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 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
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”
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”. 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 , 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
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
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
The few broad and important features of the Corporate Social
Responsibility Laws are as follows:
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.
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
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
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
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.
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
- Quantum of money utilized for CSR purposes is to be compulsorily
included in the annual profit-loss report released by the company.”
- 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.”
- 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
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”. 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
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
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
- 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
- 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
- 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”.
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
- 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.
- 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.
- 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.
- 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
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.
- Nana Danso Boafo The Impact of Corporate Social Responsibility on Organisational Performance: A Case Study of Vodafone Ghana Limited”
- Fortune magazine: An American business magazine, published globally by
Time Inc. and founded by Henry Luce in 1929
- 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.
- 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)
- Supra note 3.
- Supra note 3, Ibid
- 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)
- 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
- Tata Chemicals, Biodiversity Plantation Project,
2016 available at http://sustainability.tatachemicals.com/community-and-biodiversity/programmes/india/biodiversity-plantation-project/
- Hindustan Unilever Limited, Kodaikanal Mercury Factory – Contamination
Response, India, available at https://www.hul.co.in