16. Responsibility towards Community
Business is an integral part of society and the people of society have the following
expectations from it:
 To make available opportunities for employment
 To avoid polluting the environment and work for the improvement of the local
environment
 To contribute to the raising of standard of living
 To be a partner in social development by establishing charitable institutions,
dispensaries, educational institutions etc.
 Not to resort to indecent advertisements
 To provide high quality products to the society
 To preserve and promote social and cultural values
 To take safety measures against possible health hazards and untoward incidence
 To help in the development of economically backward regions

17. Responsibility towards Suppliers
 Business enterprise should develop and maintain healthy relations with
suppliers
 Dealing with the suppliers should be based on fair terms and conditions,
payment to suppliers should be made well in time. It will ensure regular
and timely supply of raw materials and other items
 Informing them about future development plans

18. Ten-Point Charter of Social
Responsibility
1. Respect workers and protect their welfare
2. Offer jobs to SCs, STs and OBCs
3. Resist excessive remuneration of promoters and senior executives
4. Avoid conspicuous consumption
5. Invest in employees and improve their skills
6. End cartels that keep high prices
7. Promote research and development
8. Adopt eco-friendly technologies
9. Fight corruption at all levels
10. Promote socially responsible media and undertake social projects

19. EVOLUTION OF CSR IN INDIA

20. THE COMPANIES ACT, 2013
 THE COMPANIES ACT, 2013
 As per as Corporate Social Responsibility is concerned, the Companies Act, 2013 is a
landmark legislation that made India the first country to mandate and quantify CSR
expenditure. The inclusion of CSR is an attempt by the government to engage the businesses
with the national development agenda. The details of on corporate social responsibility is
mentioned in the Section 135 of the Companies Act, 2013. The Act came into force from April
1, 2014, every company, private limited or public limited, which either has a net worth of Rs
500 crore or a turnover of Rs 1,000 crore or net profit of Rs 5 crore, needs to spend at least
2% of its average net profit for the immediately preceding three financial years on Corporate
social responsibility activities. The CSR activities in India should not be undertaken in the
normal course of business and must be with respect to any of the activities mentioned in
Schedule VII of the act.
 The corporations are required to setup a CSR committee which designs a CSR policy which is
approved by the board and encompasses the CSR activities the corporations is willing to
undertake. The act also has penal provisions for corporations and individuals for failure to
abide by the norms. The details of the same are highlighted in the act.

21. SECTION 135
 (1) Every company having net worth of rupees five hundred crore or more, or
turnover of rupees one thousand crore or more or a net profit of rupees five crore
or more during any financial year shall constitute a Corporate Social Responsibility
Committee of the Board consisting of three or more directors, out of which at least
one director shall be an independent director.
 (2) The Board’s report under sub-section (3) of section 134 shall disclose the
composition of the Corporate Social Responsibility Committee.
 (3) The Corporate Social Responsibility Committee shall,—
 (a) formulate and recommend to the Board, a Corporate Social Responsibility
Policy which shall indicate the activities to be undertaken by the company as
specified in Schedule VII;
 (b) recommend the amount of expenditure to be incurred on the activities referred
to in clause (a); and

22. SECTION 135
 c) monitor the Corporate Social Responsibility(CSR) Policy of the company from time to time.
 (4) The Board of every company referred to in sub-section (1) shall,—
 (a) after taking into account the recommendations made by the Corporate Social
Responsibility Committee, approve the Corporate Social Responsibility(CSR) Policy for the
company and disclose contents of such Policy in its report and also place it on the company’s
website, if any, in such manner as may be prescribed; and
 (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the
company are undertaken by the company.
 (5) The Board of every company referred to in sub-section (1), shall ensure that the company
spends, in every financial year, at least two per cent. of the average net profits of the company
made during the three immediately preceding financial years, in pursuance of its Corporate
Social Responsibility Policy:
 Provided that the company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for csr activities:
 Provided further that if the company fails to spend such amount, the Board shall, in its report
made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending
the amount.

23. SCHEDULE VII
 In exercise of the powers conferred by sub-section (l) of section 467 of the Companies Act,
20l3 (18 of 2013), the Central Government hereby makes the following amendments to
Schedule Vll of the said Act, namely :-
 (l) In Schedule VIl, for items (i) to (x) and the entries relating thereto, the following items and
entries shall be substituted, namely :-
 “(i) eradicating hunger, poverty and malnutrition, promoting preventive health care and
sanitation including contribution to the Swach Bharat Kosh set-up by the Central
Government for the promotion of sanitation and making available safe drinking water;
 (ii) promoting education, including special education and employment enhancing vocation
skills especially among children, women, elderly, and the differently abled and livelihood
enhancement projects;
 (iii) promoting gender equality, empowering women, setting up homes and hostels for
women and orphans; setting up old age homes, day care centres and such other facilities for
senior citizens and measures for reducing inequalities faced by socially and economically
backward groups;
 (iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna,
animal welfare, agroforestry, conservation of natural resources and maintaining quality of
soil, air and water including contribution to the Clean Ganga Fund set-up by the Central
Government for the promotion of sanitation;

24. SCHEDULE VII
 protection of national heritage, alt and culture including restoration of buildings and
sites of historical importance and works of art; setting up public libraries; promotion
and development of traditional arts and handicrafts;
 (vi) measures for the benefit of armed forces veterans, war widows and their
dependents;
 (vii) training to promote rural sports, nationally recognised sports, paralympic sports
and Olympic sports;
 (viii) contribution to the Prime Minister’s National Relief Fund or any other fund set up
by the Central Government for socio-economic development and relief and welfare
of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and
women;
 (ix) contributions or funds provided to technology incubators located within academic
institutions which are approved by the Central Government;
 (x) rural development projects;
 (xi) slum area development.

25. CURRENT TRENDS
 The Indian companies in the last two years have invested majorly in
education & skill development, healthcare & sanitation, rural
development projects and environment after being mandated to allocate
a portion of their profits towards community development.
 In a written reply to Rajya Sabha, Corporate Affairs Minister Arun Jaitley
on 1st March 2016 said a total of 460 listed firms have so far disclosed
spending Rs 6,337.36 crore in 2014-15. This included 51 PSUs that spent
Rs 2,386.60 crore. Of the 460 companies, 266 firms spent less than 2 per
cent of the average profit.