CORPORATE SOCIAL

RESPONSIBILTY AND
CORPORATE GOVERNANCE
Dhaarna Rathore

Learning Objectives

Define social responsibility and explain its models

Argue for and against social responsibility
Outline barriers to social responsibility
Point out social responsibility strategies
Explain how organizations implement social responsibility actions
Bring out the limiting factors of social responsibility
Point out the salient features of socially responsive firms
Trace the historical evaluation of social responsibility in India and abroad

Social responsibility of business refers to what

the business does, over and above the statutory
requirement, for the benefit of the society. The
word responsibility connotes that the business
has some moral obligations to the society.

Responsibilities of Business

Ackermans stages of SR
Ackermans Three Stages of Social Responsibility
ORGANIZATIONAL
LEVEL
Chief Executive

PHASES OF ORGANIZATIONAL INVOLVEMENT

Phase I
Phase II
Phase III
Issue:Corporate

Obtain knowledge
obligation

Obtain
Add staff specialists

organisational
Action:Write and
communicate policy
Outcome:Enriched
purpose, increased
awareness
Issue:Technical

Staff Specialists

commitment.
Change
performance
expectations.
Provoke response
problem
from

operating units.
Action:Design data
Apply data system to

system and interpret

performance
environment
measurement
Outcome:Technical
and informational
Division
Management

groundwork
Issue:Management
problem
Action:Commit
resources and

Model of CSR

Rejection

Adversary

Resistance

Compliance

Accommodation

Production

Forces Pressuring Social Responsiveness

Pros and Cons of SR

Arguments for CSR

Arguments against CSR

Changed public expectations

Better environment for business
Balance power with responsibility
Business has resources
Prevention is better
Moral responsibility
Globalisation
Better employees

* Profit maximisation
* Society has to pay the cost
* Lack of social skills
* Business has power
* Social overhead cost
* Lack of accountability
* Lack of broad support
* Experts views

How Much Spent on CSR?

(Rs.cr)

Reliance Industries
Jaiprakash Associates
Infosys
Ambuja Cements
HPCL
Total

2007
36
16
14
8
7
206

2004

2005

2006

38
9
21
5
21
385

26
17
15
15
11
314

27
26
21
16
15
411

Corporate Accountability

Firsts of Tatas Towards Employees

Tisco
Introduction

Enforced
by Law

Five-Hour Working Day

Free Medical Aid
Welfare Dept.
Works Committees
Leave with Pay
Provident Fund
Accident Compensation

1912
1915
1917
1919
1920
1920
1920

1948
1948
1948
1947
1948
1952
1924

Training of Apprentices
Maternity Benefit
Profit-Sharing Bonus
Gratuity

1921
1928
1934
1937

1961
1961
1965
1972

Legal Measures

Factories Act
ESI Act
Factories Act
Industrial Disputes Act
Factories Act
Employees P.F.Act
Workmens
Compensation Act
Apprentices Act
Maternity Benefit Act
Payment of Bonus Act
Gratuity Act

Common Characteristics of Socially Responsible Firms

1. Initially founded by far-sighted people who visibly set the firms moral tone.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

Stuck to the basics and produced only high quality goods and services for
specific
market niches.
Developed a public image that emphasised their commitment to quality and
often
used non-traditional means to promote it.
Firmly practised the dual principles of self-management and decentralisation.
Brought in outside people to provide needed talent and additional
perspectives.
Encouraged all employees to become part of the shared mission through full
worker
participation in decisions.
Paid fairly and usually offered benefit packages exceeding the competition.
Emphasised a democratic people orientation and did without executive perks.
Constantly solicited feedback from customers on all subjects from product
direction to corporate donations.
Top managers possessed an extensive knowledge of current events and took
a
wide-ranging interest in affairs outside their business.
Offered donations in cash or services to people in need of help.
Took an active role in the operations of their local communities.
Deal with like-minded businesses and encourage their employees to do the
same.
Constantly look to the future but always pay attention to the past.

CORPORATE GOVERNANCE

Dhaarna Rathore

Learning Objective

Understand and define the term corporate governance

Justify the contemporary relevance of corporate governance
Describe the factors influencing corporate governance
State and explain the mechanisms of corporate governance
Look ahead and predict the shape of corporate governance far in future.
Understand the Contents of Birla Committee Report

The Aim And Purpose Of Corporate Governance

Corporate governance is concerned with holding the balance between economic and
social goals and between individual and communal goals. The governance
framework is there to encourage the efficient use of resources and equally to require
accountability for the stewardship of those resources. The aim is to align as nearly
as possible the interests of individuals, corporations, and society. The incentive to
corporations and to those who own and manage them to adopt internationally
accepted governance standards is that these standards will help them to achieve their
corporate aims and to attract investment. The incentive for their adoption by states
is that these standards will strengthen the economy and discourage fraud and
mismanagement.
The foundation of any structure of corporate governance is disclosure. Openness is
the basis of public confidence in the corporate system, and funds will flow to the
centers of economic activity that inspire trust.

Reasons for the Growing Demand

for Corporate Governance
Inadequacies and failures of an existing system often bring to the fore the need for
norms and codes to remedy them. This is true of corporate governance too.
Deficiencies in the Accounting Standards became more evident after many
companies, in their eagerness to increase earnings and accelerate growth, exploited
the weaknesses in the accounting standards to show inflated profits and understate
liabilities.

Corporate Governance Environment and Outcomes

Factors Influencing Corporate Governance

Ownership structure
Structure of company boards
Financial structure
Institutional Environment

Mechanisms of Corporate Governance

Companies Act, 1956

Securities Law
Discipline of the capital market
Nominees on company boards
Statutory audit
Codes of conduct

Mechanisms of Corporate Governance

Roll of Honour
Rankings
1 Infosys Technologies
2 Tata Steels
3 Wipro
4 HDFC Bank
5 HDFC
6 Tata Motors
7 Reliance Industries
8 ITC
9 Ranbaxy Laboratories
10 Hindustan Lever

11. Hero Honda Motors

12. Larsen & Toubro
13. State Bank of India
14. Bajaj Auto
15. ONGC
16. Gujarat Ambuja Cement
17. Hindalco Industries
18. Grasim Industries
19. Cipla
20. BPCL

(Source: ET Corporate Governance Survey)

Recommendations of Birla Committee

The Birla Committee Report is the first formal and comprehensive
attempt to evolve a Code of Corporate Governance, in the context of
prevailing conditions of governance in Indian companies, as well as the
state of capital markets.
The Committee, felt that the recommendations should be divided into
mandatory and non-mandatory categories.

Applicability: The recommendations will apply to all the listed private and public
sector companies, in accordance with the schedule of implementation. This is a
mandatory recommendation.

Board of Directors: Board of Directors should have an optimum combination of

executive and non-executive directors.
The CII Code has also laid down that no individual should be a director on the
boards of more than 10 companies at any given time; non-executive directors should
be active, have defined responsibilities, and be conversant with P & L accounts;
directors who have not been present for at least 50 per cent of board meetings
should not be re-appointed.

Audit Committee and Remuneration Committee: One of the items of the

CII Code is that there should be an Audit Committee, which shall have
access to all financial information. The Birla Committee has recommended
an Audit Committee to act as a catalyst for effective financial reporting,
with powers to investigate any activity within its terms of reference and to
seek information from any employee.

Accounting Standards and Financial Reporting: companies

are required to give consolidated accounts in respect of all its
subsidiaries in which they hold 51% or more of the share
capital.
Management: While the Board is responsible for ensuring that
the principles of corporate governance are adhered to and
enforced, the real onus of implementation lies with the
management which is responsible for translating into action the
policies and strategies of the Board and implementing its
directives to achieve corporate objectives of the company
framed by the Board. It is, therefore, essential that the board
should clearly define the role of the management.

These are mandatory recommendations.

Shareholders: The shareholders are the owners of the company and as such they
have certain rights and responsibilities.
The Committee believes that the General Body Meetings provide an opportunity to
the shareholders to address their concerns to the board of directors and comment on
and demand any explanation on the annual report or on the overall functioning of
the company.
The Committee has also recommended that the institutional shareholders take an
active interest in the composition of the Board of Directors and evaluate the
corporate governance performance of the company.

Thank You