CU-MBA-SEM-IV-Business Ethics and Corporate Governance-Second Draft

6.5.3 How to Overcome Culture Shock Of all the factors time is the biggest contributor to reduce the initial shock and make the person more comfortable to the new environment. Apart from time the other ways could be as follows:  Slowly try to learn small things about the new culture, how to wave hands, how to strike a deal or how to say no that may not offend the other person  Reduce the thought of back home, it’s an understood fact you are not going back shortly and this new place is your new home  Try to mix with locals, even when business does not demands, yet to be careful depending upon the culture, mixing with Italians is very easy while with Germans could be a hard task  If things are not working out its best to seek advice with local associates or in extreme conditions seek professional advice  When seeking to amalgamate with other culture its always best to let them explore your culture. Why else would there be so much Chinese food being sold in India. Cultural shock is not something to be afraid of, it’s a learning experience and can be totally rewarding both for building business and also for personal development. 6.5.4 Reverse Culture Shock Recollect our imaginary friend based in Singapore, imagine that after staying there for more than ten years he has to shift back to his native town. He will be a changed person than what was when he had left originally, by this time he may be having his owe family also. There will now be another shock for him to leave the hustle of an international cosmopolitan city to come back and settle in the closed environment of his small town. This is known as ‘Reverse Shock’, when a person after living in different culture and getting used to it comes back to his original environment. This cause immediate difficulty in adjusting again. Reverse shock can be much greater than the original one as now he has all the memories of his adjusting himself during the initial shock, all the discomfort that he may have experienced at that time come alive again. The life style is now more adjusted to the new culture, which by now has become a part of his own. Suddenly all the original cultural images become alien. Similar is the case of millions of expatriates who leave the country in their youth and then after end of employment or reaching a retirement age they have to return back to their original culture. Many times the decision to move back are due transfer orders and sometimes due unforeseen reasons, like the Covid -19 situation forced the closure of many businesses and resulted in mass migration of people to their original countries, similarly wars, economic meltdown in the foreign country can also result in such mass movements. In such cases of 151 CU IDOL SELF LEARNING MATERIAL (SLM)

forced movements although the people are back at their original homes and culture they are under pressure of unemployment and are constantly waiting for situation to return normal that would allow them to return back. The intensity of reverse shock is proportional to the amount of time that the person had spent in the other culture, the greater the time spent, the more chances that he has adjusted to the foreign culture and similar greater shock would be when coming back home. The other factor is the degree of difference between two cultures, today moving between Dubai and Mumbai or Bengaluru would not be much of a shock, but for an IT professional having spent greater time in Los Angeles and then coming back would be a greater Reverse Cultural Shock. Incidence of reverse shock is lesser for people who are moving frequently to different places, a good example is of Army officers who are usually transferred after every two or three years. For them it is normal to experience new cultures over short to medium periods, this is also a part of the policy of Army to keep the force ready to be deployed anywhere over shot notice periods. Similar is the case of foreign office staff who also keep on moving between countries as per their deputation. 6.5.5 Key Takeaways  Reverse culture shock is an emotional and psychological distress which is suffered by people while returning back home after a prolonged stay in a different country.  Current business scenario gives opportunities for employees to settle abroad for different duration, this may one such deputation for a long time or multiple assignments of shorter durations  The extent of revers cultural shock is proportional to the extent of time spent in a foreign land among different culture  Expatriates who remain in regular relations with their home culture tend to face a milder version of reverse cultural shock 6.5.6 Closing thoughts on Cross Cultural and Ethical Conflicts in International Business Respecting Our Differences and Working Together In addition to helping us understand ourselves and our cultural, knowledge of the following six patterns of cultural difference help us understand about people who from other cultures. 1. Appreciate the patterns of cultural difference, this assists us in processing our differences in ways respectful of others and prevents finding fault or damaging their reputation. 152 CU IDOL SELF LEARNING MATERIAL (SLM)

2. While interacting with people when we do not understand them, we normally interpret them as abnormal, weird or even wrong. This thinking, if given to persist, gives rise to prejudice. If this gets integrated with the organizational structures, then such individual prejudice may take root in institutions and get reflected in laws, structures, policies and procedures which shape lives of all employees and all those who get associated with organisation. Therefore, it is necessary that we learn to control the tendency to translate people different than us into suspects or less than us. 3. It is important that we learn to collaborate across cultural differences as individuals and as a society. Awareness about cultural differences need not divide us from each other. It doesn't also have to incapacitate us for fear of not saying the correct thing. Actually, getting more aware of our cultural differences and by exploring our similarities helps us to communicate with others more effectively. By recognizing the source of cultural differences at work could be the first step towards understanding giving respect to others. 4. Learning about the different ways in which people communicate with each other enriches our lives. Different communication styles possessed by different people reflect deep philosophies and views about our world which form the foundation of our culture. Understanding these philosophies provides us a picture of what the world offers us. 5. Learning about other people's cultures shows us a mirror image of our own. Through this we can challenge our beliefs about the correct way of doing things and consider different approaches of doing similar acts. Through this we get a have chance to learn new methods of solving earlier problems that we had originally given up on, while we just accepted difficulties as they were. 6. Lastly, we become less lonely when we become more open to learn about other people and their cultures. Prejudice and stereotype give way to acceptance and amalgamation, separation moves off to let in friendship to whole groups of people and creates partnerships. Living in solitude many people desire for real contact with others. Interaction with different people gives hope and provides energy to take on the challenges of improving our communities and most importantly ourselves. 6.5.7 Guidelines for working towards Multicultural Collaboration  Learn about other cultures through generalizations and add them to your storehouse of knowledge. This will make you understand better and appreciate other interesting cultures. 153 CU IDOL SELF LEARNING MATERIAL (SLM)

 Practice as much to interact with those of other cultures and get better in cross- cultural communication.  There is no need to assume that there is just one right way, which is yours to either communicate or interact with others. Question your existing assumptions about the what could be the right way in your body language, or gestures you make.  Stop assuming that communication breakdowns occur as other people were on the wrong track. Look out for ways in which communication will work instead of searching for whom to blame for the breakdown.  Listen to people actively and empathetically, try to understand their perspective. Apply the principle especially when you find another person’s thought to be very different from your own. Understand people from another culture requires you might to operate out of own comfort zone.  Need to respect the choice of another person whether he is ready to communicate with you, no one can be forced to be open to communicate, in such cases especially look of hidden cues and body language.  Stop being judgemental, you cannot continue looking at people from only one perspective. Attempt to consider their opinion or culture as a person who does not knows you.  Cultural norms do not apply to all members of a community uniformly. People are shaped differently and expect to be treated as an individual. 6.6 REAL-LIFE BUSINESS CASE STUDIES ABOUT CULTURE When Walmart moved into Germany In 1997 and 1998 Walmart entered Germany through acquisition of two companies - Wertkauf and Interspar. During this time it also successfully entered other international markets as well: Brazil, Canada, China, Chile and India. Unlike other countries where it succeeded, Germany was failure, lets understand why. Cultural factors at play Among the reasons behind the failure of Walmart in Germanyare a number of culture related issues. Majorly two set of factors contributed to Walmart’s failure in Germany. Mismanagement: The management practices of some American employees did were not suitable to the German culture. A simple example of this was a morning exercise that all employees needed to shout 154 CU IDOL SELF LEARNING MATERIAL (SLM)

‘Walmart’ repeatedly to build in enthusiasm, for Americans it was fine but Germans saw no reason to shout and American name at the top of their voices. And looked upon this with annoyance. Walmart had an ethical code that which caused another resentment to the employees. It was the practice of spying on colleagues and report any misconduct to the superiors, maybe it was acceptable practice back at the U.S, however the Germans could not accept it, as it reminded of the horrific secret police during the World War II. The senior management did not have any regard to the feedback and opinion of the subordinates. All the above were interna factors that led to friction between the American and German staff, undermined morale and resulted in overall inefficiencies. The second set of factors related to the lack of local market analyses and no attempt to understand specifics of local customer demands. 1. Firstly, they followed the store merchandising prevalent in the US of keeping all full priced products at eye level, while the discount products were kept either on very top, beyond arms reach of many ladies or on the bottom shelves, meaning customers had to bend to pick them up. This caused irritation to the German customers. 2. Walmart followed the belief of American shoppers who spent long hours moving around the store, similar arrangement annoyed the Germans who wanted product arrangement to be close by which needed only small time at the supermarket. 3. Following American practice to smile at customer also backfired, Germans do not usually smile at strangers, therefore it was uncomfortable for the local cashiers as well as the customers. 4. At that time Germany going through an awareness about environment, Walmart use plastic packaging also was not seen as a correct move in this direction. Results The combined effect of poor management and failure to understand the culture of local market proved costly for Walmart and it is estimated that it lost between US$ 200-US$ 300 million per annum. The final result was the world’s biggest and most profitable retailer failed in Germany due to cultural factors. 6.7 SUMMARY  Culture is what forms and develops our values. It builds attitudes and our behaviour. As a knowledge it is acquired from surroundings and learned from experiences. It is shared by a large number of people and passed on through generations. Each generation evolves itself and enriches culture to be passed onto future. 155 CU IDOL SELF LEARNING MATERIAL (SLM)

 Culture is a tool used by societies to interpret and give meaning to things around them. They also use it to make sense of experiences and encode behaviour to be understood by others in the same or different society.  Culture can be Learned, Shared, is Patterned, Adaptive and is more of Symbolic  The core components of Culture are:  How power is distributed with the society  The degree to which people are committed to themselves  How members of the society look at the environment  To what extent do societies differ in their work patterns, some may be ready to be engaged in multiple activities of cultivation, trading and manufacturing, while others may be comfortable of only one and specialize on it.  Differing levels of acceptance of uncertainly and keenness for social control make societies to be either settlers or explorers.  Cultural differences can be studied along similar patterns, mostly all cultures differ with each other on the following patterns:  Differences in styles of communication  Differences in attitude towards conflict  Differences in approach to complete work  Difference in style of making decisions  Differences in attitude towards norms of disclosure  Differences in gathering information  Major challenge areas to understand Culture could be either: Personal, Cognitive or Practical  The need for Cultural Awareness is growing among corporations who deal with multicultural customers, investors and even employees. They have started to feel it’s importance to understand the difference in attitudes and values of people with whom they deal with.  Cross culture is the staff of companies working in different cultures of varied backgrounds yet with common interest. An effort to ensure effective communication over differences in values or way things are done. It is also known as ‘Intercultural businesses.  Cross Culture can be made effective by ensuring regular communication between local and expats and keeping communication channels open and functional to keep the cultural gap filled.  Cross Culture effects can arise due to any of the following reasons: Business roles; Business Law; Language  Cross culture has its own advantages related to economic factors and also disadvantages due to the diversity. Ignorance about challenges of Cross culture could be disastrous to the partners and the business proposition altogether 156 CU IDOL SELF LEARNING MATERIAL (SLM)

 Cultural differences occur due to functioning of Global companies across borders in building an international marketplace. Understanding of such differences while being cross culture helps avoid misunderstandings with international.  Some ides to overcome cross culture challenges are through a. Appointment of Accounting experts b. Impart Sensitivity training to people who would be working in other cultures c. Role Human Resource Department to select the right candidate for the job d. Undertake Group-Building exercises e. Involving Public Relation activities  Culture Shock, is when a person is uncertain, confused or overly anxious in his dealings while being transplanted in an unknown society. The cause is unfamiliarity with the look of people, language, food habits, gestures they make and even transaction styles.  Time is the biggest contributor to reduce culture shock to make a person comfortable to the new environment.  Reverse culture shock is the emotional and psychological distress suffered by people while returning back home after a prolonged stay in a different country. 6.8 KEYWORDS  Culture: the patterns of behaviour and beliefs which can be learned and shared belonging to a particular social, ethnic or age group. It is the complex whole of combined human beliefs specific to a nation for a time or over time period.  Multicultural awareness: the ability to appreciate cultural differences and understand the history, experiences and beliefs of different groups of people.  Cross-cultural challenges: the difficulties that come up while working with people of different cultures and background  Culture shock: the emotional and psychological shock that a person goes through while being suddenly transplanted to another culture  Reverse Culture Shock: the reversal of culture shock, of coming back to original culture after prolonged exposure to another culture. 6.9 LEARNING ACTIVITY 1. Why are culture different in different geographical locations? Give detailed examples of any differences and explain. ___________________________________________________________________________ ___________________________________________________________________________ 2. Give reasons why MNCs need to reduce the possibilities of Cultural Shock within their employees. 157 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ ___________________________________________________________________________ 6.10 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What do your understand by the term Cultural awareness? 2. What are the different characteristics of culture? 3. List down the advantages of Cross Culture. 4. List down 3 major causes of Culture shock 5. What are ways in which cultural differences can be studied? Long Questions 1. Comment on the core components of culture and how their understanding will help companies plan their operations in other countries. 2. Do you think that culture remains same over generations, give reasons to support your answer? 3. A tyre manufacturing company in India has recently bought a rubber plantation farm in Malaysia, write report to the management to highlight the importance why they need to study the culture of the country. Write also about the challenges they will face to undertake this task. 4. Write a detailed explanation on the different patterns of cultural differences. Select any two and write about their effects on international airlines company. 5. Write a detailed explanation on the effects of Cross Culture experienced by employees of MNCs. 6. How can a company involved setting up retail stores in different countries reduce the disadvantages of Cross Culture. Support your answer with examples from the industry. 7. By giving examples of communication and workplace etiquette, describe how impact of cultural differences can be reduced. 8. An international consultancy firm wants to start a new division to provide Cross Culture training to major companies who operate in multicultural environments. Suggest issues that are generally noticed in teams composed of multicultural participants which will form components of the training program. 158 CU IDOL SELF LEARNING MATERIAL (SLM)

9. Why is Culture Shock the cause of employee dissatisfaction, suggest measures to cure this to ease tensions among multicultural staff. 10. A recently appointed manager working in an offshore location has been complaining about the inferiority and uncivilised behaviour of the local subordinates and due to this he wants to shut down operations. You as the HR Training manager have to write to his make him realise respecting other cultures and also the how this will improve his performance and the success of the overseas project. B. Multiple Choice Questions 1. Two important themes along which culture can be organised are _______________ a. Lifestyle and Change b. Lifestyle and Economy c. Diversity and Change d. Diversity and Economy 2. Culture is passed on to successive generations due to ___________ a. Selective reflection & Changing needs b. Selective reflection & Similar needs c. Selective transmission & Similar needs d. Selective transmission & Changing needs 3. Which of the following is not a Pattern of Cultural Differences a. attitude towards understanding cultures b. styles of communication c. attitude towards conflict d. style of making decisions 4. One way to increase the effectiveness of Cross Culture is by ensuring ________________ happens between local and expat executives a. regular money transactions b. regular communication c. regular site visits d. regular training 159 CU IDOL SELF LEARNING MATERIAL (SLM)

5. When foreign managers treat all level of staff similarly, the locals may consider as ______ a. Disregard of trust b. Disregard to hierarchy c. Inaccurate biases d. Disregard to rules Answers 1-c, 2-d, 3-a, 4-b, 5-b 6.11REFERENCES Text Books:  S.A. Sherlekar, Ethics in Management, Himalaya Publishing House  William B. Werther and David B. Chandler, Strategic corporate social responsibility, Sage Publications Inc  Robert A.G. Monks and Nell Minow, Corporate governance, John Wiley and Sons Reference Books:  W.H. Shaw, Business Ethics, Cengage Learning  Beeslory, Michel and Evens, Corporate Social Responsibility, Taylor and Francis  Philip Kotler and Nancy Lee, Corporate social responsibility: doing the most good for company and your cause, Wiley  Subhabrata Bobby Banerjee, Corporate social responsibility: the good, the bad and the ugly, Edward Elgar Publishing  Satheesh Kumar, Corporate governance, Oxford University, Press 160 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 7 ETHICAL ISSUES IN INTERNATIONAL BUSINESS PRACTICES STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Corporate Social Responsibility 7.2.1 CSR defined 7.2.2 The evolution of CSR 7.2.3 Types of CSR categories 7.2.4 Key benefits of good CSR practices 7.2.5 Approaches to Corporate Social Responsibility 7.2.6 Principles of Corporate Social Responsibility 7.2.7 Developing strategy for effective Corporate Social Responsibility 7.2.8 Steps to Building a Sustainable CSR Program / Strategy 7.3 Corporate Social Responsibility – An Indian Perspective 7.3.1 CSR amendments under the Companies (Amendment) Act, 2019 7.3.2 CSR trends in India 7.3.3 Best Practices of CSR in Indian perspective 7.4 Major defects of corporate governance in India 7.5 Summary 7.6 Keywords 7.7 Learning Activity 7.8 Unit End Questions 7.9References 7.0 LEARNING OUTCOMES After studying this unit, you will be able to:  Explain how corporate social responsibility may contribute to the economic benefits of a company 161 CU IDOL SELF LEARNING MATERIAL (SLM)

 Relate the principles of Corporate Responsibility of Business to current activities of companies in this domain  State the different models of Corporate Social Responsibility and the process to develop a CSR strategy beneficial to both corporations and the society  Review the growth of CSR in Indian industry and the legal regulations that support its implementation in the Indian industry  Appreciate the efforts done by major Indian companies in the field of CSR and the benefits that have been generated from such activities  Identify the major issues which prevent adoption of Corporate Governance in the Indian Industry 7.1 INTRODUCTION As we have already learnt that doing business now is a tremendous responsible affair. In addition to being committed to the core economic objective of maximising shareholders’ capital, companies now are under increasing legal obligations of and rules towards maintaining the composition of their board in a required manner. There are policies which ensure giving a fair representation to women and other sections of society on the board and in management affairs. Under increasing awareness boards now are equally committed to maintain and deliver the interest of small and marginal shareholders and of other stakeholders also. New version of corporate governance now demands attention to the sustainability of the business in its utilisation of natural resources and while dealing with members of the society. While there are demands that business has to consider requirements of the greater social environment, avoid activities that harm the ecosystem and ensure that all segments of the society benefit from the business activity in some way or the other. This is the cornerstone for the emergence of the new topic which is Corporate Social Responsibility, CSR. In this Module we will look at the origin of the concept of CSR and how it has changed from the earlier practice of making voluntary donations to a more organised awareness about fulfilling social issues. Although CSR means spending money with no immediate benefit to the company, yet it is considered to be one of the best investments for future sustainability. In the current module we will look how this may be the case along with considering the benefits of CSR to the society as well as to the Company. We will look at different approaches to the concept, among them Triple Benefit Approach has been gaining popularity in recent times. As with any concept which has a bearing to affect the interest of the business, CSR is also bounded by some interesting principles which guide the companies when they design strategies for attempting to make differences in the lives of people who are attached with it. 162 CU IDOL SELF LEARNING MATERIAL (SLM)

While the entire process of strategy development for CSR is also covered within this module, businesses need to be aware of CSR model which they are following before finalising their CSR strategy The module also presents information on the development and growth of CSR in India. How the government and other agencies have enacted laws and principles to make CSR a social necessity to the Indian business climate. The module will also present some examples from corporate India of implementation of CSR strategies which have made tremendous differences in communities and set of people. Such corporates can be correctly called as torch bearers of Corporate Social Responsibility in India. In the previous module we had come across many laws enacted to ensure better corporate governance in the country. However, the fact is that even after such enactments, corporate governance is yet to be universally accepted in the country and there is lot to be achieved in this regard. Promoters and boards have found out ways to circumvent the legal requirements and continue to evade the law due to absence of strict penal norms. While the objective of laws was to protect the interest of marginal shareholders and other vulnerable groups, the boards have managed to keep their personal interest on a priority with respect to that of others. The Module concludes with identification of some major reason which affect Corporate Governance in the Indian Industry and suggest possible ways to make the monitoring process stricter for its implementation. 7.2 CORPORATE SOCIAL RESPONSIBILITY 7.2.1 CSR defined Corporate Social Responsibility is a management awareness created among modern corporations to integrate social and environmental concerns while making business decisions during interactions with the stakeholders. It is a self-regulating model of business to make a company accountable to the stakeholders and the public, through heightened self-awareness of the rights and needs of the society. While practicing corporate social responsibility companies not only restrain themselves from causing harm to the environment but also make valuable contributions towards its betterment. It has come to be as extension of corporate governance to ensure that the company contributes or gives back part of its earnings to the better of the environment in which it operates and to ensure the company’s operations are ethical and beneficial to the society. At this very initial level we would be interested to differentiate CSR with other ways in which companies make financial commitment to the society. CSR is a pure strategic management concept aimed at consciously developing the image of the company through 163 CU IDOL SELF LEARNING MATERIAL (SLM)

spending money on social causes. At times it is done also under legislation requirements. Other forms of donations like giving charity, providing sponsorships to events or to the deserving or making philanthropic contributions for setup of hospitals, have been done by businesses since long. Such donations were made while considering the profitability of business and most important to promote the name of the promoters of the business, or the donors. CSR on the other hand is a well-planned and thought after attempt to ensure the spread of goodwill of the company, it has nothing to do with the personal name of the promoter. It is a long term plan to adopt an idea and slowly develop its effectiveness to the benefit of the society. The aim of CSR is make the name of the company connected to the social activity in which it is engaged, so whenever the name of one is mentioned the other one is recalled. CSR is more than about just making contributions or donations, it is a method to achieve a balance through commitment to social causes between conflicting economic, environmental and social objectives. Achieving such a balance is analysed with the help of the Triple Bottom Line Approach, which will be considered later in the module. 7.2.2 The evolution of CSR In recent years CSR has come up as a pragmatic answer to the pressure from consumer and civil rights groups. There had been growing concerns of environmental pollution, exploitation of labour, infringement of rights of small and medium shareholders and even human rights abuse by Transnational companies in their pursuit to reach out for cheaper supplies and bigger markets. Unchallenged activities taken by these big companies were just to ensure higher profits and greater returns to the shareholders. The shareholders satisfied with the growth of the company and the returns they were receiving on their capital were always willing to make additional investments, therefore making the companies even bigger. The governments of the developed nations were also happy with the growth contributed by the MNCs, the incoming repatriation of international profits and also the amount of corporate tax which was being collected from their operations. However the pressure of the society and external stakeholders was increasing upon the companies to become more responsible to environmental and human rights issues. With the calls becoming stronger forced the companies to recognise the strategic value of being more responsible to the social and environmental issues which were gathering momentum. Corporations began to align their business strategy to confirm to the new causes, this marked therefore the birth of the concept of Corporate Social Responsibility in the decade of 1950s. The name was given by the American economist Horad Bowan and it is was only by 1970s that CSR in its modern and organised form began to emerge in the US economy with the introduction of the ‘Social Contract’ between business and the society. This for the first time 164 CU IDOL SELF LEARNING MATERIAL (SLM)

introduced the idea that the existence of business was due to the consent from public and the society and therefore there is an obligation for business to contribute to the welfare of the society. The next decade saw more companies becoming responsive to the idea, however at this time it was more limited to better protection of shareholder interests, yet the idea of socially inclined business practices was also gaining momentum at that time. The 1990’s saw the universal acceptance of the concept due to the big ticket scams and business mismanagements which shook the world business, it was then the business community suddenly realised the importance of good governance and accountability towards stakeholders. That this was not just for social benefits but also to protect and enhance its own image in front of investors, customers and other stakeholders. Starting this time serious attempts were being made to demonstrate commitment of business to greater social and environment issues. The start of twenty-first century has marked the growth of awareness about environmental sustainability and continuity business in the new global market place. In response many countries have started to enact laws to make business committed to social causes. The opening part of the new century saw an increasing attention been given to CSR it has emerged as a pragmatic response to pressures of consumer and civil society. Recognizing the need to meet specific requirements of Small and Medium Enterprises (SMEs) with regard to CSR, that United Nations Industrial Development Organization (UNIDO) formulated its approach to promote CSR as means to achieve increased productivity and competitiveness in developing countries. UNIDO conducts a prominent role within the UN system for supporting entrepreneurship which is environmentally and socially responsible. The objective of UNIDO is to ensure any support done through CSR does not challenges the promotion of SMEs in developing countries. The presence of SMEs is crucial to improve the business impact on the such societies. SMEs, which make up for more than 90% of all world businesses, are essential to the ‘path out of poverty’ for the developing world. The UNIDO in its CSR programme, highlights the need to setup a framework for SMEs to help translate Corporate Social Responsibility principles to enhance their competitiveness and access to market. Today CSR is understood with the help of different approaches which will be considered in the successive section. 7.2.3 Types of CSR categories CSR activities have improved from just being predominantly philanthropic donations, to be more of having a shared-value approach. Successful businesses undertake social issues which are directly relevant to their operations and their vision / mission statements. CSR activities 165 CU IDOL SELF LEARNING MATERIAL (SLM)

can be broken into four major categories. They may not be mutually exclusive and a company can take a mix of different categories to design its CSR strategy: 1. Philanthropic responsibility: is giving back to the community and making donations to worthy causes, it comes from the belief to make the world a better place. The donations are made are as a good will gesture of the business and there is no intention of to attach the name of the business to the money spent. Many times companies create a separate trust mostly in the name of the company or its promoter which will carry on the good work initially started by it. 2. Environmental responsibility: involves adoption of environmental friendly practices and policies. Recently it has become synonymous to efforts to reduce carbon footprint by engaging in alternate sources and adoption of greener technologies. Today it is one of the most common way of being into CSR. Companies are working on technologies to reduce emissions and working in catchment areas of their operations managing and recycling of waste. Many companies are working on models to develop renewable sources of energy, while another way to be environmentally responsible is to offset the damage which has already happened. Efforts done through tree plantation, funding research into a greener environment or supporting such causes by donations or setting up facilities are some of them. 3. Ethical responsibility: aims to ensure fair business practices to be used in a company and all those involved in the supply chain. It looks to achieve fair treatment of all stakeholders, right from the board, to employees, investors, suppliers and customers. Companies mostly set standards of behaviour in this category, for e.g., when markets are falling a company will take a stand not to remove any staff as a way to support livelihood of those associated with it. 4. Economic responsibility: is a wholesome approach when a business operates with philanthropic, environmental and ethical business practices while making the operations profitable and sustain long-term growth. 7.2.4 Key benefits of good CSR practices Most companies undertake Corporate Social Responsibility as a moral obligation towards the society. The current era of omnipresent social media and instant news reporting, reputation of a company can be damaged in within seconds. Being engaged in CSR gives companies enough mileage to showcase their commitment to good and just causes. However, not just being a buffer for risk management and overcoming negative scrutiny there’s great value in 166 CU IDOL SELF LEARNING MATERIAL (SLM)

doing good things, especially when it enables someone to differentiate against others, while doing so they bring to the business some of the following benefits:. 1. Develops a Stronger brand image: good deeds do not go unnoticed, it wins points, allows gains and recognition and establishes reputation. Focusing on the right issues in CSR can contribute up to 30% of the company’s brand value. 2. Increases customer loyalty and builds sales: Today well aware consumers develop unseen yet personal relationships with the products and services they buy. They look for companies which show responsibility through support of worthwhile causes. Research studies show that what people feel feels about a company is usually based on the CSR approach of the company. 3. Savings on Operational cost: Being environmentally conscious and committed reduces your environmental impact and often leads to innovative reduction in operating costs, hence making bottom line healthier. 4. Employee recruitment and retention: Great brand value attracts and retains talent; it even helps to gather investors and partners for possible tie-ups domestically as well as in international markets. 5. Access to improved funding and financing options: Failure to get funding at the right time is a cause of more worries to the board and the finance team, than any other issue. Corporate reputation can affect the ability to source loans, venture capital, insurance, and financing. 6. Improved relations with government: Businesses are regulated in one way or the other, by different levels of government bodies. Having a good name can helps maintain positive relations with the regulatory agencies and also reduces the company’s burden. 7. Increases Employee engagement: research suggests that CSR and employee purpose gives way to higher employee engagement, which is a positive sign to improved business performances. 8. Keeps the company in Good news: with business working on socially relevant projects, there is a high probability that this will lead to good coverage in the news and social media, which is followed today by a majority of global population. Regular mention of the company on such occasions increases its brand recall value if there is any negative publicity such positive background will remove all negativities. 167 CU IDOL SELF LEARNING MATERIAL (SLM)

7.2.5 Approaches to Corporate Social Responsibility 1. The Triple Bottom Line (TBL) Approach, has proven to be a successful tool in the developing countries in meet international level social and environmental standards without the need to compromise the country’s competitiveness. This approach is used to measure and report company performance considering the economic, environmental and social standards. It attempts to ensure that private enterprises align themselves to the goal of sustainable development. The model aims to provide business with objectives which are more than just churning out profits. The model believes an organization is more sustainable in the long run, by being more financially secure, minimizing the negative environmental impacts and be in conformance to societal expectations. Figure 7.1. The Triple Bottom Approach to Corporate Social Responsibility As the model given above suggests there are three separate forces that measure the Economic, Social and Environmental performance of a business. Any business looking to be sustainable in the long run has to balance the three forces equally. The prime objective of business to make profits is reflected in the Economic force that is any action of business needs make economic sense to the invested capital of the shareholders. The other force of social performance measures the contribution of the business towards the society and generate efforts for the betterment of its members. The third measure of all the commitments that the business has towards environment, how the business ensure reduction in pollution, possibilities towards greener sources of energy and plans to repay for all the resources that it takes from the environment. With equal commitment to all the three forces a business will achieve Sustainability 168 CU IDOL SELF LEARNING MATERIAL (SLM)

given in the centre of the model, any laxity to meet either of the three demands will not result in sustainability to be balanced. This approach is not only for companies, it is a guidance to entire economies also to ensure the performance of business in its entirety to conform to these principles. 2. The Pragmatic or Rational approach to CSR: is a based on the belief that companies have a self-realisation of their responsibilities towards society. They undertake long term projects to demonstrate their commitment to social issues to build competitive advantage over others. The advantage maybe identified as the company being first to work in this area or that it gives additional importance to social issues as compared to the competitors. In any case the company is identified as a supporter of the selected cause and whenever the cause is highlighted at any forum the name of company gets automatically associated with it, helping to build image of the company thereby. 3. The Ethical approach to CSR: concerns itself with the good action of companies. This is considered important due to the special position of business in the society, due to extraction of resources, generation of capital and also building the production capacity of the society. It is felt that business, with its special role has lot more to offer and also demonstrate good actions which may be replicated by its partners, competitors and even the government. 4. The Social Pressure approach to CSR: is a normative version of the earlier approach, where there is heightened expectation on a company to be or should be considerate to social benefits. It is demanded that business should avoid any such practices that may harm the society on which it depends and make dutiful contributions in return also. These approaches may be present at the same time in different locations or may develop over a period of time in one place also. In any way these are the changing realisation of the role of business towards the society. It may start with social pressure to make business accountable and later business may themselves become aware of the benefits of CSR and take up the rational approach. The other way around is also possible when a company itself takes up social responsibility and sets up good example for others to follow, in this case the social pressure may build up later for all other companies and even the governments to follow in the footsteps of the good example. Whichever it happens CSR will be always be long term effort, sporadic donations or charities are not counted to the commitment to social responsibility. 169 CU IDOL SELF LEARNING MATERIAL (SLM)

7.2.6 Principles of Corporate Social Responsibility Corporate social responsibility is a model which integrates a self-regulatory mechanism into the practices of a business to ensure ethical standards or norms held by stakeholders. The aim is to limit role of the government in market regulation, develop positive public relations and deliver the economic objective of higher profits and stakeholders’ satisfaction. Although CSR is a sort of regulation, by its nature it is a business model which a company will implement only if it feels that it is as per its goals and values. This means CSR cannot be forced upon by legislation as each CSR model is a customized solution to fit the peculiarities of a company and its stakeholders, as in Corporate Governance; there is no one size which fits all CSR model. Therefore while selecting a CSR approach, a business engages voluntarily in activities which are socially responsible or which extend beyond its economic and legal obligations. Specially for this reason it is important to consider and implement the most effective CSR business model for companies order to:  build and retain a favourable reputation within the society, today marked by growing number of socially conscious consumers  remaining competitive in a marketplace This is to ensure that in the contemporary market economy, companies who implement CSR models into their philosophy of business are continue to thrive and continuously see a return in economic and social capital through long-term gains. The sustainability of a particular CSR model is determined how it adheres to the guiding principles which constitute the necessary framework in which a business operates while in the pursuit of social goods which are compatible with its functional role. With this background let us will examine the principles of CSR which necessary for developing and sustaining economic growth in a free market society. 1. Ensure a Prosperous Economy in a Democratic Society Today societies with prosperous economies depend upon three primary factors:  free enterprise  rule of law, and  individual initiative Free enterprise is the economic activity with no major intervention by government in planning, allocation and utilisation of resources. It has a track record of being the most efficient economic system to prosperity and quality-of-life to the most people. It based on the belief that political freedom and equality cultivate healthy competition, which leads to innovation and economic growth. Government involvement through regulations of the free market hinders economic growth. In a free enterprise some 170 CU IDOL SELF LEARNING MATERIAL (SLM)

businesses succeed while some fail, but it is the marketplace which decides this and not the government. Rule of law is necessary to protect rights of individual and gives confidence that business is secure. In absence of rule of law, economic activities become vulnerable to anarchy of the strongest persons. When disputes arise rule of law ensures a judicial framework to try each-others claims through an assurance that issues will be resolved honestly and impartially. Individual initiative is a strong work ethic and zeal in a worker who works for individual prosperity while at the same time contributes to the social good through economic growth and innovation. Individual virtues for e.g., discipline, skill in labour and integrity in relationships are the cornerstone of a strong society. Societies with a higher individualist culture display more innovation, superior productivity and higher long-run growth rates as compared to societies with planned economies. Therefore it is beneficial and also recommended that when business aims to implement a CSR model it should incorporate such practices which utilize and promote successful democratic and a free market society. 2. Build the three Essential Organizations of a Successful Community Government, business and not-for-profit organizations (NPOs) are the three necessary, but distinct organizations which make a successful community. Each one serves anexclusive purpose which compliments the roles of the other two in the society. Although each of them operates separately from the others, working together in a community they maximize each other’s potential. These three works together to ensure availability of basic needs to the society. In situations when one is not able to operate, another steps in to see to it that the gap in the societal welfare is filled in. Government works to protect the rights of people. Corporations create jobs and contribute to the growth of the economy. NPOs meet those needs of community which are external to the immediate dimension of the other two. It means that in its regular role the business itself compliments the efforts of government and the NPOs to provide benefits to the society. Therefore, CSR activities should not restrict the role of business in providing such benefits as per the three-party agreement, else it runs the risk of business not working for welfare of the community in its regular operations and all such work will be done under the CSR banner. 3. Communal Retention and Relocation For societies to be grow prosperous, they must able to attract people as well as retain those already present. Presences of elements of communal living determine whether or not people will move, stay in a community or move out. People living in a 171 CU IDOL SELF LEARNING MATERIAL (SLM)

community want to know which activities, organizations, educational institutions and cultural experience is available in the community. They are also interested in the educational and recreational opportunities available for their children and for adults. If situation a particular community fails to provide the expected social and leisure activities, there are chances that lesser new people will move in and moreover the community will not be able to retain those members who are living there. This will be disaster for business as there will be market for it and also it may feel constraint in finding people to work for it. Therefore it is important that a community provides good schools, extracurricular opportunities for recreation and arts, assurance of community service and entertainment. Additionally, it is important that the community has access to opportunities for development of social and cultural events. In absence of these elements, people will prefer to move elsewhere. Therefore, it is advisable for businesses to consider investing in the community and ensue the availability of these facilities as part of their CSR practices. Doing so will deliver a good return on investment by attracting more people and retaining those who already live there, this will ensure continuity of business. 4. Ensure Human Rights through Social Responsibility Human rights are the foundations of democracies and marketplace. A society cannot have free enterprise without rule of law which protects the rights of individuals. Therefore, business and all members of society need to respect the rights of others. Business has the capacity to promote economic well-being and development, create technological improvement and increase wealth. On the other hand it can also harm human rights and lives of individuals and the society. Recognizing these impacts of activity and influences which business has over individuals and society all business practices should ensure availability of human rights where CSR is implemented. The advocacy for human rights, however, should not be against the business’s market performance. Equality of opportunity and remunerations need to be proportional to a person’s contributions, which means that workers to receive equal pay for equal work and receive equal opportunities for equal skills. It, in anyway, does not mean that each worker has similar opportunities or that each will be compensated similarly. The objective of a CSR strategy should include concerns for human rights. It is also not the responsibility of business to take upon itself to be the society’s benefactor. No business can solve all problems of the society or bear costs of this task. Instead organizations can select issues which align to their values or aspirations of their leaders for the community. In addition, government entities and NPOs must 172 CU IDOL SELF LEARNING MATERIAL (SLM)

not over-burden the business with unnecessary regulations. Similarly governments should allow free and fair trade exchange between two individuals and parties. Similarly any CSR activity must not restrict free and fair exchange between corporations and its partners. 5. Meeting Needs of Common Good Concern about common good is important for democratic societies because it creates a structure for between private and social interests. Common good unifies the community in the common pursuit of goals which the it considers as essential to the well-being of its members. However common good is realized only through a broad social framework. Every community has needs like, food and shelter, healthcare, social structure, employment, education, government, recreation, relationships, culture, moral virtues and self-actualization, these must be met to achieve and maintain the common good. A community must start at meeting the most basic of human needs. For businesses common good means a thriving business. It plays an integral part in the pursuit of common good by ensuring availability of necessary products and services, creating jobs and innovation for future improvements on products and services. Therefore business’s contribution to achieving common good has to be self- regulated, free of any government intervention so that it can determine for itself most appropriate CSR practices. 6. Equal benefits for the whole Community When implementing CSR strategies, business must take consider its community stakeholders, which comprises of children, adults, and the elderly. Each age group has their own interests, needs and even capacities to contribute to the society. CSR strategies which neglect one or more of the age groups may have a negative effect on the whole society. Lack of concern for one generation of the society will affect the entire society in the long run. 7. Consider Social Service as an Investment The community is the objective of CSR cornerstone as if the community thrives, then businesses will also thrive, while if community is not healthy, then businesses will be in challenges. A successful business undertakes CSR strategies which identify opportunities to serve the community, doing so ensures makes companies focus their CSR goals to the particular social challenges faced by the community which are aligned to the company’s mission and values statements. When social investment and aligned with the company’s goals, whatever it produces will have benefits for both society and company. 173 CU IDOL SELF LEARNING MATERIAL (SLM)

Possible social investments through use of CSR strategies could include:  assisting in making a better community to attract more people and retain those who are living  assisting health care system to have a healthier community  assisting the educational structure to ensure better supply of employees  assisting to have better social and recreational programs to make the community attractive by improving quality of life for all  assisting theatres, museums and other similar cultural institutions to make people culturally aware  assisting the adult education and support programs to make them independent or provide needed care and support 8. Plan for Benefits of CSR to the Business CSR is not charity; it is a function of investments to allow benefit to accrue to corporations in the long-term. Businesses who implement CSR into their business models do so as they recognize that their market value depends upon what social good they have done outside the market. Following are two ways CSR may benefit a corporation. Firstly, CSR creates an improved market to help growth, enhanced profits and to maximize opportunities for business success by engaging and capitalizing available social resources. For example, per study done by UNESCO, that by investing in education and cultural system of a community, especially for children in low-income communities, a business can contribute to removal of poverty, and a decline in poverty is good for business as it improves purchasing power of the society by creating more customers and even investors with higher disposable income. In medium to long run, a healthy economy creates growing demand for business as more and more basic needs are met, but this happens when the business invests in a socially responsible way. Businesses which promote CSR contribute to the effort of the community’s to ensure that people achieve higher standards of living. This makes CSR a public relations marketing strategy to promote positive public image and make its stakeholders proud to be associated with the corporation. This creates loyalties towards the organization and attracts quality people, reduces staff turnover and motivates them to a greater purpose towards the organization. These eight principles offer possibilities and guidance of how businesses can adopt ideas to benefit grow their business while investing in CSR activities. 174 CU IDOL SELF LEARNING MATERIAL (SLM)

7.2.7 Developing strategy for effective Corporate Social Responsibility Before we go into the details of developing a CSR strategy for a business, let us first explore the different models on which a sound strategy can be built. The models of CSR Strategy There are two levels of business strategy making, the first is the development of the ‘Corporate Strategy’ which are the overall strategies in consideration to other industry and markets in which a company operates. The other is the ‘Business Unit Strategy’ is concerned to the way a firm operates in the particular industry and its current market. CSR strategy is generally a corporate strategy and can be based on either of the four models: 1. The Shareholder Strategy: in based on the overall profit motive of a company, that it to maximise shareholders return to investment. In this effort the company produces goods and services required by the society, creates jobs that allows for flow of money in the society in terms of wages. Business makes profits that benefit the investors and most important it pays taxes to the government, which are used for the common benefit of the society. Proponents of this model strongly believe that is a business ensures its economic responsibilities it has already made significant contributions to the society in many ways than that were its original objective. It also believes that any further contribution by the business for social benefits will be unethical to the money and trust used by the business. Long term spending in such uneconomic activities will erode the capital and seriously affect the financial viability of business. For smaller and new one firms in operation it will be serious challenge to survive, if they indulge in any such use of shareholders’ capital. This model propagated in the mid twentieth century is now considered to be short-sighted. 2. The Altruistic Strategy: propagates the separation of identity of a company and those who manage its affairs. While the objectives of the business are purely economic the responsibility of working for the benefit of society falls upon those who manage its operations. Therefore it is the personal ethics, values, virtues and even religious beliefs of owners and managers to drive any contribution to the society. Social responsibility is limited to the thought that the business should ‘give something back’ as donations or philanthropy as a contribution to the society. Such contributions will be dependent upon the profits made by the company and its effects should not be measured, as these will be done without seeking any benefits to the economic objectives of the business. Lastly such donations would not be regular but may be done in cases of social calamities like spread of disease, natural disasters for any 175 CU IDOL SELF LEARNING MATERIAL (SLM)

specific cause. The important thing is that spending money in this model is not concurrent to the economic objectives of the business. 3. The Reciprocal Strategy: moving ahead of following the pure economic model of being in pursuit of higher returns on capital, this strategy is about an ‘enlightened self- interest’ of business to meet its social obligations. Therefore the reciprocal effect is the dual purpose of providing economic benefit to the stakeholders in business and also sharing benefit with the society. The companies here are more proactive in this model, and may even go a step in addition to the legal norms of providing minimum benefits. For example an auto manufacturer will add better emission standards in addition to the prescribed norms, similarly a pharmaceutical company may follow a cause for free health services to needy people to show that it cares for the society. Reciprocalstrategy may also be followed to provide extra benefits to employees to portray the image of a caring employer. All such spending is considered to be an investment that would yield results in medium to long term to the company purely in economic terms. The companies resort to confidential ‘Activity based reporting’ where returns to any contribution to social spending are treated on pure cost benefit terms, to track the return of any CSR investment made. 4. The Citizenship Strategy: recognises presence of varied interests and expectations among various stakeholders of a business. The business in its entirety is considered to be a citizen of the society. It balances the conflicting objectives of the stakeholders. For example a social media company increases restriction on free interaction among members, this will come a cost of reduced membership that may result is job losses and also reduced profit margins. Similarly an insurance company increases its claim response rate in view of a pandemic which will increase its financial obligations and reduce margins. In both the above cases each of the company agreed to meet an obligation of one of its stakeholders, government in the first and customers for the second. However, while ensuring commitment to objective of one, it negatively affected interest of the other stakeholders. Since it manages conflicting interests, many times at the cost of that of others, the benefits of such a strategy are felt only mid to long term. The citizenship model ensures accountability to stakeholders through measurements like that in Triple Bottom Line. A good comparison of the four CSR strategy models can be presented as follows: 176 CU IDOL SELF LEARNING MATERIAL (SLM)

Goal Vehicle Measureme Benefacto Benefits Timefra nt rs me Sharehold Profit Self Financial Sharehold Financial Short- er interest results ers term Strategy (prime); vision Others (indirect Altruistic Give back Philanthro Donations Communit May not be Not Strategy py y or causes measured regular Reciproca Mutual Public Activity- Firm and Performan Medium l Strategy benefits relations, based the ce; market to long sponsorshi reporting communit goals term p y Citizenshi Responsibili Governanc Triple Firm: Tangible Long p strategy ty; e; applied bottom line position; and term Transparenc ethics; intangible y; input / To output of partners of Sustainabilit corporate all sectors; y; strategy society Accountabili ty The four options given above are an indication of the base on which CSR strategies will be built, however no company will adopt either one completely at one time, in reality the choice could be a relative mix of options to suit objectives over a period of time. 7.2.8 Steps to Building a Sustainable CSR Program / Strategy When undertaking CSR, it’s just not enough to be doing good, you also have to be seen the doing good things. As that was just not enough you will always be expected to be improving on your initiatives. So CSR strategy demands:  Doing good things  Make sure the society is aware that you doing good things  Keep on doing the good in better ways 177 CU IDOL SELF LEARNING MATERIAL (SLM)

Developing and running corporate social responsibility strategy for a business has huge impact on the society. In today’s competitive business environment CSR strategies have to tell the company’s story, gather stakeholder feedback, ensure the company is positioned as a leader on social issues, and most important how the CSR money will be spent best to the interest of the society and the company. In order to accomplish this the CSR initiatives have to be strategically aligned with the company’s business model. If CSR strategies do not mean of value to the stakeholders as well as to the society, they will fail to be successful to serve their long term purposes. As we have earlier there is a pay-back for the business in this game, to enhance public reputation, develop employee engagement and ensure supply of skilled workforce. Businesses also need to develop a CSR strategy early, as early as before a problem arises or any competitor takes notice of the issue and builds parallel strategy. A company can follow the given steps to draft an effective corporate social responsibility program which will be strategically suitable as well as sustainable in the long term: 1. Understand what CSR means to you Understand what CSR means to the business and how it relates to its overall mission and purpose. A CSR strategy of a business needs to be authentic and must mean true for the organization. The best way to ensure this is to match it to the company’s original mission, vision and values. It should complement the kind of work the company is already engaged in. A better match will always make sense to the employees and shareholders and it will also be easy to display to the society. An imperfect fit will immediately be known to everybody and will not have the desired effect. For e.g., Vedanta Ltd. which is primarily into mining focuses its CSR on water, energy and carbon management. It employs advanced technologies for optimal use of and conservation of water, increases energy productivity, reduce effects of climate change and takes steps to safeguard diversity by involving the support of its group companies 2. Evaluate existing options: There is no need to find new causes if the business is already good into something it is doing. Instead of searching for new options, its best to first evaluate usefulness of some good actions already underway in the company and if their worthiness is in alignment to the company goals and the societal needs it’s always good to be consistent with them. For example, a chemical company may already be complying with existing environmental regulations, or already engaged in philanthropic causes as green initiatives to reduce waste. It will be advisable to extend these activities under the 178 CU IDOL SELF LEARNING MATERIAL (SLM)

banner of CSR, as then it will be very good connectivity to the inter and external stakeholders. 3. Research ways to conduct CSR Once a company is clear what it wants to do and the theme is well aligned to its core values, the obvious step is to conduct research in the best way in which this activity can be conducted. It has to be kept in mind that companies always are bounded by a CSR and there will always be conflicting ideas on which this budget will be used. Especially when it comes to deploying human capital to manage the activity, they will have to be transferred from some other project or a new appointment has to be made, which is another additional cost. The CSR section can study similar projects being done elsewhere in the industry and results which they may have generated, also refer to sustainability reports of other major player and take reference of activities they may be doing. Some companies outsource this activity to management interns who are enthusiastic about this sort of work. 4. Prioritize the themes Post research there may be many options that may come up;therefore, companies now need to make a priority list of the themes that they may want to run under CSR. The best way is to find out this is to engage the stakeholders in the activity, this will help to find their own priorities on which the company can work and it also helps garners their support to the cause. When developing a CSR strategy, it’s always better to take into consideration the immediate needs of customers before committing to solve problems of the society. Exploring customer needs often gets down to the most basic needs: like safety, belongingness, self‐esteem and self‐actualization. A company which identifies these and draws its CSR plan around them will have customers for lifetime. 5. Involve colleagues A way to increase the effectiveness of CSR programs is to involve colleagues while developing your CSR strategy with your colleagues, be it subordinates or the superiors. Instead of creating a parallel structure to support CSR, which may also be of additional costs, it’s always advisable to involve people around to work together of socially aware programs. Although case has to be taken there is no effect on their original activities and their core work patterns are not hampered. 179 CU IDOL SELF LEARNING MATERIAL (SLM)

CSR efforts are multiplied with everyone being involved and having a clear understanding of their role in the project and the cause. Instead of the CSR being forced upon colleagues its better if they are involved right from the beginning, the conception of idea. Regular feedback will allow for diversity in ideas and also ensures their effective engagement. 6. Integrate with main business The CSR strategy has to be part of the overall business strategy. It may not be part of the business, means company does not exist to undertake CSR, but it’s part of the ways in which a company does business. Companies need to think about what they can offer to CSR, what key skills are present within the organisation. What can be offered better than by any other organisation. Combine these skill-set with what the company is passionate about to do in CSR. Once a company is clear how much of internal resources will be used for CSR and how much external hiring has to done of human and capital resources, it can now select and deploy internal resources to the project and finalise the total budget. 7. Partner with experts and society CSR programs run successfully enable companies to showcase their impact. The amount of time, research or financial investment that have been made deserve be supplemented by great results. Impact of CSR improves vastly with by working in partnership with experts, either locally or on higher level. For example, the aim of CSR programme aims improve the skills of the workforce, then why not team up with some of best-known names who have been active in this domain. Joint partnerships with experts in field also enriches the internal talent of the company, reduce chances of wastage, or errors and learnings gathered over time may lead to one time working without the need for experts or external guidance. 8. Identify opportunities Once the idea and team are ready, its good time to be on the lookout for opportunities. It’s good to do good things, it’s really smart to them where they are wanted the most. Opportunities may also come across through recommendations or being observed by others of similar work being done by the company now or on previous occasions. 9. Plan impact on profits As previously seen the impact of CSR is measured under a formal cost-benefit analysis. The impacts may not be very direct or immediate, yet there should be some resultant vector on the margins of the company. For example a packaged food manufacturer undertakes project to care for malnourished children and every time the 180 CU IDOL SELF LEARNING MATERIAL (SLM)

issue is raised the name of the company is highlighted, then there has to be measure of how much sales would be increased with this effort and the final effect on the profit margins of the company. Planning for effect on profits is beneficial to answer queries from shareholders of the use of their funds, some may have objection to the non-economic use of the funds which should have been utilised to support core business. 10. Measure Returns of the CSR efforts As discussed above, all investments made in CSR need to be justified, this exercise is done usually at the end of the financial year or even when a CSR project is completed. It can be an overwhelming task with activities dispersed in different departments and people also being outsourced across the business organisation. However, an intelligent reporting structure will help link the efforts done in the CSR project with the original strategic objectives, this will make management aware of the worth generated by the CSR efforts, it will also help to answer any queries about the nature of funds spent on these activities and the perceived benefits accrued to the organisation. Not to forget that corporations today operate under models of Good Corporate Governance, marked by transparency, accountability and fairness in operations. 11. Leading by example With plans ready to be implemented its now the time to power it with a strong leadership, someone with a track record of having done similar projects. It’s advisable to select an internal talent to lead the team as it will be easier to for an internal person to gather the support of the team. Since CSR activities are not a one-time affair, it’s always recommended to support them with a properly designed steering committee with members having experience of working with different segments of the society. 12. Communicate - Tell your story to the World Last but not the least, CSR has to be made into a story. Either the vision of the promoter or the story of differences being made by the company, all need to be highlighted to spread awareness. Companies in CSR need to ensure to effectively communicate CSR activities to their various target audiences through employing as many channels as possible. With a CSR strategy in place, companies should not be shy to publicize their efforts of being socially responsible along sharing the successes of the program. Many people are attracted to businesses which operate in socially responsible way. If they fail to share out to the world about the programs they will lose this powerful advantage created after much effort and deliberations. Therefore companies need to 181 CU IDOL SELF LEARNING MATERIAL (SLM)

be outgoing to tell their story as often possible, your employees and to the general public. Use of newsletters and brochures, company website, and other online social media such as Twitter, Facebook, LinkedIn, and YouTube are all good medium for this purpose. The additional bonus of having a CSR programme is that this can lead to improve the company reputation. Communication should also look inwards to collaborate with stakeholders, and wider community. 7.3 CORPORATE SOCIAL RESPONSIBILITY – AN INDIAN PERSPECTIVE The Indian chapter of Corporate Social Responsibility had originally been a philanthropic activity. In keeping with the Indian tradition many business organisations felt they had a moral responsibility to play an active role in towards social obligations. Such decisions were made considering the financial performance of the company. In the early twentieth century Mahatma Gandhi introduced the concept of trusteeship to help power socio-economic growth in the country. CSR has always been influenced by traditional family values, cultural traditions and religious beliefs. During the twentieth century CSR clause in India was voluntary for companies. Although it was mandatory to disclose the CSR spending to shareholders. CSR includes the following:  All projects related to such activities specified in the Companies Act  All Projects related to such activities undertaken by the company board on recommendations of the CSR Committee, on condition that these activities are present in items listed in the Companies Act. A major change happened on 29th August 2013 when the old Companies Act 1956 was replaced with the new Companies Act 2013. The New Act introduced far-reaching changes with respect to company formation, administration principles, corporate governance and incorporated a new Section 135, the clause on Corporate Social Responsibility obligations (CSR) for all listed companies in India. The new rule covered the essential guidelines for CSR projects with respect to their execution, fund allotment and usage and reporting guidelines for successful project implementation. The CSR segment of organisations in India is guided by the Board of Governance, Business beliefs, CSR and Sustainability Mission of the Companies. In this way India became the first country to pass a law with respect to the CSR activities, there is also a mandatory requirement to report CSR, this marked the beginning of a new era of CSR in India. Business now can invest a part of their profits in areas such as poverty eradication, enhancement of education facilities, removal of hunger, environment sustainability among others as part of the regulatory CSR compliance. 182 CU IDOL SELF LEARNING MATERIAL (SLM)

The amended version of Companies Act, 2013 requires that all companies having a net worth of Rs. 5 billion (500 crores) or more, or an annual turnover of Rs. 10 billion (1,000 crores) or more, or net profit of INR 50 million (5 crores) or more, to spend at least 2 percent of their average net profits of three years on CSR activities. Expenses made towards CSR are not eligible for any deductions in computation of taxable income. However, the government is considering a re-evaluation of this provision, as well as other provisions related CSR recently introduced under the Companies – Amendment Act, 2019. 7.3.1 CSR amendments under the Companies (Amendment) Act, 2019 As per original Companies Act 2013, if a company was unable to spend its full CSR funds in a given year, it could carry the amount forward and spend it in the next financial year, this would be in addition to the money allotted for that year. As per the new amendments, companies now have to deposit the unspent amount allotted for CSR into a fund by the end of the financial year, to be formed as per Schedule VII of the Act. This amount must then be completely utilized within the next three years from the date they were transferred. Any failure will require the funds to be deposited into any one of the specified funds. As per the new law in case of non-compliance there is a penalty as well as imprisonment. The penalty may range between from Rs. 50,000 to Rs. 2.5 million (25 lakhs) in addition the officer of the defaulting company may be liable to imprisonment for up to three years, or a fine up to Rs. 500,000, or both. However due to objections from the industry, the government is under the process to review these strict provisions, while they yet to be implemented. 7.3.2 CSR trends in India All criticism of mandatory CSR spending apart, the law has in fact made a difference. Since its coming into force from 2014, CSR spending has increased by 47% over a four year period. Thus contributing to more than US$ 1 Billion (Rs. 700 crores). The spending has been majorly in healthcare, social welfare, educational programs, skill development and environment conservation. Similarly the Prime Minister’s Relief Fund (PMRF) also saw an increase of 139 percent in CSR contribution over the same period. As per a KPMG report published in 2019, on completion of five years of Section 135, about CSR spending in India: a. increase of 325% in the number of companies that have disclosed details of CSR outreach in their Annual Reports b. 30% of companies have had more than three CSR Committee meetings in a year 183 CU IDOL SELF LEARNING MATERIAL (SLM)

c. In 2018, 76% companies actually spent the mandatory 2% on CSR activities d. 150% increase in the number of companies committed to carry forward the unspent 2% amount e. Rs. 35,077 crores spent by top 100 companies on CSR in the period 2014-19 f. 18% of the companies have their own CSR Foundation g. Year 2018-19 saw 100% companies making a disclosure on CSR in annual report In terms of sectoral benefits, education sector came out as the biggest beneficiary with 38% of total funds received, closely followed by followed healthcare, hunger, poverty 25% of funds, environmental sustainability 12% came third. Other major beneficiaries were rural development, sports, armed forces, reducing inequalities. During the Covid-19 outbreak, the Ministry of Corporate affairs announced that expenditure made by corporations to fight the pandemic will be considered to be under CSR activities. Activities as promotion of healthcare including preventive healthcare and sanitation, and disaster management will be considered to be spent for Covid-19. 7.3.3 Best Practices of CSR in Indian perspective Fig 7.2The top 10 spenders on CSR in India for 2019-20 1. Infosys Limited The name Infosys echoes with Corporate Ethics in the Indian business sector. While ensuring sustained financial performance, the company very early adopted initiates into Corporate Social Responsibility. The company spent nearly Rs. 360 crore as CSR schemes in 2019-20. The company addresses some of the country’s most pressing challenges in development of:  Education: helping government school students from low-income groups to achieve stable, careers in STEM (Science, Technology, Engineering and Mathematics). 184 CU IDOL SELF LEARNING MATERIAL (SLM)

 Three-month Spark-IT program for engineering students, aimed to provide technology and communication skills training.  Environment Sustainability – carbon offset and savings programs  Gender Equality & Women Empowerment  Provide free meals to children of Below Poverty Line families  Healthcare partnership with AIIMS: to build a 600 bed Dharamshala for families of cancer patients  Preserving National Heritage & Culture  Rural Development  Covid 19 relief measures: the company announced Rs. 100 crores to be spent on relief, out of which Rs. 50 crores were donated to PM Cares fund. It set up at 100 bed facility and also a 182 bed quarantine facility in Bengaluru. At heart of all the CSR Work by the company is the Infosys Foundation, which headed by noted author and philanthropist Mrs Sudha Murthy, primarily works with non-governmental organizations in the role of a nodal agency for implementing CSR projects. Major projects accomplished by the foundation include:  Aarohan Social Innovation Awards  Restoration of water bodies in Karnataka  GoSports Foundation aimed to allow access to all and excellence in sports  Disaster relief projects in the states of Tamil Nadu, Karnataka and Kerala Fig. 7.3 Fig. 7.4 N. Narayana Murthy and Mrs. Sudha Murthy Infosys Foundation was already active on development projects through its CSR initiatives much before the legislation of 2% mandatory spending came into existence. Since Infosys started its CSR initiatives it has impacted lives of more than million people and continues to create a difference for thousands more every year. 185 CU IDOL SELF LEARNING MATERIAL (SLM)

The CSR initiatives at Infosys create development to impact the society in a positive way to bring a lasting change in community life. The CSR projects reflect responsibility of the Company through actions and ensure positive impact activities. The CSR projects run by Infosys Foundation have worked to help society and achieve sustainable development. The projects are tracked using high tech background on a real-time basis and therefore create lasting impact in the community. Infosys has also set very high standards for sustainable operations by aiming to achieve the reputed ‘carbon neutral’ status. 2. Mahindra and Mahindra Limited When it comes to CSR in India, one company that shines above the rest is Mahindra & Mahindra. M&M is an automobile manufacturer and provider of farm solutions. The company since its inception in 1947 has offered products and solutions ranging from pickup trucks, commercial vehicles, SUVs, tractors, two-wheelers construction and more recently equipment electric vehicles. M&M spent Rs. 93.50 crores on CSR projects in the financial year 2018-19. Sustainability runs through the ethos here. This commitment to CSR and sustainability runs in the company ably led by Mr. Anand Mahindra, under whose guidance, the corporation has set international benchmarks in social work. Mahindra’s CSR policy is directed for the development of girls, youth and farmers. The CSR work by the company also supports initiatives in education, health and environment. Since 2014-15, Mahindra and Mahindra have committed itself to spend the 2% on CSR without fail. In 2019-20, the spending exceeded to Rs. 126.6 Crores. Some of the major projects undertaken by M&M in CSR are: Project Nanhi Kali: Which translates to a ‘little bud’ in Hindi, aims to support the education of girls from underprivileged background to complete ten years of formal schooling. This flagship project of has till now impacted the lives of more than 450,000 girls belonging to backward communities across the country, through setup of 6,001 academic support centres, in 9 states. The project empowers families of girl child; to educate parents and communities on the importance of girl’s education. Proof of success of project is that girls who benefited from the project are coming back to mentor young girls. The group works with other, to feed over 1.3 million government school children every day. 186 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig. 7.5 Fig. 7.6 Notable among all efforts which go through in this project, is the ‘School Supplies Kit’ which every girl receives annually. The kit includes a school bag, stationery and a pullover or raincoat. Considering that teenage girls in India still do not have access to hygienic menstrual practices, the kit further provides a 12-month supply of sanitary napkins to help the girls attend school with dignity. Other notable CSR initiatives by Mahindra and Mahindra include but are not limited to: 1. Mahindra Pride Schools: is a 90-day programme to provide livelihood training to youths from socially and financially disadvantaged communities. The nine schools in Chandigarh, Chennai, Hyderabad, Pune, Patna, Srinagar and Varanasi achieved 100% job placements. Till Date more than 39,000 youths have received training under this programme. 2. Project Hariyali: is the green initiative of the company aimed at to add 1 million trees every year. 3. Integrated Watershed Management Programme: is a project implemented in Madhya Pradesh to increase the groundwater table of the region. 4. Saving Lives with Safer Roads: M&M Ltd. is working to create India’s first Zero Fatality Corridor on the Mumbai-Pune Expressway through interventions in: Engineering, Enforcement, Education and Emergency Response. 5. Employee Social Options: A long-running Employee Volunteering Programme, where company employees dedicate their time and skills to local communities. In 2019-20, about 22,000 employees’ volunteers contributed 1,63,818 workhours to society. 6. COVID-19: In response to the pandemic the company immediately put itself and its group companies to provide relief measures across 17 states in the country, in the following focus areas 187 CU IDOL SELF LEARNING MATERIAL (SLM)

 More than 9 lakh dryration kits distributed to families financially affected by the crisis  4,87,000 cooked meals served to migrant workers  More than 300,000 people in Mumbai and Pune have been provided the facility of clean and sanitized toilets.  62,000 PPE kits distributed to frontline workers  55 Hospitals provided with medical equipment and consumable including ventilators  1,100 Laptops & Tablets distributed to help students continue with online classes 3. Tata Chemical Ltd. In the year 2019-20 the Tata chemical spent Rs. 21.39 crores as against the prescribed spending of Rs. 21.39 Crores. Tata Chemicals’ corporate philosophy is to improve the quality of life and foster sustainable and integrated development in the communities where it operates. The share towards wildlife conservation accounts for 30% of the budget which the company spends over the three places where the company has its business operations: in Gujarat, West Bengal and Uttar Pradesh. Tata Chemicals had also established the Tata Chemicals Society for Rural Development in 1980 as trust. 4. ITC Ltd. The ITC conglomerate has contributed to rural development in a big way through its flagship project the ITC Choupal, which has become the gold standard on community development even in international circles. The project has impacted lives of lakhs of farmers over the years by providing digital literacy and economic empowerment, its success has also been replicated by many other corporates for similar social welfare programmes in other communities. In 2019-20ITC spent Rs. 326.49 crores on CSR initiatives, which is even more than what it spent for previously. ITC has operates projects in digital literacy, education, environmental conservation, healthcare, sustainable agriculture, sports and culture. Through superior environmental benchmarks in operations the company has achieved 41% of its total energy from renewable resources. 5. Wipro Ltd. 188 CU IDOL SELF LEARNING MATERIAL (SLM)

Wipro is also among the Indian corporations to have spent more than the prescribed CSR budget in the last three financial years. The CSR programmes which happen at Wipro are implemented in multiple channels, such as:  Wipro Foundation, set up as a separate trust in April 2017  Wipro Cares, the trust for its employee contribution  Or done directly through operational activities within Wipro Ltd. Wipro mostly works through partners with who have an established track record. The majority of projects undertaken are long-term programmes. Wipro’s work in primary health care touches the lives of more than 70,000 people from 6 projects across four states. Apart from providing regular health services, the project also builds capacity of communities through higher awareness and developing higher self-reliance to manage their own primary health care needs. In disaster management, Wipro has helped rebuild the lives of communities affected by floods in Karnataka, Floods, Floods and international initiatives like the Tsunami in Japan, Hurricane Sandy and Cyclone in Philippines. 7.4 MAJOR DEFECTS OF CORPORATE GOVERNANCE IN INDIA The legislative structure in India has always been moving along the global trends to ensure good Corporate Governance policies in Indian Industry. While last two decades have seen an increasing frequent of corporate frauds in the country and failure of regulatory agencies to prevent their happening or take measures to bring to justice the perpetrators. Achieving good governance and ensuring results of practices continues to remain one of the unfulfilled objectives of corporate India. Following are some major issues and causes which hamper the implementation of Corporate Governance policies: 1. No Proper Structure The fact is that corporate governance is different to different companies and is devoid of a unique structure and somewhat considered to be ambiguous. Even after been made into a legislation, there are still awareness issues within the business community regarding the quality and how often financial and managerial disclosure have to be made. Compliance with existing the codes of best practice, roles and responsibilities of the Board, commitment to shareholder rights are requirements that still not fully taken care of. Instances of failure and scams in the corporate sector have occurred due to connivance between companies and their accounting firms, weak or ineffective internal audits, lack of skilled executive, absence of proper disclosures, non- 189 CU IDOL SELF LEARNING MATERIAL (SLM)

compliance with standards, etc. Which brings to question whether proper structure is present to involve the Board, executive and auditors to the plan and implementation of the concept. As per the Companies Act, 2013 several good corporate governance provisions such as, one-third of the company board to comprise of Independent Directors, at least one woman Director on the board, the constitution of Audit Committee within the board etc, were to happen. However, several companies are yet to fully comply with all the regulations. Appointments to board are still done by way of \"word of mouth\" or to accommodate recommendations of fellow board members. It is not uncommon that friends and family of promoters and management are appointed as board members. Observance of the basic principles of transparency, accountability a fairness is still questionable among companies while making key investment decisions. Individual shareholders still do not exercise governance rights are far away from getting fair treatment from controlling majority shareholders and management. 2. Performance Evaluation of Directors Performance evaluation of directors caught the attention of SEBI very recently, it was only in January 2017 that 'Guidance Note on Board Evaluation' was released by SEBI. This note elaborates aspects of on which performance of directors will be evaluated by stating objectives and laying criteria and method for evaluation. The results of such performance evaluation need to be made public to achieve the desired results. 3. Lack of Government Support Government commitment to corporate governance is still majorly limited to introducing legislations, while there is no denial that laws themselves are a big reason for commitment. Due to many small and big scams even after presence of laws, has now made the public demand stronger accountability and responsibility in corporate behaviour. Effective government action, not just in the regulatory systems, but improved auditing, and stringent law enforcement is need of the hour. 4. Insider Trading Insider trading is a practice in which an insider trades non-public information with any external party as a mark of breach of trust and confidence or where the non-public information is misappropriated from the company. Corporate insiders like directors and employees due their position have access to confidential information may attempt to misappropriate such information to anticipation of profits. 190 CU IDOL SELF LEARNING MATERIAL (SLM)

The term insider on other hand not mean any illegal conduct. It means both legal as well as an illegal conduct. Insider trading is legal when directors and employees buy and sell their own company’s shares. In order to gain legality of these transactions, they should inform about such dealing to the SEBI. The illegal part is when senior directors or executives may come to know of some information which when shared in the market may swing the prices of the shares. In this case they may leak this information to select few traders or may themselves buy or sell to earn profits. Pre- determined price may result in unprofitable consequences to the other investors who may not be aware of such inside information. Section 17 Securities Exchange Act, 1933 prohibits any dealing with fraud in the sale of securities. The Act prohibits purchase and sale of shares within six month period for all directors, executives and stock holders owning more than 10% shares of a company. 5. Dominant vs the Minority Shareholders There is major problem of bringing the dominant shareholder under discipline and to protect rights of minority shareholders. This corporate governance issue of dominant shareholder can only be solved by forces outside the company. With laws and also by abdication of power the which ownership and management have become separated, the owners who still have a commitment towards protecting rights of all therefore are not able to control the management or Board decisions. The problem with dominant shareholder occurs in three categories of Indian industry: a. The public sector units marked by government as the dominant or majority shareholder while the general public holds a minority stake b. The multinational companies, where the foreign parent is the dominant shareholder c. Indian companies where the promoters along with their relatives and friends are the dominant shareholders, financial institutions hold some stake while the balance is held by the public. The relation between company and shareholders and relation among the shareholders themselves is primarily contractual in nature. These relationships are captured in the memorandum and articles of association of the company while the corporate law provides framework within which these contracts operate. This contractual relationship entitles each shareholder to a share in profits and assets of the company in proportion to his personal share ownership. The Board and the management of a company have a legal responsibility towards each and every shareholder, major or dominant or small. Holding shares is mark first and foremost rights to ownership, 191 CU IDOL SELF LEARNING MATERIAL (SLM)

toprofits and to assets. Corporate governance should be concerned about the ownership rights of all shareholders. With abuse of shareholders ownership rights, it is very hard to say that their rights have been fully respected. 6. Family-owned business India has no shortage of family-owned companies which are characterized as majority shareholders belonging to the same family and involved in the direction, management and operation of the company. Many Indian businesses which are old family establishments welcome cash infusions by outside investors, but hesitate to relinquish control. In this case it becomes difficult for outsiders to keep a track on business realities of such companies. As the family business grows larger and major decisions are owned internally, possibly in absence of professional conduct, the situation may to inefficiencies and internal conflicts which threaten the continuity of business. Family control also brings problems related to governance due lack of checks and balances over behaviour of executive directors and lack of transparent reporting to outsiders. Noncompliance with disclosure norms Non compliances and failure of auditor reports to conform to legal norms attracts only nominal fines with hardly any punishment action being taken. The Institute of Chartered Accountants in India is not very strict about such happenings and has not very often taken any action against erring auditors. 7. Minor issues of Minority Shareholders  minority shareholders often suffer from irregularities in share transfers and registrations being made either deliberately or unintentional  Promoters indulge in an unethical practice of using non-voting preferential shares to move funds and deny rightful dues to the minority shareholders  Minority shareholders have also been defrauded by management while making clandestine side deals with the acquiring company during corporate takeovers and mergers 8. Misleading made entries in financial statements Factually accurate information on a financial statement can be presented to mislead investors. 9. Directors’ remuneration 192 CU IDOL SELF LEARNING MATERIAL (SLM)

Appointment remuneration of directors needs to be reconsidered. Currently nonexecutive directors are usually selected by the board with little consultations with the shareholders. 7.5 SUMMARY  Corporate Social Responsibility is the thought which integrates social and environmental concerns in business decisions making and in interactions with the stakeholders.  CSR is different to other forms of donations like charity, sponsorships or philanthropic contributions, CSR is a well-planned attempt to ensure the spread of goodwill of the company and is a method to achieve a balance between conflicting economic, environmental and social objectives.  CSR can be considered as in four major categories: a. Philanthropic responsibility: making donations to worthy causes b. Environmental responsibility: working towards preservation of the environment c. Ethical responsibility: considers fair business practices d. Economic responsibility: combines the other three with profitable operations  The major benefits of CSR practices are: to Develop a Stronger brand image; Increases customer loyalty and build sales; Savings on Operational cost; Employee recruitment and retention; Access to improved funding and financing options; Improved relations with government; Increases Employee engagement; Keeps the company in Good news  Among the different approaches to understand CSR, the Triple Bottom Approach is the most important it is used as a framework to measure and report performance of a company with respect to economic, social and environmental standards.  Free enterprise is no intervention by government in the economic activity and it is the most efficient system of resource allocation to prosperity. Government involvement and regulations hinder economic growth.  The two levels of business strategy making are the development of the Corporate Strategy and Business Unit Strategy. CSR strategy is a corporate strategy.  A company’s CSR strategies need to be strategically aligned with the company’s business model to ensure that the CSR money is spent to the best interest of the society and the company.  When CSR strategies do not mean of any value to the stakeholders as well as to the society, they will fail to be successful to serve their purposes.  The major steps to create an effective CSR strategy are: a. Understand what CSR means to you b. Evaluate existing options: 193 CU IDOL SELF LEARNING MATERIAL (SLM)

c. Research ways to conduct CSR d. Prioritize the themes e. Involve colleagues f. Integrate with main business g. Partner with experts and society h. Identify opportunities i. Plan impact on profits j. Measure Returns of the CSR efforts  India is the first country to make CSR into legislation in 2013, since then there has been an exponential growth in CSR spending. Many companies in fact spend much more the stipulated 2% of their average 3 years profit on CSR.  The Covid 19 pandemic has seen companies coming forward to support the fight and provide assistance to front line workers, those financially affected and also in setup of infrastructure.  Corporate governance in India is supported by laws and under stringent supervision of SEBI, yet there are issues which emanate from ownership, composition of boards, clash of interests of major and minor shareholders among other reason. Better implementation of laws and stricter penalties are needed to ensure protection of all stakeholders. 7.6 KEYWORDS  CSR: Corporate Social Responsibility is a business practice when a corporation takes responsibility for itself while spending for social benefits. CSR and community relationship are mark of enlightened self-interest. CSR cannot be equated with charity.  UNIDO: United Nations Industrial Development Organization  SMEs: Small and Medium-sized Enterprises  Philanthropic: helping those in need, being benevolent  Pragmatic: solving problems in a sensible way, rather than following theories, being practical  Enterprise: an organization of business created to earn money  NPO: Not for Profit Organizations, they work for social causes under donations  Sustainability: causing no damage to the environment and continuing for a long period of time 7.7 LEARNING ACTIVITY 1. How could the practice of Social Responsibility of Business be considered to be beneficial to a profit seeking organization? 194 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ ___________________________________________________________________________ 2. Comment on the recent development in CSR Laws in India, how far they will contribute to build the image of the Industry? ___________________________________________________________________________ ___________________________________________________________________________ 7.8 UNIT END QUESTIONS A. Descriptive Questions Short Question 1. Define the term Corporate Social Responsibility. 2. What is Environmental responsibility? 3. List down the major benefits of CSR that may occur to an IT business. 4. What is the meaning of environmental sustainability? 5. When Insider Trading doesbecome a negative aspect of Corporate Governance? Long Questions 1. What are the benefits of adopting a CSR Policy for profit making companies? 2. Why it is important to monitor the effect of CSR for a corporation? 3. How can the effects of CSR be monitored for a company? 4. Consider the principles of CSR, which two need to be considered to ensure support of internal stakeholders to implement CSR policies. Explain both the principles of your choice. 5. Which CSR category would be best choice for an online App based grocery retailer? 6. Consider the models of CSR strategy, which of them will be the guiding factor for a company that wants to provide something extra to the consumers. Explain the model with example. 7. While designing a CSR strategy, what according to you are three most important steps that will ensure most benefits to the company, support your answer with examples. 8. Do you support the amendment in the Companies Act, 2013 with reference to CSR, give reasons? 9. What additional can be done by the government to promote CSR for listed as well as for unlisted companies? 195 CU IDOL SELF LEARNING MATERIAL (SLM)

10. With respect to the structure of boards and performance evaluation of directors, suggest ways to improve commitment to Corporate Governance in Indian companies. B. Multiple Choice Questions 1. The responsibility that considers fair business practice is _____________ a. Philanthropic b. Environmental c. Ethical d. Economic 2. Which of the following is not a benefit of CSR? a. Increases customer loyalty b. Improves research and development c. Ease in Employee recruitment d. Improved relations with government 3. A Free Enterprise is all about, except ___________ a. Government regulations b. Innovation and economic growth c. Market place decides who fails or succeeds d. Political freedom 4. In the __________________ CSR strategy model, the business balances the conflicting objectives of the stakeholders. a. Shareholder strategy b. Altruistic strategy c. Reciprocal strategy d. Citizenship strategy 5. Which one is not a condition for a company mandatorily spend for CSR as per the amendment to Companies Act 2013? 196 CU IDOL SELF LEARNING MATERIAL (SLM)

a. a net worth of Rs. 5 billion (500 crores) b. net assets of Rs.10 billion (1,000 cores) c. annual turnover of Rs. 10 billion (1,000 crores) d. net profit of Rs. 50 million (5 crores) Answers 1-c, 2-b, 3-a, 4-D, 5-b 7.9REFERENCES Text Books:  S.A. Sherlekar, Ethics in Management, Himalaya Publishing House  William B. Werther and David B. Chandler, Strategic corporate social responsibility, Sage Publications Inc  Robert A.G. Monks and Nell Minow, Corporate governance, John Wiley and Sons Reference Books:  W.H. Shaw, Business Ethics, Cengage Learning  Beeslory, Michel and Evens, Corporate Social Responsibility, Taylor and Francis  Philip Kotler and Nancy Lee, Corporate social responsibility: doing the most good for company and your cause, Wiley  Subhabrata Bobby Banerjee, Corporate social responsibility: the good, the bad and the ugly, Edward Elgar Publishing  Satheesh Kumar, Corporate governance, Oxford University, Press 197 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 8 ETHICAL ISSUES IN INTERNATIONAL BUSINESS PRACTICES STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Ethical challenges in international business operations 8.2.1 Examples of corrupt practices by MNCs in international business 8.2.2 Culture and Ethics as influence to International differences 8.2.3 Theoretical Framework of Business Ethics for International Business 8.2.4 Conclusion and Recommendations 8.3 Corporate governance Reforms 8.3.1 World Bank – an Introduction 8.3.2 World Bank and Corporate Governance 8.3.3 The Corporate Governance (CG) Group of World Bank 8.3.4 Corporate Governance in the Financial Sector 8.3.5 Steps taken by the CG Group in the Financial Sector 8.3.6 Corporate Governance in Capital Markets 8.3.7 Role of The International Finance Corporation in Corporate Governance 8.4 Corporate Governance Reforms and SEBI 8.5 Summary 8.6 Keywords 8.7 Learning Activity 8.8 Unit End Questions 8.9 References 8.0 LEARNING OBJECTIVE After studying this unit, you will be able to:  State the ethical challenges that an MNC may experience as it expands its operation to multi-cultural and countries  Experience the effect of Culture and Ethics on International markets 198 CU IDOL SELF LEARNING MATERIAL (SLM)

 Discuss the effect of theories of Business Ethics on International Business  Appreciate the role of the World Bank and its group partners in promoting Good Corporate Governance in businesses around the world  Explain the recommendations made by the Kotak Committee to SEBI for Corporate Governance reforms to the Indian market 8.1 INTRODUCTION The gist of globalisation is that companies around the world want to enter international markets. It should be noted that each cross border market is signified with its unique cultures and traditions, not that ethical considerations also vary as we move across borders, leave alone crossing continents. Therefore the task ahead becomes more and more complex when businesses are dealing not only with understanding the buying behaviour of diverse customers but also dealing with socio-cultural and most importantly ethical issues. Managers operating in transnational corporations are faced with every day ethical challenges which translate into differences in customs and practices how business operations are conducted in international markets. These differences occur due to varied moral and cultural values of people across geographical boundaries. These differences can be for simple reasons that there may be absence of local laws or conventions to define behaviour or lay rules for punitive action for something that may be tolerated in the foreign lands. People may have some different beliefs towards considering rig action both for individuals and for organisations alike. It is therefore, not an easy task for business managers and transnational organisations to be ethically correct with similar policies in different cultures. That leaves the companies with either of the following choices: i. to modify policies to suit local traditions, customs and ethical beliefs ii. to follow common practices, as per ethical beliefs of the parent country, this will amount to coercion in implementation on the local populace, or iii. to take help of local governments to streamline operations through ensuring minimum common behaviour Ethical challenges in social life refer to translation of moral beliefs by different set people about what is right or what is wrong. In most cultures wrong behaviour, lying, theft, cheating and causing harm to others is considered to unethical and immoral. Similarly many cultures identify traits of honesty, truthfulness, helping people and respecting the rights of elders and needy as truly ethical and sign of morality. The case with business in not too different when it comes to ethics, similar principles are favoured while dealing with investments or sale or purchase of goods or services. There are no special set of ethics for business and non- business activities and general set of belief of ethics in one culture are favoured by both. 199 CU IDOL SELF LEARNING MATERIAL (SLM)

As an example dishonest behaviour is not favoured in business dealings as well as in sports or within families. There may be differing levels of acceptance, while some societies may be very strict about the practice there may others who may have a slightly lenient approach. Some cultures may stop at defining dishonest business practices as just weighing or measuring correctly while some may find a business dishonest if it did not inform customers about a faculty component or a untested ingredient in food products, which is other countries may be offered at discount and people will be acceptable to faulty product happily at lower prices. Therefore perception about dishonest business practice is variable and that is just one of the aspects of behaviour. Similarly differences in beliefs may have different explanations about ethics when it comes to HR practices. Some cultures as in Asian and African as open to supervisors imposing their will on the working of their subordinates and there seems to be nothing unethical about this. But in western world if a superior imposes his opinion of the team, it is considered infringement on personal and professional rights, this behaviour is marked as an unethical gesture. As per a study in US over 50% of respondents admitted that they had been subject to unethical work pressure by their reporting managers. Some respondents also agreed that they indulged in other unethical acts just to release the pressure of work, which they felt was being imposed upon them. Respondents went to the extent to accept that not being able to spend time with family due to work load was considered as the biggest unethical action they have been subject to, other viewpoints were like lack of internal communication, absence of appreciation at work and even dis-belief in the management style of the superiors. Now lets us change the perspective to that of a developing country, where competition to grow in an organisation is intense due to lack of ample opportunities, many of the complaints listed above will be acceptable in a different culture and environment and there may not be any reason to perceive them as lacking ethics in any way. 8.2 ETHICAL CHALLENGES IN INTERNATIONAL BUSINESS OPERATIONS As corporations grow their operations internationally they need to understand the issues related to legal and ethical background of the home as well as distant country. In addition to these two there are also cultural and moral issues which also affect global business operations. Among the most important ethical issues of international business operations are: 1. Outsourcing Outsourcing is an accepted practice to hire an external business or individual to perform some work under a contract as an alternative to doing the same inhouse. It has become a very common practice by companies to use outsourcing as a way to adopt advantages on labour, raw material transport or low production costs. The 200 CU IDOL SELF LEARNING MATERIAL (SLM)