[Published in Chartered Secretary, Journal of Institute of Company Secretaries of India, Jan 2012]
Corporate Social Responsibility, CSR can no longer remain in the fringes of corporate life, as a decorative show-piece or public relations exercise or a feel- good factor. CSR has to become an integral part of corporate strategy and an effective instrument for a creative integration of the corporation with the community and the surrounding environment. The corporate world has to understand the mutual interdependence between the Corporation and the Community and has to integrate itself with the society in which it functions in a mutually beneficial relationship. However this relationship should not be merely practical with a predominant focus on the long-term or “enlightened self-interest” of the organisation in the bottom-line but also developmental. A business organisation has the resources and expertise to provide a helping hand to the human development process in the community. This article examines the relationship between business and society and the corporation and the community in a strategic, developmental perspective.
Corporation and the Community
A business organization is not merely an economic entity; it is also a social organism, a human community. So one of the higher aims of a business organization is to integrate or harmonise its communal life with the communal life of the surrounding environment. This must be the next step in the evolution of the Corporate Social Responsibility (CSR) movement; it has to progress beyond some adhoc or isolated charitable projects to embrace the surrounding community as a whole. In other words, there must be an integration of CSR with the totality of the community development process. There is a natural process of human development in a community which can be accelerated by appropriate, creative intervention. Business has the competence to provide some of the most efficient and effective interventions acting as a catalyst for community development.
There is a concentration of resources, knowledge, competence and skill in a business organization, which it can share with the community of which it is a part. Among business leaders, J.R.D. Tata had a clear perception of this responsibility and also the potentiality of business for community development. He said “Every company has a special continuing responsibility towards the people of the area in which it is located. The company should spare its engineers, doctors, managers to advise the people, of the villages and supervise new developments undertaken by cooperative effort between them and the company.” (1) We must note here that JRD’s conception of corporate responsibility goes far beyond charity or sharing of wealth towards sharing of capabilities. Thus, social responsibility should not remain on the fringe of the organization, as a decorative showpiece or a public relation exercise; it must become an integral part of the strategic objectives of the organization and a continual effort towards improving the quality of life of the surrounding environment. As the redoubtable doyen of management, Peter Drucker, points out:
“Because our society is rapidly becoming a society of organization, all institutions including business, will have to hold themselves accountable for the quality of life of the society and will have to make fulfillment of basic social values, beliefs and purposes a major objective of their continuing normal activities rather than a social responsibility that restrains or that lie outside of their main function.” (2)
But how to achieve this integration? Let us begin our exploration with some of the latest and most thoughtful perspectives on the subject.
Creating Shared Value: Strategic CSR
The first step towards this integration is a clear perception and recognition of the interdependence of business and society. Here comes the importance of the concept of shared value and strategic CSR presented by Michael Porter and Mark Kramer. In two perceptive articles in Harvard Business Review, Porter and Kramer make the following points which provide a pragmatic framework for forging a strategic link between corporation and the community.
- At the very basic level, the competitiveness of a company and the health of the communities around it are closely intervened. A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment. A community needs successful business to provide jobs and wealth creation opportunities for its citizens.
- This mutual dependence of corporations and society implies that both business decisions and social policies must follow the principle of shared value which means, choices must benefit both sides. If either a business or society that pursues policies that benefits its interest at the expense of the other, it will find itself on a dangerous path. A temporary gain to one will undermine the long-term prosperity of the other.
- To implement these broad principles the corporation has to practice strategic CSR which means identify social opportunities which while benefitting society also enhances the long-term competitiveness and effectiveness of the organizations.
- Each company can identify the particular set of societal problem that it is best equipped to help resolve and from which it can gain the greatest competitive benefit. When well-run business applies its vast resources, expertises and management talent to problems that it understands and in which it has a stake it can have a greater impact than any charity or philanthropy. (3)
Microsoft’s Working Connections Partnership with the American Association of Community Colleges is a good example of shared value/strategic CSR concept. The shortage of information technology workers is a major problem facing Microsoft. Community colleges, with an enrolment of 11.6% representing 45% all U.S undergraduates provides a potential and lasting source of manpower for Microsoft. But community colleges are not sufficiently well-equipped interms of equipment, manpower or curriculum to provide quality IT workers for Microsoft. The $ 50 million dollar five year initiative of Microsoft aims at upgrading the quality of IT education at community colleges. Microsoft sends employee volunteers to colleges to assess needs, contribute to curriculum development and create faculty development institute. (4)
This vision of shared value and strategic CSR provides a very practical and down-to-earth approach for choosing and implementing CSR projects. However, the concept of strategic CSR can perhaps be viewed as part of a broader developmental vision.
The Developmental Perspective
A promising feature of the shared-value perspective, which we have discussed earlier, is that it views CSR not merely as a charitable activity oriented towards poverty-alleviation but as a positive contribution to the creation of a healthy, progressive and successful society. So shared-value approach to CSR is more positively developmental than that of the charitable perspective focused on eliminating poverty. This developmental approach is gaining increasing recognition in the emerging trends in CSR. For example, a book on CSR published by Tata group, containing cases studies on CSR initiatives of many companies, states in an editorial note:
“In recent times social responsibility of business towards people is under sharp focus. An increasing number of companies all over the world gear upto meet this increasing expectation, there is a realization that corporate social responsibility is not just about addressing images of despair. Corporate Social Responsibility is more about a whole developmental process of planned change, aimed at lasting improvement in the quality of life at large.” (5)
However we must note here that developmental perspective does not ignore or underestimate the enormous importance of poverty and inequality which are some of the major millennial problems of humanity. And Business as a creator of wealth for the society has a vital responsibility for the equitable distribution of wealth in the society. So elimination of poverty has to be a major agenda of CSR. However, this problem of poverty can perhaps be tackled more effectively in the long-term if it is viewed not as an isolated problem but as part of a larger developmental process. But, most of the modern thought on development is predominantly external, oriented towards the economic and social development of the outer life. But a more integral approach to development has to include the inner as well outer development of the individual and collectivity. Inner development means the mental, moral, aesthetic and spiritual development of the individual and communal consciousness.
Here come some of the limitations of the strategic CSR concept of Kramer and Porter which we have discussed earlier. Strategic CSR is based on mutual self-interest but moral and spiritual growth of an individual or collectivity requires transcendence of self-interest and giving without expecting anything in return. Kramer and Porter tend to dismiss the moral attitude to CSR as something ineffective. But according to the deeper perspective of Indian thought, a moral act or contribution to the larger life of society or humanity brings two results. First it leads to the moral and spiritual growth of the organisation. Secondly it releases a moral and spiritual force which has its ultimate material results. The first factor cannot be proved empirically. But some of the latest research in management is supportive of the second Patricia Aburdene, in her book on “Conscious Capitalism” cites many research studies to show that there is a correlation between “Money and Morals” and companies which are more ethically and socially responsible are also more financially viable. (6) The strategic CSR based on mutual self-interest has a compelling validity for small firms with limited resources and operating in an environment of fierce competition. But for bigger companies which can deploy sufficient resources and expertise without much adverse impact on its competitiveness or bottom line, the CSR strategy can be based on maximum contribution to the well-being and progress of the community rather than on mutual self-interest. This brings us to the question how to implement this developmental approach to CSR?
This requires an integration of the corporate strategy with the development needs and aims of the community. The first step in this task is to have a clear understanding of the different stages of community development in an integral perspective.
Human Development Process in a Community
A total human development process, which leads to this integral development of the human potential in a community, is made of three stages. These stages can be pursued simultaneously, but with a predominant emphasis on some aspects or dimensions of development at each stage.
The first stage involves fulfillment of the basic needs of the population; creation of employment opportunities and development of employable, productive and entrepreneurial skills in people; satisfaction of the desire for a better enjoyment of life and also better utilization of the opportunities of life; and finally creation of all other factors which lead to an overall material and economic wellbeing of the community like for example health, hygiene, nutrition and ecology. Second stage is the realization of the social, cultural and political well-being, which involves the actualization of the triple values of French revolution, liberty, equality and fraternity in the outer life and preservation of all that is valuable in the local culture. Liberty means not merely individual rights but a free participation of the people in their own development, especially in decision making, with maximum freedom to grow from within through a self-directed development and minimum of external rules or compulsion. Equality means equitable distribution of or access to wealth, power, knowledge, resources, opportunities and an equal, full and joyous participation of each individual in the communal life. Fraternity means social cohesion, solidarity, harmony and comradeship. The third stage is the mental, moral, aesthetic and spiritual development of the community.
In a more psychological perspective, the first stage is the fulfillment of the needs of the physical being or the body. Second stage is the satisfactions of the needs of the vital, emotional and sensational being for wealth, power, enjoyment, status, recognition, harmonious relationship, achievement, expansion, autonomy and mastery. Third stage is the quest of our higher mental, moral and spiritual nature for knowledge, understanding, values, ideals and reconnects our souls with the spiritual source of our own being and the universe, which is the highest aim of religion.
To implement this vision of development requires an integral approach with a balanced emphasis on the inner development of people as well as the outer development of the economic, social, political and ecological environment. An example of such an integral approach to development put into practice is the SARVAM project of Sri Aurobindo Society, Puducherry, India. The case-study of SARVAM is included in the second part of this book.
Corporate Interventions for Community Development
What is the role of business in this vision of community development? The task of business is two fold: First is to provide products and services which correspond to the progressive and evolving human needs, and in the process earn profit for itself, create wealth for the society and help the community to grow. The intrinsic function or dharma of business is to fulfill the material and economic needs of the community and strive for a constant and continuous improvement in the quality and wellbeing of the material and economic life of the group. However, as the community evolves and progresses beyond the initial stages of economic development to the higher stages of social, cultural and psychological development, business has to adopt itself to this growth and has to provide products and services which correspond to the needs of these higher stages of growth.
The second task of business is to provide the financial support, technical expertise and managerial competence for executing and implementing the vision. In this task, as we have indicated earlier, business is much better equipped than other organs of the society and therefore can make a crucial contribution for accelerating the development process. Here again, the nature of intervention may differ at each stage of growth. In the first stage when the need and nature of growth are predominantly material and economic, the developmental needs of the community more or less correspond to the core competence of a business organisation.
However, as the community grows beyond this first stage to higher stages, the developmental needs of the community may not exactly correspond to the core competence of a commercial organisation. But this need not be a big obstacle because one of the core competencies of a business organisation is the ability to organise, which includes the ability to hire, bring in and organise the expertise which it doesn’t have to achieve the desired objective. For example, environmental engineering or management is not a part of the core-competence of McDonald, but the company hires or cooperates with NGO’s which have the environmental expertise to achieve its sustainability objectives.
However, the best way for an organisation to provide effective intervention for the higher evolution of a community is to make a conscious effort to achieve this evolution within itself and transfer the experience, learning and expertise gained to the community. Most of the business organizations pursue growth in the techno-economic level. But as we have indicated earlier, a business organisation is not only an economic organism but also a social, political and cultural organism made of its relationship, power-structures and value-systems. Similarly, an organisations is made of its people who are psychological and spiritual being with immense potentialities of growth in this inner realms of consciousness. When an organisation has achieved a certain level growth and mastery in the techno-economic and commercial levels, it has to shift its growth more and more towards these higher realms of life, which means focusing on the following tasks:
- Building a harmonious and empowered community governed by the values of liberty, equality and fraternity.
- Helping people to grow inwardly in the mental, moral, aesthetic and spiritual realms and express this inner growth in the outer life.
- Creating an organizational environment and culture which encourages and fosters these higher growths.
An organization which pursues this higher growth can impart this growth to the community around it by transferring its learning to the community.
This brings us to the next question: how to choose the right social interventions? For a smaller company, the first step is to have a clear assessment of the expertise and resources it can spare for developmental work without any adverse impact on its competitiveness and bottom line. Second task is to identify a developmental need which matches this expertise and resources. It is all the more better if these needs are entirely “strategic” which means it is also a market or customer need and brings greater profit to the company. If we are embarking on a new venture or a new project in our company, we can try to build a profitable business model around the fulfillment of a developmental need. Here is an example from the small scale sector. Sandra Berg is a US entrepreneur who runs two small family-owned businesses. First is a manufacturing concern making paints and solvents. The other is a service related business for recycling hazardous paints and solvent waste. As Sandra Berg explains how she was able to make the strategic link between a developmental need with a profitable market opportunity:
“Now mind you, we did not base our business decisions on concepts of externalities or sustainability. Over the last 30 years we’ve simply recognized a market need — that our customers have environmental challenges to solve — and concluded that we could help them do that. For example, in 1979 (well in advance of hazardous waste laws) we developed a system to recycle our customers’ paint-related waste. In the mid 1980s, we developed low-polluting products to keep our paint customers compliant with air quality rules and regulations. All along, we’ve been careful to respect our local community. In the early 1990s, for example, we needed an EPA permit to continue our recycling business. In applying for it, we chose to involve — rather than alienate — our activist East Los Angeles community and created an open dialog to discuss, understand, and resolve community concerns. This has been a mindset started by my father and passed on to me: we have a responsibility to our customers, employees, and local community. If we pay attention to these responsibilities, profits will follow.” (7)
For such smaller companies, industry associations can play an effective role in helping firms to implement their CSR projects. Smaller companies can do better CSR work if they can cluster together and pool their resources and expertise through industry association. These associations in the small and medium sector can act as coordinators, consultants, felicitators of CSR for their members. For example, they can conduct or sponsor research for identifying the developmental needs of community. They can help each company to identify a developmental project which corresponds to or match its available resources or expertise. There are many such possibilities for cooperative action which can be explored.
Bigger companies with much more resources and expertise can make a more systematic and planned effort on a larger scale with a greater emphasis on the wellbeing and progress of the community than corporate self-interest. A great example which can be a role model for other corporates is the Hosur project of Titan Watches, a company of the Tata group in India.
Here is a brief description of this admirable project on CSR, from the book by Morgan Wetzel. The watchmaker Titan, a joint venture between the Tata group and the Government of Tamil Nadu, opened its first factory in the small and rather remote south Indian city of Hosur in 1987. The area around Hosur was very poor, with some families barely above subsistence level, and agriculture was almost the only industry. As there was no skilled labour available locally, the company at first intended to hire professional engineers from the city of Bangalore to staff the factory.
But then managing director of Tita Xerxes Desai changed his mind. ‘This area and its people are our responsibility,’ he declared. He saw that despite the poverty, the local education system was sound and was producing plenty of well-educated boys and girls who would have little or no chance to make good on their education. ‘We are going to recruit sixteen-year-olds from the villages around Hosur,’ Desai declared, ‘and we are going to train them to be world-class horologists.’
After a heated discussion in the boardroom, Desai got his way. Four hundred young people, the best of recent graduates from nearby village schools, were recruited and brought to Hosur. Most had never seen a city before, or lived in anything but a simple hut. Many had no money. Titan built accommodation for the young people and provided ‘foster parents’ who lived with them and taught them the life skills necessary for living in a city. Meanwhile at the factory, trainers and engineers brought in from Bangalore and elsewhere taught the young workers how to use precision machinery. Once the factory was up and running, Titan also provided sports and cultural activities, and the facilities to help its workers study for degrees and even take postgraduate courses after work hours.
The wages paid to its workers and the educations they have received have transformed not just their own lives, but the lives of their families too. Remittances sent home to their families have enabled others to escape the poverty trap. Workers spoke of siblings who were able to go to university, the first in their families to do so, thanks to these remittances. Others left Titan and used their training to set up businesses, creating further employment. Titan measures its impact in terms of the number of ‘lives transformed’. ..
The results? Titan is now a highly successful enterprise employing thousands of people in Tamil Nadu-it has three factories in Hosur alone¾with nearly all the workers coming from the surrounding villages-and provides employment indirectly to thousands more in firms making watch straps, casings and other components. In 2001, Titan was voted India’s most admired brand. (8)
Another example which is less grand in scale but worth emulating is the CSR initiatives of Gujarat Ambuja Cements Ltd, cement manufacturers with many plants all over India. The company has a General Manager in charge of community development and set up an NGO, Ambuja Cement Foundation (ACF) with its own board of directors for planning, funding and implementation of its development projects. Since many of Ambuja’s plants are in rural areas of India, in every state where the company has a presence, a team of experts is set up inorder to identify the needs of the local people. The projects and priorities are identified according to the unique needs of each state or community. For example, while water conservation was of prime importance in Gujarat, laying roads were the priority in Himachal Pradesh. The company sets aside an account each year for the foundation and projects are undertaken in partnership with other agencies or the government. For example in the case of National Water development Project, a government project at Amreli, ACF has been designated as the project implementing agency by the Government of India. (9)
And finally, what are the possibilities for a company which wants to contribute to the higher stages of evolution of the community beyond the economic aims? We have already indicated briefly some of the possibilities. The best approach is to make a conscious effort to achieve this higher evolution within its own people and transfer the learning to the community. In this task, the company can take the help of other organisations¾spiritual, cultural, social or educational¾which have some expertise in steering this higher evolution in the individual or the collectivity. The company can also network with such organizations all over the world, which are experimenting with this higher evolution and share experiences and best practices with them. The other possibility is to provide financial support to educational or community building experiments or projects which aim at this inner or higher evolution in the individual or community, like for example SARVAM project, which we have discussed earlier, is funded mainly by Cadburys.
- R.M. Lala (1993), Beyond the Blue Mountain: A Life of J.R. D. Tata, Penguin Books, New Delhi, p. 286.
- Drucker, Peter, (1995), ‘Management and the Quality of Life’, GENESIS, Journal of Alacrity Foundation, p.9
- Michael Porter, and Mark Kramer, (2011) ‘The Big Idea: Creating Shared Value’, Harvard Business Review, June 01, 2011, p.2-12
- Michael, Porter, and Mark Kramer, (2006), ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility,’ Harvard Business Review, Dec o1, 2006, p. 10-20
- Tikli Basu (2003), ‘A Mandate for Corporate Social Responsibility,’ The Light House Stories’, Tata Group, 2003, Mumbai, p. 32.
- Patricia Aburdene, Megatrend 2010, The Rise of Conscious Capitalism, Hampton Roads, Charlottesville, p. 29
- Sandra Berg, ‘A Small Business Approach to CSR’, Harvard Business Review, May 21, 2010, p. 2.
- Morgan Wetzel, (2010) TATA: The Evolution of a Corporate Brand, Penguin Books India Pvt Ltd, New Delhi, p. 122-23
- Tikli Basu (2003), ‘Gujarat Ambuja Cement, Cementing Ties’, ‘The Light House Stories,’ Tata Group, Mumbai, p. 110-11