Corporate Social Responsibility Index

Our paper on Corporate Social Responsibility Index written by Deepak and me @ ISB, selected in the finals at IIM B.

Corporate Social Responsibility (CSR)

While we go through the annual reports of many listed companies we always come across a section describing how the company has contributed back to society. Often the items contained in this section are donation paid to NGOs, medical camps conducted, provided education to rural people, etc. However this is a myopic view of CSR. Like a country that has high GDP per capita does not mean that it has a high human development index, a company doing a few such so called CSR activities does not become a high CSR company. CSR is a more holistic concept encompassing customer, suppliers, employees, shareholders, communities, as well as environment. Corporate social responsibility (CSR, also called corporate responsibility, corporate citizenship, responsible business and corporate social opportunity) is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.[1]

Also the biggest CSR activity that a company does for society is recruitment of people. It would be an additional burden on companies if they were forced to contribute for any additional CSR activities. Non existent of these large corporate houses will generate large scale unemployment and also hamper economic growth. Hence we consider that all the organisation do CSR in form of employing people. However this is not sufficient. Employing people at the cost of other stakeholders and environment will be detrimental to society.

In that case the question still remains how one measures CSR? The feasible approach in this case would be to develop parameters on which the companies can be rated to get a common and comparable CSR Index. Few features for any index would be measurable, comprehensive, composite and comparable. Keeping these features in mind we have decided upon a few criteria for CSR Index. We have divided these in ‘must do’, ‘should do’ and ‘ought to do’ signifying the importance of criteria within these heads.

· Must Do, scores ranging from + 3 to -3

o Corporate Strategy: It is very important for the corporate strategy statement to include some concerns related to all stakeholders and environment. A corporate strategy statement, which says only about profit and hence serves on one class of stakeholder will be scored low whereas that of a company which includes CSR activities in its Value statement. A strong motto towards CSR activities generates a lot of goodwill for the company.

o Environment Policy: It is very important for a company to have environment policy. Climate change is an opportunity that astute businesses will turn to their advantage. By taking positive action on climate change a company can differentiate itself from its competitors. Climate change program must be profitable to be successful. This can be achieved quite simply by turning carbon costs into opportunities for the organization. Carbon credits are a key component of corporate emission trading schemes that have been implemented to mitigate global warming. They provide a way to reduce greenhouse effect emissions on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall through trading. Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price.

· Should Do, score ranging from +2 to -2

o Employee Satisfaction: The biggest stakeholders in any corporate are its employees. Hence by scoring high on employee satisfaction a company does contribute to CSR. It’s a old say that every good deed should begin at home. Thus by having empathy towards its employees and taking care of their necessities a company can add tremendous value to the society. Infact the best way in which a company can add maximum value to the society is through creating more jobs and thus reducing social unemployment and poverty. Moreover goodwill brought by CSR activities adds value to and motivates existing employees as well. Greater employee satisfaction in turn will result in higher productivity and thus improve companies’ efficiency.

o Profitability: This is a CSR activity towards investors in the company. A company by contributing towards social good also guarantees its long-term sustainability, as in the long term only those companies would survive which are pro-society. By contributing to CSR activities, company generates a lot of goodwill, which can be reaped by current and future investors.

o Suppliers: A big and successful company can further contribute to society by encouraging young enterprising organizations. By providing competitive terms and by being fair to its suppliers a company can generate revenues for many other organizations with out compromising its own profits. Moreover a company’s goodwill will add credibility to many of its suppliers also. An example would be the Tata Nano where Tata’s have ensure to take care of vendors also to the extent possible

o Customer: Company also adds value by providing a range of products to the customers. By satisfying customer needs company not only generates profits for itself but also satisfy consumer requirements. Without such companies such needs may remain unfulfilled leaving a void in that space.

o Society: Company adds tremendous values to the society by many activities mentioned above. Apart from that a corporate can contribute directly to society by organizing various activities like blood donation camps, cultural events etc. Private sector has huge resources and it has to play a very important role in alleviating humanity from problems like unemployment and poverty. Corporates also pitch in during natural and man-made calamities by donating huge amount of money.

· Ought to do, scores ranging from +1 to -1

o Fraud Detection: In case a company has strict internal controls and policies it avoids frauds and hence improves the quality of service. It also deters the staff from wrong doing and hence increase the honesty level in the society.

o Ethics/Integrity: Leaders and big corporate houses can set examples by displaying a highly ehical behaviour. Example may be quoted of Infosys, which sacked one of its senior staff on grounds of unethical behaviour. Such behaviours can set great precedence for the society and bring similar behaviours from others. Such behaviours will spread good activities in the society and thus create more dignity for human values.

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[1] http://en.wikipedia.org/wiki/Corporate_social_responsibility