Csr 1

Corporate social responsibility

• Although corporations are primarily

business organisations , run for the benefit of shareholders ,they have wide ranging set of responsibilities– to their own employees, to customers and suppliers ,to the communities in which they are located and to society at large.

• Most organisations recognise these

responsibilities and make serous efforts to fulfill them.

• The concept of CSR originated in the

1950’s , when American corporations rapidly increased in size and power.

• During 1960’s and 1970’s the concept was publicly debated as the nation confronted pressing social problems such as poverty, unemployment, race relations ,urban blight and pollution.

• CSR became a rallying cry for diverse group demanding change in American business.

• Turn of the 20th century corporations came under attack for being too big and powerful Curbs on their power began with antitrust and consumer protection laws .

• Farsighted industrialists (e.g. Andrew

Carnegie) started philanthropic efforts aimed at educational and cultural institutions .

• • Others (e.g. Henry Ford) started

paternalistic programs to support employee social and health needs .

• View that business leaders had a

responsibility that went beyond just making a profit became more widespread, called the “Charity Principle.

Definition of the concept • It is often expressed as the voluntary

assumption of responsibilities that go beyond the purely economic and legal responsibilities of business firms.

• It implies corporate willingness to forgo certain measure of profit in order to achieve noneconomic ends.

• Corporate social responsibility can thus be

defined as “ bringing corporate behavior up to a level where it is congruent with prevailing social norms ,values and performance. • According to A B Carroll CSR refers to “additional behaviors and activities that are not necessarily codified into law but nevertheless are expected of business by society’s members .

Examples of social responsibilities • Choosing to operate on a ethical level

that is higher than what the law requires. • Making contributions to civic and charitable organisations and non profit institutions. • Providing benefits for employees and improving the quality of life in the work place beyond economic and legal requirement.

• Taking advantage of economic

opportunity that is judged to be less profitable but more socially desirable than some alternatives.

• Using corporate resources to operate a program that addresses some major social problem.

Debate over social responsibility

• In the classical view ,corporations

should engage in purely economic activity and be judged in purely economic terms. Social concerns are not unimportant , but they should be left to other institutions.

• The moral minimum of the market- the

business has only one responsibility and that is ‘ to obey the elementary canons of every day face to face civility (honesty good faith and so on) .

• The moral minimum of the market

also includes the obligation to engage in business without inflicting injury on others . thus , corporations in a free markets have an obligation not to pollute the environment and to clean up any pollution they cause.

• Giving a helping hand to government – the classical view assumes that business is best suited to provide for the economic well bieng of the members of a society ,wheras noneconomic goals are best left to government and other noneconomic institutions of society.

• However, the issues raised by the debate

over corporate social responsibility on the classical view is only part of the larger controversy over the governance of modern corporation .

• Who should control a corporation ? Whose interest should the corporation serve ? To these question of CG we now turn.

CORPORATE GOVERNANCE

• A corporation brings together many

different groups – most notably managers , employees , suppliers , customers and of course ,investors – for the purpose of conducting business .

• Because these various corporate

constituencies have different sometimes conflicting interests , the question arises : In whose interest the corporate be run

• whether corporations ought to serve the interest of the shareholders alone or the interest of wider range of constituencies depends on the theory of the firm we accept as mentioned below :

• Property rights theory. • Social institution theory. • Contractual theory .

• Is the corporation the private property of the stock holders who choose to do the business in the corporate form , or is the corporation public institution sanctioned by the state for some social good.

• In the former view ,which may be called the property right theory . The latter view-may be called as social institution theory.

• A third view is the contractual theory

of the firm. • In a contractual theory, share holders , along with other investors , employees , and the like , each own assets that they make available to the firm. • Thus , the firm results from the property rights and right of contract of every corporate constituency and not from those of shareholders alone.

The Contractual Theory

• The origin of the contractual theory is the work of Ronald Coase.

• On a Coasean view, the firm is a market writ small

in which parties with economic assets contract with firms to deploy these assets more productively.

• The reason for deploying assets in a

firm instead of the market is to realize the benefits of team production through the reduction of transaction costs; but insofar as assets are firm-specific, their holders will demand certain conditions for their participation.

• Investors , employees , suppliers ,

customers and other groups make their assets available to a firm only with adequate safe guards against misappropriation. • That each group will seek guarantees to ensure that they are adequately compensated for any assets that cannot be easily removed from joint productive activity.

• Most groups protect themselves by

means of contacts . • Thus ,employees are often protected by employment contacts ,suppliers by purchase contacts , consumers by warranties , and so on. • The contacts with most corporate constituencies are relatively unproblematical , but one group raises special problems namely share holders.

• In the financial articulation of the

contractual theory, shareholders become residual risk bearers; that is, they provide capital to a corporation in return for a claim on residual assets. • According to finance theory, shareholders are better suited than other constituencies to bear residual risk because of limited liability and the opportunity to diversify.

• Finance theory holds that wealth

maximizing decisions are more likely to be made by residual claimants, since they bear the marginal costs and gain the marginal benefits of all new ventures.

• Thus, in the financial articulation of the

firm, the interests of all constituencies are best served by making the shareholders' interests the objective of the firm

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