Chakravarti Rishi
Word Count- 1932/PIN-10437
Subtopic 1: Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Chakravarti Rishi
Introduction
According to the World Bank, Corporate Social Responsibility can be defined as the commitment of business to contribute to sustainable economic development working with employees, their families, the local community, and society at large to improve their quality of life, in ways that are both good for business and good for development. CSR is nothing but voluntary strategies undertaken by companies to address issues perceived as being a part of their social responsibility. It is about corporate management strategies adopted by companies to minimize their negative impact on the environment and society through their production activities and giving back to the society what the corporation takes away from it. This concept is closely associated with the concept of sustainable development which is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
The bone of contention:
Many might feel that caring about customers and employees are good for business, but they might have some reservations at believing that a company has any responsibility to its community and environment. They will argue that donating time and capital to philanthropy is a drain from investors. After all, a company’s assets legally do belong to the investors. The management’s duty is to increase shareholder value; therefore any activity which doesn’t maximize shareholder’s value is a violation of this duty. However, I feel that this argument is too narrow even though it may be true.
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A certain amount of corporate philanthropy is good for business and is beneficial in the long term for investors as well.
Now the question arises, where do we draw the line? If donating 10% of the profit to CSR is good, then 20% would be better still! If we keep thinking this way then why not donate 100% of a company’s profits to CSR activities? It is important to strike a balance between the two as the company has responsibilities towards both the society as well as its shareholders. We cannot arbitrarily point out that 10% or 20% is the “right amount” for CSR donation.
Proposition:
I believe that a donation, of the above kind, by the companies for CSR purposes is not sustainable for the community as well as for the company in the long run. There is a symbiotic relationship between the two. I strongly believe that it is always better for the corporation to help the community help themselves to make the whole CSR process sustainable.
In this essay, I wish to highlight my proposition through a simple case study of one of India’s leading companies and thereby present my model on how the issue of sustainability can be addressed to.
How are Companies Responsible?
Economics studies two forms of externalities- positive and negative. An externality is something that influences the society as a whole while it does not monetarily affect the producer of a good.
A positive externality is something that benefits society, but in such a way that the producer cannot fully profit from the gains made. A negative externality, on the other
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hand, is something that costs the producer nothing, but imposes a cost on society in general.
Pollution is a very common negative externality in production processes. A company that pollutes loses no money in doing so, but society must pay heavily to take care of the problem pollution caused.
The problem this creates is that companies do not fully measure the economic costs of their actions. They do not have to subtract these costs from their revenues, which means that profits inaccurately portray the company's actions as positive. This can lead to inefficiency in the allocation of resources.
This allocation problem can be solved by internalizing the net cost inflicted on the society by the company and through responsible behavior of the companies with respect to the society and the environment. This is termed as ‘Corporate Social Responsibility’ in modern day corporate philosophy.
A Case Study: Indian Tobacco Company Limited- ITC’s e-Choupal Initiative -Helping communities help themselves
An Overview:
ITC’s Agriculture-Business Division, one of India’s largest exporters of agricultural commodities, has conceived e-Choupal as an efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis while still contributing to environmental conservation in the process.
The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure, the involvement of numerous intermediaries and limited knowledge on environmental conservation by farmers.
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The Plan of Action:
‘e-Choupal’, with its judicious blend of technology and agricultural practices, has installed village internet kiosks which are managed by farmers themselves. This enables the agricultural community to access information in their local language on the weather, market prices, disseminate knowledge on scientific farm practices and risk management, facilitate the sale of farm inputs and purchase farm produce from the farmers’ doorsteps. It also gives the farmers the know-how on environmental protection and resource conservation.
The input provided by ‘e-Choupal’ enhances the ability of farmers to take decisions and align their farm output with market demand and secure quality and productivity. This gives them access to high quality inputs from established and reputed manufacturers at fair prices.
Figure2: Flow Chart Showing ITC’s e-Choupal Initiative.
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The Impact
While the farmers benefit through enhanced farm productivity and higher farm-gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value. This outreach of technology in rural India has worked miracles for the poor farming community in many rural villages in India.
This has also resulted in several Self-Help-Groups (SHGs) in rural India. With increased prosperity (due to higher farm-gate prices offered by ITC), the farmers form groups of 615 people in villages, where they pool funds from their savings. With this fund as collateral they are able to access formal bank loans which are certain multiples of this collateral. These SHGs are, thus, able to access more funds from the banks and this money is used for other need based productive purposes for community development (building schools and hospitals for themselves), giving rise to social entrepreneurship. This has helped address several social issues which the local populace take care of by themselves. Thus, the ‘e-Choupal’ initiative has a tremendous domino effect towards community development in rural India.
From this we see that ITC has been able to provide better standards of living for the rural farmers (stakeholders) as well as for its shareholders through increased profitabilityhitting two targets in one shot! The ‘e-Choupal’ initiative also has significant bearing on the environment and resource management like water conservation and check on the use of harmful pesticides.
Present Status:
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal' services today reach out to over 4 million farmers growing a range of crops- soyabean, coffee, wheat, rice, pulses, shrimpin over 40,000 villages.
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The Model - A push in the right direction
In order to illustrate an idea of companies helping communities help themselves through execution of CSR practices, I propose the following simplistic 3 tier model:
Tier I:
Lay Down Basic Policy Guidelines: The company has to come out openly defining their strategy towards community development and peg it with the growth of the company. Making profit for this representative company is the means of attaining the goal of fulfilling its core business mission. Besides other missions of this model company, it aims at improving the wellbeing of the community; provide meaningful employment opportunities for the youth in the community. The company cannot fulfill this mission unless it is profitable. Profits are necessary to spur growth for the community. Just as people cannot live without eating, similarly a business cannot live without profits. Rational people don’t eat to live and so neither must a business operate to make profits.
Identify Key Persons: the execution of the policy effectively is crucial for the success of this model of CSR implementation. The company should identify key players in the community who have significant power for effective implementation of the strategy. For example, it could be the SHGs or social entrepreneurs.
Tier II:
Interacting with stakeholders and identifying their priorities: the company along with the key persons should have a dialogue with the local community members, government and all the stake holders in this business. This will give an idea on the approximate social cost which the company will be imposing on the livelihoods of the people.
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Working on a location specific strategy: After the priorities and requirements of the stakeholders are identified, a strategy should be developed in conformation with the needs of the local community and include it in the business practice of the company. For example, adopting pollution abatement technologies, such as removing particulate matter and sulphur from chimneys with ‘precipitators’, ‘treating’ sewage before releasing it in water bodies and so on. This strategy will depend on the specific region the company is targeting to set up their factory/business.
Training of Employees: The skill generation is necessary for the efficiency of the workforce. Efficiency raises the productivity of the workers.
Tier III:
Laying Down the Measurement Parameters: After interacting with the stakeholders and the employees, the management team should consult the government and decide on the emission parameters of their factories. These standards will reflect the maximum cap on the pollution emission which is absolutely unavoidable.
Evaluation: After a certain period of company operations in the locality, they must let themselves be evaluated on several counts by the community on the benefits which the company promised. In India, research has shown that companies which allow themselves to be evaluated in this manner, which have wide ranging communication with the stakeholders, win the understanding and approval of the market and help change the market’s values. This form of evaluation bridges the gap between the community and the corporation.
Rewards for Achievers: Any long-term solution requires the understanding of the problems at all levels. While things may are relatively easier at the level of the MNCs which are following a consistent code of conduct, the situation gets difficult for those operating at lower levels and facing the pressure from clients whose objectives are not to become good corporate citizens but just to get a lower price. This calls for the
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establishment of strong rewarding incentives, so that corporations become enticed to provide information on their environmental and social performance. Rewards are essential to make this corporation and the community development sustainable in the long run. The model is summarized below:
LAYDOWN BASIC POLICY GUIDELINES IDENTIFY KEY PERSONS
INTERACT WITH STAKEHOLDERS
LAY DOWN STRATEGY
TRAIN EMPLOYEES
LAY DOWN MEASUREMENT PARAMETERS EVALUATION REWARDS FOR ACHIEVERS
Figure3: The Model structure
Conclusion
“By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it.� -Adam Smith, The Wealth of Nations
CSR lies at the heart of a company's comprehensive activities aimed at maintaining harmony between the corporation, society, and the environment with an eye on sustainable development. Like any other practices- medicine, law- business too, has noble purposes: to provide goods and services that improve its customers' lives, to provide jobs and meaningful work for employees, to create wealth and prosperity for its investors, and to be a responsible and caring citizen benefiting the society.
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I believe that corporations add far more to society by maximizing their business goals than they do by merely donating time and money to charity. It is important that the society benefits and grows along with the company to make the CSR sustainable in the long run.
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References
Books and Articles referred to: •
Asongu, J.J. (Spring 2007), The History of Corporate Social Responsibility, Volume 1, Number 2
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Assisi, C. and I. Gupta (January, 2003): “ITC’s Rural Symphony”, Business World, 14-20, 30-37
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Basu, Priya: Improving Access to Finance for India’s Rural Poor, 62,63
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Milton Friedman (1970), The New York Times Magazine, September 13
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Sawhney, M. (2002): “Fields of Online Dreams”, The CIO Magazine, October 15
Websites referred to: •
http://www.i4donline.net/oct05/dgaward.pdf
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http://www.worldbank.org/
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