ABOUT AUTHOR

MY NAME: - ANJALI CHHANGANI

UNIVERSITY - GUJARATNATIONALLAWUNIVERSITY

YEAR-5th YEAR (9TH SEMSTER)

STREAM- B.COM (LLB, HONOURS)

TITLE - CORPORATE SOCIAL RESPONSIBILITY IN A CHANGIN CORPORATE WORLD

SUBJECT: - CORPORATE GOVERNANCE

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PHONE NO/MOBILE NO: -09898298480

CORPORATE SOCIAL RESPONSIBILITY IN A CHANGING CORPORATE WORLD

One of the terms frequently heard these days in boardrooms and at stockholder meetings is Corporate Social Responsibility (CSR). To some the term is a current fad or buzz word. To others it is a call for conscience by the corporate world. The term has various aliases: community responsibility, good corporate citizenship, corporate social involvement, and corporate social conscience. There are also various shadings and nuances. Not surprisingly, CSR has its supporters and its detractors. But whether one supports or derogates it, in this age of globalization, CSR cannot be ignored.

WHAT IS CSR?

Broadly speaking, CSR delineates the relationship between business and the larger society. Ramon Mullerat, a foremost exponent of CSR and former president of the Council of the Bars, and Law Societies of the European Union,succinctly defined its elements[1] “CSR can be defined as a concept whereby companies voluntarily decide to respect and protect the interest of a broad range of stakeholders and to contribute to a cleaner environment and a better society through active interaction with all”. CSR is the voluntary commitment by business to manage its role in, society in a responsible way. CSR is the commitment of business to contribute to sustainable development working with employees, their families, the local communities in societies at large to improve their quality of life. CSR is cooperation between governments, fulfill society and businesses.

Sustainability, diversity, labor conditions, ethical investment, philanthropy and others. There is no one agreed upon paradigm.

SHORT HISTORY

Legal debates over CSR stretch from the 1930s to the twenty-first century. I will dwell here largely on the development of CSR in America, because, both in quantity and size, American corporations have played a dominant role in the capitalist world economy and have influenced corporate development in many nations. Particularly in the age of globalization, there is a fungible quality tomulti-national corporations in a capitalistic environment[2].A seminal debate about CSR took place in the 1930s between the legal scholars, Adolf A. Berle and E. Merrick Dodd, over the responsibilities owed by corporate managers and directors to their shareholders and other groups directly influenced by the corporation. Berleput forward an unorthodox theory of the corporate manager’s responsibility. Corporate directors had long been held to have some fiduciary duty towards their corporation and shareholders. Nonetheless, statutes and corporate charters generally granted corporate managers and directors broad powers to act according to their discretion in the management of corporations. Berle contended that courts were, showing a new willingness to use their equitable powers to force directors toexercise their powers not only for their own benefit, but for ‘the ratable benefit of all the shareholders as their interests appears’.

Using a different approach, Professor Dodd of Harvard wanted to give corporate ‘business statesmen’ leeway to help constituents beyond the shareholder; he proposed that they be treated as agents not of shareholders, but fortheir corporations.Unwilling either to abandon the safe harbor of shareholder primacy, or to relinquish prospects for a corporation responsive to all groups it affected, Berle and Dodd reflected tensions that would underlie future debates over CSR. However, both concluded that large corporations had amassed such power in modern America that, if they were not managed in the interest of society, they would soon hold a commanding position over American society. Yet each admitted that there was no clear-cut legal doctrine setting forth just how corporate managers could favor community interest over shareholder wealth.Following the Berle-Dodd exchange, the debate over CSR essentially lay dormant for nearly twenty years. Beginning in the mid-l 950s, there again emerged a social debate over CSR as part of that decade’s wider discussion of the corporation’s growing power in society and politics.

A leader in the debate was Peter Drucker, a renowned guru of management technique. Drucker declared the corporation to be the representative. Institution of modern society and argued that its power over workers and consumers gave it a social and political; as well as an economic, dimension. Drucker’s most dramatic proposal was that managers be freed from their legal subservience to both shareholders and directors. He argued that if the concept of shares was changed from slivers of ownership into mere claims on an enterprise’s profits, managers would have greater scope to fulfill Political and social roles. He proposed that boards act as a ‘maker of policy’, with representatives not only of shareholder/investors but also from management, labor, and the communities where the enterprise operated. He believed in the profit motive, but one that had a symbiotic relationship with the corporation's larger social mission.

Initially, Berle’s, Dodd's and Drucker's ideas met an apathetic reception. By 1960, however, general discussions over how business statesmen could use their positions to improve society came under pressure because of social unrest, protests over the Vietnam War, and the realities of environmental decline. In the process, the reformers were no longer enamored with finding the ‘business statesman’, and sought to make the corporation more responsible to other constituencies by instituting greater oversight by directors or shareholders.The riots that broke out in major American cities beginning in 1965 further pushed business leaders to implement new programs to help resolve, the urban problem. Some large corporation’s redirected charitable donations to launch programs intended to solve urban ills, to start new employee training programs, and to support minority small businesses.But there have always been critics of CSR. Opponents focused on the vagueness of the problems that CSR promised to solve, the lack of details concerning how the socially responsible corporation would operate, and the lack of commitment of proponents of CSR for the free market.These critics argued that business’s job was business[3] and it should avoid taking on tasks better performed by charities or government. In 1970, this view received its most forcefulstatement, in a New York Times Magazine article, written by the era’s most prominent free-market economist, Milton Friedman. Friedman’s essayentitled TheSocial Responsibilities of Business to Increase Profit’s[4] was as attack on CSR, based on both economics and morality. In part, he noted, replacing market mechanisms with political mechanisms to determine how resources should be used, would produce economic inefficiency. But it was also immoral. The only social responsibility of business, he argued was ‘to increase its profits’. Over the course of the decade many legal scholars and businessmen joined his attack on CSR. From the late 1970s to the mid-1980s, the academic debate over the concept dwindled.The next external impetus for CSR came with the boom in corporate takeovers during the 1980s. Throughout the world corporations were merging, increasing their power, dominating the international arena and becoming power contenders with government, though without responsibility.While many deplored thedisconnect betweencorporate power and social needs,and CSR {under a variety of names} became a more frequent discussion topic in corporate and academic circles, not many corporations acted meaning fully in pursing CSR. In deed, Friedman’s view probably remained the prevailing one for most corporations.

But new thinking gained headway in the corporate world during the 1990s and early 21st century as the world itself changed with the end of the cold war and the communication and technology revolutions. Tony Blair, Prime Minister of the United Kingdom, summarized it this way: The 21st Century company will be different. Many of the world’s best known companies are already redefining traditional perception of the will of the corporation. They are recognizing that every customer is part of the community and its social responsibility is not an optional activity'. Peter F. Drucker opined the next society’s corporation will have the task of balancing the three dimensions of the corporation: as an economic organization, as a human organization, as an increasingly important socialorganization.Expanding the new thinking, advocates of CSR hold which the corporation must focus not just on shareholders, but on stakeholders as well. Stakeholders include customers, employees, vendors and shareholders. And a broader vision of the stakeholder is that it includes the community, government, special interest groups and others affected by the activities of the enterprise. It should be emphasized, however, that although the vision has become more popular, is still not one adopted by most corporations. I will discuss shortly, just how well the concepthas taken hold.What are the main causes of the new thinking on CSR? They vary, but two stand out: the coming of age of international human rights standards, the effect of globalization. Related to these are other influential developments: the rise of the emboldened shareholder and the scandals that racked the corporate world.Clearly, these developments are intertwined.

HUMAN RIGHTS AND CSR

Human rights form an underlying legal foundation for CSR. Some 60 years ago Archibald McLeish opined that human rights, not communism, would be the true revolutionary movement of the 20th century. He was right. Since World War II, there has been a revolutionary development of international human rights. As Professor Paul Redmond put it, the human rights revolution carries the;hopes and claims of the most marginal, the dispossessed and weakest on the planet; the satisfaction of their needs is the primary responsibility of national and global institutions, and the ultimate source of their moral legitimacy[5]. Human right is development and protections are a matter of joint global responsibility[6].

Initially, human rights focused on civic and political rights. But the field expanded to include a variety of additional rights. These include conventions on social, economic and cultural rights worker rights, healthcare and social security. There are also a substantial number of specific human rights conventions, including those dealing with race and women’s and children’s rights.The creation of a large body of substantive international human rights law is a tremendous achievement. Law guides conduct, molds, attitudes, change practices, shapes morals and provides rooting both for a just world order and the opportunity to improve the general welfare.Until fairly recently; the conventional wisdom among corporate leaders was that human rights are an. issue for governments and NGOs, not for business. Indeed, a principle of non-interference and neutrality as to the host governments was considered the sound course of action. The Swiss model of neutrality, at least, before the revelations of its complicity with Nazi Germany, was considered the ideal. That doctrine, however, was in time, challenged by human rights NGOs, by important elements of the press and by many business leaders as well.Today, that principle of so-called neutrality is essentially passed. Human rights are high on the global agenda and they are the subject of numerous international treaties which incorporate human rights into the rule of law. An abuser of human rights does more than act antisocially; the abuser violates the law.

By now, it should be axiomatic that CSR must encompass human rights observance. Businesses and corporations are part of the entire society, and human rights focus on the dignity and worth of the human beings who compose social society. Additionally, human rights form part of international law and corporations are bound by those laws that are applicable to non-state parties. Of course,national laws are also applicable.Human rights issues impact on many aspects of a corporation’s activities both internally and externally. Internally, in a corporation, human right has a distinct relationship to how a company’s employees and business practices are affected. For example, health and safety are covered by human rights treaties that are ratified by most nations. Basic human rights under international law also afford workers the right to have representative organizations of their own for the purpose of collective bargaining: Children are to be protected from exploitation and should not be employed in work harmful to their morals or health or dangerous to their life. A current development lies in the area of environmental crimes and humanitarian law. Here, individuals can be held responsible if specified crimes are committed. There are also other human rights standards, all of which serve to enhance human worth and dignity and have become part of the rule oflaw.In the external international area, human rights are often in a state of flux and satisfactory human rights condition in a country may deteriorate because of an outbreak of civil conflict or some other apocalyptic event. The corporation thenhas to choose whether to disinvest or risk accusations of collusion with thehuman rights violators. Very often the corporation maybe a supporter of international human rights standards and yet be in a nation where human rights policies are difficult or impossible to implement. However, operating in countries which abuse human rights is a risky business in any case where the company may be at the mercy of the authoritarian government, where the people employed are dissatisfied; and where corruption is generally rampant.With various international resource companies such as oil and mining, a commitment to human rights may lead to a loss of contracts and economic disadvantage against competitors who have no commitment to human rights. Such companies have choices to make. A study by Shell Corporation in the late 1990s showed that 20 percent; of the corporations decided not to proceed with at least one project because of human rights concerns.

Corporations that choose to work in abusive countries will have to prove that they do not seek to benefit from poor human rights conditions, or else risk adverse publicity, shareholder protests and lawsuits. Among others, non-governmental organizations are quick to identify corporations which are open or complicit accessories to human rights abuse. In recent years, shareholders of a corporation and other stakeholders (e.g., consumers, vendors) have become increasingly articulate about corporate responsibility to observe human rights. For example, corporations operating under apartheid South Africa met with protests, boycotts and calls for disinvestment. Such publicity affects sales and profits and is takenseriously by corporations.The value of corporate adherence to human rights standards is substantial. As noted, these standards have now been globalized and are highly visible. Public attention is focused on human rights, which includes expectations of realization not only from government but from powerful private interests. Pragmatically, adherence to human rights is likely to enhance corporate recognition, boost the morale of employees, show adherence to a rule of law, and be welcomed by shareholders.

GLOBALIZATION AND CSR

The rise of globalization also affects the exercise of CSR.When did globalization begin? In a sense, it is not a new term. Indeed globalization is not a destination, but a gradual journey along a road built by theincrease in cross-border trade, the flow of capital and the growth of communication technology.In the current context, I believe that the big bang of the modern globalization era took place on an evening early in November 1989, when the Berlin Wall fell. As with Humpty Dumpy, all of the communist forces could not put that Wall together. Communism became marked for the dust bins of history. The fall of the Wall energized a globalized, capitalist oriented world, not a divided .one Globalization is characterized by rapid economic integration across nationalborders, open access to markets, deregulation of cross-border economic activity, free flow of capital and advanced technology. Globalization has resulted in expanded international trade and foreign direct investments and in short-term capital flow following integration of financial markets. Globalization holds the promise of advanced economic welfare worldwide, increased economic opportunity, technology for the underdeveloped nations and dissipation of hostilities in the world[7].

Globalization raises questions beyond the normal human fights concerns. It includes issues about use oflabor, concerns about environmentalprotection, the need to reduce poverty and the need for sustainable development. Though sustainable development is subject to different definitions, its basic objective is to satisfy daily human needs without jeopardizing the resources on which future generations depend. In that sense, combating poverty and protecting the, environment are related objectives. Dealing with those issues is a function of CSR.In this era ofglobalization; multi-national corporations can be so powerful with both political and economic strength that they cannot be readily controlled by national governments, particularly governments in developing countries. That power facilities the ability of multinational corporations to further socially responsible programs if they so choose, but also to be blamed if such programs do not emerge. In short, with power comes responsibility.The road to globalization has not been smooth, as protestors in Seattle, Washington and Davos, Switzerland and other places have demonstrated. As put by Dean Roger Martin of the Rotman School of Management at the University of Toronto: Globalization only heightens public anxiety over corporate conduct.Many people seem to think that corporate virtue declines as international economic activity expands. Global corporations from advanced countries can enter developing countries and ‘average up’ by bringing their home country’s labor, ethical and environmental practices. But, they may ‘average down’ when the corporation’s policies get in line with lower local practice. Globalization thus places a spotlight on multinational corporate conduct. If globalization's principalachievement is that the rich get richer and the poor get poorer, it will ultimately fail and corporate business will suffer.