Monday, 1 March 2010

IS CSR MERE WINDOW DRESSING?

Corporate Social Responsibility is subject to much debate and criticism. Some argue that it is sheer window dressing, companies should stick to the aim of profit making and that companies use CSR as a tool to divert attention of stakeholders from much more serious issues while the supporters of the concept think that since organisations have a major impact on the social and physical environments in which they operate, therefore, companies should be held accountable to societies and communities in which they operate. Also, they believe that by engaging in CSR activities, organisations benefit in multiple ways and can enjoy strong relationships and sustainability. In this blog, I will discuss some arguments related to this issue.

Corporations are only responsible to its shareholders
Milton Friedman and others have argued that a corporation's purpose is to maximize returns to its shareholders, and that corporations are only responsible to their shareholders and not to society as a whole. They also support the fact that companies should obey the laws of the countries within which they operate but they assert that corporations have no other obligation to society.

While shareholders are definitely one of the most important stakeholders in any business model, but just think for a second, can an organisation really survive by not paying attention to the interests of other stakeholders like customers, communities, activists groups and employees etc? Those who support this view reject Friedman’s ‘stockholder’ or ‘shareholder’ model in favour of what is usually referred to as the ‘stakeholder’ model where corporate managers need to balance the interests of all the different groups who have a ‘stake’ in the company. These groups might include shareholders, employees, customers, suppliers, the local community and even broader society.

Corporations use CSR to distract the public
Critics of CSR believe that CSR programs are undertaken and publicised to distract the public from the core issues. They also argue that corporations use CSR as a tool for their commercial benefit for example, by building relationships and reputation.

If companies genuinely engage in CSR activities, the benefits will be substantial and visible for example, increase in sales or image or reputation. Thus, if companies are undertaking CSR activities to distract publics, they will themselves stand at a loosing end. Also, effective governmental and international regulations and enforcement can ensure that companies operate in socially responsible manner.

CSR is the responsibility of the government and politicians
There is also an argument that CSR is the responsibility of government and politicians since they are there to ensure the welfare of people and the state so why should companies engage their time and resources to do CSR.

Although government’s primary role is to ensure welfare of the state but there are certain areas where it has been ineffective or incapable of creating and implementing solutions to some of the societal problems. This is where big corporations or multinationals come in to the picture. They have the resources and means to create and implement solutions which benefit their stakeholders.

This can be particularly true in the case of developing countries, for example, where the government of India has been incapable of providing education, food and shelter to children in rural areas, TATA group through its corporate social responsibility initiatives has supported many causes ranging from education, healthcare, reuse, recycling, energy saving and employing people with disabilities etc. Rather the very existence of this group is to provide community support.

Conclusion
CSR as a concept is gaining value and importance. If companies genuinely engage in CSR activities then the results will be substantial and if companies use CSR as a tool for window dressing not only they will loose the potential benefits but will also put their reputation at stake. This is because of the emergence of new media which demands more accountability and scrutiny from stakeholders. Window dressing might work for short term but if corporations want to enjoy long time sustainability, they need to integrate CSR in the way their business is being managed.

Image credit: http://static.technorati.com/10/01/06/2953/community-globe.jpg

6 comments:

  1. Dear Divya,

    I support the view that most companies, in fact a majority, undertake CSR to use it as a PR tool. Small contributions are blown up to attract attention of the community and consumers to earn the label of a responsible company. Few business houses undertake these activities with a real feeling of contributing to the community.

    Tatas are often quoted as an example of being a very people friendly company. Yes they are doing their bit but their contributions are overblown and their not so responsible actions are tempered down for the public. They have the advantage of having an inhouse well developed PR and publicity set which ensures that only good things are known to the public.

    In India at this stage CSR has become an effective tool for PR. This is evident in media reports. The good is highlighted the bad is ignored.

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  2. Thanks Suresh for your comments.

    Yes, I do agree with the point that some companies use CSR as an effective tool for PR where small contributions are blown up to attract attention but I think media and journalists are vigilant enough to understand and realise whether companies are genuinely engaged in CSR activities or is it just for the sake of it.

    Media is powerful and has the capability of judging the real intentions behind corporate activities. Journalists can exercise this power and decide how much worth these CSR stories are and accordingly place them in the media.

    Moreover, new media is another powerful tool which demands more accountability and transparency from corporations and therefore,if companies are not genuinely engaged in CSR activities, sooner or later they will be caught. If this happens, corporations can loose their credibility and reputation.

    I think some corporations do realise this fact and thus, cannot afford to put their reputation and credibility at stake for false or exaggerated CSR claims.

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  3. Hi Divya, first of all, congratulations for a very well put together post. CSR as a word has been 'used' with lot of authority, but often 'abused' by companies. You correctly mentioned only conglomerate involved in CSR in its righteous sense that one can think of in India is Tata Group. Since I have had the opportunity to involve with some of the Tata Group companies, I can vouch for this complement. The percentage of the annual income of Tata companies that goes into CSR is commendable. I cannot quote the exact figures at this platform.

    Broadly speaking, I believe in India corporations and state authorities are taking time to imbibe the fundamentals of sustainable development - "By giving a man a fish, you feed for a day. By teaching a man to fish, you feed him for his life." CSR in often confused with philanthropy, which is actually a misuse of otherwise a very strong tool to mend a society. CSR should not be looked upon as giving without expecting tangible results. However, one must invest in building capacity that one can make use of - I assert for 'profits' - in future. By building capacity, in the name of CSR, of the society that you operate in, you are actually investing in a fixed deposit, which gives assured hefty dividends on its maturity.

    You would be happy to know that the mounting pressures around the globe, especially in the wake of climate change fear, many more companies in India have started to tread on the path of investing in future. I would like to mention here that HUL is one of the few companies that have CSR spending featured in its Annual Balance Sheet.

    I hope the wisdom prevails and the society we live in becomes a lot more prosperous with support from corporations that operate around us.

    Wish you luck.

    Cheers! XOXO

    Arpit Garg

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  4. What an interesting analysis..this will surely help me in my exam

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  5. Interesting article.. As a PR student I think that any CSR activity has its PR advantages, but the way companies should approach the issue ought to be based on their concern for the community they live in, their employees, the environment, etc. CSR is relatively a new term for many people, so maybe, in time, companies will start seeing CSR as a lifestyle, and not as an obligation, that once it;s fulfilled, can get them media coverage.

    I have recently written an article on whether CSR is PR tool and I would be really interested to hear your views on it:
    http://ethicalblabing.wordpress.com/2012/11/30/csr-pr-tool/

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  6. Its so nice how CSR activities has been made mandatory, its a very good step on part of the Government. I was looking for a few articles on CSR activities in India and I came across yours inspiring read.

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