In contemporary business environment organizations are paying much more attention to the facets of corporate social responsibility. Interest in CSR has increased in recent years and is regarded as an important and emerging topic for research (Burton & Goldsby, 2009).
The use of corporate social responsibility (CSR) initiatives to influence consumers and differentiate product offerings has become quite common. Based on the assumption that consumers will reward firms for their support of social programs, many organizations have adopted social causes (Levy,1999).In recent years, customers, employees, suppliers, community groups, governments, and some shareholders have encouraged firms to undertake additional investments in corporate social responsibility (CSR). Some firms have responded to these concerns by devoting more resources to CSR. Other companies’ managers have resisted, arguing that additional investment in CSR is inconsistent with their efforts to maximize profits.
A review of the CSR literature shows a growing emphasis on qualitative research in addressing the interface of CSR and consumer behavior (Brunk 2010; Eckhardt, Belk and Devinney 2010). Moreover, as consumers’ perceptions of CSR are still unclear to executives and researchers (Phole and Hittner 2008), qualitative research seems an appropriate research method because it investigates in-depth subject areas that are broad and complex (Drumwright 1996; Eisenhardt 1989; Fischer, 2006). For consumers, it is important to clearly distinguish between different areas (CSR domains), as they may believe that CSR is a concept which is too complex and abstract to understand and evaluate.
In the 1980s and 1990s, academic literature regarding CSR focused on the corporation´s engagement in social responsibilities from a business approach. Particularly, in 1990s academics have focused on an important stakeholder of CSR- the consumer-, interest that has been increasing.
Although these studies highlight the relevance of CSR in the consumer´s evaluation of companies and their purchase decisions, there is a tendency for the focus to be on American consumers. Apart from the limited cross country researches by few of the researchers, with main emphasis on the perception of consumers either staying in US, UK, Spain, or Japan etc. and limited emphasis on global consumers which includes India in general, we are unaware of any in depth academic research which has considered CSR specifically from an Indian consumer’s perspective. By analyzing consumers´ perceptions regarding CSR, this research attempts to provide preliminary findings into the attitude of Indian consumers about CSR. We use these beginning researches and the articles by Sarabjit S. Shergil in European Journal of Business and Management (2012) devoted to the Indian context, as the basis of our research since this considers consumers´ perceptions of CSR in India using a sustainable development approach.
1.1 THE DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY
The corporatesocialresponsibilityinIndiarefers to chronological changes incurring over time in India in the cultural norms of corporations’ engagement of corporate social responsibility (CSR), Among other
countries India has one of the most richest traditions of CSR and ample work has been done in recent years to make Indian Entrepreneurs aware of social responsibility as an important segment of their business activity but CSR in India has yet to receive widespread recognition.
CSR in India can be considered in a very nascent stage. It is still regarded as one of the least understood initiatives in the Indian development sector. The history of CSR in India has its four phases which run parallel to India’s historical development and has resulted in different approaches towards CSR.
Corporate social responsibility (CSR, is also known as corporate citizenship, corporate conscience, social performance, or sustainable responsible business/ Responsible Business) is a practice of corporate self-regulation integrated into its business model.
Unveiling and understanding CSR first:
- Corporate Social Responsibility is a process that is concerned with treating the stakeholders of a company or institution ethically or in a responsible manner. ‘Ethically or responsible’ means treating key stakeholders in a manner deemed acceptable according to international norms.
- Social includes economic, financial and environmental responsibility.
- Stakeholders exist both within a firm or institution and outside.
- The wider aim of social responsibility is to create higher and higher standards of sustainable living, while preserving the profitability of the corporation or the integrity of the institution, for peoples both within and outside these entities.The key is how profits are made, not the pursuit of profits at any cost.
- CSR is a process to achieve sustainable development in societies.
The earliest and prominent definitions ascribed to CSR is the one given by Howard Bowen who (Carroll, 1999) refer to as the father of Corporate social responsibility “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” (Bowen, 1953).
All other definitions in the early 50s recognize the need for managers to assume responsibility for public good “it has to consider whether the action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength, and harmony” (Drucker, 1954).
|S. No||Period of
|Focus Area||Summary of
|1||1950’s-1960’s||Religious & Humane
|5||Obligation to the society|
|Extension of CSR commitments||Regulated CSR|
|7||CSR as symbol of Corporate
|11||Bridging governance gap|
|13||Legal & Ethical responsibilities|
|14||1990’s – 21st
|Competitive strategy||Instrumental/Strategic CSR|
|17||Internationalization of CSR
|18||Transparency & accountability|
1.1.2. Some other common definitions of CSR
[Carroll,1979;2008,500]: “The social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that a society has of organizations at a given point in time.”
EUDefinitionofCSR:“A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”
MallenbakerDefinition:“CSR is about how companies manage the business processes to produce an overall positive impact on society”
The World BusinessCouncilfor SustainableDevelopment(WBCSD): “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.
Corporate social responsibility, also referred to as prosocial corporate endeavors (Murray and Vogel 1997) or corporate social performance (Turban and Greening 1997), has traditionally been conceptualized rather broadly as “the managerial obligation to take action to protect and improve both the welfare of society as a whole and the interest of organizations” (Davis and Blomstrom 1975, p. 6).
Historically, there have been periods of heightened interest in CSR in the past, such as the late ‘60s and early ‘70s. At that time, business
organizations such as The Conference Board in the U.S. and the Confederation of British Industry in the U.K. issued calls for business to give greater attention to CSR. What is different today is that these calls are more broadly expressed, more specific and more urgent.
In the first phase charity and philanthropy were the main drivers of CSR. In the second phase the stress was laid on Indian Industrialists to demonstrate their dedication towards the progress of the society, by way of managing their wealth in order to benefit the common man. This was when Mahatma Gandhi introduced the notion of “trusteeship”. The third phase of CSR (1960–80) had its relation to the element of “mixed economy”, emergence of Public Sector Undertakings (PSUs) and laws relating labor and environmental standards.
During this period, the private sector was forced to take a backseat. The public sector was seen as the prime mover of development. In the fourth phase (1980 until the present) Indian companies started abandoning their traditional engagement with CSR and integrated it into a sustainable business strategy.
As discussed above, CSR is not a new concept in India. Ever since their inception, corporates like the Tata Group, Godrej, the Aditya Birla Group, to name a few, have been involved in serving the community. With time a more comprehensive method of development was adopted by some corporations such as UniLever Limited, Maruti Suzuki India Limited, and P&G Limited etc. CSR programs ranges from community development to development in education, environment and healthcare etc.
Fig 1.1 Carroll’s Pyramid of Corporate Social Responsibility
Source: Carroll’s Pyramid (1991)
With this we can analyze that Corporate social responsibility (CSR) has become a mainstream topic, rising to a corporate priority in management in Indian context. The ever-increasing number of articles in leading management and other reputed journals to the area provides evidence of this effect. Despite all this the real challenge lies in analyzing that, how CSR can be considered in a developing country like India, which may bend many rules in its moves to fully develop.
The much hyped and at times flaunted CSR initiatives by the corporations are generally short lived and mere ornamental as they usually offer minimal benefits to the business, society or nation at large. The CSR activities pursued by these firms are more or less similar types of projects often regarded as the pet projects, often based
on the fantasies and whims of the senior executives, which highlight their inclinations towards only one aspect of the responsibility drive.
Through this research, a deliberate effort is made to understand the exact domains in which the companies are making major investments under the pretext of CSR activities. The basic intent of the companies behind these CSR initiatives (personal interests of individual senior executives, reputation building, CSR as advertising and publicity tool or a noble achievement); and the difference of opinion about the corporate’s social responsibilities towards the society, between the consumers and the corporates will also be unveiled and explicated in detail.
The table 1.2 below lists the major authors and their views on the social responsibility of businesses until the beginning of the 21st century.
Table 1.2: Development of CSR concepts
1.1.3. Characteristics of Corporate Social Responsibility
CSR refers to the obligations of the firm to society or, more specifically, the firm’s stakeholders—those affected by corporate policies and practices.
Fig 1.2 Characteristics of Corporate Social Responsibility
MANAGEMENT OF EXTERNALITIES
CORE CHARACTERISTICS OF CSR
ALIGNMENT OF RESPONSIBILITIES
Source: Crane et al (2014)
Scholars define CSR to be a representative of all set of corporate initiatives which are discretionary and extend beyond what the law has prescribed. The views of government and other stakeholders in all developing countries emphasize this characteristic (Crane et al, 2008).
Many companies are by now familiar and more willing to consider responsibilities beyond the legal minimum, and in fact the development of self-regulatory CSR initiatives from corporate bodies is often seen as a way of reducing or avoiding additional regulation through compliance with societal moral norms. Critics of CSR, therefore, tend to see the element of voluntarism as CSR’s major demerit, arguing that legally mandated accountability is where attention should really be focused and maximization of shareholders’ wealth should be the main organizational objective.
b) Internalizing or managing externalities
Externalities in CSR refers to all sort of factors that has impact on different stakeholder’s rights are not directly taken care of in the decision-making process of a business organization. Environmental degradation is typically regarded as an externality since the general public feel the impact of the production process. Regulation can force firms to internalize the cost of the externalities, such as pollution fines, but CSR remain as a viable discretionary approach of managing externalities like taking more safety measures and reduction of pollution by going green.
Much CSR activity deals with externalities involving workers’ rights, minimization of rationalization impact, good stakeholder relationship management to reduce unsatisfied legitimate claims pile up and discarding production process and products that are not demanded, harmful or classified as dangerous products (Husted & Allen, 2006). For example, Unilever as an MNC joined with Oxfam to conduct a study on the impacts of business on living conditions of the Indonesian people.
c) Multiple stakeholder orientation
The central theme of stakeholder management is to identify stakeholders’ orientations based on the three attributes which defines their power, legitimacy of claim and urgency. Subsequently, defining stakeholder orientations helps in identification and prioritization of stakeholders through the adoption of a step by step approach starting with internal preparations, appointing the internal leadership team of internal stakeholders for marketing, communication, operational unit, human resources, investor relations and environmental/government affairs etc., limiting expectations to a realistic level, training on communication skills, stakeholder research, collective bargaining and good industrial relations, adequate knowledge on crisis and risk management, public relations, adopting a suitable technique of managing multiple stakeholder orientations, accommodations for possible unavoidable mistakes and finally comparing stakeholder expectations with organizational performance (Ahmad et al, 2014). CSR involves considering a range of interests and impacts among a variety of different stakeholders other than just shareholders.
The assumption that firms have responsibilities to shareholders is usually not contested, but the point is that because corporations rely on various other stakeholders such as consumers, employers, suppliers, and local communities in order to survive and prosper, they do not only have responsibilities to shareholders. Whilst many disagree on how much emphasis should be given to shareholders in the CSR debate, and on the extent to which other stakeholders should be taken into account, it is the expanding of corporate responsibility to these other groups which characterizes much of the essential character of CSR.
d) Alignment of social and economic responsibilities
This balancing of different stakeholder interests leads to another core feature. Whilst CSR may be about going beyond a narrow focus on shareholders and profitability, many also believe that it should not, however, conflict with profitability.
Although this is much debated, many definitions of CSR from business and government stress that it is about enlightened self-interest where social and economic responsibilities are aligned. This feature has prompted much attention to the ‘business case for CSR’ – namely, how firms can benefit economically from being socially responsible. (Edmondson and Carroll, 1999) conducted a research on Managers of African American businesses and came to the conclusion that economic and ethical responsibilities come first before legal responsibility and philanthropic comes last in terms of priority. But it was observed in this study that philanthropy obtained a high weight level of score than in previous studies.
This study also brings into lime light the application of racial consideration in CSR studies. Consumers in China attach importance to CSR orientations and revealed that they are more concerned with economic responsibility than ethical and legal but philanthropy is highly valued (Ramasamy & Yeung, 2009).
e) Practices and values
CSR is clearly about a particular set of business practices and strategies that deal with social issues, but for many people it is also about something more than that – namely a philosophy or set of values that underpins these practices. This perspective is evident in CSR initiatives of communitarian or collectivistic societies valuing traditions and cultural practices of their local communities (Lei, 2011). The values dimension of CSR is part of the reason why the subject raises so much disagreement– if it were just about what companies did in the social arena, it would not cause so much controversy as the debate about why they do it. Duarte (2010) explored the perception of managers with respect to the influence of personal values towards their work.
The study examined the relationship between personal values and CSR initiatives of managers. The study concluded that to a greater extent CSR practices are influenced or affected by the personal values of managers, because they formulate the CSR policies of the business organization and their personal attitude is part of their individualistic characteristics which affects the way they behave.
f) Beyond philanthropy
In some regions of the world, CSR is mainly about philanthropy – i.e. corporate discretionary responsibility or voluntarism towards the general public. CSR is currently a mandatory practice backed by regulations and accepted international standard which is shifting from altruistic to instrumentality or strategic CSR. It is no longer altruistic in nature only but more than just philanthropy and community development projects, because of the impacts it has on profitability, human resource management, marketing, and logistic support which are all part of the core functions of business organizations.
CSR extends beyond philanthropy because of its viability to be instrumental or strategic in satisfying stakeholder expectations and its potential capability to achievement of organizational objectives. This debate rests on the assumption that CSR needs to be regulated and institutionalized into normal business practice rather than being left simply to discretionary activity.
The attempt to consider how CSR might be integrated to the core business functions of firms is in contrast to the notion of it serving simply as an ordinary added value to the business organization (Grayson & Hodges, 2004).
1.1.4. Explicit Corporate Social Responsibility
By Explicit CSR we refer to corporate policies to assume responsibility for the interests of the society. Explicit CSR would normally consist of
voluntary, self-interest driven policies, programmes and strategies by corporations addressing issues perceived as being part of their social responsibility by the company and/or its stakeholders.
1.1.5. Implicit Corporate Social Responsibility
By Implicit CSR we understand the entirety of a country’s formal and informal institutions assigning corporations an agreed share of responsibility for society’s interests and concerns. Implicit CSR normally consists of values, norms and rules which result in (mostly mandatory but also customary) requirements for corporations to address issues stakeholders consider a proper obligation upon corporate actors.
1.2 CUSTOMER PERCEPTION & CORPORATE SOCIAL RESPONSIBILITY
Perception is basically an organism which describes an individual’s perceived image which he expects from any product or service. Observation can be changed or influenced by numerous factors. Most likely consumer expectations related to CSR have increased over the past five to ten years as: the number of firms with social responsibility programs grew, more firms communicated their efforts with the public and consumer groups promoted firm wrongdoings and called for large-scale boycotts (Snider, Hill, and Martin, 2003).
There is managerial and empirical evidence that corporations with poor CSR records experience significant negative consequences (e.g., large-
scale consumer boycotts, reductions in brand images, or temporary drops in sales) when their negative records become public (Sen and Bhattacharya, 2001). Consumer watchdog groups such as CorpWatch have successfully exploited this relationship with their name-and-shame publicity programs for irresponsible firms.
Fig 1.3: Customer Perception and CSR
Source: AdaptedfromLuo& Bhattacharya, 2006
Consumer-oriented CSR may also involve intangible attributes such as a reputation for quality or reliability. The presumption is that firms that actively support CSR are more reliable and their products are of higher quality. There is strong evidence that many (but certainly not all) consumers value CSR attributes. Therefore, an increasing number of companies incorporate CSR into their marketing strategies, to exploit the appeal of CSR.
Developed countries are nations with Gross National Income per capita of $11, 456 or above (World Bank, 2007). In the context of developed country, many researchers suggest positive perception of consumer toward CSR. First, consumers are aware and interested in CSR and consider CSR as a purchase criterion.
Some consumers are willing to pay higher price for that firm’s products (Creyer & Ross, 1997; Handelman & Arnold, 1999). In addition, Hill & Knowlton Harris Interactive poll in 2001 shows that “79% of Americans take corporate citizenship into account when deciding whether to buy a particular company’s product.” Nevertheless, most consumers in the developed countries are still unwilling to compromise CSR on core product attributes such as price and quality (Beckmann, 2007; Cone Corporate Citizenship, 2001). Secondly, CSR increases positive attitude and loyalty towards the company and/ or the brand (Bhattacharya & Sen, 2004; Brown & Dacin, 1997; Du, Bhattacharya & Sen, 2007; Lichtenstein, Drumwright, & Braig, 2004) and improved financial performance. A study by Orlitzky, Schmidt, & Rynes (2003) using a meta-analysis of 52 studies on the relationship between Corporate Social Performance and Corporate Financial Performance, suggesting there is positive relationship with the two. Third, there are national and cultural differences in CSR perception between developed countries. However, it still shows positive perception toward CSR (Maignan & Ferrell, 2003). Beckmann (2007, p. 32) suggests ‘there are cultural differences that suggest a strong influence of the economic, technological, political and social context within which any assessment of the (communication) effects of CSR activities on consumers’ responses need to be analyzed’.
1.3 FMCG SECTOR IN INDIA
The fast-moving consumer goods (FMCG) sector is an important contributor to India’s GDP and it is the fourth largest sector of the Indian economy. Items in this category are meant for frequent consumption and they usually yield a high return. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and extends to certain electronic goods. The Indian FMCG sector, which is the fourth biggest sector in the Indian economy, has a market size of 2 trillion with rural India contributing to one third of the sector’s revenues.
The Indian FMCG sector is highly fragmented, volume driven and characterized by low margins. The sector has a strong MNC presence, well established distribution network and high competition between organized and unorganized players. FMCG products are branded while players incur heavy advertising, marketing, packaging and distribution costs. The pricing of the final product also depends on the costs of raw material used. The growth of the sector has been driven by both the rural and urban segments. India is becoming one of the most attractive markets for foreign FMCG players due to easy availability of imported raw materials and cheaper labor costs.
1.3.1 The Evolution of Indian FMCG market
Fast moving consumer goods are the goods purchased by the censurers for their own use and purchased repeatedly. They buy these products on daily or weekly basis in small quantity. The price of such products per unit is low. The consumption of such products is very high due to
requirement of every one and large in number of consumers. Indian population is a huge population over 120 crores.
A separate sector called FMCG sector is well established in India. India has always been a country with a big chunk of world population, be it the 1950’s or the twenty first century. In that sense, the FMCG market potential has always been very big. However, from the 1950’s to the 80’s investments in the FMCG industries were very limited due to low purchasing power and the government’s favoring of the small-scale sector.
The consumer markets in India are constantly evolving. The first phase of consumer market evolution in the 1980s and the 1990s was characterized by some major structural changes: changes in income distribution, increased product availability (in terms of both quality and quantity), increased competition, increased media penetration and improved advertising (impacting lifestyle). These raised the levels of consumer awareness and propensity to consume, etc. The late 1990s witnessed a surge in consumer finance products owing to steady financial sector reforms in the economy and innovative marketing. The consumer markets in India have entered the second phase of evolution with the turn of the century. The Fast-Moving Consumer Goods (FMCG) sector is the fourth largest sector in the economy with a total market size in excess of Rs 60,000 crore. This industry essentially comprises Consumer Non-Durable (CND) products and caters to the everyday need of the population.
Hindustan Lever Limited (HLL) was probably the only MNC Company that stuck around and had its manufacturing base in India. At the time, the focus of the organized players like HLL was largely urbane. There too, the consumers had limited choices. However, Nirma’s entry changed the whole Indian FMCG scene. The company focused on the ‘value for money’ plank and made FMCG products like detergents very affordable even to the lower strata of the society. Nirma became a great success story and laid the roadmap for others to follow. 200 MNC’s like HLL, which were sitting pretty till then, woke up to new market realities and noticed the latent rural potential of India.
The government’s relaxation of norms also encouraged these companies to go out for economies of scale in order to make FMCG products more affordable. Consequently, today soaps and detergents have almost 90% penetration in India. Post liberalization not only saw higher number of domestic choices, but also imported products. The lowering of the trade barriers encouraged MNC’s to come and invest in India to cater to 1bn Indians’ needs. Rising standards of living urban areas coupled with the purchasing power of rural India saw companies introduce everything from a low-end detergent to a high-end sanitary napkin. Their strategy has become two-pronged in the last decade. One, invest in expanding the distribution reach far and wide across India to enable market expansion of FMCG products. Secondly, upgrade existing consumers to value added premium products and increase usage of existing product ranges. Some who could not do it on their own, have piggy backed on other FMCG major’s distribution network (P&G- Marico).
Consequently, companies that have taken to rural India like chalk to cheese have seen their sales and profits expanding. For example, currently 50% of all HLL sales come from rural India, and consequently, it is one the biggest beneficiaries of this. There are others, like Nestle, which have till date catered mostly to urban India but have still seen good growth in the last decade. The company’s focus in the last decade has largely been on value added products for the upper strata of society.
However, in the last couple of years, even these companies have looked to reach consumers at the slightly lower end.
One of the biggest changes to hit the FMCG industry was the ‘sachet’ bug. In the last 3 years, detergent companies, shampoo companies, hair oil companies, biscuit companies, chocolate companies and a host of others, have introduced products in smaller package sizes, at lower price points. This is the single big innovation to reach new users and expand market share for value added products in urban India, and for general
FMCG products like detergents, soaps and oral care in rural India. Another interesting phenomenon to have hit the FMCG industry is the mushrooming of regional companies, which are posing a threat to bigger FMCG 201companies like HLL. For example, the rise of Jyothi Laboratories, which has given sleepless nights to Reckitt Benckiser, the ‘Ghari’ detergent, that has slowly but surely built itself to take on Nirma and HLL in detergents, and finally, the rise of ‘Anchor’ in oral care, which has become synonymous with ‘cat’, which walks away with spoils when two monkeys fight (HLL and Colgate). There are numerous other examples of this.
Fig 1.4: Market Trend of India FMCG
India’s FMCG sector is the fourth largest sector in the economy and creates employment for more than three million people in downstream activities. Its principal constituents are Household Care, Personal Care and Food & Beverages. The total FMCG market is in excess of Rs. 85,000 Crores. It is currently growing at double digit growth rate and is expected to maintain a high growth rate.
Fast Moving Consumer Goods FMCG) -alternatively known as consumer packaged goods (CPG) are products that are sold quickly and generally consumed at a regular basis, as opposed to durable goods such as kitchen appliances that are replaced over a period of years. The FMCG industry primarily engages in the production, distribution and marketing operations of CPG. FMCG product categories comprise of food and
dairy products, pharmaceuticals, consumer electronics, packaged food products, household products, drinks and others. Meanwhile, some common FMCG include coffee, tea, detergents, tobacco and cigarettes, soaps and others. The big names in this sector include Sara Lee, Nestle, Reckitt Benckiser, Unilever, Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi, Mars and others.
In recent years, the fast-moving consumer goods sector (FMCG) is witnessing increased use of sales promotion activities all over the world. This sector is characterized by products having low unit value and requiring frequent purchases and consumer behavior reflecting less loyalty, impulse buying, and low involvement on the part of a consumer (Kotler, 2003).
The consumer durables market is expected to reach US$ 12.5 billion in 2015 and US$ 20.6 billion by 2020. Urban markets account for the major share (65 per cent) of total revenues in the consumer durables sector in India. There is a lot of scope for growth from rural markets with consumption expected to grow in these areas as penetration of brands increases. Also demand for durables like refrigerators as well as consumer electronic goods are likely to witness growing demand in the coming years in the rural markets as the government plans to invest significantly in rural electrification.
The FMCG sector has grown at an annual average of about 11 per cent over the last decade. The overall FMCG market is expected to increase at (CAGR) of 14.7 per cent to touch US$ 110.4 billion during 2012-2020,
with the rural FMCG market anticipated to increase at a CAGR of 17.7 per cent to reach US$ 100 billion during 2012-2025.Food products is the leading segment, accounting for 43 per cent of the overall market. Personal care (22 per cent) and fabric care (12 per cent) come next in terms of market share.
Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the consumer market. The Government of India’s policies and regulatory frameworks such as relaxation of license rules and approval of 51 per cent foreign direct investment (FDI) in multi-brand and 100 per cent in single-brand retail are some of the major growth drivers for the consumer market.
Fig 1.5 Major Segments in FMCG Sector
Oral Care, Hair Care, Skincare, Cosmetics, Hygiene and Paper products
Health Beverages, Staples/Cereals, Bakery, Snacks, Chocolates, Ice Creams, Tea/Coffee/Soft Drinks, Processed food & vegetables, Dairy Products and Branded Flour
India’s FMCG sector was valued at INR 60,000 Cr in 2004 after a growth of 4% during 2003-04. According to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI), several FMCG registered double-digit growth in value terms, for example, shaving cream (20%), deodorant (40%), branded coconut oil (10%), anti-dandruff shampoos (15%), hair dyes (25%) and cleaners and repellents (20%).
On the contrary, negative growth of up to 8% was registered in products such as personal healthcare, laundry soaps, dish wash, toilet soap, toothpaste and toothpowder. In 2008, India’s FMCG sector had a value of INR 86,000 Cr and analysts projected a growth of 15% in 2010 (2009: 12%) as the economy shows signs of recovery. According to the FICCI-Techno report, the FMCG sector will grow at a rate of 10-12% within the next decade to reach INR 206,000 Cr by 2013 and INR355, 000crby 2018. The implementation of the proposed Goods and Services Tax (GST) and the less restrictive foreign direct investment (FDI) policies are expected to contribute to the growth of the FMCG sector to INR225, 000crby 2013 and INR456, 000cr by 2018.
With a total market size in excess of USD14.7bn, India’s FMCG industry is the fourth largest sector in its economy and plays a vital role in India’s socio-economic front with nearly eight million stores selling FMCG and employing some 25mn people as wholesalers, distributors and others. Besides that, the FMCG sector purchases nearly INR9,600cr worth of agricultural products and processes them into value-added products while the sector accounted for nearly 40% of the media industry’s revenue.
1.3.2 Government Policies and Regulatory Framework
GoodsandService Tax(GST):GST, which will replace the multiple indirect taxes levied on FMCG sector with a uniform, simplified and single-pint taxation system is likely to be implemented soon (the benefits are likely to come in by the end of FY’14). The rate of GST on services is likely to be 16% and on goods is proposed to be 20%. A swift move to the proposed GST may reduce prices, bolstering consumption for FMCG products.
FoodSecurityBill:The food security Bill has been passed recently by the Union Cabinet. As per the Bill, 5Kg of food grains per person per month will be provided at subsidized prices from State Governments under the targeted public distribution system. With additional demand, the agriculture sector would receive a boost and this could lead to more investments in improving agriculture productivity and making it more competitive.
FDIinretail: The decision to allow 51% FDI in multi brand retail and 100% FDI in single brand retail augers well for the outlook for the FMCG sector. The move is expected to bolster employment, and supply chains, apart from providing high visibility for FMCG brands in organized retail markets, bolstering consumer spending, and encouraging more product launches. FDI of 100% under the automatic route is allowed in the food processing sector, which is considered as a priority sector.
Relaxationoflicenserules:Industrial licenses are not required for almost all food and agro-processing industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive manufacturing in the small-scale sector.
1.4 IMPORTANCE AND SIGNIFICANCE OF STUDY
CSR means different things to different people. It can be assumed that CSR is a custom-made process, wherein, each company should choose which concept and definition suits it the best, matching the companies´ aims and intentions and aligned with the company´s strategy, as a response to the circumstances in which it operates.
Through the primary data collected via personal surveys/ questionnaire, the research aims to find an evidence to show that whether the Indian consumers are supportive of CSR initiatives of the corporations? Also, we will try to explore and identify the Indian consumer’s perception and value of Corporate Social Activities. We will further try to identify the varying degree of importance placed by Indian Consumers on different aspects of corporate social responsibility domains (viz. environmental, economic and social), which generally seems to be the pet projects of the corporate houses in the name of CSR initiatives.
The study is not just useful in understanding the consumer’s behavior in terms of identifying whether CSR initiatives taken up by these corporate houses, acts as one of the several factors that goes behind influencing
the consumer purchase decisions while deciding for a product produced under the umbrella of such corporate houses. But, how much they value and get influenced by Corporate Social Initiatives adopted by any firm during making purchase decisions.
The study is of utmost importance from the strategic business planner’s point of view because the divergence depicted by the consumers may sound relevant for companies incorporating CSR in their policy as a strategic weapon.
We will discuss the ways forward in management delivery, by increasing the manager’s comprehension about the actual consumer expectations from the corporates as being corporate citizens. This research majorly aims at identifying the gap between managers’ and consumers’ understandings of the company’s responsibility towards society. Also, we will give an insight on why some companies seem to have a much more refined sense of what societal actors expect from them, than other companies do?
Socially responsible behavior of business is generally subject to a specific kind of personal perception error known as halo effect, whereby consumer’s awareness regarding any one set of CSR initiative of the company influences their perception of company’s CSR performance in other areas, for which they generally have little or no specific information available. There are ample lot of research studies conducted with the intent of finding the consumer’s perception of CSR, but very little data is available on this aspect, wherein we highlight that consumers may well
make inferences about the company’s CSR performance on the basis of very limited information. Thus, this has implications for company CSR strategy and for public policy where these companies try and attempt to manipulate consumer perceptions of CSR performance.
This research may be used in a limited sense by the government bodies, in understanding the ultimate consumer’s expectations of the businesses and fulfilling these expectations by shaping them in the form of a law which may be enforced or is binding to these businesses.
Besidesthelawenforcement,recessionandthetimesofausteritythe companieswillnotcutbackintheCSRactivities as they now see and value CSR as a strategic business model essential for their business. Inspiteof, spending too much money in the realm of CSR initiatives, the companies are still not able to reap its benefits? Anythingandeverythingcannotbetermed as‘CSR’. There is a lot that can be understood and corrected in terms of the corporate social responsibilities. Retrospective corporate social responsibility (CSR) is failing to deliver, for both the companies and the society. This study tries to create awareness about the actual value of company’s CSR initiatives for consumers, to the managers who now needs a new approach to practice CSR by way of external engagement as an effective tool for brand building by the way of societal contributions.
In view of the assessment of the social and environmental dimensions, our findings will highlight several areas of opportunity for improvement with important implications for managers; by emphasizing
where exactly the money should be spent in the name of the CSR initiatives, which may actually strengthen their long-term competitiveness.
The research aims to channelize the company’s resources and efforts towards strengthening the corporate actions in those areas, which are considered as true societal development by the consumers.
1.5 BROAD OBJECTIVES OF THE STUDY
The aim of undertaking this research wok is to increase our comprehension of Corporate Social Responsibility (CSR) from the consumer’s perspective in an Indian context. The main purpose of the research is two- fold:
- To study the Perceptions and the value of Corporate Responsibility Activities for Indian Consumer’s And
- To analyze what do multinationals understand their responsibilities towards society to be and how does that differ from what their Consumer’s believe they should be?
The other objectives of the research are as follows:
- To understand the nature of societal expectations regarding corporate behavior and the how the organizations understand and respond to these societal demands from a business strategy perspective.
- To identify whether perceived consumer fit matter in corporate social responsibility issues.
- To identify and understand the CSR Halo Effect and to study its impact on consumer’s purchasing decisions.
- To identify the factors that contribute to explain why certain companies understand their consumers’ expectations better than other companies.
- To discuss ways forward towards management delivery by suggesting measures aimed allaying foundation for external credibility and internal transformation.
1.6 PERIOD OF THE STUDY
The present study covers a period of 5 years beginning from 2009 -2010 to 2014 – 2015 for secondary data and 2015 – 2016 for the collection of primary data.
1.7 ORGANISATION OF THE STUDY
- ThefirstChapterIntroductionprovides a theoretical setting for the study includes Broad Objectives of Study, Importance and significance of Study, Period of Study and the organization of the Study.
- TheSecondChapterReviewofLiteraturecontains empirical studies which have been concluded in the area of CSR.
- TheThirdChapter‘DatabaseandResearchMethodology’includes the research design to carry out the study. It identifies methodology followed and database of the study. It deals with database for the study, which includes the universe, sample design and data collection (Primary data field survey through questionnaire). It also includes data processing, followed by data analysis – hypothesis of the study, various statistical tools and techniques which have been applied to achieve all the objectives.
- TheFourthChapterConceptandEvolutionofCSRdiscusses the conceptual framework of CSR including objectives, functions and operational constraints and evolution of CSR in the world economy and Indian economy.
- TheFifthChapterDataAnalysisandInterpretationThis chapter include the analysis and interpretation of data.
- TheSixthChapterSummaryandConclusionhas been designed to conclude the whole study from Chapter one to Chapter five with the aim of providing recommendations.
REVIEW OF LITERATURE
REVIEW OF LITERATURE
Since 45 years, the CSR (Corporate social responsibility) has been present in the Accounting & Management literature (Wood, 2010). In the recent years, both the corporates and societies have significantly increased their focus on the CSR initiatives (Adams and Frost 2006; Gulyás 2009; Young and Thyil 2009). Conventionally, the majority concern of the companies has been on the strategies for improving their business operations for profit maximization, initiatives such as differentiation, diversification, turnaround, concentration and globalization topped the priority lists. However, time and again, corporate strategic thinking has advocated the need to be conscious about their image and thus the need to reach out to society by ways of adding activities & expanding out of the from the company towards society. Precisely, these activities have identified as the Corporate Social Responsibility (CSR) activities/initiatives (Carroll 1979; Margolis and Walsh 2001). Further, the scholars in CSR, authors & managers have recognized that the major Corporate Social Responsibility initiatives were directed towards charity & donations, pollution reduction, environment protection, cause related marketing, society upliftment, disaster relief, peace initiatives. Brand image/ goodwill (Fernando, 2007), corporate strategy (Dentchev, 2004) and stakeholder pressures (McWilliams and Siegel (2001) were amongst the many reasons to persuade companies to implement CSR.
Many research scholars have concluded and talked about the numerous direct positive benefits of implementing the CSR on the company’s performance (Margolis and Walsh 2001;
Porter and Kramer 2002). As a result, several studies were conducted to examine and understand the relationship between the company performance and the CSR performance, to precisely identify the above stated benefits.
The two Western developed countries, United States of America (USA) and the United Kingdom (UK) have dominated and been at the forefront in the developments of the CSR practices (Chambers et al. 2003). However, it is difficult to understand that whether these developments can be easily translated into non-western developing countries. Time and again several scholars have discussed the specific circumstances and identified the gaps in CSR implementations between developed and developing countries (Chambers et al. 2003; Matten and Moon 2004; Chapple and Moon 2005; Visser 2007).
Several writers such as Edmondson and Carroll (1999), Burton et al. (2000) and Khan (2005), have suggested that there is a significant difference in the understanding of the CSR due to difference in cultural models & traditional customs and may not be applicable in developing countries such as India and Sri Lanka.
By the late 1980s, it was well understood that the CSR had attracted the worldwide attention and socially responsible companies relish a number of benefits, such as profitability factors like achieving competitive advantage (Smith 1994; Porter and Kramer 2002); building favorable corporate image (Smith & Stodghill 1994); attracting the best employees and building a loyal workforce (Turban and Greening 1997); and
enhancing customers’ loyalty by improving the consumer perception about the company (Brown and Dacin 1997). Few scholars did acknowledge that implementing CSR and undertaking socially responsible initiatives could create additional costs for the firms (Agarwal 2008; Sharma & Talwar 2005) and it could experience few economic disadvantages too (Ullmann 1985; Turban and Greening 1997).
The issues of CSR have been addressed in different ways by different developed economies (Friedman 1984; Carroll 1991; Freeman 1984). CSR scholars have developed the conventional logical theories such as stakeholder theory (Freeman 1984) & profit maximization theory (Friedman 1984).
Freeman’s (1984) stakeholder theory suggests that a company’s obligation is not just profit maximization but to parallelly increase the satisfaction of the stakeholders. Carroll (1991) immensely criticized this narrow looking profit maximization aspect and specified that there is a natural fit between an organization ‘s stakeholders and the idea of corporate social responsibility, further expounding that stakeholders should be satisfied with the company’s overall objectives. Carroll (1991) also stated that though this win-win outcome is not always possible but suggested that the firms can really protect their long-term interests, should this be achieved.
Friedman (1982) suggested that CSR maximizes shareholder wealth. He that along with the aim of profit maximization, the organizations should address five basic economic responsibilities too.
Carroll (1991) supported Friedman’s argument to report/disclose the economic & official mechanism of firm’s CSR. She added that those five economic responsibilities were primarily based on the legal responsibilities of the firm because there is a societal agreement between the companies and the society. However, she further clarified that the social responsibility of the organization increases the satisfaction of the interested parties’. This was also supported by Freeman’s (1984) stakeholder theory on CSR.
Recently, more researchers have shown interest in investigation of CSR implementation impact such as finding out the relationship between company’s CSR performance and its actual performance, & CSR in the developing countries. These researches have allowed companies to understand that profits and principles reinforce each other (Graafland 2002, p. 294). However, companies should focus on creating positive social & environmental effects (Daviss 1999, p. 33), and responsible interactions (Wheeler and Elkington 2001) in the long term. The main objective of the organizations remains profit maximization; therefore, to be sustainable, organizations must be able to secure both the right to operate & make appropriate profits (Yongvanich and Guthrie 2006, p. 310). On the contrary, Carroll (1991) has suggested that an organization’s first responsibility is to act in a socially responsible way, doing this not only to be profitable but also to obey the law, be ethical and to be a good corporate citizen (Carroll 1991, p. 48). It is generally recognized that CSR is more often implemented and studied in the developed countries such as USA, UK, Canada and Australia. For this reason, the theory and practice of CSR in developing countries such as India, China, Sri Lanka still needs to be discussed and debated at length.
Researchers in developing countries too have begun to examine the concept of CSR in greater depth. Of particular interest is whether CSR has positive business benefits (Dutta and Durgamohan 2008) & whether, and to what extent (Dober and Halme 2009), the prevailing western notions of CSR can be implemented alike in these developing countries (Jamali 2007), Although in developing countries, various stakeholders act as the major force behind pushing companies to implement CSR, it seems many firms still lack the sufficient knowledge to actualize it (Fernando 2007). Furthermore, in developing countries there is a lack of generally accepted rules to enforce stakeholder demands (Chambers et al. 2003; Blowfield 2004; Chapple and Moon 2005; Thorpe and Prakash-Mani 2006; Visser 2008). Few others suggest that managers lack of understanding about the CSR benefits and personal whims and fantasies inhibits its implementation (Fernando 2007; Agarwal 2008).
The definitions of CSR vary among studies, despite this there is a considerable common ground among them (Carroll 1979; Welford 2004). According to Davis and Frederick (1984) CSR is an organization’s obligation to engage in such activities that protect & contribute for the welfare of society, general communities, customers, employees, shareholders and the environment. Further they are of the view that these groups expect something more from businesses than just products and services. Along parallel lines, Freeman (1983) stated an organization’s social responsibility in terms of its stakeholders. The WBCSD (World Business Council for Sustainable Development, 1999) has defined CSR after incorporating many of these perspectives as ‘the enduring commitment by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce and their families as well as of the local community and society at large’. Some scholars have expanded CSR understandings by way of developing Corporate Social Performance (CSP) frameworks (Carroll 1979; Wood 1991) that incorporate CSR principles, theoretical frameworks and indices. Wood’s (1991) conceptualization of CSP involves a business organization’s configuration of principles of social responsibility, process of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s societal relationships.
Despite considerable research into CSR, there is a little agreement about exactly what CSR involves and the frameworks, standards and indices that should guide its practice (Carroll 1991; Maignan and Ralston 2002; Crane and Matten 2007; Matten and Moon 2008; Visser 2008; Azmat and Samaratunge 2009). Due to this lack of agreement a number of measurement difficulties arise (Clarkson 1988; Wood 1991; Davenport 2000), developing into one of the major limitations of carrying out the CSR research. Ruf et al. (2001) stated that to develop a concrete CSR theory, the construction of a composite measure of corporate social performance is a prerequisite. A poorly understood definition of CSR and the measurement difficulties associated with its implementation results, further adds to the challenge for assessing the contribution of these CSR activities to business objectives.
The practice of CSR has been majorly dominated by the developments in western developed countries (such as the UK and the USA) and it is still unclear whether these can be easily applied to developing and non-Western countries.
The major difference in CSR relevance understanding is due to major differences in cultural models and traditional customs, as per Edmondson and Carroll (1999), Burton et al. (2000) and Khan (2005).
However, researchers have emphasized that developing world needs special attention to develop CSR concepts because these economies have many differentiates with developed ones (Blofield and Frynas, 2005). Furthermore, CSR can be identified as a bridge connecting the arena of business and development, and increasingly discusses CSR programmes in terms of their contribution to development ‘(Blofield and Frynas, 2005, p.499). Policy makers believe business develops the economy, but some areas should be developed such as health, poverty allegation programmes and building human capital. These developments can be done by increasing CSR programmes. Society’s expectations of business have increased in recent years (Turker, 2009). In the face of high levels of insecurity and poverty, the backlash against globalization, ozone depletion and mistrust of big business, there is growing pressure on business leaders and their companies to deliver wider societal value (Jenkins, 2006). This is heightened by more extensive media reach coupled with advances in information technology, in particular the internet, which has allowed rapid and widespread exposure of alleged corporate abuses in even the most remote corners of the world, such as Shell Oil spills in Nigeria and Nike’s exposure of Sweatshop labor conditions in its subcontractor operations in Asia.
There has been a significant increase in interest in CSR in recent years (Basu and Palazzo, 2008; Angelidis et al, 2008; Young and Thyil, 2009; Park and Lee, 2009; Gulyas, 2009; McGehee et al, 2009)
and is now at its most prevalent (Renneboog et al, 2008; Turker, 2009) representing an important topic for research (Burton and Goldsby, 2009). Recent corporate scandals have attracted public attention and highlighted once more the importance of CSR (Angelidis et al, 2008; Evans and Davis, 2008). Not only has this topic received academic attention (Burton and Goldsby, 2008) but it is becoming a mainstream issue for many organizations (Renneboog et al, 2008; Nijof and Brujin, 2008). It is now widely recognized by business leaders that their companies need to accept a broader responsibility than short-term profits (Knox et al, 2005). One study found that more than 80% of the Fortune 500 companies address CSR issues (Bhattacharya and Sen, 2004).
This chapter unfolds as follows; firstly, the debate between shareholder and stakeholder theory is presented. Stakeholder theory is dealt with in quite some depth in this thesis, because CSR is conceptualized through the lens of stakeholder theory (Prado-Lorenzo et al, 2008; Wang, 2008; Vaaland et al, 2008; Agle and Mitchell, 2008; Agatiello, 2008).
The term ethics is briefly introduced to differentiate between this term and CSR. Next attention turns to defining CSR: the evaluation of definitions provides a guide to the changing thought on the subject. The debate surrounding the legitimacy of CSR is then discussed; arguments both in favor of and against the concept are discussed.
2.1 STAKEHOLDER VERSUS SHAREHOLDER THEORY
From the time of Adam Smith, through the age of industrialization, the Great Depression and the recent half-century globalization and prosperity, the purpose and role of business has been a focus of debate (Post et al, 2002).
Much of the debate has revolved around two hierarchal positions; namely shareholder theory and stakeholder theory (Rugimbana et al, 2008). Shareholder theory represents the classical approach to business, according to this theory a firm’s responsibility rests solely with its shareholders (Cochran, 1994). On the other hand, stakeholder theory argues that organizations are not only accountable to its shareholders but should balance a multiplicity of stakeholder’s interests (Van Marrewijk, 2003). These two competing views of the firm contrast each other so sharply that stakeholder and shareholder theories are often described as polar opposites (Shankman, 1999).
Both theories are explained and arguments in their favor are set out. The basis of stakeholder theory is then set out before turning attention to the practical issue of defining individual stakeholders.
2.1.1 Shareholder Theory
Referred to a classical (Karake, 1998; Rugimbana et al, 2008) or fundamentalist (Curran, 2005) theory, shareholder theory holds that the firm is (and should be) managed in the interests of the firm’s shareholders (Cochran, 1994). According to this theory the purpose of the company is to provide return on investment for shareholders and thus corporations are seen as instruments of creating economic value for those who risk capital in the enterprise (Greenwood, 2001). It is believed that the sole constituency of business management is the shareholders and the sole concern of shareholders is profit maximization. Any activity is justified if it increases the value of the firm to its shareholders and is not justified if the value of the firm is reduced (Cochran, 1994).
Corporate expenditure on social causes represents a violation of management responsibility to shareholders to the extent that the expenditure does not lead to higher shareholder wealth (Ruf et al, 1998). This theory is precise, makes sense in a mechanistic way and provides clear guidelines for managerial behavior (Mudrack, 2007). According to Levitt (1958) such an approach enhances the long-term survival and success of the firm.
Moore (1999) justifies Shareholder Theory on the basis of Property Rights and Agency theory. Property Rights posit that shareholders own a firm by virtue of owning equity shares and moreover, that they wish to maximize the value of those shares. Managers who fail to maximize shareholder wealth are violating a moral property right by spending, if not stealing shareholder money (Philips, 2004). According to Sternberg (1996) owners organized (or alternatively purchased) the firm and are constitutionally entitled to the residual fruits of their investment, otherwise the organization is by definition a „not-for-profit‟. In relation to Agency Theory, the conventional argument is that company managers and shareholders are involved in an agency relationship. The managers, acting as agents to their clients (the shareholders), have a responsibility to pursue their client’s best interest (Moore, 1999). In relation to shareholder theory, this implies that company managers are obliged to adhere to the objective of maximizing long-term owner value.
Shareholder theory has been widely misrepresented; often quoted at its most extreme. For example, it is sometimes misstated as urging managers to „do anything you can to make a profit‟ (Smith, 2003:86). Most followers of shareholder theory quote Friedman’s (1970) argument that the only social responsibility of business is to increase profits, however,
many omit the latter half of his quote which argued that a firm should abide by legal and societal expectations (Carroll, 1998). Further, it is sometimes claimed that shareholder theory prohibits the use of corporate funds for social use. In fact, shareholder theory supports those efforts insofar as such initiatives are in the best interest of shareholders. Friedman (1970) believed that the only acceptable reason for engaging in CSR was if it is motivated by self-interest and for the purpose of promoting the company’s interests. If corporate charitable giving contributes to profit making then it is fully acceptable.
Shareholder theory and the belief that companies should be run purely in the interests of their shareholders has been challenged over the last decade (Low and Cowton, 2004). As far back as the early 1980s, Van Auken and Ireland (1982: 1) argued „the era is past when the business community could make profit and stockholder interests its only considerations‟. Agatiello (2008) argues that the notion of profit maximization as the sole objective of the firm is an observable fallacy. He argues that the nature of the firm in modern times is too complex to be explained through such a reductionist approach. Indeed, Agle and Mitchell (2008: 153) found its opposing theory, stakeholder theory to be “alive, well and flourishing”.
2.1.2 Stakeholder Theory
Stakeholder theory has emerged as an alternative to shareholder theory (Spence et al, 2001). The term stakeholder explicitly and intendedly represents a softening of (if not a fundamental challenge to) strict shareholder theory (Windsor, 2001).
This theory recognizes the fact that most, if not all firms have a large and integrated set of stakeholders (Cochran, 1994) to which they have an obligation and responsibility (Spence et al, 2001).
This theory challenges the view that shareholders have a privilege over other stakeholders (Freeman and Reed, 1983). In essence, stakeholder theory is a rhetorical response to financial theories that assert that firms should focus only on maximizing the economic interests of shareholders, the residual owners of the firm (Orts and Schulder, 2002). Shareholders, it is argued, are merely one of the several claimants on the firm (Heath and Norman, 2004). Thus, stakeholder theory embodies the need to balance the claims of shareholders with these of other stakeholders (Ruf et al, 1998). According to Kaler (2003) the stakeholder approach involves a basic reformist stance toward shareholder theory, seeking to move it in the direction of greater equity and a less single- minded concentration on owner’s interests rather than replacing it entirely.
According to Goodpaster (1991) the term “stakeholder” has been invented as a deliberate play on the word “shareholder” to signify that there are other parties having a „stake‟ in the decision making of the modern corporation in addition to those holding equity positions (Carson, 2003).
Providing an interesting slant on shareholder theory, Deck (1994) acknowledges the purpose of the organization is to create wealth and distribute this among investors. However, he does not limit investors to mere shareholders and includes other groups such as employees and society who make investments in organizations in the form of knowledge, skills and infrastructure.
Post et al (2002: 19) define stakeholders as individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities and that are therefore its potential beneficiaries and/or risk bearers‟. The resources provided by stakeholders can include social acceptance as well as more obvious contributions such as capital, labor and revenue. Halal (2000) argues that the resources contributed by stakeholders are greater than the financial investments of shareholders by roughly a factor of ten.
The risks are not only financial exposure but employment and career opportunity, the quality of products and services and environmental impact (Post et al, 2002; Lorca and Garcis-Diez, 2004). If the firm fails, employees lose their jobs and often their retirement package and health benefits. In line with the benefits provided by stakeholders and the risks borne by them, according to the contribution justice principle, the profits of a firm should be divided among those bearing risk within the organization, in what so ever form.
The stakeholder concept is scarcely new (Preston and Sapienza, 1990). According to Freeman (1984) the origin of stakeholder in management literature can be traced back to 1963, when the word appeared in an internal memorandum at the Stanford Research Institute, in which stakeholders were defined as „those groups without whose support the organization would cease to exist‟ (Freeman, 1984: 31).
However, Preston and Sapienza (1990) argue that the stakeholder approach or its basic philosophy can be traced much further back. During the depression of the 1930s General Electric Company identified four
major stakeholder groups as shareholders, employees, customers and the general public. Similarly, in 1947, Johnson & Johnson listed their strictly business stakeholders as customers, employees, managers and shareholders (Clarkson, 1995; Lorca and GarciaDiez, 2004).
Since Freeman’s (1984) seminal work on the topic, stakeholder theory has become embedded in management scholarship and in managers thinking (Mitchell and Agle, 1997; Rowley, 1997; Metcalfe, 1998). According to Donaldson and Preston (1995) the idea that corporations have stakeholders has become commonplace in the management literature, both professionally and academically. There have been hundreds of articles published on the topic. Langtry (1994) argues that the stakeholder concept has become widely used as a strategic management tool. Providing support for this argument, Halal (2000) cites a survey undertaken during the period of 1995-1997 which obtained responses from 540 managers describing the extent to which common stakeholder practices are used in the respondent’s company. It found that 86% of respondents said their company strived to cooperate with important stakeholders and 85% claimed that the company’s primary goal was to serve the interests of important stakeholders, including making money for shareholders. Recent studies provide similar findings; Agle and Mitchell (2008) found through a study of 100 of the Fortune 500 companies, that only ten companies espoused the “pure shareholder” focus of value maximization for shareholders.
2.1.3 The Basis of Stakeholder Theory
Although Freeman’s (1984) work formally recognizes the importance of stakeholders it leaves the status of the stakeholder concept as theory unclear (Jones, 1995). Donaldson and Preston (1995),
in their widely-quoted paper, organized a diverse range of articles on stakeholder theory and formulated a three-part typology of the theories of stakeholder theory: descriptive, instrumental and normative. Jones (1995) argues that Stakeholder Theory answers the following questions: what happens? (Descriptive) What happens if? (Instrumental) And what should happen? (Normative).
To describe stakeholder theory as descriptive argues it explains specific corporate characteristics and behaviors (Cooper et al, 2001), thus it describes the corporation as a constellation of cooperative and competitive interests possessing intrinsic values. To say it is instrumental implies that it makes a connection between stakeholder approaches and commonly desired objectives such as profitability, stability or growth. Instrumental theory is basically a hypothesis of what will happen if certain courses of action are followed. Finally, as a normative theory it is used to interpret the function of the corporation and to identify moral or philosophical guidelines for corporate operations. Normative theory attempts to prescribe what should happen based on moral propriety.
According to Donaldson and Preston (1995) these theories are nested within each other. The external shell of the theory is its descriptive aspect; the theory presents and explains the stakeholder relationships within the firm. The theory’s descriptive accuracy is supported, at the second level, by its instrumental and predictive value; if certain practices are carried out then certain results will be obtained. The central core of the theory is normative. Legitimate stakeholder interests require managerial attention and interest as a matter of moral right (Post et al, 2002).
Donaldson and Preston (1995: 71) identify instrumental uses as making „a connection between stakeholder approaches and commonly desired objectives such as profitability‟. One of the earlier arguments in favor of the instrumental power of stakeholder theory is seen in General Robert Wood’s (1950 cited in Clarkson, 1995) assertion that the four parties to any business in order of importance are customers, employees, community and shareholders.
He maintained that if the appropriate needs and interests of the first three groups were cared for effectively, the company’s shareholders would benefit as a result. The 1963 International memorandum at the Stanford Research Centre defines stakeholders as „those groups without whose support the organization would cease to exist‟. The core concept was „survival‟, without the support of these key groups the firm will not survive.
Post et al (2002) believe that effective stakeholder management is a critical requirement for sustaining and enhancing the wealth creating capacity of the organization. Jones (1995) suggests that stakeholder management is a source of competitive advantage, as contracts between organizations and stakeholders will be on the basis of trust and cooperation and therefore less expense will be required in monitoring and enforcing such contracts. Clarkson (1995) argues that failure to retain the participation of a primary stakeholder group will result in the failure of that corporate system and its ability to continue as a going concern.
Jarillo (1988) and Jones (1995) argue that collaborative working relations with stakeholders will deliver organizational success. Indeed Freeman (1984) endorsed the theory’s instrumental basis, recognizing that, in reality
stakeholders have the power to seriously affect the continuity of the corporation. However, according to Orts and Strudler (2002: 217) the arguments that „the best interests of stakeholders will inevitably also promote the best interests of shareholders is unreasonably optimistic‟ because ethics and economics sometimes conflict.
Hemphill (2004) and Berman and Wicks (1999) argue that looking at stakeholder theory from an instrumental basis is perfectly consistent with shareholder theory. It is a means to an end. The end, or ultimate result, may have nothing to do with the welfare of stakeholders in general, instead the firm’s goal is the advancement of the interests of only one stakeholder group – its shareholders. Thus, it is compatible with Friedman’s (1970) view that the social responsibility of business is to increase its profits. However, this argument would seem to confuse motivation with outcome. It is described here as a reason for undertaking
stakeholder theory. However, the previous description of the instrumental basis of stakeholder theory highlights what happens if a company embraces stakeholder theory (Jones, 1995).
Donaldson and Preston (1995) argue that ultimate justification for stakeholder theory is to be found in its normative base. In support for the moral justification of stakeholder theory, Gibson (2000) referred to the theory of deontology. Deontology is derived from the Greek word meaning “duty” (Gibson, 2000: 248). One of the chief architects of deontological theory was Immanuel Kant. Kant believed that individuals have the right to be treated as ends in themselves and not merely as a means to an end (Shankman, 1999; Metcalfe, 1998).
In support of the theory’s descriptive basis, Donaldson and Preston (1995) point to empirical studies which show that many managers believe themselves, or are believed by others to be practicing stakeholder management often without making explicit reference to stakeholder theory. They argue that the vast majority of managers adhere in practice to one of the central tenets of stakeholder theory, namely, that their role is to satisfy a wider set of stakeholders, not simply the shareholders. Clarkson (1995) supports this claim, arguing that the strength of stakeholder theory is that it accurately describes the functioning of business. Equally, Post et al (2002) argue that there is ample case and anecdotal evidence of the descriptive accuracy of the stakeholder approach from corporate sources.
While stakeholder theory has been described as a descriptive, instrumental and normative theory, the practical question of who is, and who is not, a stakeholder has long been a point of contention. According to Mitchell and Agle (1997: 854) “what is needed is a theory of stakeholder identification that can reliably separate stakeholders from non-stakeholders”.
2.1.4 Defining Stakeholders
According to Mitchell and Agle (1997) since Freeman (1984) published his landmark book, Stakeholder Management, A Strategic Approach the concept of stakeholders has become embedded in management scholarship and management thinking. Freeman (1984: 76) asks a fundamental question underlying stakeholder theory „for whose benefit and at whose expense should the firm be managed? ‟ Should stakeholder status
be reserved for constituencies that have a very close relationship with the organization? Or should stakeholder status be broadly interpreted and take into account all of the groups that can affect and be affected by the organization? (Philips, 2004). Despite vast academic literature devoted to stakeholder theory, agreement is elusive on who qualifies as a stakeholder (Agatiella, 2008) leading scholars in the field to continue to complain about the „blurred‟ and „relatively vague‟ concept of the stakeholder (Orts and Strudler, 2002).
Bryson (2004: 22) defines stakeholders as „persons, groups or organizations that must be taken into account by leaders, managers and front-line staff‟ and Thorne et al (1993:13) believe stakeholders are “those to whom the corporation is responsible”. Freeman’s (1984) now classical definition of stakeholders, which is arguably the most popular definition (Kolk and Pinske, 2006: 59), extended the scope by proposing stakeholders are „any group or individual who can affect or is affected by the achievement of a corporation’s purpose‟. These are clearly very broad definitions and leave the notion of stake and the fields of possible stakeholders unambiguously open to include virtually everyone (Maio, 2003) whether alive or not (Cooper et al, 2001).
This leaves managerial prescriptions and implications nearly limitless (Philips et al, 2003). Referring to this definition Langtry (1994) argues that not buying groceries in a particular shop affects the achievement of the stores purpose, therefore you are a stakeholder of that store. Similarly, unsuccessful tenders as well as successful ones count as stakeholder, since they are affected by the firm not signing a contract with them.
According to Metcalfe (1998) such definitions of stakeholders are unmanageable for any company to deal with.
Thus, it has been proposed that it is necessary to classify stakeholders according to their importance to the firm. Clarkson (1995) distinguishes between “primary” and “secondary” stakeholders. A primary or participant (Metcalfe, 1998) stakeholder is one without whose continuing participation the corporation cannot survive as a going concern. Primary stakeholders are typically comprised of shareholders, employees, customers, suppliers and the public stakeholder group (e.g. the government and local communities). Secondary or non-participant (Metcalfe, 1998) stakeholders are defined as those who influence or affect, or are influenced or affected by the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival. However, secondary stakeholders can have a significant impact on the corporation. Due to their possible impact on the welfare of a corporation, effective managers will attend to their interests as well. Secondary stakeholders include the media for example (Maignan and Ferrell, 2001). Expanding stakeholder classification, in recent years, stakeholder attributes have received increasing attention (Frooman, 1999) to aid managers in deciding how to allocate their limited time, energy and other scarce resources to different stakeholder’s groups (Philips, 2004).
2.1.5 Stakeholder Attributes
According to Cooper et al (2001) when stakeholder theory is used as a managerial tool it is specifically concerned with identifying which stakeholders are more important and as a result should receive a greater proportion of management attention.
It is clear that different stakeholder groups can present quite different and often conflicting needs and interests (Lerner and Fryxell, 1994).
Agle and Mitchell (1997) identify urgency, legitimacy and power as the three key attributes of a stakeholder, arguing that in their various combinations these attributes are indicators of the amount of management attention awarded to a given stakeholder. Power relates to the ability to bring about outcomes of desire or the ability of one actor within a social relationship to have another actor do something that they would not otherwise have done (Agle and Mitchell, 1997). The power of stakeholders may arise from their ability to mobilize social and political forces as well as their ability to withdraw resources from the firm. Legitimacy is the perception or belief that stakeholders‟ claims are proper, desirable or appropriate (Thorne et al, 1993). Lastly, stakeholders exercise greater pressures on managers and organizations when they stress the urgency of their claims. Urgency is based on two characteristics; time sensitivity and importance of claim to the stakeholder (Thorne et al, 1993). Mitchell and Agle (1997) suggest that different types of stakeholders can be identified depending on their degree of power, legitimacy and urgency.
The concept of CSR was originally coined in the 1930s by two Harvard University professors A. A. Berle and C. G. Means. In the book The Modern Corporation and Private Property, they advocate upholding the rights of shareholders, and greater transparency and accountability in large organizations where ‘ownership’ and ‘control’ are separated due to regulatory instruments. Whilst their arguments are limited to corporate power and its impact on US society, the underlying values of transparency and accountability reflect the current scenario of CSR, although in an informal manner.
The focus on this changing notion of ‘private property’ towards public ownership of corporations was initiated soon after the Wall Street crash of 1929 when the ideologies of capitalism revealed corporate irresponsibility.
In academic literature, formal writings on CSR are evident for the first time in Bowen’s (1953) Social Responsibilities of the Businessman. He defines CSR as: The obligations of businessmen to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society (1953, p. 6). Bowen expected businesses to produce social goods such as: 1) higher standards of living; 2) widespread economic progress and security; 3) order, justice and freedom, and finally 4) the development of the individual person. Therefore, he conceptualizes CSR as a social obligation with a broader perspective than mere business responsibilities. In his view, CSR includes responsiveness, stewardship, social audit, corporate citizenship and rudimentary stakeholder theory. As Carroll (1999) claims, most academics believe that Bowen’s (1953) work marks the beginning of the modern period literature on CSR and therefore he can be accepted as the ‘Father of Corporate Social Responsibility’ (Carroll 1999, p. 270).
2.2 CSR in the 1960s
Even though the literature of the 1960s is not strongly discussed in the CSR discourse, there was significant formalization of the concept during this period. Some prominent writers of the decade were Keith Davis, Joseph W. McGuire, William C Frederick and Clarence C. Walton. Each has their own interpretations of CSR but all of them unanimously agree on the fact that business responsibility should exceed the economic interests of the organization.
Davis (1960, p. 70) suggests that ‘social responsibility refers to the businessmen’s decision and action taken for reasons, at least, partially beyond the firm’s direct economic and technical interest’. CSR being a nebulous idea, he believed, could possibly bring enduring economic gains to the organization as a return for its socially responsible stance. His ‘Iron law of responsibility’ states: ‘social responsibilities of businessmen need to be commensurate with their social power’, echoing the significance of ‘social values’ and ‘corporate power’ previously identified by Bowen (1953) and Berle and Means (1932) respectively. In 1961, Eells and Walton also expressed their concerns about corporate power by explaining CSR in terms of problems that arise when a corporate enterprise casts its shadow on the social scene and the ethical principles that ought to govern the relationships between the corporation and society.
Another early proponent of CSR, Frederick (1960) defines it as the use of society’s resources, economic and human, in such a way that the whole society derives maximum benefits beyond the corporate entities and their owners. His explanation clearly indicates that the responsibility of management is not just creating wealth for the business, but for the society too. Further attempts by McGuire (1963) to elaborate the construct ‘CSR’, support Frederick’s approach by focusing on the firm’s obligations extending beyond the economic and legal domains, to include employee and community welfare and the political and educational needs of the society. Following this, the notion of ‘voluntarism’ was acknowledged for the first time by Walton (1967) in his book Corporate Social Responsibilities. Walton was of the opinion that the social responsibility of a corporation always includes a certain degree of voluntarism, since companies have to accept that costs are involved in social actions without any measurable economic return (Walton 1967).
He also argues that external stakeholders have a different set of priorities and enterprises have choices, voluntary actions to meet the expectations of external stakeholders. This demonstrates that Walton saw a link between a firm’s social responsibility and its financial performance. But in contrast to Davis’s (1960) view, he saw a negative correlation because of the unquantifiable benefits of CSR activities.
The real debate was instigated when Friedman (1962) strongly opposed the doctrine of CSR as ‘fundamentally subversive’. According to him, the only responsibility of the management is to maximize the profits of its owners and shareholders. As an economist, he believed, only individuals can have responsibilities. However, there were numerous criticisms from various authors challenging his extremist view.
As formal CSR concepts started evolving, most of the literature documented in this period was in response to the emerging structure of large corporations and their responsibilities beyond their legal and economic interests. The early writings of Bowen (1953), Davis (1960), Frederick (1960), McGuire (1963) and Walton (1967) indicate that firms and businessmen are expected to look at concerns that are wider than the technical and economic aspects of the organization. Such theories can be considered as the basic foundations of the modern CSR which were refined in later years.
2.3 CSR in the 1970s
In the 1970s, the number of authors writing and making reference to CSR increased rapidly. The first reference to stakeholders was made in Harold Johnson’s (1971) Business in contemporary society: framework and issues.
The conventional of CSR is identified by Johnson (1971, p. 50) as being that ‘a socially responsible firm is one whose managerial staff balances a multiplicity of interests instead of striving only for larger profits for its shareholders’. The second pluralistic definition according to Johnson (1971, p.59) is that ‘social responsibility assumes that the prime motivation of the business firm is profit maximization; the business seeks multiple goals rather than only profit maximization’, and Johnson further listed the possible interested parties. This can be perceived as a forerunner of stakeholder theory on CSR participation. Johnson believed, a business can rank its goals and assign an importance to each target accordingly. One of the most important contributions to the definition of CSR was made by the Committee for Economic Development (CED) in 1971. The CED articulated a triple concentric model (Figure 2.1) of the concept. The inner circle includes the clear-cut basic responsibilities for the efficient execution of economic functions like productivity, job and economic growth reflecting Friedman’s (1962) notion of ‘business responsibility’. The intermediate circle encompasses responsibility of economic function in regard to changing social values and priorities, such as environmental conservation, employee relations and more rigorous expectations of customers for information, fair treatment and protection from injury. The outer circle outlined newly emerging and still amorphous responsibilities that the business should assume to become more broadly involved in actively improving the social environment.
Figure2.1CED Model for Corporate Responsibility
Carroll describes the CED’s model as ‘a landmark contribution to the concept of CSR’ which illustrates the changing relationship between business and society (Carroll 1999, p. 274). She adds: Business is being asked to assume broader responsibilities to society than ever before and to serve a wider range of human values. Business enterprises, in effect, are being asked to contribute more to the quality of American life than just supplying quantities of goods and services. In as much as business exists to serve society, its future will depend on the quality of management’s response to the changing expectations of the public (CED in Carroll 1999, p. 274).
Even though this definition provides an integrated approach to CSR with business, employees, society and its environment, it still fails to explain how organizations can respond to show their responsiveness.
This shift in the paradigm of CSR from ‘the philosophical and moral obligation’ (CSR1) to ‘the managerial and organizational action’ (CSR2) was later documented by Frederick (1978). While CSR1 tends to be reactive, responding to the business environment and social pressures, CSR2 is proactive and anticipatory, aiming to impact and change enterprise environments and thereby business performance.
Within a CSR2 conception of CSR, it is the business which decides on the level of its social response and economic issues take clear precedence over social issues (Frederick 1986; Sethi 1975, 1979). CSR2 also reflected the dominant values of corporate culture and the defense of the corporate status quo (Frederick 1986) and thereby, instrumental reasoning became immune by the normative evaluation. In other words, CSR2 downplayed CSR1’s emphasis on values, human rights and social justice.
In response to the CED’s (1971) separation of economic and the broader social responsibilities across stakeholders, Davis (1973) contended that CSR is a firm’s response to issues beyond the narrow economic, technical and legal requirements of a firm and therefore it begins where the law ends. Other researchers of this period had similar views. As they noted, CSR was distinguished by its long (as opposed to short) term managerial focus (Steiner 1971) and by its discretionary rather than mandated actions (Manne & Wallich 1972).
The concept of community in CSR literature was introduced by Eilbert and Parker (1973). They define CSR using the term ‘neighborhood’: ‘perhaps the best way to understand social responsibility is to think of it as good neighbors’ (p. 7).
The concept involves two phases. On one hand, it means not doing things that ‘spoil’ the neighborhood, and on the other, it might be expressed as the voluntary obligation to help solve neighborhood problems such as racial discrimination and pollution.
Eells and Walton (1974) took a broader view of corporate activities which could be assumed as moving towards the concept of social license that was to emerge more fully nearly thirty years later. They suggested that a corporate executive must remain grounded in his philosophy, open in his attitude and able to take decisive actions that are immediately profitable and compatible with the accepted values of his society.
Sethi (1975) expounded a similar idea based on enterprises as an integral part of the society. He proposed a three-tiered model (Table 2.1) that classified corporate behavior in terms of increasing levels of commitment by enterprises, namely, social obligation (a response to legal and market constraints); social responsibility (congruent with societal norms); and social responsiveness (adaptive, anticipatory and preventive). In Sethi’s view, social responsibility goes beyond social obligation and includes the need to bring corporate behavior up to a level where it is congruent with the prevailing social norms, values and expectations of performance.
Table:2.1 Corporate Social Performance Model
Towards the middle of this period, Ackerman and Bauer (1976) proposed a sociological view of CSR. According to them, CSR2 abandoned the conceptual emphasis on CSR1 in favor of an operational focus which involved ‘an effort to treat as a management issue one which had been predominantly treated as a social and/or ethical issue’ (Ackerman & Bauer, 1976, p. vii). They define the social responsibility of an enterprise in terms of its impact on its constituencies: its employees, customers, owners, vendors, and the immediate and larger communities. Ackerman and Bauer make three major contributions to the debate on CSR. Firstly, they argue that the success of CSR programs is dependent on the chief executive officers of large companies and owners in SMEs, who should be champions in displaying business responsibility. Secondly, they argue that enterprises should be proactive and lastly, that both external and internal stakeholders can participate in CSR. Until this time, CSR was viewed as being either a reactive (corporate social responsibility)
or a proactive (corporate social responsiveness) process and therefore very little information about the types of CSR was available. The question still remained, however, of reconciling the firm’s economic orientation with its social orientation.
A step towards addressing this confusion was taken by Carroll after putting forward a comprehensive explanation of CSR. Carroll (1979) developed a four-part corporate social performance model (Figure 2.2) that accommodates Friedman’s (1970) view of the responsibilities of the firm. The component parts are focused on the capitalistic and societal expectations. In its first conception, the framework was developed from a retrospective developmental perspective, based on the claim that the ‘history of business suggests an early emphasis on the economic and then legal aspects and later a concern for the ethical and discriminatory aspects’ (Carroll 1979, p. 500). She explains that the four classes ‘are simply to remind us that motive or actions can be categorized as primarily one or another of these four kinds’ (p. 500). The order and relative weighting of these classes of motives is ‘to suggest what might be termed their fundamental role in the evolution of importance’ (p.500). Finally, she suggests that, ‘although the components are not mutually exclusive, it helps a manager to see that the different types of obligations are in a constant tension with one another’ (Carroll 1991, p. 42).
Interestingly, Carroll’s (1979) inclusion of economic and legal responsibilities within social responsibility is contradictory to numerous views like that of Davis (1973) who explains social responsibility as something that begins where the law ends.
Figure: 2.2 Social Responsibility Categories (Carroll, 1979)
2.4 CSR in the 1980s
One of the first noteworthy definitions in the 1980s was that of Thomas M. Jones. He defines CSR as the ‘notion that corporations have an obligation to constituent groups and society other than stockholders and beyond that prescribed by law and union contract’ (Jones 1980, p. 59). He acknowledges that business and society are interwoven as opposed to being distinct entities.
Carroll (1999) points out that a key part of the above definition is how ‘this obligation is broad and voluntary’.
In 1981, Frank Tuzzolino and Barry Armandi developed a more effective tool for assessing CSR using Carroll’s (1979) definition of CSR and Maslow’s (1954) hierarchy of needs model. They explained the different needs of various organizations.
Their organizational need hierarchy did not redefine CSR, but suggested that organizations, like individuals, have needs they want to fulfil. A similar attempt was made by Dalton and Cosier (1982) in their 2×2 matrix model, (Figure: 2.3) where CSR has four faces – responsible, irresponsible, legal and illegal.
However, these factors were difficult to interpret in different contexts (Carroll 1999).
Figure: 2.3 Four Faces of Social Responsibility by Dalton and Cosier
Numerous authors had tried to develop tools for assessing CSR by the time Freeman (1984) published his landmark book Strategic Management: A Stakeholder Approach. Freeman’s book provides the basis for stakeholder theory which is widely accepted by contemporary business organizations as a useful way of investigating an organizational approach to CSR.
Though the book is classified as one focusing on strategic management, its most substantial impact has been in the fields of business and society, corporate social responsibility and eventually business ethics. Freeman’s approach was taken into consideration in this research in the investigation and interpretation of the SMEs’ involvement in CSR.
Wartick and Cochran (1985) developed another model based on Carroll’s (1979) construct of corporate social performance, acknowledging the primacy of economic performance. Their corporate social performance model extends the three-dimensional integration of responsibility, responsiveness and social issues that Carroll (1979) had previously introduced as a framework of principles, processes and policies. They argue that Carroll’s CSR definition embraces three ethical components: social responsibility, which should be thought of as principles; social responsiveness, which should be thought of as processes; and social issues management, which should be thought of as policies (Wartick & Cochran 1985, p. 767).
Epstein (1987) defines CSR as ‘achieving outcomes from organizational decisions concerning specific issues which have beneficial rather than adverse effects on pertinent corporate stakeholders’ (p. 104).
He viewed the three concepts – social responsibility, social responsiveness and business ethics as ‘corporate social policy processes’. The most interesting aspect of Epstein’s definition of CSR and ‘corporate social policy process’, is the use of ‘outcomes’ and ‘processes’. He explains CSR as the achievement of certain outcomes but when viewed with other constructs, such as business ethics and social responsiveness,
it was part of the process. This idea somewhat contradicts Jones’s (1980) definition of CSR as a process in and of itself. As evident from these two contrasting perspectives, CSR continued to be enigmatic.
2.5 CSR in the 1990s
The prominent themes which continued to grow and take center stage in the 1990s include corporate social performance (CSP), stakeholder theory, business ethics, sustainability and corporate citizenship. Wood (1991) criticizes Carroll’s (1979) approach as involving steps and phases of responsibility. She views the responsibilities defined by Carroll as being delimited and therefore she considers them to be ‘isolated domains’. Based on the interconnection between the firm and the society, Wood (1991) superimposes the responsibility categories of CSR with three levels of analysis and allocates principles to them through her own interpretation. She suggests that the principle of legitimacy becomes effective on the ‘institutional’ level which states a business must not use its power without justified reasons. From the ‘organizational’ level, the principle of public responsibility suggests firms will be responsible for their actions which affect the society directly or indirectly.
Finally, on the ‘individual’ level, managers need to be constantly aware of the need to act according to moral points of view.
Wood (1991) even turned Carroll’s (1979) responsibility pyramid upside down to include the interconnection between corporations and society. Simultaneously, she assigned the pyramid with three distinct levels (Table2.2) – the principle of corporate social responsibility, the principle of corporate social responsiveness and the outcomes of corporate behavior.
Table: 2.2: 3-Dimensional Corporate Social Performance Integration Model
This model proposes that the moral responsibilities of individual managers to make ethical decisions are the basis of CSR components, followed by the organization’s obligation to obey social and legal norms. According to Kang and Wood (1995), if these CSR conditions are met, the firm will be free to make a profit. Global influences on CSR continued in the 1990s as the roles of business and government continued to blur. In 1997, Solomon argued: New businesses are often the most powerful institutions in the world and the expanse of social responsibility has enlarged to include areas formerly considered as the domain of governments. The more powerful businesses become, the more responsibility for the well-being of the world it will be expected to bear (Solomon 1997, p. 202).
As the new millennium approached, Carroll (1999, p. 292) also suggested that the CSR concept will remain as an essential part of the business language and practice because it is a vital underpinning to many of the theories and is continually consistent with what the public expects of the business community today.
The obligations of businessmen to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society. Davis (1960) Social responsibilities of businessmen need to be commensurate with their social power. Frederick (1960) The use of society’s resources, economic and human, in such a way that the whole society derives maximum benefits beyond the corporate entities and their owners.
Eells and Walton (1961) Problems that arise when corporate enterprise casts its shadow on the social scene and the ethical principles that ought to govern the relationships between the corporation and society. The corporate executive must remain grounded in his philosophy, open in his attitude and able to take decisive actions that are at once profitable and compatible with the accepted values of his society. Sethi (1975) Being an integral part of the society, enterprises should fulfil social obligations, social responsibility and social responsiveness. Ackerman and Bauer (1976) Social responsibility is the business impact affecting the constituents of the enterprise. Carroll (1979) Suggested an early emphasis on economic, then legal and finally concern for ethical and discriminatory aspects. Jones (1980) Notion that corporations have an obligation to constituent groups and society other than stockholders and beyond that prescribed by law and union contract.
Epstein (1987) Achieving outcomes from organizational decisions concerning specific issues which have beneficial rather than adverse effects on pertinent corporate stakeholders. Wood (1991) Moral responsibilities of individual managers to make ethical decisions are the most basic of CSR components, followed by the organization’s obligation to obey social and legal norms.
Source: Prepared for this study the definitions and concepts of CSR stated above reflect how the theory emerged, evolved and developed in the past decades. The following section, Section 2.1.5, outlines the current thinking and major academic contributions to this area in the 21st century.
2.6 CSR in the 21st century
The 21st century has been dominated by several wide-ranging topics including international trade, concerns over energy supply, global warming, the explosion in telecommunications, a growing concern with international terrorism and an escalation of social issues which first became prominent in the 1990s.
Along with the development of global business, recent literature appears to be moving away from a US-dominated discourse to a more international one. Academics like Maignan and Ralston (2002), Aaronson (2003), Perrini et al. (2006) and Lucas et al. (2001) studied CSR in France, Netherlands, UK, Italy and Australia. They extended the debate to other countries and compared national perceptions of CSR along with its role in the global society.
Another group of researchers attempted to establish the relationship between social performance and the financial outcome of the organizations. Whilst Orlitzky (2005) found participation in socially responsible activities reduces the financial risk of businesses, Hopkins’ (2003) study of top 10 UK companies failed to validate this finding.
For the first time, several studies of this period aimed to examine CSR in SMEs (Grayson 2004; Spence et. al. 2000; Spence and Rutherford 2003; Tilley 2000). Jenkins (2004) and Castka et al. (2004) criticize the word ‘corporate’ in the term CSR as misleading because it fails to accommodate and appreciate socially responsible actions undertaken by smaller organizations. Brenkert (2002, p. 34) goes as far as saying that ‘business ethicists have treated the ethics of entrepreneurship with benign neglect’. After exploring the characteristics of SMEs in comparison to large organizations, Spence (2007) justifies implementing CSR policies that consider the capacities and capabilities of both the business sectors.
In 2006, Francesco Perrini came up with a suggestion for the use of theories to investigate CSR. He suggested that CSR in large firms should be based on stakeholder theory while CSR in SMEs should be understood through the application of social capital theory. Later, Russo and Perrini (2009) modified the above conclusion and restated it as ‘social capital and stakeholder theory should be taken as alternative ways of explaining CSR in large organizations and SMEs’. They also opined that SME–CSR relations are better explained in terms of social capital, although it should be accompanied by the stakeholder view of the firm.
Finally, the following statement of Horrigan (2007, p. 85) best portrays the status of CSR at the end of 21st century’s first decade: It is also a story of the emergence of a distinctive CSR movement. Both the developed and developing worlds are rapidly reaching the point where they must decide if today’s global CSR movement is a passing social fad, a threat to economically efficient corporate capitalism, an intrinsic element of corporate responsibility, or even a key to humanity’s long-term survival. CSR literacy is quickly becoming a primary imperative for a variety of actors in a multiplicity of roles across governmental, business, and community sectors nationally and internationally.
Hardin (1968) popularized the concept of the tragedy of the commons, which highlights the conflict that inevitably result from resource allotments between individuals and the community. He argues that multiple sources’ limitless demands on a finite resource would lead to over-exploitation and mistreatment of the resource, ultimately depleting it completely. This idea led to the first insights into modern ‘sustainability’ in the Limits to Growth discourse of the 1970s (Meadows et al. 1972), although earlier scholars have advocated about balancing nature conservation with economic activities (cf. Lumley and Armstrong 2004). Nevertheless, until the 1992 Earth Summit in Rio, neither politicians, nor NGOs, nor business leaders had given the concept of sustainability/CSR center stage as a principal human challenge for the 21st century (cf. Hockerts 2003).
Then again, the ideas of business entities’ social sensibility and good citizenship are hardly novel, and can be traced back a long way. As the following discussion on earlier literature demonstrates, the
mainstream concepts of corporate social responsibility and sustainable development essentially convey the same message as sustainability, and academics frequently use them synonymously with (corporate) sustainability.
Social concerns began to infiltrate management education after the Second World War, with social responsibility first emerging as an academic topic in the 1950s. Bowen (1953) was a pioneer in delineating the social responsibilities of ‘businessmen,’ stating that corporate social responsibility “refers to the obligations of businessmen to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society” (Bowen 1953, p. 6). This was a landmark initiative to define the concept, and earned Bowen the designation “Father of corporate social responsibility” (cf. Carroll 1999, p. 270). Among the notable contributors to the literature in the 1960s are Davis (1960), Frederick (1960) and McGuire (1963). Davis argued in favor of social responsibility from a managerial viewpoint, and stated that it referred to those decisions and actions of managers that were “taken for reasons at least partially beyond the firm’s direct economic and technical interest” (Davis 1960, p. 70). Frederick viewed the concept from a stakeholder perspective, and held that “businessmen should oversee the operation of an economic system that fulfills the Corporate Social Responsibility from an Emerging Market Perspective expectations of the public” (Frederick 1960, p.60). McGuire (1963) drew a more succinct definition by asserting that businesses must accept a social responsibility that extends beyond economic and legal obligations.
In this period, the publication of Rachel Carson’s landmark book ‘Silent Spring’ in 1962 launched the worldwide environmental movement in the wake of environmental disasters brought on by corporate negligence and ignorance in the U.S. (Carson 1962). Inspired by the mass social movements of the 1960s in Europe and America, public acceptance of companies’ social responsibilities also began to gain ground.
Profuse theorization on and conceptualization of companies’ social responsibilities emerged from scholars in the fields of sociology, management and business ethics in the 1970s (cf. Carroll 1979, Ackermann and Bauer 1976, Davis 1973, Johnson 1971). Similar to Frederick (1960), Johnson (1971) also held a stakeholder view and considered managers corporate social responsibility as utility maximization, rather than profit. Carroll’s (1979) CSR model proved to be immensely popular, and has been cited widely. He conceptualized four hierarchical but mutually inclusive responsibilities for a corporation: economic (to be profitable), legal (regulation-compliant), ethical (acting in a righteous and fair manner) and philanthropic (contributing to a broader civic society for educational, cultural or recreational purposes). Building on Carroll’s work, Wartick and Cochran (1985) ventured to formulate a general model for corporate social performance (CSP). Eventually, the 1980s and 1990s saw the concept of corporate social responsibility evolve theoretically and receive much empirical attention (cf. Wood 1991), and complemented the growing trend of theoretical focus on the environmental dimension. 1999 saw the publication of Natural Capitalism, espousing for the first time that companies can combine positive financial results with pollution
reduction, if they rethink certain operating procedures and use of materials (cf. Hawken et al. 1999). This book popularized the idea of ‘natural capital’ and challenged the conventional notions of accounting that cataloged environmental impacts of a firm as externalities. The natural capitalism theory focused heavily on resource efficiency, and advocated ways to exploit the market systems for environmental advantages.
2.7 CORPORATE SOCIAL RESPONSIBILITY FROM AN EMERGING MARKET PERSPECTIVE
Banerjee (2002) builds up on the natural capitalism philosophy and promotes the idea of corporate environmentalism as a corporate strategy, where environmental concerns are taken into account in a firm’s core decision- making processes. He stresses the recognition of the natural environment’s importance and legitimacy as a primary element of corporate strategy formulation, based on the belief that environmental problems arise from corporate activities (Banerjee 2002, p. 181). This integration of environmental concerns into core business strategy may help to build a successful business case for sustainability, whereby a firm ultimately actually benefits from adapting environment-friendly or green policies (cf. Hawken et al. 1999, Porter and van der Linde 1995).
On a more inclusive level, Freeman (1984) formulated the stakeholder theory, which proposed that the firm must meet the expectations of external groups or individuals who may have an effect on the firm’s performance. The rationale behind the stakeholder theory is that it would be beneficial for firms to link up with stakeholders (as opposed to only shareholders)
to legitimize and maintain their license-to-operate (Howard-Grenville et al. 2006). Donaldson and Preston (1995) expanded Freeman’s theory and maintained that the normative base of the theory to engage in stakeholder activities should be regarded as fundamental.
A more moral take on the stakeholder theory is found in the corporate stewardship theory (cf. Worrell and Appleby 2000, Davis et al. 1997, Donaldson and Davis 1991), which adds a new dimension to the CSR and business ethics debate. This theory suggests that firms should exclusively focus on carrying out their social duties and responsibilities, without regard to the financial consequences of such acts.
Jones (1995) introduced an instrumental theory for stakeholder management, enhancing the stakeholder theory and surmising that the high returns on regular and trusting interaction with stakeholders make firms strive for better ethical performances and give them significant competitive advantages.
In a similar line of thought, the concept of corporate citizenship emerged (cf. Marsden and Andriof 1998). As a broader concept, corporate citizenship (CC) deals with businesses’ interplay in society beyond their economic roles, and Birch (2001) regards this as the next step to CSR. According to Carroll (1999), it is an extension of the operationalization of businesses’ role in society in the management literature. Matten and Crane (2005) clearly separate it from CSR, and argue that CC is strategic in nature, whereby assuming that stabilities in the social, environmental and political scenarios are profitable for business (Windsor 2001, Wood and Logsdon 2001).
Crouch (2006) agrees with Matten and Crane (2005) that CC is not synonymous with CSR, and that CC views the organization in a wider perspective (than CSR). However, regardless of scholarly debate upon the depth and breadth of these (closely-related) concepts, quite a few global companies (e.g. Novartis) treat CC and CSR as synonymous.
A critical viewpoint along regulatory lines is raised by the corporate accountability theory (cf. Swift 2001, Zadek et al. 1997), which states that firms are answerable to society for the consequences of their actions. Stakeholder interactions and corporate environmental reporting are popular tools for realizing corporate accountability. Waldman et al. (2004) meanwhile applied the transformational leadership theory to highlight the role that the top management team can play in relation to CSR activities within a firm. Their study shows that a CEO’s intellectually stimulating leadership can lead to a firm being engaged in a higher degree of strategic CSR than its peers. Strategic application of CSR can also be discussed within the perspectives of the resource-based view of the firm (RBV) (cf. Barney 1991, Wernerfelt 1984).
This view presupposes that firms need to exploit their resources (e.g., assets, capabilities, competencies, firm attributes etc.) in such ways that these resources become sources of sustainable competitive advantage. In his 1995 article on the natural-resource-based view of the firm, Hart applied the RBV framework to a firm’s environmental responsibilities (Hart 1995), stating that there is a positive correlation between environmental responsibility and financial performance. While Russo and Fouts (1997) confirmed Hart’s assertions,
their contemporaries Preston and O’Bannon (1997) found a few negative correlations. However, as Roman et al. (1999) show in their comparative compilation of studies investigating the social and financial performance link, negative correlation between these two have been increasingly rare or inconclusive in later years, while the literature on positive correlations has become increasingly robust.
Husted and De Jesus Salazar (2006) conducted a cost/benefit analysis of social responsibility under three scenarios concerning a firm’s willingness to engage in CSR – altruism, coerced egoism, and the strategic use of CSR. In altruistic CSR, companies take on the role of stewards who are proactively socially responsible, disregarding the effects on the financial bottom line. In coerced egoism, companies only undertake CSR activities when they are compelled to do so by external factors such as regulations. The strategic use of CSR is related to the business case for sustainability, where the company’s financial bottom line benefits from its CSR activities. Perhaps not surprisingly, the authors prefer the strategic use of CSR to the other two more extreme manners of CSR, both of which can threaten the existence of the firm (albeit in very different ways!).
Some scholars (e.g. Sacconi 2004) consider corporate governance – a discrete branch in management studies – to be a part of CSR. However, the majority of corporate governance studies do not explicitly relate to CSR, although one could argue that there are implicit assumptions in this regard (cf. Steger 2004).
Elkington (2006) opines that corporate governance needs to integrate greater social concerns whose scope goes beyond the immediate jurisdiction of the boardroom.
In summation, a number of theories in management science (and economics) have contributed toward developing a modern CSR concept. There have also been concepts within the CSR realm that stress various nuances of the notion. Nevertheless, the theoretical maturation of CSR has not yet been concluded. The following section discusses scholarly attempts at defining CSR.
2.8 CSR and SUSTAINABILITY: Definitions and Interpretations
The term ‘sustainable’ was first used in relation to forestry and natural resource management (cf. Hediger 1999). Although earlier work on CSR primarily dealt with issues in the social arena (cf. Frederick 1960, Bowen 1953), later years have seen the inclusion of environmental aspects in its realm (cf. van Marrewijk 2003, CEC 2001), contributing to the ongoing debate on whether corporate sustainability (CS) and CSR are mutually exclusive. In fact, van Marrewijk (2003) holds CS and CSR to be synonymous, and advocates context-specific contents for a CS/R definition that is in keeping with the individual organization’s awareness and goals.
Corporate Social Responsibility from an Emerging Market Perspective
As currently understood, the concept of sustainability and CSR lies in the legendary definition of sustainable development offered by the Brundtland Commission of the World Council on Economy and Development (WCED) as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED 1987a, p. 8). In the corporate context, sustainability is the
application of sustainable development at the firm level, in addition to the global, national and local levels (Hockerts 2003). Atkinson (2000) likewise holds sustainability to be one of the key concepts to have emerged from sustainable development.
Dyllick and Hockerts (2002) draw upon the Brundtland Commission’s definition of sustainable development to define corporate sustainability, stating that it is “meeting the needs of a firm’s direct and indirect stakeholders without compromising its ability to meet the needs of future stakeholders as well” (Dyllick and Hockerts 2002, p. 131). Schaltegger et al. (2002) hold the central challenges of ‘corporate sustainable development’ to be the integration of the economic, ecological and social aspects of a firm’s activities (Schaltegger et al. 2002, p. 6), whereas, Starik and Rands (1995) equate sustainable development with ecological sustainability, and state that “the test of an organization’s ecological sustainability is the degree to which its activities can be continued indefinitely without negatively altering the limiting factors that permit the existence and flourishing of other groups of entities, including other organizations” (Starik and Rands 1995, p. 909). The limiting factors in this context refer e.g. to the access and utilization of resources, among other aspects (Starik and Rands 1995).
It therefore follows that as theoretical concepts, many of CSR and corporate sustainability’s roots lie in the concept of sustainable development. However, scholars have defined and interpreted sustainable development’s core concept in a multitude of ways, and there have been many contradictions in the elucidation of the concept from early on (e.g. Redclift, 1987).
The landmark Brundtland definition has been streamlined, specified and made more relevant and contextual for a number of ensuing definitions. Starik and Rands (1995), for example, have commented on the Brundtland definition as being tentative and outdated, because they believe that we have already crossed the critical threshold of global carrying capacity into decline (Starik and Rands 1995). The rich perceptive and definitional diversity of this core concept has contributed to the subsequent concepts of CSR and corporate sustainability. A glance at the environmental economics (one of the fields that CSR has roots in) literature shows the concepts of intergenerational cost transfer, limits to and the depletive nature of resources, and compensating for natural resource exhaustion emerge as major components that characteristically define sustainability and sustainable development. A number of components have emerged in sustainable development definitions over the years in this context, which forms a base for the ensuing concepts of corporate sustainability and CSR.
Characteristics Proponents Consumption made possible at a persistent rate over generations; intergenerational cost transfer Viederman (1994), Hawken (1993), Pearce (1993), WCED (1987a) Resilience between ecological and socioeconomic and system goals Corson (1994), Costanza et al. (1992), Daly (1992), Barbier (1987) Limitation of natural resources Dyllick and Hockerts (2002), Holdgate (1993), Clark (1991) Need satisfaction without affecting long-term resource consumption Starik and Rands (1995), Bartelmus (1994) Compensate resource exhaustion with future utility Pezzey (1992), Pearce et al. (1990) Consisting of multilevel & multi-system characteristics that require integration Schaltegger et al. (2002),
Holme and Watts (2000), Starik and Rands (1995) Fulfillment of stakeholder demands Dyllick & Hockerts (2002), Holme & Watts (2000) Contextual in terms of temporal and societal setting Moon (2007)
In defining CSR, Holme and Watts (2000) highlight a firm’s ethical obligation to positively influence the livelihood of its stakeholders at different levels – employees, local community and society – in that order. The authors of the Green Paper on CSR presented by the Commission of the European Communities go a step further by including environmental issues in the sphere, defining CSR as “a concept whereby companies decide voluntarily to contribute to a better society and cleaner environment” (CEC 2001). Dyllick and Hockerts (2002), in tune with Elkington (1997), maintain that social responsibility is only one dimension of the three pillars of sustainability – economic and ecological being the other two.
2.9 The CSR concept
With increased globalization and multicultural intricacy in today’s market place, firms are faced with more complex interactions with, and diverse interests of, multiple stakeholders (see figure 2.4) and specifically with their customers. This means that firms need to apply a broader market approach that extends outside its traditional realm to better serve firm objectives (Kang, 2009; Lopez, et al., 2007; Luo& Bhattacharya, 2009). The belief that customers are increasingly better organized, more informed and more demanding, has been repeated throughout previous research (Appiah-Adu & Singh, 1998; KPMG, 2011; Ruekert, 1992).
Since the emergence of internet based social networks (for example Twitter or Facebook) this statement is more relevant than ever. This is especially important since several sources of managerial pressure today regards firms’ behavior and business ethics rather than operative concerns applied by their customers (Gebhardt, Carpenter, & Sherry, 2006; Hill, et al., 2008; Kang, 2009; Lopez, et al., 2007; Waddock & Graves, 1997). The idea that firms should assess and apply some CSR trait is a widely-accepted concept and viewed as a key determinant of a responsible business’s survival, long-term performance (Ramchander, et al., 2012; Stainer, 2006) and reputation (Carroll & Shabana, 2010; Freeman, Wicks, & Parmar, 2004; KPMG, 2011; Melo & Garrido-Morgado, 2012; Miller, 2004).
Figure: 2.4 Multiple Stakeholders of a Company
2.10 CSR and Definition
CSR has become a corporate behavior and management philosophy that an increasing number of firms worldwide choose to adopt (Carroll & Shabana, 2010). This can be involuntarily, that is to comply with legislation (for example in the environmental area), or voluntarily, to contribute some set of resources (for example people, time, knowledge, skills or money) for a social benefit or otherwise contribute to the betterment of some conditions normally outside the scope of the firm (Moon & deLeon, 2007). One example of such social benefit outside the normal scope of a firm is where a telecom operator developed a specific cell phone application to leapfrog the sub-performing internet infrastructure in a developing country.
Carroll (2010) further explain that CSR can embody norms that internal and external stakeholders regard as just and fair, are a response to societal expectations regarding corporate citizenship, or cover active programs that promotes human welfare and good will (Carroll, 1991). While there are variations of the CSR definition, a commonly applied definition is “a commitment to improve societal well-being through discretionary business practices and contributions of corporate resources” (Du, et al., 2010, p. 8; Kotler& Lee, 2005; Mackey, et al., 2007; McWilliams & Siegel, 2000; Waddock& Graves, 1997). While previous researchers used this definition mostly from a non-strategic view and from the Stakeholder theory perspective, this research intends to instead research CSR from a strategic perspective applying the Market Orientation theory and focus on customers. Since CSR has shifted towards being strategic (instead of ethical) with the organization as unit of analysis (instead of the society) a more recent definition is “actions that enhance a firm’s competitiveness and reputation” (Hill, et al., 2008, p. 6).
We therefore view this definition as more suitable for this research. We will next explore the adaptation and arguments towards CSR, the categories of CSR and the utilization of the overall concept.
2.11 ADAPTING CSR CONCEPT
A broader view of what constitutes a firm’s domain of market interests, implies that firms should acknowledge that all their stakeholders have the right to satisfy their needs and wants, regardless if a firm has the capacity or willingness to attend to it (Gummesson, 2008). Thus, firms are recommended to apply a mindset of meeting the modern business complexity with a more holistic market approach (Gummesson, 2008; Noha, 2009; Olson, 2008). As a result, a large number of firms worldwide have chosen to allocate financial and other resources to undertake CSR activities that extend beyond regulatory requirements (Moon &deLeon, 2007; Orlitzky, et al., 2003).
By doing so, firms intend to use CSR as a strategic response (Carroll & Shabana, 2010; Wood, 2010) to market- and customer pressures by improving for example their ethical (responsible) behavior or environmental performance, often with the goal of increasing their competitiveness (Moon & deLeon, 2007). Since all activities in the CSR field involves internal and external stakeholders it further affects most, if not every, department of a firm (Maak, 2008).
Michael Porter (2006) highlights the omnipresence of CSR impact by stating that attention to and prioritizing CSR is unavoidable for every business leader in every country (Porter & Kramer, 2006).
The result is that CSR transforms and evolves from being a ‘goodwill’ concept into becoming a business function, a strategic management component of central importance to firm level success (Carroll &Shabana, 2010; KPMG, 2011; Luo& Bhattacharya, 2009) and a vital part of a firm’s strategy (Bondy, et al., 2012; McWilliams & Siegel, 2011; Noland & Phillips, 2010). One example discussed in a 2002 PriceWaterhouseCooper survey state that “70% of global chief executives believe that CSR is vital to their company’s profitability” (Carroll & Shabana, 2010).
2.12 ARGUMENTS REGARDING CSR CONCEPT
In situations where CSR interests are of purely external concerns to the firm, actions to apply CSR are sometimes taken and driven for personal reasons, for example by the CEO (Adams, Licht, & Sagiv, 2011; Luo& Bhattacharya, 2009; Walls, et al., 2012). Arguments against such behavior have repeatedly been discussed in that social or environmental concern should be fulfilled by individuals through donations or by Governments via tax revenue and not by firms unless legislated (Friedman, 1970).
While Friedman (1970) discussed that firms should focus on profit maximization for its shareholders, this classical economic argument against CSR also claims that firms should do so within the framework of the society’s norms. Drucker (1984) partially agreed with Friedman in that firms must first tend to profit, for without profit there are no funds available to engage in any type of CSR.
However, Drucker disagrees that profit shall be the only social responsibility of a firm and stresses that CSR is important and must be addressed.
Drucker’s view is that firms ‘must do good to do well’ and that firms, not governments, are best suited to deal with social improvements as firms are faster and can more easily commit resources when a solution is perceived to be an opportunity that optimally generates mutual benefits (Drucker, 1984).
When managers become aware of potentially problematic issues of conduct, it is important to recognize that certain issues can grow and become a concern to the firm if the importance escalates over time. This could be due to that various stakeholders, customers or activists, apply pressure on a firm to engage in a specific matter –firm related or not (Maak, 2008). Committed managers and executives can then choose to react and discuss the matter in terms of potential gain (Moon & deLeon, 2007; Orlitzky, et al., 2003). Such reactions could typically evolve around intangible asset creation in form of brand enhancement or improved reputation (Melo & Garrido-Morgado, 2012), legitimacy or integrity (Porter, 2008; Porter & Kramer, 2006).
It is further important to note that CSR not always does, or should, target the enhancement of financial performance (Lindgreen & Swaen, 2010). One recommended approach is to address potential gain via risk management and view CSR investments through the corporate lens of research and development (R&D) (Drucker, 1984). Drucker compares the aspects of R&D (an activity or activities that typically has long lead times, embodies willingness to experiment and potential abandonment of an experiment in case of lacking results) with CSR and claim them to be similar. Drucker argues that CSR activities are more likely to turn a social problem into an economic opportunity and benefit to a firm if the
CSR activities are viewed long term and as somewhat experimental (Drucker, 1984).
Thus, CSR holds the power to provide economic wealth for the firm and to the society in form of productive capacity, human competence and job creation (Drucker, 1984; Porter & Kramer, 2006). These improvements can further decrease the risk of problems with third parties, media and government (Nielsen & Thomsen, 2010). In these ways, Friedman’s (1970) reasoning could today be said to be within the scope of both profit maximization and responding to a society’s norms (Carroll & Shabana, 2010). Caring for what interests a firm’s customers (or other stakeholder categories) is decidedly pro- shareholder (Drucker, 1984; Freeman, et al., 2004; Miller, 2004).
Advocates of CSR further point to research that claim unplanned and insincere CSR to be counterproductive and instead risk negative connotations from their stakeholders (Carroll &Shabana, 2010; Ramchander, et al., 2012; Wagner, et al., 2009b). Firms are therefore encouraged to assume a strategic approach if they want to benefit from their CSR efforts (Kelly, 2009; Luo& Bhattacharya, 2009) and are advised to use the same decision framework as they do for any other strategic management decision (Porter & Kramer, 2006). One suggested way to discuss and assess intended CSR activities is to structure the idea into observable social impact (for example reduction of emissions), social programs (targeting firm specific goals or needs) or in terms of social policies which act to guide organizational decision making. It is important to align CSR efforts with firm level objectives in a strategic management fashion (Orlitzky, et al., 2003).
Another categorization approach is to focus on the justification of CSR. Carrol and Shabana (2010) suggest categorizing CSR activities and their scope into one or more of the following: (1) cost and risk reduction; (2) strengthening legitimacy and reputation; (3) shaping competitive advantages; and (4) creating win–win situations through mutual value creation (Carroll &Shabana, 2010). Regardless of what categorization approach one applies, it is important to have the top management teams (TMT) attention and staff commitment to extract the intended benefits from CSR (Gummesson, 2008; Lam, Kraus & Ahearne, 2010; Marcel, 2009; Olson, 2008). Our research will utilize Carrol and Shabana’s (2010) categorization approach where applicable. It is further important to note that even though regulatory based CSR (for example legislated reporting requirements in annual reports) can result in a high level of CSR activities, it does not necessarily provide (any) benefits for the firm (Gadenne, et al., 2009). It is even claimed that such regulated CSR can result in negative financial performance (Miles & Munilla, 2004). The shared opinion among CSR researchers are thus that CSR should not be viewed from a cost perspective but as a long-term investment opportunity (Carroll &Shabana, 2010; Drucker, 1984; McWilliams & Siegel, 2011; Orlitzky, 2000; Porter & Kramer, 2006; Wood, 2010). Addressing potential future problems today is both healthy risk management and sound preparation for opportunities thus of strategic importance to firms.
2.13 CSR CATEGORIES
CSR can be divided into directly philanthropic activities without any intention to gain (Maak, 2008), and activities with some strategic intent, for example to improve reputation (McWilliams & Siegel, 2011;
Melo & Garrido-Morgado, 2012) or otherwise enhance firm performance (Bansal& Roth, 2000; Lev, et al., 2011). This can be either internal or external to the workplace. Examples of CSR internal to the workplace are on-site child-care provision for employees, developing non-animal testing procedures, re-cycling or implementation of internal environmental improvement programs (McWilliams & Siegel, 2001a). CSR external to the workplace can be the support of local businesses, fighting deforestation and global heating, supporting minorities, implementing external environmental improvement programs or provide disaster relief.
CSR can also be combined where an internal change has an external gain. One such example is where R&D efforts target socially preferable product attributes such as pesticide free produce (KPMG, 2011), process attributes (for example organic cultivation) (McWilliams & Siegel, 2001a) or green marketing (Luo& Bhattacharya, 2009). These all have in common that it can increase customer preference of a firm’s products. Firm specific examples are Marriott Hotel’s training program for chronically unemployed people, which targets higher retain grade for low level entry positions or Microsoft’s community college education program which improves IT education standards to increase their future recruitment pool (Porter & Kramer, 2006).
While all efforts towards sustainability, legitimacy, reputation, brand, image and moral duties (doing “the right thing”) are examples of CSR means and targets, it is argued that the benefits are not homogenous across firms (Carroll & Shabana, 2010). It is also argued that some CSR activities, for example a firm’s waste reduction program, should not necessarily be considered as CSR but a normal business decision regarding cost savings (KPMG, 2011; Porter & Kramer, 2006).
2.14 UTILIZATION of CSR
Even though CSR is not a new concept it has recently increased in popularity as more firms around the world are adopting the CSR concept (Carroll & Shabana, 2010; KPMG, 2011; Porter, 2008; Reid & Toffel, 2009). To highlight the significance firms, place on CSR, estimates show that publicly traded firms in the United Kingdom alone contributed almost 1% of their combined EBIT (earnings before interest and taxes) in 2003, resulting in $1.6 billion USD of donations to non-profit organizations (Carroll & Shabana, 2010). In Sweden (where charity contributions are not tax-deductible) firms contributed over $300 million USD to charity during the Christmas season 2009 (Leigard, 2009).
Compared by GDP PPP (gross domestic product, purchase power parity) this translates to approximately 0.09% for Sweden and 0.07% for the United Kingdom, or $27 USD per citizen in the United Kingdom and $33 USD per citizen in Sweden or a 22% difference if compared per capita. According to the CSR India Index 2012, which tracks the PAT (profits-after-tax) and CSR spends of the top 10 private sector companies in India & provides a glimpse of the overall CSR sentiment of the industry, the top 10 private sector companies put together made a total of INR 734 billion in profit-after-tax for the financial year 2011-12. For the same year, these top 10 companies spent actually less than half of what is mandated in the company law (CSR spend equivalent to 2% of net-profit) i.e. instead of INR 14.67 billion the overall spend was only INR 6.9 billion.
FY 2015-16 witnessed a 28 percent growth in the CSR spending in comparison to FY 2014-2015. Prime Minister’s Relief Fund saw a high increase of 418 percent from Rs 1.68 billion in the year 2014-15 to Rs 7.01 billion in the year 2015-16. CSR spend of listed companies in the India reached Rs 83.45 billion. The favourite CSR activities ranged from the educational programs, skill development, social welfare, community development, healthcare, and environment conservation. Education and healthcare remained at the top of CSR spend priority with funding worth RS 20.42 and 16.38 billion. Less focussed area remained gender equality, maternal health, and child mortality. Reliance Industries, NTPC (National Thermal Power Corporation (NTPC)) and ONGC topped in CSR spend. After the announcement of Swach Bharat Abhiyan and digital India program, 2017 shall witness alignment between corporates CSR activities and Government programs.
It is also reported that firms that engage in CSR are progressing from the prevailing focus on increased competitiveness or legitimacy, or where they act in an environmental responsible or otherwise sustainable way (Neilsen & Rao, 1987). The new direction is towards the intent of reinforcing corporate strategy (Porter & Kramer, 2006). Thus, firms are now engaging in CSR to obtain some specific benefit in return (Bondy, et al., 2012), for example increased brand loyalty (KPMG, 2011; McWilliams & Siegel, 2011). CSR has also increased in popularity globally since it is considered to be an important long-term investment that can lead to competitive advantages (Kang, 2009; McWilliams & Siegel, 2011; Orlitzky, et al., 2003; Porter & Kramer, 2006; Ramchander, et al., 2012).
In contrast, it is important to note that regulatory CSR requirements risk a negative impact on long-term social benefits and financial performance (Miles & Munilla, 2004; Miles, Munilla, & Covin, 2002).
One example of negative effects is when a firm’s efforts are viewed with skepticism it thus fails to provide benefits while bearing the costs (Wagner, et al., 2009).
Another is that firms with a neutral or negative CSR reputation can experience larger stock market decline in economic downturns than firms with positive CSR reputation (Peloza, 2006; Ramchander, et al., 2012).
As briefly mentioned earlier, one example where CSR is proven to be an important long term investment that leads to both a competitive advantage and improved society at large, is the case of a telecom operator and their CSR activities in a developing country.
The increased popularity in CSR is further displayed on the regulatory sector where firms increasingly are expected to apply corporate transparency and report their CSR efforts (KPMG, 2011). Previously, regulations have more addressed some particular area of CSR, typically within the environmental area. Two mature international examples are the ‘American Clean Air Act’ from 1977, and the ‘Environmental Offences and Penalties Act Australia’ from 1989. However, the more recent regulations specifically address CSR. One example of a regulatory change is found in Denmark where a law effective from 1st January 2009 requires larger publicly traded firms to report all CSR activities in their annual reports (Danish-Parliament, 2009).
Danish firms do not have to undertake any CSR but they must report their scope. In short, Danish businesses are free to choose whether or not they wish to undertake any CSR activities voluntarily.
However, there is a statutory requirement that large businesses in Denmark now must take a position on CSR in their annual reports. The Danish Parliament adopted the proposed “Act amending the Danish Financial Statements Act: Accounting for CSR in large businesses” on 16 December 2008. The aim is to inspire businesses to take an active position (engage in) on corporate responsibility and communicate their activities.
The statutory requirement is part of the Government’s action plan for CSR and is intended to help improve the international competitiveness of Danish trade and industry (Danish-Parliament, 2009). The Act covers large businesses, listed companies and state-owned companies. Large businesses are businesses that exceed two of three size limits: a) total assets/liabilities of 143 million DKK ($26.6 million USD); b) having net revenue of 286 million DKK ($52.3 million USD); and, or c) having an average of 250 full-time employees (Danish-Parliament, 2009). The United Kingdom is currently also investigating a similar regulatory approach.
Several ranking lists are also available providing country level positioning in CSR behavior (ITIF, 2009, 2011; Swedish-Institute, 2009, 2011). For example, ‘The Climate Change Performance Index’ (German Watch, 2009); ‘CSR: State of Responsible Competitiveness’ (Accountability, 2009), and ‘The Environmental Performance Index’ (Yale University, 2009). Another sign of the increasing importance of CSR is that the ISO organization (International Organization for Standardization) has extended their standards to cover CSR. The ISO14001 standard, which is an environmental performance certification, was complemented 2011 with the new ISO26000 CSR standard (Balzarova & Castka, 2012;
Haleblian, Devers, McNamara, Carpenter & Davison, 2009; Harrison, et al., 2010; ISO, 2009; Wieseke, et al., 2009; Yale- University, 2009).
CSR also varies in popularity on the regional level. European firms are said to lead broadly in all areas of CSR today (Hill, et al., 2007; KPMG, 2011) while U.S firms limit their focus by claiming CSR to be avoiding participation in, for example, the tobacco or arms industry (Kinder, Lydenberg, & Domini, 2009; MSCI, 2012).
Asian firms have started to follow their western counterparts’ approach in an exploratory way and to imitate best practices of firms in the U.S and Europe (Hill, et al., 2007; KPMG, 2011).
Firms who voluntarily undertake CSR are numerous and can be found in any industry and region, among any size of firms and firms with, or without, multi- national operations. Specific examples of firms involved in CSR include GE (industrial equipment), Carlsberg (FMCG), IKEA (retail), Toyota (automobile), Microsoft (computer software), Nestle` (FMCG), Ericson (telecom) and DuPont (industrial chemicals). All of these firms have substantial CSR programs listed on their respective website (see the ‘Websites’ section). It is noticeable that CSR is also frequently used in firms providing services, for example financial services, banking, utilities and hotels. Some service industries further have industry specific accreditation organizations regarding CSR components. Regardless from what source or level the initiatives comes from, or what drives the initiatives, challenges for one firm or a single industry commonly transfer across (spill over) to bring about changes for most firms (Reid & Toffel, 2009).
One should therefore expect CSR to increase in popularity, both enforced for instance via reporting regulations and voluntarily.
2.15 CSR and EXTERNAL ORIENTATION
As discussed in a previous section a large number of firms voluntarily choose to change their practices or allocate financial and other resources to apply CSR activities regardless the associated costs in beliefs that it will benefit the firm (Moon & deLeon, 2007).
A common reason is that firms recognize that more types of stakeholder categories are relevant to a firm today than they previously believed were relevant (Delmas & Toffel, 2008; Donaldson & Preston, 1995). To build, nurture and develop an honest and open involvement with stakeholders in general, and customers specifically, is of course a vital part of any firms’ strategy (Jaworski & Kohli, 1993; Noland & Phillips, 2010). Hence, the commitment to CSR should not be viewed as a cost or constraint, but as a long-term investment (Kang, 2009; Orlitzky, et al., 2003). Attention to CSR is therefore basically unavoidable for any business leader, and a source of innovation and competitive advantage (Porter & Kramer, 2006).
With CSR being defined as a commitment to improve societal well-being through discretionary business practices and contributions of corporate resources (Du, et al., 2010; Kotler& Lee, 2005; Mackey, et al., 2007; McWilliams & Siegel, 2000; Waddock & Graves, 1997), the immediate question regarding such external orientation is to whom.
The answer to this question –stakeholders- can be very complex and straightforward at the same time. The answer is likely to be more readily assessable when discussed in terms of firm level gain (focusing on customers specifically) than if one would attempt to assess for example country level effects (focusing on society in general). We therefore divide this section into customer orientation as the focal point for CSR and the interaction with them.
2.16 CUSTOMER ORIENTATION
Since all types of CSR (strategic CSR, philanthropic CSR or regulatory requirements of CSR) will affect some or several categories of people, it is important to include the broader concept of stakeholders in any CSR discussion (Freeman, 2007; Lindgreen & Swaen, 2010). Despite that our research target one specific stakeholder category (the customers) any CSR activity that increases some aspect of customer satisfaction also positively affect employees (and their families), the local community, and the society at large. The reason is that CSR is conceived of as multidimensional and contribute to economic development while improving the quality of life for several stakeholder categories regardless if a firm select a specific stakeholder.
Stakeholders to a firm are any person, group or organization that directly or indirectly has an interest in the firm, are affected, or can be affected, by the firm’s business activities, actions, objectives, policies and value creation processes (Freeman, 2007, 1984; Freeman, et al., 2004).
For example, managers, employees and shareholders are considered natural internal key stakeholders, while suppliers, customers, governments, political groups, trade associations, unions and communities at large are also key, yet external, stakeholders (figure 2.5) (Donaldson & Preston, 1995). The term ‘Stakeholder’ originated from Stanford Research Institute (SRI) and referred to “those customer groups without whose support the organization would cease to exist” (Elijido-Ten, 2007, p. 4). We note that the original term specifically is oriented towards customers.
Regardless if we pursue the question of what stakeholder category is most worthwhile to address as a direction of this research, or what a particular firms’ objectives might be, its managers should consider the legitimate interests of groups and individuals who can affect, or be affected by, their strategic business activities (Freeman, 1994, 2009, 1984; Freeman, et al., 2004). In principle, this means every customer, supplier, community, manager, employee and basically every citizen (Freeman, et al., 2004). As mentioned above, focusing on the customers is the obvious and most natural starting point as customers are the immediate market stakeholder (Gummesson, 1987, 2008; Noland & Phillips, 2010).
Fig: 2.5 Multiple Stakeholders of a Business Firm
Since CSR have been overly researched from a Stakeholder theory perspective we will assess customers via the lens of the Market Orientation theory. We believe that this approach will increase our understanding of firm level effects and practitioner operationalization from a strategic point of view. Firms that apply CSR initiatives prove to some extent to be willing to assess, change, adjust or develop their business activities, or at least business practices, to achieve some benefits in consideration of their customers. That is, they strive for different external and internal orientation than firms’ who do not apply CSR.
For example, firms interact with different types of customers to gain CSR related cost reductions or increased positive reputation (Moon & deLeon, 2007; Naffziger, Ahmed, & Montagno, 2003). It is thus natural to include the type of relationship firms deploy with their customers in CSR research.
We will for this reason target selected relationship components, for example shared projects and information exchange with the customer (Harrison, et al., 2010). As it is crucial for any firm to interact with their customers, firms’ naturally view their customers’ needs and wants as important, and potentially also some needs and wants that may be outside the normal business scope (the exchange process of products and services). Since it could be vastly expensive, out of a firm’s scope, and of course not even desirable, to tend to every customer needs and wants, firms that apply CSR do so as an economic and efficient response in recognition of that some customers or other stakeholders extended needs and wants could be relevant to the firm as well (Delmas & Toffel, 2008; Donaldson & Preston, 1995). Firms’ will basically get more for their money as ‘good deeds’ in one area spills-over and create reputational effects in other areas (Kolk & Pinske, 2006).
McDonald’s contribution to children’s hospitals, for example, makes the overall firm appear socially responsible even though the deed is unrelated to their core business (fast food). Since stakeholder importance to firms also increases in general (Carroll & Shabana, 2010; KPMG, 2011; Reid & Toffel, 2009) more firms are attempting to design their CSR agenda not only to provide some value to the market place but also to gain from it (Bansal& Roth, 2000; Bondy, et al., 2012; Kang, 2009; Lev, et al., 2011; Porter, 2008).
When firms target customers in their CSR dialogues it can thus support the development of value in economic and societal terms (Drucker, 1984; Murray & Montanari, 1986; Wood, 2010). This leads to an increasing demand that CSR should incorporate some specific strategic purpose, for example to enhance customer relationships or to build brand value (Gadenne, et al., 2009) and not only provide some general benefits for the society at large (Drucker, 1984). An important factor is that different types of customers (consumers-, business- or government customers) are likely to have different influencing effect on firms’ willingness to apply CSR voluntarily (Naffziger, et al., 2003).
2.17 CUSTOMER INTERACTION
If a firm intends to develop some CSR derived value they should include representatives of the customers in their CSR dialogues (Murray & Montanari, 1986). For example, if a firm desire to create credibility and a positive reputation via some activities, it is paramount to establish broader interactions with multiple customers and perhaps even wider communities to enable a mutual understanding and recognition (Biehal & Sheinin, 2007). Firm level CSR activities that have no support from their customers will not provide beneficial results (Carroll & Shabana, 2010). It must further be in accordance with firm level objectives and some set of societal objectives (Carroll & Shabana, 2010; Noland & Phillips, 2010). This is important as customers have the ability to reward or punish a firm for their societal behavior (Neilsen & Rao, 1987; Peloza & Papania, 2008; Ramchander, et al., 2012).
Where rewarding or punitive actions are taken, it is usually based on power differences, perceptions of urgency, and the general legitimacy of a particular issue (Neilsen & Rao, 1987). To address this, Gummesson (2008) claims that firms today must embrace a mindset focusing on, and acknowledge that, all customers have the right to satisfaction of their broader needs and wants. Thus, firms should realize that various customer targets might be aligned with, or in conflict with, what a particular firm wants (Lev, et al., 2011). This contributes to the business environment complexity in that firms need to apply an extended market approach that goes beyond their customers (towards society at large) to better serve firm level objectives (Kang, 2009; Lopez, et al., 2007; Luo& Bhattacharya, 2009). Unattended, customer concerns in one industry sector can easily transfer to another (Balzarova & Castka, 2012). Such spillover effects have large power on firms to engage in, or change, their approach to CSR (Reid &Toffel, 2009). In turn, this can increase the firm- customer interdependency and bring organizational adjustments to better cater for them in regards to their needs and wants (Porter & Kramer, 2006).
While it is common that firms choose to engage in CSR, it is equally common that it is initiated by some stakeholder category directly or indirectly via applied pressure from them. Customers for example (and to a large extent other stakeholder groups such as potential customers, suppliers, legislators, environmental groups and financial institutions) today call for firms to adapt environmental measures or standards and, or, to implement some CSR activities (Gadenne, et al., 2009; Gummesson, 2008).
Other triggers for customers to react to firms’ CSR activities, or lack thereof, are the owners and manager’s attitudes towards the social community (Kang, 2009) commonly as displayed in media. A recent example (June, 2010) is when the newly appointed Chairman of British Petroleum (BP) MrSvanberg remained silent during the first five weeks of the Mexican Gulf oil spill despite that the U.S President Barack Obama criticized the Chairman for his ‘no-comments’ response. MrSvanberg’s approach was that it was the job of the CEO (and not the Chairman) to comment and address the oil spill. When MrSvanberg later, due to immense societal pressure, commented on the oil spill he selected YouTube as media where he stated the problem from a personal perspective by saying that he expected his new job to provide an easier ride. This was made worse when summoned to the White House for consultations with the U.S President, MrSvanberg was quoted to claim “to indeed be sorry for the small people in the Gulf region” (CNN, 2010a, 2010b). The people residing in the Gulf were not pleased to be referred to as ‘small people’ in their time of need. This ignorance also created an outcry in Europe where Greenpeace activists later in July 2010 erected barricades and effectively hindered BP customers from refueling their cars at gas stations in the U.K (BBC, 2010). A number of voices have since been raised demanding MrSvanberg to resign from his position as Chairman of the Board for BP (Munkhammar, 2011).
As firms’ customer categories (consumers, business or government customers) can affect firm level willingness to undertake CSR (Naffziger, et al., 2003) individual managers can self-select to engage in CSR. Such personal commitment can arise when a manager personally concludes and perceives that CSR activities can bring firm level benefits.
This commitment can then increase as their personal interest lead them to actively search for CSR related information that positively reinforce their view. These individual managerial behavior and beliefs can affect firms’ investments in CSR to gain various benefits. Typically, these attempts evolve around increasing operating efficiency, profit or image enhancing activities, or to address differentiation aspirations in their marketing strategy (Adams, et al., 2011; Porter, 1999).
Either way, stakeholders in general, and customers specifically, are tightly connected to firms as firms would not exist without them. Hence, one should expect that customers in general frequently have some opinions of a firm’s CSR activities or lack thereof. However, despite the natural link between CSR and core stakeholders, few studies explore customer interaction (Lee, 2008) and it has even been unattended to in the CSR research field in general (Gadenne, et al., 2009). Firms will find that CSR can lead to closer relationships (Olson, 2008) and that CSR can evolve from formalized organizational structures (Berkhout & Rowlands, 2007).
The drivers behind these relationships are commonly related to intra-firm objectives (such as joint project teams), the perceived significance of a particular issue (such as mutual efficiency programs) and individual managerial concerns (Bansal& Roth, 2000), especially when customers share a common interest in environmental issues (Olson, 2008). CSR activities must thus be supported and highlighted via multilateral communication in general. For many firms, the key driver behind CSR demands (for example an increase in producing more environmental friendly products) is because of their customers (Lee, 2008),
as firms consist of stakeholders and their relationship networks which make up the society and the markets in which firms operate (Noland &Phillips,,2010). These are further reasons why we have chosen to research CSR via the Market Orientation theory perspective focusing on customers.
2.18 MARKET ORIENTATION THEORY
The market orientation (MO) theory is essentially a business philosophy or a policy statement (Kohli & Jaworski, 1990). MO addresses how organizations adapt to their customer environment and apply a strict focus on serving customers to develop competitive advantages (Hurley &Hult, 1998; Liao, Chang, Wu, & Katrichis, 2010; Slater & Narver, 2000). MO related competitive advantages can arise from closer ties to customers (Hyvönen & Tuominen, 2007) or increased customer loyalty (Kirca, et al., 2005) all of which is crucial in an ever-changing business environment (Alhakimi & Baharun, 2010; Aziz & Yassin, 2010; Liao, et al., 2010).
It is suggested that a MO practicing firm is one that deploys the three pillars of the marketing concept (customer orientation, coordinated market interaction and profitability) and ensure these are manifested in its operations (Kohli & Jaworski, 1990; Mulyanegara, 2010). Despite that MO has been researched since the early 1970’s, it has for the past ten years increased significantly due to its strong relation with the strategic management field (Liao, et al., 2010).
Earlier definitions (1970’s) of the MO theory are “a philosophy of business management, based upon a company-wide acceptance of the need for customer orientation, profit orientation, and recognition of the important role of marketing in communicating the needs of the market to all major corporate departments” (Kohli & Jaworski, 1990, p.3; Russo & Fouts, 1997). Reukert (1992, p. 227) defined MO as “the organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization wide responsiveness to it”.
The proposition of the MO theory is basically that the success of a firm depends on how successful the TMT and individual managers are in managing their customer relationships (Deshpandé, Farley, & Webster Jr, 1993; Freeman, 1984; Kohli & Jaworski, 1990; Ruekert, 1992). The theory further calls for managers to communicate intended value creation to highlight what brings their customers together. It thus forces managers to clearly communicate how they want to do business and what type of relationships they want with their customers (Freeman, et al., 2004; Kohli & Jaworski, 1990). Variations of the definitions are also found in Narver and Slater’s research (1990) where they defined MO as “the organizational culture that most effectively and efficiently creates the necessary behavior for the creation of superior value for customers and, thus, continuous superior performance for the business” (Alhakimi & Baharun, 2010, p. 41; Narver& Slater, 1990, p. 21).
Other definitions have discussed MO as “a corporate state of mind that insists on the integration and coordination of all the marketing functions which, in turn, are melded with all other corporate functions, for the basic purpose of producing maximum long range corporate profits”
(Kohli & Jaworski, 1990, p. 2). A more recent definition of MO is found in Lam’s paper (2010) as “an organizational practice of integrating customer preferences, competitor intelligence, and product knowledge into the process of creating and delivering superior value to customers” (Lam, et al., 2010, p. 62).
Since our research has the organization as unit of analysis, we find Reukert’s (1992) definition of MO for the organization level as the most suitable. That is, an organization that; a) obtains and uses information from customers; b) develops a strategy which will meet customer needs; and c) implements that strategy by being responsive to customer’s needs and wants (Ruekert, 1992). This definition is suitable for our research as the MO ‘philosophy’ can be operationalized by its implementation reflected in the activities and behaviors of an organization (Kohli & Jaworski, 1990) all in accordance with our research questions.
This means that to gain some benefits from the MO application a firm must implement and use it to gain trust and credibility from its buyers (Kohli & Jaworski, 1990). This is also the underlying traits for CSR (Hill, 2006).
For CSR to be of value to the firm applying it, CSR must be operationalized in a fashion that is aligned with the firm’s business activities. It must make sense to the customers.
To be successful, firms’ CSR efforts must be based on some aspect that is within the customers’ tolerance or sense making. Hence, firms’ must obtain information about their customers concerns that extends beyond the value
proposition that the customer acquire in the market exchange process. Once examined in relation to the firm, the chosen CSR deliverables should consequently be implemented in the firm’s CSR program. In this way, we find that both Ruekert’s (1992) generic MO components, and Kohli & Jaworski’s (1990) and Mulyanegara’s (2010) MO components regarding customer orientation and coordinated market interaction is aligned with CSR. Thus, a chosen CSR deliverable aligned with (disseminated) the customer’s preference must be designed (generated) and communicated (responding) to the customers. This is also an intercept between MO and CSR in line with Kohli & Jaworski’s (1990) and Hill (2006) definitions. The application of quantitative research questions is also suitable as most of the MO research up to date has been qualitative in nature (Kirca, et al., 2005).
As the purpose with strategic CSR is to achieve more favorable customer perceptions of a firm and its goods and services and to communicate their CSR initiatives to positively affect firm level performance; and MO is solely focusing on customers for the same reasons; the conjunct use of these concepts are logical and should provide improved academic and practitioner understanding. Thus, there is a cross road where CSR and MO intercepts and accordingly firms’ using both CSR and MO: a) entail some organizational function that actively develop an understanding of customers’ current and future needs and the factors affecting them; b) communicate these internally and externally; and c) design activities or programs targeting a selection of customer needs (Kohli & Jaworski, 1990). In other words, both CSR and MO refer to organization wide generation, dissemination, and responsiveness to market intelligence (Kohli & Jaworski, 1990).
Further, it is pervasive in the MO literature that profitability is a consequence of MO rather than a part of it (Kohli & Jaworski, 1990). This is also pervasive in the CSR literature. It is further suggested by both the CSR literature and the MO literature to not only look for direct financial performance but for indirect (and sometimes less quantifiable) results as well (Slater & Narver, 1994), for instance improved brand image, increased quality perceptions and customer loyalty and stronger stakeholder relationships (Du, et al., 2010; Kirca, et al., 2005). Another core essence of MO, and yet another close relation to CSR research (where the stakeholder- or institutional theory is frequently applied) is that the focus on customers’ interests should not exclude those of other stakeholders (owners, managers, employees) (Appiah-Adu & Singh, 1998; Deshpandé, et al., 1993). Specifically, as individuals may have different stakes (roles) in relation to an organization. A stakeholder might for example be both a customer, an employee, a prospective employee or an investor or a combination thereof to a firm (Sweeney & Coughlan, 2008). One should remember that in both the stakeholder theory and the MO theory it is said that any person, or group, who by choice participates in a firm’s activities, they have some interest to benefit from it. It is further common, even likely, that differing customer groups present different and often conflicting interests (Neville & Menguc, 2006; Sen, Bhattacharya, & Korschun, 2006).
With businesses having the purpose of crafting value in form of products or services, the target is to ensure that its customers and owners all win continuously over time (Freeman, et al., 2004). This translates into that a firm’s value proposition must be in alignment with customers’ interests, or new collaborations might be formed as participants exit due to nonconformity (Freeman, et al., 2004).
Thus, firms’ that fail to manage their customers’ interests will lose customers as competitors are given an opportunity (Elijido- Ten, 2007). This is arguable a reoccurring challenge as external forces (increased international competitiveness, rapid technology changes, decreased product life cycles) lead managers to increase market focus and attention to a broader range of customer attitudes, needs and wants (Ruekert, 1992). In today’s marketplace, consumers are increasingly better organized, have greater accessible information, and are generally more demanding (Appiah-Adu& Singh, 1998). MO is for the above reasons reported to be increasingly important and recommended to be viewed via the lens of strategic management as a focus for its implementation (Deshpandé, et al., 1993; Gebhardt, et al., 2006; Tomášková & Kopfová, 2010).
MO is integrated with strategic management in that the strategic planning process explicitly considers customer needs and wants and develops specific strategies for satisfying those customer demands (Ruekert, 1992). This is important as businesses often fail to maintain a focus on the ever-changing customers and markets it serves. Shapiro (1988) identified three critical firm characteristics to build MO. First, that information of all important customer (buying) influences should be omnipresent within the firm. Second, strategic and tactical decisions should be well coordinated across divisions and functions (cross functional teams). And finally, that decision making and execution should be taken with commitment from the organization and support from the TMT. This leads to the tenets of corporate culture. To be successful, or even superior, organizations need to have a market oriented business culture that provides strong norms for learning from customers and competitors (Brady & Cronin, 2001; Gebhardt, et al., 2006; Lam, et al., 2010).
To recognize and perceive the customers as generally important is no longer sufficient. As stated above, a customer focus must be more fundamental, integrated and operationalized in a firm’s culture. Focusing solely on knowledge of actual and potential customer needs is inadequate. Just like CSR benefit of being embedded in a firm’s values and beliefs, MO also benefits from this approach where both become reinforced by the organization (Deshpandé, et al., 1993). CSR is not only believed to be an enabling investment, but CSR and MO firms are also more attractive to customers and investors (Barnett, 2007). Higher levels of MO are associated with business cultures that emphasize learning, development, and participative decision making (Hurley &Hult, 1998). Trademarks of cultural values impacting MO is reported to have a foundation of trust, openness, keeping promises, respect, collaboration, and viewing the market as the reason to exist (Gebhardt, et al., 2006). Thus, a MO culture should therefore also be omnipresent within the firm such that employees consistently exhibit customer-oriented behaviors (Brady & Cronin, 2001).
The belief that MO improves, or even leads to superior, firm performance is an almost fifty-year-old belief (Appiah-Adu& Singh, 1998; Deshpandé, et al., 1993; Hult & Ketchen, 2001; Lam, et al., 2010;
Levitt, 1960; Morgan, Vorhies, & Mason, 2009). It is further well established in three different meta-analyses that the performance effect remains robust across diverse institutional and cultural settings (Ellis, 2010). However, to achieve long-term benefits firms are recommended to not only focus on customers’ interest but on those of other stakeholders (owners, managers, employees, suppliers, competitors) as well (Appiah-Adu & Singh, 1998; Deshpandé, et al., 1993).
Examples of improved performance are increased employee commitment to work tasks and improved sales performance (Kang, 2009; Porter, 2008; Wieseke, et al., 2009). Recent research report that the strongest factors to affect MO and firm performance is TMT commitment (Lam, et al., 2010) and that coordination across organizational functions (cross functional teams) has the most positive effect on customer’s brand perception (Mulyanegara, 2010). In direct measurement, MO is also reported to have a positive effect measured as ROA (Morgan, et al., 2009; Ruekert, 1992; Walls, et al., 2012).
When researching MO in specific industry settings, it is found that the MO– performance relationship is stronger in samples of manufacturing firms, in low power distance and low uncertainty-avoidance cultures, and in studies that use primary (intangible) measures of performance (Kirca, et al., 2005). It is further claimed to be more vital for service organizations (Brady & Cronin, 2001) and in business-to-business (B2B) contexts where relationships tend to deal with smaller numbers of larger customers (Liao, et al., 2010). Other researchers that have assessed MO from an industry perspective, claim MO to enhance customer satisfaction and loyalty for the augmented (i.e. a supporting non- physical product component) part of their products (Kirca, et al., 2005; Lev, et al., 2011). Finally, MO has been reported to be a failure-prevention approach (a hygiene factor) in service firms and a success-inducing approach in manufacturing firms (Kirca, et al., 2005).
2.19 CSR and INTERNAL ORIENTATION
This research will address CSR at the macro-, industry-, firm- and the stakeholder level (customers). Since firms undertaking CSR can be found in any region (for example the EU, the U.S and Asia), in any industry (for example financial sector, utilities or retail) or in any setting (i.e. government owned, privately owned, publicly traded and non-traded firms, profit driven firms and non-for-profit organizations) research in CSR is better discussed in light of internal orientation at the organizational level (the firm) than as commonly approached in previous research the macro level (social impact). The reason is that our research assumes an introverted view of the firm since CSR by definition comes from within the firm. We also focus on how firms engaging in CSR structure themselves internally to gain from their CSR initiatives.
2.19.1 Strategic Orientation and Intent
An example of internal orientation at the organizational level is whether a firm has activist pressure on their risk management agenda, or has government customers as both these characteristics can spur organizational changes (Reid &Toffel, 2009). While there might be as many different characteristics of internal orientation as there are firms, some key areas could be more present in firms that practice CSR. It is for example explicitly recommended to ensure that any CSR efforts is part of, and aligned with, the overall repertoire of value creation tools such as marketing, R&D and branding instead of ‘flying blind’ (Luo& Bhattacharya, 2009).
Again, firms are recommended to manage and implement CSR like other strategic components (Luo& Bhattacharya, 2009; Orlitzky, et al., 2003; Wagner, et al., 2009b), or managerial disciplines, as CSR requires organizational adjustments and structured relationships supported by incentives (Lev, et al., 2011; Porter & Kramer, 2006).
Since CSR has emerged as an important long-term investment that can lead to competitive advantages (Kang, 2009; Orlitzky, 2000; Orlitzky, et al., 2003; Ramchander, et al., 2012) it is of value to investigate internal orientation of firms that undertake CSR. We will for these reasons investigate the strategic orientation (for example the extent firms’ monitor changes in customer demands, monitoring customer expectations or predict competitor behavior), strategic intent (for example risk- or cost reductions or to gain positive reputation or other competitive advantage), the application of industrial standards, operative CSR management and communication efforts in this research.
2.19.2 Macro level CSR management
While a majority of firms around the world might be unable, or unwilling to commit the resources needed to replicate the positive outcomes of CSR high performers best practices (Semenova, et al., 2008), CSR is expected to become an accepted component of everyday corporate life (KPMG, 2011; Porter & Kramer, 2006). CSR is already an accepted component of corporate activity in several European countries, for example in Sweden and Denmark who both rank high on CSR related indexes.
While most Swedish firms’ voluntarily have expanded their corporate governance to cover CSR in their annual reports, most Danish firms since 2009 are required by law to (section 2.1.5) disclose the extent of their firm level CSR activities in their annual reports (Danish- Parliament, 2009). This means that at least Danish firms must create a new firm level characteristic in form of a CSR-function or CSR-committee to at least aggregate CSR information in order to address the extended corporate governance and annual report requirements. Corporate governance and CSR are increasingly becoming linked together (Hull & Rothenberg, 2008; Kolk & Pinkse, 2010; Ring &Vandeven, 1992; Waddock& Graves, 1997; Walls, et al., 2012) and in turn increases the level of internal orientation regarding CSR matters. It is likely that this increased propensity to include CSR in annual reports (KPMG, 2011) will transfer into other European countries, for example the U.K who is investigating a similar legislation as Denmark.
2.19.3 Industry level CSR Management
When assessing the industry level, we find that CSR previously is more common in mature markets where for example differentiation plays a larger role, such as in the food, pharmaceuticals, financial services, utilities and automobile industry (McWilliams & Siegel, 2001a; Simpson & Kohers, 2002). Firms that prefer to apply CSR as charitable contributions (one type of characteristics), are today seemingly more common in retailing and financial services where it is found to be significantly associated with future revenue (Lev, et al., 2011). Firms with commodity
type products, or businesses that an average consumer might find difficult to relate to (for example large heavy industrial corporations like ‘General Electric’ or ‘ABB’), are also more likely to engage in CSR investments (Hult, Kethcen, & Arrfelt, 2007; McWilliams & Siegel, 2001a; Ramchander, et al., 2012).
Firms that are predominantly active as NGO’s can by its nature be said to have a multitude of CSR related characteristics. Examples of CSR-NGO’s are the “Halo Trust” who disarms landmines in third world countries, “Green Peace” being a safe-guardian of the global environment or “Amnesty International” who report on human rights issues and violations thereof. Since these types of organizations focus is CSR (as compared to for-profit organizations where CSR is a complement to their core operations) we disregard them in this research. We will for these reasons control for industry belonging when researching for profit-firms and their firm specific characteristics in relation to CSR.
2.19.4 Firm level CSR Management
If some industries are more likely to engage in CSR than others, firm characteristics such as level of internal orientation related to CSR can transfer as spillover effects between firms in related and unrelated industries (Reid & Toffel, 2009). For instance, where one firm implement reverse supply chain logistics (where reclamation, reuse and recycling can have environmental implications) it will impact other market actors to participate to some extent (Leire & Mont, 2010; Sarkis, Helms & Hervani, 2010).
Spillover effects occurs since both customers and government actors can spur, or pressure, changes in organizational practices at both the firm-, industry- and society level (Porter & Kramer, 2006; Reid & Toffel, 2009).
For those firms who choose to only engage in CSR activities as compliance to regulatory requirements it is equally important to apply at least some organizational characteristics, at minimum in form of a CSR committee, in order to meet the prospective regulatory demands (Gadenne, et al., 2009). Managed in such a way, firms can reduce the risk of losing indirect benefits derived from CSR by performing formal or informal dialogues with for example their customers (Lindgreen & Swaen, 2010). Hence, we will investigate how CSR is managed among our sampled firms.
2.19.5 Standards and CSR Management
On the firm level, it is strongly recommended that every department should participate in making CSR successful to decrease the risks of failure with the investment (Luo& Bhattacharya, 2009; Maak, 2008; Orlitzky, et al., 2003; Wagner, et al., 2009b). Since efforts regarding CSR are omnipresent it benefits from coordination (Maak, 2008; Porter & Kramer, 2006). This could be displayed via extensions to a strategy department’s sphere of influence, new positions or updated job descriptions (for instance a Manager for CSR activities), or using key account managers (KAM’s) to coordinate CSR activities with their customers (Lam, et al., 2010). That is, it needs to be discussed in a holistic perspective by the top management team (TMT) (Gummesson, 2008).
As an example, ethical considerations, socially responsible purchasing criteria and value chain decisions needs to be discussed in relation to each other. CSR is thus the responsibilities of the TMT and should be part of their agenda (Lam, et al., 2010; Leire& Mont, 2010; Lopez, et al., 2007). CSR therefore benefits from group coordination which is an element of organizational design and the subject of managerial choice (Grant, 1996). This is yet another reason to include CSR management in this research. Due to the increasing awareness of environmental issues, there is also a rising demand from customers, suppliers and other interest groups (for example legislators, environmental groups and financial institutions) on firms to adapt environmental measures or standards at minimum and, or, to increase CSR in general (Deegan, 2007; Gadenne, et al., 2009; Gummesson, 2008). Hence, we will also investigate if firms’ engaging in CSR has some framework (standard) to support it. However, even though these demands are mostly customer driven, other direct and non-direct interest groups also issue demands, making it important and difficult for firms to decide why, when and which external demands to respond to (Bansal& Roth, 2000). This makes it a compelling reason to limit this research to focus on customers assessed by the overall internal orientation. In conclusion, we will investigate internal orientation in aspects of firms’ overall strategic orientation, strategic intentions with their CSR efforts, the presence of industrial standards and CSR management.
2.20 CSR and MARKET COMMUNICATION
Communication of CSR is vital in order to create and sustain desired reputational effects (Scholder, Webb, & Mohr, 2006). Regardless of what type of CSR activities a firm applies,
it will contribute to their reputation for better or worse. A firm’s reputation can enhance its value offering (Melo & Garrido- Morgado, 2012) thus positively affect customer purchase decisions if CSR communications are correctly applied (Lev, et al., 2011; Orlitzky, et al., 2003). Due to this reputational effect firms would benefit from understanding in what way reputation could support their strategic intent (Biehal & Sheinin, 2007).
If a firm commits some positive act in course of their normal business activities, then the outcome of these activities can be enhanced if the firm also undertakes CSR (for example McDonald’s financial contributions to children’s hospitals). This is mostly achieved through improved brand perception from customers (Gadenne, et al., 2009; Hill, et al., 2007). In situations where a firm is not yet recognized for some particular deed, then it is said that all advertising regarding CSR purpose enhance a firm’s brand recognition and spills over into other areas (Hill, et al., 2007). For example, firms’ that carry environmentally improved products or engage in cause- related marketing are subject to create CSR associations that enhances their product or brand perception from their customers (Hill, et al., 2007; Orlitzky, et al., 2003).
In the event of negative actions that violate the corporate integrity or image, aggregated CSR based moral capital helps to protect the firm and makes it possible to detach the problem (for example an unethical behavior, an illegitimate action or an accident) from the rest of the organization, allowing management to react to stakeholder suspicion. In this way, the problem can be dealt with on a process-, departmental- or even individual level without deleteriously harming the whole company thus
counterweighing and decreasing negative effects. The accumulated moral capital can protect a firm from negative effects (Luo& Bhattacharya, 2009). Such moral capital (reputation) can further lower the risk of opposition from the owners. When a firm is able to demonstrate that it can address both the needs of its stakeholders and profitability targets, the firm’s legitimacy and reputation are enhanced (Carroll & Shabana, 2010). It is for these reasons important to investigate both how (design) and when (timing) CSR is communicated.
2.20.1 CSR Communication – Timing
CSR communication is an important component to successfully achieve strategic CSR intentions and a vital part of CSR activities (McWilliams & Siegel, 2011). Research also suggests that some communication approaches are preferred over others. While a pre-emptive (proactive) approach is viewed as preferable (Wagner, et al., 2009b), there appears to be no one best approach of communication behavior to carry CSR messages (Ziek, 2009). However, to avoid CSR related market communication becoming counterproductive, firms that already act in a responsible way should support their behavior with information (Wagner, et al., 2009b). Contrary, if a firm performs some unfavorable act in the marketplace and consumers, customers or other stakeholders become aware of the fact, then firms should immediately (reactively) communicate the wrongdoing, why it happened and what they will do to mitigate and rectify it (Wagner, et al., 2009). As pre-emptive communication strategies can reduce perceived firm insincerity, external CSR communication should follow observed behavior in a reactive yet pre-emptive way (Wagner, et al., 2009).
2.20.2 CSR Communication – Design
To create and nurture credibility and reputational effects, CSR communication should include both ‘hard and soft issues’. Social policies, programs and organizational structures are considered ‘hard issues’, while organizational culture and employee values and norms are considered ‘soft issues’ (Orlitzky, et al., 2003). Hence, CSR communication should be holistic (Carroll & Shabana, 2010;
Wagner, et al., 2009b). This is important as firms engage with stakeholders in their market environment (customers and suppliers) through economic transactions, and with their nonmarket environment stakeholders (regulators, environmental organizations, unions) by addressing social or political issues (Baron, 1995).
Those with close market ties (usually employees working in sales, marketing, procurement, logistics or customer service) are thus often the first to hear and learn about market concerns regarding, for example, environmental practices and other CSR related concerns (Lam, et al., 2010). A positive stakeholder interaction can in this way be nurtured by staff and TMT interactions with both their employees in above mentioned positions and their customers (Delmas & Toffel, 2008). TMT engagement is important as credibility derived from CSR communication can be leveraged across a firm’s brands. Market reactions can also be enhanced by increasing market intensity (advertising expenditures) to positively affect firm performance (Luo& Bhattacharya, 2009; McWilliams & Siegel, 2001a). This further translates into a positive relationship between diversification, market communication and CSR (McWilliams & Siegel, 2001a; Noha, 2009).
In summary, CSR communication must be properly timed and designed and viewed as a concept since firms investing in CSR can create market based intangible assets. This can be achieved in form of brand and customer loyalty (Luo& Bhattacharya, 2009), reputational capital (Fombrun, 2000), improved sales performance (Wieseke, et al., 2009) and stakeholder organizational identification (Murray &Montanari, 1986). Other positive effects arise from credibility (moral capital) leverage. As CSR creates a reputation of reliability and honesty, customers then assume and accredit that the products of a reliable and honest firm are also of high quality (Barnett, 2007; Russo &Fouts, 1997) which optimally allow a price premium (McWilliams & Siegel, 2001a). However, research on how to measure the direct effects of CSR investments is lacking. In general, CSR is an important part of a firm’s identity and integrity (Maak, 2008) which are important to communicate internally and externally (Du, Sen, & Bhattacharya, 2008).
2.20.3 Internal CSR Communication
Since both positive and negative firm behavior affect external stakeholders (for example customers) they also directly affect internal stakeholders (for example owners, managers and employees). This makes internal marketing an important issue as well (Wieseke, et al., 2009). Internal marketing instils organizational identification (DeTienne, et al., 2012) and a feeling of oneness (organizational belonging) with the firm (Murray & Montanari, 1986). This can be beneficial to firms and their employees (DeTienne, et al., 2012). Employees with direct customer interactions can improve their sales performance when the organizational identification is enhanced (Barnett, 2007; Lam, et al., 2010;
Wieseke, et al., 2009). This indicates that internal marketing is fundamental to extract value from external CSR communication that has been positively embraced by stakeholders at large (Gummesson, 1987; Murray & Montanari, 1986; Wieseke, et al., 2009).
A well-crafted communication strategy in the field of CSR thus holds the power to increase interdependencies between internal and external stakeholders and can enhance existing relationships. As an example, employees can feel that their daily tasks are strengthened and supported by CSR activities making them feel more secure in their job roles, performing them better and increase service levels for the benefit of their customers (Kotler& Lee, 2005; Porter, 2008; Porter & Kramer, 2006).
2.20.4 External CSR Communication
Firms that undertake CSR activities with a strategic intent (intention to gain) should initiate a respectful and honest communication with their customers (Noland & Phillips, 2010). This as the relationship firms’ have with their customers makes up the markets in which they exist to conduct business in (Noland & Phillips, 2010). Thus, the communication of CSR must be efficient just like any other market communication (Du, et al., 2010). The key questions are what to communicate and how to communicate a firm’s CSR efforts without being perceived as solely self-serving (Du, et al., 2010). The risk when planned sub optimally is that communication of CSR might not benefit the communicating organization but instead risk skepticism and cynicism among their customers (Lindgreen & Swaen, 2010) and amongst investors (Ramchander, et al., 2012) defeating the communication purpose.
A communication strategy for CSR thus plays a pivotal role and affects the attitudes towards a firm (Wagner, et al., 2009b). It is therefore suggested that communication of CSR is performed in line with the customers’ expectations as they already are part of everyday market communication (Sweeney & Coughlan, 2008).
Specifically, as CSR holds the potential to entice all stakeholders in form of improved firm level credibility, reputation and integrity (Biehal & Sheinin, 2007; Maak, 2008) CSR becomes an important component of the firm identity (Du, et al., 2010). It is recommended that responsible firms should support their behavior with information (Wagner, et al., 2009b). This makes CSR an issue that not only benefits from intensive communication but requires it (Hill, et al., 2007). Communicated correctly, CSR communication has the capability to support a firm’s objectives (Kang, 2009; Lopez, et al., 2007; Luo& Bhattacharya, 2009).
One of the core tasks is thus to ensure that both customers and the market notice and understand the communicated CSR information (Du, et al., 2010; Gadenne, et al., 2009). It is therefore important to allocate sufficient resources to achieve the firm’s communication objectives. This can be achieved by increasing the market intensity (advertising expenditures) or use a range of communication tools (KPMG, 2011; McWilliams & Siegel, 2011). When CSR activities are communicated, and understood, it can act as an insurance-like protection which yields moral capital from the enhanced credibility and reputation (Barnett, 2007; Luo & Bhattacharya, 2009; McWilliams & Siegel, 2001).
SCOPE OF RESEARCH WORK
CONCEPT AND EVOLUTION OF CSR
CSR is the procedure of assessing the impact of an organization’s activities on the society. It begins with an assessment of the following aspects of each business:
- Employees, Vendors, Suppliers
The CSR efforts of the should be sustainable, companies should aim at not just complying with the legislations but at the same time must ensure that through their investments they are able to ensure growth and development of marginalized communities and the environment.
Corporate Social Responsibility (CSR) is not a new notion in India. The Ministry of Corporate Affairs, Government of India has notified the Section 135 of the Companies Act, 2013 along with Companies Corporate Social Responsibility Policy Rules, 2014 referred to as “CSR Rules” & other notifications related thereto which makes it mandatory (with effect from 1st April, 2014) for specific companies who fulfil the criteria as stated under Sub Section 1 of Section 135 of the above act, to comply with the provisions applicable to Corporate Social Responsibility. As mentioned by UNIDO (United Nations Industrial Development Organization),
CSR is usually understood as the way via which a company tries to achieve balance between economic, environmental and social essentials, precisely understood as the “Triple Bottom-Line- Approach, while at the same time trying to meet the expectations of its shareholders & stakeholders.
Companies in India have been quite sensible in taking up CSR initiatives and integrating them into their business processes. It has become progressively projected in the Indian corporate setting because organizations have recognized that besides growing their businesses, it is also important to shape responsible and supportable relationships with the community at large.
Companies now have CSR committees that develop specific policies, strategies, set separate budgets and goals for implementation of their CSR programs. To be successful these programs shall be based on well-defined social beliefs or are carefully aligned with the companies’ business domain.
3.1 Philanthropic Roots of CSR in India
Business philanthropy in India has developed in four phases. During the early years of industrialization (1850-1914), CSR in India was predominantly related to business philanthropy, as rich business families set up trusts and institutions such as schools, colleges, and hospitals. During the years of the Indian freedom struggle and independence (1914-1960),
business philanthropy was characterized by a sense of enlightened self-interest when Indian businesses supported the freedom movement and various social and cultural causes associated with the nationalist movement, driven by the hostility with which the British regarded them. During the next phase (1960- 1980) the general climate of mistrust toward corporations in socialist India corresponded with a decline in business philanthropy and an increase in state- led development. Finally, after economic liberalization in the 1990s, a combination of extreme social need, limited public finance, improved returns to industry, a pro-business environment, and the emergence of a strong civil society called for increased initiatives in social work by the business community (Mohan, 2001; Sundar, 2000). Kumar, Murphy and Balsari (2001) synthesized these different CSR strands in India and proposed four models of CSR. These are:
- The ethical (Gandhian) model, based on Gandhi’s trusteeship theory, calling for voluntary commitment to public welfare;
- The statist (Nehruvian) model, based on state-driven policies, including state ownership and extensive corporate regulation;
- The liberal (Friedman) model, based on Milton Friedman’s conceptualization of CSR as primarily focused on owner objectives; and
- The stakeholder (Freeman) model, based on Freeman’s concept of stakeholder responsiveness.
These models as identified by researchers are valid in Indian context- appear to reflect the quintessential characteristics of the theoretical approaches developed mostly in Euro-American contexts.
Gandhi, Nehru, Friedman, and Freeman respectively were champions of these four models. In the ethical model the focus is on ‘‘voluntary commitment by companies to public welfare’’, in the Statist model, ‘‘state ownership and legal requirements determine corporate responsibilities’’, in the liberal model ‘‘corporate responsibilities are limited to private owners’’, and in the stakeholder model ‘‘companies respond to the needs of stakeholders – customers, employees, communities, etc.’’ (Kumar et al., 2001, p. 2). Since the liberalization of the Indian economy in 1991, western-style ethical stances are being promoted hence even though the ethical, statist, and stakeholder models may be ‘‘idealized’’, the liberal (Friedman) model may be more influential in India, according to some authors (Balasubramanian et al., 2005). It is also noted that while these interpretations, or perceptions, help to clarify different approaches, it is important to understand that they are not mutually exclusive (Balasubramanian et al., 2005). Considering institutional changes, particularly to economic sectors, firms in Asian countries can report overlaps between two or more approaches, and in some cases, multiple orientations to these four models. Researchers have found that there is a definite trend in India towards looking at CSR in a positive manner (Narwal and Sharma, 2008; Reddy, 2006). There was a perception earlier on was that firms’ CSR activities were not motivated by the desire for social service, but was instead motivated by the desire to avail themselves of tax exemptions and other government incentives and therefore society did not really trust business (Narwal and Sharma, 2008; Singh et al., 1980).
This skeptical viewpoint is increasingly being replaced by a more objective viewpoint as businesses start to undertake CSR activities voluntarily (Narwal and Sharma, 2008). Post-liberalization, the Indian government, along with NGOs and the media are becoming agents of change with regard to the CSR activities of firms Narwal and Sharma, 2008). In fact, in a study of companies from 21 emerging markets, Baskin (2006) found that in these markets (particularly South Africa, Brazil, India, and parts of Eastern Europe), CSR was more developed than commonly thought, often exceeding standards in some high-income countries. Even though CSR in India may be in a more advanced state than previously thought, some studies suggest that much improvement is needed in how CSR strategies are implemented and integrated within Indian firms. For example, Arora and Puranik (2004) concluded that even though several companies in India have climbed on to the CSR bandwagon and are engaged in causes like health care, education, empowerment of women, micro-credit and rural development, CSR seems to be in a confused state in the country. Individual companies define CSR in their own ways, with the end result that activities undertaken in the name of CSR are merely philanthropy or an extension of it (Arora and Puranik, 2004). Baskin (2006) found that even though CSR was more developed than previously thought in emerging market countries including India, it was found to be less embedded in corporate strategies and less pervasive than in higher- income countries. The study also found a wide divergence between emerging market leaders and laggards.
Corporate social responsibility practices in India sets a pragmatic level of grassroots growth through coalition and partnerships with sustainable progress approaches.
At the heart of the elucidation lies inherent coming together of all stakeholders in shaping up a divergent route for a fair as well as just social order. These represent the soul of a national survey conducted in India on corporate responsibility practices. In spite of a real awakening, lack of understanding, inadequately trained personnel, non- availability of specific and authentic data and lack of information on the type of corporate social responsibility activities have acted as barriers to know the effectiveness of corporate social responsibility activities in India. But an encouraging fact is that the situation is changing on a fast phase. Many corporate are recognizing the importance of corporate social responsibility activities and their measurement. They have understood the importance of community, health and environment in business. What went wrong in India before was that no one was very clear about what corporate social responsibility encompasses. The government of India was trying to make statutory to spent at least 2% of the profits on corporate social responsibility activities. Due to strong criticism, this move was withdrawn. The spending is now voluntary. But the debate still exists. If the mandatory rule was still is play then the government would have defined corporate social responsibility in its own and the vagueness that exists today about the term would have gone. Even though development shave been made by corporate in implementing corporate responsibility schemes, some companies still think that corporate social responsibility activities constitute providing lunch to its employees. For some others, it’s just tackling of global warming and solving some environment issues.
The government has not defined clearly about corporate social responsibility but has recast the term as “responsible business” in a set of voluntary guidelines for corporate. However, this was not the last word of government policies to hit the board. The latest news is that the government has asked the corporate to keep tabs on corporate responsibility spending and disclose it to the stakeholders. The new company bill that is passed has these new measures incorporated into it. This has removed the weakness that the old companies act of 1956 in the area of corporate social responsibility activities. Of late government had a view to make it mandatory for corporate social responsibility activities and to make its funding public. This would put adequate peer pressure on the corporate stragglers. It’s an irony that the industry is totally against the mandatory clause. Instead the federation of Indian chambers of commerce has suggested tax breaks for those who follow corporate social responsibility activities voluntarily. The confederation of Indian industry has opinioned that mandatory corporate responsibility would prove counter- productive. They are of the view that corporate may resort into camouflaging to meet regulations. The lobbying group has been arguing that camouflaging would be acute during periods of recession and downturns. India’s philanthropic community is also totally against compulsory corporate social responsibility. They have dismissed this as a crazy idea. Making corporate responsibility mandatory has opened a wide debate. Many in the industry and social sectors have taken turns to support the ‘yes’ and the ‘no’. Even industrialists have not formed a unified view on mandatory social responsibility. Some have the views supporting mandatory laws while the others totally oppose it.
The country has a tradition of corporate philanthropy. The real trouble that lies is somewhere along the way the lines between giving and corporate responsibility have grown hazier.
Corporate philanthropy and corporate responsibility are two different things these two terms have become blurred particularly in India. Corporate social activities are getting confused with giving something to the local communities rather than conducting the business in more socially acceptable patterns. In India, CSR understanding and its implementation and corporate business has become a deadly combination.
Defining corporate social responsibility has become a serious question. Corporate responsibility can mean different to different people. Stakeholders of the company are looking only through the narrow lens of profitability and ignoring the broader potential of corporate social responsibility. Even though traditional forms of corporate social responsibility have been continuing in companies, the bigger form of corporate responsibility that have the power to generate deeper and long lasting is failing to get adopted. Corporate social responsibility must change its idea from mere charity to something that is more productive.
A review of the current literature reveals a mixed bag of findings. By and large studies subscribe to the strategic perspective of CSR, arguing that companies in India engage in CSR for its reputational, financial, and relational benefits (Mehra, 2006; Mitra, 2007; Sagar & Singla, 2004; Sharma, 2011; Sood & Arora, 2006).
However, some studies have found that CSR in India is driven primarily by moral values and top management commitment (Arevalo & Aravind, 2011; Gopinath, 2005; Lee, 2010). Although Arora and Puranik (2004) and Gautam and Singh (2010) argued that CSR in India continues to be philanthropic in nature, a more recent study by PricewaterhouseCoopers (2013) found that it is turning more strategic. In addition to these studies with strategic and ethical perspectives, an emerging stream of research has focused on concepts from social and cultural frameworks specific to India.
3.2 WHAT TO DO WHEN CSR IS APPLICABLE
When a company comes under the range of the CSR, it shall be required to comply with provisions of the CSR. Thecompaniescoveredunderthe Subsection1ofSection135shallberequiredtodothebelow mentioned activities:
- The companies shall be required to Constitute a Corporate Social Responsibility Committee of the Board referred to as “CSR Committee”. This committee shall be comprised of 3 or more directors, out of which at least 1 director shall be an independent director.
- The Board’s report shall clearly disclose the compositions of the CSR Committee, thus constituted.
- All such companies shall spend, in every financial year, at least 2 per cent of their average net profits made during the three immediately preceding financial years, in realization of its Corporate Social Responsibility Policy.
Further, it has been clearly stated that the companies shall calculate its average net profits in accordance with the provisions of Section 198 of the Companies Act, 2013. Also, proviso to the Rule provide 3(1) of the CSR Rules that the net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Companies Act, 2013.
3.2.1 CSR ACTIVITIES
The Policy duly recognizes that the corporate social responsibility is not simply compliance of what has been stated; but it is more of commitment oriented initiatives to evidently improve the lives of less privileged and/or affected section of the society by undertaking any one or more of the subsequent focus areas as notified under Section 135 of the Companies Act 2013 & Companies (Corporate Social Responsibility Policy) Rules 2014:
- Obliterating hunger, poverty & malnutrition, making available safe drinking water; promoting preventive health care & sanitation.
- Promoting education, including special education & employment enhancing vocation skills (specifically among children, women, elderly & the differently abled) & livelihood enhancement projects;
- Promoting gender equality, empowering women, setting up homes & hostels for women/orphans/ senior citizens, setting up day care centers & other such facilities for reducing inequalities faced by socially & economically weaker groups;
- Reducing child mortality rates and improving the maternal health by providing facilities like good hospital and low cost medicines;
- Providing hospital and dispensary facilities with more focus on cleanliness. hygiene & good sanitation so as to combat HIV (Human Immunodeficiency Virus), AIDS (Acquired Immune Deficiency Syndrome), malaria & other diseases;
- Ensuring welfare of animals, protection of flora & fauna, agro-forestry, conservation of natural resources & maintaining quality of soil, air & water to promote environmental sustainability and ecological balance;
- Protection of the national heritage, traditional art & culture including restoration of buildings & sites of great historical importance & works of art; setting up of public libraries; promotion & development of indigenous arts & handicrafts;
- Measures taken for the benefit of armed forces veterans, war widows and their dependents;
- Providing training support to promote rural sports, nationally recognized sports or Olympic sports;
- Contributions to the Prime Minister’s National Relief Fund or any such fund set up by the Central Government for socio-economic development & relief and for welfare of the SCs (Scheduled Castes), the STs (Scheduled Tribes), and OBCs (Other Backward Classes), minorities & women;
- Donations or funds provided to the technology incubators located within the Central Government approved, academic institutions;
- Rural or Slum area development projects etc. Term ‘slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
The above list is principally illustrative and not exhaustive. All activities undertaken under the pretext of the CSR activities must be environment friendly & socially acceptable to the local people and the Society. Contribution towards C.M relief fund shall form a part of CSR activities but above 2% of Net profit other than the activities listed above.
Further, Ministry of Corporate Affairs vide its Notification dated 24.10.2014 has increased the scope of the contributions made towards CSR activities namely: for the promotion of sanitation, “the word “sanitation” may include contribution to the Swach Bharat Kosh set-up by the Central Government and for rejuvenation of the river ‘Ganga’, “the safe drinking water”, may include contribution towards the Clean Ganga Fund set-up by the Central Government.
3.3 CSR IN INDIA
India has become the first country in the world to make CSR (Corporate Social Responsibility) mandatory by way of notifying amendments in the Schedule VII of The Company Act, 2013 in April 2014. CSR domain is broadly segmented in three areas: Planet, People, Profit and specifically in ten areas as per the basis of various areas listed in schedule VII of the Company’s Act’2013.Businesses can invest their profits in areas such as poverty & malnutrition alleviation, education, gender equality, and hunger. Managers identify & target the areas to utilize the CSR funds. The activities are chosen in-line with the intent of positively affecting the consumers’ perception about the company’s image that it cares for Planet, People & Profit by virtue of undertaking specific CSR responsibilities to meet TBL (Triple Bottom Line).
The amendment notified in the Schedule VII of the Companies Act advocates that with effect from April 1, 2014, every company (private limited or public limited) with an annual turnover of Rs. 1000 crores (10 billions)
or more, or net worth of Rs. 500 crores (5 billions) or more, or a net profit of Rs. 5 crores (50 millions) or more during a financial year, shall apportion 2 percent of its average net profits of three years towards CSR. In the draft Companies Bill, 2009, the CSR clause was voluntary, though it was kept mandatory for companies to disclose their CSR spending to the shareholders. It is also mandatory that company boards should have at least one female member.
CSR has been defined under the CSR rules, which includes but is not limited to:
- Projects related to the activities specified in the Schedule VII of the Company Act 2013; or
- Projects related to the activities undertaken by the company board as suggested by the CSR Committee of the Board, provided those activities cover items as listed in the Schedule VII.
3.3.1 CSR TRENDS IN INDIA
In India, several companies have started realizing that it is a rational move to take up CSR activities and integrate it with their business process. Corporations are becoming increasingly conscious of their role & responsibilities towards the society. They are feel accountable and responsible & have a sense of duty towards the common welfare and sustainability of the environment. This comes with a growing realization that they, as an integral part of this society
themselves, can contribute to its upliftment and empower of the entire country in turn. Thus, Companies now are setting up specific departments and teams that develop policies, strategies and goals which are for their CSR programs and allocate separate budgets to support them. In the modern era, the new generation of corporate leaders considers optimization of profits as the key, rather than the maximization of profit. These CSR projects are generally short lived activities and for fulfilling short term motives where sustainable development approaches are usually missed. The corporates are indulging in CSR practices to take advantage out of the HALO effect, thus created. These corporates organize numerous events like health camps, awareness, educations and scholarships, developing Self Help Groups, sports events, vocational cum skill enhancement trainings for livelihood practices without linking them to further growth in the process of conducting CSR. Few corporates work on supporting disable, on elderly issues, or on street children. All these are either time bound projects or supports to some NGOs or institutional activities. Some other companies are closely working with the Government run schemes or programs so as to enhance the quality of the programme by reducing the bottlenecks and resource constraints.
Today, CSR holds a very imperative place in the development scenario of India and can act as an alternative tool for sustainable development. Business houses in India are increasing in realizing their stake in the society and engaging in various social and environmental activities. Since greater concerns towards society and community are showcased by these corporates,
it can be safely concluded that much of the fate of society lies in the hands of these corporates. A sharper, smarter and impact full CSR strategy calls for aligning these CSR initiatives with actual business objectives and corporate responsibilities across the business principles. This study provides insights into an area of growing concern of firms towards society. Firms have been doing great effort for the achievement of business goals and marring the business goals with social responsibility practices. CSR has come a long way in India. From responsive activities to sustainable initiatives, corporate have clearly exhibited their ability to make a significant difference in the society and improve the overall quality of life. In the current social situation in India, it is difficult for one single entity to bring about change, as the scale is huge. Corporate have the expertise, strategic thinking, manpower and money to facilitate wide social change. Effective partnerships between corporate, NGOs and the government will place India’s social development towards tremendous growth. As per the changing market demands need of the hour is for the development of CSR framework that has been imposed by the government.
It’s been a around 2 years since the CSR law came into effect on April 1, 2014. Within such a small period, the entire landscape of CSR in India has taken a sweeping flight. Companies eligible under section 135 of the Companies Act 2013 have embraced the law and initiated a number of CSR projects across the entire spectrum as defined within schedule VII of the Act. Companies that conventionally undertook CSR anyway–with or without the law– needed to only streamline whatever spends they made.
For these firms, the concern was never about increasing the CSR spends multi-fold, but rather a chance to review and re-strategies what they had already been doing in order to not just fit into the requirements of the law but to be rightly perceived by its consumers. This retrofitting also included the setting up of a formal committee of a voluntary working group. For other companies, the need was to look at massively multiplying their CSR spend as compared to what they were spending previously.
The major corrections taken up companies
- Scaling up of activities/initiatives, replicating the benefits to a wider population
- Exploring new areas and pilot initiatives during the initial years of implementation.
This process has led to the rise of a new class of leaders in the corporate landscape who as part of the CSR committee, are learning more about corporate social responsibility and adapting themselves to beyond law and their own comfort zone to streamline and assess what was until recently an eye-wash charity concept in their companies. The future CSR landscape will strongly witness the following trends 2-3 years down the line in respect of selecting and implementing the CSR:
- Tangibility/ Actual Impact – Quantifying and assessing the tangible impact to ensure that they are successful in creating a noticeable influence worth discussion.
- Collaborative Partnerships –The companies will start recognizing the value in collaborative efforts and wish to leverage it to create a collective and sustained impact. Close alignment among the companies with each other’s vision and priorities.
- Long-term CSR projects/ Cause related CSR – Companies will own a cause and make it their CSR identity. They wish to establish long-term CSR projects to establish a sturdy recall for their brand whenever a particular issue is talked about.
- Employee engagement –. Employees will play crucial roles in the conception and implementation of CSR programs. With the law allowing for quantification of volunteering time, companies now actively seek modules of CSR that have employee involvement as a core feature.
3.3.2 DRIVERS OF CSR IN INDIA
Globally, businesses have recognized the importance of business moves planned around environmentally and socially sustainable practices. The vast majority of companies are typically involved in conventional local charities like donating money, time, efforts or products/services. Businesses are also working to reduce their environmental impact, with increasing numbers calculating and reducing the carbon footprint of their operations.
Numerous researches on impact of CSR proves that it makes good financial sense. Cost management (67%) is the main driver globally, followed by customer demand (64%) and being the ‘right thing to do’ (62%). The impact on company reputation is an increasingly important factor in many countries.
Similarly, in India, cost management topped the list of key CSR drivers, equal with tax relief. These were followed by, customer demand, brand advocacy and employee/staff recruitment & retention issues. This growing recognition of the potential cost savings of CSR both globally and in India suggests that the benefits of running a strong CSR programme are becoming more tangible. The most popular initiatives undertaken by businesses – donating money to charities and improving energy efficiency and/or waste management – can impact the triple bottom line, either indirectly through tax relief, or directly through lower utility bills.
Growing realization about the benefits of reporting and communicating sustainability measures and not just financials is also evident. Sustainability reporting has increased significantly since 2011. More than half of the businesses now view integrated reporting as an essential best practice.
220.127.116.11 Driving Forces of CSR in India
The major driving forces of CSR in India are:
- IncreasedAffluence: The greatest attention to CSR is found in developed countries as the CSR becomes more relevant when economies grow and stabilize. Stable work and security provide the luxury of choice and socially responsible activism. No such luxury exists when basic needs are in question.
- EcologicalSustainability:It is in the best interest of the firms to protect for the sustainable future and the long-term availability of the resources on which their operations depend. Hence, the most talked about drivers are, concerns over pollution, waste minimization, natural resource depletion, carbon footprints reduction, climate change and the like continue to fuel the CSR discussion and heighten expectations for proactive corporate action.
- Globalization:Theglobalization has had considerable impacts in forms of increased complexity of CSR as expectations of acceptable behavior vary regionally due to cultural differences, and the increased wealth and power of multinational corporations has led to questions on the decreased authority of the nation-state, especially in developing areas. With increased power comes increased responsibility and globalization has fueled the need to filter all strategic decisions through a CSR lens to ensure optimal outcomes for diverse stakeholders.
- FreeFlowofInformation:Internet and other electronic mediums have changed the direction of the flow of information back to the stakeholders, especially in the case of 3 important groups: consumers, NGOs and the general media. Easily accessible and affordable communication technologies have permanently changed the game and only truly authentic and transparent companies will profit in the long term.
- ThePoweroftheBrand: Brands are today the pivotal point for measuring corporate success. And much of the health of the brand depends on public perception of the corporation and its activities. In other words, reputation is key and honest CSR is a way to protect that reputation and therefore the brand.
3.3.3 BARRIERS OF CSR IN INDIA
Barriers are precisely understood as the factors that impede & challenge the implementation of CSR by an organization. One approach to identifying such barriers is to correlate them to a firm’s size. Laudal analyzed the drivers and barriers of CSR and then compared the transformation of these factors within small- and medium-scale enterprises (SMEs) and multinational enterprises based on a literature survey of relevant papers.
Several researches were done in foreign context, to compare the position of both the opportunities and barriers of CSR between the large firms and SMEs. Some studies particularly analyze the barriers of CSR implementation with a national perspective.
For instance, Valmohammadi explored in his study focused on a code of conduct named “ISO 26000,”, the understandings of a CSR domain and concepts in an Iranian context along with a detailed analysis of CSR drivers and barriers. In this study, he narrowed his analysis to 7 core issues: organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development. This study was supported with 105 responses received from Iranian organizations. In a similar study conducted in Bangladesh, Duarte and Rahman detailed the perceptions of CSR among managers, in which defining current initiatives and barriers of CSR within the manager’s perspective were explored through face-to-face interviews. Arevalo and Aarvind explored the practices of CSR in an Indian context along with its approaches, drivers, and barriers. The data collected from their sample of companies currently engaged in CSR, they determined four types of CSR approaches: the ethical, the statist, the liberal, and the stakeholder. Some studies investigated the supply chain in analyzing the barriers of CSR.
Faisal explored the interrelationship and interdependencies among the barriers of CSR in supply chain management. Parisi et al. conducted a literature review on factors that motivate and restrict the implementation of CSR in supply chain management. Finally, whereas certain studies focused on barriers without any constraints, Garavan et al. analyzed the behavioral barriers of CSR and corporate sustainability (CS) with the concern of human resource development.
The practical implementation of CSR is faced with a lot of issues and challenges:
- Exploration of voluntary and non-regulatory initiatives instead of regulatory and legislative.
- Missing collaborative participation, duplication of activities, competitive spirits due to lack of consensus amongst local agencies regarding CSR projects.
- Inability of the companies to measure impact assessment of their CSR initiatives from time to time.
- Lack of interest and commitment of the local community in participating and contributing to CSR activities of companies due to lack of awarenesswithin thelocalcommunitiesasnoserious efforts havebeen madeto spreadawarenessaboutCSRandinstillconfidenceinthelocal communities aboutsuchinitiatives.
- Lack of communication between the company and the community at the grassroot level.
- Absence of well-organized nongovernmental organizations in remote and rural areas that can assess and identify real needs of the community and work along with companies to ensure successful implementation of CSR activities.
- Absence of efforts to invest in local communities by way of building their capacities to undertake development projects at local levels.
- The scale of the CSR initiatives of these companies generally depend upon their business size and profile. In other words, the bigger the company, the bigger is its CSR program.
- Limited role played by the Indian media in highlighting good cases of successful CSR initiatives and sensitizing the local population about various ongoing CSR initiatives of companies.
- It is evident that the ethical conduct of companies exerts a definite growing influence on the purchasing decisions of the customers. In a recent survey by Environics International, more than 1 in 5 consumers reported having either rewarded or punished companies based on their perceived social performance.
- Investors are changing the way they assess companies’ performance,
and are making decisions based on criteria that include ethical concerns.
- Employees are increasingly looking beyond remunerations and benefits, and are seeking out for employers whose philosophies and operating practices match their own principles. In order to hire and retain skilled employees, companies are being forced to improve ethical conduct and working conditions.
3.3.4 Corporate Social Responsibility Examples in India
According to Assocham Eco Pulse (AEP) study on “Corporate Social Responsibility by Indian Inc. in Q1 2010–11”, 175, Indian companies that have been grouped under 18 broad sectors based on their economic activity, the maximum initiatives have been undertaken by almost 52 companies in FMCG and consumer durable contributing a share of 13.11 per cent. According to another study by Anupam Sharma and Ravi Kiran in 2012, Indian FMCG sector has yet not focused too much into the social responsibility domain.
However, the CSR initiatives in India are now seriously taken by many companies. Especially for the FMCG companies, for whom the major challenge remains the reduction of packaging materials, these companies are doing work in the field of Environment, Health care, Education, Community welfare, Women’s empowerment and Girl Child care. Companies like Hindustan Unilever started CO2 reduction also.
FMCG companies, are doing work in the field of Environmental protection, Health care, Education, Management, Community welfare, Women’s empowerment and Girl Child care. Companies like Hindustan Unilever started work on conceptual framework as a basis to develop a company’s CO2 reduction also.
The various initiatives taken up by the following FMCG companies can be summarized as follows:
ITC LtdITC Group, is among one of India’s leading private sector companies having an assorted portfolio of businesses. including FMCG, agriculture, hotels, IT, and packaging sector. It is working with the concept of ‘Triple bottom line’ that will contribute to the growth of economy, environment and social development. Major focus area of the company is on raising agricultural productivity and helping the rural economy to be more socially inclusive. The company has been able to generate sustainable livelihood for around six million people through its CSR activities. The e-Choupal program of ITC, which aims to link rural farmers through the usage of internet technologies for procuring agriculture products, covers over 40,000 villages and around four million farmers. ITC’s farm forestry program assists farmers in converting wasteland to pulpwood plantations, managing water soil level and forest resources to maintain the balance and ecological security. It’s social empowerment programs through micro-enterprises or loans have created sustainable livelihoods for over 40,000 women in rural areas. ITC.
- Hindustan Unilever Ltd: This conglomerate focuses on women empowerment, financial stability, rural entrepreneurship through its renowned projects: Project Shakti. Help a child campaign to save infants (kids under 5 years of age) from deaths due to diarrhea and pneumonia; preventive health care by running free mobile medical service camp “Sanjivani”, Health and Hygiene, water conservation programs, environmental protection and Special Education & Rehabilitation etc.
- Godrej Consumer Products Ltd: Major focus for utilizing CSR funds has been on environment, healthcare and education, Good – Green Products and promoting CSR in R&D, supporting primary education, removing hunger and malnutrition, addresses stigma and discrimination related to HIV etc.
- Britannia Industries Ltd: Corporate Citizenship, social development (by enhancing quality of work life of its people, by organizing health and family welfare programs, clean drinking water, providing free education to the poor people etc.).
- Marico Ltd: Scalability of social organizations, community development, national emergency and disaster relief, water conservation, supporting primary education by way of running mobile schools and donations/aids to government schools, Heart and general Healthcare through its flagship Saffola World Heart Day, environment protection through energy conservation and green manufacturing programs are the major initiatives besides other.
- Dabur India Ltd: CSR initiatives of the group are driven through the sustainable development society as envisioned by Dr S. K. Burman. Eradicating hunger, poverty and malnutrition, Promoting Health care including Preventive Health care, Socio-economic development of social and urban poor, mother and child healthcare, AIDS awareness campaigns, female feticide prevention, medicinal plant project, financial sustainability programs, ensuring environmental sustainability & ecological balance etc.
- Colgate Palmolive India Ltd: Colgate’s CSR focus has been on Promoting Education, Promoting Preventive health care, Promoting Education, Conservation of Natural Resources, Education, Addressing Inequalities, Vocational and Skill training for upliftment of economically weaker youth etc.
- Procter & Gamble Hygiene and Health Care Ltd: Its flagship CSR program to promote education through its Shiksha Campaign, disaster relief and management. Women sanitation and personal hygiene program, environmental education program etc.
- Emami Ltd: Principle CSR activities include programs on eradicating hunger, poverty and malnutrition; Women empowerment, promoting health care, Safe drinking water & Sanitation; Promoting Education, Enhancing Vocational Skills & Livelihood enhancement Projects; Women and Orphans homes; socially and economic development of backward groups; Rural Development Projects etc.
- TataGroup:The Tata Group, is a truly conglomerate corporate in India that carries out various CSR projects, mostly focused on women empowerment, community improvement & poverty alleviation. It is engaged in women empowerment, income generation, rural community development, and other social welfare programs through its Self-Help groups. To promote education, the Group provides scholarships and endowments for several institutions. By facilitating child education, immunization & creation of awareness of AIDS, it engages in healthcare projects too.
Other areas where the group utilizes CSR funds include economic empowerment through its agriculture programs, infrastructure development such as research centers, hospitals, educational institutions, sports academy, and cultural centers, providing sport scholarships and environmental protection.
- Jubilant Foodworks Ltd.: Nutrition (Eradicating hunger, poverty and malnutrition), promoting education and education on Road Safety, Vocational Trainings & Skill development, building old age homes & orphanages, programs for blind children are amongst the major CSR activities.
GlaxoSmithKlineConsumer Healthcare Ltd: CSR programs primarily focus on health and healthy living. They work in tribal villages where they provide medical check-up and treatment, health camps and health awareness programs. They also provide money, medicines and equipment to non-profit organizations that work towards improving health and education in under-served communities.
Some other FMCG companies setting CSR examples:
- Coca Cola Enterprises: Environment, food safety and quality, occupational surveys, reduced carbon footprints, reduced water wastages, rain water harvesting etc.).
- BajajLtd corporate social responsibility primary activities include Education, Rural Development & Environmental protection.
- Wipro: The company focus area of care includes promoting and taking educational and health care initiatives for migrated communities, disaster rehabilitation and environmental issues. Alongside, it focusses on women empowerment, environment sector, education sector and energy conservation (educational and health care initiatives for migrated, communities and environmental issues and disaster rehabilitation).
- Nestle: Nestle looks at corporate social responsibility in terms of creating shared value (and environmental protection and community services). ‘creating shared value’ is a very different approach to CSR, because it is not focused on meeting a set of standard external criteria, or on philanthropy (by educating and imparting work skills to farmers, consuming lesser water and energy and producing fewer green hose gases, providing high quality products with good services, adopting best business practices etc.).
Many FMCG companies as listed below (figure 3.1), are known for their projects dedicated to women and children sanitation and empowerment (mortality, education, health, malnutrition, protection, equality, fair wages etc.).
Fig 3.1: CSR Projects by Major FMCG Companies in India
Corporations with poor CSR records generally experience significant negative consequences such as large-scale consumer boycotts, diminutions in brand images, temporary drops in sales etc.) when their negative records come in public.
Hence, the marketers should not only carefully select the social programs but must ensure that their communications make a perfect fit between the social sphere and the organizational goals so that consumers perceive the organizational initiatives as proactive and socially motivated.
Another interesting study highlighted that the consumers expect firms to be involved in social initiatives and may reward them for their efforts through their positive purchase behavior.
According to a study by Becker-Olsen, Karen L, Lehigh University and Ronald Hill, University of South Florida in 2005; low-fit socially or profit motivated, high-fit profit motivated and poorly timed/ reactive CSR efforts and initiatives negatively impact consumer beliefs, attitudes, and intentions no matter what the firm’s motivation.
The corporates in India basically started off with the need-based initiatives aligned with the national priorities such as employment, education livelihood, public health, water conservation & resource management etc. However, creativity, optimum utilization of resources, green production, finding value generating solution for the environmental and other societal problems is yet another way of contributing towards the society, and has emerged as the contemporary CSR dimensions.
Amongst the FORBES top 10 companies with best CSR reputation, there is no visibility of a single Indian company in this space. According to an article published by FORBES in Forbes India magazine issue of 22 March, 2013, many firms amongst the top 100 firms by revenue, actually don’t report their CSR spends and/or even don’t declare the social causes supported by them.
3.4 SCOPE OF THE STUDY
The corporate social responsibility in India refers to chronological changes incurring over time in India in the cultural norms of corporations’ engagement of corporate social responsibility (CSR),
As discussed above, CSR is not a new concept in India. Ever since their inception, corporates like the Tata Group, Godrej, the Aditya Birla Group, to name a few, have been involved in serving the community. With time a more comprehensive method of development was adopted by some corporations such as UniLever Limited, ITC, and P&G Limited etc. CSR programs ranges from community development to development in education, environment and healthcare etc.
According to the CSR India Index 2012, which tracks the PAT (profits-after-tax) and CSR spends of the top 10 private sector companies in India & provides a glimpse of the overall CSR sentiment of the industry, the top 10 private sector companies put together made a total of INR 734 billion in profit-after-tax for the financial year 2011-12. For the same year, these top 10 companies spent actually less than half of what is mandated in the company law (CSR spend equivalent to 2% of net-profit) i.e. instead of INR 14.67 billion the overall spend was only INR 6.9 billion.
Among other countries India has one of the richest traditions of CSR and ample work has been done in recent years to make Indian Entrepreneurs aware of social responsibility as an important segment of their business activity but CSR in India has yet to receive widespread recognition. CSR in India can be considered in a very nascent stage. It is still regarded as one of the least understood initiatives in the Indian development sector.
FY 2015-16 witnessed a 28 percent growth in CSR spending in comparison to FY 2014-2015. Prime Minister’s Relief Fund saw an increase of 418 percent from Rs 1.68 billion in 2014-15 to Rs 7.01 billion in 2015-16. The CSR spend of listed companies in India reached Rs 83.45 billion. The favourite CSR activities ranged from educational programs, skill development, community development, social welfare, healthcare, and environment conservation. Education and healthcare remained at the top of CSR spend priority with funding worth RS 20.42 and 16.38 billion. Less focussed area remained gender equality, maternal health, and child mortality. Reliance Industries, NTPC (National Thermal Power Corporation (NTPC)) and ONGC topped in CSR spend. After the announcement of Swach Bharat Abhiyan and digital India program, 2017 shall witness alignment between corporates CSR activities and Government programs.
With this we can analyse that Corporate social responsibility (CSR) has become a mainstream topic, rising to a corporate priority in management in Indian context. The ever-increasing number of articles in leading management and other reputed journals to the area provides evidence of this effect
Despite all this the real challenge lies in analysing that, how CSR can be considered in a developing country like India, which may bend many rules in its moves to fully develop. The much hyped and at times flaunted CSR initiatives by the corporations are generally short lived and mere ornamental as they usually offer minimal benefits to the business, society or nation at large. The CSR activities pursued by these firms are more or less similar types of projects often regarded as the pet projects, often based on the fantasies and whims of the senior executives, which highlight their inclinations towards only one aspect of the responsibility drive. Through this research, a deliberate effort is made to understand the exact domains in which the companies are making major investments under the pretext of CSR activities. The basic intent of the companies behind these CSR initiatives (personal interests of individual senior executives, reputation building, CSR as advertising and publicity tool or a noble achievement); and the difference of opinion about the corporate’s social responsibilities towards the society, between the consumers and the corporates will also be unveiled and explicated in detail.
In the 1980s and 1990s, academic literature regarding CSR focused on the corporation´s engagement in social responsibilities from a business approach. Particularly, in 1990s academics have focused on an important stakeholder of CSR- the consumer-, interest that has
Carroll argues that CSR includes society’s economic, legal, ethical, and philanthropic or voluntary expectations of organizations at a given point in time. According to this model, there are four interrelated dimensions of CSR.
The economic dimension refers to society’s expectation that companies be profitable and that they are rewarded for their efficiency and effectiveness in the production and sale of goods and services. The legal dimension is understood as the societal expectation that businesses achieve their financial goals within the confines of the legal framework. The ethical dimension refers to society’s expectation that business practices meet certain ethical standards. Finally, the discretionary or philanthropic dimension relates to society’s expectations that companies will voluntarily involve themselves in roles to address social needs.
Secondly, Brown and Dacin (1997) propose that different types of associations are perceived by consumer with regard to the company. The term corporate associations are a generic label for all the information about a company that individuals hold. Corporate associations may include perceptions, inferences, beliefs, a person´s knowledge of his/her prior behavior about the company, moods and emotions experienced by the person with respect to the company, and overall and specific evaluations of the company and its perceived attributes. In the academic literature, several types of corporate associations have been described. However, two categories are considered of particular relevance to the company´s stakeholders, especially for consumers.
First, corporate ability associations are those associations related to the company´s expertise in producing and delivering its outputs. On the other hand, corporate social responsibility associations reflect the organization´s status and activities with respect to its perceived societal obligations.
A third approach is based on the postulates of the theory of interest groups. According to this proposal, the CSR perceived depends on those interest groups that benefit the most from them and are the main target audience of each action.
Following this approach, the literature has identified various dimensions of CSR: consumers, employees, shareholders, society in general, the environment, and the market, among others. Finally, the sustainable development model is based on the “Triple-Bottom-Line” approach. From this perspective, it is possible to understand CSR as the integration by companies of social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. This approach integrates economic, and non- economic CSR matters in two dimensions: social and environmental issues. With regard to this, the economic dimension of CSR refers to a firm´s ability to create value and enhance financial performance. The social domain describes the consideration of societal issues like tolerance towards others or equal rights. Finally, environmental dimension of CSR can be labelled as the maintenance of natural capital. Recently, several authors have emphasized the afore-mentioned lack of research focusing on the consumer from this perspective.
Furthermore, this approach has contributed to improve the understanding and clarity of CSR; in addition to being used both for the management of this concept and at the operational level. In summary, a review of the literature reveals the existence of different approaches to clarify the dimensions in the CSR perceived by the consumer. More importantly, the different perspectives on the concept of sustainable development have mainly been developed in a theoretical manner; thus, there is a need to establish practical proposals to CSR that addresses this conceptual framework.
The main question here is the following: Do consumers care about socially responsible initiatives? In this sense, Auger et al. (2007) explain that a combination of more product and service choices, wealth, education and the increasing availability of responsible products led to a more socially conscious consumer. In a MORI survey of 12,000 customers across 12 countries in 2000, 70% of customers indicated that a company´s commitment to CSR is important when buying a product or service (www.mori.com). However, more recent studies are less convincing.
A study undertaken in the UK, US and Japan showed that customers care about CSR but this is not the principal