Social responsibility of business

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 s ocial r esponsibility 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 Respect workers and protect their welfare Offer jobs to SCs, STs and OBCs Resist excessive remuneration of promoters and senior executives Avoid conspicuous consumption Invest in employees and improve their skills End cartels that keep high prices Promote research and development Adopt eco-friendly technologies Fight corruption at all levels 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.