Beyond Profita Path To Zenith

BEYOND PROFIT: A PATH TO ZENITH By Mohammad Shamsuddoha Assistant Professor Department of Marketing University of Chittagong Chittagong, Bangladesh.

And

Dipak Y. Chacharkar Lecturer Dept. of business Administration & Management Amravati University Amravati, India.

ABSTRACT Now-a-days corporations are integral part of the society and it is often said that growth and prosperity of corporation imperative with the development of society. Corporation’s particularly large one holds enormous power over the lives of people. Hence, society expect from corporation, a contribution for well being of the society and responsible behavior. A corporation would be a good citizen: by full and faithful payment of taxes, by observance of laws; going beyond the letter of the laws in crucial matters; judicious use of donations; direct involvement in social programs and community development projects. A social responsiveness model would definitely pave the way to zenith by strict and honest observance of these five principles. A good corporate governance is seen to include corporate citizenship and through an extension of good citizenship - corporate philanthropy. Government on its part should inaugurate a new era of cooperation with industry. This cooperation should emphasize a mutual understanding and acceptance of idea that both are partners in the progress of the nation.

A company who is serious about ethical and social

concern would do well to institutionalize ethics. It also demands a voluntary

commitment to work towards continuous improvement in healthcare, environmental protection & safety and development of wider community. Corporations in India show their commitment towards social responsibility by undertaking various projects / program aims at these very objectives. To name the few Tata, HLL, Reliance, Mahindra & Mahindra included social responsibility among the rules of the game. Their perceived ethical and social attitude towards all those concerned helps them to become profitable and even assume leadership. Keyword: Corporate Citizen, Business, Profit

Introduction Business is a wider system and basically public in nature in the sense that corporations are an integral part of society and cannot function in a vacuum. Hence, it is said that the health and prosperity of corporation depend on the well being of the society every corporations has an impact on the health and general welfare of thousands and sometimes millions, of people. As Robert Johnson put it, "In a business society every act of business has social consequences and may arouse public interest. Every time business hires, builds, sells or buys, it is acting for the people as well as for itself and it must be prepared to accept full responsibility". Corporation’s particularly large ones, wield enormous power over the lives of the people also the power of multinational corporations is growing beyond the control of national governments. Hence, irresponsible behavior of these influential corporations is costing too dearly to the entire world. It is also observed that they have lost touch with human values necessary to sustain and preserve life from human, animal and biological. Globalization develops consumer awareness. Media services are growing rapidly around the world. Some suggest that corporations today have nowhere to hide. Transparency is being sought on many fronts, ranging from scientific experimentation with plants to executive salary. Consequently, ethics, reputation and governance processes are being reviewed more than ever. It is often argued that the survival of business entities is becoming increasingly dependent on how they maintain their reputation in a competitive world. An emerging research suggests that ethical behavior and reputation provide a basis for corporate stability, especially as the global market places becomes more sensitive and dynamic.1

Corporation's Social Role Nobody can doubt that organized business has responsibility to the society or community in which it exists and operates. No opportunities are an island. It requires a developed

infrastructure roads, water supply, power supply, information network and so on. When a business gets benefits in all these ways from the organized activities of the wider society, it must be surely make its contribution to that society and behave responsible in the society. Every society had certain unwritten norms, value system, behavioral pattern that regulate behavior of member of the society. A behavior of citizen governed by the rules, laws prescribed by the state and obey certain unwritten norms prescribed by society as well. Corporations as a member of wider society and citizen expected to respond it in the same way. A corporation would be a good citizen: first by faithful and full payment of taxes; second by the observance of all laws even those with which it disagree; thirdly by going beyond the letter of the law in the matters like pollution, standards of operational product safety, energy and resource conservation; fourth by promoting worthy causes in the locality and the nation through the judicious use of donations; fifth by directly involved itself in social programs such as rural development and community projects.2

Model Social Responsiveness: A Hierarchical Approach There are no standard rules to perform one's social duties or pay an obligation towards wider community. However, one thing is clear that society do not expect community services by corporation at the cost of non-payment of taxes, unfaithful observance of laws and unethical practices.

Hence, researcher underlying a role model for corporations in the path of zenith of Good Corporate Citizenship. Maslow's model of need hierarchy forms the basis of this model. Like Maslow's model as individual moves up in hierarchy satisfying his needs down in hierarchy in the same way society expecting that corporations moves up in hierarchy firstly completing his basic duties down in hierarchy and then move up. The model is as shown in exhibit 1.

The model suggests that a path to zenith start with observance of basic duties that is observance of laws and full and fair payment of taxes. Secondly, by going beyond the letter of law slinking strategy with ethics, institutionalizing ethics. Thirdly, judicious use of donations for social causes. Fourthly; discourse of social responsibility, going beyond philanthropy increasing importance of partnership in social programs and community development projects.

In other words, this model embarked upon a conformance with their basic duties to accepting the partnership in the development of community and the nation. The model also highlights how to seek an active participation of corporations in this process through various means of motivation. The important considerations of this pull strategy are viz. rewards, recognition, concessions, and retrospective amendments through arbitration. However, one may expect, different view, have continued to be expressed on this vitally important issue.

Argument: Business has no social purpose One group of writers, headed by the redoubtable Milton Friedman of the University of Chicago, one of the high priests of "Reaganomics", bluntly states, "The business of business is business"; i.e. Corporations have only one responsibility: the single-minded pursuit of profit. Profit maximization, by the continual increase of efficiency is, according to this group of writers, the most socially responsible way for an industry conduct itself. Friedman argues powerfully that all that society expects from an industry is the production of high volume of

goods at reasonable prices for public consumption and corporations own profits. There profits belong exclusively to the stockholders of the company and, managers have no right to divert any part of them to other so-called "Social" purpose. However, researcher feels this is a very narrow-minded approach. The valid justification of this is put in the forthcoming paragraphs.

Corporate Citizenship - Convergence in Corporate Governance In almost seamless manner good corporate governance is seen to include corporate citizenship and, through an extension of good citizenship - corporate philanthropy. Corporate India seems to have accepted the nexus between the creation of wealth and distribution of wealth. In the same manner that recommended corporate governance practices of yesteryears have been enshrined in statutes.

Defining the key term helps establish the boundaries for the discussion and identify path of argument. Carbury says it is the system by which companies are directed and controlled... or, more specifically, it is "to do with power and accountability: who exercise power, on behalf of whom, how the exercise of power is controlled?” To quote a statement from 'Business Today' on Corporate Governance - "Good Corporate Governance means maximizing long term share holder value but in a legal and ethical manner, ensuring fairness, courtesy and dignity in all transactions within and outside the company with customers, employees, investors, partners, competitors, the government and society". Narayan Murthy the Chairman of Infosys goes one step further when he says "I think what people expect is what is going to drive us from here onwards". 3

Underlying definitions given by these great personalities, we will now see, how move in the path of zenith to Good Corporate Citizenship. Researcher strongly believe that four step principle explained in model would pave the way in this process. The first step in this process is discussed below:

Step 1A: Obligation to Pay Taxes The ethical basis underlying taxation is the implicit contract between citizen (individual or corporate) and the state. There can be no doubt that every government has the right to levy taxes on its citizens. In addition, citizen has a moral obligation to pay just taxes. By not paying one's legitimate share of the states revenue, are not only 'unfair' but also increasing the burden on one's fellow citizen.

Argument: Tax structure needs revision Taxes are reached to unbelievable level. However at this juncture it is necessary to distinguish between 'tax avoidance' and 'tax evasion'. The former cannot be considered as illegal or unethical. Nevertheless, number of corporate citizen adopt a second approach and successfully managed to evade tax. It is well known fact that when taxes are higher, hamper investment an invasion. A meaningful interface is necessary between government and business based on mutual understanding and acceptance of the idea that both are partners in the progress of the nation.

Step 1B: Observance of Laws Various laws govern the businesses. To name the few; The Factories Act, Labor laws, MRTP Act, Pollution Control laws and so on. A society expect strict adherence to the provisions in these laws concerned.

Argument: Laws need retrospective amendments Globalization

and

competitive

scenario

emphasized,

government,

for

its

part,

should

inanimate a new era of co-operation with industry. This leads to retrospective amendments of badly framed laws by the government and red tapeism. At the same time, put control on unfair trade practices adopted by industry. The apex body of Indian industry like FICCI, CII should jointly set up a Board of Arbitration with participation of nominees from government.

Argument: Laws cannot protect society The regulatory laws have their objective to teach industry the lesson that pursuit of its action on others. Regulation is necessary, but a plethora of laws controlling business is an unsatisfactory way of achieving higher standard of behavior. Such laws are expensive and difficult to administer. It may lead to corrupt practices. Moreover, the notion that ethical behavior requires nothing more than compliance with letter of laws.

Step 2: Going Beyond the Letter of the Laws Here moral ethics comes into picture. A good corporate governance demand to go beyond the letter of the laws in matters like pollution, standards of operational and product safety, energy and resource conservation. Ethical behavior is important since government, laws; lawyers cannot do everything to protect society. Technology races ahead much faster than the government can regulate. People in an industry often know the dangers in a particular

technology better than the government regulator who sit at a distance. Also often question is asked whether it is possible to maintain an equitable balance in environmental protection, safety, ecology and business interests. Bayer's initiative in this regard set a unique example to show concern for environment.

Bayer's Initiative Does ecological and business interest go hand-in-hand? Bayer says yes it is. Walter Leidinger, MD, Bayer Environmental Services, admitted that balancing business interests with ecological considerations was a tight ropewalk. But not an impossible task. It involves a voluntary commitment to work toward continuous improvement in healthcare, environmental protection and safety, which in some cases goes beyond legislative requirements.

Through its 'Young Environmental Envoys Programme' in Germany in November 2002 invited four chemical engineering students from Mumbai. In this program 23 young students from South Asia got first hand experience of environment controlled production process ---- a lesson in 'Social Responsibility' on the part of corporate. These students were put through many tests and interviews to judge whether they had a green bend of mind, and rewarded a trip to Bayer's HQs in Leverkusen, Germany. This regularly organized program aims at increasing awareness among youth about air, water and soil pollution management. During the trip students were able to observe Bayer's waste management systems and environment friendly production system is an attempt to balance social responsibility and business interest the right mix of ecological, social and economic value creation, what Bayer terms 'Sustainable Development'. 4 Another approach in this regard is, in business affair decision corporations should accord due recognition and attention to public interest i.e. linking strategy with ethics.

Linking Strategy with Ethics Ethics correspond to basic human needs. Manager knows his business affair decision may affect lives of hundreds, thousands of people. Hence in every strategic action a company should be ethical to each five constituencies i.e. stakeholder, employees, customers, suppliers and the community at large. The community and public interest should be accorded the same recognition and attention as the other four constituencies.5

A company who is serious about ethical and social concerns would do well to institutionalize its ethics. Such institutionalization would require three steps: Drawing up a company policy or code of ethics. Familiarizing

its

all

employees

at

all

the

level

with

code

and

with

the

process of ethical reflection on complex issues through special training program or through special session on ethics in the course of training program. Ensuring

the

implementation

of

the

code

by

means

of

a

formally

designated Ethics Committee of the Board of Director. Example: The Tata Group has evolved a code of conduct to guide each employee on the values, ethics and business principles expected of him or her. This has been done at two levels - one at the level of the company and other at the level of individual.3

Step 3: Judicious Use of Donations for Social Causes Third step in the process is promoting worthy causes in the locality and nation through the judicious use of donations. Industry should participate in the development of community has engaged the thoughts of business thinkers through the years. This best exemplified by the statements of two prominent industrialists in two very different part of globe. Jhon D. Rockefeller says, "Every thoughtful man must concede that the purpose of industry is quite as much the advancement of social well being as the production of wealth". J. R. D. Tata "The wealth generated by the people needs to go back to them in the same measure or more".

Now it is very clear that governments are inadequate to meet all social needs of the community. Business had to step in. Although a company cannot take the role of governmental agencies, but it certainly can supplement the efforts made by the governmental as well as non-governmental organizations through judicious use of donations. Few leading examples are given below:

Education Initiative The Indian Oil Scholarship Scheme is spreading out the light of hundreds of

students

of

economically

and

socially

challenged.

Indian

Oil

supporting the creating of educational facilities at significant number of schools.6

is

also

K. C. Mahindra Education Trust established in 1953 by the late K. C. Mahindra, Mahindra

and

Mahindra

is

the

main

sponsor.

In

1996

trust

started

an

ambitions program aimed at helping the under-privileged girl child in India. The

program

is

implemented

with

the

help

of

several

non-governmental

organizations (NGOs) and voluntary agencies.7

Healthcare Initiatives Reliance carried out healthcare social services work in villages adjoining its Jamnagar and Hazira complexes, to improve the quality of life of people. Some of activities at Jamnagar were blood donation camps, regular health camps, and mobile dispensary services.8 HLL Project Karunashraya - centre for terminally ill patients beyond medical intervention. Started by Rotary Club of Banglore, the project is managed by committee under patronage of Governor of Karnataka state centre providing home and care, free of cost for 120 terminally ill patients.9

Step 4: Involvement in Social Programs & Community Projects The fourth step as explained in social responsiveness model is involvement of corporation in social programs and community development projects. The society expects wide range of activities/contribution from corporations (chiefly the large and powerful one) aimed at well being of society. Activities, which are sole domain of state, now expected to perform by corporations also. Corporations have a pool of talent and expertise at their disposal should be put to public use. But there is need to professionalize the way in which it invests in the wider community, viz; ♦ Moving from one-off cash donations to community organizations. ♦ More innovative and leveraged funding mechanism. ♦ Giving in kind support, particularly mobilizing the core competencies of the company. ♦ Moving from one-way philanthropy to mutual beneficial relationships. ♦ Moving from a reactive fonder to active problem solver. This emphasizes the importance of concept of the business-social partnership. A very good example is Tata Iron and Steel Rural Development Society in India (TSRDS) established by

Tata in late 1970's. It function as an NGO, whose purpose is to funds on education and literacy, health and medical activities, agriculture and irrigation, drinking water, vocational training, etc.5

HLL has set up a soap factory in Orai in Jalum district of UP. It is a very backward region where malnutrition and diseases are widespread amongst villagers and poverty is rampant. This establishment started a various project aimed at various community development. Five villages have been covered so far where education and medical intervention have resulted in sharp drop in infant mortality. Lessons on mushroom cultivation and animal husbandry have helped the villagers in generating additional income. A formal education program has been started involving primary schools for and also adult literacy through Adult Literacy Centers in the villages.9

Argument: Ethical and social concern are often seen as a luxury that can be indulged in by highly profitable company The experience of Tata Refractoriness shows the contrary. IPITATA Refractoriness in 1982. In first three years IRL suffered a heavy loss. In 1985, K. S. Swami Nathan, took charge as the Managing Director.

During his tenure the perceived ethical attitude towards all those concern help an aligning enterprise to get back on its feet, become profitable and even assume leadership. TRL has achieved the number one position both in quality and quantity in 1990-91.

The doubling of turnover in about three years is primarily due to certain corporate ethical practices; 1. Its concern for the employees, and their quality of life. 2. Its concern for customers and suppliers. 3. Its concern for the community around the factory.10 Another example in this context is of IBM. A social accounting report was being made public in the UK and IBM was hosting the event. Interestingly two days before the event, the newspapers reported that the largest loss in business history had been made by IBM that year and the share prices chasing down. A reporter asked IBM chairman how he could be making a big thing about social responsibility when he had made a loss. The chairman said, "In IBM we do not say that we will be socially responsible only if we make a profit. In my financial

budgeting exercise for the next year, I have budgeted for my social responsibilities irrespective of profit or loss. I will make a profit and I will make it in a socially responsible way".11

Conclusion All industries are basically public in nature, corporations particularly

large

one,

and holds enormous social powers over the lives of people many times over the entire nation. Every action of such a corporation has an impact on the wealth and general welfare of thousands, and sometimes, millions of people. The social responsibility of a business is a contentious subject. It must be understood as extending for beyond voluntary and philanthropic activity, and revolve around ethical rather than legalistic behavior. To maximize positive impact on society and minimize negative impact. The company shall continue to have among its objectives the promotion and growth of the national economy through increased productivity, effective utilization of material. The company shall continue to be mindful of its social and moral responsibilities to consumers, employees, shareholder, supplier, society and the local community. Corporations should attain a wide range of goals through its social programs. They are expected to support education, culture; develop villages and other poor areas; combat racial and religious prejudices. Also put serious thought to check pollution, maintain ecology and help out in natural disaster. Those responsible for the choice of technology for a society must weigh the social, cultural, environmental pros and cons. Here corporations have to keep an ethical attitude. It is admitted that balancing business interests with ecological considerations, a tight ropewalk, but not an impossible task. To keep its commitment of clean and green environment, sometimes one should goes beyond legalistic requirements. Ethics and social responsibility are often used synonymously. Ethics are more moral responsiveness rather than legalistic in nature. The 'subh-labh' could provide basis to this i.e. welcome the 'right kind of profit'. The four-way test of the Rotary International can also be used as model to decide whether decision is wrong or right. Is it the truth? Is it fair to all concerned? Will it build goodwill and better friendship? Will it be beneficial to all concerned?

It is well known fact that higher taxes lead to tax evasion. Tax rates are considerably high in India. It is now realized that government should take a new view of taxation. Government, for its part, should extend cooperation to corporates. Also Board of Arbitration should be set up, comprising of representatives from Government and apex bodies of industry. Also retrospective amendments are due for law governing Indian industry. Laws should be clear and unambiguous at the same time reduce red tapeism. Board of arbitration should also be used for amendments of badly framed laws. Corporations chiefly large and powerful one is expected perform the activities, which are earlier sole domain of state. Also they should professionalize in the services extend to wider community. A tale nt, an expertise and money power that at their disposal should also be use for projects aimed at social welfare and community development projects. Corporates should realize that organizational growth imperative with development of the society and community at large. Corporates like Reliance, HLL, Mahindra ... realized this long back and undertaken various social welfare and philanthropic initiatives at their own and also through various governmental and non-governmental organizations.

Social concern

Audit: should

Companies conduct

that the

are 'Social

serious Audit'

about on

ethical

periodical

and

social

basis.

Audit

conducted by outside agencies evaluate company's operations from the standpoint of ethical and social responsibility. Example: The Tata Iron and Steel Company instituted such an audit in 1982 and published the results in the form of a booklet made available to the employees to any other person who wanted it. What's more, the management has since then paid serious attention to the lacunae pointed out by the audit report and progress registered is visible. A second such audit was conducted in 1992. Lastly to sum up a quote from N. Balasubramanianh, Chief Editor, Management Review, "If you play a game by the rules and still win, that's where your ability comes in. Include social responsibility among the rules of the game, and with try and win".

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N. Balasubramanian and David Kimbe, "Corporate Social Responsibility Governance,

Reputation

and

Corporate

Competitive

Credibility",

Management Review, Vol. 12 No. 2, June 2000. 2.

T. A. Mathias, "Profits or People: Business and Society", Edited Vol., TA Mathias 'Corporate

Ethics',

Allied

Publishers

Ltd.,

New

Delhi,

in

Corporate

The

Economic

1994. 3.

Vikram

Rajaram,

"Corporate

Citizenship

-

Convergence

favourite

color",

Governance", Management Review, Vol. 12 No. 2, June 2000. 4.

Keshav

Patankar,

"Green

is

my

Times, December 10th, 2002. 5.

S.

S.

Gupta,

"Business

-

Social

Partnership",

Productivity,

Vol.

41

No. 4, January-March, 2001. 6.

www.indian oil corporation news.htm

7.

www.social_marketing.htm

8.

www.reliance.com

9.

www.hll.com

10.

K. S. Swaminathan, "A sick company and its social responsibilities: The care IPITATA Refractoriness", Edited Vol. T. A. Mathias 'Corporate Ethics', Allied Publishers Ltd., New Delhi, 1994

11.

Kishore Rao, "Social Accounting and Reporting", Management Review, Vol. 12 No. 2, June 2000.