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Role Of Corporate Social Responsibility In Organizational Performance

Corporate Social Responsibility (CSR) has largely contributed to the success of numerous corporate firms in the western world. This study seeks to address the issues by assessing the impact of Corporate Social Responsibility on organizational performance. In today's environment, matters related to social responsibility and sustainability are facing more and more important in the business sector.

Business goals are inseparable from the environment and society in which they operate and the failure to perform long term social and environmental makes a business unsustainable. Corporate Social Responsibility can be understood as a concept of management and a process whereby companies merge social and environmental concerns in their businesses and relationships with stakeholders. Many corporate organizations in developed countries have seen the importance of responsible behavior towards society and the impact of CSR activities on customers, employees, investors, environment, stakeholders, and business sustainability.

It further discusses the relationship between Corporate Social Responsibility and organizational performance and it has been concluded that both are inter-dependent on each other and it's difficult to dissociate them. Later, this paper talks about drivers that help in pushing the business towards CSR or some ways through which a strong CSR improves business performance. It also includes various responsibilities of the corporate firm towards itself, shareholders, state, and consumers. Each of them is equally important in achieving the aims and objectives of the firm effectively and efficiently.

Lastly, it discusses the instances of violations of Corporate Social Responsibility (CSR) where companies violate the principles of CSR either intentionally or unintentionally. By engaging in social responsibility, a company can enhance its economic value, social value, brand image, reputation as well as the benefits the society. Whereas, companies and other organizations are accountable towards customers, employees, investors, government officials, etc. in terms of optimum utilization of resources of the society.

The relationship between CSR and organizational performance

The question arises whether CSR enhances organizational performance has been a debate over the past years and there is no real consensus that has been reached on this topic. Although many companies claim that CSR activities have taken their businesses to a whole new level, others on the other hand investing in CSR activities is a way of wasting organizational resources.

However, CSR has helped in improving the business performance at various level, in other words CSR and organizational are so inter-related that it is very difficult to dissociate them. Having said that, The researcher looked at business performance” in five angles (though other angles may be exploited); financial, organizational performance; employee's commitment, corporate reputation, and brand differentiation; which can be used to measure the success or otherwise of CSR activities”[1]. As defined by the Business Dictionary, an organizational performance of any firm is an analysis of the company's performance when compared to goals & objectives. If any firm achieves its goals & objectives along with performing CSR activities, that firm is considered to have achieved high organizational performance.

In the study data of Fortunes Magazine's Annual Survey[2] , the correlation and regression presented in the study suggest that performance tended to predict CSR better than risk, measures of risk also has been significantly explained as the portion of social responsibility across firms.

The study noted that a relationship can be made between social responsibility and firm risk. It has been observed that a lack of social responsibility may lead a firm to significant additional risk and might limit its strategic options. Any investor, employee, or manager interested in the financial impact of CSR might look for lesser risk. The data suggest that firms with low corporate social responsibility experience lower market returns compared to the firms high in social responsibility.

The term ‘performance' has been defined as a set of standards used to quantify the effectiveness and efficiency of actions. Thus, the financial performance of any firm can be seen as the subjective measure of how well a business can generate revenues by using its assets. Financial performance is the indicator of the strategic value of CSR and a number of arguments have been advanced as to know why CSR has a positive impact on financial performance.

One of the distinguished arguments suggests that the way a firm satisfies its stakeholders and the manner in which it communicates CSR activities to them can affect its financial performance. Stakeholders' reaction to CSR is conciliated by availability and quantum of information based on CSR initiatives and available alternatives.

Ways through which a strong CSR improves business performance

Many companies and organizations think that the concept of corporate social responsibility is peripheral for their business and therefore they focus more on customer satisfaction and profit maximization. Hence, the following are some drivers that help in pushing business towards Corporate social responsibility and helps in enhancing the organizational performance of the firm
  1. Brand Reputation

    According to Brown and Logsdon, reputation is defined as outsiders' assessments about what the organization is, how well it meets its commitments and conforms to stakeholders' expectations, and how effectively its overall performance fits with its socio-political environment.[3]

    It is often considered that the primary goal of a company is to generate profits, sale maximization, consumer satisfaction, etc. At the same time, the secondary objective of a firm is contributing to social and environmental objectives and focusing more on integrating corporate social responsibility as a strategic investment as they become equally aware that CSR can be of direct economic value.

    The reputation of a company can be enhanced with the public by performing Corporate Social Responsibility. If you notice, companies with good policies of social responsibility get more press and media coverage which can be considered as a way to advertise their company. The media pays more attention to these companies and they become instrumental in spreading the good works” of the company amongst the people. Getting good things published and advertised can be the best way to promote the brand image of any company.

    One brand that is well-known for its social responsibility is Microsoft. It has played active roles in working with government organizations, educational institutions, non-profit organizations, etc. and, partnered with many small-sized and medium-sized businesses. Microsoft arranged a few volunteer programs where employees of the company shared about the things which they personally care about. On the other hand, Google chooses renewable energy as the focus of its Corporate Social Responsibility through its Google Green Program. There focus is on setting solar panels to improve the lives of many people in an environmentally sustainable way. They want to make smart use of earth's resources, expecting high ethical standards, and creating products in connection with both people and the planet.

    Corporate reputation is known to be an important intangible resource which helps in achieving highly competitive advantage ‘‘precisely because the development of a good reputation takes considerable time and depends on a firm making stable and consistent investments overtime[4]

    The link between Corporate Social Responsibility and corporate reputation is not straight forward in emerging economies. In the eyes of the stakeholders, the impact of CSR on corporate reputation is formed by how the firm communicates its social activities, and how those activities are reported in the national and other communication media. It has been noted that any firm can build a positive reputation if they are able to demonstrate their social and ethical criteria effectively, whereas failing to do so can result as a cause of risk to their reputation.
     
  2. Impact of Laws and Regulations

    Corporate Social Responsibility came into effect because of the Companies Act, 2013, and India's is the first country to have brought about legislation in the implementation of CSR activities. The government plays a major role in ensuring that companies or organizations are prevented from harming the social environment. The government should set agendas for social responsibility in the society by the way of rules and regulations which will allow the businesses to be more responsible and vigilant towards the society. According to available data, laws related to CSR will help in increasing the Gross Domestic Product (GDP) and the amount of monetary contribution.
The few broad and important features of the Corporate Social Responsibility Laws are as follows:
  • Quantum of money utilized for CSR purposes is to be compulsorily included in the annual profit-loss report released by the company.”[5]
     
  • The CSR rules came into force on 1st April 2014 and will include subsidiary companies, holdings, and other foreign corporate organizations which are involved in business activities in India.”[6]
     
  • CSR has been defined in a rather broad manner in Schedule VII of Companies Act, 2013. The definition is exhaustive as it includes those specific CSR activities listed in Schedule VII and other social programmed not listed in schedule VII, whose inclusion as a CSR activity is left to the company's discretion.”[7]

Firstly, the government mandates that all the firms have to compulsorily include their annual profit and loss report, the main reason behind this disclosure is to make sure whether the company is investing their profits in areas such as poverty, education, hunger, gender equality as part of their CSR compliance.

The amendment notified in the Companies Act, 2013 requires companies with a net worth of INR 500 crore or more, or net profit of INR 5 crore or more, to spend 2 percent of their average net profits of three years on CSR”[8]. By releasing the report, the government can easily keep a check on all the companies regarding their contribution towards CSR. Secondly, it is mandatory to include other companies such as holdings, subsidiaries which are incorporated in India but are owned and controlled by another company.

3. Boosts Employee Retention

The key to the success of any business is to improve the working lives of the employees. It has been observed that by indulging in CSR activities and communicating its progress to everyone will create a business that people will be interested to work for. This will result in high retention rates and will lead to better recruitment initiatives.

In other words, it means that if you invest in your people, so they will return the favor and invest in you. A study by Babson College discovered ‘businesses which commits to sustainability could see the increasing rate of productivity i.e. 13% and reductions in turnover up to 50%'

Executives suggest that employees are the most valuable asset of any company and the firm's ability to retain employees will help in achieving sustainable organizational performance. The ability to retain employees not only results that the given company is a valued workplace, but moreover finds out that it has positive consequences for the company's financial performance and productivity. CSR is one such activity that enables any firm to lower employee turnover.

Research has shown that work environments which provide high job satisfaction, low-stress level, and perceive to be fair have positive organizational outcomes such as higher level of employee commitment and lower employee absenteeism. On the other hand, a work environment that recognizes to be unjust leads to lower employee performance which hampers the fairness of the firm.

4. Human Interest, Social Awareness, and Education

CSR is about people and securing the needs and interests of people through performing CSR activities will result in effective organizational performance. Human rights framework focuses attention on basic enabling conditions, the realization of which is necessary for people to live with human dignity and to participate in and contribute to civil, political, economic, social and cultural life”[9]

Ultratech Cement, which is known to be India's largest cement company carries out social work across 407 villages in the country in order to create sustainability and self-reliance. CSR activities mainly involve healthcare, infrastructure, family welfare programs, social welfare, environment, education, etc. The company has organized many sanitation programs, water conservation programs, industrial training, and medical camps. CSR is not merely compliance; it is an initiative that improves the lives of people especially that of underprivileged people.

Social responsibility can be performed by focusing on the following areas:

  • Promoting educational opportunities, providing employment enhancing skills especially among women, children, elderly, and differently disabled people.
     
  • Promoting woman empowerment, gender equality, setting up homes for women and old age citizens, daycare centers for children, and senior citizens, by reducing inequalities amongst socially and economically backward societies.
     
  • Providing clean and good sanitation with hospital and dispensary facilities which will lower the risk of immune deficiency syndrome, respiratory diseases, fever and infections, malaria, and other diseases.
     
  • Eradicating poverty, hunger, and malnutrition, promoting health care and preventive sanitation facilities by providing safe drinking water.
     
  • Ensuring environmental sustainability, animal welfare, conservation of natural resources, ecological balance, restoring flora and fauna, and maintaining the quality of air, water, and soil.
     
  • Indulging in material recyclability, better product functionality and durability, more use of renewable resources, combining environmental tools into business plans, including costing, management standards, eco-labeling, and life-cycle assessment.
     
  • Protection of the national heritage of the country and promoting art and culture including restoration of monuments and buildings of historical importance, promoting the development of arts and handicrafts of cultural importance.
     
  • Contribution to the funds set up by central and state government for socio-economic development such as Prime Minister's Nation Relief Fund & promoting the welfare of Scheduled Castes, Scheduled Tribes, Other Backward Classes, minorities & woman.
     
  • Investing in rural and slum development projects, setting up IT computers, and providing technology incubators within academic institutions which are approved by the government.

The above list is all activities under CSR which should be environment friendly & socially acceptable to the people of the society. Not only government and corporate organizations but, non-profit organizations are also participating in leveraging the power of media and the internet by increasing their scrutiny and collective activism around corporate behavior.

Tata Group, conglomerate conducts various CSR projects and invests more in community improvement and poverty alleviation programs. It has engaged in women empowerment programs, rural community development, income generation, and other welfare programs. Tata Group has provided scholarships & endowments to numerous institutions. The group also engages in the facilitation of child education and creating awareness of AIDS.

Other areas include environmental protection, infrastructure development, etc. On the site of its soda ash facility in Mithapur, Gujarat, Tata Chemicals created a 150-acre reserve that shelters 21 species of native plants and more than 114 species of other vegetation. It is visited by over 70 species of birds, including threatened species, and is home to monitor lizards, the rare star tortoise, jackals, wild boar, and the Neelgai”[10].

Another example of ITC Group, a conglomerate of businesses across Fast-Moving Consumer Goods (FMGC), Information Technology (IT), Agriculture, etc. The company has been able to generate livelihood opportunities for six million by performing CSR activities. The group has set up the E-Choupal program, which connects rural farmers through the internet in purchasing agricultural products, it covers 40,000 villages and over 4 million farmers. Its program assists the farmers in transforming wasteland to pulpwood plantations.

Therefore, by indulging in social and cultural activities, companies can form a good impression in front of investors, competitors, customers, and employees which will enhance the organizational performance and on the other hand will create a goodwill in the market which will help in achieving the organizational goals effectively and efficiently.

However, social activities will not only help the society but will increase the economic value of the country in terms of Gross Domestic Product (GDP) and will attract foreign companies to invest in India and participate in Foreign Direct Investment (FDI).

Various Responsibilities of Companies

  1. Responsibility towards itself- It is the duty of every corporate entity to carry out its business activities and stay in business for a longer period. Generally, it is assumed that for every organization profit maximization is the main objective, but it is not true. The managers try to attain to achieve organizational goals in all management areas which reduces cost and brings maximum prosperity for the organization. It has to work towards survival, profit, growth, and thus earn enough profits. It the company wants to achieve social and economic objectives; it has to give enough importance to the efficiency factor.
     
  2. Responsibility towards shareholders- The main responsibility of any corporate entity is to secure the rights and interests of the shareholders and provide a reasonable return on their money. However, a careful balance has to be maintained between the long-term needs and the need to pay current dividends. If the corporation behaves in any manner which is against the interest of the shareholders, then the shareholders will be free to take action against the corporation.
     
  3. Responsibility towards state- A number of rules and legislations are formed for proper regulation and control of the business. Businesses must comply with all the legal requirements, pay taxes honestly on time, and execute government contracts. Thus, out of the available profit, the state is entitled to get the share as per the income tax laws and this commitment has to be performed at priority. It's the responsibility of the business to obey the laws and follow the social obligation of society.
     
  4. Responsibility towards consumers- It is the customers who decided the fate of every business organization. Therefore, it is imperative for every business to fulfill the contractual obligations towards its customers. In every way, the company should benefit the customers and must safeguard their interest in the business. Not only contractual needs but also the economic and social needs must be fulfilled.

Instances of Violation of CSR

It has been observed that CSR activities are not always performed in a positive way, instead, there are numerous numbers of violations and a list of CSR activities conducted through unfair means. The violation of Corporate Social Responsibility will create a bad image of the company and will adversely affect the organizational performance of the firm. Also, it will affect the society at large and will hamper the lives of employees, investors, customers, etc. The Bhopal disaster is also known as Bhopal Gas Tragedy was one of the deadliest industrial catastrophes. It happened at the Union Carbide India Limited (UCIL) plant in Bhopal.

A leak of methyl gas and other chemicals from the plant lead to an explosion that took hundreds and thousands of lives.
Another example was of Unilever Global Company, where the company dumped 300 metric tons of mercury at Kodaikanal located in South India. The guideline was set up for non-mandatory norms for 17 polluting industrial sectors. The Unilever website states, All Unilever companies must comply with local laws and adopt the same standards for occupational health and safety, consumer safety, and environmental care.”[11]

Conclusion
Corporate Social Responsibility (CSR) in India was implemented in order to bring a change in the attitude of corporate institutions. It was said that who would give back to the society whose needs helped them prosper in the first place. Similarly, it was felt that the society will be benefitted as the government has been found to fulfill the need and wants of the people. CSR has a substantial and positive impact on all performance such as-finance, organizational, business, reputation, employees' satisfaction, and brand differentiation.

However, many studies have revealed that one of the best ways to achieve social goals is by attracting customers, additional reward, building a good image, ensuring sustainability. CSR and the maintenance of high ethical standards is not an option but an obligation for all the businesses. To this end.

The author would like to give a few recommendationsL:
  • Employees must be indulged in CSR activities and the same must be communicated to them.
  • Companies must always identify the needs and interests of the stakeholders before performing CSR initiatives.
  • Since, the laws are made by the top management, so the management must strategize the financial benefits arising from the CSR activities
  • Companies must appoint experts or experienced people to champion CSR initiatives within the organization.

End-Notes:
  1. Nana Danso Boafo The Impact of Corporate Social Responsibility on Organisational Performance: A Case Study of Vodafone Ghana Limited”
  2. Fortune magazine: An American business magazine, published globally by Time Inc. and founded by Henry Luce in 1929
  3. Brown TJ & Logsdon JM (1999)Corporate reputation and organization identity as constructs for business and society research”, in Wood D and Windsor D (Eds.), Proceedings of the Tenth Annual Meeting of the International Association for Business and Society, Paris, France.
  4. Ibid
  5. Tax Guru, New Rules of Corporate Social Responsibility, March 10, 2014, available at https://taxguru.in/company-law/rules-corporate-social-responsibility.html (last visited on August 23, 2019)
  6. Supra note 3.
  7. Supra note 3, Ibid
  8. Dezan Shira Associates, Corporate Social Responsibility in India, available at https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/ (last visited on 25th August 2019)
  9. Amnesty International, Submission by Amnesty International under Decision 2004/116 on the Responsibilities of Transnational Corporations and Related Business Enterprises with Regard to Human Rights (2004) 2 on 29 June 2005.
  10. Tata Chemicals, Biodiversity Plantation Project, 2016 available at http://sustainability.tatachemicals.com/community-and-biodiversity/programmes/india/biodiversity-plantation-project/
  11. Hindustan Unilever Limited, Kodaikanal Mercury Factory – Contamination Response, India, available at https://www.hul.co.in

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