So, what is Corporate Social Responsibility (CSR)? Wikipedia defines it as “the deliberate inclusion of public interest into corporate decision making”. This definition was somewhat misleading – I felt that this definition was not exactly correct. The reasons? Read on.
Can any corporation live for the sake of the society? What then is the rationale behind the pooling in of money, effort and technology to develop products/services? If corporations were to survive only for the sake of society, if each of their decisions were based on public interest, why should they be owned by private entities? Why not they renounce their control to the government and make it a charitable trust? Such questions flooded my mind before the next question provided the much needed direction – is the term corporate social responsibility a misnomer?
Yes – that was my immediate answer. Pat came the next question – why is it a misnomer? To satisfy my insatiable brain, I tried to define the need for the existence of a corporation:
- A corporation exists to create quality products/services and thereby yield profit and return on its investment
- A corporation exists to create value for the product and as a corollary to create value for the money used to purchase that product
I further analysed each of the above points in detail. Here are my musings:
- Quality products are not produced for the sake of public but for the sake of common sense – if the product is not a quality product, then no one will buy it and the corporation cannot survive
- Value is created by the quality of the product. I do not want to delve deep in to the economic considerations such as the effect of value and quality on inflation but I can support this observation with a simple example: consider that a customer wants to buy a car. Typically, he will do some research on what car will meet his requirements – the car must be spacious enough for his family, it must deliver good mileage, it must fit within his budget, etc. After short listing a few cars, he will choose and buy the one that offers him the highest value for his money.
Coming back to the main question: why CSR is a misnomer? Paradoxically, a corporation should be “socially responsible” for its own sake. Creation of value by using quality can either be interpreted as social responsibility or selfishness. This partly explains why I consider the term CSR a misnomer. But, is creation of value the professed ideals of a company's CSR policy? Unfortunately, no! In my opinion (at least!), most organisations that claim to be socially responsible are missing a point by not realising the true meaning of social responsibility. For example, consider a company that claims to be socially responsible by planting trees, organising blood donation camps, etc. These activities are not wrong but to claim that the company is socially responsible for these reasons is what is not correct. These might be socially responsible acts, but the company's existence does not require it to involve in such acts. I am not against an organisation advertising these things as CSR or involving in such acts, but I cannot accept the claim that these acts make the company socially responsible. If the company cannot create value by producing quality products, then it is not socially responsible. These acts do not compensate even a fraction of the loss caused to the economy of the nation by poor quality products. If you might immediately feel that I am money minded (yes I am, and who is is not?), here is another way of telling the same thing: if the company's product lacks quality, is it not something against the customer? The customer is after all, at the heart of the society to which the organisation is committed to and therefore by not focusing on the quality of the product but by focusing on certain other seemingly “socially responsible” acts, the company is deluding the society, is it not?
To elaborate a step further, do customers prefer companies that proclaim their commitment to CSR? If this were the case, then customers would prefer a product even if it were inferior to another product made by a company that does not “proclaim” its commitment to CSR. Every business activity is based on rational means of creating value that is mutually beneficial to the creator as well as the consumer – this means that “public interest” in a business decision is serendipitous rather than intentional. Nobody buys a product because the creator cannot survive otherwise; the product is bought because it is the best among others in the eye of the buyer. The company can be called “socially responsible” (I still won't use that term) because it has created value for the customer's money. But the fact remains that the company has created value not for the sake of the society but for the sake of its survival – the survival based on rationality rather than on public interest.
You've made some hard-hitting points. Organizations exist, & rightly so, for profits. Their responsibility therefore lies only towards their customers who pay for products/services.So CSR activities, by default, are beyond the scope of an organization's mandate. Whenever organizations talk about CSRs, they forget that they're in it coz they have extra money/effort to spare over and above their personal/business needs. The problem, thesedays, is that most organizations talk as if such activities are the raison d'etre for their existence. I, for one, cant reconcile myself to the thought of an organization cutting down its employees' salaries & at the same time increasing the budget for its CSR activities. While I feel such initiatives are beneficial to the society, & give the organizations a facelift in front of its employees & the media, I hate it when ppl go overboard with their statements. For instance, when Nilekani quit the Infy board, Infy released a press stmt saying it respects his decision to resign from the since Infy has always the society's interests above its own. Such stmts are pure bull****. If they were that concerned, they should have set up a non-profit foundation & served their beloved society!
ReplyDeletety above Infy's own interests when Nilekani quit the Infy board is total bull****.
A corporation exists to create value for it's stakeholders.
ReplyDelete"If the company cannot create value by producing quality products, then it is not socially responsible."
If the company cannot create value by producing quality products, then it is not competitive in the market and will go belly up.
Creating value and being socially responsible are two completely different. Usually, companies try to be socially responsible to create goodwill in the society and to not be burdened with the reputation of a 'capitalist villain', is my opinion. This explains companies conduction blood donation drives etc.
Let us consider a company that manufactures leather goods. It manufactures quality goods for the community around it and creates value for it. At the same time, it releases effluents into the nearby water bodies and this poses a health risk to the same society. This company might contribute to some NGO that cleans up the country's rivers in order to be socially responsible. This is the meaning of social responsibility, though I'm no authority on the topic. But I will still dispute your statement that a company is not socially responsibly unless it creates value for the customers because they are completely different concepts.
@shaaaaaaam: You are right! I don't see any reason why a man who is paid for his job and given a minister's post should consider it a social responsibility!
ReplyDelete@vekram:
ReplyDelete1) You say that "Usually, companies try to be socially responsible to create goodwill in the society and to not be burdened with the reputation of a 'capitalist villain', is my opinion". Does this not clearly mean that it is trying to create goodwill just to save itself from being stigmatised as a "capitalist villain"? Is this a socially responsible act? I strongly feel it is selfishness (which is not wrong)
2) You go onb to say "This company might contribute to some NGO that cleans up the country's rivers in order to be socially responsible. This is the meaning of social responsibility". You can call this social responsibility but consider this - the company is trying to make amends for its act that has polluted the river - this is not social responsibility, it is moral responsibility. Also if it does not do so, it will be a punishable offense by law. A good company will definitely improve its technology to treat the effluvium before draining it to the river (this is also an aspect of quality)
@Ravi: I concur with Vekram's opinion. Creating value by way of quality products is entirely different from being socially responsible. I think we should be clear that we are talking about the organisation being socially responsible or not without getting into the vested interest of the organisation.When Dr.Manmohan singh calls up the heads of all major industries and ask them to allign themselves with the CSR, these heads listen. For all you know, their CSR drives are developed to be in the good books of the state. But if you look beyond their intent , you will realise that someone has benefitted from this CSR drive and that is reason enough to tag this as a socially responsible act.
ReplyDeleteSecondly,there is a very thin line between social responsibility and moral responsibility. While Vekram's eg. is more of a moral responsibility,I could give you an example of a CSR from my personal exp.
Infosys urges its employees, with the help of a pop up that appears on the monitor at 1730 hours everyday, to switch of their PCs before leaving for the day. Now this is not a moral responsibility but a CSR. it is not morally bound to save the states power because it pays for it, but it is socially bound in terms of a greener environment.
In short CSR should not be confused with value of quality products.
@Tito: My argument is that there is nothing called "social responsibility" from an organisation's perspective. Consider your example of switching off PCs - you consider it as social responsibility, i see it as rationality on the part of the company - it can save huge amounts in electricity bills. Accidentally, this also benefits the society (This is what i meant when I wrote 'public interest in a business decision is serendipitous rather than intentional'). The objective of this post is to make it clear that every organisation exists only to satisfy its own needs and goals. Maybe you think your organisation asks you to switch off PCs before you leave only for the sake of the society. But think again - is it true? I call the act 'rational' because it not only saves the company from paying huge bills but also saves electricity which mostly requires non renewable energy resources. To state it differently, the difference is not in the semantics but the primary intent of any act.
ReplyDelete@Ravi:
ReplyDeleteTo be honest, I really do not understand the rationale behind this post....The logic and the reasoning seems to have just evaporated after ur first post.
To me, it appears more like an incoherent block of text with arbit content.(Sorry for being so straight, but thats how a critic ought to be).
To pinpoint some of the areas where I differ,
WIKI(acording to u...I am too lazy to skim through WIKI...I take ur word on that) says:
"the deliberate inclusion of public interest into corporate decision making"
But, ur next para wrongly interprets this and goes on to pose wierd qns like "Can any co. live for the sake of society?"
Well, all I can say is...u better read the line again....does it mention public interest as the only parameter determining a co. decision?
I concur with Vikram when he says CSR and creating value are totally different.
In Today's highly competitive environment...the customer or the market is at the heart of every research/invention( point already mentioned by Vikram )....With so many companies vieing for the same market space...the only way to differentiate urself from the rest and gain visibility is through "value addition".
Now, coming to the CSR, it is not mandated by any govt and the companies do it at their own behest. They look upon it as their moral responsiblity to be socailly responsible....i.e. to give a share of their profits to the society which is the sole reason for their existence. For this they indulge in activities like planting trees, running schools for the orphaned....donations during disasters like Tsunami, earthquakes( remember? wabco donated some amount during the Chinese earthquake) ....which are no way related to their businesses. Allocation of funds for these causes is a part of a co.'s "Decision Making".
I do not know why u say these "might" be CSRs.
I am also reminded of Shakti which employs the differently abled(again a part of decision making), though I hate to see them advertise abt it ( I agree (only partly) when u say some companies involve themselves in CSRs out of their selfishness ). But, one should be happy that they at least do it. For that matter, u can accuse(sitting on ur arm chair) anyone involved in CSR to be selfish...thats a very cynical way of looking at people.
To sum it up, Value addition and CSR, in my view are 2 different things. The former is to extract money from the society ( by selling ur product) and the latter is just the converse.
CSR, as such, is a very debatable topic. It would have been reasonable to blame companies....of putting up the CSR drama...but value addition(that too in terms of quality) and
CSR?....nah!!!!!!!!! Not convincing enuf....
@shaaaaam : You are rite....there are companies which boast of being socially respnsible...But, I would refrain from generalizing this. Infy especially is doing a lot when it comes to CSRs....but then, it is answerable to its shareholders....and cannot do away with all its profits....that is why u have individuals like NRN, Bill Gates starting up their foundations.
@NATARAJ S:
ReplyDeleteYou not seeing any rationality in this post will not make my views irrational.
I am no one to judge your level of understanding and maturity but your comment (rather, a misplaced blog post, shall we say?) makes me think you have not understood what I tried to convey. Rather, you have read my post with some preconceived notion.
All I want to say to you is, read it again without any prejudiced notion and you will get the answer to your queries. Also you might want to refer to my replies to other friends. (Do this only if you really wanted to know what I intended to say)
I do not blog to "convince" you. And, this is NOT the place for you to blog! :)
ethukku da isskool pasanga maari adichikireenga??
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteHi Ravi,
ReplyDeleteYou are good with your words, But short on logic. You are missing a point here.
I am not sure if you read through Natarajs' post completely (which I agree line by line), but some of your lines does not make sense.
Corporate Social Responsibility (CSR)? Wikipedia defines it as “the deliberate inclusion of public interest into corporate decision making”.
Can any corporation live for the sake of the society? What then is the rationale behind the pooling in of money, effort and technology to develop products/services? If corporations were to survive only for the sake of society, if each of their decisions were based on public interest, why should they be owned by private entities? Why not they renounce their control to the government and make it a charitable trust? Such questions flooded my mind before the next question provided the much needed direction – is the term corporate social responsibility a misnomer?
Now what is the relationship between the two paras? Do you intend to say that only corporations that live for the sake of the society are CSRs? If you were to think so, you are mistaken. Read the definition again it is not "the deliberate inclusion of corporate interest into Public decision making" But “the deliberate inclusion of public interest into corporate decision making”.
There are companies that advertise CSRs out of their own selfishness. But you can never generalize them.
""" 1) you say that "Usually, companies try to be socially responsible to create goodwill in the society and to not be burdened with the reputation of a 'capitalist villain', is my opinion". Does this not clearly mean that it is trying to create goodwill just to save itself from being stigmatised as a "capitalist villain"? Is this a socially responsible act? I strongly feel it is selfishness (which is not wrong) """"
Microsoft will not be a Capitalist villain even if Bill gates foundation was not found. This is just an example from the numerous group of exceptions you forgot when you typed the above para.
I might have not replied to your post so vehemently if I knew you understood what Natural has said.
Don’t generalize when there are exceptions. Come out of the arm chair and explore the world.
Regards,
Your friend.
P.S I am posting this as an anonymous, because am a close friend of yours, I will be able to see how hurt you are when you read this. I don’t want to lose your friendship, anyway, cool buddy. Enjoy.
@20031831 - I will consider your point that I must not generalize. However, my stand on CSR remains the same :)
ReplyDeleteI hope I can write a convincing post next time around :)