Sep
Milton Friedman, in his famous quote, “The business of business is business”, implied that companies should not bother about any responsibility towards the society. But off late, there are quite a few companies who have gone out of their way to contribute to the society. The million dollar question is “How can we encourage company to devote resources towards the betterment of the society?“
The objective of this post is to propose a method which can be an effective mechanism to encourage companies towards Corporate Social Responsibility (CSR). One thing that encourages companies is the fact that CSR helps to improve the standards of living of people who in turn become potential markets for their products. Thus helping in creating improved living conditions and creating new, potential markets are complementary activities. Also, CSR helps to improve the goodwill of the company which in turn, helps in making the business sustainable. Shareholders cannot expect good returns unless the business is sustainable. This serves as an incentive for shareholders to allow the companies to engage in CSR.
Today, even the consumers prefer products which are eco-friendly. For instance, Tata group companies use printing paper manufactured by ITC using environment friendly technologies. Sooner or later, not only companies, but also the consumers in India will start buying products which are eco-friendly. So the next question arises is: “How can the companies make the consumers aware of their CSR activities?”
Traditionally, there is no provision where the companies can associate value with the CSR activities undertaken. Even the goodwill or any other intangible assets under financial statements fail to recognise the CSR efforts. What can be done is just on the lines of annual reports, we can have a CSR report which will list the initiatives taken and put a value to the impact the initiative had on the intended audience. We can have an auditing committee as in case of financial statements to give authentication to the report. The value of the impact can be defined as ‘trustship’ or ‘trustmark’, indicating how much trust the consumers can have on the companies’ activities. This will serve as an index to compare the CSR initiatives of different companies. Also the government can frame regulations which will provide incentives or tax breaks depending on the trustship the company possess.
This does not mean that trustship will serve only as a positive indicator of the company. There is no point if a company engages itself in a lot of CSR activities and at the same time cause harm to the society as a part of their normal business process. The index should also take into consideration the activities of the company which causes harm to the society and factor that as well, in the value of trustship. For example, if a chemical company releases harmful waste sewage into a nearby river, it should be valued accordingly and should be negated from the value of trustship. This will give a reliable, clear picture of where a company stands in terms of its efforts in making the world a better place to live in.
The above mechanism will surely encourage the companies to participate in CSR activities, but it will be effective only if we, the consumers change our outlook and instead of opting for the cheapest products, prefer those which cause less harm and more benefit to the society. This will compel the companies to improve their trustship and thus, improve the society.
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4 Responses to “Corporate Social Responsibility – Looking from a different angle”
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Nice article but very difficult to implement. CSR is a term which has very different meaning to different companies. Most companies do CSR just to gain trust of their consumers I feel. Lets see how this changes over the years ….
“What can be done is just on the lines of annual reports, we can have a CSR report which will list the initiatives taken and put a value to the impact the initiative had on the intended audience” – actually ITC and some other companies already do this. Secondly, most of the companies do not browbeat / announce their CSR policies to the world, because they like to do it silently, quietly, far from the madding crowd. You can go through ITC / Tata websites to read more about it.
“Also the government can frame regulations which will provide incentives or tax breaks depending on the trustship the company possess” – already, the Government does it, at least in some parts of the globe, as well as in some parts of India. In Uttarakhand, at least, tax breaks / sops to companies for CSR is given.
However, the idea of the article is good.
Yeah even I am aware of the fact that ITC does it. But my idea is to make it a rule which will give impetus to the CSR activities. And tax breaks is an added advantage which govts can exercise if they wish.
The main idea is that if consumers start taking the CSR initiatives or atleast the eco-friendliness of the process behind the product into consideration while choosing a product, the companies will be encouraged to use eco-friendly processes and publicise them among the masses.
No offense, but I think this is a bad article on a nice topic.
First of all, the agenda of topic doesn’t come out clearly. First you start with contradictory quote of Friedman and then go on to propose a method that would encourage towards CSR. And then you go on to propose a methodology to measure ‘amount of CSR’ and calling it a factor that will encourage companies towards CSR.
I have few points
1. How goodwill of few people can make a business sustainable is beyond my understanding. To me, ’sustainable’ is just a keyword which is used just for sake of use. In my view, sustainability can come only when company is making profit under the rule of state. Though yes, CSR is often a cheap shot of marketing employed by many businesses. It may be the case that it can be used as (more) effective tool for marketing, but when has marketing ensured sustainability of business?
2. There is difference between shareholder and consumer. A shareholder would see the ‘profit’ in balance-sheet before investing but a consumer won’t see balance-sheet(or CSR sheet) before buying a product. Consumer only concerns about the product if it fits his requirement which includes cost.
Take the case of hybrid cars, consumer buys hybrid car not only because it is Eco-friendly but more because it saves a lot of fuel consumption(reduces the running cost).
3. Then there is added problem of measuring the CSR. How will you measure CSR: from money invested in a program or the effectiveness of program. If money invested is a criteria how will one know if company is giving authentic figures and if effectiveness is a criteria then effective towards which cause, what demography and what geography are big questions. Point is it is very difficult(read impossible) to measure CSR and then having incentives accordingly.
4. CSR should never be linked with government regulation simply because that would be ‘government intervention in the private business’. CSR activities don’t have fine line. One business party may be more socially responsible towards Hindus and other towards OBCs, now this can lead to political rifts. Fundamentally, getting tax breaks or getting goodwill(for marketing) should never be purpose of CSR. Basically, you proposal of having a government code for CSR is like having a necessary law that a citizen of India will have to make 10% of his income towards donations. Think about it.
5. For pollution like things CSR is not a right term. Carbon rating sort of methods are well for such purposes as they fetch a profit making motive to businesses from trading of carbon-points.